Where Are They Now? Episode 5

Where Are They Now? Episode 5

Episode 5: Foxtrot

May 13, 2021

Foxtrot cofounder and CEO Mike LaVitola, MBA ’14, has become expert at hearing “no.” He was not initially accepted into the New Venture Challenge, and after he talked his way in, his team did not make the finals. Despite steady revenue, it took years to put together a seed round.

But LaVitola remained committed to his idea of a reimagined convenience store, with curated locally-made products that could be ordered online for delivery on demand.

The ecommerce model soon evolved to include physical stores after Foxtrot’s first distribution warehouse, in the West Loop, became a community gathering place and organic marketing for the brand.

“People were in and having an espresso in the morning and taking meetings there and grabbing wine after work, and it just became this total embodiment for the brand,” LaVitola said.

Chicago-based Foxtrot in February announced a $45 million Series B round. It has eight stores in Chicago, two in Dallas and two in Washington, DC, with plans to double its store count this year. It is also recently launched nationwide shipping.

In this episode, LaVitola speaks with Waverly Deutsch, a professor of entrepreneurship at Chicago Booth and academic director of University-wide entrepreneurship content. She was on the committee that initially rejected Foxtrot’s NVC application.

Listen now on Apple, Spotify, Overcast, or wherever you get your podcasts.

Transcript

Mike LaVitola:

Entrepreneurship is just being told no and figuring out what you’re going to do about it. So I was convinced that there was really something here and then I would build it anyway regardless of whether we could get into NVC because the resources are right there. So we never focused on making the finals, we were really focused on, is there a real opportunity? Is there a real business? And what is the key milestone to prove next? We have a unique opportunity to get access to a lot of really great people. How do we make the most of that in this compressed timeframe?

Colin Keeley:

Hello, and welcome to the Polsky Center’s Where Are They Now? Podcast. I’m Colin Keeley. And we catch up with founders from Chicago Booth’s New Venture Challenge on this show. Join us as we dive into their entrepreneurial journeys, get a look at the stories and struggles behind their success. This week, we have Mike LaVitola interviewed by Waverly Deutsch. Mike is the CEO and founder of Foxtrot, a first-of-its-kind retailer blending on-demand mobile delivery with beautifully designed brick and mortar stores. They deliver a curated shopping experience of craft beer, wines, spirits, eats, gifts, and everyday essentials. Waverly Deutsch is a professor at Chicago Booth and academic director of university-wide entrepreneurship content. As a full-time coach for the New Venture Challenge, Waverly is well known for delivering brutally accurate feedback and storytelling that has come up in just about every episode of this podcast. Without further ado. Here’s Mike LaVitola and Waverly Deutsch.

Waverly Deutsch:

Hey, it’s really good to see you again.

Mike LaVitola:

So great to see you.

Waverly Deutsch:

How have things been for you and Foxtrot during this COVID period?

Mike LaVitola:

Things have been up and down and all around like I think for many of us. From a business perspective, I think one of the [inaudible] to pivot the business to be really relevant to consumers, which is great. And so we’ve just been spending so much of our time making sure that we’re taking care of the employees and hiring folks and really thinking through how can we be the best actors for ourselves and the folks across the supply chain too.

Waverly Deutsch:

I’m going to take a step back before we explore what your business is that’s done so well during COVID and ask you to talk a little bit about yourself. Where are you from and what was your life’s journey to this entrepreneurship thing?

Mike LaVitola:

Sure. I grew up in the suburbs of Chicago in a big Italian family. I’m the oldest of six boys. Parents really wanted a girl and they didn’t quite get it, but they thought six was enough, they saw the pattern coming. Grew up in the North suburbs and went to Illinois for undergrad, which was great, down in Champaign. And then ended up doing investment banking after college down in Austin, Texas. I graduated in 2009, which is a great time to find an investment banking job.

Waverly Deutsch:

Oh, perfect.

Mike LaVitola:

Perfect time, but it all worked out and I was working in these large public-private partnership transactions, so roads and bridges, and sports stadiums, and high-speed rail. So banking, but in the context of the real-world projects, which is really, really interesting. I did that down in Austin for a couple of years and then thought it was time to apply to business school and was just thrilled that the University of Chicago decided that I would be able to attend. So clearly, that was my number one choice and it brought me back to Chicago. So knowing that was the case, I went into business school knowing that I wanted to get back into private equity.

Mike LaVitola:

I’d done internships in private equity and there was a new firm starting here in Chicago focusing on those, really the traditional Midwestern private equity focus. So buying and fixing up old line manufacturers across the Midwest. And it was started by a couple of relatively young guys at the time. That’s what I spent my summer leading into business school doing. I was their first employee, I was their first intern, and it was really everything I wanted. It was this really exciting world of private equity, but I was their first employee and I was getting in early and had married my entrepreneurial desire without having to actually take big, big, giant risks.

Mike LaVitola:

I went into the full-time program at Booth, interning for them and then intending to get a great education at UFC.

Waverly Deutsch:

And joined a private equity firm, which leads you to launching Foxtrot. How did that happen?

Mike LaVitola:

So how did I take a hard right turn into the convenience store world? I started school and fell in love with the classes, but again, also felt really fortunate that I had landed the, at least internship that I’d wanted to at the private equity firm. And so I had all this time to start kicking around ideas, and what better place to do that than at Booth? There’s so many interesting people and folks who had careers in marketing and CPG and startups, in just all over the place. And I kept coming back to this trend that we were seeing, which was, this being six, seven years ago, everything moving mobile. And there was so much innovation in the food and beverage space, but in the delivery side, it seemed like everything was either going towards restaurant delivery.

Mike LaVitola:

Grubhub and Seamless and the various companies at the deck were on the other end of the spectrum grocery delivery. Instacart was just getting its foothold, there’s rumblings of Amazon getting into it. And to me, it left this big white space in the middle around convenience. And so as someone who was, I think, I was 25 at the time and single and living in the middle of River North, I was doing all of my shopping at these crummy little convenience stores. And there was just such a disconnect to me between… Chicago is such a great city, amazing neighborhoods all over the place, and no matter where you went, the thing at the main corner of each of these diverse, interesting neighborhoods is this depressing generic corner store, which spoke nothing to the neighborhoods that they were in.

Mike LaVitola:

And at the same time, there was just all this amazing product throughout the city in terms of great locally roasted coffee and these amazing craft brewers and bakeries, and there just was no natural home for these kinds of everyday convenience goods and certainly, not online. And so that was the initial idea behind the company was, could the big guy, 7-11 or whoever had figured out broadly which categories drive frequency. So you think about beverages in the morning and snacks in the mid-day. Could we go in and re-merchandise those categories with products that we loved and with a really heavy tilt towards local to give those businesses a platform and delivered on demand?

Mike LaVitola:

And so that was the first iteration of the company, which was this under-an-hour delivery service of our dream basket of everyday goods.

Waverly Deutsch:

Coming from a banking and PE background, it sounds like an awfully academic idea. So why couldn’t we have convenience store delivery? It doesn’t sound necessarily like a traditional entrepreneurs path of living in a particular world, then identifying a problem in that particular world, sounds like you sat in a conference room and tried to come up with a great idea.

Mike LaVitola:

I would actually beg to differ. The founded thing was, I love these products and I didn’t know where I could get them. And so like a city like Chicago, again, there’s new breweries popping up all the time, and I feel like my friends were generally cool enough to know that we should be drinking craft beer, but that’s where it stopped. So who’s actually making the best stuff? And when does it come out? Why should I be trying to drink a saison in this season and porter and another one? And so I felt like there was all these consumers like us out there who knew hard kombucha is the trend, we should be getting into it, but where do you even start?

Mike LaVitola:

And so there is this problem of access to the goods because they were hard to find, but then also the education behind them. And to do that in retail, we thought it was really, really hard, but to do that online, especially in an app environment, that’s such a perfect place to elevate that content and interview the makers and really bring a lot of education to these new and emerging trends. And so the first version of the company or the company that we had hoped to start was, how do I find enough credible people to show us the way on all these new, interesting items across the categories that we’re shopping the most every day, because the default is all right, I’ll go down to the Bodega and buy the same Bud Light that I always buy, but that feels disingenuous when there’s all these amazing products around us.

Waverly Deutsch:

Oh, I should have known it was a graduate student needing beer type of problem.

Mike LaVitola:

That’s the most important.

Waverly Deutsch:

Most important. So you had this idea and you had this opportunity to explore this idea because you were in business school, what was your next step with it?

Mike LaVitola:

I just kept kick testing this and trying to figure out, why no one had done it? Because delivery of these items didn’t seem like… It seemed like such an obvious idea that if it was possible, someone would have done it. And so the first tranche of this was getting really into the weeds on the legal side and figuring out like, is alcohol delivery illegal? How do you set up wholesale relationships? Can you deliver things from local bakeries or is there some set of regulations that I don’t know about that everyone else knows about and that’s why no one’s doing it? And we beat on enough doors to figure out, it’s pretty murky, but it’s definitely allowed, but you just have to do it in the right sort of framework.

Mike LaVitola:

And no one had thought about doing it on the internet yet, which just sounded crazy to me. And so as we thought about, “All right, well, if it’s legally possible and it seems like there’s a clear consumer need, how do you actually stand this up to figure out if it’s a real business or not?” And that was the winter of my first year, which led into NVC. So I did what anyone in Booth with a great idea does, and I wrote this, what I thought was super great NVC proposal, and I submitted it, and then was flatly rejected. So I think that was step number one in the entrepreneurial journey was, “All right, this is a great idea. We’re going to take it through NVC.” You don’t get into NVC, now what?

Waverly Deutsch:

Yeah, I was one of the professors on the committee when the feedback came in on your feasibility summary and we looked at it and we said, “These guys have done a lot of academic work and they’ve done all kinds of modeling, but they haven’t really gotten out there into the market, they haven’t really thought about the operations, this can’t possibly work, we’ll let them take another crack at it for next year.” So after we roundly rejected you, what did you do?

Mike LaVitola:

That’s really been a theme up until like last month and last week. Entrepreneurship is just being told no and figuring out what you’re going to do about it. By this time, I was convinced that there was really something here and that I would build it anyway, regardless of whether we could get into NVC, but it seems silly to not just do everything we could to get in because, like, the resources are right there. So I think I convinced Prof. Kaplan to sit down for 30 minutes and hear out why we thought this was a good idea, but I think more so just that we were really committed to it, and I think that’s what ultimately allowed us to enter the program, was he saw that we were serious about it and this wasn’t just…

Mike LaVitola:

It was probably very easy to dismiss dude-wants-beer delivery app. There was a lot more behind it, a lot more soul behind it, I think. And after he heard that, “Look, we were doing this come hell or high water,” something clicked and we were fortunately able to join the class.

Waverly Deutsch:

So absolutely persistence and overcoming obstacles, big part of entrepreneurship. NVC was an early example of that for you. What did going through the NVC do for your business?

Mike LaVitola:

It’s a great forcing mechanism. One of the blessings of being at a great business school is you’re just afforded an unbelievable amount of opportunities, and so in terms of internships, companies wanting to interview you, all of these great things. If you’re really going to go down this path, you’re saying no to a lot of guaranteed opportunities, and I think the NVC almost overcompensates in a way to say, “Hey, this is going to be really hard. Your idea is really dumb. Here’s why it’s not going to work.” Here are 20 people telling you things you’ve never thought about of obstacles that you don’t even know about yet, and you come out the other side of it being like, “All right. Yeah, you’re right. That seems like a mess. I’m just going to do the safe thing,” or emboldened by it and said, “You know what, I took this three months of feedback. I still think there’s a real market here.” And then taking that next risk, which is, “All right, we’re going to go build this thing.”

Mike LaVitola:

So we enter an NVC really with just a PowerPoint, which I don’t think you can even do anymore, but it really was just an idea and we came out of it completely transformed. So what’s been interesting about this company, I think is… The vision I had then is literally almost the exact same vision I have now, but the operations behind it are what change all the time and how you actually actualize it. And so again, entered NVC with the PowerPoint, left with renewed conviction around the idea.

Mike LaVitola:

The first version of the business was delivering on the convenience store. So I’d found somewhere to source the products, I had found someone to deliver the products, and then I’d also renewed a friendship with my co-founder and CTO, Taylor, to actually build the digital version of it. And so if you think about making all that progress in three months, I know there’s no way I would’ve done that on my own.

Waverly Deutsch:

Did you win NVC of the year you went through?

Mike LaVitola:

Win? I don’t think we even sniffed the finals, but it was not the point.Iit was really a, as I say, a forcing mechanism to figure out, like, are you serious about this? Is this a real idea? And should you take the next step?

Waverly Deutsch:

I always say to my students, winning the NVC is actually creating a company that’s successful and goes out and scales. So in my mind, you won the NVC, but you’re right, you didn’t even make the finals that year. Just goes to show you how we are at picking them. What would you say to the teams that are going through the NVC who don’t make the finals?

Mike LaVitola:

I don’t know if this is the wrong thing to say. We never focused on making the finals. We were really focused on, again, “Is there a real opportunity? Is there real business? And what is the key milestone to prove next? I would have loved getting into the finals. It would have been incredible to win for monetary reasons and press and a lot of pride, but it really wasn’t a focus for us. It was, “We have a unique opportunity to get access to a lot of really great people, how do we make the most of that in this compressed timeframe?”

Waverly Deutsch:

So did any of the people that you meet during the NVC go on to play a role in establishing the actual business?

Mike LaVitola:

Yeah, absolutely. We were lined up pretty early from one of the senior guys at Grubhub at the time who for the first couple years of the company was really actively involved from a strategic perspective and also just as a kind of, “Are we crazy for doing this?” In many, many moments, we met several folks who became investors two or three years later. I think one thing that we did really well was leverage our participation in the NVC to get access to folks in the industry who we would have otherwise never had reason to speak with. I think that’s such a unique thing about being at a place like Booth and being in the NVC is that very, very senior folks in the industry that you’re trying to go in will take calls with you or take meetings with you just by your being in the program.

Mike LaVitola:

And so we spent a lot of time getting access to those kinds of folks to validate a lot of our early ideas.

Waverly Deutsch:

Can you give us an example of somebody that you actually talk to that you think the NVC really facilitated that relationship?

Mike LaVitola:

Yeah. There was a very early version of our business called cosmo.com, I think it was like literally the poster child for the 2001 dot-com bust. It was like fast delivery of everything in New York City and they burned hundreds of millions of dollars and it was a complete-

Waverly Deutsch:

Disaster.

Mike LaVitola:

Yeah. But I don’t want to say that because the CEO of that company was a Booth grad and we were able to connect with him and he very quickly was like, “Look, the issue with this company was never demand.” That was completely on fire, where they got trapped in this treadmill of growth, and here were three major pitfalls to watch out for. So from a strategic perspective, incredibly helpful. And then as we went out to talk to other people or fundraise, they would always mention, “Oh, this sounds like Cosmo, have you thought about that?” And we could be like, “Not only have we thought about it, but we have all this great insights.” So there were so many great examples of folks like that along the way who really helped shape the journey.

Waverly Deutsch:

So when you launched out of the NVC, you were an online-only convenience store. Now, you’re not an online-only convenience store. Can you tell us about that pivot?

Mike LaVitola:

Yeah. It’s really been a series of pivots. So after the NVC, we had products to sell, we had people to deliver them and we had my co-founder to build the digital side. So fantastic. So by the end of that summer, we built it. It was live and we were doing deliveries, which was pretty awesome. We had a product in the market and people besides our friends who were using it. To me that was everything. So, that was the next checkpoint of like, “OK, I’ve got another year left in school.” And so really, I used the second year of business school to attend school full time and then just run this business. And over that first, probably 12 to 18 months, revenue grew every month. It wasn’t like an astronomical growth, but it reliably grew every month.

Mike LaVitola:

And the more that we’ve refined the model, refined the data, refined the product mix, things worked. And I think most importantly, the things that were working were the things that most aligned with my vision of, “OK, if this got really, really big, what would have to be true?” And that’s what customers were responding to. So we ran the business online only for about two and a half years, and eventually got to the point where it’s like, “OK, we got to scale this thing if it’s going to be a real business.” The things that customers were responding to is, A, the convenience, you press a button and wine and ice cream shows up and that’s pretty cool. But it was much more so our curation of the products, going back to that founding insight of like, it wasn’t just you could get ice cream delivered, but it was Jeni’s Ice Cream, which is our favorite thing out of Columbus.

Mike LaVitola:

And you had to hear about them, we have all the latest flavors. Or a hard-to-get craft beer. We would be working with bakers and we’d be their only outlet. So it was this really unique product mix that you could only get from Foxtrot, and to really have control over that, we had to carry our own products. We have been faking it and you would order products from us and on the backend, we would be in grocery stores filling them. Customers didn’t know, but I was living in these grocery stores. And so we had to get our own warehouse. And the way liquor laws work in Chicago, but also most of the major markets we wanted to scale into, it was illegal to deliver beer and wine from a warehouse. So we’re like, “Okay, this is one of those risks moments where it’s like, we got to sign a lease, it’s got to be a retail lease to do everything in up to the letter of the law. We got to do it if that’s what’s going to work here.”

Mike LaVitola:

So we signed this cheap out-of-the-way lease in the West Loop of Chicago. And we opened it up as a retail store, but really was just meant to be the warehouse for the ecommerce business. And as folks who know Chicago listening to this will know, the West Loop is no longer cheap nor out of the way. And so what happened was our ecomm warehouse, which we made to look cool because I was essentially living in this thing, the neighborhood around us just grew up and Google moved in and all the cool restaurants moved in and pretty quickly our warehouse became this like hip bodega in the hip part of town.

Mike LaVitola:

And so people were in and having an espresso in the morning and taking meetings there and grabbing wine after work, and it just became this total embodiment for the brand. And that was the second big aha moment was, no one, like 7-Eleven or whoever was not going to figure out how to make a relevant retail brand like this. People weren’t going to be going in and meeting friends for coffee there. And so there’s a massive, massive opportunity on the retail side of convenience to reinvent the format. And then for the ecomm side, when you plotted our deliveries on a map, they were all on top of the store. So instead of being in the denser parts of downtown where you’d think they’d be, it was very, very clear that the store was driving customer acquisition.

Mike LaVitola:

It’s really hard to raise money, so we didn’t really have any of it. And so we weren’t paying for paid marketing, and so these stores are really what was driving acquisition. And so that insight of, “Hey, we can open up a lot of stores. Those should generate a lot of revenue, those should make a lot of money, but then that’s actually what’s building this community with our delivery business and that’s what’s driving the synergy there.” That’s what was really, really interesting. We, over the last three years, have been experimenting a lot on the retail side of the business, moving from these warehouse-y type locations in a couple of blocks off from where you’d want to be, to ultimately what we’ve been doing over the past year, which is really becoming part of the neighborhood, finding buildings we love in neighborhoods we love and really trying to be what we think the fullest potential of a corner store can be and building the business around that.

Waverly Deutsch:

So, is the scaling plan moving forward to drive more traffic through the online model that was your original model, or do you want to scale out and be Starbucks and be on every corner?

Mike LaVitola:

We view it as one and the same. So right now, our business is about 50% online, 50% in retail, but really our ecomm growth strategy is our retail strategy. And so what we’re able to do is enter a neighborhood with this store that is highly stocked with local products, friendly staff, and create this space, it’s not a generic stamped out store, but we spend a lot of time with the design, the architecture from the actual team themselves, so that it feels like it’s part of our neighborhood because it is. So those four walls can stand on themselves from a business perspective, it’s a profitable four-wall store, but we are able to then introduce all those customers to our ecommerce business, which then ends up becoming the larger share of the mix, because obviously, the ecommerce can scale faster than the retail can.

Mike LaVitola:

So the strategy is, open up a lot of retail and use that as the base to ultimately scale the ecommerce business. But as we look at our customer data, most of our customers are shopping with us cross channel. And what’s interesting is, once you get someone to come from retail to online, they actually end up spending more across both platforms, and that’s what our ultimate goal is. We know that you’re going to dine out at these great restaurants, we know that you’re going to stock up at your favorite grocery store for those kinds of weekly trips, but we want to be everything else in the middle. And sometimes that means you want to pop out of your house and go on a walk and grab a latte, sometimes it means you want to sit on your couch and get it delivered, but it should be the same consistent brand experience across both.

Waverly Deutsch:

So discovering that your retail locations were driving so much of your marketing and making the decision to double down on locations and retail, you raised a nice-sized round, I believe it was $17 million at the beginning of 2001. And then COVID hit.

Mike LaVitola:

Yes. And I will say, the $17 million that’s one of those everything always looks good in the headline. I think that was the combination of everything we had raised for the prior 24 months and we never had maybe more than 25% of that at once. Fundraising is a topic we can certainly talk about. But look, we were able to just grind it out and keep telling the story and keep some cash in bank accounts of keep proving out this story. And then you’re right, we had finally got some semblance of an early stage balance sheet together and COVID hit, which has been a crazy year. The obvious thing that happened is that ecommerce skyrocketed.

Mike LaVitola:

So we deliver essential goods and people didn’t want to leave their house and so sales went crazy. But what was non-obvious is what it actually meant to fulfill those orders at the store level. We were spending essentially all of our time thinking like, “Can we be open? Can we keep our employees safe? Can we keep our customers safe?” And really, it was just a day by day, like, what are the best decisions we can make for the staff, our customers then to business every day. Every day felt like a week during those first couple months. We never had to worry about demand, but we were worrying about just about everything else. I was going around to every store every day and so it was our ops team, and it was a lot to get through together, but I think built a large amount of comaraderie within our teams realizing how essential we became to our customers, but then also to a lot of the smaller vendors we were carrying.

Mike LaVitola:

So if you think about the like local bakeries or the local craft beer guys, all the restaurants went away, all their bar business went away, and we were in some cases their biggest lifelines during this time. So it was a really interesting perspective on the ecosystem.

Waverly Deutsch:

That’s really rewarding. I do have a question of when Mayor Lightfoot shut all the retail, your retail was also your back office operations for your ecommerce business. So did you have any issues with the city when you needed to be in your stores doing your ecommerce business?

Mike LaVitola:

It’s all such a blur. We made it work. That’s the part I remember is that we made it work. It was every day… The interesting thing, I don’t know why I expected it to be different, but it’s not like we found out anything early. We just see the news and we’re like, “Okay, I guess we can do that now, or we can’t do that now.” And it’s just reacting in real time just constantly. Because we held so many different licenses, grocery retail, on premise, restaurant, we were able to piece together the pieces of the business at whatever time we had to piece them together to make things work.

Mike LaVitola:

So it definitely wasn’t pretty, it was definitely super confusing. But again, that’s what entrepreneurship is. You just like, these are the cards you’re dealt and you figure it out.

Waverly Deutsch:

Mike, you didn’t come out of a background where you had a lot of management experience and this business really changed over time from an ecommerce business where your main concern is making sure that you get the technology into the hands of all the people and you can fulfill the orders, to back office business, to a retail business with front-of-house employees. How have you grown as a CEO through this process?

Mike LaVitola:

I think it’s just by doing everything first. I think you realize early on that if you’re not doing it, no one’s doing it because it’s literally just you, so everything is literally just you. And I was really, really fortunate to have Taylor as my co-founder who is our CTO, because he had such a mastery on the engineering side that I never had to worry about that. And so I felt so lucky that I had him doing that I was like, “All right, I can figure out how to buy groceries, I can figure out how to hire couriers. I can figure out how to hop in Uber when we get over capacity.” It was like my problems were the operational problems and his problems were the smart technical problems.

Mike LaVitola:

And then I remember when we opened our first “store” which was just like ecom warehouse, it’s like, how do you open a warehouse? I don’t know, you just figure out, test and learn. How do you hire store teams? You just do it and you learn. So I think you have to be humble about it, you need to talk to smart people who have done it before, but there’s just no substitute for just rolling up your sleeves and doing the work yourself.

Waverly Deutsch:

Was there ever a point at which you thought, I can’t do this?

Mike LaVitola:

There were many, many points. Again, I would point back to the good fortune of having a great co-founder, and we came from very different backgrounds. So him on the engineering side, me on the everything-else side. And so for those first four or five years, it was like there were some days I would just be like, what in God’s name are we doing? I’d be down and just we have low, low points, but he would somehow be OK. And then he would get down to just like, Oh my God, I passed up what the hell? We’re just living inside these grocery stores, what kind of life decisions with no money, and we throw away all these opportunities to do what?

Mike LaVitola:

But we were able to keep ourselves in balance, and if he was having a low day, I would pick us up, and if I was having a low day, he would pick us up. And as the team has grown, we have more people to share the highs and the lows with, but in those early days, it was so helpful to have that teammate.

Waverly Deutsch:

Building a consumer brand is really expensive, and you said that when you started, you weren’t doing a lot of marketing and a lot of your traffic to your website was coming from the foot traffic to the store, as you think about getting bigger, as you think about scaling Foxtrot, what do you think about on the brand building and marketing side of the equation?

Mike LaVitola:

Our marketing is our brand. I think if we’re good at anything, it’s that. We’ve had a very clear vision of what is Foxtrot and what isn’t. And I think that most explicitly lent itself to the private label side. So if you look two years ago, 0% of our sales were private label rate. So what we’re really good at is finding all these new amazing products and getting them into one place and having a really discovery-driven menu. We still do that, but what we’re building internally now is taking all the data from trends we’re seeing, what’s selling, marrying that with our own intuition and developing private label products.

Mike LaVitola:

As of last month, 30% of our sales are now Foxtrot branded products. And that’s very explicit things, like the sandwiches and salads we make, but it also lends itself to a bunch of wine on our shelves is juice that we source from wineries that we love that have a label on it that doesn’t say Foxtrot anywhere, that’s a really, really healthy, gross margin. That’s, again, product that we love, but that is informed by insights. And those labels are the ones that customers like the best and are sought after and lead in our marketing. So when we think about where the business is going, it’s developing products that you can only get at Foxtrot, building buzz around those and having those be the acquisition moments versus just paying to acquire generic users and then deploying a whole bunch of retention strategies against them.

Waverly Deutsch:

When you think about scale, why is Chicago a good place to start a company? Why is Chicago a bad place to start a company? And where will you go next?

Mike LaVitola:

Chicago is a good place to start a company because there’s a lot of… Well, on the consumer side, there’s a lot of great consumers. It’s a huge city, but with 20 different neighborhoods to test in. And from a talent perspective, everyone you need is here, and if you’re recruiting in the right way, you can assemble a really, really top-notch team in Chicago. And from a consumer standpoint, there’s not a heck of a lot of competition. So you’re not in San Francisco or New York where you’re competing against an unbelievable amount of super well-funded startups competing for the same talent. So you’ve got a great consumer base and you’ve got a great set of talent to build your company.

Mike LaVitola:

The flip side of that is funding, and example of one here, I’m sure you’re talking to lots of folks on this podcast, Chicago is certainly not awash in early-stage financing like it is on the coasts,  and it’s a real challenge. So there’s two sides of the coin there.

Waverly Deutsch:

Talk a little bit about your fundraising. Retail is not the most popular business model for venture capitalists, but you’ve raised what? Close to $50 million at this point. Is that correct? And how did you do that?

Mike LaVitola:

Close to $50 million, yeah, but really, almost all of that in the last 18 months. So we probably raised a total of, geez, $6 million over the first five years or something, and never had more than probably a half a million in the bank account. And keep in mind too, for the first years of the company, there was no hint of retail, it was supposed to be an online-only company with no inventory, and essentially, this very, very asset-light model. And I think we mainly thought we were relatively smart. We were able to get meetings with whoever we needed to get meetings with. We had a real product, that product was growing, was certainly more than doubling every year, in most cases it was tripling.

Mike LaVitola:

We were doing, I don’t know, at that point, millions of dollars of revenue and we couldn’t put together a million dollar seed round. I spent so much of my time, an unbelievable amount of time trying to put that together. So fundraising is a constant grind. Some people have the gift and can get it done and others have to grind it out. But if you’ve got conviction in the product-market fit and ultimately where the business can go, you just make it work.

Waverly Deutsch:

A lot of entrepreneurs struggle with the question of how much they’re going to have to give up to get outside money — control, shares, equity. What do you think of the tradeoffs for taking outside capital to build your business?

Mike LaVitola:

I think it really depends on the ultimate scale of the business. So for Foxtrot, I never thought if it worked, it was going to kind-of work. I wasn’t here to build a 10 store chain and whatever. To me, it’s like if it worked in Chicago, it was going to work 30 times over in Chicago, 50 times over in New York and 1,000 times globally. The market was so, so, so big that to get to where I needed to go, I had to raise outside capital. It was the only way to get to a meaningful enough scale to justify the idea. Now juxtapose that with someone starting a CPG company, there is a sweet spot of natural exits there, and you need to be really conscious of the capital you bring in, the valuation you’re bringing in that. And essentially, not overcapitalize the business such that you’re limiting where you can take it. So it depends on every business, but I think ultimately, it has the most to do with where you want to take the company.

Mike LaVitola:

And I would also say, and this is probably the most obvious statement in the world, but you should feel very comfortable with the folks that you’re taking capital from. So even though we had an unbelievably hard time raising money for years and years and years, there were times when we finally had access to it and you just get that pit in your stomach, it’s like, “This isn’t the right deal. This feels non-standard, this feels as much as we need this infusion, we can’t be signing a deal this.” And we never did. And I look back and feel so fortunate on that because I know if you get into bed with the wrong partner, you’re done. So you really, really need to make sure that you’re bringing folks on board who are aligned with you and your mission.

Waverly Deutsch:

When Howard Schultz was thinking about how quickly he could scale Starbucks, one of the things he considered was franchising. Would you ever consider franchising Foxtrot out?

Mike LaVitola:

No. And we’re fortunate to have had those conversations with him, and a very senior Starbucks exec just joined the team, so no we’re definitely not, in the early days anyway. So much of what makes Foxtrot special, I believe, is a feeling you get when you’re in a store. That is the brand, it’s the merchandising, it’s the way we design the stores, it’s the way that we hire for the store teams and do store education. And it’s just as mix of all these elements that I don’t even trust us enough to put down a playbook as we’re all still figuring it out, but I know that if we turned it over to someone else, we’ll lose the soul of what we’re doing. And I know it sounds wishy-washy, but it’s true.

Mike LaVitola:

And we can’t just stamp these things out because you lose what’s special and then you’re done. So we are fortunate that I think ecommerce, as I mentioned, is 50% of the business now, but will ultimately be the lion share of the revenue. So we don’t need to chase every last dollar in retail. And when we go into retail, we need those experiences to be the best representations of our brand. And to do that in a franchise model just seems more difficult than I would know how to do.

Waverly Deutsch:

I think you opened your first store outside of Chicago in Dallas and you’re headed to DC, can you tell us what you see for Foxtrot over the next five years?

Mike LaVitola:

Yeah. We opened our first stores in Dallas a year and a half ago, and in DC, just opened up last month. And we chose Dallas, probably non-obvious market, but it’s because, as I mentioned, I was living in Austin and my co-founder Taylor’s from Dallas, and we knew the neighborhoods and we knew the real estate, and we knew the local products, and we knew that’s what made Foxtrot special here. And so while we built the internal muscle to scale to a new city like DC, we knew we had to get that stuff right. And so we felt good about that in Dallas and built that muscle to now launch in DC, which is going really well.

Mike LaVitola:

Over the next 12 to 24 months, you’ll see us opening up in several new cities while continuing to go deeper and deeper in the markets we’re in. So in Chicago, for example, we’ve got eight stores now and we’ve got another four opening here this year. So as we find buildings and neighborhoods that we love, we’re certainly going to continue to expand there and then be really thoughtful about going into new national markets as well.

Waverly Deutsch:

What advice do you have for entrepreneurs who think they want to come up with a great idea and give it a try?

Mike LaVitola:

It’s interesting that you phrase it that way, come up with a great idea. I don’t know how you come up with a great idea, I think it’s got to be something that is just gnawing at you constantly, that you have to do because otherwise, it’s totally not worth it. And as I think about how hard the journey has been, I really do think back to the vision I had for the brand early on has been super consistent to how it is today and that guiding light has made all the big decisions clear. So I really do think it’s got to come from something internal and then just be ready to put in way more time and way more heartache and nose, than you expect to make it happen.

Waverly Deutsch:

Mike, what are the worst times you’ve had at Foxtrot?

Mike LaVitola:

You really try to block a lot of them out, but I alluded to fundraising earlier. And we had this really, really big vision and I had so much conviction into what the brand was and what it can ultimately become, but you do need capital to put that stuff into motion. And for whatever reason, we had a really, really hard time raising it. And so over those first, God, four or five years, we probably came, definitely within two weeks of missing payroll five times and within 12 hours, probably two or three. And in real moments, I had exhausted every possible option, I have no leverage left, I have no money, I have no clue how to keep this thing, you’re just out of options and you got nothing and you just have to keep going.

Mike LaVitola:

And as the company goes on, not that it was huge at that point, but it’s more than just you, you have employees, and then when we had stores, we have a lot of hourly employees and they’re all counting on you to figure it out. And I think those are the lessons you learn earlier, how much risk can you take on? And how do you keep this thing going when for all intents and purposes, it’s dead?

Waverly Deutsch:

And how do you personally deal with the stress of having people’s livelihoods rely on you?

Mike LaVitola:

It’s a lot and you go into it not recognizing that because at first it just you, or you and your co-founder, you’re like, “Whatever, I can figure this out, I’m young. It’s all good if it doesn’t work.” But then you start taking on some money. And so now you’ve got other people’s money, and we couldn’t raise any institutional money for many, many years. And so it’s not like we’re going to lose some fancy VCs firms, million dollars, it’s Mr. and Mrs. so-and-so’s $25,000 that they invested. And you really, really don’t want to lose that. And then as you start onboarding employees, they’ve all taken a risk working for you and it’s very specifically for you.

Mike LaVitola:

And so the stress of, yes, this thing failing is bad news for you, but it directly impacts their paycheck that they’re not going to get, next week is very tough. So it’s definitely not something that I thought about going into it, but just as the company kept getting bigger and bigger but our balance sheet didn’t, it was an increasing worry every day.

Waverly Deutsch:

Mike, we couldn’t be happier that you came out of Booth and the New Venture Challenge, and we couldn’t be more proud of what you’ve accomplished at Foxtrot, and we can’t wait to see where it goes. Thanks so much for this conversation.

Mike LaVitola:

Thanks so much for having me.

Colin Keeley:

All right. That is it for this episode. If you could do me a huge favor really quick, please go to your favorite podcasting app, often Apple Podcasts, and rate and review our show. This gets the show recommended to more folks and it also helps us get bigger and better guests for you to listen to. Take care.

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