Be Flexible. Be Prepared.

By now you probably know that your business plan should be a living document. There are many good reasons for that. Things change over time and the details need to be updated—demographics, competition, customer demand. Plus, decisions have a domino effect. And then sometimes things just don’t work out as planned. Enter Plan B. Despite being in love with an idea, try not to dig your heels in on something that just isn’t working to your advantage. It’s a waste of time and energy. Take the emotion out of it and make a smart "business decision."

Having a Plan B increases your negotiating power as well. If you are dead set on a location, for example, it can be difficult to get what you want at a price that works for your business. Once that landlord smells your desperation, he or she is now in a more powerful position in the negotiation. Make sure you have a BATNA (Best Alternative To a Negotiated Agreement) when you go in to the meeting. You cannot make a wise decision in a negotiation unless you have clear alternatives. With a strong BATNA, you won’t need to concede as much because you’ll know you have other options, plus you can push harder for a better deal. When I was negotiating for a lease renewal in Brewerytown, I realized that unless I really got what I wanted, I didn’t want to renew the lease at all, which is what ended up happening. Not renewing was actually the best outcome for my business; I was able to focus on my first location, which was about five times more profitable, and needed the attention.

Plan B can also play a role in refining your concept. You may experience unforeseen challenges upon implementation. Perhaps it ends up being too labor intensive, too expensive to produce, or you’re just not meeting customer expectations. If you can’t make a decent profit and/or make customers happy, change it before it’s too late. Not only will you waste time and money, it could have an adverse effect on your reputation, which is a hard thing to turn around.

Making a concept change can be easier said than done. The initial concept for Mugshots was a coffeehouse AND juice bar. This was on top of a fairly involved food menu, and it proved to be difficult to implement. As avid juicers, we were both in love with the fresh juice concept. Put into practice, it was labor intensive with a lot of clean up, equipment maintenance, and storage requirements. With one employee spending 5-7 minutes on one drink, they were pulled away from the counter, unable serve customers in line, who were visibly frustrated.

Our level of customer service suffered, the hassle factor was high, and the profitability wasn’t anything to write home about. Yet we were too afraid to make a change, fearing that decision would disenfranchise our juice customers. Plus, “juicebar” was on our sign and in our logo! When we finally took the juice off the menu, we realized we should have done it MUCH sooner. It was a no-brainer, but we let emotional baggage get in the way. Sure, there were some disappointed customers, but we kept smoothies on the menu and they got over it. The staff was thrilled, and our bottom line got the boost it needed.

How about a Plan B for staffing? Management? Financing? Or operational fail-safes? I always found it helpful to have a healthy number of part time people on hand so that when someone quits or doesn’t show up, there are people trained with some flexibility in their schedules. Along the same lines, make sure your manager has a right hand; that person can step up if necessary. When you’re shopping for financing, you’ll want to put your loan package out to a number of financial institutions or investors at the same time. Again, you’ll be in a better position to negotiate, but then you’ll also have a Plan B if something doesn’t work out at the last minute.

I find operational fail-safes the most fascinating. Get ready to test your resourcefulness! Any number of things can malfunction, and will—your refrigeration, oven, water heater, the toilet. Do you have other refrigerators or coolers so you don’t lose your product (or worse, make someone sick)? Is there another method for cooking your signature dish? How can you set up a makeshift hand washing station with hot water? If the health department happens to inspect when your water heater is on the fritz, or your only bathroom is out of order, guess what? They’ll tell you to shut down until it’s fixed (and then you have to wait until they come back out to inspect it). That could be a good 24-48 hours, leaving your customers to wonder, and your cash register idle. Remember, those fixed costs are, well, fixed.

I recently had a meeting with a local catering company in a growth phase. They shared a horror story about showing up to a wedding only to find the oven didn’t work. They very cleverly made an oven out of tinfoil and some tealights to cook the main course, and they pulled it off! CAN YOU IMAGINE?! Well, you should start imagining all the worst case scenarios now, because they’re likely to happen at one point or another during the lifespan of your business. Take a deep breath and relax—with the right preparation and coaching, you’ll be a success!

7 (Unexpected) Lessons Learned

These certainly aren’t the most important lessons I learned while running my business, but they were definitely the most unexpected. I could have done without all of these, to be honest, but I feel they are worth sharing. Feel free to share your unexpected lessons learned in the comments below!

1. Sometimes, you need bleach. As a founding B-Corporation, we had strong environmental standards. When we first started out, we used “Sun & Earth” cleaning products exclusively, and we were committed to not using bleach. And then we met Tom. Tom was a regular with a fairly small child at his side—old enough to walk, but not potty-trained. Maybe 18 months? As he was packing up the stroller, Tom took his child (I don’t remember if it was a boy or girl), and plopped him/her on the front counter at the window. It was a fairly explosive “plop,” shooting the poop in the baby’s diaper up, out, and onto the counter. He looked at me and said “Angie, we have a problem.” I said “no Tom, YOU have a problem!” And then I realized that this was, in fact, MY problem. After I escorted him to the bathroom to clean up, I promptly went to the hardware store and bought some bleach.

2. Architects aren’t perfect. This was our first coffee shop, and apparently it was also a first for our architect; we didn’t fully realize the amount of storage space we’d need, nor did we plan for an office or minimally, a place to keep a safe. In addition to having rearrange our small walk in with every delivery, we stored cases of drinks on top of the walk-in, and built shelves that sat on top of the ice machine. Storing money was another unexpected challenge. Until we installed a safe, we hid the cash somewhere in the kitchen and texted each other where it was for the following morning. My favorite hiding place—the oven mitt.

3. Label your squirt bottles. This really is a no-brainer, and it’s something the Health Department specifically looks for. But getting the staff to label things consistently? It’s a challenge. We went through an entire morning making barbecue sauce mochas until a kind neighbor came back to tell us that her mocha was oddly spicy.

4. Garbage grinders aren’t magic, and plumbers are expensive. One busy Saturday afternoon I came back from a tour at Green Meadow Farms to find a plumber snaking a case of oranges out of the drain. In addition to entire cases of orange peels, garbage grinders also don’t process stringy things, like celery. And who knew that coffee down the garbage grinder spells smelly disaster? Oh, and when you’re looking for that small part to the blender or iced tea dispenser, I bet I know where to find it! It is required by the Health Department, so be sure to cover proper usage in your training to avoid these pitfalls. Your P&L will thank you.

5. Organic=no pesticides=well, pests. Seasonally, we sourced organic produce from local farms. In particular, we had microgreens that we used as a spring mix. In these microgreens, we found little worms, but not before a customer ate them and freaked out. She actually thought she was going to get worms, like "parasitic worms!" I said “no, you just got a little extra protein today, but you’ll be fine,” clearly trying to downplay the blunder.  We refunded her lunch and luckily, we never heard from her (or her lawyer).

6. The 6’5” crazy guy wearing fatigues, wielding a pocket knife, and shouting obscenities whilst shaving in your vestibule mirror on a daily basis, is bad for business. I painted over the mirror, which became a great chalk board sign, until someone swung a ladder into it and it shattered.

7. Coffee shops are the perfect setting for pick pockets. Well, any place that offers counter service as opposed to being seated. It’s easy for these folks to walk in unnoticed and take advantage of your paying customers. I installed security cameras, worked closely with the 9^th District to make an arrest, and even once printed a picture of a known pair of pick pockets and posted it on the front door, labeled “BEWARE.” Our best defense was instituting better customer service training. I trained the staff to walk around the café periodically to interact with customers. As soon as they knew we knew they were there, they left. And our customers appreciated the better service. 

You Can’t Improve What You Don’t Measure

Knee-deep in an accounting engagement, I thought it was an appropriate time to write about financial metrics. For a lot of people, crunching numbers just isn’t their thing---getting creative in the kitchen, socializing with regulars, or even the rush of Saturday night dinner service is a welcome challenge. Well, it doesn’t necessarily have to be your thing. As I’ve said before, you can’t do it all, and you’ll be miserable trying. Outsource the stuff you don’t like to do you or where you don’t excel. But before you outsource too much, you can implement systems to efficiently track your performance. These systems will enable you to make insightful changes to ensure profitability and longevity.

So what does this mean, really? There are benchmarks in the industry you should be measuring your business against regularly so you can make timely changes to reach them. If you’re only measuring quarterly or annually, it’s likely too little, too late. If you’re operating full time, you should be measuring your prime costs at least on a weekly basis. If you have a part time operation, or one that is events-based like our friends at Food Underground, you should be analyzing each job’s performance. You should know at every step of the way, where you are making and losing money.

The average profit margin for the restaurant industry is only about 5 percent, so you can see how every penny counts. Consider each cost as a percentage of sales. The largest are food and labor costs (prime costs), which make up about 60-70 percent of the total, followed by occupancy costs. According to restaurantowner.com, when operators track their prime costs on a weekly basis, they typically add 2-5 percent or more to their bottom line. I can attest to that. With the right systems in place, you can track (or delegate tracking costs) easily. Analyzing and making changes might require some assistance at first, but in no time you’ll be on the right track to profitability!

Occupancy Costs - If you’re just starting out, this may seem like a shot in the dark. You should have a financial forecast as part of your business plan that will give you an idea of what you’re sales goals are. (Contact me if you need help with this.) This will be a function of how many people you expect to come in on any given day and the price point of your menu. Occupancy costs should not exceed 10% of your sales, so when you feel confident in your sales forecasts, take that into consideration before signing a lease. If you’re already operating, you may want to try renegotiating your lease if you’re not hitting this target. Occupancy costs include rent, CAM, insurance, real estate taxes, and utilities.

Cost of Goods Sold – aka COGS. This can be broken down further into food costs, alcoholic, and non-alcoholic beverages, but overall, they shouldn’t exceed 28-32 percent of sales (maybe a little higher if you’re choosing organic or sustainable foods like I did). So what happens when your costs exceed this percentage? For me, figuring this out is the fun part! Your pricing is off. Your costs went up (vendors tend to not let you know about price increases all the time). Your portion control is, well, out of control. You have too much inventory on hand, which makes it easy to grow legs and walk out the door (check the linen or trash bags). Employee discounts aren’t being enforced. I could go on. I know what you’re thinking—“could this all possibly be going on under my nose?” The answer is “yes.” And you wouldn’t be aware of it unless you were tracking your costs on a weekly basis. Now, don’t go off the rails and scare off your entire staff (that’s the other part of prime costs to keep in mind). Stay cool and implement systems to get your costs under control.

Labor Cost – Your total payroll cost, including manager salary and benefits, should not exceed 25-30 percent of sales. Again, this should be tracked on a weekly basis. As you develop your labor budget, take into consideration the trends from the week before (hopefully your POS system can track hourly sales and labor costs), any upcoming events, the weather forecast, and the season. These will all have an effect on scheduling, which can cost you whether you’re under or over staffed. Other things to consider are the costs of turnover, training, and legislation changes like last year’s paid sick leave bill in Philadelphia and the looming minimum wage increase. So, other than the delicate balance of scheduling, how can you reduce turnover and make your training most effective? These things go hand-in-hand. While training should be seen as an investment in your staff, it’s still a cost to consider, and if it’s truly an “investment” then it should ultimately save you money by reducing turnover. If your turnover is high, maybe it’s time to revamp your training program, among other things.

Business metrics may seem daunting at first, but they are necessary to survival. An engagement like this would take just a few short weeks to get up and running, and increasing your gross profit margin. It’s an investment you can’t afford NOT to make. Start measuring so you can start IMPROVING! 

Hiring the Right People

The food service industry is notoriously rife with turnover. While some turnover can be a good thing, too much can wreak havoc on your business: customers are disappointed when they don’t see familiar faces, seasoned employees are stressed out picking up the slack, plus the sheer cost of training can be debilitating (are you tracking that, by the way?). There are ways to help retain good people, but how do you get the right people hired in the first place?

The truth is, as diligent as you may be, you will still end up with a few doozies (and you should document these for later reference so you can a good laugh out of it… eventually!). But there are ways to increase your odds of finding good people. Remember: people are your biggest asset. And when you’re hiring front of the house staff, they become the face of the company.

While the entire hiring, interviewing, and onboarding process is much more comprehensive, here are some basics to screen for initially:

1.   Availability—does it match what you need currently? If not, thank them for applying and let them know you’ll be in touch when something else opens up that jibes with their schedule.
2.  One year out—does it look like they’ll be around for at least a year, or are they really just looking for seasonal work, in which case you’ll be wasting your time and money only to be hiring and training someone else in three months? Believe or not, they may not be completely honest about this, so you’ll need to be clever about getting to the bottom of it.
3. Attitude and personality—are they genuinely interested in serving people, and will they do it with a smile? My mantra is: I can train almost anyone to do this job, however I cannot train anyone how to be nice. There are more personality traits you’ll want to screen for, but if you have any hesitation here, it’s time to move on!
4. Appearance—whether you want to admit it or not, a person’s appearance matters. As we already said, this person becomes the face of your company. On top of that, they are handling food, and your customers tend to be picky about that, as they should be. Aren’t you? And it’s not just personal grooming (check for clean fingernails, trimmed facial hair, clean hair and clothes). Customers tend to be critical of everything. So, let’s minimize the chance they’ll Yelp about “hipsters with an attitude” (on your free Wi-Fi, no less). Tattoos can be charming if that person is outgoing and friendly. Personally, I put my foot down at the septum ring; it’s distracting and unappetizing. (I will hire a qualified septum ring wearer of course, but they will know they need to turn it up.) At the end of the day, your customer should remember their meal and how they were treated (and rate you based on that), not their barista’s or server’s appearance.

Like every other part of your business, you should have systems in place for hiring. A nicely buttoned up package of instructions, documents, checklists, and presentations will prepare your manager to hire efficiently and effectively, saving your entire operation time, money, and aggravation. At every step along the process, from the want ad and application, to interviewing questions and follow up, these systems will help you weed out the headaches and identify the stars. Now it’s on to training!

Responding to Criticism

Let’s face it, opinions are like... well, let’s not go there. You get the picture--everybody has one, especially when you have a business that deals with the public. From the outside looking in, everything has a simple solution. Sometimes it’s a matter of putting better systems in place, which of course, I can help you with. Sometimes it’s a matter of putting better people in place, which I can also help you with. But sometimes, our best intentions backfire, and you have to respond to real criticism. In my experience, here are the best moves for the best outcomes.

Online reviews

Not all bad reviews are worth getting upset over, but when you see a trend, you best pay attention. Whether it’s Yelp, Google, or Facebook, people want to tell the world about their everyday experiences, and you’re in the line of fire. It’s basically a numbers game, and there are ways to generate more positive reviews that will push the bad ones to the bottom and level out the score (yep, I can help you with that, too). But in the meantime, how do you respond? Human nature is to defend, to be right, but consider this: when you win an argument with a customer, you lose. So, how do you save face without losing a customer?

Suck it up! Remember, their perspective is valid, unless it’s vengeful retaliation, i.e., disgruntled employee. Now, if it’s a faceless one-review wonder on Yelp, remember that it will get filtered out by their algorithm. On the other hand, if you got a bad review from the “Elite Member” with 436 friends and a couple hundred reviews, a tactful response is in order.

First, thank them for their feedback, and for bringing the issue to your attention. Whether they are just looking for a fight, or they’re legitimately upset, this will diffuse their anger and make them realize they are dealing with a reasonable human being. If this is really a one-off incident, assure them that this has never happened, that you appreciate the opportunity to address the issue within your operation, and also with them as (hopefully) a repeat customer. Offer to welcome them back with a gift card of equal or greater value to the purchase with which they were displeased. When they return, they are likely to amend their review. Voila.

In store complaints

In store complaints should be handled swiftly and kindly. I once fired someone for arguing with a customer who insisted what they got was not what they ordered. For the love of Pete, apologize and give them what they (think they) ordered! Better yet, offer them a free refill or dessert for the mix-up. Again, this is an opportunity! Going above and beyond will turn that customer into a walking advertisement for your business, rather than just a mildly-pleased, perhaps-still-annoyed, maybe-might-come-back-because-it’s-convenient, customer. It sometimes helps to put yourself in their shoes. What treatment would you prefer? What would get you to go back?

The savior

We’ve all had the unsolicited recommendations--from friends, customers, and strangers alike. Sometimes they’re totally awesome. Most of the time, there’s a practical reason why you haven’t “done it that way” before. Regardless, be polite. Say thank you, have a chat, and offer them a free drink. If you argue, or prove them wrong, what exactly do you get out of that? Let them be your savior (and tell all their friends about it).

The take away

Most people who are dissatisfied will just never come back. Start looking at complaints as an opportunity to correct a part of your operation—and whatever you do, don’t ignore them! It’s also an opportunity to generate a loyal customer. If someone does you the favor of voicing a complaint, whether in person or online, now you know s/he isn’t shy. So, make it right and you’ll not only have a loyal customer, you’ll have a brand ambassador.

Top 5 Things I Wish I Would Have Done Differently

1. Developed a five and ten year plan. Two years into opening our first location, we decided it was time to grow and we opened our second location, with minimal expense. (It was also with minimal research and it closed five years later, never having been worth the hassle.)  Two years later, we decided to purchase the building where our first location was situated, and borrowed a substantial amount of money to add kitchen space, and another 30 seats. (More on the building purchase decision later.) For now, the point I’m trying to make is that the decision to expand did not take into consideration the amount of time it would take to pay off the debt and how that would affect our lives outside of the business. We probably would have been better off keeping the space as it was, with only three more years of debt payments. Instead, a majority of the profit now went to servicing debt, and would for another 10 years. How long do you want to do this for, and at what expense? What are your alternatives? Think about it. Hard. And write a plan! That process will force you to be thoughtful about your growth.

2. Trusted my gut. Oh, and all of my friends and neighbors who warned me about getting into business with a notoriously unscrupulous character. When the building where our first shop was located went up for sale, I knew the rent would sky rocket. I convinced myself that it was better to have a small piece of the pie with someone I didn’t trust, than no pie at all. Despite having a partnership agreement in place, I lost my investment. Remember, any agreement is only as good as the amount of money you have to enforce it, and he could outspend me ten-fold. Long, long story short: the lawsuits are settled and I learned my outrageously expensive lesson--I won’t be doing business with "notoriety" anymore, and you shouldn’t either.

3. Hired a lawyer to draft a more functional partnership agreement. When I decided to start Mugshots, I was hell bent on a 50/50 ownership with my partner; we were in this together! Despite working with a lawyer to get the business entity set up, we didn’t get any advice on the implications of a 50/50 partnership when it came time to make big decisions. The irony here is that the lawyer was pro-bono through a non-profit (you get what you pay for), and his practice area was bankruptcy. When no one has the majority ownership and/or roles and decision making aren’t clearly defined in the agreement, you end up in a stalemate and you spend money on lawyers instead of on your business. Pony up the money in the start-up phase for a contract lawyer to draft your agreement; address the ownership structure and decision making before you end up in a stalemate. You’ll save a lot of time, money, and aggravation in the long run.

4. Financed through equity rather than bank loans. When you raise money, you have a built in board of advisors who are vested in the business. If you recruit the right investors, you have people with business experience who share your vision. They can help you navigate through the growth process, and help you make tough decisions. The bank generally only calls if you miss a payment. Not only that, when things go south or you’ve decided this isn’t what you want to do anymore, your investors will be much more flexible. Walking away with a bank loan? That personal guarantee makes sure you’re on the hook 100%. Check out this article on the pros and cons of both: http://www.nfib.com/content/resources/money/ital-50036/

5. Hired a consultant. It took nearly two years to get our first location open:  finding space, negotiating a lease, financing, the construction phase, navigating Licenses & Inspections, and the Health Department. I’m smart--I could figure all of this out! And I did. But it took nearly two years. Based on the fact that we grossed nearly $600k in the first year, it probably would have been worth hiring the experts to get open sooner. And I’m not just saying this because I want to sell you my expertise. I absolutely do. But come on! This isn’t rocket science. Make a relatively small investment in a consultant, and start making money sooner. It’s a no brainer.