WEBVTT - When Amazon Comes Crashing In

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<v Speaker 1>A young entrepreneur in Austin, Texas, had a problem. Asim

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<v Speaker 1>Ali was the founder of a food delivery startup called Birtbie.

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<v Speaker 1>It was one of the first services of its kind

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<v Speaker 1>in Texas and initially things were going well. When we

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<v Speaker 1>had gotten started in two dozen twelve. Um, I remember,

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<v Speaker 1>there was just this awe of like grocery delivery because

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<v Speaker 1>it was quite new to everyone in Silicon Valley. Tech

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<v Speaker 1>investors were excited. Food delivery startups were raising millions of dollars.

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<v Speaker 1>One company in particular was attracting the bulk of it,

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<v Speaker 1>with same day grocery delivery Instacart, competing with giants. I

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<v Speaker 1>see realized it was only a matter of time before

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<v Speaker 1>Instacart would arrive in Austin, his home market, and it

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<v Speaker 1>was scary at the time. I'm not gonna lie. I

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<v Speaker 1>mean what it was is that you heard this big behem.

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<v Speaker 1>It's like Instacart raising millions of dollars out of the valley.

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<v Speaker 1>Soon things went from scary to terrifying when an even

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<v Speaker 1>bigger company made a move into the same market. That

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<v Speaker 1>company was Amazon. A scene was left asking himself, you're

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<v Speaker 1>going up against these guys, You're like, how Are you

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<v Speaker 1>going to survive? Hi im aki Ito and I'm Olivia's

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<v Speaker 1>Aleski And this week on Decrypted, we'll see what happens

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<v Speaker 1>when one of the world's largest companies moves into your market.

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<v Speaker 1>It's a familiar story for so many start up founders,

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<v Speaker 1>especially today, is the tech industry's biggest companies search for

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<v Speaker 1>new opportunities to get even bigger. So how does a

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<v Speaker 1>small company stand up to a threat like that? Does

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<v Speaker 1>it even stand a chance? Stay with us? The story

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<v Speaker 1>starts in the Land of two stepping in pork barbecue.

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<v Speaker 1>A few weeks ago, I went out to Austin to

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<v Speaker 1>see a scene we met at a tech incubator space

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<v Speaker 1>downtown called tech Stars. A scene was laid back and upbeat.

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<v Speaker 1>He smiles a lot, and he dresses like every founder

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<v Speaker 1>you'd ever meet. Tennis shoes, jeans, a T shirt, and

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<v Speaker 1>a hoodie that he picked up while visiting Apple's headquarters.

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<v Speaker 1>Cuppuccino seem fits right in with the other entrepreneurs. He's

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<v Speaker 1>had a dream from a young age of making it big.

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<v Speaker 1>Growing up in high school, I was always kind of

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<v Speaker 1>independent in the sense that I've always wanted to make

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<v Speaker 1>money myself and not work for anybody. A Scene found

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<v Speaker 1>a mentor in his cousin's partner, a Zeem Macinosia, not

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<v Speaker 1>to be confused with their main character as Seem. The

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<v Speaker 1>two friends would often trade startup ideas. One day he

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<v Speaker 1>called me and he was like, what do you think

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<v Speaker 1>about starting a company where we can get anything and

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<v Speaker 1>everything delivered for people? And I was like, dude, that's awesome.

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<v Speaker 1>This was back in the summer of a Scene was

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<v Speaker 1>actually still in college. Along with five of his closest buddies,

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<v Speaker 1>a Seam decided he would give it a shot and

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<v Speaker 1>try to build a business. They called their company Burp.

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<v Speaker 1>So we started Burbe with the slogan order it, get

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<v Speaker 1>it Burpit to kind of tailor it to our college

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<v Speaker 1>market and the demographic of a college student, Seems. Idea

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<v Speaker 1>was college students are hungry, but they're also lazy about cooking,

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<v Speaker 1>so it seems that they could make a business at

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<v Speaker 1>a delivering food to them. But college SuDS don't really

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<v Speaker 1>have the disposable income to pay for like a premium service.

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<v Speaker 1>Seem wasn't deterred. He and his founders decided they would

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<v Speaker 1>just target a different type of customer. So we then

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<v Speaker 1>quickly shifted our focus towards working professionals and dialing from family.

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<v Speaker 1>Is anyone sick, elderly that really needed the service, And

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<v Speaker 1>this strategy started to work. Burbie began to grow, relying

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<v Speaker 1>heavily on a team of delivery workers who get paid

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<v Speaker 1>for dropped. It seems like so long ago now, but

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<v Speaker 1>in this kind of business model was exploding startups like Burpie.

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<v Speaker 1>We're part of what was called the gig economy. It's

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<v Speaker 1>kind of an uber model where we have like a

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<v Speaker 1>round robin of individuals who are active and who can

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<v Speaker 1>do the delivery. They'll go to the grocery store that

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<v Speaker 1>was selected by the consumer, picked the item's, shop them

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<v Speaker 1>as if they were a personal shopper for that consumer,

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<v Speaker 1>and then take them to the consumer themselves. Over the

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<v Speaker 1>next few years, Burpie grew steadily, turning into a viable startup.

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<v Speaker 1>When we had initially gotten started, it was just kind

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<v Speaker 1>of like a front project, you know, something to do

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<v Speaker 1>with friends. As soon as as we realized that this

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<v Speaker 1>is something people really want and need, we started focusing

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<v Speaker 1>really heavily on the business and um, it was just timing.

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<v Speaker 1>Burbie was starting to become a household name. In key

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<v Speaker 1>cities around the state. What we've always focused on is

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<v Speaker 1>trying to be a Texas player and trying to dominate

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<v Speaker 1>to Texas market. We've been able to capture Houston, San Antonio, Dallas,

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<v Speaker 1>and Austin market fairly quickly because we were one of

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<v Speaker 1>the early movers in this market. At its height, Burbie

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<v Speaker 1>was bringing in thirty five thousand dollars in revenue a month.

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<v Speaker 1>Seem says. The business was humming, with new customers signing

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<v Speaker 1>up for the service, many of them spending a hundred

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<v Speaker 1>dollars and more on their grocery orders. But as a

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<v Speaker 1>seam in Burbie were making ways in Texas, another startup

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<v Speaker 1>nearly two thousand miles away in San Francisco was attracting

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<v Speaker 1>the attention of some of tech's biggest investors. That startup

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<v Speaker 1>was insta Cart. Instacart got started around the same time

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<v Speaker 1>as Burbie. Just three years later, in instacart had raised

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<v Speaker 1>three drew million dollars and had a valuation of two

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<v Speaker 1>billion dollars. Fast forward to today, and one of the

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<v Speaker 1>hottest privately held companies out there is Yeah, an online

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<v Speaker 1>grocery delivery service. I'm talking about the San Francisco based

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<v Speaker 1>insta Corn, which received the two million dollar evaluation its

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<v Speaker 1>most recent round of fundraising. With so much money behind it,

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<v Speaker 1>instacrat grew like crazy. The company expanded across the US

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<v Speaker 1>and forged major partnerships with Whole Foods, Costco, and Target.

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<v Speaker 1>Seems family friend and mentor remembers it well. I think

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<v Speaker 1>insta card actually helped us if they were actually doing

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<v Speaker 1>our own marketing for us, spending the big dollars in

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<v Speaker 1>marketing that people started. We started seeing a huge influx

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<v Speaker 1>of the searches that were being done on Google for

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<v Speaker 1>grocery delivery, groceret delivery in Austin. It was just a

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<v Speaker 1>booster for us rather than a negative, Let's put it

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<v Speaker 1>that way. As food delivery started catching on, other competitors

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<v Speaker 1>got more funding too, Fresh Direct, a company out of

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<v Speaker 1>New York, and good Eggs to start up with operations

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<v Speaker 1>in New Orleans in Los Angeles. At the time, are

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<v Speaker 1>just a couple of the other companies vying for a

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<v Speaker 1>piece of the market. But soon Burbie started feeling the

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<v Speaker 1>impact of Instacart's popularity. Instacart might have initially helped at

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<v Speaker 1>the margins, turning customers onto this new service now though

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<v Speaker 1>it was starting to look like more of a liability.

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<v Speaker 1>They'd have to compete with with their model rate of drivers.

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<v Speaker 1>That mean we were paying dollars lower than what they

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<v Speaker 1>were paying, but we had to increase our rate a

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<v Speaker 1>little bit kind of make sure we retain those drivers.

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<v Speaker 1>Instacart went on to raise over a billion dollars. It

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<v Speaker 1>received a major investment from Whole Foods, which was founded

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<v Speaker 1>in Austin, which was where Burpie had been doing a

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<v Speaker 1>lot of business too. By contrast, Burpie had raised less

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<v Speaker 1>than two hundred thousand dollars with Instacart gaining. Burbie's dominance

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<v Speaker 1>in Austin seemed under threat at a certain points, seems

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<v Speaker 1>as he realized he couldn't continue running his company the

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<v Speaker 1>way he had before. And it was scary at the time.

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<v Speaker 1>I'm not gonna lie. I mean, what it was is

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<v Speaker 1>that you hear this big behem. It's like instat cart

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<v Speaker 1>raising millions of dollars out of the valley and going

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<v Speaker 1>up against these guys, You're like, how are you going

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<v Speaker 1>to survive? A same Macnogia, the family friend who had

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<v Speaker 1>helped to see him get started and who would become

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<v Speaker 1>his mentor says they spent many late nights on the

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<v Speaker 1>phone together trying to figure out how to save the business.

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<v Speaker 1>He would call me three three in the morning, uh

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<v Speaker 1>point in the morning at time. He would just call me.

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<v Speaker 1>Any time you need anything, and any big decision he

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<v Speaker 1>would he would just pick up the phone and just

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<v Speaker 1>call me. But there were times when he would face

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<v Speaker 1>difficulties and he'd be like, Hey, I'm losing motivation. I

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<v Speaker 1>don't know what to do here. They decided Burpie needed

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<v Speaker 1>to make a shift so that it was no longer

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<v Speaker 1>competing head on with instat cart. So we started looking

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<v Speaker 1>at other avenues or other markets that were similar and

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<v Speaker 1>needed some digital transformation. The same thought, instead of delivering

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<v Speaker 1>groceries to people's homes, maybe Burpie could use local gas

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<v Speaker 1>stations in convenience stores as the pickup point instead. It

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<v Speaker 1>felt like a natural shift both a seam and his mentor,

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<v Speaker 1>a group and families that worked for owned and ran

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<v Speaker 1>convenience stores. It was just something that made sense to

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<v Speaker 1>us that, Hey, we have the connections, we know that

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<v Speaker 1>we know the target audience. Let's go ahead and target

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<v Speaker 1>that Customers could still order from their favorite grocery stores

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<v Speaker 1>online seem hope this new strategy would set Burpy apart

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<v Speaker 1>from Instacart and the others. But before a scene could

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<v Speaker 1>execute his new plan, and even bigger shark entered Burbi's waters.

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<v Speaker 1>So a scene was busy implementing his new strategy to

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<v Speaker 1>stave off competition from insta cart. But then we are

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<v Speaker 1>getting some breaking news on the Whole food life. Would

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<v Speaker 1>you gasp? Amazon, the world's largest retailer, decided it wanted

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<v Speaker 1>a piece of the action in June and announced it

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<v Speaker 1>was buying Whole Foods for thirteen point seven billion dollars.

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<v Speaker 1>It is get out of dodge time. I mean this

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<v Speaker 1>is a threat. I'm taking that numbers everybody who sells food, everyone,

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<v Speaker 1>because you can't compete. Amazon had been trying for some

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<v Speaker 1>time to develop a presence in the grocery market. It

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<v Speaker 1>launched a service called Amazon Fresh, but that was slow

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<v Speaker 1>to catch on. A Few experts had been speculating that

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<v Speaker 1>Amazon might make a giant acquisition to kick start its

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<v Speaker 1>grocery business, and Whole food has already had the successful

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<v Speaker 1>delivery partnership with Instacart to build off. The deal sent

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<v Speaker 1>shockwaves through the eight hundred billion dollar grocery industry. That

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<v Speaker 1>day when the acquisition was announced, shares of Walmart fell

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<v Speaker 1>by seven percent and Kroger, one of the largest grocery

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<v Speaker 1>chains in the US, dropped seventeen For a scene, the

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<v Speaker 1>merger of Amazon and Whole Foods was devastating. It would

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<v Speaker 1>take many millions of dollars to fund and expansion big

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<v Speaker 1>enough to take on the combined might of instat Cart,

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<v Speaker 1>Whole Foods, and Amazon. Burpie didn't have access to that

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<v Speaker 1>kind of money. We realized that it's gonna be very

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<v Speaker 1>hard to raise and really grow the company the way

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<v Speaker 1>the scale that we wanted. Once more, a Seam turned

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<v Speaker 1>to his mentor a zem for advice. There were multiple

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<v Speaker 1>other conversations just between that instant Cart and Amazon period

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<v Speaker 1>where we were kind of discussing if this is the

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<v Speaker 1>right path to the company and are we going to

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<v Speaker 1>be able to compete. This was a difficult time for

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<v Speaker 1>a scene. As CEO, he tried to put on a

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<v Speaker 1>brave face for his employees, but inside he was harboring

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<v Speaker 1>a lot of fear and a lot of doubt. Because

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<v Speaker 1>sometimes you're on a lonely island. You know you can't

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<v Speaker 1>say everything to everyone and give your thoughts and everything

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<v Speaker 1>because you don't want to ruffle feathers or you don't

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<v Speaker 1>want to create fear in the company or anything like that. Eventually,

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<v Speaker 1>even though Amazon's acquisition of Whole Foods came in the

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<v Speaker 1>middle of burkee strategy, shift seem decided he wasn't ready

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<v Speaker 1>to give up yet. Okay, hey, Olivia, I can see

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<v Speaker 1>you again, so guys can see this is the Murpury

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<v Speaker 1>Market store here in Austin near the airport by Burlison Road.

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<v Speaker 1>UM At the end of my trip to Austin, a

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<v Speaker 1>seam asked me to swing by a gas station on

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<v Speaker 1>my way to the airport. I pulled up to a

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<v Speaker 1>large convenience store that had a massive orange sign on

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<v Speaker 1>the door. It said Burke in big bubble letters. The

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<v Speaker 1>store is actually branded Burpee Market, and that's kind of

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<v Speaker 1>been our first store that we've been running a various

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<v Speaker 1>test and kind of making sure the systems are integrated

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<v Speaker 1>with the back office and et cetera. Inside, all of

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<v Speaker 1>the convenience store workers were wearing Burpee branded T shirts.

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<v Speaker 1>Seems building a checkout app for convenience stores. It lets

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<v Speaker 1>customers scan their own items to pay without having to

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<v Speaker 1>go through a checkout line, so you can order things

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<v Speaker 1>that you'd find traditionally at an h GB or costco

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<v Speaker 1>and have those products delivered to you or ready for

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<v Speaker 1>pickup at the store. So that's convenient for you to

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<v Speaker 1>pick up on your way home. So it's kind of

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<v Speaker 1>like a distribution hun for us. As a Seam showed

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<v Speaker 1>me around, I couldn't help it get the impression that

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<v Speaker 1>he was pretty much running the show alone. I asked

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<v Speaker 1>him what happened to his other co founders. Yeah, so

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<v Speaker 1>I am the last man standing. The founders gotta either

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<v Speaker 1>when on their own path with the corporate or side

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<v Speaker 1>of things, or went on to school for their master's

0:13:38.880 --> 0:13:44.640
<v Speaker 1>program or something. I seem later acknowledged that not everyone

0:13:44.720 --> 0:13:47.400
<v Speaker 1>had felt comfortable with the new direction Burpy was taking.

0:13:48.120 --> 0:13:51.200
<v Speaker 1>As the co founders got older and started families, they

0:13:51.240 --> 0:13:54.880
<v Speaker 1>couldn't weather the volatility that comes with startup life. They

0:13:54.920 --> 0:13:58.480
<v Speaker 1>wanted a sure thing, he said. We predominantly have had

0:13:58.600 --> 0:14:01.599
<v Speaker 1>worked with a team in India and we've had to

0:14:02.120 --> 0:14:06.079
<v Speaker 1>are also marketing and business development and also are kind

0:14:06.080 --> 0:14:08.839
<v Speaker 1>of product management taking care about it in the US.

0:14:09.559 --> 0:14:13.319
<v Speaker 1>Running Burpie's technical operations out of India makes sense. For

0:14:13.440 --> 0:14:16.800
<v Speaker 1>a scene. He has strong connections there and the labor

0:14:16.960 --> 0:14:20.920
<v Speaker 1>is significantly cheaper. Money is constantly on a scene's mind

0:14:21.280 --> 0:14:24.560
<v Speaker 1>building a company far from the startup investors in San Francisco.

0:14:25.080 --> 0:14:27.960
<v Speaker 1>Seam built Burpie with less than two hundred thousand dollars

0:14:27.960 --> 0:14:32.000
<v Speaker 1>from investors. His main financier was his mentor a scene.

0:14:32.400 --> 0:14:36.120
<v Speaker 1>You know, at some point you have to understand that, um,

0:14:36.160 --> 0:14:38.040
<v Speaker 1>you've only raised a certain amount of money, and for

0:14:38.120 --> 0:14:41.160
<v Speaker 1>you to even think about going up against like the

0:14:41.160 --> 0:14:44.560
<v Speaker 1>behavements in the space, like Amazon Instancart, you have to

0:14:44.600 --> 0:15:04.880
<v Speaker 1>have the capital to do so. After all these setbacks,

0:15:05.120 --> 0:15:07.680
<v Speaker 1>Seems come to believe that selling Burpy might be the

0:15:07.720 --> 0:15:11.520
<v Speaker 1>only way to ensure it can survive. For many entrepreneurs,

0:15:11.680 --> 0:15:15.280
<v Speaker 1>getting acquired by a bigger company isn't a sign of failure,

0:15:16.080 --> 0:15:19.000
<v Speaker 1>and if the startup is acquired at high valuation, it

0:15:19.040 --> 0:15:22.400
<v Speaker 1>can create a big windfall for the founders and the investors.

0:15:23.040 --> 0:15:25.360
<v Speaker 1>Seem has a lot to be proud of, even though

0:15:25.360 --> 0:15:28.640
<v Speaker 1>he hardly raised any money from outside investors. He says

0:15:28.640 --> 0:15:31.760
<v Speaker 1>his company is in solid shape financially. With that two

0:15:32.120 --> 0:15:34.920
<v Speaker 1>thousand and we've been able to reach cash flows of

0:15:35.240 --> 0:15:37.760
<v Speaker 1>our sorry revenues of almost four million dollars a year,

0:15:38.400 --> 0:15:41.080
<v Speaker 1>and I think the amount of money we rasources, the

0:15:41.160 --> 0:15:44.000
<v Speaker 1>revenue and the cash flow that we've generated from the

0:15:44.040 --> 0:15:47.560
<v Speaker 1>business is quite significant. But as he looks for a

0:15:47.560 --> 0:15:51.360
<v Speaker 1>potential buyer, there's no escaping the fact that it seems

0:15:51.480 --> 0:15:54.440
<v Speaker 1>first choice would have been to keep growing Burpy as

0:15:54.440 --> 0:15:57.840
<v Speaker 1>an independent company. As we were saying goodbye to each

0:15:57.880 --> 0:16:01.240
<v Speaker 1>other in Austin, seemed told me something in interesting. He

0:16:01.280 --> 0:16:03.720
<v Speaker 1>said he almost applied for a job at Whole Fits,

0:16:04.080 --> 0:16:06.520
<v Speaker 1>hoping it might put Burke beyond the company's radar. It's

0:16:06.560 --> 0:16:10.760
<v Speaker 1>a possible acquisition. It was on Awtin Digital Jobs and

0:16:10.800 --> 0:16:13.440
<v Speaker 1>it was a pretty like it seemed like a senior position,

0:16:13.480 --> 0:16:16.360
<v Speaker 1>and I almost considered to apply to it because you know,

0:16:16.480 --> 0:16:19.640
<v Speaker 1>he's like uncertainty of like, you know, it's like that's

0:16:19.640 --> 0:16:23.400
<v Speaker 1>another way that's chin to pros acquisition is like find

0:16:23.440 --> 0:16:26.160
<v Speaker 1>a company that has a position that fits kind of

0:16:26.160 --> 0:16:30.480
<v Speaker 1>what I've done in the last five years exactly. But

0:16:30.600 --> 0:16:33.360
<v Speaker 1>until the sale comes through, a Seams plan is to

0:16:33.480 --> 0:16:36.200
<v Speaker 1>keep going with his new strategy. But I think we

0:16:36.320 --> 0:16:39.320
<v Speaker 1>really have feet with what we're doing with the communist

0:16:39.320 --> 0:16:43.120
<v Speaker 1>source of stuff. If you really believe in what you're

0:16:43.160 --> 0:16:45.680
<v Speaker 1>doing and you haven't lost hope or anything. You'll find

0:16:45.680 --> 0:17:09.520
<v Speaker 1>a word and that's it for this week's episode of Decrypted.

0:17:09.880 --> 0:17:12.399
<v Speaker 1>Thanks for listening. Do you have a story about how

0:17:12.440 --> 0:17:16.320
<v Speaker 1>Amazon influenced your startup or small business. You can send

0:17:16.359 --> 0:17:19.960
<v Speaker 1>us a message at Decrypted at bloomberg dot net or

0:17:20.040 --> 0:17:24.360
<v Speaker 1>find me on Twitter. I'm at Olivia's Aleski and I'm

0:17:24.400 --> 0:17:28.360
<v Speaker 1>at Akita seven. If you enjoy listening to Decrypted, please

0:17:28.480 --> 0:17:31.600
<v Speaker 1>recommend us to your friends, and if you haven't already,

0:17:31.720 --> 0:17:34.160
<v Speaker 1>please take a moment to rate and review our show

0:17:34.640 --> 0:17:38.919
<v Speaker 1>that helps us find new listeners. This episode was produced

0:17:38.960 --> 0:17:43.520
<v Speaker 1>by Pia gut Cary, Liz Smith, Magnus Hendrickson and Tob Foreheads.

0:17:43.800 --> 0:17:47.080
<v Speaker 1>Fancesca Levi is ahead of Bloomberg Podcast. We'll see you

0:17:47.080 --> 0:18:01.320
<v Speaker 1>next week. Two