Blue Bottle Coffee's Unlikely Rise to SIlicon Valley Stardom
"I'm not very high tech," admits Blue Bottle Coffee founder and CEO James Freeman. "So this whole question of why all these glossy tech investors love Blue Bottle so much is an interesting question for me."
It could be, he says, as simple as geography. Since it was founded in 2002, Blue Bottle Coffee has been a San Francisco Bay Area staple. It could be because, with the flurry of mobile app startups crowding Silicon Valley, a company like Blue Bottle that pulls in roughly $27 million a year selling tangible products is a modern marvel. Perhaps it's because hacker culture holds incremental improvement as a sort of religion, and Blue Bottle, with its painstakingly prepared cups of coffee, is a member of that same faith. Or maybe, Freeman admits, it's because he just knows the right people.
Whatever the reason, one thing's for sure: Blue Bottle Coffee has become a most unlikely darling of Silicon Valley. This week, the 12-year-old company landed $25.75 million in funding from the likes of Ev Williams, Kevin Systrom, and Morgan Stanley Investment Management. It's just slightly larger than the $20 million round Blue Bottle raised back in 2012. Freeman says he plans to use the money to build out anywhere from six to nine new storefronts this year. But the question is, How did Freeman, a former musician with a peculiar coffee fetish, get to be the head of a coffee company that's attracting attention from the biggest names in tech? It's a question he's still grappling with himself.
With no experience in tech and a visceral aversion to the word pitch, Freeman is far from the Silicon Valley stereotype. In 2002, he was even farther from it. At the time, he was a disillusioned clarinetist, looking for a way to pay his bills. "I got to the point where I was getting jobs that I didn't want and not getting jobs I did want. It wasn't inspiring," he says, and as a musician, "You get paid in inspiration."
But he had always loved coffee, often bringing his own pour-over brewing equipment (Blue Bottle's signature style) with him on the road. In 2002, he opened his first Blue Bottle outpost at the Old Oakland Farmers Market. Unlike so many of his Silicon Valley counterparts, Freeman says, "The nice thing about knowing nothing was it didn't even occur to me that some businesses spend more than they make. That was a good business background, because it made me be frugal and not rack up bills I couldn't pay."
For years, Blue Bottle was a small lifestyle business, but in 2004, he says, that began to change. It was a dreary January weekend, and the Fancy Food Show was taking place in San Francisco. Freeman wasn't a vendor, but somehow, word must have spread about Blue Bottle because, "All of a sudden, there were 15 people in line for my cart. It was cool, kind of amazing, and a little bit scary," Freeman says. "That was it, and it's been feeling sort of like that ever since."
The tech community flocked to Blue Bottle from the start. "I think if you do anything in San Francisco, there's some connection to the tech community," Freeman says, adding that all the while, he was working shifts behind the counter, meeting tech founders and investors on a regular basis. Soon enough, he began receiving unusual emails from them.
"It was always, 'I want to meet you and help you grow'; that was the code," Freeman remembers. In other words, he says, they wanted to give him money. In 2012, when he met Bryan Meehan, a serial entrepreneur, Freeman decided to take him up on his offer and give equity away in exchange for funding. "We were profitable and sustaining ourselves by then, but there wasn't this big chest of millions of dollars for me to do all the things I wanted," Freeman remembers. "Bryan's pitch was, he could make these things happen."
That year, Meehan joined Blue Bottle as chairman and, with help from Tony Conrad of True Ventures, organized a $20 million round that was a major turning point for Blue Bottle.
So, why raise even more money the next year? Freeman says, "The short answer is because we could. It was easy."
Morgan Stanley's investment group initially approached Blue Bottle about the most recent deal, and when it agreed to invest, Freeman and Meehan opened the round to Blue Bottle's existing investors. "To my surprise, most of them wanted to invest more," Freeman says.
Medium founder Ev Williams, who contributed to the new round, says, "My general rule with investing is that I put my money behind things that I'd want to see succeed even if I had nothing to gain from them." But he was attracted to Blue Bottle's commitment to sustainability, and even more important, he was fond of Freeman and Meehan. "Under the is-this-a-good-investment umbrella," he says, "it all comes down to people."
But although investors like Williams may not be expecting (or demanding) a big return from Blue Bottle, Freeman is developing a strategy that could deliver one nonetheless. In addition to the new stores Blue Bottle is set to open this year, Freeman also plans to build a training facility, where new employees can learn on the job in a mock café. Blue Bottle is also opening a research and development space where the company will sell and repair espresso machines for the public "Genius Bar style," as well as test out equipment for its own use. Blue Bottle is also bulking up its wholesale business, still just a small fraction of its revenue, with a new line of prepared iced coffee that would be sold in grocery stores like Whole Foods. Still, despite the fact that Blue Bottle is certainly in growth mode, Freeman warns that it's not going to be the next Starbucks, with thousands of stores around the world.
"My goal is every year to see our coffee taste better and to see more and better shops," he says. "If we can do that every year, that sounds like a great job."
Freeman doesn't deny the fact that he got lucky ("It feels good to feel lucky," he admits), and yet he says there's something to be said for the fact that's it's all come relatively easy. After all, if there's one thing he's learned from spending more than a decade in Silicon Valley, watching eager entrepreneurs desperately pitch uninterested investors, it's that when an idea or product is right, more often than not, it shouldn't be such a tough sell. "You should have a balance between working hard but having it feel easy," he says. "Sometimes, when things start to feel hard, you're just on the wrong track."
In other words, a truly worthy product should be the only pitch you need--but it doesn't hurt to have rich customers, either.