Instacart operates in 240 markets across North America and partners with over 200 grocery retailers. We show you its game plan for disrupting a slow-moving business.
Before Instacart became a household name, Max Mullen had to convince investors and grocery stores, traditionally some of the least innovative retailers, to support his dream of creating an on-demand economy for grocery sales.
It was an idea that others had spectacularly failed at (see: Webvan, which filed for bankruptcy protection in 2001, after 3 years in business). But Mullen managed to put a new spin on a failed concept, convincing hundreds of retailers to partner with his fledgling company and elevating it to a $4.2B valuation.
Sam Parr spoke to him about his company’s rise at Hustle Con 2018. Below is a lightly edited transcript of their conversation.
Sam Parr: I’m here with Max Mullen, the co-founder of Instacart, a 5-year-old company that has raised a lot of money and is trying to take on a big market. So Max, I know Lindsey said you guys are worth four avocados.
Max Mullen: Those are some big avocados.
Sam Parr: Yes. So, you’re worth $4 billion. Tell us a little bit about Instacart so everyone knows what it is and where you guys are now.
Max Mullen: Yeah, absolutely. So, if you don’t know about Instacart, we’re an on-demand grocery delivery service. So, you pick your favorite local grocery store, you choose the items that you want delivered and we’ll deliver them in as little as an hour and we started off doing this in San Francisco here in the Bay Area and now we do it in over 200 cities in the US and Canada. We partner with over 240 retailers in those areas and we have a team consisting of about 500 people in our 10 corporate offices and tens of thousands of shoppers that actually do the shopping and delivery of the groceries in the field.
Sam Parr: And I think I heard some stat that you guys have been in 65 million households. Something like that?
Max Mullen: Yeah. So, we have expanded geographically, which is a whole task in and of itself and the zip codes that we are live in now today represent about 65 million American households, which is most people in America.
Sam Parr: Wow. All right. Well, when we first started the conference earlier this morning, I was talking, I actually referenced you, I said how Hustle Con, the idea here is that you can make your dreams become reality and I thought that when you and I talked a couple of weeks ago, one thing that was interesting is that before Instacart, well Instacart has been a smash success in that you guys have only been around for five years or so and you’ve done amazing things, but before that you were not really doing so hot. Can you tell everyone about what you were doing before Instacart?
Max Mullen: Yeah, so Instacart is the second company that I founded and the first company was called Volley. I started in Los Angeles in 2010 and we built a mobile app, a few different versions of that, that connected people socially that had a location component and it had messaging in them and we started that company because we just thought it was a really good idea and we pitched that idea to our friends. We pitched it at a Hackathon and we won that Hackathon and so, all this validation was flowing at us that we should do this. So, we did it. We built the first version of the product, didn’t really know very much about what we were doing frankly, but we built a version of the product and we launched it and sort of nothing happened, including people who were friends of mine who said they wanted us to build it.
Max Mullen: We gave it to them and they didn’t use it and so, the first lesson I took away from that is a difference between asking someone if they’ll use something and putting something in front of them and actually seeing what they do or whether they’ll pay for something.
Sam Parr: And what happened with that company?
Max Mullen: We iterated several more times and realized we really weren’t that passionate about the particular problem we were solving, which was another huge lesson from my first company and we were acquired by a company here in the Bay Area.
Sam Parr: And then a year or two later that brings us to Instacart. We have a photo. Is this your first office?
Max Mullen: Yeah, that’s a picture of our first office in South Park in San Francisco.
Sam Parr: It just looks like a big closet.
Max Mullen: It kind of was a big closet. It’s one room. That’s our second office is across the street from there and is 750 square feet or so and I genuinely looked at that room when we first moved in there and we put four Ikea desks. I built them with my co-founders and we set up shop and it wasn’t full and I was like, “Man, it’s so empty in here. Are we ever going to fill this place up?” I mean, and now we have 60,000 square foot in San Francisco and nine other offices across the country. So, pretty crazy.
Sam Parr: So, tell me about that the first year starting from day zero to about six, 12 months into what happened after that.
Max Mullen: Yeah. So, the first year of the company was really interesting and I think it’s a little bit different than some startups. My co founder had already coded a lot of the app and so, we were launched from day one and we were taking orders from customers and we would fulfill those orders and we would get better and better at doing that. I would ask them what to do differently and they would tell us all kinds of features that they wanted and we would try to build those features and would work a lot on growth and so, in working on growth, we would try just anything we could possibly do to get people to try Instacart for the first time. So, one thing we did is we bought a bunch of ice cream sandwiches and coolers and we hired people from Craigslist to deliver ice cream sandwiches to people if they would place an Instacart order.
Max Mullen: Go to offices and this failed miserably because people would take the ice cream and then do nothing. Another thing we did is we bought traditional advertising, we bought ads on buses or this is an ad on the Chicago Transit System. Instacart, a grocery store on your phone, Instacart.com and we tried to see who would go to our website when these ads were running and nobody did. I think we got six orders from this ad.
Sam Parr: How much was that?
Max Mullen: Thousands of dollars. So, it would’ve been a better way to spend money if we just give people money in order to order.
Sam Parr: That would’ve been a way better idea.
Max Mullen: But we continue trying different ideas and that’s the important part of the story and we eventually found a few that really did work. First one was giving away delivery for free, which we did for a very long time and another one we did was we created a referral program. So, if you are a customer of Instacart and you send a link to your friend, you can give them $10 of free groceries and if they accept it, you get $10 free groceries and we found that people really wanted to share Instacart and they were proud of being a customer and giving them a little bit of an incentive and a little bit of a nudge to do it would mean that they would do it and that customer acquisition strategy is still one of our top performing channels.
Sam Parr: And you are not technical at all, correct?
Max Mullen: I wouldn’t say I’m not technical, but I am not an engineer and I do not do software development full time.
Sam Parr: And so, what was the first 10 or 20 team hires?
Max Mullen: Well, so my two co founders are both engineers and we hired almost all engineers in the beginning of the company and we got very lucky. We hired some really talented individuals who stuck with the company for four or five years. Many of them are still there. So, almost all engineering.
Sam Parr: So, what were you doing?
Max Mullen: I was doing everything else. I was doing all the design work. I was doing all the product management work. I was taking out the trash, I was ordering dinner, I was hiring people, I was doing all the customer service at one point in the company and I was sort of just filling in wherever I could to do whatever I could possibly do at any given moment to move the company forward.
Sam Parr: At this point, you guys hired 20 people by the end of year one?
Max Mullen: We were about 14 people after a little bit more than a year.
Sam Parr: And you’re not profitable. You’d raised some venture capital?
Max Mullen: Yeah, we’d raised a seed round.
Sam Parr: And were you running out by the end of the year?
Max Mullen: Well, you’re always running out of money when you raise VC, right? And that’s why you’re always in the mode of fundraising, but we weren’t running out of money, but we weren’t yet in a groove where we had any assurances that we were going to be growing as fast as we are today.
Sam Parr: So, one thing that I think is interesting. So, everyone knows this, that I’m not technical, but my co-founder actually is and you said that you were doing everything. I do that too. I’ll take out the trash. Just go clean. Just literally anything, but you also did one thing that was super interesting involving Trader Joe’s. So, one interesting thing about Instacart, which I’m sure you could talk about is you guys have, right now you work with a lot of these grocery stores to put their groceries on Instacart and you could order, but early on that wasn’t the case and so, you actually were in charge of getting a lot of the inventory on the website, right?
Max Mullen: Yeah. So, we did not spend a lot of time in the grocery industry before we started this company and so, we did not understand just how important it is where people’s groceries come from. We just thought that we would get them from the closest store and so, in the early days of the company, we did not have partnerships with grocery stores. We would just go into the store and shop like a regular customer and that was cool because we could do it immediately. We didn’t have to ask for permission to do that, but what was bad about that was that we didn’t have good information on what the store actually carried and so, when customers came to us and said, “We want you to work with other stores other than the ones you already have,” we had to get creative in order to get that catalog information.
So, back in the early days of the company, at one point we started going into Trader Joe’s and trying to write down all the information of all the items in the store and take pictures of everything so that we could build a website, right? And they would say, “What are you doing?” And I would say, “Oh, nothing,” and they would say, “Get out of our store.”
So, I got kicked out of there a few times and eventually we came back in and we thought of a better idea and we said to the store manager, “Hey, my name is Max. I’m here to buy one of everything in your store,” and they said, “You’re going to do what with what?” And I said, “I’m going to buy one of everything in your entire store right now.” And we did. And we took pictures of all of it over the course of three days. It takes three days to take 3,000 pictures and we had a catalog after that.
Sam Parr: How much does it cost to buy an entire Trader Joe’s?
Max Mullen: It costs $22,000.
Sam Parr: And so, you told me that you and your girlfriend, I think basically over Christmas break, this was your Christmas break project?
Max Mullen: Yeah, in 2012.
Sam Parr: So, you literally just went and bought one of everything and how many stores did you… So, basically it’s a cart. I mean, you guys were just doing whatever the hell you wanted at the time. I mean, you’re just like, “Look, we need to get inventory on there,” and you really just got to take it in your own hands.
Max Mullen: Well, the way I would say that Sam is the customers wanted something and we wanted to deliver it and so, we would go out of our way to make that happen no matter what it took.
Sam Parr: That’s a lot. That’s a lot better. Yes.
Max Mullen: Yeah. So, we were sitting there in a room writing down the name of every single item and the price and the aisle and it was a spreadsheet with my girlfriend, now my wife and my roommate for three days.
Sam Parr: That’s amazing. So, we’re going to talk about raising money versus bootstrapping soon, but before we get there, getting customers for you guys, it’s a little bit different than a lot of other products because everyone needs groceries. So, there’s got to be users out there who want their groceries delivered. I mean, it’s quite obvious that demand is there, right? But the hard part for then you guys is getting partners so you don’t have to go and take photos of everything at Whole Foods.
Max Mullen: That’s one of the hard parts. Yeah.
Sam Parr: That’s one of many hard parts. Can you explain how a 14 person company that isn’t well known and has never worked in the grocery industry, how you’re able to get meetings with a lot of these big companies because that seems like the key of making this business work?
Max Mullen: Yeah. First, we got incredibly lucky. Second, we hired someone named Neelam, who’s our Chief Business Officer, who’s amazing at business development, but I think even before Neelam joined the company, the strategy we took was we obviously weren’t going to get a meeting with Safeway if we just walked into their office in Pleasanton, California as a 14 person company, but we could get a meeting with our local grocery store with one or two locations and so, we went to Rainbow Grocery and we went to Buy Right Market in the Mission and we sat down with the founders of those companies and we said, “Here’s what we’re all about. Here’s what we do, here’s how we think it could work for you to expand your business,” and they agreed and so, we made partners, made partnerships with some of the smaller stores and then slowly but surely the largest stores took notice of what we were doing and thought it was really interesting and then they would start to reach out to us.
Sam Parr: And you guys just kept doing that for multiple companies?
Max Mullen: Yeah, until we had a really a sophisticated and large business development team across the country and now that team runs those relationships and takes those meetings.
Sam Parr: Got it. Okay. I want to talk about the raising versus bootstrapping thing and I’m getting a lot of tweets about it now and let’s start from the very beginning of even getting money because someone’s asking me about, I mean some of the largest failures during the dot com boom were, I believe it was grocery deliveries, right? Webvan? Is that it? How were you able to convince investors early on that this was an idea worth funding?
Max Mullen: Yeah, that’s a great question and we tried very hard to make it clear that what we were doing was different than the way that companies had approached grocery delivery before. In fact, we had a line in our pitch that said something like, “There have been spectacular failures in this market before, but Instacart is different,” and that was the opening line of our pitch because we knew it was such an elephant in the room and so, we approached it like that. Most investors frankly turned us down for our seed round because of that reason, but eventually we found a partnership with Sequoia Capital, which is a great venture capital firm here and they had invested in Webvan and they had seen what you just said, Sam, which is that the demand would be there if a company could come along with a smarter way of doing it that would have good unit economics and so, the conversation with Sequoia was very different and they decided to partner with us and they funded us in our series A.
Sam Parr: And I mean, I don’t think… Would it even have been possible to bootstrap a company like this?
Max Mullen: It’s a marketplace and in marketplaces it’s very well known that you have to build supply and demand at the same time. You have to build a lot of density in each geography and you also ideally want to be the biggest marketplace so that all the parts of the marketplace get the most value from each other and so, our strategy has always been to grow and to be large and I think there could be other ways to do it, but our strategy has been to raise money to support our growth.
Sam Parr: And then another thing about marketplaces is ideally you need to get there very quickly. So, I don’t remember exactly when Amazon has launched their competitor to you guys and I know that there are already other competitors in different markets. You may be the biggest in San Francisco, but for many people who flew in here, they might have their own version. Do you think that you had to raise money in order to get big very quickly? I mean, how much pressure was it on you to do everything with speed?
Max Mullen: We have a culture of having a high sense of urgency in general, first of all. So, we have a value. We have five company values and one of them is called, “Every minute counts,” which is a little partially about speed and I think it was important to us that we expanded outside of San Francisco quickly because we wanted to show people that the model would work in other places and then once we were in the top 15 or 20 cities, we wanted to expand outward in those cities to show people that would work in suburbs as well because to be the biggest grocery delivery marketplace by far, which we are by the way in America, big time, you have to have the most coverage of anyone and so, we needed to raise money in order to cover more people faster.
Sam Parr: And then comparing you guys to Movement. One thing that they’ve been able to do, I think for a while is be a little bit below the radar because raising money is oftentimes in the tech community, it’s a huge event and it’s like, okay, well if these folks are raising money, then this business… Maybe it’s a signal that something big is going on here, but I guess where I was going with this was, I don’t know how I was phrasing this, but anyway, I wanted to hear about near death moments and just because you’ve raised all this money, does that mean that you’ve been able to avoid some of these near death moments and how has that impacted how you do business? I mean, I know what Jake was saying, he’s like, “Every month we had to make a profit.” You guys, you have a little bit of leeway there, but are there still these near death moments?
Max Mullen: So, earlier in the company when we had raised a lot less money, there was a time where we were growing very fast and then because of a retail relationship went sour, we lost almost half of our business overnight and that was really difficult because all the metrics in the company are set up for hockey stick growth and then suddenly to go completely down in the opposite direction immediately was really hard. Luckily for us, we had raised enough money that that wasn’t going to mean that we weren’t going to be able to make payroll or something like that. So, I feel very fortunate and lucky that we have been able to be good at fundraising as a company, to time the markets well and now having raised over… It’s a billion dollars to have a war chest of money that we can use to invest in our business, build new products and handle anything that comes our way.
Sam Parr: There’s a lot of folks out here who have small businesses and they’re thinking to themselves, “Should I keep doing what I’m doing or should I raise money?” When someone asks you, “What’s your opinion?” Typically, do you have a framework that you tell people on how you should think about this?
Max Mullen: Yeah, it’s really a difficult question to answer without knowing more because you shouldn’t raise money if you’re starting a company for the wrong reason and you shouldn’t raise money with the intention of using it for the wrong things, right? So, what I’m talking about is scaling too fast and I think it’s a great time to raise money when you have a really clear idea of what you’re building and really good signs that customers want that thing and where you couldn’t build the business without raising the money.
Sam Parr: Great. I’m getting a lot of questions from you guys. That’s great. I’m going to start peeking through him. One thing that people have repeatedly asked is everyone is using the word Amazon. They’re saying-
Max Mullen: What?
Sam Parr: Lots of questions about what are you going to do with Amazon buying Whole Foods? And how’s that going to impact you or how are you going to beat Amazon? Earlier today when I mentioned, I said I had mentioned you when we were starting the company or starting the conference, I said how you guys are competing quite nicely with one of the top five largest companies in the whole world and so, I’m still getting a lot of tweets about that. Can you talk a little bit about how it is to compete with someone like Amazon?
Max Mullen: Yeah. So, it’s been a year since Amazon bought Whole Foods and we’re still around and we’re thriving. The grocery industry has gone through a tremendous amount of change and this is just one of the great signs of the change there and what it has meant for us as a company designed to partner with and help retailers come online, it has meant a tremendous opportunity. I mean, we’ve deepened and broadened our partnerships with all the grocers we work with in the last year and we’ve signed a bunch of new grocery partners. So, the industry dynamics are actually in our favor and moreover, the customer demand grows and grows every year, right? People are getting more and more used to and excited about pushing a button and getting their groceries delivered in an hour and so, that’s been good for us.
Sam Parr: So, do you think that you guys can both win?
Max Mullen: I think that it’s a very large market. It’s a $700 billion market just for grocery sales in the US and we do things even beyond just deliver groceries, right? We work with pet stores and we work with Sur La Table, which is a store that sells kitchen supplies, right? So, the market is even bigger than that and so, I think with that amount of space in a growing market, there’s plenty of room.
Sam Parr: So, you’ve told me before how you have a really great board of directors and how they’ve helped you, but one thing that when you do raise $1 billion, that means that your company, it’s definitely not a sole proprietorship. It’s not the mack show. You can’t do whatever you want. You have-
Max Mullen: I might differ with you on that, but yeah, we did that deliberately as I mentioned because we wanted to have the flexibility to operate in the way we want to operate our business, but the flip side of that is when you raise money, any amount of money, you have an obligation to a new group of stakeholders called investors that own some of the stock of your company and you have to listen to them and you have to do right by them because they’re investing in you to make money too and it takes away some of your options, right? It takes away the option of just staying private forever and never selling the company and just making a bigger and bigger business. So, it’s a kind of different business.
Sam Parr: And so, did you have to do certain things? Did you have a certain strategy in order to retain control? I mean, do you actually have that fear that you-
Max Mullen: No, I think that’s a myth of Silicon Valley and I think if you’re working with good people that you’ve picked specifically for their expertise in an area and you have trust in each other, that’s a nonissue.
Sam Parr: So, you’re not worried about it at all?
Max Mullen: Nope.
Sam Parr: Okay. Let’s see. Yeah, man.
Max Mullen: I have a question for you, Sam. What does it mean to you to hustle?
Sam Parr: For me, hustling means… It’s a verb. It’s when you set very ambitious goals and it’s the actions that you take to achieve them.
Max Mullen: I like that.
Sam Parr: That’s how I define it. What about you?
Max Mullen: I think that we, at Instacart, we hustle. We don’t use that word.
Sam Parr: It’s on your mission.
Max Mullen: There’s our five company values. Yeah. We don’t use that word, but there is a little bit of hustle in this value we call, “Every minute counts,” and every minute counts is about making the most of our time together and asking the question, “Is this the fastest way you can do something?” Because in a startup, you’re trying to grow and you’re trying to do a bajillion things with limited resources and so, if you take your time on everything, you’ll just move slower than the next guys and that can hurt you as a company, especially when you’re small.
Max Mullen: So, our way of hustling is to talk about every minute counts and also maybe I’ll talk about one of our other values called, “This is your baby.” So, you didn’t say it, but part of hustling is doing it, right? Making sure it gets done and that’s ownership and we really believe in ownership at the company and we hire people against that value called, “This is your baby.” Meaning, if you’re going to do something, you better be willing to put your name on it and you better be willing to fully own it and see it through. So, we value those two things in the people that work at the company. Sense of urgency and ownership.
Sam Parr: So, then as a company that has a value of sense of urgency, yet you’re dealing… It’s not a media company where you can go in and edit an article after you’ve already published it. I mean, this is someone’s groceries. This is very important. You have to be timely and you can’t screw up on the first time. How do you balance having a sense of urgency in launching things very quickly, even before you’re not certain if it’s ready and trying to keep a customer happy and not ruining someone’s birthday party for not having their cake delivered on time?
Max Mullen: It’s a very good question. I mean, it is the question because we have to balance speed and quality and care for the customer and we didn’t set this up, but the very first value of the company is called, “Solve for the customer,” and it’s the first value because it’s even more important than speed and some of the other values. What it means is that we need to make decisions that benefit our customers, the people who are paying us money to have their groceries delivered and if we forget that, if we ever slip on that, we’ll be a worse company for it because those people are the ones creating our marketplace, which creates jobs for shoppers, which creates sales for retailers, which creates opportunities for our advertisers to partner with us, to advertise and so, it all starts with customers and we consider them first when we think about the way we build our business.
Sam Parr: Got it. I’m going to ask two more of these tweets, but the first one is… Is it called, “Of course?” I’m struggling to see it. Is it, “Of course, but-
Max Mullen: Maybe.
Sam Parr: Yes. Exactly. Explain what that is.
Max Mullen: Of course, but maybe. Of course you could just dream this conference and you wouldn’t need 2000 people to come here to Oakland in person and do it all live, but maybe bringing them together is actually a much better and bigger idea and if you do it, you can call it Hustle Con. It can be amazing. So, of course, but maybe is a framework for thinking big and outside of the box and for making sure we don’t do things just because it’s just the way they’ve always been done, but then we actually invent new things and invent the future and we solve problems that have never been solved before ever in our business, right? People think, “Oh cool, it’s an app and you deliver groceries.” So, I push the button and it goes to the shopper. Very simple.
Max Mullen: Uh-uh (negative) . There’s a team of… This is a real thing. There’s a team of about 50 people in our office of the 250 people in our office that all they do is take data that comes in from our retailers and run a bunch of sophisticated processes on it and then apply our grocery catalog, which is the largest and best grocery catalog in the world to that data so that you as a customer can see perfect images, nutrition facts, the right price and the right availability of hundreds of millions of grocery items across the country in real time and that’s an incredibly hard problem solved in an incredibly novel way that no other company is even close to having solved and that’s because of the spirit of this value.
Sam Parr: Got it. Okay. Last question that I’ve gotten asked many times during this talk, which is how did you get that Twitter handle-
Max Mullen: Of all the things you could ask me on this slide, it’s a funny story. So, I had another Twitter handle and I thought, “Hey, it’d be really cool to have at Max,” and this was five years ago or something and so, I just tweeted at the person who had it and I asked her for it because she wasn’t using it and she was a lovely woman named Max in Washington, DC and she gave it to me.
Sam Parr: Wonderful.
Max Mullen: You don’t get what you don’t ask for.
Sam Parr: Well look, we have a crowd of entrepreneurial folks from all over the country. Is there any last words that you think they should know about how you’ve been able to make this happen and and things that you wish you knew when you were just getting the business started?
Max Mullen: Yeah, absolutely. I would tell you make sure you’re passionate about what you’re working on and make sure you’re passionate about your job or if you’re starting a company, make sure you’re passionate about the problem that you’re solving because it isn’t going to be easy, it isn’t going to be simple. It isn’t going to be straight forward and there are going to be moments when you almost don’t make payroll or you have a huge problem and don’t know how to solve it or the first version of your product doesn’t work out and that is the moment that will test whether you’re actually passionate about what you’re doing or not and if you’re passionate about it, you will push through and you’ll be tenacious and if you’re not passionate about it, you will give up and so, in my first company, we effectively were not passionate enough and my second company, I’m extremely passionate and that is really the key to giving you this strength and motivation to keep going.
And I’ll say a second thing, which is as you’re choosing that problem to solve, you got to talk to customers and we as humans… We’re wired to assume what we think is going on and then do what we think is right. That is the wrong strategy. Just stop and listen to people who use your product. Stop and listen and talk to customers and sometimes just listen to customers talking to each other and just gather as much real actual ground truth data on your customers and what they want and that will help you figure out what to build. Whatever you think it is in the first iteration, it’s almost certainly the wrong version of your product and only by listening to customers in a scalable way will you actually find what’s a real problem and then the real solution on how to solve it.