J: Welcome to the Bigger Pockets Business Podcast show number 17.
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Alejandro: I think fear drives me a lot, whether healthy or not healthy… probably not very healthy. But the fear of letting people down drives me a lot. When we put ourselves up, we raised the 5,000 dollars from our chancellor: we’re like, “We cannot lose this.” We partner up, I’m like, I cannot let him down.
J: Welcome to a real world MBA from the school of hard knocks, where entrepreneurs reveal what it really takes to make it. Whether you’re already in business or you’re on your way there, this show show is for you. This is Bigger Pockets Business.
J: Hey there everybody. I am J Scott. I am your co-host for the Bigger Pockets Business podcast, back again this week with my lovely co-host Mrs.Carol Scott. How are you doing today Mrs. Carol Scott?
Carol: So super, super great. Get this: took the boys to Lego Land, Florida, which was a really great time. We got back super late last night, so I don’t even think that I’ve even had a chance to tell you this story. Get this: I finally got our oldest son to try his first rollercoaster. We’ve been trying to do this for years. Years, right? For years. Every time we go to any amusement park, we’re like, “Let’s try this one. Let’s try this one.”
Carol: Yesterday, I was like, I’m going to go for the gusto and I’m going to try to MacGyver a whole situation that he can’t say no to. I’m like, “Hey, look at that super gigantic huge rollercoaster. It looks terrifying! Want to try it?” He, of course, looked at me like I was completely insane, and he was like, “Well, no. Not the big one, but I’ll try the smallest one they have here.” I’m like, yes, mission accomplished. I got him to try a rollercoaster. And of course, not surprisingly, he loved it. So we went up that rollercoaster, the next biggest one, and he wanted to go on a third. So we go from zero to three rollercoasters in one day. That kid faced his fears and he loved it. It was awesome.
J: I love that. That’s a great lead-in to today’s show, and I’m sure you knew that when you started it. For our listeners out there, today we’re talking to two founders of a company that got the start in their business because they were able to face their fears, and they were able to take a giant risk in their business. We’re talking today with Nikhil [Arura 00:02:21] and Alejandro [Velez 00:02:22] who started a company called Back to the Roots. When they started their company right out of college… actually, I’m not even sure if they were out of college, they may have still been in college… the first thing they did is they walked into a huge retailer and they said, “We’ve got this half-baked idea for a product. We want you to put it on your shelves.” And lo and behold, the retailer not only said, “Yes, we’re going to do that, but we’re going to give you some money to help you create the product.”
J: They weren’t scared to walk in and take that risk, and throughout the evolution of their company… they’ve now grown to a really big company… but through the evolution of their company they took risks like that. They faced their fears. There’s another story that they’re going to tell about how they walked into a retailer where they needed something from that retailer, and instead of saying, “Hey, can we buy this stuff from you for our product,” they instead walked in and they flipped the story around and they said, “Hey, we want you to pay us to take this and put it in our product.” Again, lo and behold, that retailer said, “Sure, we’ll pay you. Here, take our things. We’ll pay you. Go make lots of money off of us.”
J: Once again, willing to face their fears and it paid off for them.
Carol: And they weren’t just willing to face their fears, honey… let’s not make it sound so easy… because they also share this story about how there are at least a dozen people on each side of that equation who slam the door in their faces and acted like they were completely nuts. But they certainly did not give up and they kept on going for it, and made them what they are today.
J: Absolutely. This show is all about facing your fears and how everybody our there as entrepreneurs should be facing their fears because you never know what doors it’s going to open up. And now, without any further ado, let’s jump into our discussion with Nikhil and Alejandro from Back to the Roots.
J: Let’s welcome Alejandro and Nikhil to the show. How are you guys doing today?
Nikhil: We’re doing well, thank you having us.
Alejandro: Thank you so much.
Carol: Thanks for being here. We’re so excited to talk with you. You have so many great products that you’ve developed. You have such an amazing backstory and we think that our audience is going to love listening to everything you have to say. Before we jump into that backstory and how you got started, can you maybe give us an overview about who your company is, what you do, the products you have, and your overall mission?
Alejandro: You want to maybe…?
Nikhil: Just a quick background: my name is Nikhil, this is Alejandro, the two co-founders of Back to the Roots. It’s a company we actually started up in college together with this crazy idea of being able to grow mushrooms out of coffee grounds. We fell in love with this idea of urban farming and connecting back to where our food comes from. Fast forward through our journey: what we’ve developed is this line of ready-to-grow gardening kits to help any family, any kid, grow their own in classrooms and kitchens across the country, and also a ready-to-eat line of organic cereals and snacks that are based on simple ingredients and direct farmer sourced.
Nikhil: Really, we’re trying to reconnect back to where real food comes from and inspire curiosity about again. It’s this super fun, exciting, crazy journey, and it started off as a bucket of mushrooms in this fraternity kitchen closet and now we’re selling our products in thousands of retailers across the country. It’s been fun. We’re excited to share that journey this morning with you guys.
J: Fantastic, I love that. Let’s step back. You guys were in college together. Talking a bit earlier, you guys were in a fraternity together, you were taking some classes together, and that was kind of the origin of Back to the Roots. Can you take us back there and tell us about how you guys met, how the concept of growing your own food… I guess it started with mushrooms… came about? What’s your origin story?
Alejandro: It’s kind of funny, because we were both seniors at Berkeley. I was going into investment banking; Nikhil was going into consulting. We had no background in agriculture, had never grown a thing in our lives. We were sitting in a business ethics class that was talking 19 ways in which industries and businesses could become more sustainable. I think I barely made that class by a few seconds; that professor, notoriously, closes the door and you can’t come in no matter what you say. Luckily I got into class.
Alejandro: One of those ideas was how you could potentially grow mushrooms on coffee waste, but nobody had really done it commercially. For some odd reason, we both went up to the professor, asked for more information, led us to grow some buckets out of our fraternity kitchen. One of them worked. Walked it into Whole Foods: first produce guy we saw we just said, “Hey, we think we figured out to grow mushrooms on coffee waste. Are you interested?”
Alejandro: That led to a buyer about two to three weeks later giving us a ring. One of the most impactful calls, not knowing what the heck we were getting ourselves into, but he basically said, “If you guys figure this out, I’m going to blow you up at Whole Foods. This is the most innovative thing I’ve seen in produce: taking coffee waste, growing mushrooms.” It was a funny line because he then asked us, “What were you farming before, boys?” He assumed we were already farmers. We took a long pause but we told him, “We’re actually going into finance, Randy.” Randy [DeCommons 00:07:39] is his name. Then he took a long pause himself and eventually he says, “You know what? I don’t care. You guys figure this out, I’m going to blow you up at Whole Foods.” That led to us giving up our job offers.
J: That’s really interesting. The thing that thing that sticks at me most here… and I need to ask this question… So you were looking at going into investment banking and consulting, so the complete opposite, in some ways, of growing sustainable food sources and starting a business around a term that I sometimes hear: conscious capitalism. What made you guys say, “We’re going to give up the finance dream. We’re going to give up the investment banking and the consulting dream and we’re going to start growing mushrooms and focusing on sustainable food sources”?
Nikhil: The answer is pretty easy for me. It wasn’t the idea, it was this guy. It was a partnership. It was the immediate love, respect, fun we’re having brainstorming together. I mean, imagine your last semester in college: all your friends are going out and having a blast and we’re dumpster diving together. Somehow, by doing it together with Ealex, it was fun, it was invigorating, and I think right away there was something special to that partnership. Honestly, I think more than the idea it was that relationship. Eventually, over the course of those few months, there was a ton of support from our community. We got a 5,000 dollar grant from our chancellor, which at that time felt like we had just won the lottery. There was these different moments, but I think that it was the partnership that really led us to wanting to do this and giving us the confidence to do it.
J: That is really cool. So you go into Whole Foods and you find this guy Randy, who is a buyer, and he says, “Give me a product and I’m going to make you guys huge.” At that point, presumably, you didn’t have a quote unquote product that was ready to get put on the shelves in Whole Foods. So what were the next steps from there?
Alejandro: You’re absolutely right. We had no real, consistent supply of the coffee waste because this was taking coffee waste, something that was being discarded every single morning at Starbucks and Pete’s Coffee and using that as the growing medium for the mushrooms. That was what got us really intrigued by the idea: that you could take waste, turn it around, and turn it into a growing medium.
Alejandro: We also didn’t really have demand. I mean, a buyer saying, “I’m going to blow you up. What’s the price? What’s the cost of the product?” None of that we had figured out. As Nikhil mentioned, we both were invigorated by how we would get so passionate about… You know, I’d wake up, senior at school, when everybody is already checked out and ready, partying. I get these emails of research from Nikhil of, “Oh man, we could probably sell the coffee waste. We could probably make money being waste management. This is how much annual revenue this waste management company does. We could probably displace them. Oh, and we might need to be to…” It’s funny, because we eventually got to, “I think we’re going to be the ones having to grow the mushrooms.” My initial thought was, “We’ll do everything around the mushrooms, because there’s no way in heck we’ll be able to actually grow mushrooms.”
Alejandro: So we had nothing, and you slowly start realizing that there’s a lot of stigma to how do you get into retail? Or, how do you figure out what your costs are? I think you tackle it a bit at a time, and then through that you start learning more about where’s the opportunity and where’s not. But just sitting back and doing a bunch of research… a lot of times, especially in food and real, tangible products… is a lot of time wasted.
J: So walk me through that first product. Was it like you packaged up some coffee grounds and you packaged some mushrooms seeds?
Carol: Seeds? Like, how does that all work? That was going to be question too. So you go to Whole Foods and you go and you find Randy and you’ve got this coffee ground container full of mushrooms, and you’re like, “Look what we’ve got,” and he’s like, “I’m going to blow you up.” And that’s my question: what is it? Are you going to sell him mushrooms? Are going to sell him coffee grounds? What is that product and where’d you come up with it.
Nikhil: It started off, as Ealex mentioned, with us selling fresh produce and fresh mushrooms. But it took us… we graduated in May… six months or so of trying to replicate what we had grown in one little test bucket in Ealex’s fraternity kitchen. Imagine: we have that bucket, we’ve got 5,000 bucks from the chancellor, give up our job offers, and then start trying to farm. Day after day we could not replicate that. It took us six months. Every single you’re planting, come back the next day super excited; nothing is growing. Plant the next day, come back… It’s just this cycle over and over and over. Literally hundreds plus days of failure.
Alejandro: It is mind-blowing that first bucket worked. Mind-blowing. There is no reason why that thing should…
Carol: What just happened?
Alejandro: We watched a YouTube video, put some seeds in this coffee waste that hadn’t been pasteurized or sterilized, went off to spring break… this was when you could spring break, this was college… and you come back and all of a sudden there are mini mushrooms growing. Unbelievable. Then it took us forever to actually make it commercial. It’s been a long time.
Nikhil: Welcome to Oakland by the way.
Alejandro: It’s the train station we’re near.
J: No problem. We like the trains in the background. People know we’re actually recording live.
Alejandro: Our office is in the middle of the Oakland produce market, so right by the railway station. We’re right in all that energy.
Carol: Perfect location.
Alejandro: Fast forward: We partnered up with Pete’s Coffee and became their valiant waste collectors. Our first six months we were just dumpster diving ever single morning at 5:00 AM, picking up their coffee grounds from Pete’s Coffee that they weren’t throwing away, bringing them back to our small warehouse by the Oakland airport [inaudible 00:13:54]west Oakland, and we’re planting mushroom spawns… it’s kind of like the seed. It takes 30 weeks to incubate and then after that, theoretically, you get fresh mushrooms, but six months later we didn’t have any.
Alejandro: Finally figured out the right mix of temperature and light and humidity and all the different factors that we had no idea initially about, and had our first sale. It was just over three pounds of mushrooms to the Berkeley Whole Foods and started scaling that up from there. But the first couple of years we were just farmers. We were growing fresh mushrooms and selling them to the farmer’s markets, restaurants, Whole Foods.
J: That’s awesome. Let me point something out here, because I think you guys are really modest, but this is a great tip and a great learning for all our listeners out there. You literally walked into Whole Foods and you found a buyer. Then you walked into Pete’s Coffee and you said, “Give us hundreds of pounds, thousands of pounds…” I don’t know what it was… “of coffee grounds.” You guys were fearless. You were willing to approach these big companies and say, “Hey, we’re starting out but we want help,” or, “We want you to listen to us,” or, “We want to work with you.” It sounds like you got a lot of yeses.
J: A lot of times, as entrepreneurs, we’re scared to approach the big boys. We’re scared to go after and ask people for help when we need help. But you guys are really good proof that sometimes you just have to go and ask and people are going to be receptive.
Nikhil: Yes. And [inaudible 00:15:31]quick stories, that same day that Ealex mentioned, we were that one bucket, walked around after we came back from spring break… We must’ve walked around nearly a dozen different grocery stores. Local shops… People looked at us like we were crazy. Like, “Two kids trying to grow mushrooms in a fraternity walk-in. What is going on? No thanks.” Luckily, at the Berkeley Whole Foods they are intrigued and interested and gave us the chance to share our story and what we’re trying to. It’s like yes to going out and sharing, but also you can’t walk away after the first no.
Carol: You got to keep trying and eventually it’ll stick for you. That’s great.
Carol: So you strike this deal for this product as you’re farming these mushrooms and stuff. Randy says he’s going to make you a big deal. What was the next step? What did that look like?
Nikhil: Oh man. It’s probably 16 hours a day. Waste collecting in the early morning: you had to be finished… this is like 5:30 AM… on the route, picking up from all the little coffee shops, bringing it back, planting all day. So you’re taking coffee waste, putting it into a bag, adding… we created our own assembly line… adding mushroom seed. Then you put it in this place which is called the incubation room, in which it sits there for about three weeks. During that time is when the mushroom roots are starting to take over that coffee waste.
Nikhil: Then after about three weeks, the mushrooms, you give it shock. Mushrooms grow when they think they’re going to die, so you give it a shock of water, you give a shock of fresh air exchange. You change that up, you change temperature. Then mushrooms start sprouting. At that point we harvest them and we take them and deliver them to Whole Foods.
Nikhil: We would have a rotation in which we would collect, plant, harvest, deliver, and then the late afternoon to evening we would go and demo the product at Whole Foods. That was every single day.
Carol: And this is the two of you, or do you have other people on board?
Nikhil: [crosstalk 00:17:36].
Alejandro: [crosstalk 00:17:36].
Carol: This is the two of you, awesome. I think a lot of people, our listeners, have considered food products. Do you need FDA inspections? Do you need some type of approval? Or can you just sell food in a retail location without any of that stuff? How does that work?
Alejandro: You do. I was going to say, I think that’s one of the things early on that we were really excited by.
Nikhil: Whole Foods is amazing.
Alejandro: Because we got a local producer to loan [inaudible 00:18:03]Whole Foods early on. They gave us a small loan to help us scale up and grow our farm. I just remember we were laughing because there were these conversations… we had these exact same questions when we were starting out for them, and these guys were just laughing at us. They go, “You really have no idea what you’re doing.”
Nikhil: They came to our farm, a little [crosstalk 00:18:17]farm…
Alejandro: It basically turned into this mentorship. They came by and hooked us up with the people that we had to through. I just remember those early moments where we had the same questions. We’re like, “What do we do next?”
Carol: But it sounds like there were people on the ground near you that believed in you, that gave you some funding to help put you in touch with the right people and give you money to build it out and make those connections. Is that accurate?
Alejandro: Whole Foods is an amazing retailer. Completely changed the retail game and how entrepreneurs could take food products to market. They did the local producer alone program, but they also had local foragers, is what they were called. So it was regional folks that understood their market and would go in and handhold entrepreneurs that they would believe it. Ellie [Truesdo 00:19:05] out of northeast is somebody who is really dear to both of us. [inaudible 00:19:09]is really one of the guys that got us started here out of northern California. These people bet on other entrepreneurs. Thanks to them, instead of just saying, “Wow. These guys are nuts,” and leave, they say, “Wow. These guys are nuts,” let’s help them. It’s the same thought process, but they decided to double down and help.
J: I love that. So you figure out the process for growing mushrooms, and I’m not going to get into that because it sounds like you guys took a crash course in farming, but you figured out how to grow mushrooms. You found somebody to sell your produce for you. At this point, are you making money? Are you profitable? Or…?
Nikhil: We got to about a million dollars in revenue in just really us two.
Carol: From your mushrooms and produce the two of you had a million dollars in revenue already?
Carol: That is amazing.
Nikhil: There’s no cost of goods on this. It’s just a little warehouse. One of the things we highly recommend to anybody that’s looking to start this… I think we’ve gotten this advice in the past said differently… whatever you do, give your best chance of screwing up. He replaced screwing up with another word. But it’s so real. We didn’t know how good we had it to have a product that had basically 100 percent gross margin. You can make a lot of mistakes when you have a product that does. Highly recommend going into… especially when you’re starting out.
Alejandro: And early on, too, I think would let us do that, too… A kind of interesting story was that Pete’s Coffee, for instance… We start scaling up. We’re collecting thousands and thousands of pounds of coffee grounds per day, per week. Eventually, at our max when we were doing that, we collected about three and half million pounds of coffee grounds from Pete’s Coffee in one year. But through that process I think they realized, we realized, that this is a real service. So we started getting paid to collect their trash. We replaced waste management.
Alejandro: During that process when we were growing mushrooms, all of our waste, the leftover substrate, we learned that it was actually really great soil amendment for farming and for local gardeners. So we ended up putting that up on Craig’s List and selling that as a premium soil amendment. You kind of [crosstalk 00:21:25]waste of waste of waste all had value to it, and I think that, looking back at all that, helped us bootstrap it and get this product out there and.
Nikhil: Randy bought that at Whole Foods, too. [crosstalk 00:21:37].
Alejandro: Randy bought it at Whole Foods [crosstalk 00:21:37].
Carol: Of course he did.
Nikhil: We got paid to collect the waste, we sold the fresh mushrooms which are grown a few miles from all these stores, and then our own waste became a soil amendment at 9.99. Ten dollar bag. Amazing soil amendment, that spent mushroom substrate. It’s really good for growing. We had three revenue streams out of this one operation, and that got us to bootstrap without needing to raise any capital. It’s a labor of love. There was not much of the love part, but it was definitely a lot of labor. But it was still pretty cool to be able to get to a million plus out this little warehouse in Oakland.
J: And that’s a great… how do I say this…? That’s an entrepreneur mentality. I’m sitting here getting ready to ask the question, how much were you paying Pete’s Coffee to buy their coffee grounds from them, and before I can ask the question you start telling us about how they’re paying you to take the coffee grounds, and how you’re then taking those coffee grounds that you’re getting paid to take and you’re packaging them up and you’re selling them as an additional product. So while I’m thinking about all these costs to your business, your turning that around and you’re figuring out how to turn that into a revenue stream. That’s fantastic.
Alejandro: Thanks man. You know, you brought up fear, and actually I wrote down… It’s funny, because you said fear as I wrote down the word fear here, because we went to Pete’s scared to ask the head of strategy for Pete’s when we figure out that we’re doing a service, we should get paid. But we went to them fully prepared. We came up with this financial model of how they should pay us not just to collect, but we asked them that we might be willing to put the Pete’s logo next to our package in our mushrooms, and we’ll pay them on per impression. So we did this whole calculation on how many consumers walk by a Whole Foods store and get to see the Pete’s logo, and on a per-impression basis they should pay us X amount per month.
Alejandro: We’re 21 year olds going up to a guy who’s been doing this 20 plus years. He basically laughed in our face. Like, “Guys, this is super cute. No, we’re a billion-dollar-plus brand. We’re not going to pay you to put our brand on your mushrooms in your stores, but we’re going to pay you to collect.” So we wanted not just to pay for collect, but we wanted to get paid to put the Pete’s logo on our brand, which had no value whatsoever.
Alejandro: But fear is such an interesting word. Nikhil talked about our partnership. I think the other part, and I speak for myself, I think fear drives me a lot, whether healthy or not healthy… probably not very healthy. But the fear of letting people down drives me a lot. When we put ourselves up, we raised the 5,000 dollars from our chancellor: we’re like, “We cannot lose this.” We partner up, I’m like, I cannot let him down. So putting ourselves out there and going and asking the question is almost like a way to combat that continuous fear that’s in your mind. Like, you can’t let people down. Well, put yourself in a place in which you’re creating that fear by asking crazy questions to go and get paid to collect coffee waste. You do that as often as you possibly can and in some ways it’s maybe an antidote to…
Alejandro: The reality, at the end of the day, fear does drive me personally. I don’t know if other listeners can relate to that fear, but that’s a good for me to at least get me through, which is put yourself in positions that you artificially become fearful. And by asking a lot of stuff that you necessarily shouldn’t get; that also helps. An unfair share of attention.
Carol: That’s really cool. I love your example of you’re basically asking for the moon. Talk about being fearful, you’re going to go crazy fearful. Like, throw a question at them that is so over-the-top, “How could you possibly even say yes to me?” They didn’t say yes to that, but they gave you a piece of the moon. So rather than asking for a piece of the moon and getting an itty bitty bitty piece of moon dust, you asked for the whole moon and then you still got something awesome out of it. You got them to go ahead and pay you to remove their coffee waste. I love that concept of going all-out as far as being fearful and not just going partially in.
Carol: So you have all these revenue streams. You’re making millions off of the mushrooms, and the waste, and the premium soil. When did you decide… or how did you decide… that you still needed to do something more or something different? Because that sounds like a big jump from that to where you are today. What made you decide that you needed to do something more or do something different, and what was next?
Nikhil: Farmer’s markets.
Alejandro: Yup. It was listening to our customers, because we’re growing, we’re harvesting, we’re selling, and then we’re demoing every single evening, every single weekend. We’re just selling farmer’s markets and we’re doing tons of tours of our little farm we had in Oakland to our local community and families and teachers and kids you would meet at these demos. People would come by this farm and we started hearing the same question over and over again. People were almost more excited about not what we were growing but how we were growing it. Just that process of farming and growing food and wine. They’re like, “Hey, can I take one of these big crazy bags, because they’re growing your mushrooms in? Can I take that home and do that myself? Like a kitchen cabinet? Can I do that in my kid’s classroom?”
Alejandro: It’s that same feeling over and over again. We realized that there was something bigger here than just mushrooms. Something bigger than what we were doing in this local five, 10 mile radius and selling to those markets and restaurants and farmer’s markets. There was a need of people wanting to reconnect with food. They can experience that magic themselves of growing something again. That’s what inspired us to like… Hey, can we take what we’re doing and shrink it down into something small enough for a kitchen or a classroom?
Alejandro: That led us from our big mushroom farm to shrinking it down to our first consumer CPG-branded product, which was our mushroom growth kit. We’d do the first three of the work for them: incubate the kit, seal it up in this box, and then families can pop it open and in 10 days grow their own mushrooms and cook with them. That was the start of this next phase of Back to the Roots.
J: And did you have the idea that this was going to be the next phase of your business, or was this just a little side thing? Like, “We’re making lots of mushrooms anyways. Let’s package some stuff up and make some kits.”
Alejandro: We were [crosstalk 00:28:01]for a while, almost a year and a half or so. We were selling both for a year, both fresh mushrooms and the kits. At farmer’s markets we were selling both, and at grocery stores selling both. There was a point through that where we start realizing through that journey, that year, we’re like, these are two very different businesses and selling propositions. What we need to be doing… One of them you’re focused on the selling in terms of the fresh produce. The other one, you educate and inspire and teach people about what this product is and the marketing and etc.
Alejandro: That was one of the big first moments, I’ll never forget that. We’re actually sitting in front of the Home Depot parking lot and we have to decide on one of these and we doubled down on the kits.
J: That’s huge. What was the next step once you decided, “Okay, we’re going to focus on education. We’re going to focus on helping people get back to the roots,” and you decided to focus on the kits? What was the next step in the evolution of the business? Where did you go from there?
Alejandro: I think the immediate, once that decision was made, which was… Looking back, it sounds simple. It was a really hard decision. I mean, you think about [inaudible 00:29:17]costs a lot and you can’t… But we built this whole farm with our hands and sweat and then overnight you say, “Nope, we don’t need half of this space. We don’t need it any more. We’ve got to turn it into a different part to be able to grow these kits, and that’s where we’re going to hold the kits. So overnight you make this decision and it then turns into, “All right, one product, get it into as many retail stores as possible.” We could ship it all across the country. We were able to expand nation-wide Whole Foods.
Alejandro: Nikhil took the west coast and he made sure production and he made sure production was still active, and he also handled the Whole Foods and the west coast. I just took a flight, one-way ticket, rented a car for 17 dollars a day, this tiny purple car, and went up and down the entire United States from Atlanta all the way to Research Triangle, Boston and New York, just demoing soon as a store would open all the way until they closed. Demo and demo and demo.
Carol: So is this specifically Whole Foods? Or did you go into other retailers?
Alejandro: Whole Foods.
Carol: So it’s all Whole Foods? You had this Whole Foods connections.
Nikhil: We honed in, we said, “Hey…” I think that we did… many, many mistakes… I think that one we did right, which is double down on one retailer. If you can prove it with one retailer then you’ve got a good story and then other retailers will follow. We went and made sure that the sales were there and introduced ourselves, demoed and…
Alejandro: Just going back to that point of decision though, there was a moment in that parking lot at the old warehouse and an entrepreneur, a really well-established famous entrepreneur who we respected a ton and built an incredible brand, telling us the exact opposite. “No, you guys are making a big mistake. You guys should be growing fresh mushrooms and scaling that up.” Even what seems now like an obvious…
Nikhil: We could say it’s Noah from Noah’s Bagels.
Carol: Oh wow.
Nikhil: He was like, “Big mistake. I will invest in your company if you stay a mushroom farm. I will not invest if you do mushroom kits.”
Nikhil: Super smart guy, super respected, but…
Alejandro: It shows, looking back, that that’s the trajectory we went on. But that was a tough decision where it’s just like there are two very different paths.
J: But by the same token, it was probably good validation that whichever path you took was probably a good path. You were obviously successful in the path you took, but you had some people who were very smart who believed that if you went on the other path you would’ve been successful there as well.
J: Let me ask you a question. You mentioned going into all the Whole Foods along the east coast and around the country. Do they not have a central buyer for Whole Foods? How does this typically work for various retailers? If you want to get into stores, do you have to go store-to-store individually, or are there regional buyers?
Nikhil: Let me explain. Whole Foods, especially back then, was a little unique. There’s other retailers that do it: Home Depot in some departments, Costco. But they make either regional decisions or national decisions. Whole Foods has 11 regions across the country and there’s a regional buyer. Randy was one of those buyers; he’s now a vice president at Whole Foods. He’s still there. He was a regional buyer, so he could buy for his 35 stores. Multiply that by 11, so it’s roughly 400 stores in the total market. We would sell it to the regional buyer, but then we would tell the regional buyer, “Buy the way, if you take on our mushroom kit, which is already pretty out there…” they normally sell fresh stuff, not a mushroom kit… “we’ll go out there and demo it ourselves and make sure that this thing sells like hotcakes.” They’re like, “Okay, I’ll take it in, but I need you to come and demo in my stores.”
Nikhil: So we get the product distributed through the national distribution center, it would get bused out to the stores, and then when we’d get there the product would be in the store but it would just be sitting there because nobody knows what a mushroom kit is.
Carol: So it was the two of you physically demoing, or had you still not hired anyone at this point? You’re growing like crazy, it sounds like, but there’s the two of you.
Nikhil: At that point I think it was just my step-cousins.
Alejandro: [crosstalk 00:33:37], and maybe two other people as we were growing, all on the production side.
Nikhil: On the production side, yeah.
Alejandro: I think that’s the other piece we’ve realized, is that before you can hire for something you’ve got to know it well enough yourself to be able to hire and know what you’re looking for. I think a lot of our journey has been piece by piece, this whole business, learning it. At first it was like, how do we grow and manage our supply chain? All of our first couple of years is on the operations side, and then we could hire folks to help us with that and help us scale it up, but we’re figuring out how we sell and market this thing? That became a lot of our focus, was out there demoing every single day and that be able to hire a team, eventually, of regional brand ambassadors to help do that, but that’s after we had visited almost store across the country and learned it ourselves.
Carol: Amazing. In that first year or two, how many units had you sold of your mushroom growing kit in these Whole Foods stores.
Nikhil: A 100,000 plus units, yeah.
Carol: No kidding.
Nikhil: Yeah. We were starting getting some decent scale. But still sub-10 million dollars for sure. But we were starting to get people and buyers were interested, other retailers were starting to get interested. But then all our money was tied up in inventory or accounts receivable because Whole Foods would pay us within 30 days and we’d pay our… So it was just the continuous battle.
Nikhil: After about two years of just mushroom kits, we’re like, “I think we should be launching something else? Are we just going to be doing the mushroom bit forever?” And then visited a aquaponics farm in Milwaukee and that was a really impactful visit. It was with Whole Foods. It was a farm called Growing Powers and they doing aquaponics, which is you take fish waste and use it as a fertilizer for plants, and then the plants are cleaning the water and bringing it back down for the fish. It’s a really cool ecosystem and you can do it in urban settings because it takes half the real estate. So they sell the tilapia fish and then sell the herbs to Whole Foods and other retailers.
Nikhil: We were inspired by that and we said, just like we took a big mushroom farm and made it little, let’s make a first ever aquaponics fish tank. That one we launched on Kickstarter. We didn’t have the money because although we were growing as a business and doing good revenue with good growth, all cash was [inaudible 00:36:10]on making more of that mushroom kit or getting paid from Whole Foods. So we put up a two minute video on Kickstarter, had one prototype of what this thing was going to look like, and then we got 248,000 dollars of pre-orders.
Carol: Wow. Oh my gosh.
J: And how much did you need to develop the product?
Nikhil: We had a 100,000 dollar goal.
Alejandro: It was a 100,000 dollar goal. We raised a bit more than that, but it was more expensive than we thought. I think a lot of that, too, was not just raising the capital. I think a lot of that was, for ourselves, seeing where the community… vision we had for expanding beyond mushrooms. It is more about reconnecting with food. Would our community follow us along that journey? As much as it was about capital, it was about seeing if there was really something there. Seeing an overwhelming response from not just our community but a bunch of new people who wanted to join us in this mission, we realized, “Yeah, there’s something here.” I think that was the second evolution in the company: from fresh to kits and then from mushrooms…
Alejandro: Looking back, it seems like it was obvious: “Oh yeah, growing other things.” But in Whole Foods, every store we went to we were the mushroom guys. That was our brand. That’s what we were doing. It was mushrooms. All of a sudden now we’re coming with a fish tank. I think that Kickstarter was really important for us to realize and prove to ourselves that there’s something… again, [inaudible 00:37:40]bigger vision here.
Nikhil: A little plug, by the way: that little fish tank that had never existed five years ago is now the number one aquarium on all of Amazon. Number one sold aquarium nation-wide. We were the first aquarium to ever work at Costco. We are now going to have a nation-wide program this holiday season. First aquarium that’s ever worked, because it’s not fully an aquarium, it’s a grow kit. It’s a full family experience. We’ve learned that nine out of 10 of our consumers own a cat or a dog versus the average aquarium, only around 25 percent. So one in four. We’re such a different market that we’re going after because it’s an experience, because it’s an educational product. But we didn’t have an R&D team. It was all inspiration. There’s multi-billion dollar pet companies that couldn’t replicate that curiosity.
Nikhil: Folks that are out there saying, “Well, I don’t have this and I don’t have that,” when you have all this and that it also makes you go really slow and you also don’t see the stuff that, “Aha, that’s pretty cool.” Nobody’s done it. There’s a million reasons why you shouldn’t do it, but when you’re just starting from scratch you get to do things much faster and do things that other people can’t do.
J: Love that. Before we move on to the next part of our show, let’s hear from one of our show sponsors.
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J: So, one thing that sticks out at me is that you guys had a very clear mission. Your mission was taking things back to simplicity: growing your own food and using resources for sustainable growth. But you products were very different. Your mushroom is very different than an aquaponics kit, and I know some of the later products that you continue to expand in your business were very different than that. In certain ways, while the mission was the same throughout your company and throughout the business, your products were very one-off. Is that a fair assessment?
Nikhil: Yeah. You nailed some tough criticism, some tough-love advice from people too, around, “Wow, what are you doing growing mushrooms and then a mushroom kit and then an injection-molded product?” A fish tank requires you to understand how plastic freezes. It requires you to work with molders, with industrial engineers, mechanical engineers, to be able to design this thing. We didn’t have that in-house. We got a lot of “What are you doing?”-type questions.
J: In 60 seconds, can you give us the evolution of the business from conceiving that second product to where you are today? What other products have you done? How have you grown in terms of employees and bringing in people to help? In terms of raising money… I know it’s a big question to ask in a small period of time, but I think there are a lot of people who want to know what’s happened since then?
Alejandro: I’ll be products, you be [crosstalk 00:43:14].
Alejandro: All right. I’ll do the products piece of it. Rapid fire: fresh mushrooms to then realizing that we wanted to go into kits and help people do it themselves. Launched the mushroom kit. Then the water garden, the aquaponics kit. Fast forward today, we’ve now expanded that line into a whole line of indoor gardening kits. Also, because I’ve got a small space, urban new gardeners who may never have grown anything before.
Alejandro: I’m just going to show a few of them. I don’t know if you can see this in the camera. For people watching, it’s a lavender plant. You put it in your windowsill and grow fresh lavender. We have a partnership with Aisha Curry to launch a kitchen herb garden line.
J: Is that Steph Curry’s wife?
Alejandro: That is Steph Curry’s wife. She’s an incredible restaurateur and host and chef.
J: Didn’t know that, that’s awesome.
Alejandro: So we’ve expanded out this line of various grow kits. We launched this one on Earth Day, which is the first ever hemp grow kit. You can grow your own organic hemp at home. Just really expanding out different things people can grow. Along the way, as we were helping people grow their own food, we realized we’re selling mainly in the produce section of stores. You realized that there’s huge disconnect between the grocery isle and the produce isle. Ultimately, our vision was connecting people back to real food, real ingredients. That’s what was the inspiration behind launching our ready-to-eat line, which was our organic breakfast cereals all focused on three ingredients, direct farmer source. And in many ways, we wanted to teach people that whether you’re growing it yourself or someone is making it for you, you should know exactly where it comes from, and you should know whether you’re the farmer or you know your farmer. That turned into a line of organic cereals, which actually became the second largest driver of growth at Whole Foods when we launched that.
Nikhil: Nation-wide, yep.
Alejandro: Nation-wide. And we launched it in these single-serve cups as well, which… There was a really cool opportunity we had in New York City to do blind taste tests and do blind taste tests with New York City public school kids, actually displaced Kellogg’s and became the first organic cereal offered in US public schools, helping to feed 1.1 million kids in New York.
Nikhil: Per day.
Alejandro: In many ways, it’s a wide swath. We have gardening kits and our organic cereals, but it’s all focused on inspiring people to learn where their food comes from between what you grow and what you eat.
J: I absolutely love that. I mentioned earlier a term that I really like called conscious capitalism, and I think that it’s something that’s starting to gain popularity over the last few years. It’s basically the idea that capitalism isn’t a bad thing. Capitalism is a good thing and we should be striving to achieve profits in our businesses and our business ventures. But, at the same time, we can still be doing good for society as a whole. The two are not mutually exclusive.
J: I just absolutely love the fact that you guys have figured out how to create what seems like a fantastic business, but at the same time you’re providing a societal benefit and really giving back.
Alejandro: I have to say this too: I think we’re driven that, we’re passionate about that, and I think we’re going to continue to carry the flag. We’re lucky and we’re grateful to be standing on the shoulders of giants… you look back 30 years ago… who first… what now seems obvious in a way. Even in just the last 10 years how that’s changed, and you see the B corp movement and that impact and this discussion around conscious capitalism. But you go back 20, 30 years, and we’re fortunate to stand on the shoulders of people like Gary Hershberg, Stony Field Farms, the Whole Foods team, and Patagonia… companies that have, over the course of these decades, shown that you can hit incredible scale while still having an amazing.
Alejandro: Now, it’s just a cool opportunity for people looking to enter the business world and start something. What a cool opportunity to be at this new phase of capitalism where that’s been proven. Gary Hershberg, one of our investors, tells us when he was trying to start his company it was like four people he call [inaudible 00:47:19]cared. He had a deeper mission. When you look now, there’s billions of dollars coming into these kind of enterprises. What a cool chance for people looking to start something where we all get to carry this into the next wave. We’re inspired by the opportunity and that we have to kind of learn from them, and now hopefully we take that more so.
J: Awesome. I do want to ask one as a numbers guy, and I know that there are a lot of our listeners who are really interested in the numbers. Can you give us a general idea of the numbers work when you’re selling a consumer product into a company like Whole Foods? In terms of percentages, what is your markup? You create a product for X, you mark it up a certain times X, and then Whole Foods presumably sells it for a markup from there. What those percentages look like? You don’t have to give us exact numbers, and I’m sure it’s different for every product, but just in general.
Nikhil: For sure. It’s been our blessing and our curse to be able to… I mean, food is so universal, and especially growing your food. We get to play in the food space. We get to play in the home improvement space, like Home Depot and Lowes, and then we get to play in places like Costco. Starting with the food space, I think a lot of people… and we do highly recommend when you’re starting something from your home you’ve got to think of different tiers that take where’s there’s a different margin that’s given. First step is manufacture something yourself and you calculate your cost of goods. So how much it costs to do this.
Nikhil: For food, you’ve got to manufacture this at large manufacturing facilities. It’s important before you think of what’s my real cost you should start assuming you’re going to do this in mass quantities, so start reaching out to other companies that do this. So it’s co-manufacturers or co-factors that do this in large quantities and ask for their quotes. Based on that, you then immediately have a distributor in-between. A distributor normally takes 25 percent of the margin. The distributor picks up the product from your facility and distributes it directly to a Whole Foods or a Safeway, a Kroger. Then Kroger, or Safeway, or Whole Foods will take roughly 40 to 50 percent margin on top of that. And then on top of that, you’ve got to make your own margins.
Nikhil: Once you get into the food space you start wondering, “How is food so darn cheap?” Because it is so hard to make money in this industry. You’ve got a distributor, you’ve got a retailer, and then you’ve got yourself. On top of that you’ve got your manufacturer who’s got to make their money. You’ve got a farmer who’s got to make their profit. So, in short, really understand all the cost drivers before you say, “My product, in the retail, just because I made it and sell it at farmer’s markets it’s going to cost this amount.” That’s one thing.
Nikhil: The other extreme is Costco, which is one of the most incredible retailers I’ve ever worked with and I’m inspired by them. They roughly take a 15 margin. That’s it. Very high value, very high expectation. The difference is Whole Foods and Safeway will have 100,000 to 80,000 skews. Costco has no more than 4,000. So you have to be really productive at Costco. You’ve got to crank through product, which allows them to have a much lower margin. A lot of people don’t know this, but Costco only makes money off of membership. If you divide that income by the number of members, it’s almost to a T. That’s how much money it costs you to be a member each year.
Nikhil: So those are the two extremes. You’ve got another like a Nordstrom or a home store which takes 70 margin instead of 40 to 50. So understanding that space that you’re selling into to make sure you price your product right.
Carol: Excellent. Thank you for that. That’s such a great understanding and such a well-rounded perspective. You guys are simply unstoppable in terms of product. Your evolution over the past several years is so inspiring. I know that there are a lot of our listeners who are starting product companies or wanting to start product companies, so if you had to give one piece of advice to those people, one piece of invaluable advice from your experience to an entrepreneur wanting to start or just starting out in the product space, what would that be?
Alejandro: I think one thing we’ve learned, especially in this day and age… I’m sure it’s different and there’s a lot of advantages to this… there’s so much noise in our lives right now. There’s so many products, especially with D2C brands and everything happening right now. Before you ask yourselves what is this product doing and you get lost in the future and the design, I think starting from the highest level and asking, “What do I want my consumer, my user, to feel? What do I want them to feel and remember? What do I want them to share about this?” Starting your product design from that perspective versus, “What is it doing? How I can be X percent better than the other person?” It’s like, “Hey, what is someone going to feel when they open this and touch this. I think that’s the place to start and that’s what makes a brand memorable and sharable and ultimately scalable.
J: It’s not about the product, it’s about…
Carol: The experience.
J: And your customer.
Carol: All right gentlemen, thank you so much. All of this has been so inspiring. I’m sure our audiences loved every little last bit. I know we could talk for hours and hours, but I think we should start getting to… We’re going to get to the last segment of our show, which is Four More. This is where we ask you four questions that we’d like you to answer rapid fire style, so the first things that come to your mind. And then the more is where everybody can find out more about you and what you’re doing. Are you ready for the first question?
Alejandro: Let’s do it.
Carol: Let’s do it. J, go.
J: Okay gentlemen. I’ll let each of you answer separately. What was your first or your worst job and what lessons did you take from it that you use in your current business?
Nikhil: Investment banking. I did a summer analyst summer in New York. Work with people that you want to be like when you get older.
Alejandro: First job, I was working for a financial advisor cold calling hundreds of people a day trying to sell services. I realized I was not inspired by that. I think to do my best work and bring my best self I had to be inspired by the work and the mission, and that led me to find that.
Carol: Great answer. What is the defining moment where you realized you had the entrepreneurial itch?
Nikhil: Rapid fire. My gut was that I don’t know if I have it. I mean, at five years I would go and buy candy bars and sell them at the tennis club in Columbia, and then I’d try to go and rent movies and deliver them to the apartments in Columbia with a buddy when I was six or seven. I don’t know. I’ve never thought of myself as entrepreneurial, but there’s different things that I think… It’s been a little bit without knowing. Maybe in my instinct, but I’m a worker. I define myself more as a worker. I love to work. I find joy in work itself and I try to do that the most that I can.
Alejandro: I think we both take pride in that process and the work. Ultimately, yes, when we realize we’re entrepreneurs is when we… I’ll never forget that moment above our school at UC Berkeley [inaudible 00:55:04]shook on it and said, “If you’re in, I’m in. If I’m in, you’re in.” That, if anything, was the moment we finally scratched that itch, I guess. It’s just one of those really clear moments, super vivid in my head, when we both said we’re doing this.
Carol: You were way committed from the get-go.
J: I love it. You guys didn’t pursue entrepreneurship; entrepreneurship pursued you. Awesome.
J: Third question. What is the worst advice you guys have been given in your business and what did you do with that?
Nikhil: It’s interesting because in every advisory session that you have with entrepreneurs, everybody has, by and large, really bad advice and really good advice. It always comes together. If you get really good advice, you’re most likely also getting really bad advice in that session. If you’re getting sort of good, you’re probably going to get… Those sessions that become very binary are the ones that are most impactful. At the end of the day, it’s deciphering which advice you want to take is what makes this fun and also makes it challenging.
Alejandro: One more thing [inaudible 00:56:18]too. I think a lot of times when you’re starting out, especially in Silicon Valley, there’s this idea of keeping your idea to yourself. There’s an ethos around startups of secrecy and “This is my idea,” and I think something that we’ve taken value out of is realizing… especially if you’re deciding whether or not to start… just go out there and talk to literally 500 people. If you’re still as excited after the 500th conversation, there’s probably something there. Ultimately it’s do you have that resilience internally, that passion to want to pursue this. A lot of times you’ll hear, “Protect your idea.” It’s going to evolve anyways. Whatever your idea is now, it’s going to change 100 times over, so you might as well go out there and start sharing and getting that feedback. That’s something we’ve learned a lot from.
Carol: All the transparency and vulnerability. Go ahead J.
J: I was just going to say it’s a rollercoaster and if you never want to get off you know you’re doing something right.
Carol: There you go. Okay, last question. What is something you’ve splurged on along the way that’s been totally worth.
Alejandro: One time we probably had a thousand dollars in our bank account for Back to the Roots. We were driving by a casino and I told Nick, “I’m feeling it bro. I’m feeling it. Let’s go in there.” Nikhil jumps in… You go ahead, because this is ridiculous.
Nikhil: No, I’ll let you finish it.
Alejandro: We go into the casino…
J: I still don’t believe you.
Alejandro: [inaudible 00:57:41]question. We have a thousand or so dollars, total dollars, to our name on our bank. Doesn’t question it. Go in there, take out 200 bucks in the casino with the extra charge, but the 200 dollars on blackjack. I’m like, “I’m feeling it man.” We lost. We lost 200 hundreds [inaudible 00:58:00]. Jumped back in the car and we were like all right [crosstalk 00:58:05].
Carol: Now you’ve got 800. Rock on. Your net worth.
Alejandro: We lost 20 percent [crosstalk 00:58:07]. [inaudible 00:58:08]time to figure this out.
J: On the bright side, a lot of business decisions can cost you a whole lot more than 200 dollars, so if you’re going to make a bad decision that was the one to make. That’s awesome.
J: Okay guys, thank you so much for that. And now the more question. Where can our listeners find out more about you guys, more about your business, Back to the Roots, more about your products? How can they get in touch with you if they want to get in touch with you?
Nikhil: Check out our website, backtotheroots.com. Follow us Instagram: we’ve got a bunch of cool things growing. You can check out our products there on Instagram on Back to the Roots. Sign up for our newsletter. We have a bunch of new products coming out this fall which we can’t wait to share with everybody, so if you want to be first one to hear about them sign up for our newsletter as well. Backtotheroots.com.
Alejandro: And then emails as well. Ealex… E-A-L-E-X… @backtotheroots.com. Then Nikhil… N-I-K-H-I-L… @backtotheroots.com. We’re also on Instagram. We’re Ealexbacktotheroots, Nikhilbacktotheroots. Phone number 858-688-8305. That’s my cell, if anybody wants to text me or anything.
Carol: Talk about transparency.
J: That’s awesome. And anybody that wants to check out your products, it sounds like they can go to Costco, they can go to Whole Foods, they can go amazon.com, and I’m guessing a whole lot of other retailers as well.
Carol: Awesome. Nikhil, Alejandra, it was so awesome speaking with you. Thank you so much for taking the time today.
J: Thanks guys.
Nikhil: Thanks for having us on.
Alejandro: Thank you.
J: Wow. That was an awesome interview. What did you think, Carol.
Carol: It was so good. I’m still laughing in my mind about the story when they had exactly 1,000 dollars in their business account and they went and bet 200 of it on black and lost.
J: No, blackjack. Let’s give them credit. They didn’t play roulette, they played blackjack. You’ve got to give them a little bit of credit.
Carol: This is true. Phenomenal.
J: It was like I said to them then: if you’re going to take a big risk, at least do it on blackjack with a little bit of money as opposed to in your business.
Carol: Seriously. But they took so many great risk, and my goodness, there product line right now is absolutely incredible. What an inspiring story. Just the whole thing about the conscious capitalism and how that self-perpetuates and we’re in such a great time in the world right now where there is so much opportunity for that. It’s wonderful. It makes you look forward to the future for our kids.
J: I know as soon as we end this recording, I’m going to go out. There’s some things that I’ve been putting off doing in our business because I just haven’t been able to get over my fear of making a few phone calls. I’m going to do that this afternoon.
Carol: That is a very good idea, and I’m right there with you.
J: Awesome. I think that is it for this week. Thank you everybody for joining us. And like I always say, she is Carol, I am J.
Carol: Now go face your fears and ask for the moon today.