A Product Market Fit Show | Startup Podcast for Founders
Every founder has 1 goal: find product-market fit. We interview the world's most successful startup founders on the 0 to 1 part of their journeys. We've had the founders of Reddit, Gusto, Rappi, Glean, Cohere, Huntress, ID.me and many more.
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A Product Market Fit Show | Startup Podcast for Founders
He raised $30M & failed. Then raised $0 & grew to $550M in revenue. Here's what he learned. | Mike Salguero, Founder of Butcherbox
Mike first raised $30M for a marketplace that never truly had product-market fit. Then he bet only $10K on ButcherBox. A few years later, he's doing $550M in revenue and he's profitable.
The difference is in his first startup he was just catering to investors— in his second one only to customers. If you’re an early founder chasing growth, listen to how Mike ditched vanity metrics, found sustainable traction, and grew ButcherBox past $500M in revenue—with no outside funding.
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Why You Should Listen
1. Why not raising can often be a powerful forcing function.
2. Why what VCs want is often not the same as what customers want.
3. How to differentiate in what seems like a commoditized market.
4. Why there is no stronger force in startups than true product-market fit.
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Keywords
product market fit, bootstrapping, butcherbox, direct to consumer, CPG subscription, grass fed beef, founder lessons, Kickstarter, food startup, early stage founder
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(00:00:00) Mastering the VC Game
(00:01:45) How I Raised $30M Without Product Market Fit
(00:08:21) Why my VC-backed Startup Failed
(00:15:34) Growing Revenue but Losing Money
(00:28:07) Early Signals of Real Product Market Fit
(00:34:59) Solving Supply Chain to Scale ButcherBox
(00:39:43) Bootstrapping to $550M (The Power of Constraints)
(00:51:18) Product Market Fit from Day One
(00:52:42) Why Founders Need a Lifestyle Plan
Mike Salguero (00:00):
You know, that's like a strategy of manufacturing FOMO so that the VC wants in on the next one, because the best thing you can say to a VC is no. Despite the fact that we were able to raise money, we actually didn't have product-market fit. And I think oftentimes entrepreneurs, they focus too much on building a business plan- like, oh, this is what we're going to do- instead of thinking about the lifestyle they want or the business that they want to have. No, it's- I mean, I think it's the great lie of entrepreneurship. There are a few great lies of entrepreneurship, and one of them is that you can't grow a big company without raising a bunch of money. I think that founders generally focus too much on their business plan and not enough on their lifestyle plan. So what I tell people to do is vision three years in the future and write down what that looks like. No, I was not fine. I felt like a total failure. The next year, we did $5 million. The year after, we did $33 million. The year after that, we did $105 million. Then we did $225 million. Then we did $450 million, which was COVID. So we went $225 million to $450 million, and then, $550 million and $560 million.
Previous Guests (01:14):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean the name of the show is product market fit.
Pablo Srugo (01:26):
Think back to the last few months, the last few years as you've been running the startup. How many different founders have helped you out? The reality is founders help each other out. That's just who founders are. They pay it forward. So help a founder out. Take literally five second - take your phone out of your pocket and hit five stars. Well, Mike, welcome to the show, man.
Mike Salguero (01:45):
Yeah, thank you for having me.
Pablo Srugo (01:46):
Dude, so I mean, you have two businesses, very different ones. I mean, the first one was like a venture-backed business, $30 million in VC, and ultimately it failed. And then the second one, you put $10K of your own money, and now you grew it profitably to like half a billion dollars in revenue. So two very different paths, two very different outcomes. And we'll talk about both of them. So maybe tell me, like, let's start with that. Like, what was kind of the first, the VC-backed business process? Where did the idea come from? Give me kind of some of the context.
Mike Salguero (02:17):
Yeah, and I think if you look at the two businesses, what I will explain to you is the remarkable difference of product market fit. And when you have product market fit and you know you have product market fit, what that looks like versus not having product market fit. My first business was a business called custommade.com. My best friend Seth and I started the company. We actually purchased a website, custommade.com, from a woodworker. It was a woodworker listing service. So it's kind of like Yellow Pages, but with photos and portfolio.
Pablo Srugo (02:47):
And what year was this?
Mike Salguero (02:48):
2008. So the initial thesis was, you know, you talk to these woodworkers about their experience on Custom Made, and they're like, I get all my business from custommade.com, and I only pay thirty-five dollars a year for a subscription. So our idea was like, buy it, rehab it, and, you know, basically jack up the rents, and we'd have an interesting business on our hands. We called it a shack in Manhattan because it was essentially really great real estate, tons of inbound traffic, anyone searching for anything custom, but it was under-monetized. So we bought it. And one thing led to another. I mean, fast forward a few years, we decided that we wanted to build a marketplace, and so the idea was that a customer could post something that they wanted custom, whether that was a bookshelf or, at that point, we'd gone into jewelry and ceramics and glass art and a whole bunch of other stuff. The customer would describe what they were looking for, and then makers would bid on the project. Pretty interesting idea. So it's kind of like Upwork, where you'd say, I'm looking for a copywriter and then get a bunch of bids from people, except this was for custom stuff. And we went out to raise money and found some venture capitalists who were really excited about the idea of building a marketplace.
Pablo Srugo (04:05):
And what was happening, by the way, at the original business. Was it doing well? Why did you want to kind of add on this marketplace element?
Mike Salguero (04:12):
I mean, to be honest, looking back, it was the only way that we'd be able to raise money. So we went out trying to raise money. Why did we raise money? Because everyone else seemed like they were raising money. We're like, well, it seems like you're supposed to raise money for these things. So we had built a pretty interesting business. It was probably about a half a million dollar business, just a subscription business. And then we're like, we should go raise money. And so…
Pablo Srugo (04:35):
And this is like, what, 2010, 2012?
Mike Salguero (04:37):
Yeah, starting in 2010, but we ended up closing in 2011. When we went out to raise money, basically, it's like a woodworker listing service. And I live in Boston, which is traditionally a very conservative venture capital community. And people are like, woodworker listing service? Like, no way. Like, I need a billion-dollar exit. That's not... that's not exciting for me. But there was this moment where, you know, you talk about product market fit. I guess I found it with my venture capitalists. There was a moment where I was in a meeting. We talked about this feature where people could post projects and makers could bid on them. And it wasn't yet—we weren't yet doing anything with it, other than just it was a service for people who were subscribing. If you were a maker on our site and you subscribed, you could go bid on these jobs. And I was like, all we have to do is stand in between these transactions, and we can be the largest marketplace for custom stuff. And in 2011, as soon as I said the word "marketplace," it's kind of like the AI of today. As soon as I said the word "marketplace," everyone wanted in on the deal.
Pablo Srugo (05:45):
Was this two, three years after Airbnb, after Uber?
Mike Salguero (05:47):
Correct. It was like, oh, marketplace, like you could be the next Airbnb. And we were like, yeah. And that then started the ride of really building something that did not have product market fit, but it had product market fit with our venture capitalists. But ultimately, we built a great—you know, we raised $2 million from Google, First Round Capital, a whole bunch of angels and stuff like that. Four months later, we raised another $4 million. A year later, we raised $10 million. Actually, it was $18 million total between secondary debt and equity. We raised about $30 million all told. But the idea was great. It would have been a really cool business. But the reality was that in order to customize anything, whether it’s an engagement ring or a dining room table, it requires a tremendous amount of back and forth between the consumer and the maker. And because we were extracting a 10% fee from this process, we wanted to be involved in all the communication. So don’t call them at their number or call them through this other number. Don’t write to them on their email address. And so the makers would be like, hey, just write me here. And then we’d be policing that and all this stuff. And the problem was that we never actually solved the problem of buying custom stuff as hard, and like, we wanted to make it easier. We just actually introduced more friction into the mix. So we didn’t have product market fit. We had a lot of domain authority. We had a lot of customers coming in. We had a lot of people saying stuff that they wanted custom. But we didn’t solve any problems for the makers. And it was just not a great business. My co-founder actually still runs the company. We ended up closing it, doing a foreclosure. He took it out of bankruptcy, pivoted it to a jewelry site where they do all the work. And now, if you want a custom wedding band or an engagement ring or bracelet or necklace, you go to custommade.com, say what you’re looking for, and they have designers on staff who will help you create what you want. And then they go and build it. Much better business. And now it’s doing great because we’re not playing this marketplace thing. So, you know, I spent $30 million, I threw at least 100 people at the idea. We had Google, we had First Round Capital—top shelf VCs.
Pablo Srugo (08:14):
Walk me through in more detail, maybe that, like, especially post-funding. I mean, my first question was just, did you believe? Because I’ve been in that game too, where you’re just trying to create stories that will resonate and get you the money, that you build whatever. Like, did you believe that the marketplace idea at the beginning, that it would really work, that that was the thing? Or was it just more like, well, it’ll get money in the door, and then we’ll figure it out?
Mike Salguero (08:40):
No, I mean, I believed it. I believed it. I mean, the thing that was always incredibly attractive about custommade.com was all of the inbound organic traffic. So the site was started in 1996 by a woodworker, and it had woodworking content on it from 1996. And back in like 2008 through 2015, when we ultimately closed the doors, Google—their domain authority for words in your URL, like "custom made," and then content like age of website—1996 is an eternity ago. It was kind of the beginning of the internet. Those two things caused us to have, like, millions of visitors to our website.
Pablo Srugo (09:25):
Like a month?
Mike Salguero (09:26):
Yeah, I think it was like two and a half to three million visitors a month to our website.
Pablo Srugo (09:28):
Oh, wow.
Mike Salguero (09:29):
So you didn't have to believe much. It was like, dude, all we have to do is just convert 1% of these people, and we've got a massive business on our hands. You didn't have to believe much. And we thought it was going to be a good product market fit because on the maker side, you know, the previous business was a subscription business. So a maker calls in, or we call a maker. "Hey, you make these custom bookshelves. We think you'd be great for the website." "Well, how do I know I’m going to get any work?" "Well, you know, we can point you to references, but ultimately, you just kind of have to take a risk and put your name out there." And they're like, "Well, I don't even have $500, right? And so it became this—like, it was hard to continue to sell people on the dream of work versus saying, like, you know what, we'll just stand in between you and the consumer, and we'll take a fee. And so you only have to pay us when you get paid. Now, the problem was that I used to call it the furniture show phenomenon. Like, if you ever go to a craft fair or a furniture show, usually these artisans are not selling their products—they're sitting down doing a crossword puzzle, and they’re not actively like, "Hey, check out my work here." And that’s because oftentimes they’re introverted, oftentimes they’re really into their craft. If you're going to be an expert woodworker, you probably want to like being alone, right? It’s like you and the wood, and you’re building and creating.
Pablo Srugo (11:03):
That’s right—they go hand in hand.
Mike Salguero (11:05):
Yeah, totally. So what did we build? We built a platform where they had to put themselves out there over and over, saying, "Hey, I could do that project, and here’s a sketch," or, "Hey, I could do that." And so we were basically taxing the maker side in a way that didn’t scale. And what ended up happening was we found that the people who won projects were actually really good salespeople—they weren’t the best makers, they weren’t even necessarily the best maker for the person who had described what they wanted. They were just really good at selling themselves. So it’s like, you know, the door-to-door salesman who turned into a jeweller is crushing it because he just knows high-volume sales. But yeah, we built the wrong business, and we overcapitalized it.
Pablo Srugo (11:55):
And walk me through the fact, I mean, raising the first two million—it makes sense, especially in that era. And frankly, it's an idea. It could work. You raise two million bucks. But then what about the other four? And then especially the other ten? Like, you must have had, beyond just top-of-funnel traffic, other signs of kind of fake product market fit—like something that appeared to be working. What was that like?
Mike Salguero (12:18):
Well, so for those of your listeners who are looking to ever raise venture capital, FOMO is a thing. And so the first four million, the way that that worked was we had a round. And whenever you have a round coming together, there's always going to be a few people where it’s better to not let them in. So we had one of those. We had a group that really wanted to be in the deal, and we were like, "Sorry, we don’t have any more space." They were like, "Oh, we really want in." And so then after that deal happened, we continued the courtship—go out to lunch, talk to them a bunch. "Hey, things are going well. We’re pivoting the website," etc. And they were like, "If you pivot the website and it's starting to show any signs, we want in. We'll lead the next deal." And so, you know, that’s like a strategy of manufacturing FOMO so that the VC wants in on the next one. Because the best thing you can say to a VC is no.
Pablo Srugo (13:16):
Yes.
Mike Salguero (13:18):
That’s when they want you. I like to refer to them as high school girls—no one wants you until somebody does, and then everybody wants you. And then if you say no, it’s like, everyone wants you. And the second one, quite honestly, was we got introduced to some VCs on the West Coast. There was one VC in particular who took a really hard run at us. They were like, "We love this business. We love you guys. But you need to move out to the West Coast." And, you know, a lot of people in Boston have a lot of pride over that. Like, why is it that everyone moves to the West Coast to get deals done? Again, it’s like product market fit. Mark Zuckerberg started in Boston but couldn’t get any money, so he moved out to the Valley, found Peter Thiel, and grew a huge company. A lot of people in Boston take that personally. So when we came back and were like, "Guys, people on the West Coast want us to move out there," people were pissed. And we kind of rode that into the last round of financing that we did. We were also showing numbers. It wasn’t just emotions. But the thing that I think people don’t realize is, the more money you raise, the less people actually look at your business. So that seed round? Freaking tough. I mean, we went on 75 meetings. We just met with everybody. No, no, no, no, no, no, no. Finally, a yes. The four was like, one person didn’t get in, we want in, and they definitely went through diligence, but it wasn’t nearly as hard as the seed round. And then the B was like, I mean at that point, it’s just emotions. It’s like -
Pablo Srugo (15:04):
Really? But they didn't look at, I mean, like, you know, conversion rates or LTV or this or that, like, not really.
Mike Salguero (15:10):
They did. Yeah, I mean, we were showing good traction, but we were also roasting through money to do it.
Pablo Srugo (15:15):
And that, like, from top of, like, is that, like, if I just want to summarize the business side of it, just the numbers, was the top line, like, growing well, but it was just, you know, like if you looked at the CAC or if you looked at these sort of like the unit economics piece, that's where it was just not working or was it not even really growing top line?
Mike Salguero (15:34):
So top-line was growing a bit. The first couple of years, we got ourselves pretty quickly to a couple million dollars a month in platform revenue, on which we were taking a 10% fee. So, you know, a couple million dollars a month equals, like, a hundred grand, 200 grand- something like that a month. But we scaled up our engineering team, we scaled up our product team—everything got scaled up. We brought in a bunch of people who were very expensive. It wasn’t the original team. And the big lesson for me, and one of the reasons why I wanted to come on your show, is that despite the fact that we were able to raise money, we actually didn’t have product market fit. That’s the reality of the situation. We did not have a fit with the maker. In this case, we had two markets—we had the maker and the consumer—and we didn’t build a product that actually worked. It didn’t reduce friction. It didn’t help the makers. It was a tax on the system. So what you’d see is a maker would put themselves out there 20 times, and then they’re just like, "I don’t want to do this anymore. This is super frustrating." And it’s like, "Well, listen, you need to put yourself out there 50 times in order to win a job." And it’s like, who has time for that shit? You know, so we didn’t have product market fit, plain and simple, even though we were able to raise money. And I think that’s really important. We used to say, "A dollar raised is not a dollar earned." And I think that’s important—like, you can fall into the trap of thinking you’ve got a great business on your hands just because you’ve raised money. You’ve convinced somebody to give you money and give you a shot, but that doesn’t mean you actually have any sort of product market fit, any sort of business. And I think that’s really important for people to know. And when you have product market fit, you know it. I mean, I know there’s a court case where they talk about this with pornography—like, when you see pornography, you know it. It’s the same with product-market fit. It would be hard for me to describe, like, "Here’s my five-point plan on how you know you have product market fit." You know, after spending eight years pushing a boulder up a hill and just being like, "We gotta figure this out, let’s grind it out, let’s figure it out," and then coming to ButcherBox and almost immediately stumbling into product market fit—man, I mean, that snowball just started going. And it was like, wow, this feels very different from where I just came from, where it was constant, like, "Maybe if we launch this one feature, then we’ll have product market fit," which never actually occurred.
Pablo Srugo (18:21):
Well, the thing about VC and product market fit that are very different is that VC is like work, is like school in the sense that it is gameable. There are things you can do that, you know, the idea is VC should be funding the opportunities that are most likely to deliver long-term ROI. But there are many things you can do to game the system to help VCs put money in places where that may not be. So when you talk about FOMO, when you talk about, you know, not letting people into rounds, et cetera, et cetera, you know, taking one person's kind of heat and transferring it to another—like, those are games. And to be clear, like, everybody does that. It really is part of the game, but it is gameable in that sense. And so getting VC money isn’t as strong of a signal as you might think it is because it’s just like school—just because you get an A+ in a class, does that really mean you’re the smartest person there? There’s some correlation, but it’s not one-to-one. Getting product market fit is not really gameable. I mean, people need to actually, consistently, many people, part with their money, refer to their friends. They need to part with their money. They need to be getting true value. To really get product market fit, you have to deliver real value to real people on a consistent basis. There is actually no other way around it. And you can game the system in the sense that you can get top line to go crazy if you spend insanely, like if you're wrapping a dollar bill and you give a 90-cent sort of thing. But it’s not true product market fit. That is one of the core differences and why, I mean, you can raise money without having product market fit for sure.
Mike Salguero (20:06):
Yeah. And just to add to what you said, you know, you need a real customer who is actually willing to part with their dollars, and you need to make money off of it. Like, you know, at my company, I talk about… we want to be profitable. We need to be profitable. And our profit is basically a mark of the premium that our customers are willing to pay for the product and service that we provide. And I think that's really important. Yeah. A lot of these businesses, especially those that are overcapitalized, have been built on, "I'm going to give you a dollar, and you give me 90 cents. And if we do that at scale, that’s going to work." It doesn’t. It doesn’t work. And it doesn’t mean you have product market fit.
Pablo Srugo (21:01):
And so after this business, you foreclose it, your co-founder kind of buys it off. What do you do next?
Mike Salguero (21:08):
Uh, yeah. So I took the weekend off. And then I-
Pablo Srugo (21:12):
That’s it? Really?
Mike Salguero (21:14):
Yeah, yeah. I took the weekend off. I was going to do like a big, 100-day, lick-my-wounds type of thing. And it turned out that, you know, I had been playing around with a couple of ideas, and it turned out that this ButcherBox idea had really captivated me. And I felt like now was the time. So yeah, I took the weekend off.
Pablo Srugo (21:33):
Emotionally, you were fine?
Mike Salguero (21:35):
No, I was not fine. I felt like a total failure. Fortunately, it was a long slog to hit the wall. The last year, the board is like, we think the problem is the CEO, so we want to replace you. So then I'm interviewing potential people to replace me. And then my co-founder replaced me. And then it was like, okay, we're going to try to sell the company. So like I knew I was able to process a lot of the grief earlier. And also one of the big mistakes that I made, which we probably don't have time to get into is when we took venture capital, we started hiring people who were like, like the scale people, the people you bring in to help you scale the company, usually after you have product market fit, but we did it before. And so it ended up being like it was a very different place. It felt very different. Like a lot of the early crew had left or had moved out or, you know, just weren't around. And so I felt like it was time to move on, it. And I felt done. I didn't know what I wanted to do. And the idea with ButcherBox was it was going to be a hobby. That was the big idea. You know, I had just read Tim Ferriss Four Hour Work Week and this idea of building a little lifestyle business that threw off some cash that I could live on so I could just go do whatever I wanted to. That was my big plan. I knew I wanted to run a big company. I had just tried to do that at Custom Made. I really enjoyed it. And I knew I wanted to do that, but I didn't think ButcherBox was going to be that thing. I thought ButcherBox was going to be like a thousand subscribers paying a $20 profit per month. And like, cool, I can like, you know, have some customer service and maybe I'll make $10 grand. Like that was that was it. That was the idea. Yeah. So, I mean, we started with a Kickstarter campaign.
Pablo Srugo (23:32):
Yeah. Where did the idea even come from? Like, you have that weekend. What happens over that weekend?
Mike Salguero (23:37):
Well, so the idea had started before the weekend. So my wife and I were doing these elimination diets where, you know, we're just like learning more about food and trying to like figure out what's inflaming our body. And you basically eliminate gluten and dairy and everything. And these elimination diets would say eat grass-fed beef. And so I started looking for it and I couldn't find it. We lived in downtown Boston. Even at the grocery store in downtown Boston, there wasn't grass-fed beef. And I just got obsessed with like, where do you get grass-fed beef? And you go online and there's a few people who sell, but it's like $150 to ship. We live in Boston. So we started trying to find grass-fed beef in this area, but it snows all the time. So it's a little tough to get grass-fed beef. I just started geeking out about like, where do I find this stuff? And then I bought a whole cow because that's how you generally bought grass-fed beef back then. And it was too much meat. So I like sold some to my friends. And one of my friends was like, this would be so much easier if it's delivered to my house. And I was like, yeah, like, why is this not like, why is it $75 to ship a box of grass-fed beef when Omaha Steaks is doing it for like free shipping? And I just got like, you know, the idea was, hey, if I could send you enough grass fed beef a month. That'd be cool. That seems like something that people would buy every month, and like I could have a thousand subscribers and make twenty dollars like that became kind of the thing. And I was looking for a subscription business. I was looking for a product, not like just a service. And it just it just captivated me. And what what caused me to really be like, OK, time to go is I had, right as the company was closing, I had found the former head of operations of Omaha Steaks, who was like, I can help you, like, figure out how to ship stuff. And he made some introductions.
Pablo Srugo (25:50):
Like, why wasn't it being done, you know, before? Like, who was making grass-fed beef, and how were they? Were they just wholesales, selling it to, like, retail stores, but not direct-to-consumer? Or what was the kind of situation?
Mike Salguero (26:01):
Yeah, I mean, well, so, I mean, there’s a few things there. So… meat is obviously a commodity, right? Like, it’s a commodity. Grass-fed beef is the non-commoditized side of meat, which we've actually done a pretty good job of starting to commoditize. But meaning that, like, it was like the wild, wild west, right? So you end up—it was only really available to people who either lived in a good climate where they could buy it directly from their farmer, or they wanted to go and talk to a farmer.
Pablo Srugo (26:33):
Is that how you got your cow, by the way? You just drove down to a farmer?
Mike Salguero (26:36):
Yeah, I had a buddy. I had a buddy who was married to somebody who grew up in like a farm community, found a farmer, met him in a parking lot, and he gave me two trash bags full of meat, which is, by the way, illegal because he lived in New York and I lived in Massachusetts. And because of the USDA laws, like you're not actually allowed to sell across state. So, you know, yeah. So it was like, wow, this is like really inefficient. But it started as a, so first of all, it was like, okay, we're going to send grass-fed beef in the mail. And so, you know, day one, so there was some heat around. I was like, I'll spend the summer on this. I don't need to take 100 days off. Like, I'm going to spend the summer on this. So day one, I had an intern because I knew if it was, I had just come from leading a company of 60 people. And I knew if it was just me, I'd probably just sit on the couch and watch movies. So I was like, I'm willing to spend $10 an hour for this freshman from Babson to spend the summer helping me figure this out. Because otherwise, I'm just going to sit there.
Pablo Srugo (27:48):
It was like a forcing function.
Mike Salguero (27:49):
Yeah, it's a forcing function. So day one, eight o'clock in the morning, you know, we closed the business on Friday and it was Memorial Day weekend. So this is like Tuesday. Knocks on my door at 8:30 in the morning. You know, hey, what are we doing?
Pablo Srugo (28:04):
Yeah, what do you need me to do?
Mike Salguero (28:07):
And I'm like, well, I didn't think you were going to show up, but OK, we're going to go to a coffee shop and go figure out like what we're going to do. And then you go to the coffee shop and it's like, OK, like I want you to handle a lot of the marketing. I want you to handle like a market testing, like the product market fit piece. And so early on, I sent him to stand outside of a Whole Foods. And to ask people, hey, how much beef do you buy a month? And do you do you like grass fed beef? And do you know how much you spend per pound on meat? Just interesting question because nobody knew other than ground beef and chicken breast. No one has any clue how much they were spending per pound.
Pablo Srugo (28:50):
And by the way, there was no grass-fed beef in Whole Foods?
Mike Salguero (28:53):
Usually there'd be ground beef.
Pablo Srugo (28:54):
Okay.
Mike Salguero (28:55):
But if you want steaks or chuck roast or short ribs, usually it wasn't there. Some of them had some stuff, but it really wasn't there. One of the signals that was very clear right away was we were like, hey, if we sent you 8 to 10 pounds of grass-fed beef a month, for $129, would you be a buyer? And they're like, I don't eat that much beef. No, everyone said that. It was like, oh, interesting. And it was like, well, what if we added like chicken and pork? And they're like, oh yeah, definitely. Like I look for premium quality across all the species. If you did the same thing in chicken and pork, like absolutely. And so actually from like, we were, we were going to do grass fed beef for like a couple of days, but it became clear, like right away, because we started talking to potential customers, it became clear that like, nobody wants just beef. People want a mix of beef, chicken and pork. And so that was like a big learning. So we didn't even, when we launched our Kickstarter, there was an option of just beef, but really we, we knew people were going to be optimizing for beef, chicken, pork.
Pablo Srugo (30:06):
And how do you explain that? Like at that point, I mean, the gap of grass-fed beef is logical. It's not there. People want it. You provide it. People buy it. When we talk about everything else, how do you explain, I mean, I get that people buy other things, but they can buy it in so many different places. So what's your edge at that point? Like why would people buy that from you? How do you explain that?
Mike Salguero (30:27):
Well, I mean, our initial edge was grass fed beef. That was it. Like so even in what we when we launched, when we talked about our marketing, it was like, you know, a modern butcher. So like we're competing against the butcher and we're online and that's really convenient. But it was grass fed beef is much better. Over the years, we have realized that really any species you talk about, the supply chain is pretty darn broken. And there's no transparency. The animals are treated really poorly. The farmer isn't treated well. The environment's not treated well. It's just like a mess. And what we want to be is a brand that stands for transforming meat and making it better, regardless of the species. So if you buy lobster or scallops from us or chicken or grass-fed beef, we want you to know that ButcherBox, that we've obsessed about the details, all the details associated with bringing you the best quality, but also with the smallest ethical environmental wake behind us. And that's what we want to stand for.
Pablo Srugo (31:34):
I'm really worried because, listen, like you’ve been listening for, what, 10, 20, 30 minutes now? Clearly, you like it. And the thing is, the next episode is way better, and you're going to miss it. You're going to miss it because you're not following the show. So take your phone out and hit that follow button. That’s now. But even back then, when the edge was grass-fed beef, you still had to put pork and chicken in there in order to really hit the nail on the head and give people what they actually wanted.
Mike Salguero (32:01):
Yeah. So we did antibiotic- and hormone-free pork, which was, you know, a thing, but not as big of a thing. We did organic chicken, which—I mean, that’s pretty standard. But yeah, we tried to bring it up to the same standard as grass-fed beef. And then from there, we’ve just kept ratcheting that standard up and up and up.
Pablo Srugo (32:25):
And is that like, is the way to think about it, like grass fed beef was kind of the wedge, the thing that people like, the reason people even thought about ButcherBox in the first place. But once they decided it was interesting, you had to have everything to really solve the problem, which for them was just like, well, if I'm going to buy this, I might as well buy all from you.
Mike Salguero (32:41):
Yeah. Yeah, exactly. We started a Kickstarter on September 9th of 2015. The week before Consumer Reports, the magazine, I don't know if that's still around, but Consumer Reports, the magazine, their cover story was the case for grass-fed beef. So our timing could not have been more freaking perfect.
Pablo Srugo (33:03):
That’s Epic.
Mike Salguero (33:04):
Our timing was perfect. It's like that came out and then Kickstarter. Yeah. And the reality was that I and my wife, we decided we wanted grass-fed beef because we were following these nutritionists online who were like, eat grass-fed beef. And it was like a thing. It was becoming more and more like, this is the best way to raise animals, to raise beef. But there was no like nobody had figured out how to how to bring it to the masses. And so it was this perfect like wedge for us for many, many years where we were like grass fed beef is much better here. All the reasons why. And we yes. So when we launched, it was like there was a real customer need that was not yet met in the market. And our product fit that market incredibly well to the point where the first like the way that we grew the company, which happened very quickly, we went to those nutritionists and we're like, hey, I just launched this company because you, you know, my wife and I couldn't find the product that you kept telling us to like purchase. Would you would you like be willing to email your audience and tell them about our product? And they're like, yes. And so that's how we like got started was going to those people that were already preaching that gospel and like giving them the solution that they were looking for. Because before that, it was like very fragmented. It's like, oh, I want to eat grass fed beef, but like I can't find it. And so we just became that, that solution.
Pablo Srugo (34:45):
And then walk me about like, because, okay, so you have you want to deliver this, you know, direct consumer, like, and, and know your interns out there trying to figure out if people really want it. Are you figuring out how to actually get it? Like, how do you solve that part of the equation?
Mike Salguero (34:59):
Yeah, so finding the product was tough. And that is the reason why I decided that we were going to start when we started. I couldn't figure out two things. One was, where do you source this product? And the other was, how do you ship it to somebody's house at scale cheaply? Because it can't cost $75. Nobody's going to buy that. And so what happened was that's where I was like stuck with the business for a while. It was like, how do I do this? And, you know, I had thought about it while Custom Made was coming to a close. I'm like, I don't understand how, how to, how to do this. And I had reached out to this guy who had retired and he was a um, operations guy at Omaha at Omaha steaks and Omaha steaks at the time was like a multi-hundred million dollar business where they ship steak in the mail. And so I figured if, if anyone would know, it would be like the guy from Omaha Steaks. He would know how to like ship a box. He made an introduction to a company in Wisconsin that did cutting, like cutting and portioning of steaks and then shipping. They, they did both. And so when I started, we started with that company in Wisconsin, which was amazing because like I had one, one company I was working for. They did all the sourcing. I went to them and said, this is what we're looking for. We're looking for 100% grass-fed, grass-finished, antibiotic and hormone-free. This is what we need. Then chicken and pork, this is what we need. Then they went and sourced it for us. We don't do that anymore. We now have a fairly large sourcing team and source our own stuff and build our own programs. Back then, it was like we just worked with this one company. The reality was there was grass-fed beef out there. It was just like nobody had tried to build national distribution.
Pablo Srugo (36:53):
Any idea why Omaha Steaks wasn't just doing that?
Mike Salguero (36:56):
Yeah. I mean, I think when I got started, the industry, like the meat industry, it was like, yeah, grass-fed beef is really niche. It's really small. Nobody's actually interested in that. Yeah. And they didn't see the like coming wave of like people who actually did care about that. They just they just were like, that's small. So when we started, it really was like spending time convincing people to like work with us. And yeah, we found initial sources. But then to get like to the next level, we started having to convince people like this is a thing you guys need to focus on this. And the industry has actually like responded quite well I think grass-fed beef is more readily accessible it's certainly accessible in grocery stores now which is interesting for us because it's like we've had to like move off of just grass-fed beef into kind of like I talked about before like premium sourcing, obsessively sourcing, making sure that we want to build a brand that people know and trust as the best sourcing out there. And the grass-fed beef product market worked and still works and we still have the best stuff possible at the best price. But that's actually not a big enough market. I mean, we want to be bigger. So now now you get into the world of like, what are other people looking for? How do you solve like convenience, all these other all these other questions as your market grows, like your product has to grow alongside it.
Pablo Srugo (38:36):
And then for I mean, for the last business, you raised 30 million in venture. How much money did you put into this one?
Mike Salguero (38:41):
Nothing. So I, yeah, I started the business, I was willing to put in $10,000 to get to launching the Kickstarter. And so that was this internal summer, you know, video shoot, branding, like just putting together kind of the whole package, I was willing to spend $10,000. Yeah, I was pretty disillusioned with having raised as much venture capital as we did. And I didn't think that this business required venture capital. And largely because I wanted to build a hobby business. I didn't want to build the next big venture business debt. But everything I did from the point of like, OK, we're going to I'm not going to raise money. Everything I did had that in mind. So we started with a Kickstarter. Why? Because I could pre-sell people and not buy any inventory and not take any risk on like how what inventory am I holding? Or, you know, I was just able to pre-sell people and get a shot of revenue up front.
Pablo Srugo (39:43):
How well did that do, by the way, the Kickstarter?
Mike Salguero (39:46):
We went out to raise $25,000, and we raised $215,000.
Pablo Srugo (39:49):
Wow.
Mike Salguero (39:50):
Yeah, it did really well.
Pablo Srugo (39:51):
That’s a huge indicator there.
Mike Salguero (39:52):
Another big indicator of product market fit. And then we also launched a subscription, which hadn't really been done in meat. Omaha Steaks was very much a one-time purchase, a gift-giving business. It wasn't a subscription business. And then we also did because at the time Blue Apron was like big and these meal kit companies were big. We also did like we're going to send you whatever we're going to send you. So all you did as a customer is you would choose I want beef or I want beef and chicken or I want beef, chicken and pork. And then we curated the box with the butcher selections. And then we sent you that box. Why did we do that? Well, we did that because like I didn't want to hold any inventory. And so what we would do is we'd have these subscribers and we would just ship them out a box and we would like, you know, whatever the box was for that week, we would just push it out and basically have no inventory at any time. And if you play the terms right, so like get your shipment in of meat on Monday and like, you know, have gotten paid for it over the weekend and over the week and then you get seven or 14 day turns on it, you can like build a positive cash cycle. And so that was the whole thing. Like, so I, because of the, and I think this is important for people, like, because of the constraints I put on the business, I didn't want to raise money. I had to find a product market fit that worked for the business that I was trying to build. And I think it's, you know, I think oftentimes entrepreneurs, like they, they focus too much on building a business plan, like, oh, this is what we're going to do instead of thinking about the lifestyle they want or the business that they want to have. Like, so I was pretty hardcore about like, I am not raising money. And then it was like, I don't care how small the business is. I don't care if there aren't enough people who want this or this. It was just like, we're not raising money. And so we've had to do a lot of things to keep that going over the years, including build a profitable business where, you know, we actually make profit. And being okay with that. Like, that's okay. That's what businesses, you know, as I said before, your profit margin is the premium your customers are willing to pay for the service you're providing. That's a, it's a good thing.
Pablo Srugo (42:18):
100%. I mean, I've seen that constraints set you free. You know, we saw recently, like with the deep seek thing that came out, I don't know how much you pay attention to AI, but like, you know, constraints are kind of annoying. I mean, everybody wants to have all the resources, all the possibilities at their disposal, but it does become a little bit of a kind of blank canvas and you just don't know where to start in a sense, like having constraints, like in your case, just saying, this is the type of business I want to have. Filling it in, in a way is easier. Like it's harder because you have constraints, but it's easier because what you need to do becomes clearer as a result of having those constraints.
Mike Salguero (42:55):
And I think it really helped us find a product and a market that was more sustainable because we weren't doing the like, you know, selling 90 cents or selling a dollar for 90 cents. Like we had to, we had to be profitable from day one because we weren't raising any money. And then we had to like fight for that profit and provide a great service and, you know, send our customers an awesome box so they maintain their subscription and all those things. And, you know, we've and we've changed and pivoted. And I think that's like really important. It's not like product market fit is actually a moving target. So there's the first feeling of like, holy cow, we got product. Wow, this is amazing. We got product market fit, like this is working. But then you have to keep in mind that like that, only exists for a certain amount of time before you have to like keep rejiggering your product. So two years in, we launched a custom box so that people could like, we didn't want them to just have like, oh, I just choose beef, chicken, pork. We wanted them to be able to choose exactly what goes in their box, which now is like 92% of our customers are on custom box. And a lot of, you know, even the Omaha's of the world, like they don't have that feature. Some of the competitors that we have, like they don't allow for customization. That was like, we listened to our customer that our customers were like, we want this. And we added it because, you know, you have like, depending if you want to grow, right? So you have the product that you have for a certain market. And then the question is, okay, for the next market, what type of product do you need to launch? And how do you like tweak the product you have and keep tweaking the product so that you continue to delight your customer and you continue to take more market share?
Pablo Srugo (44:42):
And then walk me through those early years, like 215k on that Kickstarter campaign. How much in sales did you do the first year, the second year? What was that ramp?
Mike Salguero (44:49):
Yeah, so we launched this. I love this part of the story. So we launched in September of 2015. We did $215K in Kickstarter. All in, in that year, 2015, we did like $275,000. Like Kickstarter, and then we launched the site and we rolled a bunch of those Kickstarter people to subscription and It was about $275M to $300M. The next year we did $5 million. The year after we did $33 million. The year after that we did $105 million. Then we did $225M. Then we did $450M, which was COVID. So we went $225M to $450M. And then $550M and $660M. And we've actually been pretty flat for the past couple of years. We had a down year in 23. Last year, we grew again. But we grew incredibly, incredibly quick, which I'm really proud of because a lot of people along the way have been like, well, you can't build a big company if you don't raise venture. And I'm like, yeah, watch.
Pablo Srugo (45:59):
I mean, a lot of big companies have been built without venture.
Mike Salguero (46:03):
For sure. I'm like, you can't do it. No, I mean, I think it's the great lie of entrepreneurship. There are a few great lies of entrepreneurship. And one of them is that you can't grow a big company without raising a bunch of money. And it's perpetuated by an industry that like, you know, venture capitalists make money when they give you money. That's the whole model. Right. And so all the tech like the tech news is about fundraising and there is Shark Tank on TV, and it's all about raising money. And all you're doing there is you're now some companies need money and that's OK. But all you're doing there is you're diluting yourself. You own less of the company and you now have more people to answer to. You can't just answer to your customer and your employees anymore. You have this investor class that you have to like answer to and they want return. They want the things that they want, and like you have to deliver that. And, you know, one of the things that I'm really proud of is I think that we, despite lots of changes and movements and, you know, navigating COVID and lockdowns and, you Port strikes and a whole bunch of different things have happened over the years. We've been able to maintain a dogged focus on delighting our customer and treating our employees really well and keeping our values because we didn't have any outside forces breathing down our neck telling us what we had to do.
Pablo Srugo (47:34):
And then, you know, revenue is one thing, but like for a meat business, like what kind of margins, because that was the problem with like Blue Apron and a lot of those businesses, like they just had, you know, the margins never worked. And frankly, partially it was because they were venture funded. In your case, you kind of wanted and had to be profitable from day one. But like, what kind of margins can you get on a business like this?
Mike Salguero (47:50):
So the best run businesses I've seen like this are probably at a 10% net margin. We are not there. I think we can be there. It all depends on like, so a well-run business, it's like a 30% gross profit. So if you sell a box of meat for a hundred bucks, you make $30 on it after you've shipped it and credit card fees and all that. So 30% gross profit, basically 10% to operate the place. So salaries, technology, rent, et cetera, et cetera, leaving 20% leftover for marketing and profit. And so the way that a lot of these CPG companies have worked, at least the well-run ones, is In the early years, if you want to bootstrap, you have to kind of figure out how to get that first revenue going. But you run your marketing hot. So you run it like 20% marketing and no profit, no profit, no profit. But then as your brand grows, you start dialling down marketing and harvest the profits. And so like your traditional CPG will spend a lot of money up front to like get the thing going. And then once they once they have it going, they will just like drop their marketing as a percentage of revenue and just like suck in the profits and turn these things into 10 percent, 15 percent, 20 percent profit generators. The challenge with Blue Apron was, and quite frankly, most of these box subscription companies, is they were constantly spending well above 20% of marketing as a percentage of revenue through trial boxes. And it was always like, well, we'll one day make money on these customers. And we had to build a model where like we have to make money on the customer. When we started, it was like day one, we have to make money, which means we can't be advertising on Facebook, giving out free boxes of meat to people like that's just not going to work nowadays because we have more time and more models and more cash like we can do other things. But back then it was that was just not possible. Um, so yeah, I mean, where do we sit today? So we are in a place right now where, we believe that there's an opportunity to continue investing dollars in growing the business, um, delighting the customer more, uh, you know, doing what we can to keep customers, finding more customers, uh, expanding our product line, all of those things. I don't think we're even close to hitting our total addressable market at this point. Although we've shipped a box to 1.6 million households in this country. We have certainly found a product that worked for a market and found a market that was receptive to the product that we have.
Pablo Srugo (51:52):
And because you didn't raise, you own 100% of this business?
Mike Salguero (51:55):
Yeah, me and the employees. I also am generous with giving employees equity ownership. But yes, I and the employees and ex-employees own 100% of the company.
Pablo Srugo (51:05):
That's awesome. Well, listen, we'll stop it there. I'll end on the three questions that we always end on. The first one, I mean, kind of clear in this case, but I'll ask it anyways. When was the point, and it's a moving target, but when was that point when you first felt like you were a true product market fit?
Mike Salguero (51:18):
Day one of the Kickstarter. I mean, it was wild. I think having worked on the other one for so long, it was pretty amazing that it was just like, holy cow. But day one of the Kickstarter, I think we did $40,000. So we, you know, we, we went out to raise $25K and in day one, we almost doubled our goal. And it was like, wow, like we have something.
Pablo Srugo (51:41):
And then another question is, was there ever a point in, especially in ButcherBox, where you thought it wouldn't work out or actually maybe you thought it was going to fail?
Mike Salguero (51:51):
Oh, I mean, I still think it's going to fail. I heard a line once, which I try to send to everybody who tells me their company is going under, which is a failed venture is not a failed entrepreneur. I don't know how successful we need to be before I will drop the albatross of like, oh, I failed. So I'll probably fail again. But it is not like, you know, we're $550 million profitable, stable, lots of cash in the bank. You know, like stability is really important to me. I still think like we're two bad moves away from like ruin. So that doesn't go away.
Pablo Srugo (52:32):
And the last question, you know, when you talk to early stage founders, what's some of the more like common advice that you find yourself giving?
Mike Salguero (52:42):
I think that founders generally focus too much on their business plan and not enough on their lifestyle plan. And so what I encourage founders to do is to go and go for a long walk or get a hard workout in, but like really spend a day, no distractions and try to listen to your heart and tune into like, what does this company want to be and what do you want out of your life? You're waking up, okay, what are you doing? Who are you talking to? What are your hours? Are you going to an office or are you not going to an office? So what I tell people to do is vision three years in the future and write down what that looks like. Then you think about the business, but you think about the business in the context of feeding that vision. And what you wanna do is get a vision of your life that's so compelling, you're like, hell yeah, I wanna get started. Most of the entrepreneurs that I know, because you're trying to find product market fit, most of the entrepreneurs I know aren't in the business that they started. They started something and then it's like, oh, what's this little signal over here? And they go do something else. And then it's like, all of a sudden you found something. And so if you spend all your time writing down a business plan, that thing is as soon as you get started and you start bobbing and weaving to the whims of the market, that thing is already like out of sync with what's happening. So it's a good exercise to like put down what you think, and if you could make money and all those things. But I think if you can start with your lifestyle plan first, start with like the lifestyle you want, you will be far better off. And then don't raise money because you don't have to.
Pablo Srugo (54:22):
Perfect. Well, Mike, thanks for taking the time, man. It's been great having you here.
Mike Salguero (54:24):
Yeah, thank you.
Pablo Srugo (54:26):
You remember like the first person who told you about Bitcoin, the first person who told you about Uber? You want to be that person because being first is cool. So be a cool person and tell your founder friends. Send it to them on WhatsApp, put it in a WhatsApp group, put it on a Slack channel, let people know about the show, let people know about this episode. Don't let somebody else beat you to the punch and share it with your founder friends first. Remember what Ricky Bobby said, if you ain't first, you're last.
