Today I ate an arepa.
Good for me, right?
How is that newsworthy, you may be asking. It’s not, it’s what happened after I ate it which is somehow worth writing about. But first, some quick unrelated facts you should know to understand the situation:
- I live in a city in Ecuador where there are many Venezuelans who recently escaped and tried to start their some businesses here.
- The arepa I ate was $1 while the other arepas on that street are $1.25.
- Arepa is like a Colombian or Venezuelan corn bread with some filling in it.
- I have watched almost every video on YouTube of a crazy guy called Dan Lok.
- I am always looking for opportunities and analyzing businesses when I walk by and I subconsciously analyze them from an environmental, ethical and business perspective. From an environmental perspective, I mentally calculate how big of a carbon footprint and waste of resources are they producing, services produce less pollution than products. A teacher, ahem, has a smaller impact on the environment than a taxi driver. I am not judging these businesses, I go through this process automatically in my mind without putting any effort into it. OK, yes I am judging them, you know me already, and so you also know I judge myself much harder than I judge them. I analyze them from an ethical point of view, and I grade them on a scale from 1 to 10 on how many problems they give to people, how many people they cheat, exploit, or make lives miserable to. So a 10 would be a tax collector, telemarketer or lawyer and 0 would be maybe a Spanish teacher, ahem. And I also analyze them from a financial perspective, I know how exactly how much rent, taxes, food, and services cost almost anywhere in the world and I know people’s salaries, so I calculate all their expenses, how much net profit do they make or how much money do they lose accounting for every expense in their business, ingredients, materials, tools, I even factor in the $4 monthly they have to pay to the rubbish collector and some off-the-books expenses such as protection from the mafia.
So what happened next?
The owner of the restaurant approaches me and starts to chat as it usually happens. I’m not very sociable so I always nod and say yes, until they leave me alone. He tells me that he’s from Venezuela and he just opened his business a week ago and that they also make cakes on request and floral arrangements and then he pointed to some flowers and cakes on a shelf. And then he left me to eat the arepa. When I finished I started walking back home and imagining how the situation could have been different if I were more confident and outgoing.
I could have actually helped the poor guy
On the way back home I imagined the same situation, the guy told me about his business but instead of nodding, I asked him to take a seat at my table and politely explained I had been studying marketing and business for a while and would like to help him with his business.
He would be happy to hear and would tell me his business is baby and he needs to succeed to feed his family, I would then start by explaining what margins and volume mean in business. and I would say something like this, (but in Spanish)
“Margins are how much profit you make from every item you sell and volume is how many items you sell, in this case, arepas, toasts and drinks. Ideally, you want both your margins and volume to be high, that’s how you make money, you want to sell many arepas with and make a big profit from each.
As an example of a business that makes money on volume you can imagine Walmart and one that makes money on margins you can imagine Ferrari. There are many ways to make money if at least one of them, the margin or the volume are high. If they are both low you are going to lose money and will have to close your business.
So let’s take a look at your business.
I noticed you are selling arepas same the other 4 restaurants on this street but yours are cheaper, that means besides having lots of competition your margins lower than theirs. So, you have to compete with 4 already established local businesses, selling the same item for a lower margin. And they already have their clientele from many years ago.
Now let’s take a look at the volume.
As you can see there are not really many people walking down this road, and I live 3 blocks from here so I walk down this road almost every day, I know it’s not gonna get any more transit than this. So even if I imagine the best-case scenario where you didn’t have any competition, you are still not going to reach the volume you would need to make a profit because there just aren’t enough customers to provide you with the volume of sells you would need to make even if your margins were higher.
Now, let me tell you how can I help you
I’m not a business consultant, but if I were I would tell you to start over from scratch. Let’s close for a few weeks to regroup and come at it from a different angle. Let’s start by analyzing the competition, let’s visit them as customers and try every item on their menu, lets take some photos and analyze exactly what are they doing and how, what food do they serve and at what prices, how’s their venue, cleanliness, service, time to serve, comfort, etc.
Next, and imagining you still think it’s a good idea to open another restaurant in a street where there are 4 (empty) established restaurants, let’s try to come at it from an angle. So instead of opening another arepa restaurant, let’s think of something new, fresh and different that would help you stand out from your competitors.
How about the first dog cafe in Ecuador, a cafe where people can pet dogs or cats? How about we make up new menu items no one has seen before like the ice-cream arepa, or the chocolate arepa. How about a cafe where they eat and also learn something new? like a cafe full of interesting facts about dinosaurs everywhere on the walls, menu, tables. Or how about a cafe ambiented as a foreign country or as a different time period. Those are things no one has ever even heard of before in Ecuador and there are hundreds of similar things you could do if only you would allow yourself to dream.”
Then all the people who were walking past and had stopped to listen to the conversation started clapping slowly as the business owner burst into tears and tried to give me a hug which I rejected because I don’t like touching people.