Small businesses across Australia are facing a number of tough decisions during the downturn, not the least of which is deciding whether or not to cut staff.
But gourmet coffee franchise Xpresso Delight has a simple answer to the question of redundancies – don’t hire in the first place.
Co-founder and director Stephen Spitz says the business, which provides gourmet coffee machines to workplaces with upwards of five to 10 employees, works well because it does not have employees.
“My business partner Paul Crabtree and I have both owned and operated businesses in the past, and the only one premise we’ve gone and stuck by is that we do not want to have staff,” Spitz says.
“Basically we don’t want to have all the personnel problems that you have on a day-to-day basis, such as having to hire and fire, having to train, seeing new people come in. We’re both entrepreneurs in nature and we’re not interested in developing a business model in which you’re just replacing time for dollars.”
Spitz says franchising has allowed Xpresso Delight to expand without the overheads and hassles of a big workforce.
“We wanted to come up with a business model that we could replicate as quickly as possible, rather than go down the corporate model where you set up a head office and have all the overheads, get lots of coffee machines and hire lots of staff.
“We decided the best model was just not to have them at all, and franchise instead.”
The business is based around a simple idea – 60% of the population drinks coffee. Spitz says that it usually takes an employee five or 10 minutes for each coffee break, time that employers would prefer to be put to good use. Selling an employer on the idea of an in-house coffee machine that is provided free by Xpresso Delight is a relatively easy sell.
“Employees don’t have to go out during the work day anymore, and companies love us because productivity has shot up. It’s also a fantastic way to reward staff.”
The franchise model works this way. Xpresso Delight franchisees pay an upfront fee of $64,400, plus GST. For that they receive seven coffee machines, two days training, business cards and everything else they need to operate five coffee stations.
The franchisee then provides their machines to client businesses, free of charge. The franchisee charges the business $1 per cup of coffee made; around 70c goes into the franchisee’s pocket while the other 30c is spent on consumables such as coffee and sugar, which franchisees get via the Xpresso Delight website.
The franchisee is then entirely responsible for the weekly maintenance of the machine and also pays around $25 a month in marketing fees.
Spitz says the business model is proving be quite resistant to the downturn, which he attributes to the fact that most people see coffee as a necessity, not a luxury.
“For us, demand out there is always going to be there. People in economically harder times are going to look at discretionary spending, and fortunately ours doesn’t seem to come under that.”
Sales to franchisees have also remained robust. The marketing to potential franchisees emphasises the small time investment required – usually five to 10 hours a week. While this means Xpresso Delight is unlikely to attract those “necessity entrepreneurs” with big redundancy cheques, it should continue to attact people who are looking to earn some extra income on the side.
“Our business is not a nine-to-five model and there is a huge return on time. The franchisees we’re attracting, they don’t have to put in long hard hours to get a return on it,” Spitz says.
The company recorded a revenue level of $2.4 million in 2007-08, and projects 2008-09 revenue to be $3.7 million.
The business started in 2003 after Spitz saw his future business partner, who he didn’t know at the time, bring a gourmet coffee machine to their workplace. After contacting Paul Crabtree straight away (pictured below), the two quickly put together a business model.
“After we designed a business model, we got our first machines out in the marketplace in the first six to eight weeks. Paul and I sat down and asked, ‘why can’t we replicate this process?’”
But Spitz says that as the concept was completely unheard of, they needed to take a “bottom-up” approach to advertising by visiting businesses themselves.
“Because we were very new in the market, no one knew who we were and we had to educate the market that something was better than instant coffee. We did this on the ground and visited a number of businesses,” he says.
“We had no references of our business model actually working, and therefore being a ‘greenfield’, so to speak, we had to develop everything from scratch.”
As the company’s initial returns were very small, the pair had trouble bringing suppliers on board. “[It was hard] to convince our suppliers about what we were doing. We had to make sure we could rely on them as we grew, because in the beginning our orders were very small.”
Like most franchises, Spitz also says finding the right people has also been tough. “In some instances the first time we met our ‘master agents’ (master franchisees without the legal liability) was when we started their training.
“The greatest challenge is always identifying the sort of individual who has the right mindset to make this business work, and it’s always hard to describe to them their relationship in business, because the model is a bit different.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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