Misfits Market: Abhi Ramesh

While apple picking on a farm near Philadelphia, Abhi Ramesh learned that a massive amount of “misfit” produce goes to waste. He started running ads on Facebook to see if people would pay a discount for subscription boxes filled with twisted carrots and oddly-shaped squash. Demand was so strong that Abhi soon hired drivers on Craigslist to deliver produce around Philly from a rented warehouse. Four months in, Misfits Market had thousands of customers and landed $2 million in venture capital to expand. The pandemic turbocharged its growth and the business evolved into an online grocery store offering 1100+ items. Today Misfits Market operates in 48 states, and was most recently valued at $2 billion. This episode was produced by Casey Herman with music composed by Ramtin Arablouei, and edited by Neva Grant with research by Katherine Sypher. Our engineers were Robert Rodriguez, James Willets, and Kwesi Lee. You can follow HIBT on X https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected]. Sign up for Guy’s free newsletter at guyraz.com http://guyraz.com/. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:46Guy Raz?

  build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.

• 1:32Guy Raz?

  Say you're 18 months in. Business is growing. You've got expenses coming from six directions. Gas for the van, office supplies, your phone bill, team lunches that are actually client meetings, and you're putting it all on whatever card you grabbed in year one. You're not thinking about it. Why would you? You've got bigger problems. But here's the thing. Path A, you keep going like that. End of the year, you're sorting through statements, trying to figure out what went where. You've left hundreds, maybe thousands, on the table in rewards you never earned, money that could have gone back into the business. Path B, you pause and get the US Bank Triple Cash Rewards Visa Business Card. Now, you're earning 3% cash back

• 2:16Guy Raz?

  on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. If you travel often, you'll want to hear about this unprecedented offer. For the first time ever,

• 3:00Guy Raz?

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• 3:45Guy Raz?

  or bring a guest to the Delta Sky Club. Make every trip feel more rewarding with the car that upgrades your travel. Apply today at delta.com/cardsocial. Offer ends November 4, 2026. Minimum spending requirements and terms apply. Flights are fulfilled as flight certificates valid for Delta Comfort or Delta Maine to select domestic destinations. Book 21-plus days in advance. Up to $80 per person and taxes and fees apply. Other restrictions apply. When I pull up to a gas pump to fill my car, I'm not thinking about chemistry or engineering. I'm thinking about getting in, filling up, and getting on with my day. And it reminds me a little bit of the founders I talked to on this show, because the best

• 4:27Guy Raz?

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• 5:18Speaker 01

  We were woefully unprepared for COVID, just the sheer volume of folks signing up. On top of all this, it was a very challenging personal time as well. My wife was actually diagnosed with lymphoma. During COVID? During COVID. So if my wife hadn't been going through that type of cancer treatment, I probably would have looked at some of the problems that Ms. Fitz was going through at the time and 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.

• 6:00Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:14Guy Raz?

  I'm Guy Raz, and on the show today, how Abhi 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.

• 6:33Guy Raz?

  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 a grade 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,

• 7:17Guy Raz?

  that produce gets sent to animal feedlots, or worse, it rots in the fields. This discovery was a revelation to Abhi Ramesh several years ago, when he visited an apple farm in Pennsylvania. Seeing all of 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 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,

• 8:01Guy Raz?

  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 seven 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.

• 8:27Speaker 01

  If I ever got anything below a hundred 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 a hundred 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.

• 9:02Guy Raz?

  Yeah.

• 9:03Speaker 01

  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 a 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.

• 9:21Guy Raz?

  Yeah. Um, I guess while you were in high school, you were doing some tutoring because you, you were doing SAT prep for people, right? Because that, because I guess you did really well in your SAT and started like a tutoring program. Were you like informally or formally tutoring people in high school?

• 9:39Speaker 01

  Yes. So, so the SAT, I took it twice and I actually got a perfect score on the SAT. And so.

• 9:47Guy Raz?

  By the way, just, this is just 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.

• 9:58Speaker 01

  Yes. So I listened to that, 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.

• 10:09Guy Raz?

  Yes, he did.

• 10:10Speaker 01

  Sort, if I recall.

• 10:11Guy 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 you, so in high school, right?

• 10:20Speaker 01

  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.

• 10:35Guy Raz?

  Yeah.

• 10:35Speaker 01

  I think when I was 15, I wanted to buy like a go-kart or something like that. And my parents said, sure, but you pay for it.

• 10:43Guy Raz?

  Yeah.

• 10:44Speaker 01

  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, you got, 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 only a handful of things you could do to go make money. And so I started tutoring people.

• 11:04Guy Raz?

  All right. So you go off to college, go to Penn,

• 11:08Guy Raz?

  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 more sort of methodical way. It's called Alter Prep. Is that right?

• 11:22Speaker 01

  Yes.

• 11:23Guy Raz?

  And so tell me, what was the new idea? What was it going to be?

• 11:27Speaker 01

  So it was somewhat of a technology idea. We created a gigantic Excel spreadsheet, tagging thousands and thousands of SAT and ACT questions. We then used 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 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.

• 12:11Guy Raz?

  When you said "we," it was you and who? Who else?

• 12:14Speaker 01

  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.

• 12:27Guy Raz?

  You were physically showing up to a library and tutoring kids?

• 12:31Speaker 01

  Actually, an important distinction. 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 Alter, I was like, okay, I actually think this merits investing more time and energy. I'm going to go take a year off from school to do it.

• 12:53Guy Raz?

  All right, so sometime in 2012, you decide to move to Los Angeles to really build this business up. So basically, it's a test prep business, but you wanted to turn it into a software product?

• 13:11Speaker 01

  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 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, two thousand? Really hard to do, so we're like, okay, we gotta go software. And so the reason we moved to LA was, there's a small incubator in LA that essentially said, well, we will write you a $25,000 check to go build the software around this. So instead of 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, like a high-performing student with parents that they want to figure out

• 13:56Speaker 01

  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 2,400 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.

• 14:21Guy Raz?

  So basically, you decided, or it sounds like you decided that it was time to kind of wrap that up and go back to college?

• 14:30Speaker 01

  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 software engineer. Even trying to build the software product for Alter 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.

• 15:06Guy Raz?

  So once it became clear that Alter wasn't going to take off, I guess, as you say, Kind of dabbled in a few different ideas. Like one was a kind of like a Stitch Fix, but for men called Trend Bend, I think, right?

• 15:21Speaker 01

  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.

• 15:41Guy Raz?

  But you weren't, you were doing this all with the $25,000 grant that you got from that incubator?

• 15:48Speaker 01

  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.

• 15:57Guy Raz?

  All right, so after this kind of year, I guess you decided 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, were you sort of like, I'm done with startup world, I'm going to go get a corporate job?

• 16:16Speaker 01

  So the conscious side of me was, I'm kind of done. This whole startup thing is really hard. You know, I met Wharton, I met the sort of premier institution for learning finance. Why didn't I go actually give that a shot?

• 16:30Guy 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.

• 16:40Speaker 01

  Yes.

• 16:41Guy Raz?

  But you didn't stay at that job very long, like I think less than a year. So, so why, why, I mean, what, what happened?

• 16:47Speaker 01

  So, 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, it's a company is between $50 million revenue and $300 million revenue. And so by my end, my job was to go and 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.

• 17:30Speaker 01

  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.

• 17:45Speaker 01

  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 go.

• 17:59Guy Raz?

  Back into education technology.

• 18:02Speaker 01

  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 Code Academy. And we were like, do we think that there is an opportunity to actually build, kind of like a, can we focus on, 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.

• 18:35Guy Raz?

  Yeah.

• 18:35Speaker 01

  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.

• 18:45Guy Raz?

  All right, so you guys decide to do this, and I guess you called it Horizon School of Technology, and this was, this was like a bootcamp, like, kind of program, right?

• 18:55Speaker 01

  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, 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.

• 19:13Guy Raz?

  And by the way, what was the cost? How much did it cost to do the camp?

• 19:16Speaker 01

  So, we priced it at $10,000 originally, for a 12-week course.

• 19:23Guy Raz?

  I have to imagine the margins on that are pretty good.

• 19:25Speaker 01

  Really good.

• 19:26Guy Raz?

  Because your expenses are low. It's not, it's like a kind of a business where you have a space of, you know, and you've got the instructors and the curriculum, but, I mean... Then you just repeat that.

• 19:37Speaker 01

  Yes, I'd say the hardest part to the financial equation for the coding boot camp 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 have to balance class size with that.

• 19:55Guy Raz?

  Did you have to raise any money to do this? Or could you basically do this with very little money?

• 19:59Speaker 01

  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 entire tuition upfront, we could fund the rest of the program after that.

• 20:17Guy Raz?

  So you have the successful first pilot in Philly, and then you moved to San Francisco to try and establish the school there or to sort of be headquartered there?

• 20:28Speaker 01

  Yes, for 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.

• 20:39Guy Raz?

  So you had to be there.

• 20:40Speaker 01

  Or internships or jobs.

• 20:41Guy Raz?

  Yes, you had to be there.

• 20:42Speaker 01

  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.

• 21:02Guy Raz?

  All right. So you moved to San Francisco and you do the same thing there. And how does it, I mean, how does it do?

• 21:07Speaker 01

  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 tuition cost, like it was getting to be a real business for us.

• 21:27Guy Raz?

  By the way, I'm just curious. Today, is that business entirely under threat because of AI?

• 21:36Speaker 01

  I think it is definitely under threat because of AI. I also think it's under threat because software engineering hiring has shrunk.

• 21:44Guy Raz?

  Yeah.

• 21:45Speaker 01

  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.

• 21:52Guy Raz?

  All right. So you've got this business going, Horizons, and I mean, it's doing well. What happened to it?

• 22:01Speaker 01

  So it's funny because you think that we would make the same mistake twice, but the big realization for Horizons again was we were like, okay, we have this thing at a couple hundred students a year, but going from zero students to a hundred students was easy. We couldn't see a world in which we should go from a hundred to 500 or 500 to 1,000 without like multiple years trying to scale 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've been doing Horizons for three years now. It's a profitable business. We were making money from this,

• 22:44Speaker 01

  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.

• 23:16Guy Raz?

  Okay. So, I mean, clearly, you're, the gears in your head are turning. 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 produce, of maybe doing something with produce. Tell me what, how that idea started to kind of...

• 23:38Speaker 01

  Crystallize in your head. 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. They're actually extraordinarily specific specifications that the USDA puts out. For every item, bananas, apples, oranges, there is strict guidelines on what falls into what tier. If you look at apples, for example, there's extra fancy, fancy, grade one, grade two, and all the way down. And so I stumbled into an article that was explaining some of this, and I just didn't realize that that's actually how produce grading works.

• 24:20Speaker 01

  It's based on size, and shape, and color. Color, aesthetics, dozens of other things. It's like how meat is, although meat is graded based on fat distribution, but it's, yeah, it's basically a grading method that enables grocery stores to charge different prices for different products. Exactly. And what kind of piqued my curiosity was, when you read through some of the standards, some of them are very quantifiable. It's like, oh, you don't want a rotting spot on your pear when you sell it, or you need a certain size. And some of them are pretty vague. Some of them are like, you want the apple to be clean on the outside. And it's like, what does that mean? If there's a little dirt on it, does that not count as clean?

• 25:01Speaker 01

  And 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.

• 25:12Speaker 01

  And then I think the most pivotal moment for me, I actually ended up moving from San Francisco to Philadelphia. This is after you decided, well, you decided to fold the business or wind it down? 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.

• 25:48Speaker 01

  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 in the ground? Like, what do you do with them? I'm more just curious. And he, 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,

• 26:32Speaker 01

  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? You want to buy them for, for what reason? To just to experiment or to eat them or to what? I, I was just generally curious about like, does it taste any different from the apples that we're picking from the trees? I see. And I think the, 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 20 cents an apple. Probably less, probably five cents. There's a whole lot in between there. And so are there apples here that could be sold for 40 cents or 50 cents through to the retail channel?

• 27:17Speaker 01

  And is there something there? And so in a, in a sense, I 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, pay whatever you want for them. Right. 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, not any price, but it is, is basically saying like, my alternative here is either zero or five cents or 10 cents. And there's a whole lot of room between that and what I as a consumer am probably willing to pay, given the price of apples at the grocery store.

• 27:59Guy Raz?

  And the beauty of apples is you can really, they last a long time.

• 28:03Speaker 01

  Yes.

• 28:04Guy Raz?

  Like apples in particular.

• 28:06Speaker 01

  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 hardier 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.

• 28:49Guy Raz?

  Wow.

• 28:50Speaker 01

  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.

• 29:19Guy Raz?

  Wow.

• 29:19Speaker 01

  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.

• 29:26Guy Raz?

  Yeah.

• 29:26Speaker 01

  And so if you don't catch them at 6:00 AM, you're not going to catch them the rest of the day. So I'd wake up early, call them at 6:00 AM. 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, uh, drive to the farms, I start buying up cases and cases of their kind of grade two product.

• 29:56Guy Raz?

  Mainly apples, squash.

• 29:59Speaker 01

  Apple, squash, onions, potatoes, beets, um, carrots, a lot of root vegetables.

• 30:06Guy Raz?

  Things that just last a long time in cold storage.

• 30:08Speaker 01

  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, um, there are significant aesthetic imperfections.

• 30:20Guy Raz?

  Yeah.

• 30:20Speaker 01

  Nothing but aesthetics. Like I'm seeing carrots that are just-

• 30:22Guy Raz?

  With like two roots coming out of it and-

• 30:26Speaker 01

  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 stuff.

• 30:33Guy Raz?

  And it was your boy spending a couple hundred bucks?

• 30:35Speaker 01

  Max, yeah.

• 30:36Guy Raz?

  Yeah.

• 30:37Speaker 01

  And, and the, 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.

• 30:57Guy Raz?

  And by the way, you're buying the produce, but what were you doing with even buying a hundred dollars worth of, you know, I mean, that's, you might have like several cases of, of produce stacked up in your apartment. What, what were you, were you eating it? Were you just buying it just to buy it?

• 31:12Speaker 01

  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.

• 31:26Guy Raz?

  If it was good, if it was good enough to use.

• 31:27Speaker 01

  If it was good enough. 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.

• 31:33Guy Raz?

  Yeah.

• 31:34Speaker 01

  And I have photos, my apartment was filled with produce.

• 31:40Guy 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.

• 32:05Guy Raz?

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• 32:47Guy Raz?

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• 33:32Guy Raz?

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• 34:17Guy Raz?

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• 35:42Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's August of 2018 and Abi 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.

• 36:00Speaker 01

  And the missing piece was, is there demand? Are people interested in, quote unquote, "good quality produce, but not your grocery store grade, deliver it to you, but at a discount?"

• 36:12Guy Raz?

  So how did you test whether there was demand? Because before you raise any money, you're using your own cash right now.

• 36:17Speaker 01

  My own cash. I put up a landing page. I built the landing page myself.

• 36:24Guy Raz?

  And what'd you call it?

• 36:25Speaker 01

  So the original name was Misfits Market. So the name has stuck.

• 36:28Guy Raz?

  Misfits Market, oh.

• 36:30Speaker 01

  I call it Misfits Market. That first farmer I met, he used the word "misfit." He was like, "These are the misfit apples." So I was like, "Misfits Market." No one has it. It's not trademarked. Like, let me do it. So.

• 36:39Guy Raz?

  Wow. And you got MisfitsMarket.com, like, no problem?

• 36:43Speaker 01

  Got MisfitsMarket.com. So day zero of testing demand. I got the domain for $10 or $7, whatever it costs on GoDaddy. Used 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.

• 37:00Guy Raz?

  Did you specify what produce would be in there?

• 37:03Speaker 01

  I just listed out what was seasonal. And I said, hey, for the small box, you're going to get, you know, 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 produce. All right. 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. Mm-hmm. 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.

• 37:43Speaker 01

  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. And when they get to the landing page, they couldn't order at that time? It was just a preorder? It was a preorder, so they could pay. So they could click buy and actually like pay the $22 or $35. But I had a blurb that said, you know, shipping starting in two weeks. So, but these were ads that were going out all over the country? No. So I limited the ads. Yeah. So my assumption was I'm going to start with like Philadelphia area, focus on, you know, apartment buildings and neighborhoods that are near me and we'll figure out a way to get them there from these farms.

• 38:26Speaker 01

  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? 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, people to sign up, it cost me like $5 or $10. Per person? Per person to get a sign up. Yeah. 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 to start scaling spend. And so I took it from 50 to 100 to 200 to 500.

• 39:09Speaker 01

  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.

• 39:20Guy Raz?

  Wait, hold on one sec because you're getting a little ahead of yourself. 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 some money to get it going. And from what I gather, you reach out to this friend of yours named Edward Lando.

• 39:39Speaker 01

  Yes.

• 39:40Guy Raz?

  Who was Edward?

• 39:41Speaker 01

  I think of Edward as like, he was a co-founder for AllTerror. 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 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.

• 40:25Speaker 01

  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.

• 40:41Guy 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.

• 41:05Speaker 01

  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.

• 41:44Speaker 01

  And what I am 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.

• 42:05Guy Raz?

  And who's to, how are you, I mean, the packing is easy, but delivering them is a different story. To each address in, you know, in the Philly area, how did you do that?

• 42:14Speaker 01

  So delivering was really hard. At first, I just handed the boxes, you know, I'd hand like five at a time or 10 at a time to these drivers that I hired off of Craigslist.

• 42:23Guy Raz?

  Yeah. And whose cars?

• 42:25Speaker 01

  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?

• 42:36Guy Raz?

  This is why UPS is the best.

• 42:38Speaker 01

  Those 10 boxes might take you 12 hours to do if you route them incorrectly. You're not going to route them in your head.

• 42:43Guy Raz?

  Right.

• 42:43Speaker 01

  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.

• 42:53Guy Raz?

  Right.

• 42:53Speaker 01

  And that is what I used. We would route them through this manner routing software, print out the output, hand it to them and say, this is the order for your 10 orders. Go deliver them.

• 43:04Guy Raz?

  By the way, I would think that at this point, you would bring in your dad, who was a logistics specialist on shipping.

• 43:12Speaker 01

  So I called, it's funny you say that because I didn't really tell my parents about this until much later.

• 43:19Guy Raz?

  What do you mean you didn't tell them about this?

• 43:21Speaker 01

  They didn't even know I was working on Misfits.

• 43:23Guy Raz?

  They thought you were doing nothing?

• 43:25Speaker 01

  Pretty much. Yeah. They knew about the alter 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. Horizon's thinking 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.

• 43:45Guy Raz?

  Yeah.

• 43:45Speaker 01

  I think the first time I told them about Misfits was right before we released our press release for our, for our seed round of $2 million.

• 43:52Guy Raz?

  Wow. Okay. All right. We'll get there. So you, um, you've got this logistics software and it does that work? Does it work?

• 43:59Speaker 01

  Yeah, it, it did work, but very quickly I realized that having my own drivers go and deliver these things was just way too hard. Now it was just do, I was doing work that other people had already done, the big logistics providers. Um, and so probably about three weeks into it, I switched from, uh, our own drivers to UPS FedEx.

• 44:22Guy Raz?

  Yeah.

• 44:23Speaker 01

  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.

• 44:36Guy Raz?

  Thinking that they 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.

• 44:47Speaker 01

  Correct. And, 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 one in 15 would email and be like, uh, my squash smashed my peaches in the box. Like, what are you going to do? And so that was, I don't know, 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.

• 45:15Guy Raz?

  Yeah. Cause that basically, once somebody calls and says that, and then you got to go and send more peaches, you've lost money on that order.

• 45:23Speaker 01

  Exactly. And even to date, the, the packaging of, of what we do is actually a huge component. Um, so I, I started testing a variety of different things like insulated bags, containers for peaches, uh, wrapping fruits, separating them with cardboard dividers instead of the boxes, all those sorts of things. Um, and eventually found a solution that kind of, that has worked even for the FedEx deliveries.

• 45:44Guy Raz?

  So when you were, just going back to like 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 who were 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?

• 46:08Speaker 01

  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 you know, 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.

• 46:39Guy 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 of million at this point.

• 46:54Speaker 01

  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 6:00 AM to 2:00 PM shift of packing orders. And we had a 2:00 PM to 10:00 PM 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.

• 47:39Speaker 01

  Patrick had been my desk mate at Apollo. The other thing I forgot to mention probably is when I built that landing page for these customers to sign up, they signed up into a subscription. It wasn't just that I'd have 200 one-time orders or 300 one-time orders. These are repeat orders that are either bi-weekly or weekly. And so I had a real, you know, I had a couple thousand customers ordering weekly. You know, it was a scaled 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.

• 48:24Guy 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. Clearly, your friend had faith in you. This is a low-margin business. It is, you're dealing with like 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, the margins are, like, the math has to be perfect to make this work.

• 48:58Speaker 01

  Yep.

• 48:59Guy Raz?

  It's really risky to, to put money into this.

• 49:02Speaker 01

  So I think you're right in that the first investment from Ed was very much so like a, you know, you're a friend, I trust your execution, you'll figure it out, like angel friends and family check. I think the Green Oak check, the big part of why, what got them sort of excited about this was the unit economics component of it as well. Like, 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 on the 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

• 49:47Speaker 01

  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.

• 50:00Guy Raz?

  Okay, now, it's 2019, you've got 2 million. Who were your first hires? What, what were the roles?

• 50:07Speaker 01

  A director of operations was probably the first or second hire that I made.

• 50:11Guy Raz?

  And how did you recruit them? How did you find them? Did you look for people with experience in food, with people who worked at Whole Foods? Like, who were they?

• 50:18Speaker 01

  Yep. So the first director of Ops here that we had, 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 would encourage me to go like, hey, hire, 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.

• 51:02Speaker 01

  There's pros and cons 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 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.

• 51:25Guy 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 Zumiez, this surf and skate shop a couple of 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

• 52:04Guy Raz?

  the logistics and the margins, just so the line between this not working and this working is so thin.

• 52:12Speaker 01

  A hundred percent. And it's funny you say that because. There's a couple of smaller companies that I 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 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.

• 52:56Guy Raz?

  That you learned.

• 52:57Speaker 01

  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.

• 53:16Guy Raz?

  And the growth was coming from customer, I mean, you were basically spending tons of money on customer acquisition.

• 53:23Speaker 01

  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.

• 54:07Speaker 01

  Ice melts, and then water gets all over the warehouse, so you have to have drains. So there's all these small operational nuances that we started to kind of learn by doing this.

• 54:19Guy 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.

• 54:49Guy 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.

• 55:08Speaker 01

  One of the first ones was actually a salad dressing item. And I believe that at the time was a shelf life issue. So they were like, we have a bottled salad dressing. It has 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 came in to look at their next order, there was an option that said, add salad dressing. And we sold out of them.

• 55:41Guy Raz?

  Wow.

• 55:42Speaker 01

  And so that was our first foray into non-produce items. And that also 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.

• 56:06Guy Raz?

  Hmm.

• 56:07Speaker 01

  And so they can't sell that through their traditional channels. And so they ended up finding us and we bought the 20,000 cans of tray. I think it was tray.

• 56:16Guy Raz?

  At a massive discount.

• 56:17Speaker 01

  At a huge discount.

• 56:18Guy Raz?

  Because they can't sell it at Whole Foods because you need to...

• 56:21Speaker 01

  Correct.

• 56:22Guy Raz?

  And so you could basically say to your customers, hey, we got upside down labels. And did that become the model? 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 was where I got my clothes. And I always had irregular jeans. There was seven stitches instead of 12. And or one pant leg was slightly longer than the other. And my mom would just cut it off or something. And that was it. I mean, it was like that. So that's why it was so much cheaper.

• 56:53Speaker 01

  Exactly. And all of that exists in food.

• 56:57Guy Raz?

  It's interesting because it sounds like this wasn't part of the plan.

• 57:00Speaker 01

  Definitely not.

• 57:00Guy Raz?

  Putting in olive oil. It was just going to be produce.

• 57:03Speaker 01

  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.

• 57:17Guy Raz?

  So, from what I understand, the way it works, like if you go to a 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, or more to the cost. What you're able to do, if I'm understanding this correctly, is cutting out some of those steps. So that's what enables you to really offer up a lower price?

• 57:46Speaker 01

  So, that combined with the fact that we're getting a lower price in general, kind of when we buy the, these rescue buys in particular.

• 57:52Guy Raz?

  Right.

• 57:52Speaker 01

  Today, when you look at our assortment, we have 1,200 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.

• 58:05Guy Raz?

  All right. By the middle of 2019, I believe, let's back to the timeline, you guys, you raised, 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 going to have to raise, at this point, a lot more money. I mean, because, again, it's not just about, because still, at this point, you're dealing with small farms. But at some point, you're going to have to deal with really big farms, if you're going to go national, and you're going to need lots of cash. I mean, you've got the logistics.

• 58:42Speaker 01

  Yep.

• 58:43Guy Raz?

  And supply chain and warehouses all over the country. We're talking about like diapers.com or Amazon, kind of complex business like that.

• 58:53Speaker 01

  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 raised went towards, you know, investing in that infrastructure over the next two years.

• 59:37Guy Raz?

  What I'm curious about is, I want to get to COVID because COVID, obviously, was going to have a huge impact, it was 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?

• 59:51Speaker 01

  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.

• 1:00:10Guy Raz?

  And the shipping is free with the base experience?

• 1:00:12Speaker 01

  It's free at a certain threshold, depending on your ZIP code.

• 1:00:16Guy Raz?

  After like how much you spend, okay.

• 1:00:18Speaker 01

  Yep.

• 1:00:19Guy Raz?

  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?

• 1:00:33Speaker 01

  We were in New York. 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, the volume of demand and how quickly it came, between March and April, our customer base almost doubled. You know, even additional

• 1:01:15Speaker 01

  5% in demand or 10% in demand in 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% in incremental demand. Wow. So, so how did you guys deal with that? So, we made the, the decision to turn off like all new customer acquisition first and put up a waitlist. That waitlist then started to explode as well. And so we, we had to kind of temper expectations on when we would offboard people off that waitlist. Just the sheer volume of folks kind of signing up was, you know, something we had, we had

• 1:01:57Speaker 01

  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, you can stay open. But what about a grocery fulfillment center like us? And, 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, the governor of New Jersey had to actually kind of like step

• 1:02:37Speaker 01

  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, 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, was incredibly challenging.

• 1:03:05Guy Raz?

  But also probably exhilarating also. I mean, this, you're watching your business just double, triple, quadruple in growth.

• 1:03:13Speaker 01

  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 than 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, like, you know, there were so much that everyone was nervous about as to whether like we just collapse under the, 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.

• 1:03:54Guy Raz?

  During COVID?

• 1:03:54Speaker 01

  During COVID.

• 1:03:56Guy Raz?

  And she's a doctor?

• 1:03:57Speaker 01

  She's a doctor. My fiance at the time, wife now, she was diagnosed with lymphoma.

• 1:04:01Guy Raz?

  Was it an aggressive, was it aggressive when it was diagnosed?

• 1:04:04Speaker 01

  It was aggressive enough such that they were basically like, you gotta go start treatment ASAP. And so, you know, I'm sitting here and I'm like, okay, I gotta figure out how to run these warehouses during COVID.

• 1:04:18Guy Raz?

  Traveling, flying?

• 1:04:19Speaker 01

  Traveling, but also figure out a way to sort of help my wife who's going through chemo and radiation.

• 1:04:26Guy Raz?

  And you probably had to be really careful because her, her immune system was compromised.

• 1:04:30Speaker 01

  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. 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.

• 1:04:52Guy Raz?

  And you'd see her in a mask, basically?

• 1:04:53Speaker 01

  I'd see her 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 Misfits was going through at the time and 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.

• 1:05:38Guy Raz?

  Wow.

• 1:05:40Speaker 01

  So yeah, I mean, 2020 was a pretty intense year, but but look, 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.

• 1:05:57Guy Raz?

  There's so much, I mean, there's so much we could talk about. Today, you're in 48 states. You're at every state, right? Alaska or Hawaii, I don't think, right?

• 1:06:05Speaker 01

  We're not in Alaska or Hawaii, but all, yeah, 48 lower states.

• 1:06:08Guy Raz?

  Everywhere else, right? Okay. So you've done this. I mean, you basically have taken a 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.

• 1:06:23Speaker 01

  Yes.

• 1:06:24Guy Raz?

  But you've gone on and acquired a competitor that was based here in California. What were they called?

• 1:06:32Speaker 01

  Imperfect Foods.

• 1:06:33Guy Raz?

  Imperfect Foods. Yeah. Yeah. And I still see that there's still branded imperfect foods, right?

• 1:06:37Speaker 01

  Yes. So 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 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.

• 1:07:00Guy 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 of years ago about Guayaki or Bumate, and that's how 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?

• 1:07:21Speaker 01

  So until we acquired Imperfect, Misfits was all third-party delivery. Buying Imperfect, we thought that the logistics network was actually really important. And so today, with Imperfect, we acquired a fleet of about 400 vans, and we're 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.

• 1:07:48Guy Raz?

  For Imperfect or for both brands as well?

• 1:07:50Speaker 01

  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.

• 1:08:18Guy Raz?

  Other brands that do the same thing?

• 1:08:21Speaker 01

  Other direct consumer brands. They're like, if you have a direct consumer dog food company, or a cat food company, or smoothies, you know, any brand that does perishable, direct-to-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 and logistics infrastructure nationwide. And so we're starting to allow other brands to kind of piggyback off of our investments

• 1:09:06Speaker 01

  over the years.

• 1:09:07Guy 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?

• 1:09:19Speaker 01

  Yes, yes. So we've

• 1:09:23Speaker 01

  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 very intentional strategy here is continue to grow the direct-to-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.

• 1:09:53Guy 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 is your, what's the vision here?

• 1:10:17Speaker 01

  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 US 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. And now in terms of like, the strategic kind of exit, like do we IPO? Do we kind of sell to strategic?

• 1:11:00Speaker 01

  And honestly, I think like, 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.

• 1:11:23Guy Raz?

  When you think about the journey you took and where you are now, you know, it was a long one, but in the grand scheme of things, a very short one, right? I mean, many founders don't, you know, see significant success until, you know, 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?

• 1:11:48Speaker 01

  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. Like, you know, 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.

• 1:12:33Speaker 01

  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.

• 1:12:52Guy 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 and 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.

• 1:13:22Guy Raz?

  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 at 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 Catherine Seifer. Our engineers were Patrick Murray and Kwesi Lee. Our production staff also includes Alex Chung, J.C. Howard, Iman Maani, Chris Messini, Sam Paulson, John Isabella, Kerry Thompson, and Elaine Coats. I'm Guy Raz, and you've been listening to How I Built This.