How he turned $5k into $20m with a subscription business

you got your first year in business and you made how much in the first year nothing like 30k it's tiny second year like one 80. third year 650 fourth year two million okay six million six this is when covet happened I think we shot up the fifteen seven twenty one twenty two this is Michael and this story is all about how he quit his job to build this company that now does 20 million dollars a year but he started with just a few thousand dollars living in his parents basement and turning it eventually into a real business putting your entire life savings at 27 into this company before I quit my job is one of the boxes I needed to check which is oh that is really good I think there are 10 steps from having a business idea actually starting it and then scaling up to multi-millions let's see if those 10 steps are the same as yours so step one for you was you came up with a brilliant idea which happened where I was in Malibu California I went out there with a buddy of mine took a couple weeks off of work I thought about starting the Dropship business I was like let me find something that has high Revenue decent margins and then like don't do anything else myself and um just use that margin for for ads to work and funnily enough like the idea for Atlas came from that coffee shop but didn't turn out to be a Dropship business at all I love it Coffee Company at a coffee shop you're a genius so we're at that coffee shop where I had the idea I wasn't a coffee snob at the time I hated coffee I thought the coffee was like because I'd only ever had like Starbucks or my grandpa's Folgers or whatever and it's just like I'm like this is clearly something that everyone has got an acquired taste for but no one really like really likes it but I had this coffee that was really fruity and and like really really tasty they got the Barista at the time it was a natural processed coffee that I was drinking so how they take the Coffee Bean from the Cherry actually can have a huge difference on what you taste so coffee's a fruit didn't know that in certain countries they don't have enough rain and so instead of washing the fruit off to get to the bean they let it set out on these raised beds and kind of like the fruit kind of shrivels over the bean like a sun-dried tomato and so it imparts that fruit flavor on the bean so I'm like learning all these things and from there I was like oh like let me collect all these nuggets and then that's where kind of the idea like oh coffee comes from over 50 countries there's so many things about each of these places that make it taste different like let's let's tell that story it's you can't just sell coffee right you can't just be like it's roasted strong I mean you can build a brand on anything right people do lifestyle brands with coffee all the time yep but our has actually had something to do with the product step two was you reached out to a friend right so you both would do it together yeah he was actually he was there with me he was at the coffee shop together yeah he was one of my best friends from high school step three you come up with a name Atlas coffee because Atlas it's like from around the world and the club is we wanted to build this community around people who were getting to taste all these different things then did you obviously do the next thing which is like check all the domain names make sure you could actually get them the social media accounts yep yep actually I think we were slow to get the social media accounts but luckily it was so long ago that like they didn't get snagged um God damn Jimmy there's some serious Gourmet next for me five would be landing page for pre-sales are what you call the pay to doors yeah it's like here's a product buy it oh sorry hey we're low on stock but you get the data you need to confirm the validation that it's something people want yeah that would be the smart idea yeah it would have been not what you did exactly step was what getting a supplier for coffee luckily that part wasn't too crazy and when you go to buy coffee there's kind of like two types of markets there's a spot Market which is like okay like I see that you have this send me a sample I want that super easy like you can go from I see a coffee I've tried it and get it in-house in like 10 days and then where we are now we do contract buying so we'll work with the farm six months before Harvest and say okay we're gonna buy two containers worth it's a Well oil machine at this point I remember I invested in one cpg company and we called it like the great tahini disaster it was basically like we used a bunch of tahini in one product and it was really expensive and they dropped it all over the warehouse and ruined this entire shipment and so I think it was like 50 000 lost or something like that did you have you ever had a container drop it in the middle of the sea that you had already bought we contracted for we had some stuff gets stuck a long time remember when the container got stuck in that Port like turned sideways and got stuck yeah and they weren't like it was Panama yeah we had some stuff get affected by that which is not fun you just have to swap out something else and and say like hey you're not going to bill us until we get hit you know yeah so cash flow didn't hurt us but we just swapped in another country so part of the game that sounds like is a skill set of yours is basically being like X is happening that sucks now we're gonna negotiate and figure this out and so it's really just having the gravitas to call these people and sort of negotiate and make changes to something that's going to have to be fluid one of the only people who did what we were setting out to do in the space at the time they didn't sell their own coffee they use other people to sell their coffee so we were like okay so other companies are comfortable sending coffee on behalf of another company that we called I don't know 20 different ones found the ones with like the best pricing and the most options and it turned out to be pretty TurnKey and the next step is you need a way to ship and have boxes we provided them kind of our branding and our packaging and they took care of all the downstream stuff so before you actually even had the supplier for your coffee and your boxes you had Brandy that was like really important to you guys it turned out to be really important later our whole thing was like we want to show the outline of the country remind people that coffee doesn't come from here in every business you gotta have the map the numbers have to work but if you pair that with the magic you have a lasting business it seems like you have three magic moments the first magic moment I see is basically this yeah this is our postcard that we send with every shipment other than kind of educating them about the kind country and where their coffee comes from it's just a visual reminder that this thing you're about to consume doesn't come from here one of our models is to take people there take them there and so right when you open the box it's kind of like you're being teleported to Costa Rica then you also have the this yeah so this is our tasting card or coffee card so this is more about like the specific coffee that you're trying so what are the tasting notes to look for how is it roasted a little fun fact coffee has over 800 aromatic and flavor compounds which is more than wine so as you're sipping your coffee you get to have this moment where you associate the story with taste and anytime you can get multi-senses involved you have a longer last day in memory so you know how they say that smell is our most powerful memory well you actually have that with coffee then you've paired smell with taste with a story so you're kind of having this assault on the Essences which creates this lasting magical moment and the third magical moment I see is that every single month you have a different country that you give people to tell them why and how you came up with this crazy statistic I didn't even know of all the places coffee came from the most fun kind of fact was they copy comes from over 50 different countries and honestly people collect these like people like love the patterns love getting something new it definitely keeps our design on his toes because there's so many ones to design but this one's our Indonesia box and that one's a copy from Uganda remember when you were a little kid and if you were like me you got those National Geographics and every single month you got the new National Geographic in your hand and you kept them like you kept the images or even if you were a super nerd like I was you had those binders did you ever have those full of all the animals I had Zoo books yes awesome and then yeah I collected cards and why would somebody do that when you have the internet and you could have these things all online why would you do that if you could go see a tiger and you could see it live in India well it's because you can't always do that when you're a little kid you're not going to get to go to Uganda you're not going to get to go to Indonesia and probably a lot of people that get coffee shipped them aren't going to get to go to these places and taste the coffee firsthand but you get to send them a country and an experience in a box that is a beautiful magic moment that when they think about the price of this coffee they aren't thinking about being to be in price comparison you have taken pricing out of the equation because you are delivering a travel experience to another part of the world not a cup of coffee [Music] Mr Good client you did something else you went to friends and family but then maybe because you are a data science scientist a more uh data based way before I quit my job is one of the boxes I needed to check which is okay we've got kind of like a 1.0 version of The Branding we've got kind of the framing right we've talked to our friends and family and they you know we eyes light up when we talk about it to humans let's run some paid ads towards it and at the time Facebook was pretty new and I actually had experience with Google Adwords you can choose kind of which what someone searches what you want to bid on so people who search for coffee of the month club or coffee subscription that's like the prime audience and if those people weren't converting in a certain rate at a cost per conversion of a certain range like I didn't know how we were going to make this thing work and so that was ultimately like the the real test it's really hard to figure out how to charge for things and how to decide if you're making money what is one formula you use to simplify that yeah so we for a subscription business is kind of the North Star Financial metric is your lifetime value of a customer so how much profit you make over the life of a customer divided by your costs to acquire that customer so a lifetime value is just your average order value per month times your gross margin on that product times your number of months that someone stays so if you're a business that sells a 20 product and you have 50 gross margins and people stay for 10 months your LTV would be a hundred dollars and so then you come up with what you can pay per customer based on this and so there's like kind of different healthy ratios as a bootstrap company we had to have a really aggressive one so we needed an LT meeting to calculate it in five and this math that means we needed to pay 20 or less for a customer what we just saw here is how to charge for your products in order to make money we got average order value AKA how much money somebody spends with you we've got gross margins AKA how much money you keep from that then we've got how many months they stay with you before they churn or you lose the customer that equals the lifetime value that's your North Star how much money the customer is to you as a company you divide that by buy how much money it takes for you to acquire a customer so can you go out and buy ads for X dollar amount this leads to a ratio that if this company needs to be Fiverr greater are you telling us absolutely everything not exactly we're also out of coffee [Music] so then you are getting your customers through this one strategy but you overlaid another one PR which I typically like never tell startups to do or I would never do it's gonna work as well but it works for you guys how and why and so we got really good at pitching press and that was ultimately you stacking up with those backlinks up and then you start ranking organically for those same search words that you're bidding on for paid we didn't have to infuse a ton of the paid because organic was cutting our cost per acquisition down like our paid ads are still profitable but our organic really bolstered that most businesses overall fail they never make it they're a wreck and the difference between the businesses that make it and that fail is often Sops and a level of detail to the systems and processes you have in your business whether it's Coffee ratio or otherwise are there original Sops or to-do lists that you used in your business that you thought were really important I think you're 100 right it's like if you can simplify running a business to just the repeatable processes that drive things and you can communicate them to other people and hand them you can't hand it to someone until you can communicate it clearly like it's fewer things done better to the nth degree that actually causes the business to win one of my favorite quotes is most businesses document ingestion and not starvation they're trying to do too much instead of like the few things that they need to better like playing the right games and playing them better even though you might be truly the best person doing a thing like that's not a strength over time like you have to be able to codify what you do and hand it down and even maybe accept that it's not going to be done to the same standard not but that's okay because you can't scale otherwise one of the realizations we had when we grew really quickly was that we just didn't have enough good managers yeah and like understanding the value of that and they're the people who understand like they're people who have managed people before and they know like hey if there is a bad performer on the team here's kind of how this is going to play out at like a behavioral psychology where on the team that's not good like for me it's like we eventually got to a phase where I knew that even if I could manage all those things it was just too much what was the final step there as soon as we saw actually that those paid ads or converting in a way where people won't wouldn't have to retain for that long to make it pay off yeah it was actually a conversation with my dad that got me kind of over the edge uh and he said you're 27 there's never going to be a more risk-free time to do this if you're ever going to take a risk in your life the soil is fertile for now that's so fascinating because I think that's one of the reasons I love YouTube and you guys should also subscribe I'm so excited to finally remind scribe because I forget every time every time I'll just keep saying it smash the Subscribe button don't forget to forget every time a three year long subscriptions to Atlas we'll do it I was going to pay for it but you could pay for it too okay as long as they subscribe that's right I'm here for you your daily life I can't believe I haven't asked this do you want some coffee totally let's go get some coffee we're ready to do some tasting notes let's do it okay do it shares okay foreign that is really good we have a tasting wheel this is how we decide what we taste oh good because I have no idea what I'm doing so when you're trying to identify a taste the first rung is kind of like all right is it what I'm tasting fruity is what I'm tasting sweet is it more like chocolate and then from there it's like okay you tell your brain okay it's in the fruity Camp is it more like a berry fruit or like a citrus fruit and then okay that's Berry it's in the berry family So eventually you kind of just train your brain to kind of say okay not only is it fruity this is more Berry than Citrus I definitely taste some spices okay yeah yeah the spices yeah I mean we don't add any spices but that's why it's on the thing would you think like cinnamon baking spice yeah actually that's actually like a pretty common taste descriptor bacon spice is it yep interesting and this is a lighter roast so it's going to be a little bit more acidic than like a darker roast so you're going to get a little bit more kind of the like it's going to light up your tongue a little bit yeah I just learned that I'm very bad at Coffee tasting on a wine I might be able to tell you which tells you something about me what are you doing I told you I need a drink so I'm gonna help myself okay there's you the entrepreneur right and then there's the 472 different things that you could do as an entrepreneur to drive this one thing you actually want team the problem is as the entrepreneur you are sad because you can't figure out which of these leads to more of this so what do you do you think about okay if my North Stars I want more money you could do option one increase price right you could do option two start social media you do option three make better product in order two option four decrease churn for customers leave-in if those are only the four options and there's never four there's always four million then what you're trying to get to is which of these leads to more of this and you as a data scientist have a background where you're like huh I want to figure out out if I Touch number one if I just give it a little poke how sensitive is number one to Distributing me more dollars number one maybe equals two dollars number two the unintuitive thing is some of these have outsized impacts so even exactly you prioritize it in this way one of these could be five times more important than the rest well exactly so number one may lead to four dollars and number one will only lead to two dollars and then you would get way more complex and you could say well number one not only leads to four dollars but it also takes you know four times the work as opposed to that's a clock in case as opposed to this one only takes so this one takes four and this one takes two so this one makes more money but it takes more time quick wins versus big Investments right and so the cool part about you and like your unfair Advantage is that you're always trying to figure out where do I drive this because it drives this with less this and that's some version of play the right games win the right prizes shall we play a game oh you start with one product a coffee subscription box and then what happens so at a certain scale with just one product you sell a set number of subscribers and a set number leave and to continue that growth you either have to pump more into acquisition sometimes unprofitably or you can use your same infrastructure your same warehouse your same marketing technology and lots of new products where it makes sense and so tea was kind of that next Evolution for us so we started Atlas T Club tea from different countries around the world this is really cool you can either have one customer and try to get a ton more of them right or you can have one customer and try to get that one customer to buy a bunch more stuff if you can just treat your first customer like it's your only one and you can make them never want to leave you and be so obsessed with you that they bring a bunch of friends then your business is a lot more profitable but that doesn't talk about that next stuff which is how do you get a lot of depth from people in your business and so basically now you can cross-sell your entire lifts and it's a new market so you're right it's a combination of you have an existing audience who loves to try things from around the world yep hey now we do tea maybe one day we'll do chocolate right but then you also have a net New Market of tea lovers who are like hey this is a cool concept I've never heard of that yeah and they could even maybe reverse sell interior I think they might yeah so really it's great it's like an ecosystem around the brand narrative so you can sleep in your parents basement and run a company like this you can also do what he did and have a soft off-ramp four months in his job before he took the huge plunge my point is to tell you there's one way to do a startup and one one way to get rich is to show you that you can that normal humans just like you and me doing this every day so hit that subscribe button because maybe you are the one that's gonna make it with that next 20 million dollar company or hell just six figures

Channel: Codie Sanchez

Views: 230,923

Keywords: codie sanchez, cody sanchez, codie sanches, cody sanches, codie samchez, contrarian thinking, atlas coffee, atlas coffee club, 1.6 million per month, 20 million per year, quit your job, start a business

Id: 5fJ_iTPTIZA

Length: 18min 21sec (1101 seconds)

Published: Sat Aug 12 2023