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Value Added: Building businesses, young entrepreneur gets an education

By Thomas Heath
Monday, June 14, 2010; A12

Most entrepreneurs I write about move at very high speed and have a talent for recognizing moneymaking opportunities. Some are big thinkers who see strategic possibilities in places like the online world. Some are nuts-and-bolts small-business types who can spot or create a good little moneymaker.

I knew Kris Hart, 27, was one of the nuts-and-bolts guys when he told me about his search to find a home for his first business, a Foggy Bottom tanning salon.

Hart and his then business partner would leave George Washington University and walk down F Street, then across 17th Street, back up Connecticut, and across K Street. They charted the neighborhood, systematically covering every street and corner.

"Every single place where we saw some space for lease, we would take down the information, call them up and see if they would talk to us," said Hart.

Thirty-five locations turned him down. The 36th -- at 2112 F St. NW -- didn't.

The property was owned by King Street Properties. Hart called the principal and made an appointment to visit him at his restaurant on Duke Street in Alexandria.

"He looked at us and said, 'When I was 22 and started my own business, I wanted a shot.' And he said he would give us a shot. He believed in us when no one else did."

Hart and his partner signed the lease, renting 1,334 square feet for $3,600 a month, and a business was born. More than four years later, he is owner and chief executive of Hart Strategic Enterprises, a 54-employee holding company that includes Relaxed Spa & Tans and Foggy Bottom Grocery, a 64-year-old landmark he reopened March 27 after buying it for $250,000.

He expects the three businesses to gross more than $2 million this year, expecting -- or at least hoping for -- a 17 percent profit margin.

Hart is a shoe-leather entrepreneur. He keeps what he calls a "concept" file of businesses he dreams of starting, which currently include a pizzeria, cafeteria and bar. Then he has his "opportunities" list of possible locations for these businesses.

"I always have three business ideas on the back burner," he said.

Hart, the son of a FedEx deliveryman from Philadelphia, came to Washington a decade ago to study political science at GWU. He quit in 2005 and started writing business plans. He wrote 19 plans, including for a consulting firm, a party bus and a sports bar.

When a fraternity brother suggested he look into opening a tanning salon, Hart began exploring. He went online and found a North Carolina company that sold tanning beds. His research told him that operational costs would be low once the initial capital investment -- the beds -- was made.

Hart had no assets, but he cobbled together his $220,000 start-up costs through Small Business Administration loans, family, friends and investors. His partner, a fellow GWU student, put in a $12,000 investment. Hart's father co-signed his loans, and Relaxed Tans opened in March 2006.

They worked like mad. Hart ran the business from 9 a.m. to 3 p.m., then headed out the door for an evening job waiting tables while his business partner took over. Hart came back late at night to square that day's records and make sure the salon was ready for the next morning.

He and his partner had signed an agreement that split the company 50-50, which Hart said was his first mistake. "Somebody needs to be the captain," he said. "We started getting different ideas. We started disagreeing on things." Hart eventually bought out his partner for $70,000.

He made another mistake in timing: failing to calculate what it would take to stay open through the summer, when the student population leaves and many customers go on vacation. He also didn't know how to market to the thousands of interns and students who arrived on the GWU campus for the summer. One solution: He teamed up with a big national printing company to blanket Capitol Hill offices with his business cards.

The first year the tanning salon earned a $10,000 profit on $175,000 in revenue. A big cost was an onerous lease Hart had signed with a finance company to buy his seven tanning beds. That saddled him with $4,400 monthly payments for three years, but he now owns the beds free and clear, creating a high-margin business.

"Once you have the beds, you push the button and make money," he said.

So who goes?

Nearly three-quarters of his clients are women, many of whom are young professionals who subscribe to various plans and pay by credit card. Those subscribers, some of whom come in four or five times a week, are his most reliable customer base. The busiest day? Thursday, with up to 270 12- or 15-minute visits to tan up for the weekend. The slowest? Sunday.

Two years ago, his landlord offered more space in the same building, and Hart opened his Relaxed Spa in May 2008. The spa's first year was difficult, as a slow summer caused his best technicians, who depend on tips and commissions, to leave. He eventually found a spa consultant on Craigslist who helped him hire better people and find better products, which in turn brought in more customers.

The spa is not yet turning a profit, but it is close.

Hart heard the Foggy Bottom Grocery was coming on the market last year. Hart already knew several things about the location, which is at the edge of campus in a dense residential area. His analysis told him 12,000 people, including students in on-campus housing, lived within a 0.7-mile radius. The next closest grocery was five blocks away. The 800-square-foot, one-floor store had room to expand to more than twice that size, taking up three floors.

"It's an incredible location and was underutilized. I love to buy things that have great opportunities that have not been seized on."

With help from the university, Hart and his two fellow owners invested $340,000 to renovate and expand FoBoGro. The grocery store business tends to be high-volume and low-margin, which usually suits big chains more than the small independents. But FoBoGro is different. Its convenience to students and the rest of the neighborhood gives it more pricing power. Hart has it all mapped out on spreadsheets. The grocery should account for 42 percent of his revenue, the sandwich shop (also on FoBoGro's premises) 38 percent, and the tanning salon and the spa 10 percent each.

Hart said he pays himself around $48,000 a year. He is rolling any profits into his next venture.

And what will that be?

"The best opportunity that comes in front of me is the next big thing."

Follow me on Twitter at addedvalueth.

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