In this episode of 20 VC, host Harry Stebbings interviews Raphael Ilashayev, co-founder and co-CEO of Gopuff, a delivery platform for daily essentials. Raphael discusses Gopuff's unique approach to on-demand delivery through vertical integration, owning the supply chain end-to-end, rather than relying on third-party marketplaces. This strategy has allowed Gopuff to scale to over 550 US cities and maintain superior unit economics, with a focus on customer experience, rapid delivery, and expanding product categories. Despite early skepticism from VCs about the vertically integrated model, Gopuff's success has proven the efficacy of owning the entire process. Raphael also touches on the importance of humility, persistence, and customer obsession in growing a startup. Gopuff's future plans include aggressive expansion into Europe, further innovation, and maintaining a balance between growth and profitability.
"Gopuff's latest funding round priced the company at a reported $8.9 billion in March 2021, and to date, Raphael's raised over $2.4 billion for the company from the likes of Accel, SoftBank, Fidelity, Bailey, Gifford D1 and more."
The quote highlights Gopuff's financial success and significant investor backing, emphasizing the scale of the business and Raphael Ilashayev's achievements in fundraising.
"We said instead of partnering with folks and kind of creating this third-party marketplace, the only way to effectively solve this problem for both consumers, which is first and foremost and then ultimately unit economics, is by vertically integrating."
The quote explains the initial business strategy of Gopuff, which focused on vertical integration to control the entire delivery process, setting it apart from other models that relied on partnerships.
"Day one, the business was producing EBITDA. It was profitable from day one."
This quote underscores the financial discipline of Gopuff, highlighting its immediate profitability and self-funding approach in the early stages.
"The blended gross margin was in the high thirties, right? It's now in the high forties and growing, and the contribution margin is double digit positive."
The quote details Gopuff's financial health, particularly its gross margin and contribution margin, attributing success to the vertical integration strategy.
"We've been able to scale triple digits year over year for the last eight years consistently, but we would probably be even larger today."
The quote reveals the trade-offs considered in Gopuff's growth strategy, with Raphael acknowledging the consistent scaling and pondering the impact of different funding timelines.
"Go where the customers are. And that served us well for like the first three, four years."
The quote captures the early expansion strategy of Gopuff, which was straightforward and customer-driven.
"100% of our comp markets that are profitable. They're producing cash flow."
This quote provides evidence of Gopuff's successful market penetration strategy, with all established markets turning a profit and contributing to overall cash flow.
"We're producing positive contribution margin on an aggregate basis, including the markets that are kind of negative from a cash flow perspective, because they're just too young."
This quote emphasizes that despite the youth of some markets, the overall business is generating a positive contribution margin, which is a strong indicator of financial health.
"The more you fortress a given market... the faster that specific micro fulfillment center will get profitable."
Raphael Ilashayev explains that by increasing the density of fulfillment centers, they can improve profitability and customer satisfaction through faster delivery times.
"Once you really get the density in place and you can start really pulling on that ODH lever, you can deliver things incredibly fast, 12, 13, 14 minutes, and still deliver two or three orders in a batch."
Ilashayev discusses how market density leads to improved efficiency and faster deliveries, counteracting potential negative network effects.
"We're really eyeing on the side of delivering a really spectacular customer experience and just really surprising the lighting to customer."
Ilashayev stresses the importance of customer experience in Gobup's strategy, indicating that it is key to their success even as they maintain attention to unit economics.
"It's why the quarter I think is going to grow to 30% of customers this year come from Inapp referral."
This quote highlights the effectiveness of Gobup's operational excellence as a marketing tool, with a large percentage of new customers being acquired through referrals.
"We started with a local donut shop in Philadelphia... Over the course of the last two quarters, we introduced 600 other local products throughout the ecosystem."
Ilashayev illustrates how Gobup's focus on local products and listening to customer preferences contributes to brand loyalty and a differentiated market position.
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We created a group a few years ago called Gopup Marketing solution for this exact need.
This quote explains the inception of Gopup Marketing Solutions, developed to address the needs of CPG partners.
Why did you decide now was the right time and how did you think about this expansion into Europe?
This question addresses the timing and rationale behind Gopup's expansion into Europe.
The reality is it's an extremely complicated, very, very difficult to scale business.
This quote highlights the complexity and challenges involved in scaling a business like Gopup.
The number one thing is humility, right? Leaving your ego at the door and realizing, like, you know, so little compared to what it needs to take to kind of build a business like this.
This quote emphasizes the importance of humility in leadership, especially when scaling a fast-growing company.
The most important thing is the customer. We do everything that it takes for the customer.
This quote reflects the company's customer-centric approach and its alignment with profitability.
Making moves is like an early rally cry that we had, right. It's just a bias for action.
This quote explains the "making moves" philosophy as a call to action and problem-solving within the company.
The thing that was going to ultimately cause us to fail so early is that we've got to out execute it. And even today we have this mindset that we have to out execute everyone in our way.
This quote highlights the competitive drive within the company to outperform others as a key to success, and the critical nature of execution in the early stages of a business.
We took all the feedback that people got as a lesson and we had investors on board that were bold and visionary enough to say, like that model that people have scaled with right now might be a good model in the industry or in some regards, maybe it's not even a good model in that industry that they're expanding in, but for delivery specifically, this is probably the model that's going to win, right?
Raphael's quote underscores the importance of learning from feedback, having the right investors, and the conviction that their delivery model, despite being more complex, was the right approach for the industry.
This humility portion of sitting down, be humble, learning, listening to your customers, doing whatever it takes for them. Was ingrained to me, like at age ten, it kind of shoved into my brain, you better do whatever it takes for them because they can ultimately shut down this business by just choosing not to come here, by choosing to go somewhere else and doing something else with their business.
The quote illustrates how Raphael's early experiences shaped his customer-centric approach and the foundational belief that a business's success is deeply tied to its customers' satisfaction.
It's like kind of elevating the overall average. It's not going to move the needle far enough. So we're kind of looking at talent through that kind of lens, through that team oriented super.
This quote highlights the company's hiring strategy, which places a premium on team-oriented individuals who can contribute to raising the collective performance of the team.
Our tam globally is massive, right? It's over 10 trillion right now and growing. We're expanding into multiple categories. That's not only great for the customer, but also increasing our TAm exponentially.
The quote conveys the ambitious growth plans for Gopuff, emphasizing the vast global market potential and the strategic expansion into new categories to drive growth and increase market share.