Go Your Own Way

Taking Calculated Risks for Better Business

By Shanna Germain

In the coffee industry—and in other industries as well—we hear about the successful risk-takers and innovators all the time. They’re the ones that make the news, the ones that get interviewed in the New York Times and in the best food magazines, and the ones that everyone looks up to and hopes to emulate.
Being a risk-taker is not easy task, especially in a tough economy. Just like in the Hollywood movie industry, everyone wants to go with the formula that has already proven to rake in the big bucks. Which is why there are so many bad, rehashed Hollywood movies. And why there are so many roasteries and coffee shops sprouting up that seem to be lukewarm carbon copies of Starbucks.

However, Starbucks was—and continues to be—an innovator and risk-taker in its own right, just like most companies that start small and make it big. So, how does a small company, a start-up company or even a company who just wants to go bigger and better learn to leave the Hollywood blockbuster mindset and move toward becoming the coffee version of an independent film?

Partly by taking not just any risk but a thought-out, well-researched risk. “The essence of business is risk,” said Ted di Stefano, serial entrepreneur, business advisor and writer, and managing director at Capital Source Partners. “I’ve owned many businesses and currently am an advisor to yet many more. I am also a frequent speaker on businesses and business models. Based upon my experience, I strongly believe that without calculated risk, a business is very unlikely to thrive and prosper.”

What does that even mean, a calculated risk? It means, essentially, that you’ve looked at all the companies that are like yours (and even a few that aren’t), and you’ve asked yourself what’s working for them, and why. It’s also valuable to look at companies that have failed, as well as companies who have taken risks that have not paid off—and how those companies have recovered from those risks.

And it’s not just beginning businesses that can benefit from this kind of calculation suggests, Chris Brogan, president of Human Business Works, which offers growth education and strategies to sustainable, relationship-minded businesses.

“Leaders don’t necessarily want to innovate as much as they want their pockets to magically fill with money,” he said. “What gets lost in the shuffle quite often during the experience after someone launches is that sense of trying new, bold ideas. If we hit with any small level of success, we’re likely to think that we’ve hit on ‘the way’ and that anything else we try won’t be in service of ‘the way.’”

As food for thought, he offered up this Buddhist expression: “If you meet Buddha on the road, kill him.”
“The point is this: innovation requires discomfort and a bold step away from even your existing success,” he said. “Precious few people wish to make that leap. That’s why the number of also-rans is higher than the number of amazing, stand-out experiences.”

Creating An Innovative Culture

So, there is the essential paradox of creative business models: Innovation is both risky and essential. Being unique could usher in a quick, hard death for your coffee business, while not being unique could just as equally mean a slow, lingering demise.

How can businesses create a culture that allows for risk, while still heralding a solid business sense?
“I think that companies hoping to become innovators have to reward experimentation and reward failure,” said Brogan. “If you don’t have a culture in place that allows for flexibility, exploration and change, then you’re not going to get much innovation out of your culture.”

However, being unique doesn’t mean you have to throw out everything and start over again. Instead, discover what’s worked for others—or for yourself—in the past, and build something crazy and different on the strength of those solid bases.

Most business experts list Apple as a serious innovator, although in many senses they haven’t done anything that’s wildly untraditional. Instead, they implement strategic changes. “Apple, in one of its worst years, put out a music player that they knew would sell well, while also realizing that the big win would be in building the iTunes distribution network so that they’d sell one device and several dozen incremental unit sales,” said Brogan. “Nothing in the models were unique or groundbreaking. The big risk was in changing plans and diverting resources and attention from their prime business: computer hardware sales. How would one mitigate such risks? There are ways: tests, surveys, plans and contingency plans, but at some point, the diving board only has one direction.”

When it comes to big-business, big-name coffee innovators, both Starbucks and McDonalds are, not surprisingly, the two that most business analysts want to talk about. While many inside the coffee industry might not view either of these companies as competition or innovators, it’s important to understand their influence from an outside perspective.

“McDonalds is a great business to watch right now,” Brogan said. “They invested in their McCafe project and made a very successful leap into another income stream from their adult beverage category. Now, they sell food and beverages. People (I, for one) go out of their way to get coffee there. They’re rolling out smoothies now, which is another high margin product. Dollars per guest is on the rise, and McDonalds now has two solid premium products inside their restaurant. Meanwhile, that’s not the end of their efforts. Their real estate endeavors, their branching out into other restaurant purchases, and several other projects give you the realization that McDonalds as a corporation does a lot to grow past their boundaries while preserving their revenue and staying future-protected.”

Starbucks, on the other hand, continues to separate themselves from other big coffee companies by offering a certain type of experience to their customers that has almost nothing to do with the actual in-the-cup product. “To keep up with the competition, a company must offer this product with some sort of a twist,” said di Stefano. “For example, Starbucks has a very special ambiance. Their coffee is somewhat distinctive but, in my opinion, more importantly they are selling a unique experience to their customers.”

Di Stefano said that in his work has corporate advisor, he is constantly telling boards of directors that they must try and think out of the box. “They must be open-minded and flexible and fill their strategy sessions with ‘what ifs,’” he said. “Differentiation is the key to any successful business.”

He recommends that both new and established businesses be prepared to continually ask themselves the following questions:

• Who are we and why is our product or service special?
• Why would somebody come to us when there are so many other choices available?
• What differentiates us from the competition?
• Is our uniqueness readily apparent to our audience, including current and prospective customers?

Successful Case Studies

While it’s often the big businesses we hear most about, there are small and start-up businesses in the industry that are taking big risks—and finding big payoffs.

Coffee Shrub is a business that’s taken just that kind of leap. Describing the company as a “green coffee Sourcerer,” the self-titled coffee roaster and enabler Christopher Schooley said the company (an offshoot of Sweet Maria’s) buys small lots of interesting coffees and then offers them to small roasters in quantities of 30 or 60 pounds. The idea came about after long-term experience in the field, and by looking at what was working in the industry and what was missing. In this case, he saw a lack of hassle-free ways for small or experimental roasters to buy tiny lots of quality coffee, vetted by someone in the know.

“With Coffee Shrub, smaller roasters can afford to buy cool coffees at a price that makes sense without overextending their finances, and also of equal importance these coffees can then find a wider audience where more people have the opportunity to experience them,” said Schooley. “There are a number of importers that have small lot offerings and even some who do ‘broken bag’ business, but we offer informative write-ups of the producers as well as extensive cupping and roasting notes and try to keep the whole exchange super hassle free. We are merely on online shopping cart.”

While Coffee Shrub came out of a visible need within the coffee community, Blue Bottle Coffee came from an almost entirely opposite place, a place of passion without former knowledge. Blue Bottle is a roastery with multiple retail locations which grinds and prepares every drink to order, has a hand-drawn, simple website, and doesn’t have chairs or WiFi in any of their shops. In a time when most coffee companies are looking ahead to the biggest, best, newest innovation, it seems that Blue Bottle is taking their inspiration from the past. And part of the reason for its unusual success may be that the company’s founder and CEO, James Freeman, came from outside the coffee industry and brought fresh eyes and fresh ideas with him.

“I was a clarinet player and Blue Bottle was my wacky plan B,” said Freeman. “I started with an 186 square-foot roastery and espresso cart. I started at the farmers’ markets because it was a form of commerce that I could understand and appreciate. If I had more experience in the coffee industry or knowledge of business in general, I never would have done it.

And then there’s Verve Coffee Roasters. Verve, a small coffee roasting company in Santa Cruz, CA, is doing what a lot of coffee companies are doing—sourcing amazing coffees and offering them to clients. Their approach to do so in a way that is professional, accessible and unpretentious is one of the ways that they try and differentiate themselves. But they’ve gone one step more in-house. “Verve is different in our emphasis on the quality of life of our team,” said Colby Barr, co-founder of Verve Coffee Roasters. “We look for people with good spirits and an active lifestyle. We ride mountain bikes together, surf, go to SF Giants games, and basically have a great time. We would never want anyone working for us that didn’t truly want to be here and loved what they did.  I’d rather help find them a new job.”

A common philosophy around Verve is the suggestion to “make it your own.” While this commitment to doing your own thing is never easy, the rewards, both in a business and personal sense, can be tremendous. “The hardest part of going off the beaten path is the self-reliance it requires,” Barr said. “The best part is the same thing. When you head off the beaten path, you are committing to doing your own thing. When you do this, you stop worrying about what other people think and you actually do it for yourself which I think proves to be more fun, more rewarding, and produces a better end result.”

The Road Less Traveled

It’s never easy to go beyond the status quo, but it’s never easy to run a successful company either. However in the business industry, as in life, risk and success often go hand-in-hand. Sometimes it’s far easier than we think it is to step off the well-trod path and forge ahead along the proverbial road less traveled.

“Businesses quite often make things really difficult when planning what to do next,” said Brogan. “Go simpler. Look to the past. Consider how others far outside your vertical do what they do. And keep one’s eyes and ears open. Opportunity is alive and well in business. We’re just not attuned to it.”