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  • Writer's picturePaul Dalton

Why Coffee Shops Fail - and why you should know

We see it every year, in any given hood, a half a dozen new coffee shops will open their doors and around the same number will close down for good… But why?

I call these façade businesses, modelled upon something we’ve seen ‘work’ elsewhere, in this case it's likely to be Starbucks, we sink lots of capital in to “COPY” that model, believing we understand why they're successful… after all, this coffee fad isn't going anywhere soon, right?

But that's not the problem, the problem is that they COPY only what they can see and it’s in the mostly unseen parts of a business where the real magic happens. Hint - Starbucks also can't make money selling a R28 cup of coffee… the costs of premises, equipment, people and of course ingredients is far too high for the small margin in coffee to sustain a business…

And this is true for many business types, from accounting firms to ad agencies, (if these are at opposite ends of a spectrum) we can't make money out of the core business, because the core business has too many competitors and we are not in control of the margins. Only extreme volumes offer any sort of hope and even these break down when we must add space and people to manage it.

So, I guess the question is, what business are you really in?

  • You've likely heard that McDonalds is actually in real estate.... they understand that fast food is the lost leader,

  • Similarly BMW is now primarily a finance house, and

  • The supermarkets don't make any money out of milk and bread, the items which bring you in through the door.

  • So, if you’re doing all the right things, have all the flashy clients one could hope for and operate out of super grade A offices but are battling to make real profits…

Perhaps it's your commercial model, that needs a revisit?

You're certainly not alone, most make this simple mistake, but the great news is the fix is generally quite easy… With your existing (known) business, perhaps even existing clients and very little added work and overheads, you could be making a lot more money in a short amount of time.

Let's have a coffee.

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