Full transcript: Stephen Rapoport on London Real
0:00 London Real promo: This week on Silicon Real, we have Stephen Rapoport’s founder of PAX Coffee.
0:04 Stephen Rapoport: I want to stop you from running out of coffee that you love. Stopping you from running out of coffee is different from sending you a bunch every month. Customers hate subscriptions. You need to be passionately, emotionally bought into the problem you’re solving in order to execute better than everyone else.
0:22 And if you don’t execute better than anyone else, why launch the business in the first place? This global coffee market is the second largest commodity market on the planet after crude oil. We’re a highly commercial business and we’re a very customer-centric business.
0:43 London Real promo: Silicon Real presents Stephen Rapoport, packed coffee.
0:47 Stephen Rapoport: Follow your heart, do the thing you’re most passionate about.
0:52 London Real promo: In London, technology is the Silicon Roundabout. Introducing a new talk show dedicated to the people of the London technology start-up scene. Silicon Real. Each week interviewing entrepreneurs, venture capitalists, financial technology, accelerators and incubators in an exciting three-person format. Learn about the people behind the innovation.
1:22 Locally filmed, locally sourced. Silicon Real. It’s about the people.
1:27 Brian Rose: This is Silicon Real, the weekly talk show dedicated to the people of the London technology startup scene. My guest today is Stephen Rapoport, who is the founder of Packed Coffee, which delivers freshly roasted specialty coffee to customers across the UK.
1:46 You have secured over two and a half million pounds in investment from the likes of Tavert Hinckress from TransferWise, who we had here about a year and a half ago, Ian Hogard from Soundkick, and Robert Klein from Index Ventures. You now sell over 10 tons of coffee a month with revenue growth of 20% month on month. You formerly built and sold the apartment sharing site Crash Patter to Airbnb. Stephen, welcome to Silicon Real.
2:10 Stephen Rapoport: Thank you very much.
2:11 Stephen Rapoport: It’s great to be here. That’s quite an intro.
2:13 Brian Rose: You like that, right?
2:14 Stephen Rapoport: Oh, yeah. I think I’m just going to spin off this.
2:16 I’m going to pivot and I’m just going to be the intro guy, you know? I think I got it down.
2:20 Brian Rose: Everyone needs a niche. Yeah, right?
2:22 Stephen Rapoport: Maybe I should specialize more.
2:23 Brian Rose: You just made me an amazing cup of coffee in our kitchen. We just shot a video, you can find it probably right on this channel, and you walked me through the coffee, the thought behind it, the people that pick it, and I mean, and you went and directly bought this from the people in Columbia. You didn’t go through a middleman or a coyote, as you described, and in those three minutes, I feel your passion coming through about coffee, like in a big way, and it didn’t seem preachy.
2:49 It felt like teaching and involving me, and right away, I’m sure your investors feel this. They’re like, that’s the guy we want to be backing. Because I’ve had 80 people here. And ultimately, the passion for many reasons is what really makes the company. And I was wondering if you could comment on that and how you feel about coffee and your company and how that maybe is a key ingredient of what you do.
3:14 Stephen Rapoport: Sure. So comment on coffee and my passion for coffee specifically, or the importance of passion in entrepreneurship, or a bit of both?
3:21 Brian Rose: Yeah, why don’t we start with coffee for you first because you’re you’re this is your fourth startup. Is that right?
3:28 Stephen Rapoport: This is my fourth startup.
3:29 Brian Rose: Yeah, you’re not you’re familiar with this concept of space, but not coffee before. So how did this happen?
3:35 Stephen Rapoport: Yeah, that’s right. So I’m my As you said this is my fourth business My my previous company crash powder as you mentioned was bought by Airbnb. So we launched crash powder Guy called Dan Hill and I in the same month for Airbnb launched. We weren’t a clone. I stress that Because there were so many clones.
3:56 Depressingly, some of them got bigger than us. And then we were like, yeah, we’re not even as big as them. Anyway.
4:01 Brian Rose: Right. As in, maybe some German clones got a little big.
4:03 Stephen Rapoport: Yeah, exactly. And then thankfully died.
4:06 Brian Rose: Right.
4:06 Stephen Rapoport: But yeah, I used couch surfing a lot when I was younger, when I was traveling. And I thought it was great.
4:14 And I thought, well, yeah, but the experience needs to be premiumized. And I thought couch surfing would be better for hosts and for guests if some money changed hands. because there’d be a higher service level from the hosts, access to better places, an expectation that the guests could have of the host. And I just felt it made sense. And I saw this transaction.
4:37 So I thought, well, what about a marketplace where this transaction could take place? And then I thought, well, we could earn a commission from that. And my whole north star with that business was I’ve spotted an inefficiency in a market that I’d like to essentially exploit for a margin. This transaction makes us about $30. Let’s do more of these transactions.
5:01 And that was the driving force behind Crash Pada. And when we were acquired, and I would rather be warts and all honest. There’s too much success theater in this industry. I could say, oh, and of course, we strategically grew to the largest in the market and then cleverly were acquired in the Olympic year. The honest truth is they out executed us at almost every turn.
5:25 We launched in the same month and we were probably, we had 1% their host base the day that they acquired us.
5:33 Brian Rose: Which is five years later.
5:35 Stephen Rapoport: Which was four years later, yeah. So I spent a lot of time feeling kind of bruised about that, like how is it that this group of people with the same opportunities. I don’t buy the access to funding and access to expertise argument for Silicon Valley. I don’t buy that defeatist stuff that we can’t build global businesses outside of the US.
6:00 Brian Rose: Good. I want to talk about that more later.
6:02 Stephen Rapoport: I think it’s harder, but I think it can be done. I spent a lot of time thinking, God, I mean, these guys, I met Brian and I thought, he’s my age. I don’t feel like he’s cleverer than me. I feel like we’re really similar. How did this happen?
6:15 Brian Rose: Right. Is it Airbnb founder?
6:17 Stephen Rapoport: Exactly. Sorry. Yeah, exactly right.
6:19 Brian Rose: And inspiring guy to work for during the earn out.
6:23 Stephen Rapoport: Absolutely inspiring. What became blindingly obvious the first day we set foot in their office to the acquisition story was Dan and I, my co-founder, said, look, this is clearly a winner-takes-all global, massive network effect marketplace business. We are not going to win. There’s now not even a remote possibility and we tried to zoom and pivot and it kind of worked and kind of didn’t.
6:50 We said, no, we’ve got to throw in the towel here. We’d made a lot of promises to all of our hosts and the reason I think that we’ve proactively tried to get the business acquired was not for financial gain but rather we had made commitments to hosts. We hadn’t raised money, we weren’t a funded company, we were bootstrapped entirely to the end and we sort of had a serious conversation and and said you know all of those things that we’ve always hoped for for our hosts and I guess that the best way that we can realize all of those promises is by handing them over to like better parents.
7:25 Brian Rose: Right so you went to their offices you saw the passion they had.
7:29 Stephen Rapoport: Yeah and it’s sorry I’ve completely avoided your question about passion I met them and in a heartbeat I was like these guys have been fighting our brains With their hearts and their brains and that’s a battle that no one is ever going to win
7:43 Brian Rose: Okay
7:43 Stephen Rapoport: Brian has a famous question He would ask people when they interviewed and he would find he would say if you had a year to live and had terminal cancer Would you still work for Airbnb?
7:54 Apparently that’s been revised now to tell you really and so yeah, and so he’s like great.
7:58 Brian Rose: Yeah, it’s a great question I actually I put out a video at the end because we’re looking for someone and I said, you know Do you bleed London Real, you know,
8:06 Stephen Rapoport: and so it’s classic as in like, you know, they are on a mission They need everybody to be all in they need people to think this is the greatest thing in the world that they’re doing They’re adding all this value. And so I know they have it a real bleeding passion for what they do and it became Immediately obvious that the reason that we’ve been out executed is because they would they were doing something that they loved and they were passionate About the purpose and bluntly I wasn’t passionate about the purpose with crash powder. I’m during the earn-out I spent six months working there amazing experience incredible team. Dan my My co-founder is there, I believe, head of product or product lead right now.
8:41 Brian Rose: Wow. And that was in San Francisco. You spent six months there.
8:45 Stephen Rapoport: That’s right. Yeah.
8:46 Oh, sorry. No. Between San Fran and London, the London office.
8:48 Brian Rose: Okay. So, a painful lesson, but a great lesson for you to learn.
8:51 Stephen Rapoport: Incredible lesson. And my wife, during that time, I was trying to figure out what I was going to do next. There was never any question as to whether or not I would launch another business. It’s kind of all I know how to do. I’ve tried working for other people once briefly and I was horrible at it.
9:08 And she gave me this incredible piece of advice, probably the best bit of advice I’ve ever been given and certainly the one I repeat most often, which is stop trying to think like a VC, stop trying to think like an investor. She said, you’d be a horrible investor. Think like Stephen Rapoport. Pick the thing that absolutely drives you, that you’re passionate about, that might never be a big business, but that you care so deeply about, and it’s not gonna feel like work, and go and do that.
9:39 And then, in six months, a year’s time, let’s see if there’s a business in it. And I did, I mean, that’s where.
9:45 Brian Rose: They don’t teach that in school, that’s a funny thing. I mean, I studied economics, and they always talk about the profit and the loss and the marginal returns and the elasticity of the demand curve. But no one ever tells you about the passion that you need to keep a business going or to ultimately keep the customer happy.
10:01 It’s dollars and cents when you’re kind of in an economic situation.
10:04 Stephen Rapoport: It sounds and cents, and what that ignores is execution. You know, if you plan a business purely on paper and say, like, so while I was planning packed, I looked at the packed business model for dog food, and on paper it has a larger addressable market. Like, that’s a better idea. Packed for dog food is a better idea.
10:18 I wouldn’t execute that business well, because I don’t care about it. Me running packed for dog food is a horrible idea. The business model on paper angle ignores the fact that you need to be passionately, emotionally bought into the problem you’re solving in order to execute better than everyone else and if you don’t execute better than anyone else Why launch the business in the first place like right? That’s That’s personal. I really don’t see the point or the appeal in being number two
10:46 Brian Rose: and so is this something that Entrepreneurs and VCs will they will be fighting until the end of days because a VC ultimately wants that super scalable You know ten thousand hundred thousand X win and the entrepreneur needs a passion and so is it something that will always be?
11:02 Stephen Rapoport: No, absolutely not because that because they’re not mutually exclusive. What I’m saying is that they’re the same a VC that backs What am I trying to say? No, I think increasingly VCs will look at look for Passion and conviction from a founder as much as if not more than they look at the the addressable market
11:23 Brian Rose: So if you’ve got someone trying to disrupt a billion pound market with passion and heart, is that more appealing to an investor than someone who’s trying to attack a two billion pound addressable market with just their mind?
11:38 Stephen Rapoport: I’d argue it should be. I don’t know. I’m not an investor.
11:41 Brian Rose: I know. That’s a good point.
11:43 Okay. I want to talk all about PACT, but I just want to just talk about something really quick. I listened to the how to start a startup lectures that were at Stanford and there was like a bunch of different people. And one of them was the Airbnb guy and Brian, I think it was. And he spoke about it, and he spoke at one point.
11:55 They had a big competitor with Rocket’s clone in Germany. Yeah, and he was like, we don’t know what we’re going to do, because they built it so fast and scaled in Europe to where it was like almost they had to buy them. And they had to make a call, and they think he said, do these people, are they passionate about it? Are they in it just for the economics? And ultimately, they believed the latter, and I think they did beat them, ultimately at their game.
12:17 But Rocket’s business strategy is to copy things and then see if they float. I might take some flack for that, but I’m just saying it.
12:25 Stephen Rapoport: Is that, that doesn’t work. Rocket just IPO’d and it was enormously successful. That absolutely worked.
12:31 And what I’m saying is that founders that aren’t led by passion don’t work. If you meet the Rocket guys, what you’ll find is that they are so passionate about out executing other people, and they’re doing exactly what I’m doing. They’re leading their business with passion. Their passion isn’t for that, I guess what I believe is the magical part of entrepreneurship, which is spotting a problem that’s previously been, hasn’t been solved and solving it with creativity and data and focus and customer empathy and all of these wonderful, beautiful things.
13:02 Their passion isn’t that. Their passion is executing the hell out of a business and I have nothing but respect for them because they’re single-minded on what they’re trying to achieve and they’re achieving it. I think that’s amazing.
13:13 Brian Rose: Yeah, that’s a great way of finding it.
13:15 Stephen Rapoport: And I think I’ll get more flack for saying that then you’ll get suggesting they claim people.
13:19 Brian Rose: Well, that’s good, but we’re talking real. You describe your company as a VC-backed tech startup, and yet someone that doesn’t know even where the Silicon Roundabout might walk around and say, OK, aren’t you guys a coffee distributor? So what makes a company a technology business these days? Some people say every company is a technology company, and if they’re not, they’re going to be gone. And then some people don’t believe that.
13:43 Where does it land?
13:44 Stephen Rapoport: I think that’s a really good question. I think the distinction between online and offline businesses became very blurred about a decade ago, and it kind of stopped being a useful question, are you a tech company or not? I suppose, I mean, if you’re going to try and define it, I suppose a technology company is one whose biggest engine for growth or driver of growth is heavily dependent on new technology, I suppose is a good definition.
14:11 In the case of PACT, yeah, in many respects, we’re a very, very old-school business. You know, we take this product, which was first consumed by humans, like picked and dried and roasted and mixed with hot water, like maybe 600 years ago, and actually fundamentally not a huge amount has changed in that process since then. Even the countries, I mean, Ethiopia being the birthplace of coffee, we sell Ethiopian coffee that’s picked and dried and roasted. Yes, that’s very old school, and we’ll trade with a farmer on his farm somewhere that doesn’t have Wi-Fi access, and then we’ll put those beans on a lorry, and the lorry finds a boat, all of this is very old.
14:51 That said, the flip side of that, the consumer experience, is we’re enabling people who didn’t necessarily have the knowledge or the confidence or the geographical access to coffee of this standard to try it for the first time. We couldn’t do that without social networks, I mean, bluntly, a web interface and an iPhone app and all of these things that customers are used to interacting with. We couldn’t help someone who’s used to drinking instant coffee or low-grade coffee find a coffee from our range that they’re going to really enjoy because coffees that we sell are quite nuanced.
15:27 They don’t all taste the same, which I think a lot of coffee drinkers are used to. We couldn’t do that without a recommendation algorithm. Our algorithm is highly complex and an incredibly powerful piece of tech. And, you know, when we don’t just want to introduce people to the best cup of coffee they’ve ever made, we don’t want to stop them from running out. Now, I want to stop you from running out of coffee that you love.
15:53 There’s two really complex challenges in there that can’t be solved without a deep understanding and expertise in consumer technology. One is I need to find out what coffee you love, and I need to find out what coffee The other 100,000 people that we’ve sold coffee to in the last year in the UK love quickly. So we have a guy called Will. He’s our head of coffee. He can do that.
16:15 Brian Rose: What a great title.
16:16 Stephen Rapoport: Yeah. He doesn’t scale, so we needed to build a piece of tech that delivered that value or as close to it as possible. We take 17 data points in the flavor of a cup of coffee, we find out all of the things that you just inherently know about your own coffee habit, what hardware you use, whether you take milk, whether you take sugar when you drink it and we pick a coffee that you’re gonna like and then as you click like or dislike, they get better until the point where I would guarantee 99% of people that come to PACT buy bag four.
16:46 It is hands down the best bag of coffee they have ever made, like drunk in their life. That’s really hard, you can’t do that without tech. Number two, stopping you from running out is difficult. I think a lot of people look at PACT And because of the explosion in subscription businesses recently, they make a few assumptions about us. They assume that if you join PACT, you’ll get a bag of coffee when we choose to send it, which will either be every fortnight or every month.
17:13 And I’d say there’s probably 20 or 30 businesses that operate that model around the world. In fact, yes.
17:21 Brian Rose: That’s it? 20 or 30? I’m sorry.
17:24 Stephen Rapoport: That I’m aware of. That there’ll be 100.
17:26 Brian Rose: In coffee you mean?
17:27 Stephen Rapoport: Yes, exactly.
17:28 Brian Rose: Okay, right here.
17:29 Launching one of those. If you’re listening to us, he got a big grin on his face there, if you’re on iTunes.
17:36 Stephen Rapoport: I have an enormous amount of respect for Starbucks and that’s all I’m going to say on the matter. Stopping you from running out of coffee is different from sending you a bunch every month, stopping you from running out. And again, there’s 100,000 people who we have tried to stop running out, save them from running out of coffee.
17:57 That’s really hard, we need to know, first of all, your standard cadence, like how often do you actually need a bag, and we need to send it that often, and then we need to give you all of the tools that make it possible for you to, with as few clicks and taps as possible, fine-tune that delivery, because think about it from a customer’s point of view, we always want you to have one bag of coffee in your cupboard that you’re utterly enamored with. We’ll sell you that bag, like we’ll send it to you, and then we need to figure out how quickly you’re drinking it. Imagine if you were to have a dinner party and suddenly you use half a bag and we didn’t do anything about that. You’d run out of coffee just before every single bag we send. You’d run out of coffee maybe twice a month.
18:42 We would cause you a great deal of pain in that scenario. You can’t solve the problem of stopping people from running out without really smart tech.
18:50 Brian Rose: Okay, so then they have to let you know when they need more coffee or you have to constantly be asking them or learn their patterns, is that what your tech does?
18:59 Stephen Rapoport: I think the purpose of our technology is to remove as much of the friction as possible from us knowing how much coffee is in their cupboard, so no, they don’t have to tell us every time they need another bag, that would be, there would be a lot of friction in that process and we don’t check with them every week, there would be a lot of friction there as well and I think we’d piss off all of our customers, we’d never get them back. So, no, the ambition of our technology, our consumer tech, is to say, well, here’s a customer’s coffee habit. This is their coffee life. Let’s try and imagine what that’s going to look like over the next five years, all of the interactions they’re going to have to have with us. How do we remove as many, like net, remove as many clicks and taps from their life with us as possible, but still enable them to have between, let’s Let’s say 50 and 250 grams of coffee in the cupboard.
19:50 To be clear, I think we’re solving that problem better than anyone else on the planet right now for coffee or any other product.
19:59 Brian Rose: Okay, and that’s really a human issue of consumption in this. It’s not a coffee issue, but I guess it’s both.
20:06 Stephen Rapoport: I think it’s a human issue that’s sort of highly amplified with coffee because coffee as a product, if you run out of it, it’s more painful than if you run out of like or the milk. Just to finish that last point, we’re doing it better than anyone else in the world. I would say we’re 5%, maybe less of the way to solving the problem fully. In a team of 30 or a team of 32, we’ve got 10 guys in our product and development team.
20:35 We’re going to be doubling that over the next year because this is a really hard problem to solve and that’s what helps me to feel confident in the face of sort of competition from the big guys like Starbucks or ultimately Tesco’s and Walmart, I mean they are our competition.
20:50 Brian Rose: Okay, because you want to be clear here that you’re not just the guys that send you the same order every two weeks and it’s a subscription model. You are really trying to understand your consumer, take the frictions out and just have it always there.
21:04 Stephen Rapoport: Absolutely, as a customer of PACT you never run out of coffee that you love and you never have a cupboard that’s full of coffee and that’s that’s it you never run out of coffee I love
21:13 Brian Rose: great business models are simple but very difficult really hard we had the halo guys in here like a year ago and I was like your app is really simple and the guy is just fuming and he was like yeah we got 30 developers making it that simple but you know and same with the uber it’s like it’s such a simple concept your concept is nice and simple it’s actually quite complex but you’re at your you just said it in six words you know we want to do this, this, this, and this. And then the solution is now the complex part. You mentioned the subscription model, okay?
21:40 It’s something that every tech startup dreams of. It’s got the revenue models that the VCs love. And like you said, everyone’s moving toward it. Everyone’s trying to get into it. What are the pros and cons of the subscription model?
21:53 Do people take it for granted? Do tech people do it and don’t even think about the customer?
22:00 Stephen Rapoport: I think that’s a superb question Because I think fundamentally, customers hate subscriptions. I think subscriptions are most appealing to naive founders and naive or lazy investors. I don’t know if you’ve read Hooked, the book about habit forming products.
22:18 Brian Rose: I’m reading it right now, Audible. It’s so good. Variable reward.
22:22 Stephen Rapoport: Well, I think, well, that book, to me, makes two points. And look, they’re not new points.
22:28 Nira is putting them better than anyone has put them before, which is forming a habit with a customer takes a tremendous amount of work and empathy on the one hand and is enormously valuable commercially on the other hand. I think in my opinion most subscription businesses look at the value of a habit that you can form in a customer’s life and say do you know I’d love all of that value but that looks really hard let’s just let’s build the habit and then see who wants it and it’s kind of like I mean if the two case studies that I think are used most in talking about habit forming products of Facebook and the iPhone it’s kind of a I don’t know if you think this is a good analogy or not I think the average I think a heavy Facebook user checks Facebook 30 to 50 times a day so Facebook had launched with a product which was sent you a push notification 30 to 50 times a day saying well people are going to want this one day once we’ve done the hard work of building a habit for them so let’s just do the habit now and then we’ll have all of the value like that would just die and in my opinion most of the rigid subscription businesses will also die because they’re not fundamentally solving a problem they’re saying we want recurrent revenues because like helping to and no taking the time to understand the customers needs and then perfectly building something that suits all of our customers needs even though their needs are different that’s just too hard let’s
23:59 Just do the the recurrent revenue thing and see who’s buying and then typically what you’ll see in those businesses is those companies will pay to acquire you then they’ll pay to retain you maybe with your fifth free or your tenth free or both, then they’ll pay to get you to tell your friends, and then you’ll churn, and they’ll pay to get you back. They pay for retention, they pay for acquisition, they pay for loyalty, and that’s why, in my opinion, those businesses will die.
24:30 Brian Rose: Okay.
24:30 Brian Rose: But your model is subscription-based, your model is need-based.
24:34 Stephen Rapoport: I don’t like the word subscription for packed. What we do is, there’s certainly a recurrent element to it, we take the time to understand how frequently you need a shipment, and we send it to you that frequently because we think that solves your problem. If that doesn’t solve your problem, we change that. So let’s say you join PACT and you find, you know, we find when you sign up that you answer a couple of questions.
24:59 This is just full rolling out at the moment, actually, as a piece of UX. So if anyone does this and it’s not what they see, then ping me an email and I’ll apologize. It’s being rolled out right now. You’ll answer a couple of questions and we’ll say, okay, Brian, looks like you need a bag of coffee every 17 days, and that’s how often we’ll send it. Then, as you go through your life with PACT, we’ve got an iPhone app, just a panic button, it’s a single-function app.
25:26 You hit that button before 1 p.m., we get you coffee anywhere in the UK by 9 a.m., no extra cost. So you hit the panic button on day 11, and then you hit it 11 days later, we’ll say, actually, Brian, do you know what, we got it wrong. You don’t need a bag every 17 days, it’s every 11. So it’s a subscription insofar as when we find how often you need a bag then we’ll send it to you that frequently but we’ll never tie you in. You can always close your account, suspend your account, skip an order, change the date of an order. We’ll email you two days before any bag that we ship you like any coffee that we send saying just a quick reminder we are sending this because we think you need gone right now, but if you still have a bag in the cupboard, click here to change the date, delay it. Subscriptions love hate for me. It communicates 70% of what we do and it fails to communicate the really valuable or really complex thing that we do.
26:21 Brian Rose: So the customer is such a focus of the startup industry, the tech industry, but then also everyone’s trying to get to the finish line and get to the headlines and get to the big raise. And so it’s this fine line, I guess it always will be a fine line between, But you really have to constantly listen and iterate to your customers and always constantly deliver value. Otherwise, you’re going to be one of these companies that pays to get them back and pays for this and pays for the loyalty.
26:46 How many businesses actually are able to pull it off, do you think, in your opinion?
26:50 Stephen Rapoport: I don’t feel qualified to answer that question. I have no idea.
26:54 Brian Rose: Let me ask you about something you said in an email to me and you said it earlier. And this is this whole concept that London competes with Silicon Valley.
27:02 And you said it earlier, and this whole feeling that I can’t do it in London because we don’t have the VC, we don’t have the knowledge, we don’t have that. You hate that comparison. I want to talk about that. Why – and you’ve also had experience with, you know, Airbnb. I mean, who else is at the top of that game?
27:16 And your own interest in that, why shouldn’t Londoners feel that way?
27:21 Stephen Rapoport: Because it’s defeatist. If you feel that you’re in an ecosystem where you can’t achieve your ambition, then then what on earth are you doing trying to achieve your ambition there? I mean if you honestly, genuinely feel that there’s something that you’re trying to launch which isn’t going to take hold here or isn’t going to succeed because of the other people that live in this city with you or the people that you’re going to try and offer this product to, then go and launch it somewhere else.
27:55 I think there are a small number of examples of, I guess, there now being termed unicorns but there’s a number of billion-pound businesses that have been built in Europe, which sure they could have been built in New York or Silicon Valley or Israel or one of the other hotbeds for start-ups at the moment. I’m rambling a little. The reason I don’t like it is that it’s defeatist and that it gives people an excuse to fail other than their own hard work, dedication, focus, resilience.
28:35 It’s so easy and it’s so lazy to say, well, of course, had I been born in Silicon Valley, life would have been different and I bet the people that fall back on that excuse would have failed in Silicon Valley as well. And if you talk to someone like Tavett, who’s one of our investors and the founder of Transferwise and helped build Skype and has now built a billion pound company here, he would have succeeded in Silicon Valley and he’s succeeded in London. Yeah, we don’t have the same access to finance and we don’t have the same access to expertise and if that’s going to stop you from succeeding then don’t, you know, then don’t try to succeed.
29:10 Brian Rose: Fantastic point, very well said, very good. Let me ask you about coffee and tech startups and VCs because they kind of seem to all run in the same circle. If you look to America, you know, Blue Bottle comes out, you know, and you got all these and people are like, why do these people run together? Is it a passion thing or is it a scale thing and I’m gonna ask you the same thing I mean you have some very successful people in this in your last rounds of funding financing you probably have more in the future why is coffee and these people drawn together or is and what are your thoughts on Blue Bottle
29:43 Stephen Rapoport: okay so well so there’s three people that you’ve said that startups VCs and coffee run in the same circles I mean startups and VCs do because that’s a mutually parasitic
29:52 Relationship, we desperately need each other.
29:55 Brian Rose: Throw coffee in there.
29:57 Stephen Rapoport: Throw coffee in there. I think coffee’s a really interesting inflection point at the moment. It’s an ancient product.
30:05 It’s been around for half a millennium. And ultimately, it’s a massive industry which requires upgrading.
30:16 People want to drink better coffee. The current channels don’t give them access to that better coffee. there’s a bunch of new technologies that helps people have a much better coffee experience. So I think coffee’s time probably has come, or at least when I say that, coffee’s time came when Starbucks launched, and it was completely revolutionized globally. It moves in waves.
30:41 We’re in the middle of a wave. In the UK at the moment, there’s number of forces which I believe make coffee a really interesting, really attractive industry to be trying to disrupt. One is that we have this unusual dependence on instant coffee in the UK.
31:00 Brian Rose: I had no idea.
31:02 Stephen Rapoport: Yes, like 70% of coffee drunk at home in the UK is instant coffee granules. So I think compared to France, about 3% US, I think it’s much less than 3%.
31:13 Brian Rose: And if that doesn’t say at all about Britain, what does? So what on earth is happening here?
31:19 Stephen Rapoport: So we’ve got our tea heritage, and that’s probably a contributing factor. The major reason for that is the instant coffee was developed during the First World War so that people could take it into trenches. As I said a while ago, like everything that came out of the trenches of the First World War, it’s absolutely horrid.
31:39 And then it was in ration packs after the Second World War, and it just found its way into our kitchens and into our habits. And that’s a massive market, which is falling off a cliff, because we’ve gone through a food and flavor renaissance, and people won’t tolerate that kind of stuff anymore. And the disparity between the coffee that people are drinking at home and coffee that people are drinking out of their home in not Starbucks, but third wave coffee shops.
32:08 Blue bottle isn’t over here, but they would be a great example in the state. The disparity between home coffee and out coffee is just enormous void, and I think there’s a huge opportunity. I think that’s why coffee’s exciting in the UK right now. People are also more conscious of the provenance of the things they’re consuming and the impact that their consumption choices have on the world economy and the world environment, and I think that those two things play into coffee’s favor as well.
32:37 Brian Rose: Okay, can you comment on Blue Bottle and the success they’ve had and what they’re doing different than you, or what we can learn from the Americans in that sense?
32:46 Stephen Rapoport: I mean, to be honest, I can’t. I mean, they’re on the other side of the Atlantic. I don’t know the business particularly well. I know a few of the people who have invested in them, and they’re incredibly impressive people. I’ve had a bag of blue-bottle coffee called Three Africans, and this is my only interaction I’ve had with Blue Russell. As a coffee roaster, You always drink someone else’s coffee, hoping that it’s going to be good because you like drinking good coffee, but slightly less good than your own.
33:15 And I had this, I had a sip of three Africans and I thought, oh shit, that is really good. I think they’re a terrific business, a terrific roaster. I’ve only tried one of their coffees and I made it myself. I was very impressed, but other than that, I can’t really comment on their business.
33:31 Brian Rose: Okay, are you inspired by any companies like Zappos in the US or anything else that you you see and you’re like, okay, that inspires me or that looks good. Is there anything that comes up in mind or that you want to be this of this or are you just focusing on your own business?
33:46 Stephen Rapoport: I’m focusing on my own business.
33:49 Brian Rose: I could get that feeling about you.
33:52 Stephen Rapoport: This is weird drive I find in tech. Press to brand all new ideas as the X of Y. The Tinder of Uber.
34:01 Exactly. The Tinder of Uber butt on Facebook is like, no, I’m really, really clear minded on the problem we’re solving and the people we’re solving it for and that’s what we are with the business that stops you from running out of coffee that you love. We’ve been described as the zappos of coffee which is kind of appropriate but far less appropriate than we stop you running out of the coffee that you love and we’re packed. To answer your question before, am I inspired by the founders? I mean of course, every day I was inspired at Airbnb with Brian and Joe and Nate. I’m inspired by my team, the guys surrounding me. They’re the most humbling and extraordinary group of people I’ve ever ever had the privilege of working with. I’m inspired by my investors. There’s no one on our cap table who isn’t on there by design and of course you know I read the things that Travis at Uber has written and like about his focus and his ambition I find that incredibly inspiring Tony Zappos about his just absolute unwillingness to compromise customer experience and customer joy through selling shoes I think that’s incredible yeah I think that’s That’s incredible, and all of the cliched founders, I’m inspired by each of them.
35:29 Brian Rose: What’s your life now? I know you’re scaling up, you know, you’re probably raising money like a lot of people. You’re at like 50, 70 employees?
35:37 Stephen Rapoport: No, 32.
35:37 Brian Rose: 32, okay.
35:38 Stephen Rapoport: So it’s a service full-time, we’re growing sort of 20% month on month, we’re in a really good place. Our revenues are sort of crept into the millions about six months ago and we’re growing 20% month on month.
35:51 Brian Rose: Okay. So what is the big challenges now? Completely different than a year ago, I’m guessing.
35:57 Stephen Rapoport: We are fundraising, we’re fundraising at the moment, Series B. When I say that, I mean, we’re in the process of doing so. I never know if you’re going to be open about that stuff or not, but that’s a big challenge. That takes my attention away operationally from the business, which in turn means that I need to change some of the operations and the leadership structure inside the company to make sure that we can carry on making decisions that are as good as our decisions in the past.
36:26 Those are really big challenges. We are fighting against two challenges that I think have been there from day one and will be there for the foreseeable future, which is a huge amount of snobbery in the coffee industry. And I think there are some people, some fairly vocal people who are almost offended by the fact that we’re trying to open specialty coffee to people who don’t spend their days talking about altitude of growth and tawa and bean varietal and process and moustache wax and all of that shit.
37:02 Brian Rose: Yeah, let’s briefly talk coffee snobbery, because we’ve all been there. We’ve all been at the barista and there, making us feel uncomfortable. I think the same thing happens in wine or happened a long time ago, where there’s just this information gap And people use it sometimes to their advantage, or maybe the sellers can do that. It’s a lot of confusion. It makes people feel weird.
37:24 What are you finding with coffee, that people don’t want you educating the public, or is it the specialty people want to stay the specialty people?
37:33 Stephen Rapoport: Well, there’s this weird thing. I mean, it’s people, in my opinion, it’s founders of specialty coffee businesses. This is normally sort of single outlet, or maybe two or three outlet coffee shops, or specialist roasters. And they’re confusing what’s important knowledge for the business and what do customers care about.
37:52 Stephen Rapoport: So I was dismissive then. I finished that list of varietal terroir, growing altitude, process type, and all that shit. I didn’t mean all that shit. What I meant was there’s no reason for me. I care deeply about the provenance and the quality our coffees and all of those things are critical components of the green coffee we buy and then the process of roasting it is incredibly complex and really difficult and the chemistry involved in coffee roasting is is mind-boggling and I care about all of that stuff and I get really excited by it and half of my team do as well. What I don’t do is confuse the fact that because I care about it my customers will as well. And I think it’s really dangerous. Specialty coffee roasters behaving in a self-centered way and implying that their customers almost don’t deserve access to these beautiful profound products. If they don’t care or talk about that stuff, it’s bottlenecking the growth of specialty coffee globally.
38:57 And the knock-on effect that’s having on welfare or origin is heartbreaking. And And so you’ve got these, for want of a better word, hipsters in their specialty coffee shop lauding their granular knowledge about this beautiful product and its valuable knowledge but they’re lauding it over people because in my opinion it makes them feel good about themselves to know something that other people don’t. That’s going to stop my mum from buying coffee this good.
39:28 It’s going to stop most people from buying coffee this good. erecting emotional barriers to a product which ultimately is affordable and is beautiful and anyone can have a sip of that coffee I’ve just made you and go oh my god that is wonderful you know that’s wonderful and if they want to talk to us about where it’s come from or how many generations that farm has been been farming that land for and producing specialty coffee then of course we will But we won’t make the mistake of putting people off buying coffee of this standard by forcing unnecessary information on them.
40:05 Brian Rose: Okay.
40:05 Brian Rose: That’s a very nuanced point.
40:07 Stephen Rapoport: I think to finish it, I think a lot of these behaviours that I talk about have been learned from the wine trade where the overlaps with specialty coffee and wine are enormous. great varietal, bean varietal, very similar impact on flavour that the terroir is critical, the provenance, the heritage of the people who, you know, grow the vines or grow the bushes, all of this stuff matters. And so coffee people have come in and said, oh, you know, we should behave like those guys. And the point that they’ve missed, the critical point that they’ve missed is that if you’re drinking the best wine on the planet, you’ve probably spent $10,000 for a case, or £10,000. Yeah, you have absolutely every right to want to talk about every… If I’d just spent £1,000 on a bottle of wine, I’d wanna know the winemakers inside leg measurement and everything else. The best coffee on the planet, the most moving profound flavor that you can get from a cup of coffee on the planet is £6.95 a bag, and And I know because we sell it, and it’s democratizing.
41:19 Stephen Rapoport: You don’t need to behave that way to sell coffee this good. You can if you choose to. My suggestion would be you should if an individual customer asks you to, and you absolutely shouldn’t if they don’t.
41:30 Brian Rose: Okay. And if not, it’s a friction, really, at the end of the day.
41:33 Stephen Rapoport: It’s a point of friction. It’ll stop the specialty market growing. It will maintain the commodity market, which is vast and cruel, and you’re just not going to do your business any favours, your potential customers any favours, or your producers any favours. It’s just a lose, lose, lose.
41:51 Brian Rose: Okay, good.
41:52 But that’s going to be like one clip that we’re going to leave out there when people talk about coffee. Real briefly in the kitchen, you talked about how you buy direct from your people in Colombia and you don’t use middlemen, AKA coyotes, to buy it and how that can really make a difference to find out if there is a child or someone in some type of slave labour that’s actually picking the bean and it’s not something people think about or want to think about when they drink their coffee, we see the fair trade things, we don’t really know what that means, we see the pictures of Starbucks and we don’t really know where the coffee comes. So why is that important to you and how does that actually play out in the end of the day as far as their coffee getting to us, them being paid for their coffee, all that stuff?
42:33 Stephen Rapoport: So the first thing I’d say is I’m very slightly hesitant to answer and the reason is I’m I’m really cautious not to position PACT as an ethics-first business. I think we’re a highly commercial business, and we’re a very customer-centric business with a good heart, and our success will lead to great, wonderful things happening at origin. So if I’m slightly hesitant, it’s because, actually, I think if you position your company as an ethical company, you end up selling ethical products to people who were buying them in the first place and everyone else assumes that you’re slightly low quality and slightly high price.
43:14 So that’s my caveat. It’s done. Why does that matter to me? So the coffee industry or the coffee market, the global coffee market is the second largest commodity market on the planet after crude oil. It employs hundreds of thousands.
43:32 Brian Rose: And before marijuana probably.
43:35 Stephen Rapoport: No, I can’t possibly comment. No, but like before cereals, like before food, bigger than food, the, no, it’s a seasonal agricultural product grown in developing economies, typically very poor countries like Ethiopia. I mean, Tanzania, Kenya, they’re not, you know, they’re not incredibly poor, but they’re developing economies, Central and South America. You’ve got hundreds of thousands of unskilled migrant agricultural workers who, when the season is in, in most cases it’s once a year, sort of flood through a farm and pick these cherries and it’s unskilled.
44:21 The sheer opportunity for human rights abuse in what I’ve just described is enormous and there is a lot of child labour used and slave labour and prison labour, they’re the three big ones. And then even when there’s sort of consenting adult labor used, the conditions can be very poor, people’s lives can be very unpleasant. It’s a commodity market driven predominantly by demand in the West and the pricing is driven by demand and also sort of seasonal variation. So in tough years for these guys, these farmers will produce a huge amount of coffee and keep it in store and sell it throughout the year. And then in the months that precede the new season’s crop coming in when they’re very cash strapped, not most, a lot will be selling the produce they have left for less than the cost of production.
45:22 They’ll be making a loss. And those tight margins trickle down and it impacts the way that their pickers are treated and paid. And I think that’s an inevitable fact in ultimately what is free market economics. So, there’s various people who’ve tried to address that problem. Fair trade is the best example. In my opinion, and I’d rather not get too stuck on why this is the case, but in my opinion, that’s the wrong way to try and solve that problem. Fundamentally, because it separates price and quality. The way to solve that problem is to educate consumers as to why they should be consuming something better, that’s more expensive, that results in a grower getting paid more, that requires a grower to employ semi-skilled labour. You know that these aren’t doctors, they’re not graduates, but they know how to spot and pick a ripe cherry and they’re paid a lot more as a result. So I think the major impact that PACT will have on the world economy if we succeed in achieving our ambition is we’ll upgrade people’s coffee habits at home. I think we’ll have a small but meaningful impact on 10 million people’s breakfasts in the developed world and as a result I think we’ll save thousands of lives at origin where fair prices will be paid and fair prices will trickle down through semi-skilled labour.
46:49 That that’s what that’s what thrills me about the possibility of succeeding yeah I am a capitalist I am an entrepreneur I do want this business to succeed commercially I do want to I’ve got an enormous respect for my investors money and they’re you know they’ve been very honest about what they need from PACT and and I’ve been very sincere and saying I’m going to try and give it to them. But ultimately the thing that really keeps the engine turning is that knowledge that we can have a positive impact at people’s breakfast tables in the developed world and on people’s lives in the developing.
47:26 Brian Rose: Okay. Well said. Let me change gears a bit. You’re a new father. Everyone knows or thinks that a tech startup is going to be a 24-7 job. We all know it does require so much time, so much passion. On the way on the elevator, on the way up, you were saying, you know, a boring day, that would be an amazing concept to me.
47:46 And speaking of people in traditional jobs, things like that, how do you balance being a father, getting your personal time, running a business, dealing with a really young baby, how do you juggle it all? And is it all part of the same puzzle? I mean, is it really necessary to have that downtime and that family time to get recharged, to be passionate about your business?
48:11 Stephen Rapoport: I would love to claim I’m doing a perfect job on that front. I’ve got an incredibly supportive wife, Emma. She’s amazing and I wouldn’t claim that I’m getting the balance just right at the moment of being a new dad and being really proud of the job that I’m doing as a new dad and also being really proud of the job I’m doing as a founder. I think The two do make, I mean the two do almost by definition cause you to compromise the other.
48:40 It’s a really hard balance to strike. Before Matilda was born, so she’s three months old now, oh no, four.
48:49 Brian Rose: She’s so cute.
48:50 Stephen Rapoport: I just, she’s heartbreaking every day. I spoke to a few founders who I knew to have young children and I asked them like, how do I do this?
49:01 Like how do I continue to be an effective leader at PACT and still be a good dad and everyone had some tips and everyone had the shared experience of like, it’s really hard. You’ll know which compromises to make. You’ll know which compromises work for you and yeah, I don’t know if I have the answer. And the best advice I was given was Tim, who’s the founder of CEDO, said, just be really clear-minded on the things that you’re not going to do at work anymore.
49:36 He was like, list all of the stuff you’re doing at the moment, pick the most trivial because you will fill some of your diary with trivial stuff that you don’t need to be working on and make sure that’s the thing that slips. Don’t do all of the same stuff to a slightly lower standard. Like be really clear-minded on the stuff that you’re going to still do. And I think that’s the best advice I got. It’s certainly the only advice I’d probably give.
49:58 Brian Rose: That’s good advice. That’s good advice. I like that. Stephen, I always ask everyone that comes on the show a few questions here at the end. I’m going to ask you if you could make a phone call to the 20-year-old Stephen and give that young man a bit of advice.
50:10 What would you tell him?
50:12 Stephen Rapoport: Wow. Shit. I have no idea. What would I tell him?
50:15 So I was in university at that time and I don’t want to be all kind of… This might be a slightly controversial thing, so I would probably advise him to drop out of university. I did a business degree which as an undergraduate is in my opinion of a fairly pointless way to spend your time particularly if you want to be an entrepreneur. I founded a business in my first year I was kind of failing my degree anyway I had 20 staff at that point and yet I was still holding on to this Linus blanket of yeah but I might get a degree at the end and I shouldn’t have made that decision I should have dropped out so I’m absolutely not saying that everyone anyone that’s listening to this who’s at university should leave university.
50:59 Brian Rose: See Peter Thiel.
51:00 Stephen Rapoport: But if you’re trying to launch a business or you intend to one day, then it might be a good idea.
51:05 Brian Rose: It’s interesting when you try to teach business without any context. It’s like sometimes it’s like trying to take a 10-year-old to an art museum when they don’t want to go. It’s like it’s hard to appreciate things when you don’t have a context or you’re not interested yourself.
51:19 And then if you have the experience and you go back later, that’s why MBA school is usually encouraged once you have some business experience. Even that might be out of context. I like teaching someone to be a potter without ever letting them touch clay. You can’t do that in a book. You would be a horrible potter.
51:36 On that same note, what’s the best advice you’ve ever received, business or personal, maybe from a business mentor that you worked with or something that sticks out in your mind like, yeah.
51:46 Stephen Rapoport: As I said earlier, it was my wife’s advice to me, like stop trying to think like a VC, stop making decisions based on the imaginary judgments of an invisible jury that don’t even exist, follow your heart, do the thing you’re most passionate about, and like set your own ambitions, set your own goals.
52:02 Brian Rose: That’s really powerful.
52:03 I mean, the pact is really born out of, you know, that pain that you had with crash pattern and all those observations, and so like that was a tough time for you, but without that, you probably wouldn’t have this singular focus and passion on doing this.
52:20 Stephen Rapoport: Yeah, but I don’t know if I would say it was born out of that. I think it’s certainly, the decision to launch was kind of crystallized in part by that experience. But PACT is born out of, fundamentally, my passion for and my profound emotional connection with flavor and my belief that coffee is as good as flavor can possibly get.
52:43 Great coffee, it simply doesn’t get better than that.
52:46 Brian Rose: Right, and when we were drinking the coffee in the kitchen, Steven was telling me the hints of it, like a wine, and he was really in his own world. He was like, wow, and I was tasting it. And this is from a guy that puts butter in his coffee, which he still wasn’t too impressed with. But that’s a different show.
53:01 The final part of that is to the 20-year-old that’s listening to us out there that wants to be an entrepreneur or wants to get into tech. That could be a bad expression in itself. But what advice do you give to them as far as what they should do?
53:15 Stephen Rapoport: God, so many things. As I said before, do something that’s passion-based and follow your heart.
53:20 Ignore the invisible jewelry, they don’t exist. And for the love of God, don’t become a tech scene tourist that goes to a bunch of events and talks about how cool startups are, because they’re not, and they’re grueling and they’re thankless and they don’t pay you anything. Just go and do the thing that you’re so passionate about that none of that stuff matters, otherwise you’re gonna have a pretty horrible time.
53:42 Brian Rose: This is real talk here. We had Alithia Navarro from Skimless last night, and I’m sure you guys get along famously, And she said similar things.
53:50 She’s like, we’re talking about the media bias and what people think a startup is, a tech startup is, and then the reality, which Stephen just described very well. It’s a long, painful slog and not what you see in the movies. So be well aware of that. Stephen, if people want to get a hold of you, how should they do it? I’m guessing you’re hiring.
54:10 How do they find your coffee? Everything. What’s the way? Wow. How do they?
54:13 Stephen Rapoport: OK, so the website is packcoffee.com. If they want to give us a try, and they’re in the UK, if they use the Voucher Code Silicon Reel, then we’re giving away a free Hario V60 with their first bag. So they can make a cup of coffee exactly as you’ve just tried. That’s the coffee maker and the coffee. So it’s very cool.
54:27 They can find me, personally, on Twitter, Stephen Rapoport. They can email pack to hoi at packcoffee.com or email me steven at packcoffee.com if they’ve got any questions. We love having conversations around coffee, the challenges of startups, anything really. We’re highly visible, so if anyone wants to find us, I’m sure they’ll find a way.
54:47 Brian Rose: Yeah, you know, what I’ve learned today is your passion and your passion in your product and then your passion for really solving a customer issue.
54:56 And so like, that’s what’s really fascinating to me. You know, you could have just been like, and we’ll send it out every two weeks and now let’s worry about the coffee, but you wanna worry about every single piece of the experience. That’s one thing I realized today. The other thing I realized is someone said one time about going to the gym. It’s like, you look to the guy that left you and he’s pumping this iron and you look to the guy at the right of you and he’s doing this.
55:14 It’s like, focus on yourself. Focus on your own business. Focus on your own challenges. Don’t be looking west to California or this over here. And you have all the resources.
55:23 And so that’s what I like about you. You’re not like, I want to be like this, I want to be like that. We have everything here we need. You have a customer base that’s British. We’re British.
55:31 We’re here. We have a mail system that works. So get on with it, right?
55:34 Stephen Rapoport: Exactly right.
55:35 Brian Rose: OK.
55:35 I love it. Steven, thanks so much for being here.
55:37 Stephen Rapoport: My pleasure. Thank you for having me. This is a great format for you.
55:40 Brian Rose: I might have you back on London Real to talk about coffee someday, and just all things coffee.
55:44 Stephen Rapoport: I’d love to.
55:45 Brian Rose: I know you would.
55:46 Stephen Rapoport: Anytime.
55:46 Brian Rose: I know you would.
55:47 As we say on Silicon Reel, it’s about the people. It’s great talking to you and hearing your story and passion, so thanks so much. And I wish you all the best. I can’t wait to see what you guys are doing in a year and two years is gonna be fantastic.
56:00 Stephen Rapoport: Me neither.
56:01 Brian Rose: There you go. All right, thanks so much.
56:05 Stephen Rapoport: My pleasure, thank you.
56:08 London Real promo: This week on Silicon Reel, we have Alethea Navarro, CEO and co-founder of Skimlinks.
56:16 Alicia Navarro: It took me a year of pitching to raise my first seed round.
56:22 Despite how difficult it is to raise money, it’s easier than actually growing a company. You have to be driven by wanting to build a great company. Valuations don’t matter, terms matter, and being here tomorrow matters. Firing and training people is a hard thing, so you wanna create an environment where people wanna stay. To be part of the world that is creating our future, I think is one of the most creative things and important things to be doing right now.
56:45 London Real promo: On Monday, Silicon Real presents Alethea Navarro, Skimlinks
57:00 Alicia Navarro: Take ego out of the equation and just focus on doing a good job.
