The Perishable Startup

The story of Blue Apron’s rise and fall from grace seems straightforward. As business analysts would have you believe, it was simply doomed to fail from the start. It has a poor business model, a commodity product, and operates in a highly competitive industry. But I was there from the very beginning — as the first engineer and second full-time employee — and having been on this roller coaster ride for the last 6 years, I’ve come to a different conclusion. Blue Apron was a business with truly great potential that squandered an extraordinary opportunity.

I should mention upfront that my motivation here is not to take down leadership and hopefully this does not come across as just an angry rant of some bitter former employee. Rather, I’d like to provide what I believe to be a thoughtful, measured, and honest view of the Blue Apron story. Most of the startup literature gives the perspective of founders. The employees are rarely given a voice, even though many of us at Blue apron saw the writing on the wall long before founders and investors. As employees we are often made to feel small and insignificant, but I would like to see more of us stand up and loudly challenge the leadership of any enterprise, because a business is about more than the enrichment of its founders.

A Promising Start

I got off at the Grand St subway station in east Williamsburg and made my way over to Maujer, the location of my new employer. As I walked down the street of warehouses — graffitied brick buildings with their large, grey gates half open — it was eerily quiet. I narrowly skipped over the dark liquid that oozed out of a meat supplier and sidestepped some blue chemical barrels that overflowed onto the sidewalk. I eventually made it to Blue Apron’s headquarters, another nondescript warehouse with a small office inside. This wasn’t exactly what I had in mind when I decided to join a startup in 2013. But despite outward appearances, I knew this was a promising opportunity.

We weren’t growing exponentially like a software company, but we had very strong subscriber growth and it was driven primarily by our referral program and word of mouth. There wasn’t much of a marketing budget. After all, we were a small company with limited funds. We understood frugality. So the organic growth metrics were heartening. But those were just numbers in a database. What was really exciting was hearing all the customer stories and positive feedback we’d receive throughout the week.

Customers really resonated with the product. They loved the recipes, the cooking experience and sharing the end product with their friends and family in the form of a cooked meal or Instagram post. Some were deeply engaged with the brand and sent us lengthy love letters. A couple that got engaged over a Blue Apron meal. A mother that was able to reconnect with her daughter and bring her family closer by cooking together. This was a novel service and it had sparked something in people’s imagination, the possibility of experiencing food and cooking in an entirely new way.

There was competition back then, but we simply ignored them. We remained heads down focused on sourcing the highest quality ingredients and carefully testing the recipes to meet our high standards. We wanted customers to have a great product experience. If we received a complaint about an ingredient that didn’t show up in the box, we would hire a TaskRabbit to get it and deliver it. We gained the loyalty and respect of our customers and quickly became the market leader.

At some point in that cramped office space situated in our Williamsburg warehouse, a culture began to emerge. Folks from different backgrounds — a few engineers, culinary experts, marketers, customer service reps — started to cohere into a family unit, inspired by a shared passion for food and the opportunity to positively shape people’s lives. Team lunches, birthday celebrations, outings, modest happy hours. We came to know each other well and that bond and passion allowed us to work together effectively, inspired us to help each other cross functionally, and motivated us to stay late and work hard. The ever-present noise of boxes being moved, forklifts beeping, warehouse associates yelling, and trucks honking eventually faded into the background as we told jokes, played music, and excitedly discussed future possibilities.

From the office window, looking into the adjacent storage space, the sense of growth was tangible as the boxes continued to pile up and fill more and more of the space each week. Eventually we could no longer fit them in the warehouse and just started stacking them on the street outside. Perhaps not legal, and rain would have spelled disaster, but the situation was simply met with carefree laughter. After all, it was a good problem to have.

Early Cracks

One of the common misconceptions about Blue Apron is that it is, under the hood, just an ordinary food delivery company. But unlike a business that ships protein bars there are two key variables that introduce unique operational complexity. One is that the menu changes every week. The other is that the ingredients are perishable. As trivial as these may sound, they presented some truly difficult challenges that were continually underestimated by leadership for years to come.

For one, given the nature of our subscription business, it was hard to predict just how much to order of each ingredient every week. Different recipes were popular, order rates varied, the growth was unpredictable and as our customer base grew, overall tastes and preferences changed. Our purchasing manager was always scrambling at the last minute to order the necessary ingredients or find replacements.

Another challenge is that the food needs to remain fresh. This means we had to worry about things like refrigerated packaging, storage temperature, length in transit, and weather conditions. The summers were rough in dealing with complaints about spoiled ingredients. The winters were a blessing in this regard, but came with its own challenges, unpredictable storms causing late or missing packages.

One of the biggest challenges, which wasn’t clear at the time, was our limited operational flexibility. Packing and food preparation was designed around specific recipe types, such as the Meat recipe, or the Vegetarian recipe. This restricted type-oriented facility design prevented us from having something more flexible that allowed for a greater number of recipe options and on-demand ingredient combinations and substitutions. This could have been tackled properly at any point as we opened new warehouse facilities, but once we entered the high growth phase, time was of the essence, and we decided to stick to what we know rather than make any significant changes. Perhaps we assumed it was something we could simply address later on a whim.

As we began to recognize these challenges, we tackled them initially as a startup would, hacking our way around each problem. I spent many late nights with the operations and marketing teams, tracking down packages in our system and re-routing them, sending emails to customers to let them know their box will be delayed or that we’ve had to replace an ingredient. That we were able to troubleshoot and rectify these problems was quite a feat and spoke to the talent and dedication of many early employees I had the good fortune to work alongside.

Despite these operational challenges, there was a more fundamental issue with the product itself. We were inspired by the customers that wrote to us, but we couldn’t ignore the many others that were canceling. They were all very clear in what they wanted and what they disliked. The food took too long to cook. There wasn’t enough variety. They had dietary restrictions. They wanted more order flexibility. We were all well aware of this early on and many of us raised the issue and discussed it internally. But in all of these conversations, the founding CEO was silent or dismissive.

There was, in my opinion, a critical misunderstanding here. Customers were indeed excited about the existing product offering, but they were more excited about the possibility for a new food delivery experience. We had not yet achieved product market fit. We had only inspired people with a vision and they wanted us to evolve to meet their hopes. But we decided to ignore their feedback. This just wasn’t for them. We would find other customers and continue to expand the business. The founding CEO, who held the lion’s share of equity, had perhaps become too enthralled with the prospect of a new boosted valuation. Or perhaps he was too heavily influenced by outside investors who seemed to think they knew better than our customers. Regardless, the seeds of failure were first planted here, in 2014, right on the heels of a big funding round that would catapult us into a short-lived unicorn.

The Altar of Growth

When I joined Blue Apron in April of 2013, no one had heard of it. When friends asked where I worked, I would respond “this food delivery startup”, somewhat embarrassed since I was often met with blank stares. By 2015, Blue Apron had entered the public consciousness. Unaware of our reach, I still had a habit of saying I worked for “this food delivery startup” and was surprised when people’s eyes lit up in response, “You mean Blue Apron?!”. With a new arsenal of funding, we invested heavily in marketing and eventually achieved those frivolous things that all early startup employees hope to attain — name recognition and unicorn status. We then proceeded to break open those cracks in the foundation and do irreparable damage.

DHH has written about Silicon Valley’s religious and self-destructive obsession with growth. In his view, once a startup accepts VC money, it becomes a ticking time bomb. This rings eerily true with Blue Apron, but I wouldn’t go so far as to say that raising capital itself is always a problem. The capital infusion, in my opinion, was a tragically missed opportunity to reinvest in our existing business, to fortify the foundation, to address customer feedback and to develop the sophisticated operational infrastructure necessary to meet their demands. This was the moment for decisive, visionary leadership. One that was truly customer-focused and not shaped by the ever increasing number of investors that sat at the table. But that moment came and passed. Instead, we were offered a different vision, one lacking in any focus or conviction. We would pursue accelerated growth while simultaneously expanding into new markets, such as wine and e-commerce.

With that, the company entered a new phase. We would need a bigger headquarters and so we moved into a large, open office in SoHo. We began hiring aggressively, offering attractive salaries and paying out hefty referral bonuses. The equity compensation for new hires would be well below market, but it didn’t matter. This was obviously going to be a multi-billion dollar unicorn. The change happened so fast I can only remember it as a blur. I would leave on vacation for a week and come back to see all these unfamiliar faces, a more crowded office and find that my desk was moved again in yet another seating arrangement shift.

I would be lying if I said this wasn’t the most fun I had working there. It was incredibly exciting. The money was abundant, the growth intoxicating. And the drinks flowed. Corporate cards, big team lunches, happy hours, open bars, lavish holiday parties, extravagant summer outings. The fridges were stocked with beer, LaCroix, coconut waters, the pantry with a wide selection of liquor. Every Thursday night was a party. Employees would gather in the kitchen, drinking beer, making cocktails and then head out to a nearby Karaoke bar and sing late into the night. As the headcount grew, the partying got more out of control. I don’t think there’s any need to go into the details here. As some of you know, startup culture has its excesses. I certainly drank more than I’d care to admit. I had fallen into the same hypnotic trance as everyone else, captivated by the same illusion.

We felt that we were a special company on a special mission. We were all incredibly proud to work there. We weren’t just some tech company, we were also a food company. We weren’t some boring B2B startup, we were a cool place to work. After all, our product touched a big part of people’s lives and we could hear them talking about us as we walked the streets of NYC. We were a darling of the media and everyone knew our name. Each week, we patted ourselves on the back as a founder would announce that our revenue and box count once again hit all-time highs and that the competition couldn’t keep up. We were unstoppable.

It was not until a few years later that I finally woke up — hungover from all those years of drunken excess — and was able to see it for what it was. Artificial. Hopelessly fleeting. A pretty facade covering a crumbling foundation. The business was being run on a spreadsheet, the CEO maniacally focused on LTV models. Customers were no longer families with stories, but sheep to be herded into a conversion funnel, manipulated to stay with the service. Employees were merely commodity “resources” whose sheer numbers were deemed sufficient to solve difficult problems. What was once a tight-knit supportive family culture devolved into office politics, finger pointing, and ass covering. Fragmented teams with over-protective managers staked their territory and in order to bridge the growing communication gap, more meetings were scheduled, fewer decisions made and less real work completed. The culture debt accrued.

We began to feel the rumblings as the ground beneath us shook violently. Major problems surfaced from within our operations and technology infrastructure. A deluge of ingredient issues and late deliveries. Trucks would go missing. Warehouse workers would not show up to work. Odd objects would show up in customer’s already spoiled boxes. Costs skyrocketed and margins plummeted. Software bugs brought additional headaches. Order selections were randomly changed, emails sent to the wrong customers, promotional discounts mistakenly applied, accounts magically reactivated. Leadership responded predictably. Get the employees in line. Find out who is to blame. Hire more people. Countless retrospective meetings were had, but none addressed the deeper, systemic issues.

It got so bad that we had to shut off most of our marketing spending and give the marketing team a few months vacation. We laughed that it was a good problem to have, but this wasn’t like the early days. This was entirely self-induced by artificial growth, an unwillingness to build sustainable systems, and an indifference to customer feedback. It should have been a major red flag that there were serious foundational issues.

Many of us early employees did recognize these problems and complained about them, though mostly in private or over drinks at a Thursday happy hour. Few were bold enough to raise these issues to their managers and even fewer up the chain to leadership. Not being more vocal about all of this is one of my big regrets. Unlike many others, I had access to and a relationship with the founders. I could have said something, pushed back, challenged them more. But who was I to say anything? I would go home and see the CEO featured in another article. He was on his way to becoming a titan of industry. A billionaire. And with our trajectory, my own equity was going to have significant value. Best to shut my mouth.

A Moment of Reckoning

I suspect that in every startup’s life, there comes a moment of reckoning. An important obstacle that is a defining moment in the company’s life. What distinguishes the great companies from the large pile of failures is how well prepared it is to meet that challenge. So on the eve of Blue Apron’s IPO, the great challenge came. The threat of Amazon’s foray into the space with the acquisition of Whole Foods. This was going to be the big battle, the moment for a glorious clash. But the reality was rather anticlimactic. Goliath had come and David — drunk, weary and fat — collapsed on the ground after taking only a few steps.

With the increased scrutiny on Blue Apron’s numbers, it was clear to institutional investors that we weren’t doing a very good job of retaining customers. The competition was intensifying with big, foreign companies like Hello Fresh continuing to eat up market share in the US along with a number of niche players. We had become a commodity business, the unicorn valuation sustained only by the marketing dollars spent on growth.

The market had become over-saturated with meal kits, barely distinguishable from each other and serving as nothing more than an opportunity for some free food. Unsurprisingly, our marketing dollars started to lose their effectiveness. Worse, operational issues exploded, culminating in the publicly failed launch of a new warehouse facility. Meanwhile, customers — increasingly frustrated with a degrading product experience — were leaving in bigger numbers to try other meal kits that might meet their specific tastes and preferences.

If there ever was a wake-up call, this was it, but it was too late. What was once a nimble, cohesive family was now a slow, fragmented, slothful behemoth. Our entire technical and operational infrastructure was built around a very specific way of doing business, which itself was a hairy tangled mess of hacks and workarounds. Coordinating various parts of the company to steer the ship in a radical new direction was a practical impossibility. Neither did we have the courage. We brought in more consultants to better understand the “market”, and ran small half-baked A/B tests — careful not to introduce too much operational instability — naively hoping for some significant change to that sacred LTV metric.

Most importantly, the tough times demanded that we come together, work harder and do our best to support each other in order to turn the ship around. But employees’ loyalties, fragile to begin with, were now damaged beyond repair. First the layoffs. Then the realization that their equity was going to be significantly less than promised. There was not much else keeping them there. No real sense of ownership. No clear or believable vision or mission. And all those years of frustrations and hard work and endless meetings. For what? So I watched as the company eroded from attrition.

Every week was another going-away party, one last hoorah. Team lunches got smaller and less frequent. Frustrations that were bottled up for so many years bubbled to the surface. The warm, energetic personalities that would greet you in the morning as you got your coffee and made your bagel were now replaced with cold, silent despairing faces. By 5PM, the office was empty. With each departure, our systems grew increasingly less stable and more difficult to maintain. Systems that were never designed properly in the first place.

For some reason I stayed, a zombie employee collecting a paycheck as I figured out my next steps. I watched as the COO was kicked out. Then, the CEO was replaced by the board. Eventually the new CEO and the founding CTO were replaced. All those people — engineers, customer service reps, marketing managers, culinary experts — that I joined with in the early days and with whom I shared many memories, happy hours, lunches, and laughs, gradually disappeared. This was no longer a company I recognized, nor was it aware of my lingering presence. I was just another engineering resource left amid the wreckage. A relic of a forgotten past.

Lessons

When I first joined Blue Apron, I made it very clear that my goal was to learn as much as I could and then go off and start my own company. This was an opportunity for me to see how it was done and perhaps when my journey was over, I would have the right education, resources, and connections to build a great business of my own. I naively thought I’d be like a member of the PayPal mafia. And so I went on this journey, not just working as on employee, but as a careful observer and diligent student. I supplemented my practical education with countless books, blog posts, talks, podcasts.

I never expected to take away these particular learnings, but I am grateful for it. One might think this is a story about careless greed, but that would be an oversimplification. After all, if I were the CEO, would I have behaved any differently? It’s easy to judge from here, but would I have had the courage to stand up to the mounting pressure of investors and consultants? To ignore the opportunity to boost my own equity value? And what about the risks of following an uncertain path, not clearly outlined in some market estimate or model that was not blessed by investors? How many of us are really capable of taking one step back to move two steps forward?

Instead, I prefer to blame our education and the institutions that train so many so-called business leaders. There is a reason I believe that many great startup founders and visionary leaders do not come from reputable MBA programs or finance institutions. As we saw with Blue Apron, the growing number of investors at the table led to an ironic result: the destruction of capital. The finance type seems to be a particularly insecure breed. They desperately cling to the false certainty of their spreadsheets and constantly seek external validation from their industry peers, investors and competitors. They seem incapable of developing and following their own internal compass. Clearly, a better education is needed.

So here’s an important lesson not taught in business school or ingrained in the average investor. Any new venture is a highly perishable thing. It must be handled with care, placed in the right conditions, incubated at the right temperature. Success is not the result of some singular great feat, but the natural byproduct of staving off all those forces of entropy that threaten it from within and without. A company is a highly complex system that cannot be reduced to a simple formula.

The founder must be a gardener, treating its people and processes with a delicate touch, ensuring the company is growing healthily and sustainably. The founder must be an architect and know when to hack and when to build, always aware of the foundation beneath the surface. Most importantly, the founder is a navigator sailing into uncharted territory. All those metrics can only tell you where you’ve been and will always be lagging indicators. In order to assess and prepare for the challenges and opportunities in the dark waters ahead, one needs an internal compass — vision, purpose, conviction — and allow the deep needs of customers to serve as a guiding light.

I’m sure countless companies have failed for similar reasons. But to me, this tale is particularly tragic because of the lost potential to positively impact people and build something truly special. When I consider what we had in the early days and how hard everyone worked believing in a mission, I can’t help but think that the people that really mattered — customers and employees — were the ones hurt the most. There was clearly a huge, untapped need for a new home-cooking experience and customers’ excitement and hopes were treated with disrespect and leveraged for immediate financial gain. Worst of all, many good, hard-working employees I know, especially those that joined later, saw their equity holdings wiped out. While investors and founders were able to walk away with millions (though I’m sure they would lament not making billions), employees were left holding the bag. I was fortunate enough to have joined right before a big investment round and in the timing of exercising my options and selling my stock. But luck of this kind shouldn’t be the deciding factor in employee outcomes.

Blue Apron is still a going concern. Not an outright failure, but a much smaller company. What was once a $2 billion unicorn is now a roughly $100 million company struggling to remain listed on the stock exchange. However, the current CEO, Linda Kozlowski, seems like the right kind of leader, one I wish we had much earlier on. She’s thoughtful, honest and seems genuinely passionate about the product and our customers. She’s taken on a very hard job and I don’t envy her position. It’s hard to say where Blue Apron goes from here. Can it turnaround? It’s possible, but it’s incredibly challenging to reverse the forces of decay acting on a spoiled fruit.