Thrive Market: Nick Green

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weren't product managers. didn't have a a background in building an e-commerce platform, so we hired an outside agency. We thought it would take six months to do the tech build. And four months in, started getting the sense that we didn't have anything. And so at that point

I said We need help. We're out of our depth, we've made these mistakes, we're desperate. Yeah. Not only have we spent a lot of money.

So we had the sun cost, but we had nothing to show for it. It was a complete train wreck. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements. They built.

I'm Guy Raz, and on the show today, how an online mashup of Whole Foods and Costco went from shipping out of a garage. to doing half a billion dollars in sales in less than ten years. Sometimes the simplest and most seemingly obvious ideas are the hardest to get off the ground. This was the case for Nick Green and his co-founders when they came up with the idea for Thrive Market. The idea was to build a sort of Costco meets whole foods concept.

Except all online and no physical stores. You'd pay for a membership, and in exchange, you'd get access to thousands of natural and organic products, but at a lower price. This was in 2014, and at the time most investors turn Nick down. They wondered, how was this going to compete against whole foods? And they had a point, especially because their assumption was that most people already lived near a natural food store. So in order to get the money to actually launch the product,

Nick and his co-founders started to reach out to health and diet influencers, mainly bloggers, because this was still in the early days of Instagram. Those bloggers all wrote small checks because They believed in the mission. The idea of making natural and organic foods more affordable and Deliver to your front door.

And that investment strategy turned out to be a stroke of genius, as you will hear, and it helped propel Thrive Markets growth. Today, it's a leading online grocer in the natural foods category, with over a million and a half members and over half a billion dollars in sales. And even though Nick launched Thrive without knowing much about grocery or retail, He did know something about healthy food. It's what his mom cooked at home.

Nick grew up in the suburbs of Minneapolis, and the most important thing to his parents? was getting a good education. I mean, I was a total nerd in high school. They talk about type A. I was like type A plus.

Um And that was literally in in terms of grades. That was, you know. very, very conscientious in school. And I think a lot of that came from my mom. Um you know, she

didn't graduate from college. I came from a large Mexican American family where Her parents didn't go to high school even. And she was really focused on education and I internalized that from a very, very young age. Something happened to you.

In high school. That's it. Is Incredibly Amazing and

Slightly embarrassing. In that you got a perfect score in your S A T. Um And I only say slightly embarrassing because nobody likes the person who gets a perfect score. On their S A T. Yeah.

But it happens. Some you know, every year the couple thousand kids get a perfect score. That must have been I mean that was like Kind of a big deal. Yeah, it was it was a big deal and I didn't go to uh private, you know, boarding school

You went to a big public school? I went to a big public school. And so it was you know, it was in the newspaper. Uh it was something I was really proud of. And I worked really, really hard, right? I studied for the SAT, I did the you know, ten real SAT's book. Um my family didn't have the financial means to send me to a test prep course or do private tutoring. You didn't do like the Princeton Review or or one of those things. I did, and I r you know, I remember like seeing uh the the price tag for that. It was twelve hundred dollars to do Princeton Review. Yeah. I thought that was insane. Like absolutely insane. What a waste of money. I can just go to the library and read the Tenrill SATs.

So you um I guess once that happened already in high school You saw the opportunity. To be an SAT. Crap. Tutor.

And it was a way for you to make extra cash. Yeah, so I I call myself an accidental entrepreneur. you know, I started teaching SAT classes actually um after I'd been accepted to Harvard, parents had already come to me and asked, you know, could you tutor my my kid and demand started to outstrip my ability to do one on one. So I I started a class.

And basically in that first year, I think I probably worked with fifty or sixty kids. Did it on fold out tables in my garage. And I loved it. Like I actually love the teaching side of it. Yeah. And it kinda went from there. Wh what were you charging? For the class.

The original class was two hundred dollars. All right. As an undergraduate, two thousand three. When you got there, um had you already Had an idea in your mind that you would

continue to pursue Test prep. I got to Harvard thinking I wanted to be a lawyer. Mm. Test prep was.

I can help pay for some of my tuition. And then basically after my softmoor year. I've written this book. That I called the Ivy Insider's Guide to the S A T. And by book I mean that very loosely. It's a a word document that I printed out of my house for the students.

And the idea I created my own curriculum concept that I called SAT game theory. which has nothing to do with actual game theory, uh, but just that the SAT is a game. It can be beaten. It's not about how smart you are, it's about how smart you get at that test.

And what I basically realized three years in was I've got a business in a box. And any undergrad who Like me did while in the SAT. And could go back to their hometown and do the same thing.

So that was the actual birth of Ivy Insiders was Like I call it like a micro franchise model. Because it was just during the summer. We funded the businesses, we provided the curriculum and we are going up against the Princeton Reviews and the Kaplan's offering a a program that really worked.

at a fraction of the price. Wow. So did you start putting like Ads like flyers around uh up around Harvard or like how did you get the word out? look that you were looking for.

I basically I spammed every listserv at Harvard. Yeah. I went into the online directory, which at the time was not Uh didn't have great. Or very clear terms of use. As we know. As we know from the social network. Yeah. So yeah, same thing, uh not quite to the same effect, but we basically emailed every kid at Harvard.

And said, Hey. Did you do well on the S A T? Do you want to go home this summer? Do you want to make great money and learn to be an entrepreneur? Uh, don't get an internship.

Cambia. by the insider's branch manager. Hm. The other thing that we learned really quickly both from a business standpoint and from just uh

honestly a mission standpoint, I wouldn't have used that word at the time, but It was there was a whole bunch of kids that couldn't pay two hundred dollars. And sometimes you'd have open space in a class. So why not let those people in? So one of the things we did from day one, we called it the no no empty seats policy. And anyone that couldn't afford

To take a course. Could do it for free. And you know, there was a number of these principles actually that have become really central to Thrive. that came out of the Ivy insiders business. So do you think by the time you were a senior

You had kind of abandoned the idea to become like a lawyer or a consultant and get an office job that this was gonna be the thing that you were gonna pursue? So by the time I was a senior, yes. By the time I was at junior where the business was already firing in all cylinders.

I still was very torn. Mm. strong the gravitational pull is towards the more conventional career tracks. Where you've got safe, secure, low risk ways to be

very successful and And so I actually did an internship at McKinsey. uh for the summer after my junior year. And I had kind of a perfect split test.

Where I was running the the my business on the side. And I got to see, you know, which was I better at, which did I enjoy more. uh what did I wanna spend the next few years of my life doing? How much money do do you remember did the did it would a student make? Like one of your Ivy League students make teaching SAT prep over over the course of the summer.

Well, some of them made more than I made working at McKinsey that summer. Like That's for sure. So tens of thousands of dollars. Tens of thousands of dollars. In like two thousand six for the summer. Yeah. As a student, that's

Amazing. Now, like anything entrepreneurial. There's a lot of dispersion. Right. And so you had branches that were that really struggled. And then you had branches where it just, you know, absolutely exploded. How much could you estimate how much revenue the business was bringing in?

Um, we were doing in the low seven figures. Wow. And you know, the profitability was if it was in the hundreds of thousands of dollars. And so for me I don't think I would have had the courage. Two.

you know, go off and do something entrepreneurial. But for the fact that I basically got this free option to incubate the business. while in college and get a running start. So that by the time I had to make that decision, we were already kind of cruising.

So when you graduated you stayed in Cambridge, Massachusetts to run this business? Yeah, so when I when I graduated, um that summer was like the grand experiment in how fast could this business scale? And you know, the wheels almost fell off. Uh, I made a ton of mistakes. But basically spent the next three years running this business.

and trying to get it as big and and as successful as I could. And by the time I was twenty five and we sold the business, we were recruiting hundreds of branch managers across the country, serving you know thousand high high uh single digit thousands of students per year. And getting the attention of Princeton Review and Kaplan and and some of the big big guys. I'm sure'cause you were undercutting them. We are undercutting them on price and we are also delivering better results.

So all right, so two thousand ten. You get acquired a company called Revolution Prep, presumably a test prep company as well. acquires you guys. That's right.

Yeah. I think the at the time I With seeing the opportunity to make more money than certainly I'd ever seen and anyone in my family had.

I also was I wouldn't say fully burnt out, but definitely exhausted. I failed to delegate in that business repeatedly. I was working, you know. ninety hours a week, like literally seven days a week for multiple years on end. Not a lot of social life.

And I had in my head, hey, this is the opportunity to cash out and You know, sail off into the sunset. So you cash out. And uh and you did pretty well, especially for being three years out of college. I mean I'm assuming you got

you know, several million dollars out of that deal. So Enough money to To not work, but probably not enough to set you up for the rest of your life unless you were really, really, really

Careful, I I imagine. Yeah, at the at the time I had I had recently read a book by Tim Ferris called The Four Hour Work Week. Yep. And he had this concept of income automation. And so yeah, I made enough that I thought, hey, if I can invest this And cash flow investments. I can just not work.

And so I, you know, built out a little real estate portfolio. I was investing in uh self-storage and mobile home parks. And I was also doing an earn out for a year. uh revolution, which was a cool experience. Um moved to California, I think, to work for them, right? I moved to Los Angeles. I thought I would be there for a year.

And you know, fell in love with Southern California. Um but it was also a really um I call it kind of a a a like a lost a lost year or two in the sense that what I thought I wanted when I sold the company, which was create income automation and kind of

Do whatever I want. It just wasn't fulfilling. I felt rudderless. I felt um I felt lonely. And it was very interesting to see that the things I didn't think I valued as much.

Like being in the trenches with the team. Solving hard problems. you know, facing different challenges every day. Like all the things that I actually thought I needed to break from, I missed. Yeah. And I guess I guess it wasn't too long after that.

um around twenty twelve that that you decided that like I'm just like this isn't the life I want, right? And and And I read that um you took a a position as entrepreneur in residence at a start up accelerator. uh called I think uh Launchpad LA. That's right.

Yeah. My idea was yeah, I was doing some angel investing, so keep doing that. I sat on the investment committee, so I was meeting entrepreneurs. And simultaneously kind of Look for co founders.

Look for co founders for For an idea. So look for an idea, look for co founders, look for investments. Got it. I did consider other things in education, and then a personal passion of mine was also health. And the way I thought about it is, you know, the only thing more fundamental for someone's well being than getting that education is being healthy. And you know, going way back to my own childhood.

My mom's kind of two core pillars, if you will. were Education Health. And we were that like, you know, weird house on the block that had no sugared cereal, no soda, like none of the processed foods that were uh, you know. Yeah.

So I I was looking at those two spaces. And from what I understand you had there was this fateful Encounter. Well you're we would have entrepreneurs coming in Pitching.

Launchpad LA for seed money. And so you would be in those meetings and you would be asking questions and I guess one day this guy walks in. Uh named Gunnar Lovelace, is that.

Tell me about him about what happened. Yeah, so i the first meeting was actually virtual. So he didn't walk into Launchpad at all. We got introduced to a friend. Uh he at the time was in Italy. for a uh a tapping convention.

Like tap dancing? Uh no, like uh tapping isn't a stress relief modality that involves tapping your fingers on different parts of your body. There's a conference for that? Somewhere in Italy and he was there. I'm going to a tapping content. This is not tap dancing.

This is just tapping your fingers on the table? It is tapping your fingers in various ways. I'm not f fully familiar. I'm living in the wrong world. I need to go to tapping conventions. Okay. Keep going. So he's he's there. And so we're you know, this is pre Zoom, so we got on a phone call. He sent me a Executive summary for a business he was calling Shop Tribe.

The idea was basically to do Group on. for healthy food. Uh um so like the way GroupOn worked is you'd have these buying events. So uh you'd have a a timetable to tap into this particular sale event.

His idea was let's pool our resources. as consumers to access wholesale pricing. for healthy food supplements and natural organic products. And once we reach critical mass, we'll have enough scale to buy it wholesale and we'll pass on the savings to the members. But this was his idea. What was it about that idea that intrigued you that you thought this is cool, maybe this could be something worth exploring?

The part that intrigued me. From the first moment was the mission. It was make healthy and sustainable living easy, affordable, and accessible to everyone. And Yeah, that just resonated with me at a very personal level. Again, like I had seen my mom how hard she worked to make healthy decisions.

um, you know, know what it's knew what it was like to not have a Whole Foods in the neighborhood. If you're shopping on a budget, even if you do have a Whole Foods in the neighborhood, you aren't gonna likely buy those products. And actually by the end of that first meeting, like by the end of you know the forty five minute conversation, I was actually pitching him uh doing it together. Really? So you were like, Hey, I think I wanna maybe work with you. Yeah. So If you looked at the two of us on paper,

you could not have imagined two different backgrounds. Like I grew up middle class in the Midwest. He grew up on a hippie commune in Ohio, California. You know, I went to Harvard, he dropped out of college to start his first company. But the complementarity, like those differences actually created this incredible complementarity where his yeah, I was really inspired by his creativity. And I was excited to work with him and I think vice versa. Alright, so so he

um eventually comes home from the stepping conference in Italy. And now I and that makes sense to me now that I know he's from Ohio'cause I've been there. I love Ohio A lot of spirituality and Krishna Murti was there and And so I get it. And he comes back. I guess this is the summer of twenty thirteen.

So what do you start to do? Like how do you start? So you know, he came down to Launchpad, we did a few meetings down there. I went up to Ohi. A house that was full of crystals and other things you might imagine. And We we just started jamming.

And I think from the you know, the first thing was what's the right business model. So we like we knew we were clear on the mission, but how do we actually make this happen? We threw out the group buying thing'cause that wasn't gonna work practically. But we kept the club. And we'd at that point we were studying Costco. uh where our Costco model is

If you pay uh a membership fee. then the retailer can pass on wholesale savings. To the club members. The more we studied Costco, the more incredible.

We realized their business was. And I mean you sorta know that if you're a consumer'cause you're like people are like rabidly passionate about Costco in this strange way, given what it what it looks like from the outside. Yeah. But when you actually get in and unpack the model, The idea of the pricing. the limited assortment. Like when you go into Costco, you're not in the everything store.

Right. They they have an order of magnitude fewer items in there. Which actually creates for a better discovery process. And and it of course creates for better economics on their side. Um, and then the other big thing on Costco is private label. So they're Kirkland brand. is, you know, high quality.

Lots of staples, people again love it, sort of almost irrationally so, and they did a fantastic job with that. So the the pillars of curated assortment, membership model to enable better pricing, and then private label to cut out steps in the supply chain. and introduce higher quality products that are also better pricing, that was kind of the trifecta. And so The idea was let's figure out a way to do a version of this, but it's gonna be entirely commerce. We'll have a curated selection of products. I have to assume that that also you're you're thinking we need to start with shelf stable things like

uh you know, oatmeal or granola or you know, or or crackers. Um the complication that we had is we weren't gonna build out a network of uh retail stores, which would take yeah, a decade plus. Uh we wanted to do it online. And so that meant that we, to your point, could not do the fresh products that you if you're shipping through a third party carrier, um, become very, very uh challenging. Yeah. So we decided let's focus on the dry sortment. That's half what people buy in the grocery store anyway. If they can save on all the non-perishable products that go in their pantry, their medicine cabinet, their cupboards. then you know, maybe they can spend more on higher quality produce and fresh items uh that they buy locally. Alright, so you guys

You start to kind of narrow down your model here. And By the fall. you officially you guys co found it, you you rename it. You rename it was called uh what was it called? Globe uh we went from from Shop Tribe.

to thrive to thrive market. Thrive market, okay. Yeah, that was actually the uh the brainchild of our third co founder. Uh Kate Mulling.

who came in, she had a background in brand and content. And one of the first things she said was, Shop Tribe won't do. Uh, which was, you know, we were already getting attached to it, so that was a a sobering, uh humbling moment. Um But ultimately, you know, came around to it about two months later.

Uh and change the to the right market. And so when you launched Did you guys self finance this? Because you had some money from the sale of your business and and have any cash to put in? Yeah, both of us had started and sold businesses. So the idea initially was we can self fund this for a while.

And then you know, we're two seasoned entrepreneurs with wins under our belt, we can go raise outside capital. Yeah. So this is all still, you know. a year out from launch. So you co found it in November of twenty thirteen, but you you're not gonna launch it's gonna be another year before you actually launch it. I'm wearing a lodge for a year. Okay. So it's gonna be a six month build to get the tech platform set up.

And how much money were you gonna put in? About uh I think I read about a quarter million you put in. A few hundred thousand dollars. Yeah. And We thought it would take six months to do the tech build. Did you hire an outside did you outsource the We hired an outside agency. We thought look, we know what we're doing, we've built companies before. Well in house it later, basically, was the ad was the attitude. Uh they'd build the whole kind of platform that we would use for

Yeah, back and front end e commerce. And I think we really underappreciated how um creative that process would be. And so, you know, the communication with them was challenging. The progress was slow.

And you know, four months in with you know target launch day rapidly approaching. uh it became very clear that we were not anywhere near um being ready. So you know, we weren't Product managers, didn't have a background in building an e commerce platform. We thought we knew what we needed, but the reality is we didn't.

And we probably didn't pick the right partner. So kind of on every level we set ourselves up for failure. And in retrospect predictably. Uh it was a complete train wreck. Why don't we come back in just a moment.

Now Nick and Gunnar finally make it to launch day. After first getting rejected by every single VC firm. They pitch. Stay with us, I'm Guy Raz, and you're listening to how I built this. Hey, welcome back to How I Built This. I'm Guy Raz.

So it's early 2014 and Nick and his co-founders are hoping to launch Thrive Market later in the year. But they're getting nervous that the contractor they hire to code their e-commerce platform might not be up to the job. We were four months in hundreds of thousands of dollars of development. And started getting the sense that we didn't have anything.

And so at that point I went back to the Managing partner at Launchpad. I said. We need help.

We're out of our depth, we've made these mistakes. I just sort of like Because we're desperate. Yeah. Not only have we spent a lot of money, but we're not going to be able to So we had the sunk cost, but we had nothing to show for it. Hm.

So like neither Gunnar nor I are technical. We didn't we couldn't even assess whether there was any progress being made. So I said, Look, we we like we I need the best technology person that you know of who has done things at this early stage, who knows e commerce, like who is this person? And like I need to hire them now. Mm. And so he uh he pointed us to Sasha. who was our who ended up being our fourth co founder. This is Sasha Siddhartha.

Sasha Siddhartha. And he came by and said, Look, I'll help you understand what you have here, what you build. Yeah. Um he went Spent two hours at the agency said you got nothing. Got nothing. Vaporware. Vaporware. Absolutely nothing.

You've spent hundreds of thousands of dollars on nothing? On on nothing. Did you get your money back? I know. No. No no money, no time back. Uh No confidence back. So deeply humbling.

borderline humiliating experience. And so the next question for us was how do we like where do we go from here? And the kind of non negotiable for Ganar and I was We need to have A CTO. So

We made an offer to Sasha. He said no. We made another offer. He said uh all invest and advise. And you know, we more or less locked him in a room and said, What's it gonna take? We yeah, we basically refuse to say no for an answer. He said all right.

Let's go. Let's do it. He came on as a co founder. Uh he in About ten weeks. Build.

For a fraction of the funds uh what we had failed to build over the prior, you know, four to six months. Uh and at that point we were Basically a month and a half behind schedule, but pretty good. Given where we'd sat a few months prior. And in meantime in the meantime, did you start to

Pitch investors to raise money? Yeah, so th that's the uh other humbling side of the stage of the business was we were Kind of starting in March or April, we said, All right. This is a twenty fourteen. Twenty fourteen. Yep. Things are going slower than we wanted. We're spending more money than we thought we would. And it's all our own. We need to bring in investors. So we thought, well, okay, we've we maybe haven't been as effective as we thought we would be building the site.

But Look, we're seasoned entrepreneurs, we have wins under our belt. Surely we can get investors to come support us and uh and get this thing on track. Uh we went to a bunch of VCs in San Francisco, we took a trip out to New York, we visited every VC that we could find in LA, and we got intros to most of them through Launchpad. And we were rejected. Every single time.

And so what were these VCs saying to you? Like w what was the problem? Why didn't they want to invest? So I think the the problem was they didn't understand the problem. That was the first problem. Yeah. So we're pitching Affluent mostly male.

Investors. Who live in uh have a whole foods within driving if not walking distance. and probably don't do their own shopping themselves. So for them, the question was how would you compete with whole foods? For us, the answer was

50% of people in this country don't live within driving distance of a Whole Foods, and even more of them can't afford the premiums, even if they do. And so that was that was like problem number one for us. Um, the second problem, which is totally on us, is we were very naive about the Operational complexity, the capital requirements. The margin challenges. of building an online retailer.

And I think the VCs, you know, if not having direct experience there, had heard the horror stories and said, you know, we'll do a D to C brand. That has a Yeah, single item. controls their supply chain. And you know, keeps a pretty simple operational business, but

Are we gonna fund a membership club that has thousands of products from hundreds of brands? And is trying to ship those all over the country. That sounds crazy. The other thing I can imagine they were sceptical about was if you were suggesting that your your target market. The audience you were going for were not affluent, but were people who were just

didn't have access to really healthy food. It's hard to make that case because affluent people just statistically tend to be the bigger consumers of healthy food. That's right. And I think their assumption was that was based on You know.

where the demand was. And our our hypothesis was that there's latent demand. Uh in parts of the country where they don't have access to a health food retailer.

And at sort of income brackets where they can't afford the price premium. And I had that experience because I grew up middle class in the Midwest and I saw how hard it was. Ah, I think we also didn't understand how difficult it was gonna be. And so, you know, a lot of the feedback, frankly, was really uh spot on. All right. So you went to how ha approximately how many

Dozens. Dozens. Um so you know, our confidence is waning, we're getting slapped in the face every day with no's from VCs. It was it was an existential moment. And so you ha still had money. I mean, you could have still poured more money into this, although you didn't want to deplete all the money that you made from your previous business. Presumably you wanted to have some cushion for yourself. So how are you gonna get the money?

So at that point we were pretty desperate. And we had been kind of the one bright spot. in terms of progress we've been making on the business was conversations we'd had with health and wellness influencers. So a friend of mine, John Durant, who I knew from college, had recently written a book called The Paleo Manifesto and become a thought leader of sorts in the

Yeah. He became friends with a bunch of other authors, bloggers early social media kind of folks at the time it was on Facebook. So

You know, he had introduced us to a number of these folks. We had talked about doing marketing with them. They were excited. They were engaged, they understood the mission. their audience was the target that we are going after people that are trying to get to this lifestyle, but it's really hard because of where they live or because of, you know, how expensive it is or whatever. So out of desperation we went to these people And side.

How about you invest too? And to our surprise, a lot of them said yes. You asked for checks, and and I know one of them was Mark Sisson of Primal Kitchen because that was the first one. That's right. First check. We met with Mark Sisson. At a coffee shop. in Malibu.

We walked in at that time, you know. all the background that I already described around where the development was, the rejections we'd have from VCs, our expectations were but could not have been lower. And he essentially wrote a check on the spot. Wow. So how many checks would you end up collecting and how big were these checks, by the way? They were all over the place. Um, many of the influencers had never written an angel check in their life. So we had, you know, our one of our first checks was from Wellness Mama. She was a at the time twenty six year old mother of four in rural Kentucky.

Huge audience, super authentic content. ended up being a huge promo partner for us. I remember we we had a call with her accountant who asked us what our ticker symbol was. Like, well, we're not quite there yet. Um so yeah, it was it was anywhere from five, ten, fifteen, sometimes twenty-five thousand dollars. I think Mark wrote a fifty thousand dollar check and that was probably

One of if not the biggest. Yeah. And and going to all these. wellness influencers, how much did you end up raising? So we raised a million and a half in the seed round. Wow. And then had more demands, we opened up a convertible note.

And ultimately brought in, you know. Hundreds of these people. So you raised all this money from basically many f first time investors. Oh I mean, the the upside is you don't have to deal with VCs. The downside is having VCs is actually really helpful because they're so experienced. That's right.

For us. Besides the fact that we actually got money which we needed and couldn't get any other way. was once they had skin in the game. Now we were able to work with these influencers as real partners. So they were on the same side of the table with us. They understood the story because they had underwritten it for their own investment.

They were already passionate about the mission. And when they did talk about us. uh to to their audiences, it was just that much more aligned from an incentive standpoint. So Um the other big benefit. Was that had we had VCs, uh, they didn't care about the mission. So their focus would be how do you make the business model work?

And and I think they would have looked at that in a very short term way. Uh the influencers cared only about the mission. And that allowed us to bake in things early that I think BCs probably would have vetoed. Like what? Like carbon neutral shipping. Like doing our own fulfillment so we could control the quality experience and use sustainable packaging. Carbon neutral shipping meaning you would buy credits.

We would buy credits for our carbon footprint and then we did from the very beginning a lot of things to write try to reduce that carbon footprint. The the biggest of which was absolutely prohibiting the use of air shipping. All ground shipping. All ground shipping, no expediting. creates carbon. There's still a carbon footprint there, no doubt.

Um, but it's you know an order of magnitude less than on a plane. And while you're'cause we're gonna get to the launch, which is in November of twenty fourteen, but while you are Preparing for it. Who are you negotiating with? Are you going to like Hain Celestial? Are you going to individual brands that only make one SKU? Are you like that's a lot of conversations. Yeah, we brought the more with more than four hundred brands in.

I can remember in the spring of that year, Ganar and I went to the natural products exposition west, which is the largest in Anaheim. The big one. Yep. Sixty five thousand people. So you just went and walked the floors and just started talking. We wash the floors and we just hit everyone up. And I think there as well.

We had uh the benefit of the mission really resonating. Like these brands like the influencers They understood. that there isn't a lot of access. They knew where their distribution was with brick and mortar. They knew who their consumers were, and they knew they weren't accessing middle class middle America. So for them, it was like wow From a business standpoint, we can access this whole new consumer set and from a mission standpoint, this is this is awesome.

So you had how many products did you have ready at launch? I think we had probably four thousand. Forty five hundred. And and where and so help me understand. What where did you find like where did you get a warehouse? Our warehouse was in our office. So the first office was in a Hare Krishna church. Uh we literally rented out the rectory in LA. In LA, in Venice.

and obviously not gonna ship out of there. So we, you know, looked around. This is still before we had been able to successfully raise money, and we found an old garage um that had been used for um you know like an auto mechanic shop. We moved in and when we did launch, we were working in the office during the day. And then packing boxes at night. And

I imagine you didn't have to spend a dime on marketing because y all y all your investors were were bloggers. That's right. This is kinda pre-Instagram influencer era. It's early, early days. Most of your Influencers

They were um they were Bloggers, right? Pre-Instagram, pre-Youtube. They were bloggers, they had email lists, they were in some cases best selling authors. And the first promo that we ran was with Katie Wells, uh whose whose site Wellness Mama was one of those. This is the blogger in Kentucky. Blogger in Kentucky, she's in her mid twenties, and She wrote a post. about Thrive and within twenty four hours we had orders coming in from all forty eight states in the continental US. Wow. Um it was, you know, way beyond what we expected. And it happened.

Way faster than we expected. Okay, so And how much was a membership? At the beginning. Sixty dollars at the beginning, sixty dollars today.

Sixty bucks. Okay. So it's I think it's similar to Costco. Not a coincidence. Yeah. And um so sixty bucks and Do you remember I mean you launched in November of twenty fourteen. Do you remember in the first full year of business how many

How much revenue g you guys did? Roughly. I think it was in the thirty million dollar range, so t tens of millions of dollars. Thirty million dollars in year one. Yeah. So we you know, we had gotten just

Ridiculed. left and right by investors when we went out with our projections. And I think our projections had us doing 15 million in the first year. So we doubled What we thought we would do. And and honestly, we were constrained, right? Operationally, we couldn't scale fast enough. Because you didn't have the capital. We didn't have the capital and we didn't have like at first we didn't have the facility, right? So our six thousand square foot warehouse was bursting at the seams within a a month and a half.

We moved to a forty thousand square foot building in Los Angeles, and that was uh bursting in the scenes within another six months. So it was very, very challenging to scale operationally. I mean your projections to investors a year earlier was was maybe we'll do fifteen million and most of them were skeptical. I would be skeptical. Doing thirty million in sales that y in that first year, I have to imagine you were profitable, very profitable. Not remotely.

Not remote. Not remotely. Not remotely profitable. So we you know we didn't know I think that this was the again the naivete coming in. We didn't realize how difficult it would be to do this profitably. So when you layered in the shipping costs. The packaging costs. The cost of goods. um for buying from all these brands at relatively low volume.

It was really, really challenging. Because shipping was free. It was it it was free for the customer. Shipping was free. Uh we had and still have a fifty dollar uh minimum order threshold.

Yeah. But it was at the time we were actually losing money. On each order. That went out the door. Which means the more that you grow The more money you lose.

Because every sale you might make money on a jar of peanut butter. But once you're shipping it, you're losing money. Yeah. Once you load in all the cost to get that order out the door. Every item ordered. is a negative margin. And did you expect that to happen?

Uh We did not expect that to happen. And the other challenge was just the speed at which we were scaling. You know, we Like

I mean at that point we were burning more than a million dollars a month. And so that was a challenge. When we come back in just a moment. how a marketing effort to win more customers completely derails. Leaving Nick and his co founders stuck.

With over a milyen dollars worth of Coconut oil. Stay with us, I'm Guy Raz, and you're listening to how I built this. Hello guy and HIVT team, my name is Robert Dale and I'm from Vancouver, Canada. My favorite episode was the Khan Academy episode with Sal Khan, and particularly there's a moment where he's describing a scene sitting in his driveway and he receives a call with some last minute funding. and he just breaks down into tears. And I found that was such a powerful moment because it really highlights the emotional roller coaster that it can be on the founders journey. And I've subsequently started my own company after listening to your podcast for many years. And it's really comforting to know that other people have gone through the same experiences.

um and that you're not in this alone. So thank you so much for all that you guys do. You have a wonderful show and you're inspiration to so many people. Thank you. If you want to share your favorite episode of how I built this, Record a short voice memo on your phone telling us your name, where you're from, what your favorite episode is, and why. a lot like the voice memo you just heard. And email it to us at hibt at id.wundery.com and we'll share your favorites right here in the At breaks in future episodes. And thanks so much. We love you guys. You're the best. And now Back to the show.

Hey, welcome back to How I Built This. I'm Guy Roz. So it's 2015 and the launch of Thrive Market has been a blowout success. The problem is, they are growing so fast that They're running out of cash. So we are bringing in as much money as we could, but that wasn't enough. We wanted to continue hammering the gas because it was working. And that was the time that we really got out over our skis. And what we did to solve the problem is we said, all right, now we gotta go back and raise more institutional money. And the conversations couldn't have been more different with the PCs. Like everyone that rejected us now wanted to invest.

And so we raised thirty million dollars. This is literally Six months to nine months later. Those s s same BCs are like wow. This is actually pretty interesting. Because you proved the model.

We prove the demand. We weren't as focused at that point on the model because we were so exhilarated. And I think V Cs uh especially that early stage. when they see that you've got a tiger by the tail in terms of growth.

They want in. And the challenge with that is we were not under any scrutiny. On the unit economics. We weren't under scrutiny to really make the business sustainable. And then we threw the hammer and tried to grow even faster.

To me I hear this story and I think, God, what a gift that they all rejected you. six to nine months earlier, because you would have taken pretty much any terms that they threw down. One hundred percent. You need the cash. Um, and he would have been diluted to you know Diluted to oblivion. And more importantly, we wouldn't have had the influencers to come in and actually drive that growth. So who knows whether we would have been as successful. Right. And so you would have had to pay for marketing and all kinds of social media strategies and and it might have worked, you know, but who knows? Now they're coming to you and you guys can call the shots. If they all want in

The terms are gonna be way better. So we created our own terms. The valuation was twenty times higher than it had been. Six months earlier. Wow. Uh we got to pick the V C to lead that we that we wanted. Um

And then we went back and Kept trying to grow. All right, so with thirty million dollars. You've got a huge war chest, and but the goal is don't worry about profitability, right? Because this was the model at the time. Just focus on growth. So

What did that mean for you guys? Yeah, I think the challenge was we were growing so fast and then when we raise that money on really advantageous terms. It just vindicated the strategy of grow, grow, grow. And so our approach was let's

Blow the doors out. We hired a hundred people. over the course of the next six months. We moved into a twenty five thousand square foot office. So this is like a over the top uh office with mirrors on the ceilings, uh under the con the floating conference room.

um, you know, everything you'd expect from an overfunded series A startup. Um we leaned into sort of crazy funnels where we would, you know, if you sign up for a trial membership, we'll give you a free jar of coconut oil. But that was actually the moment where the wheels almost came off. W what happened? Uh people that came in for a free jar of coconut oil. Were necessarily interested in being long term members. Oh, you you offered up like a trial membership for people? So at that at the time, every membership started with a trial.

And the funnel that we landed on that drove the most growth. was if you gave a free gift when you started your trial. So we would ship a jar of coconut oil. They didn't have to buy anything and they would get the membership free for the first month. How much did that cost you? It costs a lot, especially when we had to shut down the coconut oil program uh a few months later and got stuck with a million and a half dollars of coconut oil inventory.

So it was very expensive. You know. nominally you had the the member count growing through the roof. But under the surface. You know, the engagement of those members.

Wasn't what it needed to be. They didn't actually buy a membership. Or they bought the membership but then they didn't actually use the membership. I mean what was the path to profitability for you at that point? Was it To really pivot and to start making your own.

Products like the Kirkland model. Was that how you were gonna get there? So one of the first things we did there, w and like maybe one of the only good decisions we made at that stage of the business was to start working on private label. And so that rapidly grew to you know fifteen percent of our sales. What did you start to make? Uh the first product we made was olive oil. Yeah, the olive oil was single source from a uh fourth generation family farming Crete. different form factor coming in a tin instead of a bottle.

Um so we we innovated on the packaging, we innovated on the sourcing. at the beginning it was mostly staples, right? So those like the cooking staples, the snacks. Then we started creating new innovative products. Like one of our best selling products today is is called Fruit Circles, but it's basically healthier fruit only ingredient, fruit by the foot. Like a fruit roll up. Like a free roll.

How was the working relationship between U and Ganar. It was great. It was honestly Graham. You were the CEO and he was the what, COO or We were co CEOs, actually. Okay. And so through twenty s he stepped away from day to day in twenty seventeen.

Yeah, so it was a combination of really specific situation with his family his father had late stage cancer. And he wanted to spend more time with him. And then the other side of it, which you know, he and I talked a lot about and to his credit he was really open about was just sort of the business was changing so fast.

and the needs that kind of skill set that was required at that stage was was really different. Uh so we had this period after we raised the thirty million that we're going full speed. We grew way too fast. We made a lot of mistakes. What were some of the biggest mistakes you made?

One we hired way too fast. And when you hire that quickly, you can't integrate people effectively. you make mistakes in hiring in terms of fit. And that really caused us to suffer, uh because it's it's a lot easier to hire people than to fire them.

Uh we We're way too aggressive with marketing. uh we spent too much for individual members and did things like the coconut oil oil funnel. And then we just I think underestimated how difficult it was to scale operations. You know, you think about a technology business grows exponentially. But a physical goods online retail business is technology enabled, but fundamentally it's still an operating business. And we had to open warehouses, we had to grow our inventory.

And all of that was expensive and it was complex in a way that we just didn't appreciate until it it was upon us. I I wonder, given that you had all the influencers, at a certain point did their promotion of Thrive kind of fizzle out? At a certain point we had to sort of tell them to stop promoting. Because Because we couldn't handle the volume.

So we we were at that point just operationally really compromised. And as the business sort of continued to grow, we were approaching a hundred million dollar run rate. You know, we were dealing with One. How do we make sure we have enough capital?

Two. grow operationally into the demand that we now have. Um, and then just how do we keep the organization functioning effectively when we've brought on a hundred new people. And you know, people are kind of running around trying to do their job, but we haven't really been clear about what their job is. And

Uh, you know, we've got so much changing so quickly. As co founders, we didn't really know Like what what to do and when So

I mean you raise the series B and I think this is about h over a hundred million dollars. Yeah, and that was a turning point for the business. Because I mean there's a lot of money. It was a lot of money, so it gave us the runway.

To step back and think more long term. Um and then because the partner that we brought in. So we brought in a a group called the Invis Group. They're a evergreen fund. So they don't have a time frame where they're trying to sell a business. And they were the one group that we talked to at the series B that was sort of brutally honest with us.

about what was not working and that resonated. So it was it was strange, you know, at the series A you had a lot of ECs that are telling you everything you're doing right. At the series B We had this one investor that came in and said, Here are the things that you guys

And you know, as we looked in the mirror it was like yeah, you you're right. Did you find that you had to start to spend money on On advertising as well. At that point we were. Yeah, we were starting to spend money on paid media.

Yeah, and we were also at a scale where to keep growing at the rate we are growing. It was gonna require more than just the influencers. And the biggest thing though by far was Focusing on the quality of the product. in a way that made our members

the evangelists. So you know, our number one acquisition channel today is unpaid. It's referral. Mm-hmm. It's members telling members. Um and I think that was another place where we saw the mission. Made people want to evangelize more when they felt good about the what you know things that we were doing with packaging and shipping policies. when they knew their membership was sponsoring one for a low income family.

Yeah, let me let me ask you about that,'cause then you uh you buy membership and you can and s and then you guys sponsor membership for low income family. It's a buy one, give one model. Yep, and that was you know, that was one that we was also very popular at the time. Tom Shoes was another LA company. uh doing that. Orby Parker, yep.

Yeah, for us we looked at it and said, Look, the membership is all margin. So we can give away memberships all day. to folks that wouldn't otherwise be able to afford them. And you know, the and the initial model was low income families, but we eventually expanded it to teachers, to students. uh to first responders and to military veterans.

But I also wonder and again, there's nothing wrong with it, I uh'cause I I I I'll just put my cards on the table. I think that the role of a business is to make money. for the business, for its its employees. for its investors and to provide a great service to consumers, right? And so Um

If you stopped doing these programs, if you stopped carbon neutral shipping, if you stopped Buy one membership will give one to somebody in need. Do you think it would have any impact on your business, your bottom line? Um, in the short term, some of these programs cost money, so it might have a positive impact. I think in the medium to long term.

It would have a massively negative impact. on the member perception and member loyalty. on our ability to tract attract great employees who come to thrive first and foremost because they believe in the mission. And on our ability to think long term, like that mission is what galvanizes our entire company. And I think it is the reason why members not only purchase on site, but also evangelize.

And I think we've also been really we tried to be really smart about looking for opportunities to invest in the mission that are not zero sum with the bottom line. Like I said, with the gives memberships, when we donate a membership, that doesn't cost us anything. Right. But yet it brings someone on platform who now can purchase and the business will make money from that. So roughly how many I don't know if you publicly reveal this, but how many members do you have? Over one point five million.

One point five million paid members. Wow. So that alone is ninety million dollars a year in revenue. That's right. And then uh I guess you know Uh hundreds of millions of dollars in sales a year, presumably. Yeah, w well over half a billion in sales uh last year and and

our members every year. are getting more active on site. And where we invest today. is how do we just deliver overwhelming value to those members so that the value is growing every single year. How close are you to being profitable? You launched in twenty fourteen, we're now twenty twenty four. We were profitable last year. You're profitable as you wrap. Yeah, so we're running the business profitably.

Operating cash flow positive. And back at that those early days, you know, we were losing money on every order. Today we're making significant contribution margin overall. Well. Is there a world where you would uh

explore a sale, like, you know, Zappos was sold to Amazon. And still zappos. Um, is there a world where you would um be a standalone company as part of a bigger company? I think we see a really clear path as a standalone business. the membership renewal rates are over seventy percent.

We're still bringing in new members at a really rapid clip. And we're still very early in that journey. So we don't see any need to to become part of a larger business. To date we see the the clear path as continue to do what we're doing. And continue to grow.

both the profitability and the revenue. When you think about About your the journey you took, right, and where you are now. Where this business is now. How much of of the success of this do you think has to do with the the work you put in and and how much do you think has to do with the timing and and just the luck of

and fortune and Chance. I think it's a combination of all of the above. I do believe that Staying at it and being flexible in your tactics.

and willing to adjust and respond to the facts on the ground. Is everything with entrepreneurship because you know best life plans will be will just be wrong.

Uh every single time. So that approach I think is which is probably a combination of luck and work has has really worked for us. I think For us the mission. Again, being clear on where we're going has made us very flexible in how we get there.

That's Nick Green, co founder and CEO Of Thrive Market. By the way, remember the story about all that coconut oil that Nick got stuck with after that failed marketing campaign? Well they were eventually able to offload it. They sold some, gave some of it away to customers, and donated about a hundred thousand jars to charity.

Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always. It's free. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, sign up for my newsletter at gyros.com. This episode was researched and produced by Casey Herman and Catherine Seifer, with music composed by Ramteen Arabli. It was edited by Neva Grant with engineering help from Robert Rodriguez and Gilly Moon. Our production staff also includes JC Howard, Sam Paulson, Carrie Thompson, Alex Chung, John Isabella, Chris Massini, Carla Esteves, and Elaine Coates. I'm Guy Roz, and you've been listening.

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