How I Built This with Guy Raz - Back to the Roots: Nikhil Arora and Alejandro Velez

Episode Date: November 8, 2021

In 2009, Berkeley seniors Nikhil Arora and Alejandro Velez started to geek out over something they'd heard in a lecture: you can grow a healthy crop of mushrooms on used coffee grounds. Intrigued by the business potential, the pair set aside jobs in finance and consulting and became urban farmers: salvaging leaky bags of coffee grounds, planting mushroom spawn in an Oakland warehouse, and selling their crop to local grocers. Over time, the partners realized they could help others grow food for themselves, so they stopped farming fungus and took the leap into selling tabletop grow kits, seeds, and potting soil. Since launch, Back to the Roots has become the fastest-growing organic gardening brand in the U.S., with its products sold in 10,000 stores across the country. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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through Squarespace capital. Go to Squarespace.com slash built for a free trial. And when you're ready to launch, use offer code built to save 10% off your first purchase of a website or domain. Loans issued by Celtic Bank and serviced by Stripe, all loans subject to credit approval. This show is in partnership with Airbnb. This past summer, I took my family to Vienna, and it was incredible. We spent our days wandering the old streets, stopping for coffee and pastries, visiting museums, and just soaking up the history of one of the most beautiful cities in the world. And one of the things that made the trip so special was the home we booked on Airbnb. It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna,

walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.com. We got the contact info that day to Randy DeCommon, who was in Produce Coordinator for Whole Foods. And we ended up getting a call scheduled with him. It was like a two-minute phone call.

He's like, boys, what is this? You guys are farming? We said, Randy, we're growing mushrooms on coffee use. He's like, what were you farming before? Well, Randy, we're in college. All right. Do you guys figure this out? And he's kind of laughing how to grow mushrooms on coffee.

He's like, this is the coolest shit I've ever seen in produce. Boys, figure this out. Call, text me if you need anything else. And then he hangs up. That was it. That was it. Prom NPR, it's how I built this. A show about innovator.

entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how two college grads headed for jobs and banking and consulting decided instead to grow mushrooms and built back to the roots, one of the fastest growing organic gardening brands in the country. One of my favorite things about getting to do this show is we don't just hear about the successful businesses that people built, but also about the businesses they tried to build and ultimately abandoned. Before James Dyson came up with a groundbreaking idea for a new vacuum cleaner, he was desperately trying to market a wheelbarrow that used a giant round ball instead of a wheel in the front. Before Dinah Trout launched Health Aid kombucha, she was working on an idea to make party kits for adults,

everything you'd need for a roaring 20s party or a Flintstones party. Before Rich Fullop co-founded the bedsheet company, Brooklyn, and he was thinking about a business selling hot dogs inside hollowed out French baguettes. And a poor Vameta, the guy who started Instacart, was initially convinced he had the perfect business idea, an online social network for lawyers, just for lawyers. I know, I know. Imagine how exciting it would be to connect with other lawyers. Anyway, you get the picture.

Sometimes you need to come up with and then try one idea to get to the real idea, which is how the home and garden brand back to the roots began. Nikhil Aurora and Alejandro Veles originally planned to sell mushrooms, which they grew on used coffee grounds. The idea came from a class they took together at UC Berkeley. And believe it or not, even though neither of them knew much about agriculture or farming, they managed to build a pretty successful small business around it. For several years, they would haul leaky bags of spent coffee grounds

from cafes around Berkeley and Oakland to a warehouse they rented near the airport. They grow mushrooms and sell them to the local Whole Foods and a few other specialty food stores. Their guide to farming? Mainly YouTube videos and trial and error. But what's truly remarkable about their business model is that even though it wasn't making a ton of money, it was profitable from the very beginning. Nikol and Alejandro, who also goes by Alex,

would get paid to haul away the used coffee grounds, then they'd get paid for the mushrooms they grew on those grounds, and after that, they'd sell the nutrient-rich coffee. soil that the mushrooms had grown on. But as the co-founders eventually realized, there's only so far you can go with mushrooms and coffee grounds. So eventually, they dropped the mushroom growing business entirely and moved into the home gardening business, things like seeds and potting soil. And this year, the company says it will reach $100 million in sales, all from an idea to grow mushrooms on coffee grounds. Nikila Aurora grew up in Southern California. His parents were immigrants from India.

Alejandro spent his early childhood in Medellín, Colombia, where he experienced firsthand the political violence and terrifying guerrilla attacks that were happening at the time. As a young boy, he and his grandparents were briefly held hostage by the violent Colombian guerrilla group, Fark. But when he was about 11, his mother married an American serviceman in the family moved to Michigan. We moved to, so I'll start off by saying, basically when I was on the plane, it was like, you're now called Alex. They won't know how to pronounce Alejandro. So I basically, as soon as I got to Michigan, I changed my name, didn't speak a word of English, and landed in a town called

Papa, Michigan, a town of about 5,500 people. And I was the only Hispanic kid. So you were an 11-year-old, now named Alex, and put right into a public school right away? Yep. And just, like, sink or swim? Like, you've got to start learning English, basically? So much so that the day in which I was put in front of the class the first day. And apparently they asked me, where is Columbia? And my teacher, Mrs. Schumann, she brought out of, you know, she put me to the front of the class.

I was so scared. and then she makes me point to the country where I'm from. And for some odd reason, my intro is me making gun noises. Like, gorillas, gorillas. An 11-year-old from Papa Michigan, he thought I was talking about gorillas with guns in Columbia. He's like, whoa, this kid comes from a place where gorillas have guns. That was my intro to my fifth grade class. But the culture in Papa and Midwest culture is so warm.

I never felt like I was an outsider. I guess when you were 15, you went to see a doctor because you had a soccer injury and the doctor discovered a lump in your armpit, which turned out to be stage 2 Hodgkin's lymphoma. I mean, just I can't even imagine what that must have been like for your mom. What do you remember about that moment in hearing that? When you mention it, the memory that comes to mind is when the doctor called and my mom had already gotten the news and she just turns away, hands me the phone. And I said, hey, doctor, what's going on? And he immediately says, Alex, you have cancer.

And as I'm hearing those words, I'm processing my mom, take her head and start passing. hounding it against the kitchen wall. My immediate first question was like, well, am I going to die? And thankfully, the doctor said, no, you're not. The prognosis is pretty good for that particular kind of cancer, especially when you're 15, but it still meant that you had to go through months of chemotherapy, right? Yeah. I went through four cycles of chemo.

And did you lose your hair? I did, yeah. I mean, I was the luckiest immigrant to have come to a town like Papa. The entire town rallied around me. So the entire basketball team shaved it head. And then the entire school started shaving their head. I had another friend of mine, McKenzie, who did prayer chains. So the entire school did prayer chains.

And she glued one by one and created a whole chain. And she took to the day-long chemotherapy sessions. though just a lot of love around me. All right, let's pause. And I want to move to you, Uniquil. You grew up in Orange County, right? That's right. I grew up born in Irvine.

And were your parents, did they have a lot of friends in the Indian community? Also, like, people who had immigrated to the U.S.? Yeah, that's a huge part of my experience growing up was just, and I've realized this more as I've been older, just had. how incredible it is in the amount of, and even think about entrepreneurship, like to me, immigrating is the ultimate form of that

of taking risk and sacrifice in search of something better. But, you know, leaving all of their family, all of their friends back in India to kind of pursue this new journey. And I think what they found in Southern California was the community of a lot of other Indian immigrants

who had all done the same thing. And really that all became family for them. Did your parents have kind of, do they kind of push you in any particular direction your dad was an engineer. And was there any, did they have any expectations for you or pushing in a particular direction? You know, guys, they, I know this goes counterintuitive to a lot of the narratives, but they didn't.

It wasn't like you have to be a doctor and engineer. I think you just wanted to see me and my brother working hard, which I, you know, I think that in so many ways, too, that, you know, downstream gave me, I think, in the back of my mind, the space, the confidence to keep on exploring new things, which I think that was kind of the energy I grew up with, and I'm just grateful for them for that. All right. So both you and Alejandro end up going to UC Berkeley for college. I think you started in 2005. Both of you are business administration majors. And senior year, I think that both of you sort of take a class in business ethics, which was like, Nikiel, just briefly, tell me what was

a class. What was it about? So it was a business ethics class professor Alan Ross. You know, this is a lecture, what? I mean, 100, 100 plus people in this class, which is crazy. We were both in the same classes, both undergrad business majors. And like, we both remember each other in different classes, but somehow never connected, never shook hands, never said hello to each other. And one of the classes are a professor. He's talking about different ideas around sustainability. And this idea gets brought up in one sentence about how you can grow mushrooms on coffee grounds. And he went on some other topic right after that. And I don't even remember, it was a whole series of different ideas about sustainable business practices, sustainable ideas. And Alex and I both, after class, independently email our professor for more information.

All right. So the professor says, hey, you can grow mushrooms on coffee grounds. Why was that interesting to you? Why did you think that was interesting? You know, I think, I asked myself that question a lot over these years. And I think for me, it was, you know, just kind of focus on sustainability and recycling. It was all the summers when my grandparents, who had this beautiful garden in a small town would grow all their own food and hearing something about growing food. My, you know, my parents teaching me about kind of just, my dad always in my ear about recycling. And I think all of those experiences of the course of, you know, at that point, two decades made that relevant to me at that moment and said, that's really cool, growing food off of waste. And I think in going through my

And it was like, is there something here? This is a really cool idea. And Alejandro, why were you interested? I mean, when the professor said, yeah, you can grow mushrooms and coffee grounds, why did that, why did you even pause and reach out to the professor? What did you ask him? I said, hey, that sounds pretty cool. Do you have any more information? What was interesting is, it's kind of crazy, right?

Coffee waste. And coffee waste has been part of my culture. My grandparents in Columbia had. traded coffee. The fact that that sounded like weird magic, like how do you take coffee wasting grow mushrooms on it? That's why because I loved coffee and I've always, like, I've always loved coffee. All right. So each of you winds up emailing this professor.

You do not know each other. You kind of kind of know who the other one is, but you're not friends. He then sends you an email back and says, hey, there's another student who emailed me about this. And he connected you guys over email? Is that, is that your memory of what happened? Yep. I remember that same thing. He emails the both of us.

And the next vivid memory I have, this was, I want to say February, Alex was a maybe a month before spring break at that point. 2009. 2009. And we met up at Alex's fraternity and we just hit it off, like right away. And just started kicking around ideas. And honestly, at that point, I think it could have been, could have been anything. I think we just

honestly, and this is to this day is the core of, we had, we right away realized we just had this connections. And I think we just, we were like balancing off each other's energy from, and to this day we still are. But like, I remember just sitting up

there and started YouTubeing videos. Like the first time, we remember that Alex, we met and we were just like sort of YouTubeing how to grow mushrooms and just laughing about all the crazy videos that came up on YouTube and just like trying to figure out, you know, what to do about this whole thing. And we start realizing, we're like, I think we got to grow this stuff

to actually see if it works. And it was like this realization's like, yeah, yeah, yeah. We got to go and get our hands dirty. And it was definitely like, I don't know if it was a business per se at that point, guy. But it was like, is there a project? Or there's something here. Like, man, there's so much coffee waste out there.

And I think turning that into something useful, it was just, you know, inspiring in that moment. And by the way, why are coffee, grounds good for growing mushrooms. So super rich in cellulose. The cellulose structure of coffee grounds mimics that of, you know, a tree on which oyster mushrooms would traditionally grow. And what's crazy, so the whole reason we started this thing off is that traditionally

mushrooms are grown on virgin trees being cut down for their logs, mainly overseas, as a substrate to grow mushrooms. And when we first heard this fact, we're like, wait, we're importing mushrooms. that are grown on virgin trees being cut down just for this substrate when you have this whole massive waste stream, millions and millions of pounds, in our local communities, and we could grow this food locally. That's what inspired this whole thing. That was crazy that people were cutting down trees to grow mushrooms

when there was so much agricultural waste and kind of this food waste around to do it. One of the ideas there was like, should we just collect all these coffee grounds and try to sell it to a mushroom farm? And finally, we're like, we should probably just try growing this ourselves, see if it even works. Yeah. I mean, it's interesting because growing mushrooms is not as lucrative as like mining Bitcoin, right? And I can't imagine there are many mushroom billionaires on planet Earth. But you guys were thinking, hey, this could be an interesting business.

Well, we thought we could have three streams of revenue off of one byproduct. And that was really intriguing. Which was what? We could pick up the waste. So we were waste collectors. Which is coffee grounds. which is coffee grounds. We could sell the fresh mushrooms.

And then third, we could sell the spent mushroom substrate, which is once the mushrooms are done growing, they leave even more nutrients behind. So we're like, oh my gosh, this is a gold mine. This is so cool. Three revenue streams, zero waste on any of this. And then I was an Excel monkey, and I pulled out Excel and I modeled it out as Nick Hill's talking. And I said, this could be a big business.

And, like, that was our, off our first meeting. I mean, don't keep me wrong. By the way, I love mushrooms. But it doesn't sound like you guys loved mushrooms. It doesn't sound like you were like mushroom fanatics. Nope. I can't remember eating. I mean, I'm sure we had it on pizza, but that was probably a few about that.

Not into, like, sauteed wild mushrooms or anything like that. You're just, it just happened to be the thing that was mentioned that then as you looked into it, you thought, hey, you know, you can extract a lot from a mushroom. Yep. We both, you know, went to the library. found all the mycology books. In the coming weeks, we were YouTubeing every,

every possible video on mushrooms and downloading every PDF we could find. And, you know, Paul Stamett's, like the mushroom guru who wrote the handbook on growing mushrooms. We got all his books. There's a whole documentary on this guy, Paul Stamitts. Amazing, he's brilliant.

We cold emailed him, and he got back to us within two hours of us cold email him. You cold emailed Paul Stamett's? But for people don't know, he's got his whole mushroom tea company, and he's got a TED Talks and he's,

mushrooms and there's been documentaries on him. He's like the mushroom kind of expert. What did you email him? Like, would you ask him? We were trying to grow mushrooms on coffee grounds. And we were asking about spawn. And I forget if we asked him directly, Alex. Spawn is like the seed, basically.

It's like seed. Yeah, it's analogous to seed. So you need that to get started. So he donated our first spawn or seed that we needed to grow, which eventually we used for our first test buckets. By the way, you're in Berkeley and you needed to, you want to do this on coffee grounds. Did you just like brew a bunch of coffee and use that? One local coffee shop and just said, hey, can we pick up your coffee waste?

Yep. The first time we thought we were actually, we were like afraid, we didn't know how it's going to work. You remember walking into the first cafe and asking for their coffee ground waste and, you know, thinking is going to be this big deal. And man, they were so happy to get it off their hands. Like you want to go to the back and pick up that trash bag, this messy and heavy and leaking? like, sure, go ahead. And I think we're like, oh, okay, there's definitely a lot of this back here, and they don't want anything to do with it. All right.

So you get some coffee grounds. Paul Stamitz mails you some mushroom spawn, mushroom seeds. To my fraternity. Do your fraternity house? And did you get a bunch of buckets? Like, imagine white paint buckets. We had about 10 of them. This is right before spring break.

And I think finally both of us were like, are we just got to do this thing and got to try growing these things. Enough reading, enough watching videos. and decided to plant them. So, you know, we went, collected a bunch of coffee grounds, brought him back to his fraternity, put this tarp down in this fraternity kitchen closet, and we mix in the spawn into them, put a little top on them, poke some holes, trying to use all of our best research, you know, that we had done, and we leave for spring break. And we're both gone for roughly 10 days.

And I will never forget this phone call because Alex, you know, gets back to his fraternity. and I get this call and he's just so excited, kind of screaming. He's like, Nick Hill, you got it on up here, you got to check this out. And, you know, I'm in this room with him. We look at these 10 buckets, and literally nine of them are just contaminated, nothing growing, just looking really nasty after sitting for 10 days, you know, with some old coffee grounds. But one of them had this beautiful crop of pearl oyster mushrooms growing out of them.

And remember we were both just standing around this bucket and just looking at it. at it and you know, Alex was like, you want to try those? I'm like, I'm not trying these. Like, you want to try them? It's like, I'm not trying these either. We're both kind of, you know, just looking at this bucket of mushrooms sitting in this dark closet. So did anybody wind up actually sampling the mushrooms? It was actually funny. That's speaking of, you know, never really being chefs or foodies or, you know, gourmet cooks or anything. Neither one of us was trying those mushrooms, but we were like, what's the best restaurant in town? And we both had heard about this restaurant called Che Ponnese by chef Alice Waters, who is just an absolute

legend and one of the founders of this entire natural organic food movement with a restaurant right there in Berkeley. We didn't know any of that. We just knew it was this famous restaurant in Berkeley. And we ended up literally walking over this paint bucket. This one paint bucket of mushrooms, walked it over. And she happened to be in the front of a restaurant. She was talking to somebody. And we just walked right up to her and said, hey, Alice, I'm Nick Hill. This is Alex. we're trying to go to these mushrooms on coffee grounds. We just grew some. Would you want to try some? And, you know, she got super into it. And she's like, that's really cool. And come to the back with me. And she actually walked us to the back of her restaurant to the kitchen where her head chef, this guy named Cal was. And she's like, Cal, do you want to try some of these mushrooms? These boys are grown. And he ends up plucking half of the mushrooms out of his bucket. And I remember he chops them up, sautees them. up in the back of her restaurant and she tries them, he tries and we try them. And I remember

chef Alice Waters was like, man, these are delicious. Wow. She was on the show a few years ago. And so when you brought the bucket of mushrooms and she said she kind of gave it her blessing, did they say, yeah, we want to buy them? Or what was the, how did you leave it? No. I mean, we thought that they were going to taste like coffee waste. So we're like, they're not going to like them. So it was almost like this, okay, this is first. along than we thought we'd be. Where do you go from here? So after that, we were like, oh, man, now we got, we got a product here. Let's just take it to Whole Foods. And we took the same day, that same bucket to the Berkeley Whole Foods store. This was at the early days where Whole Foods,

you could do this all the time. You know, a lot of local growers would go to a Whole Food store, and on the spot, Whole Foods would buy it from you. So you guys went to the Whole Foods in, in Berkeley. I know that Whole Foods on Telegraph Avenue. And you, you, like, walked in and who'd you ask for? First produce guy we saw, his name was Cesar. And then we just went right up to him and said, we're trying to grow mushrooms on coffee grounds. And we just grew these, check them out, and just kind of told them what we were trying to do. And Alice Waters loves them. Now you've got the Alice Waters endorsement, even though it may not have been official, but, you know, it's okay. Yeah. And he got fired up about it. And he ended up bringing up, he bought

his produce manager. I think we had a store marketing lead. But three or four people were like huddled around this little bucket of mushrooms. And, you know, we were telling him what we were trying to do and got a bunch of interest and support. And we got the contact info that day to Randy Decommon, who was a NorCal produce coordinator for Whole Foods. And we end up getting a call scheduled with him. Alex must have been what a week or two later. And he said, hey, tell me about what, you guys are doing. Randy's a character. He's like, boys, it was like a two-minute phone call.

Boys, I'm seeing all these emails. And what is this? You guys are farming. We said, Randy, we're growing mushrooms on coffee use. He's like, you hear this pause. And he's like, okay, what were you farming before? Well, Randy, we're in college. Okay.

All right. Do you guys figure this out? And he's kind of laughing how to grow mushrooms on coffeeways. He's like, I'm going to blow you up that whole thing. foods. It's like, this is the coolest shit I've ever seen in produce. Take coffee, ways, grow mushrooms, boys, figure this out. Here's my personal cell phone number. So just call, text me if you need anything else. And then he hangs up. That was it. That was it. And no discussion about like a purchase order or pricing or anything. It's just like,

this sounds cool, but when you figure it out, give me a call back. It was that. And I think at that point, I mean, we need nothing about retail. After that phone call, we were now a couple of weeks. We were now a couple weeks away from graduation and we were still meeting up all the time talking all the time trying of just like what are we doing with this and we heard about a business plan competition called bears breaking boundaries big ideas it was called at Berkeley and somehow someone told us about this Alex I think it was it was a night before the deadline because I remember it was an old night we were up to like the end of the night submitting this thing right before the deadline and we learned that we won.

No, no, no. I think we got second place, brother. Yeah, it felt like we won this thing. Yeah, we got $5,000. And we were on top of the world. And that is when we, I think, met up. And I remember very vividly both of us and just kind of ask each other, like, if you're in, I'm in, if I'm in, you're in,

just kind of both shaking on it and deciding to go all in. And, you know, you fast forward actually to, uh, graduation ceremony, thousands of thousands of kids, right, at Berkeley. And because we'd won this award, our chancellor bought it up and actually his commencement address. And he was like, and we have two kids who are going to be growing mushrooms after they graduate. And we, I remember the whole like auditorium is Greek theater just starts cracking up laughing. And Alex not looking at each other like, what are we getting ourselves into right now? Everyone thinks we're crazy. But that was, that was the start of this whole thing. Huh. And just to be clear.

I mean, before you got going with this mushroom project, I read that both of you had really promising jobs lined up after school ended. Like, Alejandro, I think you were going to go into banking. And Nikiel, you had, I think, a consulting job lined up. And you basically put those jobs on hold, right? That's right. So how did your parents take the news when you told them that? Like, Alejandro, when you told your mom who, like, you know, made all these sacrifices to, like, leave Columbia. And to get you to the U.S., and you get to Berkeley, and you've got this great offer on Wall Street, when you're like, I'm not going to do it.

Do you remember what she said? She was all in. Wow. She trusted me. She was all in. Amazing. She wasn't like, what are you doing? Are you nuts?

She was totally supportive. She was. She saw, and I think probably the best word is how refreshing those three months versus my summer experience in investment. Banking in New York. I had a really tough time. Yet I was going back and signing full time and going back to doing it again. So I think in her eyes, she saw how happy I was. And she just trusted me. And guys, as much as we talk about our family being really supportive, we definitely had friends who thought we were crazy. I have this one memory. I remember being on the corner of a telegraph in Durant by the Pete's coffee there waiting at like 930 or 10 p.m. after closing and then waiting

for Alex to pick me up because he was collecting coffee grounds from some other cafe and, you know, Friday night, all of our friends are going out and to a party like, what are you doing, Nikol standing by this trash can with two trash bags. And I feel like Alex almost had an intervention at his fraternity. You know, everyone's just like, what are you doing, Alex? You have this job offer, six-figure job offer. You worked your butt off for it for four years and you're going to give it up to do what? Like, what are you doing, man? You just got this job offer.

You've been wanting to. I've been hearing about you. You wanted to do this forever. And now you're going to start growing mushrooms. Like, what are you doing? That was good advice, but that was a good advice that you gave you at the time. I mean, because this was, the chances that this was going to succeed are very, very tiny. Oh, yeah.

So you have $5,000 now, some money to start. What does that do? What does that get you? What can you do with $5,000 at that point? summer of 2009, you stay in Berkeley, everyone goes after their jobs, you guys are staying there. What do you do with $5,000? We got an $800 van. Cheapest thing we could find.

That's still would run. And this is going to be presumably to haul the coffee grounds, right? Because you need it. All the coffee waste. Yeah. To pick up the coffee waste, we signed a lease on a 250 square foot office that was supposed to be our warehouse in which we'd, where we'd cultivate. the mushrooms. We'd wake up early in the morning, meet up at like 5 a.m. And at that point, you know, we ended up meeting with Pete's coffee. And they came by a spot and we pitched

them what we were trying to do. And they helped, they were excited about it. They said, yeah, you can, you can have our coffee waste. And presumably they were paying somebody to remove their waste, right? They were. When we started off, we weren't getting paid. That was a whole separate discussion actually a little bit later, as we proved ourselves. at the beginning, which was like, can we be allowed to go into your back of your cafes and go,

you know, pick up your coffee ground waste every morning. And, yeah, Pete's coffee was our first major kind of supply partner. Yeah, they had a couple hundred coffee shops. And then eventually we went and said,

hey, how about paying us? And they said, well, at that point, though, we had been collecting coffee gas for some time for, you know,

probably what, six, eight, nine months, I think, consistently, and had proven ourselves, they were like, we were literally,

replacing waste management in their stores, which was a cost driver for them. And so, like, we ended up negotiating a rate that was a little bit cheaper than I think they were paying waste management. And so we really became ballet waste collectors. Or are you taking the coffee grinds to this 250-foot, square foot office space and, like, filling up buckets in that little office space? They'd be filled up in bags. Okay. And that's right. And you just would put it on the ground in that warehouse or the office? We put them on the racks that we bought with the $5,000. I got you.

So you just have racks of bags growing mushrooms. What kind of mushrooms? Pearl oyster mushrooms. Yeah. Pearl oyster mushrooms, right. And how are you growing these mushrooms? So the process is you pick up the coffee waste, dry it, put them in the bags, add the mushroom spawn, and then you leave it in a dark room for roughly two and a half, three weeks. And then, well, mushrooms are pretty fascinating.

They only grow and they think they're going to die. So you have to immediately go from a dark room to a light room. You have to go from a dry room to a really humid room. So with those shops, mushrooms get scared and they begin to fruit. And that takes about 10 days. How did you do all of that in a non-climate controlled warehouse or 250 square foot office in Oakland? We bought some tarp and some humidity. Humidifiers. Lots of duct tape.

Humidifiers, okay. Oh, duct tape. See, we just like, you sealed a part of the room off? Yep. We've tarped up our humidity chamber and stuck a bunch of humidifier. This is all we got to start off fans and remove some of the ceiling tiles to create some more, you know, air exchange. It was, uh, yeah, looking back, it was crazy. How did you figure out how to do this? Was it all through watching YouTube videos? And reaching out to experts. All right. Now you've got a bunch of bags. of mushrooms. At what point, I guess, I read it was like October of 2009, is when you finally had

enough mushrooms to bring to Whole Foods. How much did they buy? First invoice was 3.14 pounds. So they got, they bought three pounds of your oyster mushrooms. And what do they pay you? $10 per pound, which was, which was pretty good price, very good price. So 30 bucks and some change. And, uh, not bad for six months of work. Not bad at all. Not bad at all. We, we, We were so happy. We drank a beer at the Berkeley Whole Foods 5 a.m. because you have to deliver early in the morning. But we had the invoice and cheers to a beer that we chugged at 5 a.m.

after we sold those. And how did they market it at the Whole Foods? Did they have like a – did they say like locally grown mushrooms and coffee grounds? Or did they not do that? Yeah. They put a little picture. Oh, they put your picture up? Yeah, they'd really told the story.

These are grown off of local coffee grounds, and this has grown a mile away almost, literally, you know. It was awesome. The first story, they really got behind it. I always buy that. Every time I go to Whole Foods, I see that, I always buy that. I'm a sucker for those stories. I love it. So, presumably, when you sold them those three pounds of mushrooms, it was with the understanding that you would sell them more, that they would, that you now had an operation, and you could provide them.

with more. Did they say, and now we want 10 pounds a week or not quite yet? Yeah, the two things we didn't really consider. One is, well, once you sell it to a store, you've got to make sure it sells through so the buyer sees that the product's selling through and Bushrooms, the shelf life short, so it's got to sell pretty quickly. And then the other part was that as soon as you sell out, they're going to say we want more for that store and we want to expand you to another store. And after that first 3.14 pounds, there was about a month or two that we didn't have much more. We still hadn't consistently produced crops. Because you would basically plant some spawn and they just wouldn't grow.

Yeah. Can you get trachydarmy out, which is that green fungus? That was a tough time. It was the most, I mean, to disheartening from May through October, you know, you'd gradually, leave your jobs, you're riding high, and then we planted our first batches, you know, right late May, three weeks of anticipation, excitement. You know, we figured it out. And then now you're talking about probably mid-June when the first crop we had planted

should have been ready, nothing. And then we were planting every single day. So then you come back every night, you'd come back and just check and check and nothing, and just, you know, you look back and like, that was crazy. every day waking up at five, collecting coffee, guns, planting, drying them, just to kind of see nothing. When we come back

in just a moment, Nikiel and Alejandro learn a critical business lesson. It's not always a good idea to take people on a tour of your fungus farm. Stay with us, I'm Guy Raz, and you're listening to How I Built This from NPR.

Hey, welcome back to How I Built This. I'm Guy Raz. So, it's 2009, and Nikiel and Alejaner are full-time mushroom farmers, selling whatever they can grow to whole foods and making extra cash by hauling away used coffee grounds. All good developments, but still, they're barely making any money. I mean, we were living off of very little. We took, I think, $100 a week each, and, you know, it took us until January, really, to get some consistent crop.

to Whole Foods. But the beauty about starting a sustainable business in which you're taking waste to produce something is that, yeah, the raw materials are actually not even free. You're making money. You were paid. Right. That's the brilliance of it because you basically, you were hauling the coffee grounds, which is what you needed to grow your mushrooms. You were paid for that. So you had cash coming in and then selling the mushrooms.

So you had some cash for you. get some light coming in. Yep. The spawn was really our biggest expense. We were buying spawn because we were not sophisticated enough to be able to kind of grow our own spawn and seed, but in the scheme of what we were doing, it was a very small percentage. But as we were scaling up growing mushrooms, and we were starting to collect thousands and thousands of pounds of coffee grounds per week, and we were growing mushrooms on them. And what's left over was the spent mushroom substrate, which at the time we kind of knew was something interesting, but didn't know much about it, ended up kind of stockpiling it.

The substrate is what's left over in the grounds? Yeah, so it's the mycelium or the roots of the mushrooms, so to speak. Yeah, the white roots grown throughout all the coffee grounds. The mushrooms have fruited or grown off of it. And we were starting stockpiling this behind our warehouse. And we, I don't think it fully thought through what we were doing with this. And I remember actually we got an email from our landlord saying, he's like, this stuff is starting to stink.

I've seen rats running through there. You got two weeks to get rid of it all. If not, I'm terminating your leasing as you kicked out. And we ended up putting it on Craigslist and didn't know what else to do. And honestly, within probably 48 hours, all of it was accounted for. People wanted it for what? Urban farms, local gardeners who, and we kind of learned through them that this is one of the most premium nutritious soil amendments there is, period. And mushroom my seal, like the microreise it's called are actually one of the most beneficial things you can actually.

to your garden because it helps your roots uptake nutrients. So imagine adding plant food, which is like the actual nutrients, but what mushroom roots are micrase they do is actually help your plants better extract whatever is in your natural, your native soil. So really good stuff for your garden. So you basically had coffee grounds mixed with this mycelium, and that is plant food, basically. You would sprinkle that over your garden? Exactly.

So we started selling that guy, and we sold it actually. in bulk. We had now the waste of waste of waste, which was all revenue. So imagine, you know, coffee grounds getting paid for that, growing mushrooms off of it, and then our own waste, we were selling as well. So that whole cycles would allow us to bootstrap this company when we were getting started. So in the first half year, at least, it was just the two of you. Just the two of us. I mean, it was probably 15-hour days between collecting and planting and then harvesting and then demoing at night. Okay, so at this point, you're selling the mushrooms at Whole Foods.

And I think you're doing some farmers markets too at that time. And what kind of reaction were you getting from people? What are people saying to you? Two, I think, different things were happening at the same time. One, we'd always do farmers markets. And anytime families came by with their kids, they would stay there for half an hour with They'd buy a lot more mushrooms. They'd love the story.

They'd come and do tours of our farm. And they'd say, hey, can I take one of these bags home? I'll try to grow them out of my kitchen. So basically, when you refer to your quote, unquote, farm, you're literally talking about a warehouse full of bags of mushrooms. It's not like a foth, not like a bucolic farm with like rolling green hills. No. It was scary.

It just looked. grindy. We were next to a recording studio and an insurance agency. And it was to our consumers from Farmer's market, awesome. It is awesome. But to a Whole Foods produce buyer, it was not awesome. And we made the mistake of just because we were starting to get more confidence with these tours. We're like, hey, produce team come and do a tour. Oh, you invited the Whole Foods team to come and check out your operation. Yes. And we were so proud.

Yeah. And right after that, Randy calls us. The Whole Foods buyer. And he says, guys, never do that again. Why? Why? Because he's like, the health aspect of it could turn into something we don't want to go there. Like just.

It took us like, what, six months after that, we had to get certifications because Whole Foods was like you guys. You got all these health and safety checks. There was our first big kind of regular. regulatory lessons and I'm sure. I'm selling up and selling to a major retailer. So, so when you, when you had to like kind of quote unquote professionalize it and get, get it up to code and stuff, I mean, all power to the Bay Area, but I mean, the regulatory

regime in the Bay Area can be quite something for anybody who's started a business. How did, what did you have to do to get it like kosher, make it a kosher operation, so to speak. We would spend hours cleaning, I mean, I remember Alex and I have like, we'd just be jamming out to music and wiping the walls every day because you want to keep it pristine because if not, you know, you might have a competing fungus growing. So we would have so much of our days those days was just us mopping and scrubbing and cleaning and trying to keep this little space as pristine as we could. And, you know, whole foods guided us a lot. They would help guide you from start to finish. All right. So now, so you've got the

mushrooms, but then around this time, I think late 2009, you decide to kind of make kits, mushroom kits where people could grow themselves. First of all, I would just think that would cut into your business because now you're giving people the means of production. You know, you're not giving them your mushrooms anymore. And now they can make their mushrooms. So to hell with you guys, why don't I need to buy your mushrooms? But that was not the thinking, presumably. Well, the thinking was that when we had so many families come to do these tours and they could take a souvenir home, that would be at 20 bucks. So that same bag would produce roughly $10 worth of the product. This now became a $20 product. And that was one part of it. The other part of it was people were sending us pictures by text and email. of their fully grown kit.

And that was impactful because you now had our consumers come back to us and they became the farmer with us. We didn't know this early on, but we kind of learned us through those kind of experiences. The kits weren't about the mushrooms. They were about the experience of growing and just seeing something grow and growing something yourself. Okay, but to make the kids, right? And for people who aren't familiar with them today, they're like cardboard boxes and, you know,

it's got branding on it and it's a printed package. and there's a bag of soil that has mushroom spawn in it and a booklet on how to grow them. You know, everything's in there, right? But that costs money. It costs money to finance that. So how did you, like, how were you able to launch the mushroom kits, even though I know you had some cash flow, but I can't imagine you had that much cash to work with? I think Alex and I, early on, tapped into every support avenue there was.

And that, you know, we applied to a ton of business plan competitions. We probably what got Alex, something thousand dollars from different winnings. The city of Oakland was incredible. And we moved from Emoryville to Oakland and got about a $25,000 redevelopment grant from them to build out what became our largest warehouse 10,000 square feet in West Oakland. And I think you even got a loan from Whole Foods. We got the local producer loan from the Northern California region. And that loan was to do, what could you do? What'd you do with that long? It's like 25,000 bucks I read. One of the best uses of that grant funding. I remember we finally, this was two years or so, Alex, into it, maybe more. There was a local machinist near our West Oakland facility. And he would just see us every morning for hours grinding away on this wine press, drying these coffee grounds. And he was like, I think I can make you guys an automated one and it costs significant money. It was, you know, 11 grand.

It was 11 grand. Yeah. And he ended up. this beautiful, automated thing custom built for us at his machine shop. And I remember vividly the first time that we got this machine, put coffee guns in there. It literally took 90 minutes. We hit one button and 60 seconds later, you had perfectly dried coffee grounds at the right moisture consistency. Wow. And it was just this game changing moment.

Never forget that clicking that button. I wonder, I mean, you're now a year in, right? you get to the to mid 2010, you've got, you've got people now working for it. How many people were you able to hire initially in that first year? Do you remember? Nick, I want to say we roughly had five people all in. That's about right. Yeah. And we did 250,000 in year one. In revenue, year one. So I wonder in that first, you know, why, well, I mean, it would take a while. We'll get to this later, but it would take a while for you guys to actually go out and raise money. But why didn't you do that early on?

Why didn't you go out and look for investors? We still knew we were figuring all this thing out. Like there was a lot of moving parts. I mean, we were doing everything ourselves, and we were still making a lot of mistakes. And I mean, we would throw away stuff. Like, nobody would invest in a business like that. And so it wasn't even on your radar.

Not even in our radar. We were all focused on grants, actually. That was all our energy. because we knew that we had something that we could see it and feel from customers that they're like, this is so cool. You're taking waste. You're selling the waste. You're selling fresh mushrooms that come from waste.

So we felt that always. And that's why we stayed in it. All right. So you guys, you're selling mushrooms. And I think by year one, you're in all the whole foods in Northern California. Mm-hmm. I mean, 500 pounds a week at 10 bucks and 50 weeks is roughly a quarter of, million dollars. So that was where most of that revenue was coming from. So your core business was

raw mushrooms that people would buy and then cook. In 2010, our bread and butter was fresh mushrooms. Okay. And also in 2011 was your bread and butter mushrooms? 2011 got a little bit more from waste collection because we were by then picking up from roughly 40 peats and Starbucks and local shops. A week? Yeah, a week. Yeah. A week. weekend. Because I think 2011, you're basically, your customers are Whole Foods and Peets, right? Essentially. That's right. But we were also doing a lot of farmers markets guy at that time, too. So that was a lot of, like Alex and I, every weekend, Saturday and Sunday, 10 hours for, you know, years. That's all we did. And that's, you know, the mushroom kits. We sold their, when we started creating mushroom kits, we were first selling them at farmers markets and getting, you know, great feedback. So. And so this is 2011. You've got these sort of three, let's say, legs of the stool. Soil, fresh mushrooms, mushroom kits.

Was it just, were you just so busy the two of you and your small staff that you couldn't really figure out where this was going to go? Or at this point did you, the two of you start to have conversations saying, hey, you know, maybe we should kind of assess what we want to do here and where we should focus. Or was it just like, let's just keep doing it this way? We had gotten our mushroom kits from farmers markets, then we got them into Whole Foods. And Randy was a mentor of ours. And actually, for the first time, we took this big basketball-sized bag that we were growing these mushrooms.

And we had slapped a sticker on it from FedEx. We thought it looked beautiful. We were in a meeting with Randy talking about fresh mushrooms. And at the end of the meeting, we pull out this mushroom kit, you know, with all the confidence in the world as if it was the next iPhone. Right. And we put it on the table. with like one more thing Randy. What about this mushroom kid?

And he looks at this bag. And he literally falls out of his chair. He's like, that's the most disgusting thing I've ever seen. No one's going to buy that in my store. And you just, you know, laughed at this thing.

And but he was also, you know, by that point, a friend, a mentor. And it wasn't a no. He was like, just go back and figure this thing out

because it's cool, but this thing looks hideous. No one's going to put this on their window cell. And it was actually the push that we needed at that time. And I really kind of make us focus in on the design and the use. your experience, we came back with what is, you know, a version of what is, what it is today and started selling that in Whole Foods. And we were for a while selling both of them,

mushrooms and mushroom kits. All right. So you guys have this business going. Still bootstrapped. And this is a total, like, I'm going to go, I'm going to take the off ramp here and go in a totally different direction for everybody. And there's warning for everybody listening. In May to June of 2012, Alejandro, you, become a contestant on the eighth season of the Bachelorette. This is not part of the narrative. This is true. I am not making this up.

You leave the mushroom business for some time to be a contestant on the Bachelorette. I need the backstory and the front story and the middle story. Please. Nick Hill, the floor is yours. It was a friend of one of the casting directors for the Bachelorette, I think had gotten a mushroom kit from Alex and heard about the brand through a demo at an L.A. Whole Foods. a lot of random things came together where they were like, oh, you just talked to Alex. And somehow Alex got connected to the Bachelorette casting director.

They loved Alex and thought he'd be a great fit for it. They thought he'd be a great fit because, aside from the fact that he's handsome and charming, there's a great backstory there. He's a handsome. He's a smart, charming entrepreneur doing cool stuff. And they thought he'd be a great, you know, a great contestant and just who he is. An urban mushroom farmer. I gotcha.

And Alejandro, did you think, hey, you know, this might be my ticket to meeting my true love? I was 23. 23. Like so many things, one of their producers was this guy named Elon, and the guy just sold you on the whole experience. and they had announced who the Bachelorette was, and that was Emily Maynard. She had a daughter named Ricky. So I was 23.

She was 27, 28 with a 6-year-old daughter. So it was this thing where just one thing would lead to another. And we kind of laughed and just said, what the heck, let's just do it. It was a big decision. I remember you were basically going to be MIA. We had two phone calls allowed for the 45. days and it was like Alex chose me as like you could have one person you could talk to when you're on this because they don't want anything leaking so you know you can choose somebody so Alex

chose me as a you know prison phone calls so to speak and we got two phone calls over like a month and a half and checking in on the business you know it was a big decision but we're like this is a yeah kind of a once-of-a-lifetime thing like who knows where it goes and you did not make it clearly you were not married to emily today so you did not you did not make it all the way of the end I did not I didn't tell the final eight or nine Alex I remember we had a viewing party at our I was the random, the random Hispanic that didn't say a word the entire time. I was so nervous, so quiet. Did you get, did you get recognized ever?

People like, hey, Alejandro, I saw you on The Bachelorette. I was so, I think I had like a one second of local fame. There was a good year. There was a lot of that, which is fun. All right. So you, the Bachelorette ends. You're back to work. Yep.

And you guys are still bootstrapping, but clearly it seems like by 2012, it becomes clear. I think that the growth part of your business are the kits. Am I right about that, the mushroom kits? Was that growing faster than the mushrooms themselves? Yeah, you know, at that moment, I think we were going to realize, and they're both pretty different things we were selling. One was more this branded experience that are quite. education and teaching people like, what is a mushroom kit? What's a grow kit? What is this? I can grow my

own food at home. There's a lot of education focused versus selling fresh mushrooms, which was kind of a different thing and scaling up that production. And so I think we started realizing there's, you know, we may have to choose one of these things. And it became so clear that with fresh mushrooms, we could have a local farm, sell low. locally, get our mushrooms into people's homes locally, or we had this other avenue in which these mushroom kits could be shipped nationwide. And it just was like, let's do that. And let's put all energy on that. When we come back in just a moment, how Alejandro and Nikiel go all in on mushroom kits and how the decision to expand even further almost wipes them out.

Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Let's get back to it. Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2012, and Nickeal and Alejandro have decided to focus full time on making mushroom growing kits for the home gardener. And they're still providing all the elements required to grow the mushrooms. But then, someone suggests that they partner with a specialty farm called Gourmet Mushrooms, Incorporate, run by a guy named David Law. Brilliant, him and Chris Bailey, the two guys who run that,

just brilliant people and best in class at growing fresh mushrooms. You know, it would take us decades to get to the experience these guys had. And we just hit it off also just in a relationship standpoint. And, you know, you fast forward a few weeks and they grew some, and we tested them out. And it was night and day quality. Like, I mean, yields, consistency, everything that goes around making a healthy mushroom. substrate and spawn. It was just night and day. And I, there was, that was probably the

biggest defining moment, I think, in our journey earlier for Alex and I both, when you realize one, you don't have to do everything. It's okay not to be the best at everything. And it's okay to let some things go. And that was the hardest thing I'm like, oh, because that was our identity. Let me understand. When you say let it go, you meet this guy, David Law. Clearly, they know how to grow mushrooms better. So what does you do? I mean, what, what were you selling? to him. What we were doing in our warehouse in Oakland of collecting the substrate, the coffee grounds, mixing of the spawn, growing the kits, packaging them. We fast forward ended up now buy those from him as a supplier to us. So they're the ones incubating all of that. So here's this huge

warehouse, 10,000 square feet. You know, we had at that point, what, 35 people, Alex, you know, we knew what that meant was that the people, the space, everything we're doing. All of that would go away. So you essentially get out of the farming business in at the end of 2012, 2012, 2013, you start to transition out of the farming business because really this company can grow the mushrooms, sell you the ground, whatever's

left. The finished product. The finished product. And you can then, and this guy, David, this company, gourmet mushrooms, they can turn them into kits for you. Yeah. It's kind of crazy because yeah, he was a competitor. to us and he could have easily said, nope, I'll wait till you guys, you know, go out of business

because you're not going to be able to scale it the way I can. And instead, instead, David basically looked at us and said, you guys have so much energy and you're getting people growing mushrooms. That's a good thing for me. So let me take it off your plates and you guys focus on what clearly you guys are really good at, which is getting the word about out into the world about mushrooms. And that's like the partnership right there. And so by the middle of 2013, I have to assume you get out of the coffee hauling business. You no longer are hauling away coffee grounds for peats. Correct. Okay. So you are out of the coffee. It's amazing. I mean, because you start this business in 2009. By 2013, you're no longer, I mean, you're two big revenue streams, fresh mushrooms and hauling coffee grounds. You're out of that business entirely. You're focused. on selling mushroom kits. And what's interesting to me about that is I cannot imagine seeing a viable business there. Like, I could not imagine in 2013 saying, we're going to sell grow your own mushroom kits and turn this into a sustainable business.

So what was giving you the indication that you could do that? I mean, I'm not trying to be – That's so harsh and I love it. Right? I'm not trying to be harsh. I'm just – I cannot imagine saying to people, yeah, we're doing it on make your mushroom. You know what? The beauty about the United States is if you execute on one thing extremely well,

there is a pretty large market for it. I mean, just Whole Foods alone was 500 stores that we could take this product into. And running the numbers on it, you could do a couple million dollars. Yeah. If you're in every Whole Foods in America selling mushroom kits and you're doing really well, the math suggests that you could probably do like five, maybe seven million in revenue maximum a year. So you could do a significant small business for sure. But that's only if you did it in Whole Foods.

And that would, you'd have to kill it. That's true. We'd have to sell a lot and then we'd have to expand beyond Whole Foods. You're dead on there. I think with the kits, we were starting to also realize this was 2012. I think, Alex, when we did our first non-musherom product, I want to say, it was with our Kickstarter for our water garden. So I think we were at that point also, we had made this decision. We had started seeing, hey, there's, there's something here, you know.

And at this point, I mean, you guys are seeing that people like to grow things at home. And around the time you wind up getting some inspiration for your next idea. After a visit, you take to Wisconsin and a tour of an aquaponics farm there. What's the story? Yep. It was called Growing Powers. This huge city block-sized aquaponics system. kind of Will Allen. He won the MacArthur Award for this. He was raising tilapias. Alkoponics is raising fish and plants.

All the fish waste was fertilizing the vegetables. And the plants in turn were cleaning the water and taking out the, you know, the nitrogen from it. So it was a really cool closed loop system where the fish feed the plants, plants clean the water. And, you know, this is where our own curiosity about just growing food and growing things different ways. It was like had been peak now. And, you know, we were obviously doing it with a mushroom farm, but we were like, what else? how else people are growing? And we started asking ourselves, like, is there a way to do what we did for mushroom farming for aquaponics and, like, shrink down a big mushroom farm down to this tabletop classroom experience?

And just to be clear, how did you come up with this? Because eventually this is what you would create. Basically a fish tank with fish inside, but growing on top is like greens, like microgreens that you could eat. and that were fed through the waste of the fish, which will get to an sec. But how did you come up with that idea? How did that come to you? We, on the side of our mushroom kit facility,

we had a bunch of piping and buckets and started kind of building her own and tinkering and had actually built out a really rough, again, like buckets kind of prototype of like we had beta fish and had some, the waste from that was enough to grow herbs and microgreens that you could harvest the top. And we were talking to all the, aquaponics experts. We actually,

funny story guy, we ended up reading the Steve Jobs biography and were super inspired by their design principles and cold email Johnny Ive from Apple on a Sunday afternoon and he actually got back to us in like five minutes and we were able to spend a handful of sessions with him kind of mentoring us

and showing him prototypes and design things. Wow. That's amazing. It was an amazing experience designing this thing. Wow. You cold email Johnny Ive, the guy designed basically everything we used today. And he was like, yeah, I'll help you with your fish tank. That was insane.

You know, I will say we, this one, though, we learned a lesson here with our mushroom kit. We were anxious doing this all. We were anxious because our brand, who we were, our identity, we'd walk into Whole Foods. And it was like, oh, it's the mushroom guys. That's who we were. And now all of a sudden we're experimenting with fish poop and, you know, like microgreens. And so we actually ended up on this product. We put it on Kickstarter.

And it was partly to raise funds for it. But really, I think it was for the two of us to try to convince ourselves, like, is there something here and do people actually want this thing? And we put a hundred thousand dollar goal up for 30 days and we ended up hitting $250,000 of pre-orders on Kickstarter and another 250k on our website in the following 30 days after close. We had almost half a million dollars of pre-orders off of like a three-minute video and a concept. And that's when I think we realized like this back to the roots bigger than mushrooms. It's something else that people want to reconnect with food. And I think that was that month was our proof point. So,

With that $500,000 that you raised, that's amazing. You're still bootstrapped at this point. You what you presumably could take now take that money and start production on these fish bowls or fish tanks that grow salad on top. I think that was the beauty of Kickstarter where it was both to raise funds but to see if anybody would buy this thing. And then if you really made a splash, retailers would eventually, it would get sent to a retailer. So Petco and Whole Foods became the launch partners. Wow. And Nordstrom.

From Ann Nordstrom. Thank you. Yeah. So here's a business question. You get Nordstrom, Petco and Whole Foods putting in an order. I have to imagine the costs are going to be higher than half a million dollars. You'd probably make them in China, get them shipped over. I mean, there's a lot of math and a lot of, like,

projections that you have to get right to make this work, even if you have purchase orders, like it can all go south. So how are you able to successfully manage that? Two things, guy. One, just on where the manufacturer, we actually manufacture them all in the U.S. for a brand who we really try to focus on U.S. manufacturing. And a bulk of that, probably half of that went to the tooling, which is really expensive in the design cost and engineering costs. So yeah, most of that was there and then for initial inventory costs. but I think the risk was almost less about the initial forecast because, you know, we had pre-orders, thousands of them from our consumers through Kickstarter.

We had POs from retailers. So we knew what the demand was, but one of our biggest mistakes we've made and almost put us out of business was we started fitting a lot of pressure to deliver this on a timeline that we was too aggressive and we didn't know that it was too aggressive when we put it out there Kickstarter. We went from, I mean, the definition of zero to 100. We went from one prototype that we did a video on to a 40,000 unit order. And highly discouraged or do not recommend this to any entrepreneur to just go from a prototype to 40,000. And we ended up, I think, looking back, I wish we had just been transparent and confidence that, hey, we're not going to hit that timeline. Like, please,

you know, support us through this. be patient, but we rushed it and we put out a product, our first one that, like, you know, we didn't test it enough. And our first pump was overheating in the unit because of the design constraints and, you know, almost was like 80% of the pumps Alex died within the first 30 days of the units going out on Kickstarter. And it was, it literally put us out of business almost. So how much money did you guys lose? Oh, I mean, with 80% of those pumps broken, we caught most of them on the Kickstarter. That was the, that was the, that was the, the, that was the, of the Kickstarter. I think we caught that with those early users, the first five, six thousand

people that got it and we realized that. And so we had to send them all replacements and do the whole, but luckily we were able to before the whole foods and the retail orders went out, make some changes to it last minute. But if that pump had, for instance, taken two months to die and not four weeks, and so we had already produced stuff for the retailers, ooh. But I would say the economics of it changed. We had to, the pump, was significantly more expensive than we thought, and the price point then became off. And we then didn't have a proposition

that the company could actually make money sustainably. So we almost went out of business for the entire order. Both Kickstarter led to us still on the nationwide launch was a disaster. We had high return rates. So that was a really, that was a tough time. and during that time we, in isolation, really improved the product and launched a 2.0 version. So, all right. Eventually, you get this aqua farm back, or like you get it in working order.

How long did that take you before you were able to say, okay, we got this under control? Was it like weeks, months? Well, by the way, I'll say I love that you called to the aqua farm. We actually got sued for calling of the aqua farm. And we had to go and beg for forgiveness. And they said, okay, fine, we won't make you discard all your packaging inventory. Just sell it out. But you need to change your name to the Water Garden.

So during that crazy messiness, we also got the seasoned assist letter at the same time. I mean, this is a thing. At every stage, now in 2014, you're so vulnerable. Like one lawsuit, you know, because even if the lawsuit was frivolous, you could have spent all your money fighting it. You know, one lawsuit, one mistake, one, somebody getting sick from a mushroom kit. There could have been, anything could have gone wrong or a competitor coming in, just crushing you. It's just up to this point. I mean, obviously you guys are smart and you work, but you guys are kind of lucky up until this point.

We were one bad event from just completely going out of business pretty much for the first six years. Yeah. I look back and maybe the rational thing would be is like, hey, not worth the risk. And I keep on going back to just this partnership. And the two of us doing together kind of got us through all these moments, you know. And man, like, you know, we were when we finally had our own apartments and we're getting some salary, you know, we still carpool in and out every day. You pick me up at 6 a.m. drop me off at 8 p.m. and those, you know, every day kind of reset in the morning and night and just refreshing each other's energy. and kind of worked their way through it. So once you got the aquariums up and running and, you know, how did they sell? Did they do pretty well? Were they generating revenue? Yeah.

The water garden, that was a really big boost for the company. And I think it first took us from just being the mushroom guys to, hey, there's something really interesting in this, you know, company called Back to the Roots. And now you're in Petco, too, which is great. You're beyond Whole Foods. You're in Petco and Nordstrom. Beyond Whole Foods. We're selling, you know, in the home. department. We're selling in grocery and now we're selling in the pet department also. At this time,

Amazon was really starting to explode. So we put this item on Amazon and it became the number one selling aquarium and stayed that way for quite some time. You guys, I think by 2014, you'd done, I mean, this is, you started in 2009. By 2014, you had generated $4.6 million in revenue. And I think you were, profitable. That same year, this is, again, we're going to go off the freeway here, this is totally like out of left field. You launch a cereal brand. You've gone from mushrooms to salad on top of a fish tank to cereal now. I think what we started realizing Guy with this vision of ultimately what we were doing is trying to reconnect families and kids to food and where it comes from.

it was all a continuum, right? Whether you're from seed and the farmer and growing it yourself, or if you're going to go and buy a prepackaged item that someone grew and cooked and packaged for you, you should still know where it's coming from. And I think being and selling in Whole Foods as well, starting to envision that coming to life through both a ready to grow line with our kits and are ready to eat line with cereal and we'd launch snacks as well. So on our cereal, actually, was the first identity.

preserve like 100% stone ground, biodynamic cereal, actually put the ingredients, first brand put the ingredients on the front of the box. And so whether you're growing yourself or if you're going to buy food from us, you're going to know exactly kind of where it's a little coming from. And yeah, yeah, I'll say we grew that.

And even just the not so crazy part of it was we were selling to Whole Foods already nationwide. Yeah. So you already had a connection there. Yeah. And on top of that, we were working with schools nonstop with all our kits. so many teachers were our consumers.

So it was natural for us to basically sell, well, let's go out to the biggest, most impactful school district in the entire country. So we went out to the New York Public School District and said, hey, as we launch and expand immediately nationwide with Whole Foods Market, let's put this in the communities that needed the most through purchase orders that they would place. And we did that. We launched in New York Public Schools, which was 2,000 schools that started serving an organic and biodynamic cereal. I had one fifth of the sugar with three ingredients.

Just to be clear, you did not build a factory to make the cereal, right? You worked with like a co-packer or a different manufacturer. Yep, we worked with a co-manufacturer and co-packer in making the product, yeah. In January of 2016, you raised your first round of funding. This is now, what, six years, six plus years since you founded the company. You go for funding. Was it, was it, I have to imagine it wasn't that hard to raise money. You raised $5 million because you had a track record.

Am I right about that? That it wasn't that hard? Every financing round, I would say, is hard. We did it like a $2 million round from angels, from angel investors. And then after that, we did a $10 million round. And that one came from Acre Ventures. So you start to raise money. I think by, I think up to today, you've raised almost $25 million in outside investment.

I think that's right, more or less, right? Something like that. Yeah, by the time this airs, it'll be $40 million. So my question is, when did you decide that you were a gardening, company because you started out as a mushroom guys and then the the fish tank guys and the cereal guys, when did it become clear that actually you are a gardening company? Because that's how you describe yourself now. So when did that kind of all gel? We had great revenue growth, really great revenue growth, but we were just not able to be profitable on the cereal and

snack side at the moment. And there was no clear path unless we went in purport. We were just not able to be profitable on the cereal and snack side at the moment. and there was no clear path unless we went and purchased our own equipment and fully vertically integrated, which would have been significant risk to the business. And on the other side, the lawn and garden business was already profitable. And what's interesting is, I think first, being able to focus just on the lawn and garden piece of our business was like so energizing. And I think we ourselves were so focused. on, you know, growing within Whole Foods, that we, it almost crippled our ability to take a step

back and say, where are our consumers actually shopping? And we realized, wow, our consumer, gardeners, they're going to the Home Depot, they're going to Lowe's, they're going to Walmart, they're going to Target. They're not necessarily going to a produce department at a Whole Foods market. And I think that ability to focus, and this is something actually Sir Johnny I've said to us. He said the number one lesson I learned from Steve Jobs was focus. And his definition, Steve's definition was focus is the ability to say no to the things you really want to do. And I feel like that just singular focus on like our consumer is a gardener, they're going into home centers on the weekend to pick up their gardening stuff. That's where we need to be. And there's probably two years

guy in our business that we just completely exploded from doing a lot of, you know, lot less things. What did you cut out? And I mean, you said you do fewer things, but you grew. Oh, we were going from Petco. Yeah, we were selling into Petco. We were selling into Old Foods. We were selling into Nordstrom, you know, online. We were selling to local grocery stores through distributors, UNFI, Khi. Like, we just had, and, and it's a small team. And I think once we just realized, like, gardeners are shopping at Home Depot. At Home Depot. The gardeners are, yeah, that's where they're going. Why are we spending all this energy and time trying to find them elsewhere? Let's go fish in where the fish are. So the difference is the Home Depot has 2,000 stores, unlike

Whole Foods, has maybe 400 stores. So, I mean, this is an order of magnitude also of scale. So, I mean, that was a game changer, right? When you get into Home Depot. And today, I mean, you are, you sell seeds and you sell grow kids. and, you know, you still have the water gardens and raised beds and planters and window cell planters. I have to imagine this is a growing market. From what I, from what I gather, this is like, how big is the home, the edible gardening market? It's about $20 billion. And by the way, Scott's Miracle Grove being the category capped, and they're about a $12 billion market cap company.

So you've got a lot, a lot, a lot. It's a big market. A lot of, it's America's number one hobby is gardening. It's traditionally been to the older genera show. The average gardener today is 59 years old. Our average gardener is 29 years old. So you do have this pretty massive gap from what the average gardener is in America to back to the Ritcho's average gardener. But we, you know, whether it's an eight-year-old or a 68-year-old can both enjoy

their brand and maybe have a smile on their faces for different reasons. But like, how do we be a spark of curiosity for a new generation? We're not telling people like grow all your own food or we don't want to solve coming in and say we're going to solve all the world's food shortages. We just want to be that spark of curiosity. And I think of so many ways, like that was just how we started this company. It was just we were curious. But you kind of distill that all down. And we do this sometimes just as a team. And I don't know, the words that come out of it are just joy and connection. When you think about this journey and the fact that it really began with a professor saying, hey, you know, grow mushrooms on coffee grounds, and then here you are, 12 years plus later,

you know, with a business, I think, that's doing, you know, in the tens of millions of dollars in revenue a year, how much of that do you guys attribute to luck and how much do you attribute to how hard you worked? My grandpa was very close to. He told me all the time. It says the harder you work, the luckier you get. So, you know, every one of those moments you can look at, you know, I guess it was lucky that one at a 10 grew, but I'm glad we said, let's not just plan one bucket. Let's take the time and collect enough for 10 buckets. And I do believe it's both. But I think half of it is so much of it is staying in the game, staying in the arena for opportunities to present themselves and then being prepared. prepared to walk through them. Guy, we presented to Costco's Lawn and Garden Department seven years in a row and got turned down every single year. They've just announced their launching us this coming spring, spring 2022. Seven years later, same exact merchant as well.

And then Walmart presented for four or so years. And then within two years, we are the fastest growing. garden brand in their entire department. That took four years to even get in the door. So, Nicol, you're spot on too, man. We've just not given up and then staying long enough to where luck catches up to you. That's Nicolora and Alejandro Veles. Co-founders and co-CEOs are back to the roots.

By the way, the company has something called a Grow One Give One campaign where if you post a photo of what you grew with one of their kits, They'll donate another the school of your choice. By the end of this year, they hope to reach 130,000 kids in underfunded schools across the country. Hey, thanks so much for listening to the show this week. If you don't yet follow the show, please do follow wherever you get your podcasts. If you want to write to us, our email address is hibt at npr.org. If you want to follow us on Twitter or at How I Built This or mine is at Guy Raz.

You can find us on Instagram at How I Build. this NPR or me at Guy.org. This episode was produced by Liz Metzker and Farah Safari with music composed by Ramtina Arablui, who was edited by Neva Grant with research help from Claire Murashima. Our production staff includes Casey Herman, J.C. Howard, Julia Carney, Harrison, BJ Choi, and Elaine Coates. Our intern is Catherine Seifer.

And Jeff Rogers is our executive producer. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.