Timo Boldt has managed to secure huge investment in Gousto despite big losses on the balance sheet. So how does he make his case to investors?
Failing to secure cash during that tense negotiation on Dragons’ Den was the exception rather than the rule for Timo Boldt. The founder and CEO of Gousto has gone on to lock down £75m investment in the recipe box business in the six years since staring down Peter Jones, including £28.5m raised in early 2018 and a further £18m last month.
It would be impressive for any business, let alone one that is yet to turn a profit. Because despite almost doubling sales to £23.3m in 2017, Gousto also haemorrhaged £13.4m in pre-tax losses in the same period, largely as a result of ploughing around £14m back into new staff and tech (as well as lowering prices).
It’s a long-term strategy former financier Boldt has no intention of changing though, with the latest round of funding going straight towards 125 new staff and building up IT capability. “An overnight success takes 10 years,” he insists. But how do you convince investors of that? And where is the tipping point into profit?
“I’ve always had this vision and tried to raise capital against it by focusing on the long term,” he says. “Yes, it takes money to acquire and you need to invest but ultimately there is a huge nucleus of customers that are super-loyal and keep on buying.
“It makes perfect sense to spend a bit more in the short term to get the long-term benefit. As long as investors look at the numbers and see that they’re actually quite amazed, and therefore we’re able to raise quite a bit of money.”
There are a few numbers they could pick from. There are those Boldt uses to demonstrate the size of the recipe box opportunity. The fact that 82% of the one billion meals eaten each week are home-cooked and if you can access 1% of that then there’s a £6bn revenue business up for grabs, for example.
Name: Timo Boldt
Family: Married, one-year-old son.
Potted CV: Worked as an analyst at Rothschild before becoming VP at hedge fund Petrus Advisers. Launched Gousto in 2012 and also sits on digital advisory board at Unilever.
Career high: I love what I do, working with close to 500 amazing people who inspire me every day.
Biggest lesson learned: It came from when we first obsessed about the customer and took this long-term strategic focus. Not internationalising felt really daunting as it was totally unproven.
Best advice received: If you enter this market with a blank piece of paper, don’t think small, think really big. That way you don’t build a product that’s a little bit better but one that’s way up here, even if it takes 10 years rather than three.
Hobbies: Exercise - I do triathlons, I used to do marathons, fitness classes, spinning, anything.
Or Gousto’s own growth so far, with an 82% year-on-year increase in sales and around 1.5 million meals delivered each month. His “humble strategy”, he smiles, is to be the Netflix of this market.
But the numbers Boldt is most keen to talk about are the reams and reams of data he believes sets Gousto apart from its rivals. “It’s all about data science and technology. We consider ourselves to be a data company that happens to trade in food.”
“Other players have taken a very different strategic view,” he says. “That’s been to go wide and into other countries and dominate the world with a very basic product. But that’s ripe for disruption. Instead, we go deeper and deeper to create this personalised relationship, which will make it increasingly hard to compete.”
It’s always been the plan. Even in the early days, fresh from cooking up dishes in Boldt’s kitchen, hand-delivering boxes and handing out their personal mobile numbers to customers, the strategy was to build automation and data into the supply chain, adding AI to production as early as possible.
Gousto’s 10th employee was a data scientist with a PhD in machine learning and this latest round of funding will see a doubling of the tech and data science teams. “What that means today is we have the most differentiated value proposition. It’s totally personalised. Plus the lead time is shorter, and the price point is lower.”
Gousto knows what people want to eat, what they think of it, their likes, dislikes and intolerances, even when they want to cook it. “This real-time cycle means I know Rachel in Leeds has two young kids, one vegan and one lactose-free, and she likes to choose meals on the way to school on her mobile and rate the meals on a Friday night after she cooks them. You become enormously personal about each individual relationship.”
But what does all that data do for margins? On the supply side, Boldt says leveraging data to tweak how Gousto routes ingredients and forecasts demand has seen throughput in the factory go up by 80% so “we get so much more from the space. Labour costs go down, capex is pushed out for years and years…”
That automation also ensures “there is almost no extra cost in scaling choice”. Gousto now offers 30 recipes at any one time (50% more than rival HelloFresh) “without additional complexity”, as well as presenting each customer with a personalised menu.
Data even drives the NPD. “We see what customers search for, what they read, what they look at and share, and then can adjust the product.” Take the recent tie-up with Joe Wicks, who joined existing investors in the latest round of funding. “If people buy into his meals we’ll give them lots more choices of that, but if they don’t we’ll give them burgers. We’re not religious about it. It’s data-driven innovation.”
Backed by all this data, Boldt sees 2022 - that magical 10-year marker - as a potential tipping point for both Gousto and the wider sector, where larger players move into profit and smaller operators may be phased out.
“We consider ourselves to be a data company that happens to trade in food”
“If you look at Netflix, 10 years ago it had 10 competitors. Now it’s Netflix and Amazon Prime. In our industry you see a lot of small tiny players, vegan boxes or Indian boxes - it’s great, I love them, the more the merrier - but to do something truly amazing with the customer at heart it will get harder and harder.”
That applies to hit-and-miss efforts by the supermarkets to enter this space, too. “I’m relatively sceptical whether the supermarkets can make this work. Not because I’m cocky, I almost want them to because it helps raise category awareness. But it’s enormously hard for companies that have for 50 years built offline supply chains of 10,000 stores, to all of a sudden win in the online world.”
Instead, the spoils of the sector will go to the businesses, like his, that can leverage the “compounding benefits from data science and the technology. Together they will build the moat around the castle.”
And once they reach that point we aren’t talking about the 0.1% marginal gains supermarkets are “obsessed about” adds Boldt. “In the next 10 years this ability to apply data, AI and deep learning will build a step-change in margin, customer experience, supply chain and forecasting way beyond anything supermarkets can manage.
“What you see today is good but it’s far off where we want to get it by 2022. What you see today is the tip of the iceberg.”
Which, I imagine, is exactly how Boldt rounds off his pitch to prospective new investors too.