Big bureaucracy, unforeseen circumstances and the hidden costs of paying yourself: an entrepreneur's grab bag from the Boba Guys.
As Boba Guys approaches the six-month mark, it is time for us to begin the next chapter of our story. Our final set of GOOD posts will tie up a few loose ends, including where we landed on our profit problem. Thank you for following our journey up to this point and for sending us words of encouragement every week.
This week, we wanted to address the outstanding topics from your comments and emails about starting a business. If you have further questions, feel free to ask us in the comments.
Dealing with Government “Red Tape”
As first, we had few issues with bureaucracy during the launch of Boba Guys. We expected the usual food start-up checklist: a food handler license, incorporation paperwork, and seller’s permit. But as we began to scale our business, we finally experienced inconvenient and somewhat bloated bureaucracy firsthand.
Without going into the gory details of securing a physical space in San Francisco, we ran into the crazy world of zoning, permits, and FDA regulations. Before we can sell one bubble tea in our own physical storefront, we need to put in close to $10,000 in fees and permits (it will differ from city to city). It does not include operational expenses that keep the business going such as rent, utilities, or necessary equipment. The checks and balances are understandable—after all, regulation exists to protect the public from nefarious acts. However, it also weeds out industries that exist in other parts of the world such as small confectionary shops and family-run wholesale businesses. We noticed that a larger percentage of the successful mom-and-pop chains behave more and more like big corporations, with several storefronts and a central manufacturing site.
The takeaway is that consumer goods entrepreneurs must understand the cost structure and regulatory environment intimately.
Preparing for Unforeseen Circumstances
We have had plenty of things go wrong. At least once a month, one of our vendors will miss a shipment or we will miscalculate our replenishment time. Incidents like these often result in a late-night fire drill, but we nevertheless figure out a way to get it done.
Though it may sound counterintuitive, we found that preparation helps us deal with unforeseen circumstances—preparation defined in terms of slack or flexibility. For example, after we unexpectedly ran out of plastic cups and straws in back-to-back weeks, we redid our inventory model. Prior to the incident, we had our inventory stored in two locations—one at Ken Ken Ramen, our pop-up location, and the backups at Bin’s personal storage space. We realized that we did not build enough flexibility as only Bin had access to the backup inventory, so we created mini-backup “kits” that are spread out across multiple locations. We want to avoid ever using the backup “kits,” but we know that they are available in case of emergency.
The Real Hidden Cost: Paying Yourself
The trickiest part about founders running a business is that we often forget to pay ourselves. Our mentors would remind us of this every week. As we started to meet more and more entrepreneurs, we found that these costs are often overlooked. It is a noble aspiration for a founder to pay himself or herself last, but we found that founders often do not account for the additional hours of labor in cost calculations. We did not fully understand what the true cost of making bubble tea was until we started counting our own hours at the appropriate wages; admittedly, we did not do this until our third month of operation.
Making Everyone Happy
As a food startup, much of our business lives and dies by word of mouth. When we wrote about our goal of an open dialogue with our customers, we were avoiding the elephant in the room: the online review community. The question is, Can you make everyone happy? And if not, what should you do?
It is an extremely delicate topic, but our take is very simple: Be transparent. As we wrote last week, we believe if you set expectations clearly, a business can mitigate some of the backlash that might come from a misstep. We will always try our hardest to please customers, but unfortunately, the signals our customers give aren’t always clear (e.g. Boba Guys should be sweeter vs. less sweet). Sometimes, we make a business purely based on intuition and just hope for the best.
Starting the Next Chapter
The last part of this entry is addressed to our customers who ask us every week, when will you open a physical store or visit our city? The short answer is that we fully intend to scale by the end of the year, but we do not know in what way, shape, or form. We will continue this topic next week as we discuss what the future holds for Boba Guys.
The Boba Guys share their adventures in food enterprise every Monday.