Spotify earnings, Grimes takes AI-based music approach + Cafe X CEO Henry Hu | E1728

0:00Okay, everybody. First up, we have some music tech and podcasting news for you. Spotify has reported their first quarter earnings and they're really growing their user base. They're over 500 million global monthly active users. And in related news, Grimes, the artist, has tweeted, she wants everybody to take her AI voice and make songs and she'll split revenue with people. One of the most fascinating, interesting, innovative things I've seen in the history of the music industry. I think it's going to result in some bangers. And then I have CafeX CEO and founder Henry Hugh on the show to talk about his crazy last couple of years.

0:40Near-death experiences as an entrepreneur, never giving up, and just making that robotic coffee machine that you see at SFO that's actually making hundreds of thousands of dollars a year. He figured it out. One of the great dogged founders I've ever worked with, super innovative. It's going to be a great show. So stick with us. This Week in Startups is brought to you by Squarespace. Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10 % off your first purchase of a website or domain. LinkedIn marketing.

1:15To redeem a free$100 LinkedIn ad credit and launch your first campaign, go to linkedin.com slash thisweekinstartups. And brilliant.org is the best way to learn math, science, and computer science interactively. Try everything Brilliant has to offer for a full 30 days and get 20 % off an annual subscription at brilliant.org slash twist. All right, big news in Spotify land. Spotify's stock is up about 10 % after they reported their Q1 earnings because they exceeded user growth expectations by 15 million monthly active users. So despite the slowdown in the world and the correction, the down market, people still like podcasts and they still like listening to music.

2:09As of 2 p.m. Eastern, stock was up about 4 % after that initial 10 % pop. Looking at the financials, up 14 % year over year, down 4 % quarter over quarter. That's slightly below expectations. Their first quarter revenue,$3.3 billion premium subscriber revenue. was 89 % of the total revenue. Ad support was 11%. Ad revenue is up 17 % year over year, down 20 % quarter over quarter. It's a tough time right now in advertising because when budgets get cut and you're in a down market, people maybe spend a little bit less on advertising and try to be more efficient. But then coming out of a recession or a down market, you'll see people start to ramp up their spending because they start to feel more confident.

3:00in the advertising game and spending. There's a lot of emotion, I find, historically in that. So when we have these down markets, people will spend less. And then also people start canceling on the margins subscriptions that they don't need or if they're just belt tightening generally. And you might be doing this in your life. You might look at all of your spending and maybe Spotify. You don't want to pay for ad free. You want to use Pandora or Spotify with ads or pirate music or listen to it on YouTube with ads. they had an operating loss of 171 million but their cash flow was positive at 62 million so you know the reason why you'll see this disparity is because you have to subtract their capex costs you know capital expenditures from the free cash flow and you'll have all these like non-cash expenses around capex like depreciation amortization so you buy something and it appreciates in value over time that kind of will explain those differences what you really want to see is just more cash in the bank over time user growth is the big story here all right so let's look at the total monthly active users in q1 this is premium subs plus free users 515 million mouse mouse is monthly active users and that's up 22 percent year over year and five percent quarter over quarter more people are downloading spotify and using it and that exceeded uh expectations by 15 million not sure why that is uh it could be people are coming for joe rogan or caller daddy you know things that are exclusive but would 15 million come for the that many i don't know um it's hard to tell maybe people have more free time maybe they uh maybe there are some bangers out there some great songs people want to hear but there's not that much exclusive stuff on spotify there are very few services in the world that reach 500 monthly active users outside of china so when we look at the u.s um and just global services generally facebook 2.9 billion monthly active users youtube over 2 billion whatsapp 2 billion wechat 1 billion plus that's a chinese service obviously uh instagram 1 billion tiktok 1 billion snap surprisingly snap's doing really well in this regard 750 monthly active users spotify premium subscribers 210 million now that's an even more narrow group of services the number of services that have over 100 million subscribers netflix disney plus very few in the world and so they're in rarefied air disney plus has a global subscription base of 162 ish million i'm rounding up there netflix globally three 233 million i always round up and then when you look at the average revenue per user that's where the story comes in so it's not enough to just look at how many subscribers they have how much they make per subscriber spotify makes four bucks and 74 cents we're also 74 cents disney uh is at three dollars and 93 cents largely because they started with a lower pricing and remember globally what we pay in the united states is very different than what people pay in india china or you know emerging markets let alone frontier markets netflix average revenue per user is 11 dollars and 70 cents so they're really high they kept raising their prices over time and they just started doing their ad supported uh service they're not releasing that number but i don't i think they missed uh was what uh people said and so it will take a little time they expect their average revenue to drop over time as more people take the ad choice and uh here's what our friend friend of the pod daniel has to say daniel come back on the program i haven't talked in a while i don't think i've ever seen anything like any technology how fast innovation and progress is happening in all the really cool and scary things that people are doing with AI.

7:04Interesting. So AI is something that Spotify has been doing with their algorithm for a long time, right? One of the great things about Spotify is when you play your two or three songs, the next two or three, even if you don't know the artists, are music that you might really like. And so there's going to be a lot of opportunity for Spotify to look at your behavior, look at the behavior of your friends, they've never really built out the social network on Spotify, they should probably take a second swing at that of letting us comment. How great would it be? And I don't, I've never seen this inside of Spotify.

7:38I know you can share playlists, but somebody just invited me to a playlist where I could add songs to it. So that's an interesting social feature. But if they could build out a social graph inside of Spotify and really get that going, instead of seeing what your friends are listening to, which is a little creepy, you could start to build some AI that would say hey your friends are listening to this episode of this podcast and these other episodes are related to it and your friend graph could start to introduce you to stuff so combining what we learn from social networks with what's trending in the world and what's actually happening inside of a podcast or inside of a song so you can analyze the lyrics the beat the melody of songs and present more like it all that stuff's really going to be interesting If you can tell from the podcast lately, we've been doubling and tripling down on Founder University at launch.

8:31In fact, it's basically the future of our venture capital firm. And that's awesome because I'm working with a couple of hundred early stage founders really early and getting to see what tools they use. You know what tool they show up with most? They show up with Squarespace. They put up their first website instantly, quickly with Squarespace and it's beautiful and it makes them look like a million bucks. The thing you may not be aware of is that Squarespace, beyond the beautiful templates that make your company look like a million bucks and that work on mobile, it's not just a pretty website. It is a powerful e-commerce platform now and they have member areas.

9:05What's a member area? You know people like to sell content now and premium content. It's a big business. Well, they have that built in to Squarespace and they don't take, you know, double digit percentages of your revenue like those other platforms do. And they also have appointment scheduling. So, you know, if you're doing a business where you're a consultant, you want to charge for your time, well, you have scheduling built into it as well. And this is the brilliance of Squarespace. It's going to look beautiful, as you know. So here's what I want you to do. Just head to squarespace.com slash twist for a free trial.

9:34When you're ready to launch, use the offer code twist. You save an extra 10 % off your first purchase of a website or a domain. We love you, Squarespace. You know how it is. When you're a technologist, Just everybody in your family, your friends, your circle, your network come to you and say, hey, I got to get a website up. Can you find me a developer, a designer, a product manager? And you just say, you know what? Yes, I can find you all that and more at squarespace.com slash twist. But the most interesting thing of all is what people are doing with AI generated music. And the artist known as Grimes has told fans and artists she will let them use her voice to make AI generated music.

10:09And she will split the royalties with them 50-50. Now, we talked last week on the show about Heart on My Sleeve. That's the song that went viral using AI-generated voices of Drake and The Weeknd. I'm not sure if the lyrics were AI-generated. I think a lot of times people are writing the lyrics and then having these AI artists perform it. But the industry is really not interested in this, and they're putting the kibosh on it. But Grimes is an independent artist, according to her tweets. and it's just an interesting turn of events that a pop star on her level is just letting people know they can have at it she retweeted the drake and the weekend story from the new york times and says i'll split 50 royalties on any successful ai generate song that uses my voice same deal as i would with any artist i collab with feel free to use my voice without penalty i have no label and no legal bindings uh i think it's cool to be fused with a machine and i like the idea of open sourcing all art and killing copyright so very interesting uh position but she followed up because obviously there could be people who might do things that are no bueno so she says okay hate this part but we may do copyright takedowns only for really really toxic lyrics with grimes voice imo you'd really have to push it for me to want to take something down but i guess please don't be quote the worst as in try not to exit the current overton window of lyrical content with regards to sex violence like no baby murder songs please and i think that's pretty reasonable and last week i talked about artists leasing out their voices and how this could be a totally new business model in the industry i was thinking about artists who are no longer alive like elvis or bands that are no longer working together like dire straits and that this could be amazing and delightful for people to imagine you know elvis doing a new song every year or a new album every other year or dire straits album coming out every couple of years that was completely written uh by fans or uh done by ai in fact if somebody makes me a dire straits ai i'll start writing uh new lyrics myself that's how much i love that band uh and so you know the lesson always for me is when new technology comes out you just have to ask yourself well what crazy thing can i do with it and what if it works and embrace it even though universal music group and others are fighting to protect their catalogs and you know don't want their stuff being done this way i think this is going to become a major trend some people are claiming the end of music is coming i think this is going to be a tremendous boost for the music industry i think we're going to see a certain artist who adopt this become the artist of the futures and so grimes has always been a cutting edge artists but I think this will define a new generation of artists people who allow people to remix it I talked about sometimes you have to retrain your brain to become an early adopter and stay ahead of trends and I talked about that in the blueprint series here on this week in startups on episode 1537 here's a 46 second clip where I talked about this it's very easy to look at something and humans take a very pessimistic view early on we're scared creatures so you have to retrain yourself to be an early adopter and there's this of course chart that you see all the time early adopters on one side laggers on the other and the and the majority right and there's like the the faster majority and the slow majority of people when they adopt technology or trends i like to as an individual look at these new trends and instead of being scared of them i like to be curious about them right and i like to look at them and say to myself what if they work right and so you want to anticipate that these things that look like they're not going to work are going to become something big and usually takes three four or five tries for something to actually stick so there you have it folks um you just want to say what if it works and so if this does work and let's say a thousand people make grime songs and let's say 10 of them are really good and she makes an album out of those 10 what if two or three of those chart what if two or three of those make you know hundreds of thousands of dollars in royalties a year for the individuals who write them well then they might write more and then next year it might be 10 000 songs get released and grimes becomes the number one artist in the world based on people just using her aesthetic this could be transformative and if kanye west you know does avant-garde music but it's kind of cool to see him do cover songs you know maybe letting ai do a cover uh and he doesn't have the propensity to want to do these well i kind of like listening to kanye and cover i love cover songs one of my favorite playlists on spotify speaking of spotify is they have like folk or acoustic covers it's called something like that and sometimes when i'm driving i'll just put that on and i get to hear different people's interpretation of classic songs or modern songs you know on acoustic guitar and it's delightful but you have to wait for somebody to do it now you could have kanye covering a dire straight song or dire straights covering a kanye song it can get really just fun and interesting so i say embrace it uh speaking of embracing it uh next up uh one of my earliest investments and exciting ones cafe x ceo henry hugh is on the program he's been on the show a couple of times before but the last three years were brutal for cafe x because pandemic shut things down including airports where they have two machines at san francisco's uh airport here sfo and so we talk about the different pivots they've made and how they survived the downturn but this barista robot that they've built with the moving arm that can serve hundreds of cups of coffee a day it's actually working and he actually has people who are buying the machine from him now and doing hardware as a service people buy the machine they buy the software and they can run their own cafes he's raising money in equity crowdfunding effort on republic so if you want to join the fun and place a bet and these are bets most startups fail so be careful folks but if you're want to be on a cap table with me feel free to go check that out and make an educated decision for yourself but here he is henry from cafe x with the update listen when you're selling a b2b solution you really want to get your pitch in front of decision makers the ones who have the corporate card or sign the po's and typically those senior level executives are the hardest people to reach unless and you know this to be true you use linkedin yes that's right they're getting close to a billion people on linkedin it's like 875 900 million people use it.

17:21But of that group, 180 million of them are the coveted senior level executives, and 10 million C-level executives are on the platform. They're the ones who can make a purchasing decision. You can reach them with LinkedIn ads. It's built specifically for business to business marketers like me and you. No other platform in the world has these type of eyeballs, nor do they have them in the business context, right? When I'm on LinkedIn, LinkedIn equals business, business equals LinkedIn, LinkedIn equals business, business equals LinkedIn, you know that to be true. So they're going to reach these business to business decision makers in a respectful, focused environment.

17:58So if you're selling a B2B solution, and you want to engage with the elite buyers, just mark it on LinkedIn. And here you go, a hundy is waiting for you$100 in credits, just go to LinkedIn.com slash this week in startups to claim your credit, no spaces, no dashes, LinkedIn.com. And then the name of this podcast, this week in startups, no spaces no dashes terms and conditions apply because they're giving you a hundy all right welcome back to the program everybody we're excited to have our guests back on the program today because my philosophy of startups is i don't quit and if things get hard i just double down triple down and i will work with any founder that we've invested in until they decide to give up.

18:41My founder today had ample opportunity to give up at any time during what was one of the hardest streaks of bad luck I've seen an entrepreneur have to go through. Hardware is hard. Running a retail operation is hard. San Francisco is the most impossible location to run a retail location, as you've all seen over the past five years. And we had this little thing called COVID shut down the world. Today on the program, the co-founder and CEO of cafe x henry hugh uh henry welcome back to the program how are you doing good thanks for having me back so you and i met uh you sent me famously a video uh i think you were in hong kong or china or shenzhen i don't know exactly where you hong kong yeah um years ago and you said look it's a robot making coffee and i said is it a joke you said it's not a joke i built it while you were in college i said that's interesting come to my accelerator came to the accelerator raised a bunch of money you figured out how to actually do food service and i want to put this against the backdrop of i was very excited about robots being able to make food because i knew there would be a shortage of workers that turned out to be true we knew robotics was going to happen and we'd get more refined over time but when i looked at it the pizza company i looked at zuma uh a couple of hamburger companies i think one was called moment um salad bot tea bot ramen bot frozen yogurt bot dishwasher bot almost none of those worked i think the dishwasher one did work um and you were able to make this incredible cafe x automated coffee machine now it took years but i just want to let folks know and we can play a video here if you've ever been to san francisco you have two of these robotic coffee machines working in sfo it was really hard to get in there and so we don't have to rehash the past week you've been on the pod so many times but i want to just start with just what's working and then we'll work backwards to just how cataclysmic covid was for your startup and how you survived it so here we see on the screen uh the robot doing what it does making perfect coffee at a tremendous rate.

20:59Talk about the two machines at SFO and what you experienced in 2022 and into 2023. And welcome back to the program. Sure. So yeah, 2022, we reopened after COVID. And we initially started with one machine and then we added a second one. And we had a great year. They did over$730 ,000 between the two machines combined. um and we really kind of proved uh two things one that um as far as i'm aware they're the highest revenue generating vending machines in the world so fully automated fully unattended like literally there's nobody there um we we go there once a day usually for for cleaning and filling it up otherwise it's just sitting there running by itself serving hundreds of people every day but then the second thing is um that we proved that it's reliable like there's again like there's nothing there's nothing there isn't like a fully automated robotic food service machine out there in the public today there's just except for us right and so when people ask how is this different than the powdered coffee machine we see in better call saul where you put in 50 cents and it makes a cup of sanka with some powdered uh milk in it explain the question we got all the time why are you doing this with a robotic arm doesn't this exist already i think those were the two objections or questions that you know uh the public and more importantly investors had uh what what was the answer you gave people to those two questions and how have those two specific questions why use a robotic arm and how is it different than the previous machines um what has proven to be right wrong or interesting about those questions you got yeah a lot of people will immediately say like what's the difference between this and an espresso machine um and so it's i think it's because probably these people don't have a very good understanding of how specialty coffee works or how you know how baristas make really good quality good tasting coffee um actually one of our customers now is like one of the top like specialty coffee roasters in the u.s um and we we're serving their coffee at sfo it's called onyx coffee lab um so really like i think we've done the right things to make a system that serves good quality coffee.

23:22And we've put in the right components such that it makes sense. So what does a barista do when they make coffee? They move cups around and they operate semi-automatic machines. That's essentially what our robot does and moves cups around. And because the airport is a busy location, which is why it's a good fit for this machine, it's helpful because the machine can be simultaneously making six eight ten drinks at a time you're moving the cups around to different machines to collect different ingredients giving them to the right customer at the right time like for a person to manage that is pretty stressful um and then the actual machines that make the drinks um you know making good coffee is just having a good machine and having good ingredients and then also dialing in that machine properly sort of calibrating it to to create the recipes properly um and so like we use a you know the top of the line fully automatic espresso machine we work with great coffee roasters uh we we we work with them to dial in the recipes so that everything tastes good um and then the yeah the robot just allows us to make lots of drinks uh you know perfectly accurately um at the same time and that consistency is a key component here so what people missed about your vision which i'm not sure why they missed it because it was so apparent to me uh having been to a starbucks or even a blue bottle that mistakes are made and then you actually had statistics on this like i remember you telling me at some point like over 50 of the drinks have mistakes in them you know their temperature's wrong etc humans make mistakes the robots infrequently make mistakes and if it does it tends to be well something's wrong with piece of hardware not the actual ordering system and then this parallel this ability to work in parallel without error is something that people just don't immediately grok but when you see four people around the machine ordering one or two drinks each this thing is cranking making iced beverages from a tap espresso based beverages getting ice syrups whatever and it does it all quite flawlessly what's the so that's the consistency part now why do you need a robot arm as opposed to uh there was a company called brigo which had a machine next to the sfo one that had a conveyor belt like system and the cups would go along the conveyor belt and i don't know exactly what strategy was doing i think it was doing more brewed coffee like uh like maybe a fills or something like that but you'll know better than me um and the coffee was i would say below average for me um compared to the super espresso machines with the dialed in coffee making it perfect every time but it wasn't terrible but the brigo machine was giant and it did not have a robotic arm it was a fixed conveyor belt system brigo i believe failed why did brigo if i'm pronouncing the company correctly walk me through brigo's technical decisions on hardware and your technical decisions on hardware and versus what you see when you're in japan i just got back i saw plenty of coffee machines making powder coffee so walk through those three systems um so our machine at terminal three and sfo is actually currently located where the brigo machine was uh before that's a victory um and so i think before covid um the airport's probably still like 15 20 more passengers than there are currently um and our sales are like three to four times what the the brigo machine was doing at that same location um so i think so there's there's multiple kind of advantages to having the robot arm but maybe the first one that's most obvious is that it's fun and entertaining um that's kind of important for for a product it delights people it draws attention um literally every single person using the machine is on their phone taking a video or photo of it uh so it kind of creates a bit of real world virality um but uh the other benefit to the to the the robot is it gives us a lot of flexibility to expand the menu and so this is something that's very important in food and average like um my background is just dropping out of college so i am not like a you know a multi-year restaurateur or or um or coffee shop owner but you know we learned this kind of over time like you have to constantly be adding new products improving your menu um and so having a robot allowed us to add the tap system it allowed us to add now uh cookies candy macarons you know snacks and it allows us to move the cup very flexibly between different components and so we can constantly kind of build new drinks you know we have this software now that allows us to create new products super easily that we built in-house it's that it's like very very convenient so we're constantly using it to add new products to the menu so it takes um it adds complexity maybe uh to have the robot arm i don't know if it actually adds complexity versus the brigo if i think about it the brigo seems but the point is the brigo cannot add an ice machine the taps and then pick up food and then hand it to people or uh like your machine does uh you know it's delighted when last time i was there i had something that was on the seasonal menu that was very um it was like some iced apple something but you have the ability to go get ice yeah from the ice dispenser then because originally you didn't have ice drinks or taps so now you get some ice then you get the tap you put some kombucha in the tap but then you could also put foam over it so i love these ice latte matcha latte kind of drinks and those are complex drinks from what i can see the brigo is never going to be able to do that you have to rip the machine apart and start from zero almost since it's a conveyor belt system yours you pick up the cup it gets ice correct me if I'm wrong hits the tap then there is a foam machine that's able to do the cold foam is that a separate machine or is that something that super espresso machines added later because cold foam is that different than hot foam yeah that we've always used sort of the top of the line espresso machines we use um we we work with a company called wmf from germany they're the biggest commercial coffee machine maker in the world so they've always had top of the line ability for the machine to do really good espresso and also milk um so milk we have different kinds of milk we have obviously hot and cold milk but also different textures of foam so there's three or four different kinds of hot foam texture cold foam texture and we can play around with that to create you know different drinks i think the one you had was the spiced apple tea which we had that was it was pretty good it was like a apple yeah apple flavor tea from the tap tower and then we bring it over to the coffee machine and get um uh oatly oat milk cold foam that goes on top and it that was delicious yeah it was pretty popular um uh so the the and then now we compare these two systems the brigo conveyor belt um to the the cafe x hey sky's the limit um and now you compare it to powdered coffee machines it's really just an issue of taste is Is it not?

30:48Yeah, the power thing is, yeah. I mean, if we could put a powdered machine into our machine to, you know, say it's, but we'd never do that. You know, it's just like we've selected the best equipment there is out there. We have the expertise to properly use that equipment to make good quality drinks. And then we work with good quality ingredient providers. If you're listening to this podcast, you clearly have an interest in startups and technology, But do you have the skills and knowledge you need for a career in tech? And if you do have those skills, are you still learning and growing? Because everyone in tech knows if you're not building new skills geared towards the latest platforms, well, you're falling behind.

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32:41okay now the company uh let's go to the pivot you made we in the early days of experimenting with a company uh tried to open some locations san francisco uh the metreon people remember market street etc and you know the goal was always to get into some airports uh finally got into airports that's not an easy task to get into an airport uh correct yeah that that took a few years yeah and the hardware takes a couple years and retail takes a couple years so we have proven now that a machine can do hundreds of thousands of dollars in revenue a year with but i don't know you 30 minutes of cleanup a day and restocking an hour what does it take yeah it's between 30 to 60 at the airport it's particularly dusty just because of how many people there are so we actually have to spend a little more extra time just just wiping things down okay so the idea is a full-time person who worked an eight-hour shift uh getting paid 30 bucks an hour would be able to clean a machine an hour no problem in an airport yeah so an hour i'm rounding up thinking at some point the person is a little bit lazy to get some i always write in 32 minutes that's my record and i know you do it yourself we'll get to that in a minute but that uh means for a 30 an hour person you know which is a you know whatever four times minimum wage federal and double the the local minimum wage in like a place like san francisco or seattle new york for double what a starbucks barista gets paid you can clean the machine and then these machines on average can do a couple hundred cups a day no problem yep so that is quite a savings um and these are not these do not need to take up a storefront at an airport if there's a lounge area which airport is filled with them you could remove but i don't know six seats maybe six seats on each side 12 seats or so wide you can remove a bench and put this thing in as long as you have 220 and do you have to pour water to it or do you bring in water um it's designed for for water and for drain um but if this is like something that can't be set up it can't be done so that's portable ah so it could be made portable you put a 50 gallon drum of water yeah we we've really optimized the deployments now so when we set up a machine for a customer it takes like just a few hours like it used to take days okay so let's talk about that at some point you realize hey taking this national is going to be really hard we should be a technology provider to other cafes or franchisees or it's not technically a franchise product but people can now buy the machine themselves they can slap their own logo on it if you were the new york knicks and you wanted to put four of these in madison square garden you could have a panel at the front that says you know knicks drinks and you could have all drinks based on the nicks players you could have the panel change to the rangers the next night uh or miley cyrus or the grateful dad or billy joel if they played there um or you just have it say msg and have your whole msg drinks with a nicks orange latte or whatever sounds pretty terrible but um putting that aside uh or other airports around the world or campuses nyu if they're having a problem staffing these things they could just buy five or ten machines and operate them themselves or a kitchen provider that provides to nyu or fordham or harvard campus could now buy them they buy the machine i think they cost a 250k and there's a smaller machine coming and then a couple of thousands a month in sass so you're now a hardware as a software model and you'll you have some number of customers from this explain the pivot how you decided to do it and how it's going sure um so we we basically use our own machine and developed it over multiple years we basically started in 2017 with those three prototypes in downtown sf um he served over 300 000 paying customers and so we you know when we were running at the airport in 2022 um at that point we're like you know this is a very reliable machine and it's something now that we've optimized everything the hardware, the software, the experience for operators to operate the machine to a point where anybody could operate it so we started selling to other businesses as a white label solution we've customized the machine with different finishes branding, we customized the ordering app as well and last year we shipped to five of our first B2B customers um um a few notable fortune companies big consulting companies um and they're using we're not going to say the names here uh they're testing them or something um yeah yeah okay great yeah so we delivered to five uh the the the farthest one that we shipped to was in dubai um that machine's off is doing great it's doing about the same as the san francisco airport in terms of uh performance um and then this year uh we're building more machines there's one here behind me that we're shipping out soon uh we have we already have orders for for 10 so um fantastic yeah and the pricing on this current model and then you're always trying to reduce price on on them the the original prototypes cost a million to make probably all in what is the price now in terms of what we're selling it for we'll assume there's some profit margin in there you don't have to say specifically what it is but uh you can uh maybe talk a little bit about what a customer can expect in terms of buying this and then what it would look like over 10 years because uh this i think for some people it's an economic decision they want to make into a business for some people it's a convenience it's a this is a something you have uh in your uh high-rise tower and now you've got a 24-hour barista going because this thing can run 24 hours i mean it's pretty amazing or a college campus or a museum or a corporate environment yeah so for people rather is what i would say for people that want to start like a coffee business that's it's about the same price as as opening a coffee shop um it might be a little higher uh but you have the benefit of being able to move it over you know if it if there's an issue with the location um the machine is going to last for 15 20 plus years we we use all the best commercial industrial you know hardware there so it's it's um it's it's gonna last a long time um and then uh yeah for in the amenity case it's it's great for companies to be able to add a cafe that's got extended hours that's super reliable and for the people that have to manage the the catering operation like they don't have to go out and hire a team of people to run the machine and have to deal with people quitting being late not showing up that's just super convenient um literally just one day move it in plug it in and it starts you have a full-on automated coffee shop and uh break down the cost what people would have cost to buy it and what the way it's like right now our list price is 285 000 and that's fully loaded including customizing the machine and white labeling the software and that includes the shelf which is an accessory that you can use for for selling cookies and snacks basically any retail item we have a customer now that's going to be using it for selling coffee beans because they're a coffee roaster ah coffee beans are high margin if you're selling you know a 20 pound of usually it's 20 bucks a pound for this like high-end coffee i see it's like 18 for 12 ounces they seem to be playing a little game with me because i look at and say oh it's 18 a pound and it's actually 18 for 12 ounces or 14 ounces nice there's some really special ones that are like 200 yeah i don't know if we need to go there but um that would be incredible for them because if you're walking home uh and this thing is running at 10 o 'clock at night and you forgot to buy beans you can just pick it up right there and they're fresh roasted etc um is and the software then they can have their own app or do you have to use the cafe x app do you can you produce an app so if i was a coffee brand if i'm you know is it intelligentsia or you know uh one of those uh brands if i wanted to put these in 10 locations in airports and i wanted to try to get those franchises for you know high quality espresso and really as marketing to sell my beans um can i have my own app that does that or do you have to use a cafe x app um so so we've built our software to support you know operating this machine a bit like um a mix of like the tesla app plus shopify so it's kind of like you know created a way such that a customer can customize their um the look and feel of their customer facing mobile ordering app and by the way it's a it's a it's a flutter web app so you don't actually have to download anything you just scan a qr code and you can order in seconds and then we have the kind of uh back office dashboard you know admin software where you can customize the menu manage the prices the photos create new products we've built all of that out um so like literally anybody can run it and it just takes a few hours of training amazing and so it was a tough covid period uh company came within inches of its life i think you had to struggle multiple times uh which by the way i know a couple of other companies in the hardware business rocket ship companies car companies uh and even software companies uh airbnb marketplaces that all have come and had these near-death experiences uh you've been able to basically thread the needle here and survive now you're raising an equity crowdfunding explain the equity crowdfunding uh that you're doing sure yeah we well you know having the machine at sfo is gets a lot of exposure to a lot of people.

42:54We just got a lot of requests for people that were interested in investing in the company after using the machine. And also customers that bought machines that also are interested in investing. So we thought this would be a good opportunity for people to do that. Amazing. And running the systems in San Francisco was extremely difficult. We had multiple... The number one issue we had, I think in San Francisco was vandalism am I correct? it definitely happened a lot like we'd have you know the storefront glass completely smashed for graffiti or crazy people coming in and hurting our customers so yeah just the typical stuff that you hear about in the news but yeah I'm glad we're not dealing with that the airport's a very safe place well and there was also if to be clear we had a lot of also regulations to deal with people didn't know what box to put this in is it a vending machine or is it a food service so yeah the regulations in some locations san francisco i think included oh there's fresh milk in here can you have fresh milk without a human being there all these like edge issues started to come up but you've been able to work through those and navigate those just like uber airbnb and other companies have been able to navigate these kind of issues yeah yeah we we've we've gotten pretty good at you know working with these regulations um although you know like our machine is out there in the public it's not like a an uber that's kind of just like it's not obvious what car is an uber and what's not whereas our machine is just sitting there so i think we we have to follow the regular we have to be very um good about actually following the regulations well you have health inspectors coming you have uh landlords that have to use this and uh so you know massive congratulations i think just being able to weather the covet storm um and how hard it is to do a hardware company i'm just so impressed that you didn't give up and so uh i'm really thankful as an investor in the company uh that you've continued to fight you can go see the equity crowdfunding um and you can if you're a civilian and you want to invest in the future go to republic.com slash cafe dash x disclaimer disclaimer disclaimer most startups fail this one almost failed three or four times like all startups and i've had failed startups uh but still grinding away and uh you can go see the machine machines in san francisco san francisco airport must be delighted uh that there are more coffee options that don't have 30 people online i mean that was the big problem in sfo for me that airport had at a peak was really crowded i think it's probably 20 or 30 off its peak now that san francisco isn't such a destination is is that about right or is it back up i think it's i think it's 20 less than 20 but it's still down a bit um yeah but yeah that's why the airport wanted us there because they had crazy long lines for coffee um so we're helping with that i think you know there's also this struggle when you come to the airport you can't bring a beverage through a security yeah and so when you get past security there's a lot of great options when you're before security or you're at baggage claim typically there are no options and i just think every baggage claim area should have this at every airport just as a starting point because when people come out a baggage claim you know they may be getting in a car they want to have a nice refreshing beverage maybe need a little pick me up it's the morning have you have you had any discussions with people about that specific insight or it's just a theory i have but that seems like a wide open blue ocean you're not competing against dunkin donuts or coffee and tv tea leave or starbucks yeah for space in the by the gates which obviously is a captive audience but man you get all those people leaving everybody's got to go almost everybody gets a bag so yeah i think it's a great opportunity um there there's a number of our customers that are looking at you know airport locations um so maybe that's something that they'll they'll find but like for now you know like one of the reasons that we have survived is because we we we have decided just to focus on a few a few things um and so right now our our sole focus is building machines for customers um so we yeah that's that's all we're focused on that's enough when you think about it if if the customer is focused on the location uh the operation and the menu and the brand that's all off your plate and then you focus strictly on adding features to the robot and to the you know the hardware stack and refining the software i think that's a good trade of services you know you you don't have to you know be thinking about how somebody's going to use the car right you just have to worry about making the best car possible and that's kind of where you're at now yes um although a lot of the customers do you know like our our menu our cafe x menu at sfo has been pretty successful so actually a lot of people want to just do the same thing so for now we're just sharing it with people but i think there's some opportunity for maybe franchising in the future the i have to say the menu uh seems to change on a pretty frequent basis are you driving that yourself personally and then how do you come up with these ideas and then when is uh asking for my three daughters when is a boba option coming because if you have all this flexibility you know they they just love going to get a boba i could see you ripping everything out of this machine except the taps and then adding boba and you know uh liche is a liche jelly and i don't know all the stuff my daughters are putting in this thing all i know is i walk out with eight dollars per drink um yes i um we're a super small team so you know i i do the menu myself um and just like stand there and mix things and come up with things that i think taste good um but uh for boba um so boba is the difficult part about boba is the the tapioca pearls or the boba itself like that stuff is you have to cook it and then it only lasts for a few hours otherwise it starts to get kind of hard or or um or too soft so it's hard to manage that um however we are working actually on on a topping dispenser um that replaces where the pastry shelf goes currently so the robot would be able to scoop you know toppings and put it into into cups and we already have the tap tower and the ice and the syrups um and the different kinds of cream and milk foam like we have everything so a topping might be hey here's some whipped cream or here's some uh like the caramel like lychee jelly or that kind of stuff yeah popping boba that kind of stuff the stuff that um that's stable yeah you just keep it like keep it cold and it's good for the whole day um whereas the like the boba that the the squishy black boba that stuff is um like if if there was a cafe that had staff there and you know this machine was as was integrated as part of the cafe or the boba shop that could make a lot of sense um because they have someone there to cook it and to replace it every few hours but for a fully automated location probably makes more sense to do like the popping boba yeah that's interesting it's more stable yeah oh yeah that my if actually given the choice my daughters go for the popping boba more than that so there's a solution right there is hey listen i if you like the gooey boba that's not us but if you like the popping one hey we can just drop it in there yeah yeah i think that's you know it's one of the great things about having a successful startup up like you do now and you've proven out the concept is people's minds go crazy what other ideas have people started to ask you about because when you see the four taps in there it doesn't take a genius to think kombucha teas what else can come out of town um yeah i think there um something we kind of want to do is to make like a a system that's just for like different kinds of mixed cocktails and beer on tap um obviously there would have to be people there but you know with alcohol it's the margins are pretty straightforward it makes sense to have somebody there anyway um but that might be something we do in the future yeah i mean depending on the venue if you can only get into a venue with a driver's license then once you're inside the venue then you don't have to worry about children having access or underage people having access to the drinks yeah so that could be solved if you had a mega club and people were at some you know mega club and there was a thousand people in the club or 500 people in a bar or a stadium yeah there could be a way to do that where kids wouldn't have access to it or you could literally just have a concierge on the side uh checking people's ids as they collect their beverages not perfect but our top system is something we like we completely engineered it ourselves but with the nitrogen infusion and you know how everything connects together um how it's dispensed remotely like this is something we it's like a separate product that we could you know turn into something else all right well they have it everybody uh if you've got a crazy idea and you want to do something big with henry if you know i was my dream has always been that one of the big uh dunkin donut starbucks intelligentsia is uh you know some big and even a legacy brand would be amazing you know if uh illy or uh you know chock full of nuts or whoever decides you know what we really want to you know um get into the retail space in a major way to build our brand and to make money and and have a larger footprint i've always dreamed that somebody like that would say you know what give us give us 100 machines give us 250 machines a year and uh let us handle the branding because we've got the best espresso in the world now a starbucks or a blue bottle they seem and i don't want you to comment anybody's very specific but just from my perception there seems like there's a collection of brands that are precious about the barista experience but i think there's also an equal number of brands that just want people to be able to get a cup of coffee without waiting 20 minutes um yeah but i think um there's like even if even if you you wanted to have um you know some baristas you know as part of the experience our machine can still add a lot of value because it's possible to have it like sort of collaboratively work with baristas so that those baristas can focus on you know things that take lots of practice and training like doing nice latte art or um making making food products and serving that to customers So you could still kind of, um, integrate our system into a concept that has people, um, or staff serving customers, but you would just have, you would just have less of them or you would get you, or you'd be able to have higher output.

53:53Uh, yeah. So anybody, Henry, what's your email? Best email for you or for people to email if they want to do a partnership. Yeah. I'd love to see if anybody knows anybody in the coffee business. One of the great ways to help startups is to just email the CEOs or people at companies like that say wow you should check out this episode this seems really interesting uh so what's your best email or the best email for our partners uh h at cafe x app.com at cafe x app no spaces no dashes.com all right henry continued success keep grinding i see you're in the laboratory right there in your warehouse uh somewhere by uh sfo in southern san francisco you're in the lab uh and that's it it's been great to to back you as a founder and watch you grow into this ceo position and just never giving up and the grit you have my respect uh a lot of founders i know uh they hit one two three bad beats you hit five six seven it's hard and i've seen a lot of them fold and i saw you double down so continued success and we'll see you all next time on this bye bye

55:04Thank you.