How to Open a Coffee Shop and Grow it to 19 Locations (2023)

  • Norm Tedford by Norm Tedford
  • 3 years ago
  • Blog
  • 1

Feeling overwhelmed? Work wearing you down? Missing your kids? Who would think that starting a coffee business would be the answer to all life’s problems?

Wes Herman was in a similar position. He was traveling all over the US, not seeing his family as much as he’d like, and wanted to empower his kids to live life better.You’ll never believe how he did it. Take it from him:

We started the company as a homeschool project to teach our 4 kids how to start a business. We hoped they would love it so much that we could work together for a long time as we grew this new brand.

That’s how Woods Coffee began in 2002. With a homeschool project, they got a $23,000 loan and Woods Coffee has steadily grown to 19 shops over the Northwest. He’ll share secrets like avoiding tying up your fund in real estate, buying used whenever possible, and running a coffee shop based on the budget.

If you want to know how to start a coffee shop, keep reading to find out how Wes started his multi-million-dollar coffee empire without spending his own money.

1. Create a Business Plan

Virtually every entrepreneur will tell you that you need a business plan when opening a coffee shop.

Wes is no different. However, his was only one page long:

I always like to think that a business plan can be put on one sheet of paper. It’s the difference between just driving aimlessly without a map versus having a map and understanding where you’re going. You’ll get there faster, you’ll get there more directly, and you won’t be distracted trying to figure out where you’re supposed to be going.

The beauty of the one-page business plan is that it pares down your idea to its barest essentials.

This helps you to focus, with a laser-sharp intensity, on the vision you have for your company so you can transform your nebulous idea into a concrete reality.

It’ll help you rent the right building and purchase the right coffee shop equipment.

It makes opening a coffee shop so much easier.

There’s zero room to hide behind arcane terminology, overly complicated figures, and obtuse language.

This way, the right people (investors, partners, etc.) will be more likely to read it. A great one will fire up their imagination and make them want to fund your dream.

Potential investors want to see you have passion. And, the one-page business plan is precisely the way to showcase it!

You might think you’ll need supplemental materials such as income and cash flow statements to convince potential investors you’re worthy of their money. In that case, you can put these in a separate folder.

It’s Your Written Elevator Pitch

An elevator pitch (for those who don’t know), is where you get only 30 seconds to pitch your business idea.

It’s as if you’re riding on an elevator with the person you’re pitching to. You’ll need to explain your concept in a way he can understand before the two of you arrive at your destination floor.

Your one-page business plan is the written version of that.

SWOT Analysis

One way to strip your concept to the bare essentials is by conducting a SWOT (strength, weakness, opportunity, and threat) analysis.

Here are the different parts of a SWOT analysis:

  • STRENGTHS: What makes your business model better than all the others?
  • WEAKNESSES: What are the particular vulnerabilities of your idea that could cause it to fail?
  • OPPORTUNITIES: What possibilities will your business model unleash?
  • THREATS: What are the specific forces, companies, or individuals that could spell certain doom for your vision?

Each section should only be one sentence—two at the most. You might want to use bullet points to help you to be more concise.

Once you answer all these questions, you’ll need to further refine your vision by asking yourself these additional questions:

What’s Your Business Model?

This is where you talk about how your successful coffee shop will look once you get it up and running.

Woods Coffee Location

Is it going to be more like Starbucks, providing a premium coffee house experience to your customers, or more like Dunkin, with its casual fast-food vibe?

Are you going to have online ordering, or will customers have to actually walk into your coffee shop to order their food or drinks?

If you think you’ve got an out-of-the-box idea that’ll disrupt the entire coffee shop industry, write down EXACTLY why you think that’s the case.

You might want to check out our business courses to learn more about starting a business.

What Value Will It Offer Customers?

What are you going to offer that no other coffee shop on the planet has?

This is what’s called your Unique Selling Proposition (USP). You must do this because you need something that’ll differentiate you from an endless sea of competitors.

This is the concept that’ll be the unifying theme for your business. Without one, your business will be blah and uninviting.

Woods Coffee has evocative imagery of forests plastered all over its interiors. That creates an atmosphere unlike every other coffeehouse around.

It’s like once you enter the store, you’re going for an exhilarating walk into the breathtaking beauty of the Pacific Northwest wilderness.

Think about something you can do that’ll give your business an incredible competitive advantage.

Who Exactly Is Your Target Demographic?

Figure out who your target market is so you can tailor your marketing materials and store experience to draw them in by the busloads.

For example, are you going to focus on affluent suburbanites who crave fancy lattes? Or, are you going after the working-class crowd that desires more basic fare?

This is your market niche.

The more specific you can make it, the better!

What’s Your Budget?

Here’s Wes talking about money in the early days:

In those early days… we were on a very, very, tight budget. We didn’t have the money, and so we needed to find the money, and we needed to be creative on how we launched the first store. So, the initial budget was $23,000—that’s what we needed to pull this business off. We didn’t have the dough, so we went out and asked someone to partner with us that had the money. They weren’t coffee drinkers, but they decided that this would be a good investment, and it was.

Wes thinks it would cost $500,000 to start a coffee shop today. You need to BOTH figure out what it’ll cost to get your venture off the ground and the ongoing costs. This will consist of the following 3 types of expenses:

  • Capital
  • Fixed
  • Variable

Capital costs are things you only buy once (unless there is something from your equipment list that breaks down).

These are things like:

  • espresso machines
  • cash registers
  • ice makers
  • building (if you buy instead of rent)

Fixed costs are expenditures that stay the same from month to month. An example of this is rent.

Variable costs are expenses that fluctuate depending on how much business you do. These are things like labor costs because the more customers you have, the more employees you’ll need to hire.

What’s Your Pricing Strategy?

Here’s where you show potential investors exactly how you plan to turn a profit.

Start by summarizing all your expenses and projected revenue. Also, write down how much you plan to charge for your products.

Describe how your pricing strategy will be low enough to attract customers in droves but high enough that you’re still going to make money.

You also need to find out what customers are willing to pay. You might have an unbounded passion for gourmet coffee creations. Still, if your business is located in a working-class neighborhood, they might balk at expensive drinks.

Bakery goods

What’s Your Marketing Going to Look Like?

This is where you show how you intend to get the word out that your coffee shop is the best around. Are you going to market your business primarily through social media, or will you have a dedicated website?

Will you use old media, such as newspaper, television, or radio ads?

How Are You Going To Fund Your Venture?

In this section, you’ll devise a preliminary plan for financing your dream. Are you going to take a crack at crowdfunding or find a friend willing to invest in your idea like Wes did?

Or, perhaps you have relatives who can loan you some startup dough?

You can always seek out venture capital or try to get a bank loan. Whatever funding source you turn to, you’re going to need enough moolah to get through the inevitable lean times.

2. Find Startup Capital

These days, it costs about $275,000 to open a coffee shop. However, this will always vary based on your location, business needs, and several other factors.

In our other interview with Joe’s Coffee, Joe mentions that he was able to start his coffee shop for just $100,000. You can find that interview here.

Regarding high start-up costs, it means that you’re going to need plenty of startup capital to get your business off the ground. Here’s what Wes has to say about that:

Most entrepreneurs forget about working capital and the need for a reserve to get you through the beginning stages of when you start your business…  In most people’s cases, they have to reserve enough money to get them through the first year to pay themselves…

Set aside enough money to cover your expenses for six months (if not longer). An excellent strategy to minimize how much money you’ll need is only securing enough cash to take you to the next stage of your business.

This is known as “the lean startup” and will dramatically increase your chances of success.

If you think you need investors, do one of the following:

  • UNIVERSITIES THAT HAVE ENTREPRENEURIAL PROGRAMS: They usually have a robust network of investors that might be willing to give you the seed money to make your coffee shop a vibrant reality.
  • FRIENDS: Ask your buddies if they want to partner with you in exchange for a share of the profits. If they’re not willing to do this, they might have acquaintances who will.
  • ONLINE: Check out AngelList, Microventures, and other online platforms that assist budding entrepreneurs.
  • CROWDFUNDING: You might be able to amass the necessary startup funds on crowdfunding platforms like Kickstarter or GoFundMe.

Crowdfunding graphic

The assistance of angel investors comes not only in the form of cash but advice and guidance too. Angel investors are more likely to fund your vision if you provide them with a compellingly written business plan.

If you have established relationships with professionals at community banks, they might be willing to finance your entrepreneurial dreams.

You can also try to get an asset-backed loan (such as a home equity loan) or apply for a Small Business Administration-backed loan.

SBA Office

You can use this agency’s Loans and Grants Search Tool to find a list of programs for which you qualify.

These include low-interest loans and venture capital grants offered to small businesses by federal, state, and local governments.

You can save money by holding down another job so you don’t have to siphon funds from your fledgling business (that’s what Wes did):

I worked for a good five years in another job, so I wasn’t a drag on the company, and I was able to keep the money flowing into the company and able to make the company successful before I started drawing salary. So, we actually got to store number 6 before I ever started earning money out of the company. And I worked another job during the day, and then at night I’d make all the deals, and put these things together, and before you know it, we have 6 stores, and then I can quit my job and go do this.

How to Start A Coffee Shop with No Money

Wes started Wood’s coffee using none of his own money.

Here’s Wes talking about how he did that:

In those early days… we were on a very, very, tight budget. We didn’t have the money, and so we needed to find the money, and we needed to be creative on how we launched the first store. So, the initial budget was $23,000—that’s what we needed to pull this business off. We didn’t have the dough, so we went out and asked someone to partner with us that had the money. They weren’t coffee drinkers, but they decided that this would be a good investment, and it was.

That’s an excellent way to start a coffee shop with no money down!

3. Find a Great Location with Reasonable Rent

Finding an exceptional location is crucial to your long-term success. Keep in mind that just because a spot is centrally located doesn’t mean that it’s going to be profitable.

For example, you might find a site that’s in a high-traffic location. However, these places usually have sky-high rents and cutthroat competition.

Try to see potential in a location that nobody else appreciates. Wes has this to say about his Boulevard Park location, the crown jewel in his entire chain:

As an entrepreneur, you must trust what you see. It will always be different than what others see. There were quite a few businesses that passed on Blvd. Park because they couldn’t see it working. We saw it from day one, never wavered, and built one of the finest coffee shops in the world.

Woods Coffee Blaine Location

When you do your location analysis, consider the following factors:

  • Demographics
  • Regulations and zoning
  • How close you are to your target market
  • How far away suppliers are
  • Competition
  • Crime rates

4. Get the Necessary Permits and Licenses

There are permits and licenses you’re going to need before you can start serving customers. This is a long and drawn-out process, so make sure you start early.

Here’s what you might need:

  • Business and Liability Insurance
  • Foods and Drinks Handler Certificate
  • Health Inspection Certificate
  • Fire Certificate
  • Kitchen Insurance
  • Certificate of Incorporation
  • Business License
  • Employment Agreement
  • Building Permit

5. Make an Equipment List

Wes says:

It’s really critical to have the right machines.

Check out part one of our interview with Wes below.

Try to get high-quality equipment, even if it’s not new. If you get the cheap stuff, you’ll only end up regretting it later on.

Here’s the equipment list you’ll need to make your small coffee shop a resounding success:

  • Espresso Machine
  • Coffee Grinders
  • Drip Coffee Machine
  • Blender
  • Coffee Brewers
  • Airpots
  • Hot Water Dispenser
  • Reach-in Refrigerator
  • Ice Machine
  • Bakery Display Case
  • 3 Compartment Sink
  • Frothing Pitchers
  • Frothing Thermometers
  • Tea and Coffee Mugs
  • Espresso Cups
  • Cup, Lid, and Straw Organizers
  • POS (Point of Sale) System

As your business grows and your services expand, you might need other coffee shop equipment.

Have a Killer Marketing Plan

You want to whip customers into a buying frenzy even before you open your doors.

Chaotic Coffee Shop

One way to do that is a direct mail or email campaign sending out coupons for free coffee. Do a little research to find out what sort of marketing would be best for your coffee shop. Here’s what Wes has to say about that:

We actually don’t spend a lot of money in marketing. It’s changed over time. So when we first started, we were looking at what are other people doing, how are they marketing themselves, and we realized we didn’t need to do a lot of marketing, we didn’t need to put advertisements in newspaper(s), that was a thing, back 18 years ago… there was no Facebook, there was no website you could put up, and people would understand what you’re doing. So, we actually realized that the best form of advertising for us was putting multiple locations within a certain geographic territory.

When he first started out almost 20 years ago, his only marketing was opening up new coffee shops!

Which, of course, is an atypical way to market yourself. Today, with the advent of social media, Woods Coffee has changed their marketing tactics:

In terms of marketing, social media is big for us. We’re pretty dominant in our space in this area on social media, and that’s been a lot of fun. It’s a great vehicle for us to show some of our creativity and how people understand who we are and what we offer.

6. Hire World-Class Baristas

Exemplary customer service is crucial when running a coffee shop, so be exceedingly selective when hiring new staff.

Although your baristas must know how to make beverages correctly, they should know a little about the coffee itself. These are things like the flavor profiles of each specialty coffee and where the beans come from.

Woods Coffee Barista

This is “need-to-know” information for coffee connoisseurs, so your baristas must be armed with this knowledge.

7. Create The Perfect Ambiance

One of the biggest lures for a coffee house is the atmosphere. That’s why you need to create a relaxing one with decidedly inspired décor.

Make sure your café has lots of comfy seating too.

8. Get Into the Trenches

Have times when you work alongside your employees. This way, you’ll see how your business is operating and what needs to be improved.

Being involved in the day-to-day operation is also a terrific morale booster!

9. Come Up with Creatively Different Menu Items

When you open your coffee shop, you need to consistently serve the best coffee and snacks. If you succeed in doing this, you’ll have customers flocking to you.

When it comes to creating your menu, keep in mind that you’re not reinventing the wheel—you’re taking the best food and drinks offered by the top coffee shops and finding ways to make them better.

There’s no way a coffee shop can remain economically viable on coffee sales alone. That’s why you need to offer bakery items. Besides, having a delicious assortment of quality baked goods near the cash register will tempt the customer to buy.

Try to come up with at least a few menu items that’ll dazzle customers with their startling originality.

Woods Coffee Food

Here’s what Wes has to say on this subject:

It’s how you can make something creatively different in this space that attracts people and maybe attracts a different market segment than you’re normally pulling.

Check out part 2 of our interview with Wes below.

10. Keep Your Costs Down

If you want to be profitable, you’re going to need to keep your costs down. These include things like rent, supplies, and labor:

…[make sure] the occupancy costs are under 10% and that the labor is under 30%, and your cost of goods is probably somewhere 35% and 40%.

If you do this, you should be left with a 25% to 30% margin (gross profit).

11. Find A Great Source For Your Coffee Beans

Serving up a superior coffee experience is undoubtedly the most crucial aspect of your business. That’s why you’ll need to find an excellent source for your coffee beans. In the beginning, it’s probably best that you outsource the roasting of your beans.

When trying to find a supplier, look for:

  • A superior product
  • A price point that’ll allow you to maximize your profits
  • An exceptional assortment

Here’s what Wes advises:

You certainly can hire somebody to roast your coffee for you. In our case, we wanted ultimate control over the process, the quality, and the consistency. And we can do that with our own coffee beans coming from specific countries. How we control the roasting process is really important because we want to know that the process is done correctly, that it’s fresh, and that it’s done in the way we want it to be done. So that’s why we roast our own coffee. We didn’t originally—that was a process that we had outsourced in the beginning years—but eventually, we were able to bring it in-house and roast all of our own coffee, and that’s been a huge advantage for us.

As your profits grow, you might want to start thinking about roasting them in your shop so that you have a unique product to offer your clientele.

12. Have Great WiFi

Every great coffee shop has to have great WiFi. That’s because nowadays, coffee hounds love to surf the web while sipping their lattes.

Here’s what Wes has to say on this subject:

WiFi is critical, and it’s been critical for a long time. So, we have IT guys that work for us, that are constantly working for us, and getting all the stuff in the right place. And it’s got to be at the right speed, it’s got to be in the right geographic area. And then it’s controlling content, there could be some people that are in our stores we don’t know what they’re looking at, and it would be totally inappropriate for them to be looking at something that’s inappropriate in front of the family-friendly environment like we have.

13. Open Up Your Second Location When The Time’s Right

Although opening multiple stores was always a part of the Woods Coffee business plan, it happened much sooner than Wes thought it would.

That’s because the opportunity to open a second coffee shop just kind of fell into their laps in the form of a perfect location they just couldn’t let pass by.

So, he seized this opportunity and opened his second store. It was also a way to show the world he was aggressive and growing and that he owned this market.

Put a second store in a 6,000 resident town, and that’s going to bring in a lot of attention—and it did.

His bold move drove sales in both stores, and they both grew dramatically!

You can do the same thing—just make sure you open your second spot in a carefully planned way:

[Having multiple business locations]–it’s not necessarily the best approach. It has to be part of your business plan. If you follow your business plan and have it laid out exactly what you wanna do, then follow it, you can’t just change midstream. Some businesses are much more successful with just one location. In our case, it just happens to be part of our growth plan and part of our experience that we have multiple locations, and it was part of that original plan that we’re executing today. But the idea of how do you scale, how do you grow, it’s really important, we don’t put a lot of money into real estate and buying things. We’d really like to keep our capital fluid and moving. And if we can open more stores, we feel that’s better for us.

Is A Coffee Shop Profitable?

Here’s Wes talking about the profit potential of a coffee shop:

You can operate a small business very efficiently in coffee, and if you get a lot of customers, then you can make some serious dough.

In Wes’s case, that’s DEFINITELY true, because he owns a multi-million dollar coffee shop empire!

Woods Coffee Interior

Final Thoughts

So, there you have it—the things you need to do when opening a coffee shop.

If you find a FANTASTIC location, offer top-quality products, and have impeccable customer service, the sky’s the limit on how much you can make with a coffee shop.

Wes was able to do this.

That means you can too.

Are you ready to build your own multi-million dollar coffee empire?

If so, let’s get started!

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One thought on “How to Open a Coffee Shop and Grow it to 19 Locations (2023)”

  • Gloria Lamoa

    Need to start coffee shop I have no funds


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