Have you been considering starting your own coffee shop? If so, then you probably already know that there is so much that goes into the planning process to be successful. But what most burgeoning entrepreneurs neglect to research and consider is the question “why do coffee shops fail?” In this article, we will explore seven reasons why your coffee shop could fail.
With various factors and variables that go into running a successful coffee shop, exploring the seven most common reasons for failure will allow you to better prepare to recognize and avoid these circumstances. These include:
- Lack of knowledge
- Failure to market
- Inability to adapt
- Inopportune timing
Overall Lack Of Knowledge
It’s true; knowledge is power. In this case, the power to be successful in your business venture. Many new entrepreneurs skip the hard work of doing the research required to, not only start a business but gain background knowledge of what they are selling. After all, it’s just coffee, right? Wrong! Though Forbes does mention that 80 percent of small businesses survive their first year, after that, statistics sharply drop by half in year two. Listed below are some of the topics which require extensive research and should make it into your business plan before moving forward with starting your coffee shop.
- Funding Analysis – This should include projections to make a profit, to break even, and at what point you will be losing money.
- Market Analysis – What does your competition look like? What are the demographics of your proposed location?
- Location – Everything from rent to zoning restrictions will play a part in determining how well your shop will do over time.
- Structure – Consider what legal business structure is best for your needs.
- Product – You know that you’re selling coffee, but you’ll need to research sourcing, pricing, and execution from knowledgeable industry professionals.
What do you actually know about coffee? You should be able to answer this question in great detail if you are to succeed in opening a coffee shop. First, you need to know where to source your products from. Making contact with a coffee bean wholesaler or local roaster is step one. Next, you will need to learn how to make the best cup of coffee and what equipment is required to do so. Finally, after refining the art of making a cup, study, and perfect your skills at making the various drinks that you intend to offer.
For most, finding and understanding how to use your funding is the most difficult part of starting up a new business. This is no different for your coffee shop. Many think that taking out a second mortgage, cashing in a 401k, or using a child’s college fund is an easy way to get an initial injection of capital. It is easy, but if you do fail you will have lost more than just your coffee shop. Don’t bet anything that you aren’t willing to lose!
After calculating your initial start-up costs, how much you need to survive until you can pull in a profit (often overlooked!), and an analysis of your break-even point there are many resources to help you obtain funding. The first place any small business should start is the SBA.
The Small Business Administration offers an outline of resources to gain funding which includes everything from how to self-fund to crowdfunding and access to SBA-backed small business loans.
There are also many sites, such as EquityNet, that connect start-up businesses with angel investors. Sourcing your opening capital through angel investors is a great way to get funding but it will be in exchange for equity in your company until you can complete the terms of the investment.
Whichever route that you ultimately decide to take, knowing what amount of capital is needed and managing it correctly will decide the fate of your coffee shop.
Mismanagement is a topic that encompasses a wide genre of variables that can negatively impact your coffee shop. When discussing poor management you may instantly think back to a past job and how you were treated by your boss there. It is easy to make that association as we all have been there at one point or another and you will eventually need to figure out your own management style in regards to interacting with your staff and guests. In addition to managing your staff, here are some of the other things that you will need to manage as the owner of a coffee shop.
- Finances – Not only will you have to take time to pay the bills but will also play some role in the day-to-day accounting and all things money-related to your coffee shop.
- Time – Time is as precious as money to an entrepreneur. Making sure you take time for the important tasks while also avoiding things that will drain your time without accomplishing anything.
- Product – Establishing pars for coffee purchases and supplies that you need to operate will help you spend only what you need as well as reduce waste.
- Maintenance – No one ever thinks about the upkeep of their building and equipment. Not only do you need to establish a maintenance schedule but take into account the cost of maintaining your building and its equipment.
- Labor – Do you have enough people to operate or do you need to hire? What can you afford to pay them and what are you doing to train them and keep them happy?
Failure To Market Effectively
You could have the best coffee or the most unique concept but if you don’t let people know about it, your coffee shop will ultimately suffer. Some businesses spend hundreds, thousands, or even millions of dollars in marketing every year to continue to build sales. Think of how many ads you see on TV or while browsing the web.
Don’t be deterred by those figures. Nowadays, marketing your coffee shop can be as easy as making a social media post. You can build a successful marketing campaign on your phone! And the best part is that it’s entirely free and you have total control over your image. Even if you aren’t social media savvy, marketing on social media is still cheaper if you have to hire someone to manage that for you.
Check out our marketing tips HERE!
Choosing the right method of marketing for you and diligent upkeep will greatly increase your coffee shop’s traffic and allow you to continue towards making your business a success.
You may think that this one is self-explanatory but let me break it down further for you. Researching your location is more than just choosing a building that can house your concept.
Looking into the demographics of the area to ensure that you surround yourself with your target market gives you a head start before you even open your doors. Studies show that different age groups prefer different ways of consuming their coffee. Income and gender also play a role in coffee preferences which will ultimately decide what you sell in your coffee shop.
Look at what is going on presently around the building at peak times. Is there foot traffic passing the location? Available parking? Are you on a busy corner with a street light? Then consider what’s happening around your location within the next year and within the next five years. Is there construction planned nearby that may impact your business? Is the neighborhood expected to boom or are people moving away from the area? Get the feel for what’s going on at your proposed location to ensure that it is suitable and sustainable for your concept.
Inability To Adapt
Change is the only constant in life and that is no different for your coffee shop. Many times new business owners start with a concept and find that some things just aren’t working or don’t make sense. This may ring true for your coffee shop as well, but the important thing to keep in mind is that it is okay to make changes. Take some time to gain perspective on what is working for your coffee shop and gradually adapt and grow into your circumstances. There is no shame in admitting failure, but there is in not recognizing it.
Let me make this clear; there is never a good time to start a business. There will always be something going on in life that you may use as an excuse not to pursue opening your coffee shop. Those thoughts may be related to your age, education level, the birth of a child, financial circumstances, or any number of other related situations. Don’t let that stop you from following your dreams!
That being said, this section applies to a general lack of patience. Rushing into opening your coffee shop before allowing your research to run its course is a prime example of inopportune timing. Choosing a location that isn’t right for your concept because it’s right in front of you now is yet another. If you take nothing else from this article, take this: sit back, be patient, and give your coffee shop the best chance to succeed by making sure that you do things right.
How can you find demographic information?
You can gather this information in several ways. Typically, the commercial realtor you work with can compile this for you or you can look through chamber records from the county you are located in.
Should you hire a consultant?
Consultants offer a wealth of knowledge in their field but often at a large cost. It is not recommended for a small business to incur such a cost as the owner should be knowledgeable before going into the venture.
What is the appropriate amount of time to take to start a business?
Every business is different! Some take months while others take years. The important thing to keep in mind is that you put in the time to do it right.
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Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.