on Apr 3 2016
Matthew and I were both working 14 hour days at corporate jobs. We’d walk into the snack pantry to find it lined with processed food when all we wanted was a healthy snack. We didn’t have time to go to the store, buy good ingredients and put together something good for the body. Staying healthy became a huge pain point for me - so much so that I couldn’t physically manage the 2 hours per week to shop for ingredients and blend my own smoothies.
We did have Keurig machines in the office though - which make it super easy to make a cup of coffee. To solve our pain, Matthew and I got together and hatched the idea to adopt the Keurig model for healthy filling smoothies. Our plan was to package everything from the long arduous grocery store trip into one easy-to-make smoothie cup.
There are many healthy snacks out there - but most aren’t universally liked. Kale chips, bleh. We wanted a fun convenient vehicle for fruits and vegetables. Who says, “no” to a smoothie?
We live in the 21st century and the most convenient food options have likely been living in a warehouse for over a year!? Yet hundreds of years ago people were gathering fruits and vegetables from nature and eating them on the spot. Why now, at the most advanced period in human history do we have to work so hard to eat healthy? We’re not dedicating our lives to smoothies - we’re dedicating our lives to make the natural, the healthy as easy as the push of a button.
Personally, I had always thought I wanted to be a doctor, it’s a good feeling to help people. As I got older, I realized the massive amount of people you could affect with good product. Simultaneously I came to understand just how important food is for our health - we are what we eat. By helping people eat healthy foods more conveniently, and using technology to magnify this effect, I realized I could help more people than I had ever previously believed.
We didn’t create this company for the affluent tech-savvy health nuts of the world - although they’ll be good customers. We really created this for the people in food deserts without access to fresh produce and healthy food. Healthy eating is hard for most people - it’s way easier to grab a candy bar than make a salad and Whole Foods is expensive compared to processed foods. With LivBlends we want to make healthy eating accessible and affordable for everyone.
The LivBlends machine is a self-cleaning blender that takes prepackaged fruit/vegetables cups and produces ready-to-drink smoothies. In the future we plan to add all sorts of blended food like soup, dips, pasta sauce, baby food, etc.
To build the LivBlends machine we started by establishing this is actually something people want. We knew we wanted it - but had to prove that others did too. Without a prototype to show off, we set up pop up smoothie giveaways in office buildings. First they were free and we soon had a recurring base of customers that would come everyday. Payment was time consuming for us and busy office folks - so we quickly introduced a subscription model for smoothies. We had a fanbase in short order which we used to leverage a few companies to provide LivBlends in their offices. Uber was an early client and many more tech companies, law firms, marketing agencies, and architecture firms have signed up as smoothie subscribers in the last year.
This is definitely broader than just wealthy tech companies. For example, we’re working on a model so people can pay out-of-pocket for individual smoothies. We have pilots starting in independent gyms where it’s natural that customers want a protein smoothie after their workout.
We get this question all the time. The short answer is: customers love smoothies for so many reasons. For some, it’s a treat - like Jamba Juice - occasionally they’ll grab an afternoon smoothie. For some, smoothies are breakfast 7 days a week 365 days a year. For most, smoothies are an excellent compliment to any meal - a thirst quenching side dish of your daily vegetables and fruits. There is rarely an occasion when someone would turn down a smoothie. LivBlends is demanded daily by a variety of consumers.
There are so many different verticals we can go after. Our first sweet spot is the small, medium size office of 10-100 people. There are about 1.1M offices in the U.S. in that range. Analysis of our early customers through our ready-to-drink line suggests that we can reach ~20% penetration in any given office - 20% of employees use LivBlends once / day. If we multiply 1.1M offices * average office size of 50 employees * 20% daily penetration * $2.99 cup revenue * 250 workdays, we get a $8.2B addressable market. It’s key to realize that people treat smoothies as a semi-meal replacement.
Offices are only the beginning. Other B2B verticals include: gyms, convenience stores, hotels, malls, airports, etc. The second phase of the company is building a consumer machine that can sit on any kitchen counter.
Before Keurig, single serve coffee didn’t exist - buying individual pods and making single cups was completely foreign. Thankfully now they’re everywhere and consumers have been trained to enjoy the single serve model which makes adoption a whole lot easier for us.
Keurig had a similar go-to-market strategy as us. They started with local offices, then regional distributors before taking it to offices all over the country. Before too long people wanted to bring the Keurig home and they rolled out distribution to brick and mortar stores. Interestingly, they were 4th to market with the consumer machine, but leveraged the brand awareness they built in the office space to win in the consumer market.
We’ve learned a lot from their strategy and are lucky enough that they paved the single-serve-way. But coffee is limiting - LivBlends is about a much larger movement to make healthy food as easy as one button and 45 seconds.
Our current beta machine is the real thing - it’s 100% automatic. The only hurdle we have left for mass B2B production is reliability. The machines must be able to withstand months of high traffic use in the busiest offices without service before we can product them at scale. Our engineers are heads down on this problem and once we beef up reliability just a little bit we’ll be ready to ship.
We spent 2.5 years designing and prototyping. Then this last year perfecting reliability. We couldn’t be more excited because we’re finally designing for manufacturing and production at scale. These next few months are a big inflection point for us.
An automatic smoothie machine small enough to fit in any office or home kitchen - requires a surprising amount of proprietary tech. We’ve already filed three provisional patents. The hardest problem was building a self cleaning machine, user after user the machine needs to be clean and ready to make another smoothie of any flavor. We also had to design a cup that could double as the blending container. Turbulence and spinning blades have a tendency to break cups and for this to work our cups can never break. It took us a while to design a cup that reverses the flow back towards the blades to not only preserve cup integrity but also ensure a well blended smoothie.
We’re well past 90% at this point - the last few iterations are just tuning to ensure the blender can make thousands of smoothies without a hitch. We’ve identified the riskiest sub-systems in the machine and have hit 10,000 - 50,000 cycles without error.
Our quality bar is that every machine must be able to go at least two months without service. We’re always measuring our production timeline and right now we’re approximately 5 months away from that milestone.
We’ve positioned ourselves as a wellness service and charge offices and gyms a monthly fee to handle everything. This fee includes the machine, the freezer, maintenance, marketing materials for employees or members, and a specific number of smoothie cups delivered fresh each week.
Customers pay $2.99-$3.99 per 8 ounce serving. At those prices our gross profit margin averages 60% which includes the delivery cost of our frozen smoothie pods. At scale we’ll be able to drop prices to ~$1.49 per smoothie to make the healthy food even more accessible.
Companies can choose to subsidize 100% of this cost, or adopt a hybrid model where they charge their employees a percentage of the total. We’re completely flexible and work with each commercial client on a case-by-case basis.
We’re already signing up distributors with their own service and delivery teams all around the country. These companies do something similar for a variety of other companies. They’re used to this type of arrangement and will handle everything after we make the sale. All the infrastructure is there ready to help us scale.
The standard shelf life for any frozen product at the grocery store is 6-18 months. Our packaging has a stronger oxygen barrier and our pods are vacuum sealed. They should have a shelf life close to 18 months.
We’re not even in the same boat. Naked and Odwalla are dead food - they pasteurize their juice at 400 degrees effectively killing all the living organisms so nothing nutritious remains. LivBlends is much closer to a hyper-fresh smoothie made to order. We’re even better than Jamba Juice, which is typically made from fruit purees.
Our ingredients are actually fresher than fruit and vegetables you’ll find at the grocery store. Everything in the produce aisle is picked months early so it ripens in transit - bananas are picked green, 90 days early. Our suppliers pick our fruit at its ripest and immediately freeze it right there, usually within a 4 hour driving radius. The freezing is a natural way to pause aging and we then deliver it right to your office or gym.
We do target a similar market as Naked, Odwalla, and Jamba Juice. Consumers are generally much more health conscious than they’ve ever been. They want transparency, they want to stay away from processed, they want natural. We’re much better for you than any of this competition. We’ve capitalizing on this difference and educating consumers about the benefits of LivBlends.
The most important thing we’ve found is that people see LivBlends as something functional and everyday rather than a treat like Froyo. They see us solving a problem and we agree.
To ensure this remains the case we’ve released a number of functional cup lines like a protein line, a healthy frappuccino line, and a green line. Consumers can drink their protein, skip Starbucks for something with much less sugar, or sip on their daily salad.
We’ve also collected a lot of data to learn more about what demand looks like in different verticals, how many people repeat after trying LivBlends, which pods that are most popular, etc. We’ve actually had a few customers complain that the machine is too slow after seeing people line up in the morning. So we’ve been working to make the machine faster. Generally we’re monitoring demand on all our machines and compiling data on what works, what doesn’t, and what we need to improve.
During trials (when the lines were stacking up) our blend time was ~105 seconds. Since then we’ve cut that time in half to 53 seconds. Customer research suggests that 1 minute is the threshold for most people’s patience - like typical microwave usage. To ensure no customer is ever impatient with the LivBlends machine our ultimate goal is to produce a smoothie in 30 seconds.
Juicero makes a similar device focused on blended juice. You throw in a little juice pouch and it squeezes out some ‘fresh’ juice. We hear they’re launching by the end of the year. But juice isn’t a meal of any sort - it quenches your thirst rather than your hunger.
Other indirect competition are substitutes for smoothies. The other snacks in your pantry like yogurt, chips, candy bars, granola bars, etc.
We model our early numbers on the established Ready-to-Drink business. It costs us $300 to acquire new commercial customers. Assuming 30 cups of consumption per day at our subscription machines we would average $1,000 in gross profit per month per machine. The machines cost us ~$1,500 to make so our payback period would be less than 2 months.
Really our potential customers have up to 500 employees. As they get bigger than that, they either hire a full time staff to make beverages in house or they start to spend less per employee. Once we can prove that we’re actually cheaper than full time staff and much less expensive than juices or other healthy options then companies like Google will certainly be potential customers.
We’ve found a unique position in the office place. Employees are desperately seeking healthy snack options at work and right now we’re the only fresh option. When faced with granola, almonds, the rare piece of fresh fruit, we’ve found that they’ll always choose LivBlends first.
Also, healthy food isn’t a treat. It’s a daily necessity for a growing number of people. Occasionally consumers will treat themselves to an Oreo smoothie, but they need to eat their fruits and vegetables everyday. The demand for healthy options is recurring like nothing else in the food industry.
With very little marketing, we’ve established a brand synonymous with healthy. We don’t even provide a large flavor choice with our Ready-to-Drink smoothies, but often have them all run out when delivered. All our consumers care about is nutrition. We promise that and our customers are happy getting a random smoothie flavor because they trust it’s delicious and good for them.
Elise and I are co-founders. I (Matthew) studied engineering at MIT. Before jumping into a startup I spent time at The Boston Consulting (BCG) in Asia to learn how to think about businesses analytically . Elise grew up in Brazil and studied finance in school. She then spent several years after school in investment banking and private equity at The Carlyle Group. We met when she was at Harvard Business School.
Now the team has grown to ten stellar people. Half engineers, half sales and marketing. The engineers are all from, MIT, Harvard, Apple and Boeing.
The biggest worry we have is getting the machine through the manufacturing process. We’ve been leveraging as many experienced engineers to succeed in this. When it comes to product market fit, we’ve been seeing overwhelming feedback from distributors and early users who want the machine.
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