Marc Lore's Blueprint For Scaling Billion-Dollar Startups

I want to know what is the ability of that company to hire the very best people in the world. So you have to be able to identify great talent. You need to convince them to come to the organization and then you have to get the very best that they have to give. And getting all three of those right is hard. And organizations that have figured that out are the ones that are going to ultimately win.

Yeah, I mean in all three startups I've always picked capital intensive businesses that are able to give us a real moat around the business. I think in the earlier days the first two startups that was a bad thing to actually have a lot of capital required to get to scale. But I think Amazon sort of laid the path for others to follow and I think now with AI disintermediated software companies, software has become a bad word in the venture community and here we are sitting here finally where we're being respected for building a real moat with physical infrastructure and physical AI. So, it's kind of an exciting time because after 25 years of capital being a headwind, now it seems to be a tailwind.

Yeah, I mean I'm just looking at the customer value proposition as a user of food delivery aggregators and the customer service, the long delivery times, the high fees and things and just felt like it was right for vertical integration like not just doing the delivery but also owning the restaurants, doing the cooking and being able to stitch the cooking and the delivery together in a sequenced way that elevates the customer experience. That was the original thinking. I think over the last couple years with advancements in AI and robotics, I think we're thinking much bigger now. We're thinking about completely reimagining what it even means to be a kitchen. And at Wonder, we're doing what the cloud did to software. We're decoupling the kitchen from the restaurant so that we could scale restaurants like software. And in fact, at the end of the year, we're launching something called One to Create, which will allow any individual in the world to build a restaurant on the Wonder platform for 10 bucks a month and instantaneously scale it across all locations utilizing Wendy's backend, supply chain management, ingredient sourcing, cooking of the food, delivering the food. So, all you need to do is market your restaurant. So we see a future where there are literally going to be millions if not tens of millions of restaurant owners that own restaurants only in the digital world. And they're there to market it. And it would all exist on the Wonder infrastructure.

It has taken seven years and over $2 billion of capital. So it was much harder I would say than we probably originally thought. It's that entrepreneur naive that I love. Makes you dump into something and people say is impossible. I think the hardest part was we have now in a single 2500 foot kitchen. We've got 25 different restaurants across 20 different cuisines. So everything from a high-end steakhouse, Bobby Flay steak to Jose Andres, Spanish tapas to burgers, barbecue, Chinese, pizza, Italian, Thai, Middle Eastern, just about every cuisine you could imagine, all being cooked in a systematic way in 2500 square feet with no gas, no open flames, only electric cooking equipment with very lightly trained labor. And then increasingly more, we're adding robotics into the back end. We've completely automated the expo area, which is the toughest part in a restaurant. We just bought Spice Robotics which is the infinite bowl making machine. We bought that from Sweetgreen. So in the very near future all the bowls concepts will be completely automated without labor. So yeah I think that has been the toughest part. I think acquiring GrubHub Seamless for the delivery piece of it was also critical and we built all our own tech that stitches together in between. So we can sequence the cooking. If you order, if you're a family of four and order from four different restaurants, all the food finishes cooking at the same time, but more importantly, it's timed with the courier, so the food doesn't sit in the kitchen. The courier doesn't wait and it's all integrated. And we set a really tight delivery radius, so we're able to get it to you. In the city, our average delivery time is 5 minutes, and in the suburbs, it's just over 10 minutes. So it's just a faster, more on time, hotter, multi-restaurant order experience that we've been able to create.

Yeah, I think first thing that was super interesting to me was just how much higher the margins are in restaurants than they are in e-commerce. And e-commerce, we've got a ton of automation because you're fighting for basis points. And I think in the restaurant world, there's so much margin that there really hasn't been this focus on needing to automate. But that really, when you think about it, is ripe for automation because there's 30 points of labor, you know, in every kitchen, plus or minus. And so it's really that's where the automation should be focused and it hasn't to date. So I think that is a really really big opportunity.

Yeah. So we started with this idea of vertical integration. Same vision but instead of the traditional cook and then deliver the food, we thought what if we deliver then cook. And so we basically built these kitchens in the back of Mercedes Sprinter vans and it would drive to your house and then cook the food in six to 10 minutes outside your door and deliver it. And we had it down where the driver could cook. So there's no extra labor. So you really weren't wasting any time because you have to drive anyway and you have to cook anyway and the same person was doing it. So the customers loved it. It worked really well. We had 450 trucks on the road. We had an insane net promoter score. But it was very capital intensive. It only worked in the suburban areas. And there was definitely harder to scale the labor model and so some complexities there. At the same time, we had tested a brick and mortar and we said, what if each truck had a restaurant on it and we had now 25 different restaurants. We thought what if we take all 25 restaurants and put it in a brick and mortar and set a tight delivery radius. Could we sort of replicate the quality? If so, this would work in urban, suburban, exurban, rural. The TAM was much bigger, much less capital, more efficient labor model. So, we opened a brick-and-mortar location at the end of 2022 after three weeks of data. I said, 'This is it. This is it. That's the future.' And we didn't really have the resources to run both models at the same time. So, we had to make a decision. And so, we pulled 450 trucks off the road, sold it, took an $80 million, $100 million loss, took revenue to zero, and started over in early 23. And then in the last three years, we opened 120 locations, which is the fastest to our knowledge ever to do that. And in the next three and a half years, we'll have a thousand. So, we're just running really fast trying to make up lost ground. It's like if you've ever missed a turn when you're driving and you miss an exit. You wind up driving faster to get back because you feel like you got to make up lost time. That's how I felt the last three years. We lost a couple years and so we got to go, we don't have time to do it the way we would have done it if we had unlimited time.

I mean, with every startup, I'm always thinking bigger, you know, with Jet thinking bigger than diapers. I think with diapers.com, you know, was thinking, wow, this could be a billion-dollar business, right? This was the first real one. And we got off the train at 550 million. And then with Jet, I was like, 'Okay, I think this actually could be a $10 billion business.' And 26 months after we started, we got off at three billion, right? So, in the same order of magnitude, but just earlier than the goal. And I think with Wonder, started and said, I think this could be a hundred billion dollar business. And so, but we're not going to get off the train. We're going to take this thing public. And what's interesting is and this hasn't happened before. I think now with the new model and the advancements in AI and robotics, I do think this has the potential to now be a trillion dollar market cap company, which is super exciting. It's a founder's dream to have that size TAM and market opportunity and be a disruptor. So I'm all in on this. I've dedicated my life to making this happen at this point.

Yeah, I think one is access to the capital market. So this does require billions of dollars of more capital. So access to the public market, we'll be ready to go public in like 11 months. So that's exciting. And also having a public currency to be able to make acquisitions. So a big critical part of our strategy is to acquire the best restaurant brands in the country and buy them and then be able to arbitrage that acquisition by blowing it up on the platform without having to add any new capital or open up any new locations. So very very excited about going public for those two reasons.

Yeah, I mean I think the rate at which we're growing is unprecedented in my career like I haven't done that before. I think the pace of acquisitions as well and some big ones, you know, buying GrubHub for example. So that's all new. I think the level of executives that we brought in is a whole other level than anything I've dealt with before. So that's also new. Yeah, I think I feel like I'm just learning every day and becoming a better entrepreneur. A lot of the VCP, the vision capital people systems that we built at Diapers, I've watched it evolve into Jet and then into Wonder and those systems continue to evolve. The performance management system, compensation systems, and how we think about org structure, and it's just fun to keep learning and evolving every day.

Yeah, I think we're at a really good spot now because I think the last three years, like I said, once we went brick-and-mortar, we were trying to put all the pieces together very quickly, buying a delivery network, building the units, buying the restaurants, building restaurants, like we're doing a lot of that foundational work. And I feel like we're at a stage now where, and then with the acquisition of the robotics company, I think we're really crystal clear on what the sort of 2040 vision is. And we have all the pieces in place to go execute against that vision. And it's really a matter of continuing to scale, continuing to keep the culture strong because it's all about execution at this point. And making sure that the food quality continues to improve as we scale, which it has been. Which is probably the most exciting and most focused part of where my brain is, which is food quality getting better as we scale.

Yeah, I think focus is a little bit misunderstood. I think people look at the number of things you're doing and the more things you're doing, a lay person would say that's lacking focus. But I think when you look under the hood, you have to one see how the pieces fit together in a really compelling strategy and all tied to the vision, right? I think that's most important. But equally probably as important is building the organizational structure so that you have no dependencies from one piece to another. So you hire a great person that focuses on a particular area and there's no dependencies on any other area, then that person is as focused as they could possibly be. You have other organizations that maybe only doing a few things and they have an upside down org structure where there's dependencies left, right, and center and there's lacking focus because no one's accountable and no one has the ability to execute without having to rely on somebody else. And so I think a lot of it comes down to organizational structure and having the right level person on whatever it is that they're focused on.

Yeah. I mean just I think with any business and Wonder is no different it'll always come down to the quality of the people in the organization. And so when I look at a company and judge whether companies be successful, I want to know what is the ability of that company to hire the very best people in the world to do what they need to do. And so it starts with building a culture that is very attractive having the vision to sell the individuals into the organization and then having the right performance management systems, compensation systems, the foundational systems to get the best that they have to give. So you have to be able to identify great talent, need to convince them to come to the organization and then you have to get the very best that they have to give. And getting all three of those right is hard. And organizations that have figured that out are the ones that are going to ultimately win. And I think people miss that. Like investors certainly miss that. I don't get questions at all about the actual infrastructure required and our ability to attract, retain, get the best out of the best people. Because if you have the best people and you have real clarity around the vision and strategy and you have the right organizational structure that allows people to run and be empowered without having dependencies, then magical things will happen.

Yeah. I mean I think some of it's just I've just learned human nature. I mean, some investors do get it and they do focus on it. Most don't. I think it's just human nature to want to look at the numbers. Like, show me the numbers. I want to independently look at those numbers and I want to make a decision whether I look at these numbers today and these numbers look good enough to invest in. But if you looked back when we had trucks on the road and you looked at the numbers, well, I don't know, a year later, three years later, it doesn't look anything like it did back then. And so you were looking at the numbers fine, but you weren't looking at the infrastructure and the organization's ability to recognize that something's not working to be able to pivot. In order to be able to pivot and find the opportunity, you need the right people and you need the right structure. So more important than anything, I think, is people and structure. And then your ability to raise capital. That's the other thing. So you can have great people, great vision, clarity, structure, and everything, but if you can't raise capital, then that's also an issue. And so I would also look at the company's ability to raise capital, their history of raising capital.

Yeah, I mean first I always in every startup had what I call a capital plan. So from the very first day when you start the company try to understand how much money you want to raise with each round, what you want the valuation to be, how much dilution ultimately is from each round that you're taking and kind of map that out day one. And it all starts from the level of ambition because your very first seed round needs to be tied to the level of ambition. And so I have a very simple thing. Figure out what size company you ultimately want to create, divide by 66.66. That's the magic number. That tells you basically what the seed round should be. So if you want to create a hundred million company and you divide by 66.66, the seed round is 1.5 million. Billion, it's 15 million. 10 billion, then it's 150 million, right? And so you start out with that seed round, let's say 20% dilution on the first round. The goal and the rule of thumb is to try and double the valuation and double the amount raised every 18 months. So, that's kind of the way I plan it out. So if you want to create a $100 million business you raise 1.5 million at a 4.5 pre 6 post, you know this 25% solution and they say okay now in the next 18 months I want to raise three million at a 12 pre because that was a six post and you make it in bite-sized chunks right and then after you raise that round then you want to double again and you say okay now I want to raise 6 million at double the valuation and then 12 at double the valuation 25 at double the valuation and after six rounds of financing, you basically have yourself your $100 million business. And so you just break it down into these chunks. And what it does is when you're building your budget, you sort of know how much capital you have in between raises. And you know that you have to double the valuation. And so you just work backwards. And that's the way I've always done it. And at Diapers and Jet, it wasn't perfect, but every round, every investor made 100% compounded annual return because that's the way it was structured. It was to double the valuation each round. And so if you do it in 18 months, it's a little less than 100% IRR, but still an amazing IRR. The founders still left with probably 15%. I don't remember the exact math, at the end. And so everything works. What I find is sometimes people they undercapitalize it or they raise too much money too soon and it's hard then to make the returns that investors require because every investor the seed round is different from the A different from the B different from the C. They're different investors and they have a different profile that they invest in and if you stick to this trajectory you're kind of at the right place at the right valuation for the right investor each round.

Yeah, I mean there's a lot of pieces to that. I've built this framework I call VCP vision capital people. Each has a few different components to it. I spend 80 to 90% of my time thinking about VCP. When you think about vision it is what is your 10 to 15 year vision and getting that written down on a piece of paper. What are the core strategies the how of achieving that vision? What's the organizational structure that backs the strategy? So again you have the right people in the right spots driving the most important strategies and metrics without any key dependencies and how you build that is really important. Having a capital plan under C and having the right pitch deck and the right story and spending time on that. And then under the P is, having a clear mission, a clear set of behaviors, a clear compensation system, performance management system. We actually have a room in the office called VCP. And we have all these things I just mentioned on whiteboards around the room and every week our team meets to talk about VCP. It's sort of the analogy is a basketball player doing foundational work. So, they could be an NBA player, but still sitting under the basket and just without even a ball, just working the form. And that's what I think is missing. A lot of people just running around, putting out fires, but not always taking the time to do the foundational work because when everyone in the organization understands the nuances of the vision and strategy in every word, what does very mean? What does a lot mean? Really, the nuances of it and that permeates throughout the organization, then everyone is thinking like an owner, everyone's thinking like the founder, and that's leverage.

Yeah. Well, first, I think you have to have a mission that you're really passionate about. It's tough to just say, I'm just building this to make money. That's not that motivational. But our mission at Wonder is to make great food more accessible. And so we're bringing great food to suburban and ex-urban areas that don't have access to great food. We're open now till 2 am in the morning in the suburbs. And even in exurb areas again where there's only fast food available. So people that are working night shift at the hospital, they now could have access to better quality food. We're bringing down the price point of great food. We've got a couple great concepts. Salads, fast casual Mexican that's 30% cheaper than what you'll find in the market for the same quality and portion size that really fuels me. I love the idea of making great food more accessible to people and it's such a big mission and it's sort of our north star, you know we're never going to get there we're never going to say we check the box great food is now accessible you could always do more and so we're very driven to do that and so that's fun. And then as an entrepreneur, you do think about the brands that people talk about from centuries ago. And you know what was it about those businesses that allowed it to last centuries? I think that's the dream of any entrepreneur is to build a business with that kind of legacy. And so there's some fun in that as well. So I think I would say the combination of that plus the mission is really what fuels me and why I love to get up every morning and do what I do.

Thank you. It was great to be here. Thank you.