Lecture Notes on Building a Coffee Business from Scratch

Introduction

• Key Speaker: Jake, co-founder of Anchorhead Coffee
• Journey: From a simple idea to a $6 million business
• Initial Success: First sale within a month, grew to multiple retail locations

Starting the Business

• Background: Jake and partner were former audio engineers
• Inspiration: Constant need for coffee during tours
• Initial Product: Cold brew coffee bottled in a garage
• Business Milestones:
  • Quickly expanded to 300 grocery locations
  • Built commercial kitchen and roasting facility in a garage

Business Growth

• First Location: Opened in downtown Seattle
  • Initial sales of $2,100 per day
  • Growth target was $2,700 per day
  • First-year sales: $810,000; subsequent years saw growth
• Brand Building:
  • Used free drink cards to promote
  • Partnered with hotel concierges and local businesses

Challenges and Lessons

• Location Importance: Critical for success; some locations failed due to lack of foot traffic
• Bakery Expansion:
  • Took bakery production in-house to cut costs
  • Initial baking out of a small room, then moved to larger warehouse space
• Profit Margins:
  • Industry standard is low, between 2.5% - 6.8%
  • Achieved about 5% profit margin

Financing and Investment

• Initial Costs:
  • First shop cost about $500,000
  • Financed through private investors and a secured loan
• Investor Relationships:
  • Sold 40% of the company early on for growth capital
  • Importance of selecting the right type of investor

Marketing and Sales

• Marketing:
  • Mainly word of mouth and community engagement
  • Previous PR firm hiring deemed ineffective
• Retail Growth:
  • Initial success in grocery stores turned cumbersome due to buyback policies

Operations and Management

• Supplier Relations:
  • Negotiated costs by consolidating suppliers
  • Significant savings achieved by switching milk suppliers
• Employee Management:
  • Focus on treating employees well
  • Pay rate includes base and substantial tips

Strategic Insights

• Product Quality & Consistency:
  • High-quality coffee sourcing and roasting consistency is key
  • Won awards, boosting brand credibility
• Retail vs. Wholesale:
  • Wholesale coffee is more profitable than coffee shop sales
  • Shops serve as brand building rather than primary revenue

Personal Philosophy and Advice

• Mindset:
  • Entrepreneurial stress is constant, but manageable
  • Treat employees well to ensure customer satisfaction
• General Advice:
  • Just start; failure isn't the end, it's a learning step

Conclusion

• Future Growth:
  • Continue leveraging shops for brand growth
  • Pursue further wholesale opportunities
• Inspirational Message:
  • Embrace challenges and adapt to changes for success