Bootstrapping a Perishable Meat Business To Significant Scale: ButcherBox CEO Mike Salguero (Part 5)

Sramana Mitra: What is the logistics backend at this point? 

Mike Salguero: Multiple warehouses. We have four, soon-to-be six, warehouses. We had multiple cutters and farms. 

Sramana Mitra: Is this national?

Mike Salguero: It’s national. We are shipping out hundreds of thousands of pounds every month. It starts with the animal in the farm. We got to make sure that we’re all about 100% grass fed, humanely raised, antibiotic and hormones free. 

Sramana Mitra: How many farms do you work with?

Mike Salguero: Hundreds.

Sramana Mitra: They’re spread all over the country?

Mike Salguero: All over the country. Some of our beef comes from Australia. 

Sramana Mitra: What is the financial engineering of the business? Do you have to buy the inventory? Are you doing consignment? How does this work?

Mike Salguero: You have to buy the inventory. You really have to understand signups. You have to understand who’s going to stay. 

Sramana Mitra: But you had subscriptions, so have a good idea about what you need to buy. 

Mike Salguero: Yes, subscription businesses are amazing. We have grown very fast because of subscription business model. It just compounds itself when you have a product that people like and want to continue getting. Every month, it’s more on top of more.

Buying the inventory is obviously very hard because, you don’t want to be short, and you don’t want to be long. That’s a very complicated process. We have real experts who have been in the industry for a long time purchasing our meat and running our warehouse operations.

Sramana Mitra: How did you find these people? This is not your expertise to begin with.

Mike Salguero: Not at all. I just ate meat. It was mostly LinkedIn or personal referrals. I go on LinkedIn and just look at names. In this business because we are focused on being profitable, I always want to make a financial argument for the hire. When we brought in our head of meat, it was like, “We are shipping all this meat. I’m sure we can bring someone in who can save us money.”

Sramana Mitra: How big is the team now?

Mike Salguero: We’re 60 people. 

Sramana Mitra: Have you used any kind of inventory financing?

Mike Salguero: We took a short-term $100,000 line at 15% for six months. We did that once. We have not done any inventory financing. People won’t give us inventory financing. They consider this to be perishable. 

Sramana Mitra: You basically have to do this organically with working capital. 

Mike Salguero: Yes. For anyone who wants a new business idea, we are unable to get accounts receivable line of credit either, which I think is crazy. We have tens of thousands of subscribers. We know our churn rate. We can’t get a loan. It’s pretty interesting.

Sramana Mitra: Have you tried banks like Silicon Valley Bank?

Mike Salguero: They want to follow venture capitalists. All the venture banks want VCs to have done the diligence before they put in their money. 

Sramana Mitra: It doesn’t matter. You have full control over the business. You’re growing nicely.

Mike Salguero: That’s my thinking. If you look at the food delivery space, everyone hemorrhages money. 

Sramana Mitra: The fundamentals are terrible. The unit economics are terrible. 

Mike Salguero: They raise a ton of money. They pay a ton of money to bring in a customer. They’re just hoping that if they scale more, it will work. We not only want to run this business but we also want to solve our customer’s problems. They don’t have time to procure great quality meat at a grocery store.

We’ve been thinking about other ways that we can utilize our cold chain fulfillment centers. We’re looking at other brands. Imagine a completely different brand using the same backend.

Sramana Mitra: Very interesting. Congratulations. Thank you for your time.

[This interview was conducted in February 2018]

This segment is part 5 in the series : Bootstrapping a Perishable Meat Business To Significant Scale: ButcherBox CEO Mike Salguero
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