248 Broome Street
Lower East Side
When Erin McKenna was diagnosed three years ago with allergies to wheat and dairy and she decided to give up sugar, all she really wanted was a cupcake. Magnolia was off-limits, along with just about every other bakery in New York City. So she decided to open her own. “I wanted it to be really adorable and scenic and big on atmosphere,” says Erin, a California native, now 30. “A destination place.”
BabyCakes was born in August, a button-cute shop dominated by a clanging vintage cash register. Erin, an aspiring stylist, put the word out to well-connected fashion friends, and before long, her vegan treats had a following among customers of all dietary persuasions.
Behind the brisk business and gee-whiz décor, however, lies a tale of trial and error. Erin got a deal on a Broome Street storefront but made the mistake of signing her lease before a $120,000 bank loan came through. It didn’t. Milking her mother’s life savings and calling every well-to-do friend she could find, she ended up with $12,000, just enough to open her doors and keep recruiting investors (she has nine now). She says she’s not in debt, but she is one plumbing problem away from disaster (or a tenth investor).
She keeps staffing costs low by logging twelve-hour days. Her assistant baker got 5 percent of the company for a summer’s free labor and now receives $600 a week. Erin’s youngest sister works full time for $500 a week. All are paid in cash. (“What are books?”) Erin designed the staff uniforms herself ($125 each).
Stitching together a profit has proved more difficult. She says she’s $500-a-month shy of breaking even, owing to high-cost ingredients like cold-pressed coconut oil and agave nectar. It costs her $2 to make the cupcakes she sells for an average of $3; a healthier markup would be 100 percent. Coffee is more profitable with a 500 percent markup, but BabyCakes is equipped to sell only a few cups an hour. Her shortest route to a windfall is heading into wholesale, but she says it won’t happen “for the next five years.”
The Greene Grape
765 Fulton Street
Fort Greene, Brooklyn
Amy Bennett and her boyfriend formed the Greene Grape mid-flirtation. Amy, a successful lawyer, had just begun dating Jason Richelson, a former trader, after splitting up with her husband in 2002. “I want to start a business with you, any business,” offered Jason over a cup of coffee. A longtime oenophile, Amy suggested a wineshop. Almost at once, she recollects, “romantic e-mail exchanges went out the window,” replaced by curt correspondence about licenses. Devoted to wines made with “integrity, skill, and pride” (i.e., in small batches, by independent producers, on obscure châteaux), this is a shop for the enlightened drinker eager to trace the liquid in his glass to the soil and toil that produced it.
The trickiest part of opening a wine store is orchestrating the near-simultaneous arrival of the lease and the liquor license. The State Liquor Authority demands to see that a location is chosen before awarding the license; the nightmare scenario is ending up chained to a storefront with a rejected application. New York’s Prohibition-mangled statutes provide any number of Kafkaesque reasons for tossing an application. Amy wisely retained an attorney and put an escape hatch into the lease: In case her application fell through, the landlord-tenant agreement was automatically moot.
There was no construction, so they didn’t need any permits. Amy kept the design minimal: simple signage and awning ($5,000) and austere wine racks ($3,635.72). In the race to start turning a profit, the couple opened the Greene Grape before the racks were even in place, instead piling case upon case. The registers, point-of-sale software, and back-end accounting software cost $11,878.49, although Jason managed to cut some of the expenses by setting up everything himself, including the security system ($1,950). Air-conditioning and sealing the store and basement for proper wine storage ran $18,146. Finally, utilities setup relieved the couple of another $1,100.
Wine-store logic dictates that at least two people are on the premises at all times, mainly for safety reasons. The Greene Grape is open 65 hours a week, which gives the owners 130 hours to cover at $10 an hour. Amy and Jason offer bonuses and a form of health insurance to part-timers, so a $10-an-hour employee quickly costs $15 an hour. “Nothing tests your political beliefs,” half-jokes Amy, “like being a small-business owner.”
Every liquor retailer faces a choice—go low (paper bags, Plexiglas), go high (capricious old reds, even more capricious clientele), or go for the volume. Greene Grape customers buy quality wines cheap and often; most bottles are priced between $8 and $25, topping out at $78.
Their biggest challenge is raising kids while running the business. Amy’s thumbs are glued to her Sidekick (“It’s the only thing that keeps my family life integrated”), and the couple communicates in half-telepathic code-speak. But entrepreneurship and private life appear reconcilable: Their first child was born nine months—to the day—after the store opened its doors with a champagne toast.
1561 Second Avenue
Upper East Side
As far as new restaurants go, Spigolo is that rarest of things: an out-of-the-gate success. In a city where roughly 60 percent of new establishments fail within two years, Scott and Heather Fratangelo are an example of first-time owners who did everything right.
Opening the cozy Upper East Side Italian eatery plunged them into a world of wily contractors and arcane city ordinances, and it wouldn’t have been possible if they weren’t filling the highest-paid jobs themselves. With Scott in the kitchen and Heather juggling the duties of pastry chef, wine consultant, and hostess, they save at least $100,000 in annual salaries. “When you’re as small as us, you have to be the operator,” says Scott.
Even with no advance publicity, Spigolo is already a hit with well-heeled locals, owing in part to its location on an affluent, underserved strip and a two-star Times review six months out. Ironically, the restaurant’s most-praised qualities—its intimate vibe and easy access to the owners—are accidental.
Spigolo was designed to be more than twice the size it is now. The Fratangelos entered the lease hoping to enclose the sidewalk space into a year-round sitting room. Only after they ran into a web of byzantine regulations (can’t use steelwork, can’t drill into the pavement) did Spigolo assume its current shape: an intimate, 32-seat space with a curiously oversize kitchen and bar. The second bathroom doubles as a great coatroom. The Fratangelos live right above the restaurant; taking the 1,100-square-foot downstairs space got them a measly $200 off the apartment rent.
A typical shift—Spigolo is open only for dinner—consists of two dishwashers, one prep cook, three cooks, one pastry assistant, two servers, one runner, one bartender, and, in the winter, one coat-check person. Besides tips, every server gets $20-per-shift base pay. The credit-card tips rotate through the restaurant’s bank account first, thus going on the books.
Scott has instituted some fairly severe rules: He makes employees purchase their own uniforms (“They wouldn’t take care of them otherwise”) and fines them $1 for every dirty napkin that misses the laundry basket.
Spigolo burns through $4,000 in foodstuffs a week (“The goal,” says Scott, “is to have absolutely nothing left by the end of Sunday”), $1,500 worth of wine a week, and $500 in liquor. They keep inventory low, because the State Liquor Authority demands that receipts be paid in full at the end of every 28-day cycle—no exceptions, no extensions.
The Fratangelos approached their enterprise without an elaborate business plan, having calculated only the two main benchmarks: the daily break-even point ($3,000) and the average check needed to get there ($52). At the rate the restaurant is going, Scott predicts the original investment of $480,000 will be paid off by the end of 2007. After little more than a year, Scott and Heather claim they’re already making a none-too-shabby monthly profit of $8,000 to $9,000—a sum that would vanish if the duo stepped aside and hired chefs.
HOW SHE DID IT
Because she didn’t have enough start-up money and her profit margin is low, Erin keeps recruiting new investors to stay afloat. Retail experts advise banking three months’ operating expenses before opening a business.
Security deposit = $4,000
Start-up Inventory= $3,000
Pots & Pans= $2,500
Total Start-Up Costs= $38,005
Rent & Utilities= $2,800 a month
Staffing= $5,143 a month
Inventory= $3,000 a month
Insurance= $700 a month
Rough Monthly Expenses= $11,643
How many $3 cupcakes she needs to sell a day to break even=130
HOW THEY DID IT
Amy and Jason financed the shop by selling one apartment and taking out equity on another. He has since opened a second wine store in Manhattan.
Security deposit= $5,000
License= $4,198 (three yrs.)
Start-Up Inventory= $100,000
Total Start-Up Cost= $156,913
Rent & Utilities= $3,674 a month
Staffing= $7,000 a month
Inventory= $35,000 a month
Insurance= $1,083 a month
Marketing= $3,000 a month
Rough Monthly Expenses= $49,757
How many $18 bottles of Ex Libris they need to sell a day to break even= 92
HOW THEY DID IT
The Fratangelos’ savings of $160,000 were matched by a pizzeria-owner friend, whose father added $160,000 more. That gave the couple a healthy cushion.
Security Deposit= $14,000
Liquor license= $4,500 (two yrs.)
Sidewalk-Café Permit= $3,500 (two yrs.)
Tables, Chairs, & Dishes= $8,000
Start-Up Food & Liquor= $8,000
Total Start-Up Cost= $341,500
Rent=$14,000 a month
Staffing= $25,000 a month
Insurance= $666 a month
Food & Liquor= $25,800 a month
Rough Monthly Expenses= $65,466
How many $14 plates of gnocchi they need to sell a day to break even= 215