How Cater2.me is quietly scaling without venture capital
A common knock against Silicon Valley startups is that they raise money for the sake of raising money. Sure, their business idea may be great, and if they execute perfectly, they could have a $10 million or maybe $100 million business. The problem is that most venture investors invest with the expectation of a $1 billion business. That's when things fall apart -- companies often alienate their core, loyal base of clients or fans while chasing after impossible scale.
Cater2.me, an office catering platform started by ex-private equity pros, has avoided that fate by starting out profitable -- the company has remained in the black since its launch. Now Cater2.me has 500 clients and 30 employees operating in three cities, all with zero venture capital. The company plans to continue to bootstrap because it doesn't believe it's in a land-grab race, co-founder Zach Yungst says.
The market for ordering food online is crowded with competitors, but Cater2.me has managed to wedge its way in by providing top notch customer service and by forging strong relationships with vendors, Yungst says. Cater2.me doesn't have much in the way of fancy technology, but competitors can't replicate the reputation it has built. Further, Cater2.me captures and saves preferences like employee dietary restrictions, so once companies have a good experience with the service, they're likely to stay.
Scaling at speed -- which is often the goal of venture capital investment -- simply doesn't work for the Cater2.me's business model, Yungst says. Managing expansion at a slow pace is necessary with each new city, because clients only give you one shot in a competitive business like catering -- if something goes wrong during a trial, they won't return. "We're selling food but really we're selling peace of mind and trust," he says. And since Cater2.me's platform is essentially a marketplace with lots of hand-holding and customer service, it is important to build up both sides of the marketplace before each new city launch. Currently the site operates in Chicago, New York, and San Francisco.
There's another common knock against Silicon Valley startups that definitely applies to Cater2.me. It's that too many of them solve incremental "first world problems" faced by rich techies. Grocery delivery, black cab car services, high-end kennel services, golf club rental subscriptions. Rent-a-pro-athlete services. The counter argument to that criticism, though, is that it doesn't matter if they wind up building great companies. Instacart, Uber, DogVacay, Thuzio, and Golf Redefined are proving out the market for first world services.
Yungst saw he was entering a crowded market already dominated by household names like Seamless, Delivery.com, and Grubhub. On the catering side, Catercow and EZCater are building their own followings. With no technical background or experience starting companies, they went for it anyways. As private equity pros, their next most logical career move would have been to go to business school. They chose starting a company instead.
[Image courtesy OPUS Hotels]