A very enlightening and interesting article. I always wondered how difficult it would be to open up a successful eatery in a big city. Now I know it's nearly impossible. Kudos to the people that pull it off.
Yeah, folks are always opening a bar because they like to socialize, or a restaurant because they like to cook or eat.
You open a small business for one reason: you want to run a small business. Its work, and the satisfaction has to be in the work you'll be doing. Which includes payroll, purchasing, scheduling, negotiating, and on and on.
The OP had a good point: if you wouldn't open a dry cleaner, then don't open a coffee shop either. Nor a bar, nor a restaurant. Because you don't really want to own/run a small business. You're a romantic, and you will fail.
I'm not sure I agree with the last bit- can you be good at a business if you have absolutely no passion or skill with the material? If all you bring to the table is business skill, can you beat out the guy who has business skill and is also really passionate about dry cleaning technology?
I've always been obsessed with power optimization & energy efficiency. I'm endlessly motivated to chase it, through all the drudgery and boring crap. But I have no interest in mixed drinks. I can't help but think I'd make a better home efficiency contractor than bar owner.
Locally, one of our most successful new bars was founded by a career bartender who loves the scene, the drinks, the kitsch. He & his compatriots identified & filled a nightlife niche that few could have.
It's quite alarming how often I see this happening in my town. The council and state government did some legislative fidgey widgey to allow "small bars" to open with less restrictions (ie, they don't need 5+ bouncers, licensing is cheaper). As a result every 20-something decided to open some kind of gimmicky bar, and in the course of a year we had around 80-90 new venues open with another 30-40 the following year on the back of grants being given out.
I think by the end of the second year (2015) maybe 40 of the original venues were still running and only about 10 of the ones that started with a grant. Lots of the survivors have changed hands multiple times, and currently the most successful ones are owned by larger bars/organisations or the casino (we've only got one...). In the first year, places were closing withing WEEKS of opening even when they were full every night.
I've always wanted to design and open my own coffee shop, particularly since I enjoy sitting at them for hours on end. However, I'm not so naive as to think I could make such a whim profitable without a massive amount of hard work — an amount that would probably end up destroying the romanticism associated with opening a coffee shop in the first place.
My plan is to instead wait until I hit the tech startup lottery and then just operate my dream coffee shop at a loss.
All jokes aside, I'm amazed at the number of cute little places opening up where I currently live (Knoxville, TN). When I moved here five years ago, there were maybe one or two independent coffee shops. Now there's about ten of them, and all of them seem to be doing quite well. I suppose there's enough college students around here to keep them profitable though. Not to mention the low cost of living means rent probably isn't too bad.
I've worked for a large national food service retailer. I tell people all the time DO NOT start a restaurant. Margins are super low, hours are lousy and there is so much competition.
If you want some suggestions on how to do it right
- Find a niche and be the absolute best in it
- Make sure your food costs are low and easily sourced
- All of your labor should be family (pay no wages)
- Alcohol has the best margins
Even if you do all of those things its no guarantee for success. It's very difficult to be successful in food service.
> I tell people all the time DO NOT start a restaurant. Margins are super low, (...)
Yes they are. Enter food-ordering apps that are a middle-man between restaurant and customer. Now the margins are even lower. And there's no way out, as these apps become the de facto portal for these customers. The misery of the Uber-concept is not restricted to transportation.
>Enter food-ordering apps that are a middle-man between restaurant and customer.
Wait, why are those bad? How is a "waiter" as a middle-man between my mouth and the restaurant better? If you're a restaurant owner, aren't these apps (pun not intended) better for you? You could just have a bunch of delivery people and fire all your wait staff? I'm missing something here, what am I missing?
It seems that the middle-man adds value. But, as the middle-man becomes the portal, it can control the customer. With this control, it can control prices. And as such, the restaurant-owner pays, and loses margins.
It is hugely unfair, as the restaurant-owners get caught in a winner-takes-all situation for the middle-men, and are forced into a race-to-the-bottom.
I think it serves well as a prototypical example of what's wrong with the digital economy. This is something everybody should be thinking about. Some people are already reporting about it though: [1]. Quoting:
> Our focus here is the “uberisation” of the economy by which we mean the destructuration of
the value chain by new intermediaries which, through the use of digital technologies (mainly apps,
smartphones and online payment systems), capture part of the value at the detriment of traditional
operators. Not only taxi companies, hotels, restaurants, retailers, but also insurers, banks, travelling
services (beyond the reservation services)
, operators in the agri-food chain, etc. are likely to be
challenged, with many more sectors thereafter.
You lose the ability to differentiate your product or offerings and become a commodity supplier to the actual distributor. If the customer comes to your restaurant or calls you to order tacos, it's because they want your tacos (or they read your Yelp reviews and thought you were worth taking a chance on). If they order tacos on UberEats, they just want tacos, and anyone's tacos will serve.
I spoke with a local restaurant owner when she started hosting Uber Eats. Apparently, Uber takes a cut, but they're not permitted to mark up prices to accommodate that. So it's great for volume, but terrible for margins, especially when the restaurant industry is not exactly known for high margins in the first place.
The Uber Eats site is very vague about all this:
"How much does it cost?
We collect a service fee, which is calculated as a percentage of your sales on Uber Eats. Have more questions? Fill out the interest form and a Uber Eats team member will be happy to answer them for you."
It's not really about the cut they take, but more about the fact that they take over the sales channel, and from there take a bigger cut and eventually drive your margins to zero.
As an aside. McDonald did exactly this by doing everything efficiently. They increased their margins by improving costs and having a niche product. Still wasn't easy.
Alternative view - I used to know a local bank's small business manager. She had a good idea who was hot and who was not, and in our area the tea rooms were insanely profitable.
These were light meal plus tea places of no notable distinction or interest - except that they were in a prosperous, quaint, and touristy part of the UK, on a significant A road.
They did very well indeed from a combination of passing trade and regular customers, even with plenty of direct competition in the immediate area - there were maybe eight of these places within a quarter mile of each other.
Rents were relatively low, minimum wage labour was easily available, and the ingredients were generic and not very expensive, but prepared with some skill, so the food was better than average, but not exceptional.
A number of owners set up successful businesses and handed over the daily running to the staff. They'd literally turn up once a day, collect the cash from the till, and go home.
There were some failures, but owners were more likely to leave because they moved - often abroad - than because the business failed.
When I started my software development business nearly 3 decades ago, someone told me (paraphrased) "Beware the technician who has a skill/passion that they love so much that they decide to leave a job they hate and do it for a living...They are just building themselves another job that they will eventually come to hate."
And by technician I mean anyone who can do/make things with their own hands and creative energy. It is probably very dated now, but I highly recommend anyone thinking of starting their own business to read Robert Gerber's "The E-myth Revisited".
In a nutshell, every business owner has to realise that they have to wear three hats - that of Technician, Manager and Entrepreneur. All three require energy and different skills, and it is very rare that one person will have requisite skills in all 3 fields, so outside help, or more learning is needed.
I brought in outside help (partner). Business is still ticking along nearly 3 decades later (though original partner has since left), so I guess it sort of worked. Hardest times though, was one of us forgot to wear one of the hats for an extended period, and just got comfortable or focused on wearing it.
Wow, congrats on your success. Very impressive. The Blaze site looks great BTW. Would you be willing to share some of the secret sauce of running a successful software shop for nearly 30 years?
Thank you! Full disclosure, Blaze is my second software business, and has been going for 22 years now. My previous one ran for about 8 years.
In short, it is really about providing great customer service. I am lucky enough to work in a small town where word of mouth referrals are critical, and doing a good job and genuinely caring about your customers gets you noticed and gets people to stick to you loyally.
Plus I have a genuine love of learning about how other businesses operate, and get a kick out of improving how they can run using my software.
But as I get older, I find that my energy levels aren't suited to one on one development and constant support, hence my second all cloud based SaaS startup in my sig - really it is phase 2 while I scale back my personalised face to face customer support and explore a more distributed way of doing things on a global scale, rather than local.
I'm just getting started on this path, and I'm really starting to see that like you said, excellent customer service--not beautiful code or elegantly applied computer science principles, etc.--is the most important thing.
Now I just need to figure out how to establish that network and reputation. Thanks again!
I want to second this comment. I have run a business for about 18 years and still growing. I hired a business management mentor to help me, and he made me read e-myth revisited. Which was also part of his business class at the local college.
I hate doing some of the work, but I enjoy the overall, that it's well worth it for me to slog through the things I don't like. But no matter what happens, I now am a permanent business person. Maybe something just happens to you when you want to make something and be in control of it.
Mixing dreams with reality takes the ability to see what is actually possible and dismiss useless criticism and accept wise criticism.
I could be doing better, as I enjoy the technical side of things too much more than the other parts... oh well. This guys' story about the coffee house is a huge warning to many people, but to me, it's a specific warning about not doing your homework before diving into a project of any kind.
If they had, they would know the exact numbers before they started, and then they would not have started. At least they are sharing their lessons with the rest of us.
Interesting article, though it did seem a little odd to discuss the costs of business then describe coffee sales as "a rogue’s playground of jaw-dropping markups". When I go to a coffee shop, I know I'm not just paying for a cup of coffee, but for a cup of coffee to be available and prepared in that location, plus some amount of profits. The fact that the cost of goods is a tiny fraction of the sale cost isn't at all surprising IMO.
I am not a coffee drinker, and don't frequent cafes all that much, and I must admit to being staggered at the markups in the coffee business - for basically something that you will quite literally pee out later in the day.
In fact, I think the last time I was at a cafe, was a business meeting where I was talking to a potential investor in an app I wrote. I clearly remember him telling me "Gosh, NO ONE wants to pay $2 for an app (that I had sunk several hundred hours programming into) these days...." while literally holding a $5 latte in his hand, and signalling the waiter for another.
In addition to the tasty beverage, $4.00 at Starbucks buys you a nice caffeine buzz, a warm place to sit, a relatively reliable restroom experience, and guilt-free wifi for the foreseeable future. The people who don't take advantage of that are subsidizing the people who do.
It's strange and quite arguably hypocritical, but still correct. Millions of people pay markups for coffee and booze that are completely absurd every day. Very few people will pay a dollar or two for a app, even a well-made app that does something useful and saves them a pretty significant amount of time. There's a reason why so many are moving to ad-based or freemium revenue models in their apps.
Do you though? What do you do when you get a take out cup that is too bitter or over/under sweetened? Do you wear it, or take it back?
What happens when you get caught up talking to someone or distracted, and your $4 cup of coffee becomes cold and undrinkable? Or if someone nudges you and you spill some? Does the $ value ever factor into it, or is it just a 'throwaway' cost?
In fact, does anyone ever stand at a urinal and think to themselves - "That is a $10 pee, given the coffees I bought this morning"?
That's life, though - people will pay markups for coffee and booze because they know what they're getting; you get a reliably enjoyable experience with no mental overhead required.
Even the best apps have two unknowns - 1) you don't know if it's going to be useful, and 2) you don't know how to use that app; you need to learn how it works. The former issue can be obviated by word-of-mouth praise, but it's soooo tough to get over the latter.
Like you I am a startup founder, which probably means that we are both pathological novelty-seekers when it comes to tech. And yet... I worked at an amazing B2C startup for two years and, to be completely honest, I never really got into the habit of using the product daily. The app is targeted at my demo and I didn't use it daily.
That's why they say that the crux of building a great B2C company (e.g. an app) lies in changing the public's consumption habits. It's tough, and it seems like such an impenetrable problem. I have a lot of admiration for B2C founders.
They didn't fail because the margins are narrow or because the hours are long. They failed because they didn't love the minutia of running a restaurant. They aren't the kind of people built to work long hours. Some people handle long hours like it's a breeze.
When I went to school, you could pick out the kids who were going to fail on the first day. Not because they were stupid but because you could tell just from talking to them that they wouldn't enjoy coding for hours on end. They were only there in the first place because they had a mixed up idea about what a game programmer actually does.
What's more, besides having a selectively edited vision of what a job actually involves, we wrap it up in an identity. We ask kids, "what do you want to be when you grow up?" So even when a lot of people are pretty sure they don't want to do a thing anymore, guilt over quitting and fear of not achieving their identity pushes them forward.
If we were smart, job shadowing, even for adults would be ubiquitous. Our attitude would be, so lets see if you can even handle 8 hours of this before we go much further. We would ask kids, "when you grow up, what could you do for hours on end and still be happy?"
In a world that might get a bunch of automation in some sectors - who because of that disruption to some jobs might have to adopt universal basic income - job shadowing for adults is actually a great idea! If I'm a truck driver who had my livelihood killed off by autonomous and i want to keep on working (cuz i have to, duh), then learning a new job this way (via job shadowing) seems a pretty relevant, fast method.
> The psychological gap between working in a cafe because it’s fun and romantic and doing the exact same thing because you have to is enormous.
The implication is that a day of "fun and romantic" work has as much value to the business as a day of "paying the bills" work.
In reality, "fun and romantic" work probably meant a) receiving the pastries from the zany French pastry chef, b) eyeballing the staff to make sure nothing is on fire, and c) doing little else to keep the business afloat.
I say that because the author mentions feeling "vaguely dirty" about having less than a 50% margin on a croissant with cheese. But the whole job of the "fun and romantic" owner is to get that margin as high as possible by saving on costs, figuring out what the patrons want, and then figuring out what they're willing to pay.
TBH, "fun and romantic" is thinking you can figure out the business side of an NYC coffee shop by the seat of your pants. Running a coffee shop by ignoring the business side altogether needs a different descriptor than "fun and romantic."
45 comments
[ 0.20 ms ] story [ 58.1 ms ] threadYou open a small business for one reason: you want to run a small business. Its work, and the satisfaction has to be in the work you'll be doing. Which includes payroll, purchasing, scheduling, negotiating, and on and on.
The OP had a good point: if you wouldn't open a dry cleaner, then don't open a coffee shop either. Nor a bar, nor a restaurant. Because you don't really want to own/run a small business. You're a romantic, and you will fail.
I've always been obsessed with power optimization & energy efficiency. I'm endlessly motivated to chase it, through all the drudgery and boring crap. But I have no interest in mixed drinks. I can't help but think I'd make a better home efficiency contractor than bar owner.
Locally, one of our most successful new bars was founded by a career bartender who loves the scene, the drinks, the kitsch. He & his compatriots identified & filled a nightlife niche that few could have.
I think by the end of the second year (2015) maybe 40 of the original venues were still running and only about 10 of the ones that started with a grant. Lots of the survivors have changed hands multiple times, and currently the most successful ones are owned by larger bars/organisations or the casino (we've only got one...). In the first year, places were closing withing WEEKS of opening even when they were full every night.
My plan is to instead wait until I hit the tech startup lottery and then just operate my dream coffee shop at a loss.
All jokes aside, I'm amazed at the number of cute little places opening up where I currently live (Knoxville, TN). When I moved here five years ago, there were maybe one or two independent coffee shops. Now there's about ten of them, and all of them seem to be doing quite well. I suppose there's enough college students around here to keep them profitable though. Not to mention the low cost of living means rent probably isn't too bad.
If you want some suggestions on how to do it right
- Find a niche and be the absolute best in it
- Make sure your food costs are low and easily sourced
- All of your labor should be family (pay no wages)
- Alcohol has the best margins
Even if you do all of those things its no guarantee for success. It's very difficult to be successful in food service.
Yes they are. Enter food-ordering apps that are a middle-man between restaurant and customer. Now the margins are even lower. And there's no way out, as these apps become the de facto portal for these customers. The misery of the Uber-concept is not restricted to transportation.
Wait, why are those bad? How is a "waiter" as a middle-man between my mouth and the restaurant better? If you're a restaurant owner, aren't these apps (pun not intended) better for you? You could just have a bunch of delivery people and fire all your wait staff? I'm missing something here, what am I missing?
The ability to pass a Voigt-Kampf test, apparently.
It is hugely unfair, as the restaurant-owners get caught in a winner-takes-all situation for the middle-men, and are forced into a race-to-the-bottom.
I think it serves well as a prototypical example of what's wrong with the digital economy. This is something everybody should be thinking about. Some people are already reporting about it though: [1]. Quoting:
> Our focus here is the “uberisation” of the economy by which we mean the destructuration of the value chain by new intermediaries which, through the use of digital technologies (mainly apps, smartphones and online payment systems), capture part of the value at the detriment of traditional operators. Not only taxi companies, hotels, restaurants, retailers, but also insurers, banks, travelling services (beyond the reservation services) , operators in the agri-food chain, etc. are likely to be challenged, with many more sectors thereafter.
[1] http://ec.europa.eu/information_society/newsroom/image/docum...
The Uber Eats site is very vague about all this:
"How much does it cost?
We collect a service fee, which is calculated as a percentage of your sales on Uber Eats. Have more questions? Fill out the interest form and a Uber Eats team member will be happy to answer them for you."
https://about.ubereats.com/en/restaurants/faq/
2) Your food becomes a faceless commodity
See the movie The Founder. http://www.imdb.com/title/tt4276820/
[1]: https://www.thesun.co.uk/wp-content/uploads/2016/07/nintchdb...
These were light meal plus tea places of no notable distinction or interest - except that they were in a prosperous, quaint, and touristy part of the UK, on a significant A road.
They did very well indeed from a combination of passing trade and regular customers, even with plenty of direct competition in the immediate area - there were maybe eight of these places within a quarter mile of each other.
Rents were relatively low, minimum wage labour was easily available, and the ingredients were generic and not very expensive, but prepared with some skill, so the food was better than average, but not exceptional.
A number of owners set up successful businesses and handed over the daily running to the staff. They'd literally turn up once a day, collect the cash from the till, and go home.
There were some failures, but owners were more likely to leave because they moved - often abroad - than because the business failed.
And by technician I mean anyone who can do/make things with their own hands and creative energy. It is probably very dated now, but I highly recommend anyone thinking of starting their own business to read Robert Gerber's "The E-myth Revisited".
In a nutshell, every business owner has to realise that they have to wear three hats - that of Technician, Manager and Entrepreneur. All three require energy and different skills, and it is very rare that one person will have requisite skills in all 3 fields, so outside help, or more learning is needed.
In short, it is really about providing great customer service. I am lucky enough to work in a small town where word of mouth referrals are critical, and doing a good job and genuinely caring about your customers gets you noticed and gets people to stick to you loyally.
Plus I have a genuine love of learning about how other businesses operate, and get a kick out of improving how they can run using my software.
But as I get older, I find that my energy levels aren't suited to one on one development and constant support, hence my second all cloud based SaaS startup in my sig - really it is phase 2 while I scale back my personalised face to face customer support and explore a more distributed way of doing things on a global scale, rather than local.
I'm just getting started on this path, and I'm really starting to see that like you said, excellent customer service--not beautiful code or elegantly applied computer science principles, etc.--is the most important thing.
Now I just need to figure out how to establish that network and reputation. Thanks again!
I hate doing some of the work, but I enjoy the overall, that it's well worth it for me to slog through the things I don't like. But no matter what happens, I now am a permanent business person. Maybe something just happens to you when you want to make something and be in control of it.
Mixing dreams with reality takes the ability to see what is actually possible and dismiss useless criticism and accept wise criticism.
I could be doing better, as I enjoy the technical side of things too much more than the other parts... oh well. This guys' story about the coffee house is a huge warning to many people, but to me, it's a specific warning about not doing your homework before diving into a project of any kind.
If they had, they would know the exact numbers before they started, and then they would not have started. At least they are sharing their lessons with the rest of us.
In fact, I think the last time I was at a cafe, was a business meeting where I was talking to a potential investor in an app I wrote. I clearly remember him telling me "Gosh, NO ONE wants to pay $2 for an app (that I had sunk several hundred hours programming into) these days...." while literally holding a $5 latte in his hand, and signalling the waiter for another.
What happens when you get caught up talking to someone or distracted, and your $4 cup of coffee becomes cold and undrinkable? Or if someone nudges you and you spill some? Does the $ value ever factor into it, or is it just a 'throwaway' cost?
In fact, does anyone ever stand at a urinal and think to themselves - "That is a $10 pee, given the coffees I bought this morning"?
"You don't buy beer, you rent it."
I guess the same applies to coffee.
Even the best apps have two unknowns - 1) you don't know if it's going to be useful, and 2) you don't know how to use that app; you need to learn how it works. The former issue can be obviated by word-of-mouth praise, but it's soooo tough to get over the latter.
Like you I am a startup founder, which probably means that we are both pathological novelty-seekers when it comes to tech. And yet... I worked at an amazing B2C startup for two years and, to be completely honest, I never really got into the habit of using the product daily. The app is targeted at my demo and I didn't use it daily.
That's why they say that the crux of building a great B2C company (e.g. an app) lies in changing the public's consumption habits. It's tough, and it seems like such an impenetrable problem. I have a lot of admiration for B2C founders.
When I went to school, you could pick out the kids who were going to fail on the first day. Not because they were stupid but because you could tell just from talking to them that they wouldn't enjoy coding for hours on end. They were only there in the first place because they had a mixed up idea about what a game programmer actually does.
What's more, besides having a selectively edited vision of what a job actually involves, we wrap it up in an identity. We ask kids, "what do you want to be when you grow up?" So even when a lot of people are pretty sure they don't want to do a thing anymore, guilt over quitting and fear of not achieving their identity pushes them forward.
If we were smart, job shadowing, even for adults would be ubiquitous. Our attitude would be, so lets see if you can even handle 8 hours of this before we go much further. We would ask kids, "when you grow up, what could you do for hours on end and still be happy?"
"And then it ruined/destroyed my life/career"
2 years ago it was
- "And you will not believe what happened next"
- "<certain speciality/authority> hate them"
The implication is that a day of "fun and romantic" work has as much value to the business as a day of "paying the bills" work.
In reality, "fun and romantic" work probably meant a) receiving the pastries from the zany French pastry chef, b) eyeballing the staff to make sure nothing is on fire, and c) doing little else to keep the business afloat.
I say that because the author mentions feeling "vaguely dirty" about having less than a 50% margin on a croissant with cheese. But the whole job of the "fun and romantic" owner is to get that margin as high as possible by saving on costs, figuring out what the patrons want, and then figuring out what they're willing to pay.
TBH, "fun and romantic" is thinking you can figure out the business side of an NYC coffee shop by the seat of your pants. Running a coffee shop by ignoring the business side altogether needs a different descriptor than "fun and romantic."