How not to start a business. Part 2:The plan. How I developed the idea, and why it was flawed.

Part 2. The plan. How I developed the idea, and why it was flawed.

The idea of starting to import specialty coffee came to me while waiting for a plane in the airport of Helsinki. I was looking without too much interest at the in-flight magazine of Finnair, and there was a page with several statistics about Finnish economy. One of which was stating that finns have the highest consumption per capita of coffee in the entire world. And while I was also drinking one of those oversized cups of warm water that at those latitude, they call coffee I thought:” well, how interesting, sure they prefer quantity over quality”.

That was back in 2017. I was working as an internal auditor for a chemical company based in Finland, on my way to the nth business trip, in Brazil at that time.

As I arrived in Brazil, I could not avoid the stark contrast of the coffee In was getting there, compared to what I got used in my time in Helsinki. And boy was it cheaper. Actually during my numerous trip to central America, I always brought back some coffee with me. How interesting. Maybe there was something to be done there. So I started to look into the matter, and found a few very good roasteries in Helsinki once I came back. My favorite is called Kaffa roastery and it is located in the center, in the area known as the designer’s district. It’s a very well designed place, which also organizes courses for coffee lovers and commercializes some of the best single source specialty coffee I had the pleasure to try. How interesting, I kept on thinking. They buy coffee from the same places I did. But then left my idea hanging there.

Fast forward about a year, I had moved out of Finland and in my new job at Canada goose. I was not sure it was my place, but the wage was good and it was an industry I did not know. The idea to open a business kind of took the back seat. I enjoyed the team too at the time, so I just slept over it, thinking that one day, maybe.

But I just could not keep the idea out of my mind. My reasoning was the following.

1. Regular coffee is way overpriced, and most of what is sold as “specialty” is not only overpriced, but also not very good. Margin must be awesome. I want a bit of that margin$
2. Importing directly from central America will allow me to do something useful. I will pay the farmers a healthier price and, by keeping overheads as low as possible, I will be able to provide the best coffee at the best price
3. Sustainability, Yay!
4. When people will taste my specialty coffee, they will never go back to their warm dirty water or those hideous capsules. I hate capsules, they are an environmental disaster. People will want to do something good, right? Right??

So, on one of my monthly trips (pre-covid…damn this virus) I stopped in a Supermarket in Helsinki, and started to note down all the coffee for sale, the brands, the prices. I did the same in 5 different supermarkets. I did the same in Switzerland and in Italy. And wherever I went, I went look for coffee prices. Including the damn nespresso. I fast concluded I was not going to go into the capsule markets: I hate those things and I hate the taste of Nespresso. It tastes chemical

So, I was looking at all the supermarkets, and noticed that only in Finland there was a great variety of choice on specialty coffee and the presence also of labels not so well known. However also the big names such as Lavazza are selling specialty coffee in Finland. In Switzerland the choice is very limited. In Italy it’s…Italian coffee only almost. Big variety but always the same roast.

Anyway, here I can identify a first, glaring mistake: I thought that such a variety meant that there was a market for specialty coffee. And there was. But it was also quite saturated. I understood it later when I went to talk to Roasteries after I shipped my first batch.

I had bought quite a number of brands (including Lavazza) and tested them. Most of them were average at best to downright nasty. But here is the thing: most people don’t care or cannot recognize good from bad. But they recognize marketing. That is what I learnt from roasteries. One, a well known locally, was able to compete on being Finnish and high quality. The other were struggling. I thought it was a problem of quality (and a bit it was). But the real problems are 2: marketing and overheads. Turns out that as commoditized coffee, also specialty coffee is, within reason, a volume business. It is impossible to compete with the big names with big pockets. And big names with big pockets do just that: flood the market in terms of shelf space and advertisement.

I thought that was not my problem: I would go into consumer markets only online and only at later stage. Boy was I wrong. If the consumer market is saturated, independent roasters have a problem. And independent roasters are my lifeline.

So here is your lesson: to understand your market you need to look at the entire chain, vertically. Does not matter that you are serving only a segment, you have to understand the whole picture.

Also, you have to be careful in how you read facts: a market like the one I have chosen (Finland) can have the highest consumption per capita, but is a 5 million people country. Not a big market by any measure. And culturally, the sophisticated, environmentally conscious coffee lover I was targeting are a subset that only lives in the capital and around. The others are very happy with their disgusting (but cheap and convenient) Kioski coffee or with the practical, but environmentally disastrous, coffee capsules.

My perception was warped by my numerous visits to Starbucks. I do not find Starbucks, coffee-wise, very appealing, so I was trying to understand why people loved it. Turns out again, I was projecting my own system of values onto the wider market. People go to Starbucks because it is convenient and it has a very clever marketing team. Mot of that marketing is very questionable in its claims, but it works. Beautifully.

So here is the real take home lesson: people are lazy. I should have known better, I am lazy as well. They want convenience and they want something to feel good about.

Could I provide that? No, but I was not even trying. I was expecting the Roasteries to do that for me. Turns out Roasters, in most cases, are happy with whatever volumes they manage to push, and do not have the resources to reach the big public. And to change perceptions around capsules and single source versus those blends that big producers push with clever marketing. In this my judgement ahs clearly lapsed. If you want something completely different you must do it yourself: it is very difficult to convince established businesses of your own vision. Especially when said vision is not mainstream and makes sense only because you really really want to work.

So here is lesson number 2: before trying to convince others of why you are right, hear from those very same people why you might be wrong. And always try to look at your business idea as it was not yours.

Could have I seen the issues with my plan? Of course, some are glaringly obvious. But I was in love with my idea, with the idea of being independent and with the idea of making money while doing something good. Which is great. but often is not close to be enough.

So here we are at the strategic level. But there is also a tactical mistake: the choice of market.

The Southern side of the Baltics is not developed enough yet to appreciate specialty coffee. The northern side (Finland, Sweden) is saturated by the big brands. And consumers, when thy shop for home, are more convenience and bargain hunters than novelty seekers, except in a few enclaves around the capitals.

And volumes: if you can’t do volumes fast enough, it is very hard to turn a profit, as I was learning from my perspective clients as well.

The clients: example of a cultural clash

I am Italian. We are loud, outgoing people but we are not direct by any measure. Our culture developed in squares and open spaces, hence we are loud but also, diplomatic (some could say hypocritical in a certain way). If we don’t like something, we will not say fair and square.

The Nordics is the opposite. People prefer to write rather than talk, and if they think something, especially the finns, they will say it pretty clear. Sometimes is hard not to find them rude. But I have a certain experience of it, or so I thought. Turns out, when someone is dissing your baby, you take it personal. Which is very wrong. As the Godfather himself would have said, it’s only business. So I thought about giving the client an offer they could not refuse.

Yet they still refused it. But I did not have any Luca Brasi.(for non-godfather lovers: no firepower)

Hence  I lowballed myself. And managed my first 2 loads. On the first load I made exactly 268,12 cents of profits on a 5 figure investment. Ok, I did not lose money. But is that sustainable? No. Yet it felt SO GOOD to make money on an business transaction. However I would have made double that in 2 days of my corporate job. Freedom is great, but you cannot eat it. And the time I had to put in this endeavor was not measured in minutes, for sure.

So here a few random thoughts in dealing with clients: Do jot take anything personal. They have an interest to pay you as little as possible, and you have the opposite. It is really that simple. Also, be careful about negotiating in a language that is not yours ie English. My Finnish is nowhere close to be good enough to close a contract. And even if your counterparty speaks great English, the same word might have slight different meanings. Obvious? Yes, but selling is made of a lot of small, obvious things. And you cannot get them wrong.

(To be continued in part 3)