Alright! First of all, the term Coffee Budget is not a standard term. I...
Alright! First of all, the term Coffee Budget is not a standard term. I coined this term in context of Entrepreneurship and Product Management. In my entrepreneurial journey of 5 years or so, I have met hundreds of people that include other fellow entrepreneurs at similar level as mine, the beginners, founders of successful startups, Angel investors, VCs of almost all shapes, sizes and stages, advisors, mentors, corporate big wigs or senior management officials, govt. officers and most important of all, existing customers and potential customers.
The only common factor in my all of these meetings was one thing : COFFEE. Sometimes, it was cappucino, or a latte or filter coffee.. Now, a lot of times, it was tea (or a chai tea latte if it was Starbucks or Costa). If I calculate the amount of money spent in these meetings in the last 5 years, it can easily become an angel investment for an early stage startup ( talking about the investment when a startup raises a $100,000 from 15 people 🙂 ) .
So, you get the drift of the number of meetings I would have had. and I am sure you did the calculation of $100,000 / 15 = $6666.67 as the money spent on Coffee… and if you are from India, you have already converted it into Indian currency of 6666.67 * 65 = INR 4,33,334 . Holy Shit. That’s what you would have said. That’s a lot of money and If you are an entrepreneur, you are still calculating how much money you have spent in your meetings till now. and if this money was saved, you would have actually paid an annual salary of a junior developer in India.
Okay. Let’s get to the point.
Why I had these meetings ?
Meetings are an integral part of your work. But when I met all these people outside office for a cup of coffee, It was a neutral ground for both of us to have an open discussion. As a product manager or an entrepreneur, I wanted to achieve the following
- Validation of my ideas or product concepts
- Research what is the market size and needs
- Figure out whether my customers or potential customers feel the need of the product / feature I am thinking of.
- Whether the potential customer defined by me is really a potential customer or I got the customer segmentation wrong.
- What are the ideas other people have in the same domain ?
- Who all are my competitors ? and how much differentiation I am going to make in the market
- Whether my product idea is a need, want or a wish ?
- Figure out how much people will be willing to spend for my product
- Most important of all, Is there really a problem in the area/domain I am exploring opportunities in ? Or is it just my idea looking a matching problem for the solution that I have thought of.
and there were many more questions that need an answer. I am sure a lot of you go through a few times every year in your professional life. whether you are an entrepreneur, product manager, software engineer, or an engineering manager or into sales or operations, it does not matter because this meeting phenomena does affect you a lot.
So, What exactly is this coffee Budget ?
Plain and Simple. You need to meet various kind of people. You’ll need to meet existing customers for feedback, potential customers for opportunity exploration, investors for validation, market checks and other related stuff, other founders for advise, technology people to figure out all the tech requirements and then, a loads of other people in the value chain to reach out to the right people to meet.
and very often, these meeting will be done in some cafe. and every time, you’ll make a trip to coffee shop, you’ll need to spend on a coffee. and each coffee spend is going to cost you significantly.
It’s an investment that hits the pocket very heavily and still goes un-noticed. So much so, on the day of the meeting, you check your wallet twice to make sure that you have your credit card and enough cash in case your credit card does not work. Now, think that you have to repeat this action every alternate day. That means, you need to plan a separate budget for coffee…
In plain and simple language, Coffee Budget is a money planned in advance to be spent on meetings with people who are important for your product and business.
Why do you need this coffee budget ?
The idea of having a coffee with someone is always to have a conversation. and because you are having a coffee outside office premises, it becomes a neutral ground where biases get reduced to a significant level. Also, when a person makes an effort to meet you, he has shown some concern and seriousness towards this meeting. It also shows how eager and serious you are towards the meeting. This also helps you in planning the use of time very effectively. Usually, a coffee meeting lasts for an hour. So, that means you’ll be focussed to make the maximum utilization of the time and get the best out of other person.
Coffee is just a backdrop for having great conversations. During this conversations, you have to be a great listener. You are there to collect information and learn from others. You’ll do less of talking and more of listening. That’ll help you in understanding the purpose and the thought process other people bring to table. Also, if you are meeting the same person for second or third time, you can also show the progress or action taken from the outcome of last meeting. This gets people more engaged with you. No one is going to meet you fourth time if their advice is not taken care of.
These meetings also helps you in changing your behaviour if you feel awkward in meeting people for first time. It helps you in prepare in practicing your idea pitch. When you pitch or talk about your own idea many times to different people, you’ll notice that you have significant improvements in your product and its pitch. Over many conversations, the idea has evolved and may be you have pivoted from the original thought process which is better.
Coffee budget is the best way to drive your market research.
As per MBA curriculums, market research is based on primary and secondary research, surveys, competitive analysis and other data points. But having 10 coffee meetings in one month with different stakeholders/experts to get their opinions can beat any market research any day. For example : the people who make sensational statements in public forums can give you insights on why they said that or they do they even believe in what they said. Many a times, statements are made to give directions to their own business for PR and media purposes but in reality, they have a different opinion. If you go by public statements then your market research will say something else but having a coffee with the same person can get you the real data or the stuff which is important for your product.
How can you plan your coffee budget effectively?
This is a difficult part. and it may sound ridiculous to some people. It depends on the stage of your product. But let’s assume that you are just at the beginning where the idea is just seeded in your brain. First of all, outline all the kinds of people you’ll need to meet. Most of the time, the first thing people consider to figure out investors for meetings but take my word, meeting investors at the idea stage is useless. Most of the investors will not be able to help you in any way. Having said that, still meet some of the people who may be investors but still are very good advisors first who are helping you because they genuinely wish to help someone grow. Other than that, meeting potential customers should always be 60% of the whole meeting time in any month.
For a thumb rule, Let’s say you should meet at least 15 different people every month for 3 months. That comes down to 1 meeting every alternate day. Now, consider one fact that who spends on the coffee in the meeting.
- If you are meeting any existing or potential customer, make sure you pay for everything during the meeting.
- If you are meeting fellow entrepreneurs, pay in whole or share
- If you are meeting senior/successful entrepreneurs, do offer to pay. Generally, you’ll find that these guys take care of the bill as they try to help you save money for the venture. Every penny counts and they have also lived the struggle.
- If you are meeting advisors or investors, again the same as point 3. People who are genuinely helping you always offer to pay the bill because the last they want you is to get stressed out on the cost of coffee and it’s a gesture that they got your back.
- Any other people you meet, you need to pay for the bills.
I would always like to mention one thing. Whenever I have come across people who come to help you as a senior/advisor and do not even put a hand in his/her pocket, you’ll notice that he is actually not very serious about helping. He/she is there to build his own brand. Now, this is not a rule but an observation.
So, let’s come back to calculations:
If you are meeting 15 people on an average in a month with 60% of them being customers in the first 3 months. You’ll get enough information to build product vision and direction. then, as the product is building, you’ll meet potential customers more and that means, you’ll meet 12 out of 15 people who are existing or potential customers for next 6 months. and then, it’ll be time to go back to drawing board to meet investors , advisors, competitors, PR and media professionals etc.. and this cycle repeats every 8-9 months for 3 years or so. After 3 years, you can definitely drive a conclusion of having a successful business or having failed at it.
Now, if you want to make a yearly budget.
Average Cost of one meeting : INR 500/- ( assuming both people have coffee and in some meetings, you ordered a muffin or a sandwich). Also, considering the place to be Costa or Starbucks.
Average number of meetings in a year : 180
Total Budget Required : 500 * 180 = INR 90,000
Now, I generally round it upwards to INR 1,00,000 /- annually because there will be some meetings which happen in 5 star hotels or I have ended up travelling to another city just to meet that one person.
In USD, this amount is equivalent to $1300 approximately
This amount might look very high to you but believe me you’ll actually have these expenses anyway.
The good part of this CoffeeBudget concept is that it helps you focus on outcomes of the meetings. The idea of coffee budget is not to help you calculate money and expenses. But the idea of coffee budget is to drive the point that meeting people from various walks of life is essential and is the best form of market research. When you sit in a cafe and have discussions, you get to hear the viewpoints which are not said on stage by the same people. Because these meetings are off the record, people open up and share the views they hold and that’s the key to get your product vision and mission in the right direction. Coffee is just an excuse to get to meet these people and learn from them.
You’ll meet people anyway for a cup of coffee. Then, Why not understand the purpose and focus to achieving the maximum output from that single hot cup of coffee…
Think about this article whenever you write an email or message to someone “Let’s meet up for a cup of coffee”