168 - “We Raised $118M With a Tiny Coffee Shop” | Blank Street Coffee - Making It with Jon Davids

Episode Summary: "We Raised $118M With a Tiny Coffee Shop" | Blank Street Coffee (Episode 168)

Podcast: Making It with Jon Davids
Host: John Davids
Release Date: February 4, 2025

In Episode 168 of Making It with Jon Davids, host John Davids delves into the remarkable journey of Blank Street Coffee, a burgeoning coffee chain that has rapidly scaled from a single coffee cart to an enterprise valued at $118 million. Through a comprehensive analysis, Davids explores the strategies, operations, and innovative approaches that have propelled Blank Street Coffee to success, offering valuable insights for entrepreneurs and business enthusiasts alike.

1. Introduction to Blank Street Coffee

Davids opens the episode with an intriguing premise: "This little coffee shop is worth $118 million. And it all started with one tiny coffee cart." ([00:00]).

Key Points:

Founders: Issam and Vinay
Growth: Expanded to 65 locations across four cities within a short span
Unique Approach: Disrupting traditional coffee culture with a novel business model

2. The Genesis and Rapid Expansion

Blank Street Coffee began in 2020 with a single coffee cart in Brooklyn, serving cost-effective beverages such as cold brew macchiatos. Positioned strategically in Williamsburg, the cart's competitive pricing—25% cheaper than Starbucks and 10-15% cheaper than Dunkin' Donuts—attracted a growing customer base ([00:30]).

Notable Quote:

"Blank Street Coffee is hijacking coffee culture with a totally new playbook." — John Davids ([00:10])

Expansion Strategy:

Aggressive Scaling: Rapid establishment of multiple carts in Brooklyn and Manhattan
Distinct Design: Quirky and minimalist aesthetics to enhance brand appeal

3. Business Model and Operational Efficiency

Davids highlights how Blank Street Coffee's lean operations have been pivotal to their success.

Lean Operations:

Store Size: Each physical location is intentionally small (approximately 500 square feet)
Cost Efficiency: Lower rent costs (~$3,500/month) compared to traditional cafes (~$15,000/month) ([06:45])

Technology Integration:

Mobile Ordering & Touchless Payments: Streamlines the customer experience
High-Performance Equipment: Espresso machines capable of producing 90 cups per hour with minimal staff ([07:20])

Labor Model:

Reduced Staffing: Operating efficiently with just one or two employees per location
Higher Wages: Ability to pay employees better than competitors like Starbucks and Dunkin'

4. Financial Performance and Investor Appeal

Davids breaks down the unit economics, estimating:

Daily Customers: Approximately 200 per location
Average Spend: $5 per order
Monthly Revenue: ~$30,000
Monthly Costs: ~$22,000 (including rent, labor, and other expenses)
Net Profit: ~$8,000 per location, translating to a 27% profit margin ([10:15])

Venture Capital Interest:

Funding Raised: $118 million from prominent investors such as Tiger Global, General Capitalist, and founders from Warby Parker and Allbirds
Valuation: Estimated conservatively at $200-$300 million ([11:00])

Notable Quote:

"Every business that is successful, certainly one that has scaled, has figured out some kind of arbitrage." — John Davids ([19:00])

5. Community Strategy and IND fication

Davids introduces the concept of "IND fication," a strategy where brands cultivate an indie, community-focused image to build loyal customer bases.

IND fication Strategy:

Authentic Partnerships: Collaborations with local bakeries and artists to enhance community ties
Eco-Friendly Practices: Commitment to sustainable materials and practices
Genuine Engagement: Supporting local initiatives and maintaining authentic relationships with patrons

Notable Quote:

"Brands like Ben and Jerry's, Lush Cosmetics, Warby Parker, Glossier, Oatly, Allbirds... Blank Street is doing it really, really well." — John Davids ([16:30])

6. Audience Engagement and Addressing Criticisms

Davids shares the extensive online engagement his story about Blank Street Coffee garnered, including over 200,000 impressions and numerous comments.

Criticisms Addressed:

Venture Capital Dependency: Some critics argue that the rapid growth is fueled by substantial VC backing rather than organic expansion ([13:00]).

Davids' Response:

Acknowledgment of Funding: Recognizes the significant VC investment but emphasizes the lean and efficient business model
Value of Arbitrage: Defends the strategy of minimizing real estate and operational costs as a form of innovation and smart capitalism

Notable Quote:

"If you're going to look at one company and their arbitrage strategy, you have to look at all companies and their arbitrage strategies." — John Davids ([17:45])

7. Lessons for Entrepreneurs and Marketers

Davids extrapolates key takeaways from Blank Street Coffee's success, applicable across various industries.

Operational Excellence:

Streamlined Operations: Focus on efficiency and minimizing waste
Scalable Models: Designing business models that can be easily replicated and scaled

Business Model Innovation:

Rethinking Traditional Concepts: Differentiating from conventional models (e.g., not a typical restaurant) to enhance profitability and sustainability
Customer-Centric Approach: Identifying and catering to a distinct customer base that differs from established competitors

Notable Quote:

"This is what innovation and capitalism looks like. That's the whole point. That's the goal." — John Davids ([18:30])

8. Redefining the Restaurant Paradigm

Davids argues that Blank Street Coffee should not be classified as a traditional restaurant, explaining the fundamental differences in business models and customer engagement.

Key Distinctions:

Frequency of Visits: Coffee is a daily ritual, unlike meals at restaurants
Operational Costs: Lower overhead due to minimal staff and simplified services
Revenue Model: Consistent daily transactions contribute to sustained profitability

Notable Quote:

"Restaurants, even in the best of times, are going to get repeat business from somebody maybe two or three times a week, right?" — John Davids ([21:00])

9. Conclusion and Final Thoughts

Davids wraps up the episode by reiterating Blank Street Coffee's exemplary business practices and the importance of innovative thinking in building successful ventures. He encourages listeners to reimagine traditional business models and apply similar strategies to their own enterprises.

Call to Action:

Engage with Content: Subscribe, comment, and leave reviews to support the podcast
Further Learning: Visit johndavids.com and marketingsuperpowersbook.com for more resources and purchasing options

Notable Quote:

"Think about your business right down to the core of the business model and how you could make it the best possible version of that business that it could be kind of like Blank Street Coffee." — John Davids ([25:00])

Key Takeaways:

Lean and Efficient Operations: Maintaining low overhead and maximizing productivity can lead to substantial profit margins.
Strategic Use of Technology: Implementing advanced tech solutions enhances customer experience and operational consistency.
Authentic Community Engagement: Building genuine relationships with the local community fosters brand loyalty and trust.
Innovative Business Models: Rethinking traditional concepts and identifying unique market niches are crucial for rapid scaling and success.
Importance of Arbitrage: Leveraging cost advantages and market inefficiencies is a fundamental strategy for business growth.

This episode serves as a comprehensive case study on how Blank Street Coffee has effectively disrupted the coffee industry through smart business practices, strategic funding, and a deep understanding of their target market. Entrepreneurs and business leaders can draw valuable lessons from their approach to scaling, operational efficiency, and community building.

Transcript

John Davids (0:00)

This little coffee shop is worth $118 million. And it all started with one tiny coffee cart. It's a wild story, and I spent three hours digging into it. I got a little bit obsessed. I think you guys are really gonna like it. It's called Blank Street Coffee. It's run by two co founders, Issam and Vinay, and they've grown to 65 locations in four cities. Really, really fast. Blank Street Coffee is hijacking coffee culture with a totally new playbook. And there is a lot we can learn from it. A ton. And I posted this story on the Internet a couple weeks ago. It was seen by 200 or 250,000 people. Got a ton of engagement, a lot of blowback, a lot of comments. You know me, I love the comments. I love the feedback. Cause it lets me have better content. When I tell you guys more about it on the podcast, I'm gonna talk about blank. That's coming up in just a sec. Before we get to it, if you're new here, my name's John Davids. My friends call me J.D. i am the author of Marketing Superpowers Build a Brand so good that Getting customers feels like Magic. Here on the podcast, I talk about marketing, business, culture, all kinds of stuff that I like. If that's your thing, make sure to go to johndavids.com of course, if you want the book, you can go to marketingsuperpowersbook.com, amazon, Kindle, Audible. Wherever you get books, it's there. And by the way, quick housekeeping. Note, a lot of people have been messaging me and dming about courses and do I do other kinds of training. If you go to JohnDavids.com at the top, there's a training button. And in there, I have both free courses and paid courses. We also have a whole corporate training program. If you're a big company that wants to do workshops with me, got all kinds of stuff there. So if you're dming me about that, just go to john davids.com guys, while you're there, get on the newsletter. Of course. What are you thinking? Don't miss the newsletter. And now let's talk about Blank Street Coffee. You're listening to Making it with John Davids. All right, so let's rewind now to 2020. That's the year that Blank street starts. These guys open a coffee cart in Brooklyn and they're serving up cold brew macchiatos, all kinds of drinks made very quickly. They're serving this stuff in a prime location. Again, it's Brooklyn. It's priced right. Drinks are about 25% cheaper than what you would find at Starbucks and about 10 to 15% cheaper than what you would find even at Dunkin Donuts. So it's definitely priced right. And right away, the lines are growing. It's Williamsburg. People want their affordable coffee. So founders Vinay and ESAM get into hustle mode. They keep the carts coming, they're stacking them. They scatter them around Brooklyn and Manhattan. And they're really trying to corner this market of little coffee carts with a really quirky design. I'm gonna get to the design and the aesthetic in just a second. These guys are brewing up something really big, and they're doing that by thinking really small. So fast forward about six months, Blank street opens its first physical cafe. Up until now, they just coffee carts. Now they have a physical store, a cafe. It's cramped. It's just 500 square feet, which is really, really small. But it works for the concept that they're running. It actually works really well. It's got earthy tones and a very minimalist aesthetic. It's got sleek fixtures. It's got vintage lighting, local art from local artists. It's got a chalkboard with the daily specials, the menu. That's the vibe. It's going for just the right amount of Helvetica. So you know, it's hipster ch. But don't be fooled by all these hipster Instagram vibes, because behind the pastel green is a brilliant business and money machine. Let's talk about operations. Blank street is built lean. The stores are actually very small on purpose. It's small and mighty, and they run super cheap. Rent is probably around 3500 bucks a month. That's my guess. And if you compare that to an average New York City cafe, they might be paying $15,000 a month versus $3,500 a month. So Blank Street's got a real real estate cost advantage, and they can operate at that size because they're not a dine in restaurant. You go and you leave. You go and get your coffee, and you leave. And then there's the tech stack. These locations are stacked with mobile ordering, touchless payments, and this high octane espresso machine pumps out about 90 cups an hour, all running with just one or two employees. So there's not a huge labor cost either. They're using tech to really bring down and standardize the operation, and they're moving very, very fast. Blank street went from a single store to 50 in less than one year. And these guys are frothing a lot of lattes and they are dripping with dollars. Let's talk money. First of all, the unit economics, what does it look like? What does one single unit look like? Now I'm guessing. All this is a guess by the way. I don't have any inside information. Even though people think I've got a crystal ball. I don't have a crystal ball. I've got a crystal brain. It all comes from up here, guys. I'm guessing each location has about 200 customers a day. Maybe 150, maybe 250. Let's say 200 even. They probably spend about five bucks an order, which is $30,000 a month in the average month. Labor, rent and other costs, I'm going to guess, run about $22,000 a month. This is back of a nap math, guys. Labor, rent and other costs. Again, I'm making assumptions here. $22,000, that leaves about $8,000 in fine filtered profit. 30,000 revenue, 22,000 costs, 8,000 net profit. And that is a healthy 27% margin, especially on a physical store. 27%, that's really good. I mean, when you get to the best margins in the world, net margins, the Googles, the Microsoft's, you're talking 35 or even 40%. But at scale, if you could have a 27% margin on a physical store. A restaurant actually, and this isn't really a restaurant concept, I'll talk to you in a second about why I don't believe this is actually a restaurant. It's something else. 27% is really, really good. And all this caffeinated cash has the attention of investors. And there's some big money in here, a lot of big money. In fact, I would say Blank street is being handcrafted by the smartest VCs in town. Tiger, Global, General, Capitalist, they're all at the table. They're on the cap table. Plus the founders of Warby Parker of Allbirds. The company's raised about $118 million so far. Now I know what you're thinking. At the beginning I said that they're worth $118 million. And now I'm saying they've raised $118 million. The truth is I don't know what their valuation is right now. I believe it went up to like 300 million. Then it went down to 200 million. I'm going to be super conservative and say they're worth at least what they have raised at least the cash that's been put in would be 100% of their worth. Maybe they're worth more than that. But it's better to be conservative than to go out there and give you a lie, a number that's just overinflated. Now these tiny stores are sprawling from Boston to London and there's plenty more on the. Now here's my take. I think Blank street is using the indification strategy. IND fication. That's a word that I coined. Maybe you've heard it before. I haven't. I think I made it up. That's what I call this trend. And it's a really smart community trend. When you're building a customer community and you can make your brand look and feel indie, like you're part of some small rebellious movement, that's really cool. That's a smart place to be. We see a lot of brands doing that in different categories. If you look at brands like Ben and Jerry's, Lush Cosmetics, Warby Parker Glossier, Oatly Allbirds, a lot of these brands had kind of an indie look and feel to them. And I think that Blank street is doing it really, really well. But it does need to be genuine. If you're gonna pretend that you're a brand that cares about the local community and that cares about local artists and local artisans and local bakers and the local, and then you don't, people are gonna see through that pretty quickly and they're not gonna wanna do business with you, especially not this demographic. These guys actually are doing some stuff that's actually very good for the local community. They partner with local bakeries to bring desserts into their restaurant. They don't actually source food from any kind of global player. From what I understand, they bring in a local baker, a local artisanal baker just to provide the breads, the danishes, whatever they sell in the stores. I don't actually know what they sell in every single store, but it comes from local bakeries. Artists can sell art in the store hanging on the wall, and they commission artists to sell to the patrons. They use eco friendly materials whenever they can and they pay their people quite well. Again, they have fewer employees, so they can afford to pay each employee pretty well. Certainly better than what you'd find at any other local business. A Starbucks, a Dunkin, something like that. I think these guys are brewing up a new era of coffee culture one chai latte at a time. So I posted this story on LinkedIn a little while ago and I got a lot of comments. What's it at right now? At the time of recording, we have 198,900 impressions. So just under 200,000 impressions, 1400 likes, 148 comments, 47 reposts. There was a lot of engagement here. And when I look at something like that, I think, okay, there's opinions on both sides, and I love that. I love opinions on both sides. I want people to come and look at this work and agree and disagree and share their opinions. So I'm gonna look at some real fire takes here. What did people hate about this? Cause that's the fun stuff, right? Guys, this is from Sarah. They launched in 2020 and got a $67 million investment in 2021. This is not an organic growth mom and pop. This has big money behind it precisely because it undercuts the local shops with their real estate costs. It might be good business, but let's not in any way, shape or form frame it as community. All right, let's get a couple things straight. When I talk about community, I'm talking specifically about customer communities, which is a marketing term, not a social or cultural term. And I understand community can be taken very differently when you're talking about a local community. I think Nike builds communities. I think Apple builds communities really well. All kinds of businesses build communities at scale. In fact, that's what you need to do today if you want to build a business that matters and make getting customers feel like magic. So I'm talking about this in a commercial sense. They're building community at the local level. Now, are they doing it with a whole lot of venture capital funding? Of course they are. They're doing it at scale. Do I think a business like this needs venture capital funding? Do I think it's a good investment for the VCs? I actually don't. But that's got nothing to do with this. It's really good for the entrepreneurs. I love the fact that the entrepreneurs are making bank here. I hope they're taking secondaries. I hope they're taking some of that $118 million off the table and lining their own pockets. I hope entrepreneurs are doing that all over the place because, hey, VCs are in the business to make money. And entrepreneurs that raise money from VCs, you better the hell take secondaries whenever you can take money off the table so that you got money in the bank account and you can live well. So I hope they're taking money off the table. And I don't fault them for taking venture capital if that's the way you want to go. Now, if I was Starting a business like this, I'd probably look at it a different way, but I don't fault them for raising money. Now, the idea that this is not an organic mom and pop story, again, I understand that. I'm not sure where that part of the comment came from. No part of my write up talks about it as a mom and pop story. And here's the other thing, though. This is what I really want to get to. Undercuts the margins on local shops with their real estate estate costs. Yes, this is an arbitrage play and I love the arbitrage here. I love the idea that you realize you don't need to have, say, 5,000 square feet of real estate to operate this coffee shop. You can do it with 500 square feet. That's simply an arbitrage. It's no different than what Uber did with cars or what Airbnb does or what Apple does or what Nike does. I mean, every business that is successful, certainly one that has scaled, has figured out some kind of arbitrage. So if you're going to look at one company and their arbitrage strategy, you have to look at all companies and their arbitrage strategies. This company is not getting any favorable sweetheart deals on real estate. It's not as though they're getting a lower price per square foot. If they were doing that, cool. But that's not even what they're doing. They're just saying we don't need a whole lot of space to operate this concept. Let's cut out the waste and let's leave the extra space for somebody else. We're going to operate here in the space we need. So the idea that they're undercutting on margin because they're saving money, money, that's kind of what innovation and capitalism looks like. That's the whole point. That's the goal. And so for me, I don't actually disagree with any part of this comment. I think factually we're on the same page. I would just frame the things that are being called out here as good things, as smart things. This is what innovation is all about. I also want to go a little broader and just talk about the lessons that you can take if you're a marketer or you're an entrepreneur. What lessons can you take from Blank Street Coffee? Let's take the venture capital aside for a second because people, people will kind of stain the story by looking at it through a venture capital lens. Take that out. Let's just say it was one location and let's say it was started with one location, and maybe instead of growing to 65 locations, they grew to 10 or 12. And they did that just off cash flow, which wouldn't be that hard to do. If you have a concept that's working and generating a 27% net margin, you could reinvest that cash. You can get bank loans, and you could get in four years to, let's say, 10 or 12 or 15 locations, if that's what you were doing. This story is fantastic. These guys have figured out a product that works, a design aesthetic that works, an operating model that works, a labor model that works, a real estate model that works, a location model that works, a wedge that works, a wedge that works. The wedge here is they figured out a customer that's not the Starbucks customer. That's not the Dunkin customer. That's another customer. Maybe they're taking some business away from Starbucks and there are people that couldn't afford to spend $8 on a coffee, and now they can spend $3.50 on their daily coffee and they're happier. Maybe they're dealing with people that don't want to settle for a Dunkin because they don't like the Dunkin coffee. I actually do like the Dunkin coffee. I like Starbucks and Dunkin'I'm. Kind of an anomaly, though. But maybe they have those customers that are coming to Blank street because they can spend less money and get more. So if you take the VC out of this, it's still an awesome story, and that's why I covered it. I wouldn't cover it if it was a dull story that only works because of venture capital. I think it works either way. And the last thing I want to talk about is why I don't even think this is a restaurant story. So think about restaurants for a second. And restaurants are notoriously the the worst businesses in the world. If your name is anything other than Tillman Fertitta and you own a restaurant, oh, I feel a little sorry for you because you are in for a world of hurt. Listen, I love restaurants. I go to restaurants every single day. I support my local restaurants always. But I know it's a very tough business. I'll tell you why this isn't a restaurant concept. Restaurants, even in the best of times, are going to get repeat business from somebody maybe two or three times a week, right? Even if you have a really, really loyal customer, how often are they going to dine at the exact same restaurant? I suppose you could think of like a breakfast joint where someone goes for breakfast every Day, habitually, on their way to work. Okay, fine. But if you're operating a dinner restaurant and somebody loves your restaurant, they're not going to dine there every single night, five, six, seven days a week. No one does that. The reason this concept works so well with fast moving coffee is because it is a daily ritual. You actually could go to the same coffee place very easily every single day. You can go there twice a day. So you have frequency. You don't have to be burdened with all the traditional costs of restaurants, like a wait staff, like a back of house staff, like worrying about your food costs, like worrying about dining people dining in or delivery or anything like that. So you have this really different unit economic model, you have this really different operating model. And that's why when you look at this, don't think of it like a restaurant. And when you look at your business and maybe you're in a space that's competitive or that's hard, or that's notoriously difficult from a financial standpoint, think about the elements of your business that are bad, broadly speaking, right? What's bad about a restaurant? Rising food costs, having a big wait staff, having a big rent bill every month. Well, how could you take that business and restructure it, look at it a different way, from a different lens as a different type of business and say, okay, well, if I take this concept, but I do this different and this different and this different, it actually is a much better business than what people would traditionally look at. You know, I've done that. For example, I own agencies. I own a number of businesses and a couple of them are agencies. And we operate very differently. And people say all kinds of terrible things about agencies. Oh, they're tough to work with. The clients are terrible. The clients are too demanding. You don't make any money. They're tough to operate. The people are difficult. Yada, yada, yada. I'll tell you, I don't experience any of those things. My clients are awesome. Our work is awesome. We get paid for what we do. We provide exceptional value, 10, 20 x ROI for our clients based on what they pay us. Because I have designed my business in a way that works for what it is, not for what somebody else would do. Right? If you operate a gym, you could operate a gym and make no money every month, or you can operate a gym and make thousands and thousands of dollars in profit every month. Same with a restaurant, same with a clothing store. Look at Shein versus every other clothing store in the world. Shein figured out tantemu figured out where the real value was in clothing, figured out how to eliminate waste and all this kind of stuff and build a better business. So think about your business right down to the core of the business model and how you could make it the best possible version of that business that it could be kind of like Blank Street Coffee. I think that is one hell of a business. That is what I think. I want to know what you guys think. Let me know@johndavids.com while you're there. Get on the Newsletter of course if you like this stuff, you're going to find a lot more of it in the newsletter. Subscribe, Comment Leave a Rating Leave a review wherever you're listening to this right now. That is the rule. You want me to put out great content like this, you got to show your love back to your buddy JD and of course get the book at marketing superpowers book.com I will talk to you guys next time.