How I Built This with Guy Raz - Boxed: Chieh Huang

Episode Date: February 22, 2021

Over the course of ten years as a founder, Chieh Huang bet twice on the ubiquity of the smartphone. The first time was in 2010 with Astro Ape, a mobile gaming company that he founded with a few friends out of an attic. The second time was with Boxed, a mobile bulk-retailer that he co-launched in 2013 out of his New Jersey garage. Chieh and his tiny team scrambled to send out their first boxes of toilet paper and laundry detergent, gambling that they could compete with monster retailers by offering fewer items, competitive prices, and a hand-written note in every box. Since its launch 8 years ago, Boxed has sent out tens of millions of boxes of groceries, and has been valued at over $600M. HIBT Virtual Event with Jay Shetty - information and tickets at: https://nprpresents.orgSee 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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I remember I was driving home from a meeting in New York, and one of the folks that quit his six-figure paying job to join the dream and sit in my garage, called and said, dude, I refreshed the page over and over. It's not broken. We got zero orders today. Oh, wow. This dropped down to zero two days in a row.

And he was like, dude, I risk my livelihood to do this. Are you sure this is still going to work? work. From NPR, it's how I built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Che Huang co-founded two companies, the first in a New Jersey attic, the second in a New Jersey garage. And that one, boxed, is now an online retailer that's been valued at more than $600 million.

If you have a startup idea and you present it to someone you trust, there's a decent chance that person will ask you two key questions. What makes your idea different from what's out there and can you create a market for it? Now, these questions might seem obvious, but they actually got much more traction after a book came out in 2004 called the Blue Ocean Strategy. The premise is pretty simple. A good way to start a business is to come up with an idea that is significantly different or new and is relatively low cost to start. So instead of trying to compete with big players, try to find uncontested market space, a space you can completely own. Netflix is a great example of this. Obviously, it has more competition today, but when it started, it offered something completely different from the,

video rental shops and it built a market for its product that didn't previously exist. Blue Ocean Strategy, which brings us to today's story, because this is a story precisely about the opposite strategy, or what's called the Red Ocean Strategy, where you're essentially working to beat the competition with a different strategy. When Che Huang and his partners launched Boxed in 2013, they entered a marketplace with some pretty, massive players, Amazon, Walmart, Costco, Target, Kroger, you name it. But Shea believed there was an opportunity to build a solid business right in the middle of that ocean of competition. And he based this hunch on two key insights. The first was that consumers would eventually start buying more

things through their smartphones. And the second was that you could create an efficient, profitable e-commerce retailer by focusing on a narrow band of products. And so Boxed only sells the most commonly purchased items, things like paper towels and Oreo cookies and Lysol and cheeseettes and Cheerios you get the idea. And unlike Walmart, where a typical superstore carries $120,000 items, boxed only sells about 2,500 products, which allows the company to negotiate lower prices on those items. The idea for Boxed came from Che's previous venture. It was a mobile gaming company called AstroApe.

And at the time, it was still early days for mobile gaming, but Che realized that mobile phones would increasingly come to dominate all parts of our lives. But building a business, any business, wasn't in Chey's original plan. His immigrant parents wanted him to pursue a stable, safe, prestigious career. So Che, as you will hear, chose to become a lawyer, which, of course, didn't last long. Che was born in Taiwan in the early 1980s. His parents moved the family to the U.S. when Che and his older sister were young, and they settled in Baltimore. I think it's just like if America could write a brochure to all immigrants.

You know, even without writing it, it would say, come to America, study, kids become a doctor. you live in a McMansion and life is good, right? It's like, that should be the brochure. I'm sure everyone read it. And what did your parents do when you were a kid? What did they do for a living? I remember when we first came to the States because the language barrier was a very real thing for my parents,

we had a really rough start to our stay in this country, meaning that my dad didn't have steady employment in the beginning. And then my mom worked as, a register clerk or cashier at a Chinese takeout place right next to Johns Hopkins University Hospital there. And my dad sold odds and ends on the weekend at local flea markets in and around Baltimore. And then my mom found her first white collar job as an admin up in New Jersey. And so we lived apart for one or two years, I believe, where my mom lived up in Jersey and every weekend she would come down here or we would go up there. And then eventually,

you and your dad and sister moved to New Jersey to all be together, presumably. Yeah. And what did your dad do when he moved to New Jersey? So we moved to New Jersey. My dad actually started a sporting goods company. And so he was always rather entrepreneurial, and he started a sporting goods company selling like paddle balls and platform tennis rackets and a rather niche sport.

But definitely, I would say by the time I graduated high school, we were firmly in the middle class, which was a far departure from where we started off life in Baltimore. So you grew up in Edison, New Jersey. And what kind of things were you into as a kid? Were you into sports or into video games? Were you outgoing? How would you describe yourself as a kid?

Yeah, I would say decently outgoing, but a kid of the 80s and 90s, you know, Saturday morning cartoons. Yeah. A lot of the Looney Tunes that was on, some of the X-Men, you know, NBA on NBC back in the day, You know, watching the Knicks versus the Bulls, going out to play basketball, rollerblading around the neighborhood. So that was basically my childhood in Edison, New Jersey. Was it really important to your parents that you did well at school? Unbelievably so.

You know, when you think about immigrants that move to the states, you know, they only know what they know. And that's if you get an education, work hard, you should be able to move up this ladder. And so, you know, I always like to joke. I'm only half joking when I say, you know, it's like a B is like basically an F. And then if I get a C and just like see you later, don't come home. So that was very true in our household. And they drove me pretty hard. I guess when it came time to go to college, you went to Johns Hopkins.

You got in Johns Hopkins. Yeah. I mean, it's a great school. But particularly, I guess, sort of special for your parents because your mom had worked at a Chinese takeout restaurant. right next to Johns Hopkins when she first came to the U.S.? Yeah, it was a bit of a homecoming for all of us because, you know, I remember my mom, one time she told me that, you know, maybe your kids one day will be able to go to this awesome school called the Johns Hopkins University. And that kind of stuck with me. It's one of those

probably fleeting comments that parents don't ever remember saying later in life, but it stuck with me. And so when time came, that was the goal. that I had. So I remember when I told my dad I got in, it was one of the few moments, and to the day, one of the few moments in my life that I've ever seen my dad emotional. And then, you know, my mom was super happy. And my mom, yeah, didn't really lose it until I feel like we were in the dorm. And then, you know, it was, it was a healthy cry that my mom kind of underwent. So everything, I felt like all that hard work. And I even think for my parents, all that risk that they took, moving to a new world kind of paid off on that day.

What was your plan when you got to college? What did you want to study and what you think you would do with that? I didn't have a plan. My plan was to kind of realize this dream that my parents had a generation before they thought we could realize it. So my plan was to get into Hopkins. And once I got in, I had no plan after that. And I'm sorry for the people listening to this from Hopkins.

Like all the folks at Hopkins who don't have a plan, you end up majoring in economics. And that's what I did. And, you know, at Hopkins, at least when I was there, you had the School of Engineering and the School of Arts and Sciences. But then everyone from the Engineering School would call it the School of Arts and Crafts. And so I was an econ major in the School of Arts and Crafts at Hopkins. Right. You graduate in 2003 with an economics degree from Johns Hopkins.

Really great degree in school. And so what did you decide to do to pursue? So I was at the Career Center, which at that time was a little shack on campus. I remember walking in and looking for the room where there was some consulting firm that was holding an info session. And then there was one lady that was standing at the door of this thing called the Jet Program. And I was like, what is the Jet Program? And she said, you basically move out into Japan. It's a cultural exchange and you get paid for it.

And you learn the language if you want. but we put you in Japan in a public school and you really kind of teach them the language and the culture. You know, want to learn more. And I was like, that sounds not so bad. And I remember sitting in on that info session instead and ended up applying. All right.

So you get into this program and where do they send you in Japan? The funny thing is on that application. I think they do this to this day. They ask you, where do you want to go? And so like any newbie to Japan, you're just like, Oh, Tokyo. Tokyo.

Number two, you know. Kyoto. Kiyoto, exactly. Maybe Osaka. We'll throw in a Yokohama, you know, round out the top five. And then I'm sure the other end,

they're like, ha, ha, ha, ha, ha, ha. And they send you to the countryside. So, you know, your orientation for the program, you're in downtown Shinjuku. You're in the middle of the Tokyo that you always dreamed of

and you saw on TV. And then you're like, yeah, man, this is what I signed up for. this is going to be a rocking year. And then you get on this bullet train the next day. It goes further and further at a really rapid speed outside of Tokyo. And then you start going and you're like, 30 minutes out.

You're like, eh, not bad. You know, I can take a 30 minute ride Tokyo. And then once you're an hour out, you're like, okay, what did I do? And then they drop you off. Where I got dropped off, it was, you know, I remember sitting or lying on a tatami in my apartment, staring at the ceiling, just questioning my disdainting. decisions in life because I was like, what happened? They're sending you out into the sticks for the most part.

And I got sent out to the proper sticks, middle of a rice paddy in Western Japan. So tell me about the school that you were assigned to, the kids that you taught. Yeah. So I was assigned to several schools all within the same town. So this was a, I would say a middle class town, public schools, about 200 kids in enrollment, all following me around the neighborhood. every chance they could get. Wow.

And so I was this like curiosity. And I remember I had to go to the supermarket later and later at night because, you know, as soon as the kids would see me there, they would follow me and report back on like what I bought and what I'd like to eat. But that's what I did for two years of my life. And how did you manage to just kind of navigate Japan? Because I'm assuming you didn't speak Japanese. I didn't.

And, you know, probably most people saw me as native East Asian who just had really good English skills. And that's not who I was. You know, I kind of want to say, no, like, I watched the Bulls growing up, you know, Bulls versus Nix. Yeah. X-Men on Saturday morning, you know. Yeah, right. But I would imagine if you polled all the people I interacted with, probably at least 50% didn't see that side of me. Being Asian-American, it's kind of an insecurity that probably a lot of Asian-Americans growing up have because you've,

go back to Asia and people don't exactly see you as 100% Asian, you're here in the States and oftentimes, you know, Asian Americans just aren't seen as pure American. And so that sense of belonging is something I know that many Asian Americans struggle with in terms of truly fitting in and where's home for me and us. Why you're in Japan, you end up, I guess, meeting the person who's eventually going to become your wife, who is your wife today. Yeah. who's a teacher in Japan, who's Japanese, how did you guys meet? So we met when she transferred into the school I was teaching at.

You know, by that time, it was like the middle to end of my first year in Japan. So I was pretty comfortable. And so I was wearing like sweat. I probably looked more like the gym teacher than anything else. I was wearing sweatpants. And I remember I was like, oh, man, someone just transferred in a school. I'm like, oh, who's that? Like, and why am I dressed like a bum here, you know?

And luckily, we hit it. off and we began to date. Huh. So I guess you ended up spending like two years in Japan. And then I guess when you went back to the U.S., you decide to go to law school, right? Yeah. I, you know, as much as I joke about it, there is a checklist for most children of immigrants. It's just like, number one, as we were joking about before, it's like, you know, doctor, nope, you know, engineer, nope. And then last one was like, law school? And I was like, yeah, I feel like I can do well on the LSAT and took the LSAT and got into law school. And you spend three years

there and graduate and you are a freshly minted lawyer. And where did you go work? Oh my gosh. I mean, 07 was the year that I was a second year and you did your big summer internship, summer associate ship. So I went to work at a firm called Prossgauer. They're like a big sports law firm right in Times Square. And in 07, it was like boom times. Like, boom times. I mean, they rented, I remember they've rented Madison Square Garden for us to play pickup basketball as an event.

Wow. When you were a summer associate. When you were a summer associate. I mean, it was like wild. But I graduated school and started the beginning of my professional life, September 15th, 2008. probably that date means nothing to a lot of folks, but to some folks, they'll remember that was about 12 hours after Lehman Brothers collapsed, who was also located in Times Square, kicking off, you know, one of the worst recessions the country had ever seen.

Wow. And so here I was wearing my new suit that my mom bought me, new briefcase, new shoes, getting out of the subway, looking up and just be like, Times Square, I've made it. And then out of the corner of my eyes, seeing thousands of people flowing out of Lehman Brothers with bankers boxes just crying on the street. So your first day at this law firm is the day that Lehman collapses. Yeah. Literally about nine to 12 hours after Lehman Brothers filed for one of the largest bankruptcies in the history of humankind, started at a law firm, you know, one block away from them. Wow. All right. So you start your career as a lawyer, and you discover, presumably, as anyone who knows a lawyer or who has been a lawyer, that it's a grind. You get there and as an associate, you're just like in the trenches.

Yeah. I mean, you're at your desk and, yeah, not seeing much daylight. And remember saying, thinking, wow, I make a decent amount of money now, but I don't have any time to spend it. Yeah. And I feel like I learned pretty early that I probably was. and built for that long 10, 15, 20-year partnership run, just wasn't for me. All right. So you decide, I guess, two years in, you've got to figure something else out. Yeah, that's right. So I was like a junior corporate associate, which means I was a document jockey, basically.

So it would be 2 a.m. at night. You know, I would always stay an extra 30 minutes. I wouldn't bill the clients, but I would say and just read and research the history of the businesses that we were working with. we were representing just to get a flavor of their story and how they made it. And I felt like it was big risk takers, but I didn't feel like anyone was really like a bona fide genius, you know, of like, oh man, that's something no human can do. And so that gave me some hope that maybe I should try my hand at that. So what ideas did you start to think about? Oh, man. No one's ever asked me that question. So what ideas that I have in my head before? Probably the one that I feel

felt like maybe I was decently passionate about that I thought there was an opportunity in was fine chocolates. I've never told anyone that in my life, but I just didn't know. I felt like as the middle class around the world started booming, perhaps

there would be a big spending spree on these treats that are fine chocolates and that most middle class fam is going to afford once in a while. Well, were you like super into chocolate or was it just looking for an opportunity somewhere? Just an opportunity somewhere. I wish I could say, you know, I was really into it, but I wasn't. But around that time, I remember purchasing

the original iPhone. The iPhone, it was 2G, had the metal back plate, and a few friends from middle school and high school also bought the iPhone. And at that time, was starting a social gaming company, building Facebook type games, aka social games, for this thing called the iPhone. And I thought it was a pretty good idea. A friend of yours was, this was what a friend of yours was starting up? Yeah, that's right. So two friends of mine, ironically that I reconnected with via Facebook, started up a social gaming studio after quitting their jobs, Cold Turkey. And this is William Fong and Christopher Chung, right? Yeah, so Chris Chung and William Fong. And did they say, hey, come work with us? Or did you say, hey, can I work with you guys? In the beginning, I think they were just too cheap

to hire an attorney. And so they were just, you know, we reconnected. They're like, you know, if a friend was going through this, what would you tell them? And I'm like, dude, I'm not like, you know, what are you talking about, man? Like, you guys need to call an attorney. And so I agreed to like just help them with some business stuff on the side as they were starting up. And then as the game got to about launch time, they asked if I wanted to join full time to run the company. And I did. So William and Christopher were working on this project and asked you to kind of help them with some legal stuff in 2000.

This is like, this is like the prehistoric Stone Age of mobile gaming. And this company is called AstroApe, right? That's right. AstroApe Studios. The name was actually from this random band name generator that if you keep clicking, you know, something cool comes up that you could buy the domain name in and that's what came up. And first of all, what did your parents say when you're like, hey, I'm quitting my job at this very prestigious law firm? my gosh, I mean, you got to remember, these are the same parents that thought, like, I shouldn't come home if I got a C on my report card. So they couldn't have been prouder of me going to Hopkins and then going to law school and going to this big law firm.

It was all that my mom I felt like could have ever hoped for. And then to tell her, I'm going to quit cold turkey in the middle of the Great Recession to go and make video games with high school friends. you know, I feel like I might as well have kind of torched the house that I grew up in. It was like an absurd kind of a decision. And at this point you were just married or about to get married as well, right? That's right. That's right. And so assuming presumably your wife was super supportive, I mean, probably that helped. So supportive, just so supportive.

I also think being kind of young and without kids, like that also helps quite a bit. in kind of your risk profile. And also, I think the key was that a lot of entrepreneurs don't think about is your personal runway. And so you talk, you know, everyone talks about their company runway, how much money they're going to raise, et cetera. But the early days, you're probably not paying yourself anything or, if anything, just a very minimal salary.

And so I had saved enough money from the law firm to live my current lifestyle. At that time, I didn't have to vacate my apartment for a good 12 months. So I felt like if I gave it a try and it didn't work out, at least I gave it a real try over 12 months and I would go with my tail between my legs back to the law firm if they would have me. Right. So you knew you could maybe do that. Okay.

And when you told people who didn't quite know what you were doing, which would have been most people in 2010, hey, we're making mobile games, how would you describe what you guys were doing? It's so hard because no one really even had an iPhone back then, you know? And so it was like telling them that they should buy a $900 phone just to be able to play a game you guys were trying to make. It was like it was just so weird. You know, people just didn't really get it.

I think the closest thing that would resonate with folks was that, you know, hey, there's all these games on Facebook. But, you know, these phones that we have are going to get more and more powerful. So you can probably play those similar connected games on your mobile phone one day. And we think that day is now. This is like the era of Farmville and stuff like that. Yeah, Farmville, Mafia Wars. For all those folks that played those games, yeah, that was the era. Yeah.

And by the way, William and Chris, did they have to raise money? I mean, how were they financing this business? So I think they put in each, like, I think the buy-in, if I remember right, was about $13,000. Not much. And not much because, you know, buying a powerful IMAQ that you can kind of build off of, You know, it's like a few grand right off the top. Yeah. And so I remember, you know, it's like lawn chairs in his mom's basement.

And then we graduated to the attic. This is in New Jersey. In Jersey, yeah, in Jersey, right where, in the town where I grew up. So it's kind of like, you know, you're at this big law firm. Life was on a great trajectory. And suddenly you find yourself having to take your shoes off. It was to go into your friend's mom's house so that you can go into the attic and build a video game. It's like, oh, gosh.

Like, I feel like my life has been twisted. in reverse. And the concept, by the way, it was to build one game initially? The idea was to build one game, release it, become millionaires, and then retire.

Release it on like the app store, on the iPhone. Yeah, at that time, you know, it was both the app store and also you just released it on iTunes. The app store had just launched. So a lot of people, you just threw your app onto iTunes.

And what was the concept of the game? So here's the ultimate irony. The game was called Office Heroes, and so it was this tongue-in-cheek build and decorate game so you basically, you do menial tasks like you click on check email and then you come back in two hours and you collect your money from that or you make coffee and in 15 minutes you come back and so instead of like growing crops like you would in Farmville

you would do menial kind of like office tasks and then you can buy like you know instead of Starbucks coffee you'd buy five bucks coffee and so it was a real tongue and cheek about like kind of working in an office. And how did you guys manage to build that? I mean, didn't it cost money to build that or no? Luckily at the time, you know, it was so nascent that just using open source software, you could do it. And the story with us was that Will was an excellent coder.

Chris, he was in finance at the time when he quit, but he actually had a really good knack for art. And so he would make the most beautiful spreadsheets in the firm, he said. And so he actually visually designed the whole game and all the assets single-handedly. So Will was programming. He was like coding this thing. Chris was designing it. He was kind of saying, okay, let's put a window there, like a sleek desk here. And it sounds like you were kind of doing the business side of things.

Yeah, that's right. And what were you trying to do? I mean, presumably the strategy wasn't to just throw it up on iTunes and then the app store and just hope for the best. Like you had to get the word out or you had to drum up excitement. Like what were you doing to kind of lay the groundwork? Oh, God, you give me too much credit or you give us too much credit because that's exactly what the plan was. We were going to throw it up there.

And people all around the world were going to play it, you know? So we drum up some interest from friends and family, try to get a few kits on gaming sites. But beyond that, it was just hopes and dreams, basically. I mean, I'm thinking if I went to Johns Hopkins with you and then I knew you and I knew you went to this law firm and I ran into you in New York and I was like, hey, what's going on, Che? And you're like, yeah, we're making this mobile game where you're in an office simulator where you like open up emails and I just quit my job at the firm. I'd be like, oh, that's awesome. But in my mind I'd be thinking, this guy's nuts. He's totally nuts. This is the stupidest idea I've ever heard in my life. I literally ran into my sophomore college, a sweetmate, on the streets of New York and told him that story. And you could tell in his eyes, it was like, cool story, bro. Like, he definitely got fired from the law firm. You know, it's a bad recession, but come on, just own it.

Get back on your feet. What are you doing? You're like a grown man making video games? And an office simulator? Like, who would play that? So that's what I'm thinking. By the way, how long did it take you guys to build this game? About a little less than eight months.

All right, so eight months in, you guys launched this game in what? In 2011 or 2010? 2010. How much of the game cost, by the way? It was free. It was one of the earlier freemium games where you basically downloaded the game for free. But if you wanted to buy more points or buy the special desk, you'd pay like $3.99 or $4.99 or $0.99. So it was one of the early freemium games.

So basically by buying virtual. products. Exactly. Virtual currency is what we sold. And, you know, could you imagine trying to explain at Thanksgiving or a family gathering back in 2010 that you sell virtual currency on a smartphone? That you can't use in real life. Yeah, exactly. And so people thought like, oh, you cash it out, right? You could always cash it out. And you're like, no, it's not a casino. Like, yeah, it was, it was difficult to explain. And do people find out about it? So that's the thing, man. Like, the games business is hard. We found out.

We put it up on the app store and we're like, here we go. Book that vacation to a warm tropical space. And it just got lost in the ether. So I remember all the co-founders said that their parents were playing the game or the parents told them that they were playing the game, including my parents. And I was like, yeah, that's impossible because only three people registered as daily active users. And so someone's parents are lying to us. So it was not a pretty sight in the beginning. and after a few weeks of that, I felt like, you know, it's probably time to revel back to the law firm or somewhere, because this ain't going to work out.

When we come back in just a moment, how what started to look like a failure was saved at the last minute by an unexpected endorsement on one of the world's most prominent platforms. 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 from NPR. I'm Guy Raz. So it's 2010 and Che and his co-founders have just released their first game, Office Heroes, and almost nobody is playing it. And then one day they noticed something weird with their server like it's suddenly overtaxed. So I remember getting a call from one of our co-founders and saying, you've got to come to my house now like we're in trouble. and I race over there and I'm like, what's going on?

And he's like, dude, someone's, someone's hacking us. Like, the useless patterns are all over the place. And I was like, oh my gosh, like, on top of no one playing the game, we just got hacked. Like, this is, what a terrible, what a terrible company. And we all sat down and thought about it. And I was like, that doesn't make sense, man. We don't hold credit card numbers. And we have three people playing our game.

So even if we did, they would make away with my credit card and yours and yours. And none of our parents, you know? So you thought, hey, someone's hacking into this thing because our server is like overheating. Yeah, that's exactly right. And so we sat down and said, check what they're doing. Like, are they actually going through the levels? Like, and Will actually said, it actually looks like people are playing the game. Like they're not just pinging it or trying to dedos it.

They're like, they're actually playing the game. And I was like, what? And then we got a call from one. of the kind of launch firms that we eventually hired to help us with the launch. And we found out that we were on the front page of iTunes all over the world. How did that happen? They evaluated the game, probably liked the story of us just being a few country bumpkins in Jersey in an attic trying to build for this new platform they were launching. And like the fact that we were building a social game, which was wildly popular on Facebook at the time, but not so

popular on iTunes yet and featured it. And there we were. All of a sudden, people start flocking to it. And were people buying stuff? People were buying stuff. So we were making money, but not a ton of money, because, you know, we were brand new to this game. And so the theories of how do you get this core loop of kind of user behavior going? We weren't privy to it at the time. So we made a ton of mistakes on retention and other things. And so, yeah, we made some money from it, but, but not Angry Birds type money. And Apple takes like 20% anyway. That's right.

Yeah. Yep. They take a cut anyway. All right. But you start to make money and I guess it presumably becomes clear that you got to make more games. That's right. And it also becomes abundantly clear that we need to raise money because the bank account is almost at zero. And so we weren't taking salary.

Money was coming in but not to the level where we needed it. So we thought we had to go kiss the ring somewhere and raise money. for this thing. And did you? We did. I, you know, we were total nobs to this. Remember, like, Central Jersey where we grew up is not Sand Hill Road. So we didn't know any venture capitalists. I didn't know much about venture capital. So I just Googled Best Silicon Valley law firm, because someone could help us there. And a few names come up, and I got on a call with one attorney. And, you know, I remember asking him, like, what makes him qualified to be our attorney? Because, you know, I come from a law firm where I thought lawyers always had to pitch for work.

Yeah. And I remember to this day, he said, I don't know who you are, but I don't think you know how this works. Like, I choose who I want to represent. And I don't think this is good idea. And it was a short, Kurt call. And I remember looking at one of our first employees and just saying, wow, that was not good. But later, he came back and said, you know what, I grew up not far from you guys. And I like the fact that you guys are pretty naive.

and, you know, maybe we can make something out of this. So, you know, I'll take a flyer on this and we'll help you guys out. All right. So you guys raise some money. How much money did you raise? Well, almost nothing in the beginning. We thought, like, we hit another bump because as we hit the road as this attorney kind of connected us with, like, big and prominent Silicon Valley venture capitalists, the first meeting we had, you know, I remember this day. Like, we showed up at the meeting and we had breakfast.

And at the end of breakfast, he closed his note. book and said, you need to immediately go back to your guys' day jobs. You're not business people. This is a side project. This is not going to work out well for you guys. And I was like, yeah, wow is right. But this is after you like pitched what you'd been doing. And at this point, do you remember, like, what kind of numbers were you showing it? Like, were you able to say, hey, look, we're banking like half a million dollars in revenue. Yeah, so hundreds of thousand of people playing it and probably are just how naive we were, was probably showing that we truly were first time entrepreneurs, had no idea, quote unquote, how the game is played, and just had like dumb luck of making this game at the right time. And that was the

hard advice that we got. And I remember it was silent in the cab ride back. And I remember telling everyone in the cab like, well, I don't think that went well. And, and, and You know, now I laugh about it, but at that time, people are like, yeah, this isn't going to be easy. But we eventually raised money because, and this is connecting the dots altogether. So we got a message, ironically, on Facebook from one of the largest social gaming companies in Japan, where social gaming had already taken off on mobile. They said their CEO was in town. They wanted to grow their U.S. presence. Could you meet her next week?

And how do they even know about you guys? Because they saw us on the front page of the iTunes. Okay, right. And so a week later, we go into the meeting, the CEO's there, flanked by probably 10 to 12 bankers. It's a big giant conference table, me, Will, and Chris, and all these bankers are staring right back at us. And were they all from Japan? They were all from Japan. And it was about as frosty of a meeting as you can ever imagine.

And as a throwaway, I said, you know what? I don't know, why not go for it? Let's shoot our shot here. I speak a little Japanese. And the CEO was like, oh, really? Tell me about it. Where did you learn? I was like, I lived in Japan.

And she said, where did you live? And I was like, oh, man, I'm going to embarrass myself. I lived in the backwaters. So I told her where I lived, which was NIGATA, Japan. And her eyes lit up because she said, I grew up in NIGATA. And we just hit it off after that. I knew the 7-Eleven that she went to when she was growing up in middle school and going to high school. Like, we just hit it off and less than a month later, they wired us our first ever investment.

How much do they invest? $800,000. Wow. So that's real money. I mean, you guys could really start to ramp up. And I guess at that point, you guys actually got an office, you leave the attic and you got an office in New York and hired a few people. And then what did you guys do? I mean, did you like to start making more and more games, just like the first one?

That's right. And you basically have the engine of the game and how a lot of games make money efficiently is they basically just reskin them. And so instead of doing menial tasks at your laptop, you can now bake bread in your mini bakery for dessert heroes. And it's the same back end. That's right. Like all the coding in the back end is exactly. the same. Exactly the same. You're just skinning new art, new dialogue between the characters. Wow. And that's

it. And you just, and you just keep pumping them out. Wow. And did the business become profitable? It didn't become profitable, but we actually weren't burning that much money because all, you know, purely digital businesses, anytime someone makes a purchase, your gross margin on that is gigantic. Right. And so we weren't burning that much money, but we also didn't raise that much money. So we ended up having to go out and hit the road to try to raise a real Series A investment round. And did you raise that money? We did not. As we were patrolling the mean streets of Palo Alto looking for a series A, we got a call from Zinga

and their corp dev team saying, hey, we heard you're in town raising money. And I was like, wow, news travels fast in this industry. Can you stop by the office? And we did, and they eventually made an offer for the company. to acquire you. To acquire us, yep. And Zinga was, this was like, they were the biggest, at that time, they kind of owned gaming on Facebook and, right?

I mean, Farmville and all those games were just huge. Oh, yeah. And just not only in games were they huge, but within Silicon Valley, it was seen as a game changer because here's a company growing at ginormous growth rates, making like, you know, huge gross margin selling virtual currency. basically just printing money. And so they were on top of the world at that time.

So they basically said, we want to acquire you, want to buy you, and you guys are looking at this offer and thinking, this is more money than we've ever seen in our lives, yes. Yeah, it's funny because, you know, we were kind of enjoying what we were doing. We had raised money. You know, we're out of the doldrums of the attic. And so we're like, you know, I don't know if it's time to sell the company, but I remember sitting there and they slide a piece of paper across the table. And then you read it, you're like, hmm.

All right, boys, time to sell the company. Yeah, that's good. Yeah. Are you, can you say what the acquisition amount was for? Yeah, it wasn't deep into eight figures, but it was definitely double-digit millions, a mix of cash in stock. Right, which you guys then split, and I'm sure some of the people you hired got some equity. So everybody walked away with a little bit of money in their pocket, quite a bit of money in their pocket. Oh my gosh.

You got to think, like growing up, let's just call it, like growing up earlier in childhood being poor, and seeing that number, you're like, you're almost like, I feel like I wanted to be in the shower fully clothed crying out of happiness. Yeah. You know, like, yeah. It's just like I had made it. And presumably it was not enough money to mean that you would never have to work again, but it was certainly enough money that would enable you to take risks and start something new or certainly maybe buy a house or stuff like that. That's right. And I, to this day, I found it, I found it so hilarious driving around my neighborhood.

after that had happened because you know like Chris's childhood house had new siding there was a new like Honda CRV in front and I was like oh my gosh upward mobility man you know yeah yeah you know it was just hilarious of like

normal people living in the burbs that kind of made some money and this is what happens you buy new siding for your house all right so you guys so you're acquired ester ape is acquired by Zinga and and the three of you stay on and you're basically still running the office, right? And was it markedly

different from how it was before? It was in the sense that you didn't have to worry about keeping the lights on. Right. And it was like probably the most joyful experience of my professional life, you know, in those first months after we were acquired because it was all the fun of making games with people you liked. And we were isolated in New York. It was great. So what happened? I mean, it sounds pretty great. And, you know, it's like this is the beginning of the dot-com 2.0 boom that we're still in the midst of. I mean, with all that money coming in, the ping pong tables, whatever you had there, and you had shares and steady, you know, income, why did you decide to leave? So the first few months were wonderful. And then, you know, as they were getting closer to IPO,

one of the questions that analysts had and everyone had was, well, what about mobile? Mobile seems like it's going to be a big thing. Yeah. And so we suddenly, you know, we graduated from Will's mom's attic to the basement of Zinga where we were like, the mobile is going to be big, folks. And then suddenly they were like, mobile. Didn't we buy a few folks in mobile? And the eye of Sauron came firmly on us.

And we were getting pulled in different directions. We merged our studio with other studios. And it just felt more and more like a day job versus kind of the fun. kind of times that we had previously. It was meetings. It was like more sort of strategic control from above because it sounds like in the beginning they were kind of leaving you alone. But once it became clear that mobile was going to be the future, corporate headquarters

folks were like, oh, we better like get our fingers into this thing. Yeah. And we better get our money's worth. Was there a point, I mean, was there a point where you knew you were going to leave? Yeah. I think so. Like just tongue and cheek, like we had a. a game graveyard that all the awesome games that we wanted to make,

but the home office didn't allow us to make. There became this massive wall called the game graveyard in our office. And then the home office, HR heard about it, made us take it down. And I think at that day, I was like, oh gosh, I think that's, I don't know. I feel like there goes all the fun. So probably that was the day that I came to the epiphany. That's probably time.

And so presumably you're now, I mean, you started this business with your childhood friends. with Chris and Will. Were you guys talking about what to do next? We were not at that time. We just felt like everyone probably needed a little bit of a break. And at that time, games had evolved quite a bit so that our skill set and making the games that we used to make

were not well suited for where games were going. And so I wasn't going to stay in games and neither were many of the folks that we worked with. Yeah. But in the time that we did have coffee together and thought about what's next, we just felt like we got the thesis right, right? Mobile was going to be big and we wrote that wave. So if we have all this knowledge about mobile, how can we go after a bigger opportunity than just social games?

And so it was from those discussions that we thought, commerce, man, commerce. People are going to use these phones to buy things in the future. And that is way bigger of an opportunity than just virtual currency. So as we came back together, we just began building a mobile. commerce engine. So you can check out, you can buy things. We didn't know what we were going to sell at that time, but we just started building the bones of a commerce stack. How did you then begin to start to think about selling like bulk items, like, you know, household pantry staples and stuff? So it was basically calling upon our childhood. So we thought mobile commerce was going to be

big. But what are the things that, what are the challenges that we can actually, so I like to think about kind of opportunities as a mix of what are big kind of wild themes that the world will live out to the next five, 10, 15 years. And how do you marry that to an actual problem someone has, you know, of day to day? And so, you know, that wild theme was mobile commerce. And then we ended up figuring out that, wait a minute, like we all live in the city. And I hated buying toilet paper downstairs at the bodega for like $3 a roll. When I knew it was like $10 for a giant pack at a warehouse club. And so, you know, shopping at the price club back in the day all the time with my parents, I was like, man, can I buy this bulk stuff online? And in 2013, the answer was no.

And that was our epiphany all growing up in the burbs. We knew that was what we needed to do. So you're thinking, hey, people who live in cities like us, they don't go to Price Club or Sam's Club or whatever, Costco, because they don't have cars. They don't drive out of the city. So let's bring bulk warehouse to them. Yeah, that's right. And we felt like there's probably millions of folks out there that had a similar problem like us where you grew up knowing to stock up to save but didn't have the time, the means or the patients to do it in their adult lives.

And that was who we wanted to cater to. But then how do you, like, what do you guys start to do? I mean, did you, because this is not a mobile game that requires like $13,000. from each of you to launch. I mean, this is a big enterprise, right? And you guys now have a couple of million each from the sale, presumably. But that's not enough to start a company of this scale. And so what do you do?

And by the way, I should mention at this point, I think you brought in another partner, Jared Yaman. Yep, Jared Yaman. And so it's a four of you. And you decided you're going to launch this. So what was the first step in kind of setting this thing up? Yeah, we luckily, after kind of exiting Zinga and where we had a decent outcome, we had a few investors that were willing to fund us no matter what the idea was. Because you had a successful exit. Exactly.

So they said, you know, we didn't invest in your first company, but hey, it looks like it ended up okay. You learned a lot. I want to be on the second ride. And so basically half of our seed investment were kind of what I call blind checks. Right. It's like people putting, you know, $50,000 checks to help you kind of get this thing up and running. That's right. So have at it.

There was one investor, though, who actually said, this is the dumbest idea I've ever heard, meaning that if you had told me nothing, I would have written a blind check to you. But I have a fiduciary duty to my LPs, my limited partners. And after you're telling me this stupid idea, I can't in good conscience invest in you. Huh. Why did they think it was a stupid idea? I think they just thought, I mean, there was like the question. question of, okay, this sounds awfully like web van. And I barely use my phone to buy anything. And the last day I'm going to buy on my phone is Diet Coke. Not just one Diet Coke, but like two cases of

Diet Coke. Exactly. Already thin margins. How are you going to make shipping work? And one of the other quotes was, you guys are bits and bites guys, but moving atoms around the country is not your thing. Right. And that is a different game. And that quote stuck with me to this day. That person actually ended up investing, but just warned us that that was what we were signing up for. All right. So you guys did a seed round, and I guess you raised like a little over a million dollars. That's right. And so initially it was going to be a mobile app, which is one thing, right? Because you guys had proven that you could develop the technology. So building a mobile app seemed plausible. But first of all, what were you going to sell? How did you decide what you were going to sell?

So we thought we can get away with just selling 200 items, the fastest moving items. And so I personally, picked all 200 items. And what did you base that on? Like, did you do market research? To the extent possible, you know, just like some market research, but good old store walks, as we call them in the industry, and just walking other people's aisles and seeing what's on the end cap, what items are being promoted. And then also just talking to people in the stores.

It's like, hey, I saw you picked up that can. Do you like it? You know, why did you pick that up? So what were those 200, like some of those 200 items? Oh, like laundry detergent pods. toilet paper, paper towels. We had some distinct mistakes like protein powder in our first 200 items, saracha sauce, certainly a lot of hits, but certainly a lot of duds as well when I look back.

All right, so the idea was you're going to focus on 200 products, but to make this attractive to consumers, it had to be a decent price, and you had to have a lot of it. So how did you even begin to approach? Who did you approach? Did you, like, go to Coca-Cola and say, hey, we want to buy a lot of Coca-Cola or did you go to, like, Procter & Gamble and say, we want to buy a bunch of tide? Or did you go to distributors? Like, because that just seems overwhelming to even navigate.

You know, we did that. And you could imagine writing a cold email to someone at a big CPG firm saying, I started a business in my garage. Yeah. I'd like to do business with you. And we're willing to buy 10 units, you know? Like, I don't even think it gets red. It automatically probably gets flagged. Before it even makes it to a human's inbox.

And, you know, to this day, if you ask some of the old-timers or the early employees of boxed, they'll tell you that was the most unreal thing that they thought we could never get across, was to form a company in a garage and end up getting the largest CPGs companies of the world excited about us enough to, frankly, sell us their product and to partner with us. And was your headquarters in Edison, New Jersey? Yeah, it was in Edison, New Jersey, right back where I grew up. because we knew we didn't have that much money to start a proper warehouse facility, and I knew we were going to make a ton of mistakes. And so let's just keep overhead low.

So we got a windowless conference room in New York City if we needed to have people there, and then most of us worked out of my garage in Edison, New Jersey. And did you just order a bunch of that stuff and just like stuck in your garage? Totally. Like, however we can get it. So calling random distributors, if there was a, hot item that no one had or no one wanted to sell us, like just going into a store and buying it off the shelf and then reselling it, you know, whatever we could do because people did not

want to do business with us. We were in a garage. I mean, looking back, I don't know if I would have done business with us. People didn't want to do business with you because you were in a garage or because it doesn't make sense to me. I mean, why wouldn't, you know, somebody wanted to do business with you? You're selling their products. Yeah, it's really strange. I used to have these these moments where I'm like, what am I missing? Why am I pitching people to sell us things? Shouldn't it be the opposite? And when you're starting out in this industry, you have to understand that it's run by

Bohemots feeding other behemots. And so the supply chain, how they're bonused, they're not incentivized to really sell eaches to people. It just doesn't move the needle for them and it's not worth their time. And who had the power at this point early on? I mean, was it distributors that you were doing? dealing with that had the power? Was it middlemen that you were dealing with? Everyone but us had the power. Even the UPS lady that picked up our boxes, if she didn't come by that day or didn't want

to pick it up, she had more power than us because none of the orders would go out the door. So you had a garage in New Jersey. You got the app and you're just waiting for orders and every time an order comes in, somebody in that garage just packs it up and ships it out. That's exactly right. As crazy as it sounds, that was how we started. We started to form rules around it, like you weren't allowed to seal the box unless someone double-checked it. And then we realized, oh, man, like, we need software to be able to scan the items to make sure that we picked the right items. And then we were like, wait, where are the potato chips?

I thought they were next to the kitchen table yesterday and who moved them. And so we started to build a real inventory management system as well based upon kind of my house. By the way, the name boxed. I'm assuming, like, a big chunk of that billion dollars, you received money you raised, had to go pay for that domain name. Oh, that brings up such a great memory. So the first thought of the company was to buy stuff.com,

STU-F-F, and you would think it's a magazine that owns it. Yeah. But it's not. I haven't checked recently, but as of a few years ago, it was still for sale. So we reached out, and, you know, they were like, it's yours for $2 million. And I was like, yeah. So we ended up saying, well, you know, I guess that's not going to work out. So we also had on our list boxed.com and we found out, you know, it was one of like the few five-letter names, domain names that meant something that wasn't owned by these hyper professional traders.

And so it was a guy in the UK that had squatted on it since like the mid-90s, probably bought it for 99 cents back in the day and did nothing with it. And so we emailed him and said, well, buy this domain. Would you want to sell it? And he's like, I forgot it. It was like, 200 grand. And we're like, we'll give you 30. And he's like, no way. And we said, come on.

You sat on it for so many years. We'll write you a check immediately. Come on, how many percent return is that? You know? And he wrote back and said, 35 and you pay all the escrow and closing fees. And we're like, done. We're in. Box.com was born.

What was the first, what was the first breakthrough you had? What was the product? The first sale that we ever made was Bounty Paper Towel. and tied pods, and we shipped an item to Queens. And on the inside of the box, everyone that was working in my garage at the time signed it and drew the outline of their hand. And we wrote a handwritten note to that customer and said, I would keep this box if I were you, and we will buy it back in the years to come.

All right. So you guys are kind of well into it. Kind of the first six months to a year really was to more than prove the concept. You had to actually show that this could work if you were going to. going to go and raise real money to do this because this is going to take a lot of money. And this is a cash-heavy proposition. That's right. And the added pressure was that this time was different in that we did take friends and family money in our seed round. So our first company, we did not. It's not that

we didn't ask. We just didn't get any. And this time around, it's really interesting. There's second time around. If you have a win in your first one, then people want to give you. Exactly. And it feels almost like an obligation you have to. And the question becomes, why didn't you take, why wouldn't you take my investment? You're shutting me out. And so I remember telling folks that we're going to need a lot of capital and there's a significant chance this will not work out like our first one. And so you have to treat this like a donation. Which is a lot of pressure. A lot of pressure. A lot of pressure. And I remember one of the things that really shook my confidence early on was that I was driving home from a meeting in New York. And one of the folks that

quit his six-figure paying job to join the dream and sit in my garage. called and said, dude, I refreshed the page over and over. It's not broken. We got zero orders today. So we were getting like two or three orders a day, maybe as high as five to six, and then this dropped down to zero, two days in a row. And he was like, dude, I risk my livelihood to do this. Are you sure this is still going to work? So getting no orders, having this person who quit their six-figure job, asking you if it's going to work out, and having friends and family invested in you, and you're smoking through their money. It's like, where do we go with this? When we come back in just a moment, how Che and his partners eventually hit their stride with a little help from Hoda and Kathy Lee.

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 from NPR. I'm Guy Raz. So it's the spring of 2014. Boxed is about a year old and it's barely pulling in any money. But then, chain as co-founders get a really big and unexpected break. Every company, every person I firmly believe has a spark and not everyone takes advantage of it. And our spark, at least early on, was a producer for the Today Show was a customer and loved the product. Or a contributor to the Today Show loved it. And emailed us through this PR firm that we had hired and said, do you mind dropping off items so I can talk about it on Today's show with Kathy Lee and Hoda?

tomorrow. Yeah. No, I don't mind doing that. Yeah, I'm like, who has ever said no to this? Yeah, I really mind. That's a pain in my butt. Yeah. No way. Um, so we end up going to 30 Rock and dropping off these items and... What'd you drop off? You know, all like the beautiful items of like laundry detergent, bounty paper towels, you know, cereal, just like our better sellers. Yeah. And I remember sitting there and watching the live hit. And then there's a bit of latency because you have to build a basket. So the average box order has almost 10 items for the order. So it's not like you're checking in and out within 30 seconds.

Right. And so after about half an hour, the orders started to come in at a speed we had never seen before. Wow. And this is just because it was Kathy Lee and Hoda who were talking about it? Kathy and Hoda were like, wait, mobile app don't have to wait online. And they literally said, this is genius. Wow. That's the third hour of the Today Show back then.

I mean, that's when they were like drinking Chardonnay. That's why I'm like wine at the third hour today's show. Let's keep it up. So, you know, Kathy Lee and Hoda, if you're listening to this, we owe you one. Yeah. Let me know the address to send wine to, but we owe you one. All right. So they talk about it, and that's a game changer.

All of a sudden you start to see orders just start to pour in. Pour in. It's like it was so clear. cliche, but just looking at the order log, we used to refresh it just, oh, we got one. But we just stopped refreshing it because it just kept coming in and we're all like, oh, oh, like, what are we going to do now? And so it just, we ended up und drilling my garage door. So it was just a net as a garage door. Like, pallets were being dropped on my front driveway. This is a residential neighborhood in New Jersey. And eventually because we're like, oh, my gosh, like, it's going to start raining. So we ended up

getting a container, so like a pod container, and we put extra merchandise in there, hired neighbors, hired friends. Weren't your neighbors annoyed with all that stuff in front of your house? I bet to this day some of my neighbors have no idea what we're doing, and I bet they thought I was selling drugs, like for sure, because there was just like these young kids showing up in cars, unloading boxes, and it was like, what are they up to down there? But luckily, we grew out of my house, and we were out before the cops. were called. And eventually to a warehouse. You venture to our first warehouse. And this was a physical

job. I mean, you weren't just like doing inventory and then having meetings and talking to potential investors. Like you were lifting boxes too throughout the day. Yeah. First time I ever hurt my back was lifting a giant box. And so it was physical work, but I really enjoyed it. I felt like, you know, unlike a purely digital business, you're getting your hands physically dirty. You're like packing these boxes. You see the fruit of your labor every day as it goes on a truck. Now, years later, I was thinking, now I look back, I'm like, wait, we were selling pink virtual cows for $4.99 online. It's an amazing business. What an amazing business. What were we thinking, you know? But it is still gratifying to see all the orders go out every day, even to this day.

Here's something that I'm curious about. When you launch, From the beginning, this was going to be a warehouse store, right, without a membership. All warehouse stores pretty much have a membership deal. You pay 50 bucks a year for Costco or whatever, and they didn't go in and you get, you can buy this stuff. You guys deliberately decided not to make this about membership. It was available to anybody. But I wonder why you decided to do that because from what I understand, that's really how Costco makes their money. That's right. So for two main reasons. One is that there were a lot of folks that we understood that would otherwise shop at a warehouse club, but just didn't want to pay. They didn't feel like from a principal perspective. They want to pay to be able to shop somewhere. And so if we can capture that audience, we could probably build a pretty big company just doing that. And then also the traditional model of how warehouse clubs work doesn't really work online because it never really contemplated the variable cost.

being the main cost driver. So traditionally it's called the 10-10-2 model. So 10-percent costs, you get your 10-percent margin on your goods, you break even on all that, and you make your 2% operating profit just off the membership. But now because based upon how much you buy, it costs a different amount of money to serve that customer, you can't make it 10-10-2.

It probably is like 15-10-2. And so it starts to really fall off the rails. So from a business model perspective, we did think purely offsetting costs with a membership, unless you are at gigantic scale and you knew for a fact with years of data how much your cost truly are to serve each customer, hard to offset. But I wonder, were people still asking you, hey, you know, Che, how are you going to offer better prices than Costco or Sam's Club? Was that, I mean, when people asked you that, were you saying, well, that's not what it's not just about better prices, it's about, convenience? Or were you saying, well, here's how we're going to offer better prices? It was a little bit of both. And so we had to be sharp on prices. So we knew we couldn't be

wildly priced compared to similar items online. But at the same time, we wanted to target customers that valued that convenience and also valued the fact that they didn't have to pay a membership fee to get into the door. And so initially, very coastal, folks just like us who didn't have a car anymore to get to a warehouse club. But now increasingly, what you're you find is a big part of our audience is now suburban and rural. If you're in the city, you might not have a car. If you're in the suburbs, you might not have the time. Or if you're out in the middle of the country, you might not have the patience to drive 90 minutes to your local warehouse club just to save 10 bucks. Because you might burn a good amount of that in gas,

and you have to stand online and pay a membership fee. So those three things are really what we hit upon. I guess one of the ways you also were differentiating what you were doing was, writing handwritten notes in the boxes where I would say, hey, I guess people write like, hey, thank you so much for ordering from us. Hope you like, you know, hope you have a good laundry day ahead of you or something like that. Like just these little notes that people would write. And was the idea that people would get this, open it up, see the note, and then you would basically have a loyal customer for life.

That's right. So, you know, the genesis of handwritten notes was that I remember we had this old laser printer that were printing these invoices. and it would take something like 10 seconds for each invoice to print. And I remember looking at one of the folks in my garage and saying, you know, instead of standing there, I want to just write a note or something in this customer. You're just waiting for paper to print.

And so from that day on, we just wrote a little clever note to every customer. You know, of course, with COVID, we've had to pause that for safety reasons and for streamlining the process, but we fully intend once we can safely do so to bring that back. I read that, and I don't know if this is apocryphal, not, that when you guys were writing handwritten notes in the early days, apparently one of your employees hand wrote a note to somebody who ordered four 40-pack boxes of Trojan condoms wrote a note to this person saying, quote, everyone loves an optimist. Is that true? Does somebody really write that note to somebody who ordered 40 boxes of condoms? That is absolutely

true. And unfortunately the customer did write in saying, hey, dude, this is kind of creepy. It's not cool. Because we generally don't, we give guidance on what they can write, but we don't check every note. And so we just felt like, man, this person, like, I feel like, it's never been sure. It's like, do they deserve to be fired or do they deserve to be promoted? But, you know, and so we ended up keeping them. And they're still here in the facility that I'm sitting at right now. And you still, I mean, I know you're not doing it in COVID times, but you continued this thing of writing personal notes to every customer to this day. Totally. It seems like it's totally not scalable, but, you know, welcome to the story of most startups and especially box. Like, neither was starting in our garage. But if you really feel like it's important, you'll make room for it.

And now with engineered standards and automated facilities, we know down to the second how much it, it actually costs us to write a handwritten note. But it's worth it. It's worth it to differentiate and to have that one-on-one connection with the customer. I mean, it's amazing to me that you're still doing that, writing handwritten notes in every box, and have proved that it is scalable. I mean, because I'm just thinking just my holiday cards that I sent out this year, just writing on a quick little hope to see you in 2021.

Like, that took me, it felt like, I don't know, two weeks. Definitely the Packers around the country all have their own kind of tips and tricks. Some pre-write them, or they'll just. draw things or they'll get people from the office like, hey, could you help me with this stack of cards? And so it depends on the packer, but they're all handwritten. It's not an auto pen machine. Some people think it's an auto pen machine. It's not. We still make it happen. In, I guess in year one, from what I've read, you guys brought in about 40,000 bucks in sales. Does that sound about right? Yeah. That sounds exactly. That's 2013.

2014 is when you're on the Today Show in mid-2014, which really kind of, you know, fast track sales. So you guys kind of start to hit a stride. And in 2014, you enter the fresh grocery space with a product called Express. And because up until that point, you were only selling dry goods like granola and crackers and things like that. And was a thought there like this is, you know, kind of another way to expand our business? Because this was a, this was a pivot from just big box bulk items, right? I mean, this, you were going into things like bananas and avocados. Yeah. So the thought was that when we asked our customers, there's, okay, 200 items, certainly not enough.

Like they were saying, well, I need to buy more. You don't have this brand or you don't have that category. Right. And one of the leading categories was fresh foods. It's like, you know, yeah, I'll buy all the dry goods from you, but I still have to venture into the store to buy fresh foods. And that's sometimes when I'm there, then I'll buy the center store items anyway. So that was something we began building all the way back then

and have still been honing over time to get the economics right. What I'm curious about, even in 2014, as Amazon and today it's even more of a 10,000-pound gorilla, let's say, but in 2014 it already was, you must have known in your mind that there's no way you could out-compete a business that was on its way to becoming a trillion-dollar company. But that in order to kind of make your business succeed, you had to find the right niche, like the right. space for you guys to operate in. Was that kind of part of your mindset? I mean, were you thinking, look, we're just never, we're not going to compete with Amazon when it comes to selling everything. You know, I think for us, like we're not fully hubris and we're not out here on a mission to say, we got to beat these folks or crush them for us to succeed. The bad part of the business we operate is that it is hypercompetitive with large, large companies. The good part is that the

items we sell, every single person in a developed country uses our products on a daily basis. And so the market is just absolutely gigantic. And so we're still on this growth path generating a good amount of revenue, but we're not even close to saturating the market. And so I think that is a silver lining. I guess in around 2015, one of the places where you saw an opportunity to kind of differentiate yourself, in addition to the things you were doing, because obviously you don't get a handwritten note from Amazon when you order something was to really focus on very specific products like toilet paper, paper towels, trash bags, plates, party cups under your own label, like an in-house label like Costco has Kirkland and, you know,

and was it Safeway that has the president's choice? I can't remember who does that. Yeah. But you decided to start your own label called Princeton Spring. That's right. So part of it. of the philosophy of the company early on was that we tried to curtail skews assortment because it made for an easier and smoother shopping experience. And so you didn't have this kind of paralysis by analysis. And so people would come through the app and hunt and pack and just suddenly build a basket of many items to make the unit economics work.

Another reason was that by not carrying everything, you could really concentrate your buying power so that, yes, we were not buying as much as Amazon would be with these big CPG companies. items we carry, we do a good amount of turnover in. In the beginning, though, it started off out of necessity because back in 2015, some of the big brands still didn't want to work with us. So I remember telling the team, because the team was despondent, we still have a few holdouts that will not sell anything to us. And I was like, guys, Elon Musk is out there talking about sending human beings to Mars. And we're sitting here sulking over the fact that we can't make a CPG product. It's like, I'm pretty sure someone will make one with our label. And that

That was the day that Prince and Green, now Prince and Spring, was born. By the way, named after the streets in New York. Yeah. We had, one of our first offices was on the corner of Prince and Green and Soho. And as we filed a trademark, the attorneys didn't even file it. They said, we're going to save you the $1,000 an hour we charge and reject us for you. And we're like, what? You don't even want our money?

Like, just file it was wrong with you. And they were like, yeah, pretty sure there's already a P&G out there. And so I was like, oh, fine, fine. And so the real sharp New Yorkers are like, Prince and Spring are parallel. They never intersect. I was like, that's right. But it was the closest coordinates to our office at that time. All right.

So through Prince and Spring, you like make now everything from coffee to olive oil and nuts and a bunch of stuff. And so that's your label. That's like, right? Yeah. And presumably your margins are much higher. on your in-house brand. That's right. So the margins are really good,

but also, more importantly, it builds a lot of loyalty. So over half of our repeat customers have a Prince and Spring item in their cart. And if you buy a Prince and Spring item, over 80% will buy another one in their ensuing shop. But, I mean, what's to sort of prevent you from saying,

you know, or I don't know, why wouldn't you just become a Prince and Spring company? I still think there are items out there that truly you just, because of patents and because of the brand equity or other items, that you just can't live without. Yeah, like Heinz ketchup. Heinz ketchup, some of the laundry detergents, even some of the toilet paper, people would just swear by their toilet paper.

So from what I understand, like by the end of 2016, you guys, it's like three years in, you guys are doing $100 million in revenue, which is incredibly impressive. You'd raised at that point like $130 million. Did you ever have doubts about whether this thing would work? Oh, yeah. I mean, from the early days of zero, two straight days of zero orders, that so self-doubt, you know, not much, it doesn't get any worse than that, you know. And every time, or in the early days where you basically got, not laughed at,

but essentially laughed at at meetings with big CPG companies or big other kind of distribution companies. self-doubt and you just learn to have thick skin as an entrepreneur. And luckily, this is not our first time at the rodeo. This is our second company. And that thick skin was developed over the course of now two companies versus us trying to do this as if it was startup 1.0. How big of a game changer was it for you guys, both good and bad, when Amazon purchased Whole Foods in 2017?

The thing that the Whole Food Steel did for us is that it put this industry on the map. At that moment, everyone who didn't pay attention to this was forced to pay attention. Because for all you could say about Amazon and how they do it and how they compete, if they're getting into an industry, it's a little bit different now. But at that time, that company was not buying $10 billion plus companies. Maybe they'll do a big buy like Zappos for a billion. So a giant sum like that. 13.7 billion or something like that.

Exactly. So it was a wake-up call to everyone in the industry and then also everyone outside of the industry as well that something with online grocery is so important that Amazon will do the biggest deal they've ever done to buy their first brick and mortar chain. That had immense kind of ramifications for us in our conversations with everyone.

Which meant what? People all of a sudden start to pay attention. In other words, did you notice a mark a difference when you talk to people in the industry? All of a sudden, they started to pay attention and listen to what you guys were saying. Yeah, online for them suddenly became not just, again, almost like how we were relegated to the basement at Zinga in our early days. Yeah. You know, they were like, oh my gosh, digital. What are we doing in digital?

Bring those folks here. And, you know, they really start to staff the hungry potential A players at all these companies. to really go after the opportunity. Were there companies that started to go after you guys to say, hey, interested in being acquired? Absolutely. So, you know, there's not many companies even today that are independent that have their own fulfillment centers that ship food around the country. So that has never really been a, not a problem for us, but like there's always, you know,

conversation swirling. As you, I mean, sort of as you kind of continue to to grow and, you. to raise money, there's an inherent challenge with the business you're in, which is the margins are really, to be competitive, the margins on the products have to be really thin. Like you can't, you can't increase the price that you're buying things for by too much, right? Because otherwise you're going to lose business. Plus, you're dealing with shipping. So it's very, very hard. And from what I understand, you guys are not yet profitable. But do you see a path to profitability? Yeah, definitely. We're not that far off. And it really is one of the stories of, you know, everyone

jokes about it in the industry. It's like we'll make it up with scale. And with us, we're doing it every day. So you're starting to see it because, again, it's just like the more items you buy from box or any e-commerce company, the more effectively you can price the items because all those different items in that box, quote unquote, share that shipping cost, which is the biggest cost in e-combers. commerce. And so if you ship one item, of course, it's pretty hurtful. But if you're shipping 10 items per order, man, suddenly, like, you can make money selling Oreo cookies online. One of the things I read that you guys do is, which I think is super cool, is you take a photo of every box that's packed and then you email it to the person who ordered it so they can

see their boxes. It's like when you go to the airport and you travel internationally and they ask you to verify your suitcases, you can take a picture of people's box before it shipped out so they know that it's right. Yeah, that's right. So it's the boxed selfie cam. So on your order confirmation, it says your boxed took a selfie and customers love it. And also, it's for you to verify that we packed everything well and it's on its way to you. But the most important thing from there was that the same folks that built that camera system for us now build the robotics that we use to automate our newest fulfillment centers.

So our newest fulfillment centers are 100% automated by our own hardware these days. Wow. And the roots were in that camera project. Entirely robotic. Yeah, entirely robotic. So you still need human beings to physically pick the items and pack the items, but you see these robotic self-driving carts roaming around the fulfillment center now in our newest ones. I know you've got about 500 employees, right?

And you've got three fulfillment centers in the U.S., I think, right? That's right. And about 500 employees total, how do you prevent your employees from being freaked out that their previous jobs are being done by robots? It is really hard. We had to call multiple all hands in the facilities. As we were rolling these robots out and testing them, it doesn't take a genius to see what the robot is doing and what they're kind of doing and saying,

wait a minute, where's my future here? And so what we committed for everyone here is that you weren't going to lose your job solely because of automation. You will have to be retrained. You will have to learn how to operate, how to service these state-of-the-art machines and work alongside of them. But you weren't going to lose your job solely because of that.

Because as the company grows, we'll have more volume, and we can use that volume to leverage these robotics as well as you, so that you always have a place here. And you see folks in our fulfillment centers, some without a college degree or without a high school diploma, servicing really advanced kind of robots. And we retrained them to be able to have that on their resume and on their life skills. Something we haven't talked about is the company culture.

And I want to ask you about an incredibly generous and just mind-blowing thing that you offer. And I'm just trying to figure out how you do this. And if you still do this, which is I guess in 2015, you announced it to employees that you would pay the college tuition of every full-time employee's children. Do you still offer that? We still offer it. So there's still, even this next semester, there's multiple folks a part of that program. And they're getting put through college. How does that work?

I mean, if somebody's like, yeah, my kids' college is $48,000 a year, you guys pay that? We make you file a FAFSA. And so depending on your need, you're going to get it subsidized already. And it's tuition only. And so it becomes a lot more palatable once you kind of narrow down the actual cost, but it's certainly helpful for the parents that are sending them to college. And that and the other programs run in the fulfillment centers, it's solely born to tie it all together back to my family's kind of evolution in the early days when we were rather poor.

And so luckily we don't pay anyone minimum wage here. But certainly, you know, working and having hourly kind of salaried folks, it makes for sometimes not the easiest of livelihood. So education was my way or was our family's way out of that. And I hope we can help a few folks here along that path. Do you know with the average amount you guys are subsidizing people who are taking you up on this offer to help pay for college? Yeah, it's between $5,000 to $10,000 is the average amount for a semester. Wow. So some employees are getting like a $10,000 subsidy a year to help pay for their kids to go to school.

Yeah, yeah. So a lot of these things that are seemingly unscalable, they are if you really, you don't want them to be. So, for example, the college program isn't even the most used program at Box. The most used program at Box are, for example, our $500 emergency fund. You offer everybody $500 just to have an emergency fund. If you have an emergency, someone in your family's sick, you have a car repair, and you just need something to tide you over, and no one should have to declare bankruptcy or not pay bills because they got a flat tire,

especially if you work at Boxed. And you would think that it's just like, what are we doing? Like how much money does that cost? But it's all depositing in this piggy bank of trust that we recently were able to break it open and draw down in this era of COVID. And I remember sitting in one of our fulfillment centers thinking, is anyone going to show up for work next week?

Because this thing is getting real bad. And it really is the honor of a lifetime to be in such, such a crazy time and to see these folks just show up for work to do their job, getting this stuff to folks who are immunocompromise and who just can't or do not want to get to a store. And it's the most humbling thing I've ever experienced in my life. I mean, you have people at fulfillment centers who have to fulfill those boxes, so you probably could not shut down at any point. Exactly.

How have you kept your employees safe? So we do a variety of things between social distancing, masks in the warehouse, air filtration, even down to like, hey, no more overlapping shifts. So between every shift, instead of having people mingle in the parking lot, we'll have some downtime where everyone can leave the property and the next shift can come on without hundreds of people in a parking lot mingling. Yeah. All of those things.

And the most important thing, though, is to say something and truly believe in it. And so throughout this pandemic, it has been our mission to have at least one C staff member on site at a facility to say, hey, if I say it's safe, I'm going to be here. Exactly. And so we're here. When COVID kind of began, like, when the reality that began earlier in 2020, people like were scrambling. for, you know, as you do for toilet paper. I don't know why people get toilet paper, but they do. But were people like friends and stuff calling you and like, dude, Jay, can you get me some

Lysol wipes? Because you guys sell tons of Lysol wipes and like Lysol. Oh my gosh. I mean, high school friends I hadn't talked to in like 10 years, 15 years. Like, hey, is this still your number? Like, oh my home. Can you give me some Lysol wipes, please? Back in March, April, I'd like to say I became the most popular person from my high school

about like 20 years too late because here we are, you know, sitting on tons of toilet paper around the country. And yeah, so luckily we were able to kind of help some friends and family out. But overall, the year is going to end as a very positive one for us. Looking ahead now, I think your last fundraising round was Series D back in 2018. Is that right? Yeah, that's right. And I think it valued boxed at $600 million. That's right. There is going to be a point. and there may have been already to acquire you, but there may be a point where the offer is too good to refuse. I mean, you've got some really interesting partnerships with like Liddle, you know, Century 21, different companies that you have exclusive partnerships with. But I wonder, I mean, in a world where Amazon is the 10,000 pound gorilla, can you imagine? I mean, would you be okay down the road at being acquired? I would do whatever is in the best interest of our team.

At some point in time, your motivation as a founder of the company no longer becomes, no longer is you and your financial outcome, but it's making sure all these folks that bet on you and this vision have a great result. And if that's what we have to do to provide everyone with a great result, then so be it. If it's a public outcome and that's the way we maximize everyone's time here, then we're going to go down that path. So that's kind of how I think about life at my job these days. When you think about the journey you've had so far where Box is headed and the considerable success you've had,

how much of that do you attribute to your hard work and intelligence and how much do you think is about luck and chance and privilege and other things? I feel like I hope people that are out there that look at the story of Box and learn more about us end up just like me back at 2.30 a.m. in the law firm reading the stories of some of these businesses that we were helping and realized that yes, it's a lot of hard work, but it was a lot of timey and a lot of luck. And the reality is you can, you probably have an outsized effect on just one out of the three. And so that's not just humility speaking. That is the absolute truth. And I feel very fortunate because again, I only had something to do with one out of the three. of those factors.

That's Che Huang, co-founder and CEO of Boxed. And remember when Che told us about the very first box they shipped, the one with the bounty paper towels and the tidepods? Or they asked the customer to keep the box because one day it might be a kind of a collector's item? You know, we wrote him an email years later and we're like, did you keep the boxes? We're serious. We will buy it back.

And he was like, I didn't keep that box what are you talking about. recycle that thing. I don't have a space of my studio apartment in New York for the box. Are you kidding me? Like, fair enough, fair enough. Hey, thanks so much for listening to the show this week. If you are not a subscriber, please do subscribe to the podcast 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, we're at how I built this or me at Guy Raz. And my Instagram is at guy.com. This episode was produced by J.C. Howard. with music composed by Ramtin Arablui. Thanks also to Liz Metzker, Farah Safari,

Dareth Gales, Julia Carney, Neva Grant, and Jeff Rogers. Our intern is Janet Ujung Lee. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.