When Amazon Comes Crashing In

One company in particular was attracting the bulk of it, with same day grocery delivery Instacart, competing with giants. I see realized it was only a matter of time before Instacart would arrive in Austin, his home market, and it was scary at the time. I'm not gonna lie. I mean what it was is that you heard this big behem. It's like Instacart raising millions of dollars out of the valley. Soon things went from scary to terrifying when an even

bigger company made a move into the same market. That company was Amazon. A scene was left asking himself, you're going up against these guys, You're like, how Are you going to survive? Hi im aki Ito and I'm Olivia's Aleski And this week on Decrypted, we'll see what happens when one of the world's largest companies moves into your market. It's a familiar story for so many start up founders, especially today, is the tech industry's biggest companies search for

new opportunities to get even bigger. So how does a small company stand up to a threat like that? Does it even stand a chance? Stay with us? The story starts in the Land of two stepping in pork barbecue. A few weeks ago, I went out to Austin to see a scene we met at a tech incubator space downtown called tech Stars. A scene was laid back and upbeat. He smiles a lot, and he dresses like every founder

you'd ever meet. Tennis shoes, jeans, a T shirt, and a hoodie that he picked up while visiting Apple's headquarters. Cuppuccino seem fits right in with the other entrepreneurs. He's had a dream from a young age of making it big. Growing up in high school, I was always kind of independent in the sense that I've always wanted to make money myself and not work for anybody. A Scene found a mentor in his cousin's partner, a Zeem Macinosia, not to be confused with their main character as Seem. The

two friends would often trade startup ideas. One day he called me and he was like, what do you think about starting a company where we can get anything and everything delivered for people? And I was like, dude, that's awesome. This was back in the summer of a Scene was actually still in college. Along with five of his closest buddies, a Seam decided he would give it a shot and try to build a business. They called their company Burp.

So we started Burbe with the slogan order it, get it Burpit to kind of tailor it to our college market and the demographic of a college student, Seems. Idea was college students are hungry, but they're also lazy about cooking, so it seems that they could make a business at a delivering food to them. But college SuDS don't really have the disposable income to pay for like a premium service. Seem wasn't deterred. He and his founders decided they would

just target a different type of customer. So we then quickly shifted our focus towards working professionals and dialing from family. Is anyone sick, elderly that really needed the service, And this strategy started to work. Burbie began to grow, relying heavily on a team of delivery workers who get paid for dropped. It seems like so long ago now, but in this kind of business model was exploding startups like Burpie.

We're part of what was called the gig economy. It's kind of an uber model where we have like a round robin of individuals who are active and who can do the delivery. They'll go to the grocery store that was selected by the consumer, picked the item's, shop them as if they were a personal shopper for that consumer, and then take them to the consumer themselves. Over the next few years, Burpie grew steadily, turning into a viable startup.

When we had initially gotten started, it was just kind of like a front project, you know, something to do with friends. As soon as as we realized that this is something people really want and need, we started focusing really heavily on the business and um, it was just timing. Burbie was starting to become a household name. In key cities around the state. What we've always focused on is trying to be a Texas player and trying to dominate

to Texas market. We've been able to capture Houston, San Antonio, Dallas, and Austin market fairly quickly because we were one of the early movers in this market. At its height, Burbie was bringing in thirty five thousand dollars in revenue a month. Seem says. The business was humming, with new customers signing up for the service, many of them spending a hundred

dollars and more on their grocery orders. But as a seam in Burbie were making ways in Texas, another startup nearly two thousand miles away in San Francisco was attracting the attention of some of tech's biggest investors. That startup was insta Cart. Instacart got started around the same time as Burbie. Just three years later, in instacart had raised three drew million dollars and had a valuation of two

billion dollars. Fast forward to today, and one of the hottest privately held companies out there is Yeah, an online grocery delivery service. I'm talking about the San Francisco based insta Corn, which received the two million dollar evaluation its most recent round of fundraising. With so much money behind it, instacrat grew like crazy. The company expanded across the US and forged major partnerships with Whole Foods, Costco, and Target.

Seems family friend and mentor remembers it well. I think insta card actually helped us if they were actually doing our own marketing for us, spending the big dollars in marketing that people started. We started seeing a huge influx of the searches that were being done on Google for grocery delivery, groceret delivery in Austin. It was just a booster for us rather than a negative, Let's put it

that way. As food delivery started catching on, other competitors got more funding too, Fresh Direct, a company out of New York, and good Eggs to start up with operations in New Orleans in Los Angeles. At the time, are just a couple of the other companies vying for a piece of the market. But soon Burbie started feeling the

impact of Instacart's popularity. Instacart might have initially helped at the margins, turning customers onto this new service now though it was starting to look like more of a liability. They'd have to compete with with their model rate of drivers. That mean we were paying dollars lower than what they were paying, but we had to increase our rate a little bit kind of make sure we retain those drivers.

Instacart went on to raise over a billion dollars. It received a major investment from Whole Foods, which was founded in Austin, which was where Burpie had been doing a lot of business too. By contrast, Burpie had raised less than two hundred thousand dollars with Instacart gaining. Burbie's dominance in Austin seemed under threat at a certain points, seems as he realized he couldn't continue running his company the way he had before. And it was scary at the time.

I'm not gonna lie. I mean, what it was is that you hear this big behem. It's like instat cart raising millions of dollars out of the valley and going up against these guys, You're like, how are you going to survive? A same Macnogia, the family friend who had helped to see him get started and who would become his mentor says they spent many late nights on the phone together trying to figure out how to save the business. He would call me three three in the morning, uh

point in the morning at time. He would just call me. Any time you need anything, and any big decision he would he would just pick up the phone and just call me. But there were times when he would face difficulties and he'd be like, Hey, I'm losing motivation. I don't know what to do here. They decided Burpie needed to make a shift so that it was no longer competing head on with instat cart. So we started looking at other avenues or other markets that were similar and

needed some digital transformation. The same thought, instead of delivering groceries to people's homes, maybe Burpie could use local gas stations in convenience stores as the pickup point instead. It felt like a natural shift both a seam and his mentor, a group and families that worked for owned and ran convenience stores. It was just something that made sense to us that, Hey, we have the connections, we know that

we know the target audience. Let's go ahead and target that Customers could still order from their favorite grocery stores online seem hope this new strategy would set Burpy apart from Instacart and the others. But before a scene could execute his new plan, and even bigger shark entered Burbi's waters. So a scene was busy implementing his new strategy to stave off competition from insta cart. But then we are getting some breaking news on the Whole food life. Would

you gasp? Amazon, the world's largest retailer, decided it wanted a piece of the action in June and announced it was buying Whole Foods for thirteen point seven billion dollars. It is get out of dodge time. I mean this is a threat. I'm taking that numbers everybody who sells food, everyone, because you can't compete. Amazon had been trying for some time to develop a presence in the grocery market. It launched a service called Amazon Fresh, but that was slow

to catch on. A Few experts had been speculating that Amazon might make a giant acquisition to kick start its grocery business, and Whole food has already had the successful delivery partnership with Instacart to build off. The deal sent shockwaves through the eight hundred billion dollar grocery industry. That day when the acquisition was announced, shares of Walmart fell by seven percent and Kroger, one of the largest grocery chains in the US, dropped seventeen For a scene, the

merger of Amazon and Whole Foods was devastating. It would take many millions of dollars to fund and expansion big enough to take on the combined might of instat Cart, Whole Foods, and Amazon. Burpie didn't have access to that kind of money. We realized that it's gonna be very hard to raise and really grow the company the way the scale that we wanted. Once more, a Seam turned

to his mentor a zem for advice. There were multiple other conversations just between that instant Cart and Amazon period where we were kind of discussing if this is the right path to the company and are we going to be able to compete. This was a difficult time for a scene. As CEO, he tried to put on a brave face for his employees, but inside he was harboring a lot of fear and a lot of doubt. Because

sometimes you're on a lonely island. You know you can't say everything to everyone and give your thoughts and everything because you don't want to ruffle feathers or you don't want to create fear in the company or anything like that. Eventually, even though Amazon's acquisition of Whole Foods came in the middle of burkee strategy, shift seem decided he wasn't ready

to give up yet. Okay, hey, Olivia, I can see you again, so guys can see this is the Murpury Market store here in Austin near the airport by Burlison Road. UM At the end of my trip to Austin, a seam asked me to swing by a gas station on my way to the airport. I pulled up to a large convenience store that had a massive orange sign on

the door. It said Burke in big bubble letters. The store is actually branded Burpee Market, and that's kind of been our first store that we've been running a various test and kind of making sure the systems are integrated with the back office and et cetera. Inside, all of the convenience store workers were wearing Burpee branded T shirts.

Seems building a checkout app for convenience stores. It lets customers scan their own items to pay without having to go through a checkout line, so you can order things that you'd find traditionally at an h GB or costco and have those products delivered to you or ready for pickup at the store. So that's convenient for you to pick up on your way home. So it's kind of like a distribution hun for us. As a Seam showed me around, I couldn't help it get the impression that

he was pretty much running the show alone. I asked him what happened to his other co founders. Yeah, so I am the last man standing. The founders gotta either when on their own path with the corporate or side of things, or went on to school for their master's program or something. I seem later acknowledged that not everyone had felt comfortable with the new direction Burpy was taking. As the co founders got older and started families, they

couldn't weather the volatility that comes with startup life. They wanted a sure thing, he said. We predominantly have had worked with a team in India and we've had to are also marketing and business development and also are kind of product management taking care about it in the US. Running Burpie's technical operations out of India makes sense. For a scene. He has strong connections there and the labor

is significantly cheaper. Money is constantly on a scene's mind building a company far from the startup investors in San Francisco. Seam built Burpie with less than two hundred thousand dollars from investors. His main financier was his mentor a scene. You know, at some point you have to understand that, um, you've only raised a certain amount of money, and for you to even think about going up against like the behavements in the space, like Amazon Instancart, you have to

have the capital to do so. After all these setbacks, Seems come to believe that selling Burpy might be the only way to ensure it can survive. For many entrepreneurs, getting acquired by a bigger company isn't a sign of failure, and if the startup is acquired at high valuation, it can create a big windfall for the founders and the investors. Seem has a lot to be proud of, even though he hardly raised any money from outside investors. He says

his company is in solid shape financially. With that two thousand and we've been able to reach cash flows of our sorry revenues of almost four million dollars a year, and I think the amount of money we rasources, the revenue and the cash flow that we've generated from the business is quite significant. But as he looks for a potential buyer, there's no escaping the fact that it seems first choice would have been to keep growing Burpy as an independent company. As we were saying goodbye to each

other in Austin, seemed told me something in interesting. He said he almost applied for a job at Whole Fits, hoping it might put Burke beyond the company's radar. It's a possible acquisition. It was on Awtin Digital Jobs and it was a pretty like it seemed like a senior position, and I almost considered to apply to it because you know, he's like uncertainty of like, you know, it's like that's another way that's chin to pros acquisition is like find a company that has a position that fits kind of

what I've done in the last five years exactly. But until the sale comes through, a Seams plan is to keep going with his new strategy. But I think we really have feet with what we're doing with the communist source of stuff. If you really believe in what you're doing and you haven't lost hope or anything. You'll find a word and that's it for this week's episode of Decrypted. Thanks for listening. Do you have a story about how

Amazon influenced your startup or small business. You can send us a message at Decrypted at bloomberg dot net or find me on Twitter. I'm at Olivia's Aleski and I'm at Akita seven. If you enjoy listening to Decrypted, please recommend us to your friends, and if you haven't already, please take a moment to rate and review our show that helps us find new listeners. This episode was produced by Pia gut Cary, Liz Smith, Magnus Hendrickson and Tob Foreheads.

Fancesca Levi is ahead of Bloomberg Podcast. We'll see you next week. Two