4 ms·

It was hugely profitable but you had problems with people you were paying minimum wage?

by jacknews 8y ago

gdhbcc 8y ago
Theres a reason why it was profitable, low labor costs
- onemoresoop 8y ago
  Yes but seeing the numbers I think this person could have paid workers more and still make a profit. I don't know if it's greed or robot like optimization
  - muzani 8y ago
    Well, look at it this way, by increasing salaries 20%, we'd double losses on a pessimistic estimate, and make no profit on a realistic estimate. Of course everyone starts a business being optimistic; businesses are gambles after all. But nobody wants to lose money. It's more fear than greed. As an employee, you're always working hard trying to not drown. As a business owner, that feeling is multiplied. You don't just have to feed your kids, you have to feed your employees' kids. You can lose $500/month as an employee or $2000/month as a business owner. But even if the pay was doubled, it would still barely be a "living wage". There's an argument that traditional businesses drive down prices and drive wages up, which is true, but it's still pretty bad. I'd rather focus on startups, which creates few jobs, and destroys other jobs, but there's plenty of incentive to pay people well, and their salary scales well with the company's success.
muzani 8y ago
Note that I mean profitable comparing to a developing country tech job, not to Silicon Valley standards. Also most of the profit is if you scale it to multiple spots. One cup made about $3* unit profit. We sold 75-300 cups a day. $5k to $20k of profit a month to start with, 5 days a week. Rent is about $1k. So let's say $4k-$19k, with it more likely being around $6k/month. Peak hours were 6-7 AM, 12 noon, 7 PM and it takes an hour to open and close. We can't miss any of these periods, and often have lines too long to manage. But that's a 14 hour shift or two 7-8 hour shifts. To sell 100-200 cups, the minimum team size is two, because people get sick, go to the bathroom, pick up kids, etc. If someone wants to do an 8 hour shift, that boils down to an average value of $1500/month. If they can do 14 hour shifts, we could pay them $3000 instead, but we lose some benefits of redundancy. I'd be paying 2x for a 1.8x gain or so. Scaling the company means more quantity. If I had 5 kiosks, I could negotiate 10% better prices and push the 20% margin to 30%. My $3 profit margin becomes $4.50. I can give raises, but not double salary. Let's say salary and rent totals $5000/month. At 1 kiosk, we'd take home about $1000 on an average month, lose $1000 on a bad month, take $10000 on a good month. If I paid them 20% more, that makes it $-2k/$0/$9k. There's a huge incentive to pay as little as possible. If we expand to 5 coffee spots, it becomes more like $1.5k/$4k/$9k per kiosk because of economy of scale. Multiplied it would be $4.5k per month pessimistically, $20k realistically, $45k per month optimistically. Scale to 20 or 200 spots, and it does become hugely profitable. In the tech world, if you pay 2x, you'll often bag a 3x programmer. Quality scales very well with salary. The output also scales. With coffee, not so much - we sold great coffee at low wages, the kind that people come in skeptical and end up buying two cups a day, or take a bus from the other faculties just to buy. If we improved quality by a lot more, I doubt they would buy three cups a day instead. * not actual dollar value, just normalized for simplicity

It was hugely profitable but you had problems with people you were paying minimum wage?

gdhbcc 8y ago

Theres a reason why it was profitable, low labor costs

onemoresoop 8y ago
Yes but seeing the numbers I think this person could have paid workers more and still make a profit. I don't know if it's greed or robot like optimization
- muzani 8y ago
  Well, look at it this way, by increasing salaries 20%, we'd double losses on a pessimistic estimate, and make no profit on a realistic estimate. Of course everyone starts a business being optimistic; businesses are gambles after all. But nobody wants to lose money. It's more fear than greed. As an employee, you're always working hard trying to not drown. As a business owner, that feeling is multiplied. You don't just have to feed your kids, you have to feed your employees' kids. You can lose $500/month as an employee or $2000/month as a business owner. But even if the pay was doubled, it would still barely be a "living wage". There's an argument that traditional businesses drive down prices and drive wages up, which is true, but it's still pretty bad. I'd rather focus on startups, which creates few jobs, and destroys other jobs, but there's plenty of incentive to pay people well, and their salary scales well with the company's success.

muzani 8y ago

Note that I mean profitable comparing to a developing country tech job, not to Silicon Valley standards. Also most of the profit is if you scale it to multiple spots. One cup made about $3* unit profit. We sold 75-300 cups a day. $5k to $20k of profit a month to start with, 5 days a week. Rent is about $1k. So let's say $4k-$19k, with it more likely being around $6k/month. Peak hours were 6-7 AM, 12 noon, 7 PM and it takes an hour to open and close. We can't miss any of these periods, and often have lines too long to manage. But that's a 14 hour shift or two 7-8 hour shifts. To sell 100-200 cups, the minimum team size is two, because people get sick, go to the bathroom, pick up kids, etc. If someone wants to do an 8 hour shift, that boils down to an average value of $1500/month. If they can do 14 hour shifts, we could pay them $3000 instead, but we lose some benefits of redundancy. I'd be paying 2x for a 1.8x gain or so. Scaling the company means more quantity. If I had 5 kiosks, I could negotiate 10% better prices and push the 20% margin to 30%. My $3 profit margin becomes $4.50. I can give raises, but not double salary. Let's say salary and rent totals $5000/month. At 1 kiosk, we'd take home about $1000 on an average month, lose $1000 on a bad month, take $10000 on a good month. If I paid them 20% more, that makes it $-2k/$0/$9k. There's a huge incentive to pay as little as possible. If we expand to 5 coffee spots, it becomes more like $1.5k/$4k/$9k per kiosk because of economy of scale. Multiplied it would be $4.5k per month pessimistically, $20k realistically, $45k per month optimistically. Scale to 20 or 200 spots, and it does become hugely profitable. In the tech world, if you pay 2x, you'll often bag a 3x programmer. Quality scales very well with salary. The output also scales. With coffee, not so much - we sold great coffee at low wages, the kind that people come in skeptical and end up buying two cups a day, or take a bus from the other faculties just to buy. If we improved quality by a lot more, I doubt they would buy three cups a day instead. * not actual dollar value, just normalized for simplicity