Can Any Company Be a Tech Company?

Personal notes: Regardless of how one would call himself – tech or non-tech, he needs to have a successful and profitable starting point first. Then the story would be able to continue and evolve to where you leads it…

When they were still undergrads at Georgetown University, Jonathan Neman, Nicolas Jammet, and Nathaniel Ru weren’t yet superfriends. They knew one another because Ru sat behind Neman in Accounting 101, and Jammet’s freshman dorm room was next to Neman’s. But after they graduated, in 2007, they decided to try opening a 560-square-foot salad and frozen-yogurt shop: Sweetgreen. Their friendship grew with the business. By the time the company had 20 locations, from D.C. to Philadelphia, and they were raising money for a national expansion, the three had become so chummy that it made their potential investors nervous. Were these brothers-in-salad for real?

“It was unusual, and quite frankly, a concern,” recalls Steve Case, CEO of Revolution and a Sweetgreen board member. “They were co-CEOs who shared the same office and, when we invested, at least two of the three shared the same apartment.” (Ru and Neman lived in a townhouse in Georgetown. Jammet lived across the street.) “On one level, it’s like, isn’t that sweet? How Kumbaya. On the other hand, when push comes to shove, how are decisions going to get made here? How is that really going to scale?”

Jammet, Neman, and Ru call their philosophy the Sweetlife. It means projecting earnest bon­homie always and everywhere, treating their customers, employees, and vendors as they would treat close friends. Sweetgreen’s posted core values include “Add the Sweet Touch” (to “create meaningful connections every day”) and “Win win win” (for the company, the customer, and the community). Every dish on Sweetgreen’s menu is made from scratch, has fewer than 800 calories, and contains no added sugar (except maybe a little local maple syrup). They treat their local farmer-suppliers like stars, listing their harvests on chalkboards and crowing about the new season of vegetables like it’s a movie premiere, whether the debut vegetables are “visionary and flavorful” koginut squash, or humble sunchokes. And they skip normal ads in favor of offbeat events, most famously the massive Sweetlife music festival, which they ran from 2011 until 2016, a 20,000-person dancing-and-lettuce bacchanal that spread buzz far beyond any 30-second TV spot.

So far, the founders’ sunny approach has yielded glittering results: Ten years after its founding, Sweetgreen operates from coast to coast, with 93 locations and 4,000 employees. The chain is profitable, with its stores’ operating margins approaching Chipotle’s at its peak (around 20 percent). Systemwide sales have grown over 40 percent three years in a row. More than a million people have downloaded the Sweetgreen app; social media is full of fans describing their love for Shroomami grain bowls in ways normally associated with milkshakes, cheeseburgers, or Beyoncé. There are 10,000-plus elite customers, known as Sweetgreen Gold and Black members, who spend more than $1,000 on the chain’s salads every year.

In the world of chain restaurants, fast-growing cult brands generally serve their investors one thing: an IPO. Until last November, most everyone expected Sweetgreen to go public and–like Starbucks in the ’90s, Chipotle in the aughts, and Shake Shack in 2015–become the food industry’s most coveted stock.

Instead Neman, Jammet, and Ru made an announcement so Sweetlife-y that even some of their own executives wondered if the three friends had finally gone too far. Sweetgreen could no longer be a mere salad chain, they declared–it had to be a tech company. This was the only way the company could not only serve customers, its community, and itself–to achieve the win, win, win–but also fix the entire restaurant industry and improve the health of the world.

“We see Sweetgreen as being more than just a restaurant … but evolving into a food platform,” Neman told CNBC in December 2018. Of course, Sweetgreen’s rank-and-file had heard this sort of talk from the founders before. “Thinking like a tech company” had become an internal mantra over the previous few years, as the chain developed its own mobile app, added digital ordering options like Uber Eats, and made many of its stores cashless. (And, as a result of those efforts, sales from digital channels already made up over half the chain’s revenue.)

But this latest tech push was far riskier and more dramatic. The founders had raised $200 million–five times any previous Sweetgreen funding round–an investment that vaulted the company’s valuation to well over a billion dollars. In media appearances, they sounded like men possessed by Silicon Valley ghosts: Sweetgreen was a “platform” and its food, “content.” They said the company was at work on an A.I.-powered mobile app and kitchens in the cloud, all in the name of “frictionless experiences.” They even planned to leverage the blockchain. Not everyone has been able to stomach the shift–already several nervous executives and a board member have left the company, at least partly because of their concerns.

By now, any follower of the startup world is familiar with the so-called “pivot to tech,” the notion that a company in a nontech industry is actually a disruptive innovation machine. Are the Sweetgreen founders visionary or just chasing the latest shiny object?

In 2016, the founders relocated from Washington, D.C., to a twee mall in Culver City, Los Angeles, unironically called Platform. It’s an artisanal Disneyland: A visitor can grab a Vegan Cherry Heartbeet cone at Van Leeuwen (an ice cream shop first made famous in Brooklyn), wait for a single-origin pour-over coffee at Blue Bottle (originally of San Francisco), or step over to Aesop (of Melbourne) to pick up a bottle of parsley seed facial cleanser for $60. Then there’s the blond wood temple of lettuce, the Sweetgreen flagship store, where lunchtime adherents wait in a perpetual line, heads bowed to their iPhone screens, as a dozen employees in T-shirts reading “passion + purpose” tong salad and ancient grains into compostable bowls.

Upstairs you will find the Treehouse, a.k.a. Sweetgreen corporate, where 175 employees work at long white tables surrounded by motivational slogans (“BE PRESENT” reads one in giant block letters on the elevator doors). Neman, Jammet, and Ru share a glass-walled office close to the entrance. They sit together, their tabletops clean except for three laptops, three pale green Moleskine notebooks, and neatly squared piles of paper, mail, and books such as Derek Thompson’s Hit Makers, which someone recently gave Neman to inspire him to think about food the same way “music producers think about making viral content,” he says.

From there, they lay out the future of the restaurant industry as they see it. “In the past, everyone got a car, and the drive-thru was the answer to that. Now, everybody has a phone,” says Neman, teeing up their vision: Restaurants need to appeal to consumers who encounter the world through their mobile screens and expect to have food brought to them–at work, at home–without ever needing to look up.

To adapt to this new world, most stores’ online orders are filled at dedicated salad assembly lines, and then deposited in special pickup areas near the entrance. With their sans serif black type and left- and right-justified imagery, even Sweetgreen’s menu boards resemble a mobile Web layout, as if to ease the transition for phone addicts when they finally do look up.

But, argue the founders, none of this sufficiently prepares Sweetgreen for the new world. To do that, they have to blow up the whole idea of a restaurant.

“How do you think about the menu in your hand in a digital way? How do you think about the experience in the kitchens in a digital way? How do you completely break this notion of what a ‘restaurant’ is and what a ‘menu’ is?” Neman says, finger quotes firing away. “This menu of 12 things, why does it even make sense?”

If you were to break down the three co-founders into the holy trinity of hustler, hipster, and hacker, Neman is most certainly the hustler. The 34-year-old CEO is a fast talker who’s prone to making grand pronouncements, often starting with the phrase “At the end of the day” (as in: “At the end of the day, we believe modern consumer companies are going to have to own the platform and the content” or “At the end of the day, we want to replace McDonald’s as the global iconic food brand”).

The hipster of the trio is wavy-haired Ru, 33, who on the day I met him was wearing all black except for bright white Nikes and a belt with little rainbows on it. (“I got it at a place in Tokyo.”) He oversees the company’s marketing efforts, and is the one who ultimately figures out the customer experience, both on the phone and in actual physical space.

That leaves Jammet, 34, as the hacker, even if in Sweetgreen’s case he’s a whiz with salad dressings and vegetable flavor combinations, not machine-learning algorithms or Python. Jammet grew up around restaurants in New York City, where his parents owned and operated the legendary La Caravelle, and he oversees Sweetgreen’s locally focused supply chain, store development, and culinary R&D.

Neman says he first recognized the trouble with scaling Sweetgreen the same way as every other food chain whenever he watched customers mosey along the salad bar. It served too many conflicting goals at once: Customers had a few moments to pick an option on the menu board above. Employees, meanwhile, had to both cheerfully accommodate these indecisive customers and prepare the food as quickly as possible. Offer too many options and the line moves too slowly and sales volumes plummet; hurry them along and you become Subway.

He came to think of the line as the symbol of Sweetgreen’s past. “Our BlackBerry keyboard,” says Neman, referring to the hard-buttoned smartphone interface driven to extinction by smooth glass touchscreens.

The company’s future? Apple. Netflix. Amazon Web Services.

This isn’t the first time Sweetgreen has reimagined its ambitions.

When Neman, Ru, and Jammet started Sweetgreen fresh out of college, the trio’s aspirations were campus-size: to build a quick and healthy option for Georgetown students accustomed to wolfing down deli subs at Booeymonger or the “chicken madness” at Wisemiller’s Deli. To distinguish their little shop, they renovated a historic old burger joint, hired a fancy architecture firm, and bought veggies from the Dupont Circle farmers’ market rather than go through the usual distributors.

The following year, they got schooled in the mechanics of retail. The place they leased had no plumbing, electricity, or space for cold storage. They failed to predict that very few people would buy salad in December. Soon, they had burned through the $375,000 they had raised from friends and family. Meanwhile, “our classmates are at these big investment bank jobs, and we’re sitting there trying to figure out plumbing in a restaurant,” says Ru. “Nobody understood why we were doing this.” It was alienating, but it also bound the three together. “We had each other to share the risk.”

Then, Sweetgreen hit its stride; soon the little place was profitable, and by 2008, the founders had raised $750,000 and opened a second location. It didn’t take long for the trio’s vision to swell from viable salad shop to a lifestyle brand. In 2011, they hatched the Sweetlife music festival and a Sweetgreen in Schools nutrition program. From there emerged their Sweetlife brand ethos. “We’d like to get into fitness, apparel–anything that falls under a healthy, balanced, and fun lifestyle,” Neman told the Washington City Paper in 2011.

In 2013, the founders raised $22 million with their eye on becoming the next great food chain. Over the next four years, with the help of new professional operators with decades of collective experience at places like Chipotle, Jamba Juice, and Pinkberry, the company added 60 locations. In the press, Steve Case began referring to the fast-growing salad retailer as “the Chipotle of healthy options.”

Privately, however, Neman told Case he didn’t like that comparison. The founders’ vision was now far bigger than that–they imagined the company’s sustainable supply chain model could revolutionize the whole world of quick-service food. (Ultimately, Case and Neman–who can be indulgent with his brand comparisons–agreed to refer to the company in the future as the “Starbucks of healthy options”).

By the fall of 2017, stores were profitable, and the company had 3,500 employees and a supply chain capable of distributing 67,000 pounds of organic mesclun, arugula, and spinach every month. The growth had come with some pain–in its rush to expand, Sweetgreen had run afoul of employment regulations and missed bad actions by store managers. (Between 2014 and 2017, Sweetgreen was sued by its own employees at least three times, with allegations including pregnancy discrimination, sexual harassment, and violations of overtime and break regulations.)

With discipline, Sweetgreen could soon get on track for an IPO, its operators assured the founders. At long last, after 10 years of work and $127 million in venture capital, a payoff was finally in sight. “We were sitting here with a very easy path: Open more doors, go public,” says Jammet.

Yet, much to the chagrin of their option-holding executives, the founders couldn’t get comfortable with the strategy of a restaurant company IPO: Their goal was far more ambitious.

Over the past year, a new breed of employee has been surfacing at Sweetgreen HQ: data scientists from Amazon, product czars from Uber, digital mavens from big food chains like Starbucks and Domino’s. This small tech army is building the Sweetgreen of tomorrow: a food platform that is as dialed into each customer’s micro­biome and barre routine–and perhaps 23andMe profile–as it is tracking its farmers’ crops through the blockchain for peak freshness and taste. A platform that can take the shape of a quick-service restaurant reimagined in the spirit of an Apple Store–where customers order salads from digital kiosks or tablet-wielding free-roaming employees while sampling local radishes from a tasting bar–or perhaps not a physical store at all. Amazon rented out servers; why couldn’t Sweetgreen do the same with serveries, letting chefs harness its delivery network and supply chain?

This is not a vision everyone at Sweetgreen bought into. In late 2017, before the company raised $200 million to execute the pivot-to-tech strategy, some senior executives and board members warned the founders that these plans were too much, too soon. Better to focus on store operations, profitability, and metrics investors typically care about when they value a restaurant IPO, they said.

“Transformation is a requirement for successful companies, so begin the transition; don’t step on the accelerator and reroute the ship totally,” says Karen Kelley, who was Sweetgreen’s president and chief operating officer at the time. A chain with fewer than a hundred locations still has a lot of growing up to do before it can change the industry forever, argued Kelley, who held executive positions at Pinkberry, Jamba Juice, and Drybar before joining Sweetgreen.

On the board, at least one Sweetgreen director worried that raising hundreds of millions of dollars to disrupt Sweetgreen’s own business might do more harm than good. “Having too much money in the business is very dangerous–it can be toxic,” says Gary Hirshberg, the founder of organic yogurt maker Stonyfield Farm, who joined the board in 2010.

The founders acknowledge those concerns, and did even at the time. “We’re a capital-intensive business, and back then we were running out of cash–we almost ran out of cash,” says Neman. “We changed the risk profile and the execution strategy completely. We went from a model that was copy-paste to saying, we want to be the Nike or the Apple or the Spotify of food.” In other words, the founders wanted to completely revolutionize how companies and consumers behaved in their industry.

Ultimately, they decided to push ahead. “We were afraid we were going to get Blockbustered, for lack of a better word,” says Ru. “The thing about Sweetgreen is, because there’s always a line out the door, you’re blinded by the fact that it’s working. Most investors say, ‘This is amazing. You should build 5,000 of these things.’ But what we realized is we were actually building a legacy store over and over again.”

In December 2017, Kelley decided to resign from Sweetgreen (she is now chief of restaurant operations at Panera Bread). Four more vice presidents departed soon after–by spring 2018, the entire senior staff was gone other than the founders and the chief financial officer. In 2018, Hirshberg resigned from the board. (Both he and Kelley still own shares in Sweetgreen.)

Now, over a year later, Sweetgreen is gearing up to roll out a hundred new locations in a dozen markets–only it will also experiment with all kinds of prototypes, Neman says. In 2018, the company began its delivery service to Sweetgreen drop-off points, called Outposts–of which it now has more than 150–in office buildings and co-working spaces. When Sweetgreen heads for Houston and Denver later this year, instead of stamping out one expensive restaurant after the next, it will deploy an assortment of large flagship stores, smaller retail locations, and kitchens invisible to the public solely dedicated to delivery orders. All this will be communicated with the kind of targeted online marketing tactics used by direct-to-consumer companies.

When Sweetgreen does build those flagships, each will be split into two distinct zones: experiential and utilitarian. In front will be a tasting bar, where customers can hear tales about the local farmer-suppliers and sample salad ingredients like they’re ice cream flavors (and then order at those kiosks or on tablets). On the other side will be a relentless salad factory, where orders are assembled as they come in–be they from the store, Sweetgreen’s mobile app, or third-party delivery services.

By separating the customer experience from manufacturing and fulfillment–keeping the salad eaters away from the salad tossers, basically–Sweetgreen says it can boost speed and personalization, offering less commonly used ingredients in limitless variations. Customers, it says, will be able to scroll through their personalized recipes the same way they currently surf Netflix, and a machine-learning algorithm will figure out their dietary profile. The founders say that someday soon, using blockchain technology, Sweetgreen will be able to track and show its customers the seed-to-salad journey taken by each individual ingredient.

With all the tech trappings also come new metrics. Instead of same-store sales or foot traffic–the traditional retail measuring sticks–Sweetgreen wants to prioritize numbers like active users, lifetime customer value, and, above all, frequency. Order interval, the number of days before a customer orders the same dish again, will become its most critical new measurement. “It’s almost like when you’re binge-watching a Netflix show and you’re like, ‘Episode 2–play it right away!’ ” Jammet says. A Sweetgreen dish “needs to be binge-worthy,” he says, before catching himself. “Well, we don’t want to use the word bingeing for food,” he says. “We want a metric around crave-ability.”

All of this Silicon Valley-speak, the brand metaphors, and the notion of pivoting a salad company into a technology platform, can come off like a crude attempt to make the company, and its founders, be perceived as something sexier–and more visionary–than the age-old business of selling produce. One gets the sense that Sweetgreen’s founders, who have been at this for over a decade and are still only in their early 30s, considered the idea of building a typical restaurant chain and cashing out simply unglamorous, boring. “It’s a little bit of a hamster wheel,” admits Ru, describing the conventional strategy. “Your growth is defined by opening new restaurants and driving more customers into busy restaurants.”

Sweetgreen is not alone in reframing what it’s in the business of. There’s Hampton Creek (renamed Just), the plant-based food startup famous for its mayo alternative, whose founder describes it as “a tech company that happens to be working with food” and says “the best analog to what we’re doing is Amazon.” (It raised $247 million and has a unicorn valuation.) There’s Peloton, the maker of an internet-connected stationary bike, which its CEO describes as a technology and media company, now valued at $4 billion. And, in March, WeWork, the $10.4 billion-backed co-working behemoth, reordained itself the We Company, with the newfound mission “to elevate the world’s consciousness.”

Youngme Moon, a Harvard Business School professor who has served on Sweetgreen’s board since 2016, says it’s easy to be cynical about Sweetgreen’s latest pitch. ” ‘We’re not a food company, we’re a tech company’–I’m sure you’ve heard it a million times,” says Moon, who owns shares in the company. “But what Sweetgreen is doing is unusual. They aren’t just using technology to build in efficiency but true intelligence into the system. Very few companies do that, because it’s quite hard to do.”

So what is a tech company in 2019, anyway? Defining yourself as one is undoubtedly a way to boost your valuation and potentially hold out for an even more lucrative IPO. “We’ve been trained to think that technology is always advancing, moving, and therefore it’s the future–so investing in tech means putting a bet on the future, rather than putting a bet on, oh, salad,” says Michael Duda, the co-founder of boutique venture capital firm Bullish. “If salad retail is worth X, but a tech company is worth many times that, which narrative would you go with?”

But Ru argues that the benefits run much deeper than that. “Some people think it’s weird that we call food ‘content,’ because why would you ever do that?” he says. “We find that, especially internally, it helps shift people’s minds. That slight change in semantics–these crazy guys who are calling food ‘content’–it helps people understand how we’re moving the business.” Being a tech company, says Jammet, is no longer confined to selling software or hardware. “Technology is the enabler,” he says, “but it is not the product.”