I don't know why the title says from 2010, the story is from 2005, so take the prices with a grain of salt. Even in New Hampshire $2 for a good croissant* is very low.
I have a few close friends who are cafe owners in NH (and when the time is right I will probably open one as a "side project"), and even here, getting a low-volume cafe or a two-person cafe working well, with staff dedicated to preparing food at bad margins is unlikely. Instead focus on coffee coffee coffee or raise your margins until you're happy to sell every item.
I don't think he understands the leeway he has on prices. Imagine the article his competitor (still in business) didn't write. It goes like this: "We doubled the prices of food expecting demand to go down, but it went up!"
Humans, they aren't rational. And the "coffee buyer" breed of human, they are hardly the price-sensitive crowd. At least in New Hampshire, you already lost the price sensitive crowd to Dunkins. Forget them. Sell the amazing $3.50 croissants with pride. The people who crave it will come no matter the price.
Italy has had the coffee bar figured out for about a century:
* Espresso costs about 1 euro, 2 for cappuccino, 2.5-ish for almost any croissant/pastry.
* Customers come in order/pay, stand at a bar to have their drink, all done in about 10 minutes max.
* Staff consists of a middle-aged barista with a bow-tie who pulls flawless espresso shots like a locomotive and a surly lady who handles the money + orders.
* In the evening, add a waitress and serve a limited menu of aperitivo and some specialties.
The expectations are, of course, different in the US. I think there are ways to make it work (1), but yeah, if you want to have that special chilled-out shabby-chic space typified by independent early-90's coffee houses, be prepared to make meager precarious wages at best. Virtually all of NYC is off-limits for such enterprises now because of rent.
Interesting. There is such a place in Austin, Texas [0]. Its my go to coffeeshop for working remotely as its rather empty during the day, and I wondered how they remain in business. But they're quite popular as a gelato/bar later in the evening and I believe that is where they make their most profits.
Still, interesting... across from Mother's (a 1980 new comer). I can tell you that there has been an ice cream shop right there continuously for 47 years. Location, location, location.
Very different expectations in the US market I have found. People want to drink their filter coffee or large, milky espresso drinks while they sit comfortably with their laptops using the free wifi. No comparison to the average Italian who wants to down a quick espresso and be on their way.
Australian cafes make out like bandits these days. They're basically breakfast/lunch restaurants that serve great espresso based drinks, mostly don't offer wifi and have no problem moving customers along if they stop buying drinks so they can cycle the table space for new customers.
I don't know how popular they are now, but about 13 years ago I was vacationing in Anchorage, AK and there were many "coffee shacks." Simple sheds with at most two people working, that sold fairly good coffee/espresso and a few pastries through a window. Unless one was near a park there was no where to sit, so you got your coffee and left.
A few years later I noticed that there were some franchises springing up with the same model, but the entry prices were insane. Might as well start a McDonald's!
Anyway, my point is that perhaps the expectations in the US are regional and in some locations, the model you're describing might work.
The place you linked in Philly is a few blocks from my house. I've been a handful of times. Much more of a restaurant. I think it is a good example of a place trying to do too many things. As a coffee shop it is pretty sub par. It does not have a good vibe during the day. There are much better proper coffee shops within a few block radius.
Of course I am just one anecdote. They could be doing amazing.
Yes, you're right that it isn't a "coffee house". The coffee house game is played expertly in philly by several places each of which serves up excellent coffee: Joe, Elixr, La Colombe, Rival, and a few more. Depending on the time of day, they're decidedly not the kind of independent coffee-house vibe the author was going for. La Colombe, for example, is branching out beyond just having a few coffee houses in a few cities-- they're marketing product as well.
It goes like this: "We doubled the prices of
food expecting demand to go down, but it went
up!"
I've had that experience selling (small, cheap, non-critical) software* to end users (i.e. not business or bespoke solutions). When I released at $10 I got a lot of complaints about the price (including many "it should be free!"), panicked, and lowered the price.
I later experimented with various price points (without announcing, just changed the price on the home page) & lo and behold- I sold as many units at $9.99 as at $4.99 and $6.99 (I didn't dare raise it beyond the launch price)!
The corollary is to not listen to customers saying what they want, but to observe what they buy.
* this was in 2011 and that particular market has changed since, please do not email me asking "how to make money selling software online" - I don't know!
I had a business partner tell me once, if people are going to write a check, they will write one up to $100 without thinking twice. I priced my software at $99.
Especially in the B2B world. I have a simple device I sell to industrial users for under $150. A few months ago I had a request for a customized version. It required that I change two lines of code. I did that, added $250 to the price and it was sold with no questions asked.
/me kicks himself for likely leaving money on the table :-(
I'm in a similar situation as you are, although I get almost no complaints about the price whatsoever, it's unfortunate you never tried something like $12 or $15, because I'm not going to try it either :p
"Sell the amazing $3.50 croissants with pride. The people who crave it will come no matter the price."
Everyone must conform to the logic of capital. Even if, as a charitable and willing business owner, you want to remunerate your employees more than what the market suggests, or set prices lower than what consumers are willing to pay because you don't want to profit too egregiously, you will be forced into adapting and doing what the market wants you to do.
It's hard for a very scrupulous person to accept this. Many lousy software developers have more prestige than more talented ones, because the latter are seemingly unable to accept just how much they are expected to charge for their time, and therefore seem cheap by underselling themselves. The question of "How can I make so much money, when people I know working so much harder in teaching or social work, make so much less?" is expected to just be squelched or dealt via charity.
As a fellow Granite-stater, I whole-heartedly agree. If you have a coffee/brunch restaurant with a few special "local" menu items (even if low quality) you can have a packed house every weekend day.
Well, that's the east coast though. West coast, particular the Pacific Northwest, comes with its own culture and a lot of difficulty in getting a stable crowd.
Coffee, especially currently, is one of those things that everyone has a very strong opinion about even if they can't quite articulate why they have it. Middling chain coffee houses would outperform dedicated coffee houses, despite the amenities and the quality of coffee, simply because they'd hit these three C's: Convenience, Cost, Consistency. The majority of the people want the C's - they don't particularly care about the history of the coffee, the quality of the press or the technique of the person making it. They're happy to call someone in a Starbucks apron a barista as long as coffee comes in 20 oz and with the exact extras requested.
I don't know that I'm a coffee snob, but I really did like the local place near my last work place when I worked in Tacoma, WA. The guy who owned it was just a really nice and laid back guy who made coffee I really enjoyed. His idea of a coffee house was a mixture specialty coffee with specialty beer to server the neighborhood and the campus I worked at. He wasn't a huge coffee guy, he just had a fair idea on what was good. But he wasn't interested in trying to compete with middling or larger chains; he had the vision of a coffee house and lounge that could be a nice place to help bring up the class of the neighborhood.
Regrettably his staff couldn't seem to replicate whatever it was he did and were more concerned about some of the other hallmarks of coffeehouses (the latte art, getting the right music, etc). They seemed to like the idea of being baristas in a archetypal coffeehouse, but when even a slight big of pressure hit (like of 4-5 people), they weren't really up for it. Ironically, many of my colleagues who did prefer this coffeehouse would complain if it got too much foot traffic because it would be "losing its uniqueness". It seemed almost paradoxical that the gentleman had created a really nice coffeehouse that did appeal to self-proclaimed coffee snobs and hit the right notes for a university coffeehouse; but in doing so, it would teeter on the edge of "undesirable" because it was too popular - the owner seemed cursed to either run with the image and get into a workflow he didn't want, or to be stuck with pennies of profit at the end of the month satisfying a core customer base. Without clarity on which direction to go, I think his staff faltered because each one would have a different attitude towards it. (Perhaps snobbishly of me, I too had certain baristas I preferred to make the coffee, and certain baristas where I'd just walk past if they were working that day)
I went because I liked the guy and his work and really hoped that it would help keep him going. Despite being so close to a College campus and being the only lounge style eatery in the entire area, he just couldn't seem to get a lot of foot traffic from the students at the campus or from people in the neighborhood. They either went to the campus convenience store and got the drip or button-press machine coffee, or they'd hit up one of the many drive-thru coffee stands that were getting big around that time. (The bikini stands in particular started cropping up...but I don't think those lasted long past their novelty phase)
The economics of a coffeehouse has to be just absolutely mind boggling as an owner, and to me at least, it seems like a really terrible mechanism for expressing one's own creativity, and like a money sink of a side-project. There's a lot of nuance, at least from my experiences with PNW coffeehouses, that go into making a small one successful.
Anecdotally it seems to me to be a variation of being a musician, author or indie film maker- it's the sort of job a lot of people think they want to have before realising how much work it is for how little pay.
At least when making indie games you can come out of the adventure with enough experience to get a well paid software developer job somewhere else afterwards (the chances of success from actually selling the games is unfortunately not higher tho).
One of the most important messages I got from The E-Myth (Revisited) was that there are many small businesses that are slowly going out of business because their prices are too low to be sustainable. But every new competitor in their market thinks they have to charge a similar rate or they won't get customers.
Result: now two companies are slowly going out of business.
Croissants are $3+ maybe at Starbucks and places... There are hole-in-the-wall bakeries and italian delis that don't show up on google maps where you can get a good one for $1.50 (and a coffee for $2)
> Lots of people think they want to start a coffeeshop. They likely don’t. That’s like buying a minimum wage job for two hundred grand. What they want is to be a customer and sit in a cafe, drink coffee, be nice to people, and possibly curate an art gallery. [...]
> That’s like buying a minimum wage job for two hundred grand.
This is literally true.
If ignoring your own labor you calculate that you will make $20,000 a year on a $200,000 investment for your business, it seems pretty awesome, until you realize you could just work minimum wage and not have to put up the $200,000 investment.
I think is actually the most common mistake initially made by people who want to open a cafe or similar small retail business: treating your own labor as free and ignoring opportunity cost.
For the purposes of calculating return on investment, you should imagine you are paying yourself whatever you would have to pay to have someone else to do the same work in your business.
For decades I wanted to create a single malt whisky distillery. Luckily I never quit my job to do it. Now that I am over 50 and realize I would be almost 70 before having my first 18 yr old barrel I see that it is much MUCH cheaper to just buy and drink any bottle of whisky I want.
I see this is the startup world as well. There are many people who seem to not want to make a business so much as sit in a coffee shop, dictate arbitrary product design decisions and network with people in an attempt to "crush it".
When Highway Community Church settled on taking over the failing Red Rock coffee shop in Mountain View CA in around 2007 or so (?) I thought it was an unconventional move and likely to fail. But such institutions aren't supposed to be rational ... what the heck. They wanted to provide an open community space and to engage with the greater community. And there were many coffee passionates there with expertise.
I've moved away since but every time I drop inn during a visit to work HQ I can't help but be amazed at how well they continue to do with Red Rock. A lot of people worked on the concept in the initial years without recompense.
Run down shopping centre in a working class area of the outer ring of the city. Quite a large space. Sandwiches at lunchtime and cakes all day. Coffee is standard expresso on the steam machine. They use the space for community activities in the evenings. Well patronised on the two times I've been in.
> none of us would ever consider opening a Laundromat or a stationery store
I've actually fantasized numerous times about selling it all and buying a laundromat or two. The dream was all around the "virtually passive income" fantasy. The guy who owns the laundromat I use stops in a few times a week, and counts his money.
That isn't to say it isn't completely free, he's got issues with local homeless people (one guy lit a fire in one of the driers and turned it on), he's got ongoing maintenance. But for the most part he isn't around. People come to his place, drop off money and leave.
I could imagine having a job where you spend a couple hours a day or maybe a day or two a week, then spend the rest of your time pursuing hobbies and hanging out with family and friends. Or volunteering & playing with fancy technology.
It's a tough business. Even Starbucks couldn't make it just selling coffee. They had to start selling sugar drinks and bad food.
I could tell you stories but the article covers it well. A cafe/restaurant will destroy the most savvy of business people. I don't care how successful you were at what you did. The food business is a different level of insanity.
If you are going to open up a coffee shop, you better own the building, roast your own beans, and have a location where 1000's of people walk by everyday to work or public transportation. Even at that your chance at success is marginal.
It all looks romantic until you're in the hole 150k with no end in sight.
Around the time this article came out I was looking at business opportunities for some under-employed friends and it seemed like a cafe would be a good idea. We knew the neighbourhoods where it would work, we knew people that were worth hiring, they all had restaurant experience, and as for the supplier side, that was never a problem.
Once I started researching it wasn't hard to hit nightmare after nightmare story. You can do everything perfectly right and still bust out. You can do everything totally wrong and strike it rich. It's such a gamble you may as well take your money down to the casino and play roulette.
Not starting a business like that was probably the best idea. For one, I still have those friends, and two, didn't end up bankrupting myself by stubbornly sticking it out, or getting destroyed when the landlord, smelling opportunity, starts jacking up the rent to the moon.
We have it so easy in the tech biz. You can compete with everyone in the world, and you can do it from anywhere in the world. Being nailed down to a physical location in a very specific niche is problematic if you're used to being able to operate nimbly, to jump from opportunity to opportunity.
If you are going to open up a coffee shop, you better own the building, roast your own beans, and have a location where 1000's of people walk by everyday to work or public transportation.
And it might help to have a Starbucks nearby -- no, really:
Even owning the building is no guarantee of keeping costs down anymore if you live in a municipality like I do where property tax assessments are based on the potential for development of the property, as opposed to actual use. If they decide your coffee shop could be redeveloped into a large apartment building they will tax you that much. http://www.theglobeandmail.com/report-on-business/small-busi...
I used to commute into London from an unremarkable train station that had a remarkable coffee 'hut' on the platform. I was aware that he and his helpers had a 5 a.m. start but their day was not anywhere near as long as the customers with their commutes.
In chatting with the guy I realised he had more money, time, friends, trips to the country and holidays abroad than me. Unlike every other platform coffee place en-route his 'hut' was not part of a chain, the coffee was essentially unbranded. Okay, captive market, known footfall, no opportunity for growth, however, I think that Neville was getting the economics right. He also does customer service and remembers everyone's name. So by the time you get to the front of the queue your drink will be made to your normal specifications already. As well as working back the queue he also keeps an eye on time, so he will give you a wink or a no if there really is no chance of you getting your drink and the train.
There is no branding, no lifestyle to be sold, just what you want for your commute. Prices are not overly cheap but certainly not expensive for London. So you pay a fair price for a fair product.
His helpers are family members as well as his daughter's friends. So it is a team of two on site with his other half dropping off supplies. Despite the dawn starts they have nothing to complain about, job satisfaction is high.
I respect the business acumen and hard work that goes on at this particular owner operated place, it is a business I want to support. I don't feel I have to though, I would buy from the nearby Costa if that was the only option and pay the 50p surcharge with delay.
I don't believe Neville is waiting for Starbucks to buy him out for millions and I doubt that he cares that his kids go into the business, since he hasn't even 'expanded' to the other platform yet - 'branched out' - I doubt he wants to take on the world with some mission statement to deliver excellent coffee (with everyone's names remembered). There is no romantic love of coffee, the business is just what it is, there is no struggle, it is all under control.
Edit...
P.S. What happened to Slate, why are they no longer a thing?
This model sounds extremely dependent on getting a good deal on the rent for an exclusive "on platform" hut. If you have a long term cheap lease from the local gov't, it's much easier to have high job satisfaction.
I would estimate that Neville can sell about 100 coffees per day with a profit of about £1 per coffee, so he earns around of the order of £100 per day. Surely that can't be more than you, unless I'm nearly an order of magnitude too low in my estimates?
That is a low estimate for an hour, I am too focused on getting the train to get the stopwatch out and count cups served, but there is a queue and a lot of fast action behind the counter. Unlike Starbucks there is also multi-tasking and multi-threading going on. But yes, I will have to ask him the direct questions on how it works as a business one day.
I worked a a cafe called Zesto's while I was in high school.
From the outside, it looked wonderful. Really inviting. Wood booths. Just inviting.
We served a lot of speciality coffees, and had a small menu. Moosewood recipe soups, burritos, lumpia's, etc.
It started off doing pretty good business. Then the dentist(who was the financial backer) decided to hang out, and micromanage. After all he was a Dr., and let us know.
Sales were going up, but ge wanted more profit.
His first mistake was to cut back on portions. I never told him, but burrito buyers don't like small burritos. Plus--the cost of rice, and beans don't cost much.
He literally irritated all the workers with his presence. He treated the better/honest employees like dirt. The ass kissers were robbing him blind, but he just thought they were great.
Within a year, workers were stealing, and giving away food.
I went down with the ship, and bought the espresso machine in the chapter 7, or 13 fire sale. I still have it.
I learned I would never open a resturant, nor coffee house.
I learned you never cut back on portions.
You don't piss off the help.
There's a lot you just shouldn't do in the resturant business.
Raising prices is fine, if you increase quality, and portions, especially if your demographics are young people.
I always thought if I was forced to go into the food business, it would be a pizza parlor near a college. Cost of ingredients for pizza is low. There's a reason Papa John is a billionarie.
I do regret not opening up a place where young people could dance, and drink. The amount of money people spend in their twenties drinking, looking for that special someone is staggering. If I had what I spent in my twenties on essentially looking for a mate; I could retire.
> I do regret not opening up a place where young people could dance, and drink. The amount of money people spend in their twenties drinking, looking for that special someone is staggering. If I had what I spent in my twenties on essentially looking for a mate; I could retire.
Hehe as someone in their twenties looking for a mate, I can relate. I try to rationalize the expense as "having good experiences" and to be fair, I've had quite a few remarkable ones. And I do honestly think that hanging out with close friends over a beer is very relaxing, when done occasionally (e.g. over the weekend to catch up). But the financially minded part of me can't believe how much I spend on rideshare, cover, drinks, food etc.
The house brew too cold to be sold for $1 a cup was chilled further and reborn at $2.50 a cup as iced coffee, a drink whose appeal I do not even pretend to grasp.
That's because they're doing it wrong: for a tasty iced coffee, don't use stale cold coffee, make a fresh (double) espresso (or any other strong coffee, I suppose) and immediately chill it with ice.
There are three ways I know of, your americano on ice method, the brew cold overnight method, and their method.
All three produce varying acidity levels of the same horrible drink, IMO. Most people I see drinking iced coffee either A. drown it in sweeteners and cream, or B. just slam it down black for the fastest caffeine intake on a hot day.
I'm sure many people disagree with me, but I've tried it in probably every form there is, and it's just a waste of coffee to me.
Finally a sane man in a sea of sycophants! I love coffee, I absolutely do not get cold brew. Its the worst thing you can do with those beans. I read a while ago on a hot day a hot beverage actually helps cool you[1] making cold brew even make less sense.
1. A great cold brew has so much more flavor to me than hot brewed coffee. It also is significantly less acidic, which helps my stomach a lot.
2. If I ever consider the weather while ordering beverages, I do so strictly to avoid an uncomfortable carrying situation (carrying a cold drink in an even colder environment). My warm bloodedness gives me a lot of agency to drink what I want and not what the weather tells me.
I know taste is subjective, but this really threw me for a loop because I love cold brew. I brew a new pitcher every week, and can use it whenever I need in a variety of drinks. Usually, I just add a little milk in the mornings. I've never had a problem with the taste.
I've spoken to various friends over the years who start businesses doing something that they love.
They aren't ready to hear the tough realities until they have hit the hard downside and possibly gone out of business. After that point, they get a real understanding of why the most important thing in business is how much cash comes in. Before that point they tend to be not much interested in understanding cash.
Prices are quite high there but it's not a superbly highly trafficked place. Revenues do not seem super high, though the place is seemingly never empty (unlike PA, VdT seems to be the only good cafe in downtown Los altos; Satura doesn't make the cut esp after ownership change).
They seem to be experimenting with their offerings, which is either the proprietors satisfying their whims or searching for a winning formula.
Also I imagine they bought the land from Maria's Antiques so it'll take forever to recoup costs there (though I guess the land will just appreciate).
In any case I'm happy they're around. Sad that they changed their macaroon recipe.
The real question is how Area 151 in downtown Los altos possibly turns a profit. Is that one of Sergey's toys?
The story is the same the world over. No matter what business it is - be VERY careful starting a business around something that you are passionate about, love as a hobby, or that people tell you you are good at.
There is a BIG difference between doing something part time because you love doing it, and doing it all day every day (including weekends) because you HAVE to. The excitement of 'being your own boss' is quickly ripped away when you realise that you have a thousand bosses - EVERY SINGLE customer of yours is essentially your boss for a short time.
Not that it isn't rewarding, but as others have pointed out in here, you have to go into it with the right expectations. I highly recommend that anyone looking to start a business reads Michael Gerber's "The E-Myth Revisited". It will outline a different way of looking at your business at the outset.
Back to the coffee shop though - unfortunately, a lot of lay people still see the romantic notions around owning a coffee shop, and they all assume that business owners are raking cash in and are out to rip off the poor workers. Here in Australia there was a big backlash recently when conditions around weekend overtime rates were changed, affecting a lot of people in the hospitality industry. Coffee shop, cafe and restaurant owners were castigated by the media and the public for not deigning to pay staff time and a half or double time on weekends etc.
Nothing against paying workers fairly, but I know many friends who run such establishments. For many of them, opening on a Sunday or a Public Holiday is mandated by the mall or premises they are in (written into their lease), and for most of them, weekend trade actually COSTS them money, rather than makes them anything. Unless of course they reduce staff and work weekends themselves, but staff calling in sick or not turning up for shifts mid week usually means they work 7 days a week.
Nearly every cafe in my town closes at around 2 or 3 pm, after the lunch rush because demand is so low after that that it is economic suicide to try and keep the doors open and pay wages etc. for a handful of customers. Bad luck that I tend to try and arrange meetings and do work outside my home office in the late afternoon...
> EVERY SINGLE customer of yours is essentially your boss for a short time.
A fallacy. The other day I signed an employment agreement and among other unreasonable matter (aka normal employer employee relations in US) enjoyed the bit about their version of extended at-will agreement having the additional meaning of changing the pay, position, and responsibilities "without notice". :)
Your customer may be your "boss" but she is not your employer.
I can guarantee that pretty much EVERY business owner has at one stage, or more than once, had to work extra time after hours for no compensation in order to resolve a customer issue or fix a bad situation. Sometimes even do the job of another employee who is unavailable.
One of my customers owns a multi million dollar food wholesale business with nearly 50 employees, and recently one day he had to drive the delivery truck himself to one particular defence site to meet the terms of their contract because one of his drivers called in sick and everyone else was out.
If that doesn't constitute change of pay, position and responsibilities "without notice", then I am not sure what does. Granted, not a permanent or a legal change, but they have (and will exercise) that privilege over you from time to time.
I've run my own business for over 30 years now, and many time the very survivability of my business hinged upon just a single large customer making their payment on time or renewing a massive contract.
Pretty much the same as if you had a boss and your future employment hinged upon getting this particular project just right.
You can literally go out of business over night if one of your suppliers change business practices, or the law changes, or your lease is up, or interest rates changed, or postage changed, or the price oil changed, or your neighbors changed, or your neighborhood changed, or taxes changed, or the market changed, or society changed, or the economy changed, or thousands of more reasons.
The lesson is, with no secret sauce, you're competing against everyone else with a home equity loan and some desire.
Any secret sauce would have helped. Not literally caramel flavoring syrup but anything at all that makes the business special or unique. Fund all your capex off kickstarter. Hybrid model "hacking" the local zoning codes by putting software devs in the back room and having meetings with amazing coffee in the front. Offer non-traditional food, maybe coffee and gyros or coffee and bbq. Organic and healthy is massively oversold, how about molecular gastronomy coffee that tastes like watermelons or stinky cheese, or is florescent orange. A lot of cash based local retail is only in business long term because of money laundering, you can't compete with a guy stuffing $25K/month of weed growing cash into his register when you're not growing $25K/month of weed, so I'm not saying you have to do something illegal, but if the numbers don't work out if you do everything legally, that's because the successful competition is doing it illegally, so you'd be a fool to compete solely legally, and in some cities that means you simply cannot compete in cash based walk in retail unless you're willing to grow weed on the side, find another city, find another market, learn some gardening skills, but if your competitor has an extra $10K of cash revenue that you don't, you can forget about it.
A job looking fun cool and trendy means you'll have the local divorced dentist or ER doctor funding it as a hobby to be cool and meet people. Again you can't compete unless you have a similar funding source. You can't sell coffee if a local NBA player thinks financing his mom's coffee shop or antique store or froyo shop would be oh so trendy and cool. Very few NFL players or CEOs think that their wives should operate a septic tank pumping business as want-raprenuers to keep them out of trouble, therefore you can make great piles of money going into exactly that kind of work.
"We're gonna be just like everyone else" is in good times and bad, and the bad times are really, really bad and business lifespan is extremely short, so with a strategy like that, they're doomed like every other cookie cutter that fails.
Uber for septic tank pumping. Hey he's out in the tanker truck and your tank needs pumping, swipe right or swipe left, either way its a business more likely to survive than most, as long as humanity continues to poop.
Another strange idea... rural monthly delivery boxes, today you get a new bespoke artisinal flypaper. Or .22LR ammo monthly gift box, do I get the frangibles this week or the varmint hunting high speeds?
I knew a guy who ran a famous coffeehouse once. He made so many mistakes, truly glorious fuckups, and came out of it with barely any skin left on his ass.
He's a multi-millionaire now, having built a major tech company. I always look back on his coffeehouse days and wonder just how incredibly valuable it must have been, to be able to suffer such colossal screwups and come out of it with enough knowledge, tenacity and sheer willpower to continue in the capitalist game.
One of the conclusions from this thought process is that he must really have learned to deal with customers, principally, as his business grew/failed, in spite of it all. And, I think, that's really the only good reason to own/manage a coffeehouse: you really like the customers.
Someone on Twitter posted an excerpt about profit margins from the Southwest Airlines CEO's book. Looks like it was about 7.5%. Or as the book puts it, the lost of just one customer per flight reduces their profit on that flight by 20%:
100k personal profit on a mill in revenue is pretty nice actually in my opinion. I'm just working for a firm where my contributions are likely resulting in revenues higher than that and I'm receiving similar compensation, without actually owning the vehicle of growth.
If you've really figured out a way to grab 10% of REVENUE_X that's reproducible, you're a golden goose with your choice of owners.
Maybe, except all evidence is that the restaurant industry is not reproducible year over year. Trends change, a new competitor opens down the block, or maybe the big employer across the street announces layoffs spurring customers to rethink their discretionary spend.
If you set up a sole proprietorship, the profits of the business are your personal income.
Set up an LLC, and each of the partners gets their profit split taxed as personal income. However, profits can be reduced by spending more, and many more things are untaxable expenses for a business.
Set up an actual corporation, and you pay corporate taxes on profits, not income taxes. You still pay income taxes on salary.
Slightly longer answer: there are various ways allowed under the US tax code to receive income from a business and have it taxed not as salary; some of those ways have significantly lower marginal rates than if the income were salary; none of those tricks is going to do you much good at the $100k tier though. May as well think of it as salary for tax purposes.
What you could, and likely would do as this business owner with $100k in profit, is you'd arrange for the business to buy things that are legitimate business expenses but also make your life nicer and/or cause you to need to spend less money from your personal finances. e.g. you need computers, phones, tablets to conduct your business so now you don't need to buy any of those things with your own money. You can't do this with cars, fwiw.
Since when? I've known a number of people who bought their vehicles with business money for a business writeoff. The least likely to survive audit was the carpenter whose Corvette was a "company car."
Disclaimer: I'm not a chartered accountant or a licenced tax advisor.
In the US, personal earnings are subject to two categories of tax: (1) payroll (Social Security and Medicare) tax and (2) income tax. These work very differently.
Payroll tax is assessed on the top line of your income (e.g. the $100k) and is a flat rate (15.3% for self-employed individuals). Income tax is assessed on that $100k after itemised and/or standard deductions. Most states also have income tax, and you can deduct what you paid to the state from your taxable income for federal tax purposes and so forth. You can also deduct half of your self-employment tax. Some top-tier cities also have municipal income tax (e.g. SF, NYC). It gets complicated.
So, in a worst-case scenario (the one I ran with for years out of laziness and ignorance), you make $100k, you pay $15,300 of payroll tax on it, then you pay some additional amount of income tax based on a figure lower than $100k, and subject to graduated tax brackets at the state and federal level. The federal tax will unquestionably be higher. But the amount you pay income tax on will be adjusted downward based on tax-deductible factors like mortgage interest, dependents (children) and so forth.
Wage and salary _employees_ do not pay 15.3% in payroll tax. They pay 7.65% and their employer pays the other half.
As a practical matter, what most small business owners smarter than me do is that they choose an incorporation structure which allows them to be employees of that entity, rather than self-employed. An Subchapter S corporation ("S-Corp") is very popular. This allows them to take some portion of that $100k as salary and some of it as a "distribution" (kind of like a dividend), with the latter not subject to payroll tax at all, but only income tax.
There are no definite rules on how much you can take as salary and how much as distribution. Extremes obviously won't fly with the IRS, such as paying yourself a $10k salary and the other $90k in distributions. However, in general, the salary one can get away with paying onesself can be rather generously low, as it usually takes into account the "just starting out" characteristics of the business and is based on the lower end of the spectrum for market-rate compensation in the given field. So, a good accountant will typically set up a salary of something like $30k (+/-) in this hypothetical scenario. Or less if it's a coffee shop, since baristas aren't highly paid. The general rule is to pay yourself the smallest salary you can get away with, since only salary is subject to payroll tax. You'll pay 7.65% payroll tax on that (with the company kicking in the other 7.65%), and just income tax on $100k, graduated and after deductions.
This leads to considerable savings. A number of people I know, as well as myself, pay(paid) far less in income tax than they do in payroll tax, once deduction-maximising strategies are considered. As a hypothetical example, $2300 in payroll tax on the salary, then something like $15k-$20k in income tax.
Actual income tax varies wildly with available personal deductions, but that would be fairly typical for someone married, with children, a lower-earning or non-working spouse, and a house on whose mortgage they pay interest. Single people who don't have many itemised deductions to exploit on the personal side of their tax return are disadvantaged and may pay more (e.g. $25k-$30k). You can get some idea here:
ymmv, but according to our business accountant this trick of paying yourself a very low salary is not kosher with the IRS. They want to see a salary that is justifiable in the context of the market rate for the job(s) you perform for the business. If your salary is significantly lower than that, they are not happy. They are also aware of the idea that the CEO of a coffee shop is not in fact a barista.
Also remember that the FICA tax is capped, so above $117k taxable income there isn't such a big spread between wages income and schedule K income.
Business is never easy, except if you are lucky. They guy was an idiot. Rule #1 in many businesses (e.g. coffee ships, restaurant, hotels, hostels etc.) you are not in the food business or hospitality business but in the real estate business.
Do you know the 3 most important things in Real Estate?
Location, Location and Location.
Also, besides the location, a cheap rent is crucial to your success. I have seen dentists (in Europe) going out of business because of the rent. In many businesses you are in fact in the real estate business. Have you seen the recent movie about McDonnalds? "Founder"?
Quote: " You build an empire by owning the land. You're not in the burger business. You're in the real estate business."
Author went on to right an enjoyable novel about the whole affair: https://www.amazon.com/Kofemolka-M-Idov/dp/5271245489 (not sure if there's an English version). He later went on to become the editor-in-chief of Russian GQ, and I think, got the return on his investment in some way as his literary career progressed.
Following your passion can also make you blind to your mistakes. I know a guy who failed at an Irish pub. Guy was totally blind to all his mistakes that where extremely obvious to both me and (at least some of) his staff. He was too busy living the dream of meeting patrons, hosting his friends, and singing for strangers to really see where he was going wrong from the business perspective. His business practices were just all over the place - no actual concrete plans. He seemed to have a "fun first, business second" attitude. When he closed he blamed it on "the market," guess he didn't notice that every other place on the same street was busier than ever.
I have forwarded this piece to dozens of people I know who told me they wanted to open a nice little local coffeeshop. Some of them might have thought I was a killjoy at the time, but I know for a fact at least a few of them are glad they never did it.
I own a coffee shop in addition to my tech work. Most people know having runway is important to any startup. If he had to declare bankruptcy 6 months after opening he wasn't set up for success.
If you make good coffee, choose the right location, and do a decent job of marketing you can get cash flow positive with time. Acquiring customers can be slow, but once they taste good coffee they will come back.
Much of the other comments here are true, you don't open a coffeeshop to get rich. The only way you can make good money is to scale into multiple locations.
So true! The worst part is, I am rebuilding my capital in a cube farm to make up for all the fun I had running my Art Gallery/Pottery shop -- but I still dream of doing it again.
Anthony Bourdain, who wrote our epitaph in Kitchen Confidential: "The most dangerous species of owner ... is the one who gets into the business for love."
In a way, I think the main problem was lack of research. I've dreamed about opening a small cafe or coffee shop - as simple of one as possible - and worked in one such place with a chef (It was only me and him most days, save weekends).
Restaurants are a bit unique. They are horribly expensive to start up. Coffee machines, kitchen equipment that meets state regulations. In Indiana, this includes getting certified by the board of health as well (You have to have someone certified on sanitation and food safety working at all times). Location is really important, and folks often work really long hours.
Many many close within a year - I've read many similar stories. Folks are doing exceptionally well if you make any profit the first year, and the second year can be a loss as well. Even after you get some profit, margins tend to be thin.
I still think it would be gratifying, but the risk is rather high.
Because the coffee has a ridiculous markup on it, and they are brilliant at marketing. Microwave breakfast sandwiches with names like "Double smoked bacon and egg". Frozen pound cake for 3 dollars a slice. Lattes for up to 5 dollars each.
And a constant flow of customers and it being just uncomfortable enough for people not to stay too long.
> it being just uncomfortable enough for people not to stay too long.
OMG this is so true. I suspect their tables and arrangement may also be designed for this, as I've never felt too comfortable working from any starbucks (they are usually too small for me).
Another factor I've found, at least in Austin and outside the collegy areas: they're filled with Teenagers. This isn't bad in itself, except that they're often loud when in groups.
I noticed the coffee shop near my university replaced their tables with tiny little things that cannot properly hold up a laptop. I'm quite sure that was the intent.
right, my shops still here because they got on the fancy spency coffee game early on (2010). sold to blue bottle, opened another 10 blocks away with even higher prices (the one i described)
I go into the farm business because cows are so cool and cute animals. Then realize that money does not flow into my window but that farming is actually really a business. Then I write a blog post and resubmit on hackernews: "My farm nightmare (2018)". The TLDR would be: idiot opens farm, goes bankrupt, posts on blog.
That's not the most useful summary. I would summarize it as a cautionary tale: "It's easy to convince yourself the numbers will work out when doing something you love." Be rational. Many people who are not idiots make similar mistakes.
I have a few close friends who are cafe owners in NH (and when the time is right I will probably open one as a "side project"), and even here, getting a low-volume cafe or a two-person cafe working well, with staff dedicated to preparing food at bad margins is unlikely. Instead focus on coffee coffee coffee or raise your margins until you're happy to sell every item.
I don't think he understands the leeway he has on prices. Imagine the article his competitor (still in business) didn't write. It goes like this: "We doubled the prices of food expecting demand to go down, but it went up!"
Humans, they aren't rational. And the "coffee buyer" breed of human, they are hardly the price-sensitive crowd. At least in New Hampshire, you already lost the price sensitive crowd to Dunkins. Forget them. Sell the amazing $3.50 croissants with pride. The people who crave it will come no matter the price.
* there are no good croissants in New Hampshire.