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. 

There Is Always Need To Learn

I have only started working since I graduated in the year 2000. My background is accounting and finance with a post grad in computer science. After nearly ten years in the IT industry, I got involve in the hospitality and residential building industry.

At the beginning, I came into the business as the bean counter and IT guy.  As the business expands, I have to start dabble in the business side of things, especially in project management. Since I am already a project manager in my full time job, it is not a problem. The biggest challenge is understanding the hospitality and building industry.

When I first started, I could not differentiate between materials nor its usage. My business partners has been patient with me and work allocation never really demanded me to have any industrial knowledge. Nonetheless, I have never like to fall behind or needing people to tip toe around me.

Whenever I have the chance, I would grab a copy of the materials pamphlets given by our suppliers. I made sure I read whatever I can from it. The vendor's sales person are a perfect source of information. Being their customers, they are more than willing to share their knowledge and opinion. There is really no such thing as asking a stupid question. As far as these sales person are concerned, not all their customers are familiar with the industry. As such, they are used to strange and out-of-this-world type of questions. I even asked for samples and test out whatever vendor has claimed to be working. Through testing, I was able to provide feedback and understand the products better.

Spending time with the vendor actually helps two things. One is my understanding and also building up relationships. I was able to make my order more accurately and getting better deals from them. Of course, being a good paymaster helps a lot as well.

As a matter of fact, I actually find myself studying a lot harder than during my school days. In school I was not really sure how it will impact my life. In business, your knowledge determines the success of your deal and each decision's effectiveness.

Regardless which industry you are in, it is never too late to start learning. To be successful in your industry, all you need is to know 10% more than your competitor.

Make Your Fans Feel Special

On the 21st November 2012, TGIF Malaysia celebrated its 50th anniversary. All the restaurant chain that falls under the company umbrella are offering 50% discount off the menu price.

The beauty stroke about this promotion was that it was only advertized on their facebook fan page and their corporate site. In fact, restaurants did not even put up any form of banner or printed materials regarding the promotion. Some might think that why not promote the occasion through main stream media? This no doubt would attract more customers.

What the company did was that they have made the fans who followed TGIF feel special and exclusive. This only cements customer loyalty and attracts more followers so that they will not miss out for any future events. Furthermore, good deals such as this one would no doubt travel far through word and mouth.

I visited TGIF at 6pm and I was told that I have to wait for 10 minutes for a table. Yes! The night was that busy. By 7 pm, the waiting line has swelled to at least 30 people. I dare to say, that night was a roaring success for TGIF with minimal marketing expenditure.

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.