Across the world, the COVID-19 pandemic has affected consumer-centric businesses, and India is no different. Today, running a homegrown business has meant adapting quickly, by opening up new doors to product delivery, innovation, and embracing digital to reach out to customers. It’s something that Shivam Shahi and founding member of the millennial-hip Blue Tokai Coffee Roasters, knows well — how to set up your own business and sustain it.
Blue Tokai Coffee Roasters launched in 2013 when co-founders Matt Chitharanjan and Namrata Asthana moved to Delhi from Chennai, the dearth of freshly roasted, high-quality Arabica coffee pushed them to contact estates growing high-quality coffee. They started roasting the coffee themselves and selling it online, finding a huge customer base — discerning coffee lovers who wanted more than what was on supermarket shelves at that point. Shahi joined in 2015 and says there are certain aspects that homegrown startups must be mindful of, both in the context of launching a business and the challenges that today’s world presents.
What were the initial years of Blue Tokai like, and how has the idea developed?
The first two years of the business was well-funded. A seed funding round was held in 2015, when I joined Blue Tokai Coffee, as a founding member. We started with the aim of providing consumers with great tasting Indian coffee. The mission has remained the same since inception: to work with the best coffee estates in the country, carefully roast the coffee to maximize its flavour and distribute the products to customers via online presence, wholesale partners, and its own cafes.
How did you scale up operations?
Expansion was not rushed and scaling up has been a well-thought-out process. Gauging the response from our first cafe in Said-ul-Ajab, Delhi, we realised how a physical space helps customer engagement and building the brand. We started expanding on that business line, although it wasn’t an initial plan.
An omnichannel approach comprising, online sales, wholesale business, and cafes have taken priorities at different stages. Fundraising and travelling are where the company has started spending on most recently. Fundraising brings other significant costs such as legal, financial, and compliance expenses. Understanding new markets require in-depth research, hence several visits. Blue Tokai now has over 325 full-time employees, which would also translate into fixed costs.
What has been your response to the pandemic-related restrictions?
While many people think of cafes and restaurants as a glamorous business, they operate on fairly tight margins and are also fairly capital intensive. While expanding, we’ve consciously operated in a way with a very controlled burn and that has involved making trade-offs, which has been an asset for us. Since the COVID-19 pandemic is an unheard-of experience, Blue Tokai decided to cut down on operational costs. We are also focusing on energies to develop new products that are tailored to the challenges and opportunities that the pandemic has created. Although the online delivery business has grown, the cafe segment has taken a hit.
What are the financial implications?
Tough decisions have had to be taken and a few cafes in some locations have been shut down. We simply do not see those micro-markets coming back for a significant time here. The revenues are expected to be lower in this financial year when compared with the last year. The measured approach to expansion will have to now apply to increase operational efficiency. Nonetheless, we see the pandemic as an opportunity to build a base for the future. But, ensuring financial stability at the current scale of the business is essential.
What is your advice to a homegrown business when starting out?
To new entrepreneurs, I suggest focusing on unit economics rather than chasing revenue numbers from the beginning. If your net profit per unit is always positive, this will provide a sustainable base that will multiply as revenues grow. Don’t be super optimistic about your business model and always have a Plan B for headwinds that may emerge. I recommend raising funds only when required, as excess funds can lead to over-expansion, additional expenses, overconfidence, and operational inefficiency. In my eyes, it is important to be sustainable and not be dependent on funding rounds to survive, in the run for creating huge valuation.