How Shelf Engine got 4 of the top 10 grocers and reached product market fit through a perfect go-to-market pivot
Stefan Kalb started a food brand at age 23, and that’s when he discovered 30% of all perishable food goes in the garbage. He teamed up with a technical cofounder Bede Jordan in 2016 and now they’re solving the problem with software.
Now with product market fit, and signed expanding contracts with 4 of the top 10 US national grocers, they’re on track to solve the $160B annual US food waste problem and build the next billion dollar startup in the process. Read on for a breakdown of our conversation and click below to watch our interview.
Garry: Stefan, thank you so much for coming on my channel. It’s really a pleasure to talk to you about your journey with Shelf Engine. It’s a really cool story so I can’t wait to get started.
Stefan: Hey, likewise, Garry really appreciate having me on. So this is exciting.
Garry: What is Shelf Engine and how did you get started?
Stefan: Well I’ll start off with what we do because what we do is actually quite unique and then I’ll step backwards a little bit and explain how we got here. But at a very high level, Shelf Engine does two things. Kind of the more obvious thing and maybe if you just read on our website, you’d probably see this, we do demand forecasting for highly perishables in the grocery section. So walk the perimeter of the store, things like deli, bakery, produce, those kinds of things. Actually the majority of the sales in the store, we do demand forecasting for that. The more unique part of what we do is we actually guarantee sales for groceries. We submit the orders to the vendors and we only charge the grocers for what sells. And this is quite a unique business model in terms of our offering. We’re not the traditional SaaS company that you would think of. We take that risk on ourselves and manage that inventory. So your next natural questions probably like, “Okay, how did we even get here? Like how did that come about?”
Garry: I mean, you ran basically a food brand yourself.
Stefan: Yeah, when I was 23 years old, I decided to do the crazy thing of starting a food company. Grew that company for about a decade and got to learn a lot about what it’s like to order [food]. If you’re a grocery buyer, you have a really, really difficult job. And my company, we had grown to over 400 locations. I knew that pain in a major way, to such a point, I state this publicly often, we had 28% waste. When I went out to fix that problem, I realized that that was actually pretty normal. For a lot of the highly perishable categories out there, waste is roughly in the 30 percentile range. I thought that’s just crazy.
Garry: 1 in 3 apples, sandwiches, everything basically goes in the garbage and is never eaten, it’s just rotten.
Stefan: Generally speaking, yes. Walk the perimeter of a grocery store, generally speaking 1 in 3 of those items will just be thrown away without the opportunity to actually be consumed in a home. And what’s crazy about that, Garry, and since we’re on the subject, which is really important, is that most stores and most of the industry under reports this number because they don’t actually have the access to the data. The first thing we do whenever we start with a new store is we give them their true number. And we have seen some astronomical numbers out there. The opportunity in the field, and this is actually a great lesson for entrepreneurship, the opportunity was much larger than we originally thought. Usually when we go into a store and they have 28%, that’s usually a good case. That’s usually a good scenario.
Garry: They’re doing well in that case.
Stefan: They’re doing well, in that case. Which is wild, right?
Garry: So that means even for some people, half of the food that enters through purchased inventory never gets sold and then it gets thrown out, sort of a commodity business. One that has actually relatively low margins. So it seems like an actually really, really large possible market.
Stefan: You said the magic word right there, which is a large commodity market. You’re absolutely right. We’ve had several customers where we’ve entered and their spoilage rates were over 50%. How do you enter a situation where you have such a massive market in the industry? You have something that’s fairly commoditized, where you can buy these products across a bunch of different brands and the margins are quite low. So how does this happen and how do you address it? And this was a part of the thing that was really exciting for us, which was whatever change we make here is going to make a monumental change on the environment, but also in the industry, because it is so commoditized and there are so many grocery stores and the products are so similar.
Garry: My favorite thing about your creation story is that you sort of took an observation directly out of your direct experience. You had secret knowledge just off of that because if you just told someone off the street that that was the case, that 1 in 3, any food item on the shelf just goes in the garbage, it’s so high that you wouldn’t even believe it. But once you saw it, you actually started thinking about how do I solve that with software? And I think that was when you brought in your co-founder Bede. I think you guys were all sort of social friends at that point. I mean, that’s when I got to know you back in, was it 2015 or 2016?
Stefan: Actually, I remember our first time meeting pretty well, which is a good story in of itself. But yeah, what happened was Bede and I were good friends and he had been an engineer at Microsoft for about 10 years. I would share with Bede some of these crazy stories in the food industry and he would classically roll his eyes and be like, “That just can’t possibly be the case.” And I would tell him like, “Hey listen, most of the ordering in the grocery store is somebody walking an aisle and making a really good guess. And these are the best tools they’ve been given. Like some spreadsheet, maybe some sort of archaic ordering tool.” And so we had some good laughs about it until one day we were like, “We could really do something here.” What was awesome about that situation was we started moonlighting on Shelf well before we launched. The first version of Shelf, we actually got to test at my company and see the impact that we could have. And that was kind of the lead up into the first time that you and I got to meet. I got to walk in and I said, “Hey, Garry, we’ve built something where I’ve been able to take my food waste in my company and drop it significantly to such a point that I’ve been able to make way more money in my company just because we built this product.” And I think that’s a great lead in for, “Hey, there’s a massive market opportunity. We would like to go and build this company. We’d like to do this.”
Garry: Yeah, I remember that. That was a really powerful moment because obviously people look at very early stage investing and it’s sort of a black box, but funding you guys that early, I think we were among the first money in.
Stefan: Oh yeah, I’ll credit you with the first money in for sure.
Garry: We got to know each other socially through our mutual friends. I think it was Bo Lu, who was a part of my dim sum crew, back when I worked at Microsoft back in, I guess, ’03, ’05. We just kept in touch and he ended up coming to do Y Combinator and then you ended up doing Y Combinator. So it’s funny how starting companies, it’s a little bit contagious. It sort of travels through groups of friends. It starts off with not having any intention. It’s just hanging out with people and then seeing very smart friends of yours go on to do startups. It gets you sort of thinking about it yourself. And that’s one of the cool things that I’ve seen.
Stefan: To this day I’m so grateful for the guidance that Bo has provided. And then of course, you watch your friend be very successful. So that’s pretty cool.
Garry: He’s the most successful roboadvisor startup out of all of them.
Stefan: Which is cool to witness and to be able to see that. Bo comes along, he is so humble and he’s like, “Oh, you can do it too. Of course you could do it!” And then he gets you all sorts of inspired and you’re like, “I just have to go do this.” And so I feel really grateful because Bo is really a great mentor and a great guide in this entire process. And for us to be able to connect and for you guys to eventually invest also for the entire journey. It’s all been great.
Garry: I have always been impressed by this sort of first principles thinking. A lot of people watching this really want to start companies and are maybe earlier in their careers, or sometimes later in their careers, trying to figure it out. I think the coolest thing that you’ve been able to do is take a very direct experience from something that by default isn’t technical in nature, but then you started looking for technical and software-based solutions that clearly can and has solved the problem, and in sort of grand fashion. So first principles plus a really big mission caused you to build something that’s now very, very scalable. It’s so crazy to see, but there are things like this sort of lying in plain sight, just all around [us].
Stefan: I didn’t quite see [the amazing opportunity] right then and there in the beginning, like you might see it as an investor, which is, “Oh, hey, there’s a huge TAM. It’s an antiquated industry, but we all need to eat, so it’s a major opportunity, and it’s commoditized, and it’s probably going to win or take all market.” Those things in the beginning, I didn’t get to see that. What I saw was, “Hey, there’s a lot of food going in the garbage.” In fact, in sales pitches today, I start off with some of the first slides by saying, “Hey, I went in your back room and I took pictures of your food waste.” And you see these executives at these grocery stores being like, “Oh my God, you got to be kidding me.” You look at it in two ways. One, what’s the dollar figure associated with that food waste? And two, what’s the environmental impact? And you get to see like, “Oh, okay, well, hey, there’s a bunch of turkey. That’s a bunch of essentially dead animals that were never consumed. Hey, there’s a bunch of packaging. It’s a bunch of plastic that was produced. Oh and hey, how’d this all get here?” It was shipped here, and that’s all wasted. And that just seems ridiculous. Being able to see those two pieces and be like, “Oh, they’re actually very well aligned.” I feel also very fortunate that they’re very well aligned because every time that we onboard a new customer, every time that we have a new category and you skew a new grocer that we have on board, we get to see the progress, not just on their P&L, but on the environmental impact that we get to see. That’s really rewarding, right? That’s a very fulfilling experience.
Garry: Yeah, it’s not enough to just have the mission. You also need to work through capitalism and work through the systems that we have in place that allow you to get it to the scale that it needs to have that impact. Like aligning all of these different interests in a way that put us in a world that is less food waste, that’s just categorically better.
Stefan: Totally, and to bring it down to a very day-to-day tactical kind of situation is whenever you’re doing enterprise sales, you need to be essentially, the number one priority for the customer that you’re going after. How do you make that happen? And it tends to be, what’s the number one impact going to be on the P&L? And if it’s going to be a really important impact on the P&L, that’s how you get that meeting. That’s how you actually set up the first launch. That’s how you scale. For that to be like, “Hey, potentially we are the number one priority you should have as a customer because we’re going to make that massive impact on it.” You’re right, that’s aligning mission and capitalism together. And seeing that on a tactical level is really rewarding and really cool to be able to witness.
Garry: Yeah, capitalism can’t solve all the problems, but it can solve a few. It’s really cool when it works like that. Going back to what you were saying about enterprise sales, its been a number of years since the first version when you guys both quit your jobs initially. The first version was actually a lot more traditional in terms of selling as a software as a service, trying to get monthly fees from grocers and from packaged food companies and actually harder, wasn’t it? It’s not all roses. The path to product market fit is often fraught. And that was also true for you. How did you navigate that?
Stefan: That was definitely a difficult time. And in many ways, I give you and Initialized a lot of credit for that because you guys remained believers, even though things didn’t look great on paper. We still knew that there was a big opportunity. So for context, we launched as a SaaS company and we said, “Hey, use our software to predict orders.” And what we realized was that there are a lot of breakdowns in there. It didn’t matter how smart the AI was. If you want people to use the product in store and add onto their workload of doing more things, things tend to break down. We said, “Hey, we just saved you a tremendous amount of money, but your team doesn’t really seem to be engaging with the product the same way that it should be.” There were challenges on multiple levels in terms of what needs to happen for [customers] to use the product in day-to-day. We came up with this wild idea of saying, “Well, what if we just did it for you? What if we just guaranteed the product for you? Then you just don’t have to worry about it.” I’m really grateful to have had that crisis because that enabled us to have this business model that has helped us scale so fast and have so many more impacts. And I think you took it really well. I’m thinking, “I have to call Garry and let him know that things aren’t working out.” And for you, it’s just kind of like, “Well, try something different, evolve, see where it goes.” Yeah, I really appreciated our interaction at that time. Instead of just trying to force something through that probably could have been a company today, but not something as meaningful as we are at today.
Garry: Well, it’s like Bruce Lee says, “You’ve got to be like water.” And with the best founders, that’s exactly what you did. I remember we talked about it and it was really hard to get people to pay thousands, if not tens of thousands of dollars per month, for something that actually required a bunch of onboarding. And it required a bunch of data cleanup. And it required true buy-in. And sometimes there are just bars that are so high that even with the highest possible touch interaction, it’s not possible to get a company, especially a company that tends not to be that technical. It’s just hard to get them all the way over the line. The brilliant thing was for you to say, “We have data, we believe this works. How do we make a package that is a no brainer for the customer? And we can take the cut.” I credit you for finding that path, because that is exactly the kind of, “Be like water,” type of thinking that great founders have.
Stefan: As a true Seattleite, I am often inspired by Bruce Lee. But yeah, you’re absolutely right. Sometimes people say, “You should start a SaaS company and you should do these following things.” Many times there’s an incredible opportunity sitting there, but it’s not clearly defined in other ways. And even in the beginning . . . this was the funny part of the conversation, “Wow, Garry, we’ve tried this new model and things are really taking off.” And everybody’s like, “Well, what are you exactly? Are you a marketplace? You’re kind of taking this risk, are you SaaS? What are you exactly?” This was our next challenge, which was a much happier challenge to take on, taking something that was new and defining it.
Garry: Catch us up to today. Obviously for me, it’s been really cool to see your journey from two people renting a space in Capital Hill and visiting you up there, seeing you at that stage, to now–how many people are you? And you just raised a Series A at the beginning of the year from our friends at GGV and Hans Tung.
Stefan: We’re nearing, or almost exactly 50 people now.
Garry: 50, 5–0?
Stefan: Yeah, 5–0.
Garry: That’s a lot. It’s an impressive team then.
Stefan: It is, but funny enough, part of the lesson in entrepreneurship, I think, the rate that we’re scaling, I actually wish that we would have grown the team a little bit more ahead of time. So we’re definitely feeling a certain amount of that pressure.
Garry: That’s what product market fit looks like. You always wish you hired a little bit more because when the world needs it, they really inflect into it. And then at that point, you need to sort of hold on. You’re in the, caught lightning in a bottle phase. It’s a blur, honestly. It’s also very exciting because this is sort of the march to billion dollar startup. I think it’s going to happen really fast for you. That’s sort of where we’re at.
Stefan: It’s the really exciting phase, right? What’s coming up next and how we’re going to get to that billion dollar phase and beyond. And honestly, what’s funny about this, and Bede and I joke about this often, which is, YC kind of leaves off at the point of like, “Hey, you’ll know, you have real product market fit when things feel crazy and you can’t keep up with your own growth.” And they’re like, “Okay, goodbye, you know, good luck.”
Garry: Good luck!
Stefan: And then here we are, We’re like, “Oh my God, what do we do?”
Garry: This is what it feels like.
Stefan: This is what it feels like. But you know, I think, and especially cause we’re recruiting so much and we’re really looking to build this dream team. This month alone we’re launching over 600 stores across the country. The team is traveling left and right. And we’re working with everyone from store manager to the store executives and people are essentially calling us and saying, “How fast can you go?” And that’s super exciting, but nonetheless is a major challenge to be able to grow at that speed. It’s incredible. It is learning how to build a team that quickly, how to build product that quickly and how to scale myself personally that quickly.
Garry: So what’s it like to work at Shelf now? I guess it must have changed quite a bit, especially even in the past six to nine months, because that was sort of the timeframe for it to really go from, “We think this is going to work,” to, “Oh, it’s working.”
Stefan: A lot of the people that we hire have not necessarily been in the food industry. What we try to do is, when you come on board, is to get you immersed in the food industry as quickly as possible. We will likely send you to the stores to do a variety of tasks. So you get to learn from beginning to end. What is it like to actually receive product in the back of the store? What is it like to stock product? What is it like to inventory? And we also have field team members that go and audit all of our producers and audit a lot of the stores. So you get to spend an overnight shift at a production warehouse and see what it’s like. You get to count through the process and see what that’s like. Immersing people in the industry and really getting to learn it. Every team has these really incredible leaders. So even if you get to work for, Bede is incredible on the engineering team, you get to learn from somebody like that, all the way to people, our operations team, our customer success. You get to be really deep in that discipline and understand it. Getting to learn the industry all the way to that discipline is fantastic. And then we also do have a few grocery executives and people who’ve been in the grocery industry for a long time who are part of the team and getting to be alongside them as we’re scaling here. To be completely honest, it’s a little wild day-to-day as we’re scaling so quickly. And you get to be one of the most incredible teams out there, which I think is incredibly rewarding. And honestly, it’s an honor to be able to work with these kinds of folks who care this much and who are this inspired and this skilled.
Garry: And you’re just getting started, which is part of the craziest thing. You’ve picked off a part that is growing extremely fast and then you’re playing in a space that is one of the largest as a part of GDP. I mean, everyone eats, like you said earlier. I think one of the more remarkable things is how little technology drives a lot of the food supply chain. You might have this part, but then there’s so many other parts that have the same problem. How do you order your next order? Well, a guy with a clipboard walks up and says, “Hmm, maybe this many.” And then you have 1/3 to 50% food waste because of it, multiplied out across every decision that is made in every part of the food chain. And it’s extra bad in food because these things actually go bad.
Stefan: GDP is a pie, and you essentially say, “Hey, I’m going to scoop out the food industry.” You have a legit piece of pie right there, right. So that’s a really meaningful number. Today out of some of the top 10 grocers in America, four of them are our customers.
Garry: That’s incredible.
Stefan: So we have Kroger, we have Target, we have Whole Foods and we’re about to launch with Walmart. So that’s really meaningful. But the reality is for us, we’re not just trying to build a good business. We’re trying to transform the industry. What do we need to do to get to such a point that we’re reducing food waste to such a dramatic level that you can start seeing the environmental impact? I would like one day to start seeing government reports showing, “Hey, this is how much of an impact there is out there because of the work that Shelf Engine has done.” And then on top of that, being able to say, “Hey, the grocery industry has moved forward so far because Shelf Engine’s been able to generate so much cash for these grocers that they can reinvest into the future of grocery.” And that’s what you get to be part of. That’s super cool, I just love that. That gets to be my day-to-day.
Garry: One of my favorite pattern matches around startups and startup ideas is when you hear a pitch and you’re kind of shocked that it’s not how it’s done already. And this is definitely one of those. Just the sheer fact that there’s that much food waste and it’s not something people regularly talk about. And then the carbon footprint impact is sort of, it’s pretty immense. An incredible amount of shipping and transportation and logistics that is just to support this very large part of GDP. And if you could just chop off 1/3 of that, that goes directly to carbon footprint. It’s really important.
Garry: It’s what I think inspires us and gets us excited every day to be doing what we’re doing.
Stefan: What I like to end on is what do you wish you knew, even maybe before you started Molly’s, the food brand you started when you first entered the business world? Or maybe even before you went to college. What were the lessons or things that you wish you knew that you had to learn the hard way? [Something] that you would pass on to the next generation?
Stefan: I think that’s such a fantastic question. At this point I’ve gotten through quite a few conversations in my career of people who’ve wanted to or are interested in founding a company and they ask something similar, in this vein. I think at the end of the day, a lot of us doubt ourselves. If we were just really quick to action to go and figure these things out, I think we would move a lot faster and a lot of these mysteries and a lot of the things that you think maybe not possible are actually totally possible. You just need to go and do them. And I wish that in many ways, even before I started Molly’s, before I started Shelf, that I would have just been quicker to action. Quicker to making a move.
Garry: That’s super helpful. So Shelf Engine is post-product market fit, hiring extremely quickly and in Seattle, is that right?
Stefan: That is correct, yep.
Garry: And then every role, so software, growth team, product, data science, just you name it, the place to go. And you can find out more at shelfengine.com.
Stefan: If you listen to this and you regularly listen to Garry and you’re interested in a role at Shelf Engine, just email me directly. It’s email@example.com. I’m really excited about the opportunity to have you join the team, so don’t hesitate to reach out.
Garry: Thank you so much for doing this. This is awesome.
Stefan: Likewise Garry, thanks a lot for having me.