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We weren't product managers.
We didn't have a background in building an e-commerce platform.
So we hired an outside agency.
We thought it would take six months to do the tech build.
And four months in, we started getting the sense that we didn't have anything.
And so at that point, I said, we need help.
We're out of our depth. We've made these mistakes.
We were desperate. Yeah.
Not only had we spent a lot of money, so we had the sunk cost, but we had nothing to show for it.
It was a complete train wreck.
Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
I'm Guy Roz, and on the show today, how an online mashup of Whole Foods and Costco went from shipping out of a garage to doing half a billion dollars in sales in less than 10 years.
Sometimes the simplest and most seemingly obvious ideas are the hardest to get off the ground.
This was the case for Nick Green and his co-founders when they came up with the idea for Thrive Market.
The idea was to build a sort of Costco meets Whole Foods concept, except all online and no physical stores.
You'd pay for a membership, and in exchange, you'd get access to thousands of natural and organic products, but at a lower price.
This was in 2014, and at the time, most investors turned Nick down.
They wondered, how was this going to compete against Whole Foods?
And they had a point, especially because their assumption was that most people already lived near a natural food store.
So in order to get the money to actually launch the product, Nick and his co-founders started to reach out to health and diet influencers, mainly bloggers, because this was still in the early days of Instagram.
Those bloggers all wrote small checks because they believed in the mission, the idea of making natural and organic foods more affordable and deliver to your front door.
And that investment strategy turned out to be a stroke of genius, as you will hear, and it helped propel Thrive Market's growth.
Today, it's a leading online grocer in the natural foods category, with over a million and a half members and over half a billion dollars in sales.
And even though Nick launched Thrive without knowing much about grocery or retail, he did know something about healthy food.
It's what his mom cooked at home.
Nick grew up in the suburbs of Minneapolis, and the most important thing to his parents was getting a good education.
I mean, I was a total nerd in high school.
They talk about Type A. I was like Type A plus.
And that was literally in terms of grades.
I was, you know, very, very conscientious in school.
And I think a lot of that came from my mom.
You know, she didn't graduate from college.
I came from a large Mexican-American family where her parents didn't go to high school even.
And she was really focused on education.
And I internalized that from a very, very young age.
Something happened to you in high school that is incredibly amazing and slightly embarrassing in that you got a perfect score in your SAT.
And I only say slightly embarrassing because nobody likes the person who gets a perfect score on their SAT.
But it happens. Every year, a couple thousand kids get a perfect score.
That must have been, I mean, that was like kind of a big deal.
Yeah. It was a big deal. And I didn't go to a private boarding school.
You went to a big public school?
I went to a big public school.
And so it was, you know, I was in the newspaper.
It was something I was really proud of and I worked really, really hard.
I studied for the SAT. I did the, you know, 10-Rill SATs book.
My family didn't have the financial means to send me to a test prep course or do private tutoring.
You didn't do like the Princeton Review or one of those things?
I did. And I remember like seeing the price tag for that.
It was $1,200 to do Princeton Review.
I thought that was insane.
Like absolutely insane.
What a waste of money. I can just go to the library and read the 10-Rill SATs.
So you, I guess once that happened already in high school, you saw the opportunity to be an SAT prep tutor and it was a way for you to make extra cash.
Yeah. So I call myself an accidental entrepreneur.
You know, I started teaching SAT classes actually after I'd been accepted to Harvard.
Parents had already come to me and asked, you know, could you tutor my kid?
And demand started to outstrip my ability to do one-on-one, so I started a class.
And basically in that first year, I think I probably worked with 50 or 60 kids, did it on full-out tables in my garage.
And I loved it. I actually loved the teaching side a bit.
And it kind of went from there.
What were you charging for the class?
The original class was $200.
All right. So you get to Harvard as an undergraduate, 2003.
When you got there, had you already had an idea in your mind that you would continue to pursue test prep?
I got to Harvard the other day.
I wanted to be a lawyer. Test prep was I can help pay for some of my tuition.
And then basically after my sophomore year, I'd written this book that I called the Ivy Insiders Guide to the SAT.
And by book, I mean that very loosely.
It's a Word document that I printed out of my house for the students.
And the idea, I created my own curriculum concept that I called SAT game theory, which has nothing to do with actual game theory.
But just that the SAT is a game, it can be beaten.
It's not about how smart you are.
It's about how smart you get at that test.
And what I basically realized three years in was I've got a business in a box.
And any undergrad who, like me, did well in the SAT and could go back to their hometown to do the same thing.
So that was the actual birth of Ivy Insiders was, I call it like a micro franchise model, because it was just during the summer.
We funded the businesses.
We provided the curriculum.
And we are going up against the Princeton Reviews and the Kaplan's offering a program that really worked at a fraction of the price.
Wow. So did you start putting ads like flyers around up around Harvard?
Or how did you get the word out that you were looking for?
I basically, I spammed every list served at Harvard.
I went into the online directory, which at the time was not, didn't have great or very clear terms of use.
As we know from the social network.
Yeah. So yeah, same thing, not quite to the same effect, but basically emailed every kid at Harvard and said, hey, did you do well in the SAT?
Do you want to go home this summer?
Do you want to make great money and learn to be an entrepreneur?
Don't get an internship.
Come be an Ivy Insiders branch manager.
The other thing that we learned really quickly, both from a business standpoint and from just a, honestly, a mission standpoint, I wouldn't have used that word at the time, but it was, there was a whole bunch of kids that couldn't pay $200.
And sometimes you'd have open space in a class.
So why not let those people in?
So one of the things we did from day one, we called it the no empty seats policy.
And anyone that couldn't afford to take a course could do it for free.
And you know, there was a number of these principles actually that have become really central to thrive that came out of the Ivy Insiders business.
So do you think by the time you were a senior, you had kind of abandoned the idea to become like a lawyer or a consultant and get an office job that this was going to be the thing that you were going to pursue?
So by the time I was a senior, yes.
By the time I was a junior, where the business was already firing in all cylinders, I still was very torn.
And it tells you just how strong the gravitational pull is towards the more conventional career tracks where you've got safe, secure, low risk ways to be very successful.
And so I actually did an internship at McKinsey for the summer after my junior year.
And I had kind of a perfect split test where I was running my business on the side.
And I got to see, you know, which was I better at, which did I enjoy more?
What did I want to spend the next few years of my life doing?
How much money do you remember?
Did the, did it, what does student make?
Like one of your Ivy League students make teaching SAT prep over the course of the summer?
Well, some of them made more than I made working at McKinsey that summer.
Like? That's for sure. So tens of thousands of dollars.
Tens of thousands of dollars in like 2006 for the summer as a student.
That's amazing. Now, like anything entrepreneurial, there's a lot of dispersion, right?
And so you had branches that were, that really struggled.
And then you had branches where it just, you know, absolutely exploded.
How much, could you estimate how much revenue the business was bringing in?
We were doing in the low seven figures.
Wow. And you know, profitability was, it was in the hundreds of thousands of dollars.
And so for me, I don't think I would have had the courage to, you know, go off and do something entrepreneurial.
But for the fact that I basically got this free option to incubate the business while in college and get a running start.
So that by the time I had to make that decision, we were already kind of cruising.
So when you graduated, you stayed in Cambridge, Massachusetts to run this business.
Yeah. So when I, when I graduated that summer was like the grand experiment in how fast could this business scale.
And you know, the wheels almost fell off.
I made a ton of mistakes, but basically spent the next three years running this business and trying to get it as big and as successful as I could.
And by the time I was 25 and we sold the business, we were recruiting hundreds of branch managers across the country, serving, you know, thousand high single digit thousands of students per year and getting the attention of Princeton Review and Kaplan and some of the big, big guys.
I'm sure because you were undercutting them.
We were undercutting them on price and we are also delivering better results.
So all right. So 2010, you get acquired a company called Revolution Prep, presumably a test prep company as well, acquires you guys.
That's right. Yeah. I think at the time I was seeing the opportunity to make more money than certainly I'd ever seen and anyone in my family had.
I also was, I wouldn't say fully burnt out, but definitely exhausted.
I failed to delegate in that business repeatedly.
I was working, you know, 90 hours a week, like literally seven days a week for multiple years on end.
Not a lot of social life.
And I had in my head, hey, this is the opportunity to cash out and, you know, sail off into the sunset.
So you cash out and you did pretty well, especially for being three years out of college.
I mean, I'm assuming you got, you know, several million dollars out of that deal.
So enough money to not work, but probably not enough to set you up for the rest of your life unless you were really, really, really careful, I imagine.
Yeah. At the time I had recently read a book by Tim Ferriss called The Four-Hour Workweek.
And he had this concept of income automation.
And so, yeah, I made enough that I thought, hey, if I can invest this in cash flow investments, I can just not work.
And so I, you know, built out a little real estate portfolio.
I was investing in self-storage and mobile home parks.
And I was also doing an earn out for a year at Revolution, which was a cool experience.
You moved to California, I think, to work for them, right?
I moved to Los Angeles. I thought I would be there for a year and, you know, fell in love with Southern California.
But it was also a really, I call it kind of like a lost year or two in the sense that what I thought I wanted when I sold the company, which was creating income automation and kind of do whatever I want, it just wasn't fulfilling.
I felt rudderless. I felt lonely.
And it was very interesting to see that the things I didn't think I valued as much like being in the trenches with the team, solving hard problems, you know, facing different challenges every day, like all the things that I actually thought I needed a break from I missed.
Yeah. And I guess, I guess it wasn't too long after that around 2012 that you decided that, like, I'm just like, this isn't the life I want, right?
And I read that you took a position as entrepreneur in residence at a startup accelerator called, I think, Launchpad LA.
That's right. Yeah. My idea was, you know, I was doing some angel investing.
So keep doing that. I sat on the investment committee.
So I was meeting entrepreneurs and simultaneously kind of look for co-founders.
Look for co-founders for?
For an idea. So look for an idea, look for co-founders, look for investments.
Got it. Consider other things in education and then a personal passion of mine was also health.
And the way I thought about it is, you know, the only thing more fundamental for someone's well-being than getting that education is being healthy.
And you know, going way back to my own childhood, my mom's kind of two core pillars, if you will, were education and health.
And we were that like, you know, weird house on the block that had no sugar and cereal, you know, soda, like none of the processed foods that were pretty calm at that time.
So I was looking at those two spaces.
And from what I understand, you had, there was this fateful encounter where you would have entrepreneurs coming in pitching Launchpad LA for seed money.
And so you would be in those meetings and you would be asking questions.
And I guess one day this guy walks in named Gunnar Lovelace.
Gunnar. Gunnar. Gunnar.
Tell me about him, about what happened.
Yeah. So the first meeting was actually virtual.
So he didn't walk into Launchpad at all.
We got introduced to a friend.
He at the time was in Italy for a tapping convention.
Like tap dancing? No. Like tapping is in a stress relief modality that involves tapping your fingers on different parts of your body to...
There's a conference for that?
There is a conference somewhere in Italy and he was there.
I'm going to a tapping contest.
This is not tap dancing.
This is just tapping your fingers on the table?
It is tapping your fingers in various ways.
I'm not fully familiar.
I'm living in the wrong world.
I need to go to a tapping convention.
Okay. Keep going. So he's there.
And so we're, you know, this is pre-zoom.
So we got on a phone call.
He sent me a executive summary for a business he was calling Shop Tribe.
The idea was basically to do Groupon for healthy food.
So like the way Groupon worked is you'd have these buying events.
So you'd have a timetable to tap into this particular sale event.
His idea was let's pool our resources as consumers to access wholesale pricing for healthy food, supplements, and natural organic products.
And once we reach critical mass, we'll have enough scale to buy at wholesale and we'll pass on the savings to the members.
But this was his idea. What was it about that idea that intrigued you that you thought, this is cool.
Maybe this could be something worth exploring.
The part that intrigued me from the first moment was the mission.
It was make healthy and sustainable living, easy, affordable, and accessible to everyone.
And that just resonated with me at a very personal level.
Again, like I had seen my mom, how hard she worked to make healthy decisions, you know, know what it's, knew what it was like to not have a whole foods in the neighborhood.
If you're shopping on a budget, even if you do have a whole foods in the neighborhood, you aren't going to likely buy those products.
And actually by the end of that first meeting, like by the end of, you know, 45 minute conversation, I was actually pitching him doing it together.
Really? So you were like, hey, I think I want to maybe work with you.
Yeah. So if you looked at the two of us on paper, you could not have imagined two different backgrounds.
Like I grew up middle class in the Midwest.
He grew up on a hippie commune in Ohio, California.
You know, I went to Harvard.
He dropped out of college to start his first company.
But the complementarity, like those differences actually created this incredible complementarity where his, I was really inspired by his creativity and I was excited to work with him and I think vice versa.
All right. So, so he eventually comes home from the stepping conference in Italy and now that makes sense to me now that I know he's from Ohio because I've been there.
I love Ohio. A lot of spirituality and Krishna Murthy was there and so I get it.
And he comes back, I guess, is the summer of 2013.
So what do you start to do?
Like how do you start? So you know, he came down to Launchpad.
We did a few meetings down there.
I went up to Ohio, a house that was full of crystals and other things you might imagine.
And we just started jamming.
And I think from the, you know, the first thing was what's the right business model?
So we like, we knew we were clear on the mission, but how do we actually make this happen?
We threw out the group buying thing because that wasn't going to work practically.
Yep. But we kept the club.
And at that point, we were studying Costco where, all right, Costco model is if you pay a membership fee, then the retailer can pass on wholesale savings to the club members.
The more we studied Costco, the more incredible we realized their business was.
And I mean, you sort of know that if you're a consumer because you're like, people are like, rapidly passionate about Costco in this strange way, given what it looks like from the outside.
But when you actually get in and unpack the model, the idea of the pricing, the limited assortment, like when you go into Costco, you're not in the everything store, right?
They have an order of magnitude fewer items in there, which actually creates for a better discovery process.
And of course, creates for better economics on their side.
And then the other big thing on Costco is private label.
So their Kirkland brand is, you know, high quality, lots of staples.
Again, love it, sort of almost irrationally so.
And they did a fantastic job with that.
So the pillars of curated assortment, membership model to enable better pricing, and then private label to cut out steps in the supply chain and introduce higher quality products that are also better pricing.
That was kind of the trifecta.
And so the idea was, let's figure out a way to do a version of this, but it's going to be entirely commerce.
We'll have a curated selection of products.
I have to assume that also you're thinking, we need to start with shelf stable things, like, you know, oatmeal or granola or, you know, or crackers.
Yeah. So the complication that we had is we weren't going to build out a network of retail stores, which would take a decade plus.
We wanted to do it online.
And so that meant that we, to your point, could not do the fresh products that if you're shipping through a third party carrier, become very, very challenging.
Yeah. So we decided, let's focus on the dry sortment.
That's half of what people buy in the grocery store anyway.
If they can save on all the non-perishable products that go in their pantry, their medicine cabinet, their cupboards, then, you know, maybe they can spend more on higher quality produce and fresh items that they buy locally.
All right. So you guys, you start to kind of narrow down your model here.
And by the fall, you officially, you guys co-found it, you rename it.
It was called, what was it called?
Globe? So we went from shop tribe to thrive market.
Thrive market, okay. Yeah.
That was actually the brainchild of our third co-founder, Kate Mulling, who came in.
She had a background in brand and content.
And one of the first things she said was shop tribe won't do, which was, you know, we were already getting attached to it.
So that was a sobering, humbling moment.
But ultimately, you know, came around to it about two months later and changed them to thrive market.
And so when you launched, did you guys self-finance this because you had some money from the sale of your business and did you have any cash to put in?
Yeah. Both of us had started and sold businesses.
So the idea initially was we can self-fund this for a while and then, you know, we're two seasoned entrepreneurs with wins under our belt, we can go raise outside capital.
So this is all still, you know, a year out from launch.
So you co-founded in November of 2013, but you're not going to launch.
It's going to be another year before you actually launch it.
We're going to launch for a year.
So it's going to be a six-month build to get the tech platform set up.
And how much money were you going to put in?
I think I read about a quarter million you put in.
A few hundred thousand dollars.
Yeah. And we thought it would take six months to do the tech build.
Did you hire an outside, did you outsource the...
We hired an outside agency.
We thought, look, we know what we're doing.
We built companies before, well, in-house it later basically was the attitude.
They built the whole kind of platform that we would use for, you know, back and front end e-commerce.
And I think we really underappreciated how creative that process would be.
And so, you know, the communication with them was challenging.
The progress was slow. And you know, four months in with, you know, target launch day rapidly approaching, it became very clear that we were not anywhere near being ready.
So you know, we weren't product managers, didn't have a background in building an e-commerce platform.
We thought we knew what we needed, but the reality is we didn't.
And we probably didn't pick the right partner.
So kind of on every level, we set ourselves up for failure.
And in retrospect, predictably, it was a complete train wreck.
Let me come back in just a moment, how Nick and Gennar finally make it to launch day.
After first getting rejected by every single VC firm, they pitch.
Stay with us. I'm Guy Riz and you're listening to How I Built This.
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Hey, welcome back to How I Built This.
I'm Guy Reyes. So it's early 2014 and Nick and his co-founders are hoping to launch Thrive Market later in the year.
But they're getting nervous that the contractor they hired to code their e-commerce platform might not be up to the job.
We were four months in, hundreds of thousands of dollars of development, and started getting the sense that we didn't have anything.
And so at that point, I went back to the managing partner at Launchpad.
I said, we need help. We're out of our depth.
We've made these mistakes.
I just sort of like kind of poured it on him because we were desperate.
Not only have we spent a lot of money, so we had the sunk cost, but we had nothing to show for it.
So like neither Gennar nor I are technical.
We couldn't even assess whether there was any progress being made.
So I said, look, I need the best technology person that you know of who has done things at this early stage, who knows e-commerce, who is this person, and I need to hire them now.
And so he pointed us to Sasha, who ended up being our fourth co-founder.
This is Sasha Siddhartha.
Sasha Siddhartha. And he came by and said, look, I'll help you understand what you have here, what you've built.
He spent two hours at the agency, said you got nothing.
Got nothing. Vaporware.
Vaporware. Absolutely nothing.
You've spent hundreds of thousands of dollars on nothing?
On nothing. Did you get your money back?
No. No. No money back, no time back, no confidence back.
So deeply humbling, borderline humiliating experience.
And so the next question for us was how do we, like where do we go from here?
And the kind of non-negotiable for Gnarr and I was we need to have a CTO.
So we made an offer to Sasha.
He said no. We made another offer.
He said, all invest and advise.
And we more or less locked him in a room and said, what's it going to take?
We basically refused to take no for an answer.
He said, all right, let's go.
Let's do it. He came on as a co-founder.
He in about 10 weeks built for a fraction of the funds, what we had failed to build over the prior four to six months.
And at that point, we were basically a month and a half behind schedule, but pretty good given where we'd sat a few months prior.
And in the meantime, did you start to pitch investors to raise money?
Yeah. So that's the other humbling side of the stage of the business was we were kind of starting in March or April, we said, all right.
Because of 2014. 2014. Things were going slower than we wanted.
We're spending more money than we thought we would.
And it's all our own. We need to bring in investors.
So we thought, well, okay, we maybe haven't been as effective as we thought we would be building the site.
But look, we're seasoned entrepreneurs.
We have winds under our belt.
Surely we can get investors to come support us and get this thing on track.
We went to a bunch of VCs in San Francisco.
We took a trip out to New York.
We visited every VC that we could find in LA and we got intros to most of them through Launchpad and we were rejected every single time.
And so what were these VCs saying to you?
Like what was the problem?
Why didn't they want to invest?
So I think the problem was they didn't understand the problem.
That was the first problem.
So we're pitching affluent, mostly male investors who live in, have a whole foods within driving, if not walking distance, and probably don't do their own shopping themselves.
So for them, the question was, how would you compete with Whole Foods?
For us, the answer was 50% of people in this country don't live within driving distance of a Whole Foods and even more of them can't afford the premiums, even if they do.
And so that was like problem number one for us.
The second problem, which is totally on us, is we were very naive about the operational complexity, the capital requirements, the margin challenges of building an online retailer.
And I think the VCs, if not having direct experience there, had heard the horror stories and said, we'll do a DTC brand that has a single item, controls their supply chain, and keeps a pretty simple operational business.
But are we going to fund a membership club that has thousands of products from hundreds of brands and is trying to ship those all over the country?
That sounds crazy. The other thing I can imagine they were skeptical about was if you were suggesting that your target market, the audience you were going for were not affluent, but were people who were just didn't have access to really healthy food, it's hard to make that case because affluent people just statistically tend to be the bigger consumers of healthy
food. That's right. I think their assumption was that was based on where the demand was.
And our hypothesis was that there's latent demand in parts of the country where they don't have access to a health food retailer and at income brackets where they can't afford the price premium.
And I had that experience because I grew up middle class in the Midwest and I saw how hard it was.
I think we also didn't understand how difficult it was going to be.
And so a lot of the feedback, frankly, was really spot on.
All right. So you went to approximately how many VC firms did you pitch?
Do you remember pitching?
Dozens. Dozens. Dozens.
So our confidence is waning or getting slapped in the face every day with no's from VC's.
It was the next essential moment.
And so you still had money.
You could have still poured more money into this, although you don't want to deplete all the money that you made from your previous business.
Presumably you wanted to have some cushion for yourself.
So how are you going to get the money?
So at that point, we were pretty desperate.
And we had been kind of the one bright spot in terms of progress we've been making on the business was conversations we'd had with health and wellness influencers.
So a friend of mine, John Durant, who I knew from college had recently written a book called The Paleo Manifesto and become a thought leader of sorts in the burgeoning paleo movement.
He became friends with a bunch of other authors, bloggers, early social media kind of folks at the time it was on Facebook.
So he had introduced us to a number of these folks.
We had talked about doing marketing with them.
They were excited. They were engaged.
They understood the mission.
Their audience was the target that we were going after people that are trying to get to this lifestyle, but it's really hard because of where they live or because of how expensive it is or whatever.
So out of desperation, we went to these people and said, how about you invest too?
And to our surprise, a lot of them said yes.
You asked for checks. And I know one of them was Mark Sisson of Primal Kitchen.
That was the first one. That's right.
He was a first check. First check.
We met with Mark Sisson at a coffee shop in Malibu.
We walked in at that time, you know, all the background that I already described around where the development was, the rejections we'd have from VCs, our expectations were like it could not have been lower.
And he essentially wrote a check on the spot.
Wow. So how many checks would you end up collecting?
How big were these checks, by the way?
They were all over the place.
Many of the influencers had never written an angel check in their life.
So we had, you know, one of our first checks was from Wellness Mama.
She was a, at the time, 26-year-old mother of four in rural Kentucky.
Huge audience, super authentic content.
Ended up being a huge promo partner for us.
I remember we had a call with her accountant who asked us what our ticker symbol was.
I was like, oh, we're not quite there yet.
So yeah, it was anywhere from five, 10, 15, sometimes $25,000.
I think Mark wrote a $50,000 check and that was probably one of, if not the biggest.
And going to all these wellness influencers, how much did you end up raising?
So we'd raised a million and a half in the seed round.
And then had more demands.
So we opened up a convertible note and ultimately brought in hundreds of these people.
So you raised all this money from basically many first-time investors.
I mean, the upside is you don't have to deal with VCs.
The downside is having VCs is actually really helpful because they're so experienced.
That's right. But I think the benefit for us, besides the fact that we actually got money, which we needed and couldn't get any other way, was once they had skin in the game, now we were able to work with these influencers as real partners.
So they were on the same side of the table with us.
They understood the story because they had underwritten it for their own investment.
They were already passionate about the mission.
And when they did talk about us to their audiences, it was just that much more aligned from an incentive standpoint.
So the other big benefit was that had we had VCs, they didn't care about the mission.
So their focus would be, how do you make the business model work?
And I think they would have looked at that in a very short-term way.
The influencers cared only about the mission.
And that allowed us to bake in things early that I think VCs probably would have vetoed.
Like what? Like carbon neutral shipping.
Like doing our own fulfillment so we could control the quality experience and use sustainable packaging.
Carbon neutral shipping meaning you would buy credits?
We would buy credits for our carbon footprint.
And then we did, from the very beginning, a lot of things to try to reduce that carbon footprint, the biggest of which was absolutely prohibiting the use of air shipping.
All ground shipping. All ground shipping, no expediting.
I mean, ground shipping is still, unless you go on trains, it still creates carbon.
There's still a carbon footprint there, no doubt.
But it's an order of magnitude less than on a plane.
And while you're, because we're going to get to the launch, which is in November of 2014, but while you are preparing for it, who are you negotiating with?
Are you going to like Hain Celestial?
Are you going to individual brands that only make one SKU?
Are you like, that's a lot of conversations.
Yeah, we brought them more than 400 brands in.
I can remember in the spring of that year, Gennar and I went to the Natural Products Exposition West, which is the largest in Anaheim.
The big one, yep. 65,000 people.
So you just went and walked the floors and just started talking.
We walked the floors and we just hit everyone up.
And I think there as well, we had the benefit of the mission really resonating.
Like these brands, like the influencers, they understood that there isn't a lot of access.
They knew where their distribution was with brick and mortar.
They knew who their consumers were and they knew they weren't accessing middle class, middle America.
So for them, it was like, wow, for a business standpoint, we can access this whole new consumer set and from a mission standpoint, this is awesome.
So you had, how many products did you have ready at launch?
I think we had probably 4,000, 4,500.
4,000 products. And so help me understand.
Where did you find, like where did you get a warehouse?
Our warehouse was in our office.
So the first office was in a Hari Krishna church.
We literally rented out the rectory in LA, in Venice, and obviously not going to ship out of there.
So we looked around. This is still before we had been able to successfully raise money.
And we found an old garage that had been used for like an auto mechanic shop.
We moved in and when we did launch, we were working in the office during the day and then packing boxes at night.
And I imagine you didn't have to spend a dime on marketing because all your investors were bloggers.
That's right. This is kind of pre-Instagram influencer era.
It's early, early days.
Most of your influencers, they were bloggers, right?
Pre-Instagram, pre-YouTube, they were bloggers.
They had email lists. They were, in some cases, bestselling authors.
And the first promo that we ran was with Katie Wells, whose site Wellness Mama was one of those.
This is the blogger in Kentucky.
Blogger in Kentucky. She's in her mid-20s.
And she wrote a post about Thrive.
And within 24 hours, we had orders coming in from all 48 states in the continental US.
It was way beyond what we expected.
And it happened way faster than we expected.
Okay. So, and how much was a membership at the beginning?
$60. At the beginning, $60 today.
$60. Okay. So, I think it's similar to Costco.
Not a coincidence. Yeah.
So, $60. And do you remember, I mean, you launched in November of 2014.
Do you remember in the first full year of business how many, how much revenue you guys did roughly?
I think it was in the $30 million range.
So, tens of millions of dollars.
$30 million in year one.
Yeah. So, we had gotten just ridiculed left and right by investors when we went out with our projections.
And I think our projections had us doing 15 million in the first year.
So, we doubled what we thought we would do.
And honestly, we were constrained, right?
Operationally, we couldn't scale fast enough.
Because you didn't have the capital.
We didn't have the capital.
And we didn't have, like at first, we didn't have the facility, right?
So, our 6,000 square foot warehouse was bursting at the seams within a month and a half.
We moved to a 40,000 square foot building in Los Angeles.
And that was bursting in the seams within another six months.
So, it was very, very challenging to scale operationally.
I mean, your projections to investors a year earlier was, well, maybe we'll do 15 million, and most of them were skeptical.
I would be skeptical. Having 30 million in sales in that first year, I have to imagine you were profitable, very profitable.
Not remotely. Not remotely.
Not remotely profitable.
So, we didn't know, I think that this was the, again, the naivete coming in, we didn't realize how difficult it would be to do this profitably.
So when you layered in the shipping costs, the packaging costs, the cost of goods for buying from all these brands at relatively low volume, it was really, really challenging.
Because shipping was free, it was free for the customer.
Shipping was free. We had and still have a $50 minimum order threshold.
But it was at the time we were actually losing money on each order that went out the door, which means the more that you grow, the more money you lose.
Because every sale, you might make money on a jar of peanut butter, but once you're shipping it, you're losing money.
Once you load in all the costs to get that order out the door, every item ordered is negative margin.
And did you expect that to happen?
We did not expect that to happen.
And the other challenge was just the speed at which we were scaling.
You know, we, like, I mean, at that point we were burning more than a million dollars a month.
And so that was a challenge.
Why don't we come back in just a moment, how a marketing effort to win more customers completely derails, leaving Nick and his co-founders stuck with over a million dollars worth of coconut oil.
Stay with us. I'm Guy Razz, and you're listening to How I Built This.
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Hello guy and HIPT team.
My name is Robert Dale, and I'm from Vancouver, Canada.
My favorite episode was the Khan Academy episode with Sal Khan.
And particularly, there's a moment where he's describing a scene sitting in his driveway and he receives a call with some last-minute funding, and he just breaks down into tears.
And I found that was such a powerful moment because it really highlights the emotional roller coaster that it can be on the founder's journey.
And I've subsequently started my own company after listening to your podcast for many years, and it's really comforting to know that other people have gone through the same experiences and that you're not in this alone.
So thank you so much for all that you guys do.
You have a wonderful show and your inspiration to so many people.
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You're the best. And now, back to the show.
Hey, welcome back to How I Built This.
I'm Guy Razz. So it's 2015 and the launch of Thrive Market has been a blowout success.
The problem is they are growing so fast that they're running out of cash.
So we are bringing in as much money as we could, but that wasn't enough.
We wanted to continue hammering the gas because it was working.
And that was the time that we really got out over our skis.
And what we did to solve the problem is we said, all right, now we got to go back and raise more institutional money.
And the conversations couldn't have been more different with the VCs.
Everyone that rejected us now wanted to invest.
And so we raised $30 million.
This is literally six months to nine months later, those same VCs were like, wow, this is actually pretty interesting because you proved the model.
We proved the demand. We weren't as focused at that point on the model because we were so exhilarated.
And I think VCs, especially at that early stage, when they see that you've got to tiger by the tail in terms of growth, they want in.
And the challenge with that is we were not under any scrutiny on the unit economics.
We weren't under scrutiny to really make the business sustainable.
And then we threw the hammer and tried to grow even faster.
To me, I hear this story and I think, God, what a gift that they all rejected you six to nine months earlier because you would have taken pretty much any terms that they threw down at that point.
100%. You need the cash.
Yeah. And you would have been diluted to...
Diluted to oblivion. And more importantly, we wouldn't have had the influencers to come in and actually drive that growth.
So who knows whether we would have been as successful.
And so you would have had to pay for marketing and all kinds of social media strategies and it might have worked, but who knows.
Now they're coming to you and you guys can call the shots.
If they all want in, the terms are going to be way better.
So we created our own terms.
The valuation was 20 times higher than it had been six months earlier.
We got to pick the VC to lead that we wanted.
And then we went back and kept trying to grow.
All right. So for $20 million, you've got a huge war chest.
But the goal is don't worry about profitability, right?
Because this was the model at the time.
Just focus on growth. So what did that mean for you guys?
Yeah. I think the challenge was we were growing so fast.
And then when we raised that money on really advantageous terms, it just vindicated the strategy of grow, grow, grow.
And so our approach was let's blow the doors out.
We hired 100 people over the course of the next six months.
We moved into a 25,000 square foot office.
So this is like a over the top office with mirrors on the ceilings under the floating conference room.
Everything you'd expect from an overfunded Series A startup.
We leaned into sort of crazy funnels where we would, if you signed up for a trial membership, we'll give you a free jar of coconut oil.
But that was actually the moment where the wheels almost came off.
What happened? People that came in for a free jar of coconut oil weren't necessarily interested in being long term members.
Oh, you offered up like a trial membership for people?
So at the time, every membership started with a trial.
And the funnel that we landed on that drove the most growth was if you gave a free gift when you started your trial.
So we would ship a jar of coconut oil.
They didn't have to buy anything.
And they would get the membership free for the first month.
How much did that cost you?
It cost a lot, especially when we had to shut down the coconut oil program a few months later and got stuck with a million and a half dollars of coconut oil limitory.
So it was very expensive.
Nominally you had the member count growing through the roof, but under the surface, the engagement of those members wasn't what it needed to be.
They didn't actually buy a membership.
Or they bought the membership, but then they didn't actually use the membership.
I mean, what was the path to profitability for you at that point?
Was it to really pivot and to start making your own products like the Kirkland model?
Was that how you were going to get there?
So one of the first things we did there, and maybe one of the only good decisions we made at that stage of the business was to start working on private label.
And so that rapidly grew to 15% of our sales.
What did you start to make?
First product we made was olive oil.
The olive oil was single source from a fourth generation family farm in Crete.
The form factor coming in a tin instead of a bottle.
So we innovated on the packaging, we innovated on the sourcing.
At the beginning it was mostly staples, right?
So those like the cooking staples, the snacks.
Then we started creating new innovative products.
Like one of our best sign products today is called fruit circles, but it's basically healthier fruit only ingredient fruit by the foot.
Like a fruit rollup. Like a fruit rollup.
How was the working relationship between you and Gennar?
It was great. It was honestly great.
You were the CEO and he was the what, COO?
We were co-CEOs actually.
And so through 20s, he stepped away from day to day in 2017.
To pretty early on. Yeah.
So it was a combination of really specific situation with his family.
His father had late stage cancer and he wanted to spend more time with him.
And then the other side of it, which he and I talked a lot about into his credit, he was really open about was just sort of the business was changing so fast.
And the needs that kind of skill set that was required at that stage was really different.
So we had this period after we raised the 30 million that we're going full speed.
We grew way too fast. We made a lot of mistakes.
What were some of the biggest mistakes you made?
One we hired way too fast.
And when you hire that quickly, you can't integrate people effectively.
You make mistakes in hiring in terms of fit.
And that really caused us to suffer because it's a lot easier to hire people than to fire them.
We were way too aggressive with marketing.
We spent too much for individual members and did things like the coconut oil funnel.
And then we just, I think underestimated how difficult it was to scale operations.
You think about a technology business grows exponentially, but a physical goods online retail business is technology enabled.
But fundamentally, it's still an operating business.
We had to open warehouses.
We had to grow our inventory.
And all of that was expensive.
And it was complex in a way that we just didn't appreciate until it was upon us.
I wonder, given that you had all the influencers at a certain point, did their promotion of Thrive kind of fizzle out?
At a certain point, we had to sort of tell them to stop promoting.
Because? Because we couldn't handle the volume.
So we were at that point just operationally really compromised.
And as the business sort of continued to grow, we were approaching a $100 million run rate.
We were dealing with, one, how do we make sure we have enough capital to grow operationally into the demand that we now have?
And then just how do we keep the organization functioning effectively when we've brought on 100 new people and people are kind of running around trying to do their job.
But we haven't really been clear about what their job is.
And we've got so much changing so quickly.
As co-founders, we didn't really know what to do and when.
So you raised the Series B.
And I think this is about over $100 million.
And that was a turning point for the business.
Because there's a lot of money.
It was a lot of money. So it gave us the runway to step back and think more long term.
And then because the partner that we brought in.
So we brought in a group called the Invis Group.
They're a evergreen fund.
So they don't have a time frame where they're trying to sell a business.
And they were the one group that we talked to at the Series B that was sort of brutally honest with us about what was not working.
And that resonated. So it was strange.
You know, at the Series A, you had a lot of ECs that are telling you everything you're doing right.
At the Series B, we had this one investor that came in and said, here are the things that you guys aren't doing right.
And as we looked in the mirror, it was like, yeah, you're right.
Did you find that you had to start to spend money on advertising as well?
At that point we were. Yeah, we were starting to spend money on paid media.
And we were also at a scale where to keep growing at the rate we were growing, it was going to require more than just the influencers.
And the biggest thing, though, by far was focusing on the quality of the product in a way that made our members the evangelists.
So our number one acquisition channel today is Unpaid, it's referral.
It's members telling members.
And I think that was another place where we saw the mission made people want to evangelize more, when they felt good about the things that we were doing with packaging and shipping policies, when they knew their membership was sponsoring one for a low income family.
Yeah, let me ask you about that because you buy membership and then you guys sponsor a membership for a low income family.
It's a buy one, give one model.
Yep, and that was one that we was also very popular at the time.
Tom Shoes was another LA company doing that.
Orby Parker, yeah. Yeah, for us we looked at it and said, look, the membership is all margin.
So we can give away memberships all day to folks that would otherwise be able to afford them.
And the initial model was low income families, but we eventually expanded it to teachers, to students, to first responders and to military veterans.
But I also wonder, and again, there's nothing wrong with it.
Because I'll just put my cards on the table.
I think that the role of a business is to make money for the business, for its employees, for its investors, and to provide a great service to consumers.
And so if you stopped doing these programs, if you stopped carbon neutral shipping, if you stopped buy one membership, we'll give one to somebody in need, do you think it would have any impact on your business, your bottom line?
In the short term, some of these programs cost money.
So it might have a positive impact.
I think in the medium to long term, it would have a massively negative impact on the member perception and member loyalty, on our ability to attract great employees who come to thrive first and foremost because they believe in the mission.
And on our ability to think long term, like that mission is what galvanizes our entire company.
And I think it is the reason why members not only purchase on site, but also evangelize.
And I think we've also been really, we tried to be really smart about looking for opportunities to invest in the mission that are not zero sum with the bottom line.
Like I said, with the Gibbs memberships, when we donate a membership, that doesn't cost us anything.
Right. But yet it brings someone on platform who now can purchase and the business will make money from that.
So roughly how many, I don't know if you publicly reveal this, but how many members do you have?
Over 1.5 million. 1.5 million paid members.
Wow. So that alone is $90 million a year in revenue.
That's right. And then I guess, you know, hundreds of millions of dollars in sales a year, presumably.
Yeah. Well over half a billion in sales last year.
And our members every year are getting more active on site.
And where we invest today is how do we just deliver overwhelming value to those members so that the value is growing every single year?
How close are you to being profitable?
We launched in 2014, we're now 2024.
We were profitable last year.
You were profitable last year, Ralph.
Yeah. So we're running the business profitably, operating cash flow positive.
And back at that, those early days, you know, we were losing money on every order.
Yeah. Today, we're making significant contribution margin overall.
Wow. Is there a world where you would explore a sale, like, you know, Zappos was sold to Amazon and it's still Zappos?
Is there a world where you would be a standalone company as part of a bigger company?
I think we see a really clear path as a standalone business.
The membership renewal rates are over 70%.
We're still bringing in new members at a really rapid clip.
And we're still very early in that journey.
So we don't see any need to become part of a larger business.
To date, we see the clear path as continue to do what we're doing and continue to grow both profitability and the revenue.
When you think about the journey you took, right, and where you are now, and where this business is now, how much of the success of this do you think has to do with the work you put in and how much do you think has to do with the timing and just the luck of fortune and chance?
I think it's a combination of all of the above.
I do believe that staying at it and being flexible in your tactics and willing to adjust and respond to the facts on the ground is everything with entrepreneurship because best life plans will just be wrong every single time.
So that approach, I think, which is probably a combination of luck and work has really worked for us.
I think for us, the mission, again, being clear on where we're going has made us very flexible in how we get there.
It's Nick Green, co-founder and CEO of Thrive Market.
By the way, remember the story about all that coconut oil that Nick got stuck with after that failed marketing campaign?
Well, they were eventually able to offload it.
They sold some, gave some of it away to customers, and donated about 100,000 jars to charity.
Hey, thanks so much for listening to the show this week.
Please make sure to click the follow button on your podcast app so you never miss a new episode of the show.
And as always, it's free.
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This episode was researched and produced by Casey Herman and Catherine Seifer with music composed by Ramteen Arobloy.
It was edited by Neva Grant with engineering help from Robert Rodriguez and Gilly Moon.
The production staff also includes J.C.
Howard, Sam Paulson, Kerry Thompson, Alex Chung, John Isabella, Chris Messini, Carla Estevez, and Elaine Coates.
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