​The $10 Mil Café, Part 1: $1k-$100k

Hello everyone!

This will be my first entry in a series of posts about entrepreneurship called “The $10 Mil Biz”. The series will cover multiple types of businesses and how I would run and grow them to a $10 million valuation strategically with the smallest investment possible. I am an entrepreneur. I recently sold my company I had a 51% stake in for $80 million, and am continuing my journey as a business advisor. I hope these posts will provide some meaningful insight, so let’s dive in!

The café business is cut-throat. Margins are slim, and most café owners do not have the capital to survive a single bad year. A perfect challenge for a cunning businessman! One thing that will come insanely handy here (and the thing which grew my company to a valuation of $80 million) is a strategic partnership. We’re assuming here that we are a broke, hungry entrepreneur rather than someone who can invest $50 million and get $10 million out, so we will leverage our immaterial assets to their fullest potential to make deals worth tens – later even hundreds – of thousands of dollars.

The most expensive asset we must acquire upfront is a property – an area where our café (Let’s call our café Solatium – latin for “comfort”) will be located. These typically cost six figures to buy. However, we can already start using our future business as leverage here by entering a factoring agreement with a property owner. Let’s rent out a space for Solatium and pay half the rent, and agree to hand 50% of our bottom line every month for the next year to our landlord. Not the most appealing option for any landlord which is why you want to find not an individual, but an entity to rent from. Ideally an investment fund which happens to own some properties. And let’s also throw in 25% equity in our new business to sweeten the deal (don’t worry, that still leaves $7.5 million for us by the time we’re done).

Great! Now we have a space to host Solatium in! If it is furnished, we’re all set. If not, just go out and buy tables, chairs, freezers, AC units, drinks and such. Most café equipment sellers allow for a 14-90 day period to get paid, so we can pay them out of profit later on. If things get really dire, we can use those assets as collateral for a loan. Remember, our landlord gets 50% of our bottom line (Yes, we will be taking them for a bit of a ride but it’ll all be worth it).

Now, staff. We could go through the regular hiring process and just hire the most qualified waiters and bartenders we find and wrap this part up, and that is certainly reasonable. If we want to get really optimized though, and dabble with a risky strategy, how about we pay them an above-average wage with the condition that we pocket all their tips. This could pay off if we train them well. Studies have actually been ran about waiters and tips and if they smile, remember customers’ names, crouch to take orders and employ a dash of physical touch to their interactions, tips tend to be way more common and higher!

Here’s another way we can leverage our position as a café – let’s offer food! A kitchen is expensive though and most cafés are not equipped with a one. Our landlord probably won’t let us install one and, even if they did, we don’t have the money. So why not leverage Solatium’s customer base to get a small commission from local restaurants. Let’s get one or two restaurants to offer a discount on orders coming from Solatium. They will be willing to do that as it is essentially free money for them for no additional effort or cost. We will be offering their meals at a discount – but a slightly lesser one, so we can pocket the difference. Let’s say that the local mexican restaurant “Fred’s Food Fiesta” offers us a 20% discount on a meal, we will offer it to our customers but with a discount of maybe 10%. Free money – free money.

Before I forget, here’s one important thing – Solatium needs to have personality. Themed cafés are incredibly well known, at least where I live. Not a huge town, but big enough for me not to know ALL the cafés here. You know which ones I do know, and have went to at least once to see what it’s like? Yep, the themed ones. Don’t take that word too seriously. I’m not saying we should have a dinosaur café or one specifically for the enthusiasts of The Office. We just need it to have a recognizable style. As coffee is more consumed by women than men, the decor should be nice and comfortable (hence the name “Solatium”). Have a white wooden flooring, throw a purple sofa or two in there, warm lighting and you’re pretty much there.

Solatium should have personality everywhere – in its social media posts, in its decor, in its menu items (here’s my idea: have a short, quirky description of every menu item written in small text). One more idea I’ve had is making custom Solatium shirts for staff that look like tour concert shirts, except the back is just the café menu. Pretty silly stuff but once you actually employ it, it WILL draw in more customers. You can really go in all kinds of different directions with this. As long as we differentiate, we’re good.

Also, offer gift cards, no matter what. This stands not just for Solatium, but every B2C business, or even B2B. A decent portion of gift cards purchased end up expiring before they’re used. It is free money in the most literal sense of the term.

Okay. Finally, Solatium is up and running. If you did everything right, the café should be near its capacity at least during the first week or two. Now we will coast along until we are in better financial standing to move forward, at which point the café will be valued at around $100k.

I hope this post was worth a read! Stay tuned for part 2 where we’ll take Solatium from $100k to $1 million.

If you have any feedback it would be greatly appreciated!

Keep in mind – This is NOT business advice. What I am trying to do here is illustrate how you can leverage creative thinking in your own business to create outsized returns.