The FruitGuys Built A $30M Business Selling Fresh Fruit To Offices—And Promoting Small Farms
May 04, 2017
Twenty years ago, Chris Mittelstaedt had the idea to sell fruit to San Francisco’s offices where stressed-out, dot-com employees were living on caffeine and sugar. He cold-called companies, then packed up fruit from the local farmers’ markets and delivered it himself in his Honda Civic. Today, South San Francisco-based FruitGuys is a national operation with $30.5 million in revenue last year – and expectations of topping $35 million this year. In an interview that has been edited and condensed, Mittelstaedt, 47, spoke about bootstrapping the business, almost going under, and coming back strong.
Amy Feldman: How did you start the FruitGuys?
Chris Mittelstaedt: It was an act of desperation. I was 27 and newly married. We had moved back to San Francisco from New York, and I took a job as a temp for $9.50 an hour. It was at this time that Pia realized she was accidentally pregnant. An instinctual provider clock ticked in. I had a friend pushing a coffee cart at Montgomery Securities, and he said, “Everyone is gaining weight and complaining about it. If you could do something healthy that would be great.” I came up with the idea of delivering fresh fruit to offices. I went to the Embarcadero Center, and scrolled through the names of all the businesses in the building. I got 500 names, and I started calling them out of the phone book. I convinced five of them to work with us.
Feldman: Then what?
Mittelstaedt: Then we’re getting up at midnight, getting fruit at the wholesale markets, and bringing it back to my one-bedroom apartment. The fruit was lined up at the kitchen sink. We’d fill crates with fruit, put them in the Honda Civic and deliver them. Pretty rapidly, word got around. My wife had a friend with space in the Cannery [a historic San Francisco building that was once a Del Monte canning plant], and we were able to get space between midnight and 7 a.m. so we would go pack up fruit in the middle of the night. We didn’t have enough money to buy a truck, so we rented a U-Haul by the day. It was the beginning of the dotcoms, and we did $140,000 in sales in 1998 and $419,000 in sales in 1999. By 2000, we did $1.3 million in sales.
Feldman: Did you believe early on the business would take off?
Mittelstaedt: I’m one of those people who believes being an entrepreneur is about being able to take a punch and get back up. The brutality of running the business early on – of working 18-hour days that started at midnight – didn’t scare me as much as the fact that I had a new baby and had to work as hard as I could to make this work. I kind of didn’t believe I could do anything else. I still believe I am relatively unemployable, even though my business is a mid-$30 million business.
Feldman: How did you fund the growth?
Mittelstaedt: I got a $20,000 loan from my dad to help us fund our first truck. We were growing on the back of the wave of the dotcom industry originally. We had EBay when Pierre Omidyar was in the room with 20 other people, and went to Napster when they had an unmarked office and we had to do a secret knock on the door. In 2000, I thought, “this is amazing.” My wife was pregnant again, and we were going to have twins. All of a sudden I heard about [online grocery business] Webvan, this crazy company that raised $400 million. Then I heard that they were selling off their refrigerated trucks. I raced over to Oakland, and was able to get five refrigerated trucks for $16,000 apiece. It was our first big capital expenditure. Then the dotcom bust happened [Webvan filed a for bankruptcy in 2001]. We were on track to produce over $2 million in sales, and we lost literally 50% of the business in the Bay Area. I had three kids, an $80,000 loan to the banks, and trucks that were no longer productive. I was $100,000 in debt on credit cards because I had to stop paying myself. I had to lay off most of my staff, and go back to doing the deliveries. I would lay somebody off, go vomit in the bathroom and come back and fire somebody else. It was horrendous.
Feldman: How did you get through that?
Mittelstaedt: We had to hunker down, and make it work based on where we were. Then interesting things started to happen. By around 2003, we were growing a little bit, and people started asking us for fruit in other locations. We learned how to ship fruit across the country by FedEx. By 2007, we put our first flag on the ground outside Philadelphia where I grew up, and delivered fruit in the Boston-to-D.C. corridor. We have been opening hubs ever since. Now we ship out of 15 locations across the United States with the goal of being as close to the customer as possible and supporting small farms.
Feldman: How big is the business today?
Mittelstaedt: We grow 15% to 20% a year pretty consistently, so we’ll be north of $35 million. I’m very proud of what we’ve been able to build.
Feldman: Do you own 100%?
Mittelstaedt: No, we are the majority owners. I brought in a partner in 2000, Erik Muller, who is the president of the company. My sister is the COO, and she has a small ownership.
Feldman: How did you choose to bring in a partner?
Mittelstaedt: Back in 1999, I was delivering to all these venture-capital funds on Sand Hill, Bessemer, IVP and so on. I realized there was a disconnect in how you get information, to know whether you got a good deal or a bad deal, and I wanted to make that electronic. I decided to register the name ProduceExchange.com. Erik had reserved that name, so we worked together on it while doing our day jobs. I was days away from signing FruitGuys over to somebody else in the dream of going after this Silicon Valley concept of doing the produce exchange.
Feldman: You almost signed away FruitGuys to somebody else?
Mittelstaedt: I advertised for a CEO for FruitGuys. I thought we were going to raise money, so I was ready to give a majority stake of FruitGuys away to somebody. That would have been a mistake.
Feldman: Did you have somebody who wanted to do it?
Mittelstaedt: I did. There was a guy who was older than I was, an experienced operations guy. I had to go to that place where I was about to give it away to realize what I had.
Feldman: It’s really lucky the exchange didn’t happen.
Mittelstaedt: It is. I have a mentor, and he says, “Strategy is often defined by what you say no to,” and that’s definitely been the case for me.
Feldman: What else have you learned to say no to?
Mittelstaedt: During the recession, in 2008, we started experimenting with home delivery. We said yes to it without doing the analysis. It was an okay business doing $1 million in sales, but it wasn’t very profitable and it was eating up our resources and restricting our growth in the office business. We needed to make a conscious choice to shut it down.
Feldman: Have you brought in any venture-capital funds?
Mittelstaedt: Never. We bootstrapped this business out of cashflow and our own resourcefulness.
Feldman: Has it been hard to avoid VC funding in San Francisco?
Mittelstaedt: Yeah, but we’re not a tech play.
Feldman: What is your goal for growth?
Mittelstaedt: When I think about FruitGuys’ growth, I think about how we can get bigger supporting small farmers. The goal is having an impact on the world.
Feldman: Tell me more about those small farms.
Mittelstaedt: On the buying side, we work with about 200 farms throughout the United States. The hubs in the southern latitudes have more farming throughout the year. In Chicago, we might work with a farmer in Wisconsin or Michigan for four months a year because they are restricted by weather.
Feldman: Do different hubs offer different fruits?
Mittelstaedt: They do, especially in the summer. That is when you can buy the most from the local growers, and when you’ll see radically different mixes by region. For example, in San Francisco, you’ll see stone fruit [those fruits like peaches and nectarines that have a pit inside] much earlier than other regions.
Feldman: Can you tell me about FruitGuys community fund?
Mittelstaedt: In 2012, we spun off the community fund under a fiscal sponsorship initiative. It gives small grants, $2,000 to $5,000, to help small farmers do projects that aid sustainability. We have funded projects to put up owl boxes. Then you have natural predators nesting on your farm and the gopher population is under control. It’s cool to see what the micro-grants can do. There is another thing: FruitGuys as a business – not as the nonprofit side – gives away all our excess fruit. In 2016, we gave away over 2 million servings of produce across 13 organizations in the United States, including St. Anthony’s in San Francisco.
Feldman: Have you ever thought about becoming a B Corp?
Mittelstaedt: We haven’t. We’re an LLC because we have no investors.
Feldman: I think you can do it as an LLC.
Mittelstaedt: We’re going to look at that, and try to pursue it. We don’t have any investors, and my wife and I are the majority shareholders. We are all in alignment, so it hasn’t crossed our mind. That’s actually a great find.
Feldman: Who are some of the clients?
Mittelstaedt: One of our earliest clients is Headsets.com. We also work with VMware, SpaceX, Workday and Ubisoft.
Feldman: Who are your competitors?
Mittelstaedt: There are other folks that deliver fruit in different regions. In New York, you’ve got FreshDirect. In other markets, it could be Costco or the local grocery store or another competitor that is just like us and copied our model.
Feldman: Are you surprised after 20 years that your act of desperation has succeeded?
Mittelstaedt: Definitely. I constantly whack myself on the head. For years after the dotcom crash, I was still having PTSD in the middle of the night, waiting up and thinking I was late to get to the market and everybody was going to be waiting for me. I’d love for it to be a $100 million-plus business that has longevity and impacts the world positively. That’s what I am working towards, but I’m also realistic enough to not wish too much for it.