Business Advice With Ruth Badger - Part 2

Ruth talks about the importance of market research, business planning and pre-business plan planning when starting a new business

 

Transcript: Business Advice For Cafe Chain

My idea to open up a small chain of Russian cafes, so basically there is food from Russia, to start with Russian style pancakes, it's like French crepes but taste is different, fillings are different.

So basically I am at the beginning of this process, so I started to write down my business plan, I've got some advice from different people, now I'm looking just to see how business idea works. So I need some kind of advice in this stage, in the beginning.

One thing I know when it comes to a cafe, a restaurant, a bar, anything like that, it takes a good deal of capital investment in order to get the right premises, brand them properly, make sure that they are in an adequate state in order for customers to sit, make sure that all the assets in the kitchen are of a working state and working. And one thing I know for certain is about the theatre of food, okay?

There's a big, big thing in this country, a huge thing at the moment which is the street food market. Are you aware of that?

Yes

Because straight away the moment you talk to me I think street food, because you're talking about Russian food which can be done at an affordable level, healthy, affordable and quick.

Yep

That's not cafe. There are certain markets that are set up in London that are specifically there for this type of thing, your street food thing, where I can get a variance of food at a five pound per cover. Okay? And you can afford to produce it at that cost. So you might make fifty percent profit on every single thing you sell, or you go and rent space, lighting, electric, interior design, branding, marketing, cost, health and safety certificates. All of the difference, you might have to produce it at five pounds, and you might actually make one, two, three percent margin.

I'd make you a fortune as a street food, it's really in, it's really funky, and it's a great way to get your start cash flow going without very, very little expenditure, ok. I know you go "no I want a cafe" and I'm going, but I would do it in stepping stones, different to you, but I would do it. Because what I would prove is there is a demand.

I know for a fact the reason street food does so well is because of the theatre of it, and how do I get that theatre out of my restaurant and into the street? And actually, the way to do it is to pick your retail space very, very well, and have it so the front is almost like a sliding door you pull back, you've got tables behind you so you've got a multi, but the smell brings people in. That means you can have a takeaway outlet to there is your fast food going, but you need to research it. Retail and food and beverage are one of the most difficult places to be at the moment. And that's hand on heart from my experience across the board.

Before you actually spend any money you have to put a lot of your time into research, otherwise for every pound you spend you need another two to correct the errors that you make, okay? I've just done a market research project, because one of my customers is opening a new restaurant, and I wanted to know concept, what people wanted, I wanted to know price, what people will pay and I wanted to know theme of what people would actually really want.

So you would say ok then, I want to aim at, and you've got to set this demographic in your head and say: 'Okay, I wanna aim at, just for arguments sake 25-40 year olds. I wanna aim at people who go out once or twice a week, who are conscious about healthy food and aren't actually interested in drinking', which they can all do because all the databases are there. And I actually want to know what they think of the name, what their opinion is on Russian food and can they tell me what would they say is Russian food, because you've only got the answer of vodka from me, right. What they are looking to pay, what they are looking to drink, and what would they pay for different levels of food. So what would you pay for a pancake, because I would say actually I would pay something like three pounds fifty.

You've got to go out there and say, and I would like you to go to between three and five hundred people, and cost out that project. And then when you say, you know: 'I've commissioned a market research plan of five hundred people that can fit within that demographic', that's when I start to go: 'He knows what he's on about'.

Now that project could cost you anywhere between five hundred quid and two and a half grand, but I tell you what: that project might actually save you forty, fifty grand. You've got to make a very, very big decision, and the big decision is gonna be about your set-up capital, and that initial investment, because take it from a woman who's done it, the moment you've spent it, you'll never get it back if it goes wrong. You know you've really got to think this out because there will come a time when you've got to bite the bullet and at that time I want you to have your eyes taped open and know exactly what's in front of you.

I'm gonna make you write a pre-launch plan, and after that you can write a business plan, but until you have sanity checked all the things, a business plan, listen, if you come to me and you've said, oh you went to a bank and said: 'Here's a business plan'. I'm looking at first of all I wanna understand the concept, you haven't sanity checked the concept because I'm gonna start to ask you about market research. And I'm going to ask for evidence about why you think that works over that, where your evidence is over that, and where you evidence is. But you need to map out almost the four segments, like a SWAT analysis. Ok then, there's my research, there's my market research, and that market research has guided my business decision to this. My next stage of it is my start-up capital, my start-up capital is required in this area, this area, this area and this area.

And that comes down to, the branding, the establishment, the staff, and the pricing. And what I would actually say is: your food, your menu, your F and B side of it and your GP side of it. And that is where your start-up capital comes down to. Then you're starting to go into the element of the business plan, and business plans and your forecast, is an educated guess.

And you can give me; you can give me a guess. You could tell me that you're gonna sell one hundred pancakes, at five pounds, and this is gonna be the cost and I'll go: 'Er, no its not, because how much has it cost for you to put that sign up outside the shop? How much is it cost in NI contribution for the staff that you've had to have?' Because you can't work you can't be in the shop on your own. You know so you've always got to have two members, legally, you know there is all the legal things, you can't have a shop on your own. How much did it cost for the chopping boards that you didn't cost out, I know what it's like, I've got staff up in Manchester, doodling on headed paper, chewing company pens, drinking me coffee, spill it they think: 'Ooh I'll get another', they don't think: 'Poor Ruth, she's got to pay for this', they think: 'Ah, it's my boss'. All that has got to be forecasted in.

And you have to be very, very, very transparent with that, what I do when I go into businesses that are food and beverage based, that aren't performing, the first thing that I look at is, how many units and what's the average per sale? So for you I'd look at, I dunno, you've got your pancake, for arguments sake, and you're selling that at seven pounds, and then you've got a drink whether they take it away or they have it in, I'm just gonna put two pounds for that. Ok so my average is nine pounds, I educate every single person, every single person, that I want twelve pounds per sale.

So I'll drum it into you, I'll absolutely drum it into you to sell every additional extra you can sell. I would say to people whether you've got ten people coming through the door or you've got one hundred, you should still have an aim of what you actually sell to the mass. I'd much prefer to sell you two small coffees than one large because there is more profit in it and this is the thing of upselling, because actually, your fixed costs are static, but you can control your variables and your wastage. And you know, you buy products in, and how do you, you know your soups all your different stuff you can get as much out of it, but all of that comes from; how much do I need to make a month, what can I afford?

Because you can sell the best food but if it's too cheap you won't get the right people, you know all these "all you can eat for five quid." Oh I'd never go in there, they could be serving the same food as the one next door and be charging me twenty five quid and I would go in there, mad.

When it comes to the reality of actually getting it done and putting the hours in, that's when you've got to plan it out. But you cannot waste any money, if you're borrowing money from friends and family, you have got to go: 'Every penny I spend has got to be spent correctly and actually wisely because you owe it to them'. Because if they are good enough to give it to you the money, then you've got to work out a time you can return it. You have to do your due diligence, thoroughly, and map it out properly.

My advice to you is to walk away from here today, sit down with a clear head, and write down just in bullet points, all the things if you were going to open tomorrow, that you would need. All of them right? As simple as, I'd need a shop, I'd need branding, I'd need lights, I'd need electric, I'd need water. I'd need this, I'd need that, I'd need knives, I'd need this, I'd need that, I'd need my suppliers, I'd need this, because that actually is your to do list, and that is much more powerful than your business plan.

Yeah I already started to work on my business plan for the project but now I'm thinking that I should kind of  stop this process and to step aside and see again what I'm going to do to think more about the concept itself and how I want to sell my product and what my brand should be. So it's kind of to go from stage one to stage zero, and to be more confident and be familiar with the stuff I'm going to do, so it's good to think about the project now, and how just from different angles will help me to understand that.

I think that the difference between somebody who has a business and is thinking about a business, you've got to sanity check the concept. I think that when people want a shop or a cafe or a restaurant, what they do before they've even started is actually whopping about seventy to a hundred grand's worth of asset value into the business that you've got to put the money up front before you start your business, hence the reason why I went through the whole street food, street cafe to get the money going. The market research project for him is invaluable because basically he needs to define his brand, he needs to define his concept, he needs to define his food offering and he needs to educate. And the idea of the costings, the people, all of that is no good sat thinking about yourself, you've got to go out there and test the market.

I'll tell you what if he spends two and a half grand, three grand on a research project - that is massively more valuable than spending a hundred grand on premises that he's tied into a five year lease for.

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