October 2, 2019

Stop Killing Your Plants (#74, Rooted)

by The Pitch

Ryan Lee says he has a better way to buy plants, on his website, Rooted. To conquer the market, Ryan has a big, audacious plan, and this is his very first time pitching it to VCs. Find out if he can convince the investors that money really does grow on trees. 


Today's investors are Nimi Katragadda, Al Doan, Sheel Mohnot and Charles Hudson.

Transcript


ROOTED


Ryan: So who here has ever killed a plant? Or knows someone who’s killed a plant?

[Everyone says yes]

Ryan: That’s pretty much everyone.

Ryan Lee is here to pitch his startup, Rooted. A place to buy plants online.

And Ryan has a plan, but this is the first time he’s presenting that plan to investors. 

One thing that is certain though, today’s founder knows a ton about keeping plants alive. But will the investors find that he knows enough about what it takes to keep a business alive.

From Gimlet, this is The Pitch, I’m Josh Muccio.

Today we’ve got a couple new investors on the show:

I’m Nimi

Nimi is a partner at Box Group, where they’ve invested $100M in over 400 startups. Including one company you may have heard of, Warby Parker.

I’m Al Doan

Al built several ecommerce brands, two of them do over $100m in annual sales. And now he’s an angel investor.

I’m Sheel Mohnot


Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel investor and he’s invested in several companies worth billions today.

I’m Charles Hudson


Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.


Okay, take it away Ryan.


Everyone: Hey!!!

Ryan: So obviously I'm Ryan, cofounder and CEO of Rooted. Uh. But before we just jump straight into this, I'd like us to do something together. Close your eyes for a bit. You'll hear some noises. Nimi, eyes closed!

[laughter]

Ryan: You'll hear some movement happening, but don't worry, you can trust me. I want you to kind of take a deep breath. Exhale. And I want you to visualize your week coming up. Things that you have to do.

Al: What is happening?

Ryan: And I want you to think about those things. How does that make you feel? Does that make you feel happy? Excited? Stressed? Anxious, maybe? And so one more breath. And exhale. And now I'd like you to open your eyes.

Charles: Plants!

Nimi: Wow.

Al: Whoa.

There are plants everywhere! While the investors had their eyes closed. Ryan’s team put succulents on the tables, ferns all over the floor and potted palms along the walls.

Ryan: Now, Al, how are you feeling?

Al: I feel much better.

Ryan: Charles?

Charles: Relaxed.

Ryan: Sheel?

Sheel: Yeah, I feel good.

Ryan: Nimi?

Nimi: Super relaxed.

Ryan: That feeling you're feeling right now is why we started Rooted. We want to bring that to the world. What we are is a direct-to-consumer lifestyle brand focused on connecting wholesale plant nurseries and garden centers directly to consumers. So that everyone can feel just as relaxed and happy as you guys do right now. Uh. So who here has ever killed a plant or knows someone who's killed a plant? 

[Everyone says yes]

Ryan: That’s pretty much everyone. 87% of our customers have very little to no confidence that they can keep a plant alive. You have better odds in Vegas by putting money on black. Truly.

Yeah, I’ve killed a fern or two in my day. But Ryan says he can teach anyone to be a good plant parent and that will make them want to buy more plants! From Rooted of course.

Ryan: Owning a plant is less about decor and it's much more about, What kind of lifestyle do you have? It's more about, Do you travel a lot? As an investor, are you rarely home? Then you probably can't have this plan that requires watering twice a week. You probably need something more hearty like that snake plant that can go two to three weeks without watering. All these questions, we can help build the best customer experience around.

Ryan: So what we have today is we've bootstrapped our way with a team of 11 to $70,000 in revenue. 85% of that…

Sheel: $70,000 total?

Ryan: $75,000 in revenue a month.

Sheel: Month. Okay.

Ryan: Yes. Uh. And 85% of that is offline right now. In terms of retail sales. So we have a store in Williamsburg, And then we do a lot of business services types of arrangements with companies like Facebook and Buzzfeed and Chobani and Nike uh where we do plant installations, rentals and so forth. And we've seen a lot of growth in our online business. And that's the growth strategy of our business and that's what we want to invest in.

Ryan’s here to raise $2 million to grow Rooted’s online sales. And obviously when you sell online, you need a package to ship your stuff.

Ryan: So this is how a customer will be able to unbox their plant.]

He picks up a plain cardboard cylinder, about the length of a yard stick, and pops the top off.

Charles: What?

Sheel: That’s cool. That’s super cool.

Nimi: Cool.

Ryan is pulling a philodendron out of the narrow tube, and as its wide leaves unfurl. It’s almost like it’s blossoming right out of the package

Ryan: This is actually both the shipper but also acts as a...

Charles: Whoa.

Ryan: ...planter and tray.

Sheel: That’s nice.

Ryan: So it’s completely biodegradable. It’s just cardboard.

Al: That’s a thoughtful packaging. 

Charles: It’s like a poster tube.

Ryan: Yeah. And so there’s a lot of, as you can tell, partnership opportunities with this. It’s a great gifting opportunity. It’s social media ready. We think it’s an incredibly fun way to experience plants and see them in a new light.

Sheel: Yeah. That’s cool.

Ryan: And actually the bushier and bigger the plant gets, the more fun that process gets. Because you start having wide foliage like this that just sprawls out of it.

Al: Yeah.

Sheel: I get so many damn bottles of wine for Christmas every year shipped to me from, like, as gifts. Like. I’d rather get that. And it would be cool. It could be corporate branded or something. And like then if somebody else, it’s their corporate brand on my desk, that’s so nice.

Al: That’s kind of genius, man. That’s a great idea.

Sheel: I could imagine corporate being a huge part of the business.

Nimi: Yeah, I was gifted a succulent like that with another firm's logo on it. It’s awesome.

Charles: How are you doing your online sales now? Do you have like a Shopify store or something?

Ryan: Yep. Yeah, we have a Shopify store. Um. And yeah, we have incredible momentum right now. Our total sales have gone up 80% quarter over quarter this year. 

Sheel: Have you tried to size the opportunity at all? Just wondering how you would.

Ryan: Yes. So the lawn and garden industry today in America is $50 billion. And so what we want to do again is connect people and our customers directly to nature, and that’s not just with indoor house plants. We want to give them that green thumb of saying, Hey, if you’re a millennial that isn’t in New York and the Bay Area and LA, you are investing in outdoor space. You have a house. We get texts from our friends all the time being like, Hey, take a picture of the side of my house, like, what do I put here? What can I grow? Uh. We can give them the tools to do that. And they are investing, there are millennials investing in their space. You have 130 million households in the US. Last year, 30% of those were millennials and they bought plants. Right. Like everyone knows that this energy is here, and there’s no trusted brand grabbing it by the horns and innovating in this, you know decades-old industry.

To get his plants to all those millennials, Ryan plans to take orders online, and then partner with local nurseries across the country to fulfill those orders. Which is a genius strategy to instantly create a nationwide business. But if Ryan picks the wrong partners, his business is dead before it even gets off the ground.

Nimi: How do you think about identifying the nurseries that you want to work with?

Ryan: So, one, how we identify the partners is their attention to detail and their quality control. These are wholesale businesses that have aligned their entire decades-long business models around antiquated sales channels like putting things on pen and paper, and still asking you to fax in an order. So what we’re doing is we’re increasing their entire sales cycle to 24/7, 365. So it makes them more than just a springtime business. 

Al: So I'm a little bit worried about the supply chain. The idea that a nursery. The nurseries that I've been to, you throw 100 orders a day at them all of a sudden, and like there's no way they can get that out. They’re just. They function like a mom and pop nursery, and mom and pop are there running the nursery. Do you know what their saturation point would be? Can they handle 100 orders a day? Can they handle?

Ryan: Assuming two items per order, we believe they could do around 300 plants a day, for sure.

Al: Each, each wholesale nursery has that capacity right now?

Ryan: Yeah, if not more. These are huge. They have acres of greenhouse space. You go in there and it's just as far as the eye can see, plants being grown, being watered, being cared for. 

Al: It's, it’s not the growing part that, that I would worry about from a constraint side, it's the shipping out.

Ryan: Yeah, exactly. And so they log into the Shopify app, that is Rooted fulfilment, and they get a picklist of all the orders that have happened in the last 24 hours. And they go and pick them, bring them to the fulfilment station, and we will be able to tell them, hey, this is the packaging that you need to use. And so they grab that packaging, they open that box, they slip the plant in. And then all you have to do is hit schedule my USPS or UPS.

Al: No, I mean for a fulfilment side, it makes sense. But that's still, like if you have one person doing, one person's going to be able to ship what 75 orders a day, if they stood all day and shipped? 

Ryan:  One person can probably ship one of these in, it would probably take 2 minutes. 

Sheel: I'm not worried about that per se. If it scales, he can add more wholesale nurseries. So like I'm not worried.

Ryan: Or employees.

Al: Well, yeah, I mean the idea that you're going to all of a sudden spin up 4 new employees in every wholesale nursery, how are you not worried about that? Like, if you don't own that network to do, I mean, you're just hoping these guys can figure it out.

Sheel: That's how flowers are delivered. Like 1-800-Flowers, they don't, they all go through third parties. So I don't see why this is any different.

Al: Well, maybe, man. Like. I would look at that, I would look at the idea that they've got to maintain the Rooted box inventory in each individual location.

Sheel: Yeah, sure.

Al: And humans to ship that out. And you're not going to overwhelm them with.

Sheel: That argues for smaller, for fewer SKUs.

Ryan: Yeah, no, it's a very valid question. And uh even with that we could help find new hires, uh new contractors or part-time workers. And scale them up as our needs increase. That's not, to me at least, doesn't seem like the biggest problem that we're going to come across.

Al: What is the biggest problem you see?

Ryan: I think customer retention. Solving for that long term and bringing that up to 60 to 70% and not the 15 to 20% that we have right now.

Coming up after the break, How Ryan plans to tackle what he thinks is his biggest problem -- customer retention. Bonus, he says it’s also the thing that will keep people from killing their plants.


BREAK

  

Welcome back. So far Ryan's plan to help millennials find their inner green thumb hinges on his ability to get nurseries to go digital and pick up the pace. 

But there's even more to Ryan's plan than that. Here's Al.

Al: So you mentioned a couple of things that you're doing right now where you've got corporate plants as a service. And then you've got, you've got a retail location, you've got the online ecommerce. You're saying that the direction you want to go is all ecommerce. Do you shut down the retail location? Is that the plan?

Ryan: Uh no, sorry. So the growth driver is the ecommerce portion. Like when we think about what Rooted will be in five years, it's definitely 70% to 80% of the sales Offline is still incredibly important. Right. There is an emotional connection to this. You guys experienced that right now. You want to see it, you want to touch it, you want to smell it. And so retail is actually huge for us. 

Al: Sure.

Ryan: So if you can imagine going into a storefront and it's a full sensory experience.

Nimi: Will you expand beyond the one physical location that you have in Brooklyn?

Ryan: Yes. We’re planning to, we want to raise $2 million, and with some of those funds we want to open up operations in the Bay Area and in Los Angeles.

Al: What is the growth strategy? Is the.

Ryan: The online business. The ecommerce side of our business. 

Al: And that's loose ecommerce, right? Not a subscription? It's like one-off plant ecommerce?

Ryan: Yes. But there's a lot of interesting things we could do around a subscription opportunity. We can sync with local weather APIs. Right, we can say, Hey, there's a heat wave coming through this weekend, so unless you want some butter with those soon to be toasted plants, you better bring ‘em inside. Another thing is we can leverage the aperture and the location from your phone and we can actually tell you what kind of light you have. So if you ever think about, Hey, I would like a plant in my living room, you could open your phone, you can find my plant, and it will actually filter a product list to the plants that you can own.

Whoah, now that sounds cool. But it also sounds like a really different business. On top of all the logistics around shipping and partnering with nurseries and opening up more retail stores, Ryan wants to build an app for that. That is a lot.

But wait, there's more all part of his big strategy for customer retention.

Ryan: We really want to invest in video content, specifically. So I don't know if you guys have watched Tasty and NowThis and some of those quick, quick-hit videos that are 30 seconds to a minute long. And they teach you how to repot a plant, how to not kill a succulent. And we think that that will drive a lot of interest and viewership.  And if we can help you get closer to the I-won't-kill-this-plant, then that in itself is a win and you're going to stick with us.

Al: What is, so you acquire me as a customer. How much are you expecting to spend? And then how long until you're making money on me?

Ryan: Yeah, that's a good question. The first one I cannot accurately answer because we haven't spent any digital acquisition dollars really meaningfully. I know right now our cost of acquisition on Instagram is $45 after a couple thousand dollars of spend.

Al: With $45 spent. We've all been there!

Ryan: But we do have to, all jokes aside, we do have to get very smart and efficient about utilizing those channels because they're only going to increase. And we think that an average LTV probably looks at around three years. And so uh we've calculated that would be around $150.

Al: So the average order size is one plant? Two plants? What am I?

Ryan: Right now it's about two items per order. 

Al: Two items.

Ryan: And it is around, uh, $50.

Al: Okay. Just doing the math in my head here.

Ryan: Yeah.

Al: Yeah. You're waiting a long time to get that money back.

Sheel: So, I um, I really like you. I think you've had such great answers to all of our questions. And like I actually the part that I, of your pitch, that I liked the most was actually showing us this box. I was like, man, that's so cool.

Al: The reveal is strong.

Sheel: The reveal was awesome. And the intro. And I think, I like having plants in my life, personally. For me, there's a lot of your business that I don't understand, and there's a lot of complexity to Al's point and others. You say it's not as much a logistics and shipping company, it's more of a media brand. But actually I think that logistics, nailing logistics is actually really important. And it will become a big part of your business. 

Ryan: Absolutely. 

Sheel: And, um,  just all the complexities around it coupled with my not understanding the customer lifetime value, getting to that $150 makes me a little skeptical. So I'm passing. But I'm going to be a customer. I want to buy that. I need to ship it to friends.

Sheel’s out. But Ryan’s not ready to give up on the other investors in the room. He wants to show them that he's committed to making the logistics work for the independent nurseries.

Ryan: If we can nail that, right, just like Open Table did from the supply side, I think that's something beautiful that nurseries are going to find incredibly valuable. Because on their end, they have no technology supporting their business. We will probably end up building some lightweight ERP software for them.

Sheel: Makes sense.

Ryan: Because they don't track their inventory right now.

Charles: So the last thing you said is the thing I was hoping you would say, which is, the more I listen to your pitch the more I was like, Oh, you need to build, even if you don't go vertically integrate, you need to build software, soup to. And I've invested in a handful of companies, Passport, Shippo, that are all intimately involved with logistics. And ultimately like your customers problems end up being your problem when you're in a logistics business. 

Ryan: Yes.

Charles: And so I think this business is going to become far more software dependent and driven. And so I'm going to pass for now for one specific reason. And I think I need to hear a much bigger story about how you use software to make it super, super easy to have from the time the consumer pushes “buy” that a touchless label and preprinted box shows up at the, at the wholesale florist’s shop. And that you've got a way to track fulfilment rate and like. 

Ryan: There's tons of greenfield opportunity there.

Charles: The downside is you have to build all that stuff. Which means I'd want to know a lot more about the software development roadmap. But if I can get comfortable with that, I would probably revisit my decision.

Ryan: Thank you.

Al: I uh. I think you're on something really interesting. I, uh, I'm excited for you to go and exist and build against that and hopefully you win.

Ryan: You're rooting for us.

[Laughter]

Al: Ha! The one other thing that I, that like causes me a little bit of hesitation is the idea of the customer acquisition piece. Right like. I mean, losing money on your first three even four orders, waiting for that return to come, is a lot of faith in that loyalty of the customer. And so, um, you know, my only suggestion would be like maybe, maybe think of some program or something that ties that in better. An annual subscription that got me four shipments a year. Something that gives me as an investor a little more confidence that you're getting return on that money that's going out the door, would go a long way for me.

Ryan: For sure.

Al: But for now, I'm out also.

Ryan: Totally understood.

Nimi: So torn.                                               

Sheel: It’s all on you, Nimi.

Nimi: Yeah. I’m super torn. Because I love you, and I think the pitch and the story and everything is super compelling. Um. And we’ve actually looked at quite a few plant companies, so I really do think it’s, it’s part of this growing trend. The two things honestly that I’m sort of thinking about the most, so one is it feels like most of the business today is offline. And so making that transition effectively to online is a big change. And my second concern is  around customer retention. 

Ryan: Yeah, for sure. I understand.

Nimi: Um. So I’m very sadly going to pass. But I really may regret this in the future. And I would love to pick up the discussion at some point.

Ryan: Yeah. Absolutely. We can talk about plants anytime!

[Laughter]

Nimi: Yes, I’m very excited to be a customer. Super thrilled.

Ryan walks out, leaving the investors to debrief with the only green in the room -- all of his plants!

Sheel: I like the guy, man.

Nimi: I love him.

Al: Dude the packaging is great. The reveal on that was awesome.

Nimi: Great name. Fantastic name.

Al: The numbers were so tight, though, man.

Sheel: Yeah. It's tough.

Al: That was not thoughtfully priced. I mean, like a three year LTV is great, but you gotta wait three years to earn that money.

Sheel: I don't even buy it that it's gonna happen.

Al: For me, I really felt like he didn't, he wasn't fully appreciating the logistics challenge of building out a network that can fulfil on thousands of orders a day.

Charles: I think you have to understand what problems need to be solved for you to be successful. And I think he understood the need to engage the wholesaler. I don't think he fully appreciated what Al was saying which was to make them work for you efficiently you have to make it really easy for them. And software is the answer for how you make it really easy for them to do that.

Sheel: But I do believe, I believe that he can do it.

Nimi: Totally. I think it’s just a sequencing thing. And you meet him in one-and-half years and he’s done that.

Al: I love the idea of ecommerce for plants. Like, that's right up my alley, right. It’s like bundle the plant, and the pot, and the fertilizer. That’s $150. That’s my starter kit. That’s what I want. We’re going to market that, it’s going to cost us $50 to get that customer, and we make money on it and then they’re in the ecosystem. It’s like, cool. That works. Right.

Sheel: Plant of the month club or whatever.

Charles: Dollar plant club.

Al: We have great ideas for him. We have great ideas for this!

The investors are almost as excited about plants, as Ryan is. They just thought his ideas needed more time to germinate.

When we come back, Ryan basically says the investors are wrong. And all they need to do, is take a look at Uber.


BREAK


Welcome back.

So far we know that the investors think Ryan’s taking on too much with Rooted and that he doesn’t realize how hard that’s going to be. But Ryan thinks the problem with his pitch didn’t have anything to do with his business plan. It was more that he didn’t communicate it right. And - he was nervous. Producer Heather Rogers, caught up with him at a coworking space in Brooklyn.

Ryan: It was all a blur. You know you just, I had my team bring some plants, try to the stage this visual event for the investors. And take it from there.

Heather: Which went really well.

Ryan: Yeah? They liked it?

Heather: In the room they were like, Whoa!

Ryan: Yeah see I don't even remember, remember that reaction because I was just thinking in my head of like, wait, what are you going to do after this moment? What are you going to say versus like actually just being present, and reading the room. I think I just talked about a bunch of topics around the realm of plants and how we were approaching the industry and you know the technology and the media and everything about the process and the packaging. But it wasn’t a cohesive story of a step one through 10 bringing them along with me, I don't think. It was just a lot of, Oh hey, by the way this. Oh yeah, and then that leads me to this about our business. And I think for them it must have been pretty convoluted. I was just like, Blah, blah, blah, blah!

Heather: So had you pitched venture capitalists before?

Ryan: No I hadn't pitched anyone before.

Heather: Really? 

Ryan: Yeah.

Heather: So how many times have you pitched it since you came to the pitch room?

Ryan: Probably a little more than 30. Yeah.

From those 30 + pitches, a few people have expressed interest in investing. But so far no one is willing to lead the round. 

Even though Ryan isn’t seeing the money yet, he isn’t backing down.

His plan for Rooted is just as complex as the day he pitched our investors. So Heather asked him why he’s so committed to tackling so much at once, including the monumental task of bringing mom-and-pop nurseries into the 21st century. 

Ryan: You know we're not talking about anything crazy like adding machine learning or augmented reality or all these buzzwords into their business. It's more about how do we support their existing business today? By giving them just technology solutions and software solutions that everyone else is using in other industries. How do we help prop up.

Heather: That's a huge project. Like that’s a huge project.

Ryan: Yeah. But and no.

Heather: Really? Because this is a thing like the investors were like he doesn't understand how big of a project that is.

Ryan: Mhmm I don't think it's that different from other consumer tech businesses that you think about. Like if you think about even Uber for example. Right. They spin up 10 times the amount of technology and services and tools for the driver sides. Right. Not just that app that you use to call a ride. Same thing for Yelp. Same thing for Open Table. Right. They're always building solutions uh for the supply side.

Heather: But it’s like you're this struggling small startup.

Ryan: We’re not struggling. We’re great!

Heather: No but, it’s like. You like. You got a lot on the table. So like you want to do the media stuff and the tech stuff and the retail stuff you know the bricks and mortar retail stuff. Isn't that too much?

Ryan: Yeah it's a lot for sure. But, you know, building a startup isn't about condensing your, your ideas. It's not about. Building a start it is not about saying I can't do that right. Building and shooting for something great is, Yeah we can we can do that. Why not? And you give it a shot. My point is basically you have to have the entire ecosystem and you have to service it. And build that. And I think with the right team you can you can get there.

Here’s what I think.

Ryan is right, to do what he needs to do he HAS to do all the things. Because just solving one piece of the puzzle isn’t going to turn Rooted into a huge business. But here’s what he’s running into with investors. You’ve got to right-size your business for the stage that you’re in. You can’t shoot for the moon straight away. First, you’ve got to get your plane off the ground at kittyhawk. 

So what you have to do, is find a way to get your first investors to buy into the first part of your plan. Which btw is why venture capital is broken out into stages, first there’s angel investors and pre-seed. Then Seed. And Series A, B, C, and D and on and on, you get the point.

Now some people are lucky enough to draw the advance to Go, collect $200 card. And they get to skip a bunch of the steps. But most of us, have to start at the beginning. 

And as a wise old man named Bob once told me. Don’t despise small beginnings. So there you go. Listen to Bob.



CREDITS

Our show is hosted by me, Josh Muccio. Produced by Heather Rogers and Kareem Maddox. We are edited by Sara Sarasohn and Blythe Terrell.

Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder, Bobby Lord, Peter Leonard, Billy Libby, Haley Shaw and The Muse Maker. We are mixed by Enoch Kim. 

Lisa Muccio planned the recording of this pitch.

And here’s a quick reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

You can follow The Pitch on Spotify or subscribe wherever you get your podcasts. And if you’d like to see what our studio looked like when Ryan filled it to the brim with plants, just tap tap tap on over to our Instagram page @thepitchshow.

Thanks for listening, we’ll see you next week.