Instacart Co-founder Max Mullen on Building a $10B Consumer Marketplace | Ep. 47

Transcript

And I look at their sneakers. If you're looking at a founder and they've got dirty white sneakers on, people that are busy building, they're locked in on their companies, they're sleeping at the office, right? They don't have time to buy nice sneakers, right? They just put on the same pair of sneakers and they get dirty. And the real builders, they just look the part. [SPEAKER_01] All right, Max, I'm very excited for this one. [SPEAKER_01] I love doing this with close friends. As you know, we've had some other ones on the show. And one of the things I was just sharing to you is we've hung out a million times and we barely talk about work. I barely know what you do. So I'm excited to learn about your work along with the rest of the audience. [SPEAKER_00] Well, thank you so much for having me, Jack. Let's start with Instacart because you obviously just completed the end-to-end dream of any entrepreneur. And then I want to go into your investing and some of your other work. [SPEAKER_01] But starting with Instacart, I don't even know all these stories, which I really should given how much we've hung out. Can you talk about Instacart getting started? Like the early days, the idea coming together. I know this is YC back in 2012, right? So tell me about the beginning. [SPEAKER_00] I'm so fortunate to be able to be a founder of a consumer company because it's a household name and everybody knows about it. And I use it seven times a week. [SPEAKER_00] You really do order a lot. [SPEAKER_00] You probably know what I eat too. [SPEAKER_00] I do not look at customer accounts. Could you if you wanted to? I can't, no. [SPEAKER_01] Okay, you probably could. [SPEAKER_00] But what's great about being a consumer founder is that everybody knows what you do. You don't need to repeat yourself anymore when you're pitching the company. And that wasn't the case in the early days, right? In 2012, grocery delivery was something that didn't exist in the U.S. [SPEAKER_00] It was quite a contrarian idea back then to have an app. [SPEAKER_01] Well, actually, it's even more contrarian because didn't people try it in Web 1.0 and it was a big high-funded failure? [SPEAKER_00] Yeah, there were some spectacular failures in the dot-com. [SPEAKER_01] Hundreds of millions went in and it didn't work. Yeah, Sequoia invested over a billion dollars in a company called Webvan. [SPEAKER_01] Yeah. And it failed. [SPEAKER_01] And that was 10 years earlier before we started. [SPEAKER_01] So did you have that when you were talking to investors? Was that the big thing when you were talking to investors, this has been tried, it doesn't work? [SPEAKER_00] Yeah, that was the elephant in the room. Yeah. [SPEAKER_00] And most investors totally turned us down because they thought it would not work again. So what changed? [SPEAKER_00] A bunch of things changed, obviously, from the dot-com boom until 2012. First, more people were on the internet and those people were more accustomed to e-commerce, right? [SPEAKER_00] So in 2012, there was lots of e-commerce going on, but nothing in the grocery industry. [SPEAKER_00] And the other thing that changed is that we had smartphones, right? [SPEAKER_00] And on the supply side, the shoppers could have a smartphone that could help them do this work and had GPS and could help us make this an efficient marketplace. The shoppers part was the key. [SPEAKER_01] I think a lot of people think about it as, oh, I'm going to order from my couch on the phone. [SPEAKER_01] But it's really the shoppers who are in the store needing the application. Yeah. And the idea of using stores as warehouses was also new, right? Most people who had tried to do grocery delivery tried to build big warehouses, buy trucks, and it was very expensive. And we didn't do any of that. We just went into the same grocery store that you would and shopped just you would and delivered just you would. [SPEAKER_01] You know, obviously this was hard to raise money for, but you still got into YC. [SPEAKER_01] You were still going to raise capital. [SPEAKER_01] But then you still had to start a marketplace and you still had to get apples, you know, so what did you do to actually get this thing started? [SPEAKER_01] Day one, you had nothing. Day two, what did you start doing? [SPEAKER_00] We always had the company launch from almost day one. [SPEAKER_00] So we had a not very well designed app and a not very well designed shopper experience. [SPEAKER_00] And we just put one foot after the other, trying to build from a very small base of customers to a little bit larger and a little bit larger and try to pay attention to both the demand side and supply side at the same time. [SPEAKER_01] So who's the very first customer? What is their experience? Honestly, the very early customers, a lot of whom were our YC batchmates, probably placed orders that never arrived or were really late or didn't contain all the items. It's a human business, right? There's a lot of processes involved in mistakes. And every week we would try to make these metrics go up, right? Percent of late deliveries would go down and number of deliveries per week would go up. [SPEAKER_00] And the percent of your items that were delivered perfectly, found rate would go up. [SPEAKER_00] And we would every week try to push those metrics up and just make little tweaks to the software to make that happen. Did you ever shop? [SPEAKER_00] I still shop. Really? Yeah. I still have a shopper credit card. [SPEAKER_01] But you go fulfill orders sometimes? Occasionally, yeah. It's really fun and it's super hard. [SPEAKER_01] Is it hard? [SPEAKER_00] It is really hard. [SPEAKER_01] What's it like? Well, first of all, when you're shopping for yourself in the grocery store, you know exactly what you want. And if something's out of stock, you just make a quick replacement and you're good with it. Right. But when you're shopping for someone else, it's hard to understand what their intent is. [SPEAKER_01] You also don't know if they're going to be happy with the different chips or if they're But you go fulfill orders sometimes? Occasionally, yeah. It's really fun and it's super hard. Is it hard? It is really hard. What's it like? Well, first of all, when you're shopping for yourself in the grocery store, you know exactly what you want. And if something's out of stock, you just make a quick replacement and you're good with it. Right. But when you're shopping for someone else, it's hard to understand what their intent is. [SPEAKER_01] You also don't know if they're going to be happy with the different chips or if they're going to be really pissed because they wanted lemon lime. Right. Or do they want a bigger size of the same brand or a smaller size of the different brand? Yeah. [SPEAKER_01] Yeah. [SPEAKER_01] Yeah. [SPEAKER_01] It's a judgment call. [SPEAKER_01] Yeah. [SPEAKER_01] But then, I mean, you can ask questions in it. You can. Sometimes customers are really responsive. [SPEAKER_00] Sometimes they're not. Yeah. [SPEAKER_01] Okay. [SPEAKER_01] So you get all these initial pieces going, you start improving it consistently. Yeah. [SPEAKER_00] And very importantly, I was doing all of the customer support myself. So customers would call Instacart's phone number and it would ring my phone. So the pain of anything that was wrong with our service was personally felt by me. [SPEAKER_00] Yeah. [SPEAKER_00] Seven days a week. [SPEAKER_00] And then I would go and make the roadmap and fix those problems so that I didn't have to get those calls anymore. Wow. [SPEAKER_01] How pissed do people get? [SPEAKER_01] Like, is it an emotional thing for people who are like, hey, my burgers aren't here? It really depends. You know, every customer is different and it really depends. Sometimes people are buying things for their office. They're more chill. You know, if you're buying a rack of lamb for dinner and it needs to arrive before five, otherwise your dinner's going to be late, then you'll be really upset if it doesn't. [SPEAKER_00] Yeah. Actually, later I'm going to ask you about fast delivery and some other adjacent markets that I know you've thought about and done work in, but I'm still interested in how you actually got this consumer marketplace going because they're so hard to get going. So, did you feel pull immediately or was it the kind of thing where in order to get strong product market fit, you needed to add suppliers and selection and it didn't actually cross until you had more and more products in the catalog? [SPEAKER_00] My belief is that product market fit is a spectrum. It doesn't just happen in one moment. And so the early days of Instacart, we thought we had product market fit. We had a lot of pull from customers who wanted deliveries of groceries that were quick, but they didn't really care from what store. Our initial product was basically all coming from one conventional grocery store in San Francisco. But our real product market fit was really from families. And that only happened later when we started adding retailers and their full catalog to the platform. Why was that important? I mean, you don't want to buy groceries from a warehouse. You want to buy groceries from Sprouts or from Buy Right Market, right? You have a really strong loyalty toward the grocery stores that you already shop at and you want to get delivery from those on Instacart. [SPEAKER_01] How did the business itself work in the early days? Like I imagine it could not have been great margins when you were getting going because you couldn't charge $7 for an orange, but you still had to send somebody to go get the orange and bring it, and all of that. So were you running on a wire at the beginning? Like what did it look like at first? To be quite honest, at first we weren't very good at tracking our unit economics. [SPEAKER_01] I don't know. And we were definitely losing money, but it was a little bit unclear how much money. [SPEAKER_01] Yeah. Our primary goal was just to get more deliveries and higher quality deliveries and more customers. And we knew that we could achieve positive unit economics later, but it would take a lot of work and bigger scale. Zooming forward a little bit, were there landmark partnerships, grocery store deals, or whatever that really inflected the business? And could you talk through an example end to end? [SPEAKER_00] Yeah. I mean, the first thing is we didn't know how important retailers were. And in the early days we asked our customers, what could we do better? What could we do differently? Because at first you were not shopping from a grocery store. At first we were always shopping from a grocery store, but at first you went on Instacart and you saw a catalog and we did not tell you where the groceries were going to come from. Yeah. It's like, I want some strawberries. Where are they from? You're like, don't worry about it. And our idea was going to be, we'll get them from the cheapest, closest store. Yeah. Right. People won't care where the strawberries come from. Right. And so we asked our customers and they told us, we love Trader Joe's. We want only to shop at Trader Joe's. So we went on this mission to try to figure out how can we partner with Trader Joe's? Right. [SPEAKER_00] And we couldn't get in touch with them. We tried everything. And at a certain point we went to the store and we looked around and we said, well, maybe we can just shop out of a Trader Joe's without a partnership. And in order to do that, we would need a picture of everything that they sell. And so we asked the manager, can we get a picture of everything that you sell? And they said, absolutely not. We don't have that. We can't give that to you. And I said, well, what if I took my own pictures? I'll do it in the corner of the store or let us take some items out of the store into the parking lot and we'll take some photos and we'll bring them back. [SPEAKER_00] We can just shop out of a Trader Joe's without a partnership. [SPEAKER_00] And in order to do that, we would need a picture of everything that they sell. [SPEAKER_00] And so we asked the manager, can we get a picture of everything that you sell? [SPEAKER_00] And they said, absolutely not. [SPEAKER_00] We don't have that. [SPEAKER_00] We can't give that to you. And I said, well, what if I took my own pictures? I'll do it in the corner of the store or let us take some items out of the store into the parking lot and we'll take some photos and we'll bring them back. And they were like, no, no, no. And so we came back actually. And we said, what if we bought one of everything in the whole store? And they were like, that would be great. Come on a Thursday when it's slow. And so we said, okay, great. We'll be back on Thursday. And I went to that store with a bunch of other people over three days. And we bought one of every product in the entire Trader Joe's. How much was that? $20,000. [SPEAKER_01] That's okay. Yeah, not too bad. [SPEAKER_00] We had just raised the money from Demo Day. [SPEAKER_00] So we had a couple million bucks in the bank. [SPEAKER_00] We ran this experiment. [SPEAKER_00] We made the catalog of every Trader Joe's item. [SPEAKER_00] We launched it on Instacart.com. [SPEAKER_00] And at that time, we had to add a toggle, right? So now instead of seeing no retailer names, you would see Safeway or Trader Joe's and you could switch between them. [SPEAKER_00] And that was the moment I think we started to really find marketplace product market fit. [SPEAKER_01] That's interesting. It's crazy how Airbnb had something similar. [SPEAKER_01] Once they got good photos, it's like, it was worth it to them to go do super manual things, apparently. Yeah. And you have to roll up your sleeves and go do these crazy things to get the first customers to be really excited to tell their friends, to get the next set of customers, to get one city going. [SPEAKER_01] Once you had that understanding, did you then shift a bunch of the company focus to going and getting more retailers? [SPEAKER_00] Yeah. [SPEAKER_00] We did this with Whole Foods and Costco and a bunch of other retailers. [SPEAKER_00] And of course, we eventually got to the point where we struck partnerships with those retailers. And then they would give us their catalog data or they would at least let us in their stores to photograph it carefully. [SPEAKER_01] What was the argument that you needed to convince somebody like a Costco to serve products with you? Well, we're a few people in San Francisco. We're a startup. No one's ever heard of us. So it's tough to strike a partnership with a really big public company. [SPEAKER_01] Well, because also I assume the deal is, you're just going to come buy from us. Maybe you're going to cannibalize some of our online sales. [SPEAKER_01] I don't really know how the math works out. [SPEAKER_01] But I assume that there might be some idea of them thinking, no, I should just own this channel directly if I can. Honestly, back then it was a bit more of lack of awareness. Retailers didn't understand how important e-commerce was going to become. And they didn't have a good strategy yet. And in fact, retailers pay Instacart, right, a commission for bringing them. [SPEAKER_01] Right. Well, now you have all this traffic. Yeah, more growth. [SPEAKER_01] Yes. [SPEAKER_01] So at some point that flipped where you're like, hey, I've got the traffic. [SPEAKER_01] Now you can come in a different sort of price dynamic. And at first we started with local retailers, Buy Right, Rainbow Grim grocery right over here. And they were thrilled to partner with us. And then eventually we got to the bigger Whole Foods markets of the world. [SPEAKER_01] What were your levers for growth other than, I mean, so it sounds like adding retailers equals more growth in general. [SPEAKER_01] What else were the big levers? [SPEAKER_01] I've got to assume price. Geographic expansion was another big one, right? Like we learned how to launch new cities. We launched Chicago. We launched Boston. We launched Washington, D.C. We launched New York City. How do you launch a city? At first I just went there with an engineer. And we would catalog the stores, make sure that our operations were set up correctly to understand the borders of the city and the zip codes that we could serve efficiently. We'd hire shoppers and hire operations folks to get things going on the supply side. And then we'd do demand side marketing and try to match those and grow those. What worked? Man, I mean, I think at first in 2013 when we first launched the first city outside of San Francisco, which was Chicago. Luckily, I had a girlfriend there who's now my wife and she was going to business school. And so we got all the business school students, all the MBA students at Chicago University to become customers. And they told their friends. We threw events. [SPEAKER_00] We did PR. And there was something novel. There still is actually something novel about putting in your grocery list. [SPEAKER_01] Oh, yeah. And then in an hour, it all just shows up. [SPEAKER_01] I get a rush every time. And so we would try to use that. [SPEAKER_01] We try to use that. [SPEAKER_01] As you know, you know what I'm ordering. You know what I'm ordering. [SPEAKER_01] Yeah. Yeah. See, that's what I told you. No, no. [SPEAKER_01] Yeah. [SPEAKER_01] That's what I thought. I don't judge. [SPEAKER_01] Okay. [SPEAKER_01] So there's that. [SPEAKER_01] So there's geographic expansion. [SPEAKER_01] Was price a big lever? Like, was it the kind of thing where you're like, I change these prices and I just, am I playing with that tool carefully or is it not that big of a deal? Yeah. I mean, retailers set prices, but we would make delivery free. You know, we offered an annual membership that we sort of discounted and would give free [SPEAKER_01] No, no. Yeah. That's what I thought. I don't judge. Okay. [SPEAKER_01] So there's that. [SPEAKER_01] So there's geographic expansion. [SPEAKER_01] Was price a big lever? [SPEAKER_01] Was it the kind of thing where you're changing these prices and is it a significant tool, or is it not that big of a deal? Yeah. I mean, retailers set prices, but we would make delivery free. We offered an annual membership that we discounted and would give free trials of in Star Plus. [SPEAKER_00] Did you ever do referral programs? [SPEAKER_00] Absolutely. [SPEAKER_00] In fact, I designed this killer referral program that was a third of our traffic in the early days. [SPEAKER_01] When I first moved to San Francisco in 2013 or something like that, I was doing these crazy Uber referral programs. [SPEAKER_01] I was an Uber referrer. [SPEAKER_01] I was deep in there just doing paid marketing for Uber to get more drivers. [SPEAKER_01] And it was great. I see it was great. [SPEAKER_00] Just for fun? No, I got Uber credit. [SPEAKER_01] Oh, nice. [SPEAKER_01] Yeah. [SPEAKER_01] It was great. [SPEAKER_01] I think they stopped it at some point, but it was great for a little while. [SPEAKER_01] So you had those referral programs going for shoppers? [SPEAKER_01] We had, yeah. [SPEAKER_01] Or for customers. Right. The key thing we figured out is that after your first order, right when you placed it, but before it was delivered, you were really keen to share the service with other people. And so we would have this give $10, get $10 offer, or we would change those values to play around with them and experiment. Yeah. And that got a lot of people to share with their friends. [SPEAKER_01] When I think about the overall story of Instacart, obviously you needed a nice piece of software too. [SPEAKER_01] But a lot of this is building a business in terms of partnerships, business development, the hard work of city expansion, boots on the ground, hiring people. [SPEAKER_01] Is that common? [SPEAKER_01] Do you think a lot of consumer marketplaces require these other components besides just the technology more than B2B companies? There's some consumer and some B2B marketplaces that are what I call operationally complex. And ours is probably hard mode, extra hard mode. If you think about it, there's the consumer app, which, as a consumer who orders a lot of ice cream, there's the shopper app, right? They have to have an app that's beautiful and works really well and is performant in low wifi situations in the back of a grocery store, has all the photos of all the items. We have a huge ads business, right? We're partnered with almost every consumer packaged goods company in the U.S. and Canada. And then we have the retailer component, right? We're delivering enterprise grade software to retailers. [SPEAKER_01] Yeah. [SPEAKER_00] And then we have a logistic system that routes and batches orders. [SPEAKER_00] And we have a lot more stuff, analytics. [SPEAKER_00] There are so many facets to the business. That's uncommon. [SPEAKER_00] A lot of the business models that you and I invest in are pretty much the SaaS business model or AI applications, a lot less complicated. [SPEAKER_00] And so I think it's not for the faint of heart to try to build such a complex business. Talking about other hard mode moments, Whole Foods was obviously a big customer of yours. I remember one day I was shopping with Whole Foods and then one day we're not. Can you talk about what happened there? What it meant for you? How it affected the company? [SPEAKER_00] So the company's chugging along and we're signing retailers and we signed this big long-term deal with Whole Foods Market, which is not the largest retailer, but a really important one from a brand perspective. [SPEAKER_00] Seven in the morning, I get woken up one morning in 2017 and we find out that Amazon has bought Whole Foods. [SPEAKER_00] Now, Amazon is our biggest competitor. [SPEAKER_00] They're really focused. [SPEAKER_00] They have been working on online grocery for decades and they have essentially infinite resources and Whole Foods Market is our biggest client in terms of the number of orders that we send them. [SPEAKER_00] And so this is an existential crisis for the company. And then the headlines started coming out. Amazon buys Whole Foods for $13.7 billion. Amazon buys Whole Foods. What does it mean for the grocery industry? Amazon buys Whole Foods. Will Instacart succeed or fail? Yeah, it's crazy. Amazon buys Whole Foods. Instacart's toast. Yeah. [SPEAKER_00] And we were freaking out, right? [SPEAKER_00] And so what do you do? [SPEAKER_00] What do you do when you get hit with something like that as an early company? [SPEAKER_00] We had an all hands and we declared wartime. [SPEAKER_00] And we realized that this was going to be not a terrible thing for the company, but a dynamic situation we could make the most of. Every other retailer saw this news as well. [SPEAKER_00] And they were asking questions like, what is our e-commerce strategy? [SPEAKER_00] What are we going to do now that Amazon has entered our industry? [SPEAKER_00] And we used that to our advantage and we reengaged with, or they reengaged with us, almost every retailer that we hadn't signed yet. You're arming the rebels. [SPEAKER_00] Yeah. [SPEAKER_00] And we really used that wartime crisis moment inside the company to motivate people to work extremely hard and extremely fast and with retailers to get them to finally come aboard. [SPEAKER_00] And in the 18 months after that happened, we signed basically every major retailer that had been a holdout, including Costco and Kroger and others. And you think those wouldn't have happened without it? Certainly not on that timeline. [SPEAKER_01] Wow. [SPEAKER_01] So that effect might have been positive. Absolutely. It was one of the best things that ever happened to the company. One of the scariest things. And we really used that wartime crisis moment inside the company to motivate people to work extremely hard and extremely fast and with retailers to get them to finally come aboard. And in the 18 months after that happened, we signed basically every major retailer that had been a holdout, including Costco and Kroger and others. And you think those wouldn't have happened without it? [SPEAKER_00] Certainly not on that timeline. Wow. So then that effect might have been positive. [SPEAKER_00] Absolutely. It was one of the best things that ever happened to the company. One of the scariest things. It is crazy how when something like that happens, it's a good reminder that you can't always know whether some piece of news is good or bad. [SPEAKER_00] One thing's for sure. If you start a company and it takes a really long time to build it, you're going to face luck of some kind. Yeah. Good luck and bad luck. And great companies figure out how to take those moments and flip them and leverage them. Totally. And also when things that could be potentially bad for the company happen. [SPEAKER_01] Yeah. You have to have a thicker skin. [SPEAKER_01] Yes. You have to become anti-fragile. And for sure, Instacart is what I would call an anti-fragile company. Things happen and we don't get worse. We don't stay the same and just repair. We get stronger, right? People get emboldened and we get galvanized and we go off and do amazing things. [SPEAKER_01] I mean, another one that comes to mind that is both. It's a champagne problem. Instacart's a $10 billion public company, which is a remarkable achievement by any standard. There was one venture financing that was at 40 billion. Yeah. [SPEAKER_01] And a lot of companies, when that happens, it ends up killing them and they can't get through it. And it creates all these issues. But you got through it. You got public. You're now a public decacorn. And that's amazing. You know, can you talk about that journey too? Because I'm sure that didn't feel good at every moment. And there were probably some cultural things you needed to work through and all of that. Yeah. It starts with the beginning of COVID, right? COVID happened. Our business took off. It went nuts, right? Yeah. I mean, we grew 4X in 2020. We were suddenly remote. And we had to scale the company. And even with hiring more people, everybody was working seven days a week, two standups a day, just trying to keep the business afloat because there was so much demand. [SPEAKER_01] I mean, talk about COVID beneficiary. People just don't want to go to the grocery. You can't. Yeah. And even my own parents, right? Obviously, they're super fans of Instacart, but they were using Instacart sometimes and going to the grocery store sometimes. And then during the pandemic, they completely switched. And then you build a habit. And it lasted long enough that people build habits. Yeah. [SPEAKER_01] You acquired users. They stuck around. Yeah. We've never had a down year. But that's a challenging thing. And not being able to forecast what the next year and the following years were going to look like. And especially during 2021, the way the markets were, right? So our valuation went up and down. And this whole thing looked like a roller coaster. It's emotional. People get attached to the value of their shares. And people thought that our IPO timeline was going to be one thing. And because of the markets, it had to shift and happened later. And we had to manage through all of that. Also, it was a new era of the company, right? Up until that moment, almost everyone that joined the company was joining a company that wasn't yet really a household name, right? You had to squint to believe that we were going to do all the crazy things that we said we were going to do and achieve the scale that we said we were going to achieve. After COVID, it was pretty obvious, right? Instacart was on a great track. And different types of people were attracted to the company at that point. [SPEAKER_01] Yeah. [SPEAKER_01] And we had to manage through the changing culture that was necessary there. Obviously, now you're a profitable company. At the beginning, you talked about we didn't even know what our margins were. Let's just pretend they were definitely super negative. When did you sort of go through that cultural journey of like, this is going to be a profitable business now? So two and a half years into the company, we raised a round of financing that valued us at around $2 billion. And that was the beginning of us growing up as a company. We hired this guy, Ravi Gupta, who then became a partner at Sequoia and is still on our board. And he was the first adult in the room, let's say. And after a few months of joining, actually, really after a week or two of joining, he looked at our financials and he was like, guys, I don't know if you know this, but we're losing a lot of money on every order. And we were like, yeah, we sort of know, but how much money are we losing? And we quantified it. And we realized that as good as things were going, the company was growing very fast. And if we grew as fast as we were growing, all the money was going to be gone. We might run out of money. And so it was epic. But Ravi had this all hands at Instacart in his first few weeks and put up a slide and We're losing a lot of money on every order. [SPEAKER_00] And we were like, yeah, we know, but how much money are we losing? [SPEAKER_00] And we quantified it. [SPEAKER_00] And we realized that as good as things were going, the company was growing very fast. [SPEAKER_00] And if we grew as fast as we were growing, all the money was going to be gone. [SPEAKER_00] We might run out of money. [SPEAKER_00] And so it was epic. [SPEAKER_00] But Ravi had this all hands at Instacart in his first few weeks and put up a slide and he said, OK, we spend $25,000 a month, let's say, on Blue Bottle cold brew in our fridge. For that amount of money, we could lease a Tesla for the company. A few Teslas, right? We could have a fleet of Teslas. That'd be cool, right? Or for that amount of money, we could, let's say, acquire 5,000 customers or we could acquire 1,000 shoppers, right? And he asked people to raise their hands. Who wants to acquire the customers? Who wants to acquire the shoppers? Who wants to buy a Tesla? Or who wants to have Blue Bottle coffee? That's good. And of course, everybody realized that the company was probably spending too much money on some silly things. And so we made some changes. We cut some things like that. More importantly, we taught the company this object lesson about being more resourceful. [SPEAKER_01] So what went into that from there? [SPEAKER_01] That's like a moment where you galvanize everybody and you're like, hey, we care about this now. [SPEAKER_01] But what do you need to change besides the Blue Bottle? Not buying Blue Bottle coffee, as painful as that was, was the object lesson. But then the attitude we all had to have was we all own some little slice of our P&L, right? [SPEAKER_00] This team works on taxes. That team works on bottle deposits. This team works on batching efficiency. And everybody was responsible for 5 cents, 25 cents, $1 of the bridge from negative $15 of unit economics to neutral gross margins. And we had to do it fast, right? Because otherwise we would literally go out of business. And so that put this really big pressure on all of us. And it was hard. We had a lot of arguments about what to cut and what not to cut. And every team, everyone in the company was involved in this initiative. And we set a goal to become gross margin profitable. And we started to make little bits of progress towards it. [SPEAKER_00] And then big wins would happen, right? And we would figure something out. We would change prices in this city that was more expensive. And we would take away some marketing thing we were doing that wasn't working. And we slowly got the company margin positive. And then we threw this wonderful party, which was like everyone who was there remembers this. We threw a very resourceful party. [SPEAKER_00] We didn't spend any money on the venue. We had it in our office. [SPEAKER_00] We just turned on the music. [SPEAKER_00] And then we got dollar hamburgers from McDonald's. So we got $300 hamburgers and very cheap champagne from Costco. And we just had this huge celebration of this crazy win. That's awesome. [SPEAKER_00] As a company. I'm also curious about some of the decisions that you decided not to do. [SPEAKER_01] I'm coming to this from a lens of like it's always in these retellings of history. [SPEAKER_01] It's easy to focus on the amazing decisions you did make. [SPEAKER_01] There's also a lot of decisions you decided actively to not make that might have been big blunders or distractions or whatever. [SPEAKER_01] I'm just curious about what are some of the temptations that you avoided? [SPEAKER_01] And I'm thinking about Internet and maybe there's things that you didn't do at one moment, but later it was the right thing to do. [SPEAKER_01] Maybe it's international. [SPEAKER_01] Maybe it's rapid delivery. [SPEAKER_01] Maybe it's new products that you would offer to consumers. [SPEAKER_01] What were the things that were hotly contested that you decided to hold off on? In every company, there's this should we build our second product question or should we focus on the first product more? [SPEAKER_00] And we for a long time thought about international expansion. We thought about other products that we could do. [SPEAKER_00] We kept realizing that just focusing on the U.S. and focusing on our core business, which we still weren't done with, was a better use of resources. We kept the main thing, the main thing for a really long time. I think that was the right decision. But there was every year there would be different debates about international expansion. And now 13 years after we started the company, we are an international company and we are doing it. [SPEAKER_01] And it's not too late. [SPEAKER_01] It's the right idea at the wrong time is the wrong idea kind of thing. Yeah. You also, I'm sure, could have considered acquisitions to do those things. I'm sure you looked at considering doing that. Did you end up deciding that it's just complicated? We looked at acquisitions and still do. [SPEAKER_00] But we just realized there weren't the perfect company to acquire in most of the places we wanted to be. Yeah. Thanks for sharing a bunch of that story. It's very cool for me to hear because I haven't even gotten to ask you all those questions despite knowing you so well. And just an amazing accomplishment. Maybe before we move on to the next topic, I'm interested in what you're most excited about for Instacart going forward. Obviously, there's going to be, you know, it's a great business as it is. But what are the things that you're excited to see? [SPEAKER_00] The last thing I worked on at Instacart was a bunch of our AI initiatives. [SPEAKER_00] And the company has really embraced AI, both internally and using it in our products. [SPEAKER_00] And we're just now launching some of the first consumer facing agentic AI products that I worked on. And so I'm very excited to see those roll out. I just think that every consumer app in the near future will have incredible features where you'll be able to push a button and have magical things done for you. [SPEAKER_01] I want you to integrate with a home robot that cooks. [SPEAKER_01] And I just want to tell the robot that I want dinner. [SPEAKER_01] But what are the things that you're excited to see? The last thing I worked on at Instacart was a bunch of our AI initiatives. And the company has really embraced AI, both internally and using it in our products. And we're just now launching some of the first consumer facing agentic AI products that I worked on. And so I'm very excited to see those roll out. I just think that every consumer app in the near future will have incredible features where you'll be able to push a button and have magical things done for you. [SPEAKER_01] I want you to integrate with a home robot that cooks. [SPEAKER_01] And I just want to tell the robot that I want dinner. [SPEAKER_00] I don't think that's that far into the future. [SPEAKER_00] That's what I want. [SPEAKER_00] And I think Instacart will be a key part of getting there. [SPEAKER_01] I asked Kyle Vot this when he was on the show, bot co-founder. Yeah. [SPEAKER_01] And I was like, could that happen? [SPEAKER_01] He's like, I think it could happen. [SPEAKER_01] So you guys need a partner. [SPEAKER_00] I love Kyle and I think we should do it. I want to talk about, obviously, you've been a great angel investor for a long time. [SPEAKER_01] Now you're going to be, you are a full-time investor. I want to hear your opinions on consumer in general. [SPEAKER_01] And I feel like there's always these memes about consumer is dead. [SPEAKER_01] It's so hard. [SPEAKER_01] Obviously, there's some amazing runaway consumer successes, but they are few and far between compared to B2B. [SPEAKER_01] But I'm curious just to hear from you as someone who's done it and lived it, the building blocks of a good consumer business. [SPEAKER_01] Maybe starting with the founder, what makes a good consumer founder? I think to be a good consumer founder and to build a really big consumer company over the long term, you have to have some view on consumer preferences. You have to see the world through a younger generational lens. Usually that means an idea that looks contrarian today, that has some stigma associated with it, where most consumers would say that's not for me, but that you see in the near future, that stigma is going to lift. And as that Overton window moves, you go from looking contrarian to consensus. You wouldn't stay in the spare bedroom of a stranger 20 years ago. And then Airbnb made that a normal thing to do. You wouldn't get in a stranger's car. And then you had Uber. Having someone do your grocery shopping for you wasn't a normal thing prior to 2012. And then we willed that into existence. So you have to have this attitude that there's something I know is going to happen in the near future. We are going to build it so that when people are ready, the product will be there. You have to be right and you have to time it perfectly. So the idea almost has to be a little uncomfortable at first. Otherwise, you're in perfect competition. By the way, there's really great large public consumer companies that would love to do the consensus things before startups can. [SPEAKER_01] Yes. [SPEAKER_00] And so you have to be a little edgy. [SPEAKER_00] I gave some examples there. [SPEAKER_00] Mental health is something that had a stigma that seems to have lifted recently. [SPEAKER_00] Companions, AI companions is something that today is very edgy. [SPEAKER_00] And I think in the future will probably be more normal. [SPEAKER_00] And many people use those. Yeah. [SPEAKER_01] What else comes to mind for consumer founders besides this? So contrarian idea. And that means you also have to tolerate looking wrong and looking silly for many years. You have to have a thick skin. You have to really have conviction and tenacity and not pivot. And then the third thing is you have to run really, really fast. Once the opportunity becomes obvious, there will be lots of competition. So you have to be way ahead and you have to have a machine that can execute really, really fast. And build the product faster than anyone else. I think there are no great consumer companies where there's not an extremely high sense of urgency in the DNA of the company. [SPEAKER_01] Yeah. [SPEAKER_01] I guess generally speaking, if you had to pick the thing that you're looking for when you meet founders, how would you name it? I'm always looking for people that are what I call irrationally optimistic, that are just so excited about their version of the future that they'll tell everyone about it and attract talent that way. But investing at Seed is really tough. You just don't always know. You just don't always know. And you try to get in person with founders and you try to figure out if they're the real deal and what their motivations are. And then at a certain point, I started looking down and I look at their sneakers. And it's the craziest thing. I'm giving away the alpha here. [SPEAKER_01] Well, yeah. If you're looking at a founder and they got dirty white sneakers on. [SPEAKER_01] Look at my sneakers. Yeah, perfect. You got dirty white sneakers on. You're a real builder. You're in the arena. Yeah. And the reason why this is an interesting tell is that people that are busy building, they're locked in on their companies. They're sleeping at the office. They're working out of a house in close proximity to their founders seven days a week. They don't have time to buy nice sneakers. They just put on the same pair of sneakers and they get dirty. I invested in a company that Benchmark is an investor in, Gumlu. And one of the founders of Gumlu had such dirty sneakers. They were falling apart. [SPEAKER_00] Literally, they're flapping. [SPEAKER_00] You're like, I don't need to hear anything else. [SPEAKER_00] No, first of all, obviously, I love the company and both founders, but I had to buy him new shoes. [SPEAKER_00] His shoes were so bad. And so I've just found that the real builders, they just, they look the part. [SPEAKER_01] I love that. [SPEAKER_01] What's different here versus a B2B founder, if anything? [SPEAKER_01] And you've also obviously invested in a lot of B2B companies. [SPEAKER_01] What's different? They're flapping. You're like, I don't need to hear anything else. No, first of all, I love the company and both founders, but I had to buy him new shoes, right? His shoes were so bad. And so the real builders, they just look the part. [SPEAKER_01] I love that. [SPEAKER_01] What's different here versus a B2B founder, if anything? [SPEAKER_01] Some of this stuff exists in B2B, but I'm curious, you've also invested in a lot of B2B companies. [SPEAKER_01] What's different? [SPEAKER_01] When you're meeting somebody on a B2B idea, do you think differently about any of those things you just said? Yeah. I think with B2B founders and B2B companies, you need a little bit more subject matter expertise. You may not be the customer. And so you have to have lived the problem or know lots of the customers or have deep insights from having worked in the space. Starting a consumer company only requires those three things, right? You are a consumer, I'm a consumer. And if you have the taste, if you have the judgment and you know where people's ideas are going in the near future, you can build a consumer company without much domain expertise. [SPEAKER_01] Yeah. [SPEAKER_01] There's a question that's relevant for you now as a full-time investor. [SPEAKER_01] This is a selfish question for me. [SPEAKER_01] When you think about the investors that were helpful to you on your whole journey through Instacart, the types of investors or the specific actions, what was genuinely valuable to you? We have had some amazing investors at Instacart. And I think when you think about what founders get from investors, they get three things, in my opinion. The capital, right, on some sort of terms that you negotiate. They get the help and some investors are more helpful than others. [SPEAKER_00] And then they get the signal. [SPEAKER_00] Particularly for early rounds, I think founders underappreciate the signal. [SPEAKER_00] Having a great foundation of your company and having exceptional investors is going to be something that follows you for the rest of your company. [SPEAKER_00] And every subsequent round, the new investors who are going to issue a term sheet are going to call the existing investors, right? [SPEAKER_00] So you want to have a great relationship with your early investors and you want them to be high signal, awesome investors. Why do you think it's underappreciated? [SPEAKER_00] Because I think founders often negotiate a lot around the terms and the valuation. The focus at the moment of the deal is the equity. [SPEAKER_00] Yeah. [SPEAKER_00] Rather than that, the focus should really be, who is going to help me get from here to the next major milestone? And who is going to help me raise the next round in terms of having a great signal, right? Having Jack Altman invest in your company is a way bigger deal at a certain stage than it is having just a party round of other random investors. [SPEAKER_01] And then, I assume implied in the language you're using, at some point, it's not the most important thing. [SPEAKER_01] Once your company has its own big brand, your brand is bigger than your VCs at some point. [SPEAKER_01] And so it doesn't matter anymore. And I think you get people around the table and on the board that can help you in all the places you need help. And then the incremental next investor is maybe not as valuable in terms of help or signal. Right. And more valuable in terms of capital. It's like you only need one or two of those. [SPEAKER_00] Yeah. [SPEAKER_00] And you got to be careful not to take advice from too many investors, right? I actually think that's the flip side: you have too many people. You have too many egos around. That can also be a problem. [SPEAKER_00] And I have a framework for founders on how to take advice or not take advice from investors. Okay. [SPEAKER_01] All right. Science, art, and religion. We're going to put a little visual up behind you here. [SPEAKER_00] Science, art, and religion. [SPEAKER_00] Science decisions have a right answer. [SPEAKER_00] Okay. [SPEAKER_00] Great. [SPEAKER_00] Get advice from investors on that. Either they've solved the problem themselves or they're on five boards where those companies have solved the problem. Get the advice. Then you have art, right? That's why you're a great founder. You have taste and judgment, right? [SPEAKER_00] But you're inventing things. [SPEAKER_00] You're engaged in creative destruction, right? Only you can make the art decisions. Those are the ones that don't have a right answer and where you're really generating a new path, right? You can't outsource that and you can't get advice on that. [SPEAKER_00] You got to hold that to yourself. And then there's religion, right? [SPEAKER_00] This is how you work. [SPEAKER_00] What kind of company do you want to be? [SPEAKER_00] And there's a lot of right answers to that question, but it's a personal decision. And you ask yourself, what are my values? [SPEAKER_00] What are my co-founder or my early team's values? [SPEAKER_00] And then you make a set of values and you answer that question by looking at your values. [SPEAKER_00] Get advice all day long about science related things from investors, but on anything else, especially on the taste type decisions, just ignore them. How does all of this make you think about you as an investor and what you want to build and how you're doing workshop and all of that? [SPEAKER_00] I'm trying to be the investor that I wish we had when we were this early, right? [SPEAKER_00] And help people in the first year of their companies. [SPEAKER_00] And I try to be very careful not to give too much advice, not to give advice on topics where I'm not an expert and instead to help people network. That's a good instinct, by the way, because a lot of people would be like, hey, you founded Instacart. [SPEAKER_01] Whatever you say, I'm going to run with it. [SPEAKER_01] Yeah. I mean, if you're building an operationally complex marketplace, I have every piece of advice you could possibly want. By the way, as a note to founders, no matter how good your investors are, you should definitely not listen to 100% of whatever anybody thinks. [SPEAKER_01] 100%. Yeah. [SPEAKER_01] And also don't take a bunch of people's opinions and average them. That's also a bad way to go. That's a horrible way to go. That's awful. [SPEAKER_01] A lot of founders do that. That's a good instinct, by the way, because a lot of people would be like, hey, you founded Instacart. [SPEAKER_01] Whatever you say, I'm going to run with. [SPEAKER_01] Yeah. If you're building an operationally complex marketplace, I have every piece of advice you could possibly want. By the way, as a note to founders, no matter how good your investors are, you should definitely not listen to 100% of whatever anybody thinks. 100%. Yeah. [SPEAKER_01] Yeah. And also don't take a bunch of people's opinions and average them. That's also a bad way to go. [SPEAKER_01] That's a horrible way to go. That's awful. [SPEAKER_01] A lot of founders do that. Yeah, they do. Why are you building workshop in the co-working type of way? Why do you have a space for that? So I got a founder space. I like to work alongside founders in person. And I just think San Francisco is the best place in the world to build a technology startup. [SPEAKER_01] It's crazy how recent. During COVID, we almost lost it. [SPEAKER_01] I don't really think it was ever gone. I mean, I stayed. You know I'm a big suburbs guy. [SPEAKER_01] Yeah. And you know I'm a big city guy. [SPEAKER_01] Yeah, you are a big city guy. I think the city's great. And I think the founders stayed and new founders have come. [SPEAKER_00] And it's really the best place to build. A funny thing I was realizing, you know, we've got this friend group and people have had on the show. And there was a point earlier on where both you and I were founders and a bunch of VC friends. [SPEAKER_01] And then a couple of years ago, I became a VC and now look at you. [SPEAKER_01] It's just a crazy life cycle, isn't it? Yeah, it gets everyone. [SPEAKER_01] Yeah. Are you excited for it? [SPEAKER_01] I love helping founders. And this is the best platform on which I can help founders. Yeah. So that's why I'm excited. Well, this was really nice to have a serious conversation with you for once. I really enjoyed it. [SPEAKER_00] Yeah, for once. Maybe we should do more of this. [SPEAKER_00] We should do more of this. This has been special. All right. Max, thank you for doing this. [SPEAKER_01] Thanks, Jack. You just don't always know. You just don't always know. And try to get in person with founders and you try to figure out if they're the real deal and kind of like what their motivations are. And then at a certain point, I kind of started looking down and I look at their sneakers. And it's the craziest thing. I'm giving away, you know, the alpha here. Well, yeah. If you're looking at a founder and you got dirty white sneakers on. Look at my sneakers. Yeah, perfect. You got dirty white sneakers on. You're a real builder, right? You're in the arena. Yeah. And the reason why this is an interesting tell is that, you know, people that are busy building, they're locked in on their companies. They're sleeping at the office, right? They're working out of a house in, you know, close proximity to their founders seven days a week. They don't have time to buy nice sneakers, right? They just put on the same pair of sneakers and they get dirty. And like I invested in a company that Benchmark is an investor in, Gumlu. And one of the founders of Gumlu had such dirty sneakers. They were falling apart. Literally, they're like flapping. You're like, I don't need to hear anything else. No, first of all, obviously, I love the company and both founders, but I had to buy him new shoes, right? Like his shoes were so bad. And so anyway, I've just found that like the real builders, you know, they sort of just, they look the part. I love that. What's different here versus like a B2B founder, if anything? And, you know, like some of this stuff exists in B2B, but I'm curious, like, you know, you've also obviously invested in a lot of B2B companies. What's different? Like, is there something like when you're meeting somebody on a B2B idea, do you think differently about any of those things you just said? Yeah. I mean, I think with B2B founders and B2B companies, you kind of need like a little bit more subject matter expertise. You know, you may not be the customer. And so you have to have lived the problem or know lots of the customers or sort of have deep, deep insights from having worked in the space. Starting a consumer company, it really only requires those three things, right? Like you are a consumer, I'm a consumer. And if you have the taste, if you have the judgment and you kind of know where people's ideas are going in the near future, you can build a consumer company without much domain expertise. Yeah. There's a question that's relevant for you now as a full-time investor. This is a selfish question for me. When you think about the investors that were helpful to you and, you know, on your whole journey through Instacart, the types of investors or the specific actions, like what was genuinely valuable to you? We obviously have had some amazing investors at Instacart. And I think when you think about what founders get from investors, you know, they get three things, in my opinion. Obviously, the capital, right, on some sort of terms that you negotiate. They get the help and, you know, some investors are more helpful than others. And then they get the signal. And particularly for early, early rounds, right, I think founders underappreciate the signal. Having a great foundation of your company and having exceptional investors is going to be something that follows you for the rest of your company. And every subsequent round, the new investors who are going to issue a term sheet are going to call the existing investors, right? So you want to have a great relationship with your early investors and you want them to be high signal, awesome investors. Why do you think it's underappreciated? Because I think founders often negotiate a lot around the terms and the valuation. Just the focus at the moment of the deal is the equity. Yeah. And like rather than that, the focus should really be like, who is going to help me get from here to the next major milestone? And who is going to help me raise the next round in terms of having a great signal, right? Having Jack Altman invest in your company is a way bigger deal, you know, at a certain stage. Than it is having just a party round of other random investors. And then, I mean, I assume implied in sort of the language you're using, at some point, it's not the most important thing. Like once your company has its own big brand, it's like, you know, your brand is bigger than your VCs at some point. And so it doesn't matter anymore. And I think you get people around the table and on the board that can help you in all the places you need help. And then the incremental next investor is maybe not as valuable in terms of help or signal. Right. And more valuable in terms of capital. It's like you only need one or two of those. Yeah. And you got to be careful not to take advice from too many investors, right? I actually think that's the flip side is you have too many people like that. You have too many egos around. Like that can also be a problem. And I have sort of a framework for founders on how to take advice or not take advice from investors. Okay. So you got three kinds of decisions in your company. All right. Science, art, and religion. We're going to put a little visual up behind you here. Science, art, and religion. Science decisions have a right answer. Okay. Great. Get advice from investors on that. Either they've solved the problem themselves or they're on five boards where those companies have solved the problem. Get the advice. Then you have art, right? That's why you're a great founder. You have taste and judgment, right? But you're inventing things. You're engaged in creative destruction, right? Only you can make the art decisions. Those are the ones that don't have a right answer and where you're really generating sort of a new, you're blazing a path, right? You can't outsource that and you can't get advice on that. You got to hold that to yourself. And then there's religion, right? This is how you work. Like what kind of company do you want to be? And there's a lot of right answers to that question, but it's a personal decision. And you ask yourself, what are my values? What are my co-founder or my early team's values? And then you make a set of values and you sort of answer that question by looking at your values. Get advice all day long about science related things from investors, but on anything else, especially on sort of the taste type decisions, just ignore them. Yeah. How does all of this make you think about like you as an investor and like what you want to build and how you're doing workshop and all of that? I'm trying to be the investor that I wish we had when we were this early, right? And help people in the first year of their companies. And I try to be very careful not to give too much advice, not to give advice on topics where I'm not an expert and instead to help people network. That's a good instinct, by the way, because a lot of people would be like, hey, you founded Instacart. Whatever you say, I'm going to run with. Yeah. I mean, if you're building an operationally complex marketplace, I have every piece of advice you could possibly want. By the way, as a note to founders, no matter how good your investors are, you should definitely not listen to 100% of whatever anybody thinks. 100%. Yeah. Yeah. And also don't take a bunch of people's opinions and average them. That's also a bad way to go. That's a horrible way to go. That's awful. A lot of founders do that. Yeah, they do. Why are you building workshop in the sort of like co-working type of way? Like, why do you have a space for that? So I got a founder space. I like to work alongside founders, you know, in person. And I just think San Francisco is the best place in the world to build a technology startup. It's crazy how it recent. I mean, during COVID, we like almost lost it. I don't really think it was ever gone. I mean, I stayed. You know I'm a big suburbs guy. Yeah. And you know I'm a big city guy. Yeah, you are a big city guy. I think the city's great. And I think the founders stayed and new founders have come. And like, it's really the best place to build. A funny thing I was realizing, you know, we've got this friend group and, you know, people have had on the show. And there was a point earlier on where both you and I were founders and, you know, a bunch of VC friends. And then a couple of years ago, I became a VC and now look at you. It's just a crazy life cycle, isn't it? Yeah, it sort of gets everyone. Yeah. Are you excited for it? I love helping founders. And this is just like the best platform on which I can help founders. Yeah. So that's why I'm excited. Well, this was really nice to have a serious conversation with you for once. I really enjoyed it. Yeah, for once. Maybe we should do more of this. We should do more of this. This has been special. All right. Max, thank you for doing this. Thanks, Jack.