I started this blog is to keep track and share my experience in starting up my company. The journey has not been easy. The blog entry below by Mark Suster says it all well. It is an old entry but says it well.
Yes. Entrepreneurship is Enterpreneurshit.
Sunday, August 18, 2013
Monday, August 12, 2013
A Failed Cafe and Cost Management
Over the weekend, I received a sad news. A cousin of mine who opened a cafe in December 2012 has decided to close down the business. He said the business is running out of cash and it is not doing that well. Since Mark Suster talks about failure, I too would like to chip in my 2 cents worth of opinion about it.
I visited cousin's cafe two weeks after its grand opening. My first visit was on a Saturday night and I was surprised to see the place was barely 20% occupied. I followed up with a few more visits and the situation remains the same. The location of the cafe is all right. It has ample of parking but in a location where I will not call it as popular. At night, there are hardly any traffic around the area. There is a famous food joint opposite the cafe. The location is really not that dead. Nonetheless, I still feel the place has the potential.
The operation hours is from 7 am until 3 am daily. Cousin was very tight lip about the operation cost. The following calculation are based on my observation. Each shift, he has around seven staffs and approximately five kitchen staffs. Assuming that he has two shifts with the same number of staffs. Each staffs draw approximately 800 MYR (246 USD) a month, he would need a net profit of 19,200 MYR a month to pay his employees!
The above is only the cost of his employees. The size of the menu is also rather large, especially for a new cafe. The cafe offer close to a hundred types of drinks and dishes. I can imagine the amount of money has gone into food wastage. As I write this blog, I wonder how many dishes that are ordered less than 10 times.
In all honestly, the cafe has a lot of potential. I learned that its lunch business was doing fine. They could have reduce the operation hours and focus on lunch services. No doubt they could be forgoing business opportunities in the evening and night. The very least they can slash their employee and food cost by half. Probably they might be able to keep their head above water for another few more months.
Next is to rework the menu. The menu size can be cut down by half. Focus on the 20/80 rule. Chances are they will have 20% of their menu is taking up 80% of their orders. The business should then focus on that 20% and make it better.
Finally, it is to promote the business. I believe the business owners did some promotion. I shall refrain from commenting as I do not know what they have done. For myself, I would encourage my patrons to check into Foursquare or Facebook. Any form of check in, the customers will get 10% from the bills. In addition, I would partner with any car clubs to visit the cafe. There are ample of parking space around the business, car clubs members will not have any issues finding parking. For car club members, I too would throw in 10% off on drinks. As you can see, I try to refrain from going into expensive advertisement blitz. I am certain advertisement would work, rather I would choose to exhaust all my lost cost options before bringing out the big guns.
I do not know whether my strategy would work, but that's how I wold manage the cafe business. In any business, managing cost and cash flow is important. If the owner let any of it gets out of control, chances of failure increases exponentially. Still I hope cousin and his business partners can learn from this incident. A business can fail, but this does not mean they are a failure.
I visited cousin's cafe two weeks after its grand opening. My first visit was on a Saturday night and I was surprised to see the place was barely 20% occupied. I followed up with a few more visits and the situation remains the same. The location of the cafe is all right. It has ample of parking but in a location where I will not call it as popular. At night, there are hardly any traffic around the area. There is a famous food joint opposite the cafe. The location is really not that dead. Nonetheless, I still feel the place has the potential.
The operation hours is from 7 am until 3 am daily. Cousin was very tight lip about the operation cost. The following calculation are based on my observation. Each shift, he has around seven staffs and approximately five kitchen staffs. Assuming that he has two shifts with the same number of staffs. Each staffs draw approximately 800 MYR (246 USD) a month, he would need a net profit of 19,200 MYR a month to pay his employees!
The above is only the cost of his employees. The size of the menu is also rather large, especially for a new cafe. The cafe offer close to a hundred types of drinks and dishes. I can imagine the amount of money has gone into food wastage. As I write this blog, I wonder how many dishes that are ordered less than 10 times.
In all honestly, the cafe has a lot of potential. I learned that its lunch business was doing fine. They could have reduce the operation hours and focus on lunch services. No doubt they could be forgoing business opportunities in the evening and night. The very least they can slash their employee and food cost by half. Probably they might be able to keep their head above water for another few more months.
Next is to rework the menu. The menu size can be cut down by half. Focus on the 20/80 rule. Chances are they will have 20% of their menu is taking up 80% of their orders. The business should then focus on that 20% and make it better.
Finally, it is to promote the business. I believe the business owners did some promotion. I shall refrain from commenting as I do not know what they have done. For myself, I would encourage my patrons to check into Foursquare or Facebook. Any form of check in, the customers will get 10% from the bills. In addition, I would partner with any car clubs to visit the cafe. There are ample of parking space around the business, car clubs members will not have any issues finding parking. For car club members, I too would throw in 10% off on drinks. As you can see, I try to refrain from going into expensive advertisement blitz. I am certain advertisement would work, rather I would choose to exhaust all my lost cost options before bringing out the big guns.
I do not know whether my strategy would work, but that's how I wold manage the cafe business. In any business, managing cost and cash flow is important. If the owner let any of it gets out of control, chances of failure increases exponentially. Still I hope cousin and his business partners can learn from this incident. A business can fail, but this does not mean they are a failure.
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