Competitive Advantage: Serial Entrepreneur Peter Schatzberg, Founder And CEO, Sweetheart Kitchen Sweetheart Kitchen founder and CEO has the street cred and the team, and now he's got the MENA on his mind.
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One of the first things I find myself noting about Sweetheart Kitchen (stylized as bySWHK, i.e. By Sweetheart Kitchen) founder and CEO Peter Schatzberg as I speak with him at his offices in Dubai is how refreshingly frank he is when it comes to talking about the failures he has had over the course of his life as an entrepreneur. "As an adult, I have had to live in my parents' basement on three separate occasions as a result of my entrepreneurial failures," Schatzberg declares. "It is in their basement that I recover from defeat, and prepare both mentally and physically, to repeat the process once again, always expecting that my next venture will be a success."
Now, this particular response is why I leaned in to hear more about Schatzberg, as well as the venture he has just launched here in the Middle East. In a region whose residents are notoriously known to shy away from talking about their personal failings out of fear that it makes them look bad or weak, this American entrepreneur made an impact on me not just by his willingness to show a very honest, human side to his personality, but also with the perseverance and persistence he showcases with respect to realizing the goals he sets for himself.
"At first, my failures made me feel ashamed," he says. "Over time, I grew to appreciate the process of rebuilding myself from the dust with nothing but determination. Failure became a badge of honor, so long as my most recent failure was a greater stretch for me than my previous attempt. It was only a matter of time (and effort) before I would develop the skills required to achieve success, and I reminded myself of that every day. Repetitions in the gym build muscle (and mind). Repetitions in entrepreneurship build resiliency, wisdom, and self-confidence. If you remain in the same industry after each failed attempt, over time, your repetitions add up to domain mastery." This sentiment would explain the conviction with which Schatzberg talks about bySWHK, which can perhaps be best described as a virtual kitchen, a concept that he is actually widely credited with pioneering- but today, he prefers to address his latest venture by another nomenclature altogether.
Source: Sweetheart Kitchen
"Our team regards bySWHK as the first "six sigma kitchen,' in that we have totally redefined what a kitchen environment and delivery product is, starting from the very beginning of the product and process design," Schatzberg explains. "First, we created a universe of ingredients, cooking and assembly processes, and cuisine categories that complemented one another in function and design. Then, we created a kitchen with processes that are exceedingly more efficient than any other in the world."
"Building on this foundation, we developed proprietary technology that results in the fastest lead times (with least process variation) ever achieved by a kitchen, and we possess the unique ability to remotely manage (in real time) all kitchen operations and functions. Even while processing over 150 items in a single hour, our lead times average under five minutes, with a standard deviation of under two minutes."
As for how bySWHK -a portfolio that today features 21 brands, 30 unique cuisines, and several hundred individual food items- actually does this all, Schatzberg points toward the tech behind the scenes that is powering all of it. "We have turned food into data, by building a measurement system, whereby we measure the time it takes for each customer order to be assembled and ready for delivery, and the time it takes for every batch of [food] to be cooked and portioned. We measure inventory levels and expiration dates to ensure our food inventory is always fresh. Our system has removed all decisions that would ordinarily be made in the kitchen by employees."
"Even our procurement process is automated. Alerts tell us when any kitchen process is not completed in the allotted time, and we are working now to incorporate machine learning into our platform such that production yields and inventory par levels are optimized using a wealth of data that no human could ever process in making a business decision."
"With almost US$25 million of funding, we have built many sustainable competitive advantages that will be rather difficult to duplicate, particularly by virtual kitchens that have already scaled their model, and built upon the existing inefficiencies of a kitchen environment." In effect, Schatzberg believes bySWHK is redefining what a kitchen environment should look likeand that is what is going to be setting it apart in the food tech space.
Peter Schatzberg, founder and CEO, Sweetheart Kitchen
As you can probably tell from his expertise in the F&B and tech domains, Schatzberg has been at the entrepreneurial game for a while now- his first venture was an organic café called Free Foods in New York City in 2008, which was built with an eye toward the growing interest in healthy eating from the market at that point in time.
"Unfortunately, my corporate years at General Electric, and a recently acquired Columbia MBA proved fruitless when navigating the deep waters of entrepreneurship," Schatzberg recalls. "After a Chapter 11 (restructuring under bankruptcy protection), and many years of trial and error, the company stabilized. However, I realized it was not scalable, and I wanted to build something significant."
This led him to his next venture, which came about because of a realization he had that 40% of his café's sales were from delivery- a fact that most other restaurant operators hadn't caught on to then. "In fact, they were so resistant to delivery orders that their sales stagnated prematurely, whereas my focus on streamlining processes to accommodate delivery demand resulted in continued growth," Schatzberg remembers.
"It was there, dating back to 2010, where I formed a vision for the virtual kitchen, and began to develop the skills required to build an innovative and scalable company. In spite of my restaurant being one of the top 10 delivery restaurants in New York City, the CEO of the incumbent food delivery platform, Seamless, declined my request to build a delivery-only restaurant. I was not deterred, and two years later, when GrubHub and Seamless merged (and later IPO'ed), I requested permission from the new CEO to experiment with a portfolio of virtual brands, and I received his blessing."
This was how Schatzberg went about launching Green Summit Group (GSG) in 2013, a company whose LinkedIn page characterized it as being "dedicated to disrupting the rapidly growing online food delivery market."
Sweetheart Kitchen team
With about $150,000 in funds (much of that capital was his own, Schatzberg notes), GSG started out with quite a bang- it launched in New York City with a run rate of $1 million in its first month. "One might perceive this as an overnight success, but without tech integrations or well thought-out kitchen processes, it was total chaos," Schatzberg reveals.
"Slowly, our operations evolved, and just when things were under control, I decided to launch several more brands, leveraging our existing ingredient universe and kitchen processes. We upgraded to a much larger midtown facility, and started opening more units (downtown Manhattan, Brooklyn, Chicago). This is where the virtual kitchen model was conceived. But back then, I didn't have VC connections, or access to funding, and certainly no track record or reputation to speak of. I was missing many of the essential ingredients required for building a global company."
"Eventually, I learned the hard way just how little I knew." Once again, Schatzberg impresses me with his candor in admitting how GSG, while being ahead of the curve in terms of its concept, and also managing to get investors on its side over the course of its business trajectory, ended up burning through the cash it had raised, and eventually having to shut down. "20 months ago, I was recovering from my latest defeat, at the age of 41, living once again in my parents' basement," Schatzberg says.
"I had pioneered the worlds' first virtual kitchen with GSG, and after achieving some accolades in the press and within investor circles, it crashed and burned due to unforeseen external circumstances. With just $4 million of funding, my business had achieved a run rate of $10 million, and was nearly breakeven. But the US market was not yet ready for delivery-only kitchens, and when a few VC-funded virtual kitchens failed, investors ran for cover. All my cash was invested in the company, and I lost everything. No cash and large obstacles force your mind to expand, and your survival instincts kick into overdrive. I gave away my dog (miss you Brisket), abandoned my beautiful apartment, sold my car, and returned to my basement dwelling, to rebuild once again."
Note how Schatzberg finished that last sentence: sure, he may have well been down in the dumps at having to pull down the shutters at his enterprise, but he wasn't content with only licking his wounds either- he was already using the lessons he had learnt from the experience with GSG to develop and hone his next venture, i.e. bySWHK. "Days before GSG finally closed its doors, I was asked to meet with investors to start a new virtual kitchen business," Schatzberg reveals.
"I learned that the delivery markets and investor communities outside the USA were more open-minded to my business model. Sometimes the opportunity to achieve your dreams requires that you uproot yourself from all that is familiar to you. I borrowed $10,000 from my father and brother (that is how broke I was), bought a plane ticket to meet my potential investor, and ended up closing EUR1.5 million of seed capital over a handshake and a 30-minute pitch (which, I will add, did not require a deck)… Sweetheart Kitchen was born, and to date, has raised over EUR20 million in funding from various strategic investors in the technology and food industries."
Source: Sweetheart Kitchen
This is how Schatzberg ended up in the UAE, with him choosing the country (and indeed, the region) because of how much more favorable it was for operating a business like his, as compared to the US business landscape- not only was this space a fairly untapped (and underutilized) market, the Middle East also offered him an environment better suited and more receptive toward a food delivery business, which include factors specific to this location, like the more consistent weather, or the large population that relies on this service, as well as the significant ticket size of each order made in this regard.
Schatzberg landed in Dubai in April of this year, which was when he got started looking for spaces from where bySWHK could work out of in the UAE, Saudi Arabia, and Kuwait. At the same time, he was also clear that he couldn't do what he aimed to realize with bySWHK without the support of a high-caliber team around him, and as such, went about this task with a lot of care and effort. "Upon arriving in Dubai, I leveraged my reputation from General Electric to recruit several talented executives from within the oil and gas industry," Schatzberg says.
"I asked one of my oldest friends (who was an executive at Moodys in Singapore) to join as CFO… He has personally witnessed my previous experiences in virtual kitchens, and decided it was time to make a change in his own life. His addition served as the catalyst to convince other "company men' to consider joining a startup. Other virtual kitchen companies were receiving funding, and investor sentiment was shifting in my favor, which made talent acquisition a bit easier. Soon, we had executives from Emirates, Nestle, and Careem joining our team."
The importance that Schatzberg places on the people he got together for bySWHK can perhaps be discerned with the image that is on the cover of this edition of Entrepreneur Middle East- Schatzberg was very emphatic that he wanted his team to be showcased right by his side when headlining this magazine.
"It is our team that now truly differentiates us from other startups, in that the manufacturing expertise we acquired from outside of food is being combined with our existing appreciation of food delivery. Internally, we joke about how the "old-school' manufacturing guys are the innovators within our disruptive startup, but perhaps this is a new approach to building a startup team. A strong leadership has enabled me to step back, and allow the professionals to build the company, while I focus on our strategy, direction, and fundraising."
As for where all of this is headed, Schatzberg has a very definitive forecast in mind for bySWHK, which sees the enterprise not just scaling extremely quickly in the Middle East, but in other markets as well. "We will end 2019 with three units in the UAE, and by Q2 in 2020, have 25 units live across UAE, Kuwait, and Saudi Arabia," he says. "By the end of 2020, we will have over 60 units live, including some in Asia, and possibly Latin America."
At this point, I have to mention that there is a certain aura of self-assurance with which Schatzberg reveals these goals he has set for bySWHK, but it's also worth noting that he's quite self-aware of what he has done so far, and what he believes he is capable for. "Within four months of arriving in Dubai, our first unit went live, and two months later, our second unit opened. Our third unit launched in November, and by mid-2020, bySWHK will have 25 units in the Middle East. We expect to finish 2020 with 60 Sweetheart Kitchens across two continents. Ambitious plans for someone who had to borrow $10,000 to meet an investor, but once you believe in yourself, you can control your destiny," he declares.
That last comment is again a glimpse into how Schatzberg goes about motivating himself to do what he does- in fact, one of his two favorite quotes is this anonymous one: "Fate whispers to the warrior, "You cannot withstand the storm.' The warrior replies, "I am the storm.'" (His other favorite also riffs on the storm motif- that's a line by Brazilian author Paulo Coelho: "Not all storms come to disrupt your life, some come to clear your path.")
When asked about the significance of these quotes, Schatzberg replies: "From the above, I learned that I control my fate, and my inner voice. Whether I choose to tell myself that I can accomplish great things (or that I cannot) is completely within my control. I see conflict, obstacles, and setbacks as nothing more than challenges meant to be overcome. Oftentimes, what appears to be a devastation in the short-term can actually be beneficial to you in the long run. So, make certain that you don't only live in the moment, or measure success with a short-term horizon."
"Measure success over the timeline of your entire life. Only when it is all over can you evaluate whether or not you succeeded, and you are the only judge that matters. On a daily basis, do you respect the person you see in the mirror? That is truly all that counts. If you do not respect the person staring back at you, make the changes necessary in your life so that you do. I make this evaluation of myself on a daily basis. Some days, I do not respect the man I see, and I act on it."
Simultaneously, as much as he is focused on being the best version of himself he can be, Schatzberg is also clear that when it comes to bySWHK as an enterprise, it is essentially a collective effort, and that's what is going to make it last the long haul. This is the ethos he uses to characterizing his relationship with his investors. "Always show gratitude towards those that believed in you when you were just beginning your journey," he says.
"Your investor(s) are like a spouse, you are legally bound to one another the moment you accept their money. Focus on the benefits and long-term value of the relationship rather than the day to day aggravation. Most of all, remain humble as your confidence soars, or the universe is sure to drop you on your head to remind you that your success can disappear in the blink of an eye."
This is the same model he uses to pay tribute to the people he has been able to bring aboard bySWHK. "I am humbled by the caliber of talent bySWHK has been able to attract in recent months, and our rapid execution is less a demonstration of my expertise, and more a reflection of their experience and effort," he says. "I am certain there would be no company at all, if it were not for the faith of our investors, and the diligence of the team. One person alone really cannot achieve all that much." Stronger together seems to be the mantra here, and one can't wait to see how bySWHK uses that collective force to reach for the skies- it seems to be only a matter of time.