266. He Fixed His Own Coffee Problem. Then Built a $300K+ Brand Without Retail or Funding

0:01Welcome to Startup to Scale, a podcast by FoodBevy. I'm your host, Jordan Buckner. Join me as I talk to aspiring entrepreneurs, seasoned industry experts, and everyone in between as we unlock the keys to growing from startup to scale.

0:18Building a CPG brand comes with a lot of challenges, as we very well know, and especially for brands who are strong in selling with e-commerce and then also exploring like where retail fits in and that balance. There's still a really big market for e-commerce brands to exist and to grow, but there's also this overweighting pressure of like needing to be in retail to actually scale into a brand and figure out how big the company can grow. At the same time, there's pressures from venture capitalists who are saying you need to build a company that can scale extremely quickly and be purchased by the PepsiCo's of the world.

0:57But then there's the pushback from founders saying like, OK, how can I build a profitable and sustainable business? And so there's a lot in between. To unpack some of that, I'd invite Danny Walsh, who is the co-founder of Peak State, to join me today to talk through how he's thinking about some of these questions with his business. Danny, welcome today. Hey, Jordan. Thanks for having me. I'm honored to be here. So for those who might not know about your company, give me an overview of what is Peak State product and what makes you special? Yeah, so Peak State is coffee with health benefits. We introduced a line of coffees with health benefits from adaptogens.

1:35If you're familiar with the mushroom coffee thing, we've really elevated the coffee side of the mushroom coffee category by infusing whole bean coffee that's really high quality specialty coffee beans with a botanical extract so that you don't have to taste something weird or drink a powdery drink. If you're somebody who just loves your morning coffee the way that it is and wants to do something healthy for yourself, then that's who we are for. So Peak Stay kind of solved the taste problem within that category. And, you know, if you think about it, it's easy to forget a vitamin or supplement, but you never forget your morning coffee, if you're a coffee drinker, of course.

2:14So that's a little bit about our background. And if we were going to start a whole business, we didn't want to do it without having a big impact at the same time. So we just got B Corp certified and we source as sustainably grown coffee as we can, sometimes regenerative organic and all sustainably shade grown coffees, always organic. So yeah, we have a big impact component to our mission as well. I think that's really exciting. Tell me a little bit about the decision to become B Corp certified versus just continuing to operate as you have been? Kind of what led into making that decision? Yeah, so I've been a big student of Yvonne Chouinard, and, you know, who is the founder of Patagonia, for those who don't know that.

2:55But, you know, he's always quoted, the unexamined life is not worth living, you know? It's like, if you're going to start a brand, and you realize, like, wow, so, you know, when I was getting into this, I learned that the coffee industry has a lot of issues with exploited labor, sometimes even slave labor, sometimes pesticide farming and clear cutting of the rainforest to grow coffee faster. And so there's so many ethical issues and as well as environmental issues that can occur just by your brand existing. And so I asked myself, what could we do to communicate that we are examining everything that we do?

3:30Not just we are, but we had a third party examine everything that we do to make sure that we are doing things right and as good for the world as we can be, reducing as much harm as we can reduce. And I think that hopefully consumers are starting to become aware of that B Corp logo and what it means. And it's just one way for us to show that we care. Well, congratulations. I know that's a big milestone and just even putting a stamp on your values to say like, this is what we stand for. This is what we care for. And here's the kind of receipts to back it up. So I think that plays a huge role. I'm curious, like, why did you start the company?

4:06Like, what was going on? When did you start Peak State? And what was going on that let you to turn this into a company? Yeah, so I launched in early 2020. We are a COVID brand. Before launching, I was dealing with some personal health issues, autoimmune types of things, and I started supplementing with adaptogens every day and noticing a lot of my issues go away. Along with, you know, focusing on my sleep and my lifestyle and spending as much time being active and outside in nature as I could. But while also taking adaptogens, I realized that I felt fantastic and I wanted to just have it be seamlessly part of my morning routine.

4:46So that was where the idea began. And I looked to see if anybody was doing anything like this. And I did find some products on the market, much to my disbelief. And a lot of the products in the market were just like kind of like they were healthy and really kind of onto something. But the taste just wasn't what I was looking for. And I thought there was an opportunity to elevate taste. And being based in Boulder, one of the one of the headquarters for natural food entrepreneurs, I said, how hard could it be? And could kind of scratch my own itch as a coffee lover. How hard could it be? It could be really freaking hard.

5:21Yep. You know, pathological optimism is dangerous. I know, it's always interesting. Abby June Richards has this quote of, you know, CPG is harder than it looks. And a lot of people are saying that she just turned those into stickers. And, you know, it's so true because you're like, like, I'm just selling coffee or coffee with mushrooms or, you know, like, it's fairly easy just to make that into something someone can drink. How hard is it to, like, build a business around it? And, like, it's pretty freaking hard to do that. There's so many components. I mean, I'm curious, like, the business has been around for six years, so that's a huge milestone.

5:53So congratulations. What have been some of the biggest kind of milestones along your journey? Yeah, let's see. Well, we launched on Kickstarter and that was a fully funded launch. So that was cool. That showed us that we had demand. And then, you know, some of our biggest breakout moments, you know, we did one of those naturally network pitch slams and came in first place. And that kind of put us on the map in Colorado. and that put some wind in our sails with some resources that we hadn't had up until that moment. And then another big win for us was we launched statewide and into Whole Foods.

6:30So that was some awesome, it was a long-term goal of ours just to connect with our local Whole Foods stores. So those are the big ones that come to mind as far as milestones for us. Well, that's exciting. I actually launched my company using a Kickstarter campaign and so that always has a place in my heart with T-Squares. As you have primarily e-commerce brand with some some retail, I'm curious to know like how you've seen consumers and the business change over time with how people are shopping and how they're buying. Yeah, that's a great question. So we got our initial traction at farmer's markets just to sort of prove that our product worked and that our brand and messaging was connecting with people and to get any feedback on our flavor and anything like that.

7:16And we kind of used that farmer's market base to launch direct to consumer. So we've really just been focused on physical discovery, digital replenishment. And that's kind of been our whole model the whole time. I haven't had my finger on the pulse of the pendulum of people want to buy stuff online. People want to buy stuff in person. We just kind of look at our own data and then do what works and stop doing what doesn't. No, I think that's smart because I see a lot of founders launching in retail right now, right? Like during the pandemic when we started, like the only way you could get most products was e-com.

7:46There's a lot of discovery going on. And I've seen kind of a push for a lot of products to like discovery happening more so in retail and or things like TikTok shop, you know, some things on meta Facebook ads as well. But there's been this big push towards retail. But then I've gone through the cycle of seeing how detrimental selling in retail and through distributors can be for a business, right, after all the chargebacks and deductions. And so I think it's probably good that you are staying focused on where your expertise is and your business model instead of chasing that other thing. Just kind of stay grounded.

8:23One thing that, you know, I'm curious about, I know there's a lot of pressure. There's a lot of financial pressure, I think, in running the business, right, of getting to a certain sales level or to have just even the capital or investment to grow. I'm kind of curious how you've thought about or managed like bootstrapping your business versus wanting to raise investment and what your goals are so far and kind of where you see what it's going to take to build the company next. Yeah, balancing growth and growth rate with profitability is the nailed it. That's the challenge. We've tried to look at all of our different channel opportunities and really think about them as, you know, which is the most profitable to sustain?

9:04Where should we double down? Like if we spend money here, where will we get more money back? And so that's been the best way for us to manage cash flows and persevere. and you know with direct consumer there's that biggest opportunity to retain the most margin that can sustain your growth so if you can crack that code it can be the cash cow that fuels all the expansion everywhere else so that's how we've been thinking about it and because we're bootstrapped we have been limited to like with the speed that that we can grow so we're just kind of growing at what i guess you could call a sustainable pace i hope and as far as raising outside investment goes I've always been afraid that outside investment might cause us to compromise on some of the things that make us meaningful and where we're creating an impact.

9:49However, the impact of our brand itself would scale significantly. So I've been open to investors that are the right fit. And I hear that raising investment is a full-time job. Well, I already have one of those. So if the investor comes along that is the right fit, that would not really seem like they would force us to compromise on, for example, that B Corp status that we have, then I think that I'm open to that conversation at this point because we have a long way to grow. I love that. I think that's one thing that actually helps those conversation of being B Corp certified because it helps to filter out some investors who don't see the same values as a priority.

10:28Right. And filter in investors who do believe in B Corp certified companies because I've talked to a lot of investors and most will not give you straight answers of if they actually are interested in investing or not and why. because they want to maximize their potential opportunities. But this kind of helps to filter down where they're just like, oh, yeah, that's just not going to be a fit. So I wouldn't even bother taking that call, which can also feel disencouraging because like, oh, all these people aren't responding to me. But it's also like, oh, those are people that would never invest in any way.

11:01So I think that's one thing that's interesting. I'm curious how you're kind of viewing the role of, I mean, like on a little personal, like the role of the company in your life, right? Like, did you see this as something you would build for five years into a large brand and sell? Did you kind of view it as something you just build and see where it grows? And has that changed over time? Yeah, I've looked at it as something that a business can create an impact. And I wanted to build a brand that is doing that. I did not design Peak State to be built to sell. However, you learn along the way that, well, a good business is built as if it could be sold.

11:39So, you know, dialing in my SOPs and systems and, you know, reducing the amount of dependency on me is still very important so that the business can scale. But my vision for Peak State is for it to continue to exist for 100 years and make an impact. Doesn't need to be me running it, but that's how we're thinking long term. I think if I was hungry for that exit and on a quick timeline, that that would force me a lot of stress and I would potentially not enjoy the journey as much. I mean, there's definitely something strong to be said about funding your business based on your customers, because then those are the ones who you're designing the business for.

12:19And I think that's really important. I mean, I made that mistake with T-Squares where we were bringing in more cash from investors than we did for customers. And then that led us to make decisions to try to get more cash from investors instead of customers. Because one investor could write, you know, we were small at the time. So, you know, we raised$100 ,000 in one round and$250 ,000 in another round. And it's a lot easier to raise$250 ,000 from an investor than from hundreds of customers over a year in some ways, if there's the opportunity. But then you also can start to cater your numbers, your growth, things to other investors so you can get more money.

12:56And it can and does degrade what and how you run the company. And I've experienced that myself and I've shifted my mindset now where everything I do is based on growing a business based on customers first so that our incentives are aligned. If you had to start over with T-Squares today, how would your capitalization journey be different? I think two ways. I actually think of it now that every business idea and product has a different way it needs to be funded. So if you are set on selling a canned beverage and doing the next like protein soda, that product type has high MOQs from just from the manufacturers.

13:38And so you need a lot of cash up front in order to make it. I think the other thing is knowing like my energy bar business, we needed to sell. Three million bars to maybe have a chance of breaking even and knowing that that's a much longer timeline and what that would take. I would probably make the decision not to do that type of business just because of the long-term horizon versus there's other businesses where you can sell primarily online. There's high initial customer demand looking for products like yours, and it's possible to become profitable in a year or less. And so I really look into what's the product, what's the product category, and then what capitalization is required to get to the point of running a sustainable business.

14:25One of the things that I tell people like they're like how like I can't become profitable at this level with my product it's just not possible I'm like you're right it's actually not possible so you're either going to have to raise money or struggle through it and suffer or decide to stop and do something else because there are just some like guardrails you can force your way through sometimes if you get lucky but there are just some guardrails around products business models that are in place and so I think that's really challenging for founders who start with an idea first and then figure out how to build everything else around it versus also looking at the entire picture at the same time at the beginning.

15:01Great points that you raise. Yeah, I'm kind of curious in terms of what you're looking at next in terms of peak state and kind of where you go from here. What are the things that you're exploring or the questions that you're asking in terms of where you and the business goes next from here? Yeah, so I think about growth through three main levers and specifically kind of e-commerce levers for us which is the number of new customers we're bringing to our store so acquisitions and then average order value like how do we get that up with upsells and and the average amount of product we're selling at a time and then finally just repeat right right like how long are we keeping people for oh right now we're just having obsession over those three different metrics and we're also you know looking at our nonprofit environmental partners that we do we partner with for our one percent for the planet status just to make sure those are aligned with the customers that we're serving so that's how we're defining success moving forward and keeping our current model which is that physical discovery digital replenishment but using some of the profits that are generated to start to grow into some curated retail really support our existing retail customers like whole foods with hitting And the demo is hard and kind of like saying no to the wrong opportunities is going to continue to remain a big part of our focus.

16:22I think that's smart. I mean, tell me a little bit more about the physical discovery, digital kind of replenishment strategy and the things you're doing to really push that. Yeah. So we're very uncommon in this way. We just really leaned hard into our farmer's market channel. So as far as single selling days go, we do like 250 a year. And we look at every single one of those. Those in Colorado? Most of them. Yeah, a very small amount out of state. But yeah, the logistics of scaling that is something that most people would say, I'm not going to do that. And we think that it is an opportunity that's so old school that it's new school, right?

17:02So that's how do you do 250 selling days? Is it like you doing most of them? Do you have like a team of, I don't know, they call it like brand ambassadors? Like how did you, are you building that? Yeah, we hire a sales team to, they're all working part time. They align with our mission and they're all working for the upside that they can create. And I try not to work any of the events, but I'm kind of the person who can jump in if somebody all of a sudden they got a car issue or they get sick and then I can be the one to cover for them and try to coach my team. As a founder and CEO, I'm trying to move into that, you know, focusing on, you know, making sure the money's working and that my team is hired and inspired and that my vision is clear.

17:46And instead of being in the weeds, I'm trying to really just give my team what they need to succeed and make sure that I'm paying attention to the KPIs and move into that CEO role, not just that rugged individualist operator, knight in shining armor type of role. Yeah. And so I like that you're having 250 selling days. You have a team that's kind of executing that. And then is the goal then like, are they buying product at the event in person? Like, how are you transitioning them into your kind of replenishment sphere then? Like, what are kind of some of the tools you're using them to then like make that second purchase be online or through the site?

18:19Yeah, so it all comes down to some people are ready to buy right out the gates. Cool, we got a customer. Let's get their information, their email and drip them right into Klaviyo. Do you have like a QR code that they scan or you just like, do you take the order through like a POS and you get it that way? Yeah, so all of the above. But it's about communicating value, not just, hey, Jordan, you want to join my name? Letter, it's like, hey, Jordan, let me hook you up with some value. And it's like, great, I'll send it to your email. What's your email address, right? So that's kind of our strategy.

18:50And yeah, that's that's how we acquire customers. We haven't really gotten into the SMS, but it's mostly email, getting emails from people in person who are tasting the product. So those are just the prospects. And, you know, we'll educate them some more over email from there. And if they buy something, then it's about, you know, welcoming them into our community and then letting them know about subscription options that we have. Yeah, I think that's exciting. I mean, I definitely think, have you explored SMS before? A little bit. I need to be pushed on it. So I need to get it going a little more.

19:19It's one of those areas that I think could be really powerful. 99 % of companies are doing it wrong. Most use it to push a one-off offer. But I've always have wanted SMS to feel more like a friend or a colleague is texting you, hey, just wanted to let you know, check out, you know, this really cool article that I found is really interesting. Let me know what you think. Or, you know, hey, I just saw that, you know, hey, we're actually running a deal. I want you to be the first to know if you need an order of punishment, like grab one. If not, you know, no worries. We'll see you next time. Kind of thing just like versus like Mother's Day sale.

19:58There's a little code, discount. Totally. So I think there's definitely some like opportunities maybe for your brand and others to like incorporate some of the more personal feeling elements there and, you know, to continue the relationship that you're building from that in-person experience into the digital. Well, that's exciting, Danny. Looking forward to hearing what's next. I really appreciate you being on the podcast today and talking about Peak State and your journey so far. We'll definitely drop your info in the show notes. So if anyone's interested in trying your coffee, they definitely can buy it from there.

20:29Thanks for being on. Thanks for having me. And yeah, we do offer free samples on our website.