by Norm Tedford
Do you want to start your own MULTI-MILLION dollar coffee empire?
If so, you’ll want to follow Wes Herman’s example. He started with one coffee shop, and now, he owns coffee shops in 19 locations. What’s more, he didn’t use a dime of his own money!
In this article, we’ll tell you all about how Wes did it, and how you can do it too. You’ll learn how he created his business plan, how he made his business stand out, how he found startup capital, and so much more.
The idea for his small business occurred to him while he and his wife were homeschooling four children. He traveled a lot across the United States at the time, selling a product to coffee joints. Over that time, he got to see the insides of a lot of successful coffee shops.
And also, serendipitously, his teenage kids were drinking a TON of coffee. These seemingly separate things merged into one glorious whole when Wes decided to give his kids a little experiential learning by having them write a business plan for a small coffee shop startup:
“We started the company as a homeschool project to teach our four kids how to start a business,” he said. “We hoped they would love it so much that we could work together for a long time as we grew this new brand.”
He figured that perhaps a side benefit to this educational exercise might be starting a company that could create generational wealth.
The homeschooling offshoot was a smashing success and resulted in Wes opening a coffee shop in 2002. That was the humble start of Woods Coffee. And now, he has 19 of them in the Pacific Northwest, including one in British Columbia.
You can check out our interview with him, here’s Part 1 and Part 2.
If you want to know how to start a coffee shop, read on and find out how Wes started his own multi-million-dollar coffee empire using NONE of 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:
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.
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.
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?
Precisely figure out who your target market is so you can tailor-make 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 who desire 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:
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 on-going costs. This will consist of the following three 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 revenues. 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.
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:
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 that 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.
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.
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 six 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 six 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:
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.”
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:
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 down the road.
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.
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 a very 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.
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.
Here’s what Wes has to say on this subject:
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:
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:
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:
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 is in an exceedingly planful way:
Is A Coffee Shop Profitable?
Here’s Wes talking about the profit potential of a coffee shop:
In Wes’s case, that’s DEFINITELY true, because he owns a multi-million dollar coffee shop empire!
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!
