Starting a coffee shop is hard work, and the inadequacy of traditional business advice only makes it harder to get started.
To prevent you wasting time and money, I’m going to show you how to start your own coffee shop in a cheaper, faster, and simpler way by using the lean startup method, a term coined by author Eric Reis and explained in his 2011 book, The Lean Startup.
Before I introduce you to the lean startup method, let’s look at the traditional advice for starting a new coffee shop and why you should avoid it.
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The traditional flawed business startup process
The steps to start a business the traditional way usually looks something like this:
- Identify a passion or skill set you can cash in on (in this case, I’m guessing it’s making coffee).
- Write a coffee shop business plan.
- Fund your business.
- Choose a location for your business.
- Choose a structure for your business.
- Decide on a business name.
- Form your business formally: register your business, get tax IDs for your business, apply for business licenses and permits, and open a business bank account.
- Ultimately fail because this method is flawed.
You’re probably looking at this plan and thinking that it looks logical and well-thought-out. (Well, up until the last step at least.) All you have to do is write your business plan, get some cash behind you, choose a great location, and then profits will just flow like honey.
Unfortunately, the real world doesn’t work like this. Not because people are lazy or don’t try hard enough, but because this plan is built on three flawed assumptions.
Assumption 1: You have deep and intimate knowledge of your market.
If this is your first coffee shop, you’ll need to conduct a lot of market research before selling your first cup of coffee.
When starting your first business, it’s unlikely that you’ll be an expert on your chosen industry’s market. Even if you’ve worked in or managed a coffee shop before, it's not the same as owning your own.
The traditional startup method relies on you having existing knowledge of the market and industry your business will be in. This is a flawed assumption because many people just don’t have that kind of expertise, and gaining it usually takes years of firsthand experience.
The lean startup method shows you how to gain that experience and knowledge before you build and develop your business idea, giving you a greater chance for success.
Through this process you will learn what your customers’ wants and needs are, and you’ll observe which products sell and which flop.
Assumption 2: Your needs and wants are more important than your customers’ needs and wants.
While the goal of any business is to make money, a business that ignores the wants and needs of its customers or fails to build brand loyalty won’t be in business for long.
The traditional method for starting a business focuses more on why YOU need to start a business, instead of focusing on why YOUR CUSTOMERS need to buy your products.
Unless your advertising gimmick is “Please buy my coffee,” simply hoping that customers will appear is a bad business model. Even then, “Please buy my coffee” is not good advertising.
The lean startup method allows you to learn who your customers will be and what their coffee-related wants and needs are. Do they want a shop with better service? Exotic blends or coffee flavors? Or do they want an establishment that provides them with a calm and relaxing atmosphere in which to enjoy their morning or afternoon cuppa?
The traditional method makes the flawed assumption that your needs as a business owner are more important than your customers’ needs. The lean method allows you to learn what your customers’ wants and needs are BEFORE you’re all in with your startup capital. With that knowledge, you’ll be able to appeal to their desires and have a much more successful business.
Assumption 3: You have unlimited cash to burn.
Money is a finite resource, and even the wealthiest in the world have a limited supply of cash. Taking financial risks is a part of running a business but being reckless is never a good idea.
Whenever you start a business using the traditional method, you go directly to a brick-and-mortar coffee shop or a fleet of carts and trucks. This is largely because the traditional method assumes that you have the large amounts of capital with which to do this.
This is a flawed assumption because the amount of money necessary to go directly into this type of business is absolutely massive. It can cost up to $375,000 to open a sit-down-style coffee shop, and that is an amount of money that most would find difficult to obtain.
The lean method encourages you to start smaller, with a single kiosk or a mobile cart. These options have significantly lower startup costs and allow you to test market ideas without taking the make-or-break financial risks associated with traditional business formation.
To avoid becoming one of the four-in-five businesses that fail due to following this very risky plan, you need a different business startup plan: the lean startup method.
What is the lean startup method?
The lean startup method is a business startup method that entrepreneurs use to either start a new business or sell a product created by an existing business.
The core ideals behind the lean startup method are build, measure, and learn.
At every turn, the goal is to experiment with things you’ve already researched and have a good idea what will work. This means you’ll dive right in—albeit in smaller increments—rather than planning every step of your business’s life before it even starts. Another core concept of this method is to do everything as cost efficiently and easily as possible.
Once you’ve experimented, the next step is to measure the success of that experiment. Was it a resounding success or an epic fail?
Then you use the data you’ve obtained from the experiment to learn from the experience. If the experiment was a failure, you’ll know not to do that again. If the experiment worked, you use it to build up your plan, one successful experiment at a time.
Why use the lean startup method?
If a salesman told you that a product had an 80% chance of falling apart within the first year, would you still buy it? It may seem hard to believe, but four out of five businesses fail in their first year.
Thankfully, the lean startup method helps you avoid many of the pitfalls of the traditional business startup method. You’ll be able to reduce your startup costs and establish an eager body of customers who are excited to buy your coffee.
The traditional startup method relies on taking significant financial risks and relying heavily on the hope that people will buy your products. With the lean method you test your business ideas along the way. You gain the advantage of establishing a community of people with a demand for your specialty, whether it’s a high-quality service or an exotic specialty coffee.
You’ll also enjoy having lower startup costs than the traditional method, which assumes you have access to money or capital that you may not have. The lean method allows you to learn the ins-and-outs of your business without taking significant risks, and that increases your odds of making it through that critical first year.
Many business owners still put their faith in the traditional startup method, thinking that it isn’t flawed or that the lean method isn’t as effective.
But the lean startup method is so much more effective that when you use it, you’ll have an automatic leg-up on your competition.
How do I know? I’ve used it to start five different businesses during the past eight years. (I successfully sold three and two are still in operation.) I’ve also helped thousands of people to start their businesses using this method, so I can help you start your coffee business as well.
How do you use the lean startup method to start your coffee shop?
The startup strategy I use is based on the lean startup method’s three core principles of build, measure, and learn. It will not only help you develop your coffee business in a cost-efficient way, but also ensure that your business has a better chance of success.
This is the first of the three key ideals that make up the lean startup method. During the building process, you’ll perform tasks to build up your business. Some of these tasks include identifying a problem that people in your community have, building a community, identifying a solution opportunity, and developing that solution.
Completing this phase ensures that you have a good business idea that caters for your community’s needs rather than your own, which will make your business more successful in the long run.
Step 1: Identify a problem
The first part of any problem-solving process is to identify the problem.
The reason you need to start by identifying a problem is that people don’t just hand out money because they have spare cash floating in their jeans pockets and want to get rid of it. Money, as I’m sure you’re well aware, is a limited resource and a customer needs a compelling reason to hand over their cold, hard cash.
The “problem” is finding that compelling reason.
When people have a problem in their lives that they want removed, they will either get rid of it themselves or pay someone else to do it. As a business owner, if you can provide a solution to a significant problem in someone’s life, people will happily pay you for it. That is the foundation of a successful business.
If your goal is to start a coffee shop using the lean startup method, then identify a problem people have with their coffee.
Scout your community and find out where people are getting their coffee and check out social media to see if anyone has left reviews of other coffee shops in your area. Is the problem that there’s nowhere to get a cup of coffee in your neighborhood? or is there nowhere to buy good coffee? Are there any coffee shops that sell specialty coffee?
Maybe the coffee is good, but there’s no seating. Or maybe the coffee is good and there’s seating, but the food is lousy. Or maybe the coffee and food are good and there’s plenty of seating, but the service is terrible. Maybe the only coffee shops take too long and people are in a hurry. Maybe they’re overpriced. Or dirty. Or too dark.
Talk to people and find out how much they struggle with matching issues. The more that they struggle with nearby venues for reasons YOU can fix, the more likely it is for you to run a successful coffee shop business in the area.
When you use methods like these to search for problems, you’ll often find that the real issue is choosing which problem you want to solve.
How do you choose which problem to focus on?
There are no explicit rules for this process, but you can apply three general guidelines to refine this part of the process and help you build a successful coffee shop.
1. Choose a problem that affects a lot of people. Is there a high demand for exotic or specialty coffee in your area? Do the other local shops have low-quality service or high prices?
2. Choose a problem that represents a pain point. Is there a lack of high-quality products in your area? Are there many complaints about old, cold, or outright bad coffee in your area?
3. Choose a problem that you can either solve or reasonably develop a solution to. If creating a specialty coffee shop is more costly than you can afford, that’s not a reasonable solution. Consider offering a few select specialty menu items at a more traditional shop instead.
The key is to find a problem that affects a lot of people, one they urgently want a solution to.
Step 2: Build a community
The next step is to create a community for people affected by the problem identified in step one. Luckily, this is fairly easy to do. You can create a Facebook group, host an online forum on a website like Reddit, or make use of other social media to accomplish this. This process will help you gain a customer base, develop your brand, and identify your target market all at once. Under the traditional business startup model, this would take three separate steps.
You can also set up offline communities as well, such as a local club or a meetup group. Offline options like these allow you to meet members of your community face-to-face. In-person gatherings help build meaningful relationships between you, your community, and even other entrepreneurs. Another benefit is that you get real-time feedback, instead of waiting for people to reply to social media.
You can generally find local business groups in your area, such as your local Chamber of Commerce, that promote the interests of local businesses.
Reasons to build a community:
- You will learn about this problem and the real impact it has on the target market for your coffee shop.
- This will allow you to form the foundations for your coffee shop marketing campaigns.
- You will have a hungry market that trusts you when you decide to launch your own coffee products.
- You can gain their support early to help fund the growth of your coffee shop business.
How to build a community:
- You can launch a new group on Facebook and grow a community around different coffee trends and desires by consistently posting new updates and interacting meaningfully with community members.
- You can also use Twitter to create polls and increase engagement with your community.
- Use Instagram to post photos of your brew concoctions and build enthusiasm
for your product.
- Use social media to reach out to other entrepreneurs in the coffee industry to not only network, but gain feedback and form business relationships with other coffee shop owners in your area. You can even get some tips and tricks from other entrepreneurs in the industry about how to start a coffee shop business.
If you create online groups, you’ll gain valuable support and feedback about the types of service you hope to open. Customers can tell you what types of coffee they like and what kind of atmosphere they want in a coffee shop. You can also learn what kind of foods your customers enjoy, what they think of your competition, and much more. This is why building a community is such an important step.
Online groups or web pages also function as advertisements for your coffee shop business. The more people comment and gush about your products and service, or the more that people see you interacting with your customers and applying their feedback, the more customers you’ll attract.
Step 3: Identify a Solution Opportunity
Once you’ve completed the first two steps, you’ll find that your community members will still have unresolved pain points. After all, building a community and identifying a problem doesn’t solve the problem, does it?
When learning how to start a coffee shop, use your social media platform to ask your customers and community members about the current coffee products they buy. Learn what they like and dislike about other coffee shops in the area. Ask what they like and dislike about the services and products you will be offering at your coffee shop business, as well.
Find out if customers have problems with price, delivery, quality, service, or anything that has to do with the costs and features of services delivered by coffee shops in the area. Do the other coffee shops serve low-quality coffee? How many rival coffee shops are there in your community? How available is a good cup of coffee to your customers?
This is all valuable information for your coffee shop business, and you can capitalize on it when opening a coffee shop.
Talk to your group members to find out what their current pain points are. Find a need that isn't being met by the market's present offerings.
Step 4: Develop a solution
It’s not enough to simply pinpoint a problem. You need to find a solution to the problem. If you find a solution to the problem identified by the community, they’ll pay for that solution.
Look at your competitors’ attempts at solutions—promotional offers and sales, for example—to see how well they attract business. This is a good indication of other coffee shops implementing customer feedback or attempting to fix a problem themselves, so it’s worth taking note of.
How to Develop Your Solution:
- First, come up with a solution idea. If people in the area have expressed that they would like a drive-thru coffee shop, or a coffee shop that specializes in specialty coffee, then it’s easy to identify specific solutions to those problems.
- Second, get feedback on your idea. Just because you think your idea will solve the community’s problems doesn’t mean they’ll think so too. Consider talking to other entrepreneurs in the area to find out if your idea is viable and cost efficient.
- Third, create an MVP, or “Minimum Viable Product.” This is the product that is the cheapest for you to buy, the easiest for you to provide to customers, and the product that will make the most money for the least cost and effort.
Whatever solution you develop needs to remain cost effective, efficient, and low effort. This ensures that your solution will remain viable and minimizes any financial risk involved.
The second phase is to measure. The word “test” could be used interchangeably with “measure” here because the idea is the same. In this phase, you’ll measure how effective your solution is.
Step 5: Test your MVP
Once you’ve developed a solution and received feedback about your solution idea, it’s time to get to the heart of the lean startup method: experimentation. You’ll need to develop your solution into an MVP to test.
Your MVP will include where you get your coffee, what type of coffee you buy, the sort of equipment you use (espresso machines, a coffee roaster, etc.) and things such as your point of sale (POS) system.
For instance, if your customers have told you they want access to specialty coffees but opening a dedicated specialty shop isn’t a viable solution, you could instead offer a weekly or monthly special to cater to your customers’ needs. Offering an exotic or specialty blend is one way you can tap into a market niche without taking a significant financial risk. This method also allows you to test your own custom-made coffee products as part of the rotating special.
Testing your products and services is one of the core ideas behind the lean startup method. Sure, a bank could give you the money to cover your startup costs based on a product that customers may hypothetically like. But finding out if customers like your service before you ask for funding is more cost efficient.
Testing your MVP is quite easy, and it’s definitely a good way to ensure that you’re working your way toward establishing a successful coffee shop. It can also be a good form of marketing for your coffee shop.
The easiest way to test the MVP of your coffee business is to take your new coffee and any food you plan to sell at your coffee shop and set up a stand at a local farmer’s market, flea market, fair, or other local event that gets sufficient foot traffic.
It’s as simple as offering a variety of coffee and food samples and asking people how they like them. For instance, show up with two different types each of Columbian coffee, dark roast, light roast, and a breakfast blend and let your customers choose which they like best. The same can be done with the pastries and breakfast items you’re considering serving. Offer a variety of scones, muffins, cookies, and breads to find the real crowd-pleasers.
You want to make sure to ask people about the quality of the food and coffee you’re serving, as well as if they’d buy it if you opened a coffee shop. Ask questions about why they like products, as well as the reasons behind what they don’t like. If you offer a blueberry muffin to someone who just doesn’t like blueberry muffins, there’s not a lot you can do to change that product to meet their needs. But if you find that someone who is a coffee connoisseur dislikes the bitterness of a particular blend, you’ll know what to look out for when finalizing your menu.
You can consider this a successful experiment if most of the local customers you’ve served at your stand are raving about the quality of your coffee and food and want more.
Step 6: Sell your MVP
Now that you’ve got your feet wet and found that people will actually buy coffee from you and enjoy it, it’s time to start your coffee business. But you’ll find that starting a coffee shop using the lean startup method probably isn’t as glamorous as the coffee shop you daydreamed about, the one that started this entire journey in the first place.
This is the final experiment you need to conduct before you get funding to open a coffee shop. If you’re successful at running a coffee business before you even have a brick and mortar location, it’s easier for investors and financial institutions to believe that you can be a successful small business owner on a larger scale.
You’re probably wondering how you can sell coffee before you get your coffee shop up and running but it’s not only possible, it’s necessary for continued success.
To sell your MVP, you could initially consider mobile coffee options, such as a coffee cart. You can move a coffee cart to any location you want, so if sales aren’t going well in one location you can simply move. It also makes it easier for you to become a vendor at fairs and events. Another advantage of choosing a mobile coffee cart is that you can advertise on social media a schedule with locations where your cart will be so that customers can find your cart effortlessly.
You could also consider a coffee kiosk. A kiosk isn’t as mobile as a coffee cart, but it has its advantages. You have the ability to use a wider range of equipment in a kiosk, such as an espresso machine or coffee roaster, because you have counter space. A stationary location also means a steady, regular customer base.
With either a kiosk or coffee cart you can increase the customer base of your small business by choosing a good location and interacting with the community you’ve built online.
The last phase is to learn. What does that mean in relation to your business? It means that you gather information about its effectiveness and learn what works or how to improve.
Step 7: Get feedback on your product idea
At this point you’ve interacted with your community and, based on customer feedback, found a solution to a problem they all face. You’ve tested the quality of your product, determined that your product would sell, and estimated the cash flow of your business. The next step is to ask for more feedback about your business to see where you can go from here. Here is the method:
- You’ll need to ask your customers pointed questions about your coffee business to learn how you can improve and grow.
- Pay attention to this customer feedback.
- Are they satisfied with the quality of your products and services?
- Do they like the location you’ve chosen for your business, or would they prefer a different location?
- What aspects of your business need improvement?
You can use social media to gather this feedback with ease. You can create polls on Twitter or Reddit, check your coffee shop’s Facebook reviews, or launch a website for online surveys for your customers to take. Once you’ve gathered this feedback, you can use it to adjust your products and services to increase your customer appeal and satisfaction.
You need to find answers to all these questions before you expand your business.
Once you’ve received funding for your coffee shop, it’s easy to feel like you’ve completed all the tasks on your list. But there are still several things you do to make sure your business remains successful.
You can now decide whether you want to continue your coffee business from a mobile cart or kiosk, or if you’d like to purchase a commercial space and own a brick and mortar coffee shop.
If you decide to continue business from a mobile cart or kiosk, perhaps business growth looks like opening more kiosks or purchasing more carts. Or you could franchise your coffee business and expand that way. If you decide to expand using multiple carts or kiosks, you’ll need to register for an EIN and hire some extra staff to operate the equipment. Depending on the demand for your coffee, you may need to upgrade to larger carts or even consider purchasing some food trucks to sell your products from.
If you’ve decided to open a coffee shop, there are a lot of things you’ll need to do before you announce your grand opening.
First you’ll need to find the right space for your shop. The right space will not only be one you can afford but also one that’s in a location with adequate foot traffic, where your coffee business will flourish. It won’t do any good for you to choose a location with six other coffee shops on the same street, for instance. Consider whether the space will fit your needs and budget, as well. If you want to run a coffee shop with a drive-thru but the location you’ve chosen doesn’t include one, it’s going to cost money to build a drive-thru.
You also need to draft a coffee shop business plan if you choose to go to a financial institution or investors to obtain funding for your dream. Your coffee shop business plan should include things such as the estimated cost to open your coffee shop, your business model, your brand, etc. Although the business plan typically isn’t prioritized in the lean startup method, you need one to get funding for most businesses. It’s also massively beneficial when you hit this stage to have a successful business that’s already bringing in money along with your business plan.
During this period you’ll need to make several decisions, as well. Not only will you need to obtain an EIN, you’ll need to choose a business structure for your coffee shop. If you’d like to know more about how to form an LLC, for instance, click here to check out my article about How to Start an LLC. You’ll also need to choose what is known as a “registered agent” to accept mail and service of process on behalf of your business. To find out what a registered agent can do for you, check out my article about the Best Registered Agent.
Here are some things you need to do in order to maintain a successful coffee shop:
- Hire baristas: Your baristas are the face of your business, so it’s important to be a little choosy when it comes to hiring them. However, under the lean startup method, you don’t hire people based on experience, but rather based on whether they can learn and adapt. So go with your gut. In the worst case scenario, you can replace them with candidates who are better suited to your needs until you have a custom-tailored team you trust.
- Follow business regulations: Make sure you’ve acquired the necessary business licenses and permits for your business and that your staff is legally permitted to work in your location. This may require your employees to obtain certain vaccinations, take medical tests, or get food handling permits.
- Find wholesalers you love: If you want a coffee shop that sells quality coffee and food items, then it’s important to find wholesalers that sell quality ingredients and supplies. It’s also important that they’re reliable, trustworthy, and cost efficient. Finding a wholesaler that meets all of your criteria will be rare, so it’s likely that you will test out several before landing on wholesalers that you love to work with.
- Build up your inventory: Now it’s a good idea to start keeping more stock around because you’re expanding your business and planning to serve more customers. This means that you’ll be selling more of your product and should have a bigger inventory of products on hand.
- Turn on the utilities: If you’ve bought a brick and mortar shop, then it’s time to turn on the utilities necessary to run it. You’ll need gas, water, electricity and wifi, among other things.
- Business software: Now that you’ve accumulated customers, it’s a good idea to invest in business software. For tasks such as tracking sales and paying employees, the right business management software can make all the difference. If you’d like to know more about software you can use to help manage your business, check out this article on the best business software.
- Experiment with your menu: Now that you’ve got your own shop, it’s time to experiment further with your products and keep the “build, measure, learn” strategies going throughout the life of your business. Ask for feedback with each change and find what your customers love.
Congratulations! Making the decision to launch a business can be a scary and risky endeavor, especially when you hear that four out of five businesses fail in their first year. But if you use the lean startup method, you greatly reduce the chances of being one of those four out of five. Here are the steps to remember:
- Identify a problem
- Build a community
- Identify a solution opportunity
- Develop a solution
- Test your Minimum Viable Product (MVP)
- Sell your MVP
- Get feedback on your product idea
While you’ve technically completed all the steps in the lean startup method process, once you’ve completed the 7th step, you’ll also need to constantly build, measure, and learn to achieve business success.
Starting your own coffee shop is a lot of work, but if you follow these steps you’ll have a better shot at a successful business.
Congratulations again on your decision to start a coffee shop, and good luck!
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