Invest Like the Best with Patrick O'Shaughnessy - Sebastian Mejia - Mastering On-Demand Convenience - [Founder’s Field Guide, EP. 44]

Starting point is 00:00:00 This episode of Founders Field Guide is brought to you by Dell Technologies. When you run a growing business, no two days are the same. One day you're hiring employees the next year launching a website. Dell Technologies, Advisors understands your challenges and are here with the right tech solutions so you can evolve your business and stop at nothing for your customers. Call an advisor today at 877 Ask Dell and do more with modern devices and Windows 10 Pro. This episode is brought to you by Verset. Verset designs, builds, and scales digital platforms for some of the world's

Starting point is 00:00:30 most ambitious companies like TD Bank, Getty Images, and American Express. If you require a high-performance team to tackle a hard or ambitious problem, then Verset is the firm to call. Listeners to the show can get free access to their private internal repository containing the most interesting essays, memos, and reading the Verset team has discovered across the internet over the past 10 years. To check it out, visit verset.com slash Patrick. That's V-E-R-S-E-T-T-com slash Patrick. Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Founders Field Guide. Founders Field Guide is a series of conversations with founders, CEOs, and operators building great businesses. I believe we are all builders in our own way and this series is dedicated to stories

Starting point is 00:01:12 and lessons from builders of all types. Founders Field Guide is part of the Colossus family of podcasts and you can access all of our podcasts, including edited transcripts, show notes, and resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy asset management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunacy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy asset management may maintain positions and the securities discussed in this podcast. My guest today is Sebastian Mejia, co-founder and president of Rappi.

Starting point is 00:01:57 Founded in Bogota, Columbia in 2015, Rappi set out to create an on-demand convenience store and has expanded into nine countries and over 200 cities. In our conversation, Sebastian and I discuss what differentiates Rappi from U.S.-based delivery apps, how the company evolved early by understanding their customer's behavior, and how the business balances growth versus unit economics. I loved hearing Sebastian's views on the value of brands in an increasingly app-based world, the importance of being hyper local for any delivery-based business, and how fungibility is a key characteristic of any rewards program. I hope you enjoy this great conversation with Sebastian Mejia. Before we transition to the episode,

Starting point is 00:02:36 I also wanted to highlight our newest series business breakdowns. Each week we do a deep dive into an individual business to understand what makes it tick. Find more information on joint colossus.com or search for and sign up to the business breakdowns feed on your preferred podcast player. So, Sebastian, I think the right place to be. in our conversation is to level set the audience on what RAPI does and the scope and scale of the business, which obviously is changing very quickly, which is good for you and your partners, but give us just a sense of what the business does today, what customers you touch and where

Starting point is 00:03:10 and how they use the platform. Now, imagine that you have a product that allows you to have anything delivered in minutes. We are operating across the region, focusing Latin America. Today, we're talking about nine markets, roughly 200 cities. And in each of those cities, we go very deep, sewn by zone. And in each neighborhood, we allow customers to basically access RAPI as a way to solve their day-to-day needs. A bulk of the business that we do is focus on restaurants and also several categories in the consumer product goods business. But we also deliver other type of categories inside retail. what you need to understand in terms of scale is that Latin America is the fastest growing e-commerce

Starting point is 00:03:56 marketing the world, but it's probably one of the most underpenetrated. And that's even after COVID and all of the fast acceleration of the movie in terms of technological adoption, we're still really, really underpenetrated. So the way you build the future of e-commerce is by creating products that allow you to have this very fast delivery. I'm not a very fast. I'm talking about 10 to 30 minutes and a flexible courier network that allows you to actually deliver all sorts of different products in each of the cities that you operate. And that is basically a product that allows you to have a very, very high engagement, a product that allows you to have the mindshare of the customer,

Starting point is 00:04:38 a product that allows you to have this expansion of the LTV, of the users, and just a superior business model in terms of the advantages of how you have a long-term relationship with the user. And it turns out to be a product that customers use with a really high frequency and as part of their core life. It's hard to understand how you would live your life in these cities. You're talking about very dysfunctional, challenging cities without a product like RAPI. And it's pretty different from what you see in the U.S. I think in the U.S., there's many more options where you can buy, but I don't think you get this product that allows you to have this ultra-fast engagement that is extremely flexible to use,

Starting point is 00:05:25 that ends up having this very profound engagement with the users that we engage with. I want to zoom in on some of the U.S. analogs that I'm sure you were probably sick of hearing, like, how is this similar to Instacart or DoorDash or Amazon or whatever? But the way I want to do it is actually how they're not similar. And I want to really focus on that word dysfunction, because when we first talked, the thing that was most interesting to me is the complexity around, like, maybe we could zoom in on the very first city that you went after. And you could describe in some detail how different this looked from Cleveland, Ohio or something like, because most listeners are in the U.S., they won't have an

Starting point is 00:06:02 appreciation for how complex or different or, as you said, dysfunctional the markets might be. So can you paint that picture for us about when you first started attacking this? What were the problems you encounter. How did you start? Yeah, structurally, you have advantages in Latin America that I think exist in this market. And it's quite different from the U.S. in terms of how densely populated these cities are. So you're talking about arguably the most urbanized region in the world. And believe it or not, when you take a Mexico city or Sao Paulo, you have densities that are higher than Chinese cities or even Hong Kong. That means that you can have a value prop for the users in which you can deliver really, really fast with a very broad assortment.

Starting point is 00:06:45 And when we first launch, RAPI was born as a convenience store on demand. That was our initial idea. But we had this button that allowed customers to order anything they want in a free text form. So imagine that you text and you just let us know what store we should go to pick those products. And for us, that was a great way to understand customer behavior, iterate from there. So RAPI evolved very early into a multivirtical product by listening to customers and by iterating really fast. And initially, that convenience product started to become a restaurant business.

Starting point is 00:07:23 It started to become a pharmacy business. It started to become a big restaurant business, big supermarket business. It also started to evolve into a verticalized business in which you are delivering from micro-fulfillment centers. And that has all sorts of advantages in terms of the business. velocity in terms of the operations that you have. So in essence, what you're basically doing is balancing the marketplace zone by zone and starting with the selection, starting then with the users, and then following up with how you're actually serving those users through quality, through couriers, and the productivity of the couriers as well plays an important factor.

Starting point is 00:08:02 So at the beginning in the early days, it was just like a very fast iteration of ideas and a lot of velocity of experimentation and a lot of trial and error. If you compare that to the U.S., we actually never said, hey, let's copy certain company in the U.S., hey, let's copy certain company in China or in Southeast Asia. I think RAPI was much more an evolution of us basically listening to customers. And I think a lot of the solutions that you get to see in the emerging world in the technology space are tailored to solve specific. They're not companies that are just copying something in somewhere else and trying to replicate it in the market. I think that's pretty applicable to the evolution of rapier as a product.

Starting point is 00:08:43 Can you talk about the early network dynamics where you had to go get couriers convinced them to log into the app and you had to go get demand? What was that like? What literally was the first city? Who were the first few orders? This free text thing sounds extremely unique and different than like the structured inventory that you saw from basically every other app. How did that work?

Starting point is 00:09:04 How did you figure out how much you needed to pay the couriers? All the basics of like the unit economics must have been fascinating to figure out on the fly. How did you do that? What was it like? Previously, we had experience building companies, but it was more enterprise. And we were basically selling software to supermarket. So we got us some sort of idea of how the industry worked. But we wanted to do something completely different, focus on the customer.

Starting point is 00:09:28 So we basically started building. And initially that convenience product had a very limited assortment. I'm talking about 1,000, 2,000 SKUs, and basically said, well, we already have this consumer-facing app, which is going to be very easy to build all of the logistics behind it. And of course, that's not the case. When we initially launched, we had no traction whatsoever. So it was literally us trying to understand what was going on with the customers, why they were not engaging with the product. So, RAPE from the beginning had this DNA of being very hyperlocal and very guerrilla.

Starting point is 00:10:01 And that meant that we literally went out to get customers onboarded. and talking to customers, and we were basically offering donuts in exchange of downloads. And that was our customer acquisition cost. And we also had to do the same thing on the courier front. And one of the interesting insights is that although e-commerce is still very small, and it was way smaller back then, you had a culture of delivery. You had a culture of calling the restaurant, calling the store, and there were couriers already working. There was just completely disconnected. There was no network bringing them together, making them productive, making them more efficient

Starting point is 00:10:41 in the way they routed. So we didn't have to go against, let's say, culture. We didn't have to go and educate couriers and even go ahead and educate deeply the customers because they already understood that delivery was this thing that existed. We just applied technology to organize all of these agents and these atoms, let's say, in the physical world to make them function more efficiently. I remember us doing the deliveries early on. I remember us being on scooters, making drops, testing the courier app.

Starting point is 00:11:11 And from there, we started to evolve the product. And we started to also engage couriers to make it better. For us, part of the mission was super critical on how we're going to make these guys not only more efficient, but we're going to make sure that they're paid very well and that they're making significant more than their minimum wage. and I'm only talking about two sides of the marketplace, right? If you introduce the merchant side of the marketplace, it adds another layer of complexity. And at the beginning when we launched,

Starting point is 00:11:39 we really didn't understand how to integrate with catalog of a supermarket. How do you actually integrate with a 30,000 SKU store? How do you make sure that you have relevant inventory on real time? How do you integrate with a restaurant? Rapid when we launched, we didn't even have tablets. We didn't have integration with POS system. So it was literally us going, placing the order, as if it was a random customer.

Starting point is 00:12:01 A lot of the things were built as we learned, and many of the things had to be built from first principles very early on because it's not that you have a lot of tech stack or logistics stacks that you can just jump on and use to launch. It's one of the challenges of building in the emerging market, but I also think it's an advantage because you get to build these very core competences that tomorrow are going to be very valuable business, right?

Starting point is 00:12:27 I see ourselves doing all sorts of services on top of these pieces of the stack, whether it's logistics, whether it's customer service, marketing tools, et cetera. When I talked to the founders of Loft, they had an interesting similar experience where there's no MLS system. So there was no like proper database of apartments or homes or something they could tap into. They basically had to build it themselves. I've got this obsession with companies that make previously non-legible data legible to some system tend to do really, really well.

Starting point is 00:12:56 Ben, so I'm really interested how you solve that problem in these specific cases. So that 30,000 skew supermarket or if there's a restaurant with 200 menu items, literally what was the process of getting that legible to your software and your platform? How did you do it? That supermarket and the restaurant business is quite different. I think in the restaurant, you basically have two options to actually integrate with what happens inside the business. You can use a tablet or you can use an integration with the P.O. OS. So you're basically getting as close as possible to the kitchen that gives the restaurant owner the ability to actually update the menu, the ability to pick the cooking time and

Starting point is 00:13:36 selected depending on the dish that you're cooking. So you've got to go really deep in the operations of the restaurant. Then when you're going to the supermarket space or the retailers, we're dealing with inventories per store. You're dealing also with inventory levels. So you need to make sure that you have the assortment, but you also need to have some sort of measurement. or way of identifying what certain products are being stocked out. And that's a big, big challenge that has a lot of different angles that you can tackle it, from machine learning to project what are going to be the products that are stocked out with more probability to just better integrations with the supermarkets.

Starting point is 00:14:15 Not all of these companies have a proper API where you can actually connect with and understand what is the assortment that they have in the store. So you basically end up using flat files and you need to have data that is coming in. You have to clean that data in. So it connects actually with your core catalog, which is the nervous system of any type of e-commerce business. So that represents a lot of different challenges. Today, RAPI is operating with more than 200,000 points of sale from restaurants to

Starting point is 00:14:48 retailers of all sorts. So the data challenge, I think it's very, very intriguing. It's something that we are investing a lot of energy and time. And I wouldn't say we are fully on a place where we can say, look, this is something that we master because there's a lot of complexity. but I also think it's one of the most interesting aspects of this business because local means that you're integrating such a deep way with the local economy that you're creating all of these modes and all of these integrations that are just very hard to replicate. Is there a good example of that?

Starting point is 00:15:22 I want to understand what you mean by local. Is it measured in blocks? Is it measured in like the equivalent of a zip code? What is local and how different might one unit be from a neighboring unit and in what ways? We could be talking about two-kilometer radiuses for a specific zone. And then it's not only how you actually draw the zones in a city. You also have Latin America with a lot of income disparity. So it's not your perfect Manhattan reading. It's much more mixed, you know, and you can have a very wealthy neighborhood next to a neighborhood that is not wealthy at all. So you have to navigate all of that hyperlocality aspect. And then once you set those polygons, you're basically delivering inside those zones. And then what I mean by local is that you also have to integrate with the stores inside that specific zone. You have to position the couriers inside that specific zone. But once you do that, the marketplace starts to thrive because the customer experience is amazing,

Starting point is 00:16:20 10, 30 minute delivery. The courier experience is amazing because they're super productive. You don't have to do a lot of long distance. Structurally, that also means that you can deliver in a very affordable way. As a customer, you're paying. a dollar to a dollar 50, then you're still allowing the couriers to make two times the minimum wage. So the model works really, really well. And then you have to have all of the dimension of catalog really, really tied into what you do. And by that I mean all of those integrations with inventories, with catalogs, as real time as possible. So that in my view is a very, very hard thing to replicate. That's why I have this idea that if you look at all of the e-commerce companies in the world,

Starting point is 00:17:03 the majority of them that deal with, let's say, infrastructure or the ones that really thrive in their specific markets tend to be local. With very few exceptions, and the exceptions are much more the companies that do drop shipping or that are exporting from China into the world. But if you really understand that you've got to deliver fast, the companies need to build the local presence. And it's hard for a foreign company to actually replicate this because of the level of debt at which you need to operate.

Starting point is 00:17:32 Is there another company that does this especially well anywhere in the world that drives home that point of the best e-commerce companies being hyper locally focused? Yeah, I think so. We are big fans of May 21, for example. Mate 1 is a fascinating business. You're talking about arguably the best delivery company, but on top of that, they have these stacks of additional products. I'm talking about marketing services.

Starting point is 00:17:58 I'm talking about advertising. I'm talking about travel and hotel bookings. And what they've proven at scale is that you can build a really large business. And I'm talking about close to a thousand cities in China. And it always works like this. It's all about, okay, what happens in this neighborhood? How can I deliver faster and better quality? Do I have enough restaurants in that specific neighborhood?

Starting point is 00:18:21 So that's one company that has done it really well at scale. Can you say a little bit about how you thought as a founding team, about the economic model because in the U.S. especially, there's this interesting question about what matters more like good union economics from day one or just winning the network? Because if you win the network and you have all the supply and all the demand, at some point you're going to figure out how to make money. It goes the saying, but it requires a lot of VC funding and maybe subsidization of one side of the network or both. How did you think about this problem? You've already mentioned the interesting point about couriers can still do well, even with very

Starting point is 00:18:57 low delivery costs because of the density. So when it comes to making money, how do you think about it? Do you try to make money on a per order basis, a per hour, a per zone? What's the unit that you think is appropriate given the unique dynamics of your markets? It's a very good question. I think if you really want to build a solid business, you win the network by actually having a sound business model early on. And that's very critical because if you have the right unit economics, you know that you can accelerate the business and grow, these businesses grow really fast. So scaling with really, really bad unit economics becomes very, very difficult. And I think it also creates a discipline. These are low margin businesses in which you need to own each of

Starting point is 00:19:45 the lines of the unit economics and constantly optimize them. Sometimes you're going to make certain trade-offs that are aligned with a certain strategy that you're taking in each city, but those trade-offs needs to be within a boundary of healthiness in your unit economics. Otherwise, you're basically scaling a business where, imagine if you're growing 100% year over year, the whole just keeps on getting bigger, the more orders you deliver. And in our case, we learned early on that we actually could grow extremely fast, and I'm talking about a business that has grown 24x in the last three years, while also having held the unit economics. Of course, you can allow certain evolution of the unit economics.

Starting point is 00:20:28 You cannot expect a certain zone to immediately have positive contribution margin, but you know that it's going to get there in a short period of time, and you know what are the levers that you're going to pull. So that's why it's really important to start from there in the early days. You start making that as part of the culture, as part of the way you operate the business, that attention to detail, that attention to every, line of the unit economics. And I think it's totally about doing both. Now, if you have the growth

Starting point is 00:20:57 and you have the healthy unit economics, you need to take the long-term horizon. And in my view, this is about building really big businesses. There's clear scale effects in this, in this type of businesses. And you see that in companies that are public in the space, that are just very profitable. And then what does the business look like in the next five to 10 years? because the market is clearly there. The business model clearly works at scale. So you need to keep on investing to be able to get to that critical scale as fast and as quickly as you can. While doing it with growth and doing it with healthy unit economics, it has to be the three.

Starting point is 00:21:35 Otherwise, you are running a very profitable business, but you're small, scale effects don't actually kick in. Or you go to an indisciplined business and you are basically destroying your unit economics and you end up with a business that is just, unfundable, let's say. But we managed to do it very early on. And to finalize, I think something that also makes our region very special is that early on, we saw that structurally Latin American not only had disadvantage of density that allows you to deliver really fast, but also has disadvantage of you can actually order for a dollar or a dollar 50, pay the couriers two times the minimum wage, and you end up having an average order value to delivery cost ratio that is the highest in the world. So I compare that with the U.S.

Starting point is 00:22:19 I think in the U.S. customers don't get the velocity of delivery. I think in the U.S. you end up paying 20, 30 percent more for the cost of food, whether it's groceries or restaurants because of the structure, right? Labor is expensive. The distances are not dense enough. Or you go to other markets like India and you end up having a different problem where your AOB is closer to five. So it's just very hard to make it work in those environments. Whereas in our case, you're talking about just a very healthy AOV to delivery cost ratio that also enables you to have very healthy unit economics early on. I realize that one question I don't think I've ever asked because everyone talks about scale effects and everyone wants them and everyone knows they're good. That doesn't make them easy.

Starting point is 00:23:01 It probably is also surprising the way in which scale effects start to feel to you, the entrepreneur, as they emerge. Can you describe what scale effects start to feel like? Like what's the first time that in the business you looked at each other and said, oh, like, this is what scale is. Like, what was that? And what did it feel like at the time? It's different from network effects that are maybe more connected to networks of different type of products, whether it's social media.

Starting point is 00:23:30 I think in e-commerce, you're talking about much more scale effects that come with this concept of, hey, I'm doing enough volume of orders to actually pay off for all of these very expensive investments that I've done throughout time. And there is this connection with scale effects that I think you see it when you basically do a very easy calculation and say, look, I'm doing this amount of orders and I'm generating X amount of dollars on contribution margin per order. That means that my total contribution margin is X and that's allowing me to actually finance many of these investments that I had done early on. So I think that's a very easy way to explain it more from a financial perspective. Then you also get to see scale effects. I don't know if this is a scale effect or a network effect,

Starting point is 00:24:19 but when the flywheel starts to really spin in a market, you start seeing all of these very interesting effects of you have cacks that are decreasing, you have higher word or mouth, you have more merchants that are coming to your platform, you have more couriers coming to your platform. The whole marketplace starts to thrive. And that's, I think, another thing that you get to see when you have a critical mass in a specific city. What interesting nuance that I would add is that here, whether it's network effects or scale effects, I think you get to see them much more on a city-by-city basis than necessarily be a country.

Starting point is 00:24:54 This is more connected to the nature of a hyper-local business that you really need to focus on a city and treat it almost like an independent market because a user in one city is not going to have any connection with another city. At the end, you're buying from local merchants. You got to look at them also from a critical hyper-local aspects as well. Can you say a little bit about digging more even into scale, the decision to, or the thinking around, do you start maintaining inventory? Do you start having your own distribution centers? What start to be the questions as you get bigger and bigger and a higher percentage of merchant to customer sales? What starts to make sense to do and how did you make those decisions as a team?

Starting point is 00:25:37 It was always our mission to be a partner of our merchants. And when we started to verticalize the business, we have several hundred dark kitchens, several hundred micro-fulfillment centers or dark stores, we always did it with this idea of how do you actually help businesses digitize themselves faster? Now, imagine that you are a supermarket or imagine that you are a restaurant. All of the sudden, not only you have the users and the logistics of a partner, you have this physical infrastructure that you can use and connect already your brand and your users and say, look, I'm going to actually expand from two stores to 10.

Starting point is 00:26:25 And the CAPEX is zero. Rapi is actually my partner. Or it's similar to a supermarket. If you want to expand faster in a low CAPEX way, as supposed to be opening a lot of stores or expensive footprint stores, you can do it using your brand, you can do it in micro-fulfillment centers. So we started doing that after we got more scale. And I would say this is an effort that we've been doing for the last 12, 18 months.

Starting point is 00:26:51 But once you start doing it, you start seeing that there's a lot of advantages to the core business model of what we're doing. The experience is great for the users. you actually get to deliver really fast. That has a very interesting effect on the frequency and the retention of the users. Getting things delivered in seven minutes is really fascinating. And it starts altering your mindset of, well, why do I need to order a big order and just stash it in my pantry for a month? I think that's going to affect behavior of customers in a very profound way. You also start seeing that the economics improve.

Starting point is 00:27:29 you start saying that the experience for your couriers is better. So I would say one of the most intriguing things that we've learned and one of the most exciting new initiatives. I always believe that if you were actually to do it in a sequence, it's way better to actually grow in a very asset-like way. So you're focused on building the network, you're focused on organizing this size of the marketplace with technology, which is extremely valuable and difficult to do.

Starting point is 00:28:00 And once you have that scale, you start verticalizing your business, not the other way around. Because if you want to verticalize early on, it means that you have to invest a lot of money and you're going to be able to expand much slower. I think it's a natural evolution for asset-like business to actually start going more, let's say, asset heavy. One of the things that we've been really interested in is this concept of like streaming for stuff. We invest in this company Bottomless that does something like this, where they sort of know when you're going to need coffee in their case and it just shows up. And the seven minutes thing makes me wonder where you think this all goes.

Starting point is 00:28:36 At some point, if stuff starts to feel like it's streaming like data or content or whatever else does, it seems like that would radically change user behavior. It could even change what a house looks like is you need less pantry space or something like this. What are some of the craziest things that you've thought about in terms of. what platforms like yours might do to change the fabric of people's behavior in cities? I think we're just starting to scratch the surface of this. And at the beginning, we were just thinking about what would happen in the restaurant space, what would happen when you actually start having your products deliver faster. And again, we were comparing it with very bad or slow e-commerce experience that are more legacy. And there, it's obvious. If you eat,

Starting point is 00:29:20 You're going to at least have a very large fraction of those meals that are not cooked by you, sorry, but actually delivered. So you're going to cook less. You're probably going to buy less groceries. When you start having your groceries delivered, it's a little bit of less trips to the supermarket, less, hey, I'm going to buy the stuff for the next month. But I'm going to actually buy the stuff that I need for the week, next couple of weeks. So that was, I would say, version 1.0. Now, version 2.0 is, look, I'm actually being able to deliver stuff extremely, extremely fast, and that has deep implications on the supply chain of these products.

Starting point is 00:29:59 If you look at how FMCG companies and manufacturers and even retailers are actually building their businesses, it's on top of these very, very inefficient supply chains that makes the product expensive, that makes the inventory management super challenging. you actually have to hold a lot of inventory. When you go into this model where the products are rotating much faster, that has very deep implications on the supply chain of the business. And I think brands that really capture this are going to be way ahead of the brands that are less agile to adopt these new ways of consuming and selling goods.

Starting point is 00:30:35 Now, if you're a user, my vision is that you're going to basically have this always increasing penetration of e-commerce products. and the products you are going to see increasing frequency of orders, because the experience is just infinitely better, not by a factor of 10%, but by a factor of 10x, than the offline experience or the traditional e-commerce experience. So it's going to generate just faster purchasing decisions. You decide faster what you need to buy.

Starting point is 00:31:06 You're not going to be thinking it too long. I think it's going to create also customers that are just very, very hooked on, and engage with these platforms and these services. And as I was telling you before, we get to see it in the frequency. We get to see it in the cohort of these customers. In my view, you're going to be able to also include not only consumer product goods products inside this infrastructure that is very efficient, but you could be talking about a lot of different e-commerce categories as well.

Starting point is 00:31:37 The whole density thing, seven-minute delivery sounds, you know, I'm in the suburbs. I'm maybe at 50-minute delivery for restaurants. worse than that for a supermarket. It's funny that the density creates the conditions for such a differentiated experience. What happens to brands in all this? If the merchants are, let's stick with supermarkets and restaurants since we've been talking about those two. At what point do consumers stop caring? If they want an apple, at some point they're just going to say like Rappi, just give me a good apple.

Starting point is 00:32:04 I don't really care about the supermarket brand. This is why we've seen in the U.S. more ghost kitchens where it's like the brands are just not standalone restaurants. They're just in-app brand. What do you think happens here? Like how much disintermediation is there where the middle men on the way to a meal, let's say the supermarket, just go away and it just doesn't matter anymore? I think they are for sure moments where you're going to actually want the product that is maybe the cheapest or maybe you're not going to be that connected to a specific brand in your purchasing decision.

Starting point is 00:32:37 And I'm sure there's going to be opportunities in that space to actually build businesses that are, let's say, unbranded, that are more brand-agnostic. However, I do believe that brand plays an important role, especially in a world where getting attention of customers is going to be very important, whether it's from a customer acquisition or is actually to generate an order inside a marketplace. How are you going to choose one brand to another? And I think it's going to be about the story that those brands tell,

Starting point is 00:33:09 the mission that those brands have. the brands that can navigate a marketing world that is very digital, that is very connected to the customer experience in e-commerce, where you're actually doing like this in the journey from the traditional ad to the purchase, because it's all happening in the same place. I think they're going to have an enormous advantage. We get to see a lot that the most successful dark kitchens are run by our partners. We're not in the business of creating digital brands. We want to empower the restaurant and the chefs that are well-known that have amazing creations, they end up being the ones that perform the best.

Starting point is 00:33:49 I do think there's a lot of value to the brand, but it's only going to happen to those brands that really embrace this idea of decisions being made in an instant in an e-commerce platform, this idea of really engaging with performance marketing, growth-a-tech companies, not in the traditional brand way, that can move very fast and be nimble. I think it's a very, very, very open space. I know some brands are going to get there,

Starting point is 00:34:17 more traditional FMCG companies are going to get there. Some restaurants are getting there, but there's going to be a lot of challenger entrepreneurs that are coming up and are going to see the opportunity. I'm going to be able to navigate this world way better, but they're going to still use a brand in my view. You mentioned already this cool benefit because some of these cities and markets don't have legacy systems,

Starting point is 00:34:39 that you're actually able to leapfrog to a better customer experience than, say, in the U.S. or somewhere else or in Europe, what else should listeners know about opportunities and unique attributes of the Latin American markets today? Because what I've noticed is recently, like a lot of the favorite discussions I've had with entrepreneurs are all building in Latin America. And part of it seems to be because there's just a lot of low-hanging fruit. Like you said, the penetration rates are quite low and digital or e-commerce and things of the like. What else should we know? Like, what to you is the most interesting, stepping back from Rappi for a minute, the most interesting thing regionally about

Starting point is 00:35:14 Latin American countries that should make U.S. investors, let's say, pay closer attention. I can answer that with sharing what was my story as an entrepreneur. I'm originally from Colombia, but I had the opportunity to study abroad and work in different parts of the world. I was always asking this question of why don't we have more truly transformational technology companies in Latin America. And the reason why I was asking that question is because when you look at the market, you're talking about basically 650, 700 million people, half of the population of China. You're talking about half of the GDP of China.

Starting point is 00:35:54 You're talking about two times the GDP of India. You're talking about the same population of all of Southeast Asia, but twice the GDP. You're talking about mobile penetration, internet penetration. You're talking about a very creative, entrepreneurial community. All of our countries have had infinite crisis of all sorts, political, economical, violence. So that creates a lot of entrepreneurial culture and people that are just very resourceful and have a ton of great and perseverance. That, I think, answers a lot of the key things that make Latin America attractive today.

Starting point is 00:36:30 When we were starting out building an e-commerce business in a sense, in America was super alien to many of my investors today, and many of them did their first investment in Latin America through us. But I remember talking early days about macro, about why this market is perfect, why there's a lot of industries that have never moved forward. And they were not really understanding it until now that you get to see more successful stories and great entrepreneurs, building great companies, and now that conversation is way easier. So my advice now to entrepreneurs in Latin America is not, hey, how do I raise money? But I'm like, listen, just build a really good business. Focus on solving real problems. Go deep. Ask why. Be curious. There's so many industries

Starting point is 00:37:18 that are a backward steel that that's why you should be obsessing on because capital is there. One other thing that makes me very excited about building in Latin America, and it's this idea that technology is a very strong force of good. And probably the biggest and best answer, that we have to this challenge of economic development, improvements in our productivity, how do you drive long, sustained progress? The best answer that we have comes through technological entrepreneurship, more innovation, more companies being built, solving real problems in all of the different fields in our industry. And it's very clear when you get to see what drives true progress and when you look at Southeast Asia and you look at Southeast Asia and you

Starting point is 00:38:05 look at China, you can talk about all of these macro and economic policies, but it was just this relentless embrace of innovation and technological entrepreneurship. And I think that's very excited in Latin America technology. It's actually a force of good. We get to see it every day in what we do for our customers. We get to see it every day on how we change the life of our couriers. We get to see it in how we enable hundreds and thousands of merchants. We get to see it every day as people that come and build with us, go out and start companies. And we've helped inspire with other companies. And we've helped inspired with other companies, this idea of you can dream big and actually build a big business. So I think it's a mix of all of those things.

Starting point is 00:38:42 A lot of the investors in RAPI started their Latin American investing practice because of you guys, or you were one of the first ones that they did. I'm curious to hear how you've seen the evolution of investor thinking in the region, just in your own company's history. So maybe at the beginning, what were the best questions that investors asked you early on and how have those questions changed? What are the most interesting questions you got in years one and two? And what are the most interesting questions you get today from good investors?

Starting point is 00:39:11 I have to say that the question of American investors have improved a ton at the beginning. You know, it was, well, you guys are like X plus Y, any type of U.S. analog company. And we're like, okay, let's take a step back. We're going to explain what this is different. And we're going to explain what is the problem that is unique to our region. So I think now you get to see investors that have seen great returns, that have interacted with really great entrepreneurs, that understand the market nuances really well, that have gone deep into independent countries, right? Like not only Latin America, but go deep into Brazil and go deep into Mexico and understand all of the nuances of their specific industries, whether it's in e-commerce, whether it's in fintech. So we're talking about a community of investors that is way more knowledgeable that have teams

Starting point is 00:40:03 dedicated to Latin America now that are some of them dedicated teams with offices even. And I'm expecting to see way more of that happening throughout the region. One of the things that I'm most interested about in your business is this Amazon Prime-like program. I think every e-commerce company that keeps getting bigger going into new categories, et cetera, viewed with skepticism in the early days of Prime itself with Amazon is now like obvious that if you can get someone into this membership program or whatever you want to call it, they tend to be incredible customers. They get better as customers once they're a member. Can you describe the history of this program for you guys and maybe all the lessons that you think

Starting point is 00:40:44 might be valuable to others who could create a prime-like program, sort of like a master class on prime? The name wasn't that original, I have to say, but it worked. We started thinking of Prime as a way to, especially connecting a deeper way with our power users. And we started seeing early on that you're going to have specific cohort of customers that are just going to be engaging the most with your product. And I think that applies to a lot of e-commerce companies where you have this concentration of GMB coming from a select group of users. When we started thinking about Prime, the idea was also how to drive more value to those power users and how to actually, create that additional spin on the flywheel so those users that were already buying a lot were buying

Starting point is 00:41:30 more because it makes a ton of sense to actually be a prime member in a product that allows you to deliver anything. And that perceived value is very clear. You're basically paying $7 and you get deliveries at no cost above a certain average order value. And in a hyper-local business that has all of these other categories of products, then it's going to be a default option in your brain to say, look, if I'm going to buy restaurants, I go to Rappi, if I'm going to buy pharmacy, I'm going to go to Rappi, because I'm already Prime.

Starting point is 00:42:01 And then it continues like this throughout the life of the user. I think the programs of Prime tend to have more benefits when you are able to bundle more products into one. I think the single category membership programs, unless you have very high frequency product, make a little bit less sense. Why would I do it? I'm going to buy this in this e-commerce business,

Starting point is 00:42:29 maybe twice a year. Do I need to be prime? Not really. Frequency is big, yeah. Yeah, I think that two principles are going to be around frequency and multivoricality. Those two things need to be key to prime. And then there's a whole set of learnings

Starting point is 00:42:45 around building the business model case around Prime. And that's challenging because Prime has this ability to help you think about the business in a very long-term way because you know that it's an engagement driver and you know that those users are basically going to stay in your ecosystem forever if you continue to give them a really good service. And you still need to balance out the economics on a unit economic level on every order for the program to scale in a healthy way. So doing that in parallel, I think it's really critical.

Starting point is 00:43:15 critical and our unit economics on Prime work quite well. And then the other dimension is how do you actually communicate in a very clear way? So there has to be a perceived value that is very evident for a user. And then when you have that, you need to embed it in the product. So Prime needs to work in a very seamless way with the whole user experience and you need to be able to see it. You're saving this amount of money because you're prime member or Prime is going to give you certain access to certain benefits and you need to see it throughout the user journey. Be reminded all the time, yeah. That product piece is very critical.

Starting point is 00:43:51 And lastly, I would say, how do you continue to add more value to prime? How do you make it like a real no-brainer? And there you have all sorts of partnerships that you can do benefits that are unique to prime members. And it could be benefits around more exclusive or premier customer service or it could be benefits around certain launch of products. Playing with this idea of if you're part of a program, you're going to get additional benefits, I think it's also quite interesting. And then more futuristic, I think there's going to be a continued intersection between

Starting point is 00:44:25 prime or loyalty programs and what you can do on a blockchain, which is very exciting, because imagine that you can now make those really core users some sort of owners of a specific, whether it's a token or owners of part of your business. that you're using very frequently. And I think we're going to get to see a lot of this intersection between commerce and crypto even more. It's very easy to explain, right? Cryptone is distribution.

Starting point is 00:44:53 We love it because it can help us execute our business with more velocity, better cost, better margins. But in the concept of loyalty, I think we're going to get to see a lot more programs built on top of the blockchain. So there's going to be all these very interesting intersections that I think are going to start happening and with very profound impact on retention in marketplace. I'd love to go a little bit deeper there. It seems like there's something here, but it's just hard for me to get my head around.

Starting point is 00:45:21 Why? What you just described is different from like an Amex rewards program or some other sort of rewards program where you're given something back, which can then be spent. Points can be spent, like tokens could be spent. What's the difference? Why is crypto interesting to you? What might the simplest version of this system look like that was different from, the equivalent of for every dollar I spend on RAPI, I get a token or a point and I can spend

Starting point is 00:45:46 those points to get a free order sometimes like at a coffee shop or something. I think it's psychologically, if you're a user, and I think one of the problems with all of these loyalty programs that we've used forever is that they're not that fungible. Sometimes you don't spend them. Sometimes you don't know that you have them. This idea of actually rewards, it's cumbersome. You have to go to a platform. You have to log in.

Starting point is 00:46:10 You have to actually book your flight with the points. It's just so many other steps. So I think what's really interesting here is that not only you can actually get those benefits and spend it immediately in an ecosystem like ours, you have certain points or certain tokens. You can actually spend them and get your products immediately. But if you start seeing actually true value in those tokens, then you can actually convert them to fiat currencies or real money.

Starting point is 00:46:37 What's real money now, but it's a whole different conversation. I think those two things of you can actually spend them really fast and get concrete benefits with these things that are part of my loyalty program and these tokens, if they're increasing in value and actually change them and take them into traditional currencies through my wallet, I think that's going to be much more attractive than your traditional credit card points that don't have either of those things, or at least spending them or getting them as benefits is much harder. What does it feel like on the ground,

Starting point is 00:47:14 wrap you aside for a second and how you might use crypto technology or tokens or whatever? What is the vibe or the feeling around crypto in Latin America relative to what your perception of it is in, say, the U.S.? The data is all over the place, but what I understand is that you're talking about maybe 70 to 90 million, crypto holders. The majority of that is going to be Bitcoin. But one of the interesting things about crypto, I think, is that you're seeing more adoption and more interesting solutions being built

Starting point is 00:47:48 in markets where you just had really, really bad stories around currencies, or you don't trust the system, and it's hard to move money around. And that's where you start seeing interesting creative solutions. And crypto has a lot of... of different alternatives here that you can use. So you get to see stable coins being built, you get to see a lot of wallets, you get to see, of course, the traditional exchanges that are doing really well in Latin America. And I'm talking about crypto exchanges, of course. And I still think that we're in the very early days of this intersection of crypto with more of the traditional economy. I'm excited about this idea of it's going to be the intersection of crypto and commerce.

Starting point is 00:48:31 And again, it's this idea of, look, crypto needs distribution. It needs. it needs access to users, it needs integrations with merchants, and its product-friendly user interfaces. She's going to be only for like crypto fans. And I think companies like in the consumer space in general with crypto are going to be able to do a lot of stuff. Just starting to look into this and learn. But I'm curious and excited about it. Is there anything about the rapy story that we haven't talked about that you think is critical in terms of what makes it unique, whether that's the product or the team or the way you've raised money, really any aspect of the business in its story that stands out that we have not talked about yet? The interesting aspect that we haven't spoken about

Starting point is 00:49:14 is what we're doing in terms of financial services. So given that you already have this engagement with the users, given that you already have access to what they buy, how they buy, understanding of the customer behavior allows you to do really good credit scoring, allows you to understand what customers could actually have a credit card. And when you blend them together, it becomes very interesting. And you start seeing a lot of synergies. You see customers using the rapid card, buying more frequently, much more engagement, higher average order values.

Starting point is 00:49:49 And you actually get to bank and you actually get to buy in the same place. So all of those rewards and all of the points and all the benefits of a card actually get also spent inside rapid. So you have an additional spin to the flywheel. So I think it's natural that commerce companies going to fintech. I think fintech companies also

Starting point is 00:50:10 will go into commerce. And that happens because you just get the best of both worlds and you get to have this better economics and you get to in our case, you know, we were moving money around the ecosystem. We had to build technology to be able to do it.

Starting point is 00:50:26 So it was natural for us to start developing technology in the financial services. So that's another aspect that is really, really important. And in the future, financial services are going to be fundamental to everything that we're building. You mentioned that 24 times growth in a short period of time, which tells me a lot is going right. But what scares you the most? What keeps you up at night about the future of the business? What uncertainties are still there that you'll have to deal with? What scares you about the future of the business. It's always around, this is a highly operational complex business. It's a function of incredible talent and people. It's a culture of very entrepreneurial,

Starting point is 00:51:10 very, a doer culture with a lot of attention to detail that is very core. But keep on building the team and making sure that you complement your team with people that have seen more scale and that understand the systems that I think that's fundamental. And on top of the people function is the systems that you have in place that help you make better decisions on a daily basis. And that means using data to understand what investments are doing well, what investments you need to actually correct. And you're basically almost re-forecasting your business on a weekly basis. So you need to have a lot of systems in place to be able to look at the right set of data that allows you to make those allocation decisions. It's critical. And,

Starting point is 00:51:53 I would also say that for you to scale a business, it's really, really important to understand with a lot of clarity and precision what it is that you need to do, especially in our case that we're talking about a multi-vertical product. So it's already complex. We're written a lot of cities, a lot of markets, but what is that we need to do? And it's this idea of the flywheel that I described before and making sure that you're allocating resources 100% almost of the energy of the company and the capital into this fly wheel because you know that that's what drives the long-term value for the company. So clarity is also fundamental and clarity has all of these consequences of really understanding what are the feedback loops of the business. How does the business

Starting point is 00:52:36 grow? How does the business grow in its own? How is growth affected by product? How is growth affected by selection? How is growth affected by the experience of fulfillment and the quality of service that you deliver to the customers? Being able to understand going from clarity of strategy to, this is the feedback loop and the growth loops of the business. And from there, you start building all of their models that allows you to actually allocate money into the right initiatives and keeping it very consistent and organized. It's also critical. So what I would say is what keeps us up at night and me personally is, okay, how do we actually do all those three things? How do we maintain the talent question? How do we have the right systems in place to

Starting point is 00:53:16 actually make decisions? How do you actually invest in your flywheel and growth loops with a lot of clarity and precision. And it's a function of really operating in a highly complex industry in a world-class way. If you do that, this company is always win with world-class execution. So we've done great, but it's a challenging business. And I think maintaining that operational excellence is going to be super, super important. It's also the most critical thing of the business. I think it's been one of the most interesting business stories I've come across.

Starting point is 00:53:49 And obviously the growth speaks for itself. and the market is so clearly a fascinating one that is in early days. And so it's been a pleasure getting to know you, but also just learning about this huge opportunity. It feels like overnight everyone's going to have to have an answer to the question on the investing side. It seems to be like a huge zone that you haven't tackled, like what's your strategy to do so?

Starting point is 00:54:10 So hopefully the interview today has filled in some of those details for those interested. I think, you know, my traditional closing question for everybody, which is to ask, What is the kindest thing that anyone's ever done for you? I would have to say that my mother, I grew up, and when I was 20, I lost my father, so I was always a very entrepreneurial person that had to break around in my life early on. And I would say my mother in moments where we didn't have just a lot of resources. You know, she was always stepping up and creating support when there were not a lot of resources. It's probably a very left instinct to say about our relationship with our mothers. But I always go back to those moments of hardship, knowing that without having much,

Starting point is 00:54:59 she was creating out of thin air, you know, opportunities for me to be able to grow and do what I wanted to do. So I think that's a very important thing that she did for me. and she's a big part of my story. Simple and beautiful answer to my favorite question. Thank you so much for your time today. It's been a blast. Thank you, Patrick. This episode of Founders Field Guide was brought to you by Dell Technologies.

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