Member News

August 05, 2014

The dot-com bust really hit home for Chris Mittelstaedt at the end of a 16-hour day spent delivering fruit to offices himself, after having fired half his employees. He walked into his apartment in San Francisco to find his wife breast-feeding their twins (who were propped up on a nursing platform) and simultaneously stuffing billing statements for his business, The FruitGuys, into envelopes.

“I walk in and thought ‘Oh my God, what have I done to our family? This is so horrible,’” Mittelstaedt recalled. “But we made it work. I have to credit my wife Pia with us getting through it. I always tease her that I don’t think we would have ever gotten through it if she didn’t have low expectations going into our marriage.”

Having lofty hopes but low expectations has paid off for The FruitGuys. The farm-to-office fruit delivery business, which launched in 1998 in San Francisco, now operates five hubs nationwide providing fruit to thousands of businesses and millions of employees. It expects to bring in $20 million in revenues this year, up from $18.9 million in 2013. Its nonprofit division gives grants to local farmers, and last year the firm donated 600,000 pounds of fruit that doesn’t look perfect but still tastes good to the hungry. But was this an obvious success story at the beginning? Hardly.

The founding story

Mittelstaedt launched the business in sheer panic after his wife got unexpectedly pregnant for the first time (before the twins). She was a newspaper reporter, and he was a $9.50 per hour “fax boy” who ran faxes for a hotel clerk. Mittelstaedt decided to work for himself and seized upon the idea of bringing farm-fresh fruit to office workers. Clueless about how to contact businesses, he stood in the lobby of a large office-building complex and wrote down 500 names from the directory, looked up their phone numbers and began cold calling. Five offices out of 500 agreed to give fruit delivery a try and the business began to take shape.

“We figured out our client lists, went to the produce market at 2 o’clock in the morning and then brought it back to our little one-bedroom apartment in North Beach, and my friend and I packed the fruit into handmade crates with my phone number on it,” Mittelstaedt said. Deliveries were made via a Honda Civic, bursting with fruit crates, followed by a motor scooter.

Humble start, yes, but the startup tapped unknowingly into a dot-com boom of 1998-99 that had tech companies multiplying, each one wanting to offer employee perks such as fresh fruit delivery. Among their early clients was eBay, which was small at the time , and Napster, which they knew only by an alias name because the music-sharing service was still in stealth. “They said when you come with the fruit, give us a secret knock, tell us you’re here through the door and then leave the box and go away,” Mittelstaedt said.

Trouble begins

By 2000, The FruitGuys was a million-dollar business, and Mittelstaedt was able to secure $85,000 in financing, the first time a lender had green-lighted him. Then he got a tip that a company called Webvan(the now infamous dot-com food delivery flop) was going under, and that its refrigerated trucks were available at fire-sale prices.

“I was able to get five of them at $15,000 each (they were worth $65,000), and I thought ‘I am awesome as a CEO, just amazing’” Mittelstaedt recalled. But three months later, the awesome feeling turned into awful. The dot-com bubble burst and The FruitGuys lost half their clients as startups shuttered.

Mittelstaedt says he didn’t fire his staff quickly enough, and ran up $100,000 debt on credit cards. He remembers calling his father, a Wharton professor at the time, to say he was going to have to bankrupt the business. His dad’s advice? “Nothing is off the table and you do anything and everything before you expire.”

Hence, Mittelstaedt got back behind the wheel of a truck and began delivering the fruit himself with a skeleton crew assisting. “After I fired half the staff, I knew I wasn’t going to be sitting around anymore thinking about strategy,” he recalled. “I’m going to be buying produce in the morning, packing it and doing deliveries myself, going back to step one. And I was terrified, not from an ego standpoint, but because now I had three kids.”

The FruitGuys managed to make it through the worst of the dot-com bust through long days, sheer grit, and some kindness from customers like an early eBay employee who handed Mittelstaedt a $10,000 check, no strings attached, after making a windfall from the company’s 1998 IPO. The FruitGuys founder would remember this and that's why philanthropy is part of the business today.

Back on track, lessons learned

By 2002-2003, The FruitGuys began hearing from former tech worker customers who had left the Bay area for other parts of the country and were wondering: would the FruitGuys ship? Indeed, they would, and the company gradually began expanding, first to the East Coast in 2007, when the company set up a hub in Philadelphia, Mittelstaedt’s hometown. Next came Chicago in 2009, Phoenix in 2010 and Los Angeles last year.

Company subscriptions vary: some are daily, others weekly, or monthly. Although tech startups might have their own cafeterias, they still use The FruitGuys because it's hard to find the fresh farm fruit from other vendors.

Looking back, Mittelstaedt says the young company’s timing was both good (being there for the boom) and bad (struggling through the bust), and that he learned a lot from the experience.

“The only place to find stability and safety is to go back to square one and be willing to do it yourself,” he says.

Another positive he has found is a mutually beneficial business relationship with the now 400 small farmers that are part of the company’s hub system.

“We give them a good amount of business, and help them stay in business,” he said, adding that if a farmer has a bad year, The FruitGuys will pay them anyway and receive twice as much product the following year. Similarly, farmers gave him leeway on payment terms during the dot-com bust.

One thing that helped them keep going during lean times is that they know that they’re selling product that makes employees feel good about their employers and themselves. They think, “the company cares enough to order fruit that makes me feel better about me, about being healthy rather than eating a Snickers bar,” he says.

While he was a risk-taker who didn’t rely on a business plan at the beginning, Mittelstaedt says he has learned it is important both experiment, and to keep things simple.

“When you’re an entrepreneur, everything is spaghetti on the wall,” he says. “Once you have systems and procedures, you can’t be disrupting your company so much that you disrupt the basic things that have to get done everyday.”