2015 is just hours away, and I figure this would be a good time to share my experiences that I have picked up over the years in case some of you who are interested in embarking on this journey in the new year.
I do not have anything to back up my data, but the number of FnB places turnover rate (open and close down) to me is quite substantial. It is one of the most sexy seduction businesses to start cause let’s face it everyone needs to eat and it’s something that can be comprehend by people on how it works, and not some 1 billion dollar funding on some app.
To start off, please take your time to do your homework first and not just in terms of product testing. We are still learning as we go along, and there are a lot more things to learn for this next stage. Don’t be deceived by number of outlets of a brand, they are playing a different ball game, sometimes it’s just money leveraging on money to grow. An easy way is to visit an outlet and do some math. FnB is one of the industry which you can easily calculate the earnings of a business. You have to respect this step before you even thinking of raising funds or pitch to investor.
Now for the pointers
- YOUR PRODUCT IS KING
Being a Malaysian, I have to say we are passionate about what goes into our stomach and the level of “virality” of something delicious that goes into our stomach is super high. You do this, you save on marketing to a certain extent. Your product speaks for itself. However, do note that product development requires a lot of time and effort, just like designing the next BMW 3 series for example. Even making good coffee requires a certain level of science. My partners and team do a really good job with this and you got to respect science. It doesn’t mean you have to use imported ingredients all the time to create a good product. There is an opportunity for good product to be created at every price point. Another consideration is the challenge you will faec to scale up your food production. Sometimes you will have to decide where do you stand in terms of scaling up vs maintaining food quality.
- DON’T START FOR MONEY, START FOR SUSTAINABILITY
I once went to a Startup Grind Event, and Carlist ex founder Ewe Jin stressed several times in his sharing “Don’t take Shortcuts”. The reason for this is that if you are starting something for long term (instead of playing the business flipping game) then you have to plan out sustainability rather than starting for money. This means quality of product and service are essential to be the main focus and not overlook them. It’s a people business at the end of the day, and the relationship created between the customers and the brand is highly important as it is a really strong value add for your FnB business. Food is something really personal to everyone. Hence, you will need to provide good training to your team.
*Tip: Start with why
- YOUR STARTING FOUNDERS
This is one of the most sought after dilemma, believe me. Because of how the industry is such a heavy CAPEX intensive business, I know a lot of FnB startups usually would have averagely 3 shareholders. The reason why this is covered here is because there are also a lot of startups fail due to the fall out of partners. Looking for founders to startup with is really like a marriage. There are a lot of considerations in mind and a certain level of risk taking is needed. Please get at least 2 people to be hands on if you do start a FnB. Don’t simply burn your cash by putting your money in and don’t bother contributing. You may be better off giving it to me instead. Please lay out distinct responsibilities of each other and what each other can bring to the table. If you are purely an investor, please take a smaller chunk of the business and trust your Founding Team Members who are hands on, if not then why join them in the first place. Give them advice, guidance or pass on some contacts to them as well that would help everyone to win cause if the business wins, you win.
Respect those numbers. I’m always sad to see people starting off a FnB and didn’t work out later, cause the initially CAPEX outlay is just a lot. I rather you go and start a blog shop or something if you decide to be overconfident with this. Do your financial forecast with low, medium and high when you are starting out.
Be realistic! Low would give you a mindset on what’s the minimum of what you are content and happy to live with. High would be a goal you set for yourself to get there.
Plan out your CAPEX properly with always a minimum of 10% buffer for unaccounted cost and lay out your monthly sunk cost – Internet bills, electricity, water, staffing, pest control, insurance (which are almost consistent every month). This is why I said it’s one of those business which you can study and estimate brands earnings easily.
Now with all these, it’s important to keep in mind of a net pre-tax margin of 15-20% and a gross margin of 65-75% margin on your food cost. This is the average financial performance of the industry and it would be a good guideline for your budget if when deciding on whether to embark on a mall or a shoplot or a food truck.
Then again, these industry averages are just theory, it changes at every stage of scaling up and growth, you really need to plan forecast and execution properly for this.
Your numbers would determine your location. There is no perfect location, cause if you want a good one, you got to pay for the rental. First and foremost it’s important to identify what cuisine are you serving, that would help you to narrow down the adoption maturity of a particular community to what food you are serving.
Next is your concept, quick serve (eg young hip students) or sit down (eg families or people who would sit down and chit chat couple of hours). Then the price point and margins of your product. High price point doesn’t equate higher margins (FYI) cause your volume may be much lower than a lower margin price point.
After that is visibility and neighboring business types/history of location. It doesn’t mean high visibility works for all, believe me. Some are better off hidden (have to look for kind of place), but your neighboring business types is important to be a consideration because they could be your crowd puller.
- TYPE OF BUSINESS MODEL/GAME
As mentioned earlier, don’t be deceive by what it looks on the surface. Do your numbers. There are a lot of business model out there to be adopted (Franchising, Joint Venture, raising funds through PE; Malls vs Shoplots vs Airports vs Food truck). A good start is to do reverse engineering on where you wanna be in the future.
A lot of businesses play on leverage for FnB, that’s how you see the big brands thrive sometimes. A lot of hot money can flow into your business when you do it right, but you got to know where/how you gonna spend that hot money to make sure everyone sustains. Your intention does count – whether you want to do it for yourself or you want to do it together to win.
Different stages of your business lifecycle would require different level of financial leverage. You can Google up what happen to the TGI Fridays family and the Library Group family with their equity divestment. There’s a lot of backstory to businesses. Even the local Burger King take over by Brahim’s is also a good story to learn from. It doesn’t mean that if TechCrunch or Digital News Asia doesn’t pickup, it’s not a good story. I always think in every story we can learn something.
- MORE OUTLETS =/= MORE MONEY EARNED
If you have not learnt economics, please google up Economies of Scale and Diseconomies of Scale and please respect this theory. This is important to tune your mindset when you decide to embark on a FnB.
Having more outlets does not equate to a guarantee on earning more money. But it sure means that you would need a lot more capital outflow (CAPEX for you accounting, finance geeks).
Starting one outlet is a different game as opening up more than one. Some concepts work better with one outlet, some concepts work better with 10 outlets, some concepts work better with 100 outlets. And this would help you to plan out and tweak out your business model.
When you scale up, operationally it becomes really important apart from focusing on the quality of service and food in your one single outlet. Every 10 cents of cost when scaling up means a lot. It becomes a volume game as well.
Starting small may not be bad idea after all. Two brands which I personally love is myElephant and Red Bean Bag. Both businesses grow at a decent pace in my opinion with a good sustainable culture behind it.
- FINANCIAL LEVERAGE
There will be a stage where you need to learn how to do financial leverage to scale even if it’s opening 2 or 3 more outlets. The 3 most common options are always bank financing or equity financing or franchise/license fee financing. Now this is where your founders have to be financially educated when you do decide to take this route because each shareholder may have to be diluted according to their investment %. This is quite important to be discussed at the beginning of the formation of the company so that everyone would understand each other’s risk profile. There are just a lot of financial instruments at this stage but please start learning.
- GOOD AT COOKING =/= SUCCESSFUL IN FNB
If you are good at cooking doesn’t mean you will succeed in having a FnB place. There’s a lot of elements to it. Which is why it’s important to have at least 2 people to do check and balance with each other. I would highly recommend 2-3. There’s just a lot of areas to cover when you are starting off.
- SOCIAL MEDIA MARKETING IS NOT EVERYTHING PLEASE
If some guru comes to you and say how great they can help you on social media and all, please take a moment, breathe and say you will consider it. All platforms are overcrowded now, so please don’t be deceive by it. Your number of fans or followers is not everything in this world. Get the food right, and a certain extent number of people will come. Plus if you are in Klang Valley, EatDrinkKL will definitely pick it up so don’t worry.
- YOUR MINDSET
Lastly, you got to get your mindset right when you are starting up, what more when it’s a retail operation business. If you were working before this, say goodbyes to your weekends and public holidays cause they will most likely be your best days for your business. If you are working long hours before this (like me in PwC for 4 months) you want to thank them for making you resilient already towards long hours. At the end of the day when you start up a FnB place, the focus is shifted to the people you serve from Day 1 onwards, no longer on to yourself. So be prepared!
These are some general basic level tips. I hope this would help you save some cash to pay some consultant for advice if you are starting up. Best way to learn – start small, start fast, start smart.
If there’s a certain level of interest to share more about FnB, just comment below and I see what else I can share the next time around.