How does a online, organically certified grocery store gain the attention of Silicon Valley investors? Last month, Boulder-based Mile High Organics (www.milehighorganics.com) , did just that, gaining a seed round from a number of high profile angel investors. We caught up with Michael Joseph, the firm's founder, to understand better what attracted those investors, and how the firm is hoping to change the view of the online grocery store business.
What is Mile High Organics?
Michael Joseph: We're an organic, online grocer. I'm sure you remember the online grocers of the late 90's. We've tweaked the model, it's all online shopping, and it's focused on organics. We do delivery on the Front Range, from Colorado Springs to Fort Collins, including the greater Denver area and Boulder.
What is your background, and how did the company start?
Michael Joseph: To jump way back to the food side, I grew up in Washington D.C., and when I was twelve, becoming a teenager, my dad was writing food transparency legislation. I was essentially being brainwashed into what my family thought was the right things to do, which was to provide consumers with as much information as possible about their food. I grew into the technology side, and then I saw that the two could intersect. When I was twenty-four, I cofounded another one of these firms, which is now in five states, and is a growing company. I ended up selling out to my business partners, and took myself to business school. After the noncompete ran out, the stars aligned the right way, and I saw the interest was still there. But, I didn't see anything happening in the industry. There was no leadership, even though time had passed. Consumers wanted more choice, so I risked everything I had, put together a team, and started the company. In the beginning, I even used a promotional check from my credit card company to get things off the ground, so capital has been extremely tight.
I've been able to learn from folks who had made mistakes in the past, and we just turned two last Friday. At this point, we're now serving thousands of people each week, an dour revenues are in the upper millions, and I'm psyched. We just started online purchases of fresh, organic product, and offer the highest quality products out there. We now can access a million and a half households, distributing from one distribution center, and it's really catching on. We have more than 600 products, and our customers continue to buy more for us, because the quality is right.
It's interesting to see you have some significant, Silicon Valley investors. What was their interest in your firm, and how did you manage to connect with them?
Michael Joseph: One of the reasons why, is the people I have aligned myself with. My co-founder hit a home run during the tech boom. You may know him, Steve Markowitz of MyPoints.com. It's still around today. That helped convince people to take an interest in this. They were very nervous about the logistics part of this, and we were able to explain that there is less difference between bits and bytes and brocolli and bokchoy than you'd ever expect.
Our largest investor did well around 1999/2000 in a super relevant way, and we've harnessed talent in the advisory board from the online grocery world, including Terry Drayton, who co-founded and ran Homegrocer.com. A little background on Homegrocer.com, is it was the most successful online grocer at the time, and in over three years, got to over $400M in annual run rate. It had 8 distribution centers, some of which were profitable, some not. However, they sold to Webvan, which then crashed. If not, they could, in today's terms, be the biggest online grocer. We have other relationships with folks who have been there. It's actually a beautiful underlying business. It looks like it's complicated, but individually, a distribution center is not so complicated. It's only when you try to put them together that it's complicated. That's the reason we're taking in these sophisticated investors, and continue to get interest. I think we've done a great job in cracking the code, in terms of getting this all right, but we're still in the early stages of what we're doing. We're not ready yet to roll out to other locations, though that is our intention.
So this is something you intend to take nationally after you iron things out?
Michael Joseph: Yes, it's funny, but national is different from a pure play technology company, and we're half technology. It's regional e-commerce, as opposed to something where you've got a national network, like UPS or FedEx. Part of the value is your delivery network. The other thing to keep in mind, is grocery is a $600 billion dollar market. Goinging fully national is not realistic, and that, frankly, is why we don't have a Homegrocer and Webvan racing to do that. You can talk about creating a $1 billion company just in a single region. It's crazy, but if you just look at the grocery sector, and Colorado, our rectangular pilot stake, the grocery sector is $14 billion.
What's different on how you're handling logistics which cuts through the various issues there?
Michael Joseph: What we're doing, is we have our hands around the logistics side, and enough of a value proposition to keep customers. We provide high quality customer service and products, which is why people stay with us. We never stop delivering on our promise, which is a critical thing. Thankfully, we focus on a premium segment of food, where customers are willing to spend. We're able to hit the market, the customer comes back, our quality is excellent, so they're spending more and staying longer. Could other do that? I don't really see anyone going after it with the same level of sophistication. We've done some architecting to get the company ready to grow very quickly. Fundamentally, I'd also add, this business does an did work--but not with webvan, which never had that model. Other companies had very profitable distribution centers, which is all you need. All of the mystique about the sector over the last 12 or 15 years has been part of my challenge, to cut through all of that. With Webvan, they were spending $40M to start a distribution center, with no proven model, and building everything from the ground up. That's why they perished so quickly. Some venture investors tend to push very hard to make a company either a raging success, but sometimes it causes them to crash and burn really quickly. That does not work for this model.
Any interesting insights you've seen so far from your initial efforts?
Michael Joseph: Here's something from the consumer side, which has been a pleasant surprise. We have found that consumers, across the income gap, ranging from people living paycheck to paycheck, to people well set for life, are all shopping with us, and all for the same reasons, which is for the quality of our food. That's been a most pleasant surprise.