By Desmond Lim, Double Degree Alumnus (BAcc and BBM 2010), SMU School of Accountancy and Lee Kong Chian School of Business
In Silicon Valley, startups usually become profitable only after raising and spending quite a lot of money. However, in a post by Paul Graham from Y Combinator on how to be “Ramen profitable“, it eschewed a lot of tactics and strategies around how businesses can have a different form of profitability than what startups have traditionally aimed for. To be ramen profitable means to make just enough to pay the founders’ living expenses.
In the business world of retail, restaurants and hospitality though, to bootstrap and to be ramen profitable from day one is the norm, as it is traditionally harder to raise capital for your business. There is often a higher upfront investment, but the strength of running a retail business is that it is often associated with better cash flows, as compared to Silicon Valley startups.
My first business, while I was in college, was starting a Thai food business, Treehouse Restaurant, which was founded with two of my college friends, Elizabeth and Alicia. Over the course of six months, we came up with a business plan for starting the business, hired over 20 part-time helpers and a chef, and launched the business exactly today 10 years ago. It was my second entrepreneurial experience, but it was also one of my most fun and interesting business startup. As I had limited capital in the early days of starting up the business, my teammates and I came up with creative ways to bootstrap and start Treehouse Restaurant. Here is what we did:
1. We bought equipment from a second-hand business
To start a restaurant, there are many hardware or equipment that you will need—from tables, chairs, ovens, stoves, pots, pans, culinary, to a cash register (I thought about not buying this, but my co-founders convinced me otherwise)!
The cost of purchasing all of these brand new could have easily cost more than $100,000 but we did not have that amount of capital, and hence, went around conducting a lot of research online to purchase the most reliable equipment at the more reasonable cost from different second-hand businesses, vendors and companies. We actually managed to procure an older cash register that has been used by three other businesses, but it worked perfectly well. For tables and chairs, we took a drive down to IKEA where we were able to purchase furniture at reasonable prices and self-assembled most of them with our friends and family.
2. Hire for excellence, not experience
Other than purchasing equipment and hardware, the cost of hiring is one of the biggest cost and barrier to starting a retail business. Having to hire on a shoestring budget, I was not able to look for people with extensive years of experience, instead, I sought to hire for people who were hungry, passionate and eager to learn. I hired for excellence and not experience.
“I also manually used my phone to text these applicants and call them to coordinate for over 100 back to back in-person interviews in the course of 4 weeks so I could have a good sense of who is good culture fit for the team.”
In order to do so, I sought out applicants the traditional way, posting on the classified jobs section for various local newspapers, and managed all my hiring on an excel spreadsheet. I also manually used my phone to text these applicants and call them to coordinate for over 100 back to back in-person interviews in the course of 4 weeks so I could have a good sense of who would be a good culture fit for the team. I also devised different questions using online forms for initial screening to have a good sense of their availability, personality fit, and skillsets.
My experiences in hiring hourly workers for my Thai food restaurant was also one of the inspirations for me starting Workstream today, as I personally witnessed and felt the pain of hiring and onboarding hourly and retail workers.
3. We created a menu which overlapped different ingredients
In order to keep the cost of goods low, we devised a menu that had at least 50 per cent overlap for every single main dish that we were selling, and tried to limit the number of main dishes to less than seven dishes. For example, we would use the same chicken meat for Tom Yum Curry Chicken, Pineapple Fried Rice and Pad Thai, and will also use the same peanuts and vegetables for different dishes as best as we can. We also tried to outsource the drinks and desserts that we sold by procuring them from a vendor that we knew complemented our food well, reducing the amount of overheads, cost and time from preparing the food on our own.
4. We standardised operations and created a just in time strategy for our supplies and food
Similar to the Just in Time manufacturing standards popularised by Toyota, McDonald’s and General Motors, I standardised operations in the team such that there were structured steps, and any new person who joined the team will be able to get up to speed with 2 days of training and will be able to work with the team full-time and be fully efficient. We created online tutorials and made them into videos, and recorded them online so that people will be able to watch them.
We also created a just in time strategy for our supplies and food so that minimal food will be wasted every day (and if there were wastage, we donated them to the local YMCA). This was an important strategy as food waste is one of the highest cost for any food business.
“I do believe in the 80/20 rule, in which 80 per cent of the business came in at lunchtime and dinner time.”
5. We limited opening hours
This may sound simple, but I do believe in the 80/20 rule, in which 80 per cent of the business came in at lunchtime and dinner time. By simply trying to limit the opening hours, I was able to reduce the cost of labour, electricity and resources that could have been more leveraged upon during the busy periods. We also closed on Mondays to give everyone a break and re-energise, and focused our efforts on the timings of the week that had the most business.
Overall, bootstrapping and starting a restaurant was one of the fun entrepreneurial journeys I have ever gone on, which involved dressing up as a tree (think Treehouse restaurant), to learning to hire many people in a very short amount of time, and learning to manage financials and operations. It was definitely one of the meaningful experiences of my life, and it has laid the foundation for me to work on Workstream to impact and transform the hiring experiences for companies hiring hourly workers.
This article was originally published by Workstream and has been republished here with permission.