$42 and a Dream 💄

Sheila here! As a bona fide Xennial, I didn't enter a Sephora until I was in college. So like any sane person, when I first heard of "Sephora kids," I figured it was just another sign of living in the end times, and there was NO WAY my daughter would be among them. Ha! Jokes on me. Just like trying to avoid screens and Happy Meals, the only way to do it is to move to an isolated homestead and become a tradparent. I churned butter once, and that was enough. All this is to say, I'm not condoning the use of firming under-eye serums by children -- I'm just trying to survive an 11 year old thankyouverymuch.

Last month, my sister and I had the distinct pleasure of taking our girls – ages 11, 10, and 6 – to Sephora. On a Saturday. At 4pm. These last two details are irrelevant to my story, but I’m trying to set the scene here.

In walking up to the store from the parking lot, my sister (a mental health professional and exceptional mother) gave her girls a clear budget – $42 each, before tax. Firm. 

The store was, as expected, a zoo, but the girls were undeterred. They charged in and got down to business; lip balms, perfume rollers, eye creams…everything was a possibility.

Through the chaos, I saw my niece Amelia, the 10-year-old, IN THE ZONE. She was laser focused – swapping a lip gloss with bronzer, adding one - no, two! – undereye patches, now swapping the bronzer for a facial mist. It was ten minutes of wheeling and dealing, all in service of leaving the store with the BEST and MOST she could get for $42.

She settled on the two eye patches for $4 each, a liquid highlighter for $16, and a facial mist for $18. That girl spent every last dollar and walked away happy. 

In watching her flying around the store, doing A LOT of math in her head and aloud, and trying to figure out every which-a-way she could optimize her budget, I was transfixed. She reminded me of so many aspiring retailers we meet – highly motivated hustlers, convinced they can open their business within their constrained budget and not interested in being told otherwise.

Opening a business, however, is a lot more serious than going to Sephora, and my sister’s not footing the bill. 

💄

Everyone who intends to open a retail business knows that there’s a big investment up front, and they know they’ve got limits on how much they can personally spend. Try as they might, it’s impossible for the aspiring business owner to research their start-up costs objectively; the “fact-finding” is inherently filtered and influenced by two lenses: 

🔎 I want to do this.

🔎 I can do this.

And these lenses explain why in five+ years of reviewing startup budgets, no one has ever, EVER, overestimated. And very few have even come close to a realistic number on their own.

One factor is that first-timers rarely know allll of the expenses they’ll encounter on the road to opening. But even if they did, they’d still underestimate the amount. 

They are not dumb or naive or lazy. They are human, and their brains are functioning exactly as they are supposed to. So please join me, a self-credentialed psychologist*, as we dig into the specifics.   

🔎 Lens #1 — We approach the question with a pre-determined goal in mind. I want to do this. 

🧠 Motivated reasoning

We unconsciously research and interpret information in ways that support the conclusion we want to be true — namely, “I want the answers to support my plan to open this store.” We aren’t evaluating costs neutrally; we’re filtering reality through our desire to realize our goal. When we’re spending time researching startup costs, we’re doing it because we’re motivated to move the project forward. We literally want the numbers to clear a path forward. 

🧠 Identity-protective cognition

People who set out to open retail businesses tend to have a decent sense of self-esteem (or else how would they be able to be so vulnerable to the general public?), so admitting that opening costs may be beyond their reach can threaten their self-image. “I’m smart and capable,” can rapidly spiral into “I’m lame and poor,” which is very sad. So our ride-or-die brain protects our identity by constructing a version of reality that fits the image of who we believe we are and what we think we should be able to achieve.

🧠 Optimism bias & survivorship bias

As evidenced by my sister’s current home renovation, we naturally assume things will go smoother, cheaper, and faster for us than is statistically likely. We never expect problem A or delay B, because they are unexpected, and when we’re on a budget, it feels like we can’t afford to plan for them. At the same time, we’re influenced by visible success stories set to trending audio, while the many shuttered or underfunded businesses that never got off the ground are invisible to us.

🔎 Lens #2 — We look for the answers that make our goal feel possible. I can do this.

🧠 Constraint-based forecasting 

Instead of estimating what a project objectively costs, we unconsciously start with what we could possibly access financially, then build a budget backward from that constraint. The budget becomes a reflection of affordability, not reality. Someone with access to $900k and someone else with access to $90k will come up with very different startup estimates for the exact same business. I know this sounds ridiculous, like, Sheila, I’d never do that! But here’s how I know it’s true — in five+ years of reviewing startup budgets, no one has ever, EVER, said to us, "Here’s the budget. I can’t afford it." 

🧠 Anchoring

It turns out that an early number — often emotionally driven — becomes our reference point for all later thinking. Once someone sees some dumb TikTok about how easy it is to open a vegan ice cream day spa for $50k, all subsequent research gets unconsciously adjusted to support or stay near that number. Anchoring is why you’ll find a $36 glass of Pinot Noir on the menu. Does the restaurant expect you to order it? Probably not, but it sure does make it easier to sell you a $22 glass.

😏

Now, it’s natural to be judge-y here. I myself am a self-appointed judge, so I get it, but if people had perfect perception and only made perfectly rational decisions, a whole lot of very cool and very successful businesses would never have come into being.

Just as these biases of motivated cognition are true, so is the fact that all successful businesses require a tremendous amount of delusional optimism…especially at the beginning. 

Ultimately, too little optimism leads to paralysis, and too much leads to undercapitalization — the #1 killer of retail businesses.

So the trick is finding the balance, and that’s exactly what we do with all Pedal Retailers. Whether they’re opening their first or third location, our job is to temper optimism with “real talk, always” and to fan its flames by insisting that “where there’s a will, there’s a way.” 

*Okay, you’re right. I’m not a psychologist, but these are real concepts developed by smart people with “Yale” and “Princeton” in their bios:
https://informalscience.org/identity/Dan-Kahan/
https://kahneman.scholar.princeton.edu/publications
https://www.sciencedirect.com/science/chapter/bookseries/abs/pii/S0065260110430014
https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.30.3.133