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Hello, hello, hello and welcome to the Upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co host, Mr. No code enthusiast himself, Eric Hornung.
Eric Hornung 0:12
Just generally a big fan of the no code movement. I think that. I wish that Oh, here comes an excuse. You already for your excuse Jay.
Jay Clouse 0:20
Oh, I’m always ready for an excuse.
Eric Hornung 0:22
Okay. I wish I had more time. Like I did back in college, when I was learning Excel to learn all of the no code tools that are out right now. I wish I just had like, 200 hours to learn bubble and air table and notion and just get like incredibly good at them.
Jay Clouse 0:36
Yeah, I missed that, too. I missed the days where it’s like, gosh, I shouldn’t watch another episode of Family Feud. I should do something else with this free time.
Eric Hornung 0:44
You’re gonna watch The Bachelorette tonight.
Jay Clouse 0:47
Yeah, that’s a treat, though. That’s like, That’s like my two hours of TV tonight. That’s true. That’s true. I guess I do have some learning time. But you know, by the time that 8pm rolls around, like my creative energy, my useful brain energy, it’s gone , it’s long gone.
Eric Hornung 1:02
I agree with that. And that’s why you know, at night, I’m not sitting around learning, no code platforms. I am trying to learn them a little bit here and there. But now like I used to, and it’s that like, upfront investment of time, that saves you time in the long run. That’s such a painful trade off. I don’t like it.
Jay Clouse 1:19
Totally. Totally, totally. Well, Eric, we’re back here today with another one of our rewinds and we are going way back today,
Eric Hornung 1:27
All the way back to Louisville, with our friend Jeremiah from FreshFry,
Jay Clouse 1:32
Jeremiah Chapman, founder CEO of FreshFry, which aired as Episode 12 of Upside back in July, July 11, 2018. It’s hard to believe. I mean, we’ve been been doing this that long.
Eric Hornung 1:43
You’ve been talking to me on a microphone for that long.
Jay Clouse 1:48
I know. I used to get so nervous too.
Eric Hornung 1:51
Jay Clouse 1:52
Yeah. I mean, I wanted to sound smart. I wanted to hold up my end of the bargain. I knew you’re gonna come and do all the math stuff.
Eric Hornung 1:58
I like how over the over the years I’ve made you do a lot more of the math stuff.
Jay Clouse 2:02
Yeah. Either that or you’ve just stopped trying to do the math stuff as much. That’s not even true. We I I feel like I’ve just stepped up and I have said, You know what? I’m tired of being pigeon holed and typecast. I can do math, too.
Eric Hornung 2:16
Yeah, that’s why you have a banner behind you that says, definitely a math guy. Mm hmm. Yep. Yeah. The listeners. You can’t you can’t see that. But it’s hanging from one corner of Jay’s room to the other.
Jay Clouse 2:25
Yeah, yeah. I want people to have no doubt when they see my video feed that I’m definitely a math guy.
Eric Hornung 2:29
You know what Jeremiah definitely is one of the few founders I’ve actually met in person from the show.
Jay Clouse 2:35
Oh, you’re right. You’re right. We actually have a Slack channel of things called roadtrip that’s been a quiet channel for the last 12 months. We have a Slack channel called up road trip. And we post photos whenever we meet one of our founders out in the wild. I feel like the last founder I met out in the wild was John of Seek back at CES of this year. But yeah, you’re on a tear for a while you were dropping photos in that channel. Like every week.
Eric Hornung 2:59
It was nice. I got to hear about their stories hear about the behind the scenes of what are they raising? How are they raising it? And Jeremiah story won’t be covered on this podcast because it’s in between, but it ended in a big fundraising with someone here in Cincinnati.
Jay Clouse 3:12
Yeah, so a little bit of background FreshFry was founded in 2014. That is four years before technically we had them on the podcast now that they were really in full go at that time. Jeremiah was kind of tooling around at the University of Louisville, actually, we were introduced by Alex Frommeyer, the CEO of Beam Dental here in Columbus. But since that time, to your point, Eric, FreshFry has raised a good amount of money $3.3 million as of July of this year, so two years after our interview raise $3.3 million and who there is
Eric Hornung 3:42
Upside bump again there it comes.
Jay Clouse 3:44
And who do you raise from from.
Eric Hornung 3:46
From Lightship capital and I believe it was the investment arm of the US Department of Agriculture. The name is open prairie rural opportunities fund is the old oak rough,you know.
Jay Clouse 4:00
Oak rough Winfrey, this this was a company that we really liked. I mean, this is outside of the norm of what we usually have on the show was then is now probably probably part of the difficulty in fundraising for something like this, but we heard this and it just made a lot of sense to me as a great product. Jeremiah and FreshFry are creating plant based products that help food service businesses extend the life of frying oil, talk about a problem you’ve probably spent no time thinking about but the FreshFry pods, strip water, acids, metals and other impurities out of cooking oil, slowing that breakdown by several days and helping businesses save on costs while improving food taste. Eric we’re getting older and older oil around our fried chicken, our Chick Fil A, and I’m okay with it.
Eric Hornung 4:46
This is such a hard thing to raise money for. Not only are you not on the coasts, you’re in the middle of the country, it’s already harder. You are selling something that If we take this stereotype of a venture capitalist, they aren’t generally eating McDonald’s and Kentucky Fried Chicken, you know, it’s not their go to, it’s not their lifestyle. So you’re selling them something that they don’t think about much as you just mentioned. And on top of that, there’s no category for this. And like the venture world, this isn’t really egg tech. It’s not really food tech, it kind of doesn’t really fit anywhere nicely, which makes it very hard for someone to say, Oh, yeah, that that fits in our thesis.
Jay Clouse 5:31
To your exact point. I’m looking at a news story from impact alpha, which ran in July of 2020. And it’s under the category agrifood tech.
Eric Hornung 5:40
Oh, yeah. Just throw them all together.
Jay Clouse 5:43
Yeah, difficult. But I mean, if you think about it, I remember thinking about this and just thinking, well, this is obviously like, one of the clear inputs of these businesses, something that’s just like high churn cost them a lot of money, it seemed very clear what the ROI was on this. And I think, I think we ended our conversation kind of talking about like, well, if he has these pilots in these places, and approves out, this just seems like a no brainer for some of these companies. And I know that also since since that time, we talked to Jeremiah, he began being distributed by Cisco Corporation, which is a huge win in being in Louisville, it just made sense for this type of business. This is another one of those, the location makes sense based on where these fast food chains are located. So excited to see him have some some success.
Eric Hornung 6:24
Big fan of Jeremiah in general. I think when the system doesn’t work for you, and you still make the system work for you, that’s a great thing. The program that he was in with Cisco, I believe is the same program that Beyond Meat went through to get their distribution. So a lot of potential here with FreshFry. And I’m glad I got to meet Jeremiah in person before we stopped traveling.
Jay Clouse 6:43
So let’s get into it. Let’s press rewind, let’s listen to this episode with Jeremiah Chapman of FreshFry from July 11, 2018.
Jeremiah Chapman 6:56
This is the best place to be for us for a long term vision of what we want to be there other hot cities, you could be in Denver, you can be in several places in Texas, Jacksonville, Atlanta, you can be at any of those places and have a really good start. But Louiseville is positioned to remain the franchising capital of the world.
Jay Clouse 7:19
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.
Eric Hornung 7:47
Hello, hello. Hello and welcome to Upside podcast we’re finding upside outside of Silicon Valley. I’m Eric Hornung, and I’m accompanied by my co host, Mr. Top 12 newsletter himself, Jay Clouse, Jay, how’s it going man?
Jay Clouse 8:01
It’s going great. Made the top 12 newsletters to read, I guess by a Weber’s blog. It’s just a blog post by some guy. But you know, it’s nice to wake up to someone tweeting at you and saying, hey, you made this top 12 list feels good.
Eric Hornung 8:18
Shout out to AWeber also shout out to Jay because the same day that came out he sent out a newsletter saying he was just done for a while. So.
Jay Clouse 8:28
That’s true. That was a complete I saw that too. And I was like, man, does that mean I have to get back into writing? Yeah, taking a taking a nice little break. Got a lot of other projects on my plate right now want to take a pause on the daily writing because it’s stressing me out. And that’s the day that I had more single day subscribers than any day in the last several months. So
Eric Hornung 8:46
Great that a position to its to its fullest.
Jay Clouse 8:49
Eric Hornung 8:50
Well, Jay, why are we here? What are we doing on Upside?
Jay Clouse 8:53
On Upside we are talking to founders outside of Silicon Valley. founders who are building impactful companies with upside. investable companies with upside in doing so in what many people have historically considered a geographical disadvantage.
Eric Hornung 9:08
And we’re doing that in a interesting way. Our podcast has three phases, an upfront, an interview and a debrief. And our upfront we’re going to discuss some of the research we did around the industry to competitors, maybe some questions we have about the company. In the interview, we’re going to ask a bunch of questions with the company. We’re going to learn about the founder of the company and the industry and in the debrief. Well, we’ll get to that later. With that being said, Jay, who are we talking to today?
Jay Clouse 9:37
Today we’re talking to Jeremiah Chapman, the founder and CEO of FreshFry. Jeremiah has been on the Forbes 30 under 30 list in manufacturing and his expertise. His background includes nanotechnology, adsorption and chemical manufacturing. He’s very smart. Yes, yes, Eric, have you ever heard of adsorption versus absorption
Eric Hornung 10:00
So I have not but I used to work out when I was younger and there’s the abductor and a doctor machine. So, same route. I’m guessing one is in and one is out. Maybe.
Jay Clouse 10:12
Glad to hear that you’re working on your hip flexors.
Eric Hornung 10:14
Jay Clouse 10:14
Yes, absorption, which is what I had been familiar with previously is the process in which a fluid is dissolved by liquid or a solid and adsorption. What Jeremiah’s background is in is the adhesion of atoms, ions or molecules from a gas liquid liquid or dissolved solid to a surface, this process creates a film of the absorb it on the surface of the absorb it. So FreshFry. Why this is relevant. FreshFry is a packet that you drop into a deep fryer that uses absorption kinetics to cleanse oil being used in these deep fryers. It extends the life of the oil in restaurant deep fryers, which Jeremiah says reduces the cost to the restaurant every year. And extends extends that life makes the food taste like the oil is clean and fresh.
Eric Hornung 10:24
Adsorption also sounds like a advertising agency and a cartoon.
Jay Clouse 11:17
The ad Consortium.
Eric Hornung 11:19
Jay Clouse 11:20
Love it. So FreshFry based in Louisville, Kentucky, founded in 2014. To this point, they’ve received about $20,000. In funding, they have customers of the KFC Yum Center and the Papa John’s Cardinal Stadium, which I want to talk to here in a moment. And I’ve also found, I’d love to hear if you found research as to the market size. But I had $4 billion on the oil filtering market. Do you have any other pieces of research.
Eric Hornung 11:49
So I think we might have found the same piece of research for that $4 billion, I tried to do some additional digging to kind of triangulate and understand where that number came from. But it was one report. And that was all I could find. So we’re gonna run with that $4 billion number for now,
Jay Clouse 12:06
This is an interesting guest and product here on Upside. This is getting into more science that we’ve done to this point. And this is not your typical flashy consumer app or website. Jeremiah says, My team and I have created this product, we sell it directly to restaurants, we noticed the problem restaurants have, we can just very straightforward to save the restaurant. I think $550 is the number I saw on their website, $550 per fryer per year, on average saved. And I would say promising to me is that they’re working with the KFC Yum Center and the Papa John’s Cardinal Stadium, both in Louisville, his home, home city. But those are two major major arenas and it would reason to believe that if those two major establishments are using FreshFry that he would be able to find other customers.
Eric Hornung 12:55
So one thing that’s interesting to me is kind of the market trends and market dynamics. This is obviously a $4 billion market from what we saw. I can’t tell if it’s growing or shrinking. are more companies more restaurants using fryers? Are is there less being used? I’m not really sure. Did you find any research on that?
Jay Clouse 13:16
I didn’t? That’s a great question. That’s something that we’ll add to our list and make sure we ask Jeremiah about.
Eric Hornung 13:21
Because I’ve found that there’s a lot of salad places popping up. And not as many classic burger joints spitting out 1000s of burgers a day. So it appears to me that this could be a declining market, in which case, that’s very interesting. But you’re also dealing with a commodity directly. So commodities, in general have been one of the worst performing assets in the world, in the last probably one to five years. So right now you are sitting with oil prices, peanut oil prices, down something like 5% in the last six months. So there’s two interesting drivers there, right? There’s the macro economic trend driver of people eating healthier. And then there’s the price driver, which is saying, okay, things are getting really cheap in the commodities business. So does that spur demand for this product, which is going to increase your oil or not? versus if that peanut oil were spiking, every restaurant would be thinking about the price of their oil, and how to extend the life on that oil.
Jay Clouse 14:27
That’s a good point. That’s something I hadn’t thought too. Great. Great research, my dear watson big fan of that. I would assume that as long as they are continuing to help extend the life of oil, whether that $550 per fryer per year goes down to $300 per fryer per year, probably still worthwhile depending on how many friars you’re dealing with. But that’s that’s great thinking. And I’m excited to hear from Jeremiah on that. So Eric, what did you find in the way of how this market is segmented or broken up?
Eric Hornung 14:55
So I want to think about that in two ways, the the customers and the competitors. The customers, I couldn’t really find much information on peanut oil or canola oil usage by type or anything like that. My intuition tells me that fast food chains, the McDonald’s of the world, the Burger Kings of the world, are going to be the largest driver of that. So if you can get this product into a fast food chain holistically, it’s going to be very valuable. That being said, their franchisees, so they could be technically independent, and you’d have to sell to every single one. When we look at the competitor side of things, I believe that this is a very fragmented business, there’s a process called oil filtering. I believe, that’s a little bit more expensive and an alternative to this. And I really want to hear from Jeremiah the difference on these two. But that is a service that, I believe is an extremely fragmented offering, there’s I don’t know if that there’s a national provider of it, I think it’s something that has been done for years and years and years. And it’s a way to kind of clean up your oil real quick, to maybe extend the life a little bit, kind of like retreading, a tire almost.
Jay Clouse 16:04
And that’s that oil filtering market is where I found that $4 billion number from.
Eric Hornung 16:10
Right, same. So if I were a competitor, I would care a lot about targeting those large chains, because the economics make a lot more sense. The Independent restaurants though, the What’s your favorite independent restaurant in Columbus, Jay.
Jay Clouse 16:26
A big fan of North Star, a big fan of El Camino
Eric Hornung 16:30
El Camino definitely sounds like they fried things didn’t really help me out there with North Star though
Jay Clouse 16:34
No, definitely not. North Star does not fried things.
Eric Hornung 16:37
But if El Camino wanted to get their oil filtered, then they probably have to reach out to all these contractors, the contractors probably are not reaching out to them. So I think that these kind of pods serve as a way to sell directly to independent businesses in terms of a product, not a service. I’m really excited to hear from that.
Jay Clouse 16:56
I would assume they could go into like a GFS or whatever those companies are that sell all kinds of things, these independent restaurants, things like even the stand that you see on the table that marks their specials, you know,
Eric Hornung 17:08
yeah. What are some other things that you’re excited to talk with Jeremiah about?
Jay Clouse 17:11
Well, Jeremiah, just recently pitched in the rise of the rest competition in Louisville, did not win first place. So interested to hear his perspective on that competition and why he thinks he did not win first place. I’m also interested to hear from him about the technology itself and how it is protected. Last thing that I saw was that it was patent pending, which is good news that they have something proprietary, and it gets to be protected. But it’s not yet totally patented. From what I can see. But yeah, that’s all I had any last thoughts from you?
Eric Hornung 17:41
When you went to South by Southwest this year.You sent me a text message about the importance of something being patent pending or having a patent. You talked a little bit in the investor circle.
Jay Clouse 17:51
Hmm, yeah, I went to a talk at South by on investment. And what this investors thesis was and what he looks for, in both his presentation and a follow up conversation I had with an investor, they both were very adamantly only investing in things that did have protectable technology in some way. And that’s not to say that they don’t invest in software, they, their view is that that should also be patented. So that really got me thinking and considering more strongly. patents and the protection, you can put around things, because it becomes more of an acquisition target, because as a small company, you pay the money for the patent. But you probably still don’t have a ton of money for the litigation, if that patent got challenged, or if you had to enforce it. But when you’re being vetted for acquisition, those companies can spend a ton of money and put more resources behind looking at that patent and seeing where the strengths and weaknesses can be or how they can shore it up and defend it. And they have the resources to do so. So that was something that I did take away from south by was how much of an emphasis from investors I heard on patents.
Eric Hornung 19:00
Awesome. Well, I’m excited to talk Jeremiah, unfortunately, I’ll be hopping on an airplane. So Jay is going to take this interview solo.
Jay Clouse 19:09
Yeah, I’m gonna have to do all the hard questions. I’m going to have to do my own back of the napkin math, while Eric is some number of 1000s of feets in the air.
Eric Hornung 19:19
Well, I’m sure that you will do an incredible job and I look forward to listening and talking to you and the debrief.
Jay Clouse 19:26
Yep, yep. Absolutely. All right. I’ll go talk to Jeremiah.
Jeremiah, welcome to the show.
Jeremiah Chapman 19:35
Thank you for having me. I appreciate the opportunity.
Jay Clouse 19:38
So you’re running a company, you’re Forbes 30, under 30. Tell me a little bit about the history of Jeremiah and how you got to this point.
Jeremiah Chapman 19:48
So I’m born and raised in Louisville, Kentucky. I’ve been here my entire life except for a couple stents and a few cities where it just didn’t work out for me. My background is in chemical engineering, but I’ve always had a passion for, for cooking actually. So that’s something that me and my grandmother, we would we would do all the time together we would, while the other kids are playing around, I’d be in the kitchen helping her. And that’s really where I got my idea of being a chemical engineer, where it’s a, it’s a lot like cooking to me, you’re taking raw materials, you’re putting them together, and you’re making something different and valuable to the world. So from there, when I studied at the University of Louisville, got my undergrad and graduate degree, the same time I tried to rush through. And from there, it’s been pretty much a whirlwind, I actually had no idea that I’d be starting a company had no idea that I was so passionate about fried food, we just kind of hilarious. At some point. It’s been a whirlwind for me, just just really, my perspective has shifted from within a couple of blocks to having a global perspective now within the last 10 years, never expected to go to college, honestly. So when I say that I had no idea that I would really be starting a company it’s it’s, it’s something something different.
Jay Clouse 21:13
And how did you make that leap from cooking to chemical engineering? In hindsight, it makes some sense. But what was your first interaction with chemical engineering as like a possibility?
Jeremiah Chapman 21:24
This is a strange one, because I almost failed chemistry in high school. But then during the last two years, I increased my grades enough to get a scholarship. And I needed a major, that was pretty straightforward. Where if I graduated, I’d be making a decent amount of money. But I needed to make sure that as some people would say, secure the bag, but I really needed to make sure I could provide as quickly as possible in chemical engineering was, at that point, the highest paying engineering job. And so I just went for it.
Jay Clouse 21:59
And so when you’re starting to take these chemical engineering classes, what is the moment? Or what is the idea that you’re learning in these classes that you’re like, you know, it actually I really liked this?
Jeremiah Chapman 22:09
Well, the idea that I learned the most is, first you had to, I had to reconcile with, I was in a chemical engineering class. And don’t leave, don’t leave, don’t leave, even though it’s difficult. As soon as you’re committed to staying in that classroom, the main idea that you’re learning is here is a thought process stick to this process. Don’t worry about this as the answer versus this is the answer. It’s having a logical process that you, you develop, and you stick to throughout the entirety of your college career. I firmly believe that in all engineering disciplines, you learn that process in about two years, the next two or three years is making sure it’s it’s solid, you don’t shake from it.
Jay Clouse 22:55
Okay. So fast forward a little bit you at some point, learn whatever process is possible for FreshFry. Can you talk to me about the genesis of that idea and how you came to this adsorption product?
Jeremiah Chapman 23:13
Yeah, sure. So when I was studying my, I had an independent project where I would take old oil from all the restaurants on campus and make biodiesel. And really, my heart has always been with alternative fuels because I, I’m cheap. So I wanted to find something that would help a lot of people spend less money because I just could not stand filling up a gas stations. So as I began to make biodiesel, I was using an absorbent product that was really difficult for me to get out, it would get in our fuel filters. And I really didn’t want the liability of messing up the shuttle service for the University of Louisville. So instead, I created my own product to help me clean the oil in an easier way. And that’s how the FreshFry material started. But it was another year to year and a half where I thought I had the perfect product. And the restaurant was telling me something completely different.
Jay Clouse 24:18
Let’s back up a little bit here. You’re talking about the shuttles in the University of Louisville campus. Were you working with the University of Louisville and their shuttles on something?
Jeremiah Chapman 24:25
No, it was my own personal project. I just needed somewhere to put the biodiesel. So they happily accept it and blend it to a B 5 or B 10 blend for me.
Jay Clouse 24:36
So you were you were working with this old oil and making biodiesel and he said, Hey, I need to test this in some sort of vehicle. And the university said you can try that on one of our shuttles.
Jeremiah Chapman 24:45
Well, yeah, they were definitely open to those type of things. So I really I was really appreciative of that. Yeah.
Jay Clouse 24:52
That’s really cool. And so through that process, you you saw that there was something about this fuel that was getting stuck in the filters. And so you started trying to clean that that biodiesel that you’re putting into the shuttles?
Jeremiah Chapman 25:06
Yes. So what it was is you’ve got, you’ve got gross oil, you send it through a process, then you’ve got crude biodiesel. Now you have to wash it. And you can take us a ton of water and a long process. Or you can what is called dry, wash it by putting absorbance and, and it sucks up all the bad stuff. And then you could filter that out. So I was using a dry washing process, but I couldn’t get all the powder back out. So that became a big issue. Because if you’ve got solids in there, it’s going to end up somewhere in your system in your bus. So from there, I needed to find something that was just as good at removing all of the impurities, but was big enough to get out really easy. So that’s where the material started.
Jay Clouse 25:54
Gotcha. This is kind of where the first idea of cleaning oil by adsorption was starting.
Jeremiah Chapman 26:01
Jay Clouse 26:02
Can you for our listeners define adsorption. I tried to do my best in the intro to this this show. And we’ll see how it goes I was.
Jeremiah Chapman 26:11
So you got absorption and adsorption. Absorption is when you’re actually in taking whatever your whatever you’re bringing up. Adsorption is all surface level. So imagine you want to, you’ve got a sponge, the entire sponge will absorb moisture. But if you want something to adsorb imagine putting glue on paper and then putting glitter on it. So the more surface area you have. So if you coat a baseball with glue and roll it and glitter, and then you coat a wiffle ball, and glue and roll it. Notice that now the glitter goes on the inside. So that’s that’s what adsorption is. It’s really it’s really a surface area chemistry. And you’ve got you’ve got multiple modes of adsorption. But that’s the main difference. One is soaking something up and one is attaching to it.
Jay Clouse 27:02
Did you have mentors this point who are helping you learn some of this stuff or helping you even make the ask of the university to use their shuttles on this? or How did you find the agency to try these things?
Jeremiah Chapman 27:17
Well, I would say there was one professor Gerald willing, who was no pun intended, willing to help me. And he had a engineering student who was in the professional industry at that time when I decided to take on this project. But he did something really similar. And he made himself available to walk me through going from a concept to here’s what you’re actually going to do. So it was really two people, one person who helped me at the university level and another student who came back to help a another, I guess an alumni came back to help the current student and just setting something up. So it those two people did a lot for that.
Jay Clouse 28:01
And so it’s clear, knowing what I know about you running this business. Now this is the beginning of you starting an entrepreneurial journey here. What was your first touch point with entrepreneurship to know that that was even a possibility for you?
Jeremiah Chapman 28:18
So my my first touch point was actually, I worked on this project worked on several projects throughout college with a good friend of mine, Alex Frommeyer. And we started a company in college called AKRE advancing Kentucky’s renewable energy. And I used to try I would try to take water heaters and make them into reactors. I was always doing some odd things like that growing algae to see what kind of strain would produce the most oil, again, biodiesel all the time, not all my free time. But my first experience with entrepreneurship for myself, was actually when I graduated. So what was really going on is I, I had the engineering part down, I wanted to be the smart guy. But the hard transition was not all of these things can just be a hobby, so I had to really understand what it took to take an idea to a business concepts you have to think of more than just the tech. And that happened in 2014 when I was a recipient of the Vote awards here in Louisville, Kentucky.
Jay Clouse 29:26
And what are the Vote awards?
Jeremiah Chapman 29:27
The Vote awards, that is a an accelerator program where it sends you through and I’m sorry, enterprise core if I get this wrong, but I believe it’s a it’s an eight week process. It could be 12, but I was flying by the seat of my pants, so it felt like eight. And what they do is they prep you business model canvassing minimum viable product, product market fit, really all the things that as an engineer, I’ve was never really taught. What we what we did in engineering school was if you want to create a business case assume that you’ll get 10% of your market. So the hard stuff up in the beginning, never expect,
Jay Clouse 30:06
Just assume you’ll get 10% of the market.
Jeremiah Chapman 30:08
Yeah. And I thought it, I always thought, yeah, that’s 10% just 10%. Let’s, let’s ask for 100. But no one tells you that getting started is the it’s so hard.
Jay Clouse 30:19
That’s wild. Okay, so you win this award, and you’re saying, I think I can make a business out of this. What was the decision to make that leap and follow that path?
Jeremiah Chapman 30:29
That was 2014, October of 2014. I went into this program with a the concept so never really put it in the back of the restaurant yet. From there worked on it nights and weekends. I was I graduated in 2013. So I was a full time engineering professional. All throughout 2015, it was nights and weekends, really putting in about 20 to 25 hours a week on it along with a 50 to 60 hour week at my normal job. But it was February 2016, where I realized that I was in my own way, I could not do anything else for this company, because I had no more energy. So at that point, I went to my then current employer and said, Hey, I’m leaving. And they said, when I had no idea, so I said April 1, April 15, because it was April Fool’s, and tax day. So those are the only two dates I could remember. But I was freaking out thinking, dude, what are you doing? You have one customer who’s paying you sometimes 25 to 30 bucks a month. And you’re, that’s worth leaving everything that you’ve worked for everything as you put your effort? And because it was just it was it was it was wild.
Jay Clouse 31:54
And this is probably a good time to transition? Can you explain in your words, the problem that FreshFry is solving?
Jeremiah Chapman 32:01
Yeah, so restaurants spend about $80 billion dollars per year on frying oil. And it’s because frying oil just goes bad. In the processes that people use today, similar to what I was using a long time ago, at University of Louisville, it’s difficult. So I decided to come up with something easy and simple and still cut those frying oil costs in half. So they’re spending less money. But it’s a process that’s easier to adhere to. And it values, the labor. So you can focus on what’s most important, which is your food.
Jay Clouse 32:35
Can you explain how FreshFry does that?
Jeremiah Chapman 32:37
Yes, so FreshFry has a patent pending pod called the fresh tripod, you place into a fryer, you leave it in overnight. And what it does is it removes all the dissolved impurities, you come in the next day, you remove the pot and your oil is clean. So now you can use the oil longer. And we’re using plants. So when you kick it out and throw it away, it’s not a real problem at all.
Jay Clouse 33:01
So I can see how this is connected to the bio diesel experiments that you were doing at the time. How did you make the leap from biodiesel fuel to I’m going to focus on this opportunity within restaurants?
Jeremiah Chapman 33:14
But that’s a great question. So all throughout college, I wanted to make biodiesel, but it wasn’t it never made economic sense. Because I always had to pay for the feedstock. And it rose and fell with diesel prices. What I decided is, I had to somehow create enough value at the restaurant level to create a relationship to then get that oil when it’s old. So let’s walk up the value chain a bit and start a little earlier. And that’s why FreshFry in the restaurant right now.
Jay Clouse 33:44
That’s fascinating. Can you tell me about the first time that you went to a restaurant and said, Hey, I want your old oil?
Jeremiah Chapman 33:51
Well, great thing about that is I said, Hey, I want your old oil. They say please take it because sometimes they have to pay to get rid of it. Or the person who’s picking it up is a little late and it’s spilling everywhere. So they said yeah, this is kind of kind of weird guy wants our oil. We don’t know what he’s going to do with it. But just give it to him. He seems nice. That’s that’s how I got started.
Jay Clouse 34:15
So you’re just leaving this restaurant with a barrel full of old oil or paint. paint the picture for me explain what what’s happening here.
Jeremiah Chapman 34:22
I can do that. I can tell you it was it was in May. I was carrying two five gallon buckets from Wendy’s on campus all the way. I’d say it’s a good half mile to speed school. And I’m walking around with two. Now let’s see 30 pounds in each hand of grease shaking, trying trying to lug it across campus. And I’m leaving a trail of Old French fries smell because in a dead heat of summer, I’m sweating. Everyone knows that this is odd because every student has a backpack on I’m the one with two white buckets. With risk kind of spilling out of it. So I said, You know what, never again, I’m gonna drive these buckets next time. And then imagine having two five gallon buckets and then you hit the brakes. And they spill in your backseat. So.
Jay Clouse 35:13
Jeremiah Chapman 35:14
At a 97 Pontiac Grand Prix that smelled like a hashbrown.
Jay Clouse 35:18
Oh my gosh.
Jeremiah Chapman 35:19
Until the day I left this earth.
Jay Clouse 35:21
Oh my gosh. Yeah. And so what’s v3? v1 is walking the buckets v2 is putting them in the back of the Pontiac, what was v3?
Jeremiah Chapman 35:30
Oh, so v2, just once you spilled oil. It’s like, nose aren’t back. Okay,
Jay Clouse 35:36
Okay, there’s nothing else to lose.
Jeremiah Chapman 35:37
Yeah, yeah. v2 was, was just doing it.
Jay Clouse 35:42
Okay, so you’re bringing this oil home from the restaurant, walk me through the progression of where you realize that there’s an opportunity with cleaning their oil for restaurants?
Jeremiah Chapman 35:52
Yeah, so one, when I pick up oil, I would pick up enough for the biodiesel reactor to hold and it was always less than what they had available. So I immediately saw, they’re throwing away more oil than what I can process. Second, the dry washing component that I was using to clean the oil they were using in the back of the restaurant already to try to extend the life. So I knew if I solved my problem for me, I can immediately apply it to the back of the restaurant. So what I did, once the material was made, immediately went to the back of the restaurant and realized that everything I thought about the restaurant was was not necessarily true. It is a fine tune system back there. So if you change something, you need to be sure it fits.
Jay Clouse 36:41
Can you talk more about that?
Jeremiah Chapman 36:43
Yeah, sure. So actually, the first place I went to, that was off campus, this was you know, I’ve graduated now. And so I leave campus, it was fine, and basically, I thought, I just go in and say, Hey, here’s our product, it works. Here’s what you do. And Chef Bruce, he pretty much taught me that they had their own system. And if you if you really want to be successful in the back of a restaurant, you can’t have restaurants changing the process for you, you have to fit their process become a part, what they do become a natural response. So instead of having just a material, we changed until into a pod that fits into a fry basket. So it tacks on to the already established habit of putting a fried basket into oil. And then making sure you have a visual response to let them know what’s going on. And all of that was being developed right there in Mind cafe.
Jay Clouse 37:41
That’s wild. So what was the process that you had envisioned in the first place that was not that process?
Jeremiah Chapman 37:46
Oh, you walk in, you walk in like a rock star and say, I’ve got this great solution for anything. Oh, we’ve always needed this. Thank you so much. You’re the greatest person ever. And you walk in you go, they say, what is that I don’t really want to put that in my oil. Like your your random guy. And we’re you want us to trust you with the most important part of our business, which is our flavor. Never thought of it that way. So I really had to find someone who was ready to push the envelope a little bit, really cares about the environment, and then really give me feedback on, hey, this is a great product, or it’s not doing what I expected at all. So
Jay Clouse 38:23
You just touched on something saying it was good for the environment. That part of the product was important to from the beginning.
Jeremiah Chapman 38:31
Yes, it was important to me from the beginning. But the hard lesson I learned is it’s important to others as well, as long as they’re not paying a super premium for. So I had to adhere to environmental responsibility. With, I would say, engineering, integrity to make sure that we’re actually offering it at a market price that could be used to have an environmental positive impact.
Jay Clouse 38:58
So if I’m reading between the lines, the first version of the product, it was environmentally sound, it cleaned the oil, but it wasn’t at a price point that the restaurant is willing to pay for a premium that’s basically covering environmental concerns.
Jeremiah Chapman 39:12
Jay Clouse 39:13
Interesting. So when you heard that feedback, what did you go and do? How did you change the product and get it to a place where they were able to say a I’ll try it and be this is worth the cost?
Jeremiah Chapman 39:25
So at that point, I said, Okay, that, let’s set it let’s set aside the fact that you thought you had it. And at this point, I said, I need a co founder. So I was doing this by myself. So I need someone who can help me look at the long term vision of this business as I continue to grind on the on the r&d of the product. So you go back and you look at all your levers that you can pull all your cost levers and say which ones are we hard on that we cannot change this because this is what we stand for. And here are the things that we need to support And more time on to pull those costs levers, pull those costs down, because we need it to work for the customer. So that that is a long process of making sure when you pull something, it doesn’t impact how it performs in the market. And it still adheres to the standards that you say.
Jay Clouse 40:18
So is that cafe on campus, the first place that fresh tripods were in the real world in production.
Jeremiah Chapman 40:26
It was not on campus on Market Street. But yes, and we would, at that point, we could make two ish pods a day, and they went through about 28 a month. So we spent half our time with them. And then if we took on another customer, we were really pushing the envelope there. So had I found that partnership, I would say, during the Vote awards,
Jay Clouse 40:51
What was the constraint of how quickly you could make these pods? What was slowing you guys down? What does that process look like?
Jeremiah Chapman 40:58
So one thing since it was during the vote awards, I was part time. Second, it was everything was handmade, from how we would process the material to how we would make the container hold, and assemble. And then the coordination between us in the restaurant was very disconnected because we were now a new vendor. So a new vendor had to find a slot that fit in with the restaurant because we didn’t want to disrupt too much. So from there, start to finish, every single case that we sent out was about a two week process.
Jay Clouse 41:34
Wow. Okay, so you have a two week lead time on getting this this material to the restaurant, you’re coordinating with their schedule. Were you providing this in kind as experimenting at the time? Or are they purchasing it from you?
Jeremiah Chapman 41:45
So this restaurant, we trialed it for a couple of weeks, and then we sat down at the table? And they said, How much does this cost? I said, How much are you willing to pay? And that’s and then that’s how we sold our first case. So
Jay Clouse 41:59
So at this time, it’s probably I would imagine kind of, obviously difficult. Had you left your full time job yet at this point? or help me with the timeline here?
Jeremiah Chapman 42:09
This was in 2015. So no, I had not left my my full time job yet.
Jay Clouse 42:14
What was the trigger for you to say? Because it sounds like this is the restaurant that was purchasing from you that you said, I’m going to leave my full time job to do this. What was that moment like for you? Why did you decide to make that leap.
Jeremiah Chapman 42:27
I made that leap, because we were finding great success with this customer. And once I found a co founder, we could output this a little bit more, he was also full time at another company. So we had some extra inventory. And then we went and we went to a customer that had three fryers. So we now tripled our impact. And they were ready to purchase and I didn’t have the time to make the material. So obviously, for me, that meant something’s gotta give, something’s got to shake. We have no idea if they are gonna stick with us forever. But we’ve got to do something. And that’s where the transition happened.
Jay Clouse 43:06
So you leave your job and you’ve got close to was that three clients, you said that you’re working with the time.
Jeremiah Chapman 43:13
Four fryers, two clients.
Jay Clouse 43:15
Four fryers, two clients? What was that like? Tell me tell me like what your headspace is? Are you thinking like, Okay, I know this is going to be huge. And I’m gonna have 1000 clients or 1000 fryers in the next year, just walk me through where your head was when you made that leap.
Jeremiah Chapman 43:30
Yeah, so when I when I made that leap, it wasn’t necessarily that I knew everything was going to work. It’s just the opportunities that I had in front of me required a lot of me. And I had a decision to make if I decided to go one way or the other, which one would keep me up at night. And it was if I stayed in my full time job and wondered if this thing would ever work. I always told myself at the end of the day, I can still be an engineer, right now. And I think let’s put on this hat. And let’s run with it.
Jay Clouse 44:01
So let’s talk about how big this opportunity is in front of you in front of FreshFry. How big is the whole market that you see that FreshFry able to serve? And how do you manage growth so that you can still handle interface with these restaurants and onboarding these restaurants?
Jeremiah Chapman 44:19
Yeah, so the United States has about a million fryers in it ungodly amount, which is great for us. And what what I see is about 65% of that market, they don’t have an answer because they don’t have a filtration system. So we immediately plug in there, fully believe that that market can get you to between 20 and 50 million top line annually, before you really start to get some pushback, then you’re getting into the traditional filtration powder markets. But the way we need to manage growth is to become more than just a product. So the purpose of FreshFry was to create that value create that relationship. So we need to go ahead and keep that in the forefront of our minds because we want to transition from the $4 billion to spend every year on this problem to the $12 billion from this problem and also collecting the oil.
Jay Clouse 45:14
Okay, let’s talk more about that. How did you identify this $12 billion market? And why? Why do you have your sights set there before just crushing the $4 billion market,
Jeremiah Chapman 45:26
The $12 billion market is why FreshFry got into this in the first place to create, like I said, create that relationship. But in order to crush the $4 billion market, you can’t just get lost in the shuffle of a me too product. So although I say keep the keep the relationship in the forefront of your mind, it helps you make decisions today on what’s going to be important in the next five years. So if I’m worried about a certain distribution channel, doing X, Y, and Z, after think, is that distribution channel going to be there in five years.
Jay Clouse 45:59
And so the $4 billion is a filt does oil filtration market, is that correct?
Jeremiah Chapman 46:05
Jay Clouse 46:05
Okay, in $12 billion, is what exactly.
Jeremiah Chapman 46:09
So really, with the oil filtration market, although the top 100 brands in the United States, they’re all using filtration, it’s about 25% compliance. So we believe that just having a better process will increase compliance on average, we start at 60%. And we like to settle around 80. And some great customers are 90% 100%. So that’s really nice. But you’re not going to get that everywhere. So people are actually using our product, which grows that pie a little bit. And then there’s an extra 4.6 billion on the oil collection side. So once the oil is thrown away, that’s where the additional money from. So we’re growing the $4 billion spend annually, and then we’re tacking on the 4.6. That’s within the oil collection side.
Jay Clouse 47:02
Okay, so you’re saying, what, what is the compliance? What do people need to be client compliant about?
Jeremiah Chapman 47:08
Well, actually using products that are on the market? So you’ll go to anybody who fries they say, yeah, we use this product. And then you back calculate how much they should be using. And it’s about 25% of what they should be using. And you go to the corporate level, and they say, yeah, we don’t really execute on that very well, we know it’s something we need to work on, we just can’t get our people to do it. So that’s really what what’s going on there.
Jay Clouse 47:35
Meaning they’re using oil that’s too old, or oil that should not be used.
Jeremiah Chapman 47:40
So some places do that, yeah, they’re serving food out of bad oil, other places their oil life is then truncated a bit. So they’re tossing it away, three, four times a week, when if they had a good oil management process, it’d be once or twice a week, so they could be saving a couple 1000 bucks per location. So it manifests in several ways. But typically, it’s either stretching your oil too long and having well, it’s pretty gross, or tossing way too frequently. So your P&L is getting hit pretty hard.
Jay Clouse 48:13
Who is the governing body that sets this compliance rule forward?
Jeremiah Chapman 48:17
There isn’t one, actually. So are you talking from a regulation standpoint? Or are you talking at the restaurant and in a restaurant brand?
Jay Clouse 48:29
Well, when you say when you say the word compliance, in my head, I’m thinking there is some rule or some guideline they need to follow that is put forward by some authority. But who are they trying to be compliant to?
Jeremiah Chapman 48:42
So that compliance is always measured against what’s called a brand standard. So you’re with Chick Fil A, they their brand standard is your chicken needs to be pressure fried and peanut oil, your fries need to be cooked in open top fats this way. And we use these products filtering twice, or three times a day. And that’s a brand standard. Now compliances, we go in and we measure it against the brand standard. And it’s chipped away very quickly that some of it is reality, a restaurant can’t do everything at all times. Other parts. It’s really just the restaurant saying that doesn’t work for us. We’re just not going to do it because we’re in the trenches.
Jay Clouse 49:23
Got it. Okay, so there, they are failing to meet their own standards for whatever chain or restaurant that they’re a part of.
Jeremiah Chapman 49:31
Correct. Correct. And obviously, if, if there’s a standard, it’s really your lowest performer, that’s your real standard.
Jay Clouse 49:39
Okay, I’m starting to back into understanding. So that’s math now. So $4 billion of oil filtration market right now. But only about 25% of those restaurants are meeting their own internal standards for what they should be doing with their oil.
Jeremiah Chapman 49:54
Jay Clouse 49:54
So you’re saying using FreshFry makes you more compliant, which makes the overall story on oil filtering products closer to the $12 million number.
Jeremiah Chapman 50:06
Yeah, closer to the 8 billion, a billion a billion.
Jay Clouse 50:08
Yeah. Got it. Okay. And now you started talking about oil collection. And this is adding the 4.6. Which gets it closer to this larger number, right? What does the oil collection market look like? Now? What’s that marketplace look like?
Jeremiah Chapman 50:23
So that marketplace is really driven by you have one national player, darling, that’s everywhere in the United States, you have several, say about six or so sub national or regional that they conglomerate and have national service. And then the remaining 280 places are all local haulers that maybe have six or seven people, two trucks, very small, very driven group of people. But they could they can’t service more than maybe a 200 mile radius. So if you’re a national brand, you’ve got basically two options. And both of those options are completely fixated on, let’s, let’s get as much oil as possible.
Jay Clouse 51:10
And so Jeremiah, would you say that your core customer is like a Chick Fil A or McDonald’s? Or are you looking at some of these local one off kind of mom and pop restaurants?
Jeremiah Chapman 51:21
that’s a that’s a really great question. Because obviously, I want, I want to touch all of those places, the national brands, they’re completely different animal. So our near term customer as a small, independent place. But really, how do you get to them? That’s that’s the difficult part. But the small independent places, they’re the ones that don’t have operations that need a lot of help, that can, but also, they think out the box out of the box a little bit differently, which is awesome. So we want to answer their needs and build what we want to build for that next step within the independent market, because they are the largest part of the market. And no one’s been able to really rally around it because everyone wants to quick hit the national brand. But then you get swallowed up by them.
Jay Clouse 52:12
So you say that they’re the largest part of the market? Are you saying as a whole? If you look at all the restaurants in the United States, the largest segment is independent shops?
Jeremiah Chapman 52:22
correct? That is correct. Independence are the largest. They use oil. It’s industrial, brine independence, and then chain restaurants, they have the pretty much the most streamline process, they’re actually stretching old posts.
Jay Clouse 52:39
So the independent restaurants, are they more compliant? Or less compliant? Do they even have brand standards,
Jeremiah Chapman 52:44
They do not really have brand standards, they have, I would say integrity in their processes. But since as an independent you may have, that’s including the one offs, the multi units, the small, the local chain accounts, they may have 10 to 15. And they’re starting to they’re starting to get a standard, but they really don’t have a filtration standard yet.
Jay Clouse 53:09
Are they on a restaurant per restaurant basis? More and more profitable customer for you?
Jeremiah Chapman 53:15
Yes. So that’s that’s another part when you’re working with national brands, your margin is going to go down significantly. So we not only are we answering the part of the market that doesn’t have an answer. Currently, it’s more profitable for us and allows us to learn and change and disrupt a lot more.
Jay Clouse 53:33
Do you have any numbers you can share with the listeners as far as when you say that the independence are a larger part of the national pie? Do you know what that breakdown is?
Jeremiah Chapman 53:44
national accounts, there are about 200,000 – 250,000 locations independence, or 350,000 locations, making up about 65% of the oil spend annually. And when it comes to their average oil life, really, we’re looking at less than a week, on average, but the national accounts you’re looking at to two weeks or so they’re really stretching oil. So it’s a bit it’s a much different environment. If we’re thinking about the environmental impact, that’s where we want it to be. But it’s a it’s a tall task.
Jay Clouse 54:20
How much of a focus is that environmental impact on you? Because if you’re if you’re driving both towards the sustainability goal, but also becoming a profitable fledgling business, how do you determine where you spend more of your time and effort is this is this something that is slowing you down?
Jeremiah Chapman 54:39
So on the sustainability part, luckily, our cost competitiveness and our value proposition directly align with sustainability. So we’re using plants which helps us on cost competitiveness. But then we’re also we need to impact how much oil you use which is the state which is the system inability part. So it’s tied into what’s important to our business. If it’s not important to your business, and you’re just trying to be sustainable, I think that’s where a lot of the friction happens. And that’s really when I’m starting to think of things to develop around our product, I have to make sure that I’m not reaching for something at this moment, that is going to put a burden on our customer just to sound better. Because if it’s not answering a problem, then it’s not part of a solution that we need. And it’s going to just be a bell or whistle that could add a little bit of money on it and cause a lot of strength.
Jay Clouse 55:37
And I want to get into those unit economics a little bit here in a second. But one last question on the restaurant landscape, because I think this is fascinating. And it’s something that I don’t know a ton about, when you have these national chains like McDonald’s and subway or wherever some of these are franchises. How does dealing with franchises affect how you deal with national brands? Do they have to go and get some approval from the mothership? or do some of them operate completely independently? What does that look like?
Jeremiah Chapman 56:03
Every one of them is different. So that’s, that’s the million dollar question there. Some brands, you absolutely have to go to corporate first. And then you have the ability to be approved to be sold to franchisees. Some large accounts, they may hold three to 5% of the of the locations. So you can sell corporate become part of the program, and only get 3% of their locations, and the ability to sell to all the other franchisees, but they have to make the decision every single time. So you need to go around other brands, they may be completely like AAA, they’re completely corporate owned, you get one you get all of them, which is a huge benefit. But something that’s also very difficult about the national chain, the C suite changes every seems 15 to 20 months. So the person you’re talking to, that’s fat said be fired, they could be fired in the middle of a test. And that’s happened to us twice. Actually, we were working with someone and they got moved, and our traction just fell out the bottom because someone comes in with fresh ideas. So really, if you want to build a business, that you want to make a huge impact, you have to do that part in the national chains really fast.
Jay Clouse 57:23
Is that where you started? Did you did you come in thinking like, this is what I’m going to do. I’m going to hit national chains. And you start with those conversations. And now you’ve come around to say actually, I think independence if we could figure out how to reach them or better, or is that something you knew from the beginning that national chains would be kind of this difficult quicksand of a process.
Jeremiah Chapman 57:41
So I envision doing both at the same time leveraging the scale of national chains to really offer a competitive price to the independence and grow that margin. What I did not anticipate is the long sales cycle of the national chains. If the person staying around with you that sales cycle can be nine to 12 months, because you prove it you go to market tests, you go to a set request, which is larger market test, then you start rolling out, I thought it was you have a couple conversations, you prove it, they start implementing it. So when we first started, that process actually made us hemorrhage money, because we had to show up and be in market tests for weeks at a time and a different state. So it’s nothing to spend 10,000 to 15,000 a month on a test where someone can be fired in the middle of it. That’s a really hard pill to swallow. Second, the independence, we knew we could knock on every single door to get the independent market. So we had to figure out what trucks are already there who has relationship? And how can we treat this as a national account within with an independent mindset. So that’s where we had to pivot towards is realizing that we could be throwing cash down a dark hole on the national chain side if we don’t fully understand what’s going on.
Jay Clouse 59:05
So the independence, you’re saying you’re trying to find channel partners who are already servicing a lot of these independence and working through them.
Jeremiah Chapman 59:12
That is the way you have to do it. If you want to move fast. I do believe that we could get a pull through a drag through strategy nationally, and in about six to eight months on that if we just picked and product. And we may have 20 to 30 key customers that has gotten as nationwide but we may be selling two or three cases a week at those places. So you’re spread all over the nation but you’re really thin. So we have to find a partnership that helps us build that density quickly.
Jay Clouse 59:45
Can you talk to me about your attraction this point who how many customers you have where they are what was the breakup between franchises or independence.
Jeremiah Chapman 59:55
We’re currently within nine states servicing about 250 fryers Our main customers are actually stadiums, event centers, large venues, they can’t have a filtration system, we have a few, I would call them local chain concepts. So like Hattie B’s, their big customer, and then places here locally in Louisville, something called homerun burger, they have a better burger concept positioning. So think of five guys, in and out everyone who’s getting a quality burger out. That’s what they’re doing. And we have a franchisee, who asked to remain anonymous at this time. And California, that is really giving us access to a very big, very big opportunity. But it’s one of those where their C suite has changed three times in the past two years. So whenever you get traction, it just kind of slips away. So that one’s a really difficult one. But what we what we quickly saw are the local chain concepts are really, you’re able to build businesses off of them because you become their brand standard at an early, early age. And from that, we were actually able to build a national rollout plan, which will be in effect here in September. So we’ve sold about 27,000 units in 2016. We expect to be over 500,000 units by the end of this year in 2018.
Jay Clouse 1:01:24
Can you talk about that strategy and how you’ll get from 27,000 to 500,000.
Jeremiah Chapman 1:01:29
That’s the partnership. That’s the partnership at play. So we found a trusted partner who believes in us to take us national. And all we have to do is show them what are, quote secret sauces here in our Midwest market. And they will employ that over the entirety of the United States.
Jay Clouse 1:01:51
That’s exciting. So what do you what do you have to what do you have to prove to them?
Jeremiah Chapman 1:01:56
Well, really, this is the this is the we’re in the homestretch. So we’ve proven that we’re worth taking national already. And now they’re saying, Let’s get everything set up. So we can do this the right way. So again, flying by the seat of my pants, but man, I’m excited.
Jay Clouse 1:02:15
Jeremiah Chapman 1:02:16
Jay Clouse 1:02:17
What do you have to do as a business to handle that type of growth? Do you have to ramp up manufacturing, or you have to get dedicated space? How do you handle that influx of growth?
Jeremiah Chapman 1:02:27
Nice thing is, is we’re able to plan around a, a launch, which is great. But yes, it’s all the above, you need to make sure your manufacturing is set. Really one thing that I never thought about, you have to have your customer service in check. Because right now we’re in nine states, but we’re in the Midwest. So those nine states we can get to within a day, if we have a problem. That’s a benefit of the Midwest that allows you to really touch your customers personally. But if you’re scaling nationally, you’re not going to get to those customers fast enough. So you need to have a customer service, play, manufacturing, your support of whatever sales channels that you’re using. All that needs to be ready before you start. Because those are the things you can’t really build from scratch. When you’re going you can change them, you can you can mold them, you can grow them, but you need to have something in place, or it’ll fall on its face.
Jay Clouse 1:03:22
If you sell 500,000 units in the next year. What does that mean for your business from a unit economic standpoint on it on every unit that you sell? What is your margin?
Jeremiah Chapman 1:03:33
Currently, we’re we’re beating down our cost of goods because we’re hitting scale, which is awesome. So we we project our margins, depending on the distribution channel to be between 20 and 40%. But selling those 500,000 units, that really means this is our start cashflow positive stage. So this is this is my dream, this is no longer an expensive hobby, you’re creating enough value in the marketplace to sustain it. Are you comfortable? Are you gonna keep growing? So
Jay Clouse 1:04:02
Hmm. Does that margin include the overhead that you might have to have in the way of transporting or storage? Or is that just purely one other cost drivers do you have?
Jeremiah Chapman 1:04:14
So that is another key reason why you want a partnership because you need to keep those costs pretty flat. For right now. We know that we’re leaving a little bit on the table, but we can predict those costs now. So distribution costs, storage costs, turn times, fuel surcharges, we have all of that completely covered. So we know that we can bank on X amount of cash for y amount of units sold, which is exactly what we need. Because as you as you’re growing, the first thing we saw is hey, we’re gonna grow and run out of cash. That’s the most exciting and saddest thing you’ll see in your cash flow. Your P&L is as soon as you order those materials, you can’t pay anyone who’s making it. So it’s good to keep those costs flat. So you can Expect and build a strategy around it.
Jay Clouse 1:05:03
So I know you pitched in the Rise of the Rest competition recently.
Jeremiah Chapman 1:05:06
Jay Clouse 1:05:07
Is that a signal of a fundraiser you guys raising right now?
Jeremiah Chapman 1:05:12
So what we’ve done is we’ve got a bridge going so we can get through this launch this launch. It’s really it’s taking us about 70x. So
Jay Clouse 1:05:26
It’s this national launch you’re talking about?
Jeremiah Chapman 1:05:27
Yeah, it’s pretty crazy. But what, what we really see is, as soon as you get our feet set up under us, we want to be out the door again. And when I say feet set up under us, I really mean the people in place that continue to push this along. And I’m immediately going back out. So yeah, and a few months we will be raising, and we’ll be raising to go even bigger.
Jay Clouse 1:05:49
How big is your team now, Jeremiah?
Jeremiah Chapman 1:05:51
We have three people right now, three people and a ton of help. I wouldn’t say that we do it all ourselves. But three people are full time. And we have advisors that honestly, I don’t know why we they don’t ask to be paid with how much they they help us with. But it’s it’s been a blessing for us.
Jay Clouse 1:06:10
And did they help a lot on understanding the market and breeding relationships. Are they rolling up their sleeves and making pods?
Jeremiah Chapman 1:06:18
Oh, so no, no one’s making five. But they definitely they help us with the relationship. They offer a ton of guidance on strategy. But at the end of the day, it’s the three, the three, I call it, the pod squad that has that we have to make the decision on where the company needs to go. So what’s great is you have all of this input that tells you all all these different things, you make a decision. And they don’t ask questions about the decision, they say, Okay, if that’s where you’re going, is what you really need to do. So a lot of times advisors can really disrupt and get in the way of where you want to go. This core group believes in our abilities enough to just adhere to the vision that we have.
Jay Clouse 1:07:01
I remembered a couple quick hit questions, I wanted to make sure I got some some data on. I’m a restaurant, how much am I paying per unit for one of these times.
Jeremiah Chapman 1:07:10
So if you’re a restaurant, you’re spending about 3000 bucks a year on frying oil, you’re going to spend between $1.50 and $1.75 $1.80 for our pods, and we’re going to save you 25% while paying for the pods. So we’re gonna cut that oil spend a lot more, but then you have to pay for the pod, so it washes out to at least 25%. And you’re serving more consistent, better tasting food that tastes like it should. If you’re a large venue place, we’re saving you 150% to 200% on your oil life.
Jay Clouse 1:07:47
And have you had any of these customers that you’ve gone into if any of them turned out? Have they said we tried it? We’re not going to use it?
Jeremiah Chapman 1:07:54
Oh, yeah, yeah. So sometimes people say, yeah, your product made a difference, but we just like changing our oil on Tuesdays and Thursdays. So it’s really, that’s a tough one. That is a really tough one right there.
Jay Clouse 1:08:07
But it’s just a behavior, they prefer the behavior in the process that already existed.
Jeremiah Chapman 1:08:13
Yes, yes. So even if they don’t have a product, and you say, hey, in this, in this restaurant right here, we have no competition. We don’t have to displace anything you do, you’re displacing a legacy system, you’re, you’re displacing a behavior. So very important to realize that in every step, there’s something in the place of where you want to be.
Jay Clouse 1:08:33
Maybe I’m projecting here, but as part of that, a lot of the restaurants that you probably go into the employees that are interacting with this, are they minimum wage employees,
Jeremiah Chapman 1:08:43
on the independent side, they’re typically plate paid a little bit better, but not much. But when I say the C suite transitions every 15 to 20 months on national brands, back a house, they’re transitioning every six months. So it’s a tough environment everywhere.
Jay Clouse 1:09:00
I would imagine that part of the reason that behavior consistency and why they want to stick to that behavior consistency is because there’s so much training, and then you know, they try to make it probably as simple as they can for a lot of these people. Am I projecting or is that your experience.
Jeremiah Chapman 1:09:16
Now, if they were training, they would train on everything that they want. The problem is they they’re probably not able to train as much. So if you have consistent trend transitions to where you’re always bringing people in and out. The base of what you need in your restaurant is going to become the standard. Not everything that you want. But what’s access absolutely necessary, which is put the food in the refrigerator, mop the floors, turn off the fryers, everything else you want outside of that. You got to have staff that’s going to stick around because when you get someone in that’s really all they’re coming in with the knowledge of I noticed fryer can stay on all night. So I’ll turn that off. So that’s typically what happens.
Jay Clouse 1:09:54
What are the KPIs that you look at you look at to see how your business is doing.
Jeremiah Chapman 1:10:00
That’s a that’s a good question. So really, what we have is, we want to look at the units sold. But we really want to understand repeat orders. And we have a ratio between samples and cases moved. So because our product is the only product in the market that doesn’t require any large upfront costs, and no equipment, we have the ability to give someone some units, let them try it so they can actually see it, that’s a huge help for the restaurant, we want to make sure that we highlight, but need to make sure your ratio of samples to sales actually makes sense.
Jay Clouse 1:10:40
Cool. I would love to project for a little bit now and say, it’s, it’s five years down the road. What does FreshFry look like five years from now.
Jeremiah Chapman 1:10:51
FreshFry in five years does not care what your process is in the back of house, we’ve just become a part of it. And the relationship is no longer transactional, but contract based to where you are pretty much able to be a part of a program that rewards you based off of your habits. So instead of watching how much you spend, and that you’re spending in the right amount, we’re watching to make sure that you’re getting what you deserve at that point. And everything that’s around the fryer we’re a part of. So when someone else comes in with a basic knowledge of turning off the fryer, that’s all that they really need to know because we’re taking care of the rest. And we’re doing that in a very lean, no asset way.
Jay Clouse 1:11:40
Can you explain more of what you mean by a lien no asset way.
Jeremiah Chapman 1:11:44
So whenever you think about fryers and service and anything around the fryer, the part of the restaurant where someone is always showing up taking something out, they need trucks and vans, they need everything. And they need a lot of labor to do that. So if we want to become a big player, a lot of people will think, Hey, you really want to buy all those things. But what we want to focus on is there are 280 plus different companies that have amazing people that just don’t have a national reach. But our product can be shipped anywhere and create the relationship. So we want to connect all that together. And so we don’t have to have the people that people already there, let’s let’s strengthen the relationship and move it from a transactional relationship.
Jay Clouse 1:12:31
almost the opposite of where you are now right now you’re kind of looking for someone who can link you into these large national distributions, you’re saying you’re going to get to the point where you’re helping connect independent this haulers that you’re talking about?
Jeremiah Chapman 1:12:43
Yeah, yeah, actually. So independent haulers have a competitive nature about them, that national haulers do not. And typically, that means a very good thing happens at the independent or even national location, better service more consistent, cleaner, because they need the business more. We think there’s a huge advantage to that. So you want to connect all together.
Jay Clouse 1:13:10
Jeremiah, there’s a couple last questions that I have. And it focuses on starting a business in the Midwest and for you and Louisville specifically, can you talk about what it’s been like starting this business in Louisville, what things are a benefit to being in local?
Jeremiah Chapman 1:13:26
Absolutely. So in Laborde, what I believe is, well first and level, anything that has something to do with branding, franchising, national accounts, distribution, logistics and manufacturing. That’s what Louisville does. So we have a deep root, obviously, yum brands from Louisville, that headquartered in Louisville, and also the greatest minds and all of your other brands typically come from local. So they have a large region a deep connection ups with logistics, the fact that we can get to over 50% of the population, and under a day’s drive, all of that is really big, because we really can’t afford to fly to every single place all the time. But we can make a loop and hit six different states in a matter of a couple days, which is very big for us. Now that that’s low level. Now, when you look at the Midwest, what’s really important for a product like ours is pricing, actually, we can afford to price this thing on the coasts at a completely different price than what works in the Midwest. Now granted, a lot of people would say well just move to the coast. There’s a lot of people there. But when you really want to take over, take advantage of the fact that the Midwest pricing is tough, and if you can make it work in the Midwest, you’re gonna destroy the coasts when it comes to the pricing when it comes to the strategy around how you’re going to sell. So those things I believe are extremely important for the Midwest.
Jay Clouse 1:15:03
You grew up in Louisville. Correct.
Jeremiah Chapman 1:15:05
Born and raised. Yeah.
Jay Clouse 1:15:06
So are you still there? Because this is kind of where you’ve born and raised. And you say, actually, this works pretty well, or at this point, is it strategic to say this is the best place for FreshFry to operate?
Jeremiah Chapman 1:15:17
Well, what I would say is, if we’re looking at it in terms of happenstance, which I think that’s a little bit of it, but it’s more along the lines of this would have never been presented as a problem, to me a scalable problem if I wasn’t from global, because you see national brands everywhere, where and other places, you may, you may not see that you may not see that as a problem. But also, this is the best place to be for us for a long term vision of what we want to be there are other hot cities, you could be in Denver, you can be in several places, in Texas, Jacksonville, Atlanta, you can be at any of those places and have a really good start. But loibl is positioned to remain the franchising capital of the world, actually, there are people working diligently to make that happen. So what our business is positioned to do with the independence, we need to stay close to the to the place that is going to really set those things up for success for the next 10 to 20 years. So this is perfect for us to stay here, really for our our next step. So as I said, to loop it all around from before, although we’re chasing that $4 billion market, you have to keep the 12 billion in mind, because if we were chasing the 4 billion we’d move, we move somewhere else. But if we want to keep the 12 billion that is built in mobile,
Jay Clouse 1:16:44
and are there any unique challenges to being global, or the things that being in the Midwest makes difficult to grow a company?
Jeremiah Chapman 1:16:51
Well, I think part of that is changing, but access to capital is very big. A lot of times in the Midwest, people want to see series a style companies raising seed rounds, that’s very difficult. Because now now you’re moving a little bit slower. Second thing which, which may or may it, I think it’s helpful when it comes to interacting with other companies, but it’s kind of harmful. Sometimes a startup is, sometimes were really, really nice. But you don’t get nose fast enough. So you think you’re doing something great. And then you you go somewhere else. And like this doesn’t make any sense at all. But because there as I said, this is changing with it. When we first got started, there were so few companies doing things are wanting to do things as big as what we were doing in the exact same area. A lot of people would think, hey, you’re thinking a little bit too much right now, why don’t you just focus on this small thing, that that could be a detriment to, to scaling big. I think you could, at that time, you could scale companies. But something that I would love to take three, four years could take six or seven, first. So to give you an example, when we first started this company, we thought that we needed to be the manufacturer of the pods at all times, because it holds your your margins pretty high. But you can’t scale a startup as a manufacturer. And that is something that to this day, although it helps us negotiate with CO packing and things like that we have the knowledge base, that slowed us down tremendously. But that was something that was valued in the Midwest is keeping your cost of goods high because the pricing was so aggressive. So you think, Hey, I can’t scale a business with 12% margin, but then you think, long term, where are you going to be? And how do you get to that point? So that’s that’s those are the challenges that I that I have faced personally.
Jay Clouse 1:18:42
That’s great. This has been great. Is there anything that I haven’t asked that I should have asked?
Jeremiah Chapman 1:18:48
Well, I think we’ve we’ve covered up? What I just like to ask you, because obviously this has a Midwest focus. Why is that so important to you?
Jay Clouse 1:18:58
Great question. We and I say we as an Eric and I, we we think that the Midwest areas outside of Silicon Valley, are a prime place to start a company for a lot of the reasons that you just spoke to things like cost of living helping with the unique, not unique phenomics we have so many fortune 500’s concentrated here, you can get to such a large percentage of the population. And there’s a lot of talent here in the Midwest, you know, something we talk about all the time here in Columbus, Ohio. You can pay a software engineer $300,000 in the valley, and they’re feeling like they’re still going kind of month to month because that lifestyle and that cost of living. You pay a software engineer in Columbus, Ohio $115,000 you can live like a king.
Jeremiah Chapman 1:19:44
Jay Clouse 1:19:45
So you know, it just the unit economics are staggeringly different here in the Midwest, and I think you also find a level of resiliency here in the Midwest that is unmatched. You know, and I say Midwest, but I mean, outside of the valley, I’ve got someone crashing in my apartment right now, from Alaska. he’s a he’s an aeros. He’s an aerospace engineer. He former formerly of SpaceX. And he talks about the Alaska mindset all the time of you can drive from Anchorage to Juneau. And you’re in the wilderness, people make that drive, and they pack a sleeping bag in a tent. Because if your truck breaks down, that’s just your life. Now, you’ve got to you’ve got to survive out there. And he talks about that resiliency in Alaska being something that he really values. I think we see something similar here in the Midwest, even as it comes to starting a software company or a physical goods company.
Jeremiah Chapman 1:20:40
Absolutely. I appreciate that. You said that. Sometimes you forget that. Yeah, we do like to bear down by bite on something pretty hard and not let go. So that’s great.
Jay Clouse 1:20:51
Cool, Jeremiah, thank you for taking the time. If people want to learn more about you, or about FreshFry after the show, where should they go?
Jeremiah Chapman 1:20:58
They should go to www.freshfry.me so .me. Because freshfry.com is a fish and chips place in the UK. So they got us. But yeah, it’s freshfry.me. And from there, it’ll linkage just just about anything.
Jay Clouse 1:21:17
All right, awesome. Well, thanks for taking the time. And we’ll check in on you sometime in the next six to 18 months, man.
Jeremiah Chapman 1:21:24
Yeah, yeah, exciting things will happen. So yeah, look forward to that. Thanks, Jay. I appreciate this.
Jay Clouse 1:21:32
All right. Eric just got done speaking with Jeremiah Chapman, founder and CEO of FreshFry, what are we about to do here in this third segment, now that you’re back?
Eric Hornung 1:21:41
Before I jump into that, man, that was that was interesting, that is a industry a area that I had absolutely no exposure to, besides the fact that once in a while there would be a grease fire somewhere in Westlake Ohio, where I’m from, in the back of a Wendy’s. That is that is the total amount of exposure I’ve had. So it was really cool to kind of hear about that process, that that area. But we are going to jump into our verbal hypothetical deal memo. So this deal memo is hypothetical in the sense that Jay and I do not have a lp base. We are not an angel fund or a venture fund. But we are learning to be one. And this helps us crystallize our thinking and serves as a way for us to look back and six to 18 months and grade ourselves on how we thought about a company and an opportunity. Jay, Did I miss anything?
Jay Clouse 1:22:40
Nope. And in this section of the show, we are looking to answer four questions, either explicitly or implicitly. And those are one, how committed is this founder. Two what are the founders chances of success in this business and in life? Three, what does winning look like in terms of revenue and my return as an investor in four? Why has this founder chosen this business? Eric, I know you love starting with the founder. What did you think about Jeremiah?
Eric Hornung 1:23:08
Jeremiah was fantastic. He obviously had a little bit of a tinkerers mentality when it came to biofuels and has a initiators mindset when it comes to walking up to a restaurant and saying, hey, I want your your oil, your old oil from the back, and then walking down the street and learning how to make biodiesel or whatever he was making and then going out and selling it effectively to the Louisville where they called trams or shuttles.
Jay Clouse 1:23:41
Eric Hornung 1:23:41
So I love all of that initiative. I love that curiosity. And it seems like he’s making something that people really value.
Jay Clouse 1:23:50
Yeah, I think that really speaks to why Jeremiah chose this business. He’s just been working in this space and tinkering around with the chemistry of filtration for a long time and bio diesel as he spoke to speaking to his commitment, something that blew me away during the interview, and then re listening, the interview continued to blow me away, the the point in time where he quit his job, when he had one customer paying him 25, maybe $30 a month. So, to me, that’s commitment. Sounds a little crazy, but you kind of need that. I think that is just a very good underscore of how much he cares about this business in this opportunity. He’s been working on it in some form since 2014, leaving his job first in 2016. And being full time since that time, I love speaking to people who have a very specific technical knowledge about what it is that they’re working on.
Eric Hornung 1:24:49
I completely agree. I think two things to piggyback off what you just said, going back to leaving his job, chemical engineers coming out of college, especially with master’s degrees, maybe A lot of money. So living in Louisville, making what I will assume is a very, very healthy salary. And then leaving that for one customer is incredible,
Jay Clouse 1:25:13
Which is something he spoke to directly. He said, part of the reason he chose chemical engineering was because he was trying to secure the bag has that was a phrase that he used that I hadn’t heard before.
Eric Hornung 1:25:21
I think that I believe that is that is the phrase,
Jay Clouse 1:25:23
yeah, secure the bag, get the get the salary from a position and an education that he knew would be well paying. But yeah, working 20 to 25 hours a week on FreshFry, while doing 50 to 60 hours per week, as normal job, I think that speaks to his commitment.
Eric Hornung 1:25:40
And I felt a little bit of a undertow of some sort of environmental responsibility or ideology. I know we didn’t get a chance to examine it deeply. But it kind of pairs with that technical understanding that that you brought up is that this meant a lot to him to have some sort of technological solution that is environmentally and sustainably sound. And that came through in bits and pieces across the interview, although I don’t think it was ever tackled explicitly.
Jay Clouse 1:26:13
Yeah, something that stuck out on those lines to me was speaking. It was from the beginning of his product, it was a focus of his, it was in the first version of the product that he was going and trying to sell to restaurants. And what we did tune into was this idea that the first product because it was environmentally friendly, it had a price tag that was a little bit at a premium and too much of a premium for the restaurants to initially want to take on. But he didn’t at that point scrapped the idea of being environment environmentally conscious, he simply changed the product and figured out how to make it work at a price point the restaurants were willing to pay for.
Eric Hornung 1:26:49
Let’s talk about that a little bit, because he mentioned one of the benefits. And this isn’t something I have heard about the Midwest from any of the founders we’ve talked to. But one of the benefits of being in the Midwest is that if you can make pricing work here, you can make it work anywhere. Does that speak to the cost conscious nature of Midwestern companies and the fact that you have to sell at a reasonable to them rate where then you could go to coast and inflate your prices, but your cost basis is still effective at a Midwest price. That is a fascinating idea that I have I have not thought of or heard.
Jay Clouse 1:27:28
I think that is true. I think that’s what he was saying. And I hadn’t thought of that either. But it brings to mind being from a small town myself. Whenever I go home, I’m blown away, even going to this small town from Columbus, Ohio, which is not a huge town, blown away by the pricing of restaurants, specifically, the things that I can get for 250 or $3. at restaurants, restaurants that won’t even accept credit cards yet, because they don’t want to pay the transaction fee. It’s cash only. I think there is something to be said about how cost conscious a lot of areas in the Midwest, or especially if he’s working towards independent restaurants. And that’s a huge focus of his.
Eric Hornung 1:28:05
I have one quick anecdote on that. So I have lived in New York for two and a half years. And my favorite ice cream spot in New York is called Van Leeuwen’s. And to go get a single scoop of ice cream and Van Leuwen’s, I think is 5.95. And it’s it’s not a big scoop. It’s premium ice cream. It’s expensive ice cream, you’re getting a great quality. I think it’s some of the best ice cream I’ve ever had in the world. Last.
Jay Clouse 1:28:36
Better than Jenny’s.
Eric Hornung 1:28:38
Don’t put me on the spot like that. Last, not gonna answer. On Sunday, I was in yellow springs, Ohio, and we went to Young’s Dairy. And I ordered a single scoop and a waffle cone. And this thing was bigger than my head. It had a full pint of ice cream and I swear, like it was incredible. And I got one for me. And then I got a I got one for my girlfriend. And together, it was 8.16. I was like, I got eight times the product, maybe 10 times the product twice over. For $3 more. It was incredible.
Jay Clouse 1:29:19
I can’t believe you’re not gonna take a stance on Van Leeuwens versus Jenny’s.
Eric Hornung 1:29:22
I can’t believe you want me to get controversial here.
Jay Clouse 1:29:26
That sounds like a vote for Van Leeuwens.
Eric Hornung 1:29:28
Jenny’s brambleberry crisp is incredible and probably better than any of the Van Leeuwen’s flavors. But on average, I think Van Leeuwens has a better baseline of ice cream.
Jay Clouse 1:29:42
All right. All right. Well, we’ll let that drop back to back to FreshFry.
Eric Hornung 1:29:46
You’re gonna get me you’re gonna get me in trouble with the listeners.
Jay Clouse 1:29:49
No, it’s fine. It’s fine. You got it. You got it. You got to stand for something. Makes me think of Hamilton. Okay, so back to FreshFry. Let’s talk about the market opportunity, and the opportunity as an investor investing in this company. This is where I got hung up the most trying to work through the economics here, right now $4 billion oil filtration market, which sounds like a big number. But he seems to think he kind of tops out at his potential for the fresh tripod at 20 to $50 million in top line revenue on that market right now, before he gets into this other side of the market, which is the uncompliant restaurants, which represent a larger portion. And he’s saying he can unlock that market. What were your initial thoughts hearing about this market size and opportunity?
Eric Hornung 1:30:40
So I think, looking at that kind of strategically, yes, that that kind of makes sense in the 20, to 20, to 4020 to 50 number and then unlocking the rest of the market? My biggest question, and I think this is a question about just market sizing, in general, when you talk to a startup founder, they may go to something like IBISWorld, which is where I believe this $4 billion number was pulled, and use that as kind of a all encompassing, this is what the markets worth right now. But what I wanted to do is see, okay, based on this business model, let’s assume that fresh fried took over 100% of the US market. So if we look at 1.675, which I believe is the median of the price per pod that he had. And we say that, you know, there’s 365 pods per year, and we just kind of round a little bit, we end up getting to about $800 per year per customer, understanding that there’s differences in price points, but let’s just look at an average. Then there’s 250,000, independent chains, 350,000 chains. And if you assume that each of them has to fryers, you get to 1.2 million fryers in the United States, which kind of comports with his $1 million number. So we multiply that $800 times at 1.2 million fryers on a yearly basis, that is only nine, called a billion dollars in terms of total addressable market. So there’s a bit of a disconnect between that 4 billion and this 1 billion, and that effectively, tells me that he’s pricing at a 75% discount to market price. If that $4 billion numbers correct.
Jay Clouse 1:32:24
That’s interesting way to go about it. You said $800 per customer, are you saying $800 per fryer, or per customer that has.
Eric Hornung 1:32:30
Jay Clouse 1:32:31
Okay, per fryer got it. That’s an interesting way to go about it. I went through some different math, which was his projections for the end of this year. He said he expects to break 500,000 units sold this year, I took an average price of $1 50 per pod, which would give us $750,000. His margin, if you were at 40%, actually 30% would be $225,000 of profit this year at 500,000 units. Obviously, he’s looking at a larger vision, this is his entry point into the restaurant industry where he wants to start doing more and more services. So that expands the market. But I didn’t have a clear idea of just exactly how big maybe maybe you had a better vision of longer term market size.
Eric Hornung 1:33:19
Yeah, I mean, the biggest I can see this market getting without a price increase is something around that $1 billion. Mark. And that’s, that’s assuming that there’s 100% retention of and they are ubiquitous across the industry. And everyone who is in restaurants uses them, just like they use, you know, some sort of canola oil or peanut oil or whatever. It’s just Yes, if you use a fryer, you use this. It’s just what you do, in which case, there’d be some pricing power, so maybe you could increase the prices for x and then get back to that $4 billion number. So I think market size is something that I would be curious to examine further. That being said, a billion dollar market where there’s no real competitors, is no real third party competitors, is definitely interesting.
Jay Clouse 1:34:09
Especially if we’re coming at it from the angel investment side of things as opposed to like a series A or Series B.
Eric Hornung 1:34:16
Even as a series even as a series A if you have the proper valuation, and you have the proper understanding that this is an opportunity that is going for market dominance, not getting a slice of the pie. The idea here as I understand it, is one of Yes, cost but also behavioral change. The idea right now in the industry when you’re using a fryer, is that you need to change the oil every What do you say Tuesday and Thursday? That was just what they did. But if you can change that to just throwing in a pod every night before you go home, and your costs go down, what do you say up to 150% that to me, is something that It can have ripple effects throughout the industry. So I think it is an amazing concept. It just may take a little bit of time to establish.
Jay Clouse 1:35:08
I agree, especially the way he’s thinking about it going through some of these channel partners who are already ubiquitous for the services they provide. He talked about hollers. And if you know, there’s a national darling of one service related to to oil, and he’s partnered with them, they just become part of that sweet. Yeah, I see where this becomes like a monopoly, essentially a dominance play for this very specific thing for this very specific customer. Yeah, this is a more niche opportunity than we’ve come across on the pod thus far.
Eric Hornung 1:35:41
Yeah. But that’s what’s exciting about it, I think, is its niche. It’s not, we just had a parking app on effectively. And there’s, you know, how many hundreds of those that have been pitched that we’ve talked about, you’re not going to see a lot of people pitching oil, adsorption pods, it’s just not a it’s not a big, it’s not a big, hairy, everyone knows about it problem. It’s a niche, hairy, no one knows about it. But the people who do are in a position to make a very big difference, if they do it correctly,
Jay Clouse 1:36:13
a question reflecting back that I wish I would have dug into more he talked about working with national chains, and one that being a long process, it being a difficult process, because they turn the C suite every 15 to 20 months. But at the same time market tests costing 10 to $15,000 per month is something that he mentioned that I did not dig into, I have no idea where that money was coming from. I don’t
Eric Hornung 1:36:38
either he the sales cycle is nine to 12 months. And if a market test was three of those months, or one of those months, that’s, that’s expensive to huge amounts for one mark, especially, especially if we look at just the unit economics of a chain. So I did a little bit of breakdown based on some of the numbers we we received. And I found that using some of the assumptions he had, that the operating profit per pod in a given year is about $122. And the cost of acquisition of a new customer on average across both independence and chains is about $175 is what he had told us outside of the interview. So your months to break even for a new chain is about 17 months. That’s your payback period. Looking at an independent, that same payback period is about eight months, from the numbers that I can kind of cobbled together.
Jay Clouse 1:37:41
That’s interesting. So that’s another reason to go through the independent route versus the chain route.
Unknown Speaker 1:37:47
Jay Clouse 1:37:47
you hear the tornado siren going by? In the background here?
Eric Hornung 1:37:51
I do. It must be Wednesday at noon. Columbus, Ohio. That’s,
Jay Clouse 1:37:56
that’s right. Sorry about that listeners, if that comes through. Alright, so let’s let’s talk about 12 to 18 months from now, if you’re looking at fresh fruit as an opportunity, what are you looking at 12 to 18 months from now from Jeremiah or from FreshFry?
Eric Hornung 1:38:10
Well, there’s something that I mentioned in the intro, that I think I would be keeping a eye on the macro economic commodities prices, specifically as they relate to oil and the underlying oil components. I do believe that if we see a spike in oil prices, independents are going to get hit harder than chains. Because chains tend to put some sort of derivatives pricing model in place where they can hedge their costs for you know, a year or two years, and they don’t get hit as hard on spikes. But independence, if oil prices spike, that’s a huge cost to their business, that might drive demand for something like FreshFry that makes them able to buy less oil less often and have less of a reliance on that commodity price. I actually have two more things. So let me let you jump into one and that are something that you want to see in 16 months, and
Jay Clouse 1:39:12
I’ll jump back in biggest for me is I’m looking into two things. One, how is this national rollout with that partner looking and working? Is that going well? Are they hitting these numbers of 500,000 or 500,000 pods this year? What’s that look like for the next year? What are the unit economics working with this partner? Have they continued to push their cost of goods down?
Unknown Speaker 1:39:34
Jay Clouse 1:39:35
how close are they to getting to this vision of moving into other services related
Eric Hornung 1:39:40
to backup house and fryers and looking at other services? Obviously the the other oil services are very interesting. I’m kind of curious, and I don’t think this is a six to 18 months play. But past that is this tech, so good and patentable but it’s licensable and other industries, other areas where there’s some sort of viscous fluid that has particles in it that needs to be clean. To use lots of viscous fluid.
Jay Clouse 1:40:09
No, I respect your vocabulary.
Eric Hornung 1:40:14
And I’m thinking, obviously, there’s big oil. I don’t know enough about that process, it seems like a jump to me to have some sort of adsorption component there. Maybe it’s for oil cleanups or whatever. I’m thinking about just other kinds of areas where this technology can expand to, whether it’s through a licensing of the patent, or it makes sense for FreshFry to actually manage that expansion.
Jay Clouse 1:40:44
I like those ideas, he did mention that they are patent pending, which I think is a positive for this opportunity. as deep as he’s been in oil, and biodiesel and all of this, I wonder, I would think that you would have some idea of whether or not that is a viable path ago, and it didn’t come up, and maybe it just didn’t come up. But yeah, theoretically, theoretically, if that was true, that is very interesting,
Eric Hornung 1:41:06
right? Because that total addressable market question becomes a lot bigger and a lot wider. The final point that I want to make is really a compliment to Jeremiah and his team and his advisors. What they have done is took a inherently fixed cost business, right. So you would normally have all these fixed costs of setting up the infrastructure to distribute setting up xy and z, setting up your manufacturing facilities, that they have somehow turned into all variable costs, which I think that’s what Jeremiah was getting to. And he was saying that they were using this partner. And it’s really important, why they’re using this partner because things become more predictable. And it becomes more about scaling, because you know what your unit costs are, and you’re going to get those economies of scale as you expand. So I just think that that’s a very strategic very well thought out way to go about this for something with with a low price point, with not a lot of margin built in and not a lot of room for error. They didn’t rely heavily on fixed costs, which I think is going to serve them well in the long run.
Jay Clouse 1:42:13
I agree. good points all around. Well, guys, let us know what you think about this opportunity. Let us know what you think about FreshFry about Jeremiah about my interview skills about Eric’s questions. tweet at us at upside FM, but not about Jenny’s or the van loons debate. Not about Jenny’s the van loons debate, tweet at us at upside FM chat with us on breaker our preferred podcasting platform Find us on breaker at a comments this episode. We’d love to hear from you and interact with you there. If you have somebody who would be a good guest for our show. Email us email@example.com. Eric, I’ll talk to you next week later. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at firstname.lastname@example.org. or find us on Twitter at upside FM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guess for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording. We do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates under collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week.
Jeremiah Chapman is the founder and CEO of FreshFry.
We first talked with Jeremiah back in July 2018 in episode 12 of this show. FreshFry, located in Louisville, Kentucky, creates plant-based product that helps food service businesses extend the life of frying oil.
FreshFry’s “pods” strip water, acids, metals, and other impurities out of cooking oil, slowing breakdown by several days and helping businesses save on costs while improving food taste.
Since we chatted, FreshFry has raised $3.3M in July 2020 from Lightship Capital and the USDA.
Learn more about FreshFry: https://www.freshfry.me/