A Penny Saved...Smart Guys Chapter One.

Like it's news to any of us, I say some of those old business adages were lies.  One of the worst is "a penny saved is a penny earned".  The only thing that comes out of that saying is a bunch of cheap-ass bottom feeders racing to new lows in product quality and service.  A pithy proverb that stinks less is "value the relationships in your business".  It sounds like a lot of hot air.  But it bears remembering, and it is most important when you are reminded that "value" isn't just about warm fuzzy feelings in your heart. 

Value is about money.

Last week I got so tired of hearing Mark complain about his computer that I actually went over and took a look at it.  You know...to see if I could, like, fix it or something.  And go figure: Mark wasn't just bellyaching in order to torture me.  The End Was Near.  Old computers nearing The End do some pretty tell-tale things.  This patient presented with all of the fateful symptoms.

Computers are cheap these days.  You can get a good desktop machine for a few hundred bucks, less if you take the time to assemble it yourself.  But data systems infrastructure is one of those business areas in which I truly believe that, quite often, a penny saved is a dollar in the toilet.  I called on Drew.  Drew owns an IT support business called basupport.  Yes.  basupport.  With a small "b". 

Drew epitomizes my Smart Guy theory: ten minutes with a Smart Guy are worth more than a week with a dullard.  You know the other (more valid) old saying "price, quality, and speed...you can choose any two of the three"?  Well Drew is fast, and Drew is competent.  You can draw your own conclusions from there.  But as much as his hourly rate is a little terrifying, Drew fixes most problems so quickly and so seamlessly that his work winds up being less expensive than other folks that are...well...less expensive. 

Next up: Smart Guys part Two...which questions to ask.

The Price of Doing Business

Ain't That Some Shit?

What we pay at Kaladi Coffee

(minus differential, shipping, and a few other charges...)

There's an odd perspective you need to keep as a business owner.  The vast majority of your countrymen here in the U.S. of A. think you're at the top of the heap: business ownership is one of the main "someday I will..." statements for many people.  And with good cause.  Owning your business, as far as I'm concerned, is truly the way to go.

But when supply prices follow the chart above, well, there ain't anyone or anything to absorb the blow except the calloused hide of the principals.  Like most small businesses, we run a pretty tight ship at Kaladi: we don't have huge reserves of cash, and can't really sell out of any particularly liquid positions.  So the current price fiasco has left us with two options...and we took both.  One, we raised the retail and wholesale prices we charge to partially offset higher COGS and inbound shipping charges (mostly fuel surcharges on trucking fees), and (now the ugly part), Mark and I have (with dark humor and puckered parts) accepted the fact that we're simply going to make significantly less money this year than we did last year. 

It's hot dogs for dinner tonight.  And wennie-water soup tomorrow.


I regret nothing about owning my own business (yet).  I'm glad that we're not leveraged, and that we don't have any long-term debt to pay down.  I'm glad that our bills are manageable.  I'm glad that we've paid our bills in the past and that we have a credit advantage over many other coffee buyers.  And while there may not be much gravy on my plate this year, I'm glad that there will at least be grits.

As Nina Simone so wisely sang: "it also be's that way sometimes".

Don't Bring a Knife to a Gunfight

Analogies between business are war run rampant in our culture.  Some of them deserve some merit.  I do believe that Sun Tzu's Art of War is a great bona-fide business book.  Most of those analogies, however, make a terrible distortion on the nature of business.  If you do things right, business is most often NOT a cut-throat dog-eat-dog world.  Kaladi Coffee is all about finding a niche (preferably with fun clients, honest vendors, and a livable profit margin) and then letting the rest of the coffee world go its own way.

But still...if you're serious about your business, if you intend that it should pay you and your people and provide your clients with a great experience, there are certain harsh realities you need to face.  The core people, systems, and equipment for your business are CRITICAL.  If we're discussing coffee joints, we're not talking about plastic water cups and toilet paper dispensers here.  We're talking about your coffee machine, your espresso machine, and your grinders.  The same thing could be said for your brake, shear, punch, etc. in a metal fabrication business or the cleaning and imaging apparatus in a dental practice.  Identify the equipment that is critical to your work and focus your spending ability there.

Don't buy cheap equipment for the core of your business.  That's like bringing a knife to a gunfight.  Or entering your Corolla in an F1 race.  Those comparisons are funny, I guess...until you realize that it costs you a couple of hundred grand to enter the race in the first place. 

Winning is tricky even when you have the right tools.  To run the race of business with anything but the best stuff, though, is truly challenging fate.

Nature Hates a Vacuum

A green but intrepid client recently asked of her fledgling business: "so when is the right time to hire new employees"?

Drawing upon life at Kaladi Coffee here, the right answer is always "several weeks before you NEED to hire new employees". 

There is a tongue-in-cheek dualism to that answer.  On one level, the most obvious level, businesses need to hire in advance of need because there is a training and inculturation period.  Once you are in the weeds, having a newbie on board doesn't really help...they're dead weight until they're trained and up to speed. 

But there's another reason to hire ahead.  In the coffee business, quality is everything.  And after quality, speed is everything.  (And after that, I guess, hot liquid in a paper cup is everything...and so forth...)  A customer who comes in for the first time and has to wait for six minutes in line is unlikely to return.  So if your business is growing, and two people working in tandem can cover the bar MOST of the time, well...those new potential customers who arrive when you're at your slowest? 

They never come back. 

It is a conundrum: either you hire too soon and you waste labor dollars, or you hire too late and you hose your growth. 

I'm decidedly in favor of hiring ahead of time and just eating poo on labor for a while.  If you've hit a bare-bones level of critical mass, you go back to eating Ramen noodles for another month.  My reasoning, as best expressed in vaguely evolutionary terminology, is that nature hates a vacuum.  Traditional wisdom dictates "when the market demands, business will accommodate".  I believe the contrary: by the time the market demands, it is too late.  Being reactive isn't good enough.  Be proactive and create capacity.

So long as you can do it without building a lever that works against you, I believe that it is almost always best to create excess capacity in your business.  Staff a bar that makes better drinks faster.  Build a roasting facility that can do 150% of your expected terminal volume with grace.  Overtrain your employees...to the point that they could conceivably strike out on their own.  Enable your business to do more big, beautiful, fun and fulfilling things than it has to do.

Nature hates a vacuum: if your business creates a great inviting space, the Universe will fill it with customers who love you.

Your Accountant, Your Rabbi

Mark likes to say that he learned all of his early business lessons by selling drugs in the playground at elementary school.   That scenario is rich for insights into marketing, I bet, but one of my most memorable early business lessons came from the movies.  In particular, I’m thinking about The Untouchables here, and Al Capone’s great soliloquy “there is a time for personal achievement, and there is a time for teamwork”.

Yeah.  It’s the scene with the baseball bat, the clean white tablecloth, and that startlingly large lake of brain and blood.

Your accounting...it is not so much of a time for a distinguished personal achievement.

You should always do the books yourself.  Maintain your own accounts.  Enter your own data.  After a while, you may feel comfortable shifting your chart of accounts around so that it presents itself in a manner that means more to you.  But decisions on what is deductible, and how fast a particular piece of equipment can be depreciated?  You got it: it's fielding.  It's time to be part of a team.

Find an accountant you like.  This may take some time.  Interview a few.  Compare their deduction philosophies, compare their rates, and ask for references from current clients.  Make sure they’re completely competent with your accounting software.  Certified Public Accountants charge more for their time than less-trained others, but it is almost always worth it to pony up the extra for their time. 

And once you choose an accountant, you should remember that they are on your team.  You don’t need to open your new business with the aid of a board of directors, but you should understand that your competencies are limited, especially in areas of mind-numbing esoterica (like tax code). 

Your accountant is your consigliere and your rabbi.  Your accountant will guide you in times of darkness, and through moments of indecision.  Your accountant is your counselor.  Speaking with your accountant is like being in confession: tell your account the truth.  The WHOLE truth.  Even when you’ve done something stupid or arrogant or shameful, and you’re embarrassed. 

Lying to the priest may save you a few Hail Marys, but it kind of undermines the whole point of going to confession, now doesn't it?

It is your job to build a successful company.  It is your accountant’s job to keep you from wandering afoul of the law.  Which, incidentally, is easier than you may think.  The Fed is not your friend, and they don't make rules nice and clear so that you might never break 'em.

You are the team owner, and the choices are yours; thus it behooves you to select your team members carefully and play to their strengths.  Remember Mr. Capone and his story of decision...when should your call be a moment of individual achievement?  And when are you  best off relying on your team?

Data Entry Party!

In small business, data entry goes hand in hand with banking.  It’s that simple; your daily numbers are used to create your daily deposits.

I know that data entry is boring.  But even if data entry isn't exactly the lifeblood of your business, it DOES track the pulse of your business.  Don’t farm it out.  The company owner should do daily books.  Yes, even if your primary responsibility is fixing cars, writing ad copy, or cooking. 

Business owners that hire other people to do their daily books get ripped off more often than others.  The rip-offs are bigger than others.  And worst of all, those business owners are so out-of-the-loop that they often don’t notice it for years.

But even more, if you don't stay on that pulse, if you don't personally absorb the data necessary to feel your business...well...you may as well spawn a tadpole and farm it's rearing out to some stranger.  Out of fear or neglect, you may very well wind up robbing your business of an informed leader AND robbing yourself of the experience of being a competent, enlightened leader.

Data Resolution III: Draw the Line and Maintain It.

By design, Kaladi Coffee is a management-decentralized operation. Most of the decisions that happen on a daily basis at our joint are made by our baristas, the title granted to every fully-trained employee of the company.  Employees are responsible for ordering all supplies, writing the schedule, determining roasting volume, maintaining and controlling inventory, and other key management functions. Ownership has ultimate responsibility; when something goes seriously wrong, it’s our job to remedy the situation (that sounds pretty sexy, but it's usually just a busted toilet, you know?),  but a broad based pyramid of command means that there is a narrow variety of tasks that occur regularly at the top. 

I'm real good with a plunger.

One of the correlating beauties of that design is that while my data needs to be accurate, I don’t need all that much of it.  But it needs to be entered.  Every day.  Like religion, but a lot more serious.

On the retail side of things, the only sales numbers we track are beverage sales, bean sales, food sales, and a catch-all category we call “retail sales”.  Four little numbers per day give me all of the data I need.  We track wholesale operations and internet sales separately, but in similarly streamlined format.  Sales numbers are most often analyzed from within QuickBooks, but bar sales are exported into a spreadsheet as well.  That step allows me to write algorithms for charting, for instance, sales along various-length moving averages.  Data logging takes approximately ten minutes per day, every day of the week.  In exchange for that effort, I get an accurate picture of how each critical segment of my business is trending, can compare that information against historical data, and my daily banking is completed as an extra benefit.

Expenses need to be broken out and tracked in greater detail, as expense information is not only used to help steer purchasing decisions and analyze business segment profitability, but also forms the basis for various deductions on the company’s tax return.  Constructing a chart of accounts, if you’ve never done it before, is something best done with an hour or two of help from your accountant.  Expense accounts should correlate to income accounts, facilitating expense analysis.  Expenses should be nested in an intelligent way, such that related categories of expense build large, meaningful chunks of data.

And the rest is simple.  Laying out the architecture of your bookkeeping system is thought-provoking; data entry isn’t.  But do it.  Do it every day.  Don’t put it off ‘til the end of each month.  Every day of the week, you should log the prior day’s sales, and use those results to build your bank deposit.  Yes, even if it’s only forty bucks.  Your diligence will reward you.