Episode #236: Stuart Landesberg, Grove Collaborative, “I Believe Deeply That Having A Truly Mission Driven Business Is A Sustainable Competitive Advantage”

Episode #236: Stuart Landesberg, Grove Collaborative, “I Believe Deeply That Having A Truly Mission Driven Business Is A Sustainable Competitive Advantage”

 

 

 

 

 

 

 

Guest: Stuart Landesberg is the Co-Founder & CEO of Grove Collaborative, the leading digital-first brand & ecommerce platform for natural home and personal care products. Stu has long been passionate about sustainability. He began building the company that became Grove when he saw how far too few families really had access to healthy, sustainable home products through traditional retail channels. Grove is a certified B Corp, and now serves hundreds of thousands of households in the U.S. every month. Stu was previously with TPG Growth, where he was involved in more than $400 million in consumer and technology investments.

Date Recorded: 6/24/2020

Run-Time: 57:58

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Summary: In episode 236 we welcome our guest, Stuart Landesberg, founder and CEO of Grove Collaborative. In today’s episode, we’re talking about building a mission-driven business around delivering sustainable home essentials.

We discuss launching Grove on two long term trends, conventional vs. natural products, and the transition from offline to online models. We walk through the highs and lows of operating a company with little capital early-on, and the deep insights our guest gleaned from taking the time to perform simple user tests. We talk about the freedom an online-platform offers when it comes to innovation, and Grove’s goal of becoming plastic free by 2025.

We cover why Grove pursued status as a B-corp, and the opinion that a truly mission-driven business can have a sustainable competitive advantage. As we wind down we talk about the challenges Grove has navigated during COVID, and the jump they had on taking precautions in the early days of the pandemic.

All this and more in episode 236 with Stuart Landesberg.

Links from the Episode:

  • 0:40 – Intro (grove.co/meb for special offer)
  • 2:07 – Welcome to our guest, Stuart Landesberg
  • 4:00 – Origination of the idea for grove
  • 5:54 – State of the market when Grove was launched
  • 8:19 – First iteration of the company
  • 14:57 – What drives interest in Grove’s products
  • 17:52 – Biggest selling lines
  • 18:45 – Approach to plastic
  • 22:15 – Other players in the space moving away from plastic
  • 23:56 – B Corp
  • 26:30 – Raising money for Grove
  • 33:00 – The inflection point
  • 37:16 – Importance of good people
  • 38:31 – How social media’s growth helped fuel Grove’s growth
  • 41:50 – Impact of COVID on the business
  • 47:12 – Outlook for the company over the next 3 years
  • 50:04 – Pie in the sky ambitions
  • 51:26 – Favorite product in the lineup
  • 52:46 – Most memorable moment in the Grove journey
  • 55:05 – Most memorable investment
  • 57:05 – Learn more at grove.co and search for Grove in the app store

  

Transcript of Episode 236:

Welcome Message: Welcome to the Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing, and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome podcast listeners. We got another awesome show for you today. Our guest is founder and CEO of the start-up Unicorn Grove Collaborative, which is a digital e-commerce platform offering healthy, sustainable, home essentials delivered directly to consumers.

And a special benefit for listeners if you go to grove.co\meb, you’ll get a special surprise. In today’s episode, we’re talking about building a mission-driven business around delivering sustainable home essentials. We discuss launching Grove on two long-term trends, the transition from conventional to natural products, and from offline to online models.

We walk through the lows of operating a company with little start-up funding dollars and over 70 venture capital rejections. PS, I wasn’t one of them, I’ve been a Grove investor for almost four years now. We hear about the deep insights our guests glean from taking the time to perform simple user tests at Starbucks. We talk about the freedom an online platform offers when it comes to innovation and Grove’s goal of becoming plastic-free by 2025.

We cover why Grove pursued its status as a B Corp and the opinion that a truly mission-driven business can have a sustainable, competitive advantage. As we wind down, we talk about the challenges Grove has navigated during COVID, and the jump they had on taking precautions in the early days of the pandemic. Please enjoy this fantastic episode with Grove Collaborative’s, Stuart Landesberg.

Meb: Stuart, welcome to the show.

Stuart: Great to be here. Thanks for having me, Meb.

Meb: Still in full quarantine in the summer of 2020. I’m in my bedroom, also known as if you’re on the video feed of this, Sanctum Sanctorum. Where in the world are you?

Stuart: I am in San Francisco in my basement. I’m 15-feet from my bed which may be farther away than you are.

Meb: That’s great. We’re gonna be talking about all things household products, cleaning, start-ups, VC, entrepreneurship here in a minute. Interestingly enough, this being an investing show, you started out of university in the investing world. Is that right?

Stuart: Yeah, so I started out as an investment banker, which is a little bit different than being an investor, but is a good place to learn through the finance and business fundamentals. But yeah, I went to Amherst College, which is a small school in Massachusetts. Got reasonable grades, not the best in my class, but pretty good grades. And I had no idea what I wanted to do, and so followed a bunch of my buddies onto Wall Street and found it to be a great place to learn, a great place to get the fundamentals, although not the place that I wanted to stay forever.

But yeah, I still have a lot of love and respect for the folks who I learned from on the investing side and still think it’s a really interesting and fun industry, and pretty cool to be able to help companies grow.

Meb: More importantly, do you still own any Lehman Schwag?

Stuart: I do. I was talking to my younger brother yesterday. And so I was there in 2007 when it went down, and he has a t-shirt from like our first analyst day at the Hard Rock that has a picture of, I don’t know, Guns and Roses or something on the back, clean, but like superimposed on it as the senior management team had, senior management team from the Lehman brothers has, and it says, “LEHMAN ROCKS” in big letters.

Meb: Oh boy, that’s amazing. You probably find those on eBay, maybe some bags too. All right, so you started out investing, what was the origin story for starting to get the idea for Grove?

Stuart: So I’ve always cared a lot about sustainability. I grew up in Northern Westchester County in New York, a little over an hour outside of New York City, but in a pretty rural town. And so for most of my childhood that every family had a compost bin in their backyard, and that all paper towels were brown. Just sort of like my parents were a little bit ahead of the curve in terms of sustainability. I took that for granted.

And fast forward to leave the nest to go to college, I realize people actually make a lot of decisions based on convenience, not sustainability. And I didn’t really know what to do with that insight until I got to TPG where I went after Lehman. And at TPG, I was covering consumer retail and internet. I spent a lot of time in grocery in particular. And I had this interesting sort of parallel between my own experience and where I was working on.

My own experience is, working 100 hours a week, super busy, didn’t have time to think about every little thing. And so I ended up just buying the products that were convenient. And every time I washed my hands, did the dishes, did the laundry, I got this little pang of cognitive dissonance of like, you’re a good person but the products you’re using don’t reflect that.

And the same time I was covering the grocery channel and saw stats like 70% of the U.S. prefers conscientious product but natural brands have less than 5% market share in almost any of these categories. And saw the Internet as really, a way to close the gap between where consumer preference is and what was available on shelf.

So I launched Grove in 2012 and was totally naive about the fact that I’d had a good couple of years in finance made me qualified to start a consumer internet business. Turns out those are different skills but made the leap, and obviously I’m glad I did.

Meb: Yeah, we’ll get to the rocket ship part here in a minute, 2020 fast forward 8 years later. But let’s rewind. So you’re starting the company, what was the state of sort of the natural product space back then? What were the brands? Or was there starting to be some groundswell of not just interest, like you mentioned the preferences, but also people actually voting with their dollars, their wallet?

Stuart: Grove has always been built really on the back of two trends that I think are very complimentary. The first is conventional and natural, which is a long-term trend, maybe a 100-year trend, a 50-year trend that we’re in year, I don’t know 10, 15 of, like a super long-term trend. The other is from offline to online. And the latter trend really complements the former because it makes it easier to get the products you actually want versus the products that the buyer at pick your Big Box Store selects for you.

So when I started Grove, there was a really interesting moment in the natural products industry because there were big innovations that had started to happen. Companies like Method, Mrs. Meyer, Seventh Generation, Burt’s Bees were proving that you could have a combination of efficacy, natural health and safety, and a focus on sustainability and affordability. And the fact that you didn’t have to compromise on price or performance, made natural products something that to me felt like a huge no-brainer.

And we sort of crossed that gap from a price standpoint, and from an efficacy standpoint. But it wasn’t in the consumer conscious yet that that had happened. And I think it’s actually still true today, that a lot of folks assume natural products won’t work or assume that they’re too expensive. When in practice, the chemistry has really caught up in the last 10 to 20 years, and even in the last 5 years, where natural products can be as efficacious or more efficacious even than many of their conventional counterparts.

So it was really…a big part of the reason to start the company was, you know, said simply like, why is anybody still using the brand their parents used? We know it’s not as good for them. We know it’s not as good for the environment. It doesn’t cost any more to switch to a more conscientious brand. Why is anybody still using the stuff our parents used? And it was sort of an insight that was that simple, that I think has helped propel a decade of growth in natural products that’s sort of far outstripped the overall growth rate of the industry.

Meb: So, what was the sort of first iteration? Was that you guys making soap in your bathtub, where you had aspirations to be a marketplace? What was the original idea and rollout?

Stuart: I wish that I had a story about making soap in my bathtub. That would make for great content and great pictures. So when we started, it was pretty simple. The goal was just to make it really easy to create a healthy habit around the products you bring into your home. We started out with 100% third-party brands.

And interestingly, for the first year, maybe even a year and a half, we didn’t have a website. I built a prototype of Grove in PowerPoint, and people would like click through my PowerPoint prototype where the slides were linked together, and so it sort of behaved like a website. And we built through the business logic in Excel now, like sitting next to you and tap in your results, your answers in Excel.

And we did that for the first year, acquired, I don’t know, 150 customers over a year that way, and then from there built a platform that was all about how do you create a positive habit. How did we make it really easy to make a good choice and stick to it? And it was 100% third-party brands.

So from 2012 to 2016, we really focused on that business model. And we were very unsuccessful in scaling or raising capital. No outside institutional capital, just sort of limping along. But one of the interesting things when you don’t have capital is no energy goes towards scaling. Very little energy goes towards customer acquisition. Very little energy goes to hiring, just dump money for the people.

But you can go see your customers, right? You can go spend time with the people who are using the product. And in my experience, the deepest insights came from simply user tests. I probably gave away $10,000 worth of Starbucks gift cards in 20-minute user test increments over the first several years, watching people click through the product.

And what we learned from a combination of data on the website and really thousands of conversations with our users, are two big things. That first, I had assumed the customer would look like me, which is to say primarily professional, urban folks who have progressive environmental values. That’s not true. And we do quite well with folks who look sort of like in my profile, but we also do really well with young families in secondary and rural markets, who just wanna be a good homemaker. Now, our target customer now, 29-year-old mother of two working as a substitute teacher in Lawrence, Kansas. And really a wonderful person, just doing his or her best to create the best home for his or her family. So that was the first big insight, who’s the customer?

The second was really about where our strategic opportunity lies. And I have idolized for a long time the brands that we work with, who have been such pioneers in the space. We wouldn’t be here if not for Seventh Generation, Jeffrey, and Eric, and Adam, and Method, and the people whose run those businesses since then and done such a nice job, we were lucky to have great partnerships with those folks today.

But because we don’t sell through brick and mortar, we can design product in a different way than anyone else. We can design just for the consumer, we can design smaller formats, we can take bigger risks in new packaging materials that aren’t used by other folks. We can tell more complicated stories. We can drive a different type of innovation that is possible in the traditional consumer products market.

In 2016, we really pivoted the business to understand that our sustainable competitive advantage was not just the direct relationship with the consumer, but what that would allow us to do on the innovation side from a product perspective as well. And so from 2016 to now the business has grown significantly but we’ve also really invested in the brands that we own to get them from you, effectively 0% to more than 50% of our sales.

Meb: How does that actually work? Because you mentioned you had this great partnership with these brands that you guys were acting as the marketplace for. How did they react when you said, “By the way, we’re gonna start selling our own products that will compete with yours?” Were they okay with it, or were they kind of upset? Were they sort of agnostic? What was the reaction?

Stuart: I would say there’s three things that are true here. The first is, every retailer has a product, right, like their own brands of product. So it’s not like we’re the first folks to figure this out. Our approach is not a private label approach, it’s really an innovation approach, which I think does make it a little bit closer to where some of the brands differentiate.

But fundamentally, we’re pulling on the rope in the same direction as these brands. And it’s a partnership, our success makes them better. Their product innovation makes Grove better. We’re in this together. I think our whole company’s revenue will be a single-digit percentage of Tide’s revenue in the U.S. in 2020. We’re tiny, we’ve got so much market share to go take together. And we unlike I think a lot of partners really do take a one plus one equals three view with our strategic partners, with the brands that we work with. And so I think there’s a little bit of rising tide lifts all boats.

And then I would say the third thing is, it’s easy to think about companies as corporate entities that have preferences, but really, companies are just run by people. And we’re lucky to work with folks who are in companies that have the same mission. And so, when we launched our laundry vessel, right? It’s the only sort of like reuse it glass vessel that you can reuse hundreds and hundreds of times, helps you dose out a tiny, tiny amount of laundry detergent, really a first to market innovation where there’s 70% to 90% less plastic than any other laundry innovation on the market.

And people were excited about that. Yes, maybe it would eat into their sales a little bit, or maybe it would give people a reason to try natural laundry. But if you care about sustainability and the category, it’s hard not to get excited. And I think the really great folks who are like, “Great, you’re pushing us to raise our game.” And when they innovate they push us to raise our game. And it’s a good partnership. And look, I think, just like any business dynamic, there’s pushes and pulls, but collaborative is right in the name because I think our company has a deep belief that success is not accomplished by us, it’s accomplished by all of the folks in our ecosystem working together.

Meb: So as you talk about the kind of the target demo, and I was smiling because we have a farm in western Kansas, may be there next month. Though I got a lot of family in Colorado. But as you think about sort of the target demographic, I imagine that the product actually working is sort of table stakes. So it has to clean or it has to do its job, has to smell great. And then I imagine the two other levers, of either sustainability and sort of the natural, healthy element, which of those two do you think are the bigger drivers of the interest in demand? Are they equally important? Does it vary by geography or product? What’s the kind of big driver there?

Stuart: I think there are a number of vectors in which sort of disruptor products can deviate from the status quo product. The big ones in our categories, scent, aesthetic, you know, I’ll call it usability, where you have a reusable vessel that’s sort of refillable, price, of course. And then you get into sustainability and health, which are the two biggest ones.

Of all of them, I think that health is probably the most stable stakes in natural products. Efficacy, it does vary. I think folks like us who are privileged to have a strong scientific product development team, we’re gonna nail the efficacy stuff. But I think for everyone it’s a little bit different what that big driver is. The way I describe growth to folks is, most people try with their hearts instead of with their brains.

And they try because they see it and they’re like, “I want that kitchen. I want that laundry room. I want my home to feel like the thoughtful home that it could be.” And then they get the product, and they’re like, “Well, this really works. The prices are great. It’s super convenient to get it delivered. They remember all my preferences, and I’m having a great impact on the world. Like why not stay?” But I think the first purchase is often fairly emotional.

One of my favourite insights about our category, I’ll make the metaphor to a company called Chewy, which is a big pet retailer. It’s a category that people assume is mechanical. They think it’s easy to assume that what cleaning products you use are mechanical. But actually, for our consumer who’s a homemaker, he or she is doing the dishes two to three times a day, kind of every day. They’re not doing for themselves, they’re doing it for their family, for the other people in their home.

And the home is really an emotional category. That’s why they’re such powerful brands in it. It’s why Tide has, you know, whatever absurd margin Tide has. Procter and Gamble has done a great job proving that the home is emotional. And so, I think for us there are a lot of reasons why people come to Grove but the biggest one is a connection to the home that you want to create, whatever that means for you.

Meb: What’s the biggest sort of product lines? Is it detergent, is it soap, what’s been the drivers?

Stuart: Best-selling products is the seedling bath tissue, probably no surprise, super great product, we have it delivered on a regular schedule. The Seedling is a tree-free line of bath tissue, where we actually plant trees for every roll that is purchased, and in a way that’s really unique to the category, and I think a unique to consumer business models that I’m aware of.

Because we donate such a high percent of the proceeds to replanting, it’s actually better for the environment to use more paper towels. In a way that’s kind of an interesting dynamic. But that line launched about a year and a half ago, a little more, and has been really, really successful. The seedling bath tissue has been the best selling product for probably the last year.

Meb: Wow, interesting. You guys talk a little bit about your approach to plastic. You wanna touch on that a little bit? Is it the goal to be plastic neutral?

Stuart: The Company’s vision, like this is the long-term vision, is that consumer products will be a positive force for human and environmental health. That’s very deliberate, it’s not less bad, it’s actually more good. And so, the seedling example I just gave, that’s an example where our paper towels, the bath issue, are creating more good for their existence, every time you buy them to more good, not less bad.

The hardest category without question to hit this in is plastic. I mean, single-use plastic is, it’s particularly hard because a lot of the solutions or supposed solutions are not easily recyclable or compostable. Or you can use paper, but if you want water you’ve got to line it with something that probably isn’t gonna get composted in your local municipality or isn’t recyclable. I mean, it’s really complicated. And so it’s a really hard problem.

And we set the goal of being entirely plastic-free by 2025, which is, you know, across a myriad of categories and a myriad of SKUs. But what we can do now is offset the plastic that we sell. For every ounce of plastic that we sell at Grove, we basically clean up one ounce of plastic pollution, mostly from ocean-bound streams and rivers, and pay not just for the clean-up of the plastic but also for the recycling process. So because of Grove, no new plastic enters the world.

And the thing I like the most about this is like, I’m a fairly hardcore capitalist. I believe that markets work. I believe that the economic system is the single biggest change agent that humanity has ever known. And if you think about the plastic problem, the incentive is to create plastic waste, package it in a bigger bottle, it’ll sell for more. And doesn’t matter what the consumer does with it when you’re done, the company that produces that plastic bottle doesn’t bear the cost of disposal, doesn’t bear the negative externality of society of a billion plastic laundry bottles a year.

But we actually tax ourselves and our own brands and all of our third-party brands for the plastic that they produce. So, there’s an economic incentive to innovate away from plastic for the first time in the history of the industry. I’m hopeful that it’s the first step that others can follow. Because if there actually was a strong economic incentive for big companies to move away from plastic to more renewable packaging, you’d see a lot more innovation than if people are just doing it because they want to do the right thing for the future of the planet.

We’re a fairly mission-driven company but that’s not true of every player in our space. But every player in our space responds to economic incentives. And so, I’m passionate about this program not just because we will this year save millions of pounds of plastic through our business models like the laundry detergent where we use a reusable glass vessel, and will pull millions of pounds of plastic out of ocean-bound streams and rivers. But because the structural opportunity is so big if you can align economic incentives with the environmental outcome that you want to get. So, we’re going plastic-free but in the meantime, and I think part of the way we’re gonna get there is by creating an economic incentive for us to do it.

Meb: How much of the industry is moving that way currently? I mean, are the Procter and Gambles of the world, are you starting to see any progress, or are they pretty slow to adopt some of the ideas that you’re talking about?

Stuart: I mean, it depends on the organization. But I would say overall the progress is slow, and it’s mostly focused on coming up with PR worthy hits. There have been a bunch of programs that have gotten a splash but have no consumer impact. And I think that big companies, the profit that they make from their existing business model is extreme.

This is the traditional Clay Christensen Innovator’s Dilemma, where it’s really hard if you make a ton of money in one business model to go and disrupt it with a smaller form factor because you pulled the water out of a hard surface cleaner, is going to ship one tiny ounce.

I mean, we can charge less for that than the big national brands charge for a ready-to-use product because it’s smaller. But if they shrink the size of the industry, the profit will shrink. So, I think people understand that it’s important. I don’t think the big companies have made the level of commitment that they will need to make over the next 10 to 20 years to stay relevant.

Meb: Yeah, it’s funny we talk a lot about that on the podcast about our industry of investing and finance with so many of these old school funds that are still super expensive and tax-inefficient, these mutual funds, these dinosaurs. We say the dinosaur is stuck in the tar. They don’t know they’re going extinct yet but they’re gonna be fossils soon. I don’t know the timeframe but it’s inevitable. All right, so you mentioned a little bit about this purpose-driven, it even goes to the fact that you guys are a B Corp. Is that right?

Stuart: We are, yes.

Meb: Can you talk to our listeners a little bit, a summary about what that means, what that entails, what the responsibilities for that is?

Stuart: So, Grove is a certified B Corp which means that we prioritize social, environmental, and community outcomes as well as profit. We’ve been a B Corp from, I don’t know, 2012 and 2013 on, like from the very, very early days. We were the first thousand B Corps. And I believe a lot in reporting out, transparency. And B Labs is a non-profit that manages the B Corp certification, is one of the most comprehensive in terms of doing their diligence on the company and making sure that the good practices sort of extend through not just are you creating a product that’s good for the environment, but are you doing business in a way that’s good for the world?

And I believe deeply that having a truly mission-driven business is a sustainable competitive advantage. I think the best people in the world today, in a way that’s different than the last 50 years perhaps, feel the urgency of many of the problems of the world. And as a result, they wanna work on problems that make our world better. And so we’re able to attract I think the best talent in the world to grow because the best talent in the world wants to work on a hard problem with a real mission.

And so, we sign up for really stringent reporting requirements. We have an audit every other year that’s fairly painful but totally worth it. And we’ve learned a lot from the B Labs and B Corp certification process, ways that we can make the company better. And it sits in the back of all of our minds as we make decisions. And anytime…you know, one of the big challenges as a leader is how do you get people to make the right decision when they don’t have full context?

And it’s a really easy way to communicate out to your company, what kind of decision do I want you, a person who started a few months ago, to make an XYZ difficult spot where you don’t have time to consult with anyone else, and you don’t have full context? Well, if you know we’re a B Corp, you know what kind of values we have. And it’s pretty valuable to the company to make sure that our team and our community understands really transparently that our commitment to doing the right thing is more than just lip service.

Meb: Interesting. Here we are in 2020. You guys had a pretty rocket ship last few years, but we’d love to go back and hear a little bit more about the humble beginnings. I had been part of investing in Grove since I think 2016, but I’d also heard you say before that you talk to a lot of VCs that particularly were not that interested in your story. I can sympathize, you hear this all the time with some of the best companies and authors and JK Rowling’s of the world. Tell me a little bit about the early days and about raising money and kind of what the experience was there.

Stuart: So in the early days, I had no idea what I was doing. And I didn’t understand how to build a consumer product, a consumer internet business. I was lucky to have a good co-founder, a gentleman named Chris Clark whose still and is still our CTO, who gave me the very simple advice that the most important thing is to go and talk to your consumers.

And that was where the idea for going and doing all these user tests. And me and Chris and my other co-founder Jordan, who’s still our creative director, spent hours and hours doing that. On the business side, we had some early sort of angel support from people who I’d worked with earlier in my career. And I put 80% of my life savings into the business. And it was still really hard. I don’t think I took a salary for the first two years.

A bunch of times it was just sort of like I write a check-in, payroll goes out. And I look at the cap tape on that one, and there’s a bunch of people in there who wrote like $2,000 checks, $5,000 checks. When was I raising money? Like 100% of the time for the first four years? There was always a round to open. It was really hard. It was hard.

I think for me personally, it was probably the lowest, some of my lowest times emotionally as someone who’s always been pretty driven and who’s…you could certainly accuse me at times of having my identity and my self-worth be more tied up in my professional accomplishment than is healthy. And those times were really hard.

There’s a certain time you like, you jump off the finance track, and like, “I’m gonna start something.” And the first year you’re like, “You know, the first year takes a couple of years.” Then two years in, you got to shit or get off the pot. I’m not sure it’s cool for me to have said that.

Meb: That’s one of my dad’s favourites. I’ve probably used it on this podcast before.

Stuart: Great. So yeah, you got to call the ball. If you have good business judgment, you got to understand when to cut a bad investment. And three years into a start-up that’s got no traction, no one’s ever heard of, four years in, I mean, you really, I mean for me I kind of bet my career to a certain extent on it, certainly felt like I did.

And I remember the rejections along the way so vividly. I remember I met with someone who was an early investor in my wife’s company. I’d actually met my wife in this time and I think it was cool. She like definitely met me at the lowest part of my professional journey, and it’s a great time to meet your wife. The best thing that came out of those four years in…

Meb: Low expectations.

Stuart: So yeah, exactly. Well, I noticed that he was an angel investor in my wife’s company, and we sat down at the Grove on Hill Street in San Francisco. And 10 minutes into my pitch she was just like, “I’m sorry, I’m trying to be really judicious with my time. This is the worst idea I’ve ever heard, and so I’m not gonna invest. I’m just gonna go.” And I was like, “All right.” Like that didn’t go as well as I was expecting.

There were dozens and dozens of examples like that. I flew to New York to meet with some VC from I can’t remember the name of it now or I would totally call him out. And I was supposed to be with a partner and unbeknownst to me, they’d blown me off to some kid who started like six months earlier and similar experience I flew to New York just for this meeting.

Got all ready, walked into the office. I go, “You can’t meet with the partner, you meet with this other guy.” Lo and behold, he’s six months out of college. And again, 20 minutes into the meeting he was just yeah, Amazon just can do this. This, we’re just gonna pass. And I was just like, “Ma’am, I don’t know.” And then when we went to raise our series A we got introduced to 175 firms, got 75 meetings. And of the 75 meetings, zero people said yes, yeah. But like one yes and 75 nos is a successful process. That’s the great thing about one thing I love about entrepreneurship is like it doesn’t matter all the people who say no, as long as a few people say yes.

Meb: Who eventually led the series A?

Stuart: A group called Bullpen Capital. A guy named Paul Martino led it and I could tell they were close. And so I called him up and I remember this conversation really vividly. I just said, “Paul, there’s got to be a price, man. There’s got to be a price at which you do this.” And his response, Paul’s a great guy and a character. He just said, “Stu, you don’t wanna have that conversation with me.”

To this guy, I was like we do. I do wanna have that conversation. We’re gonna have it. And to his credit didn’t take advantage of us, priced a round, it was a low price but a fair price. We think that’s actually you came into that same series A in 2016. I wanna say the pre was 12.2 million. So valuation’s a little bit higher than that now. Yeah, got it done. And obviously, it’s sort of like seems obvious in retrospect but if not for that calling him back and just being like, “I know you said no but there’s got to be away,” then we wouldn’t be here, [inaudible 00:32:04.7].

Meb: I’ve got to tell you, I love to play the revenge long game. And so if I was you I would have certainly signed up all these VCs for free reoccurring delivery of toilet paper, maybe like once a year, maybe not once a month but once a year, just to remind them where Grove has gone.

Stuart: Most of them are such nice people, not all of them. Some of them are jerks. Like the guy who told me it was the worst idea ever. But a lot of them are really nice people. And I get it. It was not obvious to me in 2016 either. It wasn’t like, “Oh, I heard no from 200 smart people.” I’m still 100% convinced this is gonna work.

Meb: And that’s the interesting part too is that like you mentioned, I was an investor in this company. I’m also a consumer but of the 150 plus odd companies, this has been if not the best performer or one of the best. But again, back in 2016, was that at all obvious? Not necessarily.

When do you think you hit that inflection point where you’re able to take a step back and say, “Okay, this is working? Like I feel we have found some product-market fit. This is starting to snowball. Like, what point was that, a time which you could just take a deep breath and say, “Oh, this is happening?”

Stuart: I think there are really three moments. The first we did a big rebrand in 2016. And we saw the consumer response to the rebrand was awesome. And we saw that our media was starting to perform well, we were getting better partnerships with big info…well, we still have a huge influencer marketing strategy. And that started to really click with the rebrand and we’re like, “Okay, cool. We got this one right.”

We listened to our consumers, we went to who they are, and that was a big first piece. The second piece was we started to create our own product. And when our own brand started growing way faster than every other brand that we sold and having higher reviews was like, “Okay, great. Like the thesis of use the data to build innovation works.” That’s exciting.

Meb: What do you think was the driving force behind that? Was that you’re taking the best parts of consumer responses and feedback and creating your own products? How did that actually come together?

Stuart: I think its three things. The first, you’ve got a bunch of data so you know what scents to make, what size, what price, what category. I mean, there’s just a bunch of quantitative data. The second is you have a bunch of qualitative data. You can see what type of things are people posting on Instagram.

People post their sinks. What do you need to do to sit on top of people sinks? We developed a bunch of sink side products because the sink is the future in so much form-related content. And so we could think about, okay, we have sustainability goals, we have efficacy goals, and we understand where the consumer is displaying this. How do we wed all three of those?

And then the third thing is, we’re not afraid to fail. There’s no buyer on the other side, there’s like, “Oh, your product didn’t perform, you’re out.” I want more radical stuff, not less. And we, for Seedling, our best selling product, we changed everything about Seedling in December of this past year, based on customer feedback.

We went to three-ply from two-ply, we changed. It used to be wrapped in bioplastic. Now it’s wrapped in paper or cardboard. So it’s 100% recyclable, zero plastic. We took that feedback and improve the product again. Because the stakes for us, the rapid iteration is a part of it. I’d much rather have 1,000 people buy a product, hate it. Great. I know. And there’s no long-term. And the long-term thing is I just learned something versus, “Oh, now my category score is lower at pick your big box retailer, and our sales are going to be down.” And so I think the willingness to fail is really important in innovation.

The third thing that happened is our hypothetical unit economics became real. And there’s…if you’ve worked in finance you know what a good P&L looks like. You can’t pitch your business and be like, “Oh, sorry, like this business will never get profit.” Like, that doesn’t work. And so you create a story of here’s where I am today and here’s a story that gets us to where the business should be. It always goes differently. Presumably, you know the endpoint. And for a long time, you know, we had talked about how we could have strong unit economics.

And the other thing that really changed the game for us in terms of our ability to be self-sustaining, access to capital, all of that is yes, you get the customer piece right. And then you start to get the internal operations piece right. And the gap between what we’re promising and what the company is actually delivering, you know, eventually those two things meet. And that’s sort of happened for Grove over the last 12 to… or in the last 18 months but in particular, over the last 12 months where the unit economics we promised and the efficiency we promised are sort of are the same as what we’re actually delivering. I mean, every month is a little different and I think that’s a bridge that not every company crosses, right? And I think when you cross that bridge, it’s a pretty powerful thing. And it de-risks the company a lot, which allows you to bring in different types of partners.

Meb: And what was the drive for that? Is just scale in and of itself?

Stuart: No. Team, people, 100% it’s people. How do you reduce operations costs? Bring in a great operations team. How do you increase share of own brand? Bring a great team that knows how to create great product and great marketing team that knows how to talk about them. All about bringing in the functional experts all together and you can get one plus one plus one equals five.

And I think anything that we’ve accomplished is because we have a good team. And so when I look at, “Okay, we have a…we wanna reduce whatever it is, operations costs, I don’t say, “Well, the way we do it is we like reduce shipping costs by smaller boxes.” like we should…let’s find we have a great operation. But the way I would solve the problem is, who are the best people to solve this problem in the world and how can we bring them to Grove? And that’s how we’ve been successful over the last couple of years but it takes time. It takes time. Our COO joined us about a year and a half ago and the results are still getting better. Now, a lot of this stuff the results aren’t instant. But at least for me, I find that I overestimate what I can do in a month and underestimate what we can do in a year.

Meb: You mentioned Instagram. How much has sort of the growth of social in a lot of these ideas and concepts been a tailwind or driving force for your company?

Stuart: I think that discovery-based commerce is totally different today than it was 10 years ago. Even in sort of like Internet, I will say pre-Facebook, you wanna buy something on the internet, you go to Google and you search for it. And if you wanna get sort of discovery-based stuff the biggest channel was television. Now there’s a second big channel, a second-place where you can consume serendipitous ideas for things you might want, kind of all the time end mass. And that’s on social media.

And so for us, our marketing mix is well-diversified across all of the various media at this point. Radio, TV, direct mail, podcasts, all of the various social medias, etc. But the core thing that I think has changed in the industry is back when you were aligned on TV, whatever magazines, newspapers, radio, you need a lot of scale. To test concepts, it’s really expensive, to test the creative, to get people to sort of like make that, “I buy with my heart” decision for you need to be in person. But now you can really test and learn quickly on what resonates with people, what that moment of discovery is in a way that I think has structurally changed the industry probably forever.

Meb: It’s interesting because I think the number of Google Ads I’ve ever clicked on in my life, unintentionally, you know, meaning where I just, “Oh, hey, that’s interesting click” is probably like a dozen. Maybe it’s more, maybe it’s less than 100. But the amount of things that I’ve purchased off Instagram, the targeting, and I’m not like a big online shopper, but the targeting is so good. I probably purchased, I don’t know, 20, 30 things just off Instagram alone. So it’s interesting to see the evolution in different channels. You mentioned podcasts. Obviously, we’re biased there. But having a very real and in most cases accurate targeting and impact too.

Stuart: Yeah, I’ll say two things. The first is Google is great for intent-driven, right, but they haven’t figured out on Google itself. Obviously, they have a broader display network, how to do discovery. It’s not like okay, I’m searching for a lawnmower, I type in “lawnmower,” and they understand that actually what I want is a baseball cap. That doesn’t happen, but I go on Instagram, somehow Facebook knows that I want a baseball cap.

Most of the time I’ve gotten asked the question a bunch of times, “What is the most powerful company in the world? Is it Google, or Apple, or Amazon?” I believe that it’s Facebook because we like to think that we’re all different, but the ability to create patterns and predict what folks will like and drive behaviour is terrifying. I believe that we use it for good, but I don’t believe it is primarily used for good.

And the targeting is totally it’s above what I would have imagined is technologically possible in our society today. I do think, look, it makes discovery-based commerce totally feasible but it also means that we have a lot of the problems in our society that we have today, which I think are a fairly direct result of some of those algorithmic content decisions.

Meb: Yeah, things are rocking and rolling, you guys have raised a bunch of VC money, you found product-market fit, the company’s going great. You got a great team. How many folks you guys have, by the way?

Stuart: A little over 1,000.

Meb: Wow. 1,000 people. Everything’s going good. The decade ends, dawn of a new decade. The future is bright. And all of a sudden, we have a pandemic. Walk us through what the last, what is it, six months have been like for you guys, how you adapted with operations, how the company’s experiences were? It feels like a whole decade wrapped in six months. So what’s 2020 been like for the Grove crew?

Stuart: It’s been interesting. I think the first thing you have to consider in any of these moments, and this is not a unique insight for me, what are the basics required by your first principles? Safety of your team, showing up for your customers, how do you behave in a way that is the right thing for your community? So we didn’t focus on customer acquisition, we focused on fulfilling orders for our existing customers.

There are companies that let their delivery time get to 10 days. We were like, “We can’t do that.” That is a violation of the service that we promised. And people are counting on us to get their order when we said they were gonna get it. One day late, two days late, three days later maybe they can understand. 10 days late, we’re not keeping our promise. So that was the first thing.

The second thing was how we translate that across a pretty diverse organization where we have five offices across the U.S., three fulfilment centres? We’re like a pretty big range of people doing a pretty big range of things. And how do you come up with a set of principles that feels good to everyone? And we were lucky that our headquarters is in San Francisco, which was one of the first places to take COVID really seriously.

And people were still out in the bars in New York, and San Francisco was like everybody is working well. And so we got ahead of the curve on getting PPE into our fulfilment centres, social distancing, temperature checks, nurses on site, all of that stuff, we were way, way early because it was so strongly felt in headquarters that we pushed that out to our fulfilment centres really early. And as such, have a pretty good safety record for people which is obviously the most important thing.

But I will say, you know, we had a really…Grove is a capacity utilization business to a certain extent. You can ship so many boxes a day if you don’t have that many orders, though like fulfilment centre items. We run it 90%, 95% capacity utilization, sometimes 100 we were like having an okay month before COVID hit. And so it wasn’t like, bang, we’ve got all these orders. We can fulfil them all.

And a lot of our associates, really great people, super committed to growth, all of a sudden they lost their childcare. They have a sick family member they need to care for. They have reasons they can’t show up for work. And how do you balance the need to show up for your community with the need to be there for your employees?

And we did a couple of months of hero pay, some higher pay during the certainly the peak of the crisis. We already have a really generous PTO program that we made even more flexible for folks so they could take the time off that they needed to take care of their families. And that hurt output. We shift fewer orders than we would have. But I do think it allowed us to come back even stronger.

At HQ, we moved to entirely remote pretty quickly, which has been the right decision but it’s taxing in its own ways. We were lucky to be in a sector that was one that saw your tailwinds in terms of customer demand. Not sort of like we’re operating mall retail or something where the demand can fall off a cliff. People need toilet paper day in day out. So we’re lucky to be an essential business in that regard.

But the number of big decisions that got made in the months span between March 10th and April 10th was you’re right, it was like a five years’ worth of big decisions crammed together. And there’s another place where being a mission-driven business is great because people have a shared value system. How do you treat your people? How do you treat your customers? Do we do things that might prioritize profit over our community? And the answer to all those questions is really clear.

Meb: You mentioned the concept of the shipping delays. How challenging was that? Because I imagine there was some supply chain disruption. It’s easy to say yes, we’ve got to commit to shipping with one or two-day delays. But how much of it is actually in your control? Like if things are just backed up or you didn’t have certain spy-like, how would you actually account for that? Is that something that…

Stuart: [inaudible 00:46:28.724] and as an entrepreneur, I spent four years trying to acquire customers. And at the moment when the most customers were coming to us stopped accepting new customer orders. For a bunch of days in March, it was like, we’re full, no new customers. It’s painful for me to talk about. Spent so much of the last decade trying to get people to try Grove, and then in the moment…but you know, if you phrase it that way it feels really hard. If you phrase it, well, do you show up for your community? Or do you try to like use this to build up? No, you show up for your community. And so, there are definitely levers in your control. Many of them are a sacrifice. And I think it’s easy to make those sacrifices if you believe in the long-term principles deeply.

Meb: So looks like as we start to emerge from this or reverse, who knows what’s gonna happen the rest of the summer and fall.

Stuart: [inaudible 00:47:21.142] that’s right.

Meb: Yeah, walk me forward kind of eyes to the horizon. What does the next rest of the year look like for you guys? And what’s the main sort of goals and milestones over the next three years?

Stuart: So the rest of this year is, I think about building on what we’ve done so far this year. We’re really building to make sure the supply chain can handle it if there’s a second spike, doing the hard work to make sure that the organization continues to be well-positioned for growth. Making sure honestly like, how is the professional development roadmap of our team when nobody can work with each other in person?

People are the most important thing. Are they getting the right level of professionalism, feeling connected to the business? Do they feel like psychological safety of coming to work every day when all of us have our beds in the background if you just turn off the magic whatever, these are virtual backgrounds?

I’ve got to operate under the assumption that all of society is at like 6 out of 10 mental health right now. So for me, the rest of the year is how do I make sure the team stays as healthy and well-positioned as they possibly can? Looking forward three to five years, I think that the trends of less waste, healthier formulations, those are not gonna change. And direct to consumer, those trends are not gonna change.

We are lucky to have more scale now than we’ve ever had in the past. And so we’ll put those resources to build our differentiation. You know, when we became plastic neutral, we’re the only online retailer that I know of, I think the only one in the world doing something like that. And it’s cool, it’s super differentiating. Half our products you can’t get anywhere else, half you can get from Target.

But if you get them from Target versus if you get them from Grove, Grove, their plastic offset. At Target you’re creating to the world adding to the world’s plastic problem. How do we find ways to do better at our core mission? And over the next three to five years, we’re gonna… I know we’re gonna launch new product lines that are really exciting. We’re gonna launch new form factors, we’re gonna move a ton of our product out of plastic, and we’re gonna help our partners move their product out of plastic.

And I think we’ll come up with new ways to make our products available to people. To get the mobile app, we were a little bit late to the game there. I will admit I didn’t expect it to be as successful as it is. It’s one of those things that’s totally obvious in retrospect that has really changed what we think about people engaging with Grove and where they think we believe the ceiling to be.

So, next three years are really about how do we scale the vision? Because the trends that got us here I think will get us the rest of the way. I think we can work on healthier, more sustainable, more environmentally friendly products with 50 years and continue to have a compelling headwind.

Meb: So you mentioned before you’re willing to take big risks on interesting ideas. Can you give us a preview of anything you guys have in the skunkworks that you’re working on? Or if you could wave your magic wand, any ideas that you think would be super cool if you could put on your product development hat?

Stuart: Well, I mean, the big thing we did was said we were gonna be out of plastic in five years. Most of these companies you ask like, what are other companies doing? Most of these companies are like, “Oh, yeah, we’re making this commitment like 2030.” I saw some company tried to make a…we’re gonna be carbon neutral in 2300 commitment. Just like, are you kidding me? Like none of the people at the company are gonna be there. It’s just like pass the buck. You put that commitment short because that’s on my watch. Our team has to start working on that now. And there are really hard problems in how do you get plastic free.

If anybody knows how to get the sprayer like on a spray bottle, there’s like an aluminium mould for that or something like that, I’d love to know, because there’s a bunch of componentry that you sort of have to get made in plastic today. It’s a really interesting challenge.

So I think throwing down the gauntlet and this isn’t a five SKU company. We have 250, 300 SKUs under our own brand and growing, and there’s a real breath that we have the opportunity to change. And I think what I’m really hopeful is we’ll do a great job and people will copy us.

Meb: What’s your personal favourite product in the line-up currently?

Stuart: Well, I talked a lot about Seedling. I love our heart service concentrates because it was our first innovation where we have the reusable chassis and the sort of like tiny concentrated thing is that…and those products will save about a million pounds of plastic a year. So I really like those. There’s a bunch of companies that have sort of followed in our footsteps there but we were first to market in that regard, and I continue to be really proud of that.

My favourite product at the moment though, which is kind of an unusual one. We own a line, a launch line of vitamins called HONU and we launched various hydration powders, and I’m really loving this. I don’t know if you’re on YouTube, oh, you can see it. This On New hydration powder, which I take every day. There’s awesome. I take like immunity boost one taste great. And yeah, I don’t know. I really like it.

Meb: And what do you do? You just mix it with water or what?

Stuart: Yeah, you just mix it with water.

Meb: I’m gonna pick up some.

Stuart: It’s healthier than Mountain Dew and we even have a caffeinated at one point. It will be a significant improvement. I should send you some after this.

Meb: I needed some this morning. I played a poker zoom with some friends last night and I only had a couple of beers. But man, I woke up feeling it today. So I could have used some.

Stuart: Oh, man. It’ll straighten you right out.

Meb: Good. We’ll put some in our cart later. So as you reflect back, this is the question we end the podcast with for all of our investors. But for you, because you’re an entrepreneur, we’re gonna ask it in two forms, okay? So first is, what has been the most memorable moment for you of the Grove journey? Is there something that’s just seared in your brain, good, it could be bad, it could be everything in between, is there anything that comes to mind?

Stuart: The one that jumps to mind and this may seem silly, I have this engineer who’s worked with us since the very beginning. And super talented guy who could work anywhere. And I remember the Christmas party holiday party, I should say in 2016. And we just raised our series A and we have like institutional capital and business is finally growing. And I remember I was talking to him, and I was like, “This guy took a risk with three years of his life, his two little kids.” They’re not as little now but had two little kids that now are grown up.

But I was just talking to him and I was like, “You know, for the last like three years I’ve had this anxiety that you would bet on me and we wouldn’t have come through for you.” And how do you repay someone who bets their livelihood and their family’s well-being on your pipe dream? Like how can you express that gratitude?

And it felt in that moment, I remember for the first time, like, “Oh my gosh, we actually we could make it here and it was gonna be okay.” And I just…my number one anxiety that I’ve had from the beginning, it’s not losing investors’ money, it’s not, “What will happen to me.” It’s the people who devote their time and their like precious years on this earth towards the mission. And then if it doesn’t work for them. And they never asked in that way but that responsibility of 1,000 people showing up every day and working on this, I wanna make it work for them. I remember that moment. I can play it in my mind in a minute. And it was an amazing feeling.

Meb: I was reflecting back when you were talking earlier. You were like, “Piece of advice to people starting a company,” and I was gonna interrupt you and be like, “Don’t do it. That’s my advice is just don’t do it. It’s so hard. There’s so much agony, agony, and ecstasy, but if you make it out the other side there’s probably no better feeling than entrepreneurship working.” All right, so the real second half of that question, we ask people and you’ve got a bit of an investment background is, what’s been your own most memorable investment? So for you personally, again, good, bad, anything in between, anything come to mind?

Stuart: Yeah, my most memorable investment was, it was probably there’s a couple that I’m thinking of. My most memorable investment was one that we didn’t do at TPG but we spend a ton of time on which was a chain of grocers in southwest of the United States. And the thing that made it so memorable was, it was the first time I really got to go hand-to-hand with the management team.

And this chain had grown so well but like, it was totally unclear what gave it its competitive advantage. Wasn’t like they had like the best signage or the lowest prices. But you talk to every single store manager, and it was clear that the culture of the company was the competitive advantage. Grocery space, it’s a fairly commodity product, right? You can get your groceries at any one of 10 places.

And it was the first time that I realized something that I think I’ve always taken with me which is the culture is a competitive advantage. And that’s been such a foundational belief for me. I mean, you can hear how much I talk about people. People and cultures are like two sides of the same coin. Culture you have will determine the people that you have who in turn shape the culture.

That was the investment that I think taught me that lesson in a really deep way. And it’s the lesson that I probably valued the most and honestly gotten the most joy from. Because I’m not like someone who’s like, oh, revenue that feels great. The thing that feels great is building a company that matters with people that you really enjoy. That’s the best feeling.

Meb: I was waiting for you to do a reveal and be like, “And that was Trader Joe’s, and we didn’t invest and now it’s the world’s most successful grocers.”

Stuart: It was not Trader Joe’s.

Meb: So where do people find out more if they wanna go make some orders, check out what you guys are up to, where’s the best places?

Stuart: Go right to grove.co. Well, actually you can actually go to grove.com too and you’ll see they’ll be a great offer waiting for you on the homepage. The easy way to get started. Even better, download the Grove app, best experience that we have. And I think the offer there might even be more compelling. So yeah, you just search for Grove in the App Store and it’ll come up.

Meb: Stuart, thanks so much for joining us today.

Stuart: Yeah, my pleasure. Thanks so much for having me, Meb. This was really fun.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at the, mebfabershow.com. We’d love to read the reviews. Please review us on iTunes and subscribe to the show. Anywhere good podcasts are found, my current favourite is Breaker. Thanks for listening friends, and good investing.