United States
Updated: March 27th, 2020
How can a passionate affinity for coffee (lifeblood), a seeming immunity to caffeine, and a stirring desire to create something of your own manifest into a successful business? After the smell of your favorite dark blend bean brewing drags you out of bed in the morning, you, the advantageous pioneer of a new coffee business, embark on your mission with wide eyes and determination to look past the sea of failed espresso enterprises and into a vision of happy, perhaps glasses-and-beanie wearing, customers sipping their favorite beverages on plush loveseats. If you’re overwhelmed by the multitude of initiatives associated with building a new business and are looking for a step-by-step guide that breaks down everything you need to know about how to open a coffee shop, you’ve come to the right place.
“Start with those who have already gone where you’re trying to go—the success stories and the brutal failures.”
As with any start-up endeavor, the process of doing extensive research and listening to/absorbing testimonies will be your best friend. There are, of course, professionals that you can look to: a slew of fancy coffee consulting companies (i.e. Bellissimo Coffee Information Group) and consultants (i.e. gurus like Duncan Goodall) can offer a framework of advice on how to overcome the hurdles and which corners to cut, and which ones to definitely NOT cut. However, consulting can be incredibly costly, and, ironically, the number one thing that these consultants will all agree upon is that, minimizing all costs possible is key. If your funds are severely limited, hiring someone who charges $180/hour (even up to $1,500 a day), to do a job that can really been done internally, through internet research and networking, makes it an expense that falls into the category of “luxuries.” That being said, if you don’t hire someone to do the work for you, you need to do the work.
Converse with the pros: Talk to as many current owners of coffee businesses that are thriving as possible, find the overlap in their commentary, and don’t discount those who have failed—some of your greatest lessons will be learned from stories about failure. The advice of your soon-to-be contemporaries is invaluable as they have lived your struggle and triumph.
Immerse yourself in the industry; sign up for coffee periodicals (Barista Magazine, Coffee Talk, Specialty Coffee Retailer, Fresh Cup, and The Tea & Coffee Trade Journal, are some industry-centric, popular favorites) and attend tradeshows (CoffeeCon, Coffee & Tea Festival NYC, and Coffee Fest, to name a few.) Look into resources like the “Coffee Shop Starter Kit,” offered by coffeshopstartups.com, for more reasonably priced, consulting-esque advice.
Get down to the nitty-gritty: have a firm handle on the laws, relevant rules & regulations surrounding owning a coffee shop/necessary permits needed in your state. You will have enough challenges in both finding your space and, then, in creating it, to not have room for oversight of policy. Similarly, have an equally firm grasp on, likely, unfamiliar financial concepts like loans for coffee shops, as well as the difference between a business with positive cash flow and a business that is profitable; knowing, you’re entering to an industry robust with those businesses that failed because they had negative cash flow, while actually being profitable.
Create a business plan: this will outline your financial needs, initial and future expenses, and a general timeline (one that includes how you will stay afloat when it could take anywhere from six months- two years for your business to become profitable.) This will be akin to deciding what your main sources of funding will be: stay as local as possible, whether simply leaning on friends & family, reaching out to local investors, utilizing online crowdfunding platforms like Kickstarter, or local banks. The average startup cost for a kiosk style coffee shop is between $25,000 and $75,000; the average cost of a sit-down style can range from $200,000-$375,000.
When you’ve done so much research that you feel like you could probably become a coffee consultant, take your creative energy and begin to formulate the bones of your vision.
Avoid the novice mistake of trying to capitalize on everything: a coffee shop that tries to do everything (serve a plethora of food, serve alcohol, host open-mic nights, serve as an internet café, specialize in elaborate latte art, appeal to college students, be the perfect place to read and write poetry, have the best doughnuts on third avenue etc.) that a coffee shop can do, will likely crash and burn. It is much more salient to be exceptional at something than mediocre at everything.
Your regular customers will drive your business in the coffee industry: Coffee is something a ton of people love and depend on, but there has to be a particular sector of coffee-drinker that will place your shop at the top of their list by default, and your job is to give them a reason to do this. Your regulars, their loyalty and their referrals, will grow and sustain your business.
Differentiate yourself from other caffeine banks by honing in on what made you want to undertake this hefty task in the first place and linking your passion to your target clientele. Maybe your passion is rooted in providing sublime quality, high-end coffee coupled with elaborate latte art; you’ll be appealing more to the elite, seasoned coffee drinker who is okay with paying a premium for a product they find to be superior, not a broke college student who’s looking for a means to his or her all-nighter. Not only will narrowing your clientele dictate the neighborhood you should begin your location search in, but it will also guide your advertising in a more meaningful, and consequently, profitable direction (i.e. if you capitalize on impressive latte art, media pushes on Instagram food blogs might be more effective than if your niche is atmosphere-centric, like featuring live music). Your ideal clientele should be at the forefront of your spatial design plans and the environment you hope to create should be their ideal environment; having a clear goal for what the atmosphere of your coffee shop will be will also point you to where it is appropriate to splurge and where it is more appropriate to save in everything from the purchase of furniture, to the kinds of cups you plan to use.
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Using a local broker: When it comes to finding suitable vacancies for your space, especially in New York, you’re likely going to have to outsource to a broker if you want to avoid fruitless hunting. With a broker, comes a fee: a standard fee for commercial real estate brokers is about 7-10% of the total lease costs. Since many spaces in the city are closed to non-broker sales, using a broker will increase the number of viable options that you have for your space and will shave hours off finding numerous options to go see in a day. Just be sure to be mindful of rental clauses before you sign for the future home of your small business.
How much you should expect to pay for rent: Your rent is a function of your budget, whatever your total budget is, your rent should be around 6-8% of those funds. In Manhattan, the average monthly rent is drastically different depending on the neighborhood you’re looking in.
The physical location of your business is essential: Choosing a space that was already a café-type business can alleviate much of the initial hassle of preparing for building renovations and obtaining necessary documentation (and in some cases, could even cut down some of those renovation costs). Really, the most essential requirement of your location is the amount of foreseeable foot traffic. Especially in New York, looking at surrounding buildings/residences (and how these correlate to your ideal clientele, i.e. proximity to student housing, wealthier neighborhoods) and the amount of neighboring competitors (in NYC you will, inevitably, be at least fairly close to another coffee shop, but how close and how successful are your neighbors?), and analyzing how these factors will direct foot traffic in the area either away from or toward your business is absolutely essential to ensuring a solid customer base.
Bring your imagination to the space itself: This is an equally crucial and demanding step in your process after you’ve solidified your location. When I asked Paul Typaldos of Wayside (a popular and truly well-designed spot frequented by a plethora of coffee, wine, and avocado toast enthusiasts, nestled off the corner of third avenue on 12th street) what his favorite part about building what has become such a successful coffee venue was, he said, “Trying to make a lot out of a limited amount of space, all of these places are small. It forces to you to be creative about both how you organize the space itself and how you organize yourself within the space. Then, it’s not a limitation because, in creating an environment that works, you define the space, it doesn’t define you.” This idea goes beyond aesthetically pleasing and into the realm of functionality: of course it has to look good, but it has to work better.
The ideal atmosphere: What do you want to create for your customers? Two hands, an idyllic, immensely popular brunch-and-coffee-enthusiast mecca with two locations (SoHo and TriBeCa), not only takes pride in offering beautifully presented, healthy food and incredible coffee (accompanied by equally impressive latte art), but they also really champion in the atmosphere they have built. James Gregg, manager, described their atmospheric goal as, “The feeling we want our customers to feel when they enter one of our locations is a sigh of relief,” and added that they want their clients to, “be able to escape the hustle and bustle of the city for a minute, recharge their batteries and just enjoy a relaxed, chilled out environment in the middle of this hectic city.” The café absolutely succeeds in achieving this goal: natural light floods the space, makeshift cotton clouds hang from the ceiling, and light colored brick displays local art that changes seasonally. All the decor feels incredibly purposeful in its role in formulating the atmosphere. It is a true urban oasis, and the extraordinary, friendly staff certainly do their part to contribute to energizing this wonderful space and ensuring that customers leave smiling.
The space is the physical manifestation of your dream: Don’t cut corners in making what you built in your head a reality; your brand and your niche need to be clearly reflected here, work hard to create an environment that will draw in your clientele and keep them coming back for more. Take time to lay out your floor plan, either by hand or by using an online design app like Floorplanner or Roomsketcher, in order to ensure that the small size of your space doesn’t define it, as Paul says. Also remember that the exterior is as important as the interior. Pay attention to landscaping and other aesthetic details outside your shop and try and espouse your brand here as much as possible (e.g. Everyman Espresso, on 13th st. between 2nd and 3rd avenue, has a chalkboard situated right outside the entrance with witty coffee riddles and puns, something I think is very reflective of the internal vibe.)
“If it’s 49% the experience you create (the coffee, food, music, atmosphere etc.), it’s 51% the humans that execute that experience.”
The Wayside employees I spoke with said that the social part of the enterprise was definitely their favorite, adding that both their patience levels and poker faces have vastly improved. To them, customer service is everything—and I’d have to firmly agree. The things listed above, even the best coffee in New York, are absolutely nothing without the right human delivery; Paul says (about said elements of the business above), “Isolated, they’re just individual things. The person you’re dealing with is what really creates the experience and makes them important.”
This mentality is exactly what fosters loyal customers who will come back time and time again, even their willingness to take the time to speak with me during operating hours and answer my questions is reflective of a business ethic that, I think, is compulsory in such a competitive industry. You want your customers to know you and to feel both known and cared for.
So, work at your shop (if not always, at least at the beginning), learn the names of the customers are regulars, memorize their orders and build friendships; in the same vein, hire staff who understand the value of customer service and who will bring personality to interactions that would otherwise be mundane (or, worse, unpleasant.) It seems simple, but if your cashier can incite a smile in your customer, they’re definitely more likely to come back. Maybe this isn’t as essential in an always-bustling environment like La Colombe, as infamous for its long, snake-like lines as it is for it’s coffee, but for small, single-location shops like Wayside, positive or negative interactions with people will be what makes a customer choose them over competitors.
The lesson of customer service is one that, no matter how much the scope and success of your business expands, should not be lost; when I visited La Colombe, which I typically frequent at least four times a week and absolutely adore the coffee, with the same questions I had for Paul, careful to go near closing time when they wouldn’t be busy, they directed me to the corporate email (which I had already reached out to days before and never received a reply from), and essentially said they didn’t have time to talk to me. I felt slightly betrayed by one of my favorite coffee spots in the city and felt the resounding truth of Paul’s words—human interaction is everything. HOWEVER, when I returned to La Colombe a week later to pick up my usual iced latté, the barista not only remembered me, but she comped my drink and apologized for rushing our prior conversation, and just like that, my faith was restored by her kindness.
The most well-trained barista when it comes to making beverages, no matter how phenomenal their latte art is, is useless without equally fantastic customer ethic. This makes it essential to strategically organize your team, ensuring that those who interact with your consumers the most are the ones who are the best at handling difficult customers and at fostering long-lasting relationships with easy, loyal ones.
“Know where to cut back and bargain and where to focus your funds.”
Hiring experts you may not realize you need: When marrying yourself to something as permanent as a lease, it’s one thing to know not to sign a lease in October, not to sign something without renewal options, or not to sign something without a few months of free rent, because you’ve done your homework (like I did). It’s another animal to be able to find nuanced discrepancies or to be able to decipher the dense language of a lease. When you’re imagining the people you need to get your coffee business off of the ground, a lawyer probably isn’t at the forefront of your mind, but spending the money on legal fees now could end up saving you both money and strife later. Not to mention, they can also assist in identifying all the necessary permits and documentation needed—essentially they can help you dot your I’s and cross your T’s. An accountant, too, is someone who will be better at doing their job than you will be at trying to do it yourself.
Renovations: Since your space is the heart of your business, building and renovating it isn’t the place to try and cut back on your costs by watching a Youtube video on hardwood installation and then taking on the challenge. Professionals will get the job done faster and better. You are better off setting yourself back more monetarily, asking for more funding or taking out a larger initial loan, than attempting to skimp here.
Barista training school: In training your baristas, it will depend on what exactly you need them to be capable of and your own level of expertise; if the quality of the coffee is the most important thing to you, you’ll likely have to outsource to a training program like that of the American Barista & Coffee School (tip: look through the periodicals mentioned in the first section, especially Fresh Cup for barista training options.) However, if it’s simply learning how to use the fancy espresso machine, you might be perfectly qualified to train your own staff (and to train your staff to train new staff).
Choosing your espresso machine: Another place dangerous place to skimp on costs lies in the heart of your shop—the aforementioned fancy espresso machine. Reliability and efficiency of this machine will make or break your business, so it is a safe place to stretch your budget, within reason, and without falling prey to marketing and branding schemes (i.e. splurging an extra $6,000 is reasonable, but if it’s more like an extra $15,000 on a La Marzocco, you’re probably paying for the name and brand prestige, not efficiency; see examples of some recommended machines below). There are 2 initial decisions you’ll need to make:
However essential this equipment may be to your success, that doesn’t change the fact that your success will not be immediate. With the notion that profitability could take anywhere from six months to three years, comes the possibility that $5,000 is just too much of a stretch or a risk to take so early on (made worse by the possibility of all-out failure); lease the high-end espresso machine that you need for less, and when your business begins to gain success, then, take the leap and buy so that you’re not stuck with a monster if failure sets in or success takes longer than expected.
Water filtration: It’s no coincidence that both the quality of the tap water and the quality of the bagels in New York are both some of the best in the country—good water filtration is possibly even more essential for making good coffee than it is for making good bagels, so spend the extra dollars on the better filtration system.
Minimize costs by maximizing your efficiency: Streamline your baristas’ brewing processes from manual to automatic, and if you absolutely must maintain some manual brewing methods for reasons of quality (like pour-overs), eliminate bottlenecks and customer wait time by changing the process of ordering and receiving or by ensuring that the customer knows their coffee will take longer (i.e. a sign that says, pour overs will take up to 7 minutes). Since 68% of coffee drinker have their first cup within their first hour of waking up, it is reasonable and predictable that most of your business will incur before 11a.m—can you combat inherent periods of stagnation with afternoon drink specials?
Don’t discount how much you can save by cutting back on the little things: Duncan Goodall saved $4,000 annually by simply switching from heavy-grade to medium grade garbage bags. Be purposeful about ALL of your spending, and always look to expenditures that are invisible or irrelevant to the customer experience as smart outlets to cut back on and will, thus, increase your overall efficiency.
Choosing a POS (Point of Sale) System
Choosing your coffee beans: Spending an excessive amount on fancy big-brand coffee beans might seem like a great place to splurge, but, realistically, local beans will often be drastically less expensive (tip: support the local coffee community) and the disparity in quality verges on nonexistent. How much you pay for your beans will depend on whether you’re dealing directly with local farmers for their green-beans (fair-trade price: $1.40/lb) and then doing your own roasting via an outlet like the Pulley Collective in New York (membership $850/week, use of equipment included), or outsourcing to local roasting companies (Counter Culture Coffee, Stumptown Roasters, Vega Coffee, and Intelligentsia Coffee all sell 12oz bags for between $15-$21/bag; the higher end of the price range usually indicates specialty beans.)
“Marketing, Marketing, Marketing: Start long before you open your doors.”
Networking should predate the existence of your space: if you only start marketing after you open, you’ve already fallen behind. Attend local events and pass out free samples; try setting up a stand at local green markets (ex: Union Square Greenmarket) and promote your grand opening feverishly by word of mouth and through social media marketing. Begin to build your brand as early as possible so that by the time you open, you already have customers who are as excited about being a part of your business as you are about starting it (this is really important to combat the lack of initial profitability and gargantuan start-up costs.)
Connect with influencers: Reach out to coffee & food blogs and Instagram accounts (in New York, these methods are especially effective) to start promoting your image; your marketing outlets will, again, need to speak to that ideal niche clientele.
If you’re opening near a college campus, promote student discounts and hang fliers around campus. Preliminary marketing can even be a way of gaining income if you have your own brand of coffee beans that you can sell at local coffee tradeshows or events like the Coffee Festival of New York.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.
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