Startup Exits Podcast with Josh Hix, founder of Plated
Founder of Plated
We chat with Josh about
- Do you need a business degree to start your own company?
- Should founders be passionate about the problem they’re solving?
- Is it good for a startup to have competitors?
- Startup financing: credit card debt and raising from angels
- Shark Tank experience for startup founders
- The right network and good timing can lead to an acquisition
- The future of food tech
Josh is currently laying low and exploring new startup ideas.
ANDREW VASYLYK: Hey everybody. This is your host Andrew Vasylyk and you’re listening to Startup Exits, where we chat with founders that started, ran and sold a tech company to learn about how it all went down.
Today I’m joined by Josh Hix, who is a co-founder of Plated. Welcome to the show, Josh.
JOSH HIX: Thank you. Thanks for having me.
VASYLYK: Plated is a meal kit service company – one of the biggest and one of the best in the game. Just after five years of being in business, the company was acquired by Albertsons for somewhere around $300 million. So a very-very successful story, Josh, but first I want to start off with the early days of your entrepreneurial journey.
You did your MBA at Harvard and a lot of people with an MBA often choose the corporate path. In your case you chose startups. What made you want to choose entrepreneurship/startups over going corporate?
HIX: Well first off, thanks for the kind words Andrew. It’s good that you start with early experiences, I like to say that Plated was a standard “fifteen-year overnight success”. I started working in around startups in college, I was in college through the dot-com bubble and was building software along with other tech products. Furthermore, I was really paying my way through school doing that. Then one of those small projects turned into my first company back in 2003.
Years before Harvard Business School, I was out making all of the worst mistakes you could possibly make. I’m happy I did that early in life. Not to say that I’m still not making plenty of them but hopefully I’ve made the really big ones and won’t make them again. So at HP, by the time I was there, I had never done anything but startups and working in tech.
Actually, I briefly went into finance afterwards which was a helpful experience. I learned a lot and met a lot of smart people. It was good for me to see a different size and style of the company. But very quickly I realized that I was best and most comfortable in building and running teams within technology companies.
So [running startups] wasn’t much of a choice for me.
Do you need a business degree to start your own company?
VASYLYK: Looks like you got started with startups before you went into business school and I know there’s probably a lot of people out there that are thinking about starting their own company and also thinking about doing their BBA and/or MBA.
Would you say that a business degree was valuable to you in your startup career?
HIX: I would say the business degree is fine, it’s not the only piece of paper but also it’s the experience along with meeting all the people. It’s somewhat of a truism, but it’s the network that you get from an MBA. I met a lot of really smart people, and I certainly don’t mean just being able to call people working at investment firms when you are in need of help or capital, I mean just the life experience of having met a much broader set of people. My experience with pre-MBA was in Georgia Tech, which was a phenomenal engineering education, but it was only one experience and was heavily technology. [By me] living in mostly small cities then, business school exposed me an international crowd that I never really had any real exposure to.
The life lessons contained in that were invaluable to me.
VASYLYK: I could definitely see that especially in a place like Harvard.
There’s an interesting and somewhat controversial argument that I’ve once heard against getting an MBA if you want to create your own startup. The reasoning behind the argument was that going through business school, and maybe more broadly school in general, could put you in a rigid and structured way of thinking about things, which is the opposite of how startups and founders should be thinking.
Obviously business school as you mentioned has worked out incredibly well for you and you met your co-founder Nick at Harvard – but do you think that there’s any merit to this argument?
HIX: No, I think any overly broad statements kind of fall down. The idea that business school would be great for everybody is equally as silly. The idea that categorically going to business school, law school or engineering school or anything else for that matter would be categorically good or bad – I find it’s just sort of a shallow thought.
Obviously, there are lots of different cuts of data and certainly some research around startup formation suggests that a lot of valuable companies get started by people later in their career, in their 30s and 40s. I would be hard-pressed to disagree that if you spend 20 years of your adult life in Corporate America, you’re faced with a level of structure being introduced to your thinking.
Nothing’s for everybody but you’ve got to figure it out and understand what you want out of any experience. For me, Business School was just in this case. Anyway, I certainly don’t think it’s categorically bad, and at least for me it was great.
VASYLYK: Yeah, I definitely agree with what you said about successful entrepreneurship being typically people that are in their 40s and 30s. When people think of a successful startup, they sometimes think of the Facebook story – a college dropout goes on to build a huge company. But, in reality, as you mentioned it’s people that have been in a certain career for a while, and they see a significant problem and they solve it.
So after you did your MBA, you started Plated – a huge company that everybody knows. Before you started Plated, you founded a company called PlusScrn – it’s a mobile platform which was acquired in the first year of being in business. How did this happen?
HIX: PlusScrn was really more a product than a business. We hadn’t gotten to building the business part yet.
So a good friend of mine in college and I got together, we had some time on our hands so we wanted to build something together and we were really just enjoying the process of building as much as anything else.
We were building some software that was helpful in a horizontal, broad sense – it was a kind of a mobile web offering tool with no real business model. We had some guesses but no real sense of how we’d commercialize it, monetize it or anything else. Pretty early we started bumping into people in the tech industry, which we didn’t know basically anything about, nevertheless we were very excited about the capabilities.
It quickly became clear that the right thing to do was to sell the business, which in fact, was selling the product. It wasn’t a huge outcome, but still it was great for everybody involved in business as they got a huge amounts of learning.
It may sound cliche, but if not learning and enjoying it at some point, it all stops being worth it.
Should founders be passionate about the problem they’re solving?
VASYLYK: This looks like it was a pretty early stage exit. A couple of months after the sale of PlusScrn, you started Plated.
Talk to me about how were the early days with Plated – how did you guys come up with idea and what sort of problems did you want to solve?
HIX: I and my co-founder, Nick Taranto, had met in business school. We’ve been friends for four years at this point. Before getting together with the Plated business concept, we’ve been talking about new business ideas for years. But I had never done anything about it and decided that we had the opportunity. Maybe it was the last one, maybe it was now or never.
In any case, it was the right time. But we had no idea what we were going to build. So we locked ourselves in Nick’s apartment, which his wife didn’t enjoy, but thankfully she let us use the place for six months to figure out what we wanted to build. We wanted to be disciplined about it and tried to go through some structured thinking around what do we care about. In my opinion, you do have to care about what you’re building to get through the tough days, so we thought about what we cared about and what interested us – health, wellness and nutrition.
The place where those things intersect was where our early thinking was at, along with looking for places where there was an opportunity. Essentially, it can be really helpful looking for areas where there wasn’t a lot of startup activities or a lot of corporate investment. Even just reading the public filings of companies from sectors you’re interested in might be helpful.
Starting the hundredth “me too” company is not a great idea – certainly very difficult. Looking for areas where there wasn’t a lot of startup activity, where there wasn’t a lot of corporate investment or even just reading the public filings of companies in the sector that you’re interested in. It can be really helpful.
After putting together things that we were excited about that seemed to have the opportunity for innovation, this led us to food and nutrition. We were excited about the idea of helping people really eat better, to be healthier and to live better. Eventually that evolved us into meal kits in context of the first versions of Plated.
Is it good for a startup to have competitors?
VASYLYK: This was in 2012, which was around the time where some of your competitors were getting started as well – HelloFresh was like a year earlier, and Blue Apron was, if I’m not mistaken, the same year.
Were you aware of the competitors at that point or was it all too early stage, market wise?
HIX: So we were not aware of HelloFresh as they were, as far as I know, still only in Europe. Blue Apron started after us, so there was no way to be aware of them.
But looking back at it, it’s kind of fun and crazy to think about it in 2019. Essentially, in the summer of 2012, when we got started, there was really nothing happening in food. Obviously, only a few bright entrepreneurs were working on other food businesses, direct competitors and otherwise. But there wasn’t a lot going on there.
There’s just so much happening today – whether it’s alternative proteins or the delivery platforms, battery farms and indoor farming or other approaches that take place in the food industry today – they virtually weren’t happening back then. So I believe it was a reasonable way to think about it is that there were no “food tech” conferences, I’m pretty sure that label hadn’t been invented or applied to anything yet.
[So for us], it was a relatively easy decision to get started with Plated due to the lack of innovation and competition.
That was where we were and we got excited enough to take the leap.
VASYLYK: How do you look at competition in general? On one side, some people say that competition is good because of idea validation and there’s a lot of things that you can learn from your competitors. On the one hand, other people suggest to work on things where there are no competitors or to even create new markets.
When starting a new company, how do you look at competition in general? Is having competitors a good thing? What are your thoughts on that?
HIX: If I had to pick, I would absolutely start something with no competition. I can’t imagine a rational argument for wanting competition. Broadly speaking, it’s what makes capitalism work and lots of very positive things work, but for your company you should want to not have competition. In general, I do agree that if there’s no one working in the area you’re working, it’s harder to believe that there’s a real opportunity there.
In our case, we had hardly any competition in the form of other startups. Clearly, people were buying food and grocery stores were our competition in a sense. It depends on how you frame it, but overall, less competition is definitely better for you. We felt the margin pressure, the customer acquisition cost pressure, we felt all of these things.
We did try to take a page out of the Amazon playbook and focus on the customer and not the competition, which is not always easy but I strongly believe that unless there are network effects in your business or there’s some reason to believe it’s gonna be winner-take-all, you shouldn’t be focused on the competition because it’s your customers that are deciding whether you stay in business or not.
VASYLYK: So, you decided to go to the meal kit path and you started Plated. I find that in the very early stages of a startup, the excitement level of the founders is through the roof. At least that’s what I’ve found with myself. But reality sets in pretty quickly, typically when you launch or you start getting some real feedback from customers, the world of hurt just starts to begin.
Was that a similar experience for you in the early stages? Did you have a lot of difficulties or were things more smooth for you?
HIX: We had more difficulties than we could have possibly imagined. I mean, we were very excited and very passionate about the space and the product and everything. Having been through a handful of startup experiences between us before, we knew better than Pollyanna about what was going on.
Now, we severely estimated how hard it is going to be. Back then, we had a very difficult time raising money. We had a number of times we were close to running out of money. Even in the very early days, we actually launched on the day that Hurricane Sandy hit New York, so we were nearly within several inches of being flooded out of business before beginning.
We had every problem imaginable.
Startup financing: credit card debt and raising from angels
VASYLYK: I think I read somewhere that you and Nick, before you raised capital, got yourself into a lot of credit card debt. Is that a true story?
HIX: Just to begin with, we had a very healthy amount of student loan debt. So that is certainly one of the downsides to an MBA or any undergrad graduate school of any kind. We started pretty far in the hole, and then to fund the business credit cards were oftentimes the only method. So we were 200% into the business.
VASYLYK: Hits very close to home for me. The same story when my brother and I started our first company, we also maxed out everything we possibly could, from credit cards to lines of credit, just everything.
How and when did you guys raise your first round?
HIX: You know it’s a good story.
So we spent several months pitching anyone that would take it, anyone that would listen to us. It took us about 200 pitches to get to a “Yes”. And it actually turned out to be that luck really does play a huge part in all this and being prepared allows you to be ready for the next lucky event.
In any case, we got to introduce to a group of Israeli angels out in Silicon Valley who had just sold a business and were going through their vesting and integration period which meant they couldn’t leave and work on the next thing. But they had been talking about something very similar to Plated, which meant that they got it. They were passionate, they were entrepreneurs and operators, and we’re willing to take the entrepreneurial leap with us. So after months and months of day in and day out, just having doors slammed in our faces, we finally met these guys and they very quickly said yes.
Shark Tank experience for startup founders
VASYLYK: On the topic of raising capital – 2 years after getting started in 2014 you went through Shark Tank. What was the main motivation behind going through Shark Tank?
HIX: Well, probably obvious but there are two things you get out of it, other than just a lot of fun. It was just a fun life experience to go out and sort of do the TV thing and meet a bunch of interesting people, other entrepreneurs and the Sharks. That was all worth doing, even if we got no money and even if it were never aired.
But the two main reasons [for going on Shark Tank] are to raise capital and to get PR. For those two things it’s very worth it. There’s something like 11 million households that watch it and it stands very high profile plus it’s advertising value is very high. Clearly every one of the Sharks has a pretty big balance sheet and is investing, so if you find the right person it can be very helpful too.
VASYLYK: Yeah, and you guys got an offer from Mark Cuban that then fell through, but sometime later you eventually accept the capital from Kevin O’Leary*. If I’m not mistaken, he made back over 1000% on the investment, so I think it was a pretty positive outcome for both the Sharks and the founders.
Besides PR, like you mentioned you got a lot of PR from Shark Tank, how did you structured the marketing for your DTC company? How was marketing set up for Plated?
HIX: Well, we always thought that it was best to have it in-house, so we built the team in-house. We had some agency partners and worked with a number of different people over the years.
But in the end, it was a competitive advantage in a core part of the business. So we built the team internally and had a fairly traditional team structure – a handful of digital marketing folks, handful of brand marketing folks and some offline people running TV.
We just tried to be as data-driven as we could be. I’m sure we got that sometimes wrong and it’s not exactly an original thought, but I think that the magic is in the execution and we just tried to do as much testing and learning as we could to figure out who the best customers were and how we could best reach them. Those things evolve and move over time especially in the channel front.
The way we used to describe it to investors was by if you would come into our office buying media or running ads, it looked an awful lot like a trading desk at a hedge fund. It was all just metrics. The brand folks had built the creative, and we’re making sure that everything was going to resonate with the customer, but when it came time to actually do the ad buys it was highly quantitative.
The right network and good timing can lead to an acquisition
VASYLYK: I think you touched on it in your article that paid ads on Facebook or Instagram are great as it’s pretty easy to scale up. But as time goes on, it becomes less and less effective and becomes more and more expensive. So it’s important to have a balanced strategy with multiple channels.
Let’s switch gears to the acquisition. So 5 years after the company was started in 2013 you guys got acquired by Albertsons. It was a reported $300 million deal. What was fascinating to me is that you mentioned it was all done in 90 days, which is very short compared to what it typically takes. How come so fast?
HIX: It’s a good question and I think the answer is similar to a different question that people ask – how did you build and sell the company so fast. The answer to that is that in a lot of ways, it took 15 years to get to a place where Nick and I had enough experience to build a big business.
I think it’s a similar thought here. It was 90 days, but we had been getting to know all the major grocery companies and grocery exacts for probably 4 years. In the second year we started just regularly making sure that we were getting to know and spending some amount of time with anybody that would be relevant because we were trying to distribute our product for their stores. We always thought that selling meal kits through the grocery stores would be important. We could never sort of negotiate the right deal, it’s a tough industry. Historically it’s not been that fast moving so it was kind of very slow business development process.
But in the summer of 2017, when Amazon bought Whole Foods, there was more urgency in the industry than there had been maybe ever, certainly a long time. So when that happened, the fact that we knew all these people, we didn’t go from dating to married 90 days. We’ve been talking to all these people for a long time and that really was the key point. I think it applies for investors and certainly applies to picking co-founders and kind of these relationships. Spending time, getting to know people sound obvious but it’s important and sometimes very valuable too.
VASYLYK: Yeah, most of the acquisitions start off as relationships in one way or another. Did Plated and Albertans have any sort of partnership before the acquisition or was it just more like “Hey guys, this is what we’re doing we want to get to know you.” Was it more official as far first partnership goes?
HIX: Nothing more official. We didn’t have anything more official with any of the major chains.
VASYLYK: How was that transition like after the acquisition to Albertsons?
HIX: It was an interesting transition from a 5 year old company, which is pretty young but had grown very fast. So we went from the 2 of us to roughly 1,300 employees which meant that we had a lot of systems and policies along with everything else that were still being created in a lot of ways within young organization based in New York and entirely online. We partnered up with a very storied, mature, very large organization with multiple hundreds of thousands of employees, twenty-five hundred stores around the country and almost entirely offline in retail.
It was so complementary but very different and I think required both sides to learn a lot, which was the point in a lot of ways. But it was definitely another steep learning curve. The first six months felt a lot different in some ways, but similar in a lot of ways – just in terms of learning and the pace of activity along with everything else and also having to climb the learning curve to retail, which we knew very little about.
The future of food tech
VASYLYK: I want to talk to you a bit about the future of food tech, as a very broad category, as well as the future for yourself.
Do you have any predictions for food tech for the next 5 or 10 years? What sort of things do you think we can anticipate?
HIX: I wish I had better thoughts. It’s always been a funny question to me because as all the entrepreneurs out there will appreciate when you’re building your business, you hardly have time to think about your dog or your kids, much less new ideas. So I don’t know that I have any real insightful thoughts there.
I think all the big trends will continue as people generally want healthier, fresher food. I think that the “better for you” categories will do well. I think there’s a lot of innovation to come in the supply chain, especially for perishables, although exactly how that will play out, I don’t know. It’s a tremendous industry, it had a lot of problems and a lot of ways both from a business standpoint, I mean a lot of food is relatively low margin and challenging. It’s also starting to become somewhat of a public health crisis in terms of weight and diabetes, metabolic problems and everything else that reports nutrition – the effects that poor nutrition is having on the country. Healthcare costs are obviously wildly out of control. So I think there’s an obvious mentioning things in the more functional food kind of area but none of that’s particularly original.
VASYLYK: The supply chain, distribution and logistics for perishable food is something that I’ve found fascinating. How does that happen? How did you guys take care of that at Plated?
HIX: We were using a very large, pre-existing network of suppliers and then trying to partner with them to change things in the way we needed them to be changed. Obviously there’s a huge network of logistics and suppliers and everything else out there. I mean every restaurant plugs into this network. We were the same, we started out looking, effectively like a restaurant, to the various produce suppliers meat suppliers etc…
But it’s a huge industry where we’re all eating several times a day. It’s not the most efficient, there’s a lot of waste and a lot of systems that are still offline or relatively offline, on spreadsheets or clipboards. But there’s also a lot that’s been happening over the last few years that I don’t think I’m particularly current on.
VASYLYK: On the topic of the future of food tech, what sort of big barriers that are in the industry now they need to be overcome before we see any sort of radical innovation?
HIX: Oh, that’s a good question. I might say distribution. I think it’s as hard as it’s ever been to build a big audience of consumers. Even if you have the best product in the world, building an audience and building a business is tough.
VASYLYK: Distribution from a marketing perspective or logistics?
HIX: Marketing perspective.
VASYLYK: Okay. Got it. As far as yourself, the future of Josh Hix – do you see yourself starting a new company in the future or you want to lay low for a little while?
HIX: The plan is to start my own company. That’s what I enjoy the most and there’s certainly lots of big problems left to work on. But what that is and when, I don’t know.
VASYLYK: Do you have any plans of going back into food tech or maybe start something a little bit different? Or it’s all up in the air?
HIX: It’s all up in the air. You know, I like the food, both as a business and as a consumer. I like markets that are big and impactful for people, but those are pretty broad statements, so we’ll see. It needs to be the right opportunity – something I am passionate about and I feel like I can build a successful business, but also a big enough opportunity. So we will see, as there are a lot of work to do.
VASYLYK: You’ve got 2 successful companies under your belt, so we hope to see another success story in the future.
Thanks a lot, Josh, for being on the show. It was a pleasure.
HIX: I appreciate that.