20VC GoPuff's Rafael Ilishayev on How GoPuff Has Been EBITDA Profitable From Day 1; The Unit Economics Behind GoPuff, With Intense Competition What Happens To The Food Delivery Space & What It Takes To Launch, Grow and Maintain New Markets



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.

Summary Notes

Introduction to Gopuff and Raphael Ilashayev

  • Gopuff is a market leader in delivering daily essentials quickly.
  • Co-founded by Raphael Ilashayev, who serves as co-CEO.
  • The company valued at $8.9 billion as of March 2021.
  • Raphael has raised over $2.4 billion from investors including Accel, SoftBank, and Fidelity.
  • Gopuff operates in over 550 US cities and employs over 7000 people.

"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.

Founding Moment and Business Model

  • Raphael and his co-founder were 19 when they conceptualized Gopuff.
  • They identified the lack of convenient, on-demand delivery services.
  • Gopuff was created to vertically integrate, owning the entire delivery process.
  • This approach was not popular in 2013.

"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.

Funding and Profitability

  • Gopuff did not raise money for the first two and a half years.
  • The business was profitable from day one, with positive EBITDA.
  • Profits from initial cities funded expansion into new markets.
  • External funding was eventually sought to accelerate growth.

"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.

Margin Structure and Expansion

  • Gopuff's gross margin structure was superior from the start.
  • Vertical integration led to higher gross margins and double-digit positive contribution margins.
  • The focus was on perfecting the business model before scaling.
  • Expansion was based on infrastructure growth rather than marketing.

"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.

Reflection on Past Funding Decisions

  • Raphael reflects on whether raising funds earlier would have been beneficial.
  • The discipline from a lean start was valuable.
  • However, earlier funding could have potentially led to even larger growth.

"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.

Market Expansion Strategy

  • Initially, Gopuff expanded based on customer demand.
  • Now, a market development team uses various insights for expansion decisions.
  • Intent to purchase is still a key metric for opening new micro fulfillment centers.

"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.

Achieving Profitability in New Markets

  • Gopuff defines comp markets as those 18 months or older.
  • All comp markets are profitable, which drives confidence in investing in new infrastructure.
  • The company is committed to continuing the rapid expansion of its micro fulfillment centers.

"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.

Profitability and Growth

  • Gobup is experiencing rapid growth with a clear path to profitability.
  • All comp markets are currently profitable, with positive contribution margins even in newer markets.
  • The company has the ability to adjust levers to achieve EBITDA profitability at will.
  • Customer demand is high, and the focus is currently on growth and expansion.

"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.

Market Maturity and Profitability

  • The "fortification strategy" involves adding more micro fulfillment centers to fortify markets.
  • Increasing the number of fulfillment centers in a city reduces delivery times and improves profitability.
  • Technological improvements in binning, batching, and routing contribute to efficiency.
  • The goal is to reduce delivery times to an average of 15 minutes.

"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.

Negative Network Effects and Efficiency

  • Gobup's vertical integration allows for efficient binning and batching due to single pickup points.
  • The Orders per Driver per Hour (ODH) metric measures driver efficiency and delivery experience.
  • As market density increases, ODH and delivery experience improve, allowing for fast and multiple order deliveries.

"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.

Customer Experience and Unit Economics

  • A high ODH is desirable, but customer experience is prioritized over extreme efficiency.
  • Gobup aims to balance fast deliveries with strong unit economics for profitability.
  • The focus is on surprising and delighting customers to maintain a competitive edge.

"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.

Marketing Costs and Customer Acquisition

  • Gobup believes that the best marketing is through excellent operations.
  • A significant portion of new customers comes from in-app referrals due to positive customer experiences.
  • The company is expanding its product offerings to increase Gobup's use case and customer stickiness.

"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.

Consumer Loyalty and Brand Stickiness

  • Listening to customers and understanding their needs is crucial for building loyalty.
  • Customers value fast, consistent delivery experiences and a broad product range.
  • Local product offerings and a subscription program enhance customer retention.
  • Expanding product categories like alcohol, baby goods, and over-the-counter medications increases the platform's relevance and stickiness.

"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.

  • The approach to paid product promotion was not discussed in the provided transcript.

No quote is provided since this topic was not covered in the transcript.

Gopup Marketing Solutions

  • Gopup Marketing Solutions was created to meet the specific needs of CPG partners.
  • Product teams and leaders were established to build products important for customers.
  • A self-service platform was launched for brands to create campaigns.
  • Products include shelf space, product placement, and sampling.
  • The aim is to help partners grow their market share both on Gopup and nationally/regionally.
  • Investment is focused on product innovation and listening to CPG partners.
  • Relationships are maintained with major global brands as well as local players with smaller budgets.

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.

Expansion to Europe

  • The decision to expand to Europe was based on having a strong grasp of the US market first.
  • Acquisition of Bevmo provided a significant network in California.
  • Aggressive expansion is planned in New York and across the US.
  • The company aims to open around 400 buildings in the US within the current year.
  • Operational and technological capabilities are deemed ready for the European market.
  • Hundreds of millions of dollars will be invested in Europe, starting with the acquisition of Fancy in the UK.
  • Gopup aims to remind European markets that there is only one Gopup and to provide what customers want.

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.

Vertical Integration and Scaling Challenges

  • Vertical integration was once considered a risky strategy but is now seen as necessary for control and profitability.
  • The business model is complex and difficult to scale.
  • Opening buildings is easy compared to the technological challenges inside them.
  • Gopup built their warehouse management software from scratch.
  • Internal operations such as receiving, stowing, picking, packing, and routing are proprietary and complex.
  • Continuous development and innovation are required, especially with the GoDrive driver application.
  • After eight years, the company is still evolving with a large engineering team.

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.

Leadership and Growth

  • Humility and leaving ego at the door are essential for leadership growth.
  • Continuous learning and development are necessary to keep pace with the business's growth.
  • External coaches and a strong team have been instrumental in supporting leadership development.
  • The business's success is tied to the ability of the founders to scale their leadership capabilities.

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.

Profitability and Unit Economics

  • The founders' upbringing in first-generation immigrant, small business families influenced their approach to profitability.
  • Customer focus and a profitable, sustainable business are seen as compatible goals.
  • Investments may affect unit economics but never to the point of making markets unprofitable.
  • The balance between hypergrowth and sustainable growth has become easier with established markets generating cash flow.

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

  • "Making moves" was an early rally cry signifying a bias for action.
  • The focus is on being solution-oriented and addressing problems.
  • The slogan has evolved to "make strategic moves" to align with the scale of the business.
  • The concept emphasizes the importance of action in a complex business environment.

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.

Business Model and Scaling

  • Raphael Ilashayev emphasizes the importance of perfecting the business model and unit economics before scaling rapidly.
  • The team at Gopuff comes from diverse backgrounds but shares a common goal to move quickly and outperform competitors.
  • They have strategically scaled infrastructure, navigated regulatory environments, and developed technology to enhance operational excellence in supply chain and logistics.

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.

Persistence and Grit in Fundraising

  • Raphael Ilashayev discusses the challenge of fundraising in the early days, facing skepticism from VCs over their full vertical integration approach.
  • He learned that humans often rely on pattern recognition, which led many to doubt Gopuff's model since it differed from successful companies like Uber or Airbnb.
  • Persistence and belief in their model, which focused on customer obsession and strong unit economics, eventually led to successful fundraising rounds.

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.

Customer Obsession and Humility

  • Raphael attributes much of his and his co-founder's leadership qualities to the humility instilled in them from their upbringing.
  • He emphasizes the importance of being customer-focused and doing whatever it takes to keep the business running, a lesson he learned from his parents who were small business owners.

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.

Hiring Philosophy

  • Raphael describes their hiring process, focusing on finding 'team-oriented super athletes' for their leadership team.
  • They prioritize candidates who can elevate the team's performance and align with the company's core values.
  • Successful hiring, especially for high-growth companies, involves ensuring that the candidate's values align with the company's to avoid long-term issues.

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.

Future Growth and Expansion

  • Raphael sees Gopuff as a generational opportunity, with a massive total addressable market (TAM) globally.
  • They plan to expand into multiple categories, which will not only benefit customers but also significantly increase their TAM.
  • Raphael envisions Gopuff becoming a multi-hundred-billion-dollar business in the next five years.

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.

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