“I have two KPIs in how I operate now. Number one, customer delight. There is no business if the customers don't pay. The other piece is profitability.” – Michael Joseph
In this episode of Outliers, I’m talking with Michael Joseph (@scratchkitchen) about building and scaling meal kit company Green Chef, the risk of Cloud Kitchens and delivery platforms, and the future of on-demand food.
Michael Joseph is Founder and CEO of Scratch Kitchen, an entirely new approach to restaurants that offers multiple brands and food types—from salads to sandwiches and burgers—all under one roof. Scratch Kitchen is also takeout and delivery only, and uses proprietary data to inform what foods and brands they offer in each market. Before starting Scratch Kitchen, Michael built and scaled Green Chef (later sold to Hello Fresh), Door to Door Organics, and Mile High Organics. Along with his work in the food industry, Michael is an angel investor in companies like Lunchbox, Caper, MilkRun, and Spark Grills.
Chapters in this interview:
- 00:01:04 – Michael’s background that led him to the on-demand food industry
- 00:07:56 – Current food trends and where they’ll go next
- 00:16:50 – The challenges of providing truly gluten-free food options
- 00:22:42 – Building and scaling Green Chef, a meal delivery service company
- 00:30:52 – Being successful in business means having multiple strengths
- 00:32:07 – Michael’s two-pronged approach to business success
- 00:38:17 – Building out the Scratch Kitchen model
- 00:56:17 – The Scratch Kitchen system for removing friction from on-demand food
- 01:05:40 – How Scratch Kitchen compares to a ghost kitchen
- 01:27:01 – The concept of food APIs
Links from the Episode
- Connect with Michael Joseph: Twitter | Instagram | LinkedIn | Scratch Kitchen
- Organic-food veteran Michael Joseph builds new venture from Scratch | BizWest
- Hello Fresh Acquires Green Chef | Businesswire
- Green Chef
- Natural capitalism
- Blue Apron
- Hello Fresh
- Certified Organic
- Clean Label | Institute of Food Technologists
- Certified Gluten-Free
- Paleo diet
- Ketogenic diet
- Vegan diet
- Plant-based diet
- South Beach diet
- Celiac disease
- Gluten sensitivity
- Tree nut allergy
- Whole Foods
- Product market fit
- Uber Eats
- Maple and Sprig
- Spoon Rocket
- Travis Kalanick
- Gwyneth Paltrow’s Goop
- Justin's Nut Butter Cups
- Ghost Kitchen | Wikipedia
- Virtual Brands | Restaurant Business
- MrBeast Burger
- Reef Technology
Restaurants are undergoing a generational shift in technology and customer preferences. On-demand delivery platforms like DoorDash and UberEats have fundamentally changed the way people browse and shop for food. The popularity of organic ingredients, specialized diets (like Paleo), and allergen-free food (like gluten free) have reshaped customers’ expectations. Like all disruption, these changes present an incredible opportunity to rethink the tried-and-true model and to innovate in a space that has seen little change over the last 50 years. Scratch Kitchen is doing just this, and by studying their approach, we can glimpse the future of restaurants and on-demand food.
Daniel Scrivner (00:00:00):
Michael, welcomed Outliers. I'm so excited to have you on the show.
Michael Joseph (00:00:03):
It is a pleasure to be here. Thanks for inviting me.
Daniel Scrivner (00:00:05):
So, we're going to spend a lot of time today talking about the future of restaurants and on-demand food. And I was really excited to connect with you, and do all the preparation for this episode. Because it's a topic that's starting to be something that a lot more people notice, which is cool, through just more interactions with DoorDash and different delivery platforms. And yet it's something that I think I've never really heard a compelling interview on. So, thanks for coming on. I'm excited to get into that.
Michael Joseph (00:00:32):
Oh, well, you've just set a high bar for me. Thanks so much.
Daniel Scrivner (00:00:37):
So, to start, we're going to spend most of today talking about the latest concept that you've been building out, which is called Scratch Kitchen. And we'll set that up in a little bit, get into that. But you've been working in the food and beverage space for a really long time, and you've built some really interesting businesses in it. So, I wanted first to just see if you can set up a little bit of just a quick kind of thumbnail sketch of what that journey looks like. What got you interested in the first place and the arc through Green Chef.
Michael Joseph (00:01:04):
Yeah. And I'll try to go super high level here. We'll try to keep the editing to a minimum, right? And so, I'll just give you some quick data points throughout frankly, my lifespan. Because as I look back on the arc, I'm like, "Well, this all kind of made sense."
Michael Joseph (00:01:19):
I started cooking independently at age five. When I was around 11 or 12, I was telling you how my dad actually, he co authored some federally enforced food, labeling transparency laws, total mouthful. But if you go see the grocery store something's from X, Y, or Z country fish is farmed or it's wild. As a teenager, I grew up understanding all of that, and see why the consumer should have the information.
Michael Joseph (00:01:41):
I went off to college. I had some jobs. I've been a professional baker. After undergrad, I did a one year gig at this firm called Natural Capitalism. It was all about doing well by doing good consulting firms. But then really, I have the entrepreneurial itch and I just hadn't scratched it yet. And quite randomly met my first business partner by dumb coincidence of riding my bike down a certain street in Boulder on a specific day. And that led me into co-founding this company called Door-to-Door Organics. We were doing organic produce home delivery, starting in 2004 out in Colorado.
Daniel Scrivner (00:02:18):
Michael Joseph (00:02:19):
Yeah, you're into it. Actually, profitable business model customers wanted it. They were asking for other products. Time went on, the company was expanding, getting ready to go to other states. I wanted to turn it into a full stack, organic and diet specialized online grocer. Customers were asking to spend more money with us. It seemed natural to me.
Michael Joseph (00:02:37):
My dear friend and longtime business partner, David, who hopefully will be listening to this. He and I just disagreed in terms of what to do with the company going forward. And he wanted to cut and paste what was working. I can't fault him. We were profitable a year into that business. And I had a buyout opportunity early on. So, I took some time off in my early to mid 20s, very fortunately. Had a lot of fun.
Michael Joseph (00:02:59):
I went to business school during that period after doing some world travel, mostly to just learn some skills that I didn't have. And I saw that I wanted to be able to make larger businesses. And I learned that I loved product and making product-market fit work for people. And the responses were awesome.
Michael Joseph (00:03:17):
And so, I decided after business school, after I'd taken like a three-year hiatus from real work, to actually go start my vision of an online grocer. There was a hole in the market in when was this? Summer of 2010.
Michael Joseph (00:03:29):
Technically, I bought a small company called Mile High Organics and turned that into a 3,500 product, diet specialized in organic online grocer, the first certified organic online grocer. And then, God, it was four years into that. And this is the transition into Green Chef, my most recent company before Scratch. By the way, and it's hard to believe as I'm listening to myself talk, how much time I've actually spent in this space.
Michael Joseph (00:03:53):
Well, and we started tinkering around with meal kits in the beginning of 2014, just seeing that companies like Blue Apron and Plated were out there, but no one was serving my customer who wanted really transparency or quality attributes of their food, or had a gluten sensitive person in household, et cetera. And I was like, "Oh, let's just start selling meal kits at Mile High Organics." We did.
Michael Joseph (00:04:15):
And then one day catching up with my friends in their office in Silicon Valley, who were just friends and small angel investors of mine. I had just caught them up, told them we're getting ready to go scale our model to different geographies. And as soon as I talked about this meal kit thing, one of my two friends was just like, "Oh..." It was a very Silicon Valley moment too. He's like, "Oh, that idea sounds great." He's like, "Why don't you turn the whole company into that? We'll see it fund the entire thing, and help you build the team." And at that point in my career, I really didn't have a great understanding about the tech side of the business, data science, the digital product side. And I saw it as a great opportunity to collaborate with some really smart friends. I admired learning those things.
Michael Joseph (00:04:55):
And so, later that year in 2014, we spun out my most recent company called Green Chef, the first organic and diet specialized meal kit business. You're hearing a trend between all the companies, of course. And that was my first hyper-growth experience. And we raised a ton of venture money. And from when we actually founded that company, we started building Green Chef in September of 14, launched a product to market late October of 14, serving the Western US out of the Mile High Organics facility, while attempting to run both businesses at once, not knowing really how to do such a thing. And then, Green Chef basically eight Mile High Organics, even though we spun it out, it took up all the capacity. Something like five or so months into Green Chef's existence, we went out and raised a lot of venture capital money, in my opinion far too easily. And we were off to the races, three and a half years later I sold it HelloFresh who owns it today, where it's a profitable part of this great profitable public company, and a notoriously challenging industry.
Michael Joseph (00:05:57):
And I had, over that period of time, grown the business over a hundred million dollars of run rate, it was like 125 is our peak. Well, it was private. 800 full-time employees over the first two and a half years. And a lot of learning by doing all my wishes to learn about like a hyper-growth and tech company, and they all came true. And then sold that, and decided to transition out for personal reasons. I was fried and created an opportunity for myself to exit, put my dear friend Brian in charge. Who'd been my long time number two, he's still there today.
Michael Joseph (00:06:29):
And my first priority was, well, myself and my family. I'll just group that into one bucket. And just taking care of ourselves, and whether it was my own personal needs or my daughter or my wife, everyone's needs were going partially unmet because I was traveling like a crazy person, and it wasn't good. And that was one of the reasons I stopped.
Michael Joseph (00:06:48):
And so, that's kind of the high level background and just to bridge into what got me to where I am today. After six or seven months, my wife said I was infringing on her lifestyle at home, go out and find a big project. So, I just went out looking for stuff, and similar to you, I also have been angel investing. I've been doing that since I had the opportunity to secondary early on in Green Chef. And I love doing that. It just wasn't my full-time job.
Michael Joseph (00:07:13):
And of course, as I started turning over stones, talking to friends who are entrepreneurs, investors, leaders at companies, especially in the like on-demand food space. Boy, did I start seeing some patterns that I knew how to solve problems for customers that a lot of the incumbents didn't, and I know we'll get into it today, but that's what really led me into the whole career path of where I am today.
Daniel Scrivner (00:07:39):
Yeah. Not to give too much away, but all of the same patterns and trends that showed up in that earlier parts of your career are clearly at play at Scratch Kitchen today. And one of those that I wanted to just dig into is, as you were going through that background, a few words kept bubbling up, organic, clean-label and diet specialized. And I'd love it if you can just elaborate a little bit on those trends, why you think that they exist and why they're continuing to gain prevalence and become bigger and bigger things, and what that means for where food is heading in your opinion.
Michael Joseph (00:08:11):
Totally. I love this space obviously. And I'm a personal consumer in a definition of an omnivore too. I'll eat nearly anything, but also really love the quality of ingredients. I'll start with the organic thing. And I have learned through my career, there's a terrible amount of misinformation and misconception about it, but it's fundamentally because of how complicated it is. Meaning, all crops are really treated differently. No consumers expected to be an expert in these things.
Michael Joseph (00:08:38):
What I love about organic and what it is and where it's going, is that people have this idea, it's like pesticide free. No, it's just like a whole bunch of legal but toxic pesticides, and other chemicals have been screened out of the process. There are certainly some pieces around animal husbandry, et cetera. But the bigger point is, there's this whole class of chemicals I called legal but toxic, that the industry that sells those would despise me if they're listening to this podcast. But it's true, because science will tell you X, Y, and Z are carcinogenic. Thankfully the organic program strips those things out.
Michael Joseph (00:09:12):
The reasons that I think, it's not just that customers want these things. It's like they want them in quantities, having never been seen before, and the most recent generations want them more than prior generations, I attribute this to transparency and spread of information.
Michael Joseph (00:09:28):
And this idea that once consumers start learning that there are these legal but toxic chemicals in their very personal diet, what they're consuming, it just resonates with them, I'll spend a little bit more money to not put this in. I don't need some direct correlation of growing a second head, it's just that I believe in science and I'd rather hedge on my one life.
Michael Joseph (00:09:51):
I have seen that over and over again. And then, some of the customers, but not all of them in this world, also care about the environmental benefits like myself. Listen, anything I can do for the preservation of bees who are pollinating all these wonderful plants for us. Those are some other positive attributes that drive people to this. But like personal health and people's beliefs drive it all. I think it's the liberation of information that's really driven these long-term trends.
Michael Joseph (00:10:18):
And kind of flashing back to my intro, right? My dad, well, what I would call when I was 12, he was brainwashing me. But what he showed me was that consumers deserve transparency so they can make the ultimate decision. I think that really has happened with organic.
Michael Joseph (00:10:31):
And putting in, you could call a catch phrase with clean-label. What that's trying to encapsulate is that, and now I would have been much stubborn had we had this interview 12 years ago or something about organic, but it's like, it was much more binary about it, but I'm not, I'm just like, "Oh, there's this whole spectrum of choices." And that set of choices is actually growing this idea of what I call clean label, because there's not exactly a legal definition to this at this point in time. Is this idea that they're actually still all these other preservatives and different additives that are legal chemicals, that you don't really want to put in your body.
Michael Joseph (00:11:07):
And it's not that everything has to be farmed organically, and not every ingredient is, and there are problems with that, but it's like, "Oh, you could support this great local..." You name it X, Y, Z producer, and be like, "Oh, their practices are wonderful. They're making..." Whatever the example is. And they're taking out these unnecessary preservatives that food scientists have put into the products.
Michael Joseph (00:11:31):
A lot of the industrialization of food created this, a couple of generations of food scientists that made it so that their job was to get humans addicted to whatever that item was, sugar, certain types of flavorings and ideas like that. And consumers aren't really having it. And I think a lot of it just has to do with... they were deceived. They learned they were deceived. They're upset that they were deceived. And when given the information, they make the choice that's right for them.
Michael Joseph (00:11:59):
The last category, this idea of diet specialized, right? Because I've sold food to folks who were actually celiac, not just gluten sensitive. My last company certified gluten-free. We could talk all about that if you want, but to make it safe for them to eat the products. So, that's an actual need state.
Michael Joseph (00:12:15):
But there are all these other use cases like people wanting, I've catered to the paleo diet, ketogenic diet, vegan or plant-based however you want to say it. People say plant-based because veganism is so freaking polarized these days, it's remarkable. And those are all typically personal preferences, though a lot of the time they'll be driven by beliefs around health. And throughout my career, I've just been trying to get better at making it easier for consumers to live their aspirational lifestyle, as opposed to coming out and saying, "This is good for you. And this is not good for you." People making choices with the right information.
Daniel Scrivner (00:12:52):
Yeah. You don't want to be the arbiter of choice. But I think, and you phrased it really well there, which is just, you want to give people all the information really transparently, so that they can make their own choices about what's in it, and if that aligns with how they view the world.
Daniel Scrivner (00:13:04):
I'm guessing all of those trends have just grown in size and grown in importance. Is that true and have you seen that play out? The diet specialized piece I feel like especially over the last five years, just thinking about my own friend group, I feel like I already know a lot of different diets, that just people in my inner circle use now that it didn't used to be the case.
Michael Joseph (00:13:22):
Totally. There have always been these cycles of diets. What is it? The South Beach I think in ketogenic diets are extremely similar, but these trends that we've been observing and the rates of adoption that I've witnessed and helped catalyze, they seem very persistent actually.
Michael Joseph (00:13:39):
So, I just see more people doing this. In fact, talk about plant-based eating and just reading the news, you can't get away from a new plant-based replacement for dairy, for cheese, for whatever, right? So, thank God in my opinion, right? Because there are a lot of problems that come from just, like humans eating animals. Our bodies genetically are designed to. I'm not here to debate that, right? But we're also designed to eat all these great plants. And it's been really cool to see so much more interest, that isn't coming from someone who is saying that they're vegan. They won't touch anything that came from an animal, but it's like, "No, I want to eat these because of health reasons." I've seen so much of that.
Michael Joseph (00:14:19):
Ketogenic, I still talk to my old head of customer service, I work with now again in my business, but that was a really interesting one because there's not a standard definition, and there's a small range of tolerances there. And so, as adoption grew, you'd have customers fight with you about the definition of something that's not legally defined. It was really an interesting place to be. But to your bigger point, the trends are growing.
Michael Joseph (00:14:44):
So, the same thing with paleo, you can frankly just see these things in Google Trends, or if you look at types of cookbooks that are popular on Amazon, you can literally just see them ascend. The same thing has happened with natural and organic making up something nearly 25% of the American grocery market now. So, it's really cool to see.
Michael Joseph (00:15:05):
And then, gluten-free is a very interesting one, because even though it's been in more recent history that more people have been diagnosed with celiac disease. From the last time I read a scientific paper on this, it's something like only 1% of Americans that are actually celiacs. But I think it was around 10% that they consider themselves gluten sensitive, and by eliminating gluten in their diet, they feel better, which is great. This is a personal choice at its finest. And I have seen increased adoption of that.
Michael Joseph (00:15:34):
And so, all of these things, it's interesting when I look back to these trends, nothing that I've been paying attention to has necessarily fallen out of favor at this point in history.
Daniel Scrivner (00:15:42):
Yeah. And you made a good point here just around clearly some of this, I know quite a few people that fall into this category, just have very strong beliefs about what they should be eating and what's kind of best for them. So, there's kind of that camp. But then the other camp which has been really interesting, are just people that are experimenting to see, when I eat this do I feel any better? When I remove gluten do I feel any better?
Daniel Scrivner (00:16:03):
And I think part of that is now, you can just get foods that fit in these different categories really prolifically. You can go to the grocery aisle and there's tons of gluten-free options now all over the place for pizza, for bread, for pasta, for all sorts of stuff. So, that experimentation piece is really interesting.
Daniel Scrivner (00:16:18):
One thing I wanted to just maybe go a little bit deeper on is, all of these things sound like one, so take Green Chef as an example. I love the way you talked about that because you're like my customer. And serving my customer and that it's a customer that wants organic, wants clean-label, wants diet specialized. So, clearly part of this is kind of, you're using these things to just target a part of the market, which is underserved, historically.
Daniel Scrivner (00:16:41):
Part of that I imagine too, is just a business mode. Once you learn how to do these things and do them really well, I imagine that that makes it, so you're kind of the clear choice there. You're the tiebreaker choice there. And I thought an interesting way to talk about that would be the gluten-free piece. Because I would imagine that making meal kits that are certified gluten-free is really challenging. And then once you've done that, that probably unlocks that. Can you talk about how you think about that competitive advantage piece and what that looks like to really execute on gluten-free?
Michael Joseph (00:17:09):
Totally. You just brought back some interesting memories too. Because even though you can see, whether you're looking at a physical or a digital grocery shelf, the prevalence of gluten-free products has over the last decade, let's say has just blown up in almost every category.
Michael Joseph (00:17:23):
Listen, I'm working on gluten-free shrimp tempura right now. So, it's like, people want this stuff. So, when you focus on this underserved need, and early on way back in my career, I was hearing the gluten sensitive customer asking for all this stuff, and asking for convenience because they were asked to do basically a lot of chores to just have their food needs met.
Michael Joseph (00:17:45):
And so, when I designed the gluten-free product line at Green Chef, and we made the decision to be the first of our kind like certified gluten -free manufacturer of these products, which isn't the same as making a gluten- free bread, because in meal kits at Green Chef, it's a new menu every single week. And so, you have new ingredients and there's got to be a lot of allergen control. Because when you actually go get a technical certification to be gluten-free, where you can have coexistence in the same building of gluten and non-gluten, are an incredible amount of details to never allow for cross-contamination.
Michael Joseph (00:18:25):
And so, building a system where there are ever changing ingredients, you're utilizing the same machines in a lot of cases to prepare these items, you have to be incredibly precise and particular, so that you're not violating these problems. And unlike some other actors, this wasn't a marketing gimmick. I actually care. I've actually had customers come to me after I sold my last company and tell me how much it meant for them to have a product like this, to feed their celiac daughter or something like that. It may be 1% of society, but it's 1% of society, right? That's the real deal.
Michael Joseph (00:19:01):
And so, in terms of a moat, focusing on that. As we became thought leaders in this, and that typically happens when you pioneer something. I say pioneer because we were the first to do it. Just like my prior business was the first certified organic online grocery, like selling fresh items and retracing every single product, which by the way, it's not really dissimilar from the idea of gluten-free, right?
Michael Joseph (00:19:26):
We're just saying in each case, these are the things that we have to either never bring in, or could never touch each other, et cetera. We build these processes, and then later on software that supports the processes to allow for this high degree of certainty, that we're never violating our customer's trust, frankly, is how we look at it.
Michael Joseph (00:19:46):
Now, when you bring that up is like, is that an actual moat? In my opinion, with these more complicated business models, absolutely. When it's this idea, so many people are making gluten-free bread. I wouldn't say for a single product it is, but we're talking about more these service layers or close to platform layers, absolutely, it is all about the consumers trust and building the systems that lead up to that.
Michael Joseph (00:20:10):
And sadly, a lot of business leaders are not interested in that aspect of the relationship because of the added costs without necessarily that direct payback, except something you said, the direct payback is, you get these customers for life basically. And I mean, real life, not made up lifetime value. People who want to support you because you're taking care of their needs better than anyone ever has. And so, like the brand halo moat that comes from this, and comes from like the underlying technical piece, that you really have to get right on and always be right on, that's where I think the value is.
Michael Joseph (00:20:48):
So, when you start talking about things like customer stickiness, that customer in some cases has zero choices or very few choices to even compare you against. So, that's all. Wrap it up. And I know everyone else can, you can see the smile on my face. It's because I've heard back from enough of my customers to know this is real. And it's something I never got into actually, it's something I make it into down the road with my career the way things are going.
Michael Joseph (00:21:10):
Tree nut allergies, there's something like 7 million Americans that will die if they unknowingly eat a tree nut, and they go into anaphylaxis, and can't be resuscitated in a short enough period of time, terribly scary. That's actually a whole another layer of seriousness. So, I'm personally still trying to keep away from things that would kill people. You want to have so many more layers of caution in between.
Michael Joseph (00:21:34):
And not that I don't think I could do it, that's just some serious risk. But I know that population, they don't go out to eat for the most part, because the risk of cross-contamination and having a terrible interaction from this basic daily thing is eating, right? The reaction chance is too high, and it's just not worth it.
Daniel Scrivner (00:21:51):
Yeah. It's so funny you brought that up, because that's actually what I was going to bring up is the last story I remember hearing from somebody, was a mom who, I believe she's got a daughter and a son and both of them have a tree nut allergy. And so, she's been building a brand, it's available at Whole Foods. I think it's called Better To Be. And they do simple stuff. Peanut butter cups basically is a proxy that doesn't have any of the bad stuff that's in it. But yeah, all it takes is hearing a few of those stories, especially from a mom or a dad to really get a sense for no, this is drop dead serious for these families.
Daniel Scrivner (00:22:20):
And it's an issue that's very much top of mind. And you hear that. I don't know quick math, I'm sure that's probably more than 1% of the population that has that tree nut allergy. But the other thing that I've heard as well too, is that that's continuing to grow, and there's a bunch of questions being asked around why that's the case and what we can maybe do to prevent some of that. But directionally, yeah, it seems like that's where things are going more and more, which is really interesting.
Daniel Scrivner (00:22:42):
I want to dive a little bit deeper into Green Chef. And you kind of talked about it, there is a few data points that you shared. One of them was having 800 employees. One of them was the revenue rate. But the stat you shared with me around Green Chef before you ended up selling it to HelloFresh was the number of meals that you would serve per week and per month. Can you just share that number with us?
Michael Joseph (00:23:03):
Oh geez. At that point in time, now I'm busting out the calculator. Because enough time goes by between these companies, and all the things you used to have at the top, they're somewhere in the middle.
Michael Joseph (00:23:15):
But just to give you an idea on a weekly basis, I'm giving you a rough math. So, we're not spending a bunch of time on this at the moment. But rough order of magnitude... Let me put it this way. Without doing all the math which I know I'm going to mess up anyways, which is why I'm surrounded by people who are detail-oriented with this.
Michael Joseph (00:23:34):
On a weekly basis, the number of meals was probably right around a hundred thousand at that point in time. Give or take, something much higher than that right now.
Daniel Scrivner (00:23:46):
Which is a significant scale.
Michael Joseph (00:23:48):
Yeah. A non-trivial amount of people were definitely reliant on us. And remember, with that company, we're sending food through the mail. And let me tell you, a whole bunch of problems when you send fresh food through the mail can come up.
Daniel Scrivner (00:23:59):
So, I want to talk about that, because if I'm remembering this correctly, you alluded to this.
Daniel Scrivner (00:24:03):
Yeah, because if I'm remembering this correctly... and you alluded to this... this was at the very early stages. And so this is the effect of that business model of kind of meal kits being delivered. And clearly people can debate... I don't know... whether it's a good business, whether it's a business that's going to grow. All of those questions, I think, still exist, but clearly, it's here to stay. It is a type of... I don't know... It's a channel for people to get the food that they want delivered to their home. What were the hardest parts of building and scaling that business? Because just to tease it apart, there's the logistics piece, which you just touched on, but then there's also the food development piece, menu development piece. Talk about some of that lessons learned to building and scaling that business.
Michael Joseph (00:24:37):
Yeah. So Green Chef is a really interesting one and ultra complex business. And I'll focus in on scaling some of those food pieces in a second, but I still want to say our website, thanks to my Silicon Valley friends that I made and formed this partnership with, we even built a custom A/B testing platform that could do more than anything that was a SaaS product at its time. So we're hyper-sophisticated about dialing those types of activities by itself, right? That's a business. People go over those lines of business all the time. That was just a department in my company. We actually had to build our own food production factories to sell the scale through. Right? So that brand... God... $9 million worth of construction before we really knew where the business was going. And so we had to have some really good ideas about where we thought it would go before we made a commitment like that.
Michael Joseph (00:25:32):
And thankfully the facilities are still rocking it for the acquirer. And the food side though, because we launched this company so quickly, and we were inspired by and we modeled a lot of that business model off of those who are already in the space because we didn't plan this business out like in the way I've planned my current one out with the same amount of diligence. And so we're like, "Okay, let's try to shortcut a few things by being inspired by stuff that's already working. Right?" Well, one of those things was changing recipes every single week. Okay? That created certainly the most complex supply chain I've ever worked on because you have a couple of factors at play. One, because we were primarily organic food and these super long-tail diet specialized ingredients where paleo ingredient A, there was one commercial source of it, right?
Michael Joseph (00:26:26):
There's no redundant sourcing. So things like that were coming up, but you're balancing this idea of your changing ingredient base with a very fast-growing company. The fastest week-over-week annualized run rate growth that we had was a $10 million jump week-over-week. That's really big and different. And in the organic food world, unlike... well, I don't like calling it the conventional world, because what's conventional about it other than it's been there for a little bit? But the spot market availability of mainstream commodities doesn't exist in the same way. And so we had to be incredibly precise around forecasting. So the data science flowing into how we thought cohort behaviors would continue to evolve with recurring customers, all these campaigns for new customers including national TV campaigns, we started experimenting with. And at the same time, right, matching all of that demand with the right amount of ingredients, but not too much.
Michael Joseph (00:27:27):
And we were fortunate. We got our food waste down to 2% of revenue or something on that order of magnitude, but it was the calculus and very advanced calculus of managing all of those different factors, and in extreme cases, we'd actually have to substitute a recipe, kind of make a game time decision, re-engineer where broccoli just all of a sudden became unavailable because of weather in California or whatever, and maybe green beans were, and they could work in that meal. Because remember, we're designing all of these recipes as well, and we'd have to go run out on the supply chain side to get the ingredients at the same time that we're changing all the marketing materials that are going out to that customer based on the recipe, not to mention so we built software that actually ran the backend of this business over time.
Michael Joseph (00:28:14):
So we'd have to actually update all of this to make sure it's correct, so that in our food factory, people would actually know, "Well, what am I supposed to do with this new ingredient that just showed up?" And so there was all that type of complexity in addition to... And when you're creating new industries that laws weren't written for, you're always going to have problems that hadn't really been solved necessarily before. And one of ours was that we were actually bringing... at the time, serving California and customers out of Colorado, created some interesting hurdles. And I have vivid memories. It's going to sound very silly, right? We take food out of California, process in Colorado, send it back on a truck the other way. Well, it had to be labeled in a very particular way on the outside of the box.
Michael Joseph (00:28:58):
And we learned that lesson the hard way. It was either 40 or $50,000 worth of product in that truckload because it was a full truck or close to a full truck of manufactured Green Chef meal kits that was stopped at a border for a check. The person who's in that job, they didn't care that there's fresh product that's going to expire. I don't think that was part of their job description or anything like that. But the next thing we knew, "Oh, we're losing that load. And now we have to go make all these customers happy that we would otherwise strongly disappoint because this is happening basically at the last minute." So the logistical complexity of all of these pieces really compounded on each other. And so I think back to that supply chain was in my opinion, the hardest I've ever worked on. I've got a complicated one going on right now, but because of this ever-changing recipe board and being so beholden to certified organic ingredients, those were constraints that created a really challenging to solve problem.
Michael Joseph (00:30:01):
Now the flip side is customers valued it and they continue to value it. So they're shopping with us because of the value we created for them. Right? We did the hard work for them, but those are some examples of the complexities on the food design and manufacturing side especially that we had to contend with. And it's those things against hypergrowth. And of course we weren't rational about growth, right? We're like, "Grow, grow, grow, grow, grow," right?
Daniel Scrivner (00:30:26):
The problem just gets compounded at each one of those stages. I love this because I think it's what makes dissecting and understanding businesses really challenging and also really interesting is on the surface, you'd think, "Oh, all you're in the business of is coming up with delicious food and then it just gets to customers." And it's like, "No, actually there are a number of really difficult technical challenges." You've got everything from building out the website and the interface to make it... As you talked about having a testing framework, just to make sure that you're optimizing kind of conversion rates up front, then you've got this giant, really challenging logistics network in the background and just goes... And well, I'm sure this needle will get threaded when we talk about Scratch Kitchen, but it goes into one of my theories that to be successful in a business or most businesses, you just really have to master this super position where you have to be good at multiple, multiple things. And only when you do that could you unlock a lot of value. Does that resonate when you think back to Green Chef?
Michael Joseph (00:31:18):
Of course. And today, I mean, I haven't found something where you just master one thing, unless maybe you look at the service provider industry, obviously your tax accountant masters the tax law and there's only so much you can do with that. But I think when we're talking about these complex operating businesses, I don't know if I've ever seen one, right, where you could just master one thing and you've got a winning outcome, ever. So that definitely resonates. And it's the ability to prioritize these ever-changing factors, especially when you're also dealing with the physical world in addition to the digital world, right? It's the added complexity of like, "Oh yeah. Snowstorm might not stop the internet from working, but it definitely stopped 2,000 pounds of avocados from showing up."
Daniel Scrivner (00:32:07):
I have to just, I guess, ask that follow-up question now, and I'm sure we'll come back to it, but do you have a framework for thinking about that? So just thinking of something like Green Chef, where you've got all of these different areas that you need to make progress in each one of them, how do you think about prioritization when you're faced with what feels like just everything that has to be done now? You're faced with a sea of things that "need to be done now," or need to be improved now.
Michael Joseph (00:32:33):
I mean, the way I faced it at Green Chef is a lot different than how I face it now after those lessons, after the school of hard knocks of hyperscale, right? Because back then, for better or for worse, we had a growth-at-all-costs mentality, and we had investors encouraging it until blue Apron's IPO went sideways. And so we were focused on... Although this is where things didn't change a ton. We always did focus on customer delight, except the problem with the growth-at-all-cost mentality was that there was this air of not caring about all these customers that churned out, but that wasn't right. I wasn't actually being true to myself. So let me kind of flip to my framework today, my more mature self. Yeah. I have two KPIs in how I operate now. There are sub-KPIs,
Michael Joseph (00:33:20):
Number one, customer delight. There is no business if the customers don't pay, okay? And you can churn through a bunch of venture money, but that's not a business, right? That's a hobby. And it's a really weird one. And so-
Daniel Scrivner (00:33:30):
It's not sustainable.
Michael Joseph (00:33:32):
No. Topic for another podcast. And then the other piece is profitability, right? And now customer delight and profitability are at odds with each other a lot. But especially at this most early stage of the business, right, we're obsessed with solving a problem, right, doing everything that we reasonably can to secure that ultra-valuable relationship with the consumer, knowing we can't have perfection. And most of the priorities, especially at the early stage of the business now, that just goes above profitability, right? Until we get a number of these baseline operations down, especially in the days where we're doing things a bit more manually or mechanically before we can actually build supporting software. Right?
Michael Joseph (00:34:17):
And I was able to do that at Green Chef as well. And so that is the framework and it is a two-factor framework. And now mind you, there are all these other sub-factors that you have to start looking into, right? At a certain point you say, " Oh, the cost of delighting, this customer is so ridiculous we're not going to do it." But the flip side has been right now, we care about order fulfillment. If we made a promise to that customer, we're fulfilling that promise. We are actually going to the edge of our resources, right? Meaning what the team is actually capable of doing before, we even focus on profitability. And we'll look at it, right? You kind of have a hurdle where if it gets too expensive to solve a problem, well, then we're just sticking with, "Hey, we're going to give you a credit or try to make you happy, but we can't solve your dinner problem tonight because this snow storm just prevented all cars from moving."
Michael Joseph (00:35:10):
But it truly is as simple as that in terms of how we're looking at everyday operations right now. And then there's obviously the prioritization of the bigger picture strategy and what we're doing with the business. But I'm really working with and have been working with my team on this framework of saying, "Hey, at this point in the company's life, right, we're customer-obsessed before anything else, right, because we know that we just don't get paid otherwise. The company stops operating." Then we say, "Okay, now that we've had that part of the needs met, which gets much easier with time and building strong systems and a strong team and all that good stuff." Now we're saying, "Hey, let's keep optimizing the bottom line of this business and we never stop listening to that customer though." And so what is that really KPI, number one, doesn't exactly go away. Right? It's just how urgent it is.
Michael Joseph (00:36:02):
Because as you know, at this phase of my early stage business, if I don't have product market fit, I don't have a business. Then I've wasted all this time. And that just seems foolish. I probably seem like such a simpleton here with this two-factor framework, but the truth is in simplicity, you can just go through less non-productive cycles is what I have found. And it kind of helps you find your guiding light because I've never had more distractions presenting themselves in my life. But at the same time, I'm like, I know what I have to do now. Or I've wasted all this time and money. And I have visceral reactions to that. So I don't allow myself to kind of get to that place.
Daniel Scrivner (00:36:42):
I love the way you articulated that. I've heard a lot of people talk about... I don't know... I just heard this bad notion of first year focusing on product market fit. And then you're just going to switch all your focus on profitability. And I think the way you articulated it is much more true to how it actually works. And it's also much more elegant, which is first, you need to build a business. You need to go from zero to some base of revenue. The only way to do that is to get customers and retain those customers. And that's why you need to be customer-obsessed. And then profitability, if you've done that well, profitability is truly about, "Okay, now how can we serve them at the same level or as close to the same level as possible and be more efficient?" And so you're just focusing then on... You're still customer -obsessed, but now it's just, "How do we also underlie that with a little bit more efficiency and..." No, I think the two metrics you have, to me, make a ton of sense.
Daniel Scrivner (00:37:29):
And I would imagine for your team, it's also really clarifying because I've been a part of teams where there's six metrics and then inevitably it's like, "Oh, do we need to stack rank the metrics? What are we actually focusing on? And which ones aren't we?" And so I think that framework seems really smart to me. I'd love to transition now and get super deep in the weeds about Scratch Kitchen and what you're building, because I find it fascinating. We shop and eat there and it's embarrassing... It's not embarrassing. I mean, we love it. So-
Michael Joseph (00:37:53):
No, no, no. You're a top-performing customer and I'm grateful for this. Okay?
Daniel Scrivner (00:37:58):
We're a part of that very happy customer base, that product market fit. So where I first want to start off is we'll go super deep in the weeds on kind of how the business is evolving, but I want to start off first. We haven't really talked about what it is and I feel like an important part or maybe a prerequisite of what it is, is how you got to the concept. And one thing that I loved when you and I were chatting before this conversation was hearing your story of spending a bunch of time just looking really broadly at things you could do, things that might be interesting. Can you start there and then I guess try to weave us through where you landed and why you knew or felt that yeah, that was it.
Michael Joseph (00:38:37):
I'm going to do my best. Okay?
Daniel Scrivner (00:38:38):
Yes. I know it's a big question.
Michael Joseph (00:38:40):
You spin up some tall orders. It's okay. I signed up for this. And thank you, by the way. I love the question. And this is fun. You can tell, I love working. And none of this is sheer pleasure, right? Because at a certain point have too many fire drills to work with. And then you're like, "Oh my God." This is why entrepreneurship is for so few people, because at a certain point, most people will just break. Now figuring out the Scratch Kitchen story... This is actually the first time I've been really inward about this, right? We've been getting the model to work. I'm really happy to be sharing this with you and your audience, especially because I'm just going to call you beloved customers.
Daniel Scrivner (00:39:16):
Michael Joseph (00:39:17):
It's for delighting your family that just... You know that makes me happy, right? And I set out to do that. And so where I left off in kind of my career arc where my wife kind of said, "Get the hell out of this house," type situation. "Now come back, but not all the time." Right?
Daniel Scrivner (00:39:31):
You got to just go someplace during the day. You gotta get out of the house during the day.
Michael Joseph (00:39:35):
She's like, "You can go travel again, all this stuff." But when I say travel, I mean, without the family in tow. And so I had been talking to a bunch of my friends, right, because really there's a lot of camaraderie with entrepreneurs. And I think it's invaluable, especially when you found so many lifelong friends this way. And so just trading notes with a bunch of people around frameworks, frankly, of how to even look at this, because during my downtime, my six, seven months or whatever of doing nothing for work, I wrote down all these things I had learned from my hyper-growth experience. And that included what I wanted to do again. I actually wanted to take another big swing. I saw a lot that I liked about the venture world, actually, and I wanted to bet on all these things that I learned. I wanted to get into a bigger market than I had gotten into, meal kits.
Michael Joseph (00:40:22):
When you invent a new or a part of a new industry, you don't know how big it's going to get. And so I wanted to get into something that would have way bigger potential and go compete with myself more than anything, and many people, right? I wanted to go find an edge. And for me, I did not go out pursuing another digitally native food business, but it shouldn't be a surprise that I kind of landed there. So I went out right into the wild to go figure out what was next for me. I had my own personal framework. Thankfully got a great network of folks across the country that I was trading notes with. And a part of that was framing how long or how patient I should be before diving into something. And I actually heard a lot of horror stories about folks where they have a nice little exit and then go buy a company and wind up sucking the life out of them.
Michael Joseph (00:41:12):
And they didn't pursue their passion when they had the opportunity to, and that really landed with me. So I kind of told myself loosely, I am like, "Maybe this will take two years, right, to figure out." I'd like to think I have lots of time left on earth. So to me, I was like, "Okay, two years of figuring something out, sounds kind of like fun." And I went out looking and trading notes with folks. And as I was trading notes with folks and learning a lot more about the on-demand restaurant aggregators, so the DoorDashes, Uber Eats, et cetera of the world where I've never gone for. I've actually been a big consumer on those networks, but I'd never gone in. So I naturally started talking to folks about really what was going on with on-demand restaurants and diving in deeper there.
Michael Joseph (00:41:58):
And it was catching my interest to such a degree that through my research, I found this woman, Elise. Hi, Elise, I hope you listen to this, by the way. She's a business partner of mine now. At the time, she was running this thing called the virtual restaurants department at Uber Eats. And I found one article that had ever been written about that. And I was fortunate to have a family friend who was early at Uber who helped facilitate that introduction. And so as I was going around and trading notes and looking for stuff, well, when I met with Elise in the fall of 2018 and started just really listening to some of the stuff she was sharing with me, I was blown away by what I would just describe as the inefficiency of the restaurant market in general.
Michael Joseph (00:42:41):
And I promise you, there are misconceptions up the yin-yang about this, but it was really cool getting this amazing firsthand account from... at this point, this was early on my research, but Uber Eats and their peers, they layered these networks over these incumbent industries and could really derive some very interesting patterns by seeing how people behave.
Michael Joseph (00:43:03):
And when I say people, I mean, they had a multi-sided marketplace. So whether it's the gig drivers or the vendors, the restaurants, the merchants, what most of the aggregators called them. And then the actual end user or customer, the person who eats the food. And I just saw so many things that were interesting to me. And one of them that just struck me that was clear as day... And it's obvious to most people, but as digital ordering and things like delivery became prevalent, the barriers to entry to start a restaurant have historically been one of the lowest of any business ever that you could ever start. And it's been a great part of the American dream forever. Well, all of a sudden you layer on all this digital complexity and that is literally speaking Mandarin to someone who speaks English is what I found.
Michael Joseph (00:43:49):
And in that I was fortunate enough to start seeing some data that showed that there were a lot of restaurants out there that just didn't know how to make or sell digitally native products, let alone how to actually grow it. Now we're in the COVID age. I'm sure we'll talk about this a little, but that didn't catalyze people to get smarter about something. It just forced them into channels. And I'm also an investor in tangential industries in this space. So I've continued to see this through a number of lenses, but back to the focus of this journey. So Elise really... And I give her lots of credit. Although she didn't know it at the time, she really opened my mind to the fact that there was this enormous changing of the tides. Not that restaurants would go away, but that they were going to change form.
Michael Joseph (00:44:33):
And I already knew from my prior career from the data I was tracking that it was like in 2015 for the first time in the US, sales at restaurants, leaped over grocery spending. So consumers just continue to index and value convenience above many other things. And I was like, this has got these big market characteristics I was looking for. As I was going into these layers with her and then some of her peers, I was like, "Oh man, these distribution networks that have been spun up are much more than what a lot of restaurant tourists were calling." They just thought they were like delivery companies taking 30% of their sale. And I was looking at them, I'm like, "Hmm," I'm like, "These are digital content distribution networks that the vast majority of users really just don't understand." And one thing I didn't fully articulate with my partners at Green Chef other than saying the Silicon Valley part was they were hyper-competitive social video game sellers.
Michael Joseph (00:45:31):
They sold their company to Disney, but frankly, in this hits-based industry, I learned how to competitively sell on Facebook and other types of networks. And it's not an easy skill to learn how to be at the top of arbitrage and the opportunities on these different networks. And so I got all giddy because now I'm like, "Oh," I'm like one, there are all these opportunities I started seeing for multiple types of cuisine that people wanted, but the existing merchants in their region weren't able to provide. And by the way, this is a very interesting business model because it is hyper local and every micro market behaves differently in all the different sides of the marketplace. And then this other factor was like, "Oh my God." With the advent and the high rates of adoption with these, what I'm calling digital content distribution networks, now they hand over food, but they're growing so much that I was able to start seeing all this inefficiency.
Michael Joseph (00:46:27):
I'm like, "Oh," I'm like, "If we can make food that fits into these gaps and we can arbitrage on the new marketing channel side of things," I'm like, "There's probably a business there." Well, those things led me down another three quarters of a year of diligence before officially getting to work with my co-founder. I went and diligence is kind of the first-generation of delivery native restaurants is what I call them. [Montre 00:46:50] , Maple Sprig, SpoonRocket, Ando, kind of learned about the good and the bad of those companies and certainly took all those learnings into what became Scratch Kitchen. And then the other thing that I did was... This is what opened my eyes, even though this stuff's commonplace in the headlines every day today. I went and followed what Travis Kalanick was doing with his company, CloudKitchens, and then everyone and their mom that's jumping on this bandwagon.
Michael Joseph (00:47:14):
And now you got Gwenyth Paltrow selling stuff through virtual brands. This was just announced yesterday. And the acceleration of this landscape change has just been going on quickly. But I was doing a lot of diligence long before any of this was ever considered popular. And I looked at all these business models, both existing and former that were roadkill. And I found a bunch of things that I liked about them and thought that were smart. And then I found a lot of things that I didn't agree with. And then fundamentally where I differ from a lot of entrepreneurs, not all by any stretch, but what I found is that I only really liked to solve problems that benefit me, only. I found that I don't actually like even touching a problem that has nothing to do with me. And that's actually found its way into my investing as well. And I'm obsessed.
Michael Joseph (00:48:03):
It's actually found its way into my investing as well. And I'm obsessed with optimizing for the end consumer. You already heard my framework. So I was like, "Wow, no, one's really optimizing for the end consumer here." These ghost kitchen models, primarily, there are all these variants, but primarily they're an infrastructure layer for the changing landscape of restaurants and primarily focused on the delivery side of them. And that was super fascinating, not at all what I'm interested in. But note, when I looked at all those different pieces and went quite deep in some of them and then took everything I had learned to date in my career, especially around catering to some of the choosiest customers there are and successfully meeting their needs. It just totally struck me. And this is where the company is called Scratch Kitchen, because this is about making things from scratch, frankly, the very basic, but then also all this clean label and organic and diet specialty stuff.
Michael Joseph (00:48:59):
If I thought it was broken in grocery, it was really broken in restaurant, like disturbingly broken. And we only have like a few percent of restaurants actually being true clean-label. They're actually no mainstream food distributors in the restaurant business that specialize in clean-label, the laws for restaurants in general, it's much easier to hide information from consumers. So the consumers didn't have that same angle of transparency that including my dad and other laws that would, he wrote in what others have written like consumers were getting smart, while restaurants, they weren't. By and large because most consumers aren't going to go ask the question and do the extra work that's needed to meet their needs just too much hustle. And so when I saw that and then all these other things I liked from my research, which were, "Oh, if I can run basically many restaurants under one roof with some specific infrastructure to support that, obviously, I'm going to be able to get better asset leverage or better leverage on my labor."
Michael Joseph (00:50:03):
And I knew a lot about this from my Green Chef days, because this wasn't terribly different. We actually made great food across 20 cuisine types. There we were retooling manufacturing lines and supply chains every single week, which we talked about a little today already. And then the other piece, and I have a family, you have a family. I know a lot of people, families. And it was also from the data I can't name where I found this data because this is after some NDAs resigned. But I can promise you the consumer, that's buying things on demand, ready to eat. The families are totally underserved with these modern families where many families want different things. And there wasn't really a one-stop shop. So Scratch Kitchen... I was like, "Okay, a little hard to articulate, but I'm going to give it to you in two ways."
Michael Joseph (00:50:48):
So in the inception way, it was like, okay, this is like this clean label platform where we're going to create all these different brands and a brand represents a cuisine type. And everything's going to have the same values as the parent brands. And I just optimized for takeout and delivery, but it's like, we're going full clean label on this thing. We're going to do all the supply chain work for the consumer. And in our name, we're going to actually make a bunch of stuff from scratch. We're not just, rebuying someone else's sauce because this is something I saw at Green Chef as well. You could create these flavors that were actually reasons why a customer would come back. You're delighting them in a way others couldn't. And that's what drives me. So I saw all these similarities where I was like, this is what's going to happen.
Michael Joseph (00:51:27):
We're going to do this all under one roof. We're going to optimize for delivery and takeout. I'm enough into my business right now. And since we're publicizing this, I thought it was pretty full hearty, frankly, for like this first generation of folks who are just going to after delivery only this and delivery only that it's like, they just didn't take the 10 minutes to go see that for every dollar of food delivery in the U.S. I don't care how fast it's growing. They're actually something like $4 of takeout that term delta is enormous. And I knew from my career in product design and the backend system designs to make this stuff work, the use cases were so stinking similar that I just had to go for it. Now, there are a bunch of other factors I won't bore you and your listeners with them on this call, unless you want to drill me with.
Michael Joseph (00:52:11):
But when I look at this today, you're probably going to want to unpack this stuff. So what I would say is, it's Scratch Kitchen. We build and operate internet restaurants that are clean label, multi-concept, and demand responsive. And I'll tell you what I mean by demand responsive, because that's not necessarily self- evident. We've talked plenty about clean-label, multi-concept, everyone gets right. And obviously I talked about the one-stop shop, where you can actually transact with everything you want in a single order. It's a wonderful experience. This demand-responsive idea, though. And this goes into some of the partnerships I've been able to form with some of the food delivery aggregators who we're partners with, even though we also sell through our own channel. This idea, and we did this at Green Chef was taking customer feedback in a whole number of different ways and understanding how product design and that could be how the service worked, how they interact digitally, the food itself, there are a number of facets, but ultimately the idea was much more like a Netflix, right?
Michael Joseph (00:53:11):
Netflix continues to refine and create content based on what their users love. And that predictively has created new things that they love and love even more. I mean, Netflix has more adoption than any other streaming network that exists to date. And I really admire them as a company. And I was like, I can do this with food and food brands. And we've already proved it that you could do this at my last company. So I had some practical experience and now literally we're doing it again, and it's totally working. And it's one of these things that goes into the complexity issue. This is no easy task, because if you think about all the moving pieces that wind up going into this and at the end, because we don't have a bunch of robots making most of the food now, and it's going to be a while.
Michael Joseph (00:53:58):
Maybe we talk about that a little today, maybe not. But a lot of humans are involved in this. People, all people make mistakes. I don't care if you're the president, the CEO of a fortune 500 or you're my friend. Who's like my daughter's janitor right at preschool. Every single one of you is going to make mistakes. And so like that happens. But in that world of complexity, what we're doing is it's not this antiquated idea of a single concept restaurant. I'm just going to like, push it out there that way, where it's just like, Oh, I do this one thing. And one thing, well, that's great and it's filling a need, but I'm like the modern consumer has more complex needs than that. And so what I'm saying is, if you have a scratch kitchen, I mean, I described this is where the food and the tech kind of intersect in end point is a node on the network.
Michael Joseph (00:54:45):
You could also call it a store or a restaurant if you want. The government will call it a restaurant. I swear for those purposes. But that end point in the network that cares about only the audience right around it. And it learns stuff from look alike end points. But it really cares just about who's around it because that's how people live. And if it's where they work too. We're just learning from the users around us and making the products the best we can for them. So in the future, say, when there are a thousand of these out there, I don't believe that any two endpoints will look exactly the same, but we're building the infrastructure.
Michael Joseph (00:55:18):
We've already built some really interesting infrastructure that just didn't exist in the world to support this new type of idea. And it's interesting because some of the best ideas, Bob now I'm tooting my own horn, but it's like retrospectively, it looks super obvious. And I think it does. Because in the end, it's just meeting the customer's needs. Right. And that need, wasn't so complicated. It's just like the way that industry had been set up historically, it was not optimizing for that end consumer. It's a passion of mine. In fact, you now no, it's a requirement of mine to go actually start a company. Because of the commitment for me to work really hard now.
Daniel Scrivner (00:55:58):
There we go. So that was incredible. And I think the way you articulated that at the end starts to get at the picture that I want to try to paint for people and what I am going to try to do hopefully you don't grade me too harshly. I'll turn that around. Talk about what the experience is like for me and my family to put together an order to go and pick up and maybe build off of that. But the piece that I definitely want to dig into more is this idea that I'll try my best to articulate this, and then you can grade me on it after. So Scratch Kitchen is multiple concepts under one roof and it's all delivery or take out native. And so the idea is, and then I'll talk about the experience of going and picking up and some things that you've done there, but when you go to a Scratch Kitchen, there's no indoor sitting, there's no outdoor sitting.
Daniel Scrivner (00:56:39):
The whole thing is designed for you to simply walk up to it if you're doing takeout or have your food get delivered to you. And even just that I think is interesting. But it gets even more interesting. There's multiple types of food you can get from Scratch Kitchen. You can also get ice cream and grocery and staples and Justin's peanut butter cups. And even random stuff you need around the house, like toilet paper or dishwasher, soap, what it looks like for us to try to... Well, and then just the last piece I'll add on to that. So that's one node of the network. And then the idea would be at some point in time, there will be hundreds. There will be thousands of these. None of them to your point, we'll look alike. But it starts getting more and more interesting.
Daniel Scrivner (00:57:15):
And just to talk about what the experience is like for us is we'll go to your website and we are your exact customer. My wife will want a salad. I will want chicken strips or like a burger or something random. And then our son who, for any parent out there that has a three-year-old, you'll know this really well and get us a daily challenge to figure out what to feed them that they'll eat. And so typically we'll go for something really easy. You guys have like a cheddar biscuit that we'll get. Sometimes we'll get grilled cheese and what's amazing is on the site it's structured so that each of these is a brand. So there's a brand that you can order from the just us salads, there's a brand you can order from the just us burgers, there's a brand you can order from the just us sandwiches.
Daniel Scrivner (00:57:54):
And then there's these grocery and staples that live alongside that. So I place that order, then when I go to pick it up, you guys do an amazing job, the best job I've actually seen. So I will do that typically on my computer, on my phone. I get multiple text notifications the whole time that you've received it, that it's being prepared when it's ready. Then when I'm arriving there, I will just say whether I'm going to take out or whether I'm going to pick up and I can do that all in just a couple of taps via an app.
Daniel Scrivner (00:58:20):
And literally, you know, the kind of magic scenarios I'll say, I'm going to pick up, here's my vehicle. Just typically I ride a dirty silver Subaru, because that's actually what it is most of the time. Because we live up in the mountains and it's easy to find if I type that in and literally someone I will park and seconds later, someone will walk out and hand the food and from end to end, it's a, I guess, just to put a point on that and they'll stop laughing and I'd love your thoughts, but it is just a fundamentally different experience.
Daniel Scrivner (00:58:45):
And to me it feels very much like this is clearly where things are heading and it just does something that literally no one else does that we can shop from in town. So I'll turn it over to you. Feel free to grade me on that [inaudible 00:58:56]
Michael Joseph (00:58:56):
Oh, wow. A+ and keep shopping. I think you nailed it. Listen, you guys are a real customer. I mean, frankly, like I create services, I shop at too, right. And I know a bunch of our core customers because they started this in an area I've lived for a long time. And so it resonates. And I want to talk about a couple of those pieces that we haven't talked about quite yet, but the use case that we're solving for, right. And the fact that you guys are high-frequency customers, it just speaks to the fact that, "Hey, we actually solved your need." God, I remember our last conversation. I was basically like, I've been working on this problem of what's for dinner for my 16 years of digitally native food career. And only come up with these pretty partial answers, but it's not like anyone else did some great job.
Michael Joseph (00:59:43):
Hey, Amazon, you bought whole foods and you still have a ways to go. And it's really interesting, making some of these real world solutions actually work. So one of the things that I hadn't talked about that I wanted to, and I believe you live out of the delivery range. So you don't know until we add our rugged four-wheel drive like service it's just not a P-one, right? It's not a priority happened immediately. But like the transparency that you described for the pickup. So as someone who's been a huge consumer of restaurant food, my entire life for delivery or pickup, but also really values my time and gets pissed off when some basic daily need isn't being fulfilled correctly because someone didn't do their job or product was designed in an inferior way. And this is where I got motivated to really build products here on that pickup side.
Michael Joseph (01:00:33):
And you're seeing it like you get a text when your food's actually done. And let me tell you, your food has been quality checked and is actually done when you get that text. I designed the system and we have the option to check in, you can walk up to the front door. I mean the whole pandemic is not a pandemic. You could even go inside a very small area, but optimize for pickup. But like your use case, which is one of my favorites is like, Hey, I'm in this car or depending on which future location we're talking about, that there can be numbered parking spaces if all the real world constraints. Right. But note, it was all about taking out all this friction that seems super unnecessary because I picked up food for my family. I can't even tell you how many hundreds of times, and in so many cases your food's Waiting for you, you're waiting for your food. There's absolutely no transparency along the way. And it just irritates me.
Michael Joseph (01:01:24):
So I'm like, I'm just going to redesign the system and the way you described it, you get an a plus because it turns out it worked right. You described it. That was the intent of the design. The product works. This is still like, we're rocking the MVP right now. So I'm really satisfied and think we have some great places to go. And similarly, if you get a delivery from us, it's not just delivery tracking, which is great. But we actually sent you a text when your food leaves the place, just like when your food's done for takeout. And like the way I think about it, I haven't bothered to like work on ad campaigns around this yet, but you'll probably, at least be entertained by it. But I'm like dinner texts you. Why wouldn't your dinner text you?
Michael Joseph (01:02:01):
I talk about, when I'm saying to my wife or daughter, I'm going to pick up dinner, let's say, or if it's getting delivered, I'm going to be like dinner just texted, right. It's really actually satisfying. Because you ordered all the stuff you wanted. We really worked on the execution timing of things. So even when we get super busy on weekends, we have some different systems and ways we staff so that some of the one to two hour waits that can happen at restaurants, especially on weekends, like we're engineering around. And just again, designing a system that it's not built around this old idea of sitting down and eating dinner. And I love that. I never want that to go away. It's just not this idea. It was the need to specialize in what's called off premise dining just means delivery and takeout. I don't want to burst your bubble by the way.
Michael Joseph (01:02:46):
We'll probably set up some outdoor chairs because we don't pay for that square footage. And yeah, if you want to get a sandwich in front of our place, that sounds great. Just throw away your stuff and actually compost it. But still, and then what's interesting is what you brought up about the market. Okay. So this idea that, yeah, I mean listen, you can get really nice locally roasted coffees, a roll of toilet paper and some hand sanitizer. And I use those last two examples because there weren't plans in the early days to launch this until, well, our technical first day of revenue with the model was March 27th of 2020. And as we were watching in this market, many others online, grocery falling apart, people getting super stressed because I had built such a complicated supply chain to bring all this clean label stuff to the restaurant world.
Michael Joseph (01:03:30):
I re-engaged some of my old suppliers in that. And I was in the grocery world for a while and I was able to get those types of items to serve my customers. So we just thought about that as kind of a nice thing that would serve our community. But note what we learned from that and part of the vision as it is, there are all these small needs that pop up before people tend to do these larger, say weekly grocery shops. And we want to be able to be there for you in between. So over time, I have a macro view that this idea of just food in general, like grocery and restaurant will ultimately become a single industry. You can throw convenience right into there.
Michael Joseph (01:04:11):
What do you need for your everyday healthy living or for some people your everyday living, whatever you choose. And so it's interesting because people still use this even though the pandemic's over and we're like, wow. It's like, Oh, you ran out of coffee. You can get this awesome coffee with us. Maybe it's not just your favorite brand. because we don't have all the skew choice, but we actually just made you incrementally happier. Right. And you're coming back more frequently. And so we're really kind of thinking through like, how are we going to delight you more than you could be in other contexts? I say other contexts, I mean by the competitive market
Daniel Scrivner (01:04:45):
Again, I think it fits super squarely in the need for families. I'm sure you have this conversation at your house, but throughout the week it's like, "Oh, we're almost out of milk" or "Oh, we need eggs" and it is those random things. And in my mind, I'm like you, I don't really want to go do a 20, 30 minute grocery trip to go get eggs and milk. So it's so much easier to just be able to add that onto an order. And they actually looked at the prices and the prices are cheaper than whole foods. Just to go and get it from Scratch Kitchen. And maybe that will change.
Daniel Scrivner (01:05:09):
But I think it goes into that idea of, we can make one choice to go to one place. We can all get something we'll be happy with. We can also get groceries and random stuff that we'll need. And it really does feel like that merging of all those things. And it is a really incredible experience. One thing that I want to just pause for a second and maybe help people understand is there are all these terms like ghost kitchens or cloud kitchens or delivery native restaurants. I think that one's the easiest to understand, but can you just break apart how this is similar or different to something like a ghost kitchen and what that is?
Michael Joseph (01:05:43):
Oh boy. Yeah. Ghost kitchen absolutely, again, not that there's an absolute standard definition, but when you look at the majority of the market, they are these companies that have basically created new infrastructure for participants who want to focus on food delivery opportunities without the time and expense of building their own needed infrastructure.
Michael Joseph (01:06:10):
And the infrastructure I'm talking about in this case is gas and electrical, to have kitchen equipment, the hood that sucks out all the smoke that's required, the fire systems, being able to wash the food, like all these things you need to legally operate a safe restaurant is how I'd put that. And the idea is that all these stalls, ultra small kitchens from the ones I've been in that are really just focused on the growing delivery marketplace, which it is. I knew that from when I first did all my research, but it really is fundamentally an infrastructure layer and these different companies, they have different services, but when you break it down, like how do they make money?
Michael Joseph (01:06:52):
Yeah. So they buy or lease space. They build out kitchens and they charge a very large difference between their rent or ownership costs and what that end user is paying. And now there are other ways that they're making money too, charging per transaction fees for support and stuff like that. But ultimately when you think of that quote unquote 'ghost kitchen', these companies that are dedicated to the infrastructure are in these more industrial areas typically, and it's a real estate arbitrage game.
Michael Joseph (01:07:25):
And it makes sense to me. You don't need a whole restaurant to do something like that. And as the restaurant or you can go spin one of these things up very quickly. But when you actually look at the full cost of what you have to pay per square foot, you just have to understand that you're paying an extremely high variable cost where if you have a successful business, like it's great that you could scale up really quickly, but it's not a part of your business unless, the price has come down precipitously that would make sense on a long-term P and L short-term I totally get.
Michael Joseph (01:08:00):
And I've had a million people trying to get me to spin my concept up within ghost kitchens. But you actually can't, I'll Save Scratch kitchen for last because the differentiators now there's this other caliber of what would be referred to as a ghost kitchen. And that's where any X, Y or Z restaurant operator is just using their under utilized space in the back of the kitchen that they already own, or at least, and they're saying, okay, we can spin up another brand back here. That'll be considered a ghost kitchen brand kind of common lexicon these days.
Michael Joseph (01:08:35):
And then you've got these virtual brands. And those are these brands that don't have a brick and mortar presence. They're not the restaurant that you think of. For all the listeners probably know about like Mr. Beast Burger. There's no physical presence for that. And that's just part of the new world as these different types of infrastructure pop up again, a couple of different forms of that infrastructure. And then there are a couple other different types of companies. Some people would call it restaurant-as-a-service. But I kind of think that is some Silicon Valley like hand wavy bullshit. Oh, I don't know. Can I cast on the podcast?
Daniel Scrivner (01:09:11):
Yes please. More than better.
Michael Joseph (01:09:13):
Okay. So Silicon Valley, Hand-wavy bullshit. I mean, I hope to get quoted for that. And it's because dude, it's a virtual franchise company. There are these companies they're saying, Oh, we'll run your brand that you've created. Right. We'll run it. Whether we're a tried and true food operator or not, it's a whole different story, but they'll glum a bunch of those together. They build their own kitchen and they're not going to go start this in a ghost kitchen, obviously because of the high variable costs that go into that. That's a class of business that's out there running. That includes folks like Reef Technologies is kind of a hybridized company. I mean, they're selling food out of trailers. Ghost trailers, I suppose. I mean, people are going and picking it up. They're using under utilized parking lots to make food now. I mean, I'm just going to need one.
Daniel Scrivner (01:09:57):
I want to know that's where their food came from though.
Michael Joseph (01:10:00):
Here's what customers need to know and why they'll ultimately... Customers who care about quality will choose Scratch Kitchen, no offense to all the smart people at reef, by the way. But I don't ever want to buy food from a place that doesn't have running portable water and a sewer line. Straight up. It's really hard to imagine making sure all the food and the humans that make the food are going to be as clean as you really want them to be. And that's the stuff that really bothers me and it doesn't bother everyone.
Michael Joseph (01:10:27):
Right? I'm an extremist in that sense, but it's something to be highly cognizant of. Because like in Travis Callan X-cloud kitchens, they've got plenty of utilities. And you know that as long as that operator behaves himself, it just seems like a much cleaner environment. But having someone make food where they don't necessarily have a designated close and clean toilet seriously bothers me after making food for such long periods of time and doing a number of things far above regulatory minimums. Okay. So those... Sorry, if I, again I don't want that to come off the wrong way, but this is part of the new and evolving industry. I don't know if there was more that you wanted to get into.
Daniel Scrivner (01:11:10):
No, I think that that's perfect. I think that's what I wanted to try to do for people is I know that ghost kitchens are, that's definitely a word I'm hearing more often now and yet I've never heard anybody actually articulate what that is. And so I think it was helpful to kind of weave that narrative for people. I want to talk for a second just about, or I guess if you talked for a second about the number of brands that you have today and I think maybe specifically to hone in on how you go about launching a new brand. So how you come about thinking of what this new vertical is, maybe that's, data-driven, maybe it's not how you go about actually spinning up that menu. Some thoughts there are like how you go that kind of diet specialized piece when you're creating a menu, how do you have a beef option and not a beef option, but how you go about kind of just spinning up a brand from scratch, and adding that to a restaurant.
Michael Joseph (01:11:55):
Totally. May I actually compare Scratch Kitchen to the ghost industry?
Daniel Scrivner (01:11:59):
Yes, Please. I like that. It's the ghost industry now we'll lock in that term. Ghost Industry.
Daniel Scrivner (01:12:03):
It's the ghost industry now. We'll lock in that term, ghost industry.
Michael Joseph (01:12:03):
Well, here's the interesting thing, if I actually could get a famous ghost to make me food, then I would want to order from ghost kitchens because then it'd be pretty freaking cool, right? Just think about any famous cook, right? Or whatever that ever existed and they could make you a meal, yeah, then-
Daniel Scrivner (01:12:20):
Yes. I'm interested.
Michael Joseph (01:12:21):
... that it might be something there. But some of the things that bothered me about that space and I was getting into some of them really recently, but the lack of transparency, it just made me never want to go pursue that space because by default, when you're going into the deep back of house of an existing restaurant or one of these ghost or cloud kitchen infrastructure companies, the public will never see what's going on. And transparency really matters and since you've picked up at scratch kitchen, you can actually see the vast majority of the operation specifically designed like that, designing the follow-ons right now, and it's that same idea where I could not tolerate this idea of basically food coming from a black box.
Michael Joseph (01:13:07):
You can have your Amazon servers running your company in a black box and it won't matter, right? There's not a sweatshop inside of a server, but there is endemic employee abuse in the restaurant industry. It's something we're adamantly opposed against. So even before the pandemic started forcing restaurant tours to pay their employees better and offer insurance and paid time off, we already set up these policies at scratch kitchen. I was disgusted by them and then the fact that as a consumer, you'd never really get to see the actual ingredients going into a product, not being able to see any of that.
Michael Joseph (01:13:39):
We just wanted to break that open and then the other piece, although this is slowly changing now, after billions of dollars have been invested in ghost kitchens, people are, "Oh wait, it's not just delivery only." They're actually these people who depend... People are different about food, but I'm going to say people are price sensitive. There are people who don't want to pay the DoorDash markup. And I love DoorDash, don't get me wrong, but all the news is out there, right? The analysis is done.
Michael Joseph (01:14:03):
A lot of restaurants have marked up prices, then you pay a service fee, then you pay a delivery fee and then you tip. And the cool thing about takeout is you don't have to do any of that. And listen, you can tip with takeout and it's great. We don't have anyone in front of the house really, so we just share it with the whole back of house because we think it's the right thing to do. But the net point is we wanted to create something that was broadly applicable, but without cutting corners and saying, "Oh, you can have this thing at this price, but we're going to hide these ingredients from you."
Daniel Scrivner (01:14:36):
Sure. And the way is made.
Michael Joseph (01:14:38):
Yeah. Well, a lot of this stuff is just being reheated, it's made by manufacturers. It's not actually a specific product that you made. You're getting the taste of all this, so I just want to make sure I really talked about those few things. Now, the brands and the how, okay? So this is an interesting one. One of my friends who's one of my board members has been with me since before I launched the company, we were friends long before that. He ran a very famous quick service restaurant food company and I had a million questions for him about this and something he really challenged me on because I insisted on launching with three brands on the day that we launched. And it was because if we didn't, I was, "Well, we'll never start to figure out in any short period of time how to actually operate this business in a profitable way, right?" That matters.
Michael Joseph (01:15:25):
And also you could have consumer confusion issues, right? They might just think you're a single concept restaurant on day one. So getting into the how and the how many and the why with the brands now, we're getting into my favorite trade secret world. So there are only some things I'm going to be able to say [crosstalk 01:15:41], it's going to be super high level because some folks from the outside might just be, "Oh, these guys figured out a way to create low costs," kind of high-impact, "Restaurants." There's a lot that goes into that, that includes some specific data advantages that we have from some partners who will not be named and anything going public. But we didn't guess about what exactly should be made.
Michael Joseph (01:16:09):
We just have some good data to support what's missing in the markets we're first serving and some future markets, but the ones that were first serving really make sense. And we have some very interesting design philosophies about what we're doing, where we're really designing a lot of our infrastructure, not just for that end consumer and their happiness, but because we're long-term partners with the food aggregators, the platform companies. I did a lot of research to best understand how their algorithms work, because this goes into the gaming of how do we actually get cost-effective marketing to be part of this?
Michael Joseph (01:16:45):
Well, in learning enough about this to truly be effective, this included very specific location requirements, ingress and egress, how quickly you interact with your delivery drivers. So there are a lot of factors that go in there. You were asking about food and food brands. So where you shop in Boulder, Colorado, and for anyone listening in Boulder, 2299 Pearl street, please go enjoy yourself, scratch kitchen.com, there's my... I didn't pay a sponsorship fee, you know that's coming out, so I'm sorry, I'm not [crosstalk 01:17:19].
Daniel Scrivner (01:17:18):
I'm leaving that one in.
Michael Joseph (01:17:19):
Okay. But back to, "The how many?" Let's start with how many and then we'll talk about their concepts themselves. So we thought initially we might put a dozen restaurant concepts in this location, but because we're really trying to learn in a data-driven way and be methodical about this and this isn't a growth at all costs business. This is why you're seeing it as a customer, right? Every couple of months, we're launching a new brand. The customers get notified and we're stoked about it and where that goes, we don't really know what the optimal number is, we just know we're not there yet, because what we see is every time we launch a new brand, it's not cannibalizing a bunch of what we're already selling to our customer, it's actually helping add purchase occasions.
Michael Joseph (01:17:59):
And so one of the next locations that we're designing right now, down in Denver, we'll have substantially more capacity for concepts, not necessarily a bigger footprint than what we're dealing with today, because we're really trying to figure out at what point does that customer just not care enough? We've solved enough of your problems with your everyday eating, right? Where this incremental work isn't creating the outcome that we want on the business side. So that's how we're approaching this today and going after. Now, all the different foods and food types, again, multivariate problem solving going on here because you can imagine, and the listeners can imagine on the business side, right? We want to cross utilize as many ingredients as we can and things of that nature, and labor.
Daniel Scrivner (01:18:42):
It's its own multi-sided marketplace between ingredients and customer tastes and preferences.
Michael Joseph (01:18:47):
Well, except we are the marketplace and declaring house.
Daniel Scrivner (01:18:50):
Michael Joseph (01:18:51):
But I will, in some conversations, I call it a vertically integrated platform, right? You think about DoorDash, but vertically integrated. It's similar to what we're doing here. There are some really cool things we can do because it's not a true marketplace and we're controlling all the guts of it, and so we're controlling the things that really matter to the customer, the predictability to you and your family. So you're not waiting around for dinner, for example, with your three-year-old, you're already questioning if they're going to eat when you've bought them, right? It's bad enough as it is. The last thing you want to do is, have them get all hungry and upset and have a tantrum while you're waiting extra 22 minutes for your food. But in terms of that type of food, we have a thesis, I'll put it this way around cuisine gaps.
Michael Joseph (01:19:33):
I've talked to plenty of all sorts of people about this idea where there's this, I'm going to call it common belief that just because there are, "A lot of restaurants in a market that all the needs must be met." I have found that to be incredibly false. And I found it through data, which is most provocative because it's actually much more compelling than opinion, and that's just what I believe. Okay. Anyways, I'm sure a lot of your listeners do too. And so we had this ability to understand what was missing from a micro market at a very granular level, but then pair that with this skill set, because I've rebooted a number of my old teammates at Green Chef, my last company, we were making data-driven cuisine.
Michael Joseph (01:20:16):
They were meal kits, the customer did the final cooking, but not terribly different, and so based on customer feedback, we could learn how to change the product itself to make it have better attributes that we were looking for. We're doing the same type of thing now, we have some proprietary data. We also have and... People shouldn't under account their intuition, my intuition for product and product market fit, what I've been obsessed about 95% of my career, all but that one year prior to door to door organics. That has a ton of merit to it and it's based on all these consumer interactions, I've had all this data I've gleaned over, and so there is an art and a science aspect where we're highly data-driven, but the data doesn't actually define good food.
Michael Joseph (01:21:03):
And so we have a process, it's not even a process, I'm going to call it a skill set that we learned at my last company, by the nature of the business, and it was from those learnings that we're able to adapt the skillset to do it for this arena. And so we're running a bunch of different tests as a consumer you may never see, but what we see in the metrics, right? It was we're driving the behaviors that make for a great business on the backend, and we are doing things in part of the art of this is, and without... No, my co-founder will kill me if I pre-announced our next cuisine title.
Daniel Scrivner (01:21:41):
Here we go.
Michael Joseph (01:21:41):
But at least I closed my mouth at the right time. But the point I'll make is, it's substantially different from anything that we sell today, and we have... call it the supply or demand arbitrage info that I'm talking about. But also we want to say, "Oh, if we launch this type of cuisine in this market with these competitive characteristics and with the current product offerings we have, how additive is that going to be to the customer?" And so there's really a complicated formula, it's becoming more scientific as we take a number of things that are frankly just living in my brain, which is not scalable, but actually turn that into a process and then into a software.
Michael Joseph (01:22:24):
And we're showing that this works right now and it's not going to be anything that's terribly surprising to you because we're not after... Actually, where I was doing ultra long tail food before, we create options for customers so their long tail needs can be met. But when you look at our fundamental products, a clean label cheesesteak, hey, barely exists in the market or a clean labeled chicken wing, barely exists in the market. And we're, "Yeah, we know there's tons of demand for this." We want to make mainstream appealable products, but then this was to another point in your question, we do the supply chain legwork, so say we're talking about sandwiches, right? Oh boy, did we find it as just an amazing gluten free hoagie roll or sandwich bread?
Michael Joseph (01:23:06):
The lady who cuts my hair, Alyssa, if you're listening, you're wonderful. But the way you rave and she raved about the sandwich bread, I'm talking about the square sandwich bread that's gluten-free that we sat in, we just went to the ends of the earth. This is what we do for our customer to find the best thing that we could to meet their needs. And then we listen right for that data feedback. And that's how we get better at this without going into all the secret sauce and just publishing that for all of my... want to be competitors to come play in the market with us. That's the gist of what we're doing and we're just so excited about it because... And thank you, frankly, for shopping with us, I'm talking to you Daniel, because your feedback, right?
Michael Joseph (01:23:44):
Off the MVP product gets me so excited about innovating the future because I know this as a customer myself, but I'm, "Wow, if there really is no alternative for our customer type for this product today," I'm, "Well with the innovation that we have planned just in the near term, we're just going to keep getting ahead and ahead and ahead and that we know we're winning when KPI number one just keeps going in that direction that you want, right? Customers are happy. We're highly cognizant we're in the early adopter phase, right? We know we're not going to have perfection, but thankfully, you've seen, right? That's what we've been doing, it's working and never in my career did I really think whether it's the cheesesteak or the chicken parm subs that sell through the roof.
Michael Joseph (01:24:29):
Did I think I'd be making a clean label chicken parm sub, but you'd be shocked at the inferior quality of oil that things get deep fried and all for penny pinching, not having anything to do with customer interests. And it turns out that when we took this more scientific approach to these data-driven gaps in the market, and then intersected that with the overarching, Hey, there's a large swath of society. I mean, arguably 25% of grocery is natural and organic, more or less, it's the same customers who are going out to eat, but they're not having their needs met in the same way. It's, "Well, that should work, as long as we can consistently make good food."
Michael Joseph (01:25:10):
Again, without going into all the trade secrets, what I would call it's our content engine, right? I do like comparing myself to Netflix, hopefully not to the detriment of my ego or anything, but it's, we think the food brands and the food products themselves, it's a data-driven content engine, but the contents food and its brands, and the brand matters only in so much, it's going to communicate with you, the customer that, "Hey, this brand represents the type of food you're looking for." But if you're shopping through our platform, scratch kitchen, you'll already know that your quality needs should be met. That's what really matters because consistency and quality, right? There's not some magic formula there, it's those plus price is what's going to get you a business.
Daniel Scrivner (01:25:52):
And it takes a tremendous amount of hard work to get the consistency and quality piece, right? There's no shortcut there at all. I want to end on maybe talking about where this is heading. And I think Netflix is a really interesting example because today you'd go to the website and you'll browse by brands, but I can imagine some point in the future, and again, just to put a point on it, what excites me so much about this concept is it truly feels the food brand of choice for consumers, but in a very modern way where I can interact with it. It potentially even knows my purchase history. It's only going to show me things that are relevant to me. It's potentially going to show me the things I order the most, as soon as they get to the home screen, just to save me the most time.
Daniel Scrivner (01:26:31):
And it feels that the data piece becomes really compelling, and so each restaurant is shaped to the taste and preferences of that community in that area, no two are alike. Each one will always give you a bunch of options to choose from, so whether you're ordering for your family or whether it's my parents are here with us over the weekend and we all want different food or we're all a house and we can't agree on what to eat. We know we can go here and get groceries with it as well too, and you can then get it all delivered to you or you can go and pick it up. Am I articulating that right? And do you have, just to put a point on it directionally where you're heading, is this very much Netflix, where it understands your needs, your preferences, and really shapes the whole experience for that?
Michael Joseph (01:27:11):
You have aced this job interview today. I know you weren't planning on that, but there's a place for us to collaborate here. But the personalization you're going on about and that is this long term trend, right? That really isn't going away, right? People want something that better fits their needs, it's no shock. The idea you're saying and where you think this is going, I mean, that's right. Just having better and easier ordering interfaces, whatever those might be and whether it's voice or predictive or SMS, the feed and how the feed is going to morph to your needs, your food feed, not your video feed, right? But people don't really talk about food feeds or food APIs yet, but I do in my obscure circles.
Michael Joseph (01:28:01):
And so we're just trying to do that best job of meeting that end consumers' needs, and that's where I say, with Netflix, right? They have more subscribers than any other streaming service and focusing on the U.S. not globally right now. And I know that my feed versus my daughter's feed versus my wife's feed, I look at them all, right? And they're all totally different, so you've got it right? And so the cool stuff you can imagine in the future is you could start once we have enough data, right? You can actually use a, " Surprise me." You don't want to think about what you're even having for dinner.
Michael Joseph (01:28:33):
You could give maybe a calorie constraint, or you say, I want to have vegetables in my meal, but otherwise surprise me with dinner as fast as you can, because the content here, it's not just about making food. We didn't talk about it today, but there is so much optimization going on in our... I'll just call it a mini food factory. There are a lot of ways to characterize the production area, but when there's high demand on certain resources, low demand on others, and you just care about a healthy meal as fast as humanly possible, because you're just hungry, which is real and that ain't going away either.
Michael Joseph (01:29:07):
You can imagine that level of service and personalization just adapting to you and then you brought up, "Oh, you did say my parents are around and we're doing a family gathering, right?" So you imagine you're telling scratch kitchen, which is an eating platform, I call it an everyday healthy eating platform, healthy, by the way, can include chicken fingers. And you just want to choose the better ones. But the idea, right? Is all of a sudden you're, "Oh, I want to pay attention to your feet talking about the data-driven side, right?"
Michael Joseph (01:29:37):
But there are these new actors coming in that I don't know, and so you would then start looking at, or suggesting things that you'd want for them and the net point though just goes after optimizing for that end consumer, are we better solving your problem than anyone else and are you letting us know that? And that really is where we're going. When you think about the small selection of groceries you can get today, I expect that side of the business will evolve over time and it's going to evolve because it's what our consumers asked for and things of that nature. But my vision is truly a kin to a content engine and it's just our content is food.
Michael Joseph (01:30:19):
And then you look at all these great content companies, right? Disney, and now Amazon and Netflix, and this list goes on. Well, all of them have proprietary content, right? And that's one of those things that keeps customers coming back and back again, because you just understand that customer in a different way than your competitors do, and because of how you architect your products, right? You can meet their needs in a better way, right? What we're doing is not terribly dissimilar. I do find that the idea itself can sometimes be a little esoteric, but I only think because it's not normal yet, but when we flash forward 10 years and there are 1000 Scratch Kitchens in the U.S. among a sea of competitors, thank God this is not a winner take all market.
Michael Joseph (01:31:01):
You can imagine so we're all traveling around, having fun, whether you're with your family or not, but there'd be all these nodes in the scratch kitchen network. And what's going to be so great, just say you had to do business travel or something, and you landed in a certain place where actually you're about to get off a plane, but we found that what it's actually makes sense to have scratch kitchens in the airports where your food is actually getting ordered through the airplane's Wi-Fi in the right amount of time, where it's going to be waiting for you as you're on your way to catch your rideshare home or whatever, and the food's becoming responsive to you wherever you are in the network.
Michael Joseph (01:31:35):
We just need enough people around so that we can have a viable business, but this can work in all sorts of different types of markets. We're not obsessed in saying, "Oh, we have to be in all these huge markets or anything." There is demand for what I'm talking about throughout the country, and we're going out to help solve those problems now, and I'm super excited about it. And I think, I mean, Daniel, you've actually... I'm being very sincere, you've done a great job in articulating what we do and what we do for our customers, and really how to think about this business model. It's very much akin to how we think about it.
Daniel Scrivner (01:32:11):
Yeah. And I said you know and I thank you for that. It can be very complex when you try to break it down and think about how to describe it, because there's just a lot of layers to it, but I think on the surface, the way you just described it there, in that example of being at the airport, that is a unique capability that I don't know of any other company that can serve, that it seems your model and the technology that you're building and the proprietary food choices that you're building, and at all those different layers is fascinating to me. And I love stuff that feels a little peek into the future, you're peeking around the corner and this feels exactly that. So thank you so much for coming on, for saying yes, for opening up as much as you can, about what you're building and all the little nuanced pieces of it. This has been a fascinating conversation and I really appreciate the time, Michael.
Michael Joseph (01:32:52):
Oh, Daniel, it's been a true pleasure, as you know with many entrepreneurs, I love being asked about my business and it's just fine, especially around food, right? Because food is a very social thing that brings people together, and I love making those solutions even better with tech. Thanks for allowing me to share this with you and of course your audience, and hopefully we'll stay in touch about this and you keep giving me your feedback about shopping, and we'll just keep jamming on this stuff because I will leave on this note, inventing the future is really fun and as many of the entrepreneurs out there, I think really know, and this is... I say a lot of things that are very obvious, but a lot of this stuff does not happen unless someone does it.
Michael Joseph (01:33:34):
And so I am a big proponent of everyone listening, who's going out and creating stuff right now. And you think about some of the awesome products you're making, it's not going to happen if you don't do it. I thought that before I invented this, I had so many people challenging me about the complexities of the business model, they're trying to project on me that I should create a simpler business so they can make more money faster, that's not how I operate. Create things that make people's lives better. Everything else follows. Everything else follows, as long as you focus on KPI two, right? Don't forget profit.
Daniel Scrivner (01:34:07):
That's right. That's KPI one and then you need to evolve at some point to focus on KPI two, but that's the perfect note to end on. So thank you so much, Michael.
Michael Joseph (01:34:14):
On Outliers, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today. Explore all episodes of Outliers, be the first to hear about new episodes, and subscribe on your favorite podcast platform.
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