This month, I have the pleasure of bringing you the wisdom of Stephan Iscoe, the visionary behind Big City Coffee. Stephan is a Renaissance man — musician, author, business consultant, serial entrepreneur and CEO. His story is fascinating and his advice well worth learning.
I recently had the opportunity to chat with Stephan about his passion for coffee. He told me his story and his enthusiasm for both his coffee and his commitment to help his coffee growers were equally evident:
My interest in the coffee business goes back to the early 1980’s. A friend was a distributor of organic foods and had just signed a deal to distribute Cafe Altura – a shade-grown organic coffee from Chiapas, Mexico. He came by my house with a batch of fresh-roasted beans and a little electric grinder. Five minutes later I was sipping the best coffee I’d ever had. Up to then, I was a tea drinker.
Fast forward about 20 years. I was persuaded to leave the warm Pacific coast of Panama to visit a friend’s coffee farm way up in the volcanic highlands. Here I met many other coffee growers, large and small, and their workers – pickers, farmers, laborers – and families. Not only did I get to drink great, fresh-roasted coffee, but I learned some tough facts about what it takes to survive as a coffee farmer or worker.
You need to understand that producing organic coffee, in the shade, in a bio-diverse field, on the mountains, is labor-intensive. There are no automated pickers or fertilizer spreaders. Workers wash cherries by hand and then spread them out to dry in the sun. Nothing is automated until the beans are sorted.
The bottom line for most of these growers is that some years it costs more to produce and pick a crop than they can get for it. Sometimes they operate several years in a row with losses until they give up or the prices rise. But that’s not even the worst of it. They have no extra money for books or clothes or transportation to school in the nearest city. There are no daycare facilities and no medical clinics in the mountains.
This was all shown to me over many visits; presented as a matter of fact. When they were sure this had sunk in, I was asked to help get their crops directly to the consumer market, bypassing the corporate commodity brokers, shippers and wholesalers. And it seemed to me important to do. The grower could get 21 cents to a dollar extra a pound. In some cases as much as two dollars more. I didn’t hesitate. I came back to the States and began putting together a roasting team and a marketing team. The whole startup was financed by private equity.
We began selling Panamanian coffee online within three months, and were selling seven organic, fair trade Latin American beans within six months. We just added our eighth organic coffee, an exceptional fair trade bean from Ethiopia. We work with several aid organizations in Latin America and Africa and our profits go to charities that assist the farm communities where our coffee is produced.
After learning about the history of Big City Coffee, I asked Stephan to share with us some of the lessons that he has learned. Here is the rest of our discussion.
DGM: What is the greatest hurdle that you had to clear in starting a coffee business and how did you clear it?
SI: I have to answer that by changing the analogy a little…you can’t clear a hurdle in two jumps! Our biggest challenge has been being able to buy enough high quality green beans to keep the costs down. Financially, it didn’t make sense to buy huge quantities of beans and warehouse them before we could estimate sales volume and turnover times. Green beans don’t improve with age and tying up money in the commodity market is risky. We’ve been working with small organic and fair trade growers, co-ops and brokers to match our inventory with sales. It’s more expensive and time-consuming that way, and means that we’ve sometimes had to scramble to get the beans we wanted.
Now as our sales are steadily increasing and we can predict the sales rates of our eight branded coffees, we’re able to keep our supply up and see incremental cost reduction. A happy byproduct of more and better balanced inventory is it’s easier to achieve a high quality product because we do not have to adjust our blends and roasts as often, and our single origin beans, like our Panama Reserva, is consistently great from batch to batch over the years.
DGM: Considering the hurdles that young, and even established businesses need to clear, what is the most important characteristic in an entrepreneur?
SI: Empathy. Business experts ignore this; it almost never comes up in any discussion on entrepreneurship.
Empathy is cultivating a concern for other people that creates a desire to help them. From a practical standpoint, empathy helps you identify the emotional triggers that become the blueprint of the buying process. It’s essential to understand who your customers are and what they desire.
DGM: As a successful entrepreneur, what are the signs that you look for early in a venture that help you to identify the good ideas from the bad?
SI: David, I’ve been involved in everything from financial products, music production, books and fine art to electric cars and yoga products.
The main thing I look for is consumer demand. Great ideas, great products, great logos, whatever, don’t matter unless you can either tap into an existing consumer desire or create sufficient demand quickly and cost effectively. And it’s much easier for an entrepreneur to bootstrap themselves based on existing demand! I go in with the attitude that everything’s a test and assign metrics to everything that’s important to monitor. Then watch the numbers and take corrective action. Fast.
It’s hard in the beginning because there isn’t enough statistically relevant data. Costs outpace sales and panic sets in! If your business is built on demand, then all you’ll have to look for is sales trends and tune up your marketing to improve the sales numbers. It seems obvious, except a lot of folks ignore it, but know your cost of doing business; know the cost of acquiring a customer and the lifetime value of a customer. Keep a chart nearby that shows your progress in increasing the number of customers, reducing the cost of acquiring a customer, the cost of providing product to the customer, and the increase in lifetime value of the customer.
DGM: With all of the emphasis that you place on compiling data, what is the importance of social media in your marketing plan?
SI: Our business philosophy is based on the premise that all commerce is a social function. Someone has honored a need or desire by adding value or transforming some form of raw material or labor and exchanging it to someone else for something of value. Everyone profits when the transaction is centered on empathy, compassion and fairness.
For Big City Coffee it’s important that we understand what our customers and prospective customers want. Coffee is a commodity and there’s plenty available, so we try to connect in a friendly way and have a conversation about life, art and politics as well as coffee. Folks need to have a compelling reason to change their buying habits, and by having an open exchange online and offline we’ve found that personality and curiosity stimulate the desire to try our products.
Then the social media magic happens. People post their comments about our coffee – on our Facebook fan page, Twitter & coffee blogs. Another thing we do that just knocks people out is send real, personalized postcards to our customers and fans, just as another, more concrete way of staying in touch and expressing our appreciation for their friendship and patronage. What other online retailer is communicating with their customers or fans offline? You’d be amazed at the holiday cards we now get from customers! That’s a powerful connection.
OK, here’s an interesting statistic: 60% of our website traffic that comes from Facebook buys on their first visit. As a comparison, buyer conversions from other sources range between 5-24%
DGM: As you examine your own success, in retrospect what is the best advice you have ever received?
SI: The number one job of any business is marketing. Success begins with filling a need. That’s your market research. Maybe you already have a product, or an idea for a product, maybe not. Either way, you have ask, ‘Who wants it?’ and ‘How do I get it to them?’ In the case of Big City Coffee, we had a product and already knew the extent of the market for gourmet organic coffee. Our challenges have involved tapping into the demand.
DGM: One last question . . . What is the best advice that you can give to entrepreneurs who are just starting out?
SI: Don’t wait. Define your goal and start now. Take a baby step if that’s all you can do. Then build on that. Embrace outsourcing. Turn your suppliers into partners and treat them as if they were -your- customers. Network and become friends with other entrepreneurs, the more successful the better, even competitors! There are no secrets to being successful. Everything you need is available; you just supply the desire and take action.
Stephan has taken a passion for coffee and combined it with his real desire to bring about positive social change in developing nations. As a result, he is able to both make money and to help others to make money at the same time. How can you make a positive change that will benefit both yourself and others? While you think about that, visit Big City Coffee and enjoy a 25% off plus free shipping by entering the Big City Coffee coupon code 25THANKU at check out. Note that free shipping is available only to customers located in the continental United States (excluding Alaska). This coupon code is good for the month of May, 2010.
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