reality small business ownership

When reality bites in small business ownership

Espressology’s Instaurator paints a genuine picture of why business ownership is a complex beast that isn’t all rainbows and unicorns.

Winston Churchill is quoted as having once said “success consists of going from failure to failure without loss of enthusiasm”. Certainly, it is hard to maintain enthusiasm when things don’t go your way – take the industry’s current impact of the coronavirus for example, which has forced businesses to close – some temporary, others not – and reduce staff. However, it is important to learn from these lessons so that, hopefully, we can move onto success and leave COVID-19 as all but a distant memory.

The Coffee Entrepreneur
Instaurator is the Founder of Espressology.

But what does success look like? At the height of mine I was a part-owner in a coffee-roasting business that supplied about 350 in-house stores. The business was making a lot more than it was spending.

Then, one of my business partners had a serious heart attack and was clinically dead for several minutes. Thankfully, he was revived, but he did have to have a pacemaker permanently inserted. Not long after this, he suggested I might want to think about the possibility of selling out of the business. I wasn’t interested at all.

It turned out, even though I wasn’t aware at the time, my partners wanted to join a completely independent coffee business together with their main franchise business that would make it easier and more valuable to sell the business as a package deal to investors. In the process, I was laid off without pay a few weeks before Christmas. Then, we were at a stand-off and the negotiations began. They made me an offer for my shares in the company but I thought their value was worth a lot more, and so I declined. I did, however, stay on as a director.

In my mind was the fact I had four children in good private schools with expensive school fees, a new house with a large mortgage, an investment property, and not enough income to cover the costs of this lifestyle. In retrospect, I should have sold the larger second house straight away and reduced our loan expenses. I could then have probably hung on without taking the kids out of the very good schools they were attending and have avoided disrupting their lives too much. It would have been humbling, but it took quite a while to realise this was even necessary. In the meantime, the debts were mounting up and the negotiations stalled. Having less income than expenses is a very stressful way of living.

At the same time though, I figured I could open a new café near to where we lived and not have any conflict with my directorship of the wholesale coffee-roasting business. I approached my brother-in-law, Rob Murrell, to invest in the business with me.

reality small business ownership
Business ownership is no walk in the park, but every experience is a learning curve.

At this point in my career, I had established two successful wholesale coffee-roasting businesses and three of my own successful cafés in the competitive Sydney market, and helped establish training and support systems for hundreds of coffee entrepreneurs with their own successful cafés nationally. All this in just over 20 years. Naturally, I felt very confident I could open one single new café successfully. How wrong I was.

I made so many rookie errors it was embarrassing. I tried to merge a new concept store that could potentially be replicated and possibly franchised. The idea was to offer a range of alternative healthy fresh salads, a range of different flavoured Australian-style meat pies, and great coffee. This was a bad idea. As you can probably now appreciate, healthy salad-eating customers and meat-pie lovers are two completely different tribes. It is true they both love good coffee, but together, it made for a conflicted retail offering and the store lost money from the get-go.

When your personal expenses are more than your earnings, you make a loss. When your business expenses are more than your earnings, you also make a loss. Combine the two and your losses really mount up quickly, and they hurt. This was where I found myself in a very short amount of time. This is also why businesses must have a profit and loss report (P&L). I always made sure I had a good bookkeeper who gave me an accurate monthly P&L, but unfortunately, no matter how hard I tried to improve the business, it kept floundering on the ‘loss’ side.

Losing money is very demoralising, but personal losses are even more painful than business ones. So, the idea of actually making a personal profit becomes a very real and urgent necessity. Ask any family who can’t pay their bills. It is bloody painful.

The Coffee Entrepreneur
The Coffee Entrepreneur is available on Amazon, Kindle, ibooks, Barnes & Noble, and Kobo.

As the losses mounted, I tried anything I could to make ends meet, including international consulting, but I couldn’t cut the deadweight of a shop that was dragging me further and further underwater financially. I tried selling it to different people but, as anybody who has tried knows, it is very hard to sell a business that is losing money. I had signed up for a six-year property lease in a small shopping centre where the rent was too high. It was like a prison sentence where I was being tortured daily.

I had to make really unpleasant phone calls to the Australian Tax Office because I couldn’t pay them the money I owed. I needed it to put food on the table. To its credit, the tax office personnel were invariably personable and sympathetic, which I’m still grateful for.

Eventually, after almost 20 months of negotiations, my business partners offered me the same amount as they had in the first couple of weeks of our negotiations, and I accepted their offer. I managed to hang on to our family home, but my personal monthly P&L and my new shop’s P&L were both still in the ongoing red. In other words, I was still making losses every month on both fronts.

I turned a corner thanks to my wife Looloo, a trained midwife who had the guts to listen to a little voice in her head telling her to ‘open a little café’, and she acted on it. I set her up with some space in the warehouse at the time, and she started serving coffee. Looloo offered her customers a loyalty card – buy eight coffees get the next free, and go in the running to win a prize. Well, one of her customers was so thrilled he’d won, he decided to open his own café down the road, attached to the house we had bought. It’s crazy how things happen. After a while, this gentlemen realised he couldn’t run the business, and sold it to Looloo at a very good price. Looloo got the place up and running and Looloos, as it’s known, continues to make a healthy turnover, even today.

Business can be a brutal game. I’ve been there, I’ve experienced it, I navigated out of it, and I’ve come out stronger with a greater sense of accomplishment.

Unfortunately, the reality is that there will be many business owners who may find themselves in a similar predicament because of an event out of their control. For someone who has experienced the highs and lows of business ownership, know that obstacles can provide many learning perspectives, but at the end of the day, you’re not alone.

This article appears in the June 2020 edition of BeanScene. Subscribe HERE.

This information is an edited extract from Instaurator’s book The Coffee Entrepreneur. For more information, visit www.espressology.com/shop