Speaker 1: A young entrepreneur in Austin, Texas, had a problem. Asim
Speaker 1: Ali was the founder of a food delivery startup called Birtbie.
Speaker 1: It was one of the first services of its kind
Speaker 1: in Texas and initially things were going well. When we
Speaker 1: had gotten started in two dozen twelve. Um, I remember,
Speaker 1: there was just this awe of like grocery delivery because
Speaker 1: it was quite new to everyone in Silicon Valley. Tech
Speaker 1: investors were excited. Food delivery startups were raising millions of dollars.
Speaker 1: One company in particular was attracting the bulk of it,
Speaker 1: with same day grocery delivery Instacart, competing with giants. I
Speaker 1: see realized it was only a matter of time before
Speaker 1: Instacart would arrive in Austin, his home market, and it
Speaker 1: was scary at the time. I'm not gonna lie. I
Speaker 1: mean what it was is that you heard this big behem.
Speaker 1: It's like Instacart raising millions of dollars out of the valley.
Speaker 1: Soon things went from scary to terrifying when an even
Speaker 1: bigger company made a move into the same market. That
Speaker 1: company was Amazon. A scene was left asking himself, you're
Speaker 1: going up against these guys, You're like, how Are you
Speaker 1: going to survive? Hi im aki Ito and I'm Olivia's
Speaker 1: Aleski And this week on Decrypted, we'll see what happens
Speaker 1: when one of the world's largest companies moves into your market.
Speaker 1: It's a familiar story for so many start up founders,
Speaker 1: especially today, is the tech industry's biggest companies search for
Speaker 1: new opportunities to get even bigger. So how does a
Speaker 1: small company stand up to a threat like that? Does
Speaker 1: it even stand a chance? Stay with us? The story
Speaker 1: starts in the Land of two stepping in pork barbecue.
Speaker 1: A few weeks ago, I went out to Austin to
Speaker 1: see a scene we met at a tech incubator space
Speaker 1: downtown called tech Stars. A scene was laid back and upbeat.
Speaker 1: He smiles a lot, and he dresses like every founder
Speaker 1: you'd ever meet. Tennis shoes, jeans, a T shirt, and
Speaker 1: a hoodie that he picked up while visiting Apple's headquarters.
Speaker 1: Cuppuccino seem fits right in with the other entrepreneurs. He's
Speaker 1: had a dream from a young age of making it big.
Speaker 1: Growing up in high school, I was always kind of
Speaker 1: independent in the sense that I've always wanted to make
Speaker 1: money myself and not work for anybody. A Scene found
Speaker 1: a mentor in his cousin's partner, a Zeem Macinosia, not
Speaker 1: to be confused with their main character as Seem. The
Speaker 1: two friends would often trade startup ideas. One day he
Speaker 1: called me and he was like, what do you think
Speaker 1: about starting a company where we can get anything and
Speaker 1: everything delivered for people? And I was like, dude, that's awesome.
Speaker 1: This was back in the summer of a Scene was
Speaker 1: actually still in college. Along with five of his closest buddies,
Speaker 1: a Seam decided he would give it a shot and
Speaker 1: try to build a business. They called their company Burp.
Speaker 1: So we started Burbe with the slogan order it, get
Speaker 1: it Burpit to kind of tailor it to our college
Speaker 1: market and the demographic of a college student, Seems. Idea
Speaker 1: was college students are hungry, but they're also lazy about cooking,
Speaker 1: so it seems that they could make a business at
Speaker 1: a delivering food to them. But college SuDS don't really
Speaker 1: have the disposable income to pay for like a premium service.
Speaker 1: Seem wasn't deterred. He and his founders decided they would
Speaker 1: just target a different type of customer. So we then
Speaker 1: quickly shifted our focus towards working professionals and dialing from family.
Speaker 1: Is anyone sick, elderly that really needed the service, And
Speaker 1: this strategy started to work. Burbie began to grow, relying
Speaker 1: heavily on a team of delivery workers who get paid
Speaker 1: for dropped. It seems like so long ago now, but
Speaker 1: in this kind of business model was exploding startups like Burpie.
Speaker 1: We're part of what was called the gig economy. It's
Speaker 1: kind of an uber model where we have like a
Speaker 1: round robin of individuals who are active and who can
Speaker 1: do the delivery. They'll go to the grocery store that
Speaker 1: was selected by the consumer, picked the item's, shop them
Speaker 1: as if they were a personal shopper for that consumer,
Speaker 1: and then take them to the consumer themselves. Over the
Speaker 1: next few years, Burpie grew steadily, turning into a viable startup.
Speaker 1: When we had initially gotten started, it was just kind
Speaker 1: of like a front project, you know, something to do
Speaker 1: with friends. As soon as as we realized that this
Speaker 1: is something people really want and need, we started focusing
Speaker 1: really heavily on the business and um, it was just timing.
Speaker 1: Burbie was starting to become a household name. In key
Speaker 1: cities around the state. What we've always focused on is
Speaker 1: trying to be a Texas player and trying to dominate
Speaker 1: to Texas market. We've been able to capture Houston, San Antonio, Dallas,
Speaker 1: and Austin market fairly quickly because we were one of
Speaker 1: the early movers in this market. At its height, Burbie
Speaker 1: was bringing in thirty five thousand dollars in revenue a month.
Speaker 1: Seem says. The business was humming, with new customers signing
Speaker 1: up for the service, many of them spending a hundred
Speaker 1: dollars and more on their grocery orders. But as a
Speaker 1: seam in Burbie were making ways in Texas, another startup
Speaker 1: nearly two thousand miles away in San Francisco was attracting
Speaker 1: the attention of some of tech's biggest investors. That startup
Speaker 1: was insta Cart. Instacart got started around the same time
Speaker 1: as Burbie. Just three years later, in instacart had raised
Speaker 1: three drew million dollars and had a valuation of two
Speaker 1: billion dollars. Fast forward to today, and one of the
Speaker 1: hottest privately held companies out there is Yeah, an online
Speaker 1: grocery delivery service. I'm talking about the San Francisco based
Speaker 1: insta Corn, which received the two million dollar evaluation its
Speaker 1: most recent round of fundraising. With so much money behind it,
Speaker 1: instacrat grew like crazy. The company expanded across the US
Speaker 1: and forged major partnerships with Whole Foods, Costco, and Target.
Speaker 1: Seems family friend and mentor remembers it well. I think
Speaker 1: insta card actually helped us if they were actually doing
Speaker 1: our own marketing for us, spending the big dollars in
Speaker 1: marketing that people started. We started seeing a huge influx
Speaker 1: of the searches that were being done on Google for
Speaker 1: grocery delivery, groceret delivery in Austin. It was just a
Speaker 1: booster for us rather than a negative, Let's put it
Speaker 1: that way. As food delivery started catching on, other competitors
Speaker 1: got more funding too, Fresh Direct, a company out of
Speaker 1: New York, and good Eggs to start up with operations
Speaker 1: in New Orleans in Los Angeles. At the time, are
Speaker 1: just a couple of the other companies vying for a
Speaker 1: piece of the market. But soon Burbie started feeling the
Speaker 1: impact of Instacart's popularity. Instacart might have initially helped at
Speaker 1: the margins, turning customers onto this new service now though
Speaker 1: it was starting to look like more of a liability.
Speaker 1: They'd have to compete with with their model rate of drivers.
Speaker 1: That mean we were paying dollars lower than what they
Speaker 1: were paying, but we had to increase our rate a
Speaker 1: little bit kind of make sure we retain those drivers.
Speaker 1: Instacart went on to raise over a billion dollars. It
Speaker 1: received a major investment from Whole Foods, which was founded
Speaker 1: in Austin, which was where Burpie had been doing a
Speaker 1: lot of business too. By contrast, Burpie had raised less
Speaker 1: than two hundred thousand dollars with Instacart gaining. Burbie's dominance
Speaker 1: in Austin seemed under threat at a certain points, seems
Speaker 1: as he realized he couldn't continue running his company the
Speaker 1: way he had before. And it was scary at the time.
Speaker 1: I'm not gonna lie. I mean, what it was is
Speaker 1: that you hear this big behem. It's like instat cart
Speaker 1: raising millions of dollars out of the valley and going
Speaker 1: up against these guys, You're like, how are you going
Speaker 1: to survive? A same Macnogia, the family friend who had
Speaker 1: helped to see him get started and who would become
Speaker 1: his mentor says they spent many late nights on the
Speaker 1: phone together trying to figure out how to save the business.
Speaker 1: He would call me three three in the morning, uh
Speaker 1: point in the morning at time. He would just call me.
Speaker 1: Any time you need anything, and any big decision he
Speaker 1: would he would just pick up the phone and just
Speaker 1: call me. But there were times when he would face
Speaker 1: difficulties and he'd be like, Hey, I'm losing motivation. I
Speaker 1: don't know what to do here. They decided Burpie needed
Speaker 1: to make a shift so that it was no longer
Speaker 1: competing head on with instat cart. So we started looking
Speaker 1: at other avenues or other markets that were similar and
Speaker 1: needed some digital transformation. The same thought, instead of delivering
Speaker 1: groceries to people's homes, maybe Burpie could use local gas
Speaker 1: stations in convenience stores as the pickup point instead. It
Speaker 1: felt like a natural shift both a seam and his mentor,
Speaker 1: a group and families that worked for owned and ran
Speaker 1: convenience stores. It was just something that made sense to
Speaker 1: us that, Hey, we have the connections, we know that
Speaker 1: we know the target audience. Let's go ahead and target
Speaker 1: that Customers could still order from their favorite grocery stores
Speaker 1: online seem hope this new strategy would set Burpy apart
Speaker 1: from Instacart and the others. But before a scene could
Speaker 1: execute his new plan, and even bigger shark entered Burbi's waters.
Speaker 1: So a scene was busy implementing his new strategy to
Speaker 1: stave off competition from insta cart. But then we are
Speaker 1: getting some breaking news on the Whole food life. Would
Speaker 1: you gasp? Amazon, the world's largest retailer, decided it wanted
Speaker 1: a piece of the action in June and announced it
Speaker 1: was buying Whole Foods for thirteen point seven billion dollars.
Speaker 1: It is get out of dodge time. I mean this
Speaker 1: is a threat. I'm taking that numbers everybody who sells food, everyone,
Speaker 1: because you can't compete. Amazon had been trying for some
Speaker 1: time to develop a presence in the grocery market. It
Speaker 1: launched a service called Amazon Fresh, but that was slow
Speaker 1: to catch on. A Few experts had been speculating that
Speaker 1: Amazon might make a giant acquisition to kick start its
Speaker 1: grocery business, and Whole food has already had the successful
Speaker 1: delivery partnership with Instacart to build off. The deal sent
Speaker 1: shockwaves through the eight hundred billion dollar grocery industry. That
Speaker 1: day when the acquisition was announced, shares of Walmart fell
Speaker 1: by seven percent and Kroger, one of the largest grocery
Speaker 1: chains in the US, dropped seventeen For a scene, the
Speaker 1: merger of Amazon and Whole Foods was devastating. It would
Speaker 1: take many millions of dollars to fund and expansion big
Speaker 1: enough to take on the combined might of instat Cart,
Speaker 1: Whole Foods, and Amazon. Burpie didn't have access to that
Speaker 1: kind of money. We realized that it's gonna be very
Speaker 1: hard to raise and really grow the company the way
Speaker 1: the scale that we wanted. Once more, a Seam turned
Speaker 1: to his mentor a zem for advice. There were multiple
Speaker 1: other conversations just between that instant Cart and Amazon period
Speaker 1: where we were kind of discussing if this is the
Speaker 1: right path to the company and are we going to
Speaker 1: be able to compete. This was a difficult time for
Speaker 1: a scene. As CEO, he tried to put on a
Speaker 1: brave face for his employees, but inside he was harboring
Speaker 1: a lot of fear and a lot of doubt. Because
Speaker 1: sometimes you're on a lonely island. You know you can't
Speaker 1: say everything to everyone and give your thoughts and everything
Speaker 1: because you don't want to ruffle feathers or you don't
Speaker 1: want to create fear in the company or anything like that. Eventually,
Speaker 1: even though Amazon's acquisition of Whole Foods came in the
Speaker 1: middle of burkee strategy, shift seem decided he wasn't ready
Speaker 1: to give up yet. Okay, hey, Olivia, I can see
Speaker 1: you again, so guys can see this is the Murpury
Speaker 1: Market store here in Austin near the airport by Burlison Road.
Speaker 1: UM At the end of my trip to Austin, a
Speaker 1: seam asked me to swing by a gas station on
Speaker 1: my way to the airport. I pulled up to a
Speaker 1: large convenience store that had a massive orange sign on
Speaker 1: the door. It said Burke in big bubble letters. The
Speaker 1: store is actually branded Burpee Market, and that's kind of
Speaker 1: been our first store that we've been running a various
Speaker 1: test and kind of making sure the systems are integrated
Speaker 1: with the back office and et cetera. Inside, all of
Speaker 1: the convenience store workers were wearing Burpee branded T shirts.
Speaker 1: Seems building a checkout app for convenience stores. It lets
Speaker 1: customers scan their own items to pay without having to
Speaker 1: go through a checkout line, so you can order things
Speaker 1: that you'd find traditionally at an h GB or costco
Speaker 1: and have those products delivered to you or ready for
Speaker 1: pickup at the store. So that's convenient for you to
Speaker 1: pick up on your way home. So it's kind of
Speaker 1: like a distribution hun for us. As a Seam showed
Speaker 1: me around, I couldn't help it get the impression that
Speaker 1: he was pretty much running the show alone. I asked
Speaker 1: him what happened to his other co founders. Yeah, so
Speaker 1: I am the last man standing. The founders gotta either
Speaker 1: when on their own path with the corporate or side
Speaker 1: of things, or went on to school for their master's
Speaker 1: program or something. I seem later acknowledged that not everyone
Speaker 1: had felt comfortable with the new direction Burpy was taking.
Speaker 1: As the co founders got older and started families, they
Speaker 1: couldn't weather the volatility that comes with startup life. They
Speaker 1: wanted a sure thing, he said. We predominantly have had
Speaker 1: worked with a team in India and we've had to
Speaker 1: are also marketing and business development and also are kind
Speaker 1: of product management taking care about it in the US.
Speaker 1: Running Burpie's technical operations out of India makes sense. For
Speaker 1: a scene. He has strong connections there and the labor
Speaker 1: is significantly cheaper. Money is constantly on a scene's mind
Speaker 1: building a company far from the startup investors in San Francisco.
Speaker 1: Seam built Burpie with less than two hundred thousand dollars
Speaker 1: from investors. His main financier was his mentor a scene.
Speaker 1: You know, at some point you have to understand that, um,
Speaker 1: you've only raised a certain amount of money, and for
Speaker 1: you to even think about going up against like the
Speaker 1: behavements in the space, like Amazon Instancart, you have to
Speaker 1: have the capital to do so. After all these setbacks,
Speaker 1: Seems come to believe that selling Burpy might be the
Speaker 1: only way to ensure it can survive. For many entrepreneurs,
Speaker 1: getting acquired by a bigger company isn't a sign of failure,
Speaker 1: and if the startup is acquired at high valuation, it
Speaker 1: can create a big windfall for the founders and the investors.
Speaker 1: Seem has a lot to be proud of, even though
Speaker 1: he hardly raised any money from outside investors. He says
Speaker 1: his company is in solid shape financially. With that two
Speaker 1: thousand and we've been able to reach cash flows of
Speaker 1: our sorry revenues of almost four million dollars a year,
Speaker 1: and I think the amount of money we rasources, the
Speaker 1: revenue and the cash flow that we've generated from the
Speaker 1: business is quite significant. But as he looks for a
Speaker 1: potential buyer, there's no escaping the fact that it seems
Speaker 1: first choice would have been to keep growing Burpy as
Speaker 1: an independent company. As we were saying goodbye to each
Speaker 1: other in Austin, seemed told me something in interesting. He
Speaker 1: said he almost applied for a job at Whole Fits,
Speaker 1: hoping it might put Burke beyond the company's radar. It's
Speaker 1: a possible acquisition. It was on Awtin Digital Jobs and
Speaker 1: it was a pretty like it seemed like a senior position,
Speaker 1: and I almost considered to apply to it because you know,
Speaker 1: he's like uncertainty of like, you know, it's like that's
Speaker 1: another way that's chin to pros acquisition is like find
Speaker 1: a company that has a position that fits kind of
Speaker 1: what I've done in the last five years exactly. But
Speaker 1: until the sale comes through, a Seams plan is to
Speaker 1: keep going with his new strategy. But I think we
Speaker 1: really have feet with what we're doing with the communist
Speaker 1: source of stuff. If you really believe in what you're
Speaker 1: doing and you haven't lost hope or anything. You'll find
Speaker 1: a word and that's it for this week's episode of Decrypted.
Speaker 1: Thanks for listening. Do you have a story about how
Speaker 1: Amazon influenced your startup or small business. You can send
Speaker 1: us a message at Decrypted at bloomberg dot net or
Speaker 1: find me on Twitter. I'm at Olivia's Aleski and I'm
Speaker 1: at Akita seven. If you enjoy listening to Decrypted, please
Speaker 1: recommend us to your friends, and if you haven't already,
Speaker 1: please take a moment to rate and review our show
Speaker 1: that helps us find new listeners. This episode was produced
Speaker 1: by Pia gut Cary, Liz Smith, Magnus Hendrickson and Tob Foreheads.
Speaker 1: Fancesca Levi is ahead of Bloomberg Podcast. We'll see you
Speaker 1: next week. Two