Disillusioned by salon business model, Minneapolis stylist opened her own shop

Katie Steller, owner of Steller Hair Co. at Central and Broadway Avenues NE., started inauspiciously in the styling business six years ago.

In her parents' kitchen.

Steller, 28, an Aveda Institute graduate, started her own company in 2012 because didn't like the traditional model she had found in a big salon: Pay the stylists minimum wage plus whatever tips they can finagle from customers.

"My haircuts in my first year were $30," she recalled of her first salon job. "And I would make about $4 of that, if I was doing a 30-minute haircut."

Steller's then-husband had a good job with benefits, so she took a flier on entrepreneurship.

One of several bankers who turned her down for a loan referred her to WomenVenture, a nonprofit that provides counseling, business planning and financing to fledgling female entrepreneurs. WomenVenture is also a certified lender with the U.S. Small Business Administration (SBA).

In 2013, Steller launched Steller Hair with a little savings, a lot of hope, a plan and a $65,000 SBA loan, including a 2 percent fix-up loan from the city in the long-vacant former Land O'Nod mattress factory.

She was one of the first tenants in what is now called "The Broadway," a bustling place with tenants including Spyhouse Coffee Roasters and 612 Brew.

Steller hired a couple of entrepreneurial stylists who were attracted by her model.

They start out making 45 percent of what they bring in, or $15 to $18 an hour if their commission revenue is less than the hourly rate. Despite some obstacles, Steller Hair has worked. And Steller paid off the $65,000 loan on time earlier this year.

"A big part of why I started my own business was I felt devalued," Steller said. "Most salons pay minimum wage, and the stylists are dependent on tips.

"So, I developed a hybrid model" that provides a better minimum wage and a more lucrative upside for the employee.

"We're doing so well that all of our stylists are doing better on commission," Steller said. "My goal is for them to keep as much as possible."

Steller is about to add 500 square feet and grow from seven to 10 chairs and from 15 to 20 employees, thanks to a $100,000 expansion.

"We turn away five to 12 customers a day," Steller said. "We have to expand."

This time, Steller is raising the expansion capital from an older cousin, a veteran business owner who is impressed with her grit and heart.

And there's much to admire about the Minneapolis Southwest High graduate, a softball player who also has battled an illness since childhood that, ironically, took her to her career.

Steller was diagnosed with ulcerative colitis, an autoimmune disease. As a teenager, her illness had progressed and doctors were forced to remove her large intestine. And her hair started falling out.

Steller's mom took her for her first professional haircut. It felt and looked good.

Steller experienced firsthand the positive impact of a good stylist and haircut.

"Being sick from a young age ... taught me that I had a choice,'' she recalled. "I could have it defeat me or I could move forward. Even when life is hard."

And life lately has not always been easy.

A couple of years ago, Steller's husband and business partner walked away from the business and the marriage.

To save the business, she moved home with her parents, quit paying herself, went carless and took the bus to work to conserve funds while she negotiated a settlement with her former partner.

Twin Cities small business owner Jeremy Gavin, Steller's cousin, "helped me navigate that situation, buy my former husband out and get control of the business. He also helped me navigate the expansion."

Steller worked with her landlord and a contractor to boil down the cost of the expansion, from about $250,000 to a $100,000 renovation of unused lower-level space that has an outside door as well as an interior staircase to upstairs salon.

Her goal is to provide a better space for customers and up to 20 employees.

Steller hopes to build the business from about $750,000 in annual revenue to $1 million within a couple of years.

Steller charges, typically, $45 to $70 per haircut, with a free trim in between full cuts.

"This will be our best year ever, after a couple rough years [thanks to the divorce and restructuring]," Steller said. "We were revving our engines the last couple of years, while I was working on the settlement and expansion. I think we could do $1 million [eventually] in revenue with 10 chairs."

Steller also is able to pay herself a modest salary again this year, she said.

In 2017, Steller started giving complimentary haircuts to people nominated by her customers who are known for kindness and good works through her "Steller Kindness Project." She says it's a way for her to feel good.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.