- So I grew up in southeast Iowa,
and when I left the family farm,
I wanted to be a full-time poker player.
I very much from day one, treated poker like a business—
instead of playing by gut feelings,
I decided to play by mathematical odds.
I would play up to forty tables at once.
Each table had 80 hands an hour,
so over 3,000 hands an hour,
a few million hands of poker a year.
It helped prepare me for startups
by just remaining process-oriented,
and understanding you need a proper sample size of data.
You know, everyone says that
9 out of every 10 companies fail.
So, my mind translates that as
I just have to start 10 companies.
- Today, Clayton is working
on his second tech company, Nebullam.
The plan was to become the name brand
for indoor farming equipment.
They never intended to become an actual farm.
- I never thought I would be a farmer,
but I think jumping outta the plane
and building the parachute on the way down
is the best approach.
- You just started your dream business,
how much profit would you need
to pay your basic living expenses
like rent and ramen?
This is a show on the economics of entrepreneurship,
and founders turning their dreams into reality.
This is "Ramen Profitable."
- I think naivety carries you a long way.
When Danen and I started Nebullam,
we saw that indoor farming was very antiquated;
where you have a bunch of growing equipment
that's all stacked on top of each other.
It doesn't move,
so you have to have these big aisleways,
and then there's little to no software in the day-to-day;
amounting to producing small amounts of food per square foot
while requiring a lot of labor.
That combination adds up to
an average indoor farm takes seven years
to reach profitability,
so that's why most go under.
We thought we could come along
and implement better, more-scalable technology
to help indoor farms become profitable faster.
So here at Nebullam, we focused on
making our growing equipment mobile,
and that's because at the end of the day,
you are paying to heat and cool all of your space,
whether you're growing plants in it or not.
When we started Nebullam, we thought we wanted
to ultimately sell the growing equipment
to new and expanding indoor farms,
and then license the software that runs that equipment
for the reoccurring revenue piece.
- They needed to test and develop their growing equipment,
so they temporarily sold the produce it grew
to local restaurants and grocery stores
to offset the cost of running the business.
- We're growing at two to five percent month over month
really just proving this out—
and then the pandemic hits.
I remember going down to the farm
and just sitting there
because I didn't know what to do.
With the governor announcing
that all restaurants are going to close,
we just lost, at minimum, three-fourths of our revenue.
And a lot of "what if" scenarios
were just running through my mind.
I kind of just had to slap myself out of it.
We need to find a home for this food.
We can't put lettuce on pause from growing,
and we've got essentially six days
before the next harvest.
- They decided to try a subscription model,
selling produce direct to customers on a reoccurring basis.
- So we told ourselves we had to
go and get 12 subscribers
and all of them had to be people
we had no connections to.
It started with rebuilding the website,
which I'm the last person you want building website;
I'm a little color blind as well.
Apparently it was really ugly.
But, all we really need to do
is grow lettuce, deliver lettuce.
If the first version isn't pretty, that's okay
you just need to prove that functionality,
and thankfully it worked.
We ended 2020 with 50 subscribers.
So here's what I'm thinking,
if we take just our current demographic
and we overlaid that
in all six of those locations—
- Right, so which one matches up the best.
- Exactly. - Yeah.
- So we don't have to reinvent the wheel.
With our new business model,
I see us very much as, we're a data company
sitting on top of a supply chain company,
sitting on top of a vertical farm or an indoor farm.
And that means every decision we make
needs to be data-driven.
So in my mind, data is the words to the story,
and I've been just obsessed with it
my entire life, which is numbers.
To me, it's, you know,
'Am I making progress on something?'
- A subscription-based business model
lives and dies by its customer acquisition cost,
or how much money it takes to get a new customer.
- So before pivoting,
our customer acquisition cost
was an entirely different mathematical equation.
We need to know who our subscribers are,
and why they actually buy from us.
- They use their customers' data
to identify trends
that help identify potential new customers.
Since they are a local farm, they take a local approach.
- One of our most successful outlets
for bringing in new subscribers is offline,
which I know is crazy in today's world,
but that's door stickers.
It's costing us three times more
to pick up a subscriber online,
and that's about 150 bucks
compared to picking up a subscriber through door stickers
for about 50.
We always want to be reducing that
so now we're making more and more
data-driven decisions around customer acquisition costs.
- If it costs $100 on average to bring in a new subscriber,
and they make $11 a week per subscription,
they know it takes about nine weeks per subscriber
to recoup the cost,
or about two months.
Lowering that acquisition cost
is key to scaling.
- Now that this model is working
and we're reaching a proper scale,
natural next steps for us
is to take what we've built here,
and cookie-cutter it into another location.
We're excited because this year
we're going from essentially one location
and a thousand square feet of production,
to two locations and 3,000 square feet.
So we started the year with 300 subscribers,
by the end of the year, 2022,
we want to be at 1,500 subscribers.
Whether you like numbers or not,
you have to know your numbers.
At the end of the day,
you need to understand that cashflow
and when you can actually reach profitability.
So I think anyone starting a business today
or anyone excited about
starting a company or scaling a company
should understand their numbers.
- Before the pivot, the plan was working,
it was slow but they were growing.
Fast forward to after the pivot,
Nebullam is growing eight times faster
than their old business model.
- There's over 60 deliveries today
among the Ames area.
When we launch new locations,
we'll have over 300 deliveries
going out every single week.
I think it's really important to set out
trying to solve a problem you're passionate about.
In our case, we think everyone deserves
access to reliable and local food year round.
And as we go after achieving that mission,
our vision comes to life—
and our vision is to replace the produce aisle.