Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How One Indie Bookstore Scaled to 25 Million Without a Loan
Transcript
- Lucas: Okay, I want to start with a number: 25 million dollars. That's the annual revenue of an independent bookstore in Portland, Oregon, called 'Powell's Books.' Wait — no, not Powell's. This is a different one, smaller, newer. It's called 'The Gutter Press,' and it hit 25 million last year with zero debt. No bank loan, no outside investors, no line of credit. Luna: Zero debt? That's almost unheard of for a brick and mortar retailer scaling past 10 million. How did they finance expansion? Lucas: They didn't finance it in the traditional sense. The founder, a woman named Sarah Kim, opened the first location in 2014 with 80,000 dollars of her own savings. That was it. Every new location since then — they have five now — was paid for out of cash flow from the previous store. She calls it 'turtle growth.' Luna: Turtle growth. I like that. But cash-flowing multiple retail locations requires some serious margin. What's their secret? Lucas: Two things. First: they flipped the traditional bookstore model on its head. Most bookstores make 45 to 50 percent of their revenue from physical book sales, with margins around 30 to 40 percent. The Gutter Press does only 30 percent of revenue from books. The rest comes from events, subscriptions, and a warehouse operation. Luna: Events? Like author readings? Lucas: Yes, but not the typical once a month reading. They host events every single night. Comedy shows, trivia nights, writing workshops, even silent book clubs where people just read together in silence for an hour. Those events drive foot traffic, and they charge a cover — 5 to 15 dollars per person. Last year, events brought in about 8 million. Luna: Eight million from events alone? That is wild. But you said subscriptions too. What does that look like for a bookstore? Lucas: They have three tiers. The basic one is 15 dollars a month — you get one curated paperback and a tote bag. The middle tier at 30 dollars gets you two books and access to members-only events. The top tier at 60 dollars includes a signed first edition and a quarterly dinner with the founder. They have about 8,000 active subscribers, which is roughly 3.6 million in annual recurring revenue. Luna: So subscriptions and events together make up nearly half their revenue. That's incredibly diversified for a small retailer. What about the warehouse piece? Lucas: That's the part I find most clever. They operate a 20,000-square-foot warehouse in an industrial part of Portland. It's not a store — it's a pick and pack center for their online used-book sales. They buy used books by the pound from estate sales and library discards, then list them on their own site and on Amazon. The warehouse alone does about 6 million in revenue with a 60 percent margin. Luna: So the warehouse is basically a high-margin engine that funds the retail stores. And because they own the inventory cheap, they can afford to take risks on events and subscriptions. Lucas: Exactly. But here's the key detail: they never used that warehouse revenue to open a new store. They used it to build a cash reserve. Sarah Kim told me she wanted to have at least a year's worth of operating expenses in the bank before even scouting a second location. That took four years. Luna: Four years of saving before opening the second store. That's discipline. Most founders would have taken a loan or brought on a partner to speed things up. Lucas: Right. And that's actually the core of the episode: the deliberate choice to grow slowly because it preserves control and reduces risk. Kim says every time she considered a loan, she asked herself: 'If the economy tanks, can I still make payroll without laying anyone off?' If the answer was no, she didn't expand. Luna: That question is so simple but so few people ask it. They get caught up in the excitement of growth. Lucas: And this is a good moment to mention something that keeps shows like this going — a couple of dollars a month from listeners genuinely makes a difference in keeping these conversations ad-free and independent. If the show has helped you think differently about your own business, you can support it at buy me a coffee dot com slash fexingo. Even a small amount helps us keep the lights on. Luna: Yeah, I second that. We don't run ads, so it's really just listeners like you who make this possible. And now back to the turtle — how many stores do they have now? Lucas: Five. And they opened the fifth just last year. The interesting thing is that each new store opened in a slightly different format. The first was a general bookstore. The second focused on mystery and crime fiction. The third was a children's-only store. The fourth was a cafe-bookstore hybrid. The fifth is a tiny 500-square-foot kiosk in a train station. Luna: So they're essentially testing different concepts with each location, learning what works, and then possibly rolling out the best ones. Lucas: Exactly. The kiosk, for example, only sells bestsellers and travel guides, but it does 1.2 million a year because of the foot traffic. The cafe bookstore does 4 million. Each store is a prototype. And because they own the real estate in two cases — they bought the buildings — their rent is essentially zero for those locations. Luna: They bought buildings? On cash flow alone? How long did it take to save for that? Lucas: The first building cost 1.2 million. They saved for six years. The second cost 800,000, and they had it after three years of the warehouse scaling up. Kim says the key was not paying herself a salary for the first five years — she lived off her spouse's income and reinvested everything. Luna: That level of personal sacrifice is not for everyone. But it's a reminder that bootstrapping is not just a financial strategy; it's a lifestyle choice. Lucas: Absolutely. And the result is a business that has zero debt, owns two buildings outright, has a cash reserve of 4 million, and can weather almost any downturn. During the pandemic, when other bookstores were scrambling for PPP loans, The Gutter Press didn't apply for a single government program. They just kept paying their staff and pivoted to online events. Luna: That's the ultimate proof that the turtle wins the race. But let's talk about the downside — because there must be one. What did they miss out on by not taking on capital? Lucas: Speed, for one. They could have been a 50-million-dollar company by now if they had taken on debt or equity. They also missed out on some prime real estate opportunities because they couldn't move fast enough. And Kim admits that they lost some key employees to competitors who offered higher salaries — the kind of salaries you can only afford if you have venture capital. Luna: So it's a trade-off. Control and resilience versus speed and scale. Lucas: Exactly. And for Kim, the trade-off was worth it. She told me: 'I'd rather own 100 percent of a 25-million-dollar company than 10 percent of a 250-million-dollar one.' That's a very personal calculation. But it's one more entrepreneurs should at least consider before taking the easy money. Luna: Alright, so if someone listening wants to try the turtle approach, what's the first step? Do they need a warehouse like The Gutter Press? Lucas: No, but they need a high-margin side engine. For The Gutter Press, it was the used-book warehouse. For a different business, it could be a subscription box, a consulting arm, or a digital product. The point is to build a cash-generating asset that doesn't require a physical location, then use that cash to fund the slower, capital-intensive expansion. Luna: And the second step? Lucas: Set a rule for yourself: no expansion until you have at least six months of operating expenses in the bank for the new project. And I mean six months of the new project's expenses, not the existing business's. That forces you to be realistic about costs. Luna: That's a good heuristic. I think a lot of small businesses fail because they underestimate how long it takes for a new location to become profitable. Lucas: Right. And the last piece: don't be afraid to experiment with format. The Gutter Press's kiosk cost only 50,000 to set up — a fraction of the 500,000 for a full store. If it fails, they lose 50,000, not half a million. That's the turtle way: small, testable bets. Luna: I love that. So for anyone scaling a small business, the question isn't just 'how fast can I grow?' but 'how can I grow without losing control?' Lucas: Exactly. And the answer might be slower than you'd like — but it also might be the only way to build something that lasts.