Black Belt Must Get Out of the Red or Bow Out

Old-fashioned discipline and hard work matter to karate school owner Oscar L. Maldonado. He demands them from his students and credits them for his own hard-won successes. Like many small-business owners, though, he’s learning that sheer effort alone may not be enough to survive on.

That’s a tough lesson for a man who, within a month of arriving in the United States from Guatemala as a teenager in 1978, landed a janitorial job at an aerospace company. Determined to advance, he learned English and worked his way up to electronics assembler. While holding down his full-time job, he earned a high school diploma and a black belt in karate, and in 1993 he graduated from a technical college with an associate’s degree in business administration, specializing in small business.

Maldonado began to test his new skills the next year, when he started a seasonal income tax return business. His dreams, though, are pinned to the fledgling Maldonado Bros. Karate School, which he runs in his spare time after work. (His brother is not involved in the business.)

“It is kind of busy,” said Maldonado, a U.S. citizen who supports an extended family. “But nothing is impossible, because I always have had the drive to do what I want to do.”

Owning a business has been a longtime goal, but the survival of Maldonado’s Pico Boulevard school beyond its third anniversary in May is seriously in doubt.

Cash flow--the lifeblood of any business--is a mere trickle, not nearly enough to cover the school’s costs, including the $750 monthly rent. Maldonado has poured $3,000 of his cash savings into the venture, borrowed from his wife and his retirement savings and incurred credit card debt to keep the business afloat. With total sales estimated at a paltry $1,250 last year, Maldonado knows he needs help.

Business consultant Eugene E. Valdez had some blunt words of advice: “He is either going to have to raise rates immediately, bring in an outside cash investor or continue to drain his savings and set a deadline” for turning a profit.

“If the answer [as to when or if profitability will be achieved] is somewhat vague, then I would say he needs to shut the business down,” Valdez said. “Otherwise he will deplete his life savings.”

The problem, as Valdez sees it, is that Maldonado has virtually no time or energy to devote to strategic planning.

“From a technical side, he knows his craft,” said Valdez, owner of Claremont Advisory Co. in Upland. “Another one of his strengths is he is really sincere. He wants to help young students. And he has a work ethic. He is a hard worker, but as you know, that’s not the issue. It’s working smarter.”

Working smarter includes spending time to develop and analyze information about the market, Valdez said. Lacking that vital data, Maldonado is being pulled off course by his entrepreneurial zeal to get ahead and his strong desire to pass along the discipline and character-building potential of martial arts to the youngsters he thinks can most benefit--those in his Pico-Union neighborhood, many of whom can’t afford his classes.

Losing focus on profitability is “a common problem for new businesses,” Valdez said. “I told him he has to make a decision whether this is a hobby, a social service or a bottom-line business where he wants to make a profit.”

Market research and more extensive, targeted marketing efforts will help boost the number of students, increase cash flow and stabilize enrollment, all of which are critical to the school’s survival, Valdez said. Maldonado currently relies on fliers to attract new business. Valdez encouraged Maldonado to consider relocating the school to a safer area, to attract more students.

Distinguishing the school from its rivals should be a main element of any marketing plan, the consultant said. There are an estimated 1,000 martial arts schools or instructors in Southern California. And thousands more venues are competing for a parent or child’s entertainment dollar, Valdez said.

“You have to give parents and the kids a compelling reason to always want to come back,” he said. To achieve that, Valdez recommended that Maldonado work on clarifying who his target customers are and what they want from a karate school. That information will help him decide what services to offer and which benefits to emphasize.

Valdez suggested that Maldonado conduct a survey of current, former and potential students and their parents, querying them on price, instructor quality, location, hours, convenience and other purchase criteria. Maldonado could also ask about related services parents might want, and he should get a reading on how satisfied current and former parents are with their children’s progress.

Maldonado should also visit as many other karate schools as possible, Valdez said, taking note of fees, class schedules, whether or not long-term contracts are required, promotional efforts and ambience.

Valdez was concerned that Maldonado’s main reference point seemed to be a karate school he worked at several years ago as a part-time instructor.

“It’s important for an entrepreneur to keep abreast of the market, both from a customer standpoint and a competition standpoint,” the consultant said. With so many competitors, “it’s really critical to make a determination of what do parents and kids use as a criteria to decide where they want to go for a karate lesson.”

Based on what he learns, Maldonado can decide what his school’s “drawing card” will be, Valdez said, then plug it repeatedly in his advertising and promotions and during conversations with prospective students and their parents.

“I don’t think he has that,” Valdez said. “I think his is just a garden-variety karate school.”

Investing time in market research and then tailoring his products and services to match market needs are the most important steps Maldonado should take, Valdez said.

Other, inexpensive marketing tactics he might consider: write a column for a regional karate magazine, offer himself as a guest speaker at local youth clubs, stage karate demonstrations at nearby schools and perhaps teach a karate class at a local community college. Most of those ideas would apply, in general terms, to other small-business owners who want to raise their profiles and profits, Valdez said.

Don’t overlook the free marketing help and low-cost workshops available, such as from the Small Business Administration’s Small Business Development Center, Valdez said.

“All small-business owners could use refresher courses on margins, marketing, positioning, etc.,” he said. “It’s a very common area of weakness.”

Location is another thing Valdez would like to see the school change. On the downside, Maldonado has already moved the school three times in the last three years, and changed the name once, sacrificing clientele and goodwill along the way, Valdez said.

“The irony is, to get attendance up to where he wants it to be, he may have to move again. This is a bad location,” he said. The corner retail strip near downtown Los Angeles has poor lighting, meter-only parking, bars on the windows, panhandlers on the sidewalks and a check-cashing outfit as a neighbor, Valdez said.

“If I were a parent, there is no way in hell I would leave my child there from 6 to 10 p.m.,” he said.

Maldonado said he would prefer a better location but can’t afford one at this point. He also appreciates the size of his current studio--1,000 square feet, almost double his former site. Valdez countered that if Maldonado moved to a cleaner, safer area, the rent might be more, but he could charge more for lessons.

Maldonado has already heeded one of the consultant’s suggestions and raised prices. Monthly rates for new students have climbed almost 66%, from about $30 to $50, and students will no longer be supplied free uniforms. An informal survey of parents at the school’s Christmas party convinced him there is enough of a demand to keep the school open for at least another six months.

Valdez estimates it will take at least that long, and probably closer to a year, to turn the business around.

“It is very simple,” he said. “He has to spend more time with the business, because right now it is kind of at a sick stage, and he needs to rescue it from its coma.”

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This Week’s Company Make-Over

* Name: Maldonado Bros. Karate School

* Headquarters: Los Angeles

* Type of business: Martial arts instruction

* Status: Sole proprietorship

* Owner: Oscar L. Maldonado

* Founded: May 1995

* Start-up financing: $3,000 in savings

* 1997 sales: $1,250

* Employees: None

* Customers/clients: Neighborhood children

Main Business Problem

Lack of students

Goals

Increase enrollment, build a chain of karate schools, be considered a role model.

Recommendations

* Learn to work smarter, not harder.

* Decide whether the school will be a hobby, a social service or a for-profit business.

* Invest time in market research, targeting both potential customers and the competition.

* Tailor products and services to match market needs.

* Look for free marketing help from a Small Business Development Center.

* Move to a better location.

Meet the Consultant

Eugene E. Valdez is owner of Upland-based Claremont Advisory Co., a management consulting firm he started in 1989 that specializes in small, entrepreneurial companies.