Why BeanBox is the Rare, Profitable Subscription Box Business
Matthew Berk is the founder and CEO of BeanBox, the leading online coffee subscription service. BeanBox is an Inc. 5000 company and one of the fastest-growing companies in America with a community that is a couple hundred thousand strong.
We talked to Mathew Berk about what makes a subscription business stand out from the crowd, the role technology plays in business today, and BeanBox’s most effective methods for customer acquisition.
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“We are a tech company that happens to sell coffee.”
Before Matthew Berk founded BeanBox in 2014, he had worked as a Chief Technology Officer and even built a search engine.
While at a first glance one could assume that Berk has since abandoned tech and switched to the coffee industry, he still sees himself first and foremost in the tech business.
A lot of entrepreneurs who come into e-commerce and direct-to-consumer sales are from a marketing or product background rather than a technical one. Berk believes their background in tech has helped his team define what to sell, how to sell it, and what the rules are.
“There are a number of tools out there that will help you to make, sell, and ship products,” Berk says. “But as we scale, our ability to own our technology and use that to our advantage will enable us to grow and create better experiences for our customers.”
Berk feels certain that if they did not own their technology which allowed them to get their hands on every aspect of their work, BeanBox would not have come this far in six years.
Has Technology Become a Commodity?
Today, software-enabled and internet-oriented businesses have much fewer obstacles than they did fifteen years ago.
“On the one hand, we can do anything we want by paying monthly fees to twenty different companies to fulfill or build our product,” Berk says. But optimizing what needs to be outsourced and what a company can do on its own is essential to his business.
BeanBox does work with third parties when it comes to certain tasks such as generating shipping labels or e-mails they send to their subscribers, but they work hard to stay in control of how these services get integrated into their business cycle. For example, BeanBox still controls the logic that decides which customer group gets what e-mail.
Berk underlines how even in areas where technology has become a commodity, the business owner's priority should be to use it in the smartest way possible.
Berk’s Secrets to Being Unusually Successful in the Subscription Box Business
There are so many subscription box businesses today that there are multiple service providers that help these businesses run their operations. Most of these services and businesses have very high acquisition costs and negative customer reviews. What is Matthew Berk’s secret to being unusually successful in the subscription box business?
Market and product space
Being well-funded and being in the right place at the right time are important for any business to succeed. But Berk underlines that thinking from a consumer standpoint is crucial for subscription businesses. BeanBox is successful because it sells a product that its consumer will want to keep buying chronically.
"Don’t get into this business because you like the idea of a subscription business," Berk says. "Do it because of the consumer use case."
Seeing subscription as one part of the business rather than the business itself
BeanBox sells coffee, which is a product that consumers will keep buying, but it also offers buyers the chance to sample different kinds of coffee from new parts of the world. This enables BeanBox to secure a recurring demand from coffee consumers while keeping people excited about their business.
Many customers stay as sample subscribers, but many others return as better customers, ordering larger amounts of the products they liked after trying out multiple options.
If they want to buy ten bags of coffee or to send a gift to a friend, BeanBox offers its consumers easy options to do these too. If you limit your business to being a subscription business, you will be missing out on these opportunities.
BeanBox’s sales fluctuate based on the season. The fourth quarter is always mainly gift-buyers. 10% to %15 of gift-receivers come back as subscribers or purchasers. You need to welcome different consumer life-cycles to generate more customers.
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The Roasters
Three main players do what BeanBox does in the coffee business. The first is individual coffee roasters who are just beginning to sell coffee online. "There are a lot of sellers who are waking up to the idea that consumers buy a lot of coffee online," Berk says.
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The Middlemen
Some companies operate as the middlemen between the buyer and the roaster. They do not participate in the production, but they bring the two parties together.
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BeanBox
BeanBox works as a curator, connecting local segmented coffee makers to a national group of buyers. They handle all the beans and all the operations that are required until the product is ready to be shipped.
If one set of beans doesn’t arrive on time, BeanBox can replace it with an equivalent option. “If we weren’t tech people, we wouldn’t be able to stay on top of all this,” Berk says. There is a real manufacturing aspect of what BeanBox does, and they have the technical infrastructure to make it work.
Selling Specialty Coffee vs. Coffee as a Commodity
Many people think coffee is a commodity. These people are happy with going to the nearest grocery store to get what they need. BeanBox customers are specialty coffee consumers.
Through BeanBox, consumers get access to a level of quality that is very hard to find elsewhere. BeanBox curators travel all over the world to find the best coffee beans every year, and their customers appreciate the value of this effort.
BeanBox only has a dozen employees but they have a couple hundred thousand customers. Their expected revenue is close to $8 Million this year.
BeanBox's Most Effective Customer Acquisition Methods
The costs of acquiring customers can be high. That is why BeanBox built its acquisition strategies around always leaving a product footprint.
Gifts
During the fourth quarter of every year, their customers double in numbers.
Starter Kit
One can sample any one kind of BeanBox beans for $5.
Giveaway
While giveaways can be costly for the seller, it is an effective way of acquiring more customers.
Almost 40% of BeanBox customers come from e-mails. Whether they are featuring a coffee that is in their customer's preference list or celebrating an old customer’s wedding anniversary, BeanBox often gets good returns from their e-mails.
The Main Challenges in Business for BeanBox Today
The Seasonality of Gifting
When you go from doing a manageable volume of manufacturing and fulfillment every week to ten times the number of orders, you need to scale your labor, product, and operations.
Capitalization
BeanBox made a decision early on not to take in too much investment. While this makes their finances tight, they have a lot of freedom and creativity to solve their problems and plan for their growth.
Complexity
There is an advantage to coming from the software world when it comes to finding solutions for intricate problems, but managing new complexities as their business grows has been difficult even for Matthew Berk and his colleagues.
When Amazon first started, they had the same problems as BeanBox has now. Amazon was forced to overstock by its fluctuating seasonal sales, which eventually led them to become what they are.
It is not as simple as that for BeanBox, since the specialty coffee they sell is a perishable product that needs to be bought and sent within short periods. That is why BeanBox does not use an external service like Fulfilment by Amazon to deal with the seasonal scaling challenges.
“But if what we sold were shelf-stable, I would have taken advantage of Amazon,” Berk says.
Two Entrepreneurs Matthew Berk Admires the Most
Bernard Goldhirsh, Magazine Innovator Who Started Inc.
Inc. is where Berk started his own career. Goldhirsh was known for his support of entrepreneurial culture in the workspace.
Jeff Bezos, Founder, CEO, and president of Amazon
“I admire Bezos for taking the overhead for excess capacity and turning it from a tremendous risk to a tremendous asset,” Berk says.
Berk’s One Piece of Advice to E-Commerce Entrepreneurs
“I wish someone had told me this: E-commerce takes time. It doesn’t matter how much money you have. Building a customer base and getting established online takes time.”
Berk emphasizes that a sustainable e-commerce business has to grow organically. There are certain things that you cannot buy with money. What your business needs is time.
“No matter what you do, you won’t become a product someone is willing to spend money on until they’ve had enough time.”
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