When I started Fit2Go in 2004, I had no experience running a restaurant. I’m not even sure why I thought I was prepared for it, since it was just me and the chef. I quickly became a jack of all trades: part-time sales person, customer service rep, delivery guy, dessert maker…you name it, I did it. Fast forward to 2015, and Fit2Go is one of the leading healthy meal delivery services in South Florida.
But it hasn’t come easily. I’ve had my fair share of big mistakes and sleepless nights. So what do I wish someone had told me when I was first starting out? They do say hindsight is 20/20, so I hope that by sharing 3 big mistakes and pitfalls I’ve encountered (as well as the lessons learned), you’ll be able to avoid the same mistakes and become profitable faster.
1. Don’t expect to make money right away, but don’t sell at a loss either.
I started generating sales and building a customer database once I had my sales plan, but I was doing it at a loss. I was giving away free samples and offering steep discounts to get people to come try me out. It worked from a sales perspective because the deals did generate word of mouth, but none of those dollars were hitting my bottom line or my pocket.
So, I focused on volume until I got to the point where I could look at my costs and start focusing on profitability. Over time, I was able to raise prices while maintaining a big portion of my original customer base, which made me profitable. If I had not been able to capitalize properly, or figure out what pricing strategy made sense for my business, I would have failed.
I painfully learned that price should be dictated by the market—not by my costs. I learned that I was underselling to gain volume. The funny thing? The vast majority of my clients stayed even after I raised my prices by 30 percent. To this day, our rates are higher than our direct competitors, but our target market gets value from our service.
What I learned: find your niche market and give them what they ask for. They will pay for it if you cater to their needs.
Think you’ll lose customers if you raise your prices? You may. But that’s actually not as scary as it sounds. Let’s look at the math.
If you have a gross margin of 25 percent (the average for most restaurants), raising prices 10 percent would mean you could lose up to 33 percent of your current customers and still make the same profit! Isn’t that insane?
Do you really think one third of your customers would leave because you charge $11 instead of $10 for a product that fits their needs? Highly unlikely. So the rest of that money would go straight to your bottom line!
2. You can, and should, work with more than one vendor.
I had no experience in the food business when I started, so I asked a friend to recommend a food vendor. I called them, they helped us plan the menu and identify the ingredients we’d need. And voila! I had a food vendor that I came to rely on heavily. And while they were great (still are), I took a hard look at profitability and realized I was missing a huge opportunity.
For one, I wasn’t comparing the prices I was getting to other vendors. I just compared to retail, which made the price I was getting look pretty good. I auto-purchased ingredients weekly and never questioned the costs. My food cost should have been 28-32 percent, but was a lot closer to 40 percent. It was my biggest expense, but it was at the bottom of my list. I was busy with sales, food delivery, customer service, employees. All of these were important, but I prioritized these at the expense of my biggest cost.
Once I realized this, my engineering background kicked in and I developed an analysis tool that let me see how much everything cost. I also built a bidding system for all our ingredients that I could use with vendors, which created a competitive environment that benefited the business. Food costs can change dramatically week to week, and this process helped us get the best price each week. The result? After the first year of doing this, we decreased $150K in spending and a food cost margin of 32 percent of sales—right on target!
In my experience, it is always wiser to have at least two or three different vendors. For negotiation purposes, you can allow a vendor to have 70 percent or more of your purchase if they agree to a fixed cost-plus model. Check them against your other vendors on a weekly basis. Know what your margins are. Create a system to look at all your costs on a periodic basis. Remember: all produce and protein prices change weekly. And always, always, always, compare your preferred vendor’s prices to those of other vendors.
3. Beware of hiring friends and family.
This was the toughest lesson I had to learn, but also one of the most important. I had many friends and family members working with me when I first started. Because of the nature of those relationships, we hired employees’ friends and family members whenever a new position opened. We even got to the point where we had an employee’s husband, mother and brother-in-law working together! And while this wasn’t the real issue, it became problematic because we were hiring people who had no restaurant or food experience. I assumed that because I had no experience, no one else needed it either. And it was great…until it wasn’t anymore.
See, I had the same mentality as an employee. I felt I should be earning more, couldn’t figure out why I was working so hard, and constantly asked myself why I was frustrated with my boss, which was me! I didn’t view myself as the leader I needed to be—BIG mistake. There was a leadership vacuum that others tried to fill. Everyone started having their own idea of what my company needed to be and how it should grow instead of me creating the vision and helping everyone on my team embrace it.
After reading a lot about management, I had an ‘AHA moment’: I needed to focus ON the business and not get consumed by the day-to-day operations that were happening IN the business. I needed to create processes and systems for a team that had the experience I lacked so they could do the work while I focused on the strategic growth of the company.
The only downside to this ‘AHA moment’? I realized that a lot of the people on my team didn’t fit with the culture, mission, vision and values I had created for my company. And one of those people was my best friend. But I realized that it was unfair to my company and to my employees to keep them in a business, in a culture and in a role to which they were not suited. I had to step up and be a leader, which I did, but it definitely wasn’t easy and many of the relationships I had were put to the test. I’m thankful for everyone who pitched in during those early days, but I did them all a real disservice by not setting them up for success and making sure they were the right fit for the company.
The decision to hire friends and family is yours and only you can make it. My advice is to create your mission, vision and values early and make sure anyone you hire has them, regardless of who they are. Set ground rules and clear boundaries to avoid misunderstandings. And then accept that you are the leader and act like it.
And if something isn’t working, remember that the onus of change is always on you.
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