Building a Coffee Business from Scratch

One month. That's all it took this co-founder to go from idea to first sale. We had no idea if it was actually going to work or not. Today, that same simple idea is a $6 million empire with multiple coffee shops and products. I mean, you can't really have a successful business without... Day one, we did like $2,100. This is where Jake reveals how to start a business in any field with no business or industry knowledge. The profit margins are much bigger on... The exact steps that took him from farmers markets to selling at 300 retail locations in just two years. Because that's a million dollar a year cafe. And the six million dollar a year secret behind Anchorhead's one-man marketing team. We did hire a PR firm. It was worthless. We tried every single milk we could find and we switched to a substantially cheaper milk. And we saved like $80,000 a year on milk. Is it milk? I'm not going to tell you. Let's dive into you, your business, Why Coffee, when did it all start? Give us the story, give us the background. My business partner and I were audio engineers. We were touring around the world, doing sound for bands, mixing, tour managing. So we toured until 2012, basically. and then started the company in 2013. And during that time, we were still kind of, I was still doing fly out dates with an artist I was working for. And then we were still working at like venues here, just doing sound. But we realized that that kind of wasn't what we wanted to do. So we wanted to do coffee. Coffee is like the one constant when you're on tour. You're, it's like the first thing you think about when you wake up and you get them multiple times throughout the day. So it's like, we should just start a coffee shop. So I made cold brew one day. My business partner, Mike, used to home brew beer. So he was just like, why don't we bottle this? And we. we became the first Seattle-based company to bottle a cold brew. With being the first, we got into like 300 grocery locations, like within the first year, year and a half. All out of the garage. My business partner had a house, we cut the garage in half, built a demising wall in the middle, commercial kitchen on one side, and then just garage on the other side. We bought a tiny little 2.5 kilo roaster, and the city told us, We could roast out of the garage if nobody complained about the smell. This coffee, not a lot of people know this, but it smells like burning popcorn, almost. And so to get around that, we roasted only when it was dark outside. So even if somebody smelled it, they didn't know where it was coming from. Everyone's napping, you're roasting. Exactly. And it kind of worked too because we're still both working audio jobs. So we would get off at 11 o'clock and go home and roast for a couple hours and then fill the orders the next day. Between then and when we moved into our big warehouse, we got investment. And that's kind of when we started getting into those bigger grocery accounts. But yeah, it was kind of just luck of the draw, like getting into the market at the right time. It's amazing. And now we are here, guys. Now we're here. downtown Seattle. This is your number one location? It's our first location, yeah. How many square feet? It's not that big, but-I think it's 1,400. One of your busiest? The busiest, for sure. Okay. Was your first location successful right off the bat? Give us the numbers in the first year. Sure, so I remember opening this spot day one we did like $2,100. The goal was always $2,700 a day because that's a million dollar a year cafe. Wow. That was the goal. goal started at 2100 and then it just like dropped for like the week following so I quit to like 1500 okay I don't know I think there was just hype behind it because we've been advertising for so long that we were opening and all this stuff and I mean we definitely built up and way beyond those numbers pretty quickly. I think first year we did like 810,000 at this location. Not bad. So it was super solid. And the year after that, we did like 1.2. Wow. And then it kept climbing to like 1.6 and then fell off, obviously. And now we're back up to like that 1.5, 1.6 point. On that note, Jake, share what we need to do to build brand awareness as a new brick and mortar coffee shop. I would imagine you're two years into roasting. So people heard about you. about Anchorhead, but did that help or impact and give you success when you opened this? Or not really, like what did you do for PR and brand awareness? Give us some insights. We opened this spot and it was a lot of like, hit the streets with free drink cards that had the address on them. We'd go to all the like hotel concierge and be like yo here's a stack of 20 free drink cards like you use them or give them to people that are visiting the hotel or go to every single spot in Pacific Place and give them all free drink cards go to every store in downtown and go we just opened a cafe two blocks away from here. Right, this is a gorgeous location. By the way, tell us where we are, what's the story on it, and a snippet before we continue on with the conversation. It's our bakery, training room, and cafe. So it's kind of like our hub for everything. It's probably my favorite shop in terms of design and everything. What was the build-out for this? Everything all in was $360. So you've had, I think, a fair share of failures as an entrepreneur, right? We start things. They don't work out, we adapt, we shift. So that's the situation with you for certain locations. What are some critical lessons that you've learned? I mean, location is everything. One of our shops was in a neighborhood and it was a unique experience. It was like one road in, 8,000 people in this neighborhood. We were on the main street, specialty coffee, everything we're doing here. Sounds pretty good. The spot looked incredible. People just didn't come. And we had beer and wine, we were doing like happy hour stuff, and people just didn't come. What's the biggest lesson learned through that, Jake? I mean, honestly, like just look at the location a little better. Pay attention to people's habits coming and going, where people are actually going for coffee. Is it something they actually need? Well, I'm excited to check out the kitchen where everything happens, the training room as well, right? And then the downstairs is pretty wicked, so let's go check it out. Let's do it! From coffee to bakery, how did the idea come by? Because you had no experience on the bakery side of things. Walk us through the evolution and the thought process of getting to this point. Sure. So, it was always a thought that we wanted to do a bakery. If we want to actually make money on these, we need to take them in-house and do them ourselves. I see. So we kind of took the same approach to it. My wife came in, she's a big baker, and she was like, we can make these easily. So we did like a blueberry scone, a raspberry scone, a savory scone, and a biscuit and chocolate chip cookie. Those were like the first things that we did and we were doing them like a hundred square foot room we'd make all the doughs we'd freeze them and then you'd par bake them every morning so the opener would come in at five bake everything off and then you could work with your inventory throughout the day quickly outgrew that like once we opened our second location it was like we need to figure out where we're actually gonna do this production because we can't do it out of our one space so then we moved everything out to the warehouse because we have we have about 4 000 square feet out of the warehouse the roastery so we moved it out there made a little bakery and then we just Started producing for all the shops out there Is that a pretty natural evolution like for a coffee shop to then bake? Because you kind of have to have the two together, right? If I walk in for a latte be nice to get a scone I do think a lot of cafes do move towards the bakery side of things. You make more profit, right? That's the bottom. Yeah, you reason essentially. Yeah labor costs are substantial but You can definitely make more products. It's all like vertical integration, like how much product's going out because the profit margins are so small. But you can definitely start making a lot more money. Along with the baked goods, we also do all of our syrup production in-house for all the cafes and batch beverages. So you just take them out of a bottle and pour them into the cup and they go. So it's really quick. I never heard about that. Is that just your invention or others do that as well? I'm sure people do it, but we just saw it as like an opportunity to save on labor and speed and everything. Because you have all the ingredients, it's stable in a bottle. Like we can do it here and just move it to another location. It just speeds things up. Give me an example of a drink. Just so I better understand the batch drink. So we have a drink called Honey Bunches of Cold Brew. It's like our most popular drink. It tastes like Honey Bunches of Oats. Interesting. I didn't know that that's the way it works. Break down the revenue across the locations for us, just gross revenue, and then I'll follow up with margin questions. Okay. Roastery does about 1.5, 1.6 million a year. This location, Capitol Hill, does about 1.5. Our 1600 location does about 1.6, 1.7. Our marketplace location does like 800. Last year was the first year pre-pandemic where we got to see actual tourism come back. Yeah. So I'm interested to see what this year is. So you have three locations for coffee shops, and then you have a fourth roastery alone. What about profit margins, Jake? Yeah. What's the industry standard and where are you at? What are you shooting for? Yeah, so industry standard is anywhere from 2.5 to like 6.8 percent. That's lower than I thought. Yeah, it was when I looked too. But it's also, that's kind of like where we are. We're at like a 5 percent profit probably. No way. Which is crazy because you get into this and you're like, I'm gonna make money. It's funny because you see our shops and they're so busy and you know everybody thinks you're like, they're crushing it. They're buying yachts. and just partying but we're not because profit margins are so small um you got to be like in the 100 mil plus to yeah really feel the five percent and be like you know i'm doing i'm doing okay i'm doing well i think we are doing well we're still paying back some loans and stuff because pandemic definitely push payback on a lot of stuff payback timelines on a lot of stuff so once we get those taken care of like we'll we'll be in a healthier spot too That's a good segue into the question of what your startup costs were for your first location. Can you give us a number and break it down for us how you used that number? What went where? Yeah, so first shop cost about $500,000. It was a complete shell build. It was, we spent a lot of money. It was ridiculous. So it was like 300 or... 350 for the build-out cost. Okay. No equipment included. And then we had about 100,000 for equipment. And then 50,000 for operating just upfront. Reserves, whatever. Since we had no idea if it was actually going to work or not. And I think we'll get into this a little bit later on, but how did you finance the $500,000 purchase? A lot of people would ask that. You know, I want to start a coffee shop, but man, I don't have half a million dollars. For sure. We have private investors that we got the second year of business. They helped with half of it. And then we had to take out a secure loan for the other half. You're talking like SBA government loan? No, they wouldn't give us an SBA government loan because we're, like when you're a super small business and you have no business history, usually the government won't help you. Basically, our investors had to cover the entire thing. but the like 250 000 of it was secured so 250 000 went straight to the bank and then we got 250 000 and paid interest on it which sounds so backwards and stupid but you got to do what you got to do that's just how it works yeah if you're like jake running multiple coffee shops or any business that requires paying vendors and contractors then you know the headaches that come with it but with melio you can say goodbye to the hassle of vendor payments with a free online payment platform built to make your life easier as a small business owner melio gives you you the freedom to choose the payment method convenient for you while insured vendors still get paid as they like without having to sign up. So even if they prefer an old-fashioned check, Melio gives you the flexibility to pay with a credit card allowing you to turbocharge your cash flow and pile on the points, perks, and rewards from your credit card provider. With easy integration of QuickBooks and Xero, Melio also makes your accounting work a breeze by automatically updating your books. Not to mention they're easy to access online platform and mobile app which allow you to settle transactions instantly from wherever you are. Simplify your bill pay and keep your business on track with Meteo. Use the link below and make your first payment today. All right, Blitz time with Jake. Thanks guys for submitting questions. Jake, first question. If you could open three more coffee shops, where would you open them? Probably Boise because I'm close, LA and New York. If you could teleport any historical figure to your coffee shop for a day, who would it be and what drink would you recommend? ET. I'm gonna get him the ube and we're just gonna hang. All right, E.T., E.T., let's go. No, let's keep going. What's the weirdest customer interaction you've ever had? We got this review one time that this lady gave us a one-star review because she walked across a lot and had to walk in between people smoking to get to our building and gave us a one-star review. I didn't really interact with them, but... Okay, lady. We can't control the smoke. Not how the review is supposed to work. All right, if you weren't in the coffee business, what business would you be in? Probably music or media. What and how much was your most expensive purchase, business or non-business? Business would probably be our new roaster, which was like $170, I think. for one piece of equipment no wonder we pay premiums for coffee drinks insane what about non-business oh i don't buy anything i'm poor you're pretty yeah pretty cheap motorcycle here and there cheap well your motorcycles don't work they're standing in the corner resting away that's how they work if you could change one thing about anchorhead what would it be i would have thought about purchases beforehand we bought a bottling machine at one point you wasted a lot of money jake yeah we wait we did listen shame on you when you have no background in business and you're like i'm going to start a multi-million dollar business you you think you lose things at times What's something most people who know you don't know about you? Listen up very carefully. I used to sing Italian R. Can you give us like a problem? Come on. It's just not gonna happen What's the worst part of being being an entrepreneur the constant stress and fear that you're gonna fail Okay, sleepless nights. What about the best part getting to do whatever you want? Okay. What about the Italian saying? Can you show us again? Oh, no. All right. That's what's time in the realm of coffee or entrepreneurship, what's one myth you'd like to debunk? What do you think? Getting investment or finding money is a thing that like everybody is afraid of or thinks that they can't do. Like I remember originally when we were going to seek investment, my business partner and I had very different thoughts on what we wanted. He was more in like the $50,000 range and I was more in the $500,000 range. And I think as long as you have a really good idea or you're really passionate about your idea. and you can show someone that you have like a plan with what you're going to do with that money and are just passionate about it, you can definitely find money. Money's out there. People are out there that always wanna invest in a business, but the idea and execution have to be there as well. Right. Okay, well said. So the myth is there's no money out there, but the reality is there's so much out there. It's just flowing through the streets. All right, so it sounds like you guys, with your partner, get into a relationship. into this industry with no experience but passion for it and you want to make money somebody watching who wants to get into The new industry, excuse me. What would they need to do to go about learning about the industry? The internet, obviously, huge resource for us now. Especially today. Yeah, it's insane. 11 years ago. Yeah, it's insane how much information is on the internet. You could also reach out to a business owner, a coffee shop owner that you like. Like if somebody reached out to me right now and was like, hey, do you want to chat about how you did this? I'd be like, yeah, sure. You never know how far you can just get by just asking someone that you look up to or something like that. I think it's saturated, but I don't think it's saturated with a lot of really, really good spots. Oh, don't forget, Upflip is your ultimate resource. Visit upflip.com for exclusive guides and courses from world-class entrepreneurs. Let's go back to the initial days of Anchorhead. And the question that I have is time management. You know, you're doing your nine to five, your full-time gig, and then you're starting this side hustle with roasting in the garage. Any advice on managing time and just making it through that and for entrepreneurs that want to do the same what would you what would you recommend they do? It's just gonna be a lot of work. I think we got lucky because both of us came from an industry where it was very common to do like a 17 hour day non-stop so for us it almost felt easier because we're still sleeping in our own bed and we had like a little more say over what we were doing with our time. But I mean it's just gonna it's gonna be a lot of work. You're not going to sleep. It's going to be stressful. But if it works out, then it's going to be awesome. At which point do you think people should flip the switch and go all in on the side hustle? How would you view it? How would you? I mean, we went all in once we got investment. Once we actually had money in the bank and it was like, okay, we can pay ourselves. Right. That's the key. This small amount, whatever we need to live. That's kind of when it was like, okay, let's do this. Time to venture full time. Yeah. I'm curious to know how many coffee shop locations do you have today and what are the leases on that, especially like in the Seattle market? Sure. So right now we have three locations and the warehouse. So this location, I think rent is like $9,800 a month. Oh, well, you're a pike. Yeah, it's busy. It definitely isn't our biggest cost. I'm not worried about it every month. It's not that big of issue. At our $1,600 location, it's around $5,400 a month. But there's also a rent percentage deal if we hit a certain. break point and then 12th ave is a destroyer and it is 16 000 it's like 10 5 rent and then like five five triple net super cool space it's just an expensive neighborhood when negotiating leases any tips for us or any errors mistakes to avoid if you're doing some kind of food beverage make sure there's an exclusivity clause if so that you have a big building yeah like In your building, make sure you have exclusivity on sales for that product that you're trying to sell. And then also, make sure they can't move you. There are some things in leases where sometimes the landlord can literally just move your business to a spot that's as big, and it could be a worse spot. Sheesh. If you don't see that clause, you're just... Yeah, get an attorney. We've definitely been saved by the exclusivity and not moving, making sure those are in our favor. Let's talk about suppliers. Okay. Give us the tips and advice on choosing the right ones, negotiating the best prices. You know, they come and go, right? We try to source as much as we can from the same source. Like our paper vendor gives us all of our cups and lids and straws and all that. We've worked quite hard to find the best price on all of those. When we started we used to get everything from like Costco business and that was the best price we could find. We found like unbranded cups for like three to four cents a cup and then you could get straws and napkins and all the stuff from them. But once we started moving into a more branded feel for everything like all of our cups are branded and everything now. We had to find a different company and the way that usually works is you have to buy like a hundred thousand units Like moq is like a hundred thousand which we aren't in a place a hundred thousand of each size So we go through a lot of cups, but we found a spot a company in seattle that Will do the upfront Order on them and warehouse them and then deliver them to you weekly for custom products So we have custom cups, but we don't warehouse or hold anything. I mean, there's a small fee I think the best thing to do find as much stuff from one person as you can and you can usually You can usually leverage by getting like other quotes from different paper companies or different companies and be like well this company said I can Get it for this much and go back you can kind of barter back and forth to get the lowest price for you the bulk of our stuff comes from one dairy service and one paper service when we first started this company there was a dairy right next to our warehouse and we were delivering milk to ourselves from this dairy nobody else had it it was super special and in our minds it was like this is the greatest milk ever this is what our company needs is this awesome milk and then they decided to raise the price and we were like okay we're not going to do this anymore and then we switched to another milk that was It's like eight or nine dollars a gallon and then we did this huge thing where we tried every single milk we could find and the prices and we switched to a substantially cheaper milk and we've never had anybody say anything about it and we saved like eighty thousand dollars a year on milk. Is it milk? I'm not gonna tell you. I guess we'll never know. You brought in investors pretty early on. So we want to know, do you think that was a good idea in hindsight? And how much did you have to give up as far as the business to make it happen? For sure. I mean, I think it was a good idea because without the investors, we never could have gone from the garage to a roasting space, to cafes, to where we are now. So given the size of our business, I think we only did like $20,000 up to the point where we got an investment. So we didn't have much to go off of. So we sold the company. company 40% for $300,000, but we definitely wouldn't be where we are without our investors. And I don't think it was a bad idea to give up that much of the company. I'd rather have a little bit of something that's big than a lot of something that is nothing. What's your advice to those looking for investors, partners for capital reasons? You should think about what type of investor you want. Do you want somebody that's going to be super involved in the day-to-day, or do you want somebody to just super hands-off, give you money, and walk away? because that will play a big role in who you're looking for and probably how much they want. Did you have prior experience as far as these connections and relationship with investors or who helped you walk that? We knew these people through the music industry. They own a record label and when we decided we wanted money we're like okay we know these people we should see if they're interested. We asked them if they were interested they were all about it they're like send it over. It was really simple for us honestly. Once we sent it to them they were like this is awesome. It sounds like just be out there with your story with what you want to do and You'll attract the right people at the right time. Having a good game plan, just being prepared when you go in, like having that deck was really important for us. It made us look like we were really professional. You know what we were going for, you know? The look was there. Perception is everything in my mind. So Anchorhead has won many awards, like America's Best Espresso. What's the secret sauce? I think just good product. We try to buy the highest quality coffees we can find from around the world. We also have a lot of equipment in place that allows us to... hit that consistency and quality. So our roaster, like I said, is extremely repeatable. You can get the same roast every single time. We also have a color sorter. So the way it works is you roast the coffee, then you put it through this machine and we have like a designated color in the machine and there's this high speed camera behind it and it falls through the chute and there's like 40 pneumatic tubes and this high speed camera sees color that's lighter than what we want. It shoots that bean out. That's crazy. So having the ability to control and get those wakers is what they're called out of the coffees is a big deal good product in usually leads to good product out so just trying to focus on the best products we can and you've mentioned the word consistency a number of times so it seems like that's the key you know to great coffee the quality the taste i think it's key to business in general i think you look at starbucks in the coffee world like you can go to a starbucks in china and it'll taste the same as it does here and they do that by over roasting the coffee and then just putting sugar in it but it's still consistent what did those awards do for your business just in a nutshell so when we won america's best espresso it was 2015 so we didn't even have a shop and we were new to the coffee industry and i think a lot of the like more serious coffee people kind of looked at us as not as high end of a coffee company So it gave you some credibility maybe? It gave us some credibility for sure. We beat some of the top roasters in Seattle for that award. So it definitely held us in a higher regard or put us at a higher position in people's eyes, which was awesome, especially right before the shop opened. It definitely helps your reputation. to be like, look, we won this award, or we won Star Chefs, or all this stuff. So that was super cool. How does one go from farmers markets to close to 300 retailers within like a two year period? Like what's the secret? What's your advice to those looking to get into retail as well? To get into those stores, in the beginning, I mean, we would take like bottles of cold brew. We'd find where the buyers were in Whole Foods or PCC and just take them. They'd have like a sample drop off thing and we can just go drop off samples. And then... I think just by word of mouth doing a bunch of like farmers markets and festivals We kind of just like grew our reputation and then some stores started reaching out like QFC originally reached out to us That was a whole new venture for us like we knew nothing about distribution or anything like that But it's kind of the worst thing ever you'll get like a giant PO for like $15,000 or ordering 200 cases of cold brew or something and so if the product didn't sell they would send us an invoice for a buyback. Oh, wow. So you get hit with like a $5,000 buyback invoice if it didn't all sell. But then you don't get that product back. We were just like, this isn't really worth the headache and the trouble of doing it. So then we pulled out of most of those grocery locations once we opened our first cafe. What's the pun? Positive and negative as opposed to going to retailers. It's kind of a double-edged sword but grocery is another weird one because you have to start like merchandising and like going and sampling out your product and like grocery stores expect sales or they'll drop you and we just didn't have the money to support 300 locations at that time. Where are you at today? Realistically cold brew nowhere except our shops. Gotcha. And then we keg cold brew and we wholesale that out and we're in like bars and restaurants and... other coffee spots around town. So what do you say to those that want to get into retail and they think that that's the answer to the business and so on? I mean, you can definitely make money. The problem is with us and the quality of coffee that we're buying, it's hard for us to have a price point that will look good on a grocery store shelf. Like if our coffee is $19 and the bag next to us is bigger and it's $13 or $12, it's hard for us to get that sale. It's a price war. Yeah. Yeah. Okay. So Anchorhead sells and retails roasted coffee by you guys. How is that different from the coffee shop? Like what's more lucrative? How do they complement one another? Sure. Anything coffee related is going to make us more money. The labor to make it happen is so much less. Like if you think about it, you roast the coffee. You bag it and you're done. Here, they get the roasted coffee, you put it in the machine, dial it in, you have multiple people touching it, you have labor costs, you have milk costs. It's just the profit margins are much bigger on a bag that just gets sold than any of the drinks that are getting sold. Why do this then? You could have just expanded from a $4,000 grocery to $10,000 and just keep that number going and make a lot more money. We've noticed that these shops are more of like a brand building tool than they are. Like a cash flow machine. Like we make money, we make enough money to operate and stay in the black. But without these shops, we never would have gotten the accounts that we've gotten. Gotten into like Amazon. On the retail side. Yeah, into the like wholesale side. Interesting. Like we have international wholesale. And we never would have got there without these shops. They kind of, one needs the other. It's a symbiotic relationship. So I would say the daddy of the business, if I could put it that way, would be the warehouse, right? Like, and then everything else supplements that, the retail side of it. The goal or the money-making spot would be wholesale, like whole bean coffee, and then... Cold brew. So we do kegs of cold brew and that's very profitable. So those are the two main things where we could become very profitable. Is there a marketing campaign that you've ever tried that you spend a lot of money on and it just... Everything that we've done marketing wise has been like word of mouth and just like old school taking cool pictures and doing cool little videos. We did hire a PR firm at one point because we were young. We had no idea what we were doing and somebody was like, seriously. And somebody was like, yo, you should hire a PR firm. And we're like, yeah, let's drop $20,000. And it was worthless. I mean, this was when we were just cold brew. We didn't have shops. I think we had just signed the lease for our new shop. They would kind of just like... They just take your money. They're good at that. They just take your money. But I think there's a certain size you need to be until it actually makes sense. Like, I still wouldn't hire a PR firm because I just don't think we're at that level. Like I said, just focus on... here, now, your products, your customers, your experience. That's your PR essentially. Exactly. I would focus on making your brand as cool looking as possible. And that sounds weird, but I do think perception and how your brand looks is like 90% of your business. And then if you can back it up with a good product, obviously it's going to move you forward faster. It's going to survive and thrive. Yeah, but like people care what things look like. Like they want to come into a cool space. They want to... Grab a cool bag of coffee and post it on Instagram or have a cool cup. How many employees do you have today? And then what's the average pay? Just touch on that real briefly. Yeah, we're about like 60 to 65 around there. It's always kind of fluctuating. And average pay, we're in Seattle, so minimum wage has gone up like $4 an hour the last couple years. So we're like 17 plus and then tips on top of that, which can be anywhere from 10 to 20 an hour in tips. Per hour? Yeah, it just depends. It's not bad, so they're making what, close to 25 bucks an hour? Depending on the shop, depending on the season, definitely. That's really good. Okay. So you have the wholesaling and you have the coffee shops, but if he were to even break it down, Further on the coffee shop side, what are you selling more of? Can I look at my phone? Yeah. We'll bring down the categories. So espresso machine, that's everything that runs through the espresso machine was $384,000. Are you talking specifically this cafe right here? Yeah, let's just go through one. Food, which is pastry related, a couple grab-and-go items, that was $348,000. Seasonal beverages, so we put out seasonal menus every quarter. It's 202,000. Whole bean coffee is 128,000. The majority is coffee, second is food, third would be beans, and then you have like miscellaneous grab-and-go items or merchandise. I was just gonna say, I haven't seen any merch. It's over on the wall over there. Okay, do you have teas and... Hats, beanies, bandanas. Cool. So for somebody then wanting to... To start a coffee shop, doesn't have a lot of money. Give us a roadmap to starting your first location. For sure, scout locations. Find something that has either a built-in audience like this building. We moved in and there were like 7,000 people in this building. That would be my biggest thing. Like look for population density. Try to find, try to do something unique. Learn what kind of shop you want to be. Like you want to be a specialty shop, like super high-end. Do you want to be convenience? Do you want to move volume? You want to be a hybrid of those two? So should there be a period of one or two years where you prove your concept? Or you just wing it with what you know now? Is that what your advice is? Just wing it and just get into it? It sounds funny to say, but realistically, like, this whole company has been just wing it. I mean, this company... I appreciate the honesty. I mean, it has. I mean, it's working. This company has been, let's start a coffee company. We're going to source coffee from someone. And then I was like, ah, this isn't going to work if we want to make money. Let's roast coffee. So... I was like, okay, we don't know how to roast coffee. So, Googled roasters and bought a roaster out of Sandpoint, Idaho. So, I mean, this company, I say it a lot, was built on, like, YouTube University. We have no idea what we're doing. Let's just Google it and see what's out there. And 10 years ago, there wasn't close to the, like, plethora of information on roasting and starting a coffee shop and stuff. So, I think now you could definitely get away with opening a shop. You just have to know what you want. Nobody's really reinventing the wheel. Like it's all a beverage that's been around for a long time. So it kind of comes down to how cool you can make the brand and how you can treat people. Share with us the most stressful time you've had to deal with. through, lived through, and what are some takeaways from that experiences? For sure. It would have to be the pandemic. I remember it was very difficult, like bringing everybody together and be like, hey, we're closing and we have no idea what that's going to look like and we don't know if we'll still be a business. So you went like most businesses from what, 65 employees to two? To two, yeah. We went to a partner. me and my business partner and then we were we were deemed essential because we supply grocery stores so we could still work he was roasting everything i was packaging and delivering everything and that was kind of how it was what got you through it jake like if you were to boil it down to one or two things um did you come out on top how did you innovate how did you shift and adapt like we were just right doing all we could which was Supplying grocery stores or selling online. We're doing like promotions so like really start pushing coffee at home Which definitely helped we got a good amount of orders a good amount of new subscribers and stuff through that once they allowed shops to Be open is when we really started doing like different things like batching lattes and doing batch drinks and 32 ounce and 64 ounce Jugs that you can pre-order And a lot of cafes started doing this. It wasn't like we revolutionized the pandemic ordering or anything. But there are very stressful points where you're like, I don't know if we can make payroll. And then it comes and you make payroll and you're fine. And that's kind of like the cycle that just repeats itself over and over. You're like, I don't know if we can pay for this. And then you get to a point where that's not an issue anymore, really. But I feel like I hit my baseline for stress raised up. And then I was like, okay, I'm just always going to be this stressed forever. And it made me like less stressed almost, if that makes sense. I think it makes sense. Your ability to handle that situation just kind of. Yeah. And also it's like, if this fails, it's not the end of the world. Right. Like we built it. It's been 11 years, which is a big chunk of my life, but it's not my whole life. Like I could definitely start something right now and probably grow it bigger in less time. Just with what I've learned from doing this. I think that's a good outlook, Jake, because like a lot of people. people do get stuck in this thinking like, if this fails, life's over. Sure. And it's like, it's good to encourage you guys. Like it's not, it's just a stepping stone to something great or something better. Yeah. There's always, you can always do something different. Is the coffee business profit margin too low for your taste? Well, check out the Upflip podcast with over a hundred business ideas that have profit margins close to 90%. What mindset, if any, or personal philosophy has been instrumental to your success in the business? What can, what can we extract out of you, Jake? One of the most important parts of a business. is the people that work for you. That whole thing like treat your employees well, they're going to treat your customers well. So the goal is always treat your employees as good as possible. As you start growing and getting bigger, having more locations and stuff, it gets harder and harder. Not that we're treating them poorly as it gets bigger, but it gets harder for-Yeah, just the scale. Yeah, it gets harder for the people working in the cafes to see what we're doing on a management side or on a growth side. So that's always been a hard thing to like navigate. Like how do we make sure everybody knows that we care and that we're doing the right thing? and keep them all on the same page and still do all this stuff that needs to happen behind the scenes. But definitely like treating employees as well as possible is the main goal of the company. If you could leave our viewers with one single piece of advice, what would it be? It could be business, it could be life, it could be anything. I think it could, I mean, it could translate to business or life, but if you wanna do something, just do it. I think that's kind of the biggest takeaway I've had from all of this. And like, if you're gonna fail, great, you're gonna fail. But I mean, Just get up and do something different. Do you have an idea, just do it? Yeah, don't focus on-Sounds cliche though, everyone says just do it. Okay, but like what else, that's what life is. That's true. If not doing things, like what are you doing? We overcomplicate it, right? Yeah, like there doesn't need to be some super philosophical thing here. Like do what makes you happy and if that, if you start doing it and find out, oh, that doesn't make me happy, switch. do something different. True. You don't have to commit to one thing your whole life. All right. Well said. It's been a pleasure. Yeah, same. Thank you, Jake. Want to start a coffee shop but don't have the excess cash lying around? Well, check out episode 126 where he started a coffee shop with just $1,800. Take a second to like and subscribe and we'll see you next time.

One month. That's all it took this co-founder to go from idea to first sale. We had no idea if it was actually going to work or not.

Today, that same simple idea is a $6 million empire with multiple coffee shops and products. I mean, you can't really have a successful business without... Day one, we did like $2,100. This is where Jake reveals how to start a business in any field with no business or industry knowledge. The profit margins are much bigger on...

The exact steps that took him from farmers markets to selling at 300 retail locations in just two years. Because that's a million dollar a year cafe. And the six million dollar a year secret behind Anchorhead's one-man marketing team.

We did hire a PR firm. It was worthless. We tried every single milk we could find and we switched to a substantially cheaper milk. And we saved like $80,000 a year on milk. Is it milk?

I'm not going to tell you. Let's dive into you, your business, Why Coffee, when did it all start? Give us the story, give us the background.

My business partner and I were audio engineers. We were touring around the world, doing sound for bands, mixing, tour managing. So we toured until 2012, basically. and then started the company in 2013. And during that time, we were still kind of, I was still doing fly out dates with an artist I was working for.

And then we were still working at like venues here, just doing sound. But we realized that that kind of wasn't what we wanted to do. So we wanted to do coffee.

Coffee is like the one constant when you're on tour. You're, it's like the first thing you think about when you wake up and you get them multiple times throughout the day. So it's like, we should just start a coffee shop. So I made cold brew one day.

My business partner, Mike, used to home brew beer. So he was just like, why don't we bottle this? And we. we became the first Seattle-based company to bottle a cold brew. With being the first, we got into like 300 grocery locations, like within the first year, year and a half.

All out of the garage. My business partner had a house, we cut the garage in half, built a demising wall in the middle, commercial kitchen on one side, and then just garage on the other side. We bought a tiny little 2.5 kilo roaster, and the city told us, We could roast out of the garage if nobody complained about the smell. This coffee, not a lot of people know this, but it smells like burning popcorn, almost.

And so to get around that, we roasted only when it was dark outside. So even if somebody smelled it, they didn't know where it was coming from. Everyone's napping, you're roasting.

Exactly. And it kind of worked too because we're still both working audio jobs. So we would get off at 11 o'clock and go home and roast for a couple hours and then fill the orders the next day.

Between then and when we moved into our big warehouse, we got investment. And that's kind of when we started getting into those bigger grocery accounts. But yeah, it was kind of just luck of the draw, like getting into the market at the right time. It's amazing.

And now we are here, guys. Now we're here. downtown Seattle.

This is your number one location? It's our first location, yeah. How many square feet?

It's not that big, but-I think it's 1,400. One of your busiest? The busiest, for sure.

Okay. Was your first location successful right off the bat? Give us the numbers in the first year.

Sure, so I remember opening this spot day one we did like $2,100. The goal was always $2,700 a day because that's a million dollar a year cafe. Wow. That was the goal. goal started at 2100 and then it just like dropped for like the week following so I quit to like 1500 okay I don't know I think there was just hype behind it because we've been advertising for so long that we were opening and all this stuff and I mean we definitely built up and way beyond those numbers pretty quickly.

I think first year we did like 810,000 at this location. Not bad. So it was super solid. And the year after that, we did like 1.2.

Wow. And then it kept climbing to like 1.6 and then fell off, obviously. And now we're back up to like that 1.5, 1.6 point. On that note, Jake, share what we need to do to build brand awareness as a new brick and mortar coffee shop. I would imagine you're two years into roasting.

So people heard about you. about Anchorhead, but did that help or impact and give you success when you opened this? Or not really, like what did you do for PR and brand awareness?

Give us some insights. We opened this spot and it was a lot of like, hit the streets with free drink cards that had the address on them. We'd go to all the like hotel concierge and be like yo here's a stack of 20 free drink cards like you use them or give them to people that are visiting the hotel or go to every single spot in Pacific Place and give them all free drink cards go to every store in downtown and go we just opened a cafe two blocks away from here.

Right, this is a gorgeous location. By the way, tell us where we are, what's the story on it, and a snippet before we continue on with the conversation. It's our bakery, training room, and cafe.

So it's kind of like our hub for everything. It's probably my favorite shop in terms of design and everything. What was the build-out for this? Everything all in was $360. So you've had, I think, a fair share of failures as an entrepreneur, right?

We start things. They don't work out, we adapt, we shift. So that's the situation with you for certain locations.

What are some critical lessons that you've learned? I mean, location is everything. One of our shops was in a neighborhood and it was a unique experience.

It was like one road in, 8,000 people in this neighborhood. We were on the main street, specialty coffee, everything we're doing here. Sounds pretty good. The spot looked incredible.

People just didn't come. And we had beer and wine, we were doing like happy hour stuff, and people just didn't come. What's the biggest lesson learned through that, Jake?

I mean, honestly, like just look at the location a little better. Pay attention to people's habits coming and going, where people are actually going for coffee. Is it something they actually need?

Well, I'm excited to check out the kitchen where everything happens, the training room as well, right? And then the downstairs is pretty wicked, so let's go check it out. Let's do it!

From coffee to bakery, how did the idea come by? Because you had no experience on the bakery side of things. Walk us through the evolution and the thought process of getting to this point. Sure. So, it was always a thought that we wanted to do a bakery.

If we want to actually make money on these, we need to take them in-house and do them ourselves. I see. So we kind of took the same approach to it.

My wife came in, she's a big baker, and she was like, we can make these easily. So we did like a blueberry scone, a raspberry scone, a savory scone, and a biscuit and chocolate chip cookie. Those were like the first things that we did and we were doing them like a hundred square foot room we'd make all the doughs we'd freeze them and then you'd par bake them every morning so the opener would come in at five bake everything off and then you could work with your inventory throughout the day quickly outgrew that like once we opened our second location it was like we need to figure out where we're actually gonna do this production because we can't do it out of our one space so then we moved everything out to the warehouse because we have we have about 4 000 square feet out of the warehouse the roastery so we moved it out there made a little bakery and then we just Started producing for all the shops out there Is that a pretty natural evolution like for a coffee shop to then bake?

Because you kind of have to have the two together, right? If I walk in for a latte be nice to get a scone I do think a lot of cafes do move towards the bakery side of things. You make more profit, right? That's the bottom. Yeah, you reason essentially.

Yeah labor costs are substantial but You can definitely make more products. It's all like vertical integration, like how much product's going out because the profit margins are so small. But you can definitely start making a lot more money. Along with the baked goods, we also do all of our syrup production in-house for all the cafes and batch beverages.

So you just take them out of a bottle and pour them into the cup and they go. So it's really quick. I never heard about that.

Is that just your invention or others do that as well? I'm sure people do it, but we just saw it as like an opportunity to save on labor and speed and everything. Because you have all the ingredients, it's stable in a bottle.

Like we can do it here and just move it to another location. It just speeds things up. Give me an example of a drink.

Just so I better understand the batch drink. So we have a drink called Honey Bunches of Cold Brew. It's like our most popular drink.

It tastes like Honey Bunches of Oats. Interesting. I didn't know that that's the way it works. Break down the revenue across the locations for us, just gross revenue, and then I'll follow up with margin questions.

Okay. Roastery does about 1.5, 1.6 million a year. This location, Capitol Hill, does about 1.5. Our 1600 location does about 1.6, 1.7.

Our marketplace location does like 800. Last year was the first year pre-pandemic where we got to see actual tourism come back. Yeah. So I'm interested to see what this year is. So you have three locations for coffee shops, and then you have a fourth roastery alone.

What about profit margins, Jake? Yeah. What's the industry standard and where are you at? What are you shooting for?

Yeah, so industry standard is anywhere from 2.5 to like 6.8 percent. That's lower than I thought. Yeah, it was when I looked too.

But it's also, that's kind of like where we are. We're at like a 5 percent profit probably. No way. Which is crazy because you get into this and you're like, I'm gonna make money.

It's funny because you see our shops and they're so busy and you know everybody thinks you're like, they're crushing it. They're buying yachts. and just partying but we're not because profit margins are so small um you got to be like in the 100 mil plus to yeah really feel the five percent and be like you know i'm doing i'm doing okay i'm doing well i think we are doing well we're still paying back some loans and stuff because pandemic definitely push payback on a lot of stuff payback timelines on a lot of stuff so once we get those taken care of like we'll we'll be in a healthier spot too That's a good segue into the question of what your startup costs were for your first location.

Can you give us a number and break it down for us how you used that number? What went where? Yeah, so first shop cost about $500,000.

It was a complete shell build. It was, we spent a lot of money. It was ridiculous. So it was like 300 or... 350 for the build-out cost.

Okay. No equipment included. And then we had about 100,000 for equipment.

And then 50,000 for operating just upfront. Reserves, whatever. Since we had no idea if it was actually going to work or not.

And I think we'll get into this a little bit later on, but how did you finance the $500,000 purchase? A lot of people would ask that. You know, I want to start a coffee shop, but man, I don't have half a million dollars. For sure.

We have private investors that we got the second year of business. They helped with half of it. And then we had to take out a secure loan for the other half.

You're talking like SBA government loan? No, they wouldn't give us an SBA government loan because we're, like when you're a super small business and you have no business history, usually the government won't help you. Basically, our investors had to cover the entire thing. but the like 250 000 of it was secured so 250 000 went straight to the bank and then we got 250 000 and paid interest on it which sounds so backwards and stupid but you got to do what you got to do that's just how it works yeah if you're like jake running multiple coffee shops or any business that requires paying vendors and contractors then you know the headaches that come with it but with melio you can say goodbye to the hassle of vendor payments with a free online payment platform built to make your life easier as a small business owner melio gives you you the freedom to choose the payment method convenient for you while insured vendors still get paid as they like without having to sign up. So even if they prefer an old-fashioned check, Melio gives you the flexibility to pay with a credit card allowing you to turbocharge your cash flow and pile on the points, perks, and rewards from your credit card provider.

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All right, Blitz time with Jake. Thanks guys for submitting questions. Jake, first question. If you could open three more coffee shops, where would you open them?

Probably Boise because I'm close, LA and New York. If you could teleport any historical figure to your coffee shop for a day, who would it be and what drink would you recommend? ET. I'm gonna get him the ube and we're just gonna hang. All right, E.T., E.T., let's go.

No, let's keep going. What's the weirdest customer interaction you've ever had? We got this review one time that this lady gave us a one-star review because she walked across a lot and had to walk in between people smoking to get to our building and gave us a one-star review.

I didn't really interact with them, but... Okay, lady. We can't control the smoke. Not how the review is supposed to work. All right, if you weren't in the coffee business, what business would you be in?

Probably music or media. What and how much was your most expensive purchase, business or non-business? Business would probably be our new roaster, which was like $170, I think. for one piece of equipment no wonder we pay premiums for coffee drinks insane what about non-business oh i don't buy anything i'm poor you're pretty yeah pretty cheap motorcycle here and there cheap well your motorcycles don't work they're standing in the corner resting away that's how they work if you could change one thing about anchorhead what would it be i would have thought about purchases beforehand we bought a bottling machine at one point you wasted a lot of money jake yeah we wait we did listen shame on you when you have no background in business and you're like i'm going to start a multi-million dollar business you you think you lose things at times What's something most people who know you don't know about you?

Listen up very carefully. I used to sing Italian R. Can you give us like a problem? Come on.

It's just not gonna happen What's the worst part of being being an entrepreneur the constant stress and fear that you're gonna fail Okay, sleepless nights. What about the best part getting to do whatever you want? Okay.

What about the Italian saying? Can you show us again? Oh, no.

All right. That's what's time in the realm of coffee or entrepreneurship, what's one myth you'd like to debunk? What do you think? Getting investment or finding money is a thing that like everybody is afraid of or thinks that they can't do. Like I remember originally when we were going to seek investment, my business partner and I had very different thoughts on what we wanted.

He was more in like the $50,000 range and I was more in the $500,000 range. And I think as long as you have a really good idea or you're really passionate about your idea. and you can show someone that you have like a plan with what you're going to do with that money and are just passionate about it, you can definitely find money.

Money's out there. People are out there that always wanna invest in a business, but the idea and execution have to be there as well. Right. Okay, well said. So the myth is there's no money out there, but the reality is there's so much out there.

It's just flowing through the streets. All right, so it sounds like you guys, with your partner, get into a relationship. into this industry with no experience but passion for it and you want to make money somebody watching who wants to get into The new industry, excuse me. What would they need to do to go about learning about the industry? The internet, obviously, huge resource for us now.

Especially today. Yeah, it's insane. 11 years ago.

Yeah, it's insane how much information is on the internet. You could also reach out to a business owner, a coffee shop owner that you like. Like if somebody reached out to me right now and was like, hey, do you want to chat about how you did this? I'd be like, yeah, sure.

You never know how far you can just get by just asking someone that you look up to or something like that. I think it's saturated, but I don't think it's saturated with a lot of really, really good spots. Oh, don't forget, Upflip is your ultimate resource.

Visit upflip.com for exclusive guides and courses from world-class entrepreneurs. Let's go back to the initial days of Anchorhead. And the question that I have is time management. You know, you're doing your nine to five, your full-time gig, and then you're starting this side hustle with roasting in the garage.

Any advice on managing time and just making it through that and for entrepreneurs that want to do the same what would you what would you recommend they do? It's just gonna be a lot of work. I think we got lucky because both of us came from an industry where it was very common to do like a 17 hour day non-stop so for us it almost felt easier because we're still sleeping in our own bed and we had like a little more say over what we were doing with our time.

But I mean it's just gonna it's gonna be a lot of work. You're not going to sleep. It's going to be stressful.

But if it works out, then it's going to be awesome. At which point do you think people should flip the switch and go all in on the side hustle? How would you view it? How would you? I mean, we went all in once we got investment.

Once we actually had money in the bank and it was like, okay, we can pay ourselves. Right. That's the key. This small amount, whatever we need to live. That's kind of when it was like, okay, let's do this.

Time to venture full time. Yeah. I'm curious to know how many coffee shop locations do you have today and what are the leases on that, especially like in the Seattle market? Sure.

So right now we have three locations and the warehouse. So this location, I think rent is like $9,800 a month. Oh, well, you're a pike. Yeah, it's busy. It definitely isn't our biggest cost.

I'm not worried about it every month. It's not that big of issue. At our $1,600 location, it's around $5,400 a month.

But there's also a rent percentage deal if we hit a certain. break point and then 12th ave is a destroyer and it is 16 000 it's like 10 5 rent and then like five five triple net super cool space it's just an expensive neighborhood when negotiating leases any tips for us or any errors mistakes to avoid if you're doing some kind of food beverage make sure there's an exclusivity clause if so that you have a big building yeah like In your building, make sure you have exclusivity on sales for that product that you're trying to sell. And then also, make sure they can't move you.

There are some things in leases where sometimes the landlord can literally just move your business to a spot that's as big, and it could be a worse spot. Sheesh. If you don't see that clause, you're just...

Yeah, get an attorney. We've definitely been saved by the exclusivity and not moving, making sure those are in our favor. Let's talk about suppliers. Okay.

Give us the tips and advice on choosing the right ones, negotiating the best prices. You know, they come and go, right? We try to source as much as we can from the same source.

Like our paper vendor gives us all of our cups and lids and straws and all that. We've worked quite hard to find the best price on all of those. When we started we used to get everything from like Costco business and that was the best price we could find.

We found like unbranded cups for like three to four cents a cup and then you could get straws and napkins and all the stuff from them. But once we started moving into a more branded feel for everything like all of our cups are branded and everything now. We had to find a different company and the way that usually works is you have to buy like a hundred thousand units Like moq is like a hundred thousand which we aren't in a place a hundred thousand of each size So we go through a lot of cups, but we found a spot a company in seattle that Will do the upfront Order on them and warehouse them and then deliver them to you weekly for custom products So we have custom cups, but we don't warehouse or hold anything. I mean, there's a small fee I think the best thing to do find as much stuff from one person as you can and you can usually You can usually leverage by getting like other quotes from different paper companies or different companies and be like well this company said I can Get it for this much and go back you can kind of barter back and forth to get the lowest price for you the bulk of our stuff comes from one dairy service and one paper service when we first started this company there was a dairy right next to our warehouse and we were delivering milk to ourselves from this dairy nobody else had it it was super special and in our minds it was like this is the greatest milk ever this is what our company needs is this awesome milk and then they decided to raise the price and we were like okay we're not going to do this anymore and then we switched to another milk that was It's like eight or nine dollars a gallon and then we did this huge thing where we tried every single milk we could find and the prices and we switched to a substantially cheaper milk and we've never had anybody say anything about it and we saved like eighty thousand dollars a year on milk.

Is it milk? I'm not gonna tell you. I guess we'll never know.

You brought in investors pretty early on. So we want to know, do you think that was a good idea in hindsight? And how much did you have to give up as far as the business to make it happen?

For sure. I mean, I think it was a good idea because without the investors, we never could have gone from the garage to a roasting space, to cafes, to where we are now. So given the size of our business, I think we only did like $20,000 up to the point where we got an investment.

So we didn't have much to go off of. So we sold the company. company 40% for $300,000, but we definitely wouldn't be where we are without our investors.

And I don't think it was a bad idea to give up that much of the company. I'd rather have a little bit of something that's big than a lot of something that is nothing. What's your advice to those looking for investors, partners for capital reasons? You should think about what type of investor you want. Do you want somebody that's going to be super involved in the day-to-day, or do you want somebody to just super hands-off, give you money, and walk away?

because that will play a big role in who you're looking for and probably how much they want. Did you have prior experience as far as these connections and relationship with investors or who helped you walk that? We knew these people through the music industry. They own a record label and when we decided we wanted money we're like okay we know these people we should see if they're interested.

We asked them if they were interested they were all about it they're like send it over. It was really simple for us honestly. Once we sent it to them they were like this is awesome.

It sounds like just be out there with your story with what you want to do and You'll attract the right people at the right time. Having a good game plan, just being prepared when you go in, like having that deck was really important for us. It made us look like we were really professional. You know what we were going for, you know?

The look was there. Perception is everything in my mind. So Anchorhead has won many awards, like America's Best Espresso. What's the secret sauce? I think just good product.

We try to buy the highest quality coffees we can find from around the world. We also have a lot of equipment in place that allows us to... hit that consistency and quality.

So our roaster, like I said, is extremely repeatable. You can get the same roast every single time. We also have a color sorter. So the way it works is you roast the coffee, then you put it through this machine and we have like a designated color in the machine and there's this high speed camera behind it and it falls through the chute and there's like 40 pneumatic tubes and this high speed camera sees color that's lighter than what we want. It shoots that bean out.

That's crazy. So having the ability to control and get those wakers is what they're called out of the coffees is a big deal good product in usually leads to good product out so just trying to focus on the best products we can and you've mentioned the word consistency a number of times so it seems like that's the key you know to great coffee the quality the taste i think it's key to business in general i think you look at starbucks in the coffee world like you can go to a starbucks in china and it'll taste the same as it does here and they do that by over roasting the coffee and then just putting sugar in it but it's still consistent what did those awards do for your business just in a nutshell so when we won america's best espresso it was 2015 so we didn't even have a shop and we were new to the coffee industry and i think a lot of the like more serious coffee people kind of looked at us as not as high end of a coffee company So it gave you some credibility maybe? It gave us some credibility for sure. We beat some of the top roasters in Seattle for that award. So it definitely held us in a higher regard or put us at a higher position in people's eyes, which was awesome, especially right before the shop opened.

It definitely helps your reputation. to be like, look, we won this award, or we won Star Chefs, or all this stuff. So that was super cool. How does one go from farmers markets to close to 300 retailers within like a two year period?

Like what's the secret? What's your advice to those looking to get into retail as well? To get into those stores, in the beginning, I mean, we would take like bottles of cold brew. We'd find where the buyers were in Whole Foods or PCC and just take them.

They'd have like a sample drop off thing and we can just go drop off samples. And then... I think just by word of mouth doing a bunch of like farmers markets and festivals We kind of just like grew our reputation and then some stores started reaching out like QFC originally reached out to us That was a whole new venture for us like we knew nothing about distribution or anything like that But it's kind of the worst thing ever you'll get like a giant PO for like $15,000 or ordering 200 cases of cold brew or something and so if the product didn't sell they would send us an invoice for a buyback.

Oh, wow. So you get hit with like a $5,000 buyback invoice if it didn't all sell. But then you don't get that product back. We were just like, this isn't really worth the headache and the trouble of doing it.

So then we pulled out of most of those grocery locations once we opened our first cafe. What's the pun? Positive and negative as opposed to going to retailers.

It's kind of a double-edged sword but grocery is another weird one because you have to start like merchandising and like going and sampling out your product and like grocery stores expect sales or they'll drop you and we just didn't have the money to support 300 locations at that time. Where are you at today? Realistically cold brew nowhere except our shops.

Gotcha. And then we keg cold brew and we wholesale that out and we're in like bars and restaurants and... other coffee spots around town.

So what do you say to those that want to get into retail and they think that that's the answer to the business and so on? I mean, you can definitely make money. The problem is with us and the quality of coffee that we're buying, it's hard for us to have a price point that will look good on a grocery store shelf.

Like if our coffee is $19 and the bag next to us is bigger and it's $13 or $12, it's hard for us to get that sale. It's a price war. Yeah. Yeah.

Okay. So Anchorhead sells and retails roasted coffee by you guys. How is that different from the coffee shop?

Like what's more lucrative? How do they complement one another? Sure.

Anything coffee related is going to make us more money. The labor to make it happen is so much less. Like if you think about it, you roast the coffee.

You bag it and you're done. Here, they get the roasted coffee, you put it in the machine, dial it in, you have multiple people touching it, you have labor costs, you have milk costs. It's just the profit margins are much bigger on a bag that just gets sold than any of the drinks that are getting sold.

Why do this then? You could have just expanded from a $4,000 grocery to $10,000 and just keep that number going and make a lot more money. We've noticed that these shops are more of like a brand building tool than they are.

Like a cash flow machine. Like we make money, we make enough money to operate and stay in the black. But without these shops, we never would have gotten the accounts that we've gotten.

Gotten into like Amazon. On the retail side. Yeah, into the like wholesale side.

Interesting. Like we have international wholesale. And we never would have got there without these shops.

They kind of, one needs the other. It's a symbiotic relationship. So I would say the daddy of the business, if I could put it that way, would be the warehouse, right? Like, and then everything else supplements that, the retail side of it. The goal or the money-making spot would be wholesale, like whole bean coffee, and then...

Cold brew. So we do kegs of cold brew and that's very profitable. So those are the two main things where we could become very profitable. Is there a marketing campaign that you've ever tried that you spend a lot of money on and it just...

Everything that we've done marketing wise has been like word of mouth and just like old school taking cool pictures and doing cool little videos. We did hire a PR firm at one point because we were young. We had no idea what we were doing and somebody was like, seriously. And somebody was like, yo, you should hire a PR firm.

And we're like, yeah, let's drop $20,000. And it was worthless. I mean, this was when we were just cold brew.

We didn't have shops. I think we had just signed the lease for our new shop. They would kind of just like... They just take your money.

They're good at that. They just take your money. But I think there's a certain size you need to be until it actually makes sense.

Like, I still wouldn't hire a PR firm because I just don't think we're at that level. Like I said, just focus on... here, now, your products, your customers, your experience. That's your PR essentially. Exactly.

I would focus on making your brand as cool looking as possible. And that sounds weird, but I do think perception and how your brand looks is like 90% of your business. And then if you can back it up with a good product, obviously it's going to move you forward faster.

It's going to survive and thrive. Yeah, but like people care what things look like. Like they want to come into a cool space.

They want to... Grab a cool bag of coffee and post it on Instagram or have a cool cup. How many employees do you have today?

And then what's the average pay? Just touch on that real briefly. Yeah, we're about like 60 to 65 around there.

It's always kind of fluctuating. And average pay, we're in Seattle, so minimum wage has gone up like $4 an hour the last couple years. So we're like 17 plus and then tips on top of that, which can be anywhere from 10 to 20 an hour in tips. Per hour?

Yeah, it just depends. It's not bad, so they're making what, close to 25 bucks an hour? Depending on the shop, depending on the season, definitely. That's really good.

Okay. So you have the wholesaling and you have the coffee shops, but if he were to even break it down, Further on the coffee shop side, what are you selling more of? Can I look at my phone? Yeah. We'll bring down the categories.

So espresso machine, that's everything that runs through the espresso machine was $384,000. Are you talking specifically this cafe right here? Yeah, let's just go through one. Food, which is pastry related, a couple grab-and-go items, that was $348,000. Seasonal beverages, so we put out seasonal menus every quarter.

It's 202,000. Whole bean coffee is 128,000. The majority is coffee, second is food, third would be beans, and then you have like miscellaneous grab-and-go items or merchandise. I was just gonna say, I haven't seen any merch.

It's over on the wall over there. Okay, do you have teas and... Hats, beanies, bandanas.

Cool. So for somebody then wanting to... To start a coffee shop, doesn't have a lot of money.

Give us a roadmap to starting your first location. For sure, scout locations. Find something that has either a built-in audience like this building. We moved in and there were like 7,000 people in this building. That would be my biggest thing.

Like look for population density. Try to find, try to do something unique. Learn what kind of shop you want to be. Like you want to be a specialty shop, like super high-end. Do you want to be convenience?

Do you want to move volume? You want to be a hybrid of those two? So should there be a period of one or two years where you prove your concept? Or you just wing it with what you know now?

Is that what your advice is? Just wing it and just get into it? It sounds funny to say, but realistically, like, this whole company has been just wing it. I mean, this company...

I appreciate the honesty. I mean, it has. I mean, it's working.

This company has been, let's start a coffee company. We're going to source coffee from someone. And then I was like, ah, this isn't going to work if we want to make money.

Let's roast coffee. So... I was like, okay, we don't know how to roast coffee. So, Googled roasters and bought a roaster out of Sandpoint, Idaho. So, I mean, this company, I say it a lot, was built on, like, YouTube University.

We have no idea what we're doing. Let's just Google it and see what's out there. And 10 years ago, there wasn't close to the, like, plethora of information on roasting and starting a coffee shop and stuff.

So, I think now you could definitely get away with opening a shop. You just have to know what you want. Nobody's really reinventing the wheel. Like it's all a beverage that's been around for a long time. So it kind of comes down to how cool you can make the brand and how you can treat people.

Share with us the most stressful time you've had to deal with. through, lived through, and what are some takeaways from that experiences? For sure. It would have to be the pandemic.

I remember it was very difficult, like bringing everybody together and be like, hey, we're closing and we have no idea what that's going to look like and we don't know if we'll still be a business. So you went like most businesses from what, 65 employees to two? To two, yeah.

We went to a partner. me and my business partner and then we were we were deemed essential because we supply grocery stores so we could still work he was roasting everything i was packaging and delivering everything and that was kind of how it was what got you through it jake like if you were to boil it down to one or two things um did you come out on top how did you innovate how did you shift and adapt like we were just right doing all we could which was Supplying grocery stores or selling online. We're doing like promotions so like really start pushing coffee at home Which definitely helped we got a good amount of orders a good amount of new subscribers and stuff through that once they allowed shops to Be open is when we really started doing like different things like batching lattes and doing batch drinks and 32 ounce and 64 ounce Jugs that you can pre-order And a lot of cafes started doing this.

It wasn't like we revolutionized the pandemic ordering or anything. But there are very stressful points where you're like, I don't know if we can make payroll. And then it comes and you make payroll and you're fine. And that's kind of like the cycle that just repeats itself over and over.

You're like, I don't know if we can pay for this. And then you get to a point where that's not an issue anymore, really. But I feel like I hit my baseline for stress raised up.

And then I was like, okay, I'm just always going to be this stressed forever. And it made me like less stressed almost, if that makes sense. I think it makes sense.

Your ability to handle that situation just kind of. Yeah. And also it's like, if this fails, it's not the end of the world.

Right. Like we built it. It's been 11 years, which is a big chunk of my life, but it's not my whole life.

Like I could definitely start something right now and probably grow it bigger in less time. Just with what I've learned from doing this. I think that's a good outlook, Jake, because like a lot of people. people do get stuck in this thinking like, if this fails, life's over. Sure.

And it's like, it's good to encourage you guys. Like it's not, it's just a stepping stone to something great or something better. Yeah. There's always, you can always do something different. Is the coffee business profit margin too low for your taste?

Well, check out the Upflip podcast with over a hundred business ideas that have profit margins close to 90%. What mindset, if any, or personal philosophy has been instrumental to your success in the business? What can, what can we extract out of you, Jake? One of the most important parts of a business.

is the people that work for you. That whole thing like treat your employees well, they're going to treat your customers well. So the goal is always treat your employees as good as possible.

As you start growing and getting bigger, having more locations and stuff, it gets harder and harder. Not that we're treating them poorly as it gets bigger, but it gets harder for-Yeah, just the scale. Yeah, it gets harder for the people working in the cafes to see what we're doing on a management side or on a growth side. So that's always been a hard thing to like navigate. Like how do we make sure everybody knows that we care and that we're doing the right thing?

and keep them all on the same page and still do all this stuff that needs to happen behind the scenes. But definitely like treating employees as well as possible is the main goal of the company. If you could leave our viewers with one single piece of advice, what would it be?

It could be business, it could be life, it could be anything. I think it could, I mean, it could translate to business or life, but if you wanna do something, just do it. I think that's kind of the biggest takeaway I've had from all of this.

And like, if you're gonna fail, great, you're gonna fail. But I mean, Just get up and do something different. Do you have an idea, just do it? Yeah, don't focus on-Sounds cliche though, everyone says just do it. Okay, but like what else, that's what life is.

That's true. If not doing things, like what are you doing? We overcomplicate it, right? Yeah, like there doesn't need to be some super philosophical thing here.

Like do what makes you happy and if that, if you start doing it and find out, oh, that doesn't make me happy, switch. do something different. True.

You don't have to commit to one thing your whole life. All right. Well said.

It's been a pleasure. Yeah, same. Thank you, Jake. Want to start a coffee shop but don't have the excess cash lying around?

Well, check out episode 126 where he started a coffee shop with just $1,800. Take a second to like and subscribe and we'll see you next time.

Transcript for:Building a Coffee Business from Scratch

Transcript for:
Building a Coffee Business from Scratch