It’s August 2017, and you’re a meal kit startup. Things are looking grim. Industry leader Blue Apron ($APRN) was the first meal kit startup to file an IPO less than 2 months ago, and already their share price has dipped nearly 50%, souring the entire VC industry on the potential of your business. You’re a venture-backed business, and over the next 18 months you’ll come close to securing a new funding round, but nobody will commit. Facing what could be the end of your business, you have two options:
- Sell. Maybe it’s best to cash in while you still can.
- Cut your losses and kill the business before you start bleeding out.
But if you’re Gobble ($PRIVATE:GOBBLE) CEO Ooshma Garg, surrounded by competitors picking the best of two bad options, you decide to do something radical. You choose to go profitable.
But it’s not like Gobble just decided to do what nobody else was willing to. In a sea of similar businesses, Gobble had been making subtle but significant changes to their business model that ultimately allowed them to survive and turn profits in a way that their competitors simply couldn’t.
“The cost of maintaining our customer base is magnitudes lower than a traditional meal kit box where there isn’t really anything proprietary and deal hunters are switching between boxes on a weekly basis,” Garg said in a recent interview with Gobble board member Garry Tan, chronicling the story of Gobble’s success.
Today, Gobble has gone from burning $1 million a month to earning nearly that much in profit. So how did they do it? By investing in the food.
“Sometimes it’s not enough to have just one core competency,” Garg said. “You have to find an innovation at the edge of two industries. And in our case, those industries were food and tech. I think a lot of food tech companies are just tech.”
Garg saw the way customers craved specific flavors like a Coke or McDonald's fry and decided to implement it into her business. Gobble wasn’t interested in just sending people a recipe card that customers could use to replicate a meal themselves. Garg figured that if they could offer flavors and recipes that customers couldn’t get anywhere else, as well as offer them meals they could prepare quicker than those of their competitors (Gobble advertises kits that can be prepared in 15 minutes), they would stick around with Gobble longer.
“Our secret sauce is the sauce,” Garg said.
Ultimately, this turned out to be a major part of what allowed Gobble to become profitable. When Gobble decided to try and turn a profit after it failed to raise a Series C funding round in 2019, the company took a hard look at its marketing costs.
As Garry Tan put it, digital marketing is a great way to attract long-term customers at the onset of a product launch. But in the long run, you end up having to spend more on ad revenue per customer gained, and those customers aren’t as likely to stick around. So Gobble decided to cut its advertising costs and prepared for a number of scenarios, but it did so warily.
“One of the biggest lies that startups tell themselves and their boards is that they can turn off marketing and be profitable,” Garg said. “It’s important for startups to be very cautious. If you were to turn that knob off… are you already a profitable company? Or are you absolutely not?”
Many startups are ok with big losses, getting billion-dollar valuations, and launching IPOs all without profitability. There was a moment in time last fall when many thought that trend would die down after the epic collapse of WeWork ($PRIVATE:WEWORK) and Softbank’s unicorn portfolio, but the buzz generated by recent IPO news like that of decacorn Palantir ($PRIVATE:PALANTIR) shows that skepticism was short-lived, especially since markets are booming in the wake of COVID and investors are looking for anything to keep the momentum going forward. But Gobble decided to separate itself from the pack anyway.
"We basically raised a series C of millions of dollars in free cash ourselves without diluting the company one bit." — Ooshma Garg
Projections were put together for each possible scenario. If they shut off marketing, what would the plan be if they only retained 20% of their customers? What about 40%? How about as much as 60%? The business was ready to make hard decisions to see what it could really pull off.
But in the end, its investment in the food side of their business is what pulled them through. The investment into flavors customers couldn’t resist and couldn’t find anywhere else ended up being more powerful than an entire digital marketing budget, and Gobble found itself standing strong after reducing ad spend.
“As it turns out, a vast majority of our users stayed with us long term,” Garg said. “It’s the most exciting form of validation I’ve had in 10 years because when you’re fundraising, you’re always estimating… and we know now. We basically raised a series C of millions of dollars in free cash ourselves without diluting the company one bit.”
The meal-kit business was considered a losing bet not all that long ago, but Gobble has paved a path forward. While still one of the smaller competitors in the market by far, holding a headcount of about 72 employees over the last year and a half (Blue Apron boasts a workforce of about 1,450), the simple fact that Gobble is profitable gives it incredible flexibility for growth.
And it would just so happen that the current pandemic is the perfect time to have that kind of flexibility. Garg sees a strong future for DTC food companies like Gobble, and believes that DTC food will fill the void of restaurants that are shutting down and shrinking.
"I think with coronavirus upending restaurants and grocery stores, that DTC is the favored channel of people receiving their food. I think some companies are failing by trying to be everything to everyone, but Gobble can be everything food to someone.”
About the Data:
Thinknum tracks companies using the information they post online - jobs, social and web traffic, product sales, and app ratings - and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.