All types of business (and all aspects of life) are following the law of the pyramid as illustrated below.
In the perspective of the coffee shop business (or the F&B business in general), the lowest layer of the pyramid is filled by the coffee shop with the smallest capital. Maybe in the range of 50 million to 500 million Rupiah. Or even wider, in the range of 50 million to 1 billion Rupiah.
(I happened to have funded a coffee shop in that number).
As seen in the image of the bottom pyramid, the color is dominated by red. A symbol of the term “red ocean” where competition occurs bloody. Competition is unavoidable because many people have a capital of less than 1 billion and are fascinated by the coffee shop business that seems to be mushrooming these days.
As a business with a low entry barrier, a coffee shop with a capital of under 1 billion must have the privilege to survive. Starting with the competition of the concept, price, taste, location, and various parameters that are sometimes countless. This competition gets even more complicated with the coffee shop siege that brings big names of memorable coffee models and a myriad of friends who (even though the shop looks small) have tremendous muscles.
If the privilege case has been passed (assuming I survive past the 2nd year), the next homework is to solve management problems. Starting from selecting employees and retaining them to making innovations to maintain the value of the coffee shop. What should not be forgotten next is the issue of licensing and taxation. Many coffee shops look fine but then dim because the local government visits them back and forth because it turns out that their business permits are incomplete. Matters related to taxation then become a unified package when all problems relating to licensing have been sorted out. A thing that is not trivial because the local government takes 10% of the total sales to be added to the tax calculation.
For big cities in Indonesia, coffee shop business investments with a value of under 1 billion are usually not able to own their place of business, so inevitably they have to rent land or shophouses for business premises. This is one of the vulnerable points because the business must be ready to move if the landlord does not want to continue the lease period. If this happens (and often does), then the business that is very dependent on the location must be ready to say goodbye to its existence.
There is one more thing that seems more vulnerable to business viability than the things above. Which is a dispute between the owners. This happens frequently. Especially because there are many coffee shops owned by several friends who share their working capital.
Because of the friendship factor, many of them never really write clearly about the rights and obligations of each (we’ll call it) shareholder. This ambiguity then led to many disputes.
Disputes related to how to run a business and their financial management, to lighter things, like how to serve food. The more shareholders, the greater the potential for disputes. If not managed properly, the death knell of the coffee shop is ready to be sounded.
So what’s the recipe for being able to last a long time in a business that has a low entry barrier such as a coffee shop business?
If you don’t have strong muscles (capital or shiny brands), it’s better to collaborate with those who are already really strong. This collaboration can be in the form of franchises or other management collaborations.
OR,
Waiting to be strong by raising capital and (this is not easy) building a brand. With the hope of playing at the top level in the pyramid of business competition. An area where we can determine the direction of our competition. A blue ocean area where we can set our price and market share.
