Picture this... You're burning more than a million dollars a month You're growing great but your biggest splashiest competitor just had one of the worst IPOs of the entire year. and they're taking down the whole space with them.
What do you do? For many founders that means selling, going out of business, or recapping the business. Not for Ooshma though.
We're going to go talk to Ooshma Garg— my friend, and founder of Gobble. Not only did she get profitable, she doubled the business in less than a quarter and now they're putting out real cashflow. It's one of the coolest stories I've ever seen, and I've seen it up close because I'm on the board. Stay tuned. Let's get started.
00:00 IntroFull transcript below.
Gobble's origins
Garry: Hey, Ooshma, thanks so much for joining us today. You've built Gobble into a highly profitable and independent company. It's really at the center of the food supply, and I think you're one of the only founders of the space that started the company and is still running that company and with really great earnings. So I think that that's a really amazing fact to be celebrated. Thank you for joining me today.
Ooshma: Thank you, Garry. Thanks for the kind words and for having me. I'm excited to chat with you.
We've known each other for a really, really long time. We're house mates back in 2011, actually, and I had just left my startup, Posterous, to work as a designer. I was just helping startups at Y Combinator. I think you had just started your company then actually.
Yes, we had, we were just, raising money off of a PDF deck and then we launched our first website officially in May of 2011 for Gobble.
What was that very first idea? You've really shepherded this company that very early beginning into many different ideas in food. What were those iterations? What was that first version? And you were able to create a system to try and find product market fit, and then you found it.
The first idea can be described as peer to peer lasagna. So it was a marketplace model for local home chefs to sell their like family recipes, anything from eggplant Parmesan, to Ethiopian doro wat, to Mexican food. And one of the lessons learned is that it, marketplaces have a good chance of working with assets like clothes or toys, or an extra bedroom. And it's a bit more difficult of a nut to crack with services, like we saw companies like Homejoy or Exec, not necessarily be able to work out all the logistics, and similarly with Gobble, that we had a lot of chef talent, in our case, just the standardization of spice level or portions or delivery times wasn't something that we could make consistent with such a distributed pool of chefs. So we had to pivot from a marketplace model. Ultimately, we ended up trying even an on-demand model for a few months, similar to something like Sprig or Maple. And finally, we centralized our kitchen, which allowed us for standardization across many different cuisines. And in doing that, we've got a blank slate in the world of culinary to innovate in the food, not just in technology. And I've found that even in the meal kit industry or any industry right now in tech, sometimes it's not enough just to have one core competency. You have to bring, you have to find innovation at the edge of two industries, and in our case, it's food and tech. A lot of food tech companies are just tech, and I don't think that they were able to make it that way without bringing the food expertise in-house.
Yeah, when you have a two-sided marketplace and consistency becomes a problem on one side of it, then the most logical thing to do is fix that problem. And it sounded like that also happened around the time, a lot of people realized that you could ship these meals using USPS or FedEx or UPS which was actually a new idea. Suddenly there was a moment where contribution margin per box was pretty amazing. I mean, it remains a pretty amazing model. And then on the flip side, other competitors started coming in and overloading the customer acquisition cost side of things.
So the shipping model was great on contribution margin. One, because it costs less than a driver sitting in traffic and delivering to people on the fly, but two, because you're sending multiple nights of food in one box, not just delivering one night at a time. And then just like you said, incumbents like a Blue Apron and HelloFresh started coming into the marketplace with a war chest of funding and spending to the moon on brand awareness, but unfortunately, without defensibility built into their model, so there are a few companies in the space, Gobble being one of them, Daily Harvest is another one, that actually set up an innovative supply chain and made proprietary IP in the food. For example, there are people who crave Pepsi, or Coca Cola, or Starbucks or Pete's, and that's because those companies have innovated in the food and created a flavor that you can't stop thinking about. Gobble has done the exact same thing but applied it to a high growth Silicon Valley, sort of startup format. We have 2,000 proprietary SKUs and sauces that people request again and again and again. And once they're on the menu, fly off the shelves because people crave the taste. And the companies that came in the meal kit market initially came in because they saw an arbitrage opportunity using commodities, using existing groceries, some people--
I mean, that was the onion in a box model, right?
Onion in a box, and so some people like to recreate those recipes and they go to the grocery store, once they've learned how to cook and buy those ingredients and make food on their own. And that shows you how little proprietary, kind of IP there is in those models and in those companies--
We already funded Instacart at some point, I think by then? So it didn't make sense to us that you could go to most meal kits and they would give you a tomato or give you an onion and give you an instruction card. And the recipe card would say chop the onion. Can you have a service that takes care of the time consuming things that you would do if you could but you can't and give you just this really good tasting thing? And also bring down the actual time to build, to make it? Typical Blue Apron or other meal kit. I remember taking an hour, I mean, even today, I think that's basically where they're at, and to me, it was just so obvious, how do you create something that's better, faster, cheaper? Well, yeah, you have way better sauces, you have way better recipes that are actually faster, that people are actually really willing to make that trade-off between paying an extra dollar or $2 per meal in order to have something that cuts the prep time by 30 to 50 minutes. I mean, that's some real economies of scale there.
Yeah, and it's funny, by putting in the upfront work, and developing these proprietary SKUs, our secret sauce is the sauce actually.
Yeah, the secret sauce is the sauce, I love it.
And make making cooking faster for people actually locked in their loyalty and then repeat buying, not just because we made it faster, but because we did so with our own proprietary sauces. And so you can't recreate a Gobble recipe by going to the grocery store. So we made it more convenient so it's sticky, but we also introduced our own flavors, so it's even more sticky. That flywheel has really worked for us on retention to the point where the cost of just maintaining our customer base is magnitudes lower than a traditional meal kit box where there isn't really anything proprietary and deal hunters are switching between the boxes on a weekly basis.
What product market fit looks like — $6M ARR overnight
Zooming out a little bit, that's sort of been the story, I guess, catching us through 2000, 2011, 2012, you were looking at all of these other marketplace models for food and then what year was it when you realized meal kits were it and what happens from there?
So in 2014, about three years later or, as Ben Silbermann told me once, 1,000 days of innovation later, we came up with the 15-minute dinner kit. We were iterating, that over the summer of 2014, launched it in August and hit six million ARR in no time. And by comparison, the two or three models we launched prior, we would fight every single day to just hit one million ARR, 1.2, two million. And so we saw product market fit and how easily the product grew on its own, but of course, also in the numbers.
And so that's sort of what founders can use when they're trying to look around inside the idea maze? That's often a question that people have all the time. It's like, how do you know you have product market fit? And it sounds like in your case, as it is for many people, it's sort of obvious you are, the product is flying off the shelves and you can barely keep up with demand.
Right, and until that's happening, if you believe with all of your insights and intelligence that are problem exists, then you should keep iterating until that moment. I normally like to be able to explain things with an exact description, but this is truly one of those moments that you know it when you see it.
What happens when an overfunded competitor has a terrible IPO
Yeah, yeah, if you're asking then, you probably don't have it yet. And then, from there, I think obviously, we've seen Blue Apron go on to raise hundreds of millions of dollars and have an IPO but then an IPO that really underperformed. Walk me through what it's been like since then, and what was it like when, you have something that has product market fit, and you have something else that just has worse metrics across the board, but the capital raising game is somewhat divorced often from best product, best service. What was that like?
Well, when the first product to go public, takes the limelight, and not only that, but spend hundreds of millions of dollars on brand awareness and then, fails so royally, it has catastrophic effects on the entire market behind it. So, in the 18 months following Blue Apron's IPO, we saw a lot of sale announcements for other meal kit companies, a lot of founder departures, and while some of those numbers might look really attractive, I think underneath all of it, the economics may not have been as attractive as the headlines. People decided to get out as quickly as possible because the market perception was so damaged. And I think that those those periods are very rough to withstand, it made any kind of fundraising much more difficult than it would have been otherwise. But on the other hand, I think that any company is going to go through ups and downs at different periods in their lifecycle, and it's important that you believe in what you're doing beyond just doing it for the money and hopefully set up long-term core competencies that are stand the test of time, so you can weather those periods of months and sometimes years that are going to be harder for your market.
Startups, in particular, are not immune to this. The game is a, it's a popularity contest early. It's basically a voting machine early, and then later, it becomes a weighing machine. Meaning, what kind of business have you built? And what are the metrics? And does it throw money off? One of the things that I've been really blown away at and that we've worked together on in the past couple years, full disclosure, I am on the Gobble board, so I feel like I've earned the ability to say we, we were burning more than a million dollars a month for a time.
Yes.
And now we're earning nearly that much in earnings in actual profits in the middle of a global pandemic. How did that happen? Honestly, it's one of the craziest things I've ever seen in my short time as a venture capitalist.
Well, last year, candidly speaking, investing in meal kit markets was still not very popular. And we are in that category, and we're a venture-backed business. And so we followed our path of investing in growth and showing the possibilities of high growth for a time. And during that time, we were spending over a million dollars a month to put money to work and to grow as quickly as possible. But it ended up being that we weren't able to get a deal to the finish line.
We weren't able to pull together a next round of financing, really.
Yes.
Sell? Die? No. Get profitable.
Because the voting machines were really voting against us in terms of the popularity contest of business models. Here's Blue Apron, which, as insiders, we knew that they're probably not executing to the degree that they could or should, and we knew it by the competitive numbers, but it's opaque to quite a lot of people out there unless your day-to-day looking at the operating models and seeing it, it's hard to know.
When we were trying to raise series C last year, we would get one or two partners from a certain firm invested and then they wouldn't be able to get everybody else over the hump because of the broader market and how out of favor it was. When our series C didn't manifest, we could have done one of four things, shut down the company, recap the company, sell the business for some version of an asset sale, customer lists sale or acquihire, or tried to turn the company around and operate profitably.
Revolutionary idea.
Revolutionary idea! So my experience with friends and other founders is that typically, one of the first three happens. Unfortunately, you have to wind down, you sell, and maybe the team goes, maybe they don't, or you recapitalize the business. So frankly, all of those options felt horrible and felt like we were doing so from a place of zero leverage. And we had established a customer base over four years that was extremely high retaining. And I felt that looking at the numbers, that there was a chance that we could turn the business to be a profitable one if we cut our marketing spend, depending upon how much of our customer base stays with us, that would determine how profitable the business would be.
I feel like that was a big lesson in terms of how demand generation or customer acquisition, particularly through digital marketing, I mean, buying Facebook and Google Ads and frankly, many, many other tools in the toolkit, including, direct mail, email marketing- there's sort of the entire set of things that you have to do as a modern brand to get customers- sort of a depth to it. So the initial set of possible customers, they're probably really well-targeted, they're probably really sticky, which means their LTV is really high, and you didn't have to pay very much to get them, but then in the search for more and more marginal customers, you're actually getting customers that are worse. And especially if there's a giant amount of capital being funneled into it. I mean, that was one of the craziest things that I think really played out here. If you needed and had to show that you could grow three X or five X a year, you could probably do it by burning a mountain of cash. But taking a step back, if you have something that is fundamentally valuable that generates free cash flow, and you could grow at, even if it was 50% a year with actual generation of cash. There are lots of places where the founder has this growth knob, they can choose, do we grow faster and burn a lot more money or do we grow slower but much more sustainably? Sometimes profitably, the amazing thing about Gobble is that you're able to grow profitably in sort of grand fashion right now.
Yes, one of the biggest lies that startups tell themselves and their boards is that they can turn off marketing and be profitable, because most of the time when you're marketing and growing at a near cancerous pace, your obfuscating your actual cohorts and the long-term and ignoring the long-term retention of certain groups and just trying to continuously refill a bucket. I think it's just important for startups to be very cautious on if you were to turn that knob off, underneath all of the extra marketing spend, are you already a profitable company? Or are you absolutely not? And at a time like this in a pandemic environment, with so much economic upheaval, it's important to be honest with yourself and understand if you truly could be profitable or not.
I think there are a lot of companies that are actually in the situation right now. There might be ones that are watching this right now that are actually in this position, but it took a moment to take stock, ask yourself if you could do it, and then you tried, and it turned out that you were profitable, and so that's actually a much more common scenario, I suspect, and people never even try.
I think what happened with my startup, Posterous, we had, 10s of millions of uniques a month, we had probably close to at least a million people who were regularly posting. And so even if a small percentage of those users paid us even $5 a month, we would have been wildly profitable on a very, very small base of five or 10 engineers at the time. Almost all of the market value we created for that company happened from basically our initial seed round. The seed investors made money, the common shareholders made out fine, the co-founders, we ended up being fine, and the team ended up being fine, but I don't think the series A or B folks really made that much money, and that was sort of a function of us not being very cash efficient, never charging money for it, and in retrospect, that was one of the biggest regrets I have as a founder. So always remember, you can go profitable, or at least you can try and it's a very important tool for the tool belt and we should have tried, we never did.
Yeah, and it's a scary decision, but it was informed by the retention cohorts we were seeing, and I felt that it was the only one where we had any control, and where we weren't just doing something for optics or shutting down. And so we had projections that if we turned off marketing completely, six months later, would only 20% of our user base still be there? Would it be 40%, 50%, 60%? And what we would do in each of those scenarios? And which would deem it a shut down, which would deem it barely profitable, et cetera. And as it turns out, a vast majority of our users stayed with us long-term, and it is the most exciting form of validation that I've had in 10 years, because when we're fundraising, you're always estimating. Well, how many of these are long-term users? and how much is your marketing obfuscating--
Well, we know now.
We know now, and it's nice to have that behind us, especially now coming into a pandemic environment because we were generating cash every month and we we basically like raised a series C of millions of dollars in free cash ourselves without diluting the company one one bit?
Yeah, that's really powerful. I think cohort retention is one of the most important tools for every founder because it really tells you the health of the business, period, as a brand, as a going concern. Basically, if people who buy you, say, month, that's a month zero, you can look at the curve, and obviously, it starts at 100%, and then every month, some people drop off. But the absolute best brands, the enduring brands, actually, you find that they have an asymptote that basically stretches into infinity. That sort of matches how companies are actually valued broadly. That's how you can tell the price of equity in a company is discounted future cash flows for that business. I always love to point that out. If you know what your retention cohorts are, then you know whether your company is actually valuable or not. It's a tool that every founder has to really keep in mind. Though it's tough to know, because a lot of founders who start out, you actually don't know, it actually takes six months, nine months, years to tell you what kind of business you really have. So 10-year overnight success, I guess, 2011 until 2020.
Gobble's future
How do you think about Gobble's future? For me, I've been sending Gobble boxes for more than a year to my parents actually who, especially in the middle of COVID, I want them to have fresh food. And we've talked in the past about sort of a new supply chain for food that actually feeds people living food, right? So fresh meat, fresh vegetables, things that are actually just food as medicine. I think that there's a strong case to be made for a public health epidemic, just a crisis from big ag, big food, pushing us highly processed food. For Gobble, it's fresh food that also tastes really good. So where do you think all of this goes? Where does Gobble go from here?
Hearing that about your family is just really inspiring and exciting to me because we didn't market Gobble in that way. I do believe in eating fresh whole foods and all the macronutrients, micronutrients, and just physical, and emotional, and nutritional benefits that come from the earth that we're shipping you without any processing. And we've received stories about people managing their diabetes or their cholesterol or so on and so forth.
That's what really helped my mom actually. She suffered from diabetes type II, and we've seen an incredible improvement just from eating fresh vegetables and eating chicken, eating seafood, being very focused on her diet. Honestly, the closest thing to food is medicine. I actually tried some other services just to be curious, things that were designed for diabetes patients and they were terrible. It's just, my parents didn't eat it at all. I went home one day and the freezer was full of these horrible meals that, it was just a waste of money. They really look forward to getting their Gobble box every week. So thank you for doing that.
I think that freshness and health aspect is a core tenant of what makes Gobble so special in conjunction with the convenience of being able to cook it in 15 minutes or less. The future actually is is really exciting for D to C food companies that can get their house in order and be profitable and have the capital and the R&D to unlock this. I think with coronavirus upending restaurants and grocery stores, that D to C is the favorite channel of people receiving their food, whether it's takeout delivery or it's Instacart or shipment of CSAs or Gobble. And I think some companies are failing by trying to be everything to everyone but Gobble can be everything food to someone, and what that means is for our market that is busy working couples that don't have time to cut onions and have kids and so on and so forth, they're looking for produce from us, for groceries, for desserts, for kids' lunches, for snacks, and even just pantry items because right now, they don't want to go to the grocery store. So the the LTVs and the weekly spend is off the charts. And we've started adding to our core kind of dinner kits more and more ancillary items that are for other meal periods and pantry fillers. And that's really exciting because we have customers who are depending on us week in and week out for one meal period and if we can access and warehouse and have the same level of freshness and integrity on other items, we're starting to replace the grocery store and just other occasions for them. And I think I would like Gobble to plug in and be the source for everything in your kitchen.
Well in the cards and you're well on your way.
Things Ooshma learned the hard way
You've learned so many things as a part of this crazy process of starting a company and now a quite profitable one, one that's grown by leaps and bounds, like a pretty crazy multiple this year. What advice would you give to 22-year-old version of yourself? What did you learn the hard way that if you could snap your fingers be like, "Oh, these are the things I just, "I'd like to skip ahead on this, please."
Oh man, there's so many. Well, I have found that some of the hardest things in the startup journey have been the unknown unknowns. So the things that you didn't expect that really ended up biting you down the line, especially conversations with other founders who are one step or two steps ahead or who are in your industry, those closed door conversations or coffees, I think are really, really critical, and asking people about the good, the bad, and the ugly, so that one, you're prepared for those things, you take the time to imagine that everything bad will happen to you. I think it's a fool's errand to say, "No, no, that won't be me." Because ultimately with Murphy's Law, everything will happen to you.
So find founders who are along the way in the journey and then share real talk then, this is a very lonely journey without friends who are frankly facing probably a lot of the same things that you might be but on the outside, it feels like we have to have this killing it culture. It's like you go to a conference, you go to some dinner or event organized by a VC. And, everyone's sort of finger gunning all the time. You're like, we're killing it, we're killing it, we're killing it. And then it's important to find your tribe of people who you can be real with. And if you don't find that, then this whole thing becomes 10 times harder is my experience.
Awesome, Ooshma. Thank you so much for spending time with us. So, in terms of feeding your family, gobble.com, go sign up. Are you hiring for roles right now?
We are, we're actually hiring all across the board. So whether it's data analysts, engineering, finance, design, product management, we're an essential service that's actually growing in spades right now and we're looking for lots of talents. So if anyone's interested, they should reach out.
Ooshma, thanks a lot for hanging out with us today.