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- [00:00]
Guy Raz
Wondery subscribers can listen to How I Built this early and ad free right now. Join Wondery in the Wondery app or on Apple Podcasts. Have you ever been hanging out at an Airbnb and kind of scrolling through your phone when you realize, could I do this too? Because here's the thing, you don't need to own a beachfront villa or a mountain chalet to get started. Sometimes it's as simple as that extra bedroom down the hall. Find out how much your place is worth and at Airbnb.com host this episode is sponsored by Canva. If you make decks at work, you should make the switch to Canva Presentations. Canva Presentations might be the most visually impressive presentations you'll ever use. Start with a stunning template, drag and drop images, graphics, charts and data visualizations from Canva's massive media library. Add animations plus interactive polls and quizzes to really set your slides apart. Built in AI also lets you generate slides and text in seconds from a prompt and you can share your Canva presentations with anyone and instantly collaborate in real time. Canva is used by 95% of Fortune 500 companies. Whether you work at a small or big company in a team of two or two thousand, Canva empowers workplaces everywhere to create captivating presentations, save time and be more productive together. You'll love the presentations you can easily design with Canva. Your audience will too. Love your work with canva presentations@canva.com are you inspired by stories on how I built this? Take the next step in your entrepreneurial journey by enrolling in a graduate program at Babson College, the alma mater of Jamie Siminoff, founder of Ring David Heath, co founder of Bombas, and Mike Salguero, founder of Butcherbox, whose unique stories we've told right here on how I Built this. Babson equips you with the skills, network and hands on experience to turn your problem solving ideas into reality. Join a global network of entrepreneurial leaders at the school ranked number one in entrepreneurship for 31 years by US News and World Report and number two best college in the United States by the Wall Street Journal. Learn more about Babson's full time and part time graduate programs at babson. Dot Edu Edu Grad School.
- [02:37]
Abhi Ramesh
We were woefully unprepared for Covid. Just the sheer volume of folks kind of signing up on top of all this. It was a very challenging kind of personal time as well. My wife was actually diagnosed with lymphoma during COVID during COVID So if my wife hadn't been gone through that type of cancer treatment, I probably would have looked some of the problems that Misfits was going through at the time been like, holy cow, this is like life or death. But it certainly did give me perspective on what is truly a life or death problem and what are actually just hard problems that you can deal with and at the end of the day come out on the other side.
- [03:18]
Guy Raz
Welcome to How I Built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz and on the show today, how Abiy Ramesh realized that people will buy less than perfect food for a lower price and launched Misfits Market, a grocery delivery service that's been valued at $2 billion. When you walk into an upscale grocery store like Whole Foods or Wegmans, you actually pay a hidden price for blemish free fruits and vegetables. Which I think for the most part is fair enough, right? Those stores want pristine produce because customers are just going to pick around the misshapen apples and carrots and squash and those will eventually get thrown away. Now when it comes to how produce is evaluated by the usda, the top grade is fancy and the second highest is US Number one. But some produce never makes it great at all. The problem is that fruits and vegetables are natural products, which means a lot of them are weirdly shaped or might have blemishes and bruises. And in many cases that produce gets sent to animal feedlots or worse, it rots in the fields. This discovery was a revelation to Aby Ramesh several years ago when he visited an apple farm in Pennsylvania. Seeing all these imperfect looking but perfectly edible apples rotting away, he wondered, is there a business here? The short answer was yes, but it wasn't exactly, exactly the business ABHI set out to build. What started out as a grocery business really ended up as more of a logistics business. The company ABHI founded is called Misfits Market, and today it sells and delivers over 1,000 products to customers in 48 US states, including, yes, misshapen fruits and vegetables for less money than what you might find at a premium grocery store. Misfits was an idea that came to ABHI after several previous startups fizzled out. And we'll hear about some of those too. As for abhi, he grew up mainly in the Atlanta area. He was 7 years old when his parents immigrated to the US from India. Both of them were software engineers and both of them had very high expectations for their kids.
- [05:46]
Abhi Ramesh
If I ever got anything below 100 on a test. My dad would show up to the school, and this wasn't for show. He actually meant it. He would schedule a meeting, and he'd be like, why did he get a 97? You know, is there anything we need to be doing at home to make sure he's not missing three points out of 100 on an exam? And he did that a ton to my embarrassment. And I, you know, as any kind of teenager growing up, at the time, I was like, this is nuts. My parents are crazy. Like, what's wrong with them? I think I understand it a little bit more now. For both my parents, education is what got them here.
- [06:21]
Guy Raz
Yeah.
- [06:21]
Abhi Ramesh
Is at the end of the day, what got them out of India, what got them the opportunities to move to the United States. So for them, it's such. This critical, critical foundation. And as. As I think in most of my, like, what do you want to be when you grow up? You know, answers. It was probably like, either an engineer or a doctor.
- [06:39]
Guy Raz
Yeah. I guess while you were in high school, you were doing some tutoring because you. You were doing satisfaction prep for people, right? Because that. Because I guess you did really well in your SAT and started, like, a tutoring program. Are you, like, informally or formally tutoring people in high school?
- [06:57]
Abhi Ramesh
Yes. So.
- [06:59]
Guy Raz
So.
- [06:59]
Abhi Ramesh
So the sat, I took it twice, and I actually got a perfect score on the sat. And so, by the way, just.
- [07:06]
Guy Raz
This is just as. As an aside, the only other person on this show who I believe got a perfect on their SAT does a business that is somewhat competitive with yours, which is Thrive Market.
- [07:17]
Abhi Ramesh
Yes. So I listened to that episode as well, and I did not know that. I was like, holy cow. And believe it or not, I believe Nick also started and worked on a tutoring business of some sort, if I recall.
- [07:29]
Guy Raz
So maybe there's something, some correlation between a perfect SAT score and starting a food delivery, grocery delivery business. All right, keep going. So in high school, right?
- [07:39]
Abhi Ramesh
So the tutoring business kind of came naturally out of that, where, you know, there were a few other high schoolers, you know, friends of mine that were, like, had good scores in SATs, and we said, hey, let's go create a tutoring program to run that. Now, to be honest, it was mainly because I had to make money. I think When I was 15, I wanted to buy a Go kart or something like that. And my parents said, sure, but you pay for it. And I was like, I can't pay for it. I don't make money. And so they were basically like, but go make money and figure it out. And so at an early age, it was like, if you want to buy stuff, you need to kind of earn and appreciate what things actually cost and why they cost and what it takes to go generate that. Obviously as a high schooler, you have, you know, only a handful of things you could do to go make money. And so I started tutoring people.
- [08:22]
Guy Raz
All right, so you, you go off to college, you go to Penn, and you start your degree studying economics. So you get there in 2010 and I guess while you're there, you restart this tutoring company, but in a, in a more sort of methodical way. It's called Altair Prep, is that right?
- [08:40]
Abhi Ramesh
Yes.
- [08:41]
Guy Raz
And so tell me what, what was the new idea? What was it going to be?
- [08:46]
Abhi Ramesh
So it was somewhat of a technology idea. We created a G Excel spreadsheet, tagging thousands and thousands of SAT and ACT questions. We then use this to essentially create a personalized program for kids who wanted to get much higher scores in SAT and act. And so what we'd end up doing is the program was you take a diagnostic test at first. We will then take that diagnostic Test, see which 30 questions you missed, go to our bank of tagged, you know, 10,000 questions, and essentially go and build you a 10 week program personalized to the exact types of questions that you had been missing on your diagnostic. You know, early on we thought we were going to monetize this by building software.
- [09:30]
Guy Raz
When you said we, it was you and who, who else?
- [09:32]
Abhi Ramesh
So the main co founder was a friend from high school named Darwish. He actually runs a different startup today and I worked on another company with him after. So, you know, we actually had clients and we were tutoring folks.
- [09:45]
Guy Raz
You were like physically showing up to like a library and tutoring kids, actually an important distinction.
- [09:51]
Abhi Ramesh
So I was not doing the tutoring anymore. I was helping build and design the curriculum, kind of pushing on strategy. We hired tutors and actually, as we started to kind of get a little bit more momentum and traction and clientele for Altair, I was like, okay, I actually think this merits, you know, investing more time and energy. I'm going to go take a year off from school to do it.
- [10:12]
Guy Raz
All right, so sometime in 2012, you decide to move to Los Angeles to really build this business up. So basically it is a, it's a test prep business, but you wanted to turn it into a software product.
- [10:29]
Abhi Ramesh
Yes. And so the primary reason was though, the test prep kind of business model, the tutoring business model allowed us to get traction quickly and, you know, had real margins and we were able to get it to a certain scale. We thought about how we could actually scale it beyond that. Like, how do you scale a physical tutoring business to a thousand really hard? We're like, okay, we got to go software. And so the reason we moved to LA was there's a small incubator in LA that essentially said, well, you know, we will write you a $25,000 check to go build the software around this. So instead of, you know, a giant tutoring business, we can actually have like a recurring subscription sort of software business. So that was the idea. The long story short was that did not work, given who our customer was. You know, like a high performing student with, you know, parents that they want to figure out a way to get their students to get great scores. They didn't want to just pay for software. They wanted to look a kid who got 2400 on the sat in the eyes and sit their kid next to that kid and say, learn from this person. And so even though the software we built kind of had the same pieces that the Excel sheet and the tutor did, people ended up preferring the tutor. So we realized that early on ended up essentially dropping the software model entirely.
- [11:40]
Guy Raz
So basically you decided, or you, it sounds like you decided that, that it was time to kind of wrap that up and go back to college.
- [11:48]
Abhi Ramesh
Yes. And what ended up happening was I took a full year off from Penn. This happened probably around month five or month six. And I still had five or six months left on my leave of absence. And so I ended up deciding that I was going to teach myself how to code, how to become a software engineer. In trying to build this software product for all their prep, I realized how hard it was to hire engineers to speak their language unless you actually knew how to write code. So I was like, I'm going to spend the next five or six months learning how to code by myself and trying to build things.
- [12:25]
Guy Raz
So once it became clear that Altair wasn't going to take off, I guess as you say, you kind of dabbled in a few different ideas. Like one was kind of like a stitch fix, but for men, called trendbent, I think, right?
- [12:39]
Abhi Ramesh
Yes, it was exactly like Stitch fix before Stitch fix existed. So maybe I should have continued to do that. But it was a style, a personalized style quiz for men. So you'd go online, you'd kind of go through this giant quiz, and then we'd essentially send shoppers to go and pick a box for you every month and send it to you. So I coded that myself from scratch.
- [12:59]
Guy Raz
But you were doing this all with the $25,000 grant that you got from that incubator?
- [13:06]
Abhi Ramesh
Pretty much, yeah. Because there were really no costs for, you know, for me, it was. It was. I had to live somewhere and I crashed on people's couches in la and my only costs were my living costs.
- [13:16]
Guy Raz
All right, so after this kind of year, I guess you decide to go back to school and then figure it out. Once you got your degree, were you still thinking, I'm going to try something, I'm going to do this again, or were you sort of like, I'm done with startup world, I'm going to go get a corporate job.
- [13:35]
Abhi Ramesh
So the conscious side of me was, I'm kind of done. This whole startup thing's really hard. You know, I met Wharton, I met the sort of premier institution for learning finance. Why don't I go actually give that a shot?
- [13:49]
Guy Raz
Okay, so. So after you get your undergraduate degree from Wharton, I guess you. You get a job at Apollo Group, which is this like a big, prestigious private equity firm.
- [13:58]
Abhi Ramesh
Yes.
- [13:59]
Guy Raz
But you didn't stay at that job very long. Like, I think less than a year. So why. I mean, what. What happened?
- [14:05]
Abhi Ramesh
So, yes, I only lasted nine months there, so it was nothing about the firm itself or the experience. I just got the itch to go do something else on my own, and I could not get rid of it. You know, most of my job was looking at these, you know, I'd say companies between $50 million of revenue and $300 million of revenue. And so by my. And my job was to go on, like, analyze them, underwrite them, and go and figure out whether Apollo would. Would lend to them. Every single time that I would sit there and look at one of these pitch decks and build a model, I was like, I wish that I were on the other side. And so it got to a point where I was like, gosh, like, it's not like I don't like working here. I just. This itch is so strong that I feel like I have to go do something on my own. And I reconnected with Darwish, who was my co founder for Altair Prep. And funny enough, he essentially had the exact same itch. And he was like, gosh, I'm sitting here working in finance, thinking back to our Altair Prep days, and we did some things wrong, we did some things right. Like, maybe we should give that another.
- [15:17]
Guy Raz
Go back into education technology.
- [15:20]
Abhi Ramesh
Yes. And the reason that came up was because I was Talking to Darwish about how I had taught myself how to code. And he was like, interesting, because I also have kind of been teaching myself how to code as well, using a lot of these tutorials online, things like Codecademy. And we were like, do we think that there is an opportunity to actually build kind of like a. Can we focus on teaching people software engineering skills? And there were a whole lot of people that were looking at kind of pivoting their careers from finance, you know, consulting to technology.
- [15:53]
Guy Raz
Yeah.
- [15:54]
Abhi Ramesh
And one of the big gaps was yes, there were non technical jobs in tech, but if you didn't know how to code, it was hard. And if you didn't study computer science in college, you didn't know how to code.
- [16:03]
Guy Raz
All right, so you guys decide to do this and I guess you called it Horizons School of Technology. And this was like a boot camp, like kind of program, right?
- [16:13]
Abhi Ramesh
Yes, it was a 12 week program. And we hired an instructor because again, we were kind of the operational heads. We helped design the curriculum, but we wanted to make sure there was someone with like real credibility and also could teach computer science fundamentals. Well, again, I'm self taught, so while I can write code, I don't think I'm good enough to teach code.
- [16:31]
Guy Raz
And by the way, what was the cost? How much did it cost to do the camp?
- [16:35]
Abhi Ramesh
So we priced it at $10,000 originally for a 12 week course.
- [16:41]
Guy Raz
I have to imagine the margins on that are pretty good.
- [16:44]
Abhi Ramesh
Really good.
- [16:44]
Guy Raz
Because your expenses are low. It's like a kind of a business where you have a space and you've got the instructors and the curriculum. But I mean then you just repeat that.
- [16:56]
Abhi Ramesh
Yes, I'd say the hardest part to the financial equation for the coding bootcamp is just what your class size is going to be. You want to have a big class size and try to stretch that instructor cost to over as many students as possible. However, the more students you have in a class, in theory, the less effective it is for the entire class. And so we had to balance class size with that.
- [17:13]
Guy Raz
Did you have to raise any money to do this or could you basically do this with very little money?
- [17:17]
Abhi Ramesh
We didn't raise any money. When a student signed up, we took a deposit. That deposit gave us enough to kind of fund some of the upfront costs of renting a space, paying the security deposit, and then the rest of the business ended up being cash flow positive because once people paid their the entire tuition up front, we could fund the rest of the program after that.
- [17:36]
Guy Raz
So you have the successful first pilot in Philly and then you move to San Francisco to try and establish the school there or to sort of be headquartered there.
- [17:46]
Abhi Ramesh
Yes, for one, one very large reason. We didn't just promise that you would learn how to code. We also said we were going to help you find jobs to all the students.
- [17:57]
Guy Raz
So you had to be there.
- [17:58]
Abhi Ramesh
Or internships or jobs.
- [17:59]
Guy Raz
Yes, you had to be there.
- [18:00]
Abhi Ramesh
Now that increased the pressure a lot because the cost of doing anything in San Francisco is a lot higher than it was in Philadelphia. So hiring instructors, teaching assistants, classroom space was a lot more. And so we knew that by moving to San Francisco it was going to be a higher stakes game, but we still thought it was the right decision to actually start to scale the program.
- [18:20]
Guy Raz
All right, so you move to San Francisco and you do the same thing there. And how does it, I mean, how does it do.
- [18:26]
Abhi Ramesh
So moving to San Francisco allowed us to scale in a very meaningful way and actually believe we raised the price a little bit when we moved to San Francisco to probably more like 12,000, 12,500. So you can do the math. Like if we're running 200 students a year at that, you know, tuition cost, like it was getting to be a real, a real business for us.
- [18:46]
Guy Raz
And by the way, I'm just curious today, is that business entirely under threat because of AI?
- [18:54]
Abhi Ramesh
I think that is definitely under threat because of AI. I also think it's under threat because software engineering hiring has just shrunk. Those roles are just. There are a lot fewer of them now and then. I also, yes, definitely think the self serve tools have become a lot better as well.
- [19:10]
Guy Raz
All right, so you've got this business going Horizons, and I mean, it's doing well. What happened to it?
- [19:19]
Abhi Ramesh
So it's funny because you think that we would make the same mistake twice, but the big realization for Ryzens again was we were like, okay, we have this thing at a couple hundred students a year, but going from 0 students to 100 students was easy. We couldn't see a world in which go from 100 to 500 or 500 to 1000 without like multiple years trying to scale it to multiple locations, multiple cities. And I think we still could have done it, but I think, you know, both of us looked at each other and said, like, do we actually want to be scaling a physical, another physical tutoring, you know, education business. And this is probably early 2018. We're doing Horizons for three years now. It's a profitable business. We are making money from this, which is awesome, but it's really hard to scale. And there was a period of time where we actually took on a few hundred thousand dollars of external capital. We returned it two months later, the entire amount. Because we looked at the type of business this was, and we were like, this is not something that can withstand venture style funding. Like, it just doesn't make sense. And so rather than disappoint a bunch of investors who want to see a 10x on a tutoring business, let's just give the capital back. And so maybe we should go look to see if we could do other things.
- [20:35]
Guy Raz
Okay. So, I mean, clearly you're. You're. The gears in your head are turning. I mean, you're thinking about what is the thing that could work. And you're living in the Bay Area, and I guess you start to. You sort of come across this idea of. Of produce, of maybe doing something with produce. Tell me what. How that idea started to kind of crystallize in your head.
- [20:58]
Abhi Ramesh
Yep. So there were a couple of moments that led up to me deciding there was something interesting to do with selling produce online. The first one was I actually stumbled into an article that talks about produce specs. There are actually, like, extraordinarily specific specifications that the USDA puts out for every item. Bananas, apples, oranges. There is strict guidelines on, you know, what falls into what tier. If you look at apples, for example, there's extra fancy, fancy, you know, grade one, grade two, and all the way down. And so I stumbled into an article that kind of was explaining some of this, and I just didn't realize that that's actually how produce grading work.
- [21:39]
Guy Raz
It's based on size and shape and.
- [21:41]
Abhi Ramesh
Color, color aesthetics, dozens of other things.
- [21:44]
Guy Raz
Like how meat is. Although meat is graded based on fat distribution. But it's. Yeah, it's. It's basically a grading method that enables grocery stores to charge different prices for different products.
- [21:55]
Abhi Ramesh
Exactly. And what kind of piqued my curiosity was, when you read through some of the standards, some of them are sort of, like, very quantifiable. You know, it's like, oh, you know, you don't want a rotting spot on your pear when you sell it, or, you know, you need a certain size. And some of them are pretty vague. You know, some of them are like, you know, you want the apple to be clean on the outside. And it's like, what does that mean? You know, I mean, if there's a little dirt on it, does that not count as clean? And so. So this just piqued my curiosity, and I kind of just put it in a folder in the back of my head. But I was just interested, having learned about it. And then I think the most pivotal moment for me, I actually ended up moving from San Francisco to Philadelphia.
- [22:39]
Guy Raz
This is after you decided, well, this is you decide to fold the business or sort of wind it down.
- [22:44]
Abhi Ramesh
We decided to wind down horizons. I still did not know what I was going to do next. So my girlfriend at the time wife, now was finishing up her med school at Penn. And so on one of our adventures, we ended up going to an apple orchard located about 40 minutes outside of Philly. And when I was there, I remember seeing, like, we were going through the apple orchard and for every apple that was, you know, on the tree that we could go pick, there were like hundreds on the ground already. And so I, you know, I remember that article that I read. So I ended up asking the farmer, I was like, what happens to all these apples on the ground? Like, what do you do with them? I'm more just curious. And he points this giant cold storage container that he has and says, I put them all there. I donate some, I make cider with some. And I end up having to throw out the vast majority of them at the end of every season. So I was very curious. I was like, can I look at them? So he opens up his cold storage little container. I look inside and I just see giant drums of apples. And I pick one or two out. And I was like, nothing seems wrong with these. Like, yeah, maybe they're a little small. Like, I maybe see a bruise on one or two. But like, I don't see anything fundamentally wrong with these apples. So I was like, can I buy some from you?
- [24:01]
Guy Raz
You wanted to buy them for what reason? To just to experiment or to eat them or to what?
- [24:06]
Abhi Ramesh
I was just generally curious about, like, does it taste any different from the apples that we're picking from the trees?
- [24:10]
Guy Raz
I see?
- [24:11]
Abhi Ramesh
And I think the other thing going through my head at the time was, okay, if these apples could be sold via retail channels for a dollar an apple and sold to the juicing Cider channels for $0.20 an apple, less or less. There's a whole lot in between there. And so are there apples here that could be sold for $0.40 or $0.50 due to the retail channel? And is there something there? And so in a sense, it was sort of testing the farmer because I was like, okay, can I buy these? And he said, sure, how many ever you want? And I was like, you know, how much do you want me to pay for them? And he Kind of was just like, name your price, you know, pay whatever you want for them.
- [24:49]
Guy Raz
Right.
- [24:50]
Abhi Ramesh
That was probably the first moment where kind of made me realize, like, I am looking at a grade of apples that I as a consumer would feel totally fine eating. And I'm talking to a farmer that is willing to give it to me at almost any price. You know, not any price, but is basically saying like, my alternative here is either 0 or 5 cents or 10 cents. And there's a whole lot of room between that and what I as a consumer and probably willing to pay, given the price of apples at the grocery store.
- [25:18]
Guy Raz
And the beauty of apples is you can really, they last a long time.
- [25:22]
Abhi Ramesh
Yes.
- [25:22]
Guy Raz
Like apples in particular.
- [25:24]
Abhi Ramesh
Exactly. And if you think about the time that I was doing this in Philadelphia, this was kind of late summer, you know, summer to late summer. And so a lot of what was being grown at the time was these kind of like heartier seasonal fruits and vegetables. Apples were a huge part of it. The squashes, the potatoes, the onions. Like, I was so excited. I need to immediately figure out if this is a one off thing that I just learned about this apple farmer or if this exists across other commodities. And so the first thing I did when I got back home to Philly is I was googling around to see how I could get in contact with other farmers. What's interesting is the USDA actually publishes a list of every organic certified farm.
- [26:07]
Guy Raz
Wow.
- [26:08]
Abhi Ramesh
And so some people ask me, why do we start organic at Misfits? Because we actually started the business only doing organic produce. In part, I think it was because, you know, I thought that starting organic would kind of give us more of the quality credibility. But the real answer is there's not a list of all conventional farms, but there is a list of all organic farms online on the USDA's website. And so what I did when I got back home is I pulled that list of every organic farm in Pennsylvania and I started cold calling or emailing all of them.
- [26:37]
Guy Raz
Wow.
- [26:38]
Abhi Ramesh
One of the challenging things was some of the Amish farms, you probably know they can't use cell phones. They don't use. And so they have their one phone landline in the barn. And so if you don't catch them at 6am, you're not going to catch them the rest of the day. So I'd wake up early, call them at 6am I would call them and ask, hey, do you have produce that you can't sell to grocery stores? And most of them would say yes. Why? Who are you? What do you want. And I would just say, I want to buy it from you. They all said, great, come on by. And so drive to the farms. I start buying up cases and cases of their kind of grade two product, mainly apples, squash. Apples, squash, onions, potatoes, beets, carrots, a lot of root vegetables.
- [27:24]
Guy Raz
Things that just last a long time in cold storage.
- [27:26]
Abhi Ramesh
Last a long time. There's huge quantities of. And, you know, a lot of these are like. What's fascinating about the root vegetables especially was there are significant aesthetic imperfections. Nothing but aesthetics. Like, I'm seeing carrots that are just.
- [27:41]
Guy Raz
With, like, two roots coming out of it.
- [27:43]
Abhi Ramesh
And two roots, they're twisted around each other. It's like, you know, they're two carrots that are almost like hugging each other. So I. I started buying all this.
- [27:51]
Guy Raz
Stuff, and it was your spending a couple hundred bucks max.
- [27:54]
Abhi Ramesh
Yeah.
- [27:55]
Guy Raz
Yeah.
- [27:56]
Abhi Ramesh
And the interesting thing that I found was for most of these farmers, they didn't even have a price for these items. They kind of were like, I don't really know, you know, like, what would you pay? Things have changed a little bit now, but. But. But at the time, there was really no market for these items, and so there was no such thing as a market price.
- [28:16]
Guy Raz
And by the way, you're buying the produce, but what were you doing with even buying $100 worth of, you know, I mean, that's. You might have, like, several cases of produce stacked up in your apartment. Were you eating it? Were you just buying it just to buy it?
- [28:30]
Abhi Ramesh
I would eat some of it, but I can't eat cases of it. And so there's a lot of produce just sitting around my apartment. And I lived in an apartment building, so I started leaving it out for free for people to take in the apartment building. And so it was really just kind of like a way to test the supply side.
- [28:44]
Guy Raz
If it was good, if it was good enough to use, if it was good enough.
- [28:46]
Abhi Ramesh
So I'd eat some of it. I'd give away a lot of it. And then, like, there were just cases and cases of squash sitting in my living room.
- [28:51]
Guy Raz
Yeah.
- [28:52]
Abhi Ramesh
And I have photos. My apartment was filled with produce.
- [28:58]
Guy Raz
When we come back in just a moment, ABHI is able to find customers for those stacks of squash and all of his other produce. But the much bigger challenge. Delivering it. Stay with us. I'm Guy Raz, and you're listening to How I Built this. I almost always stay in airbnbs when I travel because it lets me experience a town or a city just like the people who live there. Do. Maybe you're planning a trip for a long holiday weekend while you're away. You could Airbnb your home and make some extra cash toward the trip. Or maybe there's a big game or event coming to your city and lots of fans are going to be visiting. You could let Airbnb your home or an extra room and make some extra money while people are in town. Whether you could use a little extra money to cover some bills or for something a little more fun, your home or spare room might be worth more than you think. Find out how much@airbnb.com host if you've been a long time listener to How I Built this, you might remember the very first episode we aired back in 2016. I sat down with Sarah Blakely, the founder of Spanx, and we explored her journey from selling fax machines to starting her own company that's now valued at over $700 million. When Spanx launched in the early 2000s, it revolutionized the fashion industry by creating an entirely new category of clothing, shapewear. Then in 2019, Kim Kardashian launched her own shapewear company, Skims. She may have had fame and fortune on her side, but going up against an established titan like Spanx was no safe bet. The newest season of Business wars dives into this fascinating rivalry. This is a story about what it takes to launch a product and how far celebrity backing can really take a brand. Follow Business wars on the Wondery app or wherever you get your podcasts. You can binge Business Wars Spanx versus Skims early and ad free right now on Wondery. In the early hours of December 4, 2024, CEO Brian Thompson stepped out onto the streets of Midtown Manhattan. This assailant pulls out a weapon and starts firing at him. We're talking about the CEO of the.
- [31:21]
Abhi Ramesh
Biggest private health insurance corporation in the.
- [31:23]
Guy Raz
World and the suspect he has been identified as Luigi Nicholas Mangione became one of the most divisive figures in modern criminal history.
- [31:32]
Abhi Ramesh
I was targeted, premeditated, and meant to sow terror.
- [31:35]
Guy Raz
I'm Jesse Weber, host of Luigi. Produced by Law and Crime and Twist. This is more than a true crime investigation. We explore a uniquely American moment that could change the country forever.
- [31:47]
C
He's awoken the people to a true issue. Finally, maybe this would lead rich and powerful people to acknowledge the barbaric nature of our healthcare system.
- [31:59]
Guy Raz
Listen to Law and Crime's Luigi exclusively on Wondery. You you can join Wondery in the Wondery app, Spotify or Apple Podcasts. Hey, welcome back to How I Built this. I'm Guy Raz. So It's August of 2018 and Abhi is pretty sure he can buy all of the ugly produce he can handle at a big discount from farmers around Philadelphia. But having a supply is only half of the equation.
- [32:31]
Abhi Ramesh
And the missing piece was, is there demand? Are people interested in quote unquote, good quality produce, but not your grocery store grade, delivered to you, but at a discount.
- [32:42]
Guy Raz
So how did you test whether there was demand? Because before you raise any money, you're using your own cash right now.
- [32:48]
Abhi Ramesh
My own cash. I put up a landing page. I built the landing page myself.
- [32:55]
Guy Raz
And what'd you call it?
- [32:56]
Abhi Ramesh
So the original name was Misfits Market. So the name has stuck.
- [32:59]
Guy Raz
Misfits Market.
- [33:00]
Abhi Ramesh
Oh, I call the Misfits market. That first farmer I met, he used the word misfit. He's like, these are the misfit apples. So I was like, misfits Market. No one has it. It's not trademark. Like, let me, let me do it. So wow.
- [33:10]
Guy Raz
And you got misfitsmarket.com like no problem.
- [33:13]
Abhi Ramesh
Got misfitsmarket.com so day zero of testing demand. I got the domain for $10 or 7, whatever costs on on Godaddy, use Shopify to kind of get a basic landing page up. And at the time I put up two items. One was a small box, one was a large box.
- [33:31]
Guy Raz
Did you specify what produce would be in there?
- [33:34]
Abhi Ramesh
I just listed out what was seasonal. And I said, hey, for the small box you're going to get 10 to 12 pounds or whatever it is of seasonal produce. And for the large box you'd get 15 to 20 pounds of seasonal producer. And if I remember the early pricing right, I think the small box was $22 and the large box was $35. Right. So I put that landing page up and created a Facebook ad account, put my personal credit card on it and started to drive pre sale traffic to the website. And what I decided to do was I was like, I'm going to lean into the weirdness and the wonkiness of the fruits and vegetables. And so I took photos of the kind of ugly twisted carrots and the weird shaped squash. And I would just say like, you know, ugly fruit in need of a home. And those are my Facebook ads.
- [34:26]
Guy Raz
And when they get to the landing page, they couldn't order at that time. It was just a pre order.
- [34:30]
Abhi Ramesh
It was a pre order so they could pay, so they could click buy and actually like pay the 22 or $35. But I had a, you know, blurb that said, you know, shipping starting in two weeks.
- [34:40]
Guy Raz
So. But these were ads that were going out all over the country.
- [34:45]
Abhi Ramesh
No. So I limited the ads. So my assumption was I'm going to start with, like, Philadelphia area. Focus on apartment buildings and neighborhoods that are near me, and we'll figure out a way to get them there from these farms.
- [34:57]
Guy Raz
And what were you, I mean, sort of in that time period, what were you spending on ads? I mean, was it thousands of dollars, tens of thousands of dollars? Like, what did it cost?
- [35:09]
Abhi Ramesh
I started, I probably started with like, you know, 50, $100 a day, $200 a day. What was very interesting was when I got my first two or three conversions for people to sign up, it cost me like $5 or $10 per person. Per person to get a sign up.
- [35:26]
Guy Raz
Yeah.
- [35:26]
Abhi Ramesh
And I was like, okay, I think I can figure out a way to make this work if that scales. Now does that scale is the question. So the only way to know is this, our scaling spend. And so I took it from 50 to 100 to 200 to 500, probably on my own. I got to a point where I was probably spending about, you know, $1,500 a day on paid ads on Facebook and bringing in 100 customers a day.
- [35:50]
Guy Raz
Wait, hold on one sec. Because you're getting a little ahead of yourself. Can we, can we just wind back to when you just had a few hundred customers? Because I think you're about a month into this thing and obviously you need. You need some money to get it going. And from what I gather, you reach out to this friend of yours named Edward Lando.
- [36:10]
Abhi Ramesh
Yes.
- [36:11]
Guy Raz
Who is Edward?
- [36:12]
Abhi Ramesh
You know, I think of Edward as like he was a co founder for Altair. He was less involved in kind of the day to day of the tutoring company. But I had still kept in touch with him. And he was a friend of mine from Penn. I told him that I was working on this, and I was like, I got to figure out a way to get money, otherwise, you know, I'm dead meat. And he, he offered to put in the first check, almost like a no questions asked. And he wrote $150,000 investment into Misfits. There's no corporate entity. There are no documents. I opened up a Bank of America account and he wired 150k into it. And then I was like, don't worry, I'll figure out the docs. I'll figure out the entity later. And in the early days, he also, you know, he was living in New York City at the Time. And he was like, look like, if you need help doing stuff, I will help you. And so he actually came down to Philly for the first few months of the founding of Misfits and actually helped me on the ground with things as well. In addition to putting in that first check.
- [37:11]
Guy Raz
All right, you now had about a couple hundred people to deliver boxes to. And so tell me about that. Like, were you, did you, I don't know, like rent a U haul truck and drive to a bunch of different farms and then bring the stuff back to your apartment? Or did you like rent a space and start to like hand pack the boxes? Tell me about that first order.
- [37:36]
Abhi Ramesh
So that's almost exactly what I did. I very quickly signed a lease on a small warehouse space in North Philly. I purchased two industrial refrigerators, I think from Costco, put it in the warehouse space. I was like, this is where I'm going to store at least the things that should be kept cold, like apples. So I had a warehouse space. I then went and drove to all these farms and started to pick up inventory to fulfill the 400 plus orders. Three times a week. I'd go out, rent a U haul in the morning, drive out two and a half hours to the farms, spend the entire morning and afternoon collecting all the produce, drive back to the fulfillment center. And what I'm doing is the first kind of 10 to 15 boxes I packed on my own and I actually delivered them myself. But I very quickly realized while I could do the sourcing and those pieces, the fulfillment and the logistics was going to become impossible to do solo. So I put up initial job listings on Craigslist and who's to, how are you?
- [38:36]
Guy Raz
I mean, the packing is easy, but delivering them is a different story to each address in the Philly area. How did you do that?
- [38:44]
Abhi Ramesh
So delivering was really hard at first. I just handed the boxes I'd hand like five at a time or ten at a time to these drivers that I hired off of Craigslist. Yeah.
- [38:55]
Guy Raz
And whose cars?
- [38:56]
Abhi Ramesh
Their own cars. They use their own cars to deliver the boxes. Now the hardest thing that I realized was routing. Because If I hand 10 boxes to you, Philly is a big metropolitan area. How do you know where to go to first?
- [39:07]
Guy Raz
This is why UPS is the best.
- [39:09]
Abhi Ramesh
Those 10 boxes might take you 12 hours to do if you route them incorrectly. And you're not going to route them in your head.
- [39:14]
Guy Raz
Right.
- [39:14]
Abhi Ramesh
So there was an off the shelf routing tool where you can plug in 50 addresses at a time and it will create an optimal route for those 50 addresses.
- [39:23]
Guy Raz
Right.
- [39:24]
Abhi Ramesh
And that is what I used. We would route them through this manual routing software, print out the output, hand it them, and say, this is the order for your 10 orders. Go deliver them.
- [39:35]
Guy Raz
By the way, I would think that at this point, you would bring in your dad, who is a logistics specialist on shipping.
- [39:43]
Abhi Ramesh
So I called. It's funny you say that, because I didn't really tell my parents about this until much later.
- [39:49]
Guy Raz
What do you mean you didn't tell them about this?
- [39:52]
Abhi Ramesh
They didn't even know I was working on Misfits.
- [39:54]
Guy Raz
They thought you were doing nothing?
- [39:56]
Abhi Ramesh
Pretty much, yeah. They knew about the altar days. And part of it was, you know, I didn't certainly amongst my parents, who were like, well, you left Apollo this, like, big, fancy job. You started this horizons. Think it didn't work out. Like, is this like a. This is just a track record of doing things that are not going to work? And so I didn't tell them.
- [40:15]
Guy Raz
Yeah.
- [40:16]
Abhi Ramesh
I think the first time I told them about Misfits was right before we released our press release for our seed round of $2 million.
- [40:23]
Guy Raz
Wow. Okay. All right, we'll get there. So you. You got this logistics software, and it. Does that work? Does it work?
- [40:30]
Abhi Ramesh
Yeah, it did work. But very quickly, I realized that having my own drivers go and deliver these things was just way too hard. And I was just. I was doing work that other people had already done, the big logistics providers. And so probably about three weeks into it, I switched from our own drivers to UPS. FedEx.
- [40:53]
Guy Raz
Yeah.
- [40:54]
Abhi Ramesh
Now, what I had not thought about to date was how you actually package the items. I just put squash, apples, onions, potatoes, peaches in a box together and handed them to a driver, thinking that they.
- [41:07]
Guy Raz
Would just be carefully placed on the ground, not just tossed on a doormat with the peaches bouncing around with the hard butternut squash getting bruised.
- [41:17]
Abhi Ramesh
Correct. And when I was handing them to our own drivers to go do that, it was fine. Now I put on a FedEx truck, and it's bouncing around a FedEx truck, going to a sort center, going down. Everything changed. I start to get, you know, people are still. Customers are still happy. They, like, they love the boxes. But, like, 1 in 15 would email and be like, my squash smashed. My peaches in the box. Like, what are you going to do? And so that was. It was an important moment because I realized, like, if this is going to scale, I have to figure out the packaging side of this.
- [41:46]
Guy Raz
Yeah. Because basically once somebody calls and says that, and then you got to go and Send more peaches. You've lost money on that order.
- [41:53]
Abhi Ramesh
Exactly. And even to date, the packaging of what we do is actually a huge component. So I started testing a variety of different things, like insulated bags, containers for peaches, wrapping fruits, separating them with cardboard dividers instead of the boxes, all those sorts of things, and eventually found a solution that has worked even for the FedEx deliveries.
- [42:15]
Guy Raz
So when you were just going back to these first customers, I mean, the marketing was very simple. It was like this weird looking fruits and vegetables. But essentially, were you sending this message to people saying, hey, you're spending too much on perfectly pristine produce when you can get the same quality that might look a little blemished or weird for a fraction of the cost? Were you sending that message out in these ads?
- [42:39]
Abhi Ramesh
Yes, I would say that the message there were two. One was get really high quality produce at a discount. And the second message was help fight food waste. We have a huge food waste problem in the US and forget about whether you should fly on planes or not. 10% of greenhouse gas emissions in the US comes from methane produced by landfills, which are filled with food waste. It's an order of magnitude higher than what's produced by planes.
- [43:10]
Guy Raz
At what point, because this is now the fall, early winter of 2018, do you go out and look for real money? Because you got about 150,000 from Edward, your sort of first investor, but you needed to raise a couple million at this point?
- [43:25]
Abhi Ramesh
Yes. And between kind of the end of the summer of 2018 and the end of the year, between August and December, we kept growing at that same clip. So by the time December rolled around, we had a couple thousand customers and the warehouse was getting packed. I had gone from one packing shift to two packing shifts. So we had a 6am to 2pm shift of packing orders and we had a 2pm to 10pm shift for packing orders to warehouse. We got from two refrigerators to five refrigerators. So the business was growing. And so in October, probably late October, I reached out to a guy by the name of Patrick who was at a new fund called Green Oaks Capital Capital. Patrick had been my desk mate at Apollo. The other thing I forgot to mention is probably is when I built that landing page for these customers to sign up, they signed up into a subscription, right? It wasn't just that I'd have 201 time orders or 301 time orders. These are repeat orders that are either bi weekly or weekly. And so I had a real, you know, at a couple thousand customers ordering weekly, you know, it was a scale business doing a couple million dollars of ARR. So I gave Patrick some of the high level metrics and I was like, this is what I'm trying to build. Ultimately, I think this can be kind of like something we can scale nationally. I think there's a lot of supply of this ugly produce. What do you think? They came back a week later and they said we would write a $2 million check into this.
- [44:54]
Guy Raz
I mean, that's unbelievable. You know, given. Given how quickly that happened. Let me just kind of dig into this for a moment because clearly your friend had faith in you. This is a low margin business. You're dealing with highly perishable products. Right. I mean, now the business has evolved and we'll get to that. But at this point, it's like fruits and vegetables and I mean, it's like a supply chain nightmare. Like, the margins are like, the math has to be perfect to make this work.
- [45:28]
Abhi Ramesh
Yep.
- [45:29]
Guy Raz
But it's really risky to put money into this.
- [45:32]
Abhi Ramesh
So I think you're right in that the first investment from Ed was very much so. Like, you're a friend, I trust your execution. You'll figure it out. Like angel friends and family. Check. I think the Green Oaks check. The big part of why, what got them sort of excited about this was the unit economics component of it as well. I think they looked at the ability to buy produce that you could sell for 80 cents on the dollar. The fact that we could buy that for 40 cents on the dollar, 30 cents dollar. I think they looked at that and they were like, that is a very interesting kind of arbitrage opportunity. And I think there should be a way to scale that. And my, my thesis from day one was I have a cost advantage on the supply and I can pass on a chunk of that cost advantage to the consumer, still have a chunk that you know, and keep that in between, to have, you know, margin for the business. But that cost advantage from the supply is kind of what drives everything.
- [46:31]
Guy Raz
Okay, now it's 2019. You've got 2 million. Who were your first hires? What were the roles?
- [46:37]
Abhi Ramesh
A director of operations was probably the first or second hire that I made.
- [46:42]
Guy Raz
And how did you recruit them? How did you find them? Did you look for people with experience in food, people who worked at Whole Foods? Like, who were they?
- [46:48]
Abhi Ramesh
Yep. So the first director of ops hire that we had this, she was a woman with specifically experience running a food fulfillment center. One of the decisions that I made early with hiring some of these roles was I did not go super senior with my hires. And it was actually something that I kind of disagreed with multiple times with some of our investors over the years who oftentimes encouraged me to go like, hey, hire, you know, hire like the super fancy chief operating officer from XYZ E commerce company, like early. And I never did that. I actually ended up hiring folks that were right for the stage that we were in today, not for the stage that we'd be at in three years. There's pros and cons to doing that. And I think for me, I needed someone that could do the job, not someone who could sort of build infrastructure and go hire teams to go do the job. And so the first director of hops, the ops that we hired, she had done the job. She knew how to manage a two shift, you know, 30,000 square foot warehouse with some food.
- [47:56]
Guy Raz
But, you know, with your ambitions here to make this work, because this is not really just a produce business or food business. This is a logistics business. This is a supply chain business. I mean, really. And it reminds me, we did the story of Zumies, this surf and skate shop, a couple years ago. And I remember the founder saying, you know, the key to a successful retail business is inventory management. He's like, forget about everything else. If you want to have a good retail business, you've got to manage inventory perfectly. And I think that philosophy applies here. Not necessarily with inventory, but with the logistics and the margin. It's just so the line between this not working and this working is so thin, 100%.
- [48:44]
Abhi Ramesh
And it's funny you say that because there's a couple small companies that advise these days. And one of the things I told them recently, both of them was like, you have to be very honest with yourself on what business you actually are in. Because with us, right, with misfits, it's easy to say, oh, we're E commerce, we're grocery, but fundamentally we're an operations and logistics business. And being excellent at that is actually what is required. If you've seen the McDonald's, you know, documentary, like when they realized they were a real estate business, that's when McDonald's actually started to work. And so realizing what business you actually are in, like what is the fundamental driver, is so critical. And I think it was probably late 2019 that I realized that, that you are in that I learned that perishable fulfillment logistics is the business that we are in. And the way I learned it is between that $2 million seed round and March 2020, over that period of time, we moved warehouses three times and the.
- [49:47]
Guy Raz
Growth was coming from customer. I mean, you were basically spending tons of money on customer acquisition.
- [49:55]
Abhi Ramesh
Tons of money on customer acquisition. But also we started to scale the number of items we'd bring in. Right? Like, this was no longer squash, potatoes, apples, beets, and peaches. We started to increase the variety of items that the box would have. So we'd have leafy greens, we'd have broccoli, we'd have a variety of other fruits. So we probably went from five or 10 items to 30 or 40 different items. And so imagine not just packing those 30 or 40 items in a box. Imagine the inventory requirements now, because we need to actually hold inventory for 30 or 40 different types of produce items, each with a different temperature requirement. Broccoli comes on ice, which I don't know if people realize, when broccoli shipped, it comes on a ton of ice. Ice melts, and then water gets all over the warehouse. You have to have drains. So there's all these small operational nuances that we started to kind of learn by doing this.
- [50:50]
Guy Raz
When we come back in just a moment, a not so small operational nuance. The unprecedented challenge of delivering groceries during a pandemic. Stay with us. I'm Guy Raz, and you're listening to How I Built this.
- [51:14]
C
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You know those creepy stories that give you goosebumps? The ones that make you really question what's real well, what if I told you that some of the strangest, darkest and most mysterious stories are not found in haunted houses or abandoned forests, but instead in hospital rooms and doctor's offices? Hi, I'm Mr. Ballin, the host of Mr. Ballin's Medical Mysteries. And each week on my podcast, you can expect to hear stories about bizarre illnesses no one can explain, miraculous recoveries that shouldn't have happened, and cases so baffling they stumped even the best doctors. So if you crave totally true and thoroughly twisted horror stories and mysteries, Mr. Ballin's medical mysteries should be your new go to weekly show. Listen to Mr. Ballin's Medical Mysteries on the Wondery app or wherever you get your podcasts. You can listen early and ad free right now by joining Wondery in the Wondery app or on Spotify or or Apple Podcasts.
- [53:13]
Guy Raz
Hey, welcome back to How I Built this. I'm Guy Raz. So it's the end of 2019, and misfits market is growing so fast that it's easy to forget the company is barely a year old. They're moving beyond Pennsylvania for deliveries and moving into other types of food as well, not just produce.
- [53:33]
Abhi Ramesh
One of the first ones was actually a salad dressing item, and I believe at the time it was a shelf life issue. So they were like, we have a bottled salad dressing. It has, you know, 120 days of shelf life. Grocery stores can't buy things that only have five months or six months of shelf life often. And so we looked at that and said, can we test a non produce item as part of our offering? So when someone kind of came in to look at their next order, there was an option that said add salad dressing. And we sold out of them.
- [54:05]
Guy Raz
Wow.
- [54:06]
Abhi Ramesh
And so that was kind of our first foray into non produce items. And that also kind of gave us some initial clues as to how we would attack the non produce categories, essentially by looking at some of these other inefficiencies. Things can have manufacturing errors. So one of our early buys was a giant shipment of olive oil. The labels on the cans were printed upside down. And so they can't sell that through their traditional channels. And so they ended up finding us and we bought, you know, the 20,000 cans of tray, I think it was.
- [54:40]
Guy Raz
Tray was at a massive discount, at a huge discount because they can't sell it at Whole Foods because you need the. And so you could basically say your customers, hey, we got upside down labels. And did that kind of become the model like the, you know, I remember I Don't know if it's still the case, but I remember when I was a kid, my parents would take me to get all my clothes at Ross Dress for Less. That's. That was where I got my clothes. And I always had, like, irregular jeans. You know, like there was like seven stitches instead of like 12. And, you know, and. Or like one pant leg was slightly longer than the other. And, you know, my mom would just cut it off or something. And that was it. I mean, it was like. That's why it was so much cheaper.
- [55:18]
Abhi Ramesh
Exactly. And all of that exists in food.
- [55:21]
Guy Raz
It's interesting because it sounds like this wasn't part of the plan. Definitely not putting in olive oil. It was just gonna be produce.
- [55:27]
Abhi Ramesh
Yes. So once we started doing it, we realized there's a lot of potential here to kind of meet customer demand and to obviously increase our baskets. But the original non produce items that we added came because these brands came to us.
- [55:41]
Guy Raz
So from what I understand the way it works, like if you go to Whole Foods, right, there's a farm or like a food manufacturer, then it goes to a packing plant, then it goes to a distributor, then it goes to the grocery store, and then to you. And every part of that process, somebody's adding a dollar to the more to the cost. What you're able to do, if I understand this correctly, is cutting out some of those steps. So that's what enables you to really offer up a lower price.
- [56:10]
Abhi Ramesh
So that combined with the fact that we're getting a lower price in general, kind of when we buy these rescue buys in particular.
- [56:16]
Guy Raz
Right.
- [56:16]
Abhi Ramesh
Today, when you look at our assortment, we have 1200 different items. Not every single one of those items are rescued or opportunistic. We offer some that are kind of like regular items just to make sure that we can fill the basket and there's consistency.
- [56:29]
Guy Raz
All right. By the middle of 2019, I believe. Let's go back to the timeline you guys. You raise, you do a series a 16 and a half million dollars, also led by Green Oaks, your first seed investor. But to get to the scale you want to get to, you know, you're gonna have to raise at this point a lot more money. I mean, because again, it's not just about. Cause still, at this point, you're dealing with small farms, but at some point, you're gonna have to deal with really big farms. If you're gonna go national and you're gonna need lots of cash. I mean, you got logistics and supply chain and warehouses all over the country. We're Talking about like Diapers.com or Amazon, kind of complex business like that.
- [57:17]
Abhi Ramesh
Yes. And that journey, I would say began right at our Series A. So once we raised that round, the ambition very clearly became go national and go national fast. We launched multiple new fulfillment centers in that next 12 month period. So our first kind of thought was we're missing a really big market on the west coast. And so we ended up launching a new facility in Salt Lake City. We built that facility from the ground up. So 300,000 square foot refrigerated and freezer facility that was custom built for us. And so, you know, a lot of the capital we raise went towards, you know, investing in that infrastructure over the, over the next two years.
- [58:02]
Guy Raz
What I'm curious about is I want to get, I want to get to Covid because Covid obviously is going to have a huge impact unanticipated, but it would have a massive impact on the business in terms of its growth. To sign up for Misfits was free and is free, right?
- [58:16]
Abhi Ramesh
Yes, it's free. It's free to sign up for Misfits. We have like a plus program that if people want to, they can opt into later. That's an annual fee and you get additional discounts across our assortment. Our private label, you know, lower fee, you get all those things as part of the plus program, but the actual base experience is free and the shipping is free.
- [58:35]
Guy Raz
With the base experience, it's free at.
- [58:37]
Abhi Ramesh
A certain threshold, depending on your zip.
- [58:39]
Guy Raz
Code, after like how much you spend. Okay, Yep. So, all right, you have now momentum and you've got a lot of people and investors who are committed to this. And Covid hits in March of 2020. How many had you already gone into New York? Were you in that market at that point?
- [58:58]
Abhi Ramesh
We were in New York, so. So By March of 2020, we were in most of the kind of northeastern states and we had opened up some of the west coast as well via that Salt Lake City facility. So we were, you know, semi national in a lot of ways by that point in time. And it opened up a lot of different geographies and Covid hit. We. I mean, I think most businesses can say this, like we were woefully unprepared for Covid and specifically, I just think the, the volume of demand and how quickly it came. Between March and April, our customer base almost doubled. You know, even an additional 5% in demand or 10% in demand. Our business requires like meaningful planning and execution because we have to go get more inventory, get more boxes, make sure. We have the warehouse space, logistics capacity, and that's for 5 or 10% of incremental demand.
- [59:55]
Guy Raz
Wow. So, so how did you guys deal with that?
- [59:58]
Abhi Ramesh
So we made the, the decision to turn off like all new customer acquisition first and put up a wait list. That wait list then started to explode as well. And so we, we had to kind of temper expectations on when we would off board people off that wait list. Just the sheer volume of folks kind of signing up was, you know, something we had, we had never seen before and did not anticipate. On top of all this, we didn't know whether our business was an essential business or not. The guidelines that were being put out by the state of New Jersey made it pretty unclear. They said if you're a grocery store, you're an essential business, so you can stay open, but what about a grocery fulfillment center like us? And so we assumed that we were essential. And there was a lot of confusion. And for a moment in time, you know, the authorities actually said, you're not, you know, you guys have to shut down. I actually got in touch with the governor's office in New Jersey. The governor, New Jersey had to actually kind of like step in and say, no, no, no, Misfits is actually an essential, essential business. We can keep them operating. So. And then on top of that, obviously, like, you know, at. But by this point in time, our total warehouse staff was about 700 people. And so just managing Covid to make sure people were safe, but also continuing to kind of deliver boxes and getting them out the door on time was incredibly challenging.
- [61:29]
Guy Raz
But also probably exhilarating also. I mean, you're watching your business just double, triple, quadruple in growth.
- [61:37]
Abhi Ramesh
Yes. So the growth was absolutely incredible. And like, honestly at the time I think we were like, we didn't believe the numbers were real. But yes, I think Covid accelerated our business by multiple years and become kind of more of a grown up company in a lot of ways. And we otherwise probably wouldn't have done that for multiple years, but the scale and the velocity of the scale from COVID forced us to do that. It was exhilarating. But I think at the time there was so much that everyone was nervous about as to whether we would just collapse under the pressure and the weight. I also, it was a very challenging kind of personal time as well. My. My wife was actually diagnosed with lymphoma during COVID During COVID And she's a doctor. She's a doctor. Oh, my fiance at the time, wife now, she was diagnosed with Lymphoma, Was it an.
- [62:26]
Guy Raz
Was it aggressive when it was diagnosed?
- [62:28]
Abhi Ramesh
It was aggressive enough such that they were basically like, you got to go start treatment asap. And so I'm sitting here and I'm like, okay, I gotta figure out how to run these warehouses during COVID Traveling, flying, traveling, but also figure out a way to sort of help my wife, who's going through chemo and radiation.
- [62:50]
Guy Raz
And you probably had to be really careful because her immune system was compromised.
- [62:54]
Abhi Ramesh
Yeah, I would do seven days, seven days on, seven days off routine. So I'd do a week at the facilities, then out of quarantine for seven days, then visit her family was amazing and actually like moved down, rented a house in the suburbs of Philly, and I'd go visit them after quarantining, back and forth. So that was our routine for the better part of it.
- [63:16]
Guy Raz
You see her in a mask, basically.
- [63:17]
Abhi Ramesh
A Sierra in a mask. I had a little. A corner of the house that I would like sit in at first. And so going through those two experiences at the same time and seeing her go through that experience while I was dealing with misfits, Covid, it certainly did give me perspective on what problems matter and what problems matter a little bit less. Because if my wife hadn't been going through that type of cancer treatment, I probably would have looked at some of the problems that misfit was going through at the time. Been like, holy cow, this is like life or death. But on the personal front, there was actually a life or death problem. And so gives you perspective on what is truly a life or death problem and what are actually just hard problems that you can deal with. And at the end of the day, you'll probably figure out and come out on the other side.
- [64:03]
Guy Raz
Wow.
- [64:04]
Abhi Ramesh
So, Yeah, I mean, 2020 was a pretty, pretty intense year. But, but look at the, you know, we. We emerged from 2020 cancer free on the personal front, which is awesome. And then, and then we got through Covid as an organization. And I think at the end of COVID we were like a nine figure run rate company on a revenue basis.
- [64:22]
Guy Raz
There's so much, I mean, there's so much we could talk about. Today you're in 48 states. You're in every state. Right. They're not in Alaska or Hawaii, I don't think.
- [64:29]
Abhi Ramesh
Right, we're not Alaska Hawaii, but yeah, 48 lower states, everywhere else.
- [64:32]
Guy Raz
Right. Okay, so you've done this. You basically have taken the farmer's market box and you've scaled it nationally. And I think the last Time you raised money was in late 2021. I read the valuation at that time was like $2 billion. But you've gone on and acquired a, you acquired a competitor that was based here in California. What were they called?
- [64:56]
Abhi Ramesh
Imperfect foods.
- [64:57]
Guy Raz
Imperfect foods, yeah, yeah, yeah. And I still see that they're still branded imperfect foods, right?
- [65:01]
Abhi Ramesh
Yes. So we, we closed that acquisition in October of 2022. That's been a little over two years now. But we kept the brand separate because, you know, both brands have, you know, have invested quite a bit in the brands over time. They mean slightly different things to different, different people. So we've kept them separate. But they're both under the misfits market umbrella. So Misfits is the parent organization. And we have the Imperfect brand and the Misfits brand.
- [65:24]
Guy Raz
All right, let's talk about logistics. Imperfect, I think they have their own trucks, which is really hard to build. We did a story a couple years ago about Guayaqui Yerba Mate, and that's how they, they grew. They built their own distribution network with their own electric vehicles. You guys Misfits, you still use third party companies to do deliveries, right?
- [65:46]
Abhi Ramesh
So until we acquired Imperfect, Misfits was all third party delivery, buying Imperfect. We thought that the logistics network was actually like really important. And so today with Imperfect, we acquired a fleet of about 400 vans and we are doing our own deliveries with our own drivers, own vans and trucks for about 70%, 70 to 75% of the deliveries that we do nationwide.
- [66:12]
Guy Raz
For Imperfect or for both brands?
- [66:14]
Abhi Ramesh
Both combined. I think our view is that the fulfillment and the logistics for perishables, that is our core competency. And so we should own as much of that as possible. And now when I kind of think about the next stage of Misfits, and we've started to do a little of this over the past six to eight months, is we are now allowing other brands to use our perishable fulfillment centers and our perishable logistics.
- [66:42]
Guy Raz
Other brands like that do the same thing.
- [66:45]
Abhi Ramesh
Other direct consumer brands that they're like, if you have a direct consumer dog food company or cat food company or smoothies, you know, any brand that does perishable direct consumer deliveries, I think our realization over the years has been like the third party infrastructure today for that is not very good. Third party infrastructure is still designed for ambient widget delivery. It's not designed for food. And so I think what we have today, besides the grocery platform, you know, the items, the customer demand, I actually think what we have built that is in some Ways even more valuable is the leading perishable fulfillment of logistics infrastructure nationwide. And so we're starting to allow other brands to kind of piggyback off of our investments over the years.
- [67:31]
Guy Raz
Wow. When do you, I mean, I know you're privately held and so your numbers are not transparent and that's fine. But I mean, do you anticipate you're close to profitability?
- [67:44]
Abhi Ramesh
Yes, yes. So we've, we're pretty much there now. The business is mid nine figures in revenue and growing at a decent clip. So ultimately I think the, the very intentional strategy here is continue to grow the direct consumer business but then start to really monetize this infrastructure. And by infrastructure I mean the ability to source, the ability to fulfill and the ability to deliver, monetize that infrastructure because there's a whole lot of other end revenue markets that could benefit from that.
- [68:17]
Guy Raz
You're now going into your seventh year here. I mean it's amazing how big this thing has become. And you're also really young. I mean you're in your early 30s. This is a big business. What, at some point there's going to be an end game. Is it going public? Is it selling to Amazon, is it or Walmart or something? I don't know. What's the vision here?
- [68:41]
Abhi Ramesh
So all the data that I've seen still points to we're in the second or third inning. The stats are a trillion dollars a year in the U.S. of grocery spend. Of that trillion dollars, 12 to 13% is online today. Now will that get to 100%? Probably not. But if I look at any other category, you know, 30, 40% in that ballpark. And so if we're at 12 or 13 for grocery, we have a ways to go double, triple, quadruple from where it is today until we get to a point where online grocery is as digitally penetrated as these other categories like clothing and electronics and whatnot. Now, in terms of the strategic kind of exit, do we ipo, do kind of sell to strategic. And honestly, I think we keep those doors open for now and we keep doing what we believe is right for kind of long term value creation, which is grow the core consumer business, grow third party, we're profitable. As we start to add more revenue on top of this, we should only kind of become more profitable and we'll kind of see where things take us over the next couple of years in terms of end outcome.
- [69:47]
Guy Raz
When you think about the journey you took and where you are now, it was a long one, but in the grand scheme of things, a very short one. Many founders don't see significant success until into their 40s or even later. How much of this do you attribute to the work and the grind and the skill and how much do you think had to do with luck and timing?
- [70:13]
Abhi Ramesh
I think luck always plays a role, and I would be naive to say it did not play a role here. I think that we started at a time where potential customers out there were willing and open to consider this as a way to get groceries. I think the COVID wave, that bump was clearly luck. No way you could manufacture that. So I think those things were definitely helpful. At the same time, this is a business where I like to say, like the pennies matter. Every single operational decision that we have made over the years, they've kind of led us to this as well. And there have been a lot of periods where it's been true. Grind the first two years of the business were complete grind. I think getting through Covid was a grind. I think the integration of misfits and imperfect from 2022 to the end of 2023 was a grind. So I think it has required an incredible amount of hard work to make this happen. I almost think the luck kind of amplifies or multiplies the end outcome.
- [71:16]
Guy Raz
That's ABHI Ramesh, founder and CEO of Misfits Market. By the way, remember back at the beginning when ABHI went to that orchard near Philadelphia and saw all those unwanted apples? Well, that place is still going strong in the still producing a lot of extra apples which are still used to make cider. In fact, Weaver's Orchard says its cider is a frequent award winner at the annual Mid Atlantic Apple Cider Contest in Hershey, Pennsylvania. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter@guyraz.com or on substack. This episode was produced by Casey Herman, with music composed by Ramtin Arablouei. It was edited by Neva Grant with research help from Kathryn Seifer. Our engineers are Patrick Murray and Kwesi Lee. Our production staff also includes Alex Chung, JC Howard, Iman Ma'ani, Chris Masini, Sam Paulson, John Isabella, Kerry Thompson, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built this. If you like How I Built this, you can listen early and ad free right now by joining Wondery plus in the Wondery app or on Apple Podcasts. Prime members can listen ad free on Amazon Music. Before you go, tell us about yourself by filling out a short survey@wondery.com survey.
- [72:50]
C
Survey being an actual royal is never about finding your happy ending. But the worst part is if they step out of line or fall in love with the wrong person, it changes the course of history. I'm Arisha Skidmore Williams.
- [73:04]
Guy Raz
And I'm Brooke Zifrin.
- [73:06]
C
We've been telling the stories of the rich and famous on the hit Wondery show, Even the Rich and talking about the latest celebrity news on Rich and Daily. We're going all over the world on our our new show, Even the Royals.
- [73:17]
Guy Raz
We'll be diving headfirst into the lives.
- [73:19]
Abhi Ramesh
Of the world's kings, queens and all.
- [73:21]
C
The wannabes in their orbit throughout history. Think succession meets the crown meets real life. We're going to pull back the gilded curtain and show how royal status might be bright and shiny, but it comes at the expense of, well, everything else, like your freedom, your privacy and sometimes even your head. Follow even the royals on the Wondery app or wherever you get your podcasts. You can listen to Even the royals early and ad free right now by joining Wondery Plus.