HIRSCHONOMICS: Why is it so hard to run a student business at Shalhevet?

By Sam Hirschhorn & Zack Hirschhorn, Staff Columnists

This year, the major student-run businesses at Shalhevet are bagels, pancakes and the Student Store.

Last year, the major student businesses were bagels, pancakes, and the Student Store.

Two years ago, the major business are bagels,  pancakes, and the Student Store (shocking, we know).

Our freshman year there was slightly more diversity, with Snacks On The Go supplementing bagels and pancakes, and the Student Store out of commision due to Shalhevet being at the JCC.

This leads us to an obvious question: Why are there so few successful businesses at Shalhevet? Why are the successful ones so similar, year after year? And what has made  those businesses succeed, while others fail?

First, let’s try to answer the first question: why do businesses at Shalhevet fail? The biggest reason is that they have low profit margins — the amount by which revenue exceeds costs — combined with an extreme amount of effort and commitment required to stay afloat.

Low profit margins at Shalhevet are a result of three major factors: lack of economies of scale, high fixed costs, and the price set by large companies outside Shalhevet that can afford those low profit margins due to their high volume of sales.

When companies become larger, they begin to achieve something called economy of scale, which allows them to produce their product at a lower cost. Such economies include buying in bulk and specialization. Because businesses at Shalhevet are usually run by just a couple of people, they don’t have the size to keep their expenditures low.

Secondly, the largest initial cost in starting a business is the fixed cost of buying equipment, like toaster for the bagel business and griddles for the pancake business. Since the profit margin is already low, this initial fixed cost provides another barrier to entry and makes profit even slimmer, as now the founders have to pay off their initial investment. This is one of the reasons that businesses which survive their first year tend to stay alive the next year — they don’t need to reinvest in new equipment, so their profit will be larger.

Lastly, the price these businesses charge needs to be relatively low, or Shalhevet students will no longer buy their products. Although Shalhevet businesses can charge more for convenience — students don’t need to leave campus or bring food from home — they still need to charge something like the general accepted price for that item. This price is set by large corporations (outside Shalhevet), which can afford to set the price low, as their large volume (and resulting economies of scale) offsets the low profit margin.

While Shalhevet businesses’ small profit margins might seem annoying in a vacuum, imagine how difficult they must get when compared to the effort required to start a school business and keep it running.

Student entrepreneurs must sell during every breakfast or alienate customers who want consistent service, because consumers need to know whether to bring food from home. Selling during breakfast also requires business owners to wake up early every day to go to Hashkama minyan, so they can be free to sell during the breakfast period. This disqualifies those who are in AGS or who need that period to desperately do math homework or cram for a quiz next period (like us).

When faced with the prospect of waking up early, working hard for an hour every morning, and missing a free period, most people simply don’t have the drive – especially since the money isn’t that great.

Lastly, psychology might also explain why new businesses find it hard to succeed at Shalhevet. Status quo bias, also know as consumer inertia in economics, is a physcological phenomenon that explains why people are resistant to change. This means that even when change would be beneficial, people still stick with what they know.

Although switching what business you buy from is pretty easy, this phenomenon could also help explain why businesses at Shalhevet stay so consistent: people get used to them and do not want to switch.

But if it’s so impossible to create a business at Shalhevet, then how do some of them succeed?

First of all, these businesses are all focused on food, which is something that is time-specific — that is, one cannot buy it later that night, like a pencil or a notebook — and competition is otherwise limited for most students, because only seniors and second-semester juniors have off-campus privileges and can buy food at Starbucks, for example.

Secondly, all the existing businesses have low monetary input costs and require little preparation. On the other hand, smoothies — an example of a failed business — require relatively expensive (and perishable) fruit and are much more difficult to make than spreading cream cheese on a bagel or giving someone a bag of chips.

Most importantly, though, the successful students are willing to put in the work, even if the profit margin is small. And eventually, if they stick for it long enough, they can make real money.

This year, we have the same three businesses at Shalhevet that we had last year, and next year we will probably still have those same businesses again (in case you didn’t get it, starting a business is hard). But that’s perfectly okay. It’s the free market at it’s finest – and the breakfast is pretty solid too.