Monday, 9 January 2017

The Spreadsheet That Lies to You

If you’ve started a business, or have thought about starting a business, then you’ve probably created a very specific spreadsheet. It’s the one that tells you how much profit you’re going to make. It is, I suspect, lying to you.

If you’ve started already then chances are you’ve worked out that your spreadsheet lied, and it was probably a dispiriting moment, a frustrating or one that felt like a blow to the stomach.

I hated writing a business plan. I hated it all the more knowing that the people who read them mostly don’t care, they just want to see that you’ve done the work. It is very easy, in the nascent stages of a business idea, to create this spreadsheet. You’ll start by working out roughly what revenue you’ll make. You’ll factor in costs, and find yourself with a reasonable gross margin, you’ll add some staff, rent, rates and the rest. Likely there’ll be a nice little sum of net profit to show for your future hard work. If there isn’t much profit at the bottom of the sheet you’ll do something we’ve all done: slowly massage the numbers to work out how you could maybe make a healthy profit. It goes from being a prediction (which is how you’ll continue to think about it) to being a near-impossible challenge (you won’t think about it this way).

One can write a sensible looking spreadsheet for just about any business model. Revenue will seem realistic, costs fair and the outcome very positive. This is the spreadsheet that lies to you.

The most successful operators don’t trust this spreadsheet. They bring it to meetings before they open their business, to have people try and work out where the spreadsheet is lying to them. They want to find out where the realistic goals actually lie. They don’t trust it, even a little. These people are few and far between because, to many people, a realistic prediction is very difficult to work towards at the early stages.

I’ve said often that there has never been a better time than right now for speciality coffee. It has never been better – as a raw product, a roasted product or a drink. I’ll also say this: there has never been a more challenging time to open a speciality coffee shop or roastery. There has never been more competition than there is right now for the customers that you want, those people your spreadsheet assumes will immediately, and happily, stop buying coffee where they usually do and switch straight over to you.

I still have spreadsheets that lie to me. I can’t help it, I’m an optimist. Over the years they’ve morphed into budgets and have been refined and tested regularly against the real world. I believe the world of accounting, especially cloud-based accounting, has changed enough that every business should be benchmarking their deceitful spreadsheets against quarterly management accounts. The model must be updated, and the numbers you want to massage to fix the profit problem actually tested in the real world. That’s how the little lies of the numbers may come true.

    Friday, 30 December 2016

    2016 in review

    I quite enjoy writing these end of year posts. They’re more fun than the predictions posts I used to make in the past, sort of…

    Words written on the blog: 15,575 (2016) Vs 18,376 (2015)

    I wasn’t surprised that I wrote less this year. I actually posted more often, but there were a bunch of shorter posts (which I will come to later). Looking back I’m actually really proud of some of the pieces I wrote this year, and they’re amongst the most read things I’ve written. Here’s my own top ten, in no particular order:

    Lightness and Darkness in Roasting
    The Problem is Delicious is Easy
    Automation and Espresso
    On Geisha
    Are We Sure About Pastries?
    When Speciality Stops Being Special
    A Challenging Idea About Speciality Coffee
    The Cafe Reviews I Wish People Would Write
    Coffee is a Dead End Job
    Is Coffee Getting Cheaper
    Coffee and Opportunity Cost

    2016: A Year of Finishing Projects?

    Last year I wrote that I wanted to finish a bunch of things. I’m not sure if that is true, but it was definitely a year where I did a better job of closing out certain things:

    Cascara Chocolate: I look forward to seeing what people do with this in 2017. There’s a video, and also a blog post, about how to make it and I hope more people experiment with it. I know a few people are working on something, myself included, but this was a challenging and frustrating project for me and one I was happy to finish!

    Longberry: I was really pleased with Issue 2. I thought it was entertaining and challenging. I have no idea how often we’ll release these – it is hard for the three of us to find the time, especially when it is a pure passion project. There’s still a few left if you’re curious, or if you want to resell…

    Coffee Variety Timeline Family Tree: I had had this in my head for a couple of years, so was very happy to final produce and ship this. Thanks to everyone who posted a photo and tagged me in it – I love seeing this stuff! They’re available here.

    Coffee Jobs Podcast: Technically this isn’t quite finished, there’s one more episode but I need to re-record it because of sound issues. It’ll hopefully be a little January bonus. I don’t really know how I feel about this project. I think I hoped it would appeal to a wider audience than it did. With limited time it is important to spend it where it makes a difference, and if I personally hadn’t gotten a lot from the project, then I don’t know if this returned the time and effort I put into it. If I do a second season in 2017 I think the format will change quite a lot, we shall see… You can listen to episodes here.

    The Newsletter: Again, this isn’t a finished project. It is still on-going, if a little quiet over the holidays. This one has been tricky to balance. I like to read a lot, and thought it would be fun to share things I found interesting or relevant. The feedback from people has been very positive, and I love that people send me things to read now!  You can sign up here, I’ll email you a few things to read every couple of weeks.

    The jimseven Book: This is happening, and sadly wasn’t wrapped up in 2016 but should be done in early 2017. Here’s the deal: I’m printing physical copies once. There’ll be preordering, and some fun stuff. I’ll print a few extra but then it is done. There’ll be a digital version. It’s structured to be an organised best-of-the blog covering up to the end of 2015, having been better edited, updated and formatted. The cover is designed, page layouts pretty much complete. Just printing and shipping. I’ll post more here when there’s news.

    The Youtube Channel: As I said in the most recent video, this wasn’t about creating a vlog. It was about learning to make films. I’m still at the very start of that journey, and I’m looking forward to working on different kinds of films about coffee. It’s been personally challenging, in a host of ways, and as such one of the most enjoyable projects of 2016. You can see my videos here. (If you just want one then I’d recommend the one I made in Huila, it is the best thing I’ve done yet I think).

    Plans for 2017

    The newsletter, podcast, youtube channel and a few other things all kicked off around the same time. It turned out to be pretty demanding to do these things, while also doing the various things I do for a living (a lot of which I don’t ever really talk about here). It has resulted in a little creative burnout for me. Part of my recuperation is going to be time away from social media. I’ve obviously been uncomfortable with my relationship with this stuff in the past, hence my previous digital sabbatical. So twitter, instagram, facebook et al will all go dormant for a while. I don’t like the way they so easily drain my attention, and how easily I can waste time on them.

    I may still write a little on here, and I plan to release a few more videos in the next few month (of a different nature to most of my previous stuff, more instructional).

    There is a lot planned for 2017 already, with SQM, with espresso machine development, with Coffee Jobs Board and a lot more. However, I’m going to be narrowing my focus in a couple of areas. I want to apply myself fully to work that I think is important and valuable. I look forward to sharing that work in the future. Thanks for reading, sharing, supporting and teaching me things. I hope you have a great 2017.