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Ask YC: Advice on startup idea and funding.

19 points by kyro ↗ HN
This is a two part advice seeking piece.

A)

For a while now, a couple of friends and I have been joking around about a getting into a particular venture. This startup idea in no way relates to cs/web/etc. The idea is to open a very hip and chic cookies and milk store, in someplace like LA. We will be selling only a small variety of cookies, and milk/water. The store itself will sport a very modern/chic vibe, with free wifi - a place where college students can come chat and study, and for hipsters to stop by. As we see it, there aren't any stores that only sell cookies and are packaged in a way that appeal to a young demographic.

Would you go to a place like this? Anything you'd like to see? Any problems you see with the idea? Please provide any sort of advice you may have.

B)

The second part deals with the funding aspect. This isn't a web startup where the cost barrier of entry is relatively low. We'd need to build the interior, the kitchen, buy supplies, etc., so as you can see, a venture like this could get pretty expensive. I was wondering whether any of you have experience with this sort of venture, or whether you happen to know anyone that does. Do you know anything about funding? Is there a world of VC's out there for this sort of stuff? Any other funding ideas?

Thanks.

EDIT: The cookie place next to UCLA in Westwood is Diddy Riese, and yes, I know about them. :P

38 comments

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oldgregg
Build and sell a web startup... use the profits to open a cookie store?
sgibat
An online-ordering based cookie delivery system would be a nice addition to your store.
caaaaaam
If you plan on trying this, maybe these guys might have some advice for you:

http://www.insomniacookies.com/index.php

hugh
Another potential business model to follow, if you're really interested in the cookie industry is the Byron Bay Cookie Company (www.cookie.com.au)
tlrobinson
You mean like Diddy Riese? http://en.wikipedia.org/wiki/Diddy_Riese
kyro
No, not like them. Maybe a much more chic/hip/cafe-esque/free wifi/come and study/bring the family version of Diddy Riese. Also, they're really the only place in Westwood that sells those types of sweets, and them being right next to UCLA has helped bolster their popularity. There's room for competition.
caudicus
I would say something like this...if you haven't already, this is the kind of thing you need to really create a business plan for.

Read this - http://www.slate.com/id/2132576/ - it might give some perspective. The profit margins on these things can be very narrow. That isn't to say it's a bad idea - just be sure you know what you're going into. I fear too many people think about how cool a place is, but don't think about how profitable it is at the same time. I know this is heresy in the web start up world...but at the same time we all admit that starting a web site these days is mad cheap - starting a brick and mortar place like this is not. ;)

I'd honestly pool some money up amongst your friends who are looking into this and run a market survey. Maybe hire some college kids who are majoring in marketing on the semi-cheap, or run it yourselves if you have that background. Use the survey data to indicate viability - try to find your target market, and project profitability with an expansion plan. Maybe a franchise? Or do you just want to do this to pay a salary and have a fun job? These are questions that the business plan with hash out.

The real problem is the idea is easily reproducible, and the returns are going to be semi-low, so you'll probably have a hard time attracting VC or Angel money - but I could be wrong. I'm guessing the most feasible thing is to raise money through friends, family and maybe a credit union one of you guys belong to. If you do have a solid business plan and can convince yourself and others to put your own/their own money on the line, it's an indicator that it is a good idea.

There are those trendy cereal places in LA, right? Maybe you guys should go into one of those places and just ask the owner how it's going so far. Throw your idea out, who knows, maybe they'll know someone. Find out all you can from them.

Anyway...just some random thoughts. I'm doing a low-tech venture myself right now reselling a diesel fuel additive (despite my programming background), and have been going through a lot of this stuff (market surveys, business plans, viability, projections, etc) myself.

izaidi
I really like the idea, but are you sure you'd be able to sell enough milk and cookies to make up for the cost of running the place? Seems like the only way to make it work would be to sell "gourmet" cookies and overprice them, and that kind of moves you out of the hipster/student arena and into yuppiedom.
thaumaturgy
| I really like the idea, but are you sure you'd be able to sell enough milk and cookies to make up for the cost of running the place?

That's what I'm wondering. Specifically, coffee shops get by (barely, in some cases) by taking relatively inexpensive ingredients, and adding value to them in the form of a barista that mixes them up in hopefully really tasty ways.

I don't see how you can do that with milk. They might be able to bring in some of the world's finest cocoa powder and come up with a chocolate milk recipe that blows everybody away, but after that ... then what?

How do they plan on running a coffee house model without the coffee revenues?

Also, LA rent has gotta not be cheap, especially in the market areas they would want to target. Maybe something like this would be better somewhere on the edges of the Valley, where rents would be less but they'd still have the right crowd?

randy
Cool idea, very questionable business model. College kids excel in many areas; unfortunately for you, being cheap is one of them.

Don't get me wrong, I would love to hang out at a place like this, but I would crunch the numbers first and figure out if it's actually viable first (i.e. how much would rent, renovations, supplies, staff, etc. cost -- and how much milk and cookies at what price would you have to sell to make a profit).

P.S. I forget the name, but there actually is a very popular cookie and ice cream place right next to UCLA. You might want to think about broadening your horizons beyond just cookies.

asnyder
Interesting idea, but be wary. I opened up a hookah lounge last year 2 blocks from Brighton Beach in Brooklyn NY. Before we opened we were hoping to get the chic, hip, free-wifi crowd, but instead got 18yr old troublemakers that don't spend a dime.

It's one thing to want a particular clientele and it's another to actually get it. There's no guarantee, and with something like cookies, you don't know who you'll get. To combat this problem we're acquiring a liquor licenese which of course comes with it's own cost and potential set of problems.

Furthermore, it's quite scary to see your weekdays come and go with only a handful of customers, and then need to rely on your weekend. If it rains that weekend you're hosed and better make sure you can make that rent, utilities and labor.

It's a tough, and this doesn't even include all the city issues, permits, violations, etc that you'll be sure to have some issues with.

thaumaturgy
Out of curiosity, have you tapped into running local advertising on your free wifi login page?

If so, is that helping your revenue much?

yan
Where in Brooklyn? On Coney Is?
sebg
Always on the look out for new places in Brooklyn. What's the address so that I can stop by?
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maxklein
Very flawed approach. The restaurant business is the hardest type of business to get into. It's terribly difficult to survive for more than a few months. And the only way to survive is if you have an extremly detailed financial breakdown, with all possible scenarios - worst case and best case.

Only if those all look rosy should you start. And if you want to start that way, you need to do surveys of other businesses in the area as well as your potential customers. This is what people learn in business school, and starting without having a business school person on your team is a great risk.

Also, funding is not your problem. This type of business you are talking about is what bank loans are designed for. The bank loan is made out to the company, so if you fold, you are not personally liable.

If I were you, I'd only do this if I were really passionate about milk and cookies. Personally, I like neither milk nor cookies, so you would not have me as a customer.

At the same time, you cannot start such a store without focusing to a large part on cofee. Coffee is addictive, and will make your customers return. Milk is not addictive, and it tastes the same everywhere, and is much cheaper. What incentive do you have towards making people return to your store when the milk is just the same as everywhere else, but overpriced?

caudicus
One thing to note about bank loans: usually the bank asks that at least some of the credit line is made personally liable to you/someone on your team. It's like the first time you get a credit card and you have a parent/guardian underwrite it since you have no credit history.

The business is like a person, with its own Tax ID and everything (just as we have social security numbers), and when that business has no credit history you may need to use yours to get it started and establish a credit history. When you put some of your own money on the line, the bank feels a little better off since you're risking your own capital along with their capital, and not just their capital.

scooter53080
I would love to come to a place like this. In fact, I go code at a coffee shop near my house, and usually get a tea and a shortbread bar. As others have pointed out, with such a narrow product scope, I think you might have a problem selling enough to make it work. Maybe you could also run a bakery-style operation and sell larger orders...pre-order by the dozen. Perhaps look into distribution possibilities with other places (coffee shops, convenience stores, ?) However, I think the cookies will need to be fairly special/unique to make this happen. This is somewhat similar to cupcakes shops...might be able to find out how they make it work (I bet it isn't one cupcake at a time.)
menloparkbum
You'll be competing with every cafe that sells cookies, which is almost all of them. You better have a really good cookie recipe.

For inspiration, read the pinkberry story on wikipedia.

hugh
A: Yes, I'd go there. Milk doesn't get enough respect as a drink on its own. However, would I go there more than a few times, once the novelty wore off? Probably not.

B: I really doubt any VC will be interested in this kind of business -- there just isn't enough potential for growth. If you really want to do it, you'll have to do it with some combination of debt and your own money, and unless you already have a fairly large chunk of money already it's just not going to happen.

kirse
This reminds me of the Cereality store at PSU that gives out free wifi to its employees, who get to sit around 12 hours a day and surf the web while nobody goes in the store.

You better be selling cookies with crack in them or have an extremely good marketing plan. Otherwise, just selling cookies and milk at normal prices will not work.

Tichy
Both cookies and milk are very unhealthy. What I really miss is a venue where I can get healthy food. There are coffee shops everywhere, selling cookies, doughnuts, muffins and so on, but there are hardly any healthy choices (Edit: there are NO healthy choices).

I can only speak for Munich, Germany, but I suspect the situation in the US is far worse. But from my local perspective here, I think the coffee shop thing is a bit over (and you are in my eyes just a coffee shop without the coffee). Something new needs to take over and make a killing.

Edit: also I would not like making my riches by destroying my customers health. It worked for Warren Buffet, though (Coca Cola, Snickers...).

smanek
How are you 'destroying your customers[sic] health'?

Cookies and Milk are perfectly healthy in moderation - and if a customer chooses to over-indulge, that is their business alone.

Remember personal responsibility?

Tichy
At least cookies are addictive (sugar), in general, I would not agree to the "perfectly healthy" notion - I am not a physician, though.

Also, I think as a cookie shop owner, you will want your customers to eat as many cookies as possible. I want to see the shop owner deny entry for everybody who is too heavy? Don't think it would happen.

How many cookies per customer would be ok, you reckon? Because that number could be factored into the business plan nicely.

smanek
It isn't the shop owner's problem to stop customers from eating too much. It's the customer's.

The health risks of over-eating are fairly well understood; I think the person eating is best qualified to do the cost benefit analysis for themselves.

You may have a case if he were selling to unsupervised children who can't make these sort of decisions for themselves - but adults can. Even if sugar were physically addictive, and I doubt that it is, that doesn't magically absolve a consumer of their responsibilities. We're still humans with free will.

Frankly, if a restaurant tried to figure out how much food I 'should' eat I would refuse to do business with them - it's just insulting.

Tichy
To each their own - all I am saying is that I would not want to base my business on selling unhealthy food. I would not want to sell cigarettes, either.

The talk about customer responsibility is all good and well, but the fact remains that the "stuff industry" is exploiting human weaknesses all the time to make people buy stuff they shouldn't. I can't really blame them, just want to point out that customer responsibility does not necessarily work out so well. I guess if I shoot somebody, it is also their responsibility of being in the path of the bullet.

Edit: just thinking about it some more. I think it is also in the responsibility of the merchant not to sell crap to their customers. Sure, legally probably nobody could touch you if you sell crap. You can indeed say it was the customers choice to buy crap. But in general, humans expect a certain amount of fairness in dealings with each other.

You can probably get away with selling cookies, because customers are not yet broadly aware of the health implications. I wonder what it is like to be a producer of cigarettes these days, though. I could imagine that many people would react negatively towards such a person. What I mean is: society ultimately tries to enforce people being nice to each other, so in the long run selling crap might come back to you.

smanek
Fair enough - if you don't want to sell something unhealthy that's, of course, your perogative.

I guess I always see facilitating a trade between willing participants as a good thing. As long as I'm selling something that people want, everyone is better off and I'm making the world a better place (in the pareto efficiency sense).

Tichy
Apparently what people want is not always good for them. That is for another discussion, though. I don't really know why that is the case.

It's also interesting in the light of advertising. So first you make people want something they did not originally want, and then you make a win-win trade because now it is something they want? Or is it not so win-win, because your ads distorted reality? (Note, this is not meant as an counter-argument, I am simply interested in this).

aneesh
There's a place near UPenn that only serves bowls of cereal. Anything is possible! As a college student myself, one place really popular at school is an interesting non-chain yogurt shop that just started up this year, and it's not exactly cheap. So college kids appreciate something unique, and if you can provide that, you have a shot.
edu
I think this is not a startup...
davidw
Exactly: unless it's set up as a chain, the potential upside is more or less limited.
davo11
Are your cookies very good? Do people come around to your house to eat your cookies no matter how rude you are to them? If so go for it, if not well I'd be thinking about something else, the snack food market is incredibly competitive and done to death.

Even worse, say you do get it working whats to stop someone else opening a cookie shop next door? As others have said business schools are made for this sort of ahem 'cookie cutter' business model.

Run the numbers and if you think it will work well go in with both eyes open and good luck.

If there's three of you why not two get a job and the third run the shop full time, get some cheap student labor for busy times and as it takes off the other two can wind up their other jobs, or if your IT guys get short term contracts and rotate even if its wildly successful it will be a year or two before it could support 3 people full time.

ckinnan
My girlfriend and I stumbled upon a cupcake spot in Georgetown (Washington DC) this weekend. It's a somewhat similar model, and they have a site that gives you a sense of the branding: http://www.georgetowncupcake.com/

Cupcakes...there's a higher perceived value and a fun/childhood/novelty aspect. I paid $3.00 for one, it would be tougher to charge that for a cookie. The store was busy, people were buying them by the half dozen for parties. There was a viral aspect as people were walking down the street happily eating these messy cupcakes. Anyway, I love cookies and wish you luck! Let us know how you proceed.

auston
Something cool would be if you could adopt a "web 2.0" cookie shop by continually getting feedback on the cookies, I'll explain:

You never get the same cookie twice, every batch is different, the ingredients are always different; you constantly change the recipe based on customer feedback.

Also, you could have a new recipe every month by like adding a few customer recipe's and having people vote on it, then every month you could come out with a new cookie or something like that.

I might sound crazy, just a few ideas I had based on hearing your idea.

wrigley
Your best bet is to watch Ramsay Kitchen Nightmares, UK and US. If I were ever brave enough to open a culinary themed enterprise like yours then I would use those shows (especially the UK ones as the US get a lot of help with makeovers!) to give you a good grounding on what the difficulties can be.

Its a very hard idea I would say, good luck though.

kynikos
For something like this to succeed, I really think you'd need to incorporate an innovative revenue stream or way of obtaining customers. The individual cost of producing each cookie is relatively low, but as many of the posters have indicated, most of your risk lies in being able to keep up with labor, real estate, and capital equipment costs.

If I were you, I'd be sure to have tested, killer cookie recipes, then consider...

-Integrating online ordering system for in-store pickup or shipping

-Cater to fans of vegan baked goods (definitely a burgeoning market segment)

-Work with moms and Susie Homemaker types to determine favorite cookie recipes or trends

-Perhaps use the store as a distribution channel for home-based bakers. I know a lot of people who think they bake "the best" cookies. There's a lot of different directions to take this; profit sharing, recipe licensing, etc.

-Develop an "open source cookie", modified by customer suggestions and input

-Keep a basic product line of old standby cookies (chocolate chip, oatmeal raisin, etc.) and have a secondary product line that's shuffled or changed very frequently (at least once a month)

-Publish an annual book of recipes

-Children influence how their parents spend money. Offer a free cookie on a child's birthday and seek distribution in local schools.

Just my thoughts...not sure if any of them align with what you had in mind. I think this is a very cool idea and could definitely succeed if executed correctly. Good luck!

orlick
I'm not sure if this is really the place to be asking a question about style and fashion :)

A) Yes I would go to this if it was branded correctly and all my friends were going to it. I wouldn't go there regularly. For examples that are working in Portland, OR check out Voodoo Doughnuts and Saint Cupcake

http://voodoodoughnut.com/

http://www.saintcupcake.com/

B) You would need a bank loan, perhaps backed by SBA.