?>

Byte: Healthy Food, Healthy Bottom Line

Byte co-founder and Haas MBA Megan Mokri. Byte placed 67th on P&Q‘s Top 100 Startups of 2017 with $7.67 million in funding

Megan and Lee Mokri had no background in food service when they launched 180Eats, a meal-on-demand business, in 2014. But as working parents of a young daughter who had no time or inclination to cook at the end of a long weekday, the Mill Valley, California, couple knew there could be traction for a business that took that burden off young professionals — for the right price.

“I was commuting down to Foster City (in the South Bay Area), and I was driving maybe an hour and a half each way every day, and healthy eating was important to us,” says Lee Mokri. “I’d be getting home at eight o’clock in the evening and we had a fridge full of food but the last thing we wanted to do was cook a meal — so we’d end up ordering out, and it was all Chinese and pizza and fast food kind of stuff. So we saw an opportunity there.”

The Mokris surveyed 2,500 of their neighbors and got a clear picture of the amount people were comfortable spending for a meal for two with no drinks, the frequency that couples typically eat out, and other data points. “And we built the business model based on that feedback,” Lee Mokri says. Offering adult entrees for $10.95 and kids’ meals for $5.95, with no delivery fee, 180Eats quickly became a huge success, serving 400 to 500 meals a night — but it also became a burden to structure the logistics of so many delivery drivers. And there were other problems.

In 2015, the couple decided to make a change, transforming their business into Byte Foods, a workplace smart vending and food delivery service that by last year had grown from two employees to 40 and secured $7.67 million in funding. That growth landed Byte at 67th on the 2017 Poets&Quants Top 100 Startups list.

HELPING HAND FROM HAAS

Byte co-founder Lee Mokri

180Eats was successful for many reasons, among them Megan Mokri’s MBA from the University of California-Berkeley Haas School of Business, which she finished in 2016 as the company began to pivot toward becoming Byte. She went into and came out of Haas planning to be an entrepreneur, and the resources of the B-school — such as William Rosenzweig, dean and director of the Food Business School, or through more formal classes and programs — were invaluable in making it happen, she says.

“I went to business school knowing that I wanted to start a business in that environment and leverage as many resources as I could,” says Mokri, now CEO of Byte.

When the Mokris started 180Eats, they knew there was a need for affordable, healthy, deliverable meals. Ultimately, though, “the economic model just didn’t work,” Megan Mokri tells Poets&Quants. “The unit economics of delivering direct to consumers, particularly in the suburbs, is quite challenging.”

A BUSINESS MODEL 180, SO TO SPEAK

The Mokris had hired a former Google executive chef to design the ever-shifting menu for 180Eats, and the resulting high-quality food was a big reason for the company’s success. Still, the business model was flawed in key ways, Megan and Lee Mokri say. The issues they ran into were the same ones that other meal delivery services run into.

“You’ve got to get all the pieces of the meal right,” Lee says, “you’ve got to make it look appetizing on the site, and it’s got to be affordable. When people order ahead, it’s important that they get what they order and they get it on time. They don’t care if there’s traffic, they don’ t care if there’s bad weather. All these things have a big impact on delivery timing. So that’s a struggle when you’re working through the night.”

Everything changed when the Mokris learned about an Internet-connected “smart fridge” made by Pantry Retail Inc. Among other features, it allows customers to examine their choices and put them back without being wrongly charged, and lets businesses subsidize and track data about employee eating habits. It was convenient on the supply side, too: Why not deliver a bunch of meals to one place instead of one meal to a bunch of places? They licensed the Pantry fridge with a plan to sell employers on the idea of keeping it in their offices and stocking it daily with fresh, local, healthy dining options, and Byte was born.

SQUARELY MEETING A NEED

Byte piloted its Pantry smart fridges at three initial locations, and that quickly showed the Mokris two things: They’d found a clear path to running a profitable business, and they realized there was a hugely under-served market of workplaces that can’t afford to cater for their employees every day, but that want to do the right thing by those employees health-wise.

“This is kind of the first opportunity for a business to offer fresh meals in the office and not have to make it 100% subsidized and not have to have the honor system and police your employees,” Lee Mokri says. “And we recognized that and we sold it to early adopters like Autodesk or 2K or CalTel, businesses in Marin, and that was our business model. We were more of a food aggregator, we didn’t cook any of the food ourselves, we identified and then worked with the highest-quality local food suppliers.”

Adds Megan Mokri: “We squarely meet that need for fresh meals in the workplace, using our solution.”

NO BUILDING A BRAND

With Byte, many of the headaches the Mokris experienced with 180Eats were gone, says Lee Mokri, whose title now is vice president of sales and marketing. “People aren’t buying the food in advance, so they’re not let down if the product isn’t there. It’s like shopping at Whole Foods — if the item that you were hoping to buy isn’t there, it’s a lost sale, it’s not a lost customer.

“And we don’t have to run the kitchen, because we work with food suppliers that our customers know and recognize and appreciate,” Mokri continues. “There’s no having to build a brand. If somebody buys a Blue Bottle Coffee, they buy it because first of all it’s delicious, but also they recognize the brand and they know what to expect and what they like. Rather than having to build a brand like 180Eats where you have to build awareness.”

With real-time visibility into inventory, moreover, the San Rafael, California-based Byte knows precisely what is selling and what is not, making demand predictions much easier; the company developed software that predicts demand for specific items at each office, and it engages in surge pricing to facilitate sales of items before they go bad.

LASER FOCUS AND BIG PLANS

Byte grew so rapidly in 2016 that it became Pantry’s biggest client; by May the Mokris bought Pantry outright. Over the course of the year they added hundreds of new clients, a veritable who’s-who of San Francisco Bay Area giants: Tesla, Chevron, Amazon, Cisco, SAP, Gilead, Virgin, Comcast, CBS, Autodesk, Biomarin, 2K. In total, Byte now boasts fridges at 225 locations.

Perhaps most importantly, in October 2016 Byte closed $5.5 million in venture funding from family fund Spring Creek Investment Management, which is based in Philadelphia — perhaps portending what the young company’s 2017 will look like.

Megan Mokri says at the moment, Byte is “laser-focused on scaling the Bay Area,” with the ultimate goal of getting to 1,000 fridges in the market. Lee adds that the latter half of 2017 could see big growth for Byte in other regions.

“In 2017 we expect to accelerate growth and start thinking about new markets,” he says. “We’ve got national expansion in mind. We’ve identified the metros that have an eclectic food scene and an appreciation for the type of food that we offer, and it’s a pretty straightforward kind of expansion plan. It is likely to happen toward the end of the year.”

DON’T MISS THE POETS&QUANTS’ 2017 STARTUP SERIES:

POETS&QUANTS’ TOP MBA STARTUPS OF 2017

THE BEST BUSINESS SCHOOLS FOR VC-FUNDED MBA STARTUPS

DIA&CO: MAKING FASHION, RETAIL MORE INCLUSIVE

FARMERS BUSINESS NETWORK: REINVENTING THE FOOD SYSTEM

BRANCH METRICS: THIRD TIME A CHARM FOR GSB SOFTWARE STARTUP

A KELLOGG MBA CREATES REAL-TIME TRACKING FOR A TRILLION-DOLLAR INDUSTRY