Co-Creating With Customers: A Winning Recipe At Daily Harvest

Alexis Gay: The Shake Up is brought to you by HubSpot Podcast Network.

Brianne Kimmel: That's right, The HubSpot Podcast Network is a one stop audio destination for business professionals.

Alexis Gay: It's where education meets inspiration with amazing shows like My First Million, where you can hear stories from the entrepreneurs who made it big.

Brianne Kimmel: And when the hosts, Sam and Sean, don't shy away from the tough questions.

Alexis Gay: With access to a collection of marketing, sales, service and operation shows, you'll have all the information you need as your company goes from startup to scale up and beyond.

Brianne Kimmel: Listen, learn, and grow with the HubSpot Podcast Network at hubspot. com/podcastnetwork.

Alexis Gay: You're listening to The Shake Up, where we explore the business decisions that dare to be different, and the leaders who are shaking up their industries. My name is Alexis Gay.

Brianne Kimmel: I'm Brianne Kimmel, and on each episode, we'll bring in research and data backed insights to dig into the minds of business leaders and learn how they make the decisions that challenge the status quo.

Alexis Gay: You can support the show by following us on Apple Podcasts or Spotify, or honestly, wherever you get your podcasts.

Brianne Kimmel: We'll be there, hanging out, talking business, ready and waiting to shake things up with you. Are you ready to dive in?

Alexis Gay: Absolutely. I am so excited that we are here with Rachel Drori, the founder and CEO of Daily Harvest.

Rachel Drori: Thanks for having me. I'm excited to be here.

Brianne Kimmel: Awesome. Rachel, thank you so much for coming on The Shake Up. We have been talking about the growth of subscription meal kits and in particular, Daily Harvest's approach, which I truly love. I love the latte pods. You can add your own milk, which I know milk preferences are so controversial and that's become the new rage, is what kind of milk are you using? And so I've become obsessed with the latte pods.

Rachel Drori: Absolutely, and we actually just launched milk, just thinking about that insight, which is also a really innovative format and way to make it, so yeah, it's been fun.

Alexis Gay: Rachel, we've been locked up inside for over a year. We weren't really able to go to restaurants to the extent that we used to, and the meal kit delivery market definitely seems to be skyrocketing, but before I ask you about the Daily Harvest business model in particular, I'm curious, why meal kits? Are you a foodie? Are you an amateur chef?

Rachel Drori: Yeah. We're actually not a meal kit. We're more like a modern CPG than a meal kit. Our food doesn't rotate, you don't have to really cook it. It's already prepped, so we are really trained to shake up all of it.

Alexis Gay: Would you say you're defining a new category?

Rachel Drori: Absolutely, and I got into it because yeah, I'm absolutely a foodie. Will do anything for a good meal. That sounded weird, but you know what I mean. I didn't want to compromise. I wanted food that was convenient because that's what makes fruits and vegetables hard, but I also wanted food that was jam packed with all the stuff that I know is good for me. And what I like to say is Hippocrates has said," Let food be thy medicine," right? Well, we've ended up with a Hippocratic oath for medicine being thy medicine, whereas food has kind of lost its way, so we're really here to change that. Here is, in my opinion, what's so broken with food. There are a lot of things broken, but one of the biggest challenges is that the way that big food is set up is very systemically broken. The way that starting with the investors, right? So investors in big food companies, the big CPGs of the world, are really focused on things like margin incretion and slow, steady returns, dividends, and when you think about how that translates to food, right? To squeeze out margins out of food means to squeeze out nutrition, and it's pretty ugly. The way that they're structurally set up is not to innovate. I think case in point is like Kraft in recent years, right? Their big innovation last year was launching a pink macaroni and cheese and you're like," What?" They've just completely lost touch with the customer and they don't have the structural agility to able to move with modern times, and Daily Harvest is really a platform that allows us to innovate and iterate, co- create our food with our customers. The structural agility to get our food to our customers when they want it, which spurs this virtuous marketing cycle, which means that customers are getting what they want. And the reason we see us all over Instagram is because if we're co- creating our food with the people who are eating it, when they eat it, they're excited that we listened.

Alexis Gay: Yeah. That's amazing. This might be a big question, but I'm very curious. What drives the demand for your product? Is it that younger generations are focusing on healthier food options? Is it the traditional family dinner is not as much part of our culture? Is it because of the struggles of the restaurant industry? What do you think about?

Rachel Drori: Yeah, so I think there's a few things, right? We're kind of at the crossroads of bunch of, I hate using this term, but here it is.

Alexis Gay: Let me hear it.

Rachel Drori: Of mega trends, right?

Alexis Gay: Oh, mega trends, there we go.

Rachel Drori: I did it. I said it.

Alexis Gay: And now it's a business podcast.

Rachel Drori: But really thinking about the journey of health and wellness that we were all on, going back to a lot of our roots. I don't know, I just, I always think back to the SnackWell. I don't know if you guys remember. The SnackWell was this big health innovation, it's like sugar. I don't know, but I think people are just smarter and there's enough education out there where people are realizing that," If I stick to the basics, right? Like things my grandparents ate, things my great- grandparents ate, then I'm going to be okay." Our whole food ethos is really based on this idea where we're not going to tell you what not to eat. Absolutely not. We are including everybody's eating habits and everybody's eating values, but we're going to provide a base of fruits and vegetables. So our goal is to get everybody to eat more fruits and vegetables, and then if you want to add a piece of chicken to your Harvest Bowl, if you want to add, to your point earlier about milk, almond milk, coconut milk, oat milk to a smoothie, you want to add bone broth to a soup, we think that's great.

Alexis Gay: In 2017, you had$ 43 million in investment which is incredible, but in order to get that type of cash infusion, it starts with a pitch, and I want to hear a little bit about one of those pitch meetings. Back then in 2017, how were you approaching crafting the pitch around Daily Harvest?

Rachel Drori: Yeah. 2017 was, I'd say, the point when we felt like we had reached true product market fit. Fundraising previous to that point, I'd say was incredibly difficult. People didn't understand how the collections that we had laddered up to this bigger picture, to this platform. There was a lot of friction in the fundraising process, especially because the people from who I was trying to raise money just didn't see that there was a problem. They were like," Well, why wouldn't I just buy a Jamba Juice?" And I'm like, I don't even know where to begin with that.

Alexis Gay: Yeah. Did you ever feel discouraged after meetings like that?

Rachel Drori: Oh, discouraged doesn't even cover it.

Alexis Gay: Really?

Rachel Drori: I think that fundraising is the most demoralizing process in the entire world.

Alexis Gay: And in those pitch meetings, before you went in the room, what was the key message you were really trying to land with the people you were seeking investment from?

Rachel Drori: Yeah, so there were two things. The message I was trying to land was just this big picture that big food is completely broken, and that there's this opportunity, and that big food is not meeting customer demand. Where I would say it got really tricky wasn't necessarily with the problem statement. It really was with, a lot of people got tripped up on the frozen piece.

Alexis Gay: Really? Why do you think that is?

Rachel Drori: Yeah. I mean, they still do.

Alexis Gay: Really?

Rachel Drori: But it was really about, everyone's like," Oh, so you're disrupting frozen food," and I'm like, soup is not a frozen category. Lattes are not a frozen category. Breakfast cereal is not a frozen category. How is that your logic? Frozen is how we make food incredibly clean, unprocessed, and convenient, and sustainable also. So it is the means to an end, and we're really trying to focus on that big picture to paint this story that we're not going after frozen food. The market is so much bigger than that, right? Our lattes compete with Starbucks just as much as they do with Keurig. Our soup compete with Hale and Hearty just as much as they do with like a Campbell's, so it really is. Food is a general category and that's a big vision, and it was hard to get people to wrap their head around that being our North star, but eventually, we did it. And the other thing that I was really looking for in that round was values alignment from our investors, because when you're innovating in something like food, which is something that people eat and ingest, I wanted to make sure that we were never going to end up in a position where some of the investment community in big food has caused a lot of health challenges for humanity. And there was a lot of ensuring that our investors were going to be values aligned as well.

Brianne Kimmel: Wow. That's amazing. How did you actually kind of reverse the pitch and ask those investors questions to give you a real feel if they were going to add value and be a valuable person to help you scale Daily Harvest?

Rachel Drori: Yeah. I mean, one of the tricks when you're pitching is that you're also always selling, right? So one of the things that I did was I showed that there was great customer demand for these things, like sustainability is now table stakes. It wasn't five years ago, so just showing where the customer demand was going and showing that there was also a business revenue opportunity tied to everything that we were hoping to do on the sustainability side, I think was really important part of the story. But some of the questions that we asked just to make sure that people were aligned, actually weren't asked to the investors directly.

Alexis Gay: Really?

Rachel Drori: It was always to other companies that they invested in and not the ones that they introduced us to.

Alexis Gay: Yeah, of course.

Rachel Drori: So those back channel calls where you ask about a time where there was a really difficult decision that you had to weigh margins versus doing what was right for the customer, right? For me, that's one of the hardest tensions, and I was always going to focus on what was best for the customer and what's best for the earth is also best for the customer. So I think it was really in those back channels where I learned about people's values because when somebody's trying to close a deal, they'll say lots of things.

Brianne Kimmel: Right. I think a lot of people, I mean, outside of the tech industry, this notion of a lot of key information has passed through back channel, through text messages, through phone calls, it almost feels like as much as our industry is so progressive and so innovative, most of the important conversations and the critical information that you need to scale your company actually sits through person to person dialogue that's very separate from that pitch meeting. A very separate from a lot of the direct conversations that you're having.

Alexis Gay: Oh yeah. It goes down in the DMS.

Rachel Drori: Absolutely, and I don't have a very large network. That's never been one of my strong suits, so exactly, like sending people messages on Instagram and reaching out to people on LinkedIn, people are willing to talk. People are willing to help.

Alexis Gay: Yeah. I mean, I wanted to spend a little bit more time on your positioning Daily Harvest as a platform, because there's a lot of complexity in how to actually operationalize and turn this into a true platform and something that's very scalable. At the series B, what were some of the bullet points, or what were the key next steps that had to happen to make Daily Harvest truly scalable?

Rachel Drori: Yeah, so a lot of it sat in our supply chain, but then there's also the collection expansion, so the proof point was that we had had multiple collections through multiple day parts. The way that we had built our supply chain to that point was we had a lot of amazing farmers that we engage directly with. We still to this day do all of our sourcing and work directly with everyone, but a lot of that story was very idealistic, I want to say, and it was a hard thing to do at that scale. Even like our packaging, right? We had these grand plans to have completely home compostable packaging, and there was a lot of storytelling there because there's a scale problem, right? So you always have this chicken or egg problem when you're talking about physical goods, where in order to make something cost effective so that you can think about things like profitability, for example, you have to have the scale to be able to justify those big swings. So I think that the most important thing and the most important part of the vision to wrap people's heads around was this idea that we were disrupting food as a category. Here were our proof points, and I think it was showing that there was so much more to it that we had planned as far as not only making sure that the business was scalable from a supply chain perspective and making sure that we were able to maintain our agility, but also kind of layering in this sustainability piece to it. Finding a way to succinctly put it all together into one neat package without having any comps in the market.

Alexis Gay: Today's episode is sponsored by those fine folks over at HubSpot. Managing conversations with prospects and customers and creating remarkable experience can be tough. HubSpot wants to change that. That's why they created a CRM platform that makes it easier to align across teams.

Brianne Kimmel: Oh, it's so much easier. With HubSpot's unified system of record, all teams can create a better customer experience without missing a beat.

Alexis Gay: We love a unified system of record. We always say that. You can install live chat on your website and allow sales or support to get in touch with prospects directly.

Brianne Kimmel: Or send marketing emails on behalf of sales reps or customers' success managers.

Alexis Gay: Not to mention, it allows prospects to book meetings with reps without wasting time.

Brianne Kimmel: Yeah, and best of all, teams can get access to all of the contacts history so they can have more informed conversations with prospects and customers and design a better overall experience.

Alexis Gay: The result, all your customer people can align around the same goals. Consistently great customer journeys that drive growth and lifetime loyalty. Learn more about how you can scale your company without scaling complexity at hubspot. com. But a lot of companies that are offering food delivery in some capacity are keeping their offering really simple. Focusing on just dinner or just one type of food, but you have over 60 items for breakfast, lunch, and dinner. Was that a conscious decision you made to offer so many more than other companies?

Rachel Drori: Yeah, so we're almost at a hundred now.

Alexis Gay: Oh my gosh.

Rachel Drori: And our brand affords us an incredible amount of co- creation with our customers. Our customers love us, they love to share with us. So because we have this direct link with our customers, what we're able to do is we actually phenotype taste buds and we understand what every single customer wants and needs down to an incredible level of detail that allows us to create food for each individual. We don't look at customers as averages. We really look at each individual and we create food to meet the needs of those customers, so the reason we have so many smoothies, there's no customer that's ordering all of our smoothies, right? But we have smoothies for different taste preferences and different eating values and different profiles. And as we expand into this collection depth, we see different groups consuming over different day parts, so it's really systematic the way that we think about it, and it's really served us well to increase share of stomach over time, as we've been able to take this data and turn it into meeting the needs of our customers.

Alexis Gay: Wow. I'm so curious, how did you build that?

Rachel Drori: We have an incredible algorithms team who has really been a key part to our food development, and then the personal tied to that development to make sure that we're matching the right people with the right food that was created for them.

Alexis Gay: Wow. That's really incredible. I have so many questions about sort of like the way that you, as a company that is providing healthful food options for people, uses data and the way that you use, as you mentioned, algorithms to help you in your product development decision making.

Rachel Drori: And then we have the supply chain that allows us to be really nimble and respond in six to eight weeks, which is completely unprecedented in food.

Alexis Gay: Help us understand this, because a lot of other people might be thinking this too. You've recently brought on Brad Klingenberg, the former head of algorithms at Netflix and Stitch Fix, which are not food companies, and you could say are both a little bit outside the food industry in general. Can you tell us a little bit about the need for a chief algorithms officer with such a background?

Rachel Drori: Yeah, so algorithms are the center of our platform. Without the algorithms that help us really turn those insights into something that's actionable, the rest kind of doesn't matter, so that co- creation all lives in that world. Our personalization, our replenishment platform, which is... Our goal is not to send you food every week. We don't want that, which is very different from a lot of the businesses out there where the period between purchases matches the period in which you're meant to consume, right? Daily Harvest is non- perishable. We are frozen, and our goal is to keep you stocked, right? So we really have to get deep into customer behaviors to understand when you need to be topped up and when you need to get another box that's going to help you keep your freezer stocked so that at that moment when you are hungry, you have what you want there. And helping you find the right thing, that is that thing that you're going to want, all lies in our algorithms.

Brianne Kimmel: How do you balance qualitative insights as well? Do you have a great team? That's reading customer support tickets? Do you have focus groups? How do you collect a lot of individual insights from each Daily Harvest user?

Rachel Drori: There's two ways in which we do that. One is we have an incredible passionate care team. One of my areas that I'm really passionate about that touches on my background is I started my career at Four Seasons hotels, and for me, Daily Harvest is not about marketing. It's not about meeting customer needs. It's about anticipating them, and that to me is true hospitality, and a part of that is how are we anticipating customers needs? So we really embolden our care team to be a part of this co- creation journey and adding the context behind what we're seeing in the data, that's a huge piece of what we do. And then we have a in- house research team that takes the data that we see and ties it together with the emotional, the psychological, the why behind what we're seeing, and it's an incredibly powerful combination when you put all of those pieces together under one roof with the same goals.

Alexis Gay: Rachel, I don't think most leaders would be able to see the connections between such disparate parts of the organization or potential parts organization, like your focus on hospitality and then this passion for data and algorithms. When you were building out your team, were you actively trying to pull from such diverse backgrounds? Or was it something that came up over time? Tell me a little bit about that process.

Rachel Drori: Yeah. I mean, look, if my belief is big food being broken, it would've been very hard for us to hire people from big food, so we had to bring in people from different areas of the business world to really be able to do something different. We have people from all over the technology, commerce, consumer landscape, but very few people who actually come from the world of big food.

Alexis Gay: Brianne, does that sound similar to the approach that you see in most tech companies?

Brianne Kimmel: I mean, I hate to use a buzzword, but to disrupt an industry, often when we-

Alexis Gay: We said disruption. All right, let's go. Now, it's started, everybody.

Brianne Kimmel: We're disrupting the disruptors at this point. What gets me really excited about something like Daily Harvest is the fact that you're applying so many startup and tech related concepts to an industry that is so antiquated and-

Rachel Drori: So antiquated.

Brianne Kimmel: ...I would say not on behalf of the average person. I get so frustrated when I go to the grocery store and you see things that are packaged as healthy, but they're filled with sugar and so one of the challenges there is like for the average American, myself included, you want to eat healthy but it's really hard to tell from the packaging and from the labels, what is actually healthy.

Alexis Gay: Hundred percent, so I want to talk a little bit about your marketing mix and some of the data personalization things that we touched on earlier.

Rachel Drori: Yeah.

Alexis Gay: In a world where startups rely so heavily on Facebook, Google, and Amazon for sales, you have invested in TV ads, in influencer partnerships, and actually I just saw on your Instagram, a friend of mine in one of your influencer partnerships and I was like," Good for him." Subway ads and event popups, and that all sounds expensive, but it seems to have paid off. I would love to know, what was your decision making process like in making some of those maybe heftier bets?

Rachel Drori: Yeah, so growing up through the world of marketing, one of my goals early on was to not be beholden to any one channel, right? It's really easy to scale, or was easy to scale on Facebook. Now it's a whole different ball of wax, but it was really easy to scale marketing on Facebook and on Google and to use the unique arbitrage opportunities to grow a business. The landscape has changed significantly, but knowing, because I had a lot of experience in this, knowing that the landscape is always changing, it's a complete moving target and something that works today will not work tomorrow and something that works tomorrow will not work next week. It's just how you have to live in this world. We wanted to make sure that we were equally reliant on all channels, so we went out really aggressively into every channel you can imagine to give us that optionality and that agility where we can change our spend in different channels based on what happens to be working at the time. So influencer marketing, it's a part of our mix. TV, it's a part of our mix, but I think the most important thing is that even if one thing is working really well, is that you keep your spend. You keep the other channels engaged enough where if something changes, you can always pivot and change that mix.

Brianne Kimmel: That's really interesting, because I would assume that because you're essentially going after really large known brands that have a ton of spend, like if you're a modern CPG and you're creating lattes that compete with Starbucks, in my mind, Starbucks will always outspend you, or a lot of these big brands are so down to spend money. How did you think about some of these brand activations and more brand building exercises? Plus when you first got started and to where we are today, I feel like the whole influencer marketing game has just completely changed. So how do you think about some of the branded Daily Harvest stuff versus engaging with influencers and people that are likely to use Daily Harvest anyway because it falls into this new category of just easier, healthier eating?

Rachel Drori: One of the things that kind of ties to this platform that we've created and the importance of the agility in our supply chain, people always say like," What's the secret to your really fast growth?" And I actually talk about our supply chain, which is not the answer that people want to hear, but the reason why is, I don't know if you've ever seen a Roger's bell curve. It's a normal bell curve, like a normal distribution, right?

Alexis Gay: I haven't, but I'm picturing it. I can picture a bell. It's great.

Rachel Drori: But if you think about the way normal product development works, right? You have an insight and it can take up to a year to bring something to market. And if you think about early adopters going into the early majority and then the late majority, right? Climbing up that curve, by the time you get to the top, that's usually when big companies are going to market, Right?

Alexis Gay: Sure.

Rachel Drori: So our supply chain agility, our data allows us to go to market when an early adopter is interested in something, and our early adopters, because we listen to them, the companies evangelizers. And what's really powerful is that it spurs this virtuous marketing cycle that rides itself up that curve as opposed to facing headwinds on the way down where you have to hire Justin Timberlake to shake his tushy on television.

Alexis Gay: Right, his tushy. You didn't come on expecting to say tushy, did you?

Rachel Drori: I didn't expect to say tushy. I have a four year old and tushy is the word.

Alexis Gay: That's okay. This is The Shake Up. Anything could happen.

Rachel Drori: But having to hire somebody like JT to shake his butt on television is because you've missed the insight. You've missed the moment where you've just given the customer what they want. You've anticipated their need, right? So a lot of people think that we have this really expensive, really robust paid influencer strategy. Of course we pay for some influencers, but really what you're seeing is us co- creating with our customers and our customers being so glad that we listened to them and gave them what they want. We've also given them this opportunity to align Daily Harvest. We provide the fruits and vegetables, you align Daily Harvest to your eating values, so that milk that you talked about earlier, Brianne, Daily Harvest smoothies or lattes with your oat milk then become your platform to evangelize for your beliefs and your eating values. That is just endemic to what we've created. That's just a part of the platform, and then the other side is brand marketing. We will only do brand marketing when we feel like it is going to further our narrative, right? When it's going to point out how we are really differentiate from others in the market, because that's the goal of brand marketing. For us, it's not about brand awareness. We're never going to outspend Starbucks. Everybody knows Starbucks. Not everybody knows Daily Harvest, but we really focus on those points of differentiation.

Alexis Gay: Wow. Rachel, I'm so blown away by what you've built and just being able to hear some of those insights, especially what you just said about essentially having a fast enough iteration process so you're actually able to anticipate the needs of your early adopters, that, I think is an incredible insight that I don't see a lot of other companies adopting in the market. So massive kudos to you, and I'm so excited that we were able to have you on. If people want to find Daily Harvest products and learn more, where can they find you?

Rachel Drori: At dailyharvest. com.

Alexis Gay: Look at that. Look at that. Rachel, thank you so much for coming on the show today.

Rachel Drori: Thanks so much for having me. This was fun.

Alexis Gay: This is has been a pleasure. Hey Brianne, are you ready to do that thing we practiced?

Brianne Kimmel: Oh my gosh, is it time? I'm ready.

Alexis Gay: Okay. 3, 2, 1.

Brianne Kimmel: Don't forget to subscribe and leave us a review.

Alexis Gay: Don't forget to subscribe and leave us a review. Pretty good. Today's episode was written and produced by Matthew Brown. Production support comes from Lauren Shield. Our engineer is William Lowe, with research from Corey Brockalini and special thanks to Kyle Denhoff and Lisa Toner.

Brianne Kimmel: Word of mouth is the best way to help people discover our little podcast. Be sure to subscribe on Apple Podcast, Spotify, or wherever else you listen to podcasts.

Alexis Gay: And don't forget to leave a review, to let other people know how awesome we are.

Brianne Kimmel: We have some amazing guests coming up this season that you won't want to miss.

Alexis Gay: See you next time.