Written by: Alfonso of Blue Mayan Coffee
The changes in technology, and particularly the impact of COVID-19, have pushed commerce to the ever-expanding realm of the internet, and coffee ventures are not exempt from those trends. Notwithstanding the attractiveness of targeting particular shopper personas through sniper-like tools provided by the Amazons, Googles, and Facebooks of the world, all too eagerly, most entrepreneurs want to jump into selling coffee online without adequately understanding what lies ahead. In these articles, we will explore that path and reflect on the lessons I have learned in launching one. I hope to provide context to those planning to sell coffee online as a possible way of life or extra income. Short answer – I have not met anyone in the last decade that got rich by selling coffee online alone. Can it be a mid-point source of income, though? Let’s find out.
Selling coffee online as a business is no different from any other business initiative. The bottom line is businesses are created with one goal in mind – to generate profits. Any other endeavor, even if it’s a coffee shop, created for a different purpose, should be judged differently and is subject to another discussion altogether. When analyzing a business opportunity, I like to focus on four categories of questions:
1.what is it, and how is it “special/different”?
2. how does it make money?
3. is it sustainable?
4. does it scale?
Today we are going to focus on 1 and 2 taking our lessons from starting a coffee business. What is it, and how is it special? Most entrepreneurs respond with a poetic “direct trade”, “social impact”, “environmentally friendly” – coffee business, with “amazing flavors” from x or y country. While all of those comments may be true, it’s still a business at the end of the day, and those characteristics are no longer that unique. Honestly, what online coffee business doesn’t include those descriptors? When attempting to differentiate coffee products, the rabbit hole only goes so deep. Some trends include ready-to-drink (RTD) products such as cold brew or nitro, mixers or fusions that include BCAA or CBD, or claims of “intense” caffeine content. Even those qualities become all too similar at a certain level. So, what is the business behind selling coffee online?
Taking a step back, it seems like more of a logistics business with a lifestyle service component. We can all jump into an argument about this, but odds are, the most expensive parts of the coffee product sold online – are the shipping costs and the beautiful Instagram/media posts (think the value of time as well as marketing). That is, of course, unless it’s a rare and particular bean – if that’s the case, lifestyle marketing will be your most significant expense. The biggest issue here is that Amazon has beaten everyone to the punch. How do you compete with 2-day shipping included in the pricing? It has influenced shopper behavior that forces sellers to play by their rules – not market rules. Plus, Amazon already has the mass market buying there. Meaning, if you build it, they will not come – or at least not in a linear way.
Next, how does it make money? This a two-fold answer. The first is the transaction method – which can mean many things – a one-time purchase, a subscription (recurring payment), an exchange for something else of value, wholesale, etc. The other is the variables that make up the payment formula, which is closely related to the next topic – about it being sustainable. Meaning, does it make money? Take all the costs involved in creating a roasted coffee bag and delivering to a paying customer, and then subtract them from the total sales price. If there’s anything left, bingo, you are making money – somewhat, you did account for all of the investments you made to start it and your time, right?
In general, the answer you are looking for this how does it make money category, is to fix your attention into recurring revenue – and what’s the best form of recurring revenue in the online coffee business? Subscriptions. From Microsoft to Lootcrate, once someone has signed up to a subscription, human behavior does its magic, and simply put, most people put off canceling a subscription, and the customer churn is slower. As an online coffee retailer, the acquisition cost of a client (“CAC”) is vital, and making them stay as recurring customers is the only way to stay afloat. But everyone is fighting for that attention in the online space, and thus the CAC gets more expensive, and unless the coffee being sold cures anything – they will probably go on to try other ones.
Starting an e-commerce coffee business certainly seems like an attractive venture at first, but it’s a journey filled with pits and downfalls – adventurers beware. It’s not only about sourcing wonderful and delicious coffee with a great story. It’s about making that sustainable for yourself as well. Let’s keep an eye on the ultimate goal then.
Alfonso is co-founder and partner at Blue Mayan Coffee along with his wife, Stephany. He has been invited to lecture at Babson’s New Venture Creation for the MBA program, and is involved in EdTech and Esports Ventures, as well as other emerging technologies and Real Estate.