William Leonard
Hey everyone! Welcome back to the Virginia Startup Podcast. My name is William Leonard, your host for today, and I’m really excited to bring you all this conversation around early-stage company building in Virginia with James McGoff, who’s one of the founders of TemperPack. James, welcome to the podcast.
James McGoff
Thanks for having me on.
William Leonard
James, I’m really excited to have this conversation with you around all things building in Virginia, solving niche problems, achieving venture scale outcomes, and figuring out go-to-market. There’s a lot that we’re going to talk about today and with your journey from TemperPack. But I want to start with your background. James, you and I talked about this a few weeks back, right? You were more of an engineer versus having the traditional founder archetype. I wanted to talk about your background, your engineering vision, and purview, and how you sort of married that with your business ambitions to start a company like TemperPack.
James McGoff
So I grew up in Maryland – Silver Spring Maryland – and didn’t necessarily think about college that much honestly, but definitely grew up in a very entrepreneurial family. My dad started and sold a couple of companies. And me and friends would do lawn care businesses. And the second I could work, I got a job at Starbucks, and just all sorts of ways of just trying to build little systems that made money, and so that was always kind of encouraged, like, go out and try to build something, build a system that can, create new systems and watch a compound. And that’s kind of the American dream. And so I actually met a girl in high school who was Canadian, and she actually, we’re now married, but I asked her, like, where are you going to college? And that was pretty much whatever. She said I was going to go there. And she was like, I’m going to college in Canada. I’m like, Oh man, okay. Like, I’ll go there too. And so I went up to Montreal, and I thought it’d be cool to study Engineering because I’ve always liked trying to understand how things work and so I ended up studying Materials Engineering up in Montreal for five years. I can keep going after that too.
William Leonard
No, that’s great, man. And so as you think about your time studying materials engineering there, how did you sort of immerse yourself in this world of startups and early-stage company building? I know you grew up in an entrepreneurial family and background. What was your first introduction to startups, technology, that sort of thing?
James McGoff
Well, now looking backward, I kind of see that I wasn’t aware of the whole kind of infrastructure around this idea of a startup, things like venture capital and funding and different phases of a company. And the idea of a startup, to me, was more just like a company that’s just not big yet. And I didn’t know that there was somewhat of like a playbook of how you do that. And I’d kind of argue that probably even now, there is no playbook but I knew that if you could find some little value, to someone and create a product around that, or a service, and charge the money for it and deliver what you said you were going to do, and the amount you charge is less in their mind than the value that they’re receiving. And you could do that over and over and over again, then you have a business. And so kind of like I’m mentioning, like, my exposure to that was, like cutting grass or doing mulching, or working at Starbucks, or hauling junk, or buying vending machines and reselling them, stuff like that. So I kind of understood the idea of, like, transactional ways of making money. And then I think layering on top, like working with a team, is how you kind of get to a business from there. So we kind of just fell into it. We didn’t really approach TemperPack with like a grand vision. It was more, kind of like a series of doors that we just kept opening. Each one led to, like, a bigger room with another door. And so I would love to say it was kind of a grand plan, but there, there really wasn’t.
William Leonard
And so TemperPack was founded in 2014 or 2015, I believe. And you all have since gone on to raise, I think, over $140 million in funding for the company, but I love just how simple your messaging is now, right? It protects what’s perishable, and when you think about what TemperPack actually does, it’s such a unique niche space, but it’s solving a critical problem for many people around the world. Talk to us a little bit more about how you found the problem, and solution fit to land your first early customers in this perishable space, even if that was your first set of customers or not, you have to kind of ideate and iterate to get to where you all are. Talk a little bit more about how you all figured out the problem and your initial go-to-market there.
James McGoff
So initially we did it backwards, which I wouldn’t recommend, which is we got really excited about a solution and then tried to find a problem. And so the solution that I got really excited about was actually just a material, and it was called aerogel, and I remember just learning about it in class one day. If you just Google, silica aerogel, you’ll see this stuff pop up, and it looks like if you took smoke and just froze it and made a material out of it, super lightweight. It’s like 99% empty space, but it’s a good insulator, and so it just kind of captured my imagination. How can you have something that’s basically nothing that can resist, 1000 degrees of flames on it? And what can you do with this material? And even though the processing and everything might be expensive, the physical material must be really cheap. So, what can you do if you have a basically free material that can withstand incredible amounts of heat? Well, that drove me to insulation, and started thinking, what if, what if you can make really lightweight insulation? Where would that be applicable? Well, maybe, for, apparel, maybe you can make, like, super lightweight coats that are like you could take to, the South Pole and stuff like that, but, and then somehow we landed on insulation for packaging, and we were thinking, Well, what if you could distribute, vaccines and work with, the World Health Organization and make these really lightweight coolers that, You could lift up with one finger. They felt almost like balloons, but they were super, super enslaved into where you could keep vaccines cold for like, a month without any sort of refrigeration. And that wasn’t actually a good idea, because it just wouldn’t work. But I think what’s more important is, it got like the energy going. It got the excitement going. And I think like, for a founder, for a startup, your only fuel, well, two sources, one is cash, and the other is like enthusiasm. If you run out of either, you’re kind of done. And so that gave us, like the enthusiasm to, like keep going. But, um, so the idea of a lightweight cooler based on a new space-age material was not the right idea, but it led us to understand that there’s another big need in the market, which is last-mile packaging. And so you mentioned, our company can boil down to protect what’s perishable. And if you think about it, humans rely on a lot of things that heat destroys, whether it’s medicine or food. And so for thousands of years ago, and for thousands of years in the future, we’re going to need to keep things at certain temperatures in order to preserve their utility to us. And at this time is real, around 2015, companies like Plated and Blue Apron, HelloFresh, Purple Carrot, Sunbasket, Green Chef, all these food companies, they were just getting all their funding, and their message was pretty simple, and it was pretty cool. They were saying, look, the grocery store model is great, but we have a different model. We want to go directly to where the food originates from, whether the fishermen or the farms. And we’re going to take it and we’re going to skip the grocery store because grocery stores are expensive. They’re in high-density pop, they’re real estate and everything, and they have limited SKUs. And we’re going to bring it to a fulfillment center, and we’re going to chop it up into very nice portions, and get really good chefs to curate these meal plans, and then we’re going to ship it directly to you, so you get it cheaper, you get it faster, you get more variety, you get better flavor, you get better health, and it comes to your doorstep. That was kind of what they were pitching. And the part that we thought was a gap was like, Well, how are you actually going to get it to the customer, like that last part, how is FedEx going to drop it on the doorstep? And what everyone was using at the time was that, styrofoam cooler, just like a big white styrofoam cooler. And there was really no reason to challenge this assumption, they work. Styrofoam was invented 70 years ago by the Dow Corporation, and it’s cheap, and you can get it everywhere in the world. But there was kind of this other trend, which was like two-fold. One was sustainability awareness, and plastic foam being, like one of the well-known enemies, of sustainable materials. The other was the fact that these companies, they have no brand presence other than that box. So every part of that experience of cutting the tape and unboxing that food has to be on brand. And so we kind of thought, well, if we can make a product that is low cost, highly insulating, so it works really, really good. There’s a lot of trust there that’s going to protect the food, and it looks really good for the unboxing experience. And that’s a very good sustainability story, we might be able to carve out a part of this last mile packaging and funnel that to us. So that’s kind of the theory around why we got into that.
William Leonard
And that’s so interesting, right? I think looking retrospectively, you probably, there’s probably a lot of skepticism around whether you all could actually do this and achieve scale with a given it’s last mile. It’s super niche, but within a growing category, I’m curious to just hear what it was like, from an investor, maybe pitching perspective, where you were talking to VCs or investors in the space, was it people who were broader generalists or people who were sector-specific and understood. And they just got it once you talk to them, and gave them the idea.
James McGoff
Well, I think with anything, you have to set up a series of kinds of logical hypotheses. So the first one is do we think people need to eat every day? So yes, okay. So people are going to be eating food. And do we think that food is ever going to be non-perishable? And, three out of five items from a typical grocery cart are perishable. So, yes, there’s other stuff, but I bet you, in a thousand years from now, humans are going to be eating perishable food. It’s healthier and so we know perishable foods can be around, which means it can go bad. And so, do we also believe that people are going to be getting more and more things coming to them, rather than them going out to go get it. And look at what e-commerce has done to our species. So we think more and more people are going to want just like they get everything else online, they’re also going to be comfortable ordering food online, and then it’s okay. So we’ve kind of gotten to this logic of food’s going to be coming to the house that could go bad, and then it’s a question of will it need protection? And let’s say everyone has a cooler on their doorstep. Maybe it doesn’t need cold chain packaging, but that’s a lot of infrastructure, and also that doesn’t solve the problem of temperature in transit. So we think that packaging is going to have to have a thermal component to it to get all this food distributed around the country. And then it’s okay, well, it could be reusable, though, so it doesn’t have to be single-use, and then it’s reusable would be really expensive. Now you have to have two-way transportation. You got to get it back, you got to sanitize it, you got to reuse it. There’s also inventory to track. So we also think that this packaging is going to be one-way packaging, meaning it’s going to go to the customer and never come back. And then if we believe that, then the last part of it is we think it has to be sustainable because people are going to get very annoyed very quickly if they can’t responsibly dispose of this, they’re going to feel bad about it, and they’re going to blame companies. So that’s kind of how we got down to like we think one-way thermal packaging for last-mile grocery delivery is going to be a big thing because of those four or five just kind of base assumptions, and that’s kind of enough to like, get interest, and then it’s like how big is this market, and what makes you better and different, and what are the benefits, and who’s the team, and all that stuff. But we kind of approached it with that first kind of logical progression, to at least convince ourselves.
William Leonard
And then you have the food companies that are like we’re using Styrofoam. But what is the broader macro push right now? It was a more environmentally, more sustainable solution, which enters now, TemperPack. And so, as you all thought about scaling, right? What was the process of achieving scale? Meaning, how did you all kind of go from, you went from zero to one with the idea of having this aerogel and thinking about the last mile solution and doing that, that series of thoughts and hypotheses you, then executing on that? How did you all practically go about that? Was that the founder selling? Was that you all bringing in a head of sales? How do you all think about scaling what’s starting to work at the early-stage?
James McGoff
I mean, the short answer is it’s me and two friends, cold calling, and but there’s a book I forgot who wrote it, but I think it’s called The One Thing. And on the cover, it shows a little Domino and then a little bit bigger one and a little bit bigger one. And the message is you can’t knock over the big one. There’s too much mass. There’s too much you can’t move it, but if you hit the small Domino, it’s big enough to just hit the second one, and then at the end, obviously the big one falls. And so I think you gotta think about what’s that progression of scale? And we tried going for the big domino first, we tried calling, let’s say, Whole Foods, or something like that, and it’s just like, not going to work. But then we figured out that what’s the smallest test we can prove? And I think we were reading The Lean Startup, which is such a good book if you’re just trying to start something. I was like, the core bible of what we use was that book, The Lean Startup. So what we would do is, the first thing that we tried to solve was Styrofoam is rigid like you can’t fold it, and it’s probably going to be good, everything else aside, if we can get something that’s kind of crushable, like foldable, that can, because one, it means that we can get more on a truck, to the fulfillment center. And two, it means it’s going to take up less space in someone’s garbage can. And so the way we kind of went about that was we went to Home Depot and we bought fiberglass, like the pink fiberglass inside, your walls, and it’s kind of squishy. It’s like a blanket, and we would wrap that in the plastic that they use to protect boats, like during the winter, like that big white plastic, and then we would heat seal it, and we would get a t-shirt screen printer to print logos on it. And by the way, even just the logo differentiation was really helpful, because people didn’t have a way of branding. And it goes back to that point around unboxing presentations, and so I remember cold calling HelloFresh. And this guy picked up, and he was like, so you’re telling me that you have something that’s not Styrofoam, that can keep food cold for like 70 hours, that is kind of foldable, like I can roll it up. And I was like, yeah. And he wanted to see the data. And the way that we would make our data sets were we would take boxes, we would line them with, the insulation that we were making, and we’d put, frozen stakes in there with these temperature loggers, and we’d put them into my dad’s sauna, and close the door, and we’d crank it up, and we’d put like a monkey wrench on there, so it never turned off. And so we just ran the sauna for two days. It’s funny because before we thought of the wrench idea that the sauna would turn off every 30 minutes, so we just wouldn’t sleep more than ever, like 30 minutes. And but we were able to generate these really cool XY graphs, which was, time on the X and temperature on the Y, and we could show that we’re keeping the food cold for like 72 hours. And so that was enough to have someone cut us a $100,000 purchase order. And that was good because a lot of I think business building is telling future truths like this. This will be true if you do this, but it’s a lot like chicken and the egg. No one wants to have a purchase order for a fake product, but no one wants to invest in a product without any sort of market validation with a purchase order. So you gotta find that. Brian, my business partner, calls it alchemy. It’s like you have to create it out of nothing. But all it takes is one. And so we got that one, which was this guy, Patrick, who was like, I’ll take a risk on this. I want one truckload of your installation. And that, of course, resulted in a conditional PO which allowed us to raise a little bit of money because we had something guaranteed income, coming in as long as we could produce the product, right? And that was the catalyst so they can go out and say, we can’t buy this from Home Depot, where do we actually get fiberglass at scale? And so we found a vendor. They were able to make it for us, and we shipped that over to HelloFresh. I think we probably drove it up in my dad’s pickup truck or something. It was like, very, I don’t remember the details, but everything was very, very rough.
William Leonard
It sounds like you were still super scrappy at this stage.
James McGoff
Very scrappy.
William Leonard
You probably didn’t have a formal warehouse or anything. It sounds like you were. Or doing a hypothesis testing your dad signed and using a pickup truck to drive and deliver the product to the customers. Curious to just hear, at what point did you all begin to scale out of the mom-and-pop sort of operational stage to the more commercial operational stage?
James McGoff
Well, I remember. So right after that, we went to visit a company called Plated, and we tried to sort of slingshot the success with HelloFresh, which wasn’t a success, it was just like a little bit of traction, and try to bring that to Plated, and try to instill a little bit of FOMO, like, hey they just went on this new product. It’s not Styrofoam. Like, what do you guys want to do? And they saw right through it in terms of, like, it wasn’t a good product. They’re like, this is fiberglass, isn’t this? Like, the itchy stuff, like, we don’t want that near our food. But, and this is a theme that we continue to this day, the best source of innovation information is your customers. And so they asked us. They’re like, we like this idea, but can you make it from plant fiber, something that’s completely compostable? And so that led us back to Googling. Like what do you mean by plant fiber? What is plant fiber? And figured out that there’s all these families of plants that make fiber, there’s cotton, there’s sizable, there’s coconut, there’s, and we settled on one called jute and J, U, T, E. And turns out that jute is used in the coffee industry, so all the coffee beans, those big burlap bags are made from jute fiber. And if you take an empty burlap bag and you grind it up, you end up with just little plant fiber, and you can put that into the same machine that makes fiberglass, and now you have this insulation mat that’s made from plant fiber. And so we had that idea, and we were able to order some samples. There was a company in Europe that was able to make this, and we had them airship to us. We brought those to Plated and we said we have this new material. It’s completely compostable, it’s insulating. It looks like a thick kind of wool blanket, but it’s made from recycled coffee bags. And we showed them more sauna tests, and they issued a million-dollar purchase order. Again, it was conditional, but that was the point that we said we can’t make this in Brian’s garage. We can’t, like, we actually got to find a way to do this at a little bit of a bigger scale. And so back to Google. I remember someone told me that the term order fulfillment, I’ve never even heard that term before, just the idea of what is fulfillment. And found a company in Richmond, and they were very entrepreneurial as well. And we said, hey we want to bring in plant fiber from Europe and cut it into rectangles and line cardboard boxes with it and wrap it in plastic and send it to customers to deliver online food. And rather than being what are you talking about, they’re like, Okay, let’s do it. And they gave us a flat fee for every unit. And I remember walking in one day, the first day to their production, and seeing like seven people lined up, one person taking the mat, the other using the dye press, the other wrapping it plastic, but and just being like this feels like it’s something scalable because we’re here and we’re not doing anything, we’re just watching, and we have product being made every six seconds. And it was like how do we pour gasoline on this, because this seems like it’s actually kind of working, and now we can go sell and design and test because we don’t have to make it. And so we had a bunch of funny stories around everything that went wrong with that product, but we got enough out to sort of keep that relationship good and keep growing.
William Leonard
I mean, it’s one thing to go from $100,000 purchase order to a million-dollar purchase order in a matter of days, and having to build up the infrastructure to meet that order. And James, one of the interesting things that I’ve kind of picked up on this conversation is that you all were essentially almost designing a new category here when it came to how goods were shipped, perished, how goods were shipped, managed, and can kept refrigerated. And I think it’s super interesting when you think about just category design as a go-to-market strategy. It’s a very dangerous game to play because of the amount of education that has to go into it, from a customer perspective and an investor perspective. Curious to just hear how you all practically did this because I think there is a show improve stage when it comes to category design as a go-to-market strategy, but also you just have to execute. And also, like you said, show the story and tell the story and make a future promise and create a future truth around the product before it’s actually there and show worthy.
James McGoff
I think there’s a great book called Play Bigger, all about category design that I absolutely love. But I think, before this, we weren’t the only ones doing this, but before this, it was kind of like the category was the packaging, and the product was Styrofoam or something else. And we tried to shift that a little bit to like, the category is now bigger than that, and it’s more technical than that. It’s the last-mile thermal solution. So anything within that last mile, so from the second, right before the customer touches your product, that last part of the journey, what’s the thermal strategy around that? And that had a couple of parts that we could talk about in bigger ways. One was a sustainability element. And people would talk about sustainability like, oh our product is green, you know? And we were able to really build a lot more complexity on top of that. We would talk about, well, there are three parts to it. Where are you sourcing your feedstock? What are these raw materials that you’re using? What’s the energy and the carbon associated with the conversion process? How much energy are you putting into this product? And then lastly, which is where a lot of consumers focus. What’s the end-of-life scenario for this product? Can you recycle it? Can you reuse it? Can you compost it? Can you return it? So we were able to, instead of saying, Hey, we’re going to sell you a box that’s green, we were able to say, here’s our sustainability analysis and impact report on the materials that we use for last mile thermal protection. And then the second part with that would be people would say how long does your box last? And we’d say, well, that’s, that’s the wrong question. The question is how do we design a program around your shipping to make sure that you’re optimizing performance and cost? So where are your fulfillment centers located? Which seasons are you shipping? Are you using FedEx one day, or is it overnight, or is it ground, or is it UPS? What is the temperature stability of the products you have? It turns out yogurts are a lot harder to insulate than frozen dog food. And then, what’s your cost, and budget for these different components? Can we break it up by season? Can we break it up by SKU? Can we break it up by the product you’re shipping out? Can we break it up by zip code? And so instead of saying, here’s our box, we were able to bring a whole program to them, saying, here’s the solution for how you handle last mile thermal.
William Leonard
I love that. And James, I want to shift the conversation to be a little bit more tactical here. What do you know now as a founder who has gone on to raise hundreds of millions of dollars for your startup? What do you know now that wish you knew when you were, let’s call it a pre-seed, or seed or series A stage company that you believe could have positively impacted your journey, that you can share with other founders who are at that pre-seed through series A stage now?
James McGoff
Well, part of the answer is, I’m glad I didn’t know anything because if I knew everything, I probably wouldn’t done it. If we knew all the problems and everything, we might have been like, this is going to be too much. And if we knew the probability of failure, then it’s like logically, there’s no reason to start this. So I think there is some utility in this kind of quote of like, it’s amazing what you can do when you’re unaware of what’s impossible. But there are some things that probably would have helped. I think, what would I like to know back then? I think in general, just trying to go faster, it’s hard to think your way into solutions, but it’s much easier to just try to collide them with reality and see what happens. And it’s much less important to know the answers, and it’s much more important to be able to learn quickly. So I think that just maintaining a really healthy sense of urgency to get to market, and it’s always a good reason to have a meeting. But if you could just be like, actually, let’s just talk to a customer, and it’s going to be more uncomfortable, and maybe the product’s not quite there yet. But like, that’s where growth always happens outside of the comfort zone. So probably just, I think we went for it pretty hard, but looking back, I’d probably just be like, go for it even harder.
William Leonard
Love that advice. And thinking about this being a Richmond company, right? You were built in Virginia from day one. Let’s talk about the perspective of building a startup in the Commonwealth of Virginia, and how the ecosystem really helped influence some of this early success and in later success of TemperPack.
James McGoff
Well, I don’t have a lot to compare it to, because we were thinking about Boston, then New York. I think we’re thinking about Philadelphia, but we landed on Richmond, and I’m glad we did. I think Richmond has a really great talent population. There’s a lot of mechanically minded people here, and when you’re building machines and large industrial processes, that was really helpful. And I think that there’s also, I mean, just tactically, there’s a bunch of warehouse space here, and that was really helpful. It’s not so big that you’re also getting distracted all the time. Like, I think if I was in more of, like a startup, like a hub, I’d be going to, like, all these startup conferences, and I that, like, here they’re, you kind of just are left alone to, like, do your own thing and kind of keep your head down and work. I think looking back, that was probably the lack of distraction that was really helpful to us.
William Leonard
And so James, as you think about your journey as a founder, I think you’ve built a company, you’ve scaled a company. What’s next for you all? I feel like a founder, [who] builds one thing, takes some time off, and gets back to the grind. What’s next for you on the journey of building a company or something adjacent?
James McGoff
Yeah. So I think every company goes through these natural cycles. The first is like, and each cycle needs different people. And the first needs irrational optimism and just hard work and just relentless pursuit and sales and Swiss Army Knife people that can just do everything but those people don’t necessarily make it all the way to phase three, because they’re too much Wild West. And the second is like, that phase is let’s stabilize this a little bit. We need some people who know about HR and legal and finance, and we need to build better systems here. We need to think about safety, and more stuff like that. And then the third cycle is like, okay, let’s think about growth and what the maybe exit profile this looks like. The product is the product we sell, but the second product is the company itself. So we need people who can look at this company as a product and understand where does this go. And I think that I enjoy the first one and the second one, the third one is not so much in my wheelhouse, and it’s a very important phase of the business. But so that’s where TemperPack is at now. It’s doing really good. I think it has probably 600 employees or so three different manufacturing locations, a large scale in three different states, and millions of products a month. And I’m looking at my next thing and seeing, how do I get back to that kind of zero-to-one phase, which I really love, which is the invention and the go-to-market. And so I have a new idea for a business that I’m starting. It’s very early days. It’s like, I left TemperPack in April, and so I’m a month into this new thing.
William Leonard
Nice, nice. Well, look, we’re excited to see what you build next. And James, it’s been great to hear the journey of your evolution, from, engineering-minded to founder-minded to scaling TemperPack, from your dad’s sauna to now an industrial warehouse infrastructure to thinking about category design as one of your initial go-to-market strategies and the pitfalls and also the successes of being a new category as a company. And so I think you shared a lot of interesting, insightful, and impactful information that a lot of our founders can take and extract from this conversation. So really appreciate your insight, James.
James McGoff
Yeah, and I appreciate it as well. I think a lot of what fueled us was listening to conversations of people that were a little bit further down the road than us. And so the work you’re doing putting out this kind of content is, I’m sure, really helpful for a lot of people.
William Leonard
Awesome. Thanks, James. We’ll talk soon.
James McGoff
Cool. Thanks!
This is the Virginia Startup Podcast, a resource for the founders and the investors who call Virginia home. The Virginia Startup Podcast is produced thanks to Valor Ventures. Valor leads seed rounds in transformational software companies headquartered in the South. If you’re a Virginia founder, please reach out to us at valor.vc. And if you’re raising your first pre-seed capital, consider applying for a free grant through our Startup Runway Foundation program. You can find out more at startuprunway.org