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Sahand Dilmaghani, founder and CEO of Terra Kaffe, on the Honest Ecommerce podcast.
Nov 2, 20267 min read

Premium Pricing for DTC Hardware: Lessons From Terra Kaffe

Terra Kaffe's customer acquisition cost was stuck between $95 and $150 when its first espresso machine sold for $595. Then founder Sahand Dilmaghani raised the price to $745 overnight, and CAC fell to as low as $28. The product didn't change. The ads didn't change. The only thing that moved was the number on the page, and it changed how the market understood what Terra Kaffe was selling.

That pricing lesson is the headline, but the path to it is just as useful for any founder building a high-ticket hardware product with limited cash. Sahand spent the first year and a half to two years bootstrapped, and the constraints of that period shaped how the company makes decisions today.

Finding a Gap in the Home Espresso Market

Sahand came to Terra Kaffe after starting his career in investment banking and working at an electric vehicle startup. The idea came from his own search for a home espresso machine that the whole household could use. Most buyers were being funneled into pod systems, with Nespresso as the dominant player. The alternative was a category called super automatic bean-to-cup machines, but those were complicated, overpriced, and designed in a way nobody wanted on their countertop.

Terra Kaffe set out to build a machine that made quality coffee at the push of a button, looked good doing it, and got people off single-use pods and capsules.

Building a Hardware Prototype Without Money for Tooling

From first idea to first prototype took about a year. Reliable mass production came roughly 18 months in. Sahand admits he didn't start with unshakable conviction, and he credits that doubt with pushing the company to be more data driven and focused on what customers actually wanted.

The first machine was not a simple white-label job. Sahand ran a large sourcing project to find vendors whose internal components could serve as the base for his design. But he couldn't afford tooling or injection molded parts, so the manufacturer offered a deal: Terra Kaffe could skip those costs, but the factory kept the right to sell the design elsewhere while Terra Kaffe held US rights. Sahand accepted. He treated V1 as a proof of concept, a case study he could use to raise money and build the product he really wanted. Founders who started with a scrappy first version will recognize the pattern from the story of how Sheath Underwear grew from a homemade prototype into a multimillion dollar brand.

Why Capital Constraints Can Make a Brand Stronger

Sahand is skeptical of founders who start with deep pockets. Having money doesn't mean you should spend it, and plenty of well-funded companies built product before validating real demand. His advice to cash-strapped founders is to lean into the constraint, because it sets a baseline of rigor that pays off later.

He recommends running the business like an internal investment committee. Every new product, channel, or market should clear a high hurdle rate, with the same scrutiny a venture investor would apply. What conviction do you have, and why do you have it?

Negotiating MOQs and Structuring Hardware Pre-Orders

The agreed minimum order quantity was 300 units, which wouldn't even fill a 40-foot container and was closer to a less-than-container-load shipment. When it came time to cut the purchase order, Sahand had to go back and ask the manufacturer to cut it in half, which meant months of late-night calls to win the concession.

Pre-orders helped. On advice from other hardware founders, Terra Kaffe skipped Kickstarter and crowdfunding to avoid platform fees and ran pre-orders on its own site with a deposit and balance model. For a high AOV product, collecting a deposit instead of the full price lowers the barrier for buyers who want in but aren't ready to commit the whole amount. Strong product resonance created word of mouth, which allowed larger deposits and drew investors who could see the momentum.

Using In-Person Demos to Write Better Ad Copy

Before running a single paid ad, Sahand and his one teammate did at least one event a week across New York. They served coffee outside Equinox and SoulCycle classes, in coworking spaces, and at a DTC brand's SoHo showroom. Most doors stayed closed, but enough opened. Hardware brands often find that early traction comes from putting the product in people's hands, much like Ergatta's approach to landing its first 500 customers.

The demos doubled as research. After talking to thousands of people, Sahand had recorded what they hated about Nespresso and what they loved about café coffee they couldn't get at home. Those exact phrases became the taglines, hooks, and copy for the first ads. When paid media started, his first hire proposed $50 a day. Sahand talked him down to $25.

How Raising the Price Cut CAC From $150 to $28

Sales of the TK-01 at $595 were fine but not great. Reading ad comments, Sahand found the problem. Because the machine was priced below the floor of the super automatic category, people assumed something was missing. Commenters claimed it was only a semi-automatic, that it couldn't make milk drinks, or that the photos were doctored, even though the features were shown right there.

At $745, Terra Kaffe sat at the very bottom of the super automatic category instead of at the top of the tier below it. The price finally matched what the product was. Buyers stopped looking for the catch, the right audience responded, and CAC dropped from the $95 to $150 range to as low as $28. Pricing too far below the market creates distrust, not demand. Founders thinking about price as a signal of quality can compare notes with Omhu's refusal to discount its Teddy sofa.

Presentation reinforced the price. Sahand, the son of two architects, insisted on premium visuals from day one. At demos, people assumed Terra Kaffe was a heavily funded DTC brand, when it was really two people. For a product people use first thing every morning, a utilitarian look would have undercut the purchase.

Launching a Second Product Under Cash Pressure

The TK-02 was built on everything learned from the first machine, but rising interest rates and tighter capital markets squeezed R&D funding. It shipped in early 2024, about a year late, and the cash-constrained launch caused problems with customer service response times and spare parts availability. Sahand's takeaway is that you have to sacrifice parts of the ideal version to ship.

After internal changes put the company on steadier footing, the 02 gained traction into 2025. But a $2,000 machine was too big a leap for many buyers who liked the design. Terra Kaffe used that insight to launch the Demi, a smaller, lower priced machine that has accelerated the business significantly.

Offering Rentals Alongside Purchases

Every product page includes a second option: rent the machine. Sahand was hesitant, worried about confusing customers, and the model draws criticism online. But it fits specific buyers. Offices already pay for food and beverage services monthly. Some customers move often. Others want a lower-risk trial than putting $2,000 on a card, even with a 30-day free trial available.

The economics also compete directly with pods. The Demi rents for $39 a month, and with a bag of coffee, that comes out ahead of a Nespresso machine plus capsules from the first month.

Key Lessons From This Episode

  • Pricing far below your category can signal missing features. Moving up to the category floor cut Terra Kaffe's CAC from as high as $150 to as low as $28.
  • Read your ad comments closely. They often reveal what the market believes about your product, accurate or not.
  • Treat every new investment like an internal investment committee with a high hurdle rate.
  • For high AOV pre-orders, a deposit and balance model lowers the barrier to commit.
  • In-person demos can supply your best ad copy if you listen and record what people say.
  • Rental and lower priced options can open the door for buyers who like the product but won't make a large upfront purchase.

Listen to the full conversation with Sahand Dilmaghani and read the complete transcript below.

In This Conversation We Discuss:

  • [00:00] Intro
  • [01:24] What Terra Kaffe makes
  • [01:50] Where the idea came from
  • [03:30] From first idea to first prototype
  • [04:35] Hurdles in getting to production
  • [05:50] Trading tooling ownership for US rights
  • [07:25] Bootstrapping vs. having capital in the bank
  • [09:15] Treat spending like an investment committee
  • [10:10] Intelligems
  • [11:40] Cutting the first purchase order in half
  • [12:35] Using a deposit-and-balance pre-order model
  • [14:10] Klaviyo
  • [16:05] Finding pre-launch customers without crowdfunding
  • [17:15] Running street demos across New York City
  • [18:00] Turning customer conversations into ad copy
  • [18:20] Starting paid ads at $25 a day
  • [19:10] Why a $150 price increase made sense
  • [19:40] How raising the price cut CAC to $28
  • [21:08] Why underpricing made customers suspicious
  • [23:40] Showing up premium with no team
  • [24:25] Flowium
  • [25:30] The rollercoaster of the growth phase
  • [26:20] Launching the 02 in a cash crunch
  • [27:35] Launching the Demi at a lower price point
  • [28:20] Offering rentals alongside purchases
  • [29:30] Who renting a machine works best for
  • [30:20] Rental economics vs. Nespresso pods
  • [31:25] Where to find and visit Terra Kaffe

Resources:

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Transcript

Sahand Dilmaghani

I loved when people would walk up to me and be like, “This is another one of those $1,500 million funded DTC brands.” And that's crazy because we have no employees. It's me and one guy that's been with me since the beginning. But it was, effectively, there's really no team here. But we always tried to showcase the product in a very premium way because we knew it's a highly considered purchase. This is the thing you're gonna wake up and engage with every morning, the first thing out of your bed.

We can't be putting some sort of trivial or utilitarian foot forward. It has to harmonize and connect with the moment that we're trying to tap into. The brand identity, visuals, and how we show up has to match that.

Chase Clymer

Honest Ecommerce is a weekly podcast where we interview direct-to-consumer brand founders and leaders to find out what it takes to start, grow, and scale an online business today. Honest Ecommerce is proudly produced by Electric Eye, a Shopify Plus partner helping e-commerce brands sell more with strategic design and development. Visit electriceye.io for more information.

Hey everybody, welcome back to another episode of Honest Ecommerce. Today I'm welcoming to the show the founder and CEO of Terra Kaffe. He started the company after years of working at a startup in the electric vehicle space, and he also kicked off his career in investment banking. Sahand Dilmaghani, welcome to the show.

Sahand Dilmaghani

Chase, thanks for having me, man. It's good to be here.

Chase Clymer

I'm excited to chat, to finally get this interview rolling. For those that don't know, could you quickly talk to us about the types of products that you're bringing to market over there at Terra Kaffe?

Sahand Dilmaghani

Absolutely. We make beautifully designed, easy to use espresso machines, coffee machines, that deliver high quality coffee at the push of a button. No need to resort to single-use plastic or aluminum coffee pods or coffee capsules. Basically wanting to give everyone a better way to start your day and be a real solution for people that want to get off of the coffee pod ecosystem.

Chase Clymer

Absolutely. Take me back in time. Where did the idea for this business come from? What really drove you to dive in here?

Sahand Dilmaghani

Yeah, I think much like a lot of founders that end up starting something, especially within the consumer space, it came out of a personal challenge or problem that I was experiencing. I was out there shopping for a new machine. We were a bit of an oddball family. We had every gadget under the sun that you can imagine. But funnily enough, when it came to making espresso at home, we did have a manual machine, but to really serve the whole household, we wanted something that was easy.

And when you looked at what was out there, pretty much everyone was getting pushed to the same two solutions, which are just within the pod ecosystem, which was really... Nespresso was the kingpin of that duality. 

And so that's where it started. I did see that there was a category of what was called super automatic bean to cup machines that existed. But they were very, very complicated to use. They were prohibitively overpriced. And frankly, they just had incredibly dated designs. The way I describe that is it's like Sega Genesis designs without any of the vintage charm. There was no endearing quality to what they were providing. And frankly, it wasn't something that I, nor what I quickly learned, other people were excited to have on their countertop.

Chase Clymer

Absolutely. So how long was, let's call it, the ideation phase? Were you sitting on this, like, this would be a good area to invest my time? Let's call it from where you really had that aha moment to when you have your first prototype. How long was that?

Sahand Dilmaghani

Yeah, I think it's an interesting thing. Because I probably didn't have that type of maybe early days conviction where I was like, “This is undoubtedly gonna be a great idea.” I think I had a lot of trepidation and reticence really from the early days. And I think some people might feel a lot of solidarity with that. But if anything, what I would say is that it actually helped us be more data driven and consumer-centric in how we created the business. 

To be specific to the time horizon, probably from first idea to first prototype was around one year. That still required us to get to a place where we had to make a lot of trade-offs in terms of decision making and in what we could invest in. I was bootstrapped for the first one and a half, almost two years of the business. But we really got to a place where we could be reliably mass producing the product about a year and a half in.

Chase Clymer

Absolutely. And walk me through some of those larger challenges of getting that prototype to a production ready model that you could ship to the masses. What were some of the big hurdles that you had to get through in that first year, 18 months?

Sahand Dilmaghani

Yeah, I think the prioritization and what that means for dictating the capital allocation was really tough, especially when you're bootstrapped. You're not gonna be putting crazy amounts of dollars to anything, but you're, frankly, you have a minimal amount of dollars available and you have to basically select only a handful of items that you're really gonna invest in. So for me, a big part of what I wanted to stand out on from the beginning was design and quality of the product. 

Of course, there was another side of that to me where it was the community side. And I thought there was definitely a lot by way of foundation that we would need to set early on to really stand out and build a strong community. But in the earliest days, before we even started a pre-order, to me it was really all about the product and understanding what customers actually want. Where are the pain points? What problem are we actually solving?

When it came to actually building the product and testing it, every data point I got brought back orders of magnitude greater validation, social proving, credibility that we were on to something with our thesis. But there were so many tough conversations at that time. Even with the manufacturer, the V1, a lot of people think it was purely an ODM relationship of launching something someone else had built, when in reality we did a huge sourcing project for various vendors and suppliers that had the right internal components we could build the base off of.

But virtually everything we did design, we didn't really own at the very beginning of the company because I couldn't pay for tooling. I couldn't pay for a lot of the hardware injection molded parts. And so the manufacturer was like, "Okay, if you can't pay for this, that's fine, but then we're gonna have the right to be able to sell this elsewhere. You can have rights to the US." 

And for me, the way I looked at it was really, it was a proof of concept. So I thought, okay, if nothing else, this can be the case study, or the data that I need to be able to go out and raise money to really build out this business and really solve the problem we were setting out to solve from the beginning.

But a lot of tough trade-offs at the beginning to really question whether or not, is this the right idea, is this gonna hurt really the long term potential of the company and the brand? But I think that's what it looks like in a lot of companies in the early days.

Chase Clymer

Absolutely. It's funny, I had another conversation earlier today about how they launched another expensive piece of hardware, oddly similar price points, but completely different verticals. But the way that they launched was partnership with someone that had done it before, and iterating off of previous attempts. And it sounds like you entered the market there, but you, not to belittle your creation, but Frankensteined together your V1 through various, what you felt were the best pieces, to make the best product for what you wanted to do.

Sahand Dilmaghani

Yeah.

Chase Clymer

You mentioned it was from capital restraints. How could you tell the audience the difference between this approach of trying to be scrappy and using and thinking outside the box and producing that V1 of the product, as opposed to if you had to go raise capital or just somehow you had it in the bank? What does that look like in difference for a product like this?

Sahand Dilmaghani

Yeah, I almost don't even want to talk to the crowd that already has it in the bank, other than to say that I would just be cautious of that. Just 'cause you have it doesn't mean you should spend it. There are so many, so many case studies of companies that had deep, deep pockets when they started building, but they didn't really validate things early on to actually determine whether or not there was staying power for the brand, whether there was real desire and latent demand for the product. 

I just...I don't... I've seen a lot of that world and I don't agree with a lot of the sequencing of investment. And I think it actually creates the wrong incentives internally that a lot of people, frankly, have of course corrected on too. But I think to the people that are very, let's say, capital constrained, especially in the beginning, I would... I know it's easy for me to say it now, having gone through it, but I would honestly appreciate that moment.

Because it does, if you actually lean into it, it sets a baseline rigor and judiciousness in the company that you will need and will pay dividends going forward. If you actually embrace it in a way where it's like, “We have a very high hurdle rate for what we invest in as an organization,” it will always benefit you in the long run. 

I think not enough people, when they're running, whether it's an e-commerce business or any type of startup, I don't know if they ever look at it like, hey, almost think of it like an investment committee internally. The same way a VC would think about investing in a company, your own hurdle rate for investing in new projects and new products and new channels and new markets. You should take it with the same level of seriousness as, is this actually worth it? What conviction do we have and why do we have it for going down those paths?

But in the early days, I... it's easy for me to say, but in the early days, I remember, man, I would get a call from the manufacturer and he would be saying, "Okay, you need to cut the purchase order for the units or we have to pay for the tooling." And I'd be like, "Yeah, I can't pay for that." And he was like, "I thought Americans have money." And I was like, "Okay, not all of us." But it doesn't feel the best, but frankly, I think a lot of our success today is because of what it looked like in the early days.

Chase Clymer

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Chase Clymer

To your credit, you got to the punchline before I could, which is, money doesn't solve problems. It probably creates more problems in a certain sense. And it's also, you could argue that using some of these off-the-shelf components and economies of scale, these things could get cheaper. 

But the tooling and the amount you'd have to purchase up front for a startup with a nonvalidated idea, you could be sitting on useless inventory, which is essentially sunk capital at the beginning, versus being scrappy. How do we just get a hundred units created?

Sahand Dilmaghani

Right.

Chase Clymer

Well, do you remember what the first purchase was? How many you guys got?

Sahand Dilmaghani

Yeah, of course I do. I'm laughing because that was another moment where he was like, "God, this American. I really got the only American who doesn't have money." It was, our MOQ that we had agreed upon was gonna be three hundred units, which would not even fill up a forty foot long haul freight container. Even if palletized, that's really what you would fit in a twenty foot container, and that's still almost more like an LCL shipment than it is a fully loaded or floor loaded container.

So it was 300. It came time to cut the PO. And I had to go back to him and negotiate to see if he could cut that in half. And we had pre-orders, which was great. But I had a lot of guidance from other hardware businesses that were like, don't take the full transaction value of the goods when you're doing pre-orders, especially for the very first run. Do a deposit and balance model. It will reduce the barriers to transact. It'll make people, especially for high AOV products, make them at least put their foot in the door and say, hey, I would at least want to try and test this out, but they're not shelling out the full cost of the product up front.

And to me, that made a ton of sense. We weren't doing a Kickstarter. We didn't do any crowdfunding. So we're not giving a take rate to any platform. So I think for us to be driving traffic and hopefully converting these people, it did make sense that, let's make this as seamless and streamlined as possible. 

But just for the way it shook out, even after the first deposit orders came in, it was great, but we still had to tell him, "Hey, for the full order, full purchase order, we need to cut this in half." And he... I can't tell you how many 11 p.m. to 1 a.m. calls I had just going back and forth with them about trying to get a concession there, at least for the first run.

And the good thing for us was that there was a high product resonance. So we did have a lot of success, and that resulted in a lot of word of mouth. That resulted in more transactions, which then put us in a better position where we didn't have to take such a small deposit amount up front, and also then attracted investors to the company because they could see the momentum and the virality happening around the brand.

Chase Clymer

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Chase Clymer

Absolutely. You mentioned something I think just now, and I want to call back to it, you weren't giving a percentage away within this pre-order campaign. You were managing that yourself. So you were driving traffic to, I'm assuming, your own .com, perhaps the Shopify store or something similar. How did you do that?

How were you getting customers that weren't your friends and family? What were you paying to do that? How are you getting eyeballs on this thing prelaunch?

Sahand Dilmaghani

I still can't believe some of the people that transacted with us at the beginning. I remember the very first person was this woman from Connecticut, and I remember just calling her 'cause I was like, "Why did you buy this?" The first order in, even, got in before my family. My mom was like, "I want to be the first order." And this person kinda snuck in on the website. We hadn't even really announced it yet publicly.

And we did, we're in New York. I wanted to use that to my advantage. So I did a lot of demos ahead of announcing it publicly or running any paid ads to our website. So I was out in the street every week. We were two people. We did one event a week minimum in the city. 

So it was the first class coming out of an Equinox, the first class coming out of a SoulCycle, any co-working space that let us come by. We were showcasing the product wherever we could. I just kept knocking on doors, and you knock on fifty doors, one of them says, "Yeah, sure, come this weekend to the…" some DTC brand's showroom in SoHo, "and serve our weekend crowd coffee."

And that's a lot of, frankly, a lot of the data that I retrieved in the early days about what messaging resonates with people, as I had already spoken to thousands of people and had just listened to what they were saying. I just play dumb. I record, what are they saying? What do they hate about Nespresso? What do they love about out-of-home coffee that they can't get at home? That all just became all of our taglines, copy, hooks for all of the first ads.

And then, yeah, when it came time to put paid media dollars behind it, I remember John, our growth guy, he was the first employee with me. He was like, "Sahand, okay, let's do fifty dollars budgeted per day to start." And I was like, "John, can we make it twenty five?" And he's like, "I feel like we're negotiating with coins, like it's a Turkish bazaar or something."

But yeah, that was the very first dollars. What was interesting was we did the pre-order, we were selling, and it was okay. It wasn't amazing, it was okay. But I remember when we were at full steady state pricing, it was $595 for this product that we've since sunset called the TK-01. Our acquisition costs would fluctuate anywhere from $95 to $150, and it was always oscillating within that range.

But it just, you could tell the velocity wasn't moving the way that we wanted it to. It was going well, not great. And there was one night where I remember calling John, and I was like, "I think we have to up the price to $750," a $150 price increase, which at that time, especially proportional to what it was, was a huge jump. And he was like, "Why do you think we should do that?" I was like, "Because I'm reading all the comments. And we're still a very, very unknown brand. And people don't know what this product does."

And I... it's where I got a crash course in Veblen goods and pricing strategy. And I said, "I wanna go, I think we need to up the price tomorrow. Essentially we wake up in the morning, we up the price on everything." And he was like, "I think that's a big jump, but okay." The moment we did that, our CAC went from $95 to $150 CAC down to, at its lowest, $28. It was crazy.

Chase Clymer

I need you to walk me through how that worked out. What were you seeing in the comments, and how did that affect who was being shown the product to... I basically have some assumptions, but I want to hear you explain it to me.

Sahand Dilmaghani

I'm so curious what your assumption is of what you think was happening. Do you want me to tell you what it was, or do you want to tell me the assumption first?

Chase Clymer

Let me guess. No, I love being a fool. So my guess would be that the comments you're reading are something about price sensitivity, which means that the audience that's being shown this ad is not in the correct, let's just call it, they're not rich enough. All right, for lack of a better term. So when you raise the price, Facebook reallocates to a better band of income level.

So now people are perceiving the value better and it's resonating more. That's my guess.

Sahand Dilmaghani

Okay, that's very interesting. That's part of the answer. So part of the answer was the cohort resonance, or essentially, personal resonance. The other was because there was such little social proofing of the product online, people were making assumptions of what it did and did not do. And by virtue of pricing below the floor of our tier of what's called super autos, people were making claims in comments, in threads, of what it did and specifically what it did not do.

And so they were saying, "It's not a super auto, it's a fully auto. It's not a fully auto, it's a semi auto. It doesn't do milk. It doesn't do this." And it's like, it's in the photo. It's there. But then there's comments like, "That's just advert... they're just advertising what it is. It's not that."

Chase Clymer

Because you were undercutting the market so much, they assumed the way you got there was by leaving something out.

Sahand Dilmaghani

Yes. And they thought it was a... and this is all pre-AI ads too. So these are, whatever is there is, yes, sometimes photorealistic renders, but very unlikely, because even that's incredibly expensive to create. It was mostly photos. But the idea was that this has been photoshopped. "It's not doing a milk-based beverage. You're not getting that. You're not getting the full gamut of drinks," they're saying. "And also it's a lot more manual process. It's very likely a semi auto." And I'm like, okay, we're literally showing it's push button brewing, but we're seeing the commentary, and it's like, this is just, "Don't listen to this advertising."

We're getting relegated to the high end of the tier below us, which has very different functionality, versus an incredible deal for the category that we're in. And when we went to... when we updated from 595 to 745, it was still at the floor of the category. It was just at the very bottom floor. There was one player that oscillated around there, depending on their discounts and promo strategies.

Well, we were at the very, very bottom, but we still showcased super premium. And we're like, it's just the consumer psychology anchoring of, “I don't trust this thing. It doesn't make sense to my brain.” If somebody came to me tomorrow and wanted to sell me a brand new 2026 Mercedes S-Class for twelve thousand dollars, I would naturally be like, “What's the catch? What is this? Why are you dumping this lemon on me?”

All of the things that we've learned through human psychology and sociology and survival, it's like, “This doesn't make any sense.” And so I'm naturally more reticent towards it. And so when we changed the price, I was like, this is crazy, because I'm upping the price and my CAC has plummeted, my efficiency has skyrocketed. 

And it's just a crash course in pricing strategy. You're going so far, so many standard deviations outside the mean, that you're now confusing people. And it doesn't make any sense. 

But also then, I just like design. I'm the son of two architects. I was surrounded by designers. I always wanted a polished foot forward. I loved it when we had no money and I was bootstrapped and I'm just doing demos. I loved when people would walk up to me and be like, “This is another one of those $1,500 million funded DTC brands.” And that's crazy because we have no employees. We have, it's me and one guy that's been with me since the beginning. But it was, effectively, there's really no team here.

But we always try to showcase the product in a very premium way because we know it's a highly considered purchase. This is the thing you're gonna wake up and engage with every morning, the first thing out of your bed. We can't be putting some sort of trivial or utilitarian foot forward. It has to harmonize and connect with the moment that we're trying to tap into. The brand identity, visuals, and how we show up has to match that.

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Chase Clymer

So I'm assuming after that aha moment, it was all gravy. Everyone's dancing to the bank. You're increasing your Facebook spend. So tell me about after that, the growth phase. Give me a few of the key points there, here before I let you go.

Sahand Dilmaghani

Man, I think the things that were... it was a roller coaster ride throughout. So we were growing very quickly. There was a period where we were building the 02 based off of everything we had learned from the 01. And it's just, frankly, it's a superior product across the board. But we did end up in a tricky spot. The interest rates changing, capital markets shifting, the financing of R&D. We had to make very quick decisions and launch that product.

When we got it out the door finally in early 2024, it was about a year later than we initially wanted. There were a lot of lessons learned in terms of, again, I would go back to the prioritization and willingness to really... I don't want to say kill your babies. That feels a little too harsh. But you have to sacrifice some things in the ideal state to get the product out the door, or better said, perfect is the enemy of good, and perfect is the enemy of done.

So we had to launch the 02 in a pretty cash constrained scenario. And then that resulted in some challenges in terms of ultimately the customer service and the response times, the availability of spare parts to basically get back to customers. So we had a lot of challenging times around that 2023, early 2024 phase.

But yeah, since then we did a lot of changes internally as an organization. We put ourselves on a much more stable footing. And then saw the success of the 02 really picking up steam going into early '25. But we also very quickly learned that not everyone can make the leap to buy a $2,000 machine. They liked the functionality, they liked the design.

But we used a lot of that insight, and frankly a lot of the brand building with the 02, to launch the Demi machine, which is a smaller form factor, lower price point machine. And that has completely changed the game for the business. 

And so right now we're really accelerating at such a fast clip that it's creating its own separate challenges. Never a dull moment in e-commerce and in startups. But yeah, we had to make a lot of changes through navigating not just the business scale, but also how the macro landscape kept shifting too.

Chase Clymer

Hey everybody, just a quick reminder. Please like this video and subscribe if you haven't. We're releasing interviews like this every week, so don't miss out. Now back to the interview.

And there's something super interesting about your business model. I've seen it before, don't get me wrong. It's not brand new, but you're the first person I've been able to ask on the record.

Sahand Dilmaghani

Yep.

Chase Clymer

You have a secondary call to action on all your product pages. You can buy this thing or you can rent it.

Sahand Dilmaghani

Yeah.

Chase Clymer

How has that been?

Sahand Dilmaghani

My gosh. It's so controversial. I always find it so... I'm gonna just call it interesting for now, that there are a lot of comments of, “What is the world coming to that we're renting machines?” It's very funny because it's very clearly a very ephemeral, transient look at the company, because they're not saying that you can absolutely buy the product. But there are a lot of people that the renting actually just makes more sense for.

So frankly, it was one of those things that I went into with a lot of hesitation. I did not want to confuse customers. And I frankly also just didn't want to shoot too far down this new business model path that has all sorts of different challenges associated with it. So it is a very controversial thing. It works really well for certain types of people.

And sometimes those types of people are, frankly, a lot of times commercial environments. So offices that are more used to paying for food and beverage services on a monthly cadence. So it just works better to have a machine that they tee up with a coffee subscription and other food service providers that send everything on a monthly cadence. Sometimes it's people who are more transient. Sometimes it's, I just want to try before I buy kind of thing. And yes, we have a 30-day free trial on the machine, but hey, maybe you don't want to drop $2,000 on your credit card with a brand that you just became familiar with.

And you have to mentally go through the thought of, “If I do want to return it, I gotta box this thing back up, I gotta send it back out.” A monthly rental just becomes a really easy on-ramp to try out the product and get familiar with what it can do, get familiar with the brand or service level where we take a lot of pride in making sure customers are taken care of. But it just works better.

And then, frankly, for some people, it's just better economics against a Nespresso. It's why Nespresso tries to charge you almost nothing for the hardware, but locks you into that closed ecosystem. If you look at our Demi machine, you can get it for $39 a month. It's literally competitive to what you will economically pay for a Nespresso from day one. So the machine plus the pods and capsules you would need for that first month, you're already ending up in the green, in the black, if you will, from day one, getting a Demi with a coffee bag, which not only will be cheaper on a running basis versus a pod machine, but it's obviously gonna be far superior in quality. 

But it doesn't work for everyone, and you can still buy a machine, so you don't have to go down that path if you don't want to.

Chase Clymer

No, no, no, no. Yeah, it makes complete sense. And that's one of the things. Give people the options. And if your customers are looking into that option, it is a thing that you can do now in the ecosystem. There are solutions out there.

Before we go, if I'm listening to this, you're obviously passionate about these machines, the quality of them, and where should I go? What should I do if I want to learn more? Perhaps rent one, perhaps maybe just make the whole purchase.

Sahand Dilmaghani

Yeah, yeah. Certainly, as an e-commerce company, it's just terrakaffe.com. So you can check us out there. We have a pretty active Instagram, which is just @terrakaffe. 

We are very open to our policy. If anybody ever wants to come by the office, come check out our machines, see us, see the products, meet the team, and just hang out for a bit. We're at 25th Street, 36 West 25th Street, 6th Floor. You can swing by anytime.

So we're always happy to engage with honestly anybody who just wants to learn more about our products, or frankly coffee in general. So please check us out, and if you want to give it a try, you can rent or buy.

Chase Clymer

Awesome. Sahand, thank you so much for coming on the show today and sharing all those amazing insights.

Sahand Dilmaghani

Thanks, Chase.