Chapter 1

Spice Store

This is a chapter about spice. There are many different kinds of spice, some more valuable than others. What is the value of a particular kind?

How can we measure the value of a spice? We could ask people how much they would pay for it. But there is no guarantee that what they would say they would pay is what they actually would pay. Even if they are telling the truth, their guesses may be off because people are bad at estimating their preferences in advance. The best solution is to try to sell the spice and see how much money people actually will pay.

So we decide to set up an experiment where we take the spice to the market and sell it to see how much money people will give us for it.

But here is another problem: maybe our particular sample of spice isn’t typical of what people really like. We have only one sample, but this one may not be representative of all the other types of spice out there. This is a common problem when you are working with just one sample: even if you do everything right in your experiment, your results might not apply to anything other than your sample.

The best way to get around this problem is to have multiple samples of spice and sell those instead. So

This is a long, boring-sounding chapter, but please read it anyway. I can’t write about the important details of starting a company without starting with the basics.

The first basic is making something people want: if you don’t, it won’t matter how good your PR is or how much money you raise. That’s obvious and yet so few companies start there.

The second basic is to make sure you actually have a company. A company isn’t just a group of people working together on something; it’s a group of people working together on something specific. If you’re not working on something that can actually be defined, you don’t have a startup yet; you have an interest in starting one.

You want to open a spice store. The first thing you will need is spices. Since spices are expensive, you will probably need a loan to buy your initial inventory. You can’t afford to pay for them yourself, and no one will give you a loan unless you can convince them that the store will succeed.

You need some ingredients to make the plan convincing:

1) A list of all the spices you plan to sell

2) An estimate of how much each spice costs

3) An estimate of how much people will pay for each spice

4) An estimate of how many people there are who want each kind of spice

5) An estimate of the number of competing spice stores in the area

6) A business plan detailing what you plan to do with the money and how soon you can pay it back, including an itemized budget for expenses such as rent, electricity, advertising, and so on.

7) A resume showing that you have some experience in retailing or at least running a small business

It’s hard to sell chemicals, because there are so many of them. You can’t possibly tell your customers about all the ones you have; that would take forever. So you have to choose which ones to write up, and leave the rest to their imagination.

To make this easier, I’ve divided our stock into categories, with a few examples of what you can do with each one.

One class is things you can add to food to make it taste better. The best known member of this group is salt, but we also have pepper, mustard, nutmeg and cinnamon. A more exotic one is saffron; a little goes a long way, and it’s good in rice. We also have some that are good not in food but on it: honey, molasses and maple syrup.

Another class is things that give off fumes that smell nice. Some of these are liquid at room temperature–most famously vanilla–but we also have cloves and lavender flowers. And then there are the incenses: frankincense, myrrh and aloes wood. These don’t smell very good by themselves; they’re too strong for that. But if you burn them on charcoal they produce an excellent scent for your house or clothes closet.

Spices are hard to classify. They don’t fit well into the neat categories that people want. You can’t put them on a flowchart, or describe them with a simple recipe. But I’ve found that if you look at spices in terms of flavors, you can sort them into groups by how they act in cooking.

There are two kinds of flavor: aromatic, and spicy hot. Aromatic flavors are more complicated; spicy hot is simpler. And there’s a special kind of spice that contains both kinds of flavor: curry powder.

I draw my line between the aromatic spices, and the spices that are spicy hot. The aromatic spices include cinnamon, cloves, ginger, nutmeg, allspice, mace, cardamom, aniseed, fennel seed and star anise. (I’m not counting vanilla here; it’s not a seed or a bark.) The hot spices include black pepper (and white pepper), chillies (including paprika), and mustard seed.

Start with a list of the ingredients you want to sell. It’s easiest if they’re all roughly the same price, so you can just use price per ounce as your unit of measure.

Next decide how much space you have, and put a dollar value on it. Use this to decide how much to charge for each spice.

Now choose some initial prices. Since you don’t have any customers yet, you can set them based on what seems right, or what most other stores charge. You probably won’t get it quite right. If your store has more customers than shelf space, you’ll want to raise prices; if it has more shelf space than customers, lower them. But that’s OK; you’ll make adjustments later on the basis of actual experience.

Once upon a time there was a little spice shop in Vienna, owned by Franz Deernose. One day while the young Franz was working at his shop, an old lady came in. “Good morning,” said the old lady. “I’d like to buy some pepper.”

“Certainly,” said Franz. “How much would you like?”

The old lady appeared to think for a moment and then said, “Oh, a bit. Give me a kilo.”

Franz went over to a shelf and took down a bag of pepper and measured out one kilogram. He put it on the scale and said, “That’ll be 15 florins.”

The old lady took out her purse and counted out 15 florins, which she handed to Franz. Then she turned and left the shop without saying another word.

Franz watched her go with a puzzled look on his face. Then he went over to the till where he had put the money, opened it up, and counted out 15 florins exactly.

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