The Digital Skeptic: Wake Up and Smell the Profits

NEW YORK ( MainStreet) -- Sam Penix doesn't want to be shown the money. He prefers to smell his way to profits.

"If you assume some sort of algo or machine is going to do the job," says Penix, owner of the Everyman Espresso shop in Soho, "you might as well not show up to work."

Penix owns not one but two of the highest quality, high-margin, high-end coffee bars here in caffeine-obsessed Gotham.

He specializes in a diabolically tricky end of the custom-coffee game: the so-called microlot brew. In other words, he scours the crazily fractured -- and frankly, skeevy -- global coffee market for the best of the best of those who grow, ship, roast, blend and finally brew coffee. The baristas he hires are as important as any step in the process.

"What people learn in this business is, with so many moving parts you can't be too exact," Penix warns. "If one piece of the chain sucks, the coffee sucks. And the customers won't come back."

Penix is brewing up some impressive numbers in this growing market. Specialty coffee shops such as Everyman account for about a third of the total U.S coffee market, which peaks at $32 billion, according to the Specialty Coffee Association of America, the Long Beach, Calif.-based coffee industry trade group.

He opened this second Soho location about a month ago, and it's easy to see why business is booming. When I happened in for a cup of what Penix told me was a microlot varietal called Pacamara from Santa Elena, El Salvador, it was to get out of the rain. But when I was served what was, without question, one of the best espressos I have had in years, I happily paid $3.50 for a cup, $19 for a pound of roasted beans and $80 for a hand grinder to improve my at-home coffee skilz.

Considering that I -- and everyone I know -- grumbles when paying a third of that for Dunkin' Donuts ( DNKN) or the simply dreadful Starbucks ( SBUX), when I smell margins like this, I wake right up. And I began pressing Penix for his secrets. Which took about zero effort.

It turns out that what is at the heart of this little profit engine is something near and dear to every investor's heart: a passionate and relentless commitment to a thorough human understanding of information.

Listen up, my digital data-weary brothers and sisters: What makes Everyman Espresso unique is that it seeks to confirm every data point that filters in from the coffee production and procurement process. Not only does Penix and company collect information from Web vendors and industry contacts; he invests real time and money in having actual humans use their actual senses to make a deep and complex emotional assessment of the beans they sell.

What that boils down to is every one at Everyman Espresso literally lines up the beans and smells for money. Employees here are like mini coffee sommeliers -- they brew, sniff and slurp their way through their latest inventory to debate, quantify and then finally pull the trigger on the beans they sell. The process is called cupping.

"We have to know what we are talking about and investing in," says Sam Lewontin, who manages the Soho location, "so we brew up each batch we get, confirm what the roasters have done and get in touch with the product."

Or in business speak, what Penix and his team are doing here is bringing a repeatable process for bringing complex human experience into play to draw out the essence of what works and what doesn't in a given business deal.

"As soon as I rely on other people's opinions and numbers," Lewontin says, "a bell goes off in my head that I better get in here and really get with the product."

Since Wall Street was just down the street, and honestly I was walking back from a trip to the office, I asked Lewontin what he thought would happen if banks and investors conducted the same sort of creative due diligence when they worked a loan or took an investment bet. Clearly, the topic had come up many times here in fashionable Soho, where the world's financial elite work and live.

"We would not be in the mess we are in," Lewontin says without hesitation. "If you are not cupping the beans, it's just garbage in and garbage out."

It might just be time for Wall Street to give up on the fetish of cold, data-centric investing and instead wake up, be a real human and start putting their money where their nose is.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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