#8: How To Start A Coffee Shop

Sam: Hello and welcome to another episode of the Lazy Entrepreneur. I am your host, Sam Priestley, and I am joined once again by my lovely wife, Emma. Say hello, Emma.

Emma: Helloo.

S: So today we are going to try a new series, so we’ll tell you a bit about how I started one of my businesses. So in this case, the subject is how to start a coffee shop.

E: Sounds good.

S: It was back in 2013 it launched and we had the idea in 2012. It is not one of my best businesses, I would say even though I am not involved in it anymore, the coffee shop is called the rand, it is still going today, but yeah, it never really worked out that well or made much money. It was a lot of work and quite stressful. But even though I think the process of what it took to start it was quite interesting, especially when I came up with the idea when I was 23 years old and it launched when I was 24. So how, as a 24 year old, do you convince people to invest in you and convince landowners to use their premises and stuff like that. So hopefully, if this works out, we’ll make this a regular spot on the podcast and we’ll go through the businesses that worked out and the ones that haven’t as well. So first off, what was the idea? The idea was that in London, especially central, we’ve got loads of really beautiful churches that aren’t really used for anything during the week. Well, at least that’s what I thought going into this idea. Real estate in the city was very expensive but there were all these beautiful buildings with large spaces that weren’t being used. So wouldn’t it be a win win if we could open up those spaces during the week, get more people into the buildings, and earn a bit of money to support these churches which are costly to run and upkeep the building. And I also approached it from a quite naive angle, which I think is actually very important when starting a business. You need your brain to trick you into thinking it is going to be easier than it is.

E: Yeah, that is a bit of a theme across your business isn’t it.

S: Yeah, I always think things are going to be easier and quicker than they are. And in this case, I thought that starting a coffee shop would be an easy business. You’re just putting hot water through a machine and out comes coffee. It is not like running a restaurant where you’re managing the logistics of the kitchen and come up with good menus and create good food. It is just a coffee shop. Sell it for 2.50 each, make it, give it to them, they leave. How hard could it be, how costly could it be, how much equipment could you possibly need? We all make coffee at home.

E: Sounds pretty optimistic to me.

S: Yeah pretty optimistic. But that was it. So then we’ll talk you through the process. This was in 2012 so at the time I was working full time on another intense business called etadvisor. It was quite intense, we had quite a few employees, it was pedal to the medal the whole time, so I don’t know where I found the time or energy to do this. But let’s talk through the process. So we came up with the idea in 2012. I can’t remember exactly what happened. I think I was talking to someone in the queue for somewhere and they mentioned that they were thinking about coffee shops and I was also thinking about coffee shops at the same time. I think previously somewhere before I had sort of gone around and talked to a few landlords about coffee shops and then it just happened that I met someone who had a similar idea. We thought, we kind of discussed it, yeah that is a good idea, let’s go ahead and do it. That guy is called andrew hult, and so the first stage was kind of what I call the free stage. The beginning point of every business is when you don’t really know if it will work out but you invest a bit of your time and energy into planning it out and taking it step by step. Something like a coffee shop you kind of assume that you need to spend a lot of money immediately and dive head in but that is not really how we did it. We gathered a few people together who liked the idea and were willing to work on it for free in their spare time and we wrote a business plan and planned out exactly how it would work. This was particularly important for this kind of business because I realized we had to get a lot of buy in from different people, so first we had to find a church and convince them to rent us out their space, and second we needed to find investors and convince people to give us money to support the idea. So that took a few months and we ended up with a really kind of intense business plan and we had another guy who was helping out who was an architect who could do some lovely drawings of what the things would look like and mark up, even though actually all the stuff he used we ended up not using. And then we started picturing it. And the churches disagreed with us that their space was underused throughout the week. Surprise surprise. So the first church we pitched to was called St Helens Bishops Gates and they were very very nice to us. I think because they had seen we had put in so much effort and had come to them with quite intense proposals and mockups about what their church would look like, quite intense numbers and how it would work out for them, so they were kind enough to just go away and think about it before turning us down, which they did. And eventually when we got the let down, it didn’t just come with a let down, it came with them suggesting some other places that might be interested.

E: So they thought it was a good idea then

S: I don’t know, I don’t think they did. I think they were just nice people. They had some contacts that might be able to make it happen so they put us in touch. SO after a bit of time of pitching to another church and a board of trustees, who went away and thought about it, and this time kind of liked the idea with a few tweaks to it. And it was at that point that we knew it was going to happen. What we were doing was a profit share and a small rent, our kind of pitch was we don’t know what we’re doing, none of us have any experience in coffee shops.

E: So you were quite upfront.

S: Yes, but we were also very confident, and I am not really sure why. I think we impressed them.

E: It sounds like you were really excited and that must have come across.

S: And everyone involved attended church as well and we also wanted to do it for their benefit and we were upfront that, Andrew was working full time on another business, I was working on my business full time, and it wouldn’t make either of us that much money and it was just kind of a hobby business. I like the idea of having my own coffee shop and drinking free coffee and people would come in and have a chat with me and

E: Your kind of office / coffee shop

S: I thought that was a really romantic idea. Yeah, originally, we weren’t sure how we’d do it. Eventually, we made it a not-for-profit, but at this point we hadn’t yet decided and we were still in the stage when we thought we would take out a bit of profit. And we weren’t sure how we were going to raise the money and it is easier to raise money if people are getting a share in the business and if we made it a not-for-profit then there wouldn’t be an opportunity. Even so, we pitched it and we quite liked the idea and it was quite fortuitous because this church was already looking for ways to raise a bit of money because they were going through a refurbishment and they were also looking for someone to do coffee. They had a little space outside the front of the church where they wanted to rent out a coffee cart. So we asked if we could just take up the whole church. Which, yeah, I am still not entirely sure why they liked the idea. I think it just sounded like a no-risk for them.

E: How much were they really using the church at that time? How many services were they having per week?

S: We were only using it Monday- Friday so it wouldn’t have been that useful anyway and this place actually had one on the Thursday lunch where we would close the coffee shop. I think part of our pitch is that we would get more people into the building which is what they wanted. There was this thing about the intimidation of walking into these grand building and they were really just trying to get people in, so having people that were familiar with the place as a coffee shop was probably an easier step for them to then come along to a service. This was all in our pitch and our business plan and stuff and something we believed very strongly in. So at this point we finished kind of the free stage and it was time to put our money where our mouths is. So actually both of us were working full time and it is quite a lot of work starting a coffee shop, so we both put in 5,000 as a loan to the business and then were looking to hire some people to work on it, and what we did, we were trying to boot strap the whole thing and not spend much money until 6 months, and if at 6 months we were just burning through a lot of money, so we put in 5,000 pounds each and then we went and found some people who were willing to work on the business. We basically put together a management team, a general manager and assistant manager. Lyvia and Luciana Perry were the two great people who we ended up hiring and the deal we came to them with is we were paying quite a low wage for the beginning process when there was no money coming in and it still might not happen but we had already agreed on the salary and we might go on to the proper business. So they were kind of incentivized as well, the quicker they get it going, the quicker they get onto a proper salary. I think it worked out roughly that we had with our 10,000 pound investment that we would have about a 5 month runway with these people working on it full time between when we launched, or at least raise more money. So that is what we did and they spent most of their time doing research and finding suppliers. When we started we had no idea what goes on behind a coffee bar. What do you need, the equipment, I remember I used to go around different coffee shops in London and look behind the bar just to see what is going on.

E: You must have looked like such a weirdo.

S: A coffee machine, does that need to be plugged in or not? Do you pour water in the top? Or is it, I don’t know. How do you set everything up. ANd once you get into these things you always come across issues. And one of the issues is that all of these churches are grade one buildings os we couldn’t put any permanent fixtures in. And let me tell you, a coffee bar requires plumbing and a dishwasher and a sink and electricity for your grinders and fridges and where you store the milk and we had a little squirter thing for cleaning the milk jugs afterwards and we had a water tap, all this stuff that we figured we needed, we needed somewhere to put it. And we couldn’t in these churches because they are grade one buildings. So our idea came around once we decided to build a counter thing that was on wheels which then needed all the plumbing that has detached valves that can be moved around. It’s hard, they’re not really things you can buy from anywhere, you can buy a coffee cart but we wanted a 6 meter long counter that you can buy at a coffee shop but it would just be on wheels. So a lot of this time was spent working on what this counter, obviously we needed tables and chairs and stuff but a main thing was setting up this counter and serving point and we ended up going to some carpenters, luckily the architect who helped us before was still helping us now. He helped us produce some tender documents which I had never heard of before but apparently when you send stuff out to tender you give your specification to a bunch of different businesses and they’ll give you quotes, so we did that, it was a new experience.

E: Quite exciting! That he was taking an interest in what you’re doing, coming back with appraisals.

S: And we got to go around to all these cool businesses and look at all these types of wood and all this kind of stuff.

E: Your favorite one was in Sherwhich wasn’t it.

S: That’s the one we ended up going with. They did some really cool stuff for us, we ended up having a spoke kind of design done on the front so the coffee shop was called the Rand Coffee shop in a building designed by Christopher Rand, and after the great fire of london he redesigned London and drew a new map of london of what he thought it should look like and that is what we put on the front of this counter which was really cool but very very bespoke and the price ranges we got were huge from 25,000 to 200,000 pounds for this kind of stuff. But while we were doing all this we weren’t really spending any money we were just getting quotes and speaking to coffee providers and we went with a coffee company called workshop and they helped us find suppliers for the machines and then they helped us and there were different grinders and stuff and we were all kind of advised by the different roasteries.

E: That is kind of interesting because it is in the coffee companies best interest that you have the best roaster for their coffee.

S: Definitely, definitely. And I think one of the things that I was worried about is when you go speak to these suppliers, they say, what is your previous experience? Or just think that you are not serious. But that is not what we got at all, we actually got a huge amount of help both from the roastery and from a bunch of others. Quite a lot of people were able to give us quotes, and said that if we signed up for two years here is the coffee machine we recommend, here is the grinder, here is the discount, because they are linked with the different supplier because they could get slight discounts and they could get some commission on any sales they generate, this is everything you need, we can help you design the workflow of your counter. All this stuff, planning and design was all just time. You know, we were paying for time, but we hadn’t actually spent any money on any of the equipment. But we knew exactly how much it cost and we had the relationships ready to pull the trigger once we were ready. And that is how it kept on going. We ended up going with forces joinery and they ended up dealing with the different providers and different equipment to see how it would all fit in. And then we were planning out our launch. March 1 was our target and everything basically needed to happen at the same time, so in I think beginning of January or end of December is when we started to raise money, what we did is we decided we were going to do a not-for-profit so we couldn’t give away shares in the business so instead we tried to raise money via loans, so instead offered people a 10% interest rate on a 2 year loan that was a mistake because we thought that we would have made enough profit to pay back the whole loan and the interest in just two years.

E: And what was that based on?

S: Just optimism. I think one thing we had is that we looked at the rent was of businesses near us and we thought that our rent was this much cheaper because of our profit share deal so we’ll have to make this much less. We were next door to a property manager, the biggest property manager in the city, and their rent was 150,000 pounds per year and ours was 10% of that so we were like, if we just make the same as them, our difference is this amount. It was a very stupid way of doing it. Because I am sure that that doesn’t make any money. It is just a flagship store and branding for them. Anyway, very stupid. And quite naive, but that is how these things work and we probably wouldn’t have done it if we had a better idea. What we should have done, we did a bit of stuff with this many passing, and this is how much we’ll make, but at this point, you don’t really know anything about wastage, you don’t know how many people will come in, you don’t know what the average spender si going to be.

E: Did you have an idea on day one how many customers you’d have through the door

S: And we had no idea how many we could serve, how long it takes to serve coffee, what the process is like with taking payment, there are loads of costs we didn’t really anticipate. So stuff like payment on card machines you know the commission they take, wastage was a big one, we totally forgot about the v80 we kind of thought about it and then well we just didn’t think about that it takes quite a big chunk off your profits. I was just a bunch of things where we weren’t quite sure and our margins and that means smaller than we thought they would be I think also we kind of assumed that the margins and coffee would be about 100 percent. But it’s a bit like how much is coffee? It cost hardly anything it’s actually quite a little coffee especially if you’re training up new baristas and staff they’re going for a lot of coffee that you’re not selling, you can’t just take a bag of coffee divide by the number of cups that could serve and then have that as your margin. It doesn’t really worry about that, there’s a lot of wastage. But that’s beside the point. At this point in our story it was January and we did a pitch so we invited a bunch of individuals along who we thought might be interested in lending us some money. We had caps on it, we said we would take no less than five thousand pounds from a single person and no more than 10,000. We had quite a small, We were raising a hundred thousand pounds in total and we didn’t want to be indebted to too many people which would be very difficult to manage or to too few people

E: Because then they would take control.

S: Yeah or just it’s a lot of burden on just one person. That’s what we did, we raise the money and by the end of January actually raising the money was surprisingly easy I think because we won’t ask you for that much and you don’t need that many people to find people who have 5,000 pounds to spare isn’t actually that difficult. It sounds like quite a lot of money but it’s not really. If we were trying to raise a million pounds that were and we were asking for 50,000 pounds per person that would, no normal people have that money spare ready for investment whereas especially in a city where you’re surrounded by lawyers and bankers and people are that it’s a bit easier to find.

E: So do you do one evening where you invited them all and then you pitched?

S: Yeah exactly we had one evening. And we did a presentation so we went up we put on like canopies and stuff and we made coffees and staff we invited um quite a few people. They knew what it was for, we’d kind of spoken to a lot of people. We prepped a lot of things beforehand and yeah and then we came in. We had someone else who was helping us out who was a lawyer. He for free helped draft us some of these contracts, very simple, just like a one-page agreement which turned out to be a little bit of an issue, not because of anything big but because some people said yes the investment and then I got this one-page thing and they were like that’s not enough. Can I go away for a minute and others you know were like what about us what about that. Well generally when it comes to businesses I feel kind of like a lot of it is on trust anyway you can have a really strong contract but contracts are only as enforceable as you’re willing to enforce so something like are you ever going to go to court over this? Probably not, in which case then maybe the point of contract is just to outline your agreement and if it like see you all on the same page and if you have all done that you don’t need it the hundred certain legalese it can just be so obvious obviously you’ll understand all the points in terms of what happens in certain situations but we that’s what I can’t afford being a bit naive but actually you know we ended up some of the people invested were lawyers themselves and they were like oh it’s not good enough for me, which is fine and what we ended up doing we’ll say no to those people. We’re saying you can’t have different contracts for different people. Yeah it’s not fair. In any event she we raised money I think we were a little bit short I think we raised ninety five thousand.

E: Pretty good guy now isn’t that instead of the 100 we were looking for.

S: Which was enough because the last twenty thousand was float it was we wanted something like eighty thousand of which we’d already spent ten and the other seventy was basic the cost of starting up all equipment and then a 20,000 pound float at the end. And then we did it we clicked go on everything, stuff started arriving, I started work on our counter and we started the process of looking for people to hire for the first day. What was a nice thing about working with these roasteries was that they were able to train our staff

E: Wow

S: Before we’d opened so were able to go to their shops and stuff and actually learn how to be baristas and then we have a couple of days after we had everything in place with equipment before we opened where he then came to us and trained us on our machines for free basically

E: That’s so well thought through, isn’t it?

S: Because we were a contractor and we were buying, you know, you do and even the coffee’s not that expensive you do end up spending quite a lot of money on it so it’s something like 500 pounds a week. So over the course of a few years that really adds up and if they can add a little value added other places where other places can’t, it means quite a lot. So yeah so we weren’t quite ready for launch, we missed our launch day and then we eventually launched in mid-march

E: So we had a few weeks to date.

S: It was a couple of weeks late which at the time I was pretty furious about but since I feel like even now thinking about the timings going from raising the money to starting to raise money in December to launching in March is a ridiculously short timeframe that is like unbelievably short but I was like at the time I think you could bear mind that every day we every month that we only had a two-year timeframe on this loan before we had to pay it back which we didn’t end up doing we had to then renegotiate after two years and anyway that’s not part of this story, we’re talking about the start up here yeah. But and then we launched yes so the launch we had a bunch of people, we just invited all our friends and staff we invited kind of local businesses as a fan up. We had every all coffee’s for a pound for the first day, which was a bad idea because all these people would have spent full price for a coffee sort of no point like yeah it was a stupid idea. It meant we ended up losing money on our opening weekend when that should have been probably almost profitable day at the and yeah and that was it. It didn’t go completely smoothly but it was remarkably good. It was a huge amount of work and then things started running normally and that’s that, that’s how you start coffee shop.

E: Wow.

S: You never heard that story before

E: Yeah there were a few things I didn’t know.

S: Yeah I think what I like to take from this story is that we didn’t we know what we’re doing but it’s all kind of logical steps starting off not really spend any money spend your time researching, talking to people who do know what they’re doing then you know once we got a little bit of proof of concept it’s gonna work and go a bit buying for someone then we start spending a little bit of money and then well we got everything completely ready then we start spending loads of money to get it going and that part I think worked out really well considering we weren’t going in with any money really. We have to raise it all.

E: How did it feel to have a physical location because a lot of your other businesses are kind of service or put up to that this is probably because it’s coffee but actually having a location?

S: Yeah that was that was when the reason to do it, so it felt real as opposed to kind of a techie business. So my original reason wanted to do it was that I would um I would have, I said at the beginning now that I would have somewhere I can sit around and do your work in and then people come chat me and it’s a homely environment that would pay me some money and it didn’t really work out because every time I was in there there’s always stuff to do. Yeah and there are always people to talk to so it was quite a stressful environment to be in but it was great it’s something I’m really proud of having done it was really yeah yeah I’m looking back I’m like wow but it also kind of took guts to do it and it kind of impresses me and it’s something yeah especially now I’m a little bit further away from it… when I was a little deep in in all the stress and stuff it’s I’m like, “You idiot” and that’s that. Well thank you for listening I hope you found that useful if you want any further questions or you want any advice on how to start a coffee shop I’ve written a couple of blog post about it on sampriestley.com or you can always email me at hello@sampriestley.com or if you’ve got any general feedbacks on a podcast maybe you want to hear more this or episode or if you think this is a load of rubbish feel free to get in touch with deals.