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A Subscription Pact

A Subscription Pact

I noted this morning that London based coffee startup Pact had ended their Crowdcube campaign having raised less than a fifth of their £1M target and little prospect of raising the balance. This is a well funded (more than £5M raised from VC’s) enterprise so why wasn’t the enthusiasm of VC’s matched by crowd-funders? Perhaps its because crowd funding focuses much more on the business idea and VC’s on the team. If so, this is a fundamental divergence on funding strategies that could provide more insight in how to promote your startup to specific sources of funding. Did they fail to make a consumer case for a broad market for  artisan grown “fresh” coffee, available on subscription?

Putting aside where the £5M went, Pact promote themselves off a platform relating to two issues they identified; subscription based coffee supply and freshness of coffee as a fundamental need for coffee drinkers. The business model is well proven in the past by music clubs and book clubs where you periodic selection arrives if you don’t do anything to stop it. Not really based on consumption per se, and with the ability of the consumer to refuse delivery as little as 24 hours before shipment this puts pressure on the operational side IF the promise of freshness is to be adhered to. In other words they begin roasting several days before but the demand might fall away within the 7 day shelf life of the product. That is potentially high wastage.

Freshness as a concept in coffee has its advocates, especially amongst food writer like Alton Brown in the US. I was interested in whether any of the claims made sense or could be detected by the average coffee drinker. So help I turned to Professor Chahan Yeretzian who has studied coffee for a number of years and established the first post grad degree in coffee at his Research and Competence Centre at the Zurich University of Applied Sciences. Yeretzian is a professor of chemistry but also worked in Nespresso before the University so has commercial experience as well as research experience.

Interviewed by Jordan Michelman on sprudge.com Yeretzian talked at length about what freshness in coffee means. Essentially there are two measurement criteria; depth of aroma and CO2 content. The CO2 content is a byproduct of roasting and its presence inhibits aroma extraction from the beans. The CO2 naturally disperses over time, reducing to 60% of its initial value over a period of about a week at room temperature. Yeretzian doesn’t equate this effect with raging as much as settling of the beans into a better state for extraction. This is an example where speed probably reduces the quality of the end product and it would have taken the pressure off of Pact if they had explained the process and perhaps given themselves a shipment period of 7-14 days after roasting rather than within 7 days. At least it has an explanation rather than “freshness is best” and then “you’ll get your coffee within 7 days”, which seems like an oxymoron.

Aroma potential is complex and is influenced by a number of variables. For instance the idea that you should grind your beans immediately before extraction, as popularised by bean-to-cup coffee makers might not give you the most balanced result depending on the CO2 content of the beans. Yeretzian suggests ‘conditioning’ the coffee by grinding up to an hour before extraction to improve the COS and extraction processes and, therefore, the balance of the coffee. This is also at odds with Pact grinding your coffee before shipment when it might be 24+ hours before use. Again, it contradicts their artisanal ambitions. As importantly the machine that does the extraction, the grind size, compactness of the coffee and water temperature have enormous effect on the final product.

Incidentally Yeretzian cautions against storing beans in the fridge or freezer. Although he acknowledges that every 10 degree reduction in temperature doubles the length of the ageing process, when the beans or coffee come to room temperature the condensation that forms on the coffee with significantly affect extraction. Who knew? He feels it is important to see coffee as an evolving entity that needs sufficient time and temperature to fully develop. None of this is explained by Pact.

Lets also talk a little about supply chain. Pact talk on their website of paying their farmers 25% over the fair-trade price for coffee. Why? As a potential investor I’m curious about what this strategy achieves. Having done business in parts of the world where coffee is grown I can assure you that overpaying for product does;t guarantee trickle down to the field workers that you might be trying to help. That is done through supply chain management with oversight. If Pact are doing this they make a poor job of explaining it.

What can we learn? In a world of TL;DR we can wrongly assume that our potential clients will believe what we say because we say it and not on experience, and that they buy the team before the product story, just like VC’s do. But a consumer doesn’t benefit from a business pivot so they might care only about the transaction and a perception of value for money and not the potential for the team. Crowdfunding in its various guises is generally dealing with investors operating as consumers, even on equity based funding platforms, because they have little influence over the team or the business model at the level of investment they are making. Treating crowdfunding pitches like institutional or angel pitches could be a big mistake. Lead with your product story and be very clear about your benefits. Pitch proven benefits and don’t try and bend the market to your business model or a Google search might find you out.

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