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Joe is a client of mine who wants to start a karaoke bar here in Austin. Who better to talk to about that than me, a karaoke bar owner who also lives in Austin?! Here’s Joe’s story:

Joe is a long-time karaoke enthusiast and customer of several karaoke places around town. He feels like the market is still missing something and he wants to fill that gap. Joe came to me with his idea and a business plan to get my feedback on it. I love karaoke and have been underwhelmed by the choices in Austin, so I’m personally supportive of the idea. But, before I told him to go forward, I wanted to help him with his financials.

In the bar business, most costs are essentially the same from bar to bar. Drinks have the same wholesale cost. Labor is relatively the same throughout the city. Insurance, utilities, and software are all relatively the same. The only real variables that differ from bar to bar are rent/mortgage costs and your potential for revenue.

Potential for revenue is the volume of customers that you can fit into the space, how many hours you can legally/realistically operate, and how much traffic you expect to have at your location.

Those two variables (rent vs. volume) can separate an ideally successful bar from a likely unsuccessful bar. If you have cheap rent and a bunch of customers you will make a ton of money. If you have expensive rent and no customers you will go out of business. You’ll likely end up somewhere between the two extremes and need to know what that will look like.

Joe already had a basic financial model, so we went through it together and made some updates to how his assumptions were built and added any missing costs. Once it was updated, we were able to see what makes this business work on paper. I always say that if it doesn’t work on paper, it won’t work in real life. In other words, if the basic math of the business doesn’t work in a spreadsheet, it’s gonna be much harder to get it to work in your bank account.

The most important testing we did was to make sure his numbers worked at half capacity or below. One mistake many aspiring entrepreneurs make is thinking, “I just need 100% of what’s possible to happen, and then I’ll make a bunch of money.” Experience will tell you that you’re not only unable to hit 100%, but you’re not likely to even hit 50% capacity in most businesses. Because of this, you need to see really where the math starts to fall apart and stress-test your model. Does it work at 20% capacity? Then it’s probably a good business. If it requires 80% or more, it’s probably not a good business. We did our testing and got his financials to work on paper which gave Joe more confidence in the viability of his business. Then we shifted our focus toward making it work in the real world.

One “beige flag” that I had for Joe was that, despite being an avid karaoke fan and customer, he hadn’t professionally run karaoke before, nor had he been a bartender/bar manager. While I don’t think you have to be an expert in a given field to start a business, it is much easier to succeed if you have. Doing the core jobs of your business will show you what things are hard to do well and where there’s room for improvement. It will also confirm whether or not you like the type of people you’ll work with and the customers you’ll serve.

If you want to start a car-related business but have never sold cars, worked on cars, or anything other than driving a car, it’s going to take you a lot more time and money to get started. More importantly, it will take a lot of time to figure out if the car business is even the industry you want to be in. Ideas can sound good when talking about them, and they can even make sense on paper, but the reality of working on them day-to-day can be very different from thinking about them.

Because of this beige flag, I suggested that Joe should spend a few months working as a KJ and/or bartender at someone else’s bar to get a feel for what it’s like to provide karaoke/bartend for others. Does he like staying up late, dealing with drunk people, and all the other experiences that come with that industry? He may find that he likes karaoke from the customer’s perspective but doesn’t like it from the worker’s perspective. You would hate to figure that out after signing a five-year lease and spending tens of thousands of dollars remodeling a place, wouldn’t you?

Instead, Joe is investing hundreds of dollars into improving his existing karaoke equipment and booking gigs in town as a KJ. He’s been networking with local bars to book his own shows, which will help him accomplish several things. First, it will give him a taste of the industry, including the work itself, the hours, and the people. Secondly, he can start building an official following that’s greater than his current group of karaoke-loving friends. When the time comes, these followers can become customers at Joe’s own karaoke bar. Third, it will put some extra cash in his pocket to help open the bar.

Worst case scenario, if the KJ gig doesn’t work out, Joe is only out hundreds of dollars and tens of hours instead of thousands of hours and tens of thousands of dollars.

I hope Joe loves doing the KJ gig as much as he loves singing karaoke and that he opens his own place. I want to go there as a customer and I want to help him open it as an Advisor. Joe just got his shiny new business cards for his KJ services, so if you’re a bar owner in Austin or a karaoke enthusiast, hit him up to provide karaoke for your next event!

Here’s what Joe had to say about our time together. “Working with Zack has been great. He is incredibly personable and knowledgable, making him very easy to talk with and making every minute we spent feel impactful to the goal of opening my business. A coach can simply tell you what you want to hear and push you towards leaping into your business, but Zack helped me see alternative paths I hadn’t contemplated to reach my goals that were both safer and more productive in getting up and running quickly.”

If you’re an (aspiring) entrepreneur who’s unsure of what to do next and needs someone to talk it through with, schedule a free call with me.