By mixing two of today's hottest industries, you can give your finances a jolt.
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This story appears in the March 1997 issue of . Subscribe »

By mixing two of today's hottest industries, you can give your finances a jolt.

What goes together better than coffee and computers? At first glance, lots of things. But upon closer inspection, it's a natural mix of two of today's hottest industry trends: cappuccino and the Internet. Cyber cafes, where customers sip coffee at computer terminals while they type a letter or surf the World Wide Web, have been so successful that, in some cases, owners plan to open additional locations.

The traditional cafe experience began in Europe late last century. Patrons would read their correspondence (now referred to by the computer cognoscenti as "snail mail"), enjoy music or other entertainment, and chat with friends. In the modern cyber cafe, the computer has become the entertainment; couples or groups log on to participate in chat groups or surf the Web together. Customers can also send e-mail to friends across the world--the techno-version of the 19th century cafe patron scribbling letters.

Among the earliest cyber cafes is Cyberia, in London, which has opened several locations throughout the United Kingdom. Industry giant Cybersmith, based in Cambridge, Massachusetts, boasts 50 computer stations.

There are approximately 100 cyber cafes in America, and they are as different as any 100 restaurants. Some are cafes that added computers--for example, The Grind, in St. Louis, started as a cafe in 1993 and added a 486 PC in 1995. Hussain Chinoy, who developed The Grind's Web site, says, "Essentially, the Internet connectivity is a perk for our patrons, if you can excuse the pun."

Other cyber cafes are computer-consulting firms that serve coffee. Chicago's Interactive Bean evolved from GORP New Media, a company which creates electronic publications, designs Web pages and CD-ROMs, and develops interactive presentations for businesses. Interactive Bean turned its reception area into a cyber cafe in December 1995 so coffee drinkers could see the firm's design work. Most of the profits still come from the high-tech design side. "Our cafe is a stand-alone business," says co-owner Andy Laing, "but it generates leads for our design business."

Besides the basic excitement of owning your own business, says Percy Wang, Laing's partner, it's fun to watch customers learn how to enjoy the Net. "It's very rewarding when people come in and find the Internet to be something useful instead of just a fad."

Also, running a cyber cafe allows you to hang out, drink coffee, and play with computers all day. But before you run out and buy an espresso machine and a Pentium, here are some other things to consider:

*How much does it cost?
Costs vary, from The Grind's $1,500 (to add a single computer) to Interactive Bean's reported $100,000 to $200,000 (to open an entire cafe with 15 computers). However, most cyber cafes have from one to six computer stations.

Another option is to buy used, reconditioned computers. According to a recent Carnegie Mellon University study, more than 10 million PCs are discarded every year by businesses looking to upgrade. Many of these machines are purchased and reconditioned by vendors, who then resell them through a nationwide network of retailers at an average cost of 40 percent off the retail price--complete with full warranties.

Although it might be difficult to sell the cyber cafe idea to a bank, you probably won't have trouble finding creative ways to raise capital. The Grind got its $1,500 from friends. Interactive Bean's capital, says Laing, consisted equally of personal savings and a bank loan backed by the Small Business Administration (SBA). Another cyber cafe, (pronounced "alt dot coffee") in New York City, spent $65,000. Co-owner John Scott says the amount came in equal parts from credit cards, loans from friends and family, and financing from vendors.

*Hardware and software.
You can save money in the short term by buying so-called "dummy" terminals. These computers are not PCs--you can't load Windows or any consumer software on them--but they can access the Internet through your server.

If you do buy PCs, you may want to include software for customers who want to skip the Internet chat groups and just type a report or term paper.

Call your phone company to compare the cost of adding more business lines versus the more expensive but faster ISDN, the much faster T1 line, or the very speedy T3 line. Few of your customers have that caliber of equipment at home or work.'s Scott recommends splurging for the T1: "Without that speed, most users will not be impressed."

Don't forget to call some Internet Service Providers (ISPs) and start negotiations with them. Jeff Gold, who owns Cup@Joe in Raleigh, North Carolina, looks for reliability and minimal downtime when searching for an ISP. Technical support is also a priority--you need an ISP that offers support during the busy evening and weekend hours. "My best experience so far has been with an ISP that has numerous individual customers and many business customers," says Gold. "They were able to provide good service by having personnel dedicated to serving business clients."

*How much to charge.
Most cyber cafes charge customers $6 to $10 an hour for using the computers. Do a cost analysis to see how many of your computers have to be used and for how long in order to pay back your start-up costs. Cup@Joe's Gold says that of the gross earnings his cyber cafe generates every month, only four percent of it is in computer time. "But the typical consumer buys more than just computer time during a visit," he adds.

The Grind has a different way to make money. "We're a cyber cafe of a different sort," says Chinoy. "We don't charge for access, though we do require that our patrons actually purchase a beverage or something."

Coffee is a low-ticket item. To generate more revenue and increase traffic, some cyber cafes offer seminars, or video conferencing (the ability to share data and communicate using live video). Other cyber cafes design Web sites for individuals and businesses.

You can charge anywhere from $50 to several hundred dollars for these services (depending on how complicated your customers' needs are), but you may want to hire a high-tech expert. Although instructors who can teach a class on how to use the Internet or design a Web site might not want to work at a cafe for $6 an hour, you can still find good people willing to work at a reasonable rate. You can find knowledgeable student employees to fill the computer positions, Gold says, adding, "It is also possible to find qualified people who work with computers at a day job and are interested in a second, part-time job."

*It helps to have a computer and/or coffee background.
"There are two businesses here: running a restaurant and running a computer system," says Scott. "Make sure you have competent people in both departments."

At Cup@Joe, Gold and partner David Sullivan owned a specialty coffee house for five years, where they also sold whole-bean coffee, freshly roasted on the premises. Gold was an assistant chairman of chemistry at Duke University, where he supervised the department's computer operations.

Interactive Bean's five employees are not necessarily trained in computers or coffee. "When we hire people, the most important thing is a customer-service background," says Laing. "We are prone to hiring people who have worked in restaurants before."

*Don't want to do it all yourself?
Even for a new business like a cyber cafe, there are consultants willing to help. Pasadena, California-based CyberDiner offers what it calls the "Turn-key Public Internet Access System." They install and configure the computer system in your cafe, then offer technical support for a monthly fee.

Packages range from around $2,400 for one basic Internet Station (a 586 DX4 PC), to the $3,500 Power Workstation (which features a powerful Intel Pentium 133 MHz computer with a 8x CD-ROM drive, and other extras). In addition, you'll have to pay a one-time fee for the Internet connection. Your total set-up costs will be much higher after you add printers, scanners, a server, network installation (so the computers in your system communicate with each other and with the server, which is usually located behind your counter), and the monthly support fee.

CyberDiner helped set up Espresso Biega in Rolling Hills Estates, California, and the Almost Paradise Cafe in Long Beach, California. "If they had to have a techie on the job," says Bob Vickers, vice president of marketing for CyberDiner, "they'd have to pay him $20 to $25 an hour."

You can also look into buying a franchise, but not all existing cyber cafes are interested in becoming franchised. Cybersmith, for example, accepts serious inquiries from potential franchisees via e-mail, but has yet to announce definite plans to franchise.

*Target market.
There are several types of people who will patronize your cyber cafe. People who do not have access to the Internet at work or at home (and there are still plenty of them!) will use your services. Couples or groups go to cyber cafes to learn (from your in-house experts, or from each other) how to browse the Web, or how to download software. Students will stop in to work on reports if their school's computer labs are too crowded.

As with any retail establishment, location is crucial. You may not want to locate too close to other high-tech businesses, yet you want to attract as customers people who are familiar with computers. People line up to get into Cybersmith, in the back yard of MIT and Harvard, but other markets may not be so receptive--so do your research!

There's no book on how to start a cyber cafe, but there is an International Association of Cyber Cafes. The Association has a Web site (see "Online Help," pg. 63, for address) that lists cyber cafes and typical questions (and answers) for potential owners, such as "Where do I go to buy coffee?" and "What are some good ideas for seminars I can host at my site?"

Since most Web pages end with the e-mail address of their subjects, you can send e-mail to owners. As always when seeking start-up advice, avoid asking questions that are too general, like, "How do I start a cyber cafe?" You'll get better information if you ask specific questions, such as, "Can I barter with an ISP--say, offer publicity for them at my location while they give us a reduced rate for access?" (The answer, by the way, is yes--some local providers are willing to negotiate.) The better prepared you are, the easier it will be to keep your customers coming back for another refill.

Denver freelancer Nora Carrera has written about business for the past three years.

Contact Sources

Cup@Joe, 2109-142 Avent Ferry Rd., Raleigh, NC 27606, (919) 828-9886.

CyberDiner, 999 N. Hill Ave., Pasadena, CA 91104, (818) 352-6703.

Cybersmith Inc., 955 Massachusetts Ave., #3D, Cambridge, MA 02139-3180, (617) 547-8588.

Interactive Bean, 1137 W. Belmont, Chicago, IL 60657, (312) 528-2996.

The Grind, P.O. Box 28703, St.Louis, MO 63146, (314) 454-0202., 139 Ave. A, New York, NY 10003, (212) 529-2233.

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