He Hit $3.5M ARR and Still Failed. Here’s His #1 Mistake. | Joseph Lee, Founder of Freshline

Joseph built Freshline to $3.5 million in revenue and nearly $2 million raised. It looked like a marketplace success story—until it wasn’t. In this episode, Joe shares the hidden reasons marketplaces fail, critical lessons on how to spot the right market, and why traction alone doesn’t guarantee success. It’s a raw, real look at what happens when hype meets reality.

Why You Should Listen

• How a $3.5M startup stalled despite traction
• Hard lessons on finding the right market
• The hidden traps of marketplaces
• Why staying gritty isn’t always enough
• Painkillers vs. Vitamins Rethinking Startup Advice

Keywords

marketplace, product market fit, startup failure, raising capital, entrepreneurship, founder advice, traction, B2B SaaS, early-stage startup, growth challenges

00:00:00 Intro

00:04:10 Crashing the Boston Seafood Expo

00:08:25 From Shopify to Marketplace

00:12:40 Door-to-Door Fish Sales

00:17:55 Hidden Risks of Marketplace Models

00:23:05 Cracks Emerge at $3.5M Revenue

00:26:45 COVID Hits and the Pivot Begins

00:30:50 Why Market Matters More Than Grit

00:32:55 Rethinking Painkillers vs Vitamins

00:35:30 Staying Alive Long Enough to Win

Chapters

• 0:00 Intro
• 4:10 Crashing the Boston Seafood Expo
• 8:25 From Shopify to Marketplace
• 12:38 Door-to-Door Fish Sales
• 17:55 Hidden Risks of Marketplace Models
• 23:05 Cracks Emerge at $3.5M Revenue
• 26:45 COVID Hits and the Pivot Begins
• 30:50 Why Market Matters More Than Grit
• 32:55 Rethinking Painkillers vs Vitamins
• 35:30 Staying Alive Long Enough to Win

Transcript

Pablo Strugo (00:00:00):
Did you look at yourself like how? Like, I was in school. You know what I mean? Like, how did I end up here?

Joseph Lee (00:00:03):
Oh, I. Yeah, I looked at myself. All right. I was like, what am I doing? Like, I thought I was building a technology company, and, you know. I've worked really hard, and we've raised money and done all these things. And people are looking at us and thinking about us. Our perception is very different on the facade versus, like, what we're actually doing under the hood. And I'm like, second-guessing and questioning myself. What? What are we doing? Yeah. Think deeply about the market that you're operating in. Like you want to be in a market where hopefully there are some headwinds. I think the market always trumps founders when there's, like, a bad market, and a good founder market wins. But if you have, like, a good market or a great market and hopefully a good founder. I think just by being in the game, you're going to be able to get much luckier and just increase your surface areas for building a durable company. I'm a little contrarian in the sense that I know some people say, "Don't sell a vitamin, only sell painkillers." But I think a lot of startups and a lot of companies within technology are looking for vitamins.

Previous Guests (00:01:06):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.

Pablo Strugo (00:01:18):
Do you think the product market fit show, has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders, and it lets us get better guests. Thank you. Joe, welcome to the show, man.

Joseph Lee (00:01:32):
Yeah, yeah, of course. Thank you for having me.

Pablo Strugo (00:01:34):
Dude, I'm excited to hear the story. I mean, so you had this company called Freshline. You raised, I guess, in total, like, nearly $2 million. You got it to $3.5 million in top line. And then things changed. And now, like, it's being run by your co-founder. But it became more of a, like, lifestyle business that's, you know, kind of lower growth. So it didn't really pan out, I mean, the way that you had, let's say, envisioned. And so, we'll dig into all that, but clearly you got, like, you got pretty far along with it. And it's always, you know, it's interesting. These, like, kind of quote unquote failure stories. I know in your case, it wasn't like, It's a wind-down. It's still a going affair, but, you know, like, I think as a founder, you mean founders are optimistic by design. They have to be, but you almost feel like if things are going and you hit a million, like, a million's a magic number, you know, like if you hit a million, you're fine. You know, like, well, you get 200. I don't know. But like, you should be good. And yet there's so many cases. And I've seen it firsthand of hitting a million and five. You can stall out at any number: at five, at 10, at 50. You're never done. So anyways, man, welcome to the show. And yeah, maybe as a first question, like, tell me a bit about the background of Freshline. Like, what year are we talking in, and kind of what was happening at the time?

Joseph Lee (00:02:45):
Yeah, so this was back in 2016. I was studying computer science and business in university. I was studying in Vancouver. And the genesis really of the story and kind of the company comes from my co-founder. So his family had been in and out of the fishing industry in northern New Brunswick for a couple of generations. So super niche business. And him and I were, you know, we had started a few projects together back in high school. Started a company together. So we were very entrepreneurial, and we had always kind of exchanged ideas and kind of thrown different concepts at each other over the summers. And yeah, we were just kind of discussing his experience in the summers in northern New Brunswick, where he observed a lot of these fishermen, lobster fishermen, going dock to dock to dock. in each small village before going into the main city to kind of sell the rest of their catch. So what they were doing is they were going dock to dock, selling bits and pieces of their catch direct-to-consumers before offloading the majority of their catch in the main city. So, he, being the curious guy that he, is my co-founder. He kind of went down to the fishermen and asked, "Hey, why are you going through all this trouble to sell bits and pieces of your catch?" And I think through that process, we had discovered that fishermen were earning pennies on the dollar. There were a lot of middlemen. The industry, the supply chain was extremely fragmented, antiquated. So, you know, being naive and young, you know, 20-year-olds, we said, why don't we fix that? Why don't we democratize access to, smaller-scale fishermen, help them sell direct to restaurants, help them sell direct to consumers, people get sustainable, traceable, higher-quality seafood for less. And that's really where the journey started.

Pablo Strugo (00:04:39):
What an insane-like market. To go after, I mean, like, lobster fishermen. Did you think about, like, back then, the market size, the opportunity, or did you just kind of feel like, okay, it's a problem? Let's just go solve it. And, you know, one step at a time.

Joseph Lee (00:04:56):
I think this is a classic tale of, you know, like a young founder being a double-edged sword. I think part of the naivety. It allows you to just have some blinders on and be more risk-taking, which I appreciate. But at the time, I don't think we really appreciated the market. I don't think we did a full TAM analysis. And as a lot of VCs say, market trumps founders every single time.

Pablo Strugo (00:05:19):
Yeah. But you, I mean, again, you got. Actually pretty far. So I'm curious to see how you made all that happen. What was? Did you, had you graduated by the way, or did you drop out to do this?

Joseph Lee (00:05:28):
Both of us had dropped out at that point. Yeah.

Pablo Strugo (00:05:30):
And so what's your starting point? What's step one?

Joseph Lee (00:05:33):
The step one is buying a ticket to Boston. So we ended up skipping class, flying down to the Boston Seafood Expo, and just talking to many people to learn the ropes of the industry.

Pablo Strugo (00:05:45):
That's epic.

Joseph Lee (00:05:46):
We didn't even buy exhibition or exhibitor tickets. We just bought attendee tickets. And we were literally going booth to booth, trying to get a better understanding and kind of pitch and get our first beta customer. So, yeah.

Pablo Strugo (00:06:00):
Were you, like, well, were you out there saying, like, Hey, this is a problem. We're going to solve it. Or were you purely, like, kind of discovery mode trying to understand?

Joseph Lee (00:06:07):
A little bit of both. A little bit of both. Part of it was kind of getting the lay of the land to figure out who were the players and how the industry operated in full. Part of it was we did have a thesis and, like, an MVP in mind. And we were pitching that to the appropriate people.

Pablo Strugo (00:06:24):
What did you learn from that conference?

Joseph Lee (00:06:27):
You have to talk to customers before building. I think we very much had a solution in search of a problem rather than the other way around. And I think we were somewhat trying to fit, again, our thesis for the solution and the product, a circle into a round peg or a round peg into a circular hole. Yeah, looking back on it, always starting with the problem and building backwards.

Pablo Strugo (00:06:50):
What was the thesis then? What was the solution you had in mind?

Joseph Lee (00:06:53):
Well, the problem that we wanted to solve for, I think, was, hey, how do we help these smaller-scale fishermen sell direct? The conference that we went to, I think, the type of organizations and the businesses and the companies that were there, they weren't fishermen. They were a couple of layers above in the supply chain. So they had very different problems that they were dealing with and different realities, and for us to try to sell our solution. It was just the wrong buyer and the wrong problem that we're solving, so again, yeah.

Pablo Strugo (00:07:16):
So what happened? You guys go. You pitch all these guys at a conference. Which, by the way. Conferences, man, I remember we did a conference for Gymtrack. Which was like the GymTrack. So Gymtrack. We were trying to track like workouts, right? And dude, we actually, this is different because we’d raised a bit of money. We spent like $25k to go do this, which is a lot of money for us back then. And the product was nowhere near ready. It became a forcing function on the one hand to get product ready. But you know, we pushed it too far. Like the product was not ready at this conference. And so, and the whole thing was our tracking reps. And so dude, we had — but what do we do, you know what I mean? Like we had engineers soldering stuff literally in the hotel room, like the night before, up to like four in the morning. Still, we can’t get the stuff to like fully work. So what we ended up doing is we had this app. Like we had an app basically that was projected onto TV that would show like the rep counting. But basically, when somebody would use the product, literally we had an engineer just click a button, and they would just move the dot. We’re like, what? We spent $25k. Like we still think this thing’s gonna work. It doesn’t work today. We’re not selling anybody on it right now. But like, we can’t. What else are we going to do? Anyways, man, it was kind of insane. So I'm not, you know, doing crazy things at conferences. Like, you're certainly not the only one.

Joseph Lee (00:08:39):
Yeah, no, I love that. No better forcing function than to show up at a conference and people expect something to work, and you're like, All right, you got to make it work.

Pablo Strugo (00:08:47):
So what's the fallout of that? Like, you go, you talk to these people. You're not really getting the answer you want.

Joseph Lee (00:08:51):
Yeah, well, essentially, we were pitching the product to people that we were essentially proposing be disintermediate, right? So that was problem number one. So we did walk away learning a lot about the industry. And I think it kind of reaffirmed that, hey, look at all these middlemen making all of the money. And fishermen here are nowhere to be found. And it's just kind of proof is, in the pudding that they're not getting the proportional amount for the amount of risk and the amount of work that they do. So I think that made us a little bit more emboldened in our vision. And funny enough, even though we didn't walk away with any customers at the conference, at the airport lineup, me flying back from Boston to Vancouver, is when I ran into a packer or, like, closer to the fishermen. At the airport line-up, I had just kind of reconvened with my co-founder, and I was chatting with him about the conference. And he had turned around, he was lined up right before me, behind me. And he said, "Hey, like, this is exactly what I'm looking for. I want to beta test your product." And that's how we got our first customer, so we did end up walking away with something, but it wasn't at the conference, it was.

Pablo Strugo (00:10:04):
That's big, though, and what? Like, what I want to understand is what was that person like? What was the idea of the product at that point, like, what's this person paying for? 

Joseph Lee (00:10:11):
So they basically were paying for, like, Shopify, but for food suppliers or for fishermen. So the way you transact, the way you sell products when it comes to fish. Seafood is fundamentally different when it comes to. When you compare it to, like, selling T-shirts. Right. So you sell things by the poundage. You need to be able to factor in perishability. You need to have, like, strict delivery quarantines or delivery areas where you can service. You can't just ship nationwide. You need to be able to reconcile weights because every piece of salmon is not just one pound. It could be 1.4 pounds, 1.1 pounds, 0.9 pounds. So the way they transact is fundamentally different than what a Shopify or a BigCommerce can provide. So that was like MVP version 1.0 of the product.

Pablo Strugo (00:11:02):
But were they? How were they? Like, were they selling online at all before? You're trying to get them from offline to online through this kind of Shopify for fishermen?

Joseph Lee (00:11:11):
No one was selling online. Yeah.

Pablo Strugo (00:11:13):
So how was? Because it's one thing to make, like this guy makes a website. That's cool. But like, he's got to actually market. He's got to do a lot of things. Get people to that website. How is that part supposed to work? Who's actually thinking of finding lobster on Google? Yeah, I mean.

Joseph Lee (00:11:25):
Exactly. And I think that was kind of the evolution of the product. So I think, again, us understanding that, hey, we're going to have to do the grunt work for people, make it really seamless. And the product eventually evolved into a B2B marketplace for seafood. So think Uber, think Airbnb, three-sided marketplace. We would actually handle the sourcing of the supply. We would build these supply markets. We would build these demand markets. and connect the two with our subcontracted logistics. So what would happen in essence is chefs would go on, they would see a catalog of high-quality premium ingredients, and they would order direct, off their phone, and it would get delivered. They didn't have to think about how it was transported to them or where it would come from. We would handle all that. And they would get fresher ingredients, more traceable. Ideally cheaper than what they were getting from wholesalers.

Pablo Strugo (00:12:23):
So that's the end state, but let's maybe walk through how you get from here to there. So you got this one customer. Where's the product? I think it's just an idea. How long does it take to kind of get them online? How do you build this V1?

Joseph Lee (00:12:37):
Yeah, so the V1 really was getting them to launch kind of that online storefront. That was quite easy. We would abstract again, like the branding, the setup, upload of their inventory. And after that, everything that happened beyond that we would do manually. So that would entail me. We bought a beat-down Ford F-150, and we would do all of the deliveries. Like, we would actually take orders from the restaurants. We would cold call the chefs and say, "Hey, these are the things we have. These are the prices."

Pablo Strugo (00:13:12):
So even from the beginning, you're kind of doing a market because normally, like, a Shopify model, you just build a website, you're done. Like, they figure it out. If they sell stuff, they sell stuff, they don't. You actually wanted to take on. The selling and marketing part of it.

Joseph Lee (00:13:24):
We had to. There was no way around that because I think no supplier wanted to. No fisherman wanted to do that work themselves.

Pablo Strugo (00:13:31):
So you're doing much more than just, like, a Shopify. You're actually getting them to the end buyer.

Joseph Lee (00:13:36):
We're generating the demand exactly for them. Yeah.

Pablo Strugo (00:13:40):
So what does that look like? I mean, what do you have to do to make that happen?

Joseph Lee (00:13:44):
Knock on doors. Very, very difficult market.

Pablo Strugo (00:13:48):
Tell me some stories about those days. I'm sure there's a lot of fun ones.

Joseph Lee (00:13:52):
Oh man, a lot. So what started off is. Just us, like, pounding the pavement. Like, cold-calling people. Like, we have to figure out how chefs operate, their mindset. What their typical availability is like. So for selling to restaurants, really it's all about walking in. So, like, you can call. You can email all you want. And people say cold calling is hard. People say emailing people is hard. Try walking into a restaurant pretending like you know the chef and be like, "Hey, is Chef Bob here?" On his break, and you're basically trying to pitch him. As, like, a 21-year-old. On why they should start buying fish from you. So I think it really tests your mental, and I think it really. We got a lot of no's. And.

Pablo Strugo (00:14:39):
What were some of the harshest versions of no's that you got?

Joseph Lee (00:14:44):
Oh man. I mean, the chefs wouldn't even look at you. They'll just call you an idiot. They'll say it. Say it how it is. They'll be like, "Are you an idiot? Like, get out of here." Right, even worse is. Since we were doing all of the deliveries, and I think there's a lot of variability when it comes to the seafood supply chain, timing of things, perishability, and drivers being late. Sometimes there's a lot of fires, and you got to put out those fires yourself. So that means grabbing a 50-pound Styrofoam box of fish. Grabbing a rental car. Delivering, hand-delivering the fish to restaurants, and, if you've ever tried delivering, you know, salmon to a high-end Japanese restaurant. 

Pablo Strugo (00:15:28):
I have not. 

Joseph Lee (00:15:49):
Like five o'clock. Right in dinner service. Oh man, that is not fun. Getting yelled at by the chef. 

Joseph Lee (00:15:40):
Did you look at yourself, like, how? Like, I was in school. You know, I mean, like. How did I end up here?

Joseph Lee (00:15:41):
I looked at myself, all right. I was like, what am I doing? I thought I was building a technology company, and I've worked really hard. And we've raised money and done all these things. And people are looking at us and thinking about us. Our perception is very different on the facade versus what we're actually doing under the hood. And I'm second-guessing and questioning myself. What are we doing?

Pablo Strugo (00:16:05):
So, then going back to that piece, like you're not, you're, you're going into restaurants, and admittedly. Like, everybody that's sold to restaurants knows it's tough. It's just because it's so high stress, so high pressure, and low margin. Like, these people are so busy. Last thing they want is to be sold to. But anyways, you've got to go in there and selling. You've got to go in there and do it anyways. What, like who's the first yes? And what does that look like?

Joseph Lee (00:16:26):
Yeah, well, I mean, the first, yes, it's a numbers game, right? At some point. So, some chef is going to buy into the vision, right? They're going to take a chance on you, and you've just got to run with the opportunity, right? So for us, that was getting a yes from this, like, French restaurant in Vancouver. And we did everything in our power to make sure they had an excellent experience like the first time around, and that meant, like, us hand-delivering everything. Making sure the quality was top-notch. The packaging was top-notch. Just the experience was for a first-class, and then from then on I think they became more of a reference customer and were able to leverage them in our go-to-market activities and kind of grow from there.

Pablo Strugo (00:17:10):
And what's the pitch, by the way, for a chef?

Joseph Lee (00:17:13):
The pitch actually is very simple. It's like, hey, we're going to give you access. Forget about all of the technology, right, and the traceability of it all. But we're going to give you sustainable, higher quality, evidently higher, you know, yeah, higher quality seafood at a cost that is the same or less than what you're paying.

Pablo Strugo (00:17:31):
And why, like, I guess, why is the quality better? 

Joseph Lee (00:17:35):
Because it spends less time out of the water. So we're bypassing middlemen. We're going as direct as we can to the source. So it just spends less time out of the water.

Pablo Strugo (00:17:44):
And what's even the point of the Shopify piece? Like, are you not just, like, basically a marketplace? Kind of, you become the middleman instead of all these layers?

Joseph Lee (00:17:52):
Yeah. That's essentially what it is. And we eventually transitioned, after a big pivot, into more of a Shopify model.

Pablo Strugo (00:17:59):
Oh, that was later, the Shopify piece?

Joseph Young (00:18:01):
That is. Yeah, the Shopify model is what it is today. Freshline.io.

Pablo Strugo (00:18:06):
Oh, I see. Because I thought that that original whatever packer was buying into a Shopify model.

Joseph Lee (00:18:13):
Kind of. So it's an interesting story. So we started off as more of an e-commerce model, and then we became a marketplace through discovery. And then we went back into a branded storefront afterwards.

Pablo Strugo (00:18:24):
You kind of got pulled into this marketplace.

Joseph Lee (00:18:26):
I did. Yeah, we did. Exactly.

Pablo Strugo (00:18:28):
Let me ask you, how are you funding this whole part of the journey, I should say?

Joseph Lee (00:18:33):
Yeah, so we were lucky enough to go through a couple accelerator programs in Canada. Where we kind of grew up. And we went through Techstars in Seattle and raised a few, kind of pre-seed and seed round.

Pablo Strugo (00:18:46):
What was the story?

Joseph Lee (00:18:48):
The story that we told two VCs?

Pablo Strugo (00:18:50):
Yeah, like what were VCs buying into? What were you buying into at that time?

Joseph Lee (00:18:55):
Yeah, yeah. Well, the thesis was, you know, food and seafood as an industry is a massive, massive, massive tab, right? Global trade in seafood is hundreds of billions of dollars a year, but the process of getting seafood from source to sale is extremely antiquated, fragmented, and archaic. It hasn't changed in decades, if not centuries. So the timing, we argued that it was apt to bring technology.

Pablo Strugo (00:19:26):
Because it was a marketplace era, right? Like you've got a lot of Uber for X going on in this 2016-2018 period.

Joseph Lee (00:19:31):
Exactly. Yeah. And I don't know, like looking back on it now, I'm not sure if that was the appropriate answer to the what now, why now question. I think actually now is a lot more pertinent time with AI being able to take and automate a lot of those, like, manual order-taking. Manual back-and-forth coordination activities. I think now is a lot better of, like, a why now answer.

Pablo Strugo (00:19:59):
I'm going to go in on this because this is where I think the rubber meets the road and things get truly interesting. When you put it that way and you say, look, there's hundreds of millions of dollars, it's antiquated. We're talking about trade that's been, talk about legacy. People have been doing this for hundreds and hundreds of years. So whatever system we have now is just like the organic development of that. It's taking zero advantage of all the changes that have happened in the last 20 years. On the tech side. So I'm going to come in and build a marketplace and just connect the two ends instead of all these middle layers. It actually sounds compelling and makes a lot of sense. What, and obviously the reality, at least at first, is always going to be messy. But if you look at Uber Eats, you look at early businesses, like, they have all those stories too. And yet those worked out, like, what started to happen in those earlier years that, you know, started to show you there's something different here. Like, this is not going to be a successful marketplace. Like there's something missing or whatever. What were some of the holes in that story?

Joseph Lee (00:21:01):
Yeah, I think, first of all. I think one of the mistakes that we made as founders was we had this kind of grand vision of where we wanted to run to. But not understanding there's like step function levers to it. So we're not trying to jump directly to that destination, but we're trying to abstract out pieces of the equation one step at a time, right? Just like how DoorDash won't get to full automation on day zero. They're trying to take step functions towards their goal. And we were a little bit naive in the sense that we wanted to be, for example, a thin marketplace. We don't want to own any infrastructure. We don't want to have trucks of our own. We don't want to manage the warehouse. We want to have partners that do all of that, right? Because that's where the valuation premiums come along. And that's what we defined naively as a technology company. So by trying to kind of maybe jump past those quality assurance steps. Where we could own a little bit more of the supply chain. We made a lot more mistakes. And what those mistakes entailed was a burn, right? We were burning a lot of cash, making a lot of mistakes that we were covering up with funding.

Pablo Strugo (00:22:20):
Because what? Like, just tell me a bit more about the nuances of this marketplace. Like, what was harder about this marketplace? Let's say a marketplace for fish. Than other marketplaces?

Joseph Lee (00:22:33):
A lot, a lot. So number one, there are a lot of moving parts, right? Fish, typically, the majority of it isn't farmed, right? So wild-caught, there's unpredictability when it comes to how much is caught, the timing of when something is caught, and the pricing of the catch when it lands at the dock. So there's a lot of variability there. That in retrospect, it smooths out through the number of intermediaries and aggregators in the market, right? So by trying to bypass and go direct to the source, sure, you can be more traceable. Sure, you can have cheaper ingredients or a cheaper supply, but you're taking ownership of that risk and the variability.

Pablo Strugo (00:23:22):
I like that answer because this is where depth and subtleties are so important. On the one hand, the simple level is you've got a thing. By the time you get to the final thing, it's gone through five things. Everybody takes a cut. That's more expensive. More cumbersome. But as you spend more time in the industry, what you find out is there's a reason why this fisherman first tries to get the max price for their stuff. Goes through a few docks. Then, whatever they have, they put it in the system. And the system has a way of finding a way to kind of liquidate that inventory over time. And yeah, people take a cut, but they actually add value in different ways. Maybe they freeze it, maybe they repackage it. Maybe they, you know, I don't know what they do. Make it up, but like, there's a reason why they exist. And you kind of don't get that. Unless you're in there, like unless you're in the market figuring these things out and seeing how, or you've spent years in the industry.

Joseph Lee (00:24:15):
Exactly. No, you're right. They add value oftentimes in very invisible ways on the outside.

Pablo Strugo (00:24:21):
And the other question is on the revenue side. I mean, you mentioned you got to $3,5 million in revenue. Is that like a volume sold, or is that actually like your take?

Joseph Lee (00:24:34):
Our volume sold was actually higher. If we annualize it. And we were taking anywhere from 5% to, like, 40%.

Pablo Strugo (00:24:44):
So you're moving, like, a good amount of fish.

Joseph Lee (00:24:47):
Yeah, a good amount of fish. Yeah, exactly. And we, yeah, we were like moving container volumes worth of fish, lobster, crab, what have you.

Pablo Strugo (00:24:55):
So I mean, you're making it work. At that point, like, things are functioning?

Joseph Lee (00:24:59):
Yeah. To a certain extent, yeah.

Pablo Strugo (00:25:02):
What started to break? I mean, when you get there, why can't you raise an A and grow it bigger? What's breaking?

Joseph Lee (00:25:09):
First of all, a lot of mistakes in the supply chain. So I talked a lot about the variability. So, we were making mistakes. Where, essentially, we were assuming inventory risk, right? So we were assuming inventory risk to the tune of, like, millions of dollars. And oftentimes something would go wrong. Chefs wouldn't want some goods. Some stuff would be late. Some stuff would come in too early. The wrong product would get picked and packed because, again, we were relying on partners who didn't fully understand seafood to do the picking and packing and the delivery of the goods.

Pablo Strugo (00:25:45):
And that's your hit?

Joseph Lee (00:25:48):
Yeah, that's our hit. So that was just coming right out of our top-line bank account. So there were definitely cracks within our model, and we were just starting to have that discussion of, do we need to own, for now, do we need to own the warehouse? Do we need to own the inventory? Do we need to just have, like, our engineers and our operators be next to the warehouse plants? So that we can at least oversee and ensure a level of quality to ensure that we could scale properly? So that was kind of the question that we were asking ourselves. And right around that point is also when COVID hit. So essentially, in 2020, we went from doing millions in revenue to essentially nothing because RICP was higher-end restaurants, so Japanese, seafood, and Italian restaurants. So the first kind of segment of restaurants that got impacted, they couldn't even do takeout. So we had to go right back to the drawing board. Do we keep burning money and just wait for things to come back? They may or may not come back. I don't know if you remember, Pablo, but at that time, no one really knew what was going on. That was also when a lot of our competition and competitors, the seafood wholesalers, and the meat producers. It started coming to us and said, Hey, we need to find markets for our ingredients. We need to find homes for our seafood. Can you help us set up home delivery? You guys kind of know technology. You guys know food, obviously, and distribution. Let's work together. So that's when we spun out and essentially helped all of our competition set up home delivery.

Pablo Strugo (00:27:34):
That's the Shopify version that you mentioned?

Joseph Lee (00:27:36):
Yeah, somewhat. So that was still a bit of a marketplace. But eventually from there on, what we realized is, hey, all of these food purveyors and wholesaler suppliers. As the pandemic had started to kind of cease, they're still selling to restaurants, and they're taking their orders by phone, fax, and email. Somebody needs to be at the warehouse to even check inventory and let the chefs know that they got the order. So that's when we took essentially everything we had already built and spun it out into, like, a B2B Shopify for restaurants to be able to order direct from their meat distributor, from their seafood distributor, through, like, a branded storefront. So we no longer own the relationship. We no longer were the demand generators. We would just provide the technology, the invoicing, and the back-of-house management.

Pablo Strugo (00:28:31):
By the way, before COVID, the $3,5 million. What does the unit economics. What do the margins look like?

Joseph Lee (00:28:38):
So the margins were variable depending on the product. So that was another really, really complex part of our model. Because we were beholden to market dynamics, right? So to give you an example, Japanese seafood like hamachi is just organically going to have much, much, much higher margins. There's less competition. It takes like specialty sourcing. You could enforce 40/50% on that product. When you're talking about Atlantic cod that is used in, like, fish tacos, maybe you're making 5%, maybe you're 4%.

Pablo Strugo (00:29:14):
And that margin is from the fish value to your take, right? That's what we're talking about. And then on your take, like on that three and a half, you know, you have fulfillment costs and all these sort of things. Were you breaking even on that three and a half, or were you losing money with each delivery? Like, how are you operating?

Joseph Lee (00:29:32):
We were right about break-even, but we were still losing money. And we were obviously employing high value. Like engineering, operations, and designer. So, yeah.

Pablo Strugo (00:29:42):
Do you think if COVID hadn't happened? You think the story ends differently? Like, do you think you raised an A and today you're doing, you know, $50 million in revenue, or was there something fundamentally not working?

Joseph Lee (00:29:53):
I think there were fundamental cracks with the model, and we may have lived on. And we may have raised more capital. But I think it was, probably. Would have been like that by a thousand cuts instead of like one stab. So I'm somewhat glad that COVID happened. And in retrospect, we learned what we did. And obviously, from a VC standpoint, definitely a failure. But I think from, like, a personal standpoint of learning growth, expanding my horizons, and setting me up for what I'm doing now, it is 100% in a success.

Pablo Strugo (00:30:31):
Cause now it's still alive. It's a going concern, but it's kind of a $7 million in revenue sort of thing.

Joseph Lee (00:30:37):
Exactly. Yeah.

Pablo Strugo (00:30:38):
And so, let's maybe stop it there. And I guess, like, my questions are, you know, in terms of lessons learned. What are some? You know, cause, like you said, now you're doing something else. You're working on a startup called Supademo, right?

Joseph Lee (00:30:50):
That's correct.

Pablo Strugo (00:30:51):
What are some of the biggest lessons from what you just went through? You know, that was like many years. That's like five years or so at Freshline. I remember for me, from my journey of five years, you know, I really reflected on it, and there's some big lessons that. I didn't end up starting another business that I was going to and then ended up where I am today at Mistral. But there were some big lessons. I'm definitely not going to do these things, or I'm going to do this thing. You know what I mean? What are those for you?

Joseph Lee (00:31:16):
Yeah. I mean, one is I kind of prefaced it earlier, but think deeply about the market that you're operating in. You want to be in a market where hopefully there are some headwinds. I think market always trumps founders. When there's like a bad market and a good founder, the market wins. But if you have, like, a good market or a great market and hopefully a good founder, I think just by being in the game, you're going to be able to get much luckier and just increase your surface areas for building a durable company.

Pablo Strugo (00:31:47):
So can you make that specific? Like, what market are you in now, and why did you choose that market?

Joseph Lee (00:31:52):
Yeah, so we're kind of in the nexus of like PLG, product-led, B2B SaaS, and AI. So I think AI content creation and Gen AI, enabling new forms of creation within software. So what we do is AI-powered demo automation. We help companies create better product demos for onboarding, enablement, training, sales, marketing, etc., etc. So I think being in the nexus of where we're at. There's been a huge trend, obviously huge growth, and we've been able to ride that wave.

Pablo Strugo (00:32:26):
So for you, the headwind is not so much the industry. It's more like the fact that it's an AI. So AI has the tailwind for you?

Joseph Lee (00:32:34):
Part of it. And like the class of customers that we sell to, right? So for us, I know I'm a little contrarian in the sense that I know some people say, "Don't sell a vitamin, only sell painkillers." But I think a lot of startups and a lot of companies within technology are looking for vitamins. Yeah, if you like, operate within a TAM and a buyer base that is always looking to improve and is, like, searching for solutions to problems they have, you're going to do well by operating within it and building an exceptional product.

Pablo Strugo (00:33:09):
Can you dig into that vitamin, painkiller? Like, obviously, I know about the thing, but yeah, obviously, like, usually the consensus is you want painkillers, not vitamins. Why do you have the opposite thought?

Joseph Lee (00:33:19):
I guess it depends on. How do you categorize vitamins, right? Because to some people, a vitamin could be a painkiller. To other people, a painkiller, a vitamin. I think the mistake that we made previously is we. If we look at Freshline, right, or look at the food distribution industry, we, from the outside, categorize the problem that we were solving as a painkiller. But if you really dig down into the industry and the participants within the problem space, they weren't finding workarounds or finding alternative solutions to solve that problem. So it wasn't necessarily something that they were on the lookout/searching for. So it took a lot of education for us to convince them in the first place that this is something that they could take on. Versus within B2B SaaS, I think by the very nature of it being extremely competitive. And a percentage here or there could make the difference between you winning a deal or not for a company.

Pablo Strugo (00:34:26):
Like you're thinking about vitamins as kind of like an edge, like people want an edge versus cost savings. Yeah, I get it. Yeah, that's more of the definition. The definition, that makes sense. Going back to the lesson, so you talked about this lesson of the market. What's maybe another lesson that you learned?

Joseph Lee (00:34:40):
And this might be contradictory to the first one, but I think a lot of success in startups oftentimes. I think it is staying in the game long enough to get lucky, I think. A lot of success in startups I found. From both myself and with other really successful. I'm not saying I'm successful, but other successful founders. Is they're in the game, and they're gritty, and they're cockroaches long enough for them to take advantage of luck, to take advantage of something, a spark that happens in the market. And obviously you as a founder need to be able to execute upon that luck and ride it. But oftentimes that can come at any point. So I think as long as you have clear conviction and you're rational about why you're in the market, I think it's, yeah, if you're just executing, putting your heads down, and you're persistent, you're going to end up doing well, as long as it's not a bad market.

Pablo Strugo (00:35:36):
No, I think that's totally true. I think no matter how optimistic you want to be, you have to at least acknowledge that you have some sort of probability distribution of success. This current product has a certain probability distribution of success. This entire business has a certain probability distribution of success. And you, as a founder, have one. They each kind of reside in each one. So, like, whatever you might say, it's 90% likely to work. Somebody might say it's 10% likely to work, but it's certainly not zero, and it's not a hundred. And so if that's the case, then part of it is really just staying in the game. Like, maybe this product works, maybe it doesn't. But as long as you do another product, then you kind of start stacking those probabilities. Maybe this whole business doesn't work, but you do another business. And, you know, over time, like you said, if you try to maximize the odds of any given product or business, but if you just kind of keep doing that and getting more at-bats, your odds of succeeding at some point, you know, get pretty close to 100, frankly.

Joseph Lee (00:36:28):
100%, yeah.

Pablo Strugo (00:36:29):
Cool, man. Well, dude, thanks so much for jumping on the show, man. It's been great.

Joseph Lee (00:36:33):
Yeah, thanks for having me.

Pablo Strugo (00:36:35):
Listen, when you go to, like, a restaurant, you eat a nice, you know, meal, maybe a fancy one, maybe not. Do you leave a tip? I assume you probably leave a tip. You probably leave a tip 100% of the time. Well, guess what? A review is just like a tip, and I know you haven't been leaving one. So just like the waiter that doesn't get a tip after hours of great service, I'm getting a little frustrated. So take your phone out and leave a review. It helps the show move up rankings. It helps us get better guests. It doesn't just help me. It helps way more founders. Thank you.