How Terra Kaffe Pre-Sold 10,000 Espresso Machines With No Reviews

0:00I don't know that I've ever interviewed someone whose product that they created has 432 parts. I would say a year and a half and I was like, I don't know if this is ever going to get out. This might just be a beautiful design and a presentation. And how much had you spent at that time? Two and a half million. I mean, the crazy thing was we got to a point where we had one of those parties say, like, if we're going to continue to finance you, we need to see if this thing has legs. We had to push a lot. We didn't have a choice. The pre-order blew up. We sold so far in excess of what we anticipated.

0:36I have been in scenarios where I had to raise$2.5 million in 14 days, or it was game over, and we raised$2.6 million in 13.

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2:03Are we live? Are we live? We can just pretend like it's Joe Rogan. Are we live yet? Yeah, we're live. Jamie, pull that up. I do need a Jamie. I have a Declan, but he's not here live with me. I went by the comedy mothership in Austin and yelled, hey Joe, are you in there? but I didn't have a chance to see him, but he didn't respond. I had to present down at a conference down there, and there was a private event, and they were like, yeah, the people on the list are like Joe Rogan, Bill Gurley, and I was like, where am I going? What am I being invited to right now? Because they were like, yeah, do you want to send down a machine?

2:39And then all of a sudden, I was just like, I can send down a machine, but I can also send down myself with the machine, and they were like, yeah, come on down. I was like, all right, let's see who we meet. coffee is a universal connector people are passionate about coffee and that's why sahan i want to welcome you to the ddc podcast uh you said something in the pre-interview that your life was like the pursuit of happiness with will smith but in reverse yeah explain to our listeners uh by your love of coffee and how your life is like like that yeah yeah the pursuit of unhappiness Yes. But yeah, no, I mean, the simplest terms of what that's referring to is I essentially started my career on Wall Street and then I ended it schlepping hardware on the New York subway, or at least that was the transition I made.

3:26So it was always funny to talk with my parents and then them being like, you are a banker, now you are a barista. You have become a barista. And I'm like, no, I'm not a barista, but I get how he bridged that gap. So yeah, that's the start of the company. The start of the story was very lucrative career in finance and a lot of stability in job security, not a lot of stability in time affluence, but was working 100 hour weeks and just, you know, had a great team, actually. So I had a good relationship with my boss, with my MD there, which was rare as an analyst to have a relationship with an MD to start with.

4:07But just figured, you know, what if I worked this hard for something that I was building from scratch, building, you know, for myself and trying to actually do something that made a difference. So take me into the schlepping part of it. Let's stay with our Will Smith analogy here. What were those years like? I think you're so focused on having one foot in front of the other that it's actually hard to zoom out in those moments. You're just like, once you start on the path, you're kind of like the train is on the tracks and you're just trudging forward. You just decide how fast. When I reflect on it, it was really, I mean, as unglamorous as you can imagine.

4:46And I think that that's really where it gets funny because a lot of times people think about startups. and I think the headlines oftentimes read very kind of glitz and glamoury but in reality what it actually looks like is I was eating one meal a day for a year and a half which was the best diet plan I could have ever had I mean it was great yeah exactly yeah and then didn't have money for for Ubers um you know didn't even have really money for a proper dolly I for the first year, I had an old, one of those gigantic blue Ikea bags with the big straps. And I would just put a 30 pound espresso machine in there, put the milk, put the coffee beans, cups, carrying it from location to location to demo it.

5:28So I'd take it on the New York subway and then, you know, have about, you know, anywhere from like five to a dozen people yell at me about why I'm taking up so much space in the middle of the cart. So yeah, just kind of sweating and schlepping through the city to be able to try and just get some data points, you know, like have a demo, have a prototype unit, see if people enjoy a brew coffee, do blind taste testing, really validate the thesis, whether I was onto something or not. The rewarding part was every time I got a data point, the results brought back an order of magnitude greater validation than anything I anticipated.

6:03So I kept evaluating the kind of sunk cost theory, like, is this worth pursuing? And even though it was very much the bootstrapped ramen noodle type of lifestyle, So everything I kept learning about what we were doing felt like it was resonating even stronger than what I originally kind of theorized. So I decided to stick with it. And, you know, seven and a half, eight years later, here we are. You would ask strangers to name an espresso brand. And at that time, what would they say? There was only one brand they could name. And it was Nespresso. That was the only brand that would come up. George M.F.

6:35and Clooney. Yeah, that's right. Can you believe they dropped them? Did they? Oh, I don't think I knew that. Was that more recent? or oh they're using brad pitt now no no no so de longi got brad pitt jura has had federer and then uh nespresso that started with clooney i mean he's still probably affiliated in some way but they've dropped him as the face of the brand and now it's dua lipa ah that's smart they probably saw that one picture of him where he had that really dark hair that black hair and he looked really gaunt and they're like okay he's done i always wanted to do a campaign with larry david where it would be like, and I would want to surprise him on set where he doesn't really know what he's supposed to do as the face of the brand.

7:14And then I tee it up being like, DeLonghi, Jura, Nespresso, their machines are so ugly, they're so bad that they need these beautiful faces to represent them. Our machines still look so good. We don't need anybody who looks great to represent us and then just have them come out and be like, what the hell does that mean? Wow. If anyone in the audience knows Larry David or his people, He needs to have this put in front of him. I think that is a great concept. I love that. I would love it. I would want like an entirely candid reaction because I know how much of his show is unscripted. So I would love to just get him to react live and be like, what, are you kidding me?

7:51You invite me out. You have to bleep it. Yeah. Yeah. That's so good. Yeah. Now, one of the most interesting things in terms of my history interviewing podcast guests is I don't know that I've ever interviewed someone whose device or product that they created has 432 parts. Talk me through, like, so just the complexity that goes into building these machines and to sort of walk me through the journey of building the Terra Cafe. What is it? Mark one, I guess. Yeah. Yeah. Yeah, I mean, I always describe it as the journey is a journey of trade-offs. Like, if you have this absolutist mentality, and I think there's this very heavy idolatry of creators like, you know, the jobs of the world or what have you, and they look at these kind of storylines or story arcs of their rigidity towards accepting any sort of trade-off or compromise.

8:46and it's just, to me, not realistic in terms of what it actually takes to build real complex hardware and the iterative process that comes with that. I think it's also important to know, for anybody that isn't familiar with building complex hardware, is the complexity grows non-linearly with the number of parts and size of the device. And I remember reflecting on it, I was like, there's probably a few hundred hands that have been on our machine just in the development cycle alone before even getting to mass production. So coordinating across all these individuals, all these stakeholders, professionals from firmware engineering, software engineering, hardware engineering, mechanical engineering, within mechanical engineering, having mold flow analyses, like having tooling experts.

9:33It was crazy to do that in the first place. And then doing it during COVID was just an absolute nightmare in terms of, you know, you need it. It was like a stress test in communication skills, organization skills. And then, yeah, I mean, look, candidly in the early days of the company, taking a ton of risk. Because the reality of it is we could have been onto something. It could have been a good idea. But what it takes to get that to market and the kind of star alignment that needs to happen, there was a very high chance that that product would have never made it out the door. And when I was in the middle of it, I feel like I can say it now that we've been around for so long and have launched so many products.

10:14But I would say a year and a half in, I was like, I don't know if this is ever going to get out. This might just be a beautiful design on a slide or in a presentation. And how much had you spent at that time? Two and a half million. You're two and a half million dollars in. And we haven't talked about it, but you didn't take funding. This is self-funded. No, we were bootstrap for the first two years and then we did get funding, but we did not ever. And this was probably one of the hardest things in terms of what I think really tested me in terms of leadership was we never got one clear check. Every time they say, put out a fundraising materials, try and raise so you speak to an 18, 24, even maybe 36-month runway, never had that.

10:59We would hit a milestone and we would get a six-figure check, maybe a small six-figure check, maybe a midsize six-figure check. It was literally like a meritocratic, like hit a milestone, get, unlock a little bit more funding. So it was really hard to relay to a team a sense of clarity of this is exactly what the plan is for the next 12 months, three years, five year plan. Because in reality, we were a lot of times just fighting for the next day. And that makes it really challenging because a lot of times when people are joining a company, it's not just feeling aligned to the bigger picture, but feeling like there's this clarity of execution tied to that vision.

11:38And I think we had that, but there was just such a forced myopic thinking in the business because of the capitalization side. And so that was super challenging. And, you know, developing the product, like I said, you know, two and a half million dollars in halfway there was like, I'm figuring this out. But it is really like, you know, no stone unturned kind of policy of finding how we're going to get to the next, get it into the next milestone. Can you tell me about a compromise that you had to make during that time to get to product? Oh my God. Yeah. That's such a laundry list of different things that we were tweaking on the machine.

12:21I mean, I remember there was a period in early 2023, we had a meeting called the gun to the head meeting. It was like, this thing needs to ship in six months. There is no alternative. There is no way to extend runway. There's no way to extend budget. What do we do differently today? And it was in a meeting with our CTO, our COO, our SVPF product, and we were like, okay, it's the four of us. What do we do different? And I actually really appreciate our SVPF product. You listed three things. There was the dial that adjusts milk frothing. We wanted this beautiful, perfect little click for each notch, and each notch represented a very distinct and consistent modification in terms of the percentages of how much the frothing, whether it's a very silky frothed milk or a drier frothed milk.

13:11That customization is also important if you use alternative milks or different types of milk from dairy milk. And we wanted this just delicious tactile response of clicking. And he was like, kill this immediately. Because the challenge is you have a needle valve in there that's actually supposed to aerate, and it's causing all sorts of issues in terms of controls. And we're spending so much time between the tactile elements and the functional elements, kill it. So that's why it's just a smooth dial. There is no click space to it. We wanted to play with the connecting of the milk carafe. Basically everything tied to milk.

13:41Milk is a problem. The milk carafe, we wanted this beautiful connection that auto-connected into the spout assembly of the machine. And he was like, we need to stop messing with the carafe. The carafe needs to be simplified, simple mechanics. We're spending way too much time on it, and it's holding up other things. And the one thing you learn in hardware whereas any one holdup can impact our ripple effect back to everything else you've done. Everything else you've done. If it does change one of the alignments in the packaging or inside the machine, all of the other surrounding elements can be impacted and then you have to redo all your tolerance stackups.

14:16And that's why I love the expression in hardware development about the beauty about being 90 % done is that you're half the way there. That's great. You have amassed so much stuff that you're like, we'll come back to that. And when you do, you're like, wait, that has ripple effects all the way back down the line. And so, you know, like I said, there's a larger list of items. Those are just a few examples. And then we said, hey, you know what? We're going to change the milk carafe later on as a fast follow item, which is exactly what we've done. We actually launched it this year. We updated the milk carafe.

14:45It's an all glass body, beautiful connect-disconnect system that we always wanted. We just said like, look, this is a compromise we're going to have to make to get out the door. And that was early 2024. What was the call that you made that a lot of other founders might have been too proud to make to keep things afloat in that time? I hate to kind of point to this one because I'm not going to say the name of the group because I don't want to throw anyone under the bus in this sense. But I had another group that we were working with on the design side that were, they actually called me and they said, we have never, like, it's very, very seldom to see an early stage founder do what you just did.

15:22And I think this is why we believe it's going to make it out the door was we were working with an engineering firm. We had in-house engineering, but we also had a supplemental engineering firm that had a lot of expertise. And they were a huge part of the challenges in terms of the planning because we had set a very concrete plan with stage gates and milestones and corresponding budgets. They had spent double the money and gone half the distance in what we had agreed upon. So essentially, we got 25 % of the efficacy that we expected. And I remember calling their CEO and being like, we won't survive if this continues.

15:56We're not going to get this product out the door. You are incredibly sophisticated. You have launched a lot of products, but maybe that's why the vast majority of your clients are billion-dollar companies, and you should not be really dabbling in early-stage venture. But you have to remember that was early 2020, 2021. Venture funding boom was going absolutely crazy. It was a super frothy market. So there were a lot of startups that were raising high eight figures, high nine figures sums of money. And he was like, hey, Sahan, they're raising money, and they're paying our bills. Why can't you? And it kind of hurt my pride in that moment.

16:28And I was like, that's great. I don't know the end of their story, and they don't know the end of my story. This is not going to work for where we're at today. And the reason why that was such a hard decision, and the reason why so many people get trapped there, is because it feels like it's slightly almost like extortion, where you are trapped because they have so much tacit knowledge of your product. Most founders feel like there's no way to put that toothpaste back in the tube. I've jumped on board with these guys we got to finish it with these guys hell or high water no, no, you're not going to finish the reality is we spoke with another MPI specialist which means new product introduction specialist they said, you know how many projects actually get to market that start?

17:1420%, four out of five don't make it to market and so we created this off-ramp for them and an on-ramp for another group that we were working with they kind of overlapped for a period of around three to four months. And frankly, I think that's what saved us in being able to get this product out the door was really making a pretty dire shift in terms of the core engineering infrastructure for building this product going through the entire MPI development process. A little bit of a long story, but essentially, that was one of the biggest changes we made that I think a lot of people would be scared to do.

17:46We talked about in the pre-interview, a choice that you had to make around your design rights. Can you tell me about that? This is like one of those things that you study in theory that played out in reality. And I was so hopeful it wouldn't, but the reality of it was I didn't have a choice at the time. To get the V1 out the door when we were bootstrapped, the TK-01 is what it was called. That product has since been sunsetted. We haven't sold it since 2024. To get that product out the door, we basically built off of a base model. That was part of the study I did in the early days of the company.

18:20I did tear down all of the competitors. There were only five competitors. I was like, you guys are all using commoditized parts. It's actually a good thing, not a bad thing. That gives me a base to build off of. That means there's an existing supply chain I can work with, and I can use that as our, let's say, quote unquote, V1 to build a better machine. Very important, especially if you're not sitting on mountains of cash. It allows you to be more iterative, think more like software-minded in development. We found a really good vendor, a really good final assembler in CM. in China for the TK-1.

18:53We did do custom design. I worked with the engineers that I had worked with in my previous job in electric vehicles. And they had incredible pedigree. But when it came time to cut the checks for tooling, when it came time to cut the checks for the product we designed, I didn't have money. I didn't have money for a purchase order of the containers, let alone tooling costs. I didn't even not only have money for the purchase order, I didn't have money for the deposit. So like the 30 % deposit up front before they start mass production. And I remember the manufacturer being like, Sahan, what is this?

19:24We've been working together for a year and a half. I thought Americans have money. Why don't you have money? Not all of us. And so the agreement we had to strike, which again, I know in theory, anybody would have looked at it and be like, well, that's a huge risk, was they would cover the tooling. They would pay for it themselves. They had full rights to use that design elsewhere outside of the US. And invariably, what ends up happening is they love what we're doing. They love our designs. They love our advertising. I always shared it with them. And I'll share a little bit of a kind of tactical move that I did with that to elevate our manufacturing for future products later on.

20:03But in short, they really were supportive of us in the early days. And I think at the end of the day, it was a fair deal where they said, we can sell this. We invested in it. We can sell this to other markets. But the challenge there then became that product would show up online on social forums or people would just post and tag and say, Terra Cafe didn't build their machine. They didn't do it. They just bought something dropship. And especially during the dropship craze, I think of like 2019, 2020, 2021. And it was like, no, this is not true. And we would create content. We would do AMAs. We would do Instagram lives.

20:39We'd try and be out there as much as possible and be like, hit us with all your question. We are super honest and transparent about what we've done and what we haven't done and exactly what our trajectory is. And we are going to be the most responsive brand in this space. We're going to be the most innovative. We are actually going to move the needle. And that's actually what we've seen is the bigger players are now watching us and they copy our ideas. They copy our marketing, our advertising, our product ideas. And it's like, great. I know competition is not fun, but I'll let you keep tailing me and I'm just going to a lot faster than you.

21:11So it did hurt us in the near term, or at least it did hurt us, I should say, more so in the medium term. But it was a risk I was willing to take because it was the only way to get off the ground. And again, you're pioneering it. So it's like there's a V1 that's on the market in other countries, but you're out there pioneering, like you say, and pioneering in marketing and all these D2C channels, you're going to keep the lead. The challenge is online stuff is evergreen, right? So if somebody posts something negative and they think it's not true, me coming in to defend it can just seem defensive.

21:42And people are more likely, even if it's an anonymous individual, they're more likely to trust that than a brand. And that's like, okay, I think the best way to do this is actually put our faces out there. We're not hiding from anything. We even tell people, this is our office address. You want to come by, pop in, open door policy. We're happy to invite you in, show you the inside inner workings. But it didn't end up becoming such a pernicious problem that it killed the company or anything like that. It was just, it made the 2023 year even tougher than what it was because we were kind of fighting two battlefronts as a company.

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23:25So take me to the final stretch and like the go-to-market because you gave me the number that you actually went in on to build the machine from scratch. So talk to me about when you hit pay dirt and how you knew that this was going to work. I mean, the crazy thing was, you know, we got to a point where based on, and this is why cap structure is so important, but based on the way we were capitalized, we did have a mixture of equity and debt. And we had one of those parties say, like, you know, if we're going to continue to finance you, this is more so on the equity investment side, we need to see if this thing has legs.

24:04Are you building something people want? That was fair. We were a year, I think, year and a half into development. And they were like, is this something people want? We had to push it live. We'd have a choice. And that's not an ideal go-to-market. Your ideal go-to-market is not an investor saying, show me somebody wants this right now. That is not the way, if you want to talk about the actual momentum build of community fervor, brand equity, development, and growth, that is not the way to do it. That's the tail wagging the dog. But again, there are a lot of things in the story of business building that are not ideal, and they're not following some sort of MBA textbook.