[Music]
greetings welcome back to case studies
with the biz doc and I hate to
disappoint you but we are not covering
what happened this week in history and
regardless of when you watch this this
is a weird thing Kim Kardashian was
found buck naked in a tree taking
pictures that she put on Twitter and
later deleted we’re not doing a case
study and why she did that because we
don’t have enough time but what we are
doing is taking suggestions from you and
you asked for a long case study a deep
dive onto blue apron under the category
of what the hell happened well we’re
gonna do and we’re gonna dive in that
today as usual let’s step back into
history and see kind of what happened
and then let’s go into why it happened
and where I think it went wrong and more
importantly what you can use and you can
learn on your business whether you’re
making t-shirts for a small company in
town or you built something more
substantial
we’re gonna have some takeaways that you
can learn and there’s two key takeaways
this week that I will get to as we dive
in here the two reasons that blue apron
is tanking so we go back in the
beginning and we have three guys that
think it’s a pretty good idea to put
some ingredients in boxes and be able to
ship them to you so it along with the
recipes so that you could say hey I’m
gonna make something interesting I I buy
it online they ships to me certain
fruits and vegetables like an apple or
an artichoke and things like that would
ship pretty good other things need some
refrigeration but we’ll get to that but
we can get going and we can make it make
it work so in 2012 with 800,000 dollars
in seed money blue apron is born and
they are off and running and Matt Ilya
and Matt the two Matt’s in the Lea you
know get this thing off the ground now
then they get to series a in 2013 what’s
really interesting if you go back to
crunch base and you can take a look at
this you’re gonna find out that there
was a venture capitalist involved in the
beginning Bessemer Venture Partners a
company I know something about and they
would follow along each step of the way
which means that they were believers not
just at the series a in the early part
but they were believers throughout so
there were some really good and smart
people in the room and I think highly at
Bessemer however in the end you know I
think
customer gets out but it wasn’t a
company that’s gonna sustain for the
long haul and there’s a point here that
it’s kind of lying under there and I’m
gonna dive into in a second we get now a
little bit deeper in 2013 three and five
million so about eight million in 2013
and then 2014 things are going this is
working here we go we did 77 million
dollars in sale boom we raise 50 million
dollars at a five hundred million dollar
valuation so suddenly this thing in a
couple short years they think it’s worth
half a billion dollars you go one more
year and boom raise 135 million on a two
billion dollar valuation now let’s think
about that that’s for X that in just one
more year well if you take a look down
here look what what’s happening to
revenue 77 million in 2014 it would go
10x and be almost eight hundred million
dollars in 2016 so right here what are
they saying it’s a party people are
ordering stuff we have like almost a
million total people that are sending in
orders four boxes of things this is
fantastic
you know we’ve got a distribution center
that was in Richmond California we built
one in Jersey City a little later than
we built one in Arlington Texas and then
even later we were in a lot announce one
in Linden New Jersey so there was all
this growth and everything that was
going on let’s go public let’s go well
slow down now let’s dive into what was
going on under the covers beyond all
that enthusiasm that gets up here to the
IPO the first was as early as 14 there
started to be issues in Richmond
California and it had to do with food
processing safety things like that
because if they’re gonna ship you a box
of food you want to make sure that all
that stuff is good and you don’t get
food poisoning or you get sick or you
just don’t feel good after the after the
meal what’s the point of ordering it at
a premium along with a recipe put it all
together and have issues well
nonetheless they actually started
shortly after they opened where they
were growing so fast that the food
controls and the processes was an issue
and we’re gonna see this in
and how it bit them in the costs as well
those violations would come up in 16
well in 16 they’re getting ready for
this IPO we’re gonna go out we’re gonna
go and the arrow into the quiet period
and what the quiet period is is what
you’re gonna go public all you can say
is I intend to go public and you file a
document called an s-1 with the
Securities Exchange Commission and then
you have to keep your mouth shut and all
these steps are going on in the
background as you’re getting ready to go
public
well what also happened along there
along the way
KABOOOM amazon announces that it’s
buying whole foods and what do we know
about Amazon delivery monolith and an
absolute low cost playa so their low
cost they know how to deliver stuff and
they’re gonna buy whole foods which
means recipe card and creative boxing
and everything you put together aside
Wow they’re gonna be in the business and
they know how to deliver stuff they’re
talking about drones delivering
batteries to your house I need two more
AAA batteries for something well here
comes a drone delivering it
so I Amazon’s ambitions to be able to
deliver anything and everything
conveniently at a low cost are very well
known now they’re buying whole foods
known for over price and some
controversy but known for high quality
you know ingredients high quality
produce that you can depend on even if
it was a little bit overpriced and at
that same time the IPO comes so they go
out with the IPO literally literally
moments after Amazon announces are doing
this and no surprise at ten bucks a
share they go out and just in these and
this is june of seventeen and just in
barely barely sixty days they are down
to five ish half of their IPO value now
this isn’t a death sentence maybe they
can make a comeback but let’s go take a
look at a few things first their value
right now is that one billion dollars
the valuation here as you recall was two
billion dollars so you go public after
having that kind of evaluation and
shortly after going public your
valuation is 50% of what it was when you
took your last
venture funding man you’ve lost half
your value and there’s only one word for
that and that is damn what’s going on
you’re supposed to go up when you go
public well let’s take a look what
happens when you go public when you go
public a lot of the shares get sold to
the market
now there’s lockup periods where not
everybody can be dumping their shares on
the market but one of the players that
always gets out at the IPO and I
shouldn’t say always but almost all the
holdings are usually out is the venture
capitalist because it’s their turn to
exit its gonna go public they support
growth expansion proof of concept early
ideation and so Bessemer proving all
this you know why shouldn’t Bessemer and
other investors along the way and get
their money out well sometimes the
criticism IPOs is well the purpose of
the IPO was for everybody to jump off
the boat and then leave the public
markets holding the bag and leave the
CFO and everybody who also made money in
the IPO standing in front of the
microphone explaining themselves every
quarter about what the future of the
company is meanwhile everybody else is
like SIA I’m on our way so what’s going
on is there a future for blue apron
let’s go take a look at a couple things
so my first point had to do with growth
I don’t think they managed growth well
it was evident about how fast they were
opening distribution centers and also
the violations kind of proved that there
was really a lot of
rough-around-the-edges stuff as they
were trying to operate those
distribution centers so I don’t think
that their growth plan really scaled
they were growing so fast that I think
it outstripped their ability to do
everything really really well so the
first point was they were so successful
I think their growth playing and growth
plan got nicked the the second point I
think that is happening here is the
business model because shortly after
going public they announced well the
actual marketing costs are actually
going way up and they they announced in
a recent quarter everybody looked
stunned as they announced a quarterly
result and they looked at the total
marketing cost that’s like wait what’s
going on
you know his store
Klee was it really this kind of issue
does it take this kind of amazing
percent of your revenue on marketing
costs to make this this this business
work and how are you gonna sustain that
with Amazon already having a head start
you know on people’s names knowing what
you purchase and everything so I think
there is also an issue there in the
business model so those are my two
points that I think crippled blue apron
and I do believe they’re a little
crippled right now for the following
reasons first you got to know who you
are if you’re going to be a distributor
of high-end recipes and some of these
recipes were not perfectly easy to make
along with the ingredients and the in
the box too then that’s who you are and
you need to perfect that master it and
the model so master delivering it master
scaling it packaging it which recipes
are the best and the model because
growth can cover up a lot of things a
lot of things you have a great first
month at a brand new restaurant you
might not know that people think that
maybe your food was only a six or a
seven
what if they’re all everybody else is
there it looked real busy so they go you
don’t really see below the surface that
there’s not a lot of those folks are
going to come back you’re just a new and
interesting restaurant that’s attracting
a lot of customers but you don’t see
below the surface what the truth is six
months a year from now you’re suddenly
gonna see what’s going on and realize
wow what happened at first I had all the
business that I can handle now you know
I I need more running it half capacity
well guess what that same thing that you
and I both see at restaurants and we
notice it with our own eyes it can
happen here so you have to master
whatever you who you are
and master the model how much marketing
does it take to make this happen is
growth covering up the truth about it
and growing under control if you’re
opening distribution centers and you’re
just running around with your hair on
fire
and here comes Health Department
violations you’re not growing under
control there’s not the proper controls
there and lastly fix the right problem
and I want to get into that they did
something
right here and if they bought BN ranch
basically they bought fully assembled
cows these guys are experts in
distributing food ready to be prepared
in the kitchen that is known as a
disassembled cow a dead cow cut in two
parts and they ship you some of the
parts that you can cook you don’t buy a
ranch and take the burden of raising
slaughtering caring for and going
through that because this means this is
your permanent cost and if you are a
distributor know who you are know what
that’s about why would you go upstream
and buy a ranch why instead you need to
get all the purveyors competing with
each other and if you can’t grow with
the volume that they can give you then
you got to slow it down so that every
person gets the perfect product every
time you don’t go out and buy a ranch
these guys were experts at the beginning
in putting food and recipes in the boxes
and getting it shipped not in raising
food whether it’s crops or cows the
purchase of a rent of a ranch I believe
is just a sign that they’re solving the
wrong problems
I want multiple ranches competing from
my blue apron business I don’t want to
have to whether it’s a division or some
but thing that I’m personally running
maybe they when they bought the ranch
they left the executives in place still
now what if you over what if you go past
the volume that the that the ranch can
generate now what now you go get another
beef purveyor competing with your own
cost nope that’s the wrong part you are
a distributor you are a marketer that’s
who you are master your shipping master
your recipes master your marketing
master the mix of the recipes you put
out there but for the love of God don’t
go back and now do something that you’re
not inherently good at you don’t have
the core competencies and with an early
company this is an easy mistake to make
so I think I think they’re gonna be
stressed because I think that Amazon
just has to walk two steps down
three to add recipes and to assemble
kits and then you and I could get things
from Amazon to put together meals thanks
to the Whole Foods acquisition and they
need to figure out how much marketing it
really takes or doesn’t take because
when they went from 77279 to five
they went from losing 30 to losing 47 to
losing 55 million dollars so as revenues
went up 10x they actually lost another
25 million dollars on the surface it
looks like Wow well that’s only losing
55 on 800 and they lost 30 on 77 wait a
minute
someplace in here it should have scaled
because this this thing Nasdaq what they
care about what the analysts care about
earnings per share scalable business
model being an expert at what you do and
that leads to right now their own seven
here in the in the month of August is
close second month since the IPO if
you’re watching this at some point in
the future
oh and 7-7 analysts downgrades no
neutrals no upgrades seven downgrades by
analysts who are saying what their
opinion of the future is so when you
step back and you look at it I think
blue apron is a great case study where
so much can be learned about growing
fast in the beginning knowing who you
are mastering it and mastering your
model then growing under control and
then along the way fixing the right
problem and not being distracted to buy
a ranch when what you buy is finished
food product that can be put into kits
and mailed to you and me so we could
make a delicious meal at home that’s
what you’re good at that’s this week now
I need a tasty pillow beautiful please
subscribe the value team the best
channel on the internet for
entrepreneurial content until next time
I’m Tom Merritt and I hope I lived you
better than I found [Music]
greetings welcome back to case studies
with the biz doc and I hate to
disappoint you but we are not covering
what happened this week in history and
regardless of when you watch this this
is a weird thing Kim Kardashian was
found buck naked in a tree taking
pictures that she put on Twitter and
later deleted we’re not doing a case
study and why she did that because we
don’t have enough time but what we are
doing is taking suggestions from you and
you asked for a long case study a deep
dive onto blue apron under the category
of what the hell happened well we’re
gonna do and we’re gonna dive in that
today as usual let’s step back into
history and see kind of what happened
and then let’s go into why it happened
and where I think it went wrong and more
importantly what you can use and you can
learn on your business whether you’re
making t-shirts for a small company in
town or you built something more
substantial
we’re gonna have some takeaways that you
can learn and there’s two key takeaways
this week that I will get to as we dive
in here the two reasons that blue apron
is tanking so we go back in the
beginning and we have three guys that
think it’s a pretty good idea to put
some ingredients in boxes and be able to
ship them to you so it along with the
recipes so that you could say hey I’m
gonna make something interesting I I buy
it online they ships to me certain
fruits and vegetables like an apple or
an artichoke and things like that would
ship pretty good other things need some
refrigeration but we’ll get to that but
we can get going and we can make it make
it work so in 2012 with 800,000 dollars
in seed money blue apron is born and
they are off and running and Matt Ilya
and Matt the two Matt’s in the Lea you
know get this thing off the ground now
then they get to series a in 2013 what’s
really interesting if you go back to
crunch base and you can take a look at
this you’re gonna find out that there
was a venture capitalist involved in the
beginning Bessemer Venture Partners a
company I know something about and they
would follow along each step of the way
which means that they were believers not
just at the series a in the early part
but they were believers throughout so
there were some really good and smart
people in the room and I think highly at
Bessemer however in the end you know I
think
customer gets out but it wasn’t a
company that’s gonna sustain for the
long haul and there’s a point here that
it’s kind of lying under there and I’m
gonna dive into in a second we get now a
little bit deeper in 2013 three and five
million so about eight million in 2013
and then 2014 things are going this is
working here we go we did 77 million
dollars in sale boom we raise 50 million
dollars at a five hundred million dollar
valuation so suddenly this thing in a
couple short years they think it’s worth
half a billion dollars you go one more
year and boom raise 135 million on a two
billion dollar valuation now let’s think
about that that’s for X that in just one
more year well if you take a look down
here look what what’s happening to
revenue 77 million in 2014 it would go
10x and be almost eight hundred million
dollars in 2016 so right here what are
they saying it’s a party people are
ordering stuff we have like almost a
million total people that are sending in
orders four boxes of things this is
fantastic
you know we’ve got a distribution center
that was in Richmond California we built
one in Jersey City a little later than
we built one in Arlington Texas and then
even later we were in a lot announce one
in Linden New Jersey so there was all
this growth and everything that was
going on let’s go public let’s go well
slow down now let’s dive into what was
going on under the covers beyond all
that enthusiasm that gets up here to the
IPO the first was as early as 14 there
started to be issues in Richmond
California and it had to do with food
processing safety things like that
because if they’re gonna ship you a box
of food you want to make sure that all
that stuff is good and you don’t get
food poisoning or you get sick or you
just don’t feel good after the after the
meal what’s the point of ordering it at
a premium along with a recipe put it all
together and have issues well
nonetheless they actually started
shortly after they opened where they
were growing so fast that the food
controls and the processes was an issue
and we’re gonna see this in
and how it bit them in the costs as well
those violations would come up in 16
well in 16 they’re getting ready for
this IPO we’re gonna go out we’re gonna
go and the arrow into the quiet period
and what the quiet period is is what
you’re gonna go public all you can say
is I intend to go public and you file a
document called an s-1 with the
Securities Exchange Commission and then
you have to keep your mouth shut and all
these steps are going on in the
background as you’re getting ready to go
public
well what also happened along there
along the way
KABOOOM amazon announces that it’s
buying whole foods and what do we know
about Amazon delivery monolith and an
absolute low cost playa so their low
cost they know how to deliver stuff and
they’re gonna buy whole foods which
means recipe card and creative boxing
and everything you put together aside
Wow they’re gonna be in the business and
they know how to deliver stuff they’re
talking about drones delivering
batteries to your house I need two more
AAA batteries for something well here
comes a drone delivering it
so I Amazon’s ambitions to be able to
deliver anything and everything
conveniently at a low cost are very well
known now they’re buying whole foods
known for over price and some
controversy but known for high quality
you know ingredients high quality
produce that you can depend on even if
it was a little bit overpriced and at
that same time the IPO comes so they go
out with the IPO literally literally
moments after Amazon announces are doing
this and no surprise at ten bucks a
share they go out and just in these and
this is june of seventeen and just in
barely barely sixty days they are down
to five ish half of their IPO value now
this isn’t a death sentence maybe they
can make a comeback but let’s go take a
look at a few things first their value
right now is that one billion dollars
the valuation here as you recall was two
billion dollars so you go public after
having that kind of evaluation and
shortly after going public your
valuation is 50% of what it was when you
took your last
venture funding man you’ve lost half
your value and there’s only one word for
that and that is damn what’s going on
you’re supposed to go up when you go
public well let’s take a look what
happens when you go public when you go
public a lot of the shares get sold to
the market
now there’s lockup periods where not
everybody can be dumping their shares on
the market but one of the players that
always gets out at the IPO and I
shouldn’t say always but almost all the
holdings are usually out is the venture
capitalist because it’s their turn to
exit its gonna go public they support
growth expansion proof of concept early
ideation and so Bessemer proving all
this you know why shouldn’t Bessemer and
other investors along the way and get
their money out well sometimes the
criticism IPOs is well the purpose of
the IPO was for everybody to jump off
the boat and then leave the public
markets holding the bag and leave the
CFO and everybody who also made money in
the IPO standing in front of the
microphone explaining themselves every
quarter about what the future of the
company is meanwhile everybody else is
like SIA I’m on our way so what’s going
on is there a future for blue apron
let’s go take a look at a couple things
so my first point had to do with growth
I don’t think they managed growth well
it was evident about how fast they were
opening distribution centers and also
the violations kind of proved that there
was really a lot of
rough-around-the-edges stuff as they
were trying to operate those
distribution centers so I don’t think
that their growth plan really scaled
they were growing so fast that I think
it outstripped their ability to do
everything really really well so the
first point was they were so successful
I think their growth playing and growth
plan got nicked the the second point I
think that is happening here is the
business model because shortly after
going public they announced well the
actual marketing costs are actually
going way up and they they announced in
a recent quarter everybody looked
stunned as they announced a quarterly
result and they looked at the total
marketing cost that’s like wait what’s
going on
you know his store
Klee was it really this kind of issue
does it take this kind of amazing
percent of your revenue on marketing
costs to make this this this business
work and how are you gonna sustain that
with Amazon already having a head start
you know on people’s names knowing what
you purchase and everything so I think
there is also an issue there in the
business model so those are my two
points that I think crippled blue apron
and I do believe they’re a little
crippled right now for the following
reasons first you got to know who you
are if you’re going to be a distributor
of high-end recipes and some of these
recipes were not perfectly easy to make
along with the ingredients and the in
the box too then that’s who you are and
you need to perfect that master it and
the model so master delivering it master
scaling it packaging it which recipes
are the best and the model because
growth can cover up a lot of things a
lot of things you have a great first
month at a brand new restaurant you
might not know that people think that
maybe your food was only a six or a
seven
what if they’re all everybody else is
there it looked real busy so they go you
don’t really see below the surface that
there’s not a lot of those folks are
going to come back you’re just a new and
interesting restaurant that’s attracting
a lot of customers but you don’t see
below the surface what the truth is six
months a year from now you’re suddenly
gonna see what’s going on and realize
wow what happened at first I had all the
business that I can handle now you know
I I need more running it half capacity
well guess what that same thing that you
and I both see at restaurants and we
notice it with our own eyes it can
happen here so you have to master
whatever you who you are
and master the model how much marketing
does it take to make this happen is
growth covering up the truth about it
and growing under control if you’re
opening distribution centers and you’re
just running around with your hair on
fire
and here comes Health Department
violations you’re not growing under
control there’s not the proper controls
there and lastly fix the right problem
and I want to get into that they did
something
right here and if they bought BN ranch
basically they bought fully assembled
cows these guys are experts in
distributing food ready to be prepared
in the kitchen that is known as a
disassembled cow a dead cow cut in two
parts and they ship you some of the
parts that you can cook you don’t buy a
ranch and take the burden of raising
slaughtering caring for and going
through that because this means this is
your permanent cost and if you are a
distributor know who you are know what
that’s about why would you go upstream
and buy a ranch why instead you need to
get all the purveyors competing with
each other and if you can’t grow with
the volume that they can give you then
you got to slow it down so that every
person gets the perfect product every
time you don’t go out and buy a ranch
these guys were experts at the beginning
in putting food and recipes in the boxes
and getting it shipped not in raising
food whether it’s crops or cows the
purchase of a rent of a ranch I believe
is just a sign that they’re solving the
wrong problems
I want multiple ranches competing from
my blue apron business I don’t want to
have to whether it’s a division or some
but thing that I’m personally running
maybe they when they bought the ranch
they left the executives in place still
now what if you over what if you go past
the volume that the that the ranch can
generate now what now you go get another
beef purveyor competing with your own
cost nope that’s the wrong part you are
a distributor you are a marketer that’s
who you are master your shipping master
your recipes master your marketing
master the mix of the recipes you put
out there but for the love of God don’t
go back and now do something that you’re
not inherently good at you don’t have
the core competencies and with an early
company this is an easy mistake to make
so I think I think they’re gonna be
stressed because I think that Amazon
just has to walk two steps down
three to add recipes and to assemble
kits and then you and I could get things
from Amazon to put together meals thanks
to the Whole Foods acquisition and they
need to figure out how much marketing it
really takes or doesn’t take because
when they went from 77279 to five
they went from losing 30 to losing 47 to
losing 55 million dollars so as revenues
went up 10x they actually lost another
25 million dollars on the surface it
looks like Wow well that’s only losing
55 on 800 and they lost 30 on 77 wait a
minute
someplace in here it should have scaled
because this this thing Nasdaq what they
care about what the analysts care about
earnings per share scalable business
model being an expert at what you do and
that leads to right now their own seven
here in the in the month of August is
close second month since the IPO if
you’re watching this at some point in
the future
oh and 7-7 analysts downgrades no
neutrals no upgrades seven downgrades by
analysts who are saying what their
opinion of the future is so when you
step back and you look at it I think
blue apron is a great case study where
so much can be learned about growing
fast in the beginning knowing who you
are mastering it and mastering your
model then growing under control and
then along the way fixing the right
problem and not being distracted to buy
a ranch when what you buy is finished
food product that can be put into kits
and mailed to you and me so we could
make a delicious meal at home that’s
what you’re good at that’s this week now
I need a tasty pillow beautiful please
subscribe the value team the best
channel on the internet for
entrepreneurial content until next time
I’m Tom Merritt and I hope I lived you
better than I found [Music]
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