Using crowd funding to grow a coffee business.
17 Sep 2014
Whether you’re a new coffee shop owner or have been running a successful shop for some time, growing your coffee business is a challenge. Finding the perfect location, making a top notch brew, and creating the right atmosphere are all aspects that are essential to creating a loyal following of customers.
Coffee shops have successfully defied the economic downturn in the UK and are showing strong sales growth of 6.4% on last year with £6.2 billion total turnover. While the main driver behind this growth has been the physical expansion of branded coffee shops, independent coffee shops are building momentum, disrupting the big global coffee chains in the process.
Growth barrier for independent coffee shops
The growth challenge for independent coffee shops remains the ability to tap into the high-footfall areas and target the coffee demographic. Getting traction with landlords is probably the toughest challenge most independent coffee shop operators face. As a small business with limited trading history, it’s hard to convince a landlord that you’ll be able to pay rent, and even if you do convince them, you’ll be asked to pay a larger rent deposit upfront and you get less favourable lease terms than more established brands.
Eirik Holth is one of the founders of Black Sheep Coffee, an independent coffee shop that has been able to prove their business model with shorter-term pop-ups such as their take-away coffee shop in Old Street tube station. Earlier this summer, they had five temporary espresso-bars running at the same time and since igniting a very loyal following, Holth is now ready to take a permanent tenancy in Central London.
Crowd funding vs. traditional ways to raise capital
Eirik turned to crowd funding to raise the capital he needed to open his first independent coffee shop. And he is not alone. Thousands of entrepreneurs and small businesses have discovered crowd funding as a productive channel to access the capital they need to grow their business.
The traditional way to raise capital is often a lengthy process that involves a lot of red tape. Crowd funding has been designed to disrupt the process and make access to capital as easy as possible. The main difference is that crowd funding is not about long-term funding; it has been designed to facilitate single, one-off ideas by asked support in return for offering incentives for pledging. That means there's no long-term return on investment for supporter.
Eirik explains “We think crowd funding is a great way to allow both our local customers and our followers outside London to be involved in an exciting project – the opening of our first permanent café. We’ve been doing pop-ups ever since Black Sheep was born just under a year ago, and we feel ready to take the next step. Crowd funding also allows us to tell our story and raise awareness of the brand.”
How to incentivise investment in your business?
Like it or not, people expect something in return for their financial support. Therefore, crowd funding platforms let you create a series of rewards to say "thank you" to those who back your project and want to see you succeed. The key to incentivising investment is to create several reward options at various levels of investment.
Eirik highlights “It was important to offer rewards that were attractive both inside and outside London. 100 coffees for £99 is an amazing deal for local customers, whereas t-shirts and make-it-at-home brewing kits are great for anyone that isn’t able to visit the café. We have been generous with the rewards, but structured them such that we can use the cash we raise on day 1 to setup the café, and then use revenue from the café to cover most of the costs of fulfilling our promises. That’s the beauty of crowd funding platforms like Kickstarter and why they are so helpful for young companies looking to grow.”
Self-promotion is key to success funding.
Black Sheep Coffee spend zero marketing budget or external help to run their crowd funding campaign. “We used social media a lot to interact with our friends and customers. Facebook, Instagram, and Twitter have been good ways to spread the word and in addition to our own outreach, we’ve had amazing support in spreading the word even further from coffee bloggers such as Brian’s Coffee Spot, 100 Cups of Coffee, and many others.”
“Offline, we’ve promoted the campaign directly to customers in our pop-up cafés in Old Street, Camden, and Marble Arch (Urban Outfitters). We’ve also reached out to pretty much everyone we do business with. Existing suppliers is a great place to start!”
Black Sheep’s Kickstarter campaign runs till 8:59AM Thu, Sep 18. If you would like to support them and earn some coffee rewards in return, please follow the link
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