How to beef up your business, with ButcherBox CEO Mike Salguero

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0:44Creative planning where wealth works together. Learn more at creativeplanning.com slash mastersofscale. Hey folks, Jeff Berman here. I am thrilled to share some of the new names who will be joining us at this year's Masters of Scale Summit. This may be our biggest stage yet. Reed Hastings, Meredith Whitaker, Van Jones, Amjad Massad, and more will be there with us October 20th through 22nd in San Francisco. If you're building something great or you want to build something great, we want you there with us too. Join us at mastersofscale.com slash apply26. That's mastersofscale.com slash apply26. Startups are like hacking through a jungle with a machete.

1:34At the very beginning, what you need are people who are willing to hack aimlessly because you don't know where you're going, but just like work night and day and just keep hacking until we find a path. And then you're just like, oh, okay, here's a path. Like, let's take the path. And then you start needing like some people with a little bit more experience. Maybe they know how to use a compass. And then eventually you get to a road. When you get on a road, you kind of need people who know how to drive cars. If you just go for the car drivers, then you lose the hacking culture. Like you're willing to do whatever it takes to get this thing off the ground.

2:07This is Masters of Scale. I'm Jeff Berman, your host this week on the show, Mike Salguero.

2:21Mike Salguero is the founder and CEO of ButcherBox, which he has bootstrapped into a$600 million revenue business. Do I have that right? Yeah, we're hoping to do$650 this year. Okay,$650 has been D2C and is now in Target stores nationwide. Mike, welcome to Masters of Scale. Thank you. Long-time listener. Thrilled to be here. We're thrilled to have you. Let's start at the beginning. Where did your entrepreneurial journey begin, Mike? Well, I had a paper route when I was 10 years old, which wasn't quite entrepreneurial. Should we explain what paper routes are to the younger people? Paper routes are where you pick up a stack of newspapers, 35 of them, and deliver them every day, six days a week, rain or shine.

3:01So you had the bug early. You were out hustling. Out hustling early. I went to school in Boston and I did a bunch of sales jobs and I got out of school and started doing real estate rentals, which was a very entrepreneurial sales focused thing. And on the side, I started a little t-shirt company. And my first t-shirt was a shamrock and it said Boston on it and sold it during St. Patrick's Day. and I had like a hundred shirts that I paid$5 a shirt for and I sold them for$10 and made$500, like the fastest I'd ever made money. Well, you knew your market pretty well. Yeah, yeah, yeah. Bostonians love St.

3:41Patrick's Day. And then I did another t-shirt. This was in 2004 during the George Bush, John Kerry election. The t-shirt said Buck Fush on it and we sold 17 ,000 t-shirts over the course of like a two month period. Wow. And so, I mean, this is still pretty early days of e-commerce. Yes. So were you selling this through Amazon, through your own website? Mostly like at festivals, door to door, set up a booth. I had salespeople. I was in a few stores and had sold all these t-shirts, but I didn't have any money. I was like, where did all the money go? What happened here? Where did all the money go?

4:21I think it went to like, you know, we'd go out at night with backpacks full of t-shirts and go to the bar and sell them or, you know, and then use that money to buy drinks. And that's where the money went. And so I ended up like having this realization that I didn't know what I was doing and I wanted to go get a real job. So I worked as a real estate developer for three years, got my MBA at night at Babson, which is known for entrepreneurship. And then left that and started my first company. Ran that for eight years. What was the first business? First business was called custommade.com. And we bought this listing service from a woodworker who had built this.

5:00He built it in 1996. We bought it in 2008. And he had 350 of the best woodworkers in the country on this website. And when you talk to them, they're like, I get all my business from that website and I pay$35 a year for a subscription. And so my co-founder and I decided that we were going to try to buy the website, make it better because this was 2008 and the website, you couldn't log in and manage your own profile. So easy things like that, like, oh, we'll just make this. It'll be super easy. And then expand it out of woodworking into other things custom. We raised venture capital and we moved from focusing on a listing service to focusing on a marketplace where we took a marketplace fee for everything that went through, which wasn't really a good idea.

5:45Why not? I mean, that's the eBay, Etsy, right? The challenge with the idea was a custom transaction. Like if you're going to get a custom dining room table, you want to do a tremendous amount of back and forth with the maker. And you think about these makers, they're not necessarily tech savvy. This is like 2011. Not necessarily tech savvy. Might not even have a cell phone yet. And we're asking them to interface with a consumer on our platform so we can keep the platform fee. It didn't work. They were just going around the platform. They were going around the platform. They were complaining that they had to be on the platform.

6:20They didn't want to pay the platform fee once the transaction had happened. They thought it was unfair since they had to do so much work. But we had raised money on that idea. So in 2011, we went out and we raised money from Google and First Round Capital and a few other top shelf VCs. And they bought into the marketplace concept. and it became pretty clear that the marketplace wasn't going to work. But we couldn't go back because we had already chosen the train of marketplace, VC capital. And it wasn't going to work because on Etsy, for example, the product choices are limited. There's only so much customization or even on Airbnb.

7:05Like, you know, you may need to communicate with the host about, can we get an early check-in or whatever it might be? But it was the level of the customization that made it hard. Yeah. If you think about what most people think about with custom, it's like you can monogram the thing. That's it. My co-founder actually still runs custom made. It's now a jewelry website and you can fully customize things, but just in jewelry. And they now do all of it themselves. That's a much easier, better way to do it. We had 60 people at our height. We were burning like half a million dollars a month and just, you know, flooring it towards a wall that we kind of all saw.

7:42Why was there not a pivot available? Like, I mean, if they pivoted the business or evolved the business sense, what was happening when you were you were accelerating toward that wall and you could see you're going to slam into it where you couldn't hit the brakes or, you know, jam the steering wheel to the left? It was so attractive, this idea that you could be a marketplace for custom stuff. And that's what we sold our venture capitalists on. And we raised about$30 million. Because at the time, Airbnb, Uber, there were all these like third party marketplaces that had sprung up and they were doing really well.

8:12So when we wanted to go back to a listing service or some sort of other model, we got a lot of pushback, a lot of like, that's not what I invested in. I didn't invest in a listing service. I invested in a marketplace. If I had been older and wiser and better, I probably would have said, I don't care. I'm doing what's best for the business. But that's not how it happens. If an entrepreneur were coming to you today under these circumstances, it sounds like your advice would be like slam the brakes or like grab that steering wheel and twist it if you know it's going to fail. Yes, but it's very hard.

8:46So what they don't talk about is the, you know, the phone calls where if you guys don't do what we say, you're probably going to be blackballed. You probably won't be able to raise money again. You know, you're dealing with these powerful venture capitalists and they can get in your head. I just want to spend one more minute on this because I think that this is an under-discussed challenge for founders where they go sell investors on a vision and a dream. That's what the investors buy into. You're operating. And as you're operating, whether it's a design problem or a product problem or a business model problem, you realize that something material to what the investors bought into actually isn't going to work.

9:26And so how does a founder stay in integrity with themselves? How do they fulfill their responsibilities to their stakeholders, to their team members, to their customers and partners, while also dealing with potentially some of those powerful VCs in the world saying, you do it our way. Yeah. Or basically, you'll never work in this town again. Yeah. I mean, I think that that's really hard. I would say that I lost my integrity. I knew what was, well, I thought I knew what was better for the business. but when you have you know top vcs telling you not it wasn't always a threat but it was just like no this is the way you should do it you know as somebody who is young was my first company i was like okay well they must know better than me i talked to lots of people who are trying to raise money these days and i try to tell them that there is a path of bootstrapping which i'm happy to talk about but you go out you try to raise money we we went on about 75 different pitches uh and then we got a check.

10:27Right. And when there's that dynamic, you don't really think about the person that you're going to be locked to for 10 years, but you don't, you don't go through the whole, you don't really go through the dating process. It's like, Oh, they'll give me a check. Okay, great. Like I'm tired. I should take that check. I need the money on it. Yeah. And so you don't really necessarily think about what happens if this goes sideways. And we had a lot of, uh, we had negotiated really well. We had a lot of like rights, like they couldn't overthrow us. They couldn't outvote us. But even still, a lot of pressure for us to kind of do what the original plan was, even if it didn't seem like that was going to work out.

11:05What happens to end your time at Custom It? We ended up doing a transaction with Wayfair, which was another business in Boston. All of our employees were able to get a job at Wayfair, which was nice, except for me. Uh, and yeah, we, we had a party and, uh, closed the gate. It was this big iron gate and put the lock on it. And that was it. That was the end of it. And, uh, that was right before Memorial Day weekend of 2015. Okay. And I had been, um, buying a lot of grass-fed beef, uh, because my wife and I were trying to clean up our diets. And so then I just started asking the question, like, how would you deliver meat to someone's house?

11:46And Omaha steaks had been doing it for a long time. So I knew there was like a way to do it. Just couldn't figure it out. When Custom Made closed, I took the weekend off and then decided that I was going to start, I was going to spend the summer trying to spin up this concept of delivering meat to your door. So you gave yourself a whole weekend of a break. It was a long weekend. Yeah. Okay, fair. All right. Three-day weekend. Right. Memorial Day. Here we go. Yes. It just felt like that opportunity was like, I needed to move on immediately. What was telling you? Was this head? Was this heart? Was this gut?

12:17What was animating you to say, F it, I'm going to get going? I think it was heart and gut because rationally I was burned out and that was probably a bad idea. I really wanted to like keep doing business, but I wanted to do it differently. I wanted to do it my way. And so even when I started ButcherBox and to this day, my Fridays, I stayed at home. I was like, I'm not working on Fridays. I'm just going to like hang out with my daughter. um and so i tried to build in the breathing time in the space of um starting the company when you start a company uh in my in my experience at least there's there's not that much to do right out of the gate during that time during that summer i was um working out twice a day i was spending a ton of time with my family i was i mean this one's completely counter to most people's idea and i think a lot of people's experience yes starting a company yes because Because it's not like you were pre-product, right?

13:14I mean, you at least had some of your supply chain T-Dub. The big unlock for the business was I met the former head of operations of Omaha Steaks. Okay. Who was like, I can introduce you to some people. And he introduced me to one place in Wisconsin, which cut meat and also shipped it out. So it was like a one-stop shop. Okay. In the summer, we spent trying to figure out what a Kickstarter campaign would look like. So we launched on Kickstarter. my idea was I'll put$10 ,000 into this business for everything. And if it doesn't work, it doesn't work. And the Kickstarter will tell us if this is something that customers want or not.

13:51We'll get some product market fit signal very quickly here. Yes. Yeah. And when we launched, fast forward to September, we launched in September, we went out to raise$25 ,000. And I think at the first day we'd raised$50 ,000 and did$210 ,000 within 30 days. So it was like, whoa, there's a there there. Looking back on it, can you see what hit? Why did the Kickstarter community leap on this? For one, our timing was incredible. I think that's an oftentimes not talked about thing in entrepreneurship is like timing is a big component of your success. Two days before we launched the Kickstarter, Consumer Reports, the cover story was the case for grass-fed beef.

14:31So it was like... Pretty good timing. Yeah, pretty good timing. Yeah. So you launch on Kickstarter, you have this pretty exceptional momentum. What had you learned from CustomAid, aside from the investors piece, which I want to come back to next, that informed how you built culture and team at ButcherBox? Yeah. So, I mean, the first thing that I did that I think was really important was I hired an intern. Mm-hmm. So on that Tuesday after Memorial Day weekend, I had a college freshman knocking on my door at 8.30 in the morning saying, okay, what are we doing? And he was gonna work all summer for me for$10 an hour.

15:18It turns out that Bobby now tells the story that the only reason why he applied was I was the only job that didn't require a cover letter. So he's like, perfect. Sent in a resume. I think it was like, I might've been the only resume I got, but I met him. I was like, this will work. And we just, uh, we, we started working together. And I think it's important because I oftentimes meet founders who, uh, they, they believe they have to do everything. And if you believe you have to do everything and you aren't willing to outsource anything to anybody else, um, you will work 24 seven. Uh, the trick I believe, even when you're starting out is to bring people around you, know what you're good at and bring people around you.

15:58So I had the benefit of, I had been the CEO of a 60 person company. I kind of knew what that was like. I knew what I didn't want to repeat this time, certainly culturally. But also I knew myself well enough that if I had to like just start working on Tuesday myself, I don't think I would have like launched this thing. I needed energy and people around me to like kind of push me through the doubt and the failure and all the, all the things I was carrying with me. If the ButcherBox story were starting today, would a Bobby GPT be as valuable for you as Bobby the Babson student was? One of Bobby's biggest ahas for the business was, so as I said, we were going to ship grass-fed beef in the mail.

16:43And I was like, why don't you stand outside of Whole Foods, pretend you're a student, and just ask people would they ever get this delivered to their door? and he came back and was like, yeah, no, like no one's gonna spend, the price was$129. No one's gonna spend$129 a month on beef. But if you offer chicken or pork or seafood, they will. And so all of a sudden we went from like, we're doing grass-fed beef to actually we're doing everything and we're gonna compete against the butcher. I don't think Bobby GPT would have gotten that. I think you needed a human being to figure that one out. When you've built substantial wealth through your business, it's often tied up in a single equity position.

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18:06I'm Rana Elkhaubi, and on my podcast, Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future, and we take you behind the scenes of the AI that's transforming our lives. Find Pioneers of AI wherever you tune in. Hey, listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday, we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely, from Ford's CEO to NASA's administrator, to the lessons from the Devil Wears Prada.

18:59It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. You said that you started building with cultural principles that included what you learned from Custom Made. What was key in terms of what was different there? There's this idea that startups are like hacking through a jungle with a machete. At the very beginning, what you need are people who are willing to hack aimlessly because you don't know where you're going, but just like work night and day and just keep hacking until we find a path.

19:36And then you're just like, oh, okay, here's a path. Like, let's take the path. And then you start needing like some people with a little bit more experience. Maybe they know how to use a compass or they know, you know, and then eventually you get to a road. And when you get on a road, you kind of need people who know how to drive cars. If you just go for the car drivers, then you lose the hacking culture and not hacking like computer, like, like coding, hacking, like you're willing to do whatever it takes to get this thing off the ground. My first company with custom made, when we raised venture capital, um, we essentially turned around to our team and we're like, none of you know how to drive a car, do you?

20:17Uh, we have to leave you here in the jungle. And so all these people who had worked for three, four years to help us build something really great and fundable, we left them. And we went and hired people who had worked at AOL and had really fancy resumes. And the reality is you need a mixture of the two. That's the big lesson that I learned at ButcherBox is you don't want to just have people who have a lot of grit and no experience. but you also don't want just people with a lot of experience because they kind of forget the grit as they go along. Well, particularly if they've, if it's big company experience and they're used to like, Oh, I did one thing this week.

20:57Right. Right. Everything's I'm great. Process. Process. And it's like, we hired people as if we had product market fit and we didn't have product market fit. And so this time around, I was like very focused on taking the people, like taking risks on people. The group of people who started with me, like had, no one had any experience. We had no experience with meat. We were just like, let's do this. And for whatever reason, I sniffed out grit in each of them, whether it was they were a D1 athlete or they had some sort of like, some sort of chip on their shoulder. Hired my first meat person a year into the business.

21:35And he was 65 and had retired. He had worked at BJ's for 27 years. And he represented this like, kind of like a ton of experience. But what I found with older people is, which I still think this is a great way to run a business. what I found with older people is like, there's really no ego. They're not, he's not trying to build his career. He's just like trying to do something meaningful and fun. And so to pair him with somebody with no experience and a lot of grit was like magical. I called it the barbell strategy. So there's like, you know, you have two ends of the barbell and really like nothing in between.

22:16There was very few people who were like mid career at the beginning. It was either early career or end career. It sounds like my, the, the initial thesis, um, none of this is easy, but it is more of a straight line to say we're doing grass-fed beef that's what we're doing yeah bobby comes back from his whole foods you know survey trip and is like mike like we kind of got a problem here right like we need to do chicken we need to fish we got like that's what people are saying they'll buy yeah that it feels like that is um orders of magnitude if not exponentially more complicated how did you approach that expansion it doesn't sound easy Yeah.

22:54So the question around what's the equivalent to grass-fed beef in other species, there's a better way to raise an animal. So people were looking for that back then. We actually didn't start with seafood. We launched seafood maybe a year later because it was too complicated. It was pretty clear what claims people were looking for. But the facility in Wisconsin that was doing all of our product was able to do all three of those species. And so when we launched, launched with a Kickstarter, it was you could pre-buy a box and we had some other goodies and prizes as well, but you could pre-buy a box and you would choose your species.

23:28So it would be either all beef or beef and chicken or beef, chicken, and pork. Those are the three options. And because we didn't raise any money, the idea was we were just going to send you whatever we wanted to. We were just going to send you what we felt was a great value for your subscription. But really the reason why I did that, and I believe that you need to constrain yourself, like constraining yourself is really important in entrepreneurship. I didn't want to have, hey, you can just choose whatever you want because then you have to have inventory. and so we had seen blue apron we had seen the hello freshes and the blue apron lookalikes that were all just shipping whatever they wanted to i thought that could that could work um and so we yeah we launched with a uh curated box the butcher selections um and all people chose was the species right right but it's ultimately you get what you get and you don't get upset kind of yeah and if you do get upset then um we'll do better next time because for us as a subscription business subscription businesses are great because if you delight the customer, you keep them and then you get that revenue next month.

24:37And so all we were trying to do was build the best boxes possible so that people stayed. Yeah. I mean, committed monthly recurring revenue is a really beautiful business model. It sure is. Yeah. It's tough. It's a, it's a tough, it's tough to delight your customer, but it certainly puts your focus on the exact same thing the customer wants. Yeah. Well, and, and, and it's not truly committed, right? I mean, you have to earn it every month. Right. That's right. What happens next? You have this successful Kickstarter campaign. You've got money in the bank. You've got a facility in Wisconsin that's able to fulfill.

25:10Now you got to build and run a business. So what happens next? Yeah. So the Kickstarter was a 30-day campaign, and then we immediately launched our website. And it just kind of started working right away. I mean, the first week we probably had, I don't know, 30 people who signed up, and then it was 50, and then it was a couple hundred. and we shipped out our boxes early to all of our Kickstarter people and then called them all up, which I didn't do because again, I wouldn't have done that. But I found some guy who made 400 phone calls or whatever it was. And he's like, just checking in. Do you need any recipes?

25:54By the way, we're a subscription business. Do you want another subscription? And so he was able to convert 30 % of them. took, I don't know, four or five months to get a thousand subscribers. And a thousand subscribers, when you're doing$129 a box is, you know, that's a, you're already over a million dollar business. Yeah. And so at that moment, I have to imagine you've got some investors who are going, well, like, you know, there's, there's some early signs of product market fit here. You got a million dollar run rate and growing. Are venture capitalists starting to reach out? Yes, for sure. Including the ones that I had just lost their money.

26:36Actually, that was a really, really important moment for me. And I think for people to really understand is you talk to these venture capitalists afterwards and they're like, no, don't worry about it. Most of these go to zero anyway. They didn't care at all. All this guilt I felt about how I was losing everyone's money. They're like, yeah, it happens. Can I invest in your next thing? You know, it's like literally that easy. Yes, there was a lot of external interest in the early years of ButcherBox. So whose money did you take? I didn't take any money. Oh, you didn't take any money? Yeah, no, no.