20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

22:56But once you've gotten those people, and by the way it's like 2 % of the United States are predisposed to eat grass fed beef, If you want to keep growing, what do you do? You have to actually create a market. And so then that becomes like, it's not just like, oh, they're searching for Grass -fed beef and you put up a Google ad and you get them to your site and you sign them up. And it's cost 30 bucks. It's like, oh, we need to run like a brand campaign around like all the benefits of Grass -fed beef and that just costs a lot more money. And so over time, you see these businesses, CPA goes up and up and up and up.

23:24We have one of the challenges of a subscription business is you get into this paradigm where you have so many subscribers and even if you focus on churn, like a pack of hungry dogs, even if you focus on churn, you're going to churn people. And so you get into this scenario where you're losing so many people, it's hard to add them and the CPAs are rising. So your business over time just gets worse and worse and worse. How do you advice founders on calculating CPAs? Because your CACs vary by channel is blind. That's the way to show CPAs and more people. It's a lot. I think that the easiest way, which is low lift, is to take all of your marketing expenses for the month.

24:02So when you see your P &L, and it's like, we spent this on Facebook and this on Google, and this on whatever, take all of those costs and divide by the number of people you signed up. Some places, some PE shops want you to then load in your marketing spend as well. Now, that doesn't help you decide to deploy more dollars towards Facebook versus like Google, right? but it does help you understand in the aggregate what happens. Because what happens is somebody's on Instagram and they see a thing and then they decide to search for it and then they forget about it and then they go directly to it and a truly functioning attribution model is really, really hard to build.

24:34It's almost impossible. And then this scientific data that says almost an average of seven touch points with a brown needs to a conversion. So it's like, was it the Facebook out at four or the Instagram picture at seven which led to the conversion? Right. Instead of going down the road of like, oh, we need somebody to measure this day in a day out. No, just divide by the number of people that you signed up, and that's your number. We're going to make this the best fucking show ever because it's going so deep, which is going to help a lot of people, I think. I think one of the things that I find interesting is channel spread and difficult for farmers.

25:04They try to be everywhere. How do you think about channel concentration and where to deploy dollars and lessons from that as you say? Yeah, butcher box. So I have an analogy of wild cutting for oil, probably not how wild cutting for oil works, but when you go out wild cutting for oil, you have a small, cheap shovel and you just dig some holes, right? You think this is going to be a fertile ground and you dig some holes. You want to make the holes small, you want to make the holes cheap, you want to make the holes rapid. When you start seeing oil bubble up through that hole, time to build the rig.

25:34But don't build a huge rig. Don't like get the, you know, the massive rig, get a small rig. Maybe you hire one person and that person is going to be responsible for extracting the oil out of there. And then it's like, wow, we think there's a lot of oil here. It's like, cool, build a bigger rig. You basically build and build a build. At a certain point, you bring in the fracking technology and you're trying to extract all the oil possible from the thing. But you as the founder don't really want to go wildcading until you make sure that that rig is being manned, that somebody is on that rig, that they're actually working harder on it than you can before you move.

26:07So for us, our first thing was influencers. We started with a Kickstarter campaign where we raised $215 ,000 in pre -orders. We reached out to all these like anyone who had ever mentioned Grassford Beef on Twitter and we were like, hey, we're launching this company. And one guy, this paleo doctor from California, during our Kickstarter campaign was like, this sounds like a cool idea and tweeted it out to his audience. And we just saw a flurry of people sign up for the Kickstarter campaign as a result of that. really, we'd still do it today, but over the next two years, we focused on influencers and anybody who had written about paleo diet, the importance of grass fed, the importance of treating animals right for like your own personal health.

26:48Reach out to all of them, sign them all up as like affiliates where they would send an email to their audience and then get a commission every time the person's box came to their door. And we didn't even move to really anything else for two years because it was so fertile and such a big market. And frankly, that we didn't have a lot of money. So we also paid people on a residual. It wasn't upfront. So it was a really great cash conservation technique for us. So residual meaning that they got paid on monthly completion of payments. Right. Instead of paying somebody like, hey, we'll give you $10 ,000 to sponsor your email.

27:23We would say, hey, send an email to your audience. Have them click on this link, which is like your unique URL. We'll do a special offer for your audience and anyone who signs up will give you like, call it $15 or $20 a month. Every time they get a box, you get $20. You know, again, this is like one of those, like, what are the core decisions we made as a company and like, how did it end up? Because we didn't raise money, we didn't have $5 ,000 to pay this person to send an email. So we're like, yeah, sorry, we can't do that. We can do this. And what happened was, we kind of stumbled into this really interesting moat where other competitors have come along and the people who talk about butcherbox don't really want to write about anybody else because they'd be messing up their income stream.

28:06And so we just built this community of people who were early on grass fed. They were the ones really pushing that and we were able to sign them all up in a very short order, which was like really the zero to a hundred million was influencers. So I was going to ask that was my thing. You said to you is in that's pretty much what you did. What revenue was that when you decided to add new channels? We went like Kickstarter in a little bit. So we did like 300 grand the first year, 5 million the second year, 33 and then 105. In between the 33 and 105 is when we did Facebook. So I kept the CMO of HubSpot on the show and he said, you need one channel really humming.

28:43You get 50 million in revenue. And you need two to get to 100. So pretty much chorus. Spat on. OK, so taught me through the second expansion on channel. And how did you know it worked? Because I think the other thing is people who continue with the channel that doesn't work for too long. If you're not funded, it's hard to do things that don't work. You got to start with small budgets, figure out what's working, be open and honest with, like, is this working, is it not working? When we started, certainly for the first year, maybe two, we wanted to be what we called the box one profitable, which means we're going to ship a box and we're going to make a margin on it called $20 or $25.

29:23We need to acquire that customer for cheaper than that box. But then the margin. because otherwise you're upset down you can't make any money. So you start with that constraint, which is a lot harder to do these days. Like if I was starting a company now, it would be hard to do Box One profitable. I'm sure it's out there, but it's hard. It's changed the types of people who can start a company like this. You know, the influencer market has changed, the social media market has changed. Like there's a lot of changes that's happened. You run Box One profitable, then you can shy into Box Two. If you put it on a credit card, you don't have to pay the credit for 30 days, so you can actually pay for that customer after they've got two boxes, and we know the percentage of customers who are going to get two boxes.

29:59And so we did not have the luxury of having things not work, because we had to make sure that our CPA was under box one. This is what I think people forget about margin, which is the higher the margin that you have, the more you can spend to acquire that customer. Absolutely. It's a beautiful thing. I don't know if you've ever read it, but I'll send it to you if you haven't, but it's a beautiful economic study on the manufacturing of Dr. Dre headphones and how they're high margin status means you can spend a lot of money on sports athlete endorsement. Right. Sorry, I'm going in the weeds. What were your margins then at the beginning and what are your margins today?

30:34The way that we talk about the business is actually what we call dollars per box. And I learned this from the head of operations of Omaha Stakes who helped me start the company and he was like, you should just be worried about dollars per box. What does that mean? A box that leaves your distribution center, how many dollars are you making off the box? The gross margin percentage doesn't matter nearly as much. It obviously drives your dollar per box, but I think the most important thing for people who are starting these companies is to think about dollars per box. You know, I invest in a lot of these companies, I advise a lot of companies, kind of box subscription companies or D to C companies.

31:08I don't think you can make a go of it if your dollar per box are under $30 per shipment. Wow, that's $30 you make. Push it. Yes, and that's in a subscription business. Because right now it can cost $140 to $150 to acquire a customer. That's a five month payback. Yes, higher margins absolutely helps. And in our space, in the meat space, you're competing against grocery stores who they're not large margin businesses. We started at $20 a box is what we were trying to make. Every shipment, we were shipping out of one facility in Wisconsin. Every shipment that went to the West Coast, I think we were losing money on because it was like a five day ship with 35 pounds of dry ice.

31:46We could only ship on Mondays and it would get there on the next Friday. But we knew we were gonna open a West Coast facility. It was just a matter of getting enough volume to get the attention of somebody on the West Coast. And so as soon as we made that change, maybe our average went from 20 to $25, just like that change alone. And then you just march up that number. Okay, so you march up that number, sauce at 20. What is the dollars per box that like today? Depends on a whole bunch of factors, but let's say like north of 50. Okay, so we have 50 then say there. How do you work out? Ultimately, we want to get to our payback period as well.

32:18But how do you work out your LTV? Because we don't have that much data in the early days, as very variable rates of churn. What's been lessons in terms of how to figure out LTV accurately? Well, your LTV doesn't matter as much if you say we need to be box one. Well, it doesn't matter at all if we need to be box one profitable. It doesn't matter as much if you're like, hey, by box one or two or three, we're profitable, right? It's a hundred day payback period or whatever that is. Then your LTV doesn't matter that much, right? Because you're taking a bet that after three months, which in subscription businesses is debt generally like where you lose a lot of people, you're taking a bet that you'll keep some of them and they'll keep paying.

32:58So the way to look at it is really like how fast can you pay back your customer acquisition cost? Oftentimes people get into trouble with customer acquisition costs are going up. It's like, yeah, but we need to do this. We need to dominate the market. And it's like, yeah, but it's unsustainable. like it doesn't work, like you're not gonna make any money doing this. What we all pay back is at the beginning. The day that they purchased, we'd made money on them. Are you box one profitable today? No. That'd be fun. No. Is it a mental challenge for you? And is it a mental challenge that founders will have to overcome going from box one profitable to accepting actually a four month payback or five months?

33:34How did you get over that? You get over that because by that point, you've seen enough game tape to know like how your cohorts are doing. So what do they look like after a year or maybe you're starting to see after two years and you start to see the return Profile then it makes all the sense of the world's invest in our business So we were profitable so if I don't deploy a dollar and it drops to the bottom line Which obviously we want a healthy amount of profit for whole host of reasons But if I don't deploy that dollar and it ends up as profit Joe Biden's gonna take 50 % of it 50 cents on the dollar Okay, that gives you even more motivation to like redeploy it into marketing where at least I can see a return a 2x return a 3x return Like you see this return and if you think about it this is what I love about subscription businesses It's like such an interesting Securitized investment right because it's it's over Hundreds of thousands of people or tens of thousands of people that you're signing up.

34:27You know the return profile You know the things that you're gonna do to improve the return profile by negotiating the price of tape or whatever else you're going to do. And so it just becomes like a really interesting investment. Box one profitable was, what do you pay back today? They're like five months. What are the single biggest moments of churn in a customer's life you've seen? Is it after the first box? Is it a year in? The first three months are the most important. It's where you can build a habit. We ship meat in the mail frozen and generally that meat goes into your freezer. One of the challenges we have is people at least in the US, they think about their freezer as like a savings account and the refrigerators are checking account.

35:07So because of the defrosting issue, we actually have a customer who needs to get into a pattern. So for us, the first 30 days, it's big turn 30 days, gets a little smaller, gets a little smaller. If you get them through that first 90 day hump, you have a customer who will stay with you for a very long time. And so we do a lot of work trying to empower our customers and our members to cook awesome meals at home. Interestingly, we actually see a huge amount of turn right after people purchase. So there's a whole cohort of people like who don't want a subscription and so they sign up and then they cancel They literally cancel right after signing up and they get that one box But they don't want to have a subscription blue apron used to force people to receive the box before they cancel It's like, oh, you can't do that yet You have to like wait until you've received the box to cancel to like kind of make it a little more hard to do We don't do that.

35:56We just allow people to cancel the next big hump is when they receive that first box if anything goes wrong or if they just don't like it or they're like, this isn't worth it, then they cancel. And then the next big hump is on day 27, when we send you an email saying, hey, we're gonna bill your card in a couple days, make sure to add these different specials and whatnot. That's the next big hump of people. Why, why is I never get why people send that email? You're basically reminding me that I'm paying for a set of. Yeah, I mean, we didn't to start with the problem is that you get an influx of customer service complaints because people are like, I didn't remember, I was on a subscription, please don't send me this box.

36:30I'm going to do a charge off of my credit card. So you really like piss people off. And if you have a product that is actually providing value to the customer, like we talk about margin, but really margin is just a measure of like how much value you're providing to the customer. If you provide something that like the customer likes, you shouldn't have to be scared about letting them know that you're going to send them another box. We believe you should be opening on us about that, especially because you're just going to get a bunch of charge offs and a bunch of customer service nightmares that you could avoid by sending an email.

36:58Help me out them, Mike. I'm an investor. I look at many consumer subscriptions. What is good, really good, amazing for turn numbers on one month and one year? Turn wise, for a long time, we were about 1 % turn per week. And that we thought was really good. So that means every week, if you have 100 ,000 subscribers, 1 ,000 of them are leaving, and it means you've eroded in the course of a year, 50 % of your revenue. I'm an enterprise software investor. I've just thrown up in my mouth. Oh, yeah. Well, yeah. No, enterprise software is totally different than that. Totally different. You're looking at something a lot smaller than one percent a week.

37:36The enterprise software model, which is similar to the model of box subscription or any direct to consumer, you want to march them up in terms of how much additional stuff they're putting into their box, right? So over time, you satisfy some of your turn or you change some of your turn by your really good customers adding more to their box, which just and getting boxes more often and whatnot, right? Turned dynamics and enterprise sound way better than the turned dynamics and direct to consumer. What has really worked for you in terms of that AOV expansion, AOV for people listening, average order value, or like basket expansion, I'm sure you do the same.

38:12What's really worked for you in driving power order up? Yeah, what's great is what's worked is also very much an alignment with what our customer is looking for. And that is super well priced deals above and beyond your box. So you get your custom box from us, you get your six cuts of meat in it. We have like a whole member deals and a whole catalog and those things are priced to beat retail. So we want you to go in there and be like, oh, I'll pick up one of those and one of those. One of those, that has worked really well for AOV. And oftentimes the retailer is doubling the price that they buy for wholesale.

38:46The general rule if they buy like, you know, chicken breast for $3 .99, they're gonna sell it in the store for $8 .99. we find that we can provide a better value to the customer than they can get at the grocery store. When you see me kind of fade out of screen, it's because I'm literally writing notes. Businesses that I love are those that have pricing power with scale. I always like businesses to get easier over time and many don't actually. When you think about your ability to get pricing power over time, how do your cost per meet cut change with quantity? Does that change much? Yes. It changes a lot.

39:21What does that actually look like? So meat is all about efficiency. So somebody who's cutting like a pallet of rib -eye steaks is gonna charge you one price versus somebody who's cutting a whole truckload of rib -eye steaks. Not to mention if you have distribution centers and you need to take those rib -eyes across the country, it costs the same to run a truck half empty as it does to run it fully full. It's the same price. And so where you get a lot of efficiencies is your runs are bigger, you're moving trucks around better and logistics is a massive number, just moving stuff around. Not to mention your pick pack ship operation should be cheaper.

39:56The boxes that you're purchasing should be cheaper with scale. How much cheaper does it get on the actual, if we think about the biggest point of margin compression which was the meat, how much cheaper does it get when ordering at the scale you are now compared to the early days? Is it 20 % cheaper? Yeah, we brought in a meat guy a year and a half into the business and we're like, here's what we're doing. and he's like the price that we were paying for a pound of organic chicken. I can get three pounds for the same price. You want to do that? We're like, uh, yeah, we should do that. I mean, we were paying way too much.

40:28People were definitely taking advantage of us until we found this guy Mike who who came on board and really helped me become a meat buyer. So that's 70%. That's pretty great. It's amazing what people who know what they're doing can actually, you know, do to the business. In terms of like cohorts, what do you look like really great cohorts? What are the attributes? What are the key features when you look at yours? What concern you? How do you measure cohort health? Yeah, that's a great question. To be honest, I think that we don't do a good job at this as a company. Because you haven't raised VC money.

41:01Yeah, exactly. I mean, if we had some VC's in here, we'd know how to do things. Dude, I'm right here. We tend to look at things in the aggregate and it's a mistake. Oh, we signed up X number of people this month. They're Hey, this is like a stream of our best people. Like they should be treated this way or we should be doing this for this cohort. We're pretty behind in that area. We know that the best cohorts that we can get are referral cohorts. And in terms of like where we wanna go as a company and in terms of where we wanna focus as a company and in terms of how do you get value out of these things, you hit this point with subscription businesses where it's really tough, which is where we are.

41:40I think referral is your way out. Use our members to help bring in other members. How do referral code acquisition customers differ from alternative acquisition customers? Yeah, so referral customers tend to perform really well. Because like an additional box in year one and they stay for longer, the only customer that's better than that is like a paleo keto influencer -related customer. Let me go up back a step. We've seen D2C funded to the hills over the last years, and New York branding agencies have made a fucking fortune. Well done, by the way, you make money in selling picks and shovels is clearly the right thing.

42:18Have a generation of VCs just burnt a load of VC money on these DVC companies? Oh boy, it's looking that way. You look at these businesses, even the ones that are the darlings of, you know, like, I don't know, like Warby Parker or all birds. How much do they, like, all birds? Okay, I'm doing this live. Yeah, do it real time. It's going to be a number. All birds market cap today, generally it is. Probably 300 million or something. and half it, 183. Okay, and then go to CrunchBase and what do they raise? How much do you think? 250, I could be wrong, I don't know. 202. And if you look at their financials, I don't think they make any money.

42:52I don't think they've ever made money. What about him? No idea. What are they trading at? Trading at two billion. Wow. Not bad, hey? And they raised 230. It's a little bit better. When did they go public? A year and a half ago? They actually kept their value, too. Final one, because I am enjoying this. What about we'll be Parker? What do you think now? Last I looked at 350, but that was a couple of weeks ago. Let's say 275. 1 .15 billion. Oh wow, way off. Yeah. I mean, they must have done something different. The biggest problem is the no -brainer acquisition channels have really dried up. And I do think they're out there.

43:28It's actually more creator -slash influencer related than it's ever been before. Those are the people that can really build something big fast. Look at Mr. Beast or... I get you, the trouble is, are we seeing the internalization there? Like Mr. Beast has Mr. Beast Chocolate, KSI, and Logan Paul have Prime. If you're really good and really big, you internalize it yourself. What do you mean you internalize it? Mr. Beast will now only promote Mr. Beast products. Right. Exactly. And so actually the ability to have mass influence strategies with the big names is gone. It's gone. Because they've actually the same thing with these nutritionists and influencers that we used, then they were like, wait a minute, I can just launch my own protein powder, I can just launch my own vitamin set and it's straight up.

44:11I think that butcher box is a media company and the reason I say that is because I think you should do stakes in the weirdest places in the world and you should do like challenges or media, cooking stakes on Mount Everest, cooking stakes in the Guatemalan rainforest, cooking stakes underwater. I like that. And as you capture the world's imagination with the weirdest places in the world you can cook a steak. A submarine in the trenches of, you know, whatever James Cameron's filming the next Avatar movie. That is cool. Not Gordon Ramsay doing a masterclass. Capturing the world's imagination of where steak can be cooked.

44:49That's amazing. I love that. Don't be too cashy on what you just said because I think that's really awesome and creative. But just for your listeners who are thinking about like raising venture capital, what you just said Harry is like actually totally on the table for a board meeting. So you're in there, you're like, here all the things we're dealing with, your VC comes in, maybe they've looked at the deck, maybe not, and they're like, you should do this. And you're like, great, let me write that down, let me get back to you. It was our real VC that way. So you're dealing with all of the things that you have to do.

45:18And then I'm like, you're a media business. Go to Mount Everest. Go to Mount Everest. I think you're right. We actually sponsored a critical team because we're like, we can't just do what we're doing anymore, we're too big. So we'll do about $600 million in revenue in this year, like the old tactics, like we're just gonna blank it Facebook and do influencer, it doesn't work anymore. Like we need a new oil field, so to speak. How do you think about brand marketing? You mentioned the cycling mat. I don't like it on the scene. I can hate it. Last year, we spent eight and a half million dollars on brand marketing.

45:52And any time I asked the question of like, well, how do we measure this? Like how do we know if we're doing well? It's like, well, there's like a lift and it's like, well, how does that equal dollars back to us? And what happened was that eight and a half million dollars, eight and a half million dollars, auto money, you basically just destroy your customer acquisition to lifetime value. Oh, there's no payback. And for a highly measured, let's go negotiate the price of tape kind of person. It's very hard for me to be okay with that. And so we now look at... And then I tell you about the media strategy that I've had.

46:22And that would probably cost 500 ,000. And so I think companies too often lose their creativity. Right. Spend on billboards or cycling. Right. Sorry. Right. And don't turn into a media house for a quarter of the cost. Yes. I totally agree with that. And I think there is absolutely something there in terms of media. We need to jump from what we're doing into a larger dialogue. And that really is my job to go figure that out. Or what about a million dollar meat? Okay. Every quarter you give away a million $1 million to the person who cooks the single best looking piece of meat. All you have to do is submit seven pictures of your butcher box meat in that corner on social and tag us and tag two friends.

47:06Love it. A million dollars. Can you imagine the person who wins that if you get someone who wins all your local newspapers will be talking with a massive check that says butcher box million dollars, you're going to get insane free local press. You're gonna get every single person in the whole fucking town hearing about Linda who won that butcher box It's gonna cost you half of that brown marketing. You're gonna see such better performance. That's amazing. That's a good idea I genuinely should be a CMO. Yeah shit. What else you got? I got a lot I really also enjoy it. What have like when we look at the cohort of companies that you're with your blue Aprins You're hello freshers all of these big names.

47:45What did they do wrong? I mean, the story I heard about Blue Apron when they opened their New Jersey facility and they insisted that like all the software that runs like all the machines is custom Like we're gonna build it ourselves. It's like, you know, the sales guys like okay, but like this works in thousands of factories across the world It's like no, it's not good enough. We need it better and the story I heard is that there was a time where boxes were piling up on a conveyor belt That was 40 feet up in the air because of some sort of like oh, it's gonna be a lot more efficient The problem was they couldn't even get the boxes, like they were piling up, they couldn't even get the boxes down, because they were 40 feet up, they didn't know how to get up there.

48:22So their orders are not going out big, freaking mess, and they spent hundreds of millions of dollars on this facility. I see that a lot, both in that scale, as well as on smaller scales, where it's like, in order to do this well, we need to do it ourselves. That, to me, if I were an investor, would be a big red flag, because there is oftentimes a company that, yes, are you giving away a little bit of margin? Sure. but you don't have to worry about that as something that you're worried about. A lot of founders try to boil the ocean really fast by worrying about everything at the same time and that just is not conducive, in my opinion, to one, having any sort of life outside of the company and two, to actually building something that people want to support.

49:04It seems like that D2C model of like, we need to own it all ourselves and insource it, like it doesn't work. What's the biggest resource allocation mistake you've made? Like you said there are people spending it on the warehousing and actually kind of the tooling. When you review, what do you like, can't believe we spent money on this? Ah, the brand is up there. Sorry, actually on that, as a result of that, you just cut brand marketing to zero, then you're like, this and I know why. Yeah. Well, kind of what happened was certainly in the P &L, it was cut to zero, but who knows what's happening like in the acquisition bucket now, right?

49:35Because everyone knows that my care is about brand spend. So like, sometimes people can massage the numbers a little bit to hide some of the stuff that's happening. What we've tried to do is to make sure that the marketing dollars that we're deploying are defensible, that they have like a ready line to some sort of money and it can't just be like, oh yeah, we're going to hope for the best. It's really like how does this turn into something better? Which channel really didn't work? Brown marketing is like a bucket, but when you look at Facebook, Instagram, YouTube, TikTok, influences, all the different channels you have, which one really didn't work?

50:07The out of home being like billboards and bus wraps and that type of stuff. I think you You could argue though that we didn't give that a fair shot, but that would be the worst performing thing that we've seen. You don't have the luxury of giving in a fair shot. That's the hard thing I find, and that's something I don't like with bootstrapped businesses in your model, which is bluntly content takes a long fricking time to work in a lot of cases. You're blocking, takes it as before you really see the compounding advantage of SEO. You don't have the luxury of that time to keep going and keep allocating towards it in a bootstrapped model.

50:38Well, you actually have all the time in the world. Because there's no one breathing down your neck so they grow faster. If you're willing to take, you can't literally afford to keep spending on it. But interestingly, if you think about the dynamics we were talking about with marketing, every marketing dollar you don't spend, generally for these companies, is profit. Right? So you've got your gross margin and then you've got your cost to do business and then you've got what's left over, marketing or profit. So if I'm like, I can't deploy dollars fast enough in a certain area, generally those equal profit.

51:06So you can go slower and oftentimes you have to. Like the number of people who have told me that we would be growing faster if I took venture over the past five or six years, although I've just been a broken record of like, not interested, not interested. Thank you very much, not interested. Which is a whole thing, you know, going back to like, what was I running from? I mean, one of the things I was running from is I had a pretty bad experience raising money in my first company. It was pretty like traumatizing and I didn't want that experience again. I wanted something different. I mean, it would be different, mate.

51:33That's throwing money at you. It's very different to the first time you went raising money. I heard about it on other shows. It's very different until you don't hit your numbers and then it's the same story. Oh yeah, we're jumping around here. So with the generation that did get funded, do they fizzle out and die? Do you acquire them? Do they turn into lifestyle businesses? Where? Where? What happens? Yes, we are a buyer. We would love to find distressed, subscription, ideally perishable shipment businesses. We are looking for them. The big thing that happened was, again, we started in 2015, at that time, Blue Apron had raised like a $2 billion valuation round.

52:09It was the toast of the town. And then in mid -2017, they went public in like July of 17. And by December of 17, they had gone from like $140 to like $40. And all the money for box subscription companies dried up overnight. And so some people are like, oh, don't you wish you raised money? And like, actually, I think we'd be out of business if we raised money. Because we would have raised money in 2015 when it was hot with big valuations, we probably would have raised again. And then when all the money would not have had to build a profitable business, and then all the money dried up and everyone sold and the market was empty for a few years.

52:46For us, that was amazing because Blue Apron stopped advertising the 150 Blue Apron and look at what I stopped advertising, that's when we ramped up Facebook and kind of were able to capture more people. In the times when they're flush with cash and they're spending it driving up CPAs for you, do you try and compete with them or do you go fuck it? We can't play a game where we're competing against them in this world. Let's go whether or not. We find that our buyers actually very different than like the Blue Apron buyer. Blue Apron buyer tends to want like all of the ingredients pre -packaged and we just send you the meat.

53:19And so what we find is somebody who's like a little bit more confident in the kitchen or wants to get confident in the kitchen and wants to follow their own recipe rather than have the recipe sent to them. But generally, for example, in an election year, everything's starting to get fired up about the election. That is a time when CPAs go way up. Yes, you have to have a different strategy, you have to be thinking differently. It's a really tough time to be running D to C right now. between apples changes, making iOS changes, where Facebook performance really went down quite a bit. You know, TikTok's interesting, but I don't know anybody who's doing well on TikTok, who's like, holy shit, TikTok is where it's at.

54:00I'd see a lot of people hopeful, because there's a lot of volume, but I haven't seen people really crush it. So there's not really a new, exciting thing. I think it's just having your ear to the ground and when it comes, it comes, and then exploiting it when you see it. It's butchers box the biggest in the space. Yes. Then there's Omaha Stakes, a direct to consumer. It's been around for a hundred years, direct to consumer. Generally a gift giving and holiday business. They might be bigger than us. The last I had heard, they were around 600 million as well, but maybe during the pandemic they went way up.

54:32My question to you is, okay, you're 600 million. Let's say growth continues, while continues beautifully brilliantly. You're at 900 million, okay? Let's give you a nice revenue bump and say on a revenue multiple, you'll worth three billion at that 900 because respectfully revenue quality is not a good land price. It's consumer subscription business. And this is the best of the best. Is this whole market even VC backable? If the one crown jewels is a best. A three billion. Yeah, I don't think so. I'm not sure it's a VC backable model. For every consumer VC, please share it to me. I'm an amendment.

55:12Yeah, certainly don't fund anyone who's trying to compete with us. That would be nice. Did you sell any secondary along the way there? No. Why not? Well, we can talk as deep as you want to bet this, but the minute you sell secondary to an external investor, now I've got someone breathing down my neck telling me what to do. Now, there's a difference between me selling secondary and people in my company selling secondary. So what we did, which is probably crazy, but it's how I started the company, We created this company and again we didn't raise money, but my early people I gave away equity like candy Everyone gets equity to date like virtually everyone has equity and so we have these people who started out and my first thing I said and this was a mistake as well.

55:53I said companies only worth $750 ,000 So it's like oh, you're gonna help me stand up the meat thing like a $75 ,000 engagement like cool I'll give you 10 % of the company because this isn't gonna be anything. It's just gonna be a hobby big mistake. Basically what we've done since 2018 is we've run a tender every year where we do a valuation, a 409A valuation, we get a price, a share price, and the company says, hey, we'll repurchase people's shares. We also allow people to purchase shares, but really it's more people trying to sell their shares. And so we deploy some of our profits into share buybacks essentially.

56:27We've done that over the past, like I said, four years. We're actually not doing one this year because because when the tide goes out a little bit, it's like we should stop just throwing money on the street and keep it in our bank account, because we want it for a rainy day. But we have not done the GoRays outside capital. And I think part of that has to do with my whole philosophy here, which is I'm not focused on the exit. Like I'm not trying to sell the company, I'm not trying to go public. If you look at companies or brands in food, the ones that have become really big, they kind of have a similar makeup, which is they're closely held, family controlled, and like 100 year plus holds.

57:05At least in this country, you look at like the general mills and the camels and the ticens and the produce and like the Hershey's, the Mars, like they're kind of all similar. And I don't know if that is, if we'll be lucky enough to actually be able to operate a company for that long or whether frankly I will be able to keep my attention on this because I don't want to operate this thing for 100 years. But where we stand today, I'm really excited about that. like what is 25 years of this look like? Like where are we in 25 years? And you know, should I come to you and stay my friend? North of 70.

57:36North of 70%. So if someone came to you and gave you a billion dollar offer in cash today, would you sell? No. North of 700 million in cash. Yeah. So this is the problem I always have is like, there's not a letter on my desk right now. So I can be on this podcast and be like, yeah, no, hell no. But there's not a letter on my desk, right? There's a letter on my desk obviously at a billion dollars I would be thinking long and hard about what I wanted. But the question is like, okay, great. You go bank $700 million. You can do whatever you want for the rest of your life. Cool. What are you going to do?

58:07I'm going to like literally erase my whiteboard and be like, what's next? And what? Chase this. This has grown and has grown me in all these ways. And I feel like I have the ability to impact a totally broken industry, which is meat. You sell the thing at the very moment where it's starting to deliver the things that you always dreamed of for what? How transferable are the skills you've gained with butcher blocks to alternative D to C consumer subscription companies? If I gave you vitamins, if I gave you a drink, you could switch segments and sell vitamins and anything else. Yes. I do a lot of investing and advising in companies that are not perishable, but are some sort of subscription and turns out I can be pretty helpful.

58:49So I do think it's somewhat transferable for sure. And I do believe that the DTC economy's kind of falling apart right now. It already has or is about to. And what we're seeing is more and more distressed companies that raised right after COVID, had their 24 months of runway are trying to tighten their belts. But really, there's not a lot of excitement. And they're generally smaller than they were at the tail into COVID. We're seeing a lot of banks pick up stuff. And it just, it seems like a good time for us to put our hands up and say, like, hey, if you got something and you're interested in coming to work with us, like we could maybe make something work.

59:23So I've got a couple of burning questions and I will do a quick fire promise. How does a recession impact your business? Not well. I would argue that the people who are members have already been part of somewhat of a recession. The only thing we have to look at is like 2007 -2008. In general, when there is a recession, people in terms of the meat quality that they're looking for, they're willing to take a step down in the quality of meat. So if you're like, I only buy organic, it's like, oh, I lost my job. Like, organic, I'll do free range, right? So people will trade down on the claims, how their meat is raised, how their food is raised.

1:00:00It's true for like organic blueberries. It's true for everything. We are seeing that data as it relates to the overall food spend in this country, but we are not seeing like a run for the doors at butcher box. If anything, I think post COVID, people really wanted to focus on their health and wanted to focus on having great restaurant quality food at home. And now what we've seen is a lot of our customers are like, well, I saved money by not spending $75 on a steak at a steakhouse. I just cook this steak here for a lot cheaper and better for you. You're finding against veganism and climate change.

1:00:35I always think you want to surf in the right direction with the waves. And this seems like we're surfing head on into the tsunami with the rising number of vegans and climate change concerns. Yeah. What I like to say, we agree with vegetarians and vegans. I agree. The main complaint is that the meat industry is broken, that there's a ton of suffering for the animals, that there's a ton of suffering for the environment, that there's a ton of suffering for the farmers. And I agree with that where we differ is, I believe that animal -based protein is part of a healthy diet. and very few people can actually live a healthy diet on a vegan diet or a vegetarian diet.

1:01:15And so for us, it's like if you're going to eat meat, which by the way, most people do, if you're going to eat meat, how do we transform an industry that is totally broken? And how do we make a product that people don't have to feel guilty about eating? Because in this country, for most of the meat that you were eating on a day -to -day basis, if you only knew, there would be a lot of guilt associated with the type of product you're eating. Yes, like there is still a obviously like animals even in our program are killed So they have like one bad day But what we want our brand to stand for I call it like the Patagonia of meat Like we want you when you buy from butcher box to know that we obsessed over every detail possible for that piece of meat to make sure I had the best life the farm rose treated the best the environment was treated the best the workers in the supply train We've actually thought about it.

1:02:02We've tried to move it forward and this going back to like holding this company for a while The industry is like so in need of disruption that oftentimes like you need a super long time horizon. I'll give you an example. It turns out in this country, if I wanted to go and figure out the food safety protocols of like a slaughterhouse of like a harvest facility, like how do they handle food safety? Super easy, I can have someone there today. It's like no problem, there's a whole bunch of people, like they'll come in with their checklists and they'll figure it out. If I wanted to do the same thing, the same audit at the same facility, But I didn't care about food safety.

1:02:35What I cared about was worker welfare. How are you treating your workers? How many have gotten injured? Is there any child labor here, undocumented labor? Like really? What's going on here? There's nobody. There's nobody in this country that I can hire to go in and third -party audit these facilities. It's crazy. I mean, if I was creating t -shirts in Bangladesh, I could have fair trade in there like in a very short amount of time. Why? Well, because nobody wants to open that door and see what's behind it. I just feel more and more like why is that is that because the don't Donating parties are too strong is it because lobbyists help me understand that?

1:03:13I mean, I think it's one part customers actually giving a shit. I think they don't give a shit No, they don't the customer the customer what they care about is themselves far and away Then the animal then the environment animal environment kind of go back and forth and then way down here is the farmer and And not even like the workers in the supply chain are like not even a consideration for most. They don't care. And we believe that in order for meat to actually continue, people need to care. Like we need to put our dollars towards like actually changing the system because there's too much suffering.

1:03:45It's too bad. You know, people cared for a hot minute during COVID when people were like unfortunately dying in processing facilities, but that attention is long gone. People are like, whatever. The average American spends 13 seconds in front of the meat case. 13 seconds. They don't have time to figure out what's what and then it's something like 40 % of people don't even touch their meat They like open the bag and they're just like, ugh and I use that as like an analogy of like how many people actually know what's happening And it's very few and very few people care. We care one final thing and then we're gonna do a quick fire I love Gordon Ramsay's kitchen nightmares.

1:04:18Okay, I'm admitting it I love Gordon Ramsay's kitchen nightmares and Taylor Swift. All right. I know. I'm a modern day Great, great, both great. Thank you very much. Gordon hates frozen food. He's like, oh my god, frozen, frozen, frozen shit. And frozen. Yeah. I was taught that frozen meat is worse. Yeah. No. What happens in the freezing process, especially with grass -fed beef? So grass -fed beef tends to be a little bit more tough. There's less fat in grass -fed beef. So what happens in the freezing process is you can actually break down some of those cellular walls and make a more tender product, which is what a lot of people associate with health.

1:04:55So if you're talking about beef or even pork and chicken, freezing is actually helping the quality of the product rather than hurting it. The other thing that's amazing is from a food waste perspective. There's not a lot of food waste in your freezer. You can have meat in your freezer for years. I mean, we recommend you cook it tonight so that we can send you another box. But you can have your meat in the freezer for a very long time and not degrade quality. You heard it here first. I'm a sponsor by Gordon. Thank you, Gordon. Yeah. That'd be a great title. Okay, I want to do a quick fight because I could talk to you all day.

1:05:27So I say a short statement, you give me your immediate thoughts. Does that sound okay? What's the single biggest piece of BS wisdom in startups today? You're not working hard enough if you're not working 365 days 24 -7. All right, we'll leave that for another episode because I think you're wrong. Pitching read Hoffman on network effects. Oh, yeah. Wasn't the story here. Yeah, well, we went out to Greylock to convince them to invest in custom aid, which they said they would if we moved out to California and worked for the CEO that they were gonna place into the business. Part of that was a phone call with Reed Hoffman, who was a general partner at Greylock, and he asked us like, so I don't understand what are the net -for -work effects here.

1:06:11I mean, the story is that we had no network effects, but we did our best to cobble together or some sort of like, yeah, this is how it all fits together. And he's like, uh -huh. And that was pretty much the end of it. And they ended up not investing, but we were able to raise money in Boston. Frankly, by people who were a little pissed off that Silicon Valley was trying to take two entrepreneurs and put them over in California. What have you changed your mind on in the last 12 months? How to eat better? I've really embraced fasting as a wave life, and that has changed dramatically in the past 12 months.

1:06:41See you shaking your head. You full. It's like counter restrictive windows. Fine, it's not great. Is actually bad for muscle depletion. Scientifically proven. It's pain. I'm talking about longer fasting than intermittent fasting. Oh God, how long are you fasting for? Well, in October, I did a seven day fast. That was pretty fun. I typically do a 36 hour fast once a week, longer than like just intermittent. Are you married? I am. You chose the two most painful things to engage in in life. Um, I agreed on the second. You're a live one, listen, it's fine. Tell me, what's the most painful lesson you're pleased to have gone through?

1:07:20This year have really, as we talked about at the beginning, I've held a lot of fear of abandonment my whole life. And I've actually come to grips with that quite a bit, and it's been a huge lesson of the year that I've been happy to go through, where I've had to, in some circumstances, stare down what it would be like to be abandoned. And I've been like, I'll be fine. Did you see a therapist? Did you do psychedelics? Yes, yes, all that. Yeah, which one worked? MDMA journey worked tremendously well for abandonment. Wow. That's awesome. Tell me will Trump win? Probably do things though. The problem is who's he gonna run against?

1:07:56I guess Joe Biden, right? We all have to What about DeSantis? I don't think DeSantis. I mean What would have to happen as the Republican Party would have to have a backbone and be like no But what they want is somebody who's electable and they know that Trump is electable and despite all All of the drama and all the issues with Trump, he progressed a whole bunch of conservative initiatives that people are willing to hold their nose and vote for the guide. I do think he has a very high chance, certainly a high chance to get in the nomination. And then if it's like Joe Biden, like shit, I think he could beat him this year.

1:08:33Is Trump good for your business? Some of Trump's policies, certainly on the tax side, were very helpful for the business. I think Trump in general, not helpful for the business, a huge distraction, a huge amount of social unrest and concern. But from like, hey, were we able to depreciate the driest machine super fast and like offset our taxes? Like, yes, we were. But honestly, I don't think the other side is much better. 2020 VC, cheers, Trump, dry ice on you. What do we think for that title? Solid, it can see the tension grappling. This is unlike any show you've ever done before. Tell me, what's the one word you'd have on your tombstone?

1:09:13And why? I like the word onward from a tombstone perspective. I'm really fascinated by what's behind dying in this body. Where does my spirit go from there? I don't know. That might be a tough word for my kids to see every time they go to my grave. They go, all right, well, onward, you know, get on with it. Maybe love would be a better one, but onward is what came to my first. Tell me, what would you most like to change about the world of VC? Like do you like VCs, Mike? Would you just look at anything? You fight? I'm with his on Twitter who just pontificate, tell me to cook states on Mount Everest and sit and do podcasts.

1:09:45Like you can be honest. No, like I look, so I LP and funds, like I think VC has an asset class as interesting a great way to expose people who are interested in like getting small company exposure. Like I think VC and honestly for the VCs, I mean between the fees and the carry, it's like a great business to be in. Super low overhead, super high margins, a great business. If I could change one thing about VC, I think it would be that I don't think most founders think before they start raising money. They think that they have to raise money in order to build a successful business. I just wish they didn't.

1:10:21I wish we could like, and I know some VCs were like, don't raise from us if you're not into getting on the VC train. But I think that... It reminds security. If you think about it from the Founders' perspective. Oh great. If I raise, I went to Stanford, I worked at a table or Twitter or wherever I worked. Great, I can pay myself 24 months, relatively okay salary. Totally. And, you know, I recognize that that's really important to some people. And I think there are ways to, for example, get fired and collect unemployment for that year and like take a reduced salary and like figure it out. And I think there are things that you can do.

1:10:53But if it's like, oh, I need the safety. I have got a young family at home. I've got a mortgage to pay. Like, I need the safety. Like, okay, that's fine. First of all, don't come and say that you think this is the last round you're ever going to do, because that's not how it works. You're going to be on the VC train and the VC train runs fast and you're on that train. Also, the great thing about VCs is that they can provide a lot of external knowledge, because when you're running these things, you're tend to be doing it alone, and it's really nice. I have a board, not because I need one, but because I really miss the days of VC where people would come in and beat the crap out of me, and I'd have to defend myself, and then be like, oh, you're pretty smart.

1:11:28like cool. So use on your board. You could choose your board. That's a very luxurious position. Yeah, right. You need to choose. The most interesting character on my board is this guy named Gary Loveman, who is a Harvard Business School professor. He also was the CEO of Caesar's Palace. Caesar's brought him in at first as a consultant to help them figure out how to basically use loyalty as a way of getting people into the casino. Then he became the COO and then he became the CEO. And so Gary's claim to fame. He was the architect of using like loyalty cards in a casino for the first time. And if you think about a casino, like when you're losing money at Blackjack and a waitress comes by and asks you what you want to drink and then you order and then it takes a really long time.

1:12:15So by that time you've like added a couple more $100 into your giving it to the dealer and started to lose that money too. It's not by chance. They have architected an experience from end to end using data and using behavior to keep you playing. I like to think that our mission of getting people to be more successful in the kitchen and eat healthier is a little more noble than getting people to gamble. In the mix, it's like the same thing, right? It's how do you delight people? How do you use data to suggest like that perfect moment where you want to do something or we talk about building the Caesar's Palace of meat here?

1:12:49very lucky to have him on my board. Penultimate one, if you would have chosen influence to promote butcher box, who would it be and why? I would say Arnold Schwarzenegger, because he kind of came out as like, oh, I'm eating more plant, but definitely eats meat. The quality of the meat is really important. Everybody in the United States knows him. And if he was to say that butcher box was his choice for a high quality meat, that he could trust, I think it would be amazing. I think I might Tyson, he could have the caption because they ran out of ears. I mean, I really want to go on the Mike Tyson podcast.

1:13:23Like, that's a dream of mine for the years to be on hotboxing. So, anyone knows how to do that. I mean, as soon as we have many, many hundreds of thousands, who knows you might get an email, find a one, my friend. It's, what is it? 2023 now. It's 2020 -8. You said about lifestyle design. Three years out. Let's do lifestyle design. Five years out for you now. What do you want? For the business or for myself? Both. So, I'm really enamored with this idea of running this to a billion dollars in revenue. Also, I think like at a certain point, I'm probably not going to be the guy running this on a day -to -day basis.

1:13:53I don't know if that's happened in five years. I think we'll be north of a billion in five years, but I'm not sure I'll be like, okay, I'm done. I want to go work on something else. We'll see. Does it get easier over time? It gets different. It doesn't get easier. You know, as soon as you have like product market fit, which is really hard to get and my first company we never got there, you just have new challenges, right? The challenges don't end. And I think like in it becomes a journey of self -discovery. You're showing up and what is driving me to like not sell tomorrow and to be like, I want to keep going.

1:14:23You start to realize how your decisions have much deeper, especially if you don't, if you haven't raised money and you're kind of like nobody's telling what to do. For me, it just gets very different. Like the conversations or the things I'm working on. And we're 215 people and that is also not something to mess around with either. I miss the days of like a dozen people who I could just whack my finger at and and you know That's the system's been revenue per head though. Three million. Mike, was this show what you thought it would be? This was the most enjoyable podcast preparation and research that I've been on.

1:14:59And I was on how I built this, I was on some other podcasts. And then I was amazed that like, what are we on like podcast 2 ,697? This is Contents, it's a long game. I mean, shit man, that is incredible. You've almost got that 10 ,000 hours of like, I'm sure with everything in you you know you can tell when someone cares about telling your story or like asking you questions to help you tell your story versus just like all right I didn't really read anything and let's get going I absolutely love that show I love the variety everything there from you know Trump to Arnold Schwarzenegger to Mike Tyson to the Economist of consumer subscription if you want to see more from us Of course you can on YouTube by searching for 20 VC or heading over to 20 VC dot com But before we leave you today, we need to talk about Sona.

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