This crisis turned Mercato into a billion dollar company

Nobody cared about local grocers like Bobby’s dad, the New York pork grocer. Then the coronavirus hit the world.

Bobby Brannigan created Mercato to give local grocers like his dad an easy way to sell online. It was a nice goal, he’s a good son, but Amazon was still beating him.

Then covid hit. Everything changed and consumers were open to trying new food. His 25-person company is on track to do a billion dollars this year.

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Bobby Brannigan

Bobby Brannigan

Mercato

Bobby Brannigan is the founder of Mercato, an online marketplace for independent grocery stores.

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Full Interview Transcript

Andrew Warner 0:04
Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of mixergy, where I interview entrepreneurs about how they built their businesses. And I’ve been feeling a little bit down when I run down Valencia Street and we’re still allowed to run down Valencia Street. I see all these stores boarded up. When I look at my sponsors, I worry about whether they’re even going to be here next year. Not Not that whether they’ll survive, but whether they’ll still sponsor my podcast, whether podcasting. I don’t know I worry about a lot of things right now because the economy is going down. And judging from some of the personal messages you’ve been sending me, many of you are worried too. And one of the things that has got me going is hearing the bright spots, seeing entrepreneurs who are doing well in this economy reminds me that you know, it’s not all lost and there are great opportunities and we are entrepreneurs who our job is to stay optimistic, find those possible, find those opportunities and capitalize on them and build Businesses that will help our customers help our employees help ourselves help the world. Is that too airy fairy for you, Bobby, you seem like a serious person.

Bobby Brannigan 1:08
In? No, not at all. I mean, it sounds great.

Andrew Warner 1:12
Joining me is a man whose business is doing especially well right now. Bobby Brannigan is the founder of Mercado, what they do is they help people like me buy from independent local grocery stores and in cities like San Francisco, there are a lot of them that most of us don’t even know about. I never heard of the business. Then I went onto his website and I saw the companies that saw the grocery stores that are participating and I said Wow, now I get it. I thought what was happening was more people like me are discovering that they could go to Mercado and buy from Mercado calm. It turns out it’s not just that that’s happening. And that is happening. But also more stores are saying we need to get online right now. And so they’re joining with Mercado. So this interview where we find out how he built up this company, why it’s doing well how he’s helping local grocers. Sponsored by two phenomenal sponsors the first, if you’re building your business right now and you need to build a website, collect leads, convert them into sales, you got to check out Click Funnels. And the second, if you want to maintain your customers, you need to see how happy they are, you need to make sure that they really are delighted. And there’s a sponsor called delighted that will let you use their software for free just because they’re partnering up with us. Alright, but I’ll talk about those later. First, Bobby, good to have

Bobby Brannigan 2:25
you here. Thanks for having me. Really appreciate it.

Andrew Warner 2:28
Tell me what’s happened to your business in March 2020. We’re far into April already, but give me a sense of what’s going on.

Bobby Brannigan 2:35
Wow, it’s been awesome, absolutely crazy exciting. The position that we’re in, we’ve pretty much grown 100 X in the period of seven weeks, let’s call it so we absolute rocket. Um, and it’s it’s really you know, interesting and you know, It’s great what we’re doing because you know, all the stuff that we built early on is helping so many people. We’re helping consumers, we’re helping merchants. So it’s great

Andrew Warner 3:09
revenue. I know in private, but I don’t want to reveal it. If you don’t feel comfortable. Can you give me a sense of the revenue? What was monthly revenue in March?

Bobby Brannigan 3:16
Sure. So, right now we’re approaching approximately a $700 million run rate and sales $700 million. Yeah. And we think that by next week, we’ll be over a billion in sales. And that’s up incredibly from weeks ago. Where were you say January, we were approximately 10,000,009 to 10 million in sales. Okay. Um, and now it’s, it’s will likely be over a billion in a few weeks in. That’s unbelievable growth. How are you managing all that? Not a lot of sleep. I’ll tell you that much and a big part of this. Honestly, just really making sure the team is doing good. I’m keeping the team in great spirits because as you can imagine, we have 25 people. Right? And and and we just scaled 100 acts. Like how do you do that? How do you take 25 people but you grow 100 you know, your whole business is only five people. 25 people yeah. 25 Wow, we

Andrew Warner 4:21
okay. And so what’s happening is businesses, local grocery stores are finding you and asking to sign up or you going after them and letting them know that there’s a way for them to sell online.

Bobby Brannigan 4:33
Well, so a lot of different ways. So it’s, it’s, you know, two sided marketplace, we got merchants and we have consumers and obviously the consumers are ripping down our door to get deliveries and they’re buying as much as they can. So the sales are skyrocketing. So the merchants that we have, we have over 1000 merchants on the platform today nationwide. We’re in 130 different cities, but on the merchant side, merchants are coming in strong I mean, if you think about it, you know it’s it’s dangerous to have your store open right now. You know, the workers in the store have mess on as they should, but the customers don’t. And you know, the store workers are at risk. So the stores want to get online ASAP. So it’s not just about scaling the sales for the merchants that we have the merchants that we have are getting tremendous sales. And they’re actually most of the merchants are throttling the volume that we’re sending them. They’re saying, I don’t want more, but merchants that aren’t online, they said, Can you please get me online yesterday, and we have a rapid onboarding program we created where we get them online. 24 hours we have about

that much 50 new merchants online every day 15 You know what? 15

Andrew Warner 5:34
Oh, wow. I had a guest Come on the other day, Noah Kagan said, all these businesses that you see that are closing down like Andrew, your favorite pen store that your wife likes to go shopping, they should be online and needles and pens as far as I understand on Valencia street is not online. You can’t go and buy from the herbal medicine place that’s on. That’s a couple of blocks away from them. And so you’re actually doing the thing that he said needs to happen. How does your business work once a merchant gets online, I can go in order from them. I could have the food delivered who’s doing delivery if you only have 25 people?

Bobby Brannigan 6:07
Yeah, so we actually do delivery with the restaurant delivery courier company. So companies like doordash and post mates are doing our deliveries. And we have lots of regional carriers as well that plug into our delivery exchange. So on the restaurant side, they’re not as busy. Right? So a lot of the restaurants are shut down. So they have been with we haven’t had any constraints. Those networks are very robust. And deliveries are getting out. The biggest constraint is actually on the store side where they can’t pack the orders. festa

Andrew Warner 6:34
Wait, so if I tried to order from instacart today, it takes at least a week for the food to come in. If I ordered from Mercado today. How long did that take?

Bobby Brannigan 6:44
It depends on the store. So some stores are very robust and they can handle over 1000 orders a day. But other stores say I don’t want more than 200 Please don’t don’t knock me down here. I don’t have enough resources to do it. So it really all depends on the store. We have some stores that still have same day delivery available. Because they’re wrapping up their staff, they’re all of their resources are on online ordering. Uh huh. Others are longer.

Andrew Warner 7:06
Because what they want to do is not have people come into their stores just pack it up. And I’ve been noticing the local stores, they now have sec, they now have areas for the doordash people for the Postmates people to come and pick up their orders. And they just grab and go. Ah, Got it. Got it. When I had no idea that with doordash and post mates, you could just plug into their service and then send them orders and I guess you you give them their payment and they go and handle the delivery for you. Exactly. It’s all

Unknown Speaker 7:33
plugged into radiation. Yeah,

Andrew Warner 7:36
this is amazing. And you’ve been doing this now for Let me see how long since 2015

Bobby Brannigan 7:41
correct. The original idea came to you from where? A so I grew up in a grocery so my family has a store for over 45 years in New York City called being a bookstore is that Italian grocery store. Okay, so I started working there when I was eight years old, you know, stocking shelves and delivering groceries so who knew I would still be in this years later, decades later. But as I got older, I started a college textbook company that I bootstrapped, pretty significant about 100 million in sales and sold. And then after I sold that company, I went back into my dinosaur and I saw, you know, it was everything was still in the Stone Age. So that’s kind of when I dove in in 2015. I said, What a great mission to help the independent grocer compete with the big chain. So that’s what we’re all about mission driven company, you know, helping the little guy with the big guy.

Andrew Warner 8:26
And you always thought it would be a marketplace where independent grocers could list their own products. And then you wouldn’t even have to pay for a you wouldn’t have to have a team of couriers available. You just plug into whatever service existed.

Bobby Brannigan 8:39
Yeah, and that that was a play from the beginning because there’s a lot of delivery companies out there. So we said why we’re gonna we’re gonna rebuild that is great companies to partner with and what the grocers need is a platform that works for them. Because, you know, they’re not the huge chains, they don’t, they don’t have, you know, VP level people and managers and analysts and all these people do these things. So, you know, we do the entire process. for them so what we have is a pretty robust, we do everything from onboarding every single product category in their store everything from, you know fresh grocery alcohol prepared foods catering every item on the shelf. We take them all online and then once they’re online, we do all the marketing. We roll out all the tech, they can they can host it on their own site and have their own shopping experience on their their own website. And they can also be on the Mercado marketplace. deliveries are done by us. We give them tons of data. So it’s just all around. It’s a very robust operating system for them.

Andrew Warner 9:35
I’m gonna come back and ask you about what marketing you do how you onboard people, but let me ask you a little bit about your childhood. You grew up in a pork store in New York? Yeah.

Bobby Brannigan 9:44
Yeah, actually what my father would change my diaper with shopping bags in the store. That’s how, that’s how much I grew up there.

Andrew Warner 9:50
shopping bags, he would put a shopping bag around your waist,

Bobby Brannigan 9:54
while after Yeah, if the diaper was no good anymore. And then he would say let me put a shopping bag over his shoulder. Because I have no more diapers. Wow. So that was a, you know, we’re being resourceful.

Andrew Warner 10:06
I used to go work my dad at one period had a store in New York selling clothes, I used to go and work for him. And there’s a lot that I learned, what did you learn from working for your dad?

Bobby Brannigan 10:16
So many things, you know, and actually like one of the big lessons is, you know, when it’s so busy like it is now, how important it is to remain calm, and support your team and motivate your team. And those are the times actually remember most on a Saturday when there were lines out the door. And I saw the workers going frantically, they might forget a loaf of bread out of a bag. And the most important thing you could do in that moment, is just stay calm, and really focus and try to make sure and if you if your team sees you calm, they get calm because they can see their leadership is calm, but if you’re frantic, they’re all going to get frantic and things get really disorganized. So, you know, this is a lesson that’s top of mind right now because this is happening to us this, you know blitzscaling that we’re growing with like crazy But you know, many of the lessons the customer’s always right, you know, how to, you know, work together as a team operational processes. But, you know, coming out of growing up in a family business, I remember, you know, going to college and it always seems just second nature to me and I was I thought, doesn’t everybody know this stuff like this is like, you know how to work with customers how to develop operational processes,

Andrew Warner 11:24
operational processes Did you have so the thing that I discovered when I went to college was my dad was thinking very small and just quick, there wasn’t the ability to scale he was very proud of how fast it would take him to put a store up. But he said, You know what, the people who went to college who spent time thinking through what the fifth store would look like or how the first store will influence the culture and the 10th store. He said, I didn’t I underestimated them. I thought maybe what they were doing was just working too slow. They were nerds, but in reality, they were thinking ahead in a way that I had no idea What did you learn about operations from from your dad store?

Bobby Brannigan 12:04
Yeah, so that’s a really good point that you bring up. This is a it’s an interesting conversation. So, you know, going to school, it was similar to me. And I thought, you know, operational scale, and I was trading stocks in my freshman year. So I’m looking at all these scale operations, and it was the boom of the internet in 2000. All these startups growing like crazy. So that came to mind first, and I really started to really think about how do you scale operations because my father, he’s had one store, you never made 50 stores? And I always said, Well, yeah, we replicated and scaled the model because he has such a great product. But one thing you know, it’s funny, when you’re young, and you go to college, you look at these things, and you think you’ve figured it all out. But on his end, there’s a lot of reasons he does what he does. And there’s special things about what he does. And one of the things is how to really know your customer. How to maintain, you know, excellent service to maximize retention. And that’s something that people in the startup world don’t even really think about these days, and how do you really satisfy your customers And make sure they’re really happy. So, you know, a lot that I’ve learned from him and, you know, to be transparent here to, you know, on this podcast is that we’ve disappointed customers in the past several weeks, and it’s really hurting me a lot. And the reason is, is because we can’t even scale up our customer service call centers fast enough, we’re hiring people at a dead sprint, were sleeping three hours a night. But you know, but the main thing there and that I, you know, I get this from my dad is that I can’t rest until this is fixed, we must satisfy the customer at all cost. So, you know, it’s interesting, because you hear some people like Reed Hoffman, and as you know, talking about blitzscaling and how, you know, you go home and his fire is burning, and you got to somehow be okay with that. But I’m not okay with that. Right, the customers must be satisfied. So so we’re dead sprint. I have one enormously supportive investor Michael Lowe. I don’t know if you know him, but he’s done many, many companies many billion dollar exits. And he’s been on The phone with me constantly helping me stand up call centers, the only part owner in a call center in Virginia that’s done an outstanding job for us. So it’s interesting, I’m kind of going on a tangent here, apologize, I apologize, I’m a little less sleep than normal, I get it. Um, but yeah, lessons learned from my dad, you know, gotta be there for your customer. And if you can be there, they’re going to be behind you for the long run.

Andrew Warner 14:25
Alright, I want to find out a little bit about that first business that you built and how you got it up and running and what you learned from that how you ended up selling that business. But first, let me tell you about a company called delighted. Do you guys do any net promoter score? What is it called surveys of your audience? Do you do anything like that?

Bobby Brannigan 14:43
We do. We NPS score every every customer after the order?

Andrew Warner 14:46
Well, really? So after their order, you ask them on a scale of one to 10 how likely are you to share this with your friends? right? Correct. And you build the software yourself for that?

Bobby Brannigan 14:56
We did yeah. And it’s actually like our customer service team like as always Looking at that, like, what is our score? What is our score? What are the score? So we look at it on a daily basis, how are we scoring, but it is something that’s only generated by email at this moment like we don’t, we could have it more included throughout the platform would be.

Andrew Warner 15:12
So many things that delight it does is it allows people to create these types of forms in a quick way, and you could decide how you wanted to come up. It doesn’t have to be via email, it could come up at a certain point on the website, it could be more than just the on a scale of one to 10 how likely are you to share, you could have other types of quizzes, but once or other types of feedback. But once you get feedback from someone, what you could do then is set up all these triggers for follow ups for checking in for doing things with that customer based on what they’ve done with you already. And then once people are customers or this is before their customers, you could check in with them after their customers. And then you could start to do your follow up with them. This is software that’s been used by many companies including Rent the Runway doordash, and so many others. They’re giving our listeners free access to this stuff. software and an onboarding concierge service to get them started. So we’re looking at a difficult moment right now where if you have customers, you want to make sure that they’re really happy with the service that you’re giving them. You want to stop guessing about whether your customers are happy and make sure that you’re delighting them. If you’re out there listening to me, and you want to do the same test that Bobby is doing the same. Is it a test? What is it called? It’s like a feedback form, right? Yeah, you want to do it in an intelligent way. This feedback form is available for you right now for free. You’ll see how easy it is to add to your site. If you go to delighted.com slash mixergy. That’s D Li ght ed.com slash mixer D they will let you use their software for free. I think they might even ask you for a credit card. Because they weren’t able to get rid of the credit card form just for this offer, but they’re not going to charge you I promise I give you my word. They’re not going to charge you if they’re offering it for you for free. They’re giving it to you for free. And if you have a problem with them, email me Andrew at mixergy calm but this is an unbelievable offer that they’re making right now to make sure that mixergy listeners Really delighting their customers and users? So that’s delighted comm slash mixergy. I’m grateful to them for sponsoring right now brand new sponsor in a difficult period. I feel excited about that.

Bobby Brannigan 17:11
Mm hmm.

Unknown Speaker 17:12
It was called valore books. You launched it in in 2001. Dude, this is right after the internet bombed after everyone

Unknown Speaker 17:19
started losing faith in the internet. What? What made you do that?

Bobby Brannigan 17:25
I guess it’s you know, just being resourceful. Like you’re on campus and grew up in New York City. Everybody’s always hustling. It’s people in my high school are all figuring out ways to make money and everything

Unknown Speaker 17:34
I do up in New York City I don’t think I could ever express to people wasn’t just the hustle of day to day life. It’s Dude, it’s the fact that you walk down Manhattan. You see these buildings with people’s names on them. You go home, you read the books of the people who did and you realize they’re schlubs just like me and you. In fact, they’re sloppier

Unknown Speaker 17:49
and the fact that they were sloppier and they had less going on for them, made them work a little bit harder and nobody appreciated them and then boom, they become Harry Helmsley or they become someone else. Ted Turner Stearns, right couldn’t get a job on Wall Street and of creating their own firm. You see the big building? So yeah, what was it like for you? What was your hustling? experience in New York?

Bobby Brannigan 18:10
So yeah, when I grew up in New York City a lot of different things I did, you know, people would promote for nightclubs. And what I did is I started promoting at the Palladium and sound factory. These come in clubs in New York City. And then I built out my own team are the people in school and they were, you know, they worked under me as a team, you know, also played ice hockey, so I started my own Ice Hockey League. I was a lot of things that I did even before college, but when I went to college is when I started doing a lot, a lot more things. That’s when I started the company, the college textbook company. But the story with the company is that pretty much in my freshman year at the bookstore, I went, I went to the bookstore to sell my books, and they wouldn’t buy them. And I said, Wait a second, you’re not going to buy half these books. I just paid $100 for it for each of these books. And I said, What would you like me to me to do with these books and they said, throw them in that pile, please. A pile. So I see a pile. It’s a mountain of textbooks and you can tell that with a lot of money biology books, big, thick, juicy Books. So I turned around to the person I said, Do you mind if I take these instead of recycling them? Can I have them? Because I thought, let me just try to sell them online. I could sell them on eBay. Um, you know, as a broke college kid, so I went back to my dorm room. And then within two weeks, I sold for 1500 bucks.

Andrew Warner 19:15
Where and I was like, on your site or on Amazon,

Bobby Brannigan 19:17
I actually sold them on half calm. Ah, yeah, yeah, half calm. So half calm was out there. And then oh my god, this is an interesting thing. Every time I go to the bookstore to sell my books, I should just take all those books every semester, because they’re gonna throw them out. I could take them I could sell them. And then the next semester, what I did is I, I got my whole hockey team working for me because I played on the college ice hockey team. I said, Guys, we’re going to buy textbooks on campus. So we started going door to door in a dorm. So we went to other other schools, and we started buying books. And then as we got into this more, we realized that students weren’t buying their books online. 99% of students were still going to the bookstore, even though they can go to websites like half talk. The idea was born from our books. And we said, we’re going to build an online marketplace for college textbooks. And at this point, Amazon didn’t even launch their textbook marketplace yet.

Andrew Warner 20:11
So it was it was kind of early stages in the game of of the book business. But if you saw that people weren’t buying online, why did you offer a service where I’m looking at the site? It said, low price textbooks delivered to your door if they weren’t buying online, why go online? I kind of assumed what you were going to tell me was you decided you were going to be an in person store first.

Bobby Brannigan 20:30
So what happened is that I think in the beginning of the school year, when I wanted to start I had a class a strategy class and we talked about the Mary Kay model, the cosmetics model, their person to person marketing, and I came up with the idea of creating a, you know, person to person marketing program for college students because I thought college students are broke. Why not? Why don’t I operate a college textbook company the same way that my clubs operate. And for every person that you bring to the club, you get five bucks, but here every person that you get to buy a textbook, you get five bucks. So what we did is we roll it out with this. We call it the valore agent program. We immediately in several months signed up thousands of agents across the country. And they started promoting Hello books to students on campus. They got $5 a student say $5. And plus they save money on their textbooks.

Andrew Warner 21:18
But then though, it wasn’t it was just them turning their friends on to valore books calm. It wasn’t that they were holding on to the books in on campus and delivering it

Bobby Brannigan 21:29
rather that none of that. Yeah, we signed up college bookstores. So we went on campus, off campus, we set up all the stores, and then we got the students promoting and what was beautiful about it is that if they’re not buying the book on one campus, they’re buying on another campus, right? So people have books and they’re selling them from campus to campus because I have these books, I can’t sell them anymore. The students are buying them. So I sell it the students I don’t know the school. So the students thought of selling books to students at other schools through the platform

Andrew Warner 21:58
and in the array General website. You said the site was founded by 14 students of State University of New York College at Fredonia, for going the other level.

Bobby Brannigan 22:10
So I was the president of the Financial Management Association and my freshman year of college. And essentially, I took the most capable people from that group and I said, Do you guys want to start a company? I have an idea. Okay. And I’ve been really looking at that point. I was doing a lot of stock trading. And one company that really got me interested in starting a company was Josh Koppelman with Noah story. You know, these guys basically had an idea to build that car. It was the first fixed price marketplace out there before that everything was auctions and you know, Josh had this idea and they basically bought out a used tire factory and halfway Oregon, renamed the city as a PR stunt have calm Oregon. They were on public television everywhere in the company. Within six months sold for hundreds of millions of dollars. So I went to the group and I said, Hey guys, you’re in the financial mining Association, we’ve talked about stocks, there’s an opportunity to build a company with hundreds of millions of dollars in a textbook industry. And 14 people signed up and said, I’m in and we had people working for us for a couple of years without any cost, they got stuck in a company. And that’s how the company was born with no with no money

Andrew Warner 23:26
and got it so you basically the other 13 the other 13 students got equity in the business, but you were the founder who had majority interest in the company, correct. It was a way for you to give them an upside without having to raise money to pay them.

Bobby Brannigan 23:41
Correct. And it was also amazing experience for them. They were building a company in college which they you know, some of them said Bobby’s crazy I this hundred million dollars like people from Buffalo, New York, Rochester, New York, they, he’s crazy, but this is fun. Let me jump on this ride. So some of them were doing it for the experience. Someone says I am going to get some stock and they and they jumped on board and we weren’t going to And we had many, many early adventures as you can imagine, starting a college textbook company on a campus. There’s some people that will try to stop you like the campus bookstore for example, had these. So so one of the things is that when we started we had we we had to understand what are the books selling on campus. And that information is used to be and I think it still is the professor’s sell it directly to the campus bookstore. So nobody else can know. Yeah, what books are being sold on campus, but the bookstore, so we need to find out what’s being sold. So what we did, for example, is one day we planned the Blitz, and we got all 14 of us and we all got our own clipboards and we said, you’re going to go to the biology section, you’re going to go to the math section, you’re going to go to another science section. And you have to write down the product number of every single product. The and on a book, there’s a code called an ISDN number. So people had lists of hundreds of ISP numbers of the books that were the students would need to buy Next semester. And that’s how we built our original list of what the students would need on campus. In the bookstore.

Yeah. Before, right before the the classes started because they had everything prepped. So it allowed us to understand what books we need to sell, what are we going to market on campus, but things like that we had to be very creative. And we we did it at lunchtime when the bookstore staff was all at lunch. And there was one person in the back and she was an intern. And she didn’t Yeah, and we went in 14 students with clipboards and we wrote out every single book number, and then we left and we had the whole list. That’s just that’s one example of the things that we had to do to try to get the information that we needed to stand up a company.

Andrew Warner 25:39
And then once you had that up and running, was it just an easy growth from there or was there no What happened? No, no, no, no, no.

Bobby Brannigan 25:45
So obviously, you know, marketplaces chicken and the egg problem, right one on one. So, you know, you stand up a site, you get some people on it. We set up the site originally with our own books because we were buying we started buying books and selling them on the website and sold them Why, but sellers didn’t want to sell on our website. We built this marketplace, it was very hard to get them on the site. And then once you had some books, you didn’t have the books that everybody needed. So you have all sorts of dynamics here in this chicken and egg problem. And, you know, there’s various scenarios that happen to allow us to kickstart momentum, pockets of opportunities. For example, the publishers have historically produced the same book that they produce in the United States, but they print it overseas and they print it black and white, and softcover. So it’s the exact same stuff. calculus 17th edition biology by Campbell, it’s the same book, but they print it overseas. So so back then, this is kind of like a gray area where, you know, they were selling it there but then all of a sudden this thing called the internet popped up and they weren’t ready for it. But people in other countries like in the Singapore, Thailand, where they sell them these books for 10 cents on the dollar. said wait, why don’t I buy 50,000 of these and resell them into the United States? Yeah. And Amazon wouldn’t allow people to do that because Amazon partner with the publishers Hmm. So we were there as a marketplace and people started selling books on our marketplace. And all of a sudden we had books that were 80 to 90% cheaper than you can get them anywhere else.

Andrew Warner 27:23
And so I imagine, by the way, and they were shipping it not from India, where they

Bobby Brannigan 27:27
they were shipping them from India, some of them stood up, some of them set up warehouses in the United States. And they said, Alright, let’s let’s send, you know, let’s say the United States, but some of them are shipping one book at a time via DHL from India. Wow. And it was still profitable. for them. You ended up

Andrew Warner 27:49
actually before I get to the end, I remember that period being a very difficult time for business. That’s when 60 minutes did a piece about how the internet bubble was filled. People who are overly optimistic about a life that couldn’t possibly exist. The big joke was who would want to get their dog food or toothpaste delivered by by mail? Obviously, today we all do. Um, was it difficult at that period for you to to create an online business? Or if not, why not? Did you experience any difficulty even?

Bobby Brannigan 28:21
I guess I didn’t really think about that. Because we basically the situation was what it was. And if you were savvy enough, you could integrate with online channels that were price comparison sites on textbooks. There were ways to optimize your site and Google to get number one, and we had some great SEO people. We got number one for cheap textbooks, college textbooks use textbooks. So obviously, it was a small portion. It’s actually it’s funny because it’s such an analogy of the textbook industry in 2001, to the grocery industry six weeks ago, in terms of the market, what’s

Andrew Warner 28:51
the difference? What’s the in terms

Bobby Brannigan 28:52
of market penetration? I mean, I mean, six weeks ago, 4% of people were buying groceries online. In 2001 4% of people were buying textbooks online.

Andrew Warner 29:05
And so what do you think it was it suddenly made them go and buy online. I feel like right now there’s an obvious need, right? The world has changed. People have to react to it. You can’t walk into a grocery store anymore. I see lines now that are to the corner, which means eight people who have to stand six feet apart, right? It takes forever to get inside. The world has changed people going online back then what do you think it was that got people to go online after the majority of the world seem to have given up on the internet?

Bobby Brannigan 29:31
It’s really, you know, college students, you know, they need to save money.

Andrew Warner 29:34
And if you think it was a candy economy was bad, and so they needed to save money a little bit more, or just they always need to save money in this thing that was given up on was suddenly making sense.

Bobby Brannigan 29:44
I think college students generally are usually broke. Yeah, so so I don’t know how much that even played a role for them. Maybe it played a small role, but I think more so. You know, I was surprised in the beginning were holy, you know, there’s, there’s 20 this these books are 20% of the price of the bookstore, why are students not buying them like these students are supposed to be educated. It’s not that hard to buy a book online. I was completely astonished by it. And that’s why I said, I need to build a marketplace with a with a unique marketing strategy. It’s extremely cost effective that we can scale with very minimal money because we don’t have a lot and I didn’t know anything about fundraising back then it was a different world. So we said, Our This is the way that we stand it up. But, you know, to me, it was shocking that they didn’t buy things online. And what spurred it, I guess that, you know, it took a few years but you know, students are educated You know, they’re, they were getting more and more tech savvy and they realized that hackable online and what people might not realize some of the people, you know, watching this podcast is that people didn’t have smartphones. Nobody had an iPhone, there was no iPhone. Right? And I remember back then people were contemplating like, handspring Palm Pilot like they were trying to do it and, and I was one of the weird nerds that had one with my handspring internet connected device, but nobody, I was a one on the whole campus. I had it. So People weren’t connected like they are now, that was another connectivity was huge. They would have

Andrew Warner 31:04
to go back to their dorm room and use their computer or their roommates computer or go to the computer lab. And still, they were starting to do it because the price made sense for deal. You’re willing to do it. So you sold the company to simple tuition back in 20 12am. I right.

Bobby Brannigan 31:18
Correct.

Andrew Warner 31:20
The estimate that TechCrunch had for the deal was and is like this big analysis on it, somewhere between five to $10 million, but they were wrong. They’re wrong, how much you

Bobby Brannigan 31:31
sold. So we sold for 13,000,013. How simple tuition

Andrew Warner 31:35
apparently raised only $17 million at that point.

Bobby Brannigan 31:38
Right. That was the challenge that we had this is this an urn out that we had it was another epic story. So I was life of epic stories here. But we they almost couldn’t pay us they were trying to raise money to pay us. And it was only a year and a half into into the earn out that we actually were able to get the funding to get paid so they actually did the fundraising During our earn out, so we went a little unconventional in a sense, well, what we did is we actually took an urn out situation where we got a small amount of front, but we got a multiple on the avatar that we generated. Okay, so so that allowed us, you know, the number that they have is actually what a lot of companies were offering us time.

Andrew Warner 32:20
But we said, we’re going to go for the earn out and the earn out got us more than more than double what other companies that offered us, okay. And in that situation, you know, that they were also uncertain what they were going to pay us. So the simple tuition team didn’t even know until we blew the roof off. Simple tuition. Here’s how it was listed at the time in TechCrunch, a company that offers online tools, tips and advice to college students to help them save money on education related expenses. So it was basically a content site with a loan comparison tool from what I understand right, and then they would get money for generating leads for loans, right? Correct. So kayak kayak for student loans. And so what you were thinking was, they’re gonna say So much customers to us that we will make more money than they think we will. And I’d rather take the upside in the long run. That’s your thinking, but you generated so much that they didn’t have the cash on hand to pay you. Correct? Wow. And was it just because of the referrals from them? Or would you do to make that earn out? Pay off?

Bobby Brannigan 33:19
Wow. So there was a real moment, right? So you got to think about, like, in terms of us as a team, I was a kid from Brooklyn. I was a hockey player, right. And we had people we went to a small school in upstate New York, and a lot of the people on our team were hockey players, too. We weren’t so sophisticated in the way that we did things right. So we were scrappy, we didn’t fundraise everything, you know, everything was being very resourceful. We built a company and it was all about profitability. We weren’t trying to just we couldn’t take 5 million and scale right. So the the, it was a really a great marriage between two companies. Um, I have a great advisor that kind of, you know, kind of convinced me that this should this is what you should do. And he kind of gave me the 3000 foot view of this but, you know, the simple tuition team. They were seasoned. They had been part of an IPO before what another company called first Marblehead. They had people that were well educated from Harvard, Stanford Yale. Right. So they had they were, it was almost like two sides of town, right? Like you have like a, like West Side Story kind of thing, where you got the people here like the ivy leaguers, and Yahoo players. And when, when we were put together, I was a real beautiful thing I have to say. And the reason what was so great about it is that, yeah, they had a millions of emails. They had partners, they had affiliates they worked with, they plugged affiliates in, they got our affiliates promoting us. But more importantly, and this is like, I have to really say to the team and the people on both sides of it, is that we came together. And we said, okay, you’re good at this. We’re good at this. You do that. We do that. And me as a founder of the book company, I say that we mutually said that Bobby, you should focus on product and bass that get out of all this other stuff. We have people that could do marketing better than you let them do it. Okay. And we actually rolled out five products within a two year earn out. And we made dozens of multi million dollar deals. I mean, we partner with companies like Amazon and Chegg, and some of the biggest move,

Andrew Warner 35:23
create that would let you partner with Chegg the online book company.

Bobby Brannigan 35:28
So what we did is, um, you know, as you can imagine, you build an ask based marketplace for textbooks and you’re competing head on with Amazon. That’s not easy, right? And I business that’s directly competitive with them. So So what we did it took us a little while to smarten up and do this, but, um, we sat down with our merchants and we said, How can we help you grow your business? Like really, really? How can we help you grow your business and they said that Well, we’re going to be honest with you. First of all, have you heard of amazon.com We don’t need you to sell us a textbook, sell textbook online, we could sell an Amazon all day, the only reason we work at you is your our insurance policy just in case Amazon squeezes us below books is here, we have another time they’ll sell books. But where you can help us enormously is if you could help us buy more us college textbooks. And once they said that, you know, I was immediately I had this aha moment. And I said, we could do that immediately. Right. So what we what we said is that if you give us currently you’re giving us an ask price of how much money you’d like to sell a book for. But what about if you gave us a bid price? Would you be willing to give me a file of every book that you would like to sell and the price that you would be willing to buy it for? Right? Okay, we got these lists and we created a reverse marketplace, so that students can come to the website, put in a product code and it gives them the best bidder. Because students aren’t patient, they don’t want to wait. They don’t want to post the book and wait two weeks and go to the post office and package it up. They want to put type in five books and they want an instant price. Right, so what we did is we were the first company to create a reverse bid based marketplace. As soon as we did that the business went similar to what we have now actually, this is much more significant the level of trajectory, but we five x a company in a period of 18 months, and it was due to that model. But in addition to that, we also create a futures market for college textbooks.

Andrew Warner 37:26
Based on what so the student could know, look, if I take really good care of this book, here’s what it’s going to sell for when my semester is over. Right?

Bobby Brannigan 37:33
Yep. And that was based on so so I’ll explain this kind of future as a business in essence. So if you think about it, we were in this position as a company and so many companies get in this position. Where are you? So you know, you have competitors coming at you from different directions and you have to think, what what are my best resources here? What is my strongest competitive advantage I can leverage? So what happened is when Chuck came along, and they started scaling like crazy Right, they raised $200 million, Kleiner Perkins some big, big investors coming in. So we said, All right, how do we compete with this rental business? So we said, well, we have a special we have 50,000 booksellers on a platform that we can pull on demand. Right? So we know how much everybody’s willing to pay. And we now I have people that are giving us prices for what they want to buy a book out. But what if those people that wanted to buy a book, give us a price for how much they wanted to pay for it today, and get it in four months? So was four months in advance pricing. So for example, if you know a certain seller is selling a book for 100 bucks, and a certain buyer wants to buy it for 50 bucks, we say, Are you willing to buy it for 50 bucks now, okay, in four months, and they said, if you can get me millions of dollars in textbooks I’m in. So the books book buyers loved it. And we created this dual contract system where it enabled us to create a dynamic rental So when a student came to the site and rented a book for $50, they were actually coming in. They were buying the book from this company. And they were getting a futures contract from this company. This company was taking the risk, this company was selling the book instantly. But again, we had no inventory. I saw

Andrew Warner 39:16
that some Barney’s rental became a bigger and bigger portion of the website as I watched the evolution of the site. That’s why they weren’t renting it from you. They were technically without knowing it and needing to care about it, buying it from one person they were holding on to it, and then giving it to the person who committed to you that they would buy it at a different price in the future. So that’s why that is brilliant. And that’s not something that I could see by looking at the website.

Bobby Brannigan 39:41
Yeah, it’s all behind the scenes. And, and we did that we took all the risk on that, right. So the student, there was a $50 rental. And in this model, it allowed us to have rental prices that were significantly lower than the competition. So it’s interesting, you know, because we got creative and we said we have this asset. We have this marketplace where the industry is going around. But we have a marketplace. And then what we also did is we took those futures contracts, and we plugged them in for other partners in the industry. So we let college bookstores access a futures contracts because the bookstore wasn’t used to the tech, the textbook rental business either. So we said, Hey, do you want our futures contracts? You can use futures contracts do so we really, you know, created different types of contracts streams, integrate them through the value chain. And, you know, we did it with some, you know, great people on the simple tuition side that were Harvard graduates that, you know, they worked with Michael Porter, you know, talking about

Transcribed by https://otter.ai

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