🎙️ Podcast Ep #3: Shelf Engine CEO Stefan Kalb

👋🏽 Welcome to Doing Well by Doing Good: The New Startup Model, a newsletter and podcast series highlighting the startups aiming to be profitable with a purpose.

Welcome to the latest episode of Doing Well by Doing Good podcast. In this episode, we chat with Shelf Engine CEO and co-founder Stefan Kalb, a serial entrepreneur with a passion for solving difficult problems in the food industry. He shares with us how they got started, the mission and culture, their business model, the social impact of their work, and advice for readers or listeners looking to join or start a Doing Well by Doing Good enterprise.

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Founding Story

Anand [0:37]: All right, welcome to the show, Stephen! All right. So I thought we could just jump right in.

Stefan [0:49]: Totally. Sounds great.

Anand [0:51]: All right. So how would you describe Shelf Engine in one line?

Stefan [0:56]: Shelf Engine does demand forecasting for grocery stores, and it guarantees the sales for those grocery stores.

Anand [1:03]: All right. That’s great. Very simple. I love it.

Stefan [1:09]: Why do you think it’s simple? I think it’s complicated once in a while.

Anand [1:12]: Well, the one line has got to be simple. Nobody really knows the background. That’s all the magic. Cool. So I thought we could start with your background. I mean, how did you get here? What was your founding journey?

Stefan [1:26]: Yeah, totally. I guess you could start with me as a young child. I’ve always been super interested in the food world and understanding what was happening there. In college, I was very involved in everything that was sustainable food and the food movement. And coming out of college, I decided to do something a little crazy, which was actually start a food company. So I started a food production and distribution company, and while a lot of my friends were going out and being you know, software engineer, working in finance or lawyers or whatever, I decided I was going to start a food company. And it was maybe one of the hardest one most fascinating things I’ve ever done in my life. So I grew a company that was a production and distribution company, grew it for about a decade and eventually sold it. But it was, in that time at my company that I essentially got to learn so much about what was happening in the food world, and got me to understand why there’s so much food waste in the system. And realizing that actually reducing that food waste was very attainable. And that’s when I was able to lock in on this part about what’s happening with grocery buyers, and how buying in grocery stores works.

Anand [2:47]: All right. That sounds great. And you know, one question I have on that is, I’m sure you had a lot but what are some of the most difficult challenges you faced up until now in that journey?

Stefan [3:01]: In that journey, you mean before founding the company or once once founding the company?

Anand [3:07]: You know, I think we can go with both.

Stefan [3:09]: Awesome, I think after founding the company, and this may be part of the story that hadn’t shared yet, but you know, my co founder and I, we were just friends talking about this idea. And then one day, we’re just like, we have to, we have to go make this happen. When we launched the business, we thought that, hey, if we were just going to build something that could forecast and outperform the human decision, and really be able to reduce food waste in a major way at the grocery store, we thought, Oh, well, you know, every grocery store is going to license our technology, then we’re going to be able to essentially go in and have a really cool SaaS product and every grocery store is going to take it in. And that’s not how it happened at all.

“Maybe one of the greatest challenges that I witnessed was that it’s not just what you build, but the business model that you build around it and if you don’t build the right business model, you can have the greatest product or the greatest solution and it really just doesn’t matter.”

Because adoption won’t be there, attraction won’t be there. And that was that was tough. That was really tough. Especially when we were seeing the success of what we built in the field and seeing the stores using what we were doing. And we’re like, God, you guys are literally cutting your waste in half. How is this not catching on like wildfire across the country? And it’s not until we changed our business model and started evolving there that we were able to see that.

Mission & Culture

Anand [4:33]: Cool. Well, I’m excited to talk about that business model in just a little bit. So let’s let’s move on to mission. You know, this is obviously critical for every company, but in particular one like yours that’s, you know, doing something that’s really changing the world. What is your company mission? And how do you create a culture that embodies it?

Stefan [4:55]: Yeah, I mean, great question.

“Our mission is to reduce food waste through automation. And the two key pieces there — reduce food waste and automation — are really what drive us.”

Because you could reduce food waste in many other ways. But we think it’s important to have an automated methodology long-term for it to catch on, and then be something that we rely on society. building a culture around it has been quite interesting because there’s some tension around the execution piece as well as the end goal. And a lot of people when they come and join the company get very excited about reducing food waste. What the reality is, is that our customers don’t necessarily speak in that language. Our customers speak in the language of saying, how do you help my P&L? How do you have my shelves look fuller? How do you make my sales go up? So transforming what we’re doing really wanting to accomplish to the language of the customer is maybe some of the greatest tension you have there on a cultural level. Now, what’s interesting is that the more that we are implemented, the more we reduce food waste. So the overall mission is accomplished. But to be able to get ourselves in there, we need to essentially speak the language of the grocery stores. So that part was somewhat challenging. The part about building around what we were doing the, the part that got us a lot of momentum, and helped a lot was the fact that we were able to see this impact so quickly. And when we were able to launch with major national grocery chains and then see the impact we were able to make for them and also the reduction in food waste. That kind of win just brings a lot of momentum for the team.

Anand [6:54]: Right! So it’s really connecting the business model with that mission and translating the two and making sure they’re always in sync.

Stefan [7:03]: Yeah, that’s a really nice and succinct way of putting it. And that’s absolutely the case. I don’t think that I would ever walk into a meeting with a big grocer and say: Hey, our goal is just to reduce food waste. They’d be like, well, that’s nice. So, you know, what are you doing here? But when I go in, and I say, Hey, you know, we can really transform your P&L, we’re going to be able to really increase your profits, lowering your food waste, then they’re really interested, then they’re ready to talk.

Doing Well

Anand [7:34]: That’s, that makes a lot of sense. And actually, that’s a good transition into the next part that I really wanted to talk about. How does Shelf Engine do well? What makes your business sustainable, both in the short-term and the long-term? What value do you provide to the customer?

Stefan [7:52]: Yeah, good question. So taking a step back and understanding the business model a little bit. What Shelf Engine does is we go into a store and we manage the ordering for a given category. And the ordering basically happens every day. So let’s just say that we’re coming in and we’re managing the bakery section of the grocery store. We buy from the vendors and the vendors that they were already using. And we pay the vendors for everything that sold. We only charged the store for items that sell. Then you know, I think a lot of people probably ask themselves, okay, interesting. How do you make money? So what we do is we mark up the price of the products from the vendors to the store. Now that markup then is fixed, but it’s always less than whatever the spoilage rate was that the store incurred. So it’s pretty normal.

“For example, for a store to have, say a 35% spoilage rate in the bakery. We come in and we say, okay, well, we’re going to charge you a 20% markup. So you know, the store already has 15 points to draw from bottom line. And then we were managing those orders with 3% markup. Now we’re going to still incur spoilage when we order. The money we make is the delta between the spoilage we incur, and the markup.”

And that’s really how we’re able to be sustainable and make money. Our objective is obviously to get better and better and better at forecasting, such that we can do two things: 1) increase our margin, and 2) make it better for the grocery store. So if in the long run, we’re able to make leaps and bounds on the forecast inside, we’re essentially going to get food cheaper to the consumer, have a more sustainable, healthy grocery store that has better margins, and then we’re a good, sustainable business. And what’s exciting about that to us is that you’re essentially taking waste out of the system. And the three parties I just mentioned, get benefit from that. So it’s a very long-term sustainable methodology to approach this kind of problem.

Anand [10:05]: So it’s a win-win-win for all the three parties.

Stefan [10:09]: Indeed, indeed. And there’s a lot of other business models out there where you have a win lose, or very strong winners. In this particular case, you have very strong wins across all three parties.

Anand [10:23]: That sounds like a very strong, sustainable business, both in the short and long term.

Stefan [10:28]: Cool. Yes, I tend to think so.

Anand [10:32]: Well, in case I didn’t understand that, what I wanted to do is I wanted to just clarify, you’re saying that there is a spoilage rate, right? And there’s a price that you’re marking up. So there’s sort of a differential there and that differential is, is your margin. Is that a fair assessment?

Stefan [10:48]: Yep. that’s exactly right. So let’s go back to this bakery example that I was just saying. So let’s say we go to the store and they used to have a 35% spoilage rate. We come in and we start managing those orders. Now that store doesn’t incur any more spoilage, right, because we only charge him for what sells. And we charge him for that 20% markup. Well, our forecasting is essentially doing is it’s created a profit maximization model that says, for every SKU, what’s the ideal amount for that store, that SKU, that you should be delivered that day? Now, you know, some people might think, okay, we’ll just deliver very little and just allow, and the problem with that is that then you’re going to crush the sales of that store.

“So you need to make sure you’re maximizing the sales, but you’re not going too high in creating waste and you’re also not going to low and creating out of stocks, so you have to find that perfect balance. That’s where our profit maximization comes in.”

Now, what that profit maximization comes in and tells essentially what that order should be and that’s what we submit to the vendors. That order will create some spoilage at a certain level. If we truly want to get to zero spoilage, we would have massive out-of-stocks. Right? So the important thing here is that we essentially have a margin between our spoilage rate and that 20% markup.

Anand [12:14]: Yep. That makes sense. And the better you do there, the better your margin. And of course, the less you’re wasting. So it’s better for the environment. One question I always like to ask about, especially for Doing Well by Doing Good company, is, you have this business model — do you ever have a conflict between shareholder value, the business and culture? And you touched upon it a little bit before, where is there a tension on how you translate certain things? How do you usually deal with them?

Stefan [12:52]: Yeah, luckily, I think we’re quite aligned. In many of those aspects. I think the tension that I spoke about before was more of a language to the customer. But in the overall intent, we’re quite aligned in terms of the impact we’re trying to make, as well as what it’s going to translate into in terms of strict dollars into the company. So, I feel very fortunate to be in that kind of situation right now. It makes board meetings a lot easier. I don’t have to make major ethical decisions and conversations. And look like the food supply chain is really an amazing one this country but also very antiquated. If you look at what we’re able to get on a daily basis, you can basically go into any grocery store and have numerous choices and depend on those choices basically, every day. That’s absolutely incredible. Right? But we also have a ton of waste in the system. So how do we essentially maintain that level of service, that kind of product availability, but at the same time, reduce that waste? And I think, for us, we’re perfectly in line with that, which is in line with the business decisions as well as the ethical decisions.

Doing Good

Anand [14:18]: Great. Well, I think this is a good transition then into Doing Good. So you talk about the ethical challenges in the environment, which is what you’re trying to help here. In 10 years when Shelf Engine is this huge success? What global challenge, will you help solve?

Stefan [14:36]: Yeah, it’s such a fascinating question. And this is the kind of question that gets you really excited because as a founder, you start taking on the world, right? You start saying to yourself, well, how can I just really make something big happen in the world. For me, it would probably come back down to the fact of how can we get really, really good food at a super affordable price to everybody? And I think one of the greatest things that’s happened in the last few decades in grocery is that there’s a much larger adoption of fresh foods which has put a lot of pressure on grocery. But now that we’re at this stage, and people are really focusing on that, and really care about the quality of the food, now cost is coming into the factor. Well, wouldn’t it be really cool if we could reduce all the waste in that entire flow such that people can eat really well? What are the other pieces that we could put in place, which is essentially your question to get that food to the right people such that they’re eating really well.

“I would love to see this country in a place where nobody’s going hungry and everybody is eating really good nutritious foods. If we’re able to accomplish that, that would be absolutely incredible. I’m very driven by that notion, by that vision.”

Anand [16:05]: Right, so eating healthier and wasting less food. I love that. I think I need to do a little bit of work on that myself. Another question I had was, obviously since Shelf Engine is a for profit VC-backed business, how did you choose a for-profit versus nonprofit?

Stefan [16:34]: Yeah, I was fairly clear that I wanted to create something that was gonna really make a massive shift.

“And I am one of those people in the school of thought that if you can really align the business objectives, with something that matters for the world that you’re going to have something that’s going to be sustainable for the long term.”

If I would have started a nonprofit in this space, I don’t think we could have even come close to the impact we’ve already had. So that was really important. And that was something that got me excited. It’s also, you know, there’s something really exciting and fulfilling about aligning some of the greatest minds. And some of the people who have accomplished the most in the world behind this, right? And again, I wouldn’t have really been able to do that nonprofit. So if you look at our team, our team is absolutely incredible. Brilliant engineers, data scientists, operations folks, salespeople, that’s just really an incredible team. And then what you get to do is get to go out and convince people to put money into that. And we could be talking about some people who’ve done amazing things in tech. All the way to sports stars, who decided to say like, Okay, cool. I’m gonna go ahead and put money into this, I want to back it, I really care that this happens. And that’s just really incredible. That’s an incredibly fulfilling experience.

Anand [18:15]: So would you say it’s on one end, sort of a capital and resource question — you can get a lot of resources really quickly — And then also, perhaps it’s a growth question, which is how can you grow this as fast as possible? Would you say that’s sort of the advantage you get with the for-profit model?

Stefan [18:35]: Yeah, I would say those two parts plus the fact that people are just gonna care more because there’s money tied to it. But yes, succinctly, that’s absolutely the case.

Anand [18:49]: Yeah. And I suppose you touched upon this before, but you know, if you can connect the two, you can connect the capital incentive to the incentive to change the world and make a serious change — that’s really powerful and that sort of becomes a positive feedback loop.

Stefan [19:06]: Indeed, indeed. And actually, I think, you know, in the notion of what we’re doing, I think there are a lot of other opportunities, because what we essentially said is okay, there is one very highly repetitive task of buying for a given store. The average grocery store in America has between 35,000 to 40,000 SKUs. And so you have this extremely repetitive task that somebody does. And we’re essentially saying well, can we pool all of those decisions? Have AI make those decisions? Take the risk off the table, take the waste out of the system, and take the risk off of the retailers. So where are other places that we could essentially apply the same kind of notion and think to ourselves, like where are there very highly repetitive decisions where being just slightly off on every decision eventually adds up to a major cost, and in our particularly sense its environmental costs. But I think about other things that and this is why I’m so interested in the world of AI and the cost to humanity.

“When people are doing work that could be replaced by AI, they could be doing something more interesting, right? Those are the kinds of things that I think we can really bring our society forward where there’s a tremendous amount of opportunity.”

Anand [20:25]: So like freeing up the brain space for a lot of humans to do a lot more creative work.

Stefan [20:34]: Exactly, exactly. Now, it creates a bunch of political challenges which I’m not going to talk about. There’s quite a conversation to be had there. But if you put that aside and you think to yourself, like okay, well, if we could just open up more time for humans to do interesting things. There’s a lot of people out there essentially working on smaller aspects of that, especially in the world of automation.

Advice for DWDG Audience

Anand [20:58]: Now, automation is a huge thing. I think it’s particularly cool when automation actually is contributing directly to something so big such as food waste. So I wanted to end this with, with a little segment where you could provide some advice to, to the founders that might be trying to build a Doing Well by Doing Good startup, or professionals that are looking to work for one. So what piece of advice would you give them?

Stefan [21:26]: Man, I could probably go on for a long time on this particular side of things. You know, I think on the company building side and on creating a business model, I subscribe to probably a lot of the larger notions that you’re going to hear from Y Combinator to some of the more prolific writers out there. They’re going to share about how to build a startup, how to grow fast, etc. I think at the end of the day, if you’re gonna build a company that can do some good it needs to make a strong financial impact somewhere, and or make some sort of strong incentive for somebody to say YES. Take the example of TOMS Shoes, where they essentially donate a pair of shoes for every pair of shoes they sold. So that’s a really cool concept. But I think a lot of people misunderstood the fact that people wanted to buy TOMS Shoes. Like, it’s not like he became a wild success, because he’s donating pairs of shoes right now, like he became a wild success because people really wanted those shoes. And so don’t lose sight of that. And I think there are a lot of people who come in and say, I’m just going to start focusing on the donation part of the business model. And the problem with that, and the disappointing part with that is that you can’t really have impact without scale. So if you’re going to do something really great, but you have three customers, it doesn’t really matter. If you’re gonna do something really great and you have millions of customers it makes a HUGE impact. And that gets, that gets me excited on that side of things.

“And then the huge advantage, I’ll say that you have, if you build a company that’s doing something good is you will get exceptional employees. You will get people who really care.”

And probably the thing that I hear time and time again, on the recruiting side of things is people say I don’t want to work for a company that makes money from advertising. I’m kind of done with that. And there are a lot of people who say who are in space. Some of them could care about other aspects, right. We’ve hired some people from financing, they’re just done with the finance world, they don’t see that adding value in so they’re really ready to move out of that space. The advantage you have by doing something good is that people will really buy into that and really care for that. You have the potential of having a better team by doing something good with your company, then just doing something like selling advertising. So I’d say you already have an advantage. Anyway, I could go on for so long. It’s very exciting people who choose to go this route time for them. It’s what we need in the world.

Anand [24:17]: Yeah. That’s great advice, frankly, you know, any advice you want to give always always open? That’s what people want to hear. Because at the end of the day, you know, doing what you’re doing is is not that easy and I think the question that we’re always trying to answer is, how do you both do well AND do good? And there is not necessarily a simple answer for that. So I think understanding how a company like Shelf Engine can do that and how you can do that sustainably over time, and then do that again and again. How can another company do the same thing? That’s a really important thing to learn. And I think understanding what some of those aspects are that you might be exploring as well, going forward, that’s really helpful for the audience.

Stefan [25:10] Oh, yeah. And I mean, listen, I think if you’ve got a listener right now, who really cares about building something, and cares about changing the world in some way?

“You know, there’s just not that many people who are up for the challenge. And so, if I could give you any advice, it’s just go do it. Just go do it.”

I mean, the world needs you to, and there’s potentially people who are listening, who may just have an idea right now and it could be the next thing that really transforms the way that our world functions. And the world is just literally waiting for you to be able to go do your thing. So, I get a lot of people who reach out who asked for advice. It’s oftentimes YC companies and some of the big questions they have is I have this job or I make this kind of thing. Take off, forget it, just go do something way more interesting. You can go back to comfort later. Like don’t give up the chance for really making an impact in the world for a little bit of comfort right now, man, that’s just not worth it. Just go make it happen.

Anand [26:23]: I love it. That’s great advice to leave off on. Thank you so much for taking the time.

Stefan [26:28]: Hey, man, thanks a lot for making the time. I really appreciate it. And thanks for doing what you’re doing. I think you’re spreading the good word and probably getting a lot of people motivated. So thanks for making it happen.

Thanks for joining! If you’re curious about Shelf Engine and want to learn more, check out their website or their latest financing news on TechCrunch.

As always, if you have any suggestions for improvements or feedback, reply to this email, email us at hello@doingwellbydoinggood.co, or tweet us at

Until next time 👋🏽,

Anand

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