Hawaii is a paradise for visitors, so much so, that many who come here on a vacation decide to stay. The allure of the ocean, the tropical landscape, and the great year-round weather, make the Hawaiian Islands a great place to live.
Doing business here, however, is another story. It’s not to say that running a business in Hawaii is any more difficult than running one the Mainland; it’s not if you understand and accept some of the unique challenges. In fact, many of the things that are challenges, can also, if understood correctly, result in huge opportunities.
Here are ten thoughts on running a business in Hawaii
1. The big box stores rule most retail.
Don’t even bother trying to compete with the big box stores. In Kona, Hawaii, where I live, we have Lowe’s, Home Depot, K-Mart, Walmart, Target, Office Max and Petco. If you want to open a retail business, don’t even think of trying to compete with the big boxes; they will win on price, selection, and convenience. Find a unique concept, something that you can do at good margins if you want to go into retail.
2. Franchises don’t do make sense (for the most part)
High shipping costs and a relatively small population (except in the Honolulu metro area), make it difficult for a lot of small and medium-size franchise businesses to do well. There are no economies of scale for a one-off chain restaurant, and the dispersed population on the islands makes it hard to open many units. So, if you can deliver franchise quality systems for auto repair, cleaning, accounting, jewelry, home services, and others, you will be able to do well and avoid the onerous franchise fees and costs.
3. The three-legged chair economy: tourism, real estate, and construction
The Hawaiian Islands’ economy is mainly based on tourism, real estate, and construction. Some add military spending for Oahu. Our agriculture, technology, education, research, manufacturing and medical sectors contribute relatively little, on a percentage basis, to our overall economy. Many newcomers will gravitate to these pillars; for example, there are many more realtors than there are properties for sale. Most construction workers can get a job right off the plane.
4. It’ll cost ‘ya
Almost everything in Hawaii will be 40%-100% more than the Mainland. Ninety percent of our food is imported, as is 100% of our building materials, vehicles, petroleum-based fuel and manufactured goods. Milk is $5-$6/gallon, gas is 40% more than most places in the Mainland, and a “starter” home will be $500,000 and up in most places. Our electricity costs are the highest in the country. One of the problems new business owners have in Hawaii is that they don’t have a good grasp of expenses, and they make poor decisions based on a lack of understanding of local costs.
5. Self-sufficiency is essential
One of our pieces of equipment needs to have a part replaced every year. The part is close to $1000, but to have the tech from Honolulu fly over to replace it would add $2,500 to the cost. We quickly learned how to do the work ourselves, and have saved $15,000 over the years.
For many repairs, there might not even be a service person available on the island. For others, the parts might be days, weeks or months away. Shipping costs will make some products prohibitively expensive. Skills like basic carpentry, mechanics, welding and “duct tape ingenuity” are very valuable on the islands, and can make the difference between staying in business and shutting the doors.
A well-planned house lot can provide huge amounts of fruit and vegetables a year due to excellent year-round growing.
6. What makes it bad, makes it good
You can look at all the challenges of doing business as obstacles or opportunities. For example, the lack of fast casual chain restaurants, make for great opportunities for restauranteurs to open restaurants without the costs and constraints of franchising.
Several local food manufacturers have had great success developing products for local consumption. We all have to eat. Even though their supply and manufacturing costs are high, they can offer specialty products at a decent price point compared to imported food.
There is seldom enough business for more than three prosperous companies in many sectors of the economy on the neighbor islands (excluding Oahu). Become one of those three, and you’ll have some great barriers to entry protecting your livelihood.
7. The best location on the island: online
The great equalizer to global commerce is the internet. I know of many local entrepreneurs who run their business from home in Hawaii. Many savvy business owners can leap frog their local competition by establishing a solid online presence and becoming much more visible online than their local competitors.
8. For every season, churn, churn churn
There is a huge amount of what I call “churn” in the Hawaii economy. Thousands of people move here to retire every year, and thousands die and move back to the Mainland every year. We see a huge amount of people who come to Hawaii in seek of paradise or a fresh start and soon become homesick or discouraged and leave. There is no land more geographically isolated in the world than the Hawaiian Islands, so, as one would expect, a lot of people come and leave.
This can be an opportunity. I know of one Realtor who has sold the same condo five times in ten years, each time earning nice commissions. Property managers here can charge a premium, and local contractors, it is well known, make more money for the same work when dealing with temporary or off-island residents.
9. You’re not in Kansas anymore; get over it!
This should be self-evident. Hawaii is not Kansas, nor is it California, Canada or Kentucky. There are tremendous opportunities for entrepreneurs here, but there are also huge obstacles, many of which might not seem apparent to a Mainlander. If you are hell-bent on living like you did before you came here, you’re going to pay a price, both monetarily and mentally. For example, if you need a softball league, there is one, but a much better choice might be joining one of the popular paddling teams. Apples can be expensive, but papayas are very inexpensive. It will be very expensive to repair a Volvo here, but if a Toyota works for you, you’ll be fine.
10. The quality of life in Hawaii can be exceptional and that matters…a lot!
My home is ten minutes away from one of the best beaches in America, and my garden grows year-round, supplying me with hundreds of pounds of fresh vegetables and fruit every year. I own one long-sleeve shirt, and I wear sandals all weekend, year-round. That level of quality of life is, in my mind, what I “buy” with my hard work and perseverance with my business. It’s not easy; it never is.
We all know that Hawaii is ranked high in taxes, regulations and the cost of doing business. We also know it is ranked low in education, workforce development and pro-business initiatives. These are realities, and they are not going to change anytime soon.
Anyone seeking to start a business in Hawaii needs to go in with his or her eyes wide open. Accept what is, and find opportunities where they exist.
Kona Impact | 329-6077