Why coffee shops fail
July 19, 2011
Birmingham Coffee Scene part 3
September 24, 2011

It was never a question of do we open a 2nd emporium it was always when, we had multiple emporiums in the business plan from day one.

Something that troubled us for a while was when do we start to look for a 2nd emporium. Do we wait until we have completed a full year so we are sure we have seen all the seasons and the ebs and flows of business that comes with them. So many retail businesses don’t survive the opening of a second outlet and lots of people we spoke to in the industry said it is the hardest thing to do.

A second outlet is difficult because you have to build on a strong foundation with your first outlet and if its just sand you are building on you stand a good chance of toppling the lot. Your second outlet is going to test everything you have; cash flow, capital reserves, staff, suppliers, processes, till systems, accounting systems, you name it it will be tested.

The considerations we undertook before making the decision were;

How long would it take to find a new coffee shop?

Our first had taken 6 months to secure so it was likely our 2nd would take similar, property people live in a different timezone to the rest of us. So we started looking 6-months after the first emporium opened and it took us 9 months in the end to sign for our second, which was frustrating becaue we wanted two opened inside 12-months. During our search we looked at 40-50 on paper, 20 or so on foot from the outside and looked around 3 or 4. We made offers on two but couldn’t agree the right rent so walked away before finally finding an emporium in a good location and at the right rent.

TIP: Even if you are not ready start looking early for your outlet because it takes much longer than you think it will.

Is the team ready to take on another emporium?

Do we have the capacity to build a new emporium and still maintain the original. We employed an emporium manager to allow Hannah to step back from day to day operations and concentrate on getting our systems ship shape and ready. We call this a growth activity because the only reason for doing it is to grow the business. The consideration when doing any growth activity is can we afford to, taking Hannah out ment we had to carry her salary and a new emporium managers salary on the revenue of a single emporium. You can only perform growth activity when you are making profit in a business and you don’t need to invest that profit into the existing outlet.

Too many owner managers of coffee shops try to do it themselves, they move and focus on the 2nd outlet and loose focus on the 1st. The typical result is that the 1st outlet starts to suffer, standards drop and revenue follows, then once you have added the strain of the 2nd outlet you have a downwards spiral that can pull the whole thing under.

TIP: Hire for growth don’t try to do it yourself. If you can’t afford to hire someone you are not ready for growth.

Do we have enough capital?

There was no point us trying to start a new emporium if we didn’nt have the capital, a half finished emporium would have ended up costing us a lot more than a finished one so we had to have enough to get it built and open. The brilliant thing about coffee shops is the day you open is the day you start taking money, lots of other businesses can’t do that.

Based on what we had saved (from retained profit) over the first year we thought we had enough to pay for half a new emporium so Amir and I made a directors loan to the business for the other half so we were ready to go.

TIP: Always have a 10% contingency figure in your budget to deal with overuns

Will we be able to hire quality people?

This was a no brainer, we had plenty of choice with staff, there wasn’t a week gone by when we didn’t get a CV through. There have been points in time where all our staff members have had degrees and some had masters. So access to good quality Urbanistas would not be an issue for the 2nd emporium. We hired staff in advance of opening and trained them at our first emproium so as soon as we opened we have trained staff ready to go.

Will our systems survive a second emporium?

Here is where we made our biggest mistake, we assumed our systems would be fine and they weren’t. Systems is a capture all term for all the processes, spreadsheets, bits of paper you produce for each function of the outlet. Some systems we could pick up and drop straight into the new Emporium such as health and safety but others were to break. Our main issue was accounts which rather than becoming twice as complicated appeared to have come 10 times more complicated by adding a second emporium.

The spreadsheets we were using to capture data in were admitely very complicated anyway because we wanted every bit of data we could get hold of but when we added a second equaly complicated spreadsheet and tried to extract that data into one that reported for both Emporiums it broke. Now I don’t want to take anything away from Hannah but I think by her own admission she is not an accountant and was finding making sure the spreadsheets worked was becoming difficult. Having not had any financial issues in the first year Amir and I had done less checking that the numbers we were being presented were factually correct, so 1 month after opening the second emporium it came as a shock that we had a cashflow gap of £12,000 that needed to be filled. The issue had been created by multiple factors; overspend on the 2nd emporium build, the weather (snow) which had caused a 20% dip in revenues and not saving the right amount of VAT. The impact of all of these issues could have been foreseen if the spreadsheets had been working and the data was accurate. So the lesson was learn’t, Amir lent the business a further £12k which was paid back to him within 5 months.

We subsequently asked two experts one paid and the other a friend to look at what we were doing with our financial data and make recommendations, both said we needed to simplify it. We agreed we needed to simplify it for the people in the business but agreed we needed that level of detail to make decision and actually wanted more detail. The challenge was to have the detail but present it to the people in the business simply.

The Result

We opened the new Emproium in the Jewllery Quarter, Birmingham, just before Xmas 2010 and it has gone from strength to strength. Of course we have had issues along the way since opening but overall its a success.