Local veggies, national scale: Sweetgreen co-founders

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1:19August 1st, 2007. Anything that could have gone wrong went wrong that day. Oh, no. I think it was a few days before that, that we were opening. We had the laptop with all of the recipes that we had stored on it, sitting in our apartment, and it got stolen. And this was before the cloud. And so we had to spend the last 24 hours before we opened trying to re-memorize all of the recipes and sit in this kitchen all day to kind of reformulate them, whether it's the dressings, how we put things together.

1:55We had this thing called Sweet Float, which was our organic frozen yogurt. And it had a very specific recipe in the ratios. And I just remember we'd figured out everything else, but that was the last thing. And I just still have this burning image in my mind, Nate standing over the machine. All night, he's putting together different recipes. His hands are like deep in the machine. We have to clean it and keep doing it. And I remember like right before opening, he pulls it out. He's like, I think this is it. And we're like, all tastes were like, okay, that's it. and that was the recipe. We just had to push through and it was kind of that gauntlet moment for us to kind of say, hey, we're going to do this and even if it's not 100 % perfect, showing up and just opening our doors day one was a really big milestone for us.

2:44That's Jonathan Neiman and Nathaniel Rue. Along with Nicholas Jemais, the three are the co-founders of Sweetgreen. For the few of you who don't yet know it, Sweetgreen is a fast, casual food chain focused on fresh salads, green bowls, and other healthy food. This near-disaster story of day one, location one, stands out. Because from the outside, theirs is a straight, up-and-to-the-right unicorn journey. Nick, Nate, and Jonathan founded Sweetgreen in 2007 as seniors at Georgetown University in Washington, D.C. That first restaurant was tiny, just 500 square feet. Since then, Sweetgreen has grown into a public company and has a market capitalization over$2.5 billion.

3:26It's a scale story full of setbacks, including that harrowing laptop burglary that led to invaluable lessons. The three co-founders have grown as leaders, bringing Sweetgreen from a dorm room idea to an American success story. That's why we've invited them to share their journey on Masters of Scale.

3:50You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

4:28I'm your host, Jeff Berman. Before I sat down for a conversation with Sweet Green co-founders Nicholas Jemay, Jonathan Neiman, and Nathaniel Rue, our producers and I went to one of their L.A. locations for lunch.

4:45Can I get a miso-glazed salmon bowl? Great. I want it the way God intended it. Yes. To go, please. Yeah. Thank you. That's great. Yeah, thank you.

5:09Just one's fine. Yeah, thank you.

5:14We're at Sweetgreen in mid-city Los Angeles on La Brea. I've been going to Sweetgreen for probably close to 10 years now, essentially since they opened back in Washington, D.C. And it's kind of mind-boggling to think that they now have more than 200 locations nationwide, more than 6 ,000 employees, I think the first salad unicorn the world has ever seen. You're so kind. Thank you. Thanks, Karen. Appreciate you. Have a great day. Lunch devoured, I went to sit down with the company's three founders, Jonathan, who's now CEO, Nate, head of marketing, and Nick, chief concept officer. I told them their work is literally in my DNA at this point, given how much sweet green I've eaten since I first started going to their original store in DC.

6:04The three guys know each other and work together so seemingly well that they rarely talk over each other. but they do pick up each other's sentences. So I'd love to hear the story of how you guys came together as we start the conversation. This is Nicholas. So our story starts 20 years ago. We met as freshmen at Georgetown. We were next door neighbors in our freshman dorm room. And over the years, we bonded around some of the similarities we had in our lives. We were all kids of immigrants, parents that had come to this country and built business. And so we had all grew up in this context of our parents building businesses, running it, pouring their blood, sweat into tears into something.

6:46We also had this other conversation happening in our life of not feeling good about the options that we had around us to eat. And so there was this daily problem. And so we said, let's solve it. Let's write a business plan. And at the time, Georgetown was not the most, I would say, you know, encouraging of entrepreneurship. Everyone really wanted to, you were geared towards becoming a banker, consultant, more institutional career paths. And D.C. is not exactly the most entrepreneurial town in America. Yeah, all of that stuff. That was more of the culture of Georgetown. But the three of us loved the idea of starting something and solving a problem.

7:17And there was this one lone elective class with an adjunct professor, entrepreneurship. So we all took the class, separate semesters. And it really taught you how to build a business plan, how to think about creating something, reaching out for advice, creating a network of other entrepreneurs. And so we started writing the business plan. And so each of you took the class, but at different times. Had you communicated with each other about the class? Had one of you taken it first and like, you guys have to do this? Or was this total happenstance that you'd each taken the class? This is Nate. I think we all took the class, but the thing that actually bonded us even more was that actually all of our parents were entrepreneurs.

7:53They almost gave us the permission to say yes in a way where we were getting a lot of no's other places. And just knowing that we could jump off the cliff and like do it as three young 21-year-olds and having the support of our parents because we watched them was really helpful too. And so I can see why you'd come together given the shared family history and the foundation of this class, but it's not obvious that you would launch a salad franchise. So how did that become the idea that got you guys going in this direction? For me, I'd gone to, we'd all studied abroad somewhere our junior year. I'd studied in Australia and had just gotten back senior year from that experience.

8:35And one of the things that really stuck with me was the culture there of food and the lifestyle around being healthy. Like the cool kids surfed and skated and were healthy and went to these healthy cafes. And that was the cool thing to do. And it was such a contrast to how health food was viewed here in the U.S., especially at the time. Healthy food was not cool. It was this idea of like, let's create a tiny little restaurant for ourselves, our friends. we just counted how many, I remember we went, we were like, how many people do we have to serve in a day to break even? And we went and stood outside the other restaurants in the area.

9:07We went to the subway, we went to the Chipotle, we went to the buoy mongers, all these places with a clicker. And we literally counted like, okay, like they got 300 people in a day. How many people do we need to break even? And it really just started very, very small. And I think if you want to be honest, we thought it was going to be easy. We thought it was like, how hard can this be? We We found a location. It was right across the street from our dorm. It was 500 square feet. Tiny. I mean, this thing is a tiny little thing. And I remember we looked at ourselves. We're like, okay, we'll have this open by April 1st.

9:37It was October. We're like, we'll raise the money. We'll write the business plan. We'll go buy the food. We'll go buy the kitchen equipment. You're going to put it in. We're going to prep the food. And we'll hire some people and call it a day. And it was the middle of the recession. Yeah, and it was the middle of the recession. We're like, oh, well, you know, we'll design a cool logo and like a brand. And we'll be off to the races. to actually remember the landlord of our Georgetown, our first location, wouldn't even return our call. John called her 30 days in a row every single day. So she finally took a meeting just to stop the calls.

10:06And she ended up giving us a chance. She let us sign a lease. And in hindsight, we're like, wow, crazy for her to sign a lease to three students with no background and not much cash in the bank. I've heard a lot of other entrepreneurs talk about this, that if they knew what they were actually getting into, they would have never done it. I remember even when we opened the first one, at one point, we're like, we'll get to three. and then it'll be self-sustaining. It'll just grow on its own. And I think you underestimate how many micro challenges you have to solve. It's really so many different businesses within one business in order to be great.

10:39You have to master supply chain. You have to master real estate, construction, design, customer experience, technology. You know, today, automation. You have to be great at leadership and people. You know, there's so many things that you have to do. And I think for us, we've fallen in love with the difficulty. Because how hard it is, is what makes the moat. And what makes it so valuable and powerful over time. Adopting a mindset that your business will be successful is important. But what matters more is what you do when the naivete and rush of newness wear off and the challenges set in. It takes an infinite learner's mindset at that point because the challenges can seem insurmountable.

11:22In October 2006, the founders were all still finishing school. When they started to take the plan off of paper and into the real world, the feedback got more blunt. I remember the specific point where we thought originally that we could do it for$100 ,000. And so we wrote the business plan. It was Christmas break, and we all start to go to friends and family and all our old bosses to raise money. The average investment for us in that first round was about$5 ,000. We hired an architect, hired a general contractor, they sent us the budget. And the first budget was like, I don't know,$300 ,000,$400 ,000 or something.

11:57And we just looked at each other. We're like, oh God, this is not going to work. This doesn't make sense. We thought it was going to be$100 ,000 and open April 1st. And all of a sudden it was going to open sometime that summer and cost many times more than that. And I think that was really the moment where it was, okay, this is for real. I called my dad. And I pitched him this idea that I had with these two guys. And there's a long pause and he goes, Nathan, that salad dressing better be damn good. And then hangs up the phone. And that was my first piece of advice I got on the business. It's one thing to raise$100 ,000 from friends and family.

12:39It's a lot, and not everyone's in the position to do that. You guys were amazing. But now you need closer to a half million. So how'd you get there? Talking to a lot of people, hundreds and hundreds of people. It's a painful process, raising money, especially when you're unsuccessful in it, especially when you have to do it with a lot of people. But the value in it was sharpening your vision. We ended up getting about 50 investors in that first round to raise$300 ,000. That means we had to talk to like 50 people. So when you have to have 250 conversations, selling this vision, answering all these questions, it really, again, forces you to sharpen your plan.

13:17That was really, really valuable. We had to think about so many aspects of the business because people were giving us money and we had to be able to answer those things. They had hundreds of conversations to raise the capital they needed. When you're pitching your business, especially early and around, it's essential to urge prospective investors, including friends and family, to ask tough questions. This includes getting feedback from investors who say no. Not only did this experience help the trio hone their pitch, it forced them to take a deep dive into their business plan, helping them uncover problems before they reached more critical stages.

13:54Their persistence in incorporating feedback paid off. Sweetgreen opened at the end of the summer of the year they graduated. Yes, after the recipe laptop was stolen. They launched the restaurant August 1st, 2007. It did well enough for them to expand. Two years later, they opened their second Sweetgreen in D.C.'s busy DuPont Circle. It was going to be our flagship location, three times the size, three times the cost. And we opened our doors in April of 2009 and we had no customers. Nobody came. And that was another moment when we looked at each other and we said, shit, this isn't going to work.

14:36What went wrong? We were on the wrong side of the block. Across the street was one of the number one Starbucks in the city. And we just had to figure out a way to get people from that side of the street to our side of the street. That's when Nate had an idea. The only things that we knew how to do were to serve healthy food and DJ. And so we went to Guitar Center, bought a$400 speaker. We put it outside. We faced it towards DuPont Circle in the park. And the three of us sat out there. We played music. We passed out menus. We passed out samples every Saturday and Sunday. and it just created this kind of community vibe and energy outside that got people to come to our side of the street and so the next year we did a block party in the parking lot that we shared with the farmer's market which was really great free block party with local musicians and then we really wanted to throw a mini festival where you could serve healthy food and hear great music and we got linked up to the guys that produce 930 Club and they have a bunch of venues in D.C.

15:39And they sent us, you know, a few ideas. And I remember getting an email from them saying that, okay, the Strokes are interested in playing your salad festival. And we had this decision to make at the time where we had to push our chips in and say, we're going to do this big 15 ,000-person festival. But in order for us to do this, we have to sell it out. Otherwise, we're going to lose a lot of money. You're now in two of the hardest businesses in the world, by the way. Now we're in big music production. and healthy food. And we looked at each other. I remember that moment and we said, it's almost like a no-brainer decision because this is something that no other restaurant company would do.

16:15And we could think about it as like a, at the time, a content platform for us and a community building platform for us. And so we did it and we booked the Strokes in 2011, sold the whole thing out. And that's what became the Suite Life Festival, which we ran for six or seven years in D.C. I mean, I'll never forget the cover of the Washington City paper. The next day was the headline was something like, what the hell are three salad kids doing hiring the Strokes? And it was a full page article. And we're like, yeah, that's exactly why. And it started with 20 people, 30 people, 40 people. Ended with 25 ,000 people in a field at Meriwether Post Pavilion.

16:47But it was really the beginning of Sweetgreen starting to build this sense of community. And we're building something different that wasn't just another fast food brand. Sweetlife Festival ran for six years, helping build a large following in the D.C. area and beyond. The founders knew that simply offering a healthier alternative to the fast food around them was not enough. Sweetgreen would only reach the heights they aspired to if it was more than a restaurant. The founders wanted to build something that their customers felt emotionally connected to. An identity brand. The festival was a big gamble as a way to do that.

17:23But they were willing to take that risk because of how it could burnish and seal Sweetgreen's reputation. and gain an even more loyal following. By 2013, fewer than six years after opening that first restaurant in Georgetown, Sweetgreen had expanded to nearly 20 locations. Perhaps counterintuitively when it comes to blitzscaling, Sweetgreen did not want to franchise. They preferred a central ownership model. But that meant they needed to build their own foundation for scale. Very early on, we said we don't want to be a franchise restaurant Because if we do, we may lose control of the quality of what we do.

18:00We'd rather go a little bit slower and own the end-to-end experience to ensure that quality and stand the test of time versus opening the floodgates and selling franchises. But at one point, we got an offer from a very legitimate, large company that wanted to license the brand and put it in over 100 places. It was a very lucrative deal. It was so attractive. And, you know, at some point when you're in that business, you think that everything is a race. You're like, you're looking at your competition and you're like, oh my God, they're going, they're franchising. So they're going faster than us.

18:32They're going to beat us. It's first to market. But we, you know, thought long and hard and we wanted a business that wasn't just going to have this short-term pop and not be around for a long time, but something that could truly stand the test of time. Here's Nick. I think the foundation of the values is really helpful because it allowed us to make the proper decisions. Then as we started to build out our team, make sure that we were hiring people at all also lived by those values and made decisions in that lens. So much of how we operated those first three restaurants was very mom and pop. It was like farmer coming in the back door.

19:02And so we said, how do we put the right systems in place around the things that really make us special, right? So we had the values and we were trying to prioritize this food ethos we were creating around serving a different type of product. And so we really started to build, I guess, V1 of scalable supply chain according to the ethos that we wanted to serve. And at that point, we decided, let's go deeper in this D.C., Virginia, Maryland region. Let's really own, build a brand, master this model a bit more before we start spreading ourselves to all these different cities. And in hindsight, probably one of the best decisions we ever made.

19:32And in part, I assume, because you could work with the same suppliers, right? So you had some quality control. Same suppliers, understand what it looks like from going from 1 to 3 to 10 in a region and understand what that system is. And also, you know, you can wrap your arms around one region. You can get to every restaurant. You can be really thoughtful. Having restaurants around the country really early is just a whole different set of challenges. This level of attention to sourcing the highest quality local ingredients is an example of the values driving the company's scale strategy. The founding trio of Nate, Nick, and Jonathan prioritized environmental sustainability and more healthy eating at scale.

20:10But how do you scale a national business model that relies on locally sourced produce? After the break, we hear how Sweetgreen's early pattern of steady growth gave way to a new strategy and big changes.

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21:58So if you're scaling, make it simple with Deal. Go to deel.com slash MOS and get up to three months free. We're back with Jonathan Neiman, Nathaniel Rue, and Nicholas Jermay, the co-founders of Sweet Green. To watch the extended conversation, head over to our YouTube channel, where you can find this and more. Before the break, the three co-founders had decided that rather than go national right away, they would grow in the D.C., Maryland, and Virginia area, known to locals as the DMV. When they did enter new markets outside the region, it was with careful planning. Here's Nick. We wanted to build enough confidence in the model and the brand before we went to some of these larger cities.

22:43And building the brand over the first couple of years in just, you know, we got to around 20 restaurants in D.C., Virginia, Maryland. We'd gone to Philly, so a little further, really understanding what a second city feels like. And we made a bunch of mistakes on how you hire, how you operate remotely, how you build a second supply chain, how do you build a brand from scratch in a new city. All these micro learnings that really allowed us to, once we were ready to go to New York, Boston, California, go with some set of a playbook, some sort of belief of how we introduce Sweetgreen the right way in a new city.

23:14New York is just a whole different type of operation than what we were used to. And we wanted to almost start from a blank canvas and say, if we were redesigning this concept for the future and thinking about future-proofing Sweetgreen for New York and then beyond, what would we do differently? So we hired a brand new architect. We hired a digital agency to help us build a mobile app that was kind of first of its kind, a mobile order and pickup, which was new for Sweetgreen. And so we spent almost a year and a half in 2012 and 2013 building a new concept. And when we launched New York and Boston, I think in the summer of 2013, it felt like a different business and it felt different than the competition.