Starting a coffee shop is not an easy task. Coffee shops have to deal with many unique challenges that other businesses don't have to worry about. However, there are also plenty of opportunities for coffee shops to succeed and make tons of money! In order to increase the chances of success, it's important for coffee shop owners to know what mistakes they need to avoid when opening their coffee shop. This blog post covers 8 common mistakes that can really hurt your business if you don't pay attention.
Here are the top 8 mistakes when opening a coffee shop:
1. Underfunding the business
Not starting with enough money is a huge mistake. A large percentage of new businesses fail because they didn't have enough runway before they started picking up traction. You need to have enough money for a full year of operation before you open.
This mistake can be costly and time-consuming because coffee shop owners may not find out until it is too late that they don't have the revenue needed to stay afloat, or worse yet, even cover their expenses. Scarce resources are then spread thin between paying employees and themselves.
Yes, this means you need to either save more before opening or get more startup funding, but it is necessary. Besides keeping up with operating costs, if you start with a shoestring budget, it's likely that you'll make poor decisions when planning and equipment shopping. The difference between $20k and $5k espresso machines is vast, including quality, power, longevity, and more.
2. Not having a (good) business plan
Most of the time a lender will require a business plan, but if you're self-funding (or funding from friends and family), you might be tempted to skip this crucial step. A coffee shop business plan is more than just a collection of financial projections and guesses. It should include an analysis of your competition, market, and trends in the coffee industry, as well as forecasts for growth over five years or longer.
A good business plan is realistic. All too often, I see coffee shop business plans that predict unrealistic growth trajectories. Even worse, there's no explanation behind this growth (marketing, outreach, events, advertising, etc.). Planning on having a profitable coffee shop in 3 months sounds nice, but is it realistic? Yes, it is. But you'll need to spend more money to acquire that growth early on - explosive organic growth isn't something you should rely on. The "if you build it, they will come" mantra works in baseball movies, not so much in the real world.
3. Choosing a Poor Location
Opening your coffee shops in some remote, unpopular location is very risky. It may be (much) less expensive but at the cost of foot and car traffic and visibility.
The coffee shop's location should be chosen carefully. The coffee shop is not likely to have a lot of foot or car traffic unless it is near public transportation routes that people use regularly and in large numbers (e.g., college campuses). Most coffee shops are located on main streets with other businesses nearby, so they can benefit from the masses of people that frequent those areas. Since coffee is something most people drink daily, if your coffee shop is located on or near their daily commute, place of work, school, etc., you can attract daily customers.
However, if your location is out of the way, difficult to find, hard to park at or walk to, customers will seek a more convenient option. Most of the time, your customer base will be the people who live or work within a two-mile radius of the cafe. A dense, highly-trafficked area will increase the volume of potential customers.
4. Not Hiring a Trained Staff
At first glance, hiring a trained staff may not seem like a big deal. You'll likely have your own training regimen anyway, so why bother hiring someone with experience?
One particular reason is that, just like in any business, people with experience can bring in new ideas that have worked at other coffee shops. They have a fresh perspective on coffee shop management that will help you think outside the box. Additionally, they'll be helpful when solving problems or issues that arise. If you are the only one with the coffee or shop management expertise, you'll quickly find yourself putting out little fires all day.
If you can't find a trained staff - hiring shortages, location, etc. - there are things you can do. One of the best options is hiring a trainer and/or consultant to train you and your staff. I do this for my clients for management, operations, marketing and market research, consumer psychology, branding, and staff training. I help managers and owners understand what is important - to customers, staff, and the business. I also train people who have never worked in coffee before on coffee science, milk steaming, tasting, and so much more. Whatever my clients need - I can provide. This is very useful and saves many headaches and dollars in the long run. Contact me if you want to get started with coaching, consulting, or training.
5. Investing in the Wrong Equipment
By "wrong" equipment, I don't simply mean something of poor quality, I mean that you should spend money where it matters. Although you should purchase coffee shop equipment that is new and high-quality, many things can be purchased second-hand with only marginal differences in quality and lifespan.
For instance, an undercounted refrigerator is typically essential for efficient bar flow. However, a used, middle-tier refrigerator will work just as well as a high-end one.
How to decide where to spend the money on equipment? Ask yourself:
How often will this get used?
Will customers see this?
What is the average life span of this item?
How crucial is this item to everyday business?
How easily can this item be replaced or repaired?
6. Not Doing (Enough) Market Research
Often, when scouting a location for their coffee shop, business owners will look at only two aspects: competitive landscape and foot traffic. However, coffee shops are also about the experience, coffee, and consumer preferences. A coffee shop that is closer to other coffee shops or has a lack of foot traffic will not do as well as one with little competition and strong appeal towards customers' coffee preferences.
I've heard many people regale me with their "dream coffee shop" that's some combination of a coffee shop and other interest (book store, cat cafe, coworking space, etc.), but that only takes into consideration what the business owners want - or maybe what they think customers want.
Performing market research such as surveys, foot and car traffic counts, population demographic and psychographic data collection, will help build an idea of what will appeal to the target market. Much of the customers will come from a 2-mile radius around the cafe. Therefore, knowing who the audience is will be crucial in determining how to serve them. For instance, a location near a neighborhood with people that value high-quality coffee has the opportunity to support a fast, convenient coffee option and a high-quality, more expensive option.
7. Assuming They Know What Customers Want (Creating Their Own Darling)
Similar to some aspects of Mistake #6, assuming you know what customers want can be a major misstep. Additionally, thinking that the market is wide open simply because there is no competition is only part of the picture. There are many communities without high-quality, expensive cafes. That doesn't mean opening one there would be successful. There may be reasons why that business doesn't already exist and the community may not support an incoming business of that type. Not everyone wants coffee and not every coffee drinker wants a high-end experience.
You cannot assume that the market is looking for your product or service, so don't invest until you are certain there is demand for what you intend to sell. Do your research ahead of time to ensure people want it before sinking money into an expensive shop space, equipment, training staff, and many headaches.
8. Not Telling Enough People (Or With Enough Lead Time)
Whether friends, fellow business owners, or media outlets, let people know you're starting the business (or scouting locations) soon. You never know what connections you might make and who knows, they may even want to partner up with you or write about the coffee shop before it opens.
Don't start spamming your friends and social media with "We're open!" or "Come out now!" posts. These surprises will only lead to confusion rather than action. Instead, give your audience a long lead time and slowly build up anticipation. Similar to how movie releases go: at first, there's a press release not many people will notice. Then, there's a teaser - it doesn't give away much at all but only a slight hint. Then there's a trailer that tells a more complete story, and a second trailer with a bit of a different spin. Just before the movie is released there are pre-screenings for select audiences (typically influential people who may write or talk about it). Then, opening night is a huge event that generates a lot of buzz and sustains it for several weeks at least.
How can you make your coffee shop opening more like a movie release rather than simply hanging a "Now Open!" sign out front?
Opening a coffee shop is exciting! However, don't forget that it is a lot of work, and it's also a business - not just a hobby. It may not look like the coffee shop of your dreams looks, but it's better to be successful in a business you are less passionate about than unsuccessful in one you're passionate about.
Don't make these mistakes when opening your coffee shop and you'll be on your way to cafe success! Best of luck!
If you'd like to work with me to coach, consult, or train you or your staff at your coffee business, contact me and we can figure out how to tackle your toughest problems.