Misfits Market: Abhi Ramesh

24:54And there's a whole lot of room between that and what I as a consumer and probably willing to pay given the price of apples at the grocery store. And the beauty of apples is you can really – they last a long time. Yes. Like apples in particular. Exactly. And if you think about the time that I was doing this in Philadelphia, this was kind of late summer, summer to late summer. And so a lot of what was being grown at the time was these kind of like heartier seasonal fruits and vegetables. Apples were a huge part of it. The squashes, the potatoes, the onions. Like I was so excited. I need to immediately figure out if this is a one-off thing that I just learned about this apple farmer or if this exists across other commodities.

25:37And so the first thing I did when I got back home to Philly is I was Googling around to see how I could get in contact with other farmers. What's interesting is the USDA actually publishes a list of every organic certified farm. And so some people ask me, why do we start organic at Misfits? Because we actually started the business only doing organic produce. In part, I think it was because I thought that starting organic would kind of give us more of the quality credibility. but the real answer is there's not a list of all conventional farms, but there is a list of all organic farms online on the USDA's website.

26:10And so what I did when I got back home is I pulled that list of every organic farm in Pennsylvania and I started cold calling or emailing all of them. Wow. One of the challenging things was some of the Amish farms, you probably know they can't use cell phones. They don't use, and so they have their one phone landline in the barn. And so if you don't catch them at 6am, you're not going to catch them the rest of the day. So I'd wake up early, call them at 6am, I would call them and ask, hey, do you have produce that you can't sell to grocery stores? And most of them would say, yes, why? Who are you?

26:44What do you want? And I would just say, I want to buy it from you. They all said, great, come on by. And so drive to the farms, I start buying up cases and cases of their kind of grade two product. Mainly apples, squash, onions, squash, onions, potatoes, beets, carrots, a lot of root vegetables. Things that just last a long time in cold storage. Last a long time. There's huge quantities of, and a lot of these are like, what's fascinating about the root vegetables especially was there are significant aesthetic imperfections. Nothing but aesthetics. Like I'm seeing carrots that are just - With like two roots coming out of it and - Two roots.

27:28They're twisted around each other. It's like, you know, there are two carrots that are almost like hugging each other. So I started buying all this stuff. And it was your boy spending a couple hundred bucks? Max, yeah. Yeah. And the interesting thing that I found was for most of these farmers, they didn't even have a price for these items. They kind of were like, I don't really know, you know, like what would you pay? Things have changed a little bit now, but at the time there was really no market for these items. And so there was no such thing as a market price. And by the way, you're buying the produce, but what were you doing with even buying$100 worth of, you know, I mean, that's you might have like several cases of produce stacked up in your apartment.

28:10What were you eating it? Were you just buying it just to buy it? I would eat some of it, but I can't eat cases of it. And so there's a lot of produce just sitting around my apartment and I lived in an apartment building. So I started leaving it out for free for people to take in the apartment building. And so it was really just kind of like a way to test the supply side. If it was good, if it was good enough to use. If it was good enough. So I'd eat some of it, I'd give away a lot of it. And then like there were just cases and cases of squash sitting in my living room. Yeah. And I have photos.

28:37My apartment was filled with produce. When we come back in just a moment, Abhi is able to find customers for those stacks of squash and all of his other produce. But the much bigger challenge? Delivering it. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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32:01Hey, welcome back to How I Built This. I'm Guy Raz. So it's August of 2018, and Abhi is pretty sure he can buy all of the ugly produce he can handle at a big discount from farmers around Philadelphia. But having a supply is only half of the equation. And the missing piece was, is there demand? are people interested in quote-unquote good quality produce but not your grocery store grade delivered to you but at a discount so how did you test whether there there was demand because before you raise any money you're using your own cash right now my own cash um i i put up a landing page um i built the landing page myself um and what'd you call it so the original name was misfits market so the name has stuff misfits market oh i call the misfits market that first farmer I met, he used the word misfit.

32:53He's like, these are the misfit apples. So I was like, Misfits Market, no one has it. It's not trademarked. Like, let me do it. So. Wow. And you got MisfitsMarket.com? Like, no problem. Got MisfitsMarket.com. So day zero of testing demand, I got the domain for$10 or seven, whatever costs on GoDaddy. Use Shopify to kind of get a basic landing page up. And at the time I put up two items. One was a small box. One was a large box. Did you specify what produce would be in there? I just listed out what was seasonal. And I said, hey, for the small box, you're going to get 10 to 12 pounds or whatever it is of seasonal produce.

33:31And for the large box, you'd get 15 to 20 pounds of seasonal produce. And if I remember the early pricing right, I think the small box was$22 and the large box was$35. So I put that landing page up and created a Facebook ad account, put my personal credit card on it, and started to drive pre-sale traffic to the website. And what I decided to do was I was like, I'm going to lean into the weirdness and the wonkiness of the fruits and vegetables. And so I took photos of the kind of ugly twisted carrots and the weird shaped squash. And I would just say like, you know, ugly fruit in need of a home.

34:13And those are my Facebook ads. And when they get to the landing page, they couldn't order at that time. It was just a pre-order? It was a pre-order. So they could pay. So they could click buy and actually like pay the$22 or$35. But I had a blurb that said, you know, shipping starting in two weeks. So but these were ads that were going out all over the country? No. So I limited the ads. So my assumption was I'm going to start with like Philadelphia area, focus on, you know, apartment buildings and neighborhoods that are near me and we'll figure out a way to get them there from these farms. And what were you, I mean, sort of in that time period, what were you spending on ads?

34:52I mean, was it thousands of dollars, tens of thousands of dollars? Like, what did it cost? I started, I probably started with like, you know,$50,$100 a day,$200 a day. What was very interesting was when I got my first two or three conversions for people to sign up, it cost me like$5 or$10. Per person. Per person to get a sign up. Yeah. And I was like, okay, I think I can figure out a way to make this work if that scales. Now, does that scale is the question. So the only way to know is to start scaling spend. And so I took it from 50 to 100 to 200 to 500. Probably on my own, I got to a point where I was probably spending about, you know,$1 ,500 a day on paid ads on Facebook.

35:36And bringing in 100 customers a day. Wait, hold on one sec because you're getting a little ahead of yourself. Can we just wind back to when you just had a few hundred customers? Because I think you're about a month into this thing, and obviously you need some money to get it going. And from what I gather, you reach out to this friend of yours named Edward Lando. Yes. Who was Edward? Yeah, I think of Edward as like he was a co-founder for Altair. He was less involved in kind of the day-to-day of the tutoring company, but I had still kept in touch with him, and he was a friend of mine from Penn.

36:11I told him that I was working on this. And I was like, I got to figure out a way to get money. Otherwise, you know, I'm dead meat. And he offered to put in the first check, almost like a no questions asked. And he wrote$150 ,000 investment into Misfits. There's no corporate entity. There are no documents. I opened up a Bank of America account and he wired$150 ,000 into it. And then I was like, don't worry, I'll figure out the docs. I'll figure out the entity later. And in the early days, he also, you know, he was living in New York City at the time. And he was like, look, like if you need help doing stuff, I will help you.

36:49And so he actually came down to Philly for the first few months of the founding of Misfits and actually helped me on the ground with things as well, in addition to putting in that first check. All right. You now had about a couple hundred people to deliver boxes to. And so tell me about that. Like, were you did you I don't know, like rent a U-Haul truck and drive to a bunch of different farms and then bring the stuff back to your apartment? Or did you like rent a space and start to like hand pack the boxes? Tell me about that first order. So that's almost exactly what I did. I very quickly signed a lease on a small warehouse based in North Philly.

37:32I purchased two industrial refrigerators, I think from Costco, put it in the warehouse space. I was like, this is where I'm going to store at least the things that should be kept cold like apples. So I had a warehouse space. I then went and drove to all these farms and started to pick up inventory to fulfill the 400 plus orders. Three times a week, I'd go out, rent a U-Haul in the morning, drive out two and a half hours to the farms, spend the entire morning and afternoon collecting all the produce, drive back to the fulfillment center. And what I am doing is the first kind of 10 to 15 boxes I packed on my own and I actually delivered them myself.

38:11But I very quickly realized while I could do the sourcing and those pieces, the fulfillment and the logistics was going to become impossible to do solo. So I put up initial job listings on Craigslist. And who's to, how are you, I mean, the packing is easy, but delivering them is a different story to each address in the Philly area? How did you do that? So delivering was really hard. At first, I just handed the boxes. I'd hand like five at a time or 10 at a time to these drivers that I hired off of Craigslist. Yeah. And whose cars? Their own cars. They use their own cars to deliver the boxes. Now, the hardest thing that I realized was routing.

38:50Because if I hand 10 boxes to you, Philly is a big metropolitan area. How do you know where to go to first? This is why UPS is the best. Those 10 boxes might take you 12 hours to do if you route them incorrectly, and you're not going to route them in your head. So there was an off-the-shelf routing tool where you can plug in 50 addresses at a time, and it will create an optimal route for those 50 addresses. Right. And that is what I used. We would route them through this manual routing software, print out the output, hand it to them, and say, this is the order for your 10 orders. Go deliver them.

39:23By the way, I would think that at this point you would bring in your dad who was a logistic specialist on shipping. So I called – it's funny you say that because I didn't really tell my parents about this until much later. What do you mean you didn't tell them about this? They didn't even know I was working on Misfits. They thought you were doing nothing? Pretty much. Yeah, they knew about the Altair days, and part of it was, you know, I didn't, certainly amongst my parents were like, well, you left Apollo, this like big fancy job. You started this Horizons thing, it didn't work out. Like, is this like a, this is just a track record of doing things that are not going to work?

40:03And so I didn't tell them. Yeah. I think the first time I told them about Misfits was right before we released our press release for our seed round of$2 million. Wow. Okay. All right, we'll get there. So you got this logistics software and does that work? Does it work? Yeah, it did work. But very quickly, I realized that having my own drivers go and deliver these things was just way too hard. And I was just I was doing work that other people had already done, the big logistics providers. And so probably about three weeks into it, I switched from our own drivers to UPS FedEx. Yeah. Now, what I had not thought about to date was how you actually package the items.

40:46I just put squash, apples, onions, potatoes, peaches in a box together and handed them to a driver. Thinking that they would just be carefully placed on the ground, not just tossed on a doormat with the peaches bouncing around with the hard butternut squash getting bruised. Correct. And when I was handing them to our own drivers to go do that, it was fine. Now I put on a FedEx truck and it's bouncing around a FedEx truck, going to a sort center, going down. Everything changed. I start to get, you know, people are still, customers are still happy. They love the boxes, but like one in 15 would email and be like, my squash smashed my peaches in the box.

41:27Like, what are you going to do? And so that was, it was an important moment because I realized like if this is going to scale, I have to figure out the packaging side of this. Yeah, because basically once somebody calls and says that, and then you got to go and send more peaches, you've lost money on that order. Exactly. And even to date, the packaging of what we do is actually a huge component. So I started testing a variety of different things like insulated bags, containers for peaches, wrapping fruits, separating them with cardboard dividers instead of the boxes, all those sorts of things.

41:59And eventually found a solution that has worked even for the FedEx deliveries. So when you were – just going back to like these first customers, I mean the marketing was very simple. It was like this weird-looking fruits and vegetables. But essentially, were you sending this message to people who were saying, hey, you're spending too much on perfectly pristine produce when you can get the same quality that might look a little blemished or weird for a fraction of the cost? Were you sending that message out in these ads? Yes. I would say that the message – there were two. One was get really high quality produce at a discount.

42:36And the second message was help fight food waste. We have a huge food waste problem in the U.S. And forget about whether you should fly on planes or not. 10 % of greenhouse gas emissions in the U.S. comes from methane produced by landfills, which are filled with food waste. It's an order of magnitude higher than what's produced by planes. At what point, because this is now the fall, early winter of 2018, do you go out and look for real money? Because you got about$150 ,000 from Edward, your sort of first investor, but you needed to raise a couple million at this point. Yes. And between kind of the end of the summer of 2018 and the end of the year, between August and December, we kept growing at that same clip.

43:23So by the time December rolled around, we had a couple thousand customers and the warehouse was getting packed. I had gone from one packing shift to two packing shifts. So we had a 6am to 2pm shift of packing orders. And we had a 2pm to 10pm shift for packing orders to the warehouse. We got from two refrigerators to five refrigerators. So the business was growing. And so in October, probably late October, I reached out to a guy by the name of Patrick, who was at a new fund called Green Noakes Capital. Patrick had been my desk mate at Apollo. The other thing I forgot to mention probably is when I built that landing page for these customers to sign up, they signed up into a subscription.

44:10It wasn't just that I'd have 200 one-time orders or 300 one-time orders. These are repeat orders that are either bi-weekly or weekly. And so I had a real, you know, at a couple thousand customers ordering weekly, you know, it was a scaled business doing a couple million dollars of ARR. So I gave Patrick some of the high level metrics and I was like, this is what I'm trying to build. Ultimately, I think this can be kind of like something we can scale nationally. I think there's a lot of supply of this ugly produce. What do you think? They came back a week later and they said we would write a$2 million check into this.

44:43I mean, that's unbelievable, you know, given how quickly that happened. Let me just kind of dig into this for moment because clearly your friend had faith in you this is a low margin business it is you're dealing with like highly perishable products right i mean now the business has evolved and we'll get to that but at this point it's like fruits and vegetables and i mean it's like a supply chain nightmare like the the margins are like the math has to be perfect to make this work yep it's really risky to put money into this. So I think you're right in that the first investment from Ed was very much so like, you're a friend, I trust your execution, you'll figure it out, like angel friends and family check.

45:30I think the Green Oaks check, the big part of what got them sort of excited about this was the unit economics component of it as well. I think they looked at the ability to buy produce that you could sell for 80 cents in the dollar, the fact that we could buy that for 40 cents in the dollar, 30 cents in the dollar, I think they looked at that and they were like, that is a very interesting kind of arbitrage opportunity. And I think there should be a way to scale that. And my thesis from day one was, I have a cost advantage on the supply, and I can pass on a chunk of that cost advantage to the consumer, still have a chunk that, and keep that in between to have margin for the business.

46:15But that cost advantage from the supply is kind of what drives everything. Okay, now it's 2019. You've got 2 million. Who were your first hires? What were the roles? A director of operations was probably the first or second hire that I made. And how did you recruit them? How did you find them? Did you look for people with experience in food, people who worked at Whole Foods? Like, who were they? Yep. So the first director of ops hire that we had, She was a woman with specifically experience running a food fulfillment center. One of the decisions that I made early with hiring some of these roles was I did not go super senior with my hires.

46:54And it was actually something that I kind of disagreed with multiple times with some of our investors over the years, who oftentimes would encourage me to go like, hey, hire, you know, hire like the super fancy chief operating officer from XYZ e-commerce company like early. And I never did that. I actually ended up hiring folks that were right for the stage that we were in today, not for the stage that we'd be at in three years. There's pros and cons to doing that. And I think for me, I needed someone that could do the job, not someone who could sort of build infrastructure and go hire teams to go do the job.

47:33And so the first director of the ops that we hired, she had done the job. She knew how to manage a two-shift, 30 ,000-square-foot warehouse with some food. But you know with your ambitions here to make this work because this is not really just a produce business or food business. This is a logistics business. This is a supply chain business. I mean, really, and it reminds me, we did the story of Zoomies, this surf and skate shop a couple of years ago. And I remember the founder saying, you know, the key to a successful retail business is inventory management. He's like, forget about everything else.

48:12If you want to have a good retail business, you've got to manage inventory perfectly. And I think that philosophy applies here, not necessarily with inventory, but with the logistics and the margins. So the line between this not working and this working is so thin. 100%. And it's funny you say that because there's a couple of small companies that I advise these days. And one of the things I told them recently, both of them, was like, you have to be very honest with yourself on what business you actually are in. because with us, right, with Misfits, it's easy to say, oh, we're e-commerce, we're grocery, but fundamentally, we're an operations and logistics business.

48:56And being excellent at that is actually what is required. If you've seen the McDonald's documentary, like when they realized they were a real estate business, that's when McDonald's actually started to work. And so realizing what business you actually are in, like what is the fundamental driver is so critical. And I think it was probably late 2019 that I realized that. That you are in.

49:45We started to scale the number of items we'd bring in, right? Like this was no longer squash, potatoes, apples, beets, and peaches. We started to increase the variety of items that the box would have. So we'd have leafy greens, we'd have broccoli, we'd have a variety of other fruits. So we probably went from five or 10 items to 30 or 40 different items. And so imagine not just packing those 30 or 40 items in a box. Imagine the inventory requirements now because we need to actually hold inventory for 30 or 40 different types of produce items, each with a different temperature requirement. Broccoli comes on ice, which I don't know if people realize when broccoli is shipped, it comes on a ton of ice.

50:26Ice melts and then water gets all over the warehouse. You have to have drains. So there's all these small operational nuances that we started to kind of learn by doing this. When we come back in just a moment, a not-so-small operational nuance, the unprecedented challenge of delivering groceries during a pandemic. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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53:32Hey, welcome back to How I Built This. I'm Guy Raz. So it's the end of 2019, and Misfits Market is growing so fast that it's easy to forget the company is barely a year old. They're moving beyond Pennsylvania for deliveries and moving into other types of food as well, not just produce. One of the first ones was actually a salad dressing item, and I believe at the time it was a shelf life issue. So they were like, we have a bottled salad dressing. It has 120 days of shelf life. Grocery stores can't buy things that only have five months or six months of shelf life often. And so we looked at that and said, can we test a non-produce item as part of our offering?

54:16So when someone kind of came in to look at their next order, there was an option that said, add salad dressing. And we sold out of them. Wow. And so that was kind of our first foray into non-produce items. And that also kind of gave us some initial clues as to how we would attack the non-produce categories, essentially by looking at some of these other inefficiencies. Things can have manufacturing errors. So one of our early buys was a giant shipment of olive oil. The labels on the cans were printed upside down. and so they can't sell that through their traditional channels and so they ended up finding us and we bought you know the 20 000 cans of trey i think it was trey was a massive discount at a huge discount because they can't sell it at whole foods because you need to and so you could basically say your customers hey we got upside down labels and did that kind of become the model like the you know i remember i don't know if it's still the case but i remember when i was a kid my parents would take me to get all my clothes at Ross Dress for Less.

55:18That was where I got my clothes. And I always had like irregular jeans. You know, like there was like seven stitches instead of like 12. And, you know, or like one pant leg was slightly longer than the other. And, you know, my mom would just cut it off or something. And that was it. I mean, it was like that's why it was so much cheaper. Exactly. And all of that exists in food. It's interesting because it sounds like this wasn't part of the plan. Definitely not. Putting in olive oil. It was just going to be produce. Yes. So once we started doing it, we realized there's a lot of potential here to kind of meet customer demand and to obviously increase our baskets.

55:54But the original non-produce items that we added came because these brands came to us. So from what I understand, the way it works, like if you go to a Whole Foods, right, there's a farm or like a food manufacturer. Then it goes to a packing plant. Then it goes to a distributor. computer, then it goes to the grocery store, and then to you. And every part of that process, somebody's adding a dollar more to the cost. What you're able to do, if I understand this correctly, is cutting out some of those steps. So that's what enables you to really offer up a lower price. So that combined with the fact that we're getting a lower price in general, kind of when we buy these rescue buys in particular.

56:35Today, when you look at our assortment. We have 1 ,200 different items. Not every single one of those items are rescued or opportunistic. We offer some that are kind of like regular items just to make sure that we can fill the basket and there's consistency. All right. By the middle of 2019, I believe, let's go back to the timeline. You guys, you raise, you do a series A,$16.5 million, also led by Green Oaks, your first seed investor. But to get to the scale you want to get to, You know you're going to have to raise at this point a lot more money. I mean because, again, it's not just about – because still at this point, you're dealing with small farms.

57:16But at some point, you're going to have to deal with really big farms if you're going to go national. And you're going to need lots of cash. I mean you've got logistics and supply chain and warehouses all over the country. We're talking about like diapers.com or Amazon kind of complex business like that. Yes. And that journey, I would say, began right at our Series A. So once we raised that round, the ambition very clearly became go national and go national fast. We launched multiple new fulfillment centers in that next 12-month period. So our first kind of thought was we're missing a really big market on the West Coast.

57:58And so we ended up launching a new facility in Salt Lake City. We built that facility from the ground up. So 300 ,000 square foot refrigerated and freezer facility that was custom built for us. And so a lot of the capital we raised went towards investing in that infrastructure over the next two years. What I'm curious about is I want to get to COVID because COVID obviously was going to have a huge impact. It was unanticipated, but it would have a massive impact on the business in terms of its growth. To sign up for Misfits was free and is free, right? Yes, it's free. It's free to sign up for Misfits.

58:37We have like a plus program that if people want to, they can opt into later. That's an annual fee and you get additional discounts across our assortment, our private label, you know, lower fee. You get all those things as part of the plus program, but the actual base experience is free. And the shipping is free with the base experience? It's free at a certain threshold, depending on your zip code. After like how much you spend. Okay. So, all right, you have now momentum and you've got a lot of people and investors who are committed to this and COVID hits. In March of 2020, how many, had you already gone into New York?

59:15Were you in that market at that point? We were in New York. So by March of 2020, we were in most of the kind of northeastern states. And we had opened up some of the West Coast as well via that Salt Lake City facility. So we were, you know, semi-national in a lot of ways by that point in time. And it opened up a lot of different geographies. And COVID hit. We, I mean, I think most businesses can say this, like we were woefully unprepared for COVID. And specifically, I just think the volume of demand and how quickly it came. Between March and April, our customer base almost doubled. You know, even an additional 5 % in demand or 10 % in demand in our business requires like meaningful planning and execution because we have to go get more inventory, get more boxes, make sure we have the warehouse space, logistics capacity.

1:00:11And that's for 5 % or 10 % of incremental demand. Wow. So how did you guys deal with that? So we made the decision to turn off all new customer acquisition first and put up a wait list. That wait list then started to explode as well. And so we had to kind of temper expectations on when we would offboard people off that wait list. Just the sheer volume of folks kind of signing up was something we had never seen before and did not anticipate. On top of all this, we didn't know whether our business was an essential business or not. The guidelines that were being put out by the state of New Jersey made it pretty unclear.

1:00:53They said, if you're a grocery store, you're an essential business, so you can stay open. But what about a grocery fulfillment center like us? And so we assumed that we were essential. And there was a lot of confusion. And for a moment in time, the authorities actually said, you're not. You guys have to shut down. Um, I actually got in touch with the governor's office in New Jersey. Uh, the, the governor of New Jersey had to actually kind of like step in and say, no, no, no. Uh, misfits is actually an essential, essential business. We can keep them operating. So, um, and then on top of that, obviously like, you know, by this point in time, our total warehouse staff was about 700 people.

1:01:35Um, and so just managing COVID to make sure people were safe, but also continuing to kind to deliver boxes and getting them out the door on time was incredibly challenging. But also probably exhilarating also. I mean, you're watching your business just double, triple, quadruple growth. Yes. So the growth was absolutely incredible. And like, honestly, at the time, I think we were like, we didn't believe the numbers were real. But yes, I think COVID accelerated our business by multiple years and become kind of more of a grown up company in a lot of ways. and we otherwise probably wouldn't have done that for multiple years, but the scale and the velocity of the scale from COVID forced us to do that.

1:02:18It was exhilarating, but I think at the time, like, you know, there was so much that everyone was nervous about as to whether like we would just collapse under the pressure and the weight. I also, it was a very challenging kind of personal time as well. My wife was actually diagnosed with lymphoma. During COVID? During COVID. And she's a doctor. She's a doctor. Oh, my God. My fiance at the time, wife now, she was diagnosed with lymphoma. Was it aggressive when it was diagnosed? It was aggressive enough such that they were basically like, you got to go start treatment ASAP. Wow. And so, you know, I'm sitting here and I'm like, okay, I got to figure out how to run these warehouses during COVID.

1:03:01Traveling, flying. Traveling, but also figure out a way to sort of help my wife who's going through chemo and radiation. And you probably had to be really careful because her immune system was compromised. Yeah, I would do seven days on, seven days off routine. So I'd do a week at the facilities, then out of quarantine for seven days. Then visit her. Her family was amazing and actually like moved down, rented a house in the suburbs of Philly, and I'd go visit them after quarantining back and forth. So that was our routine for the better part of it. And you'd see her in a mask, basically. I'd see her in a mask.

1:03:37I had a little corner of the house that I would like sit in at first. And so going through those two experiences at the same time and seeing her go through that experience while I was dealing with misfits COVID, it certainly did give me perspective on what problems matter and what problems matter a little bit less. Because if my wife hadn't been going through that type of cancer treatment, I probably would have looked at some of the problems that misfits was going through the time been like, holy cow, this is like life or death. but on the personal front, there was actually a life or death problem.

1:04:11And so it gives you perspective on what is truly a life or death problem and what are actually just hard problems that you can deal with. And at the end of the day, you'll probably figure out and come out on the other side. So yeah, I mean, 2020 was a pretty intense year, but look, we emerged from 2020 cancer-free on the personal front, which is awesome. And then we got through COVID as an organization. And I think at the end of COVID, we were like a nine figure run rate company on a revenue basis. There's so much, I mean, there's so much we could talk about. Today, you're in 48 states. You're in every state, right?

1:04:46They're in Alaska or Hawaii, I don't think, right? We're not in Alaska or Hawaii, but yeah, 48 lower states. Everywhere else, right? Okay. So you've done this. I mean, you basically have taken a farmer's market box and you've scaled it nationally. And I think the last time you raised money was in late 2021, I read the valuation at that time was like$2 billion. Yes. But you've gone on and acquired a competitor that was based here in California. What were they called? Imperfect Foods. Imperfect Foods, yeah. And I still see that they're still branded Imperfect Foods, right? Yes. So we closed that acquisition in October of 2022.

1:05:25That's been a little over two years now. But we kept the brand separate because both brands have invested quite a bit in the brands over time. They mean slightly different things to different people. So we've kept them separate, but they're both under the Misfits market umbrella. So Misfits is the parent organization, and we have the Imperfect brand and the Misfits brand. All right, let's talk about logistics. Imperfect, I think, they have their own trucks, which is really hard to build. We did a story a couple years ago about Guayaki Yerba Mate, and that's how they grew. They grew. They built their own distribution network with their own electric vehicles.

1:05:59You guys, Misfits, you still use third-party companies to do deliveries, right? So until we acquired Imperfect, Misfits was all third-party delivery. Buying Imperfect, we thought that the logistics network was actually really important. And so today with Imperfect, we acquired a fleet of about 400 vans and we're doing our own deliveries with our own drivers, own vans and trucks for about 70%, 70 to 75 % of the deliveries that we do nationwide. For Imperfect or for both? Both combined. I think our view is that the fulfillment and the logistics for perishables, that is our core competency. And so we should own as much of that as possible.

1:06:43Um, and, and now when I kind of think about the next stage of misfits and we've started to do a little bit of this over the past six to eight months is we are now allowing other brands to use our perishable fulfillment centers and our perishable logistics. Other brands like that do the same thing? Other direct consumer brands that they're like, if you have a direct consumer dog food company, or cat food company, or smoothies, you know, any brand that does perishable direct consumer deliveries, I think our realization over the years has been like, the third party infrastructure today for that is not very good.

1:07:23Third party infrastructure is still designed for ambient widget delivery. It's not designed for food. And so I think what we have today, besides the grocery platform, the items, the customer demand, I actually think what we have built that is in some ways even more valuable is the leading perishable fulfillment of logistics infrastructure nationwide. And so we're starting to allow other brands to kind of piggyback off of our investments over the years. Wow. When do you – I mean I know you're privately held and so your numbers are not transparent and that's fine. But I mean, do you anticipate your close to profitability?

1:08:03Yes. Yes. So we've we're pretty much there now. The business is mid nine figures in revenue and growing at a decent clip. So ultimately, I think the very intentional strategy here is continue to grow the direct consumer business, but then start to really monetize this infrastructure. and by infrastructure, I mean the ability to source, the ability to fulfill, and the ability to deliver, monetize that infrastructure because there's a whole lot of other end revenue markets that could benefit from that. You're now going into your seventh year here. I mean, it's amazing how big this thing has become.

1:08:43And you're also really young. I mean, you're in your early 30s. This is a big business. At some point, there's going to be an endgame. Is it going public? Is it selling to Amazon? Is it or Walmart or something? I don't know. What is your, what's the vision here? So all the data that I've seen still points to, we're in the second or third inning. The stats are a trillion dollars a year in the US of grocery spend. Of that trillion dollars, 12 to 13 % is online today. Now, will that get to 100 %? Probably not. But if I look at any other category, 30%, 40 % in that ballpark. And so if we're at 12 % or 13 % for grocery, we have a ways to go, double, triple, quadruple from where it is today until we get to a point where online grocery is as digitally penetrated as these other categories like clothing and electronics and whatnot.

1:09:37And now in terms of the strategic exit, do we IPO, do we sell strategic? And honestly, I think like we keep those doors open for now and we keep doing what we believe is right for kind of long-term value creation, which is grow the core consumer business, grow third party. We're profitable. As we start to add more revenue on top of this, we should only kind of become more profitable and we'll kind of see where things take us over the next couple of years in terms of end outcome. Aaron Powell When you think about the journey you took and where you are now, it was a long one, but in the grand scheme of things, it's a very short one, right?

1:10:14I mean, many founders don't see significant success until into their 40s or even later. How much of this do you attribute to the work and the grind and the skill and how much do you think had to do with luck and timing? I think luck always plays a role. And I would be naive to say it did not play a role here. I think that we started at a time where potential customers out there were willing and open to consider this as a way to get groceries. I think the COVID wave, that bump was clearly luck, like no way you could manufacture that. So I think those things were definitely helpful. At the same time, this is a business where I like to say like the pennies matter.

1:11:00Every single operational decision that we have made over the years, they've kind of led us to this as well. And there have been a lot of periods where it's been true grind. The first two years of the business were complete grind. I think getting through COVID was a grind. I think the integration of Misfits and Imperfect from 2022 to the end of 2023 was a grind. So I think it has required an incredible amount of hard work to make this happen. I almost think the luck kind of amplifies or multiplies the end outcome. That's Avi Ramesh, founder and CEO of Misfits Market. By the way, remember back at the beginning when Avi went to that orchard near Philadelphia and saw all those unwanted apples?

1:11:45Well, that place is still going strong and still producing a lot of extra apples, which are still used to make cider. In fact, Weaver's Orchard says its cider is a frequent award winner at the annual Mid-Atlantic Apple Cider Contest in Hershey, Pennsylvania. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at GuyRoz.com or on Substack. This episode was produced by Casey Herman with music composed by Ramtina Ablui.

1:12:25It was edited by Neva Grant with research help from Catherine Seifer. Our engineers were Patrick Murray and Kweisi Lee. Our production staff also includes Alex Chung, J.C. Howard, Iman Ma 'ani, Chris Massini, Sam Paulson, John Isabella, Carrie Thompson, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

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