When Coffee Meets AI.
What does a warm cup of java have in common with machine learning technology?
… More than you would think.
As we continue to sink into our pit of pandemic misery (hello 2022!), I’ve been more motivated than ever to support small businesses. It’s fair to say that after three jabs and two years, I’m over this pandemic. So I created a challenge for myself - go to thirty local coffee shops in thirty days. The downside of this tactic was that I’m in thirty new places with a warm coffee doing my normal daily routine (read: there is no downside, unless I catch COVID…), the upside was that between daily meetings, I could analyze the business operations of these shops and interact with owners and employees. Operations fascinates me, as does coffee. Why not?
Perhaps my favorite shop visited so far has been one called “Lost Coffee.” It sits next to a Starbucks nearby, so I had sadly never thought about heading into it. Upon entering, I was immediately greeted and asked what I wanted to drink. I ordered a drip coffee and the Barista began talking about how the beans were sourced from Rwanda. I looked around and the aesthetic was amazing. It was a small, charming, rustic-farmhouse vibe that looked to be situated in a very large garage that had been retrofit to become a coffee shop. I gladly tipped 30% on my order and found a seat. The day was about to become very productive.
As I opened my laptop, a guy with a bandana wrapped around his face hustled by. He looked a bit flustered. I watched him sit down (was situated away from the customers, behind the production machines) with his shoulder propped up, holding his phone to his ear. He was clearly focused and talking to someone intently.
About thirty minutes into my workday, I saw the same guy walk by again. “Excuse me, are you the owner here?” I asked. “Yes, nice to meet you!” We chatted for about 10 minutes. I was intrigued by so many things about this coffee shop, so I just started firing questions at him. He took them like a champ. I paraphrased the conversation below.
“Our Coffee should never make a good day bad, but can always make a bad day good!”
Me: How’d you get this business started?
Owner: This is my third coffee shop, all in the south Denver region. I knew I wanted to set up in Littleton but the downtown area was too expensive to rent a space. I found this place (a bit up the street from the downtown) and started negotiating a contract in 2019. We opened it in 2021 and business has been pretty good. The pandemic obviously took its toll but we got through. My best performing shop is in Castle Rock (even further south).
Me: How expensive is it to start a shop like this?
Owner: You need a lot of capital up front to cover costs of production, rent, etc. at each shop. I estimate somewhere between $100-$150K. About $50-$100K of that goes to the machinery, $10K goes to installations (speakers, etc.). The rest is dispersed on the other stuff.
Me: What has been the biggest challenge so far?
Owner: It’s a lot of work. I find myself running around between the three shops and don’t have as much time as I need for employee development. I’m also in the middle of trying to figure out if I should accept a significant amount of financing. It’s appealing, but I don’t want the debt. COVID killed our capital. The profit we had generated went out the door because people stopped coming in due to lockdowns, so I needed to subsidize it to keep it alive.
Me: I didn’t even know this place existed and I live a mile away. I missed the Starbucks turn and happened to see this. I then looked at the reviews on foursquare and your profile is deactivated, but I figured I’d give it a shot.
Owner: I’m not fluent in all the tools to run this business, so I need to outsource that to a lot to people who are (e.g. Square payment system, search engine optimization, social media, quick books, etc.). I need to figure out how to get Google to work for me sooner or later; it’s way over my head.
Me: How do you manage your employees?
Owner: I have 30 employees in total. They’re all great, motivated, spirited. As mentioned, I sometimes struggle to keep a 1x1 cadence and really focus on their development. It’s a lot of people at once. Between normal production tasks, people management can be really hard.
Me: What is different about this shop from others?
Owner: Speaking about this location vs. the other two, the production equipment is in our facility. This allows for me/us to cut out drive time moving between locations and save on rent of other spaces. The coffee is imported from Rwanda and we have a strong mission-based focus behind our company. Customers like seeing the roasting too.
Me: A coffee shop is such a feel good place when done right.
Owner: Absolutely. I always tell my team that “our coffee should never make a bad day worse, but can always make a bad day good.”
So how does this wonderful coffee shop relate to a software that tags SKUs on a grocery store shelf (my day job)?
Believe it or not, I see many parallels in the operations despite the completely different industries. Let me share.
Employee engagement.
Engaged employees lead to smooth operations no matter where you work, it’s as simple as that. A strong, engaged contributor can plug gaps you have in operational processes almost 100% of the time.
The owner acknowledged how important people management and career development is for his employees. Whether he had the ability to execute on his aspirations or not, I have no idea, but the awareness is what counts. His comment about ‘needing to spend more time with his employees 1x1’ rings true for almost every manager, in every industry. Just because the job is not in Tech does not mean that the Barista does not have major career aspirations. The owner needs to know this, as any good manager would.
Customer experience.
When I entered Lost Coffee, the experience hit me immediately. I was quickly greeted by a pleasant Barista (see: engaged employee), the Denver sunlight beamed into the room through the huge window panes and it paired with the smell of freshly brewed coffee. This had all my senses on high alert and I was happy/excited to give them my money.
In our Tech Operations team, we quantify customer experience through NPS (net promoter score). NPS is best done at different stages of the customer lifecycle (e.g. entry to product, amidst implementation, post-implementation). We take our NPS very seriously. When a Customer responds negatively (or even passively), we dissect every ounce of their feedback and look to make meaningful changes for the better. We want all of our customers to be promoters, exactly like I am for this shop.
In the world of “coffee ops,” they have something very much working on their side. It’s hard to give a low NPS when the customer is actively caffeinated (unless the product is terrible). A coffee shop’s competitive advantage is that people are already there for a quick pick me up, the shop just needs to curate the experience in such a way that their customer becomes a raving fan and opts for that over Starbucks or Dunkin Donuts the next time. I would say Lost nailed it here.
Efficient operations.
I won’t pretend to know the first thing about producing coffee, but I do know a thing or two about efficient operations:
1/ Focus on critical path (what becomes a blocker for other steps if not done correctly or on-time).
2/ Aim for just in time production (don’t take on a ton of inventory).
3/ Work in batches to decrease downtime and optimize your working capacity.
4/ Track production output through meaningful KPIs.
I can’t speak for the owner’s operation, but the fact that he had production onsite (bean roasting) and 20 feet from the register not only lent for a cool customer experience, but it probably helped his team’s efficiency. He mentioned that they brew on Monday’s in batch as it was more efficient to do 1x/week vs. daily. “Come on in next Monday to see it live!” he said.
In my world of Tech Ops, ways we have improved production efficiency through similar concepts:
1/ Moving data hygiene/QC processes upstream (ideally in front of the critical path steps). This reduces the ‘garbage in’ so we don’t spend extraneous time doing production on units that will inevitably produce ‘garbage out’ to our customer or not get delivered at all due to defect.
2/ Reduced employee idle time through proper demand planning and then aligning resources properly. This lightweight S&OP process has driven out hundreds of thousands of dollars worth of of bad costs over the years.
3/ We admittedly need to figure out how to batch our steps more efficiently. This was a cool inspiration.
Funding.
There are advantageous investors everywhere. Capital is important, regardless of the industry you are in. In the world of SAAS, we’ve have a maniacal focus on achieving ‘break-even’ and ensuring our revenue is equal to or greater than our costs. This is so much harder to do than you’d think and starts with good cost controls in place.
That said, there is significant benefit to funding, when done correctly. Yes, you will lose a piece of your pie, but it will enable growth if utilized the right way. I have also seen funding in a previous start up serve as a bridge to achieving operational efficiencies (pay more to eventually cost less). Sometimes a bit of air will help that.
Sadly, small businesses were slaughtered during the last two years. A bridge loan from an outside investor can go a long way. I won’t pretend to be an expert on fundraising, but it is quite necessary for small market service businesses to cover some of the previous years’ debt.
“Tool for X.”
As I’ve talked about before, a key to my career growth has been knowing and acting on my strengths and acknowledging (and outsourcing) my weaknesses. I famously (among friends and family) outsourced a day’s worth of phone calls to all Walmarts on the front range to get a COVID vaccine appointment (back when vax’s were not general availability). I have no patience and this was an obvious cost I’d be willing to bare for the reward of finding a Walmart with a vaccine oversupply. It worked too (props to my Upwork contractor for finding me a Walmart in Colorado Springs!).
Lost’s owner was keenly aware of his strengths and weaknesses. He talked about not being great with all the extra services and vendors involved in running his business (Square, Google business, etc.).
This is no different from a tech company. As a matter of fact, we frequently have to scrub our service providers because there is a “tool for X” everywhere you look. This can get costly and impossible to manage at scale. Contracting people (or your own employees) to manage these services is probably critical. The owner made the comment that if he was spending all his time trying to figure out these tools, “I wouldn’t have the time to spend with customers like you.”
As a small business owner, don’t be afraid to outsource what you don’t know and watch how many extraneous services you have. Figure out what is “nice to have” vs. “must have.”
What a fun exercise. Not only did spending a day in Lost Coffee make me more curious about how to run a coffee shop, it allowed me to converse with a super cool owner, drink some great Rwandan java and find a new small business to support. I’ll certainly be skipping the Starbucks going forward. At 5:30 PM, I headed out and will certainly be back. Follow my journey of 30 coffee shops in 30 days on Twitter, where I’ll document my experience of drinking local coffee and learning more about their operations.
