How to Open a Coffee Shop

– Have you ever dreamed about
starting your own coffee shop?

Maybe you just don’t know where to start?

Maybe you’ve already opened
up your own independent shop

and are just looking for ways to better

and more effectively manage it

and scale it to multiple locations?

(upbeat music)

In this two-part series episode,

we’re talking to Wes Herman.

Since opening up their
first location in 2002,

Wes has been able to build
a successful business

of 19 coffee shops throughout
the Pacific Northwest.

– So the initial budget was $23,000

is what we needed to
pull this business off.

– [Narrator] Wes Herman is
a lifelong entrepreneur,

he bought his first business

when he was just 21 years of age,

and a year to date he’s either started

or acquired seven more.

– I always like to think

that a business plan can be
put on one sheet of paper.

It’s the difference between
driving aimlessly without a map

versus having a map and understanding

where you’re gonna go.

– In this video, we’re gonna
share practical nuggets,

yeah we’re gonna share
some nuggets all right.

I’m just trying to figure out

which nuggets we’re gonna share,

but in this video we’re gonna
share some practical nuggets

of advice for people looking

to start a coffee shop business.

We’re also gonna hear from
Wes Herman’s genius strategies

of running a business successfully,
scaling it, growing it.

Things that you can apply
not only to coffee shops

but any other business.

– The really fun that part is
that we got this bag lifter

that allows one person to
just lift it effortlessly,

and then put it over a bin then we cut it,

and the beans fall right into the bin.

In terms of marketing,
social media is big for us.

All the standard stuff
that you really have to do

in a big corporation,
even in our business,

those are requirements and
that’s how we attract the best.

We didn’t start with this
big facility like this.

And this is expensive,
I mean, there’s no doubt

that point of entry here is
probably half a million dollars

to get something like this rolling

the way you want it to be.

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Stay tuned we’ve got an
awesome episode coming up.

Wes, it’s good to have you with us.

– My pleasure.
– Thank you for you

and your investment of time,
we appreciate that greatly.

In a nutshell, in a couple minutes,

give us an insight of how you started

the coffee shop business and the events

that led this business
to be where it is today.

– Hmm, wow in only a couple minutes?

That’s gonna be tight.

– It’s gonna be tough.
– I’ll make it happen.

So we were homeschooling
four children, my wife and I,

and I was selling a product
into the coffee industry,

traveling the United States

and seeing all the
coffee shops everywhere.

My kids were all drinking a ton of coffee

and we decided to teach them
how to write a business plan

around a coffee shop startup.

And figuring if we could do this together

that maybe we’d end up
with a long-term plan

of having a business that
would be family-oriented

and last for a long time, so we did that

and three of the four kids
are still in the business.

One of the married-ins is in the business

and we’ve just had a great time growing

from those early days of one location,

with the plan actually
in place that we wrote,

that would be multiple
locations over a period of time

to create generational wealth.

(upbeat music)

– Wes how much working capital

does a coffee shop
owner need to set aside?

– 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,

which I assume that’s kind
of what you’re asking about.

– Right.

– In most people’s case

they have to probably reserve enough money

to get them through the
first year to pay themselves,

and then once that is done,

the next year is probably,
really, equally as complicated.

But here’s what I did, I
worked for a good five years

in another job so that 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.

– So this is–

– This is the roastery, yeah, come on in,

and let’s take a look around.

It’s pretty fun to see.

This services all of our locations

but we’re roasting coffee every day,

so it allows us to keep the freshest.

We don’t want to necessarily
create lots of coffee

and let it sit so we
want to be very fresh,

so that’s the key to this roastery.

And you can see right here,

these are the bags of coffee
that we get deliveries,

sometimes twice a week, and
they come out of Seattle,

and these then are taken into bins

and we take these bins right here

and we put coffee in there,

and we make a blend that is specific

to whatever we’re roasting.

So it’s got a certain percentage
of this bean and that bean.

And then the really
efficient thing we’ve done,

which is kind of fun, and
sorry for all the noise

because we’re roasting coffee,

the really fun bit part is
that we’ve got this bag lifter.

And a lot of times what happens
is these bags are so heavy

that it takes two men to lift.

My son actually designed
and built this system

that allows one person to
just lift it effortlessly

and then put it over a bin,

then we cut it and the beans
fall right into the bin.

– What was your initial budget

and how did you finance the startup costs?

– In those early days, which
is almost 18 years ago now

or 18 years ago, we were on
a very, very tight budget.

We didn’t have the money and
so we need to find the money

and we need to be creative

on how we launched this first store.

So the initial budget was $23,000

is what we needed to
pull this business off.

We didn’t have the dough so we went out

and asked somebody to partner
with us that had the money

and they weren’t coffee
drinkers but they decided

that this would be a good
investment and it was.

– Did it seem like a lot, 18
years ago to start with 23,000?

– It probably was, it
didn’t seem like a lot,

as I looked at other budgets

and what other people were doing,

they were spending a
lot more money as well,

but not like infinitely.

But you can see that from 18 years,

just over the years,
how much that has grown

in terms of the costs to start a business,

and it’s not only the cost
of the infrastructure,

the permitting, and everything else.

It’s the leases are more expensive,

equipment’s more expensive,

everything just costs
a lot more money, yeah.

– So Wes, including all the costs

in starting a coffee shop similar to this,

what would someone need today

with where we are in
economy to get it started?

– Oh you’d probably need close

to half a million dollars or more.

– Half a million dollars?
– Yeah.

– You started with 23–
– 23,000, yeah.

23,000, 18 years ago and
to do the same today,

you’re thinking half a million dollars?

– Oh yeah, half a million is
kind of your point of entry.

You can do some things
that are a lot less money.

If somebody wanted to put up
a little drive-through shack,

they can do that with a lot less money

but to do a full-blown store like we do

with all the stuff that
goes into technology

of the point sale, the
drive-thru experience,

headsets, and then the amazing equipment

that we use to really give you
that perfect cup of coffee.

– How did you go about
developing your menu

and how important is it?

Walk us through the process
’cause that’s important.

– It is super important.

The look of your menu,
what’s on your menu,

those are all items that
are completely subjective

and as a coffee shop owner,
you wanna create something

that maybe you like but
will the masses like?

And so in our case, it
was developing something

that had mass appeal

and that people really were interested in.

So we worked hard from day one

to develop not only the
standards of what people liked

but we were pulling from my experience

of traveling the country prior
to opening the coffee shop,

I was traveling country selling a product

into the coffee industry,

so I got to see every coffee shop

and look at all the various menus.

And so I was bringing the
best of what we had seen

because you’ve got your baseline drinks

that everybody enjoys
and we can get creative

on what a latte or an
espresso drink will look like.

But it’s how can you make
something creatively different

in this space that attracts people

and maybe attracts a
different market segment

than you’re normally pulling.

So that’s what we did.

– I’m just thinking about our interview

with Tim and Grace
Lukens, Grace Harbor Farms

and you touched on that a little bit,

is where he went out
looked at his competitors

in the supermarkets, the local creameries,

and yogurts and et cetera.

He took the highest-priced
one and priced those higher.

I mean it touches on another point

but it goes back to what you’re saying,

is we’re not recreating the wheel,

we’re just taking what
everybody else is doing

and taking the best from
it and making it better.

You guys, if you haven’t
seen Grace Harbor Farms,

and since I touched on that a little bit,

I highly recommend check out our episodes.

There’s two series for
that as well, great story,

Grace Harbor Farms, Tim and Grace Lukens.

Wes as far as expenses percentage-wise,

can you walk us through

what are the percentages of each location?

You got payroll, you got supplies,

just a good way to see
how it’s all broken down?

– Sure, one of the things we
talked about was the aspects

that are so important to every business

and that is how do you
control your cost of goods,

how do you control your occupancy,

and how do you control your labor.

And so in our world,

it’s making sure that the
occupancy costs are under 10%

and that the labor is under 30%

and your cost of goods are
probably somewhere 35 to 40%.

And if you can do that
and do it effectively,

then you can probably make some money

but it’s hard work to do.

– So it leaves you with
about a 25 to 30% margin?

– Margin, yeah, gross profit

and then you’ve got overhead

and all the other stuff
that goes along with that,

and other business expenses.

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.

So let’s talk about a business
plan, how important is it,

how far into the future does one need

to consider writing a business plan?

Walk us through that a
little bit if you could.

– It’s probably the most
critical thing you can do

before you ever start
what you’re working on.

I always like to think
that a business plan

can be put on one sheet of paper

and so with our training
with our own children

in a homeschool setting, it was,

“Okay guys, we’re gonna get together,

“we’re gonna write this business plan

“of how we start a coffee shop.”

And the idea of putting down on paper

makes you think through the process.

And it should never be like
sentences and paragraphs,

it should be more bullet points

and then actually hitting the the idea.

Because you could write a
book, end up with 10 pages,

you don’t really need that.

You just need to know this is

what I’m going to try and achieve,

this is how we’re gonna do it,

this is where I’m gonna find the money,

and this is the net result.

And if you can do that
and put it on paper,

and make it simple enough

where you’ll actually
go back and revisit it,

then you can revisit it
every six months, every year,

and then it becomes a part of who you are.

– The issue, I think, just
speaking from my own experiences,

we overcomplicate things

and when we talk about a business plan

most people would think,

“You’re talking 20, 30
pages, it’s got XYZ.”

You’re talking about a
business plan on one page.

– One page, you can have all
kinds of backup information

that is spreadsheets and numbers

and to make it look like

if you’re gonna go sell it to somebody

and raise some money,

it’s probably not one
page it’s gonna do it.

You need to show some
graphs and things like that

but the one-page document
is really what is the plan.

It’s the difference between
just driving aimlessly

without a map versus having a map

and understanding where you’re gonna go.

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.

– Wes, we’re standing in really,

the center of all the activity,

tell us a little bit about the process

and some equipment tips and tricks

where you learn to be
lean when you save money,

when you save time, let’s
do that a little bit.

– The key to lean is
avoiding any wasted motion.

In our case, it’s really important

to have all of our equipment

and the various processes
we do all in the same place.

So when a staff member goes
from one store to the next,

there is a seamless transition

where they can just pick up and go

and look at each piece of equipment,

know where it is, how to operate.

As you can see, there’s a barista working

right here in the background,
if she went to another store,

she could easily pick up
and just do the same process

at the same bar without having
to familiarize yourself.

So that’s a one of the tips that we,

or one of the things
we’ve done over the time–

– So this setup is replicated
throughout all your stores?

– Yeah, not exactly

because everything has
a different setting,

every store is different in
terms of where the windows are,

how the space is laid out,

but in terms of actual bar setup

where we are functioning
with an espresso machine,

a grinder, a knockbox, and
all the things that we do,

it just needs to be familiar

and so that you can just move and motion

and from one thing to the next,

and that’s the key going
from one store to the other.

– How much is salary and payroll?

– Yeah, labor?
– Yeah.

– Yeah, direct store
labor would be something

that we battle and every business battles.

I don’t care if you’re Starbucks

or some of the smaller
mom and pops like us,

we all battle the same thing,

and that is how do you control that labor

and how do you get it
to within a percentage

of 20 maybe 25%.

And some businesses are different, right?

Our business just happens to
be one that is labor intensive

and requires that percentage
to stay in that range.

Our optimum is if we can hire somebody

who works full-time and
has open availability,

that’s our prime candidate.

To attract those people, we
do a lot of different things.

We not only pay a certain wage

and that is based on abilities,

but most people do
start at a minimum wage.

The benefit in a coffee shop
is you’re making great tips

and so that kinda bridges a gap

between what a minimum wage is
and what people really want.

And then we add in
401(k), medical insurance,

sick leave, all the standard stuff

that you really have to
do in a big corporation.

Even in our business,
those are requirements

and that’s how we attract the best.

– Why do you roast your own beans?

What are some disadvantages
and advantages of doing that?

– Sure, you can certainly hire somebody

to roast a coffee for you and in our case,

we wanted ultimate
control over the process,

the quality and consistency.

And we can do that with
our own coffee beans

coming from specific countries

and then how we control
the roasting process

is really important because we wanna know

that the process is done correctly,

that it’s fresh, and that it’s done

in the way that 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.

– What’s the initial cost
of the setup for a roastery?

Let’s just focus on this one,
it’s on a bigger scale but–

– Well, I can give you a broad definition.

This is a very expensive setup.

You can start out probably
with less than $10,000

and have a roasting machine
and do very small batches.

Of course, you can even get down

to some really, really small numbers

and do air-pop-type roasters
and things like that.

But yeah, when you’re getting
into these type of things,

you’re talking about a
quarter million dollars

to set something like this up,

make it work efficiently.

You can see the way that we’ve done this,

this is a very lean process

so you can take one person

who is actually loading in all the coffee

and then roasting it,

and then it goes into a weigh/fill machine

but then it’s bagged and
then set on the shelf,

so it’s extremely efficient.

– [Narrator] Two to three
steps, it looks like.

– Yeah.
– Not much going on.

– [Wes] Yep.

– A lot of businesses when they start out,

they have a difficult time
turning a profit, right?

Tell us a little bit
about how long it took you

to turn a profit,

whether that includes you
starting to pay yourself.

– Sure, in our case, it took till year one

until we actually went from red to black.

And we’d planned for that

but what you also have to understand is

that we took a little
diversion in the first year

and that was we opened store number one

and six months later we
opened store number two.

So it wasn’t like it was just routine,

we’re gonna run one
store, see how it goes.

We threw another bump in the road

because we’ve decided, you know what,

we’re gonna put in another
store in the same town,

a small town that was
only 6,000 people, Lindon,

and we we were going to, for
most people’s perspective,

just split the town in half.

And half would go this way
and half would go this way

versus all of them going one way.

– Was that part of your
original business plan?

– It was not, no.

It kind of fell in our laps.

Starbucks had a hold on a property

that we ended up taking a store number two

and when they released it then we said,

“Well, if they released it
then it must be gold for us.”

And it was great, I mean,

it was the right move at the right time

and it did exactly what we wanted to do

which was show people

that we were actually
doing something significant

and that they get excited
about what we’re doing.

And so both stores rose in at that time

and both got business.

♪ Yeah ♪

♪ Yeah, yeah ♪

– Talk to us a little bit
about your type of marketing,

how much percentage you spend
in marketing, what kind?

Walk us through that a little bit.

– Yeah, we actually don’t spend
a lot of money in marketing.

We do…

It’s changed over time, right?

So when we first started,

we were really looking at
what are other people doing,

how are they marketing themselves,

and we realized that we didn’t need

to do a lot of marketing,

we didn’t need to put
advertisements in newspaper,

that was a thing back then, 18 years ago.

And there was no social media

which is almost like a free vehicle,

but we didn’t have any of that.

There was no Facebook,

there was no website that 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.

– [Narrator] Interesting.

– So that became our advertising

and our budget was putting in new stores.

So it was expensive, we put
a lot of money into that,

but true marketing budget,

we did not put a lot of money into that.

I think in the early days,

we were running somewhere
between 1 and 2%.

And 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.

Well there you go guys,

that is the end of our first episode

of interviewing Wes Herman,
owner of Woods Coffee.

We want you to come back and
watch episode number two.

We’re gonna talk about
scaling your business,

we’re gonna talk about
your growth strategy,

how to be competitive,

and setting the right goals to succeed.

Thank you for watching.

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comment, ask questions below.

Subscribe to our channel
and we’ll see you next time.

Thank you for watching.