Habit

Northwestern University, Kellogg School of Management

Industry: Food & Beverage

Founding Student Name(s): Miguel Caruncho, 1Y MBA Class of 2023

Brief Description of Solution: Habit is a ghost kitchen company that started in the Philippines, that has turned full-on F&B operator. For context, ghost kitchens are commercial kitchens that primarily serve customers through delivery. We look for underserved cuisines and modalities, launch concepts quickly in our network of kitchens, then scale the concepts that gain critical mass. We strongly focus on relatively healthy cuisine options, and we ensure the food we serve is always made with nutritional balance in mind.

Funding Dollars: $0; completely bootstrapped. Though if grants or fellowships count, I was lucky to be part of Kellogg’s Zell Fellows program which gave us $15,000 toward building the company.

What led you to launch this venture? Before founding Habit, I helped launch my country’s version of Uber Eats (called GrabFood, a division of Grab [NASDAQ:GRAB]). There, I wore every single hat possible to grow the business from 0 to ~1M weekly deliveries. In the process of doing so, I saw the proliferation of QSR (quick service restaurants) and fast-food options on the platform. To drive growth, onboarding huge brands like McDonald’s was inevitable—they brought flocks of users to the app and they were one of, if not the biggest, catalyst.

One day I found myself ordering dinner, scrolling through the endless slew of merchants we onboarded over the past couple of years. My finger kept going as it dawned on me that I hadn’t found a single option that didn’t trigger a guilt response; I had been going on for 30 seconds without seeing a single non-QSR option.

This was especially alarming as my family has a deep history of both diabetes and cardiovascular disease, something I keenly control my diet for. I can’t say it was then and there that I decided to start Habit, but it was a massive trigger to think “someone should do something about this.”

Over the next few months, I started obsessing about the problem and learning more about the economics of providing a fresher, more nutritionally-complete alternative to the daily QSR staple. After a growth meeting ended yet again with us prioritizing a major QSR player for the most prime ad space we had on the app, my mind was made up.

What has been your biggest accomplishment so far with venture? Despite having no funding, and honestly, a very strong precedence in the market for the ghost kitchen model to fizzle out, Habit has been profitable within our first few months of operation and has outlasted multiple venture-backed competitors. Not raising funding has forced us to be extremely disciplined with our spend and hyper-focused on the customer experience because a lost customer is one we could never afford to buy back. That discipline and focus allowed us to grow revenue 2x while I was in business school halfway around the world.

What has been the most significant challenge you’ve faced in creating your company and how did you solve it? Ghost kitchens often rely on a bevy of lightly differentiated concepts, frequently leaning on existing IP for recognition and fast distribution. But we decided to go the complete opposite, building brands from absolute scratch with food that’s difficult to make en masse. We didn’t build to scale, but in doing so built something we feel will last.

This was insanely difficult in the beginning. We had a non-existent reputation as an employer, very little F&B operator experience, and a complicated menu to standardize. Because we had no reputation, we had a hard time finding the right talent. And because our menu was so complicated, we had to hire stronger talent which at that point we just couldn’t attract yet.

That was a huge lesson to realize that recruiting at an early-stage venture is a sales job more than anything. We did everything from rehearsing our intros during interviews to make a better impression to pushing the limits of what we could pay (sacrificing our salaries in the process as we’re bootstrapped). Ultimately each tactic did contribute, but was really just a medium for a key learning: culture is everything and your first few senior hires set the tone.

When we noticed a managerial hire we were able to convince was a lightning rod for talent, I dropped everything to focus on and allocate budget to bringing in stronger managers for our branches. After a couple of strong, key hires – we found it became markedly easier to attract talent due to their role in the interview process, in instilling confidence in a fledgling company, and their ability to activate their existing networks.

How has your MBA program helped you further this startup venture? In the startup world, the term ‘lifestyle business’ can sometimes be a derogatory one, condemning someone to run a business without the ambition for wild growth as is expected of a startup. Admittedly, I was actually looking to recruit when I first came to Kellogg, branding my own startup as a ‘lifestyle business.’ But my time at Kellogg widened my perspective about the ways in which a company can add value and find channels to grow sustainably. In fact, it made it crystal clear to me that venture funding didn’t even make sense for us and would probably ruin our business model from the pressure of growth. In this way, Kellogg both grounded me and upgraded my ambition. I had the chance to meet amazing folks like Nick Anastasiades, a Kellogg alum who was also in tech-enabled foodservice that had a successful exit; Mike Evans who founded GrubHub; and Larry Gies of Madison Industries – many of whom had no connection to the venture-backed world of Silicon Valley I idolized. It shook me into reality and refocused me. I had a growing, profitable business on a mission—shouldn’t I try to do something about that?

In a completely different regard, I like to say that Kellogg not only sharpened my hard skills, but made me into a better person. As Habit grows, I am mostly divorced from the actual day-to-day work and much more immersed in managing people, setting our direction, and motivating the team to get on board with that vision. I had managed people before, but everything at Kellogg unraveled my previous norms. I attended social events with people so different from me, classes that forced me to explore my personal needs, and workshops that helped me understand how I show up and how that can come across to others. I found myself constantly challenging my own preconceived notions and making decisions about what kind of leader I wanted to be.

Lastly, I can’t say enough about how the Zell Fellows Program helped me become a better startup operator. The year-long program thrusts participants in front of operators, investors, and mentors of all kinds of specialties. I distinctly remember having a working session with Bob Moesta, a leading expert on the jobs-to-be-done framework. In under an hour, he unearthed deep-seated needs, triggers, barriers, and motivations through an impromptu customer interview right in front of us. It’s one thing to preach about being customer-centric, it’s another to see it come to life. It was a study of push and pull – many products solve a problem, but finding out why your customer got out of bed and decided to use your product today makes all the difference.

What founder or entrepreneur inspired you to start your own entrepreneurial journey? How did he or she prove motivational to you? My mom inspired me to become an entrepreneur. As a single mom, she had to make immense sacrifices to both be there for me and forge her own path.

In many ways, I’ve come full circle with Habit by joining the F&B world. The first business my mom ran while I was still a kid was a Korean restaurant—it was an overnight success. But behind all the success was the ridiculous amount of hard work to get her vision to bear fruit. I remember seeing her come home exhausted every night, only to wake up the next morning with a smile on her face, ready to face the world and ready to push her vision out into reality. Being an entrepreneur was her way of sharing a piece of her Korean heritage in a country completely unaware of the culture at the time. It was also her way of rebelling against the bland status quo of readily available cuisines. I think both those traits resonated deeply when I decided to open Habit and begin my journey.

Which MBA class has been most valuable in building your startup and what was the biggest lesson you gained from it?

We had a class called Startup Branding taught by a tandem of professors— Professor Neal Roese and Jeff Cantalupo from Listen Ventures, a consumer-focused VC. My background is almost exclusively in data-driven operations and I had little to no understanding of what it took to build a brand. Every single class was a deconstruction of the components of exactly that; it was eye-opening. An unforgettable moment was when they had a portfolio company called Slumberkins (they provide emotional learning toys for children) come in to speak. The founders spoke about their journey, the mission behind it, and the destination: “Slumberkins on Ice,” an overarching goal to be as big as Disney. They detailed the unscalable things they did to gather their fanbase, speak to them like they were their friends, and amplify that community of fervent ambassadors.

I learned two things from that class and that session:

1. A distinct rallying cry can do wonders to motivate a team. This can range from “Slumberkins on Ice” to “Transportation as reliable as running water,” which was ours at Uber.

2. Find your early adopters, your superfans. Stay connected with them, engage them, amplify them, and build from there. Extensions will naturally come, but building to serve a need for a specific segment ensures your brand becomes part of their lives.

What professor made a significant contribution to your plans and why? Although he might not fully know this, Troy Henikoff, my professor for New Venture Launch (a sort of capstone class for already-launched companies) really drove some optimistic pragmatism into me. When we first ran through my pitch and my business, he was cautiously optimistic. He said profits don’t lie, but ghost kitchens have historically done poorly in the US. Even more, Habit’s model drew comparisons to companies that burned out. At first, I was frustrated. I was bullheaded and couldn’t wrap my head around how others couldn’t understand the pivots we made, the carefully thought out plans we laid. But this existential process reaped all of the value.

I refined our pitch and over time started to realize that Troy was right. We were driving revenue but the business model wasn’t quite the profile VCs were looking for. Up until that point, I had exclusively thought of VCs as our most viable path to grow, but institutional funding and private credit were wider industries; I was looking in the wrong places and Troy’s supportive candor was instrumental to get me to see that.

While we’re not looking to raise any funding in the next six months, those conversations have sharpened our story and value prop as I now start building relationships with other kinds of institutional investors such as private equity firms for whom we are a much more attractive and familiar prospect.

How has your local startup ecosystem contributed to your venture’s development and success? The local startup ecosystem augmented my experience quite well. I found it helpful in two ways:

First, through the Garage, an inter-department innovation hub on Campus, we got very specific advice about which revenue streams we should or shouldn’t expand into. We competed at their premier pitch competition, VentureCat, and one of the judges just so happened to run a company in the B2B foodservice sector, something we’ve been mulling over for months.

It made challenges with each branching path we considered clearer and built confidence that our instincts were taking us the right direction. Admittedly, I thought a lot of the help I would get wouldn’t translate 100% since my venture operates in Asia. However, seeing where one market takes it gives a lot of inspiration about how it needs to change for yours. This is just one example of many.

Second, meeting so many leaders and entrepreneurs in Chicago were reaffirmations that, despite all the other opportunities available (especially through recruitment), I didn’t want to be anything but an entrepreneur. Being one can be lonely and volatile but hearing them come through it all, pivoting and persevering, kept my passion going. I distinctly remember two sessions: meeting Neal Sales-Griffin (a Techstars MD and professor at Kellogg) and hearing from Amanda Lannert (CEO of Jellyvision and part of Hyde Park Angels, a local angel investor syndicate) cementing this in my mind.

What is your long-term goal with your startup? Not too long ago, because of inflationary pressures, we had to increase prices on our beef items. For context, around half of our top grossing items were made with beef, and overnight we saw a drastic shift in our sales mix. Beef, ostensibly, was out, while the more affordable chicken options were immediately in.

We reflected on how a massively price-sensitive population (or the entire Southeast Asian region really) was going to react to often premium-priced healthy offerings and decided to fold in reach and accessibility into our vision. For now, it’s to help the everyday Filipino eat better. This means using business model innovations, solid operations, and efficiency-driving tech to get us to serve healthier meals further down the income ladder. That translates to making the company present in every major city in the country: households, offices, buildings, malls. And eventually, every major city in Southeast Asia.

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