Summary of Episode
#33: Alex French joins Annaka and Ethan to discuss his journey founding Bizzy Coffee, a cold brew coffee brand that is on track to be in 4,500+ retail stores by the end of 2022. Alex shares his thoughts on creating consumer packaged goods (CPGs), raising capital, and growing a brand.
Alex French is the CEO and founder of Bizzy Coffee. Frustrated by the lack of cold brew coffee available in retail stores, Alex got to work developing what would become the #1 best-selling cold brew coffee on Amazon. Alex leveraged his previous experience at General Mills to better understand the beverage market and ultimately scaled his product from an apartment creation to a profitable business venture.
Podcast Episode Notes
Bringing cold brew to the supermarkets [2:30]
Developing a product that can break through a growing, saturated market [3:46]
Prototyping a product over the course of seven years [7:22]
Lessons from Alex’s first startup [9:12]
Alex’s strategy for selecting a business idea — find a consumable product that was already well known [11:33]
A framework for growing consumer brands and products [12:11]
Creating a fundraising plan and building a process for working with investors [17:24]
Persistent messaging is key for reaching out to investors [23:11]
If your goal is to build a huge enterprise, strong margins and the business category you are in are very important [26:06]
Raising funds with convertible notes [29:33]
Learning the fundamentals via trial and error and by learning on your own network [36:21]
Going from selling product in 1,000 stores to 4,500+ by the end of the year [38:38]
The hardest part about getting into retail stores is getting your first 1,000 stores [40:12]
Change is difficult once you’ve gotten to scale [46:40]
Improving sustainability and getting in front of more people [48:41]
Alex’s advice — Write down your idea and tell other people then get to making dollars [50:45]
Full Interview Transcript
Annaka: Hey, everyone and welcome to Startup Savants. I'm Annaka.
Ethan: And I'm Ethan.
Annaka: If you're a returning listener, welcome back, and if you're new, this podcast is about the stories behind startups, the founders who run them and the problems they're solving. This episode we’re joined by Alex French, co-founder of Bizzy Coffee.
Ethan: You might recognize Alex from our Founder Stories on YouTube. We brought him back to discuss how Bizzy Coffee has scaled in the past year and the steps he took to make it happen.
Annaka: Alex is an absolute pro and no topic was off limits here. From the massive amounts of research that went into getting the perfect cold brew aka gained a competitive advantage in a saturated market to leveraging trusted leaders to market your product through word of mouth in niche spaces. We went over everything a D2C brand needs.
Ethan: We also talked about Bizzy’s recent $7.1 million round, how it was made of both venture dollars and also debt, and then Alex basically gave us a masterclass in how these different types of funds should be deployed differently to maximize both ROI and growth. This is an episode you absolutely do not want to skip.
But, one more thing before the show starts, if you like what you’re hearing on the show and are looking for more, head over to StartupSavant.com and you’ll find a treasure trove of awesome startup resources. Alright, no more delays, let’s dive into this conversation with Alex French of Bizzy Coffee.
Annaka: Hey Alex, welcome to the show. How are you doing?
Alex: Doing great. Thanks for having me.
Annaka: Absolutely, and this is the second time that we've talked to you. So we're excited to see what's happening and what's new, but for those listeners that haven't met you yet, can you tell us about Bizzy Coffee, how you got started and the problem you're solving?
Alex: Yeah, so we are Bizzy Coffee for busy people, one of our early taglines, and what we do is we make cold brew coffee products for at-home consumption. So we have a line of ready to drink products, which are multi-serve, think like a 48-ounce gallon of juice or milk. It resembles that. And then if you're a person that likes to make cold brew yourself, we sell grounds and large format teabags if you want to make it yourself and wait the 18 hours, which I'm too impatient for, which leads me into the problem is I love cold brew coffee. It's an exploding category, but the cold brew process takes 18 hours.
And so, if you want quick cold brew, especially when we started making it in 2013, you really could only get it at a coffee shop. It didn't really exist in grocery stores or gas stations. So you'd have to go to a coffee shop and you'd either have to pay five or six bucks which was super painful or make it yourself. And so you're no matter what, you're waiting, right? You're waiting in line at the coffee shop or you're waiting 18 hours to brew it yourself. And so we just said, "We don't want to spend five or six bucks and we don't want to wait. So let's create a product line for people like us that are too busy to wait in line or wait 18 hours to get a really premium coffee shop quality experience at home."
Annaka: Yeah, I would usually just make a pot of coffee and then stick it in the fridge. So I think you guys have improved on my method for sure.
Alex: Yes. Well, that's important to note. That's iced coffee and we're talking about cold brew. So I've been fighting that battle for years and years and years.
Annaka: Completely different.
Alex: Mostly different, but it's still cold.
Annaka: Yeah, cold being the keyword there for me. There are all kinds of coffee companies out there. What is Bizzy Coffee's competitive advantage?
Alex: So it is a tough category. I make this fun and joke locally and I'm in Minnesota, there's a gas station called Holiday and I always say, "Coffee is free at Holidays on Tuesdays," and competing with free is really hard. So we've had to actually really differentiate the liquid and the product. We're not just a catchy name. So there's two major things within coffee, right? It's just one ingredient. So what we do for the ingredient is it's all about your grind size and your brew time. So we have done our analysis and we say that 18 hour brew time is the best which means that if you have any fine particles in your coffee seed, you're using a burr grinder, sometimes when you grind your coffee, you'll just get some powdery dust and then sometimes you get some really big chunks, but it's very inconsistent.
So what that means is, when you brew it, you'll have stuff that's over extracted and stuff that's under extracted. So we take an extra step, which is actually very expensive, especially with how expensive coffee is right now. And we just sift it out. So we're using a commercial-grade sifter, so that when the consumer brews coffee with our actual beans that are coarse ground, it's going to get that perfect extraction if they follow our recipe. So that's on the grind size. It is a superior product. You read the reviews on Amazon and it is better than everyone else's because we're essentially getting rid of 7% of the coffee. So that's just an expense that we take. So that's on the ingredient side.
And then when we're making our ready to drink products, which again, large format, refrigerated, we really want to emulate that coffee shop process. And so a lot of companies will cheat and they'll use hot water and then they'll pasteurize it which basically means they heat it up to kill the bacteria after they've brewed it. And what we do is we try to think of ourselves like a craft beer brewery, our culture is literally craft beer. That's how we think about it. We buy beer equipment and we brew it for 18 hours at room temperature and then we cold filter it. So we have this superior ingredient that we use. Yes, it's organic and it's sourced specifically for the cold brewing process and then we're just scaling what the coffee shop does.
They're not using pasteurizers. They're putting it in a stainless steel drum and they're brewing it overnight and then they serve it to you fresh. And that's exactly what we're trying to do. So that's how we differentiate the bean and then the actual brew process.
Annaka: Yeah, as a regular, I want to say regular coffee consumer, I don't think about those kinds of things, but when you explain it, I'm like, "Yeah, I want that. Give me that," instead of what I do.
Alex: And that's a challenge, right? Because most people don't really care about the feature, as they would say, they care about the benefit. And so what that results in is a better tasting product, but taste is subjective and it's impossible to trust a marketer that says, "Ours taste better," but what is quantifiable and undeniable is that we have the most caffeine in the category. So if you're looking to get jacked up and get a ton of work done, we got your sauce and you can just look at the numbers on the bottle and that'll be very clear.
Annaka: Yeah, okay, I'm sold 100%. And when it comes down to sifting and filtering and all that stuff, how long did it take you to actually nail that process down?
Alex: A long time. So the sifting part, so my co-founder is an engineer, I'm certainly not doing everything over here. I said earlier I don't do the operations, so I have a really smart co-founder who's an engineer. And so in the first two years, we were really focused on the basics of it, but that same concept. So we were sifting out the grinds. We were doing some of those things in the early days to test just the flavor, but doing it in your apartment is extremely different than doing it at a scaled manufacturing plant. And so we were able to do it at a small scale, but then to get the right equipment and to test it, everything gets exponentially more expensive the larger you go.
So to get to where we are today, it took us seven years and we keep testing and improving new variables. As we get larger, we have to buy scaled equipment and then we have slightly more resources to do more R&D to test even further. But to get where we are, we just implemented a new process a month ago and so we're consistently improving and getting better and that's one of our company core values is continuous improvement.
Annaka: Yeah. Oh, man, looking into, this is just ... I went down a rabbit hole a while ago on the espresso machines, commercial espresso machines. So not at all what you all do, but I had no idea that stuff could actually cost that much money and I can't imagine in a giant scale how much that stuff costs.
Alex: It's a lot.
Annaka: Sounds like ...
Alex: It's a lot.
Annaka: ... multiple brand new cars.
Alex: Yes, yes.
Annaka: And so you had another company prior to Bizzy Coffee that didn't quite make it. What was your takeaway from that experience that you brought to Bizzy Coffee?
Alex: Oh, there was a lot of them. So that business was called the Lifty and it was a snowboarding accessory. Now I like to joke that it was a widget, but basically when you ride the chairlift, you have to unstrap one of your boots and it causes you ... The weight of the board causes your ankle to twist and turn and it can cause some discomfort. And so you either deal with the discomfort or you put your other boot at the edge of the board. Eventually, it will destroy your boot. So I was like, "Okay, problem, clear, let's find a solution." And we developed this really ingenious, again with my same engineering, he devised this beautiful solution, hands-free, super safe, awesome.
But one of the key lessons that we learned, there's several of them, but the first one is that you got to educate a consumer because no one was actively searching. There was no name for it. So how do you educate the consumer? And education just costs money and we didn't have it. We were 22 years old with no money. So education's really tough. You want people to be actively searching for whatever it is you're selling. And then the other thing that we learned, this was our heartbreaker for us, is snowboarding is cool and people do it to be cool and they do whatever the influencers do. And the influencers, your pro snowboarders were like, "I don't need this stupid widget to ride the chairlift. I've been riding the chairlift my whole life. I got it figured out."
And so there was just this lack of social pressure, the opposite where, "I'm not going to use this because it's uncool," in an industry where it's all about image. So those are two key ones and then the third one was that, once we got someone to buy the product, it was $20, they never bought it again. So we had to find them. We had to educate them. We had to convince them that it was cool, even though it obviously wasn't and then we never got them to buy anything ever again. And so when I was looking at my next business, I had a very simple Venn diagram and there was two things, it needed to be search driven, so I did not want to educate. Going back to iced coffee versus cold brew, am I there yet? I don't know, but I knew people were searching for cold brew coffee because I looked at Google Trends and the search volume was tripling every year.
And then the second one was I wanted it to be consumable. So once I got someone, I wanted them to keep buying the product. And so we looked at a ton of different categories and markets that we wanted to enter into and this one felt like, "We're selling a drug that's legal. Not only is it consumable, but you have withdrawals when you don't have it," so we thought, "This one might be a good one if we can break through."
Ethan: That whole idea of a Venn diagram to vet a business idea is such a massive, massive concept that people that are looking to start a new business out there, find those things, find those things that are important to you and create these filters that filter out any sort of idea that's not going to solve for those things. So, was there anything else on that Venn diagram or were there any other sort of filters that you used to kick out business ideas?
Alex: That was the major one. Now since then, I've developed a ton of more what I'll call a framework to help. Once I've gotten that first massive thing, if it doesn't fit those two, I'm walking away from them as hard as I can. And then I'll have other frameworks that are within the consumer products landscape that I then say, "This is the perfect business model." And so once I've figured that out. So I was at General Mills in the food industry. Before that, I worked at Best Buy. So I knew retail and I knew food. So I was like, "Okay, I'm going to look in the food industry, so that way I know it's consumable, it's relatively ... At least it's going to somewhat shrink my box down a little bit," but I was looking at chewing gum. I was looking at craft beer, which is why we have a beer culture here, honestly, a ton of different food and beverage products.
And then as I've gotten farther and I've been in this industry now full time for coming up on seven years, I now have developed these other things that are like, "Okay, there's some real challenges that I face in coffee that had I known it…” Coffee's great because of the things that I mentioned earlier, but it also is extremely complicated because of the marketing behind it. As an example, a lot of companies will leverage the brand equity that they have built in, but for us, people take our coffee and they put it into a Thermos that says, "Coffee makes you poop." Our brand is nowhere to be seen and 82% of consumers cream their coffee. So they're adding in someone else's product to get the final product.
So there's some challenges here. So I've developed these other frameworks and let's see if I can remember them off the hand. So you want to have a trusted leader that you're getting word of mouth from. You want to have an alternative sales channel and I'll provide an example after this. You want to have social pressure or community and then you want to have on premise consumption. And so the perfect example in food and beverage would be RXBAR and they executed this flawlessly. Whether or not they did it, that's like my mental framework, but we did the same thing. So they had the trusted leader which was the CrossFit gym instructor. They had the community of CrossFit that's like, "Oh, you're eating a LARABAR. No, RXBAR is the only thing you eat here." You bought it where you did the community activity.
So on premise, you would buy them at the CrossFit gym and then the alt channel. So you're selling to that place where the brand becomes ... It gets built there. And then you can move into the mainstream channels. Oatly, you can think of the same thing, the oat milk company, they did that with coffee shops. And it's the same concept. The trusted leader becomes the barista. Now you have people ordering it in public. There's a lot of things like at a bar where it's a very similar concept. And so now, as I'm looking at other potential business opportunities, I still have my basic Venn diagram, but now I'm trying to elevate and to get to the consumer brand part that has been challenging for Bizzy.
Ethan: So are these frameworks, are these items that go into your framework? Is this for any company that you would start or is this mostly for ... Obviously, what you're looking for is consumable, but there are other companies out there that may be on more of a recurring revenue, not necessarily consumable like a software company. Do any of these work for those types of companies or is this very specific to consumable items businesses?
Alex: This would be very specific to consumer products. It may not necessarily be ... You could do the same thing probably with a fashion item or apparel, but it would have to be a consumer brand. I'm sure there's plenty of frameworks on the software side. I just don't know that category well and this is something that I've developed in my own industry. It's not like a thing that's widely known. It's just in the consumer brands. I think this is how it works and I'll probably continue to tweak it over time, but I have those check boxes. If it has that, it's perfect.
Ethan: I'm so glad that you brought that up because I think it's so important for new people that haven't started yet to be able to vet their ideas. I think that's extremely, extremely important. So, since our first interview with you, Bizzy Coffee has done a lot. There have been some big moves made. One of the biggest was y’all raised a new round. So first off, congratulations.
Alex: Thank you.
Ethan: Can you give us an overview of what your funding experience looked like?
Alex: Yeah, fundraising is tough and it is not for the faint of heart, but then again, neither is entrepreneurship. So you're already committed to this crazy lifestyle, so no different. It's just you're not talking to investors instead of customers basically and suppliers. I try and have a very strong process. I like frameworks and structure. And so I have a plan where our business is seasonal. We sell more cold coffee in the summer. People typically drink cold in the summer and hot in the winter. So I know that when you fundraise, you have to fundraise on momentum because an investor is always going to want to wait to get more information, always. They'll want to see what happens next month and how your financials look next month, so that they can mitigate their own risk and so you have to run a pretty tight process.
And so for me, I know it's going to take me 60 days of calls with an investor to get to the point where I can push them to write me a term sheet which basically says, "This is the one page document of what our 70-page document is going to be," and then I know that's going to take 60 to 90 days to close. So I work backwards from, "When am I going to get a term sheet that's going to get me the most momentum so that I can push these investors to compete against each other and create this fear of missing out this, FOMO, that this deal's happening, 'The train's leaving the station. Look at our business, it's performing so well', but I know that once October hits, my sales fall off a cliff?"
And so I got to get those terms in September, so that they've already agreed to them and then we just push to a close before Thanksgiving. Because as I've learned, once Thanksgiving hits, Thanksgiving to Christmas to New Year's, investors that don't need to work, they just don't work. And so you can't get anything done in that time period. So yeah, it's a tough process, but it's taken me ... I've raised probably five or six rounds at this point and I've screwed up a lot and so now I've developed a little process. And it's funny because all of the advice that's given to entrepreneurs comes from investors. There's actually not much advice from founders that have raised the money. And so you're getting this warped strategy from the investors of how to do it. So happy to answer any additional questions on that one.
Ethan: Well, we're going to get into that.
Annaka: This is Ethan's favorite thing to talk about.
Ethan: Yeah, I'm revved up. So before we get into the learnings and the advice, what was the biggest challenge specifically for you for this round that you faced?
Alex: The category. And this is again where it's tough when you're starting out to think about the macroeconomics of your category but just being in coffee is extremely difficult because there's very low barriers to entry. So any coffee shop, every listener in this town, they probably have a coffee shop or they had a coffee shop that's produced a cold brew coffee product in a can and put it into their local grocery store. Almost every city has that. And so there's a ton of competition and noise in cold brew coffee. Even though we're doing something very different, we have a very different strategy on the face of it, it's cold brew coffee. And whether you're selling it in a can or you're selling it on Amazon or you're selling it in a large bottle that's refrigerated, the uneducated all looks at everything as the same and it's extremely competitive.
So it was very difficult for me to even get the ear of the investor, so that I could describe how we're different, why our channel strategy, our formats, our at-home consumption strategy is going to be very different. So most of the time when I reach out, I don't even get emails back and I'll get warm introductions from their friends and I just won't even get a response back. So getting to that first meeting where they're actually listening was the biggest challenge for sure.
Ethan: So how'd you solve for that issue? If people aren't calling you back, you got it, you made it work, what was the solution?
Alex: A lot of it is the warm intro. And so I basically will build a list of all of my prospective investors that I want or I think would be good or this would be a good investment for them. And then I see if they have a competitive investment. And if they do, I remove them from my list. And if they don't, they stay on the list and then I'll scrub through each person's website, this is super tax, and go through each person's website, figure out who are the investment team people and then I'll see who I have a LinkedIn connection with them. And then I will draft up a forwardable email to the person that I'm connected with to ask for an introduction for that person. And that's the best way to do it. And then a lot of times they'll accept the introduction and then just not follow up. And then you got to put on your entrepreneur sales hat and be professionally persistent and then I just keep emailing.
And every time there's a new win, there's some sort of momentum that's happening, I stay consistent with my dates and timelines and I just annoyingly email people.
Ethan: So for those of us on the audio, you tossed up some air quotes there on professionally consistent, love that. What does that mean? Is that once a month and what's the value that you're providing these entrepreneurs? Are you keeping them up to date with your business on questions that they didn't ask for, but you know would be valuable to them or are you just saying like, "Hey, call me back"? What's in those messages and how often are they coming out?
Alex: Yeah, so it depends on where I am in my fundraising cycle. Let's say 60 days between when I first reach out to people to when I try and get the last meeting and then maybe another two weeks before I get a term sheet. So in the beginning I'm not that annoying, but it'll be the intro email that I got. And then maybe two weeks later, ping them again, "Hey, here's my Calendly. Let's schedule a meeting," and then as it gets closer to the point where I know they'll need 30 to 45 days to review my financials and review our sales performance, then I start hitting them pretty hard to either be like, "Tell me no or say yes," because they're just going to get so bugged by my constant emailing.
And that will be once a week, maybe twice a week. When I'm getting close to the finish line, I might be emailing them three, four times a week. And I'm always trying to create momentum and create that FOMO feeling. So I can be like, "Hey, we just got on the Inc. 5000," and then I'll be like, "Hey, I just added my July financials to the data room." "Hey, we just got this business award," and it's just a quick, quick line. Sometimes I A/B test all this stuff. Sometimes I'll reply to a previous email. Sometimes I'll just create a new email. I try all sorts of crazy stuff and then eventually they'll typically say, "I'm not interested," or, "All right, cool. That's amazing. Let's meet."
And I just would rather get a no because I know they're getting the emails, I got the introduction and so I know they're seeing them and then I just am professionally persistent and I say, "Well, I'm only just doing this for my notes. I want to make sure we're on the same page. I don't want to bother you if you're not interested." And then I was listening to another podcast and this guy used this tagline and I've used it and it works and he says, "Have you given up on this opportunity?" And it's like there's this psychology of, "Wait, this is an opportunity and I don't give up on things ever." And that's like, typically the last one I'll send to be like, "All right, you're either going to say yes or no right now and then I'll move on."
Ethan: So I think we're going to have to charge for this episode because this is the Alex French masterclass on investing outreach. So let's keep going. What was that number one takeaway that you got from this experience that you think would be valuable for other founders?
Alex: I'm learning so much that the category that you are in is really, really important if you want to raise money. Now, if that's not a focus for you and you have money or you want to bootstrap it, then find a passion project that you love going to work. But if your goal is to build a large enterprise and have investors, the category is very important and coffee is great because it's huge, but it's also very competitive. But the biggest thing that I learned is the margin that you have is really important. And then in our category, there are margin thresholds. And if you're below it, you are uninvestable. And if you're above it, people will be throwing money at you.
And so picking that category and having strong margins is really important. And of course the entrepreneur in me is like, "Well, I can't get strong margins until I get to scale and I need the money to get to scale," but they just don't care, which is so frustrating being on the entrepreneur side. But that's definitely been the biggest takeaway is you can have a crap business. You don't have to be that sophisticated. You can do a lot of things wrong if you have really good margins because there's so much more room for error or when you have paper thin margins, sorry, not paper thin, but they're thin, there's very little room for error. So your level of execution has to be absolutely top notch. So that's probably the biggest one.
Ethan: Well, that makes sense because you've got all these tech investors out there that are spoiled on tech margins which are 85-90% in a lot of cases. So, are you finding that the investors that end up investing in companies like Bizzy Coffee are specific to this type of product or are you getting some cross from the... Because I'm assuming there's just more tech investors than anything else.
Alex: There's definitely more tech investors, and yeah, for us, if you're not in CPG, consumer packaged goods, you're not relevant to us at all because you're going to ask some pretty basic questions where ... I'm even like, "If you're asking me those questions, I'm nervous for you as my partner. I don't think it's going to ... We're not going to mesh very well." And so I only go after people that invest into food and beverage. If there's even some crossover, there's some funds that are like, "We're food tech," and they do technology for the food industry, I won't even talk to them. So you have to be a consumer product. You got to do personal care, food and beverage and pet. If you're not in one of those things that sells into a retail store with low margins, high velocity, logistics, equipment, it's not really relevant.
So for better or for worse, those people know the industry extremely well and there's low barriers to entry ticket into physical products because you don't have to have some crazy education to code. Anyone can go make food in their kitchen and so they see a ton of deals and they're very sophisticated. So yeah, the people that we target and would be investing in us are very specific to our industry.
Ethan: All right. So you mentioned earlier that you've raised several rounds, and in some of those previous rounds, you had raised on something called a convertible note. Can you tell us what that is and how it works?
Alex: Yeah, it's a pretty technical investment structure. There's a few ways. There's just straight equity where someone's ... It's like Shark Tank. You're buying a share for a certain price. And then there's a convertible note which is… you're technically investing in debt. And so why that's important for the investor is investors are always looking for downside risk protection. They want the biggest upside, but they never want to lose their money ever. And so when you invest in equity, you own equity in the company and you get paid back last. So there's a thing called the cap stack and debt always gets paid back before equity. So when you are doing a convertible note, it is a promissory note, a promise note to pay them back and so it sits as debt.
And so in the event that the company goes belly up, they will get paid back before the founders or anybody else that's invested in equity. And so there's typically an interest rate. And then what happens is they're investing because they believe in the upside, but they want their downside protection. This is typically used in early stage investments. And they're saying, this is an easier document than just buying equity. We get downside protection, but we actually want the upside in the future. And so the convertible trigger is when you raise a next round of investment, it converts from debt into equity, and typically, it will match the exact terms of the next round of funding, but you get a lower price. There's a discount on the price per share because you invested earlier when it was riskier. So it's a complicated structure. It's debt that converts into equity and there's a few protections and triggers. It's good for investors and entrepreneurs. It's a pretty good deal.
Ethan: It sounds like there's a lot of upside there for the investor. So if this is a thing that exists, maybe I just don't know enough about the other methods, but why would an investor choose an equity investment over a convertible note? It sounds like you're getting in early, you're guaranteeing your payback. I guess maybe, is it the idea that the terms on the next round are less favorable? Is the tradeoff that they're making?
Alex: They're typically more favorable in the next round and so they want their downside protection now because of the debt. And then the terms in the next round, typically what happens are your terms for the entrepreneur. I'm always going to speak from the entrepreneur's perspective, the entrepreneurial terms get worse and worse and worse. So typically, there's all these triggers and protective provisions where when you do what's called preferred equity, which is typically what happens in these venture rounds, there's a preferred stock and there's a common stock and the entrepreneur owns common stock and the preferred round gets preferred preferences.
And so I talked about the cap stack earlier, debt gets paid back first, then preferred gets paid back, then the common gets paid back. And so they're basically staying above the entrepreneurs and sometimes there's more rights if they can block a sale or they're guaranteed their money back plus their ownership percentage. So as I'm learning, there's no rules in business. Nothing is standard. Everything is negotiable. And that preferred equity is where they'll typically want to be in later stage companies that have less risk to them where when there's more risk, they're more excited about the downside protection through the debt instrument.
Ethan: So what was the structure? What was the type of funding that you took in this last round and how big was the last round?
Alex: So the last round, we did a combination of debt and equity and we did 2.4 million in equity, but it was on what's called a SAFE. So this is getting technical again. It's a different type of instrument. It stands for simple agreement for future equity and it's like the greatest thing for entrepreneurs ever. It was created by Y Combinator. It's safe, right? It is safe for us. It's a beautiful thing. It basically is just a contract that says, "We're going to give you equity and it's going to be at this price and it doesn't sit as debt," so there's none of the downside protection and it's a very thin couple page document that basically just says, "If the company sells or if you raise more money, we're going to convert into that exact class of stock," but there's no real downside protection for them at all, but it's very fast.
So if you're moving really fast like we were at the time, you want to get a deal done quick. You want to get cash in the door. You don't want to spend a bunch of money on legal and diligence. You can move very quickly with this SAFE agreement. And so that will convert into the next round of financing that we do with the same terms. And it's beneficial for the investor because typically the later stage investor gets more preferential terms, so they can invest earlier and then get the later terms. So that's the benefit for the investor. And for us, they don't vote on anything. So it doesn't sit as debt and they have no voting rights. So we can still control all decision making where at some point you've raised enough money, you no longer control the decisions. You're just an owner that has to vote like everyone else. So that was on the equity side and then we brought in about 4.7 million in debt. And as the entrepreneur, this was scary because I had to personally guarantee all of it.
Annaka: Ooh, dang.
Alex: And it's funny though because I don't have 4.7 million, "Who's letting me sign my name on this piece of paper?" So that's basically just like equipment and stuff because we actually manufacture the product, so we use the equity to grow the brand and hire people and invest in marketing. And then we're using the debt to buy equipment. And so that's to lower our costs, increase our capacity, so that we can make more products basically.
Annaka: Wow. How did you learn all this?
Alex: Trial and error, honestly. I read the blogs and then I have a network of entrepreneurs, honestly. So I came from venture capital a little bit. I spent 18 months at General Mills' internal venture capital team. So I knew the investing side, but you learn all of it by doing it. There's no other way, right? You can read all the books you want, but until you're sitting across from someone negotiating, you'll never learn it to the same degree. On the debt side, we brought in one of our friends, who is a successful entrepreneur, and he had a manufacturing business and had raised debt. He never did the equity side. He only did the debt. And so we brought him at the beginning of 2021 and he had some relationships and coached us through as we were doing the deal, how to do it effectively, how much and what type of instruments.
So the debt is newer to me. I'm just kind of learning that, but as I'm learning the larger and more mature your business is, the more you use debt and you don't want to use equity because your equity shares are so precious. You don't want to give those up where debt is actually very cheap, all things considered.
Annaka: Yeah. Do you have a favorite blog or resource that you want to throw out there for us?
Alex: Yeah. There's some really good… One of the podcasts is This Week in Startups, by Jason Calacanis. He got a sift through. It's the older stuff that's really good. Now he is just like a personality, but there's some really good details on fundraising, investment structures. I forgot what the series is called, but he has a 10 or 13-series episodes very specifically about the fundraising process. And then there's a16Z, which is ... Again, these are all from the VC side, so I take them all with a grain of salt. And then there's a Y Combinator one as well that's really good that I learned a lot from there too.
Annaka: All right. We have some research to do and reading and listening, but as far as your growth in the last year, there's been a big push towards retail stores, right?
Annaka: How many locations are you in now?
Alex: So we're in probably 4,200, something like that. We did just get a PO today though for another 300 stores, which we're excited about, H-E-B in Texas. They're like-
Annaka: Oh, huge.
Alex: Yeah, we're pumped. They're the big one in Texas, so that was exciting. So we'll be in about 4,500 stores, 5,000 by the end of the year, something like that.
Annaka: Dang. Okay. And so where did you start this year at then?
Alex: So this year we started probably around ... We got Publix in Florida at the very, very tail of last year. So let's say before November last year, we were probably only in 1,500, 1,000 stores. So we launched with Publix. We launched with a third of Targets. We got a bunch of Kroger which is this holding company that owns a bunch of stores. So we launched with a bunch of those, but yeah, it's a slow slog for sure.
Annaka: Yeah. And correct me if I'm wrong, anyone else sitting at this table, we've only really talked to two other product-type companies.
Ethan: I believe so.
Annaka: So we haven't gotten a whole lot of insight into how to build those retail partnerships and then how the heck did you do it so fast.
Alex: It's funny because it feels slow because I've-
Annaka: That's three times in a year really.
Alex: Yes, but to get to that first thousand took years and years and years. So that's the tough part. And the thing about retail is you're buying physical inventory. And so the risk for the grocer or we'll just say the retailer, it could be any retail product, not just grocery, they're physically buying the product that's sitting on the shelf, so they have to know what's going to sell. And that's the biggest obstacle to overcome. Especially as you get into these big retail stores, there's a person that's in that buyer role that's trying to get promoted and they want to be senior buyer and then they want to be vice president. So they're like, "I don't care about you. I care about getting promoted for myself."
And so the big stores, you have to have proof of performance in order to get there and now we're there where we can be like, "Here, let me present this data to you. We're going to do the same thing we did here at your store." But in the early days, it's the chicken and the egg of like, "Okay, well how do you show performance without being on the shelf?" and that's where it gets really tough. And so the first several years are a real slog, especially in our category because you don't just present it to them and then they put it on the shelf a week later. They typically will have an annual or a biannual review schedule where they look at this time period and they look at all things for their category and then they work six months out to when they're going to update the store next.
Now there are exceptions. If you're like the hottest brand or this category is on fire or your competitors aren't fulfilling the orders, they'll cut you in, but that is the exception and not the rule. And so what we did is you ground and pound your local stores because they're going to be like, "We want to support local." You go to the same high school. You know their kids. And so they actually ... It's a small store that has less risk. So we started with a one store and then we got into a 10th store and then we got into a 26th store and then we got into the 80th store. And then all of a sudden those stores start to compete with the other stores that are in their region. And they say, "Well, wait, you got them? I need them."
And then you start to get your data story and this can take years. There are exceptions. You can get lucky and get nationwide Target which is scary or nationwide Costco which is even scarier, but typically it's a slow build for the first three to five years. And then once you get to that proven performance at a big box store, everyone has to have you. And then it goes really big and really fast.
Annaka: Yeah, dang. Yeah, that's a lot. Looping back into fundraising maybe, how do you plan, let's say you want to get into every Costco? I have no idea how many Costcos there are in the country.
Ethan: At least five.
Annaka: At least five.
Alex: Yeah, that's for sure, that's correct.
Annaka: I wasn't expecting that. Good one, Ethan, the way you take me out of it. So then how do you plan for scaling manufacturing-wise to match that? You see, I wanted a thousand stores?
Alex: It is hard and especially right now. I'm so lucky that my co-founder is who he is because it is freaking hard. Because you have to buy equipment before you get the demand.
Alex: Because once you get it, you got to be able to make it immediately. And with COVID and the lead times of equipment, there's certain pieces of equipment that are 18 to 24 months out, which is how the heck do you do anything? So what we do is Andrew, my co-founder, he has a capacity model where we look at, "With the current equipment, what capacity do we have currently that we can fulfill?" And then on the sales side, myself and our head of sales will say, "Okay, what's our sales plan? Who are we talking to? How many units per store per week are we going to sell? What's our percentage likelihood of getting that account?" And then I basically have to say, "Okay, what risk am I willing to take financially to buy this equipment now and potentially be out the money with no demand or get the demand and not have the capacity?"
Because if you ever accept business and you can't perform, you will never be brought back into that retailer. You are cut out from them forever because you basically lied to them. And so it is a very delicate balance and it's very risky, especially because we're ... Normally people pay someone else to make the products, it's called contract manufacturing. We make the product ourselves. And so we have to buy all that equipment. So we're in that process literally right now. And so we just put together our equipment plan. We have our budget and we have the lead times. And now that we've been in it long enough, we know when we need to have our equipment operational because we're in that sales cycle right now. We'll find out in November, if we got it for an April shelf reset where we get a store expansion.
So I know I need to have my equipment up and running by the end of February, early March. So we have to right now start putting down payments on the equipment, but I don't even know if we're going to get the business. So it's a risky dance and that's why you use the debt because all you have to pay for is your interest on it as opposed to when you just use equity to buy equipment, you have to use all the cash and then you dilute yourself. So that's where a lot of physical product companies or manufacturers' equipment, they'll typically use debt as their financing mechanism, but the problem with that is you have to be profitable which never happens for early stage companies. So it's this really tough balance of, "When can you use debt? When don't you?” So it's a fun challenge, but high risk and high stress for sure.
Annaka: Yeah, no kidding. And so in your years of growth, we talk to a lot of tech startups and they tend to be pretty agile, they can pivot quickly. What happens in your space when things go wrong? How do you adapt?
Alex: It is tough. It is really tough because once you get to scale, you really try to make your capabilities much thinner and you want to be more efficient at what you do which means change is very difficult. And so the first three years, we were very flexible. So we bought ... Everything was done manually. We had essentially one tank and we had a filling line that had a forehead filler. We manually capped, we manually date coded and we manually labeled. And so what we were able to do is we could adjust the bottle size from a two-ounce shot to a 64-ounce bottle. We were actually filling one-gallon bag-in-boxes out of it too, so that ... We knew cold brew. We just didn't know what size and what price.
And so early days we were able to test all of those things where now, we have to know what we're doing because our line now does a bottle every second. And so to change things, it will take a day to change all the equipment and adjust the settings and we might not even have some of the equipment we would need in order to do that stuff. So as you get larger, you get more specialized. So change is difficult. It's scary. And so right now, with inflation and pricing and what the retailers are demanding, there's some risk there. Luckily, we now have product market fit, so there's a little bit less of it. But yeah, when you're making the products yourself and there's a big change in the category, it can honestly be catastrophic overnight.
Ethan: So Alex, we've talked about how much you guys have grown this past year, but what's next? What does Bizzy Coffee have in the works for us now?
Alex: Absolute world domination.
Ethan: We're waiting for it.
Alex: No, I'm just kidding. So we're really focused over the next three years on sustainability. So it's like an internal passion project. I think people can do good with business as the best way to do things and make change. So there's some things that we can't change. As an example, consumers won't pay more for packaging. Plastic is what we're in and it's unfortunate, but what we're really focused on doing is being the most sustainable brand in our category. So we actually just launched our inaugural sustainability report where we made some pretty big goals like being net carbon neutral by 2025, by upcycling all of our spent coffee grounds which is a lot we're going through, about 30,000 pounds a day ...
Alex: ... which is crazy. So those are just some really big things. So we're going to be launching a 100% recycled bottle or 100% PCR, post consumer recycled plastic bottle. So that's a big initiative for us and then we just want to get in front of more people. Those are really the big things we're in, as I hit on, whatever, 4,500 stores. There's about 22,000 of them that we want to get into. So a lot more room for growth, another 5x, so it's going to be a lot of spent coffee grounds that we got to find a home for. That's not just a compost pile which is great. Most just throw them away, so we're doing our thing, but that's probably the big thing for us, is we really want to drive some change and lead the charge in the beverage side of just being as sustainable as possible and really forcing our competitors to follow suit with us.
Annaka: Yeah, spearhead that and then we'll have you back next year, so you and I can just get on that level. You and Ethan had your funding year. Next year, it'll be you and me and corporate social responsibility and all that fun stuff.
Ethan: Yeah, we'll just get it on the calendar that you come back yearly.
Ethan: Make it a thing.
Annaka: Yeah, and-
Alex: I'll do it.
Annaka: Sweet. Well, looking forward to kind of keeping track, I'm definitely stopping at Target on my way home to get some, but what is your number one piece of advice for early stage entrepreneurs?
Alex: So there's probably a two-step, depending on which early stage you're in. So if you're in the idea stage, number one piece of advice is write it down. Write it down on paper and tell as many people as you can because it just goes from an idea to this and it's tangible, right? You wrote your idea down and it is now out into the world. It's not just in your head. And then when you tell people it's shocking, how much people want to help and what advice they can give you. And then it also creates this social ... You have to follow through with it. You told someone you're going to do something. Now you gotta do it.
Once you've passed that point, get to the dollar as fast as you possibly can. So many people get caught up in the research phase of, "Would you buy this product? Would you do this? Okay, here's a free test." But what I've learned is people vote with their dollars. So someone could say, "Oh, I would totally buy that product," and then you say, "Great, $5." "Ah maybe not," right? And so get to that dollar as fast as you can because I can almost guarantee your version. One of whatever your business is not going to be right. And so just get to that point as fast as you can so that you can then iterate faster to get to success faster because it is a long journey. And every minute, you can [inaudible]. Especially in that early stage, it's going to be wrong. Launch it with your best guess and just start going from there.
Ethan: Awesome. Alex, this has been really great. Your stories are helpful and your insights are ... They are so specific and I think that people are going to take away a ton, a ton, a ton of value from this episode. So one more question for you. Where can people find you online and how can our listeners support Bizzy Coffee?
Alex: You can find me personally on LinkedIn. It's pretty much the only platform I use these days. Alex French at Bizzy Coffee. Pretty easy to find there certainly. Reach out to me if I can help in some way, I'll try and get back to you promptly. And then Bizzy Coffee, give us a try. We're probably at your local grocery store, and if not, we're definitely on Amazon. So give us a taste, write us a review, let us know how you think. We want honest feedback. We're always looking to be the best five-star products. Every unit, every day is one of our core values. And if it's not, we want to know, so we can make sure it's the best product possible.
Ethan: Awesome. Thank you. All right. We're going to put all of those links in the show notes and that is going to be it for today's episode of The Startup Savants Podcast. Thanks for stopping by. All right, my dear audience friends, I want to let you know that we've finally done it. We did the research. We reached out. We negotiated hard and we put in the work to build a partnership for the show, a strong bond that will last for years to come. Plus, it's a partnership that you can directly benefit from. That's right. We finally convinced our video team to put up our full length podcast as videos on YouTube. So now, for the low price of free, you can stream episodes of your favorite podcast, Startup Savants in video form on YouTube. So go check it out. Just search for Startup Savants in their search bar and it'll be right there waiting for you.
And of course, you can still listen to the audio on whichever podcast platform you choose. We're not going to kick you out from there. For tools, guides, videos of startup stories and so much more, head over to truic.com. That's truic.com, T-R-U-I-C.com. Bye, everybody.
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