From Idea To Startup: How We Entered The Wine Delivery Business

Sebastian Mueller is the Co-Founder and COO of MING Labs, the digital innovation company that has partnered with BottlesXO to revolutionize the way we buy and order wine online. This is the story of their journey from a scrappy idea to a success start up. Learn why it is important for startups to reinvent existing structures and always go for what's breaking!

Transcript

Sebastian:   0:02

At a startup, you never have enough time to just sit down, breathe deep, and see, ok, what should we do now? Everything is working. We can't really think with the free mind. But in the end, you always go for what's breaking. 

Christine:   0:17

Welcome to the "Lost in Transformation" podcast series dedicated to the complex world of digital transformation. We feature guests from large corporations, startups, consultancies, and more to shed light on the success factors around innovation, transformation, and adjacent topics. We share first-hand insights and inspiration from experts for all the intrepreneurs, entrepreneurs, and anyone curious about digital transformation. 

Christine:   0:48

Sebastian Mueller is the co-founder and COO of MING Labs, the digital innovation company that has partnered with BottlesXO to revolutionize the way we buy, order, and consume wine online. This is the story of their journey from a scrappy idea to a successful startup. And we hope you enjoy this episode. 

Christine:   1:08

Hi Sebastian! So, you've been with MING for the last 8, 9 years, and you've been building and founding ventures a lot, so you have a lot of experience. For today we're gonna pick BottlesXO and I'm curious to learn more about that. So, talking about BottlesXO, what is the value proposition exactly, when you have to cut it down?

Sebastian:   1:33

BottlesXO delivers high-quality wines at a reasonable price within one hour to anywhere in the city.

Christine:   1:41

Maybe you can just start with what is BottlesXO?

Sebastian:   1:44

Right, so from the background, maybe a few words about the founders because I find founders' stories always quite important to understand a company. So, the founders essentially were Mischa and Thilo. Two German guys, who previously worked in the communications agency. It was an agency building large exhibition booths for automotive companies. And they had essentially been sent to Shanghai, which is where we met and where BottlesXO began. On an assignment for a large automotive company from China to work three years with them on various projects. So, along the way, essentially they stumbled upon this problem, which was their personal problem. But then turned out that it was really the seed for a business, which was the back then, so we're talking 2012, 2013 in Shanghai, especially in the wine business, most of the wine that you could buy was either way too expensive or not imported very well when overall also not very conveniently accessible. So, all of these delivery services were really just starting out and focused on food. Wine in general in China is still kind of a coming segment. So, it was never such a key focus for local Chinese companies to get right on. 

Sebastian:   3:23

So, as an expert, who likes wine, it was really difficult to find a good bottle of wine at a reasonable price, which was essentially the problem that ended up launching BottlesXO.  So, the whole idea, in a nutshell, is that they would import wines from Europe. And one of them had good connections to different vineyards in France and Italy. And essentially in Shanghai, make it accessible through a mobile application to deliver within one hour to anywhere in the city. So, whether you are at work, whether you are at home, whether you're in a park. It was kind of inspired also by previously lived in Berlin, that kind of culture where in the summer you're just sitting in the park, having a beer, and essentially within one hour you would be able to get a good bottle of wine, essentially anywhere in Shanghai. Which was then the basic promise that this could be something really differentiating, besides retailing wine. 

Sebastian:   4:34

It's actually a more experiential kind of business and then service. And so this is the idea, that they essentially came to us with and they said, hey, we have found this problem. We sure you can relate. Yes, definitely. We could also relate to that particular problem. And we have that idea for a service here, so how it works. Could you help us to build the first version of the app? So, essentially they came to us introduced through a friend like a client and so asking for help. And in the beginning, we basically went through the normal quotation process and said, okay, what are the features? What are you imagining, et cetera, to then essentially come up with, okay, so you're gonna need obviously not only the app with a certain feature set, but then you also need a back end system that handles all of the stock. You somehow need to manage the orders. So, there's a whole lot of different things that come with that. 

Sebastian:   5:35

There we did a proper technical analysis and essentially came to a price point that at that time was not really feasible for them. So, we said, hey, we really love this idea. We want to come in as partners. So, let's do it for a mix of cash in equity, that we also have a bit of skin in the game. We liked the idea. We want to take some ownership and you can reduce your initial costs and keep your runway, that you initially calculated. They basically funded it from the funds of the partners of that previous business. And that's essentially that where it started. And besides, Mischa and Thilo, the guys who initially founded the company and had the idea and everything, also convinced a local partner from Shanghai. Mr. Zou was running a local marketing and branding agency to also join them in that business. 

Sebastian:   6:32

They already knew him for a couple of years from their previous business. Also worked together at that agency. And essentially in China, it's quite important that you have a local partner to deal with the authorities, deal with all the regulations, getting the permits, and then all of that kind of stuff. And of course, also hiring local staff, making sure the office is well run. So, he then also came on board as a partner and also invested some money. And that's then when really came together as a venture. You had the three of them kind of full-time really looking at this topic. And then they also started bringing in more people, in the beginning, some of the staff from their previous agency and then, of course, also a local operations team and the local marketing team. And then us on the digital side to basically help to build the product. 

Sebastian:   7:30

So, in the beginning, the first version was really scrappy. We started this end of 2014 and were scoping at the first version to be really just a beta launch, that wouldn't even be publicly available on the app store. We will just directly deploy to people's phones. We only wanted to have a launch to about 200 experts in Shanghai, because we needed to validate a lot of things about the concept. In many discussions, we essentially were picking apart, okay, but could work? What have we seen work somewhere else? What might the problems be? So, really looking at all of these assumptions and then high processes, as you would do with the whole lean startup concept and just taking that apart to understand, what is really the important stuff to get right. Launching with a very small. group to see can be validated these topics. 

Sebastian:   8:30

So, we're, for example, asking yourselves what works better? Should we charge a delivery fee? Should we institute a minimum order? Should we leave all of that away? What impact does that have on how often people would order? What impact would that have on the basket size, on their experience? All of these are of course important input metrics into the business case. On the more operational side, if you want to deliver to anywhere in Shanghai within one hour, what does that mean operationally? How many hubs do you need? How many drivers do you need? How many orders can one driver actually deliver in one run before he has to go back to the store? So, all of these questions. But then also of course, on the digital product side, because this kind of real-time delivery was already there. They already had Ele.me, which launched 2 to 3 years prior, where you could get food delivered within 20-30 minutes. So, that concept itself was not new. 

Sebastian:   9:32

But then doing that specifically for wine, we hadn't seen that before. And so then the question became, how do you position that? How do you hold, of course, the customer, because another problem that we also discussed and really wanted to tackle was that, it can be quite difficult for somebody to pick from a large selection of wines? So, you stand in the supermarket and you face with 100 bottles, how do you pick? You sit in the restaurant you have 50 names off different wines, how do you know which one is good? In the end, of course, there are a few people who kind of know that stuff. But most of us are really just amateurs, and we're making educated guesses. And if we go wrong and probably be learn, okay, that was not a bad idea. But do you really ever know what we're doing there? I think it's a very complex thing, and that also actually makes the experience not so great, because we could also think back and say, oh no I picked the wine. I could have picked a better one. Where you picked a good one, you think was there something better than this? You never really know. 

Sebastian:   10:43

So, we wanted to have something that also solves this problem for the customer and kind of makes it easy to get it right. So you have, you know, a very small selection of wines. In the beginning, that was this concept that should never be more than 20. Also, as you are really overloaded. And then of course you have different price categories from very affordable to a bit more in the higher end. So, essentially for every budget category. And then, of course, you also have white and red wine, you have maybe 2 or 3, that might be a good choice for you, which you can easily tell. But depending on what kind of wine you want, what kind of money you want to spend. But then we also came up with this idea of what usually goes well with, of course, food pairings. 

Sebastian:   11:32

This whole thing about which wine should you drink to which food? So, why not actually use that as the leading metaphor and show kind of the foods that particular wine would go well with to make it even easier. So, if somebody is having a nice pasta dish, it was maybe some Bolognese sauce, what would be the better choice compared to maybe if you're having a fish, etc, so essentially showing the ingredients together with the wine. So, there were a whole host of different things that we were thinking about, that we tried out. So, the first version really took us effectively 2, 2.5 months to build, including the whole IOS application, including also the back end, which we put on Magento, which is a very common choice for e-Commerce. There, one of the issues that we encountered was that actually Magento is very well built for your one of the middle kind of e-Commerce stores, that you run online.

Sebastian:   12:40

So, you have orders coming in. You have maybe a day or two to process them, you know. Then you send them out. There is a delivery time. Then you have this kind of standard process, that maybe takes a couple of days for the order to arrive at the customer. I think they got you covered, no problem. But then in the version we use back then, it was actually quite complicated to encompass all of these same-hour logistics topics because, in the end, you needed to react to custom orders immediately. As soon as it came in, you need to get a notification. Somebody had to assign it to one of the logistics hubs. Then they had to essentially compose the order, give it to a driver, and so forth. So, all of that within one hour until it arrives at the customer, which requires very different support and also technique infrastructure from if you have a couple of days to turn around orders and tracking them and you go through DHL and stuff. 

Sebastian:   13:39

So, on top of the Magento, we then also custom-built on an extension that would actually allow BottlesXO to operationally deal with all of this same hour kind of topics. And so basically work around a part of the Magenta system, but still leverage the pricing, stock keeping, the product information handling, all of the stuff that is actually quite powerful. And definitely didn't need to be built from scratch because we're also, of course, work on the budget, right? We have to do it quickly. So, we built around that, and then within the first 2.5 months had an app out there. Started with a couple of launch parties in Shanghai and very quickly hit our maximum of 200 people, which we wanted to have in the beginning. And essentially the service was really of to the races.

Sebastian:   14:30

So, I was customer number one. I immediately went, the service opens, for the first time, placed the very first order to test it out. And we got it right.  We got very few orders wrong along the way, to be honest. I mean in terms of keeping the one-hour promise, it was really good at all times. But even the first one - 1 bottle of champagne came actually within 20 minutes. I mean, getting the first one right, I guess, not that difficult. It was an afternoon at around 2 p.m. So, not too many people tried to order yet, but it was definitely very cool. So, within the first 2 months, we essentially completely went stales just with one delivery then, which was very central in Shanghai. We also kind of drew the borders of where we would deliver, so that if we could keep the one-hour promise. Of course, we didn't do the whole city from day one. We made sure that 200 customers that would be in stales mode would also be within those confines.   

Sebastian:   15:34

And if they try to order to a friend, maybe further out (in a different area of Shanghai), we would then call them and say, it's cool, we can come. But it's gonna take a bit longer than an hour. Please understand. So, this kind of proactive expectation management, especially those in the stales face and so forth. I think that also helped us to really satisfy customers and deliver a great experience. So, it was already spreading by word of mouth way before we even wanted you to get more customers on board and people were joining the waiting list. So, it already got some kind of underground fame in Shanghai, way before we even talked about it publicly. Then, about two months later, we also came out with an Android application and then also put the iOS version officially in the APP store. So, that's one of the first essentially was publicly available. 

Sebastian:   16:31

And then the official public launch happened in June 2015. After, in the meantime, the company also received investment by an angel investor who essentially helped them to fund the next stage is of growth and development, stock financing, hiring more people.  At that time, we essentially had already full operations teams, one local operation manager, about 10 drivers out of two different hubs. Then, in terms of marketing, there were already three people on board, really looking at online and offline marketing. Obviously, you had the three founders, as well as a larger hiring pipeline in place, plus us on the digital side. And then the product that was already validated in terms of functioning on the digital side, but then also the whole service, business model. That was really the starting point of when it came together as a company, that also very quickly started to grow. 

Sebastian:   17:41

So, what we learned along the way also, by looking at the analytics, but also by talking to people, was that really the best touchpoint that we had were events. So, whenever we would go out and we would do tastings and sign up people at the event, they were much more likely to then actually order and then also keep on ordering, rather than people who maybe only discovered us online. They were clearly more reluctant to order. More of them just create the account, but never actually place an order. And then, very interestingly, what we also learned from the analytics is that where somebody became a long-term customer or not, was also highly influenced by how long the first order would take. So, we looked at the analytics and did some analysis. 

Sebastian:   18:31

And we basically found that if the first order took 24 minutes or less, they were more than two times as likely to stay a customer than it took longer than 24 minutes, which then also essentially point us towards opening another hub and assuring that we really pay a lot of attention to the whole operation's side of things to get all of that right, make it smooth. And ensure that especially also that first, of course, every order experience is a really good one. And that we always try to stay ideally under half an hour. So, it's not even a same-hour kind of delivery, but by now in Shanghai, you're gonna get your delivery within 25 to 30 minutes, which is rising quite incredible. And also in terms of order times getting it down too much shorter than that is probably not gonna have positive ROI, because the costs of opening more hubs and having more drivers at some point would also exceed the utility of delivering faster and faster. Plus you don't want to incentivize people to order, maybe just one bottle at a time, but rather, why don't you think ahead, order two bottles, and then when one is down, then you can place the next order to keep going. Yeah, so that worked really well altogether.

Christine:   19:56

When you were growing the team already, so you had the business, like the basis was there, and then you were seeing okay, we need to expand the operations. then we need to invest in marketing. Where do you as a founder or like a partner know, where to expand first?

Sebastian:   20:12

The good thing there and I think it's our favorite kind of founder set up, is that we really didn't have to involve ourselves too much. And the operations or the marketing or anything, Thilo and Mischa and Zou were really building that up and staffing up very quickly. And we could really focus on what we're are very good at, which is the whole digital experience and infrastructure side of things. But of course, we would have many discussions to see where should the business maybe go next? Of course, along the way, you always have a lot of opportunities. So besides the pure B to C delivery, I mean, within that you can already say, hey, do we want to look at our customer base, which is very expat heavy. And maybe, you know, focus more on the local Chinese audience? Do we wanna expand into other cities? Do we also want a subscription, or maybe a next day kind of business, that sells wine even more affordable, but then has longer lead times.

Sebastian:   21:15

And beyond that, of course, do you want to look into more B to B and do also, for example, supplying for events and so forth. Do we want to look into, working even closer with restaurants and see how we can first improve their internal wine logistics actually? Rather than just potentially selling to customers who would then take the wine to the restaurants. So, obviously, along the way, many, many discussions also happen around the business model. Where should we focus? What should we do? And then, Mischa was very strong on the business side of things and Thilo was more on the creative side and also had all these connections with the wineries. Zou very focused on operations and the Chinese perspective. 

Sebastian:   22:06

And us from the digital side of things. Of course, many discussions were around all these topics and I think that the focus basically comes organically. At a startup, you never have enough time to just sit down and breathe deep. And then see, okay, what should we do now? Everything is working. So, for example, in beginning, we had our own tasting events that we then hosted at a friendly cafe or friendly restaurant, where the owner would let us take over for a couple of hours in the evening to invite guests and let them taste the wines and sign them up. But very quickly that got way too crowded and was also not very scalable because we could do that maximum of two times a week. We always had to change venues. Getting that regularly at one place would also be difficult. So then, essentially, we completely changed that format to the partnership. Long-term partnership with a restaurant to essentially let us completely run the bar of the restaurant. So, basically there the XO Bar, which is in the restaurant Solo, which is a kind of Italian Chinese fusion kind of place. And there we set up a bar completely by ourselves, which could also host, of course, tastings from time to time, but essentially every day would essentially be like a tasting because people would come in and bars at the bar and a restaurant only be served XO wines.   

Sebastian:   23:43

They could try our stuff all around the clock, and it became way more scalable. So, instead of fixing the old-tasting concept, for example, we completely reinvented that again and challenged ourselves to do better. When I think that is the most important thing. So, of course, everything will keep on breaking as you scale, as in the beginning, we do a lot of things that are not scalable at all and then instead of just putting band-aids on it, really finding okay, what is not cause off this pain and addressing dead at the root. I think that is probably one of the most impactful things that founders can do to ensure you also have a bit of a lasting improvement of the system. Because essentially, when you start something new, you don't really have a new business model, that you put into the world and you have to invent everything around that. But oftentimes you're gonna have to reinvent existing structures and common knowledge because common knowledge comes from what worked before and you doing something completely different, that hasn't worked before. 

Sebastian:   24:45

So, you might have to reinvent how you do certain things and also, of course, break with certain standards that have been in the industry for a long time, which is also obviously what gives a lot of companies a lasting advantage. That you not only have a different model, but you also do things within that model differently, which you farther leverage to then improve your model. So, for example, for us also because we were importing directly rather than buying from distributors, we could, of course, completely control the quality of the wine. A lot of wine is shipped was in bad conditions. So, then you put wine on a ship and the container was more towards the top off the ship and doesn't have refrigeration, that means around, for example, in Africa, when the ship has to go around right and the sun shines on top, your wine is going to start to boil. You essentially have bottles that heat up to 40 degrees, 50 degrees. 

Sebastian:   25:47

You don't want to drink that stuff anymore after it comes into Shanghai. But obviously, we're able to completely control everything from visiting vineyards, picking the right wine for the right season, getting it at then also wholesale prices, controlling all of the import, making sure it gets imported in the right way all the way until it comes into the country and then also handling the last mile, all the way to the customer. Which gives you completely different leverage in terms of pricing, terms quality, in terms of communication. This closeness to the vineyards also allowed us to invite, for example, owners of vineyards over to Shanghai to hold events, where the owner would talk about their wines and how to take care of the wine. 

Sebastian:   26:36

How they age it, how they deal with it, which again is experiential in and of itself. And then also it gives you a completely different relationship, both with the vineyard and with the customer. So, yeah, there were a lot of things that we essentially completely reinvented. So one of the coolest use cases that we did also personally discovered for ourselves was actually ordering wine directly into restaurants. So, in Shanghai, most of the restaurant, especially the local ones, to be honest, they don't have a great wine list. But, of course, a great food. When you go to a union restaurant, Sichuan Hot Pot, the food is really, really good. And then you want to complement it with the right drinks, so in the beginning, we started than ordering wine to the office and bringing it along and the restaurant really charges a corkage fee. So it's fine with them anyways. 

Sebastian:   27:32

And then at some point, we figured out, hey, why don't we just order the wine directly to the restaurant? We don't even have to carry it there ourselves. Plus, of course, we can keep on reordering as the evening goes on. And hat became actually, one of our standard applications of BottlesXO then along the way. Especially also when we wanted to ma be introduced the service to some of our customers or may be potential partners or investors. It would actually be very nice to go to dinner and then the BottlesXO delivery comes, they can experience it for themselves. When the delivery guy appears, speaks, a couple of words in English, wine comes at drinking temperatures at a value proposition that comes clear immediately. And this was also a use case that under the marketing side of things, we double down on where we then also published a list of corkage fees essentially throughout Shanghai in different restaurants. 

Sebastian:   28:29

So, that people would feel that it's very normal to bring your own wine and they would know how much to pay for it. Which is a use case that I think became very popular. You should probably really use it even more in the future in terms of potentially also striking partnerships with restaurants to potentially make this a standard service within the restaurant itself.

Christine:   28:55

Also on the digital side, because you were mentioning, that you were reinventing a lot from the way the app was looking from the beginning until, how it further develops. Did you have a lot of big reinvention on the digital side as well? You said the first version was very scrappy, and then probably a lot of things followed after that.

Sebastian:   29:16

Absolutely. So, we essentially over a couple of years, first of all, built a lot of new stuff of course. The first thing we added after you had the wine list and orders were, of course, couple more payment methods. So we added Ali-Pay and WeChat pay and credit cards and everything that would be convenient. We also edit geolocations, the customers didn't necessarily have to enter the address, but could also just locate themselves, especially if they wanted to order, maybe to, ah, place like a park or so force pin in the map would be more useful than a man actual address. We also launched real-time tracking of drivers, at a time when there was quite a difficulty in China. Because the China GPS is always randomly of by a couple of meters in various directions, which is being done for military protection purposes to essentially scramble GPS signals. 

Sebastian:   30:15

And have to deal was that on the tech side to see does he have to drive on this road or on that road, instead of them, you know, jumping back and forth on the interface, as sometimes happens with other apps. So, we had to completely do that. We also built a couponing system, a loyalty system. So, we built quite a lot of interesting tech and, of course, on the back end also continuously had to reinvent certain things because maybe they were not scalable, maybe they broke, maybe he went to build new infrastructure to support. I think one of the most complex things was actually in 2015, when we wanted to have a dual service set up one instead of China, one outside of China.

Sebastian:   30:57

So, basically crossing the great firewall and then those two were supposed to be asynchronous. So, basically, the database should show exactly the same accounts and for those accounts over the same order history. And those should have been sunk or the idea was to sink them on a daily basis. So, that the customer, for example, who lives in Shanghai and then he flies to Hong Kong, can use the same account. And can also see full order history. The next day he is in Singapore, the same thing. Then he flies back to Shanghai. He sees all the orders that he made in these other cities. There was technically very complex to get right since there's a lot of problems with essentially synchronizing servers and doing that on a consistent basis. Because sometimes really randomly, certain connections would just not be possible or fall through.

Sebastian:   31:55

So, we really had to build a lot of this technology also on the fly, to kind of make it work. And then also of planning, of course, time to time, larger refactoring to make sure that we also sometimes consolidate the builts. Otherwise, of course, over time you come to what is known as technical debt. You take shortcuts which essentially, will at some point lead to problems. And then if you don't fix those then essentially, you know things will break, and then you fix what is broken. So, I'm very grateful for the development team that we have in Shanghai. Thinkey was a great CTO and essentially can really deal with all of these larger architectural questions, but also really looking into the coat base itself and making sure that over time you build a product that can actually work across all of the different platforms, that you started to support. Besides, Android, as I mentioned, but then also WeChat, also an online store. And of course, all of that going was in the same, back end that back end then branched out into four different bigger city locations, which needed to manage different stock and different product information across Suzhou, Shanghai, Hong Kong, and Singapore. Then the different hubs, which then have the individual stock. The product information has to be ready in different languages.

Christine:   33:26

I think there was a good job from the tech side then. So, you were saying you were scaling into different countries, you expanded into Hong Kong Singapore, Suzhou. How did it perform there? Did you see any differences between the markets? Because it was something that was raised in China and then going abroad. How did that affect the business?

Sebastian:   33:46

They're absolutely different countries, have different preferences. You both seeded in terms of what kind of wines are order, but then also what kind of promotions work? To be honest, I think it's mostly on the marketing side of things, that you have different channels that you need to be using and maybe different promotions that work, that don't work. For example, in Singapore, for some reason, promotions that include four of any kind somehow worked really well when you were selling four bottles at the price of three versus six at the price of five, which work much, much better. Like irrationally better? No idea why, but it did. So, you know this kind of stuff you learn over time. You experiment, you see, okay, what do people react to what?

Sebastian:   34:36

What kind of also events can we leverage? What online channels can we leverage? How should we promote, the emphasis on the quality, emphasis on the speed, emphasis on the price? And this is something that I'm not super close to. So, I can't speak to all of the experiments that were run. But I think that was essentially the biggest difference, kind of key need that we tried to serve by delivering high-quality wine at an affordable price and very quickly. I think there was a target market for that in every single country that we tried it in. 

Sebastian:   35:12

And then on the promotion side, things need to run differently. And, of course, price points also differ. I mean alone when you look at the import taxes that get charged, they completely work differently in, for example, China. Where you look at the price of the bottle and then you have a percentage on top of that versus in Singapore, where they look at the percentage of alcohol, for example, in a bottle of liquor and the tax that, which means that your price dynamics become differently. When you import a cheap bottle from Europe, an expensive bottle from Europe in China essentially, they will remain relatively equal in terms of price distance.

Christine:   35:54

Nice. I think the on-demand delivery will probably be picking up in these times as well with all the remote working and remote situations. But, yet think it interesting to hear about this story. And thanks so much for sharing, Sebastian. 

Christine:   36:10

Thank you for listening to this episode of "Lost in Transformation" with our host Sebastian from MING. Labs. If you enjoy our podcast, please subscribe to our channel and leave us a review on iTunes. Join us next time for another episode of our podcast.