Episode 7: Interview with Nick Devane, Foodworks Founder & CEO

APRIL WACHTEL: What's up Movers & Shakers. It's your host April Wachtel. My guest today is Nick Devane, the super savvy CEO of Foodworks, a fast growing food incubator, based in Brooklyn and expanding nationally. Today on the show we discuss Foodworks trajectory from grazer to homemade Foodworks. The principles of raising venture capital and Foodworks long term vision, without further ado here's the show.

APRIL WACHTEL: Nick, thank you so much for coming to Hangar Studios for the show today!

NICK DEVANE: Happy to be here.

APRIL WACHTEL: So all right, you are the CEO of Foodworks.

NICK DEVANE: That's correct.

APRIL WACHTEL: That is correct. Do you want to tell us a little bit about what Foodworks is?

ICK DEVANE: Yeah absolutely, at Foodworks, we help individuals start food and beverage businesses, through a number of different channels. The main path that manifests itself in, is our big commissary kitchens—a production space that we rent by the hour, and shortly by the month, to small food and beverage companies and then we pair that with a pretty diverse group of mentors, some digital resources and frankly just a lot of support. There's it's a little bit of a higher fidelity cooking and production space. We've got coworking and a big Test Kitchen, its light-filled and really focused on, and a building community around this band of brothers and sisters effective of trying to start up.

APRIL WACHTEL: So how did you get in this space? I know we had a conversation offline yesterday where I got a little bit of this information but, I mean how did you get into food and beverage in the first place? What's your interest in the space?

NICK DEVANE: Well, I think like in very top-level food and beverage is kind of like an amazing way to connect with people. Like if you and I share a meal or you cook for someone else there's sort of this amazing sharing of cultures and connection that I think is very human. It's always attracted me to the space. When I was very young, I started working in restaurants and construction actually during the summer times building homes and putting in irrigation systems and all sorts of stuff.

APRIL WACHTEL: How old is very young?

NICK DEVANE: 12. My buddy's dad's construction company, Whole Gate Partners and at that same time during the summers in the evenings, working restaurants like bussing tables and kind of making, I don't know how much they paid, whatever the lowest amount they could pay.

APRIL WACHTEL: I made $3.25 when I was 13, so, yeah.

NICK DEVANE: I thing I did little bit better but yeah and I think I've one of those careers thus far where, a lot of these different pieces kind of add up to some domain expertise now that certainly was not obvious at the time and I just started going through high school, I started throwing parties and in a way that high school students do but, we'd charge tickets for those things and they kind of turned into a bigger and bigger show.

APRIL WACHTEL: Can you tell me, sorry to interrupt, what these parties were like?

NICK DEVANE: It started out as kind of house parties. I can talk a little bit like a transition into college where they turn into bigger kind of food and beverage events, but I kept doing that all the way up through college. The very last one we rented a mansion on the Connecticut coastline and we bust hundreds of kids there, it's like a National Historic Trust preservation building, out on the Connecticut coastline and had a great Gatsby themed party, where we had a whole bar and food and it was super cool everyone dressed up.

APRIL WACHTEL: So it's not your average college party,

NICK DEVANE: Yeah, a little bit different and we would kind of charge tickets for this stuff, but in high school I kept working in construction so I got a lot more comfortable around, building and shops and equipment in various forms and then in college I started, kind of moving up the stack as a server and bartender, would do some like night-time, bar management of the local college bar that I was in.

APRIL WACHTEL: Where did you go to school again?

NICK DEVANE: I went to Wesleyan, so a liberal arts school in Connecticut and I just loved, I loved playing like I could like be a Maitre d' or a host at a restaurant and not get paid, because I like it so much, I like working the tables and being like I don't know that those people necessarily like it, but.

APRIL WACHTEL: Well, no I mean its true hospitality.

NICK DEVANE: Yeah totally and so I was always very into that kind of engaging and sort of event side of things, at the same time I kind of got pulled into the technology start up space, through a company that my friends started that did contracting for Michael Bloomberg's, for Bloomberg, and we would build these big informational databases of police stations and army bases and had all the kind of contact information—I don't know if I'm still under NDA…and I saw my friends kind of go down the path of starting a software company and I was very inspired by that, I again kept throwing these parties and working at the local restaurant bar.

APRIL WACHTEL: So were you, sorry, were you like trying to find a path or you just doing things to make money or you just doing think that interested you, like was there like a direction at this point?

NICK DEVANE: I mean I grew up pretty poor, so a lot of that was just like hustles to make money and in college, that type of work particularly contracting stuff paid really well, so that was really the focus point. I think I've always been very entrepreneurial since, I was very young. I'm just kind of always interested in starting a business in any form right whether that's a lemonade standard or what not and so as I kind of started to look at post college, I really wanted to start a company which was maybe just misguided, but it’s the only thing I had. I approached the smartest friend I had, who's now still my business partner so many years later, like Dee and I pitched him on this idea, that I was just sort of formulating on that was kind of like Airbnb for cooking, so people would sell food out of their home kitchens to other people around them and right, the day out of college we still, the initial conversation was over Facebook messengers, we still have that convo, and was like let's do this thing and we met about it a couple of times and he said yes.

APRIL WACHTEL: So Nick how did you convince him to do this?

NICK DEVANE: I don't even know. I think Mike, he'd worked in banking and he went to Georgetown, he's a finance and psychology major and he really didn't like the culture of banking and we were both had been reading a lot of technology blogs, and kind of seen this amazing platform change in the entrepreneurial space, and how much easier was to start a company. So we were both sort of interested in that idea, I don't think that, either of us including the idea that we chose to pursue had a earth-shattering idea, but we both wanted to do it and I think that bond has persisted, just of like, you can you can write your own rules. Now we saw people that, I'm not going to say, we were smarter than but we certainly thought, we're as clever as...

APRIL WACHTEL: You could crush.

NICK DEVANE: Yeah well that, it seemed viable that we could do that and then we didn't have to play into some of these kind of antiquated institutions, to make a really great life for ourselves. So we kind of pushed out and at that point this is the summer of 2013. It really seemed like you could raise money with like a pitch deck and a smile, because some people were doing that and that certainly quickly became, not the case for us, and so I'd had a little bit of money saved up, we started burning through that. Mike moved into my apartment sleeping on my couch every day, and he started, we sort of had this idea for the software and Mike at one point was like I think I can teach myself how to code and build like, the MVP product.

APRIL WACHTEL: Which is, if you don't mind explain that.

NICK DEVANE: MVP is a term I think popularized by Eric Ries from The Lean Start-up. Its stands for “Minimum Viable Product” and the idea that like what's the absolute bare minimum that you need to get a proof of concept, in some senses that can also just be like a demo. Some people just create a series of like screens, almost like a slideshow to kind of pitch their idea of like what their business can be.

APRIL WACHTEL: And this is primarily, like this is really in the tech space because a lot of our listeners are in the food and beverage space and are less familiar with tech.

NICK DEVANE: Yeah well, but what's interesting now, working in Foodworks is like you hear a lot of that technology and I don't know if this is related to Shark Tank or Planet of the Apps or something but, you hear a lot of that probably it's kind of come over into the food and beverage space, which I think is awesome, because so much of it is like how to kind of bootstrap and be lean. I hear people in the kitchen talk about pivoting and talking about MVPs, talking about capital raising and operational insights that I think are gleamed from the type of software innovation we've seen over the last 25 years, which I think is smart right, like you, an MVP mentality in the food and beverage space is super healthy right, if particularly if you're playing in CPG or it's like, what's let me try this thing, yes consumer packaged goods. Let me make this sort of minimum product that I can take out to people and see what the reaction is and I think stuff like Smorgasburg which is an outdoor weekend market. People are sort of able to run an MVP of a restaurant right and I think that's really fantastic.

APRIL WACHTEL: You and I have spoken about this for my business as well, I didn't say this earlier, but Nick is the CEO of Foodworks. My business is incubated within Foodworks and that's something that, we also did something very similar which is basically saying, we know this product isn't perfect, tastes great, looks good, I think we've got something here but we were going to continue to make changes on it. So that was I mean that is something to your point I've ingested a lot of these resources so, whether it be shark tank or reading Food and Tech Connect or whatever that is like really on the cusp of the food space—pretty analogue—and then the tech space—so pretty digital. It's an interesting kind of confluence of I think industries in time right now.

NICK DEVANE: Yeah and I think one of the advantages of incubator kitchens not just our own is like, you can now legally produce a basic product without having to get a lease or equipment or any of these other pieces where, you can make a product and sell it at stores or at farmers markets wherever that may be and get real feedback that's super valuable. 25 years ago you would have to spend maybe hundreds of thousands of dollars to really get the type of feedback, you can now get for a couple thousand and I think that's maybe the biggest value that we're providing to people. This is sort of lowering the barrier to being an entrepreneur and finding out and I think one of the things that we don't talk about a lot is, you can now you don't need to spend your life savings to find out. Like there's something really healthy about like, some crazy idea that someone's always had but they don't want to really do it and maybe it's a bad idea, but they're now able to spend $3,000 right, make that product and find out like, this actually isn't such a good idea but that's there's some like, there's something great about that like trying and failing and I think that's been, not that I wish failure on anyone. I hope everybody's products are amazing, but I think there is something really a question where like you now know right, it's like an opportunity to kind of chase those dreams I guess.

APRIL WACHTEL: Well no, but like before. The previous iteration of my business, so we fresh caution message for iconic cocktails we have, fill the bottles you add the spirits to the extra bottle to complete the drink. The previous iteration for that was a business-to-business service for spirits companies and catering companies, where it was larger version so I was like we'd take a gallon jug, like literally a milk jug, half fill it. We also did the garnishes, but so these were all hundreds and thousands of cocktails per order and the reason that I think that we're on what I would consider to be a really good track now, is because that was mediocre, like it, I mean it would have been fine if I was just doing this on the side for myself, but as a business that I want to grow, I have a lot better context now, because I had kind of a crappy version before and people loved it, just wasn't that good.

NICK DEVANE: I mean look at where you're at now right here, you've kind of found a gap and I think for us, just to jump back, so we launched this, the software company through a lot of trials and tribulations. We did end up raising some institutional financing at some point and we took a lot of the themes behind of what we were doing in that space which was encouraging entrepreneurship albeit on a micro kind of hobbyist level in the food and beverage space, and providing a platform and that in thinking about a lot of those themes is sort of what led us to Foodworks which, at the surface level we went from a kind of a consumer to consumer mobile app to a 'B to B' physical business with kitchens, but if you look at sort of like our mission statement behind, that business it was empowering anyone to be a food entrepreneur and create community through food, and you could very much apply that to Foodworks now, right and I think when you have that true north of what you're driving on and maybe for you that's utilizing your knowledge of the spirit space to create world-class cocktails that anyone can have access to, alright. Everything out, like they're there no rules you can kind of change and adapt as you please until you find what works I think, entrepreneurship in some sense is like a litmus test or you kind of keep pivoting and trying and learning and finding gaps you see that, I mean like Netflix is the best example right, that's like a, they send you two DVDs in the mail and like they've reinvented that business three or four times, at scale, you know, after raising god knows how much money and It worked.

APRIL WACHTEL: Yeah I still have at least one Netflix DVD by the way.

NICK DEVANE: And they'll never charge you for you it, you get to keep it um but it's sort of amazing from doing that to switching into streaming. Now creating their own content and winning Emmy’s like who would have thought right and I think in the food and beverage space particularly sticking with it and finding those gaps is sort of the name of the game.

APRIL WACHTEL: So you're the first iteration of this when you and Mike decided we're going to launch this company, it was a mobile app and it was called, it was a Grazer? [Not to be confused with the new Vegan dating app of the same name]

NICK DEVANE: It was called Grazer. You could take a picture of a meal. Let's imagine you're like cooking dinner for yourself, add all the ingredients, create a price and have a listing much like Airbnb or Etsy and other people around you could see that and buy it and the coolest thing what we called “community through food,” is that you'd come and pick it up and actually meet your neighbours and sort of have this interesting slice there, that business has lots of problems but in,

APRIL WACHTEL: Like what?

NICK DEVANE: I mean there's a legality issue for the most part, not all foods, but certainly hot food. You can't really sell food out of your home, at this point and then there's an economies of scale component that where you can only produce so much stuff out of your home kitchen and truth be told, if we've got some good caterers or meal prep or dietitian people here, if they're being honest with themselves a lot of those folks, prepare those foods for their clients in their home. Right, you do your five meals that you drop off like client to client, you're cooking on your home kitchen right. A lot of caterers particularly in the smaller batch side of things, they're doing that out of their home kitchen and when we sort of saw this, all this underutilized cooking space around the country that and the world really that just sits there, every apartment has to have a kitchen in New York City. Then again you've got this sort of wasted space.

When I say, there's a ceiling there though you can only on the other end of that, you can't really get to break away, you can't really break out of being a small-scale person because you can only produce so much stuff in that kitchen, and then the third problem is that the people that did really well with us had every intention of starting a real food company. So unlike Airbnb, let's see where those folks kind of love the platform and are evangelists of it on the supply side, with us those people wanted to start a catering company or launch a packaged goods business or open a restaurant. They did not care about or really become evangelist in that way. So those three things were one of the big pieces that led us to start to think about what's next. While launching that business I mean we went to get two and a half years bootstrapping it. I started working in restaurants night time to pay the bills and Mike would sleep on my couch. I became the manager of one of those restaurants and convinced them to give me a portion of the restaurant to open a coffee shop, I don't know, I did that, but they did it and we opened for a $1,000. I did all the build out myself, was named after my dog Zulu. It was a total abysmal failure. We had this idea and this is 2013, I think we are a little late to the chase but it was a cold brew only coffee shop. We would make it,

APRIL WACHTEL: Was that late in the?

NICK DEVANE: We were there, I mean like I think 2011, that was when it was just coming about but like, we were fine, we opened in October which is tough for opening a coffee shop, but we would make espresso drinks with cold brew which had higher caffeine content and lower acidity than normal espresso, so we'd take make this gnarly super concentrated cold brew that would steep for like four days and then we used a milk frother and this kind of like heating method to make lattes and things with cold brew which I thought was very cool it turns out again could have used an MVP there, people really spooked when you give them a latte, but there's no espresso machine like they're like what, where did that just come from?

APRIL WACHTEL: Yeah, like what dark magic is this?

NICK DEVANE: Then you have to explain, they're like I don't want to pay four bucks for this. So we did that, while kind of to raise to support ourselves while launching this other business. I would not recommend doing, kind of running two businesses at, that is a mistake.

APRIL WACHTEL: So meaning that it and again I understand that very well, but meaning that it caused you to lose focus or it just dragged everything out on the timeline.

NICK DEVANE: Focus, you know, you only have so many hours in the day, launching one business takes up a huge amount of mental capacity and then given that it was a physical retail business, we were just there, you know be in the coffee shop at 6:00 a.m. They're only, I think we had one other business partner, three employees doing this three-man weave, it was just it was a mess but we have got us an introduction to TechStars which is accelerator program where they make a small investment and help businesses grow and raise money by venture capitalists in New York, it was like I love you guys I think this business is crazy but you should go to this thing, introduces us to that program and we go through to the final round of applicants and we're like, where are we going to get in and went from a thousand companies to two hundred and fifty to seventeen and the last couple of companies are like alternates, if the chosen company don't accept the offer, and we shut down the coffee shop at that time, in like two days later found out we didn't get it.

APRIL WACHTEL: So mean, you shut it down because you thought you were getting it.

NICK DEVANE: Yeah which is, I'm very a little bit too bullish on ourselves, but the founder of, the managing director of that program Alexis Gould said, again I love you guys, why don't you come work as kind of like infrastructure for the program. Mike at that point was a pretty proficient software developer and I worked as a designer in residence, and we helped we worked on the companies that were in that cohort. I kept working at that bar, at nights because they didn't pay a whole lot as an Events Manager and afterwards, we'd sort of entered this trough of sorrow moment where we didn't know what we were doing, we were, I was building a lot of websites for restaurants on Squarespace, so we'd sell to them, we built some apps, we built the first version of Hooch, which is a subscription drinking app. I worked in fashion, production, dish washing just sort of like anything to pay the bills. I'm trying to figure out what we're doing?

APRIL WACHTEL: So “Trough of Sorrow” is a founder term, it's awesome.

NICK DEVANE: 'Trough of Sorrow” was invented as a term coined by Paul Graham the founder of Y-Combinator, a different big accelerator program and this idea of, their deep, deep low moments, where you really define yourself and I think you kind of, it's easy when you're on the entrepreneurial path like sort of lose direction in what you're doing and kind of long struggles and that certainly was the dark, the darkest days for us thus far.

APRIL WACHTEL: This is two and a half years in.

NICK DEVANE: This would be, this is the summer fall and winter of 2014 into 2015 and we were like living below the poverty line, like barely make ends meet.

APRIL WACHTEL: So if you have a business out there, but that's I mean, that's three seasons, meaning that like you went through three seasons of basically this confusion depression, like in the business sense and then you guys emerge on the other side of it.

NICK DEVANE: Yeah but still not great yeah, we built something and we're trying to raise money for and no one really cared, I mean I saw that same guy Alex tweet that they were going to do a second cohort in that year, which was unusual. I send him a kind of throwaway email that was like “Let us in with grazer” in the subject and in the body it was like, “We'll make big and like five dollar signs and he said,

APRIL WACHTEL: compelling.

NICK DEVANE: he said, something like “do you have a deck?” and I lied and said yes and he was like great come in and pitch me tomorrow. So we stayed up all night making this deck, walked into his office. I had maxed out all my credit cards like nothing, I was days away from moving back in with my mom and just like completely chewed up by New York City. We pitched our hearts out, I think it's a better time for the sharing economy, we're better as entrepreneurs. We can actually build this thing and he said I'm in and invested $120,000 to the spot and I looked at him and I was like shut the fuck up, and he kind of, you know aghast, and I was like, I'm so like, I'm in disbelief and for the first time Mike and I could actually work full-time with business. We rebranded as Homemade. We went through that program, every week we would try a different hack to kind of marketing hacks to create liquidity on the platform in marketplaces and this is going to be less relevant for Food and Bev, but marketplaces like eBay or Uber, Airbnb are reliant on matching up supply and demand. Each week we would try a different thing to kind of create that dynamic, million different ideas, nothing's really working and then in the winter. After that program ended and normally at the end of these programs you raise money. Nobody wanted to invest, I think I got shut down like a hundred times particularly in New York and we finally created this thing that would pull your address book out of your phone and kind of created a little bit of liquidity because people could, it was like a CRM, like a customer relationship management tool, to blast out to your address book and that started working and people were selling food to people around them, it was getting more people under the platform, on the demand side, it was helping the supply-side light up.

APRIL WACHTEL: So when you're talking about liquidity again, can you just explain that for our listeners.

NICK DEVANE: Liquidity in a marketplace is when supply and demand are in equilibrium, so any marketplace is going to constantly be struggling to create liquidity, constantly right so like Airbnb right now and you've got, you don't have enough home supply in Venice is because there's just not enough homes relative to the amount of demand or Uber when it's surging it's because they don't have enough cars, they're tracking their price up which they've figured out a clever way to make money on, but it's also a problem if it takes 18 minutes for a car to come but initially on a marketplace to prove that you can create liquidity at all is a big deal for investors, but again less but totally less relevant to the food and beverage base.

APRIL WACHTEL: I don't think, so I mean you there's like an analogue version of that.

NICK DEVANE: Totally yeah, 100% but it's this obsession in the marketplace space but we figured this thing out. It started to move, I randomly got an email from an investor in San Francisco, who I'd emailed one of those liquidity hacks was to do catering for offices which we figured if we did really great catering for investors offices they would and you know investment company, so I emailed pretty much every venture capitalist in the country to do catering for them.

APRIL WACHTEL: But this is specifically when you say catering for them, you're saying using our own platform yeah. So the cooks who are cooking in their homes would be the sources of the food and then you guys would find a way to get it to the investor’s offices.

NICK DEVANE: Yes that is correct cool, so I emailed like every, I have like a little cheat sheet that I got from somewhere with all the investors in the cities emails, since so I sort of spammed all of them and one of these people on the, who is the founder of a platform called AngelList, emailed me back like four months later and was like, “Hey Nick, I don't need you to cater for me but I'm really interested in the space here and I looked at a bunch of companies. I'd like to talk about investing, can you come to my office on Monday.” and I look in and he's in San Francisco and I sit there and I'm like, at this point we'd run through that hundred and twenty thousand dollars almost entirely we had maybe ten thousand dollars in the bank.

APRIL WACHTEL: In how much time?

NICK DEVANE: Close to nine months, but we were going to struggle to run payroll for the next three weeks probably. I was just like yeah, “I'll see you Monday,” and booked a ticket, flew out there, we'd been talking to one or two other investors actually in San Francisco, but I wasn't there and it didn't, you know, it could create urgency. So I waited until I arrived in San Francisco and emailed both of them and said hey, “I'm in San Francisco meeting with a few other folks. Do you want to get a coffee and chat about what's going on?” Anyone who's raised money will be familiar with like this concept of FOMO, like creating urgency where you need other people to feel like the deal is getting done for them to sort of get over the finish line and it worked so they suddenly think I'm meeting with a whole bunch of people in San Francisco and fundraising. I met with them and in the meeting they offered to invest three hundred thousand dollars. The other firm that I hadn't planned to meet.

APRIL WACHTEL: Right because they were so concerned.

NICK DEVANE: They were so concerned that we're gonna meet with other people and like I, you know, I pitched the business very well and blah blah blah but like suddenly we're like, we got to do this deal, and then the other firm that I met with, that week, ended up investing. I'm down the road and nothing, you know there's no way that I could have predicted that, I certainly didn't have any other meetings if those three had gone poorly and so suddenly we've got some more cash right it's like another chance. They ended up leading, that group ended up leading our seed round with Homemade. It ended up being a two and a half million dollar round they introduced us all these people and suddenly we're in the driver's seat, everybody you know we're like the hot deal in town, everyone's talking about us and we're the things moving.

APRIL WACHTEL: So just backing up because again I think some of our listeners will be familiar with these terms and some won't. So you took on some money and then you said you had an official seed round later. Can you explain the difference between taking on some money and then having an "official round"?

NICK DEVANE: Yeah, so this is again coming back from what I would consider the technology and software space and infrastructure really in the late seventies and early eighties. Your financing is used to just run through the alphabet A, B, C, D. Series A, Series B, Series C, Series D up until you IPO or get acquired and the costs of starting an Internet company are certainly and infrastructure company in the mid to late 80s and even well into the 90s was in the millions and millions of dollars. So it used to be that any money that you raised which typically would be in the millions of dollars was your Series A, and really in the late 90s but truth be told in their early 2000s, Amazon Web Services which is, if anyone that's created a website even the Food and Beverage space, it may be used AWS, it's server infrastructure which you used to have to buy and build yourself, so you'd buy these actual physical servers then you'd build a software on top of them, it's a hugely expensive to run any website. Amazon very cleverly figured out that they could buy all of the servers create the software themselves and through economies of scale, pass that on to web companies. This led to like the deployment of the internet and it dramatically reduced the cost of starting a company, which is one of the things that caused and they'd launched this in 2004. One other things that really led to like the full deployment of the internet and because of that, the cost of starting an Internet company dramatically drop and you can now with three people, you can do some incredible stuff without the huge amount of technical knowledge that goes into building your own servers. You'll hear often like people talk about Larry and Sergey at Google and they'll say, they just needed to raise money because they'd maxed out their servers or stuff of that nature that's what they're referring to because it was so expensive to expand your server infrastructure and if you get a lot of web traffic, you just need more server infrastructure. So that led to the creation of what people called “Seed Financing.” Seed financing is in theory prior to a series A. At one point, I don't know where I get this from, I think of anything over four million dollar investment around as a series A, I'm sure there's lots of different ways.

APRIL WACHTEL: But it's, different industries have different kind of tiers

NICK DEVANE: Yeah and so we have the seed thing and that becomes bigger and bigger and bigger and now people will do seed rounds, that are seven million dollar, you know kind of these crazy bigger financing and then, that gave way to what people, you know, a round of financing that would come before that and, oftentimes a seed around is five hundred thousand to two and a half million or four million, I guess and I gave before that was like a precede or Angel Round and you hear people talking about that a lot.

APRIL WACHTEL: Angel and that just being friends and family primarily or non-institutional investor.

NICK DEVANE: Yeah I mean an angel investors investing their own money rather than a fund of limited partners and investors. They're making a direct investment usually much smaller and often times are the easiest people to get in on the earliest days, so someone on an idea or yourself but the pre-seed has now become a thing. They're now pre-seed venture firms, my buddy, Nick Charles from Notation Capital, I guess Brooklyn Bridge would fall in there maybe I guess they're a true seed firm, I don't know how Charlie talks about it, but you, there's a number of these kind of micro venture firms alongside angels that will give you initial financing if they're into your idea, that I believe was really adopted into the CPG space I could be totally wrong there, but you know we borrow a lot of these terms and also you now see CPG deals raising money from traditional venture investors that ten years ago would only be doing software investments, stuff like Layer ventures has a very robust consumer packaged, goods, portfolio, collaborative fund, Craig Shapiro's firm in New York City has a dedicated CPG vehicle.

APRIL WACHTEL: So sidebar, I have read about this but I'm curious your thoughts on this. So why do you think all of a sudden food is like this new hot space?

NICK DEVANE: I mean I think foods always had some allure. I think it's a combination of a couple of factors. One is the internet and social media has made it very easy, lowered the cost to building a brand and an audience and in its best form that looks like directed consumer. It's really hard to actually do the directed consumer thing, but you look at a company like Allbirds that has this amazing growth in, they make shoes, in that model and it's just incredible and the ability to do that without all these middlemen is phenomenal. Again Amazon coming back in providing hard core infrastructure. You can fulfil your product through Amazon's warehouses without having to build your own warehouses right, so that makes it again cost of entry dramatically lowered, and then I think we're seeing a lot of huge legacy brands that are sort of crumbling into middle and smaller companies.

APRIL WACHTEL: or acquiring like very large companies acquiring...

NICK DEVANE: There are a 147 CPG exits last year.

APRIL WACHTEL: Exit being?

NICK DEVANE: Being an acquisition or IPO I guess but we didn't see any of those, by these legacy food brands and they're essentially emanating to stay relevant. Emanating to being mergers and acquisitions and that is tremendous right so investors see that as an opportunity to make some money. It's clearly defined that they're doing that out of fear of displacement and you look at Chobani that in under five years got to over a billion dollars in revenue that's just insane and certainly the crew over there is very special but, you've seen these buy, getting bought for over 100 million, or Kensingtons getting bought for over a hundred million dollars. Bolt house farms getting bought for over billion dollars by Campbell's. These are like fresh, organic responsible companies that are not that old so you're seeing the type of return profile, that is similar to technology space and scaling very fast and that is attracting more money into this space. There are a lot of CPG funds now, a lot of people that are playing here and also the people that are associated with those like that have cash to now angel invest and other companies. When you're kind of seeing this maturation of the space and I think that's combining on the venture capital side with, there's lots of interesting stuff happening in software innovation, AI, healthcare, automated and its automated driving certainly everybody's talking about block chain protocols and etherium and Bitcoin but, on the app side and the more traditional software businesses there's a dull like, what was last app you downloaded that you actually use every day. So you kind of I think a lot of folks look in to different avenues to create a return and I think food is a very real business that people can understand and they can see okay you've got a cool product here, you're building a brand and how do we leverage that, it's not, you can, it's not that you can force these things to go but you know suddenly you get in UNFI, you're in Whole Foods, you're featured in Thrive Market, you get some influencers to support you. You start a really clever marketing and social media campaign, you get the right bar placement through distributors in the beverage space and you know it starts static or you get in you know hotels or airlines like you can sort of hack the system—particularly if you've got a little bit of cash in the bank—and while the return profiles are different in this space of those 147 exits in the CPG space, only 3% of them had grazed equity, 97% of them were debt financed or self-financed off the balance sheet.

APRIL WACHTEL: Which is, all right, so just again, just to break this down for our listeners, that's pretty incredible because it's really like the more money you have the easier it is to make more money. So to say that you said 97% of those had not raised any, they had not raised any money, those were self-financed.

NICK DEVANE: Yeah, well they maybe raised money,

APRIL WACHTEL: with loans and things like that.

NICK DEVANE: yeah but they didn't sell any of their company.

APRIL WACHTEL: That's pretty incredible, that's crazy.

NICK DEVANE: Yeah I mean I think a lot of great businesses have been created and in the delta between cash on delivery and Net 30, the advantage of CPG is like you fulfil quick orders and like yes you have to deal with that 30 days so you get cash back, but like you're making money and if you can support yourself like you start to turn that back into the business, you're not going to grow at the lightning pace that you will if you raise a hundred million dollars certainly but, I believe like Cliff Bar is 100% owned by the founders right and they're clearly a big company and it lets you control the dialogue like, I have any number of any venture investors that like I need to get their approval for certain things and we've got a board and it's not just my company, it's a lot of different people's companies and business partners and employees everyone that owns chunks of that, that's just different.

APRIL WACHTEL: So alright, let's get back to, I think we left off, you guys raised some money, you were still Homemade.

NICK DEVANE: Two and a half million dollars, very quickly started to identify the three things that we'd seen, which is regulatory issues, the economies of scale with how much stuff you can produce out of your home kitchen and this idea that like our power sellers really wanted to start real food businesses and so sure anything about these things and I get served in our office twice by the Department of Health in New York City and that's,

APRIL WACHTEL: Saying what?

NICK DEVANE: Ceast and desist. Stop operating the business.

APRIL WACHTEL: Because they were concerned about health issues or because they just fell out

NICK DEVANE: The main call out was domestic terrorism through food which I think is totally crazy but, we're going to see a lot of changes in the regulatory landscape in the beverage space.

APRIL WACHTEL: I'm sorry, what?

NICK DEVANE: that's leading to and I mean at the end of next year there's a huge amount of changes happening in food production facilities for that same reason.

APRIL WACHTEL: Sorry, what did they think was going to happen?

NICK DEVANE: People are going to poison food as a terrorist act which is going to change the way that you produce your product at the end of next year and every, this huge thing, I think, sure is just totally crazy but doesn't matter. So we're dealing with that I'd spent it, as a company we'd spent quite a bit of money lobbying to change some of those regulations and having really positive dialogues there but this is an issue I think regulations are surmountable but some of the other core pieces of our business were not and so to start to think about, what a pivot looked like. I knew that Brooklyn Foodworks was owned by a company called Dinner Lab, based out of New Orleans that had gone bankrupt in March and I was curious about what the current state their kitchen was in because it was live and when we started to do diligence on the company we could see that that was kind of, you know the kitchen was operating but they had removed a lot of the association with dinner lab and so I reached out to—I was just like you know what's going on here and reached out to the then CEO of Oakland Foodworks, drew who's now you know principal in our business and said, “Hey are you guys potentially in bankruptcy and looking for new ownership?” and he said, “Come by on Thursday.” And we spent a couple of months getting to know each other and talking through specifics of the business, doing diligence on what was going on there and decided that we would acquire Brooklyn Foodworks out of bankruptcy from Dinner Lab which is this huge shift to from our investor standpoint from a, you know, software only company that can scale infinitely with just that in server infrastructure to a physical 'B to B' business that operates checking into kitchens and has depreciating assets and legal liabilities and all these other things but, we move forward with that and pivoted our business around that kitchen and then since then I've gone on to go through two more financings and we are now expanding to add more kitchens around the country.

APRIL WACHTEL: So how many, there's Brooklyn Foodworks now.

NICK DEVANE: Yeah, there's the Foodworks kitchen in Brooklyn. Providence is opening next week.

APRIL WACHTEL: Congratulations.

NICK DEVANE: Thank you so much. There's a kitchen in Portland Maine and then we're opening a few more in New York and some other cities around the country over the next 12 months, so super exciting kind of big expansion which is, presents its own scaling problem but ideally the way to help people start a lot more food companies and also add a lot more jobs and kind of all-around. I think there's a cool, a very cool social dynamic at play with what we're doing but also again, we're making it easier for people to start companies which I think is super interesting just to see like the stuff that people are pushing on, is far more creative than anything I could I would come up with, like a pre-made cocktail mixer, that's helpful.

APRIL WACHTEL: So what is the vision then? I mean obviously you've got an expansion plan but is it to be, is it to fuel entrepreneurship in the food space? Is it to create 10,000 new small businesses across the United States? It's like, what's the kind of like bigger...

NICK DEVANE: We'll create more than 10,000. I see, when I think about it we want to make it easy for anyone to start a food company and not just through cooking and production infrastructure. People talk about like “stacks” in the software space like what your technical stack is, which is the different software that you use that combined makes up your business. So initially Uber was not, it's not just all software that they built. They're using Amazon for servers, they've got payments that are run through a company called Stripe that just does payments, they are integrated with Google Maps that uses all their map infrastructure and 10 other services that are kind of a key component of their technical stack and so it's a stack of different services that are built on top of each other to create an end product. In food you also have a stack, you've got your production space, you've got a distributor, you've got a salesperson which maybe is your distributor, you've got a branding thing, you've got, there's all these things that go into starting a food company and it's very hard to navigate all of them.

APRIL WACHTEL: Amen to that!

NICK DEVANE: I think we think about ourselves as unwinding that stack to make it really easy, so not just cooking and production space, but weeding into the other pieces there which we won't do all at once but there are a bunch of places that kind of middlemen, legacy middlemen are making a lot of money in a way that we think is inappropriate and highly disruptive. Food Broker is a classic one where they take you to a co-packing facility and they charge a few cents on every single can or bottle or jar that you produce in perpetuity when you're in that facility, right, which is just that's information and relationship arbitrage. They're taking their relationships which should be out in the open and they're you know negotiating a recurring fee for themselves which is fantastic but, again something that is highly disruptive.

APRIL WACHTEL: It's fantastic for them.

NICK DEVANE: Yeah it's a great thing and there are, I'm sure some food brokers well maybe hear this. There are some good food brokers out there and they are truth be told they're providing a lot of value which is why they get that because they're helping you place there but, every co-packer could also be in a database where you can see what they have and companies can say, “Here's what I'm trying to make, here are the five co-packers I could do that within reason or in my price point,” and you just connect with them and you don't have to pay, you know, a percentage of your business right. Similarly distributors running the same thing, a big distributing company often charges a 30 percent or higher margin on your business to drive your product from one place to another. The margins on distribution aren't great so I understand why but, again it's something that we're doing it for all these small food companies, maybe we can find some leverage there. We are launching a distribution arm in New York City, so anybody that's starting out and needs help, should be in their product, Nick at the Foodworks, but I think the grand vision for us is to provide a full suite of services alongside what we already do, where you should be able to just come in, having the idea and the grit and the determination should be enough to be successful where all of these sort of obscure different spaces are things that we're doing for you.

Co-packing in some sense is a good version of that when you're at the right scale because, you've got the product in the brand and then they're sort of doing all of the production and then like money is coming out on the other side in theory, um and I think that's what we want to get where like ideas are coming into this, you know, kind of factory of Foodworks on the other side you've got a product in a business that's running.

APRIL WACHTEL: I'd like to ask you for your recommendations for a few different resources. Obviously there's a lot of educational resources in around Brooklyn Foodworks but are there any resources that you recommend to any of our listeners for somebody starting out, wanting to start their own food business? Obviously this is the perfect time to plug Foodworks because it's an amazing resource in itself but, very curious if you've got recommendations for other as well.

NICK DEVANE: Yeah I read a lot and I think reading is maybe produced all of, any knowledge that I have has come from other people and through reading not stuff that that was original. There are a lot of great blogs out there and again I skew a little bit more into the tech space but like Fred Wilson's blog is just tremendous , Brad Feld just tremendous blog and they these guys blog all the time. Fred I think he's blogged every day for like 15 years or something like that. Brad's up there as well, Seth Godin, another genius and those you can just are quick tidbits all three of them are things you can read in like, a minute and a half in most cases. As far as books Al Ries wrote a book in 1992 called Positioning, it's a tremendous marketing and positioning book that you could read in a day. I think is fantastic.

APRIL WACHTEL: You said 'Al Ries?” Yeah, do you know the spelling of that,

NICK DEVANE: I don't, it's just look it up as Positioning it’ll pop up, it's a fantastic marketing book. I really like a book called The Outsiders not the young adult fiction but one about eight highly successful CEOs and sort of all these weird things that they have in common and traits that allowed them to be that way again prior, both of those books are really prior to the deployment of the technology space, so I think a lot of good insights there for food and beverage because they're kind of more traditional business books. I think those books had you know a big impact on sort of how I think about our business in the world more generally. I'm big into like self-help reading which I think a lot of, sort of like are you or aren't, but there's a lot of, The Power of Habit that everyone loves is fantastic. I read a lot of history books that I think are very helpful in the work. We've all read a Ron Chernow's Titan, it's a biography of John D. Rockefeller and it's just like very inspiring or insightful of sort of how these people built their businesses.

APRIL WACHTEL: What if, speaking of an inspiration anything that you music, art, you know other people that you kind of seek out for inspiration?

NICK DEVANE: I think I'm lucky in some sense because I get to go to these kitchens where there's like hundreds of people striving businesses, which is very inspiring to me.

APRIL WACHTEL: Yeah the community peace, oh my god.

NICK DEVANE: I mean you just kind of see or even, kind of everyday people that are maybe working at one of the companies in our kitchens. I draw a huge amount of inspiration from how they are kind of hustling to make it. I mean I think I'm very inspired by architecture. I'm very inspired by going to museums, I think anytime you can engage parts of your brain that you don't normally, you start to, you know things start to drop. I'm a big believer in this idea of what some people refer to as like “cross learning” or like it's so valuable to learn about other fields and other industries, because I think that's when you get true much more original thoughts.

If you only study, if you're in the beverage space and you're just like a master of beverage, all of the tricks that you're going to introduce come from the beverage space right, and that is just not innovative for as if you're studying history or science or math and reading about the basic principles of that, you suddenly start to think about, how do I take something from painting? How do I take this Matisse painting as inspiration for the seating in my restaurant like, Dimes did on Lower East Side or you think about like the way that a musician composes a piece and that gives you, you just sort of pulling elements from that into other things and I think that is, something that I'm not great at but it certainly is where I draw a lot of inspiration from, where you engage with sort of other very thoughtful impressive people that have masters of their craft and it's like huh, like there's this kind of cool lamp that I've been staring at in the audio booth we’re at and it's like maybe that kind of interlocking leave is some cool pattern that can be applied to packaging for a tamale company. I don't know, right, like but I think I draw most of my inspiration from things that are wholly not relevant to food and beverage which maybe is a bad thing.

I love going to restaurants particularly new restaurants not even like high fidelity expensive ones. I think it's just interesting to kind of see the different stuff that people are putting out, you'd start to identify trends really early. If you do that the right way and I really like the ocean I'm a big surfer I love to spend time in the outdoors and the ocean, I think there's something very divine about being out in nature that I find personally very inspiring.

APRIL WACHTEL: One final question, any organizational tools that you would recommend?

NICK DEVANE: Yeah anyone at Foodworks that hears that, is going to laugh. We’re a Slack / Asana company. It's kind of like AIM but for a company which we use very effectively. Asana is like a dynamic to-do list, which we do not use effectively. You guys hear that, see you know I think its one of those things that I've struggled with frankly particularly like email fatigue, where you start to get more and more emails and you just sort of like looking at my inbox stresses me out. I'm a big kind of traditional to-do list guy. I'll write down actual lists of things and then cross them off, I find that to be very helpful and then I really like as a plug for a service called Voxer. It's an asynchronous voice messaging service like so like sending voice notes on my message and on you’re on your iPhone, but it makes a walkie talkie sound after you finish recording a message. So that asynchronous in that sense means like I can send April a quick note and she can respond, she can hear it and then respond to it whenever she has time and if we're both on boxer it's like a real-time conversation but, I find that when you're super busy and dealing with a hundred million different things, you can very quickly relay information to someone else.

APRIL WACHTEL: Because of the walkie talkie noise?

NICK DEVANE: No I'm going to plug, this is so good though given that were on here, it records a quick voice note and then sends it like this. {Voice Note :} 'Hey man when can you catch up later today, I mean what your schedule looks like' and it goes out and now that person gets that message and they can respond to it at whenever they have a moment whether they're walking between meetings or whatever or maybe they get to it at the very end of the day but that now persists, whereas otherwise you have to schedule a call and then when you schedule a call and you get on it and then you go and you forget the thing that you originally, it's going to look all about, so it's a way to kind of constantly stay in communication on the fly without having to overly schedule things.

APRIL WACHTEL: Awesome okay, Awesome and I know you're not really like active unsocial but…

NICK DEVANE: I have a Twitter account, @NDevane. I have a very small Twitter following, but you know a lots of misguided opinions and then Instagram but those are my two social things that I'm doing.

APRIL WACHTEL: And where can people find info on Foodworks?

NICK DEVANE: The foodworks.com cool, check us out. We'll be coming to a city near you and if we're not already.

APRIL WACHTEL: Nick, thank you so much for coming on today and see you soon.

NICK DEVANE: Thank you so much.

Thank you for listening to Movers & Shakers. Follow us on all social media @moverssshakers.

Movers and Shakers is a podcast about people and ideas that are changing the beverage landscape.

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Jul 25 Episode 7: Interview with Nick Devane, Foodworks Founder & CEO

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