Tips from Forbes

• Original article here
• Consistently serving the finest espresso – It is rare in business to discover a product where consistently offering 100% quality is the best commercial decision you can make. In fact, I am the greatest advocate for the 80% is perfect model. But espresso coffee is one of those rare products where consistent 100% quality matters. Customers will walk past ten other competitors to get the best espresso, which is why this factor alone means you don’t need the highly visible, most expensive location. So buy the best espresso coffee machine (3/4 group Italian made with e61 groupheads and set to the right pump and temperature levels), install it with a water purifier and demineralizer, use a conical grinder, and only buy top quality Arabica or Arabica 90%/Robusta 10% freshly roasted beans, and make sure every cup is made by a fully trained barista who is continually seeking the ‘god shot.’
• Ergonomics is vital – Make sure the coffee workstation and layout is such that the barista hardly moves their feet in performing all their coffee making duties, and they are not competing for the space with other staff members. High volume coffee sales are the foundation stone of every coffee shop, so make sure this workstation is perfectly laid out with easy access to underneath bins, bean storage, and bar fridge milk, having the right height benchtop with easy access to cups, grinder, accessories, and reachable overhead storage of supplies. The best setups also have a small inbuilt sink to allow for quick and easy ongoing cleaning. Also, place the cash register on the front counter in close proximity to the barista’s workstation. This allows the barista to hear the customer orders and get a head start on making them in the busy times, while allowing the barista to work alone in an efficient way in the very slow times.
• Use loyalty cards – I resisted using these for a long time … but they really do work. Make sure it is a quality card that will last the wear and tear and look good in a customer’s wallet. Nothing better than seeing a new customer’s face light up when you give them a buy seven get the eighth one free loyalty card, but tick off six of them so that on their very next purchase they get a free one. Cheapest customer acquisition ever.
• Promote multiple sales – A coffee shop will never make enough money to pay the bills from coffee sales alone. Coffee may be the prime motivator for customers coming to the business, but they must leave with multiple sales if you are going to be successful. As a target, coffee should be no more than 40% of your weekly sales and two item sales per customer transaction means you are getting it about right. So make sure the traditional coffee accompaniments (muffins, cookies, cakes) are close by at the point of sale, and the coffee shop offers cold food, cold drinks, and hot food to ensure the best chance of multiple sales.
• Limit the assortment – Many newbies in the coffee shop game think that wide assortments and extensive product offers are a key competitive advantage. They forget that the customer is simply hungry or thirsty or both, and that a wide choice for most people creates anguish. So cover the necessary categories, but with limited and strategic offers. (e.g. three flavors are enough, three sizes are enough, three types of food/drink are enough). Every item you add to the assortment creates many multiples of management effort (costs) and mostly without adding anything to the revenue streams or customer experience.
• Merchandise your margins – Price according to perceived customer value, not according to accounting determined markups. For some well known items you will need to be at (coffee) or even below market price (coke can), and this loss should be made up with high margins on other items that are exclusive to you or in the ‘don’t-care and addictive’ mindset of your customers. So don’t add a blanket markup to your entire assortment, but price line by line according to customer expectations and what the market will bear.
• Get your beachhead strategies right – Getting traction in a competitive marketplace like coffee shops is vital, and you will need to have a clear understanding of how to get customers to initially give you a go and a plan for keeping them returning and referring you to their friends. This is a whole other topic that I have now written about here … What are some Biz Dev best practices for startups?.
• Counter service – Counter service is the cheapest most efficient and effective service system for a coffee shop, and it is now fully accepted by customers, thanks to the global success of McDonalds. Counter service is hassle free for both you and your customer, and it significantly reduces your wages bill. So get the customers to order and pay upfront, give them a number on a stand with their drinks, and deliver the food or better still give them a buzzer that calls them up to the counter when the food is ready. Counter service means that you can handle the peak demands that occur in coffee shops at breakfast and lunch, and it is a lot less stressful on everyone, ensuring the friendly banter can remain an important part of your offer.
• Pre-make as much as possible – Custom-made assortments assume that the customers know precisely what they want. They don’t. Customers see you as the expert and are hoping that you will suggest to them what combination of food/drinks they should be trying. In a coffee shop context, I found it best to pre-make the food and leave the custom making to the coffee. Custom food is also a high cost option for you because you can’t get the economies of scale making-to-order, and it limits your turnover in those peak periods where you should be busy pumping out the sales as quickly as possible, not spending the time making custom orders.
• Understand what you are really selling – Too many businesses, including coffee shop owners, don’t fully understand the need they are really satisfying for their customers, and so they often concentrate on the wrong parts of their offer. Customers frequent a coffee shop for many more reasons than just hunger and thirst. There is the escape from a stressful office, the chance to maintain or grow a relationship, a place to get away to do some reflective work, a chance to engage with familiar coffee shop staff at a particularly lonely time, or as a place to do business and reach an agreement. Understanding the needs you are really catering to will help you better construct your offer and make decisions that keep your customers returning and so maintaining the coffee shop’s success.
• Target TGT -3.22% takeaways – I know all your friends will tell you to get comfortable lounges, free Wi-Fi, table service, and lots of in-house entertainment … but customers sitting on one cup of coffee for hours enjoying all these benefits won’t pay your rent. My most financially successful coffee shops had a limited number of not-so-comfortable bench & bar stools to make the coffee shop look lived in and loved, but I concentrated on building the takeaway business. Takeaway customers pay the same price as the sit-down customer, but without any of the occupancy costs, and you will serve ten of them by the time your sit down customer has finished sipping on their first cup of coffee as they enjoy a chat with their friends on Facebook using your free Wi-Fi.
• Serve on the front line - Coffee shops, like restaurants, are much more a people/service business than they are a goods/transactional one. While a goods/transactional business can still succeed with a non-present owner, a coffee shop needs the owner’s care, attention, and engagement. Customers expect it, and staff are far more enlivened when the owner in on hand taking orders or making coffee or is generally hovering in active care of the business.
• You don't need a high traffic location - High traffic locations are more competitive, with higher rent. You don't necessarily need this for coffee or food - as long as you're a little close, even if you're a little off the main drag.

Ways Cafes Fail

• Original article here
• Compliance fear - Being so overawed by the myriad of compliance issues surrounding food service that you rush into the waiting arms of fear-mitigating advisers who can single-handedly wipe out your budget and ability to spend money where it matters most. (i.e. customer experience and marketing). The cost of compliance at the outset can cripple a cafe in such a way that they never really recover.
• Kitchen rules too much - Same goes for over investing in a state-of-the-art kitchen rather than the customer experience in the 'front of house'. Beware the chef who thinks that 'food art' is more important than consistently reliable, quick and friendly service.
• Poor ergonomics in design - With a low average unit sale, cafes need to process thousands of transactions per day to be sustainable. If the coffee making area is not ergonomically designed, the order taking and payment system is not efficient and effective and the food production requires lots of human movement then your cafe's physical service limit may curb your ability to reach sustainability, not to mention the huge wages bill poor ergonomics can create.
• Coffee only - Coffee has great gross profit margins however you don't pay the rent in percentages - you pay it in dollars. Cafes with a coffee only/mostly strategy can be very busy all day, but still not generate enough gross profit dollars to pay for all the costs. A cafe must have a 'coffee plus' strategy at the outset if it is going to secure sufficient turnover to be sustainable. i.e. coffee plus bakery item or food item
• Too wastage focus - Many newbies to the food game are horrified by the wastage that is inherent in a well run cafe. So, they begin to reduce the amount of product on display or they hold on to food items longer than they should. Trouble is, you will never build your business to sustainable levels if the shelves are scant and customers experience even the hint of stale food. In fact, you begin the slow spiral slide into failure.
• Too profit focused - Similar to wastage focus, a profit focus too early tries to screw suppliers on price rather than concentrate on building the more important partnership relationship and reliable delivery and being overtly stingy with portion sizes and worrying too much about the profit in the sale and not worrying enough on 'winning the customer' (acquisition style). 'Make the customer not the sale' is an important startup catch phrase as is the truth that 'you can go broke being obsessed with profit'.
• Poor staffing - Cafes don't just sell food/drink ... they sell stress relief, belonging, recognition, feel good, connection and many other intangible value-add benefits that only come from how you and your staff engage with the customers. The cafe with the staff that make a feature out of remembering customer names, their standard orders and yesterday's discussion succeeds, while those that don't fail. Customers in cafes may soon forget what you sold them but they will never forget how you made them feel.
• Too wide an offer - Many startup cafes offer too much choice when the customer is basically just hungry and thirsty. Wide assortment offers are difficult to manage and can increase costs and lead to poor quality outcomes that lead to lost sales and lost customers. Better to be 'inch wide - mile deep' when determining assortment offers in cafes.
• Unsuitable location - I agree with Jason Nuss that an unsuitable location can be the single biggest reason why cafes fail. I have had one fail with too much unfocused traffic (train station) and too little attention traffic (down a lane). My best 'A' location cafes served a static, high density clientele during week days which was also on a busy tourist route during weekends.
• Poor pricing strategy - Cafes are already struggling with industry prices that make the establishment of a sustainable business difficult. Add to this some poor pricing strategies and you set up a guaranteed failure. For example, discounting your espresso coffee price to 'get business' when it is the one product that is least price sensitive if the quality is high. Also, charging an average price for products or basing the selling price on costs rather than on market expectation. Sustainable cafe pricing needs to be built on clever 'subjective margins' see here What are some examples of products or services that are priced by value rather than by cost?

Products/Services Whose Value Outweighs Costs

• Original article here
• Urgency - example ... Fedex "When it absolutely, positively has to be there overnight" or the 1hr photo processing being twice the price of the 24hour processing.
• Self-esteem - example ... brand name bags like Prada and Louis Vuitton or products aligned with the latest fashion, the latest social cause or the latest tech. innovation.
• Pain relief - example ... road side vehicle breakdown service like RACQ in Queensland Australia or the locksmith that opens the door for a person that has locked themselves out of their apartment at 11:00pm at night.
• Fear mitigation - example ... the 'stock in trade' product for most legal services.
• Scarcity - example ... Hot chips or beer at the football where there is only one outlet selling inside the stadium and it would be too inconvenient to leave the stadium to find something cheaper.
• Quality sounding name - example ... "Royal Reserve" in wine, "Gold Class" in movie tickets, "Platinum service" for online subscription or any product name that sounds expensive or luxurious.
• High emotional experiences - example ... all wedding products, special anniversary products like 'top-end' restaurant meals, exotic travel or adrenalin-rush products.
• One shots - example ... services relating to 'openings' or product/business launches like Mercedes latest car launch, this year's sport final, a one-off entertainer appearance, a famous band's last tour.
• Vital small cogs - example ... ENZED rubber hose replacement on expensive machinery in Australia or any small vital product that maintains the operation or function of a larger more expensive machine or operation.
• Sentimental value - example ... photos of your daughter's graduation or photos from a memorable cruise or any products that provide great sentimental value for the customer.
• Indulgence - example ... a shop called 'Death by chocolate' that sells products that fully honor its name or a pampering day-spa for women.

Getting Off the Ground (Business Development)

• Article link can be found here
• (1) Build Momentum - i.e. taking actions that make the business appear successful from the customer’s point of view and so create a desire by them to engage.
  • If needs be, rent-a-crowd of friends and family, offer lost leaders and opening specials, create a fun-loving buzz about your offer/enterprise, encourage 'ownership' by staff and partners, focus on winning over the internal staff, technicians and suppliers first and exude confidence as a relaxed winner who has faith in their offer and strategy.
• (2) Become the topic of conversation - i.e. taking actions designed to get your target market talking about you in a positive way. The goal is to gatecrash their everyday conversations.
  • Be a little quirky and unusual at the start, get in the news with press releases and friendly PR, give early customers a post-sale benefit, offer outstanding quality on some products to elicit the customer's ‘To die for’ response, create theater with technology, machinery and/or people skills in the supply of your product/service.
• (3) Work with your champions - i.e. these are people (usually early adopters) who take great delight in giving referrals for your offer that will reflect positively on themselves as opinion leaders, cutting edge switched-on and with-it observers or simply being acknowledged by their friends as possessing good judgment.
  • Acknowledge them as 'friends of the business' - get their names and use it always, reward them with praise, 'love the one your with' by spending no time being anxious about customers that you don’t have, treat their customer referrals like royalty.
• (4) Create memorable experiences - i.e. taking actions to create experiences that are way beyond what your customer would expect from your competitors in the same situation.
  • Turn transactions into a fun and enjoyable experience, take the opportunity to trust your potential customer if ever offered the chance, let them try before they buy, give them some useful/important information about the product that your competitors have never told them.
  • Host events that will create memories. Alcohol, fun games, other unusual/novel diversions that allow people to safely (i.e. without losing face) set aside their banal cares for a time. Games in which propriety is carefully revoked, where all sorts of people can embrace childishness, creativity and silliness in a place that is socially accepting but also holds an element of danger and sex-appeal.
• (5) Create addictions - i.e. taking actions to promote products or services that your customers could become highly addicted to.
  • Create a loyalty reward scheme, don't drop any of your initial offer no matter how slow the sales (keep the faith with the customers), if the cashflow can afford it – make the first three uses free, organize your assortment at the start to sell a splattering of highly addictive products.
• (6) Break habits and break through - i.e. taking actions to break the habit of your target market who have habitually gone to your competitor ... but do so without starting a war with the competitors.
  • Outflank your competitors by being open for business when your competitor is closed, offer products that are not offered by your competitors, if cashflow and expertise are sufficient, then secure your business via a difficult route that few competitors would be comfortable to follow, engage the spies (champion customers and supportive suppliers) to understand your competitors actions/reactions, stay under the radar with your competitors (Don’t do things or make statements that directly threaten your competitors and force them to react)
• (7) Remove barriers - i.e. taking actions that make it easy for the customer to engage with you and your products, without them feeling the pressure of commitment.
  • ‘Blood the business’ by making the first sales of your business to non-core customers in non-core times to relax you and your stakeholders, create a public commons where customers can feel belongs to them, make sure you are easily found and identified by making your signage clear and significant, use music, TV or specific sounds to create the easy to enter environment, encourage the uninterrupted browse, initially include and make highly visible brands that your customer is very familiar with, present professionally, present with permanency, legitimize, be associated with established authorities, make the transition from public-space to your-space as smooth as possible.
• (8) Linkup with the locals - i.e. taking actions that support those activities that are conducted by other businesses and community groups in your target area.
  • Create as many allies as possible with surrounding businesses, create a notice board that allows your community groups and other businesses to advertise special events, design giveaways that make them look good to their customers by offering a freebee at your business, aim to keep the customer in the local area for all their needs.

Other

• Separate order for specialty coffee drinks or food.
• Play music, provide entertainment
• Display local art
• Discount for customers who bring their own cup, unless it's a m$therf$cking Starbucks cup.
• hold cupping sessions for baristas