CEO Q&A: Nick Bayer of Saxbys Coffee

Nick Bayer, CEO of Saxbys Coffee. (Photo by Jared Shelly.)

Nick Bayer isn’t a coffee geek. In fact, he didn’t even drink coffee until he got the chance to invest in a Denver coffee shop in 2005. With that — and a maxed out credit card — Saxbys Coffee was born. Since then, it’s been a roller coaster ride that’s seen Bayer change business partners and funders, but one thing is clear today: Saxbys is thriving.

The company recently moved its offices in Delaware County to a 10,000 square foot space in Center City — complete with exposed brick, glass walls and a fully stocked coffee bar. It’s also expanding its number of cafes, with 13 in the Greater Philadelphia area, including new spaces in Center City and Ambler.

I sat down with Bayer for a wide-ranging interview, discussing the company’s growth, how things have changed with a new lead investor, and what he thinks about a big Philly competitor named La Colombe. This interview has been edited and condensed.

You recently moved from Broomall to a 10,000 square foot space in Center City that has a trendy look, an open-office and its own cafe. What was the motivation?

It’s hard to define your culture and live your culture every single day if you’re sharing your office space with everybody else. Almost every single one of my team members that works out of HQ lives in the city. This is where they want to be. They want to ride their bike, their skateboard, take the trolley. They want to run out to a yoga class in the morning, they want to go to happy hour after work. I knew that we needed to make a pretty big leading investment to be able to get an office that we were proud of. Without being sappy or dramatic, this is like a dream come true. This is exactly what I wanted.

What’s the reaction been like from employees?

Every day there’s somebody else’s significant other coming in here. The fact that they want to share their workspace with people they love is amazing. I never saw my parents’ workspace. My parents wanted to get the heck out of there when the day was over. They never wanted to bring me there and expose me to the torture chamber that was the place they worked. And that’s what motivated me to start Saxbys. I saw my parents really dislike what they did for a living and that’s when I knew I wanted to be an entrepreneur.

Your expansion plans include nine new cafes, five of which are in Philly. Why focus so heavily this region?

We are super-focused on Philly. We made this big investment here in Philly. We’ve got 13 cafes here in the Greater Philadelphia region right now with 11^th and Locust and Ambler being our newest locations. We want to continue to infill this market. Every one of our cafes is run by an entrepreneur, so they’re taught to be that neighborhood coffee shop, not necessarily to be a Saxbys. So college campuses and the metro Philadelphia market are our No. 1 priorities. But we’re seeing a lot of success in the D.C. market. We think that Jersey and the sort of mid-Atlantic in general is really right for us to grow. But we’re super-focused on quality, smart growth right now, not just pure quantity.

The famous story is that you started the company in 2005, but weren’t a coffee drinker. How is that even possible?

I didn’t even go to coffee shops. I was very ignorant and naïve to the business entirely, but I’ve always been a people person. I like people. I wanted to get into the liquor business or the nightclub business. Those are tough hours. It’s hard to be a family person, it’s hard to be with your friends when you’re busiest hours are Thursday, Friday and Saturday nights. So I liked the coffee industry because I thought it was going to give me a little bit better balance in my life, but I was attracted to the hospitality nature of it and that’s what Saxbys has always tried to be focused on. We feel like our product is even better when it’s given to you by someone with a smile on their face.

I had a friend of a friend who opened up a coffee shop in Denver and we renamed it Saxbys. I ran up $150,000 on my American Express card, emptied my bank account to be able to get the business off the ground. And two years in, we saw success starting to build. We were proving that people were willing to drink something different than Starbucks and secondly we were very franchise-oriented at that time so everything was about, “Are people willing to invest into this business model to be able to open more Saxbys?” And we were seeing resounding “yes” to both of those questions.

What’s the balance of corporate-owned vs. franchises?

I would say we’re probably about 35 percent to 40 percent corporate-owned and the balance is franchised.

Two years ago you decided to sell a significant portion of the business. Why?

I wasn’t raised with money so having money wasn’t something that was my No.1 objective. Having quality of life, having balance in life was always my No. 1 objective. Having fun and having a positive environment has always been the No. 1 thing for me. So giving up significant equity to something that could have a future and have value was so much more important than holding to every single piece.

You recently bought out some franchisees. What was the thinking there?

We wanted to go to the franchisees that we thought were underperforming and offer them fair buyout packages. So we bought Saxbys 30th Street Station and Saxbys University of Pennsylvania. They are literally being completely torn down and rebuilt. They bought into a company that was a little bit different than the company that we had become.

Tell me about how having MVP Capital Partners as your lead investor changed the company?

We’re spending a ton of money building new cafes, and rebuilding very important cafes. It was hard for me to flip the switch to go from this hand-to-mouth entrepreneur that didn’t have capital backing to all of a sudden having capital backing. I was so used to chopping a dollar 30 different ways. I remember Bob Brown, the chairman of the company and creator of MVP saying: “Nick, we don’t make money unless we spend money. We’ve got to get into a position where we’re going to start putting some money out there to be able to move our business along.” He did preface that with: “I love that you’re very respectful of how we’re spending money, but we’ve got to get into a position where we’re going to start spending money.”

Now we’re getting pretty good at spending the money and I think we’re spending it in the right way. We’re getting good at selecting real estate. We’re designing very authentic, one-of-a-kind cafes and we’re putting together a really great operating team of people that are community-oriented. I think we’re really starting to click on all cylinders.

You released the Cold Brew in May 2014. How has it sold so far?

We felt like having a really key, signature product in the iced coffee world was huge for us because iced coffee was really taking off. But we were doing it the “lazy way” — brewing double strength hot coffee, putting it over ice, diluting it a little bit and giving it to people. It was bitter, it was mediocre at best. It still sold pretty well. Through August, sales were up 15 percent on the cold brew over the iced coffee.

I know culture is really important to you. How do you hire people?

It’s super simple. I look at some of our old job descriptions and some of our old advertisements and we would outwardly look for people that have coffee experience. Now we look for the complete opposite. We actually rather you not have coffee experience. We go through the mission and every single core value and if people sort of roll their eyes or are disinterested in it, they don’t go much farther than the interview process.

If you like serving people, if you like taking care of people, this is an amazing company for you. If you’d rather communicate by writing code in spreadsheets or in a cubicle, it doesn’t make you a bad person by any means, it just doesn’t make you right for this. Even the staff accountant was hired based on his personality.

What are your thoughts on Philly’s biggest coffee company, La Colombe?

I know Todd [Carmichael] and J.P. [Iberti] quite well. I mean, I haven’t interacted with them in a little while because they’re obviously busy building their empire — but they’re awesome. I genuinely believe that rising tides float all boats. If your boat is well built, when the tide goes up, your boat’s going to go up with it. I think our boat is well built. I think La Colombe’s boat is really well built. So I like to see them raise a bunch of money. I like to see that Starbucks continues to break its own record of revenue increases. Quite honestly, it helps us significantly. When they’re down, we’re usually down. When they’re up, we’re up. They’re the biggest tide riser obviously, so I root for them because we are in the world of coffee.

Todd dreams, eats and sleeps coffee. He loves coffee. He has forgotten more about coffee than most people know and he’s built a business in that likeness. I’m not trying to be Todd from a coffee perspective. I’m a hospitality guy. I’m a people relationship guy and I’ve built a business sort of in that same likeness. There’s room for them to continue to grow rapidly and differentiate the way that they do — and for us to do the same thing.