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Lessons From a Coffee Entrepreneur (geekatsea.com)
227 points by kirillzubovsky 2380 days ago | hide | past | web | favorite | 86 comments

> To fix the conversion rates, John moved the "cash only" sign inside, and on top of that started accepting checks, foreign currency, and even the I.O.U's.

In my mind, this is the highlight of the article. If you carry out your business in a friendly and unique way you can win customers and do things that are very difficult to pull off otherwise.

> If you carry out your business in a friendly and unique way you can win customers and do things that are very difficult to pull off otherwise.

"cash only" seems unfriendly. You can get away with not being friendly as long as you are neutral and professional, but anything that gives a feeling of hostility is going to consciously or unconsciously drive away people.

I won't go to a "cash only" shop because most of the times I pay with cards and to me, it reads like the shop is asking me not to come in.

When he went for a list of currencies, rather than saying pay US dollars or don't come in, it read like we have issues with processing cards, but please do come in - we will see what we can do.

"When I read this, I wondered if it was about offering consumers the right number of choices. Cash Only sounds restrictive, while a laundry list of types of currency seems like you have options."

(Why did this comment from clarebear get killed? Anyway...)

I agree. Even though the vast majority of customers will never use any of those choices except cash and iou, simply having them sends the message that the shop is very open and flexible.

That's why i suppose best businesses aren't the ones that were built to sell (like about.me), but rather the ones built to solve a problem and become a really good product (heroku).

Isn't offering an I.O.U. exactly what a credit card is supposed to do. They are doing such a bad job for merchants he would rather run the I.O.U. service himself than use their product. It seems like a business ripe for disruption - who really likes Visa/MC/AMEX?

It's about risk. Visa/MC/AMEX deals with people worldwide, which includes some crooks and thieves that are trying to scam them (and will continue to do so, under multiple identities). The coffee shop only deals with customers it sees personally, so it can keep people from scamming them multiple times, or for large amounts.

Any business that tries to disrupt Visa/MC/AMEX is going to have to be able to handle and reject large-scale fraud.

To answer your question literally: Congressmen like credit card companies because of their large campaign contributions. Anyone hoping to disrupt will have to overcome the fact that the rules of the game are being written against them. Paypal and Square seem to be doing alright though. Google wants to get into the market as well.

Not to mention all this Bitcoin stuff we've been hearing about recently. If it actually takes off there's potential in setting up physical systems/cards to facilitate point-of-sale bitcoin transactions in physical space.

not to mention thinking outside the box.

That's where I was expecting this story to turn in to an ad for Square.

I miss NYC so much; SF is just such a disappointment as a city.

My bodega 2 doors down in the upper east side was a full deli with fresh chicken, turkey, and pork everyday; $6 huge sandwiches made fresh; coffee; and they were open 24 hours a day. Plus they took credit -- once the people at the register recognized you, you could could run a tab up to a couple hundred dollars and pay on the first of the month. It was wonderful to go downstairs with just the keys in my pocket and have someone who remembered what I wanted for breakfast, that I like my eggs fried (unlike SF where they normally microwave in a plastic bowl), and that I take coffee with just a hint of cream and no sugar. Plus, from their perspective, I paid the tab every month in cash so no fees. I've never found anything like this in SF.

I mean, Andy at Que Tal recognizes me, but it's not the same :(

I miss the "small town mentality in a big city" aspect of NYC too, though there are some gems in SF if you are lucky enough to find them. I hit a quiet, local, wifi-enabled cafe almost every day and the owners know my name & order preferences now. I don't pay on credit, but I've seen them do that with other regulars.

They're not open 24/7 though. I miss being able to grab a pizza at 3am in NYC.

Eggs cooked in a microwave...? That's sacrilege. This is how you cook eggs: https://www.youtube.com/watch?v=dU_B3QNu_Ks

(As a side note, any decent sour cream sold in the US has roughly the same consistency and flavor as creme fraiche.)

"... then give it to him in bed! for breakfast :) " - it's amazing how a conversation started on lessons leads into a delicious breakfast. That egg looks sooo good!

I make those all the time, and they are fantastic, especially with a bit of fresh-chopped bacon and a bit of Cotswald cheese.

ah man, that microwave eggs in a plastic bowl is a real soul killer. I hope people will dismiss that like the high fructose corn syrup.

fried egg on a roll. oh god, i miss it.

i have found a pretty decent substitute in palo alto, but it's not the same.

i have fond memories of a place called "new york new york" near the palo alto caltrain on university. been a few years, but as far as i can remember, they definitely did a good fried egg sandwich.

An important side lesson here is not to take common industry practices at face value. (In this case, it was the conventional wisdom that 'All coffee shops are expected to have baked goods, and they sell baked goods at a loss').

In any business, big or small, tech or otherwise, there are hundreds of strategic and tactical levers we can pull on a daily basis. Many of these levers we don't even realize exist, because we're so used to thinking of them as fixed in place.

> An important side lesson here is not to take common industry practices at face value.

What do you mean?

He still sound donuts and sold them at a small loss.

I'm going off of this line in the article: "With the bread, cookies and donuts, John was now operating with virtually no loss on the baked goods."

Seems to me like a pretty significant turnaround from what his situation had been prior to the switch on sourcing methods.


One of the coffee shops I frequent also accepts IOUs, plus they do one other thing: you pay as you leave, not when you get your coffee. Now, this has two benefits:

First, means that the barista has to keep track of things...they have to actually have a relationship and interaction with the customer. That's very positive.

Second, it means that I often go get a second cup, or a pastry, because I haven't closed out my bill yet.

one consequence of labour being so much cheaper here in india is that even some of the large chain coffee shops have waiters and a pay-as-you-leave policy.

Nice post that reminds us that customer development techniques are not new to the tech community, and we can learn a lot from watching traditional brick and mortar stores use these same techniques to enhance their business.

Indeed, isn't that great! We read all these popular books on how to make startups better, while sometimes all we need to do is open our eyes and watch others.

Some of the most memorable business advice I've gotten is from a restaurant owner.

He told me stories about how he's had to declare bankruptcy twice (he's not proud of it and tried to avoid it, but ultimately had little choice); how he's had partners who nearly ruined the business; how he's had to deal with changes in accounting practices; how he's had to deal with "local issues" (such as police officers, nearby merchants, etc); how he's had to manage relatively uneducated employees to build them into an efficient team, etc.

I have no doubt. We, in tech community, take a lot of things for granted. It's easy to sit at home, in underwear, and write code. Yes, the code might be hard, but it is not the same experience as the one would get at a kitchen table, chopping potato all day. Props to all the hardworking folks!

I have bought these donuts before, and definitely did not care that they came from Fred Meyer (I remember him mentioning it, slightly apologetically).

Good article, but the most interesting part of the story (for me) was casually summarized in one sentence. What amazes me is that he decided to start his first business at the age of 61 - wow! Major kudos to this guy for finally deciding to take a leap at an age when others are merely contemplating if their savings will be enough to fund retirement - that takes serious balls.

Sure, John made some great changes and saved his business, but that's what good entrepreneurs do - adapt and move on. He certainly deserves the credit for that, no doubt.

His deck is also the best place to work in the Summer in Seattle IMHO.

Agreed. If you visit Seattle on a sunny day this is where you need to set up work for the day. I think I'll head over right now, actually.

If you do, let John know that he's becoming a local superstar!

Being a cash-only business is an annoying disservice to your customers. It's a sign that you're not interested in the value of convenience. It's a regressive attitude to lean on cash, and oftentimes a sign that you're not interested in keeping honest books.

If you're not willing to pay what is almost universally accepted as an operating cost in modern society, you're setting yourself up to be left in the dust, and quickly. People are about to start paying for everyday transactions using their phones! If you have a problem with payment processors biting into your margins, then pass the buck onto your customers (even as a credit card usage fee), but never take away a payment option.

I completely disagree with what you're saying, but it may be because of the city that I'm living in - Columbia, SC. Many, many shops and stores down here don't take credit cards and it is not rude to the customer at all. In most cases the store has been around since before credit cards were popular and it is you who should adapt to the store, not the other way around. And there will always be stores that couldn't function with the cost of processing credit cards (not only the transaction cost, but the time and equipment cost to setup and maintain a processing system).

Basically you learn to have an extra $20 on you when you're walking around certain areas of the city and it's not a big deal at all.

Credit card usage fees are a good way to a) make your customers mad and b) be blacklisted by your CC processor (possibly sued).

Nearly every processor agreement stipulates that this is a no-no.

Indeed, although giving a discount for paying with cash is often allowed. (Customers generally hate hidden fees more than they hate missing out on a discount.)

It's not a way to cheat the system though, since you still have to advertise the higher price. Even if you also say "5% discount for cash transactions".

it's fairly common around here at the 'independent' gas stations to advertise two prices; one for cash, and one slightly higher for credit cards.

It seems very fair to everyone I know who has ever had a merchant account; people who have not, on the other hand, sometimes think it's unfair.

If you know of any specifically, would you mind submitting them here? http://discountwithcash.com/app/node/add/business


Then how do universities and state licensing locations get to charge 5% fees on all credit transactions? Do they have separate deals?

it's funny, I mean, many of my suppliers of bandwidth and rackspace accept credit cards. No fee, usually.

I'm amused at this thread because I woke up this evening to a bill from a provider that I recently did an especially good job negotiating with, and the guy wants a 3% payment processor fee on top of the negotiated amount.

(I'm going to leave an envelope with a cheque at the co-lo for him; gotta go anyhow.)

They probably give you a 5% discount for NOT using your credit card.

> pass the buck onto your customers (even as a credit card usage fee),

Visa and Mastercard expressly prohibit surcharges for transactions made with their cards so that is not a workable solution.

...and thus the concept of the "cash discount" was born.

And while it's purely a semantic distinction, as a consumer, I feel far better about getting 10% off the menu price at restaurants for paying cash, than I would feel about a 10% surcharge for paying with my credit card.

Cash discounts are only allowable by the merchant agreements for some kinds of transactions, such as gas stations.

A lot of people offering "cash discount" are technically violating their agreements with VISA/MC.

Not since 2010. The Justice Department reached a settlement with Visa and Mastercard overturning this provision:


My absolute favorite breakfast joint does not take CC. The place is packed every day, and consistently gets voted best breakfast in my city. If you provide a good product, customers will put up with a minor inconvenience like walking half a block to the bank to withdraw some cash.

If you are a patron at a place you like, and you want to support them, you pay in cash, and its polite of you to do so. Thats a little bit extra for the establishment and a little less for Visa/EDS/Chase or whatever payment chain your transaction flows through.

I think that locally owned stores where the typical transaction is less than $5 are an exception. (Does this even describe anything other than local coffee shops?) I pay cash for my coffee everywhere I go. People typically don't go to locally owned shops for the convenience, but for the charm. And if you're a regular, then you know to carry some cash.

Coming from a smaller city in Florida I was surprised at how many cash-only restaurants there are in Berkeley, I mean, it's the Bay!

Granted, Berkeley seems to have its own notion of what it's culture should be and people don't seem to mind paying cash only. I think it's important to realize that you are projecting your own expectations onto other people's products, and in their minds they are perfectly happy losing your business so that they can focus on cultivating the kind of customer base they want.

Take Starbucks as an example of the opposite extreme, they take credit cards, drive thru, have uncomfortable chairs and loud music to discourage seating all in the effort to move as much coffee as possible. Starbucks does pretty well, but it's probably in this guys best interest not to try and copy Starbucks.

How true is loud music actually? Was it taking the beating of Starbucks to the next level, or they really want you to get out of their property asap?

In Austria you can only pay by card in chains or touristy places. Even there it is socially unacceptable for amounts less than 10 Euros. I always cringe when I am in the States or somewhere like Argentina where people pay for a coffee with a CC. It is so slow. Especially in Argentina where you need to show an ID. Great way to create extra jobs by making something less quick through technology though.

You are talking for the USA only. Pretty much everywhere else, using (and accepting) credit cards is the exception, not the norm, and not even considered convenient by most people.

i'm perfectly happy to work with someone like a little neighbourhood coffee shop in their desire to avoid credit card processing fees.

There's a typo: "Steady" not "stead" under Lesson 1.

EDIT: Actually, this piece has quite a few spelling errors and typos in it. This needs a once-over by an editor.

I absolutely agree (the Editor) ;)

Good story about the power of experimenting an making decisions quickly.

My lesson as a coffee entrepreneur: hire cute asian waitresses with big boobs (working exclusively on tips) and have them wear nothing but pasties http://www.ocregister.com/articles/says-126730-nguyen-coffee...

I like to have an IOU iphone app.

Ycombinator, get busy.

Might work, but most likely wouldn't. IOU isn't about the transaction, it's about the human connection between the buyer and the seller. People don't trust technology, they trust people. my 2c.

an IOU app that integrates with Facebook then?

Facebook makes a shitty web of trust.

Sounds like his business is dying as he cuts parts away. If he could get the right amount of pastries ordered, why would he not make money? You sell half, so order half. It just sounds like he wasn't paying much attention when he wasn't in financial trouble.

Sounds like a pretty reactionary guy. I might agree that credit companies exploit small businesses, but a bakery too? Everyone is out to get this guy.

I just hope he doesn't get his own ATM in his business instead of taking credit cards.

It is probably more subtle than that. You have to have a surplus of goods so there is selection. There needs to be enough pastries on display so that people will be able to find something they want.

And when money was flowing, he could afford to sell pastries at a loss to keep his customers happy. When he couldn't afford it anymore he was forced to change. Perfectly normal. What is out of the ordinary is how he reexamined his assumptions and created a better solution -- instead of hamhandedly cutting pastries altogether.

I think it was more he changed the product mix to something that his customers wanted. He replaced a variety of custom/daily baked goods (cookies, muffins, croissants and whatever else), that he was struggling to sell out every day at likely a buck or two with 25 cent store bought donuts that led to more sales of his higher margin items.

Exactly what the guys above said and more. With a coffee shop, you can't order just-in-time, rather you are forced to order a surplus by the baker. They don't want to deliver 2 donuts and a bagel, rather they make you order a bucket of stuff... every day! Now John doesn't have to do any of it; all he needs is to wake up 20 minutes earlier and put the bread in the oven!

The Seattle tech community rocks!

Are we sure these are lessons we want to take? Forcing a user to pay with currency (let alone foreign) makes accounting harder, and renders their shop useless to compete with other shops that do have card readers for a very large percentage of people. Then he moved the cash only sign inside instead of realizing that customers want to pay with their cards and adapting to his customers' needs. Lastly, he decided on taking the easy, low-quality route with his baked goods. Is that really future proof? I don't think he's acquiring any new customers by reselling boxed donuts - and his margins are very low. Why is he getting into the competitive baked goods market in the first place? Why not partner with a local bakery that produces high quality food stuffs as a barter?

Believe it or not, the donuts were sold out. In fact, locals started to come in just to get these donuts, while of course also buying coffee, beer, and whatever else was available. Nobody could turn down 25-cent pastry!

Article says it all really. Don't assume.

It doesn't say much without knowing how many were sold. Maybe he sold only the 6 or 10 from the box. Why assume either way?

I think you are missing a very significant point: without doing these things, he wouldn't survive. The article suggests that he couldn't afford the new cash register at the time, so he made the best of his situation.

Future-proofing your business is great, but if you can't hold on long enough to even exist in the future, then it's premature optimization.

1. He only loses to other shops in the case where customers dan't or won't pay with cash (this is a subset, and probably a minority, of customers). In return he saves money on a computer kiosk and the merchant fees on his transactions.

2. If he does not take plastic, then people who only pay with plastic are not his customers. Their needs are consequently irrelevant.

3. the $.25 donut is a loss-leader to sell the $4 cup of coffee. Or you could look at it as a bonus of sorts. Compare: "Buy a $4.25 cup of coffee" with "Buy a $4.25 cup of coffee, get a free donut."

For 1, I guess we need to know what % of consumers use credit cards/would prefer to use credit cards vs. cash only. With 600m CCs in circulation in the US, I do not think it's fair to say that customers who pay with credit/debit cards is a minority. For 2, like I said, by moving the sign inside, he may get a customer once who pays with cash, but who knows if they will return to pay with cash a second time knowing that they don't accept a CC? 3rd, the donut being a loss leader is a well taken point - depends what his target market is though. My point in raising these concerns is just that we shouldn't look at these lessons blindly, they need real economic analysis and probably some financial data to understand how well they are working vs. other options the owner could have taken.

According to John, the customers always returned. This coffee shop is not located in the center of downtown, but rather sits nicely next to the ship canal in Ballard. The people who come through are very often locals and they value their ethics and reputations, thus return to pay back. A buddy of mine, who lives 30 minutes away, once forgot his wallet and had to pay $2.50 with the IOU. He returned a week later and payed back. This approach would never work in Manhattan, but Seattle folks are much friendlier and value small businesses over large chains.

In terms of baked goods, they weren't low quality, they were just home baked. John used to work with a local bakery, but no one particularly cared to get their slightly above average quality.

Poster above claims Manhattan takes IOUs but SF doesn't.

You missed one:

4. It's generally an (illegal, yet surprisingly common) way to avoid taxes.

Guarantee you this guy is not making money hand over fist; any business is paying far more in hidden taxes than you would expect, including taxes on all forms of energy, telecom, property taxes, etc.

Accepting credit cards is done almost everywhere, but I wouldn't say that it's so assumed that not advertising that you don't take them is "tricking" customers. He offers a 100% interest free no collateral loan as an alternative.

I check for the Visa/MC stickers on my way into every establishment I visit. People tend to ignore them, but there's a vanishingly small percentage of stores that take credit cards and don't have the stickers.

You are making predictions about the future based on opinions that have not been verified.

The whole point of the article is that your intuitions about what is true or false is unreliable. Instead it is better to experiment with different options and measure the results. Choose the best option based on real data rather than unreliable intuitions.

>he decided on taking the easy, low-quality route with his baked goods.

They were homemade for Stallman's sake!

Which, at least in my state, is now illegal to sell (home-made). Unless your kitchen was inspected. Which nobody's is.

I hadn't thought about that; I'm sure it's the same across all 50 states. Wonder if baking them in the coffee shop itself would get around that: I assume they need a health inspection/certificate to sell coffee.

It was not clear from the article whether the homemade baked goods were being "eaten up" by his customers, or just the donuts.

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