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. 

Never Trust Other People With Your Own Money

Two weeks back, a friend whom I have known since high school called me and told me that he needed cash to help his company to turn around. We used to hang out and attended each others wedding ceremony. I would actually consider him as a good family friend, we go as far back as 1992.

When he needed help I went all the way to help him. At that time, I have some cash that I was preparing for my kid's education insurance and vehicle tax. He promised that he will return the money in a weeks time. The money should have been back before I needed the money. At the time of this writing, the promise was made two weeks ago.

Sadly, I have to pay for the vehicle tax which I have to borrow money from someone else. My insurance will be due soon and I honestly doubt I will be getting my money back soon. I have called him and make appointment with him. He kept on saying he has the money with him. Yet, there are all sorts of lame excuses, unanswered calls and mobile phones that are switched off.

I have been brought up with a strong beleive in having trust in other people. This is how I live my life and this is also how I operate my business. It is only through trust that we can have a long term successful business relationship. No doubt I feel the pain of my monetary lost, but it hurts most is having to lose trust and faith in a friend. If he had told me that he is in financial difficulty, I may not have lend him so much but I am sure I would still lend him some and prepare the write off the amount.

What has this world come into? If we cannot trust our friends and family. The only thing that we can really trust is money? I honestly hope not! Maybe this is why I am struggling with my hotel management/ supplier business. I actually put trust ahead of money.

Do I still trust my friend? Sigh... I am afraid I have lost faith in him. Even if he does returns the money to me, I would still see him as my friend but I would be extra careful with his request.

As I am struggling in my own red ink. I know for sure I will NOT drag my debts. I would rather go without food than destroying the trust that others has given me.

Planning, Adjusting and Mistakes

Last Saturday I visited a cousin's newly opened cafe. It was one week old. He told me that he is not getting the crowd or the desired revenue. Curious, so I decided to pay him a visit.

I asked for the shop's actual address. He said he is not sure and asked me to check out the Facebook page. Instead of registering as a local business, the cafe was registered as an individual. The address was not even there, good news was there is a location map. Maybe a map would be clearer? Wrong! The map contains two marks, one mark for his house, the other for his shop. I have to guess which was which. The page only has a picture of the cafe and did not show what was offered on the menu.

It is obvious that him and the partners did a poor job in planning. In any business, the first impression matters a lot. Even though the cafe is only one week old, I wonder how many customers had turned away.

At the cafe, I wanted to know the cafe's maximum capacity. He was not sure either. In any food retail outlet, the owner has to know how much each customer must spent and how many turnarounds per table in order to make a profit. On average, there should be at least three turnarounds in one business session.

As I spend more time with him, the more issues I noticed. Besides just poor planning, he has thrown himself into the deep end by dealing with customers and adjusting the operation issues. It would have been better to if he had a dry run with family and friends instead of enraging the wrath of the customers. In my opinion, he has 7 more weeks to get his act right. All the issues and mistakes are costing the business money. The business would have run out of money if the mistakes still remains.

I am a strong believer in making mistakes and taking risk. However, going into anything without proper planning is pure suicide. Thus far, he has adjusted his Facebook page. Hopefully he can sort out his operation kinks soon.

Holding Your Ground and Looking for Customers

My business has been up since April 2014. Until today, we made multiple bids for hotel projects and have also received some import/ export queries. So far, our success rate is zero.

If I tell you that I am not nervous and desperate, I would be lying to you. Every month, the cash burning rate is around 1000 MYR/ 300 USD. The longer time I have no business, the bigger hole that myself and other business partners would be in.

For those who aspires owning a business and wanted to quit the current job. It is vital to plan ahead.

1. Keep your job until your side business starts to make money.
2. Save up! Forget about the movies, or eating out. Before you spent the next dollar, think whether it can contribute to your business funds or savings.
3. Calculate your personal monthly expenditure and the business's. From the calculation, you would know how much your business needs to make in order to sustain yourself and itself. 
4. Be careful of cost! I am lucky that my business partner own the property, thus we do not have pay the rental now. Due to our small operations, the services that we use are either the cheapest or free. For example, we are only using Google Drive's free 5GB storage for our work. 
5. Plan to call or bid for business on a regular basis. There are not many hotel projects out there in the market. The partners make sure to have weekly discussions on who and where to look for customers.

The above five points are just my personal experience. The business journey ahead remains uncertain and precarious. This is what being a business person is all about. For the person who is thinking of starting or struggling with the business, I hope this blog inspires you and tell you that you are not alone.

Good luck in getting the first customer.