Transcript
Speaker: How is a middle market technology firm disrupting bulk e -commerce? Come hear about the rapid growth of Boxed from CEO and co -founder Chae Wong. Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: So welcome to The Market That Moves America. We're talking from the sidelines of the Greater Cleveland Partnerships Middle Market Forum in Cleveland, and we have a special guest today, who is Che Hwang, the co -founder and CEO of boxed .com. We'll let him tell you about the company, but I just want to level set with the fact that this is a company that started 40 months ago in his garage in the middle of New Jersey, now has four distribution centers across the country, 600 employees,
Speaker: $180 million in revenue or in funding and hundreds of millions of dollars in revenue. So welcome to the broadcast or the podcast, Che. Thank you very much for having me, Tom. Che, tell us a little bit about box .com. What are your box and what's the com?
Speaker: Wow, we're just saying what a wild ride it's been. So sometimes I even have to remind myself what is it that we do. But luckily, you meet a lot of technology companies where they tell you what they do and then you're just like, okay, tell me again because I have no idea what you do. And so for us, it's really easy. We're an online warehouse club. So we bring that large format store, large format goods. We don't sell the three pack of Oreos, we'll sell the 12 pack sleeves of Oreos.
Speaker: So bring in that warehouse club environment and savings straight to your door, no membership fees. Usually shipping is two days or less and generally free. So think of us like an online warehouse club, just like a Sam's Club, BJ's, or a Costco.
Speaker: And so you are competing with big guys with a lot of retail footprint, including, of course, Amazon, the 800 -pound gorilla that's everywhere else. When you started in your garage, what did that feel like to you? Did you feel like they would not notice you or you wanted them to notice you? I mean, why did you go into this business?
Speaker: It's super interesting because something that you just said conjured up a ton of memories and a ton of thoughts that we actually have right now. When we first started, we told investors, listen, mobile is going to take over everything. And you may not do it today, but you're going to order toilet paper from a mobile device over the next 10 years. And we were talking to folks outside the gates of Stanford on Sand Hill Road and Menlo Park.
Speaker: in California and they didn't believe us. They were like, you know, whatever dude, you know, e -commerce, hello, 2001 called, you know, mobile. Yeah, I browse on mobile, but I check out on my desktop. And over the last few years, the world has slowly changed in a way that we had, you know, crazily predicted.
Speaker: And it's not to say that we're 100 % right, and here's why I have this kind of strange feeling about it. It's actually because it's happening way faster than even we would have imagined. If you look at today, especially the business news, like the Zeitgeist is really about the decay of brick and mortar retail. All these folks are just like, and it's not a slow decline.
Speaker: just even a last quarter or two, the amount of gigantic retailers that are under pressure, it's actually pretty amazing. But going back to your original question of how do we feel on day one, it's funny because it's almost easier during those days to fly under the radar and we wish we would have.
Speaker: But all this kind of recent news about retail has kind of put us in the spotlight. So competing against those big companies, we generally don't feel that everyone competes against Amazon even if you sell cloud storage space these days. 10 years ago you'd be laughed at if you said that. But now you can't do anything online without kind of seeing some overlap with them. But our competitors are mostly BJ's, Sam's Club, and Costco.
Speaker: So I can understand why I'm going to buy toilet paper, or finally a box of Oreos big enough for the 12 -year -old appetite, or the appetite of my former 12 -year -old boy. But how did you get known for this? I mean, you started out small, you wanted to fly beyond the radar, but in 40 months you've grown to a tremendous organization.
Speaker: How did that rocket ship take off? Because I gather it took off pretty quick. It's not like you bumped along quiet for eight months before you were suddenly found.
Speaker: I never discount the factor of luck in anything in life, and I love talking to entrepreneurs that are like, we planned every last moment of this company. I'm like, okay, yeah, whatever, dude. Maybe they're telling the truth, but at the same time, I'm like, it's not our story or how we've kind of built our businesses. There's always a stroke of luck, and you really have to be able to take advantage of that stroke of luck. I really believe every business has that one moment,
Speaker: And the majority of both businesses do not capitalize on that moment, but for us, we've absolutely done so. The moment for us here was our first full month in business, as I said on stage before. We had two days where no one ordered anything from us. But in our second or third month, we got a call from The Today Show and said, would you mind if Kathy Lee and Hoda talked about you?
Speaker: Uh, and we're like, has anyone ever said no, like, you know, like, um, but sure enough, there's this clip and you can find it online of Kathleen Hoda talking about boxed. And when they're like, no membership fees, deliver straight to your door, no lines. And they're at the same time, it wasn't even like plan, but they were like genius. And then like.
Speaker: Basically, from that point on, sales started to spike. We capitalized it on it by raising more money at that exact moment, starting our Series A road show and then raising that money, which gave us finally a marketing budget to really push the product.
Speaker: So I want to ask you about two related questions here. And I know Doug has a couple of questions that he wants to ask you as well. One question is clarity about your value proposition. And I think one of the issues that sometimes startups have and certainly middle market companies have is that they can get a little fuzzy around the value proposition or not know what it is and keeping it clear and keeping it sharp and making sure it's the right one. Of course, it's going to change too.
Speaker: And the second question is, as you grow, how do you build more structure and process so that you can support that growth from the time when it's a bunch of people in the garage to the time when it's 4 DC. So value proposition clarity and at the same time putting enough structure and process in but not becoming a bureaucrat.
Speaker: uh... so uh... you know uh... too very i i think difficult questions you know it's but value proposition i would say you know there's there's a lot of talk out there and i read multiple books that that's a you just need to do do do something that you're you know that you're best that mean that you do that thing better than anyone else in the world well the funny thing is when you're in a garage on day one you don't do anything better than anyone else in the world you know it's always was to then just not do anything you know and so i would
Speaker: Modify that general thought and say, you should focus on what you think you can be better at than anyone else in the world. And for us, that was delivering that wholesale experience where you're shipping 10 items to you, not just a single item like Amazon, but shipping 10 items to you, getting you to browse instead of search, and basically becoming the easiest stock up service in the world, and now continuously to kind of keep that in mind.
Speaker: We have 1 ,500 items, but generally we sell so much, because we have a limited SKU set, we sell so much of those items that no one else outsells us online for a ton of the things that we sell. But we have calls all the time that say, oh, you don't have my type of wood cleaner or you don't have this or that.
Speaker: We'll add a few items if it generally kind of warrants it, but a lot of times we're like, man, if we add 10 items in this category, then we're starting to be the everything store. And there's a really good everything store out there, but there's no real good online warehouse club out there. And so that discipline is really tough to enforce, but we think about it every single day.
Speaker: Second part of the question was, sorry, I'm blanking. Structure and process. So it's a unique challenge for middle market companies and a unique challenge for us right now. Because like you said, in the garage there was no structure and no process. Like everyone could talk to each other like every single day.
Speaker: talking to another department just meant raising your voice a little bit so they can hear you in the kitchen from the garage. But now folks are spread out throughout the country. There's hundreds of folks, different backgrounds, different skill sets. And so for us, we think
Speaker: structure a good amount of structure process is good and getting professionals in that have built those processes uh... is good but politics is bad so i don't think anyone will say okay everyone in a company will uh... i hope agree that says you know if we want to do a marketing campaign
Speaker: I have to talk to A, B, and C, or I have to get processes A, B, and C correct before I get the green light to do the marketing campaign. Most people will say, well, that's kind of a pain, but they get it, right? Because if you allowed any person, including the intern, to run a million -dollar marketing campaign, we'll be out of business very quickly.
Speaker: But then what they don't like and what usually comes out of that are the politics. It's not just talking to person A, B, or C. It's like kissing their ring and making sure they're getting what they want. And for us, it's that maniacal drive to delete politics from the office that truly has made it work for us so far. How do you delete politics from the office?
Speaker: That has to be tops down. So sometimes I've heard different folks sparring with each other, different business units. I will literally call a meeting with them, sit both of them down, and just say, this will never happen again if we're all to still work here. And they get that message really quickly, and suddenly it's not a kumbaya moment, but it sure is a moment where politics are lessened.
Speaker: Good morning, Jay. I'm Doug Farron. I work with Tom here at the Center. You mentioned the funding that you've received to help fuel that growth. We've studied a lot of middle market companies over the last five -plus years, and we've seen a lot of these companies fund their own growth through profits, and maybe very sparingly, we'll go to a bank and just get a loan. As you've taken on this outside investment in capital, has that changed your tactics at all, your strategy, maybe how you measure success? How do you think differently about the business now that you have investors on board?
Speaker: Very differently. Investors want returns. They don't run charities. What's really interesting is that I don't think one approach or the other is correct. Both approaches have their virtues and their pitfalls. The classic middle market approach of funding growth through profits, maybe through negative working capital, getting a small loan from a bank,
Speaker: That has real good virtues, but at the same time, you are in danger if it's a fast -growing trend. You might not be expanding fast enough to capitalize and be number one ahead of that trend. On the flip side, though, for us, getting venture capital is great. It's kind of like steroids. You read about these athletes on steroids. No one says, great, you use steroids, you got the bronze medal.
Speaker: And so when you have this injection of cash that's outsized compared to most companies in America, you're also expected to grow and provide results and returns, commensurate with how much money they've pumped into the company. So absolutely, it's a totally different track and entrepreneurs just need to be ready that those are the expectations. And so neither is good nor bad, but just know that they're very unique in the challenges and upside.
Speaker: In our data, very few middle market companies have actually gone public. Do you see yourself going down that road? I would say my personal dream is to push the button at the New York Stock Exchange at one point in our life. There's a few reasons for that. One is just a personal dream, but also, if you think of it as a practical component,
Speaker: If we are, to most consumers, we are a retailer. Internally, our biggest department is actually our engineering department. We write all of our software from tap to ship, even the fulfillment center software. But most folks think of us as a retailer. And if you think of us as a retailer, and you think of the end goal of being around for the next quarter -century or half a century, then if you look at the retailers that have been around for that long,
Speaker: almost without exception, they've all accessed public capital markets at some point in time in their life cycle. And so if you just look at it as a statistics play, we would be a heavy outlier if we lasted 25, 50 years as a retailer without ever going public. So I don't know if it's a means to an end or it might be a self -fulfilling prophecy, but absolutely, I would say that would be the potential end goal in my mind.
Speaker: Shifting gears a little bit, you talked today a little bit about the technology and certainly operations and logistics and supply chain play a huge role in your company. We recently completed some research on the role that middle market companies play within supply chains. And as you think about your business, you are B2C, you're B2B, but on the supply end, you're basically, big CPG companies are your suppliers. How do you manage those relationships most effectively? What have been some of the things you've done?
Speaker: I wish I had secrets there, but I think, again, I alluded to it before when I was answering a question from Tom, that there's an awful amount of luck. And you might think, okay, what does luck have to do with dealing with CPGs? But we live in a world now where retailers are under pressure, consumer packaged goods companies, no matter how big they are, are under severe pressure because there's not a ton of growth in that industry.
Speaker: And so they're all looking towards growth opportunities and e -commerce is number one on their list. So a dollar driven by us is treated very differently internally than a dollar driven by a brick and mortar retailer. And so that dollar driven off e -commerce is so heavily valued internally and by Wall Street that they've put an inordinate amount of resources behind helping companies like ours.
Speaker: And again, I wish I could say we engineered that from day one, but it's just being in the right place at the right time. So right now, they're not putting the squeeze on you because they value you so much. But I'd like to flip this around. We do know that retail is under pressure. Our data show us that retail is under pressure. And when you were talking to the GCP meeting earlier, you said you're a bunch of tech folks trying to figure out retail faster than the retail folks can figure out technology. But let me flip that.
Speaker: If I were a traditional retailer, what could I learn from you that might help me succeed in this really difficult environment?
Speaker: I love that question, Tom, but I didn't want to punt the last part of Doug's question, which was middle market companies. You look at who we deal with on a daily basis when it comes to ops, the folks that helped us with automation, the folks that are trucking the stuff in and out, mostly middle market companies. You're absolutely right. Ecommerce, as big of a trend as it is today, I haven't seen studies about this. It would be a really interesting study.
Speaker: I would venture to say a good majority of it is actually powered by middle market companies. You have UPS, you have FedEx, but you have endless amounts of couriers that are powering that last mile these days. Not to give you guys more work, but I would definitely sign up for that study if you guys commissioned it.
Speaker: I feel very passionate about the answer because it's so obvious if you take a step back and you take the long view. Here's what I mean by that. Retailers are so worried today that, oh my gosh, the world is changing. The way we made money is quickly going away. The way customers are shopping is quickly going away, which seems like it's a huge shock to everyone in the industry.
Speaker: But if you step back and look at how retail has evolved in America or even across the world over the last hundred years, let's talk through the innovations in retail over the last hundred years.
Speaker: It was crazy the first time a general store shopkeeper put merchandise for customers to take themselves or to shop themselves. That was about 100 years ago. It used to be a general store, you want something, I grab it for you, you inspect it, you buy it.
Speaker: But then it was completely revolutionary for you to just put the goods in front of people. That was 100 years ago. Then it became completely revolutionary to actually not have to memorize or not have to tag every single item with a price. And now you have a barcode. That's probably 30 years ago. A lot of stores didn't even have barcodes.
Speaker: Then it became revolutionary to have everything under one roof that the mom and pop shops of the world were under pressure and you had the super centers that you know the Walmart and the targets of the world. And so now like when this stuff is now going online I find it obviously revolutionary.
Speaker: But then, at the same time, it seems like if you look at it from a 100 -year perspective, it seems like retail is under constant change. And this is more of the same when you look at it through that lens than it would look if retail did not change and brick and mortar stayed dominant over the next 20 years as well.
Speaker: Does that yeah, I know it's a little bit esoteric it does but let me get to another and I love that I think that's absolutely right and it's like, you know, hey guys, we've been here before Retail has survived. It's not gonna die. I guess part of the other question I was thinking about is as you think about boxed and you think about the
Speaker: products that you deliver and the experience that you have. I think part of what makes boxed work is that you create, you have a clear value proposition, you got 1 ,500 SKUs, you don't have 15 ,000, and you deliver a certain kind of experience. And it would seem to me that part of the other value, the other thing might be, look, if you're a corner bookstore, figure out what that experience is gonna be like, and experience and SKUs, and sort of put those together.
Speaker: whether you're Walmart or a corner store or any retailer anyway. Is that right? That is 100 % correct. Any business model, any format of business has pros and cons. You just have to make sure the pros outweigh the cons and you have to be really good at the pros. So if you are a corner shop bookstore, you know what? You probably offer, just like you said, that intimate experience that Amazon cannot offer.
Speaker: Amazon, you know, yeah, that you can take a peek at the book, but they're basically just shipping it to you. Right. And so helping folks discover books, talking through it, hosting different kinds of events where people can come and talk about their, their, their interests. Is it even, you know, most, maybe even just putting a small coffee shop in the back so people can come in and sit and enjoy. There's all these things that they can do to help kind of push the pros instead of exacerbate the cons.
Speaker: Jay, you talked at our event today about the culture of your company. So as you have expanded from your garage to 600 plus employees, how do you maintain the culture of the company? What are some of the things you do to make sure that, you know, that the types of things that you'd like to see the, the company culture, the way people act and behave and get along and, and mimicking some of the things from the early days. How do you maintain that?
Speaker: I don't want to, you guys remember my answer on stage about that, I don't want to mess up the rating for the podcast, meaning that it has to be over 17 or not, depending on my language. Best selling book, go for it.
Speaker: So I'm gonna go for it guys so you can you can redact it out later We like so I and people say it's not scalable but to this day even with hundreds of employees I still do this I Make sure I screen every last Candidate in terms of every final round candidate that comes through our doors So I don't again it's not scalable for me to talk and look at resumes all day for every person to fill any position that we have or every position and
Speaker: But for me, if you're a finalist and we're about to make that offer, I will still talk to that person no matter what you do. Yesterday, I was on the phone with a person that potentially will join our buying team and one of the admins of one of our fulfillment centers.
Speaker: So I don't care what position you're in, I'm talking to you. What am I talking to you about? By that point in time, we've vetted you for your technical expertise. You'll be able to do your job competently. What I'm testing for is what I call, it's a very scientific term, so it's a no -asshole test. And so there's very specific questions I ask, and they're generally about what you like to eat, what you like to do in your spare time. Because when you think about it, we spend more time with coworkers, waking hours, that is, than we do with friends and family.
Speaker: And so whether box is a success or not, I just want to make sure that I enjoy spending time with these folks and that their coworkers enjoy spending time with each other rather than working with a high performer. That's a huge, huge asshole. So I'm sorry. I mean, just a lack of an eloquent term, but that's a, yeah, as scientific as I can get.
Speaker: It's the term that works. You guys are famous for some very high profile perks. You're paying for college tuitions for employees. You'll pay for weddings for employees. They're kind of high profile things, but to me they're also tangible evidence
Speaker: of a no asshole culture, right? They're sort of proof points from the CEO's office of this. And what I'm thinking is that any company can offer proof points of that kind to sort of demonstrate the culture they want, even if the culture they want is nose to the grind, we're a tough guy culture, but that tangible proof points of culture are a really important CEO opportunity.
Speaker: 100%, I think as the company has scaled, we were talking about before, before we started rolling the tape, that my job changes every three months or so. Because if you just plot out the curve, the growth curve, we're a different scale company every three to six months. Early on, we're doubling every quarter. And so if you're doubling every quarter, then basically you're twice as big as you were last quarter, so does that mean your job is twice as stressful? Are you doing the same job?
Speaker: or you're doing the same things day in and day out, so that all has to change, but the one thing that's super important to me, Tom, is maintaining culture, and that has to come tops down. As much as you would want that to be grassroots, at the end of the day, the leader of the company and the leaders of the company have to set that tone, and so you're totally right. Whether that's doing some of the crazy things that we've done before, or simply
Speaker: Telling folks like not enough people actually tell their employees that this is unacceptable when something unacceptable happens You know when it comes to culture they usually just let it slide but Doing something as small as that to setting the tone with big crazy kind of things that we've done. It's all all important
Speaker: We certainly thank you for your time today, Jay. It's a very fascinating conversation, and I think there's a lot of great learnings that middle market companies of all sizes can take away from this. We'd like to share that for those interested in learning more about the middle market, please visit our center's website, www .middlemarketcenter .com. You can also subscribe to our podcast at iTunes and all the other places where podcasts are found. We look forward to our next episode. Thank you.
