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🎧🍌 How Solugen is Saving the $5 Trillion Chemicals Industry
Replacing chemicals with plants, how the chemicals industry touches 25% of US GDP, launching and selling a 7-figure CPG brand, and advice for building a fast growing startup in a non-sexy industry
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Gaurab Chakrabarti and Sean Hunt are the Co-founders of Solugen, which replaces petroleum based products with plant-derived substitutes without sacrificing affordability or performance. They met playing poker in college, kickstarted the company with $10k from an MIT pitch competition, and have since scaled the business to over nine-figures in revenue.
Solugen has raised over $642 million from investors like Fifty Years, Lowercarbon Capital, Founders Fund, Refactor Capital, and Cantos Ventures.
I loved this conversation. Gaurab and Sean are creative marketers and scientists, and give a master class in how to compete and scale a startup in a non-sexy industry.
Topics discussed include:
How the chemicals industry touches 25% of US GDP
Why the industry is like real estate: fragmented and focused on asset utilization
The reason chemicals companies have terrible NPS scores
How Solugen’s manufacturing process converts plants and C02 into chemicals
Meeting over a game of poker while getting their PhD’s
Winning $10k from an MIT pitch competition to capture 10% of the Float Spa Hydrogen Peroxide market in Dallas, Texas
Why the first wave of Cleantech startup fail
Why logistics and supply chain are the biggest problems in Chemicals
Their framework for thinking big, but taking little steps to get there
Running their homemade metal catalyst reactor at YC Demo Day
Launching, scaling, and selling a 7-figure cleaning wipes company to prove their chemicals worked
Their strategy for getting large, multinational companies to try their products
Building their first factory (the BioForge) on the site of an exploded wax distillery
How they’ll enable the rest of the chemical industry to use their technology
🙏 Thanks to Zac and Xavier at Supermix for help with production and distribution.
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Find transcripts of all prior episodes here.
Turner: Sean, Gaurab, how's it going?
Gaurab: Excellent. Good to see you.
Sean: Thanks for having us.
Turner: Thanks for coming on, I'm really excited. I guess just to really dive right in, assuming the audience knows nothing about Solugen or what you do, can you give us a super high level and then we can start going a little bit deeper?
Gaurab: This is a great question because, we've answered it in so many different ways in the past. The way that I start it now is Solution is replacing petroleum based products with plant derived substitutes. And we're not sacrificing affordability or performance. That's a big deal. Because almost 90% of products that you interact with are made from petroleum.
The thing that allows us to be able to replace the petroleum products is the way that we build our plants. They're smaller, decentralized than traditional massive plants. because of our technology, because of the marriage of biology and traditional chemical engineering.
Turner: Why is the chemicals industry interesting? How big is it? How does it work?
Sean: I like to, I don't know, try to like, make things somewhat relatable. I think one of the hallmarks of the chemicals industry is that it's just not really relatable. It's just this thing. And I think it's easy to kind of live your life being like, you know what? I don't interface with the chemicals industry. The chemistry industry doesn't affect me. You know, I'm not complicit in it. So to speak. Right?
One of my favorite statistics I like to point out is, you are fully synthetic from the chemicals industry. 50% of the nitrogen atoms in your body were put there by a chemical engineer and kind of regardless of what food you eat or where you live. Most of the atoms in your body came from the chemicals industry. And the specific part of the chemistry I'm talking about in this specific example is fertilizers. I think the creation of synthetic fertilizers. Is responsible for why 90% of people on Earth are alive today.
9 out of your 10 friends wouldn't even be alive without the chemicals industry.
Gaurab: From a GDP perspective, it's 1/4th of total. GDP is just the chemicals industry, so that's a $5 trillion dollar industry and it's responsible for making every single product. Like a pen. It's possible because of the chemicals industry,
Sean: If I get, like, very specific, your entire life broadly stems from just 3 molecules, ethylene, propylene and benzene. Just 3 molecules, everything you wear, everything you buy, it's all ethylene, propylene and benzene.
And those 3 molecules you can source from natural gas, coal, or oil.
Gaurab: So a lot of people say, oh, chemicals cause cancer. There are definitely a list of chemicals that cause cancer, but you know where all those chemicals come from? Those 3 molecules that Sean just mentioned, that's it. So the whole, like, crux of the chemicals fear is coming from these 3 molecules and Solugen’s whole mission is to figure out how to replace that in a more sustainable way.
Turner: And why has no one done that? Or why did the industry evolve to this point where we're using coal natural, gas, and oil?
Sean: that's a deeper question. Gaurab and I love to nerd out on. Right now when you look at the chemicals industry, you're like, oh, wow, it's a bunch of 50 year old plants and this big pool of depreciated assets with this exceptionally low cost basis.
And so even if there are better alternatives out there, none of those better alternatives will have the price economics to compete just because of this, like, incumbency bias.
But at a certain point, petrochemicals was a startup. Petrochemistry was a startup in, like, the 50s. And one of my favorite examples is the Hula Hoop.
One of the most popular plastics in the entire world right now is polyethylene, high density polyethylene. So like, milk jugs are made of high density polyethylene. It goes into clothing, for fibers and stuff. So clothing and milk jugs are compositionally the same. But when this molecule was invented in 1954, there was no market for it.
And so the company invented the Hula Hoop and went to market with the Hula Hoop. It's just wild to think. And so, like, the global market for high density polyethylene, which is literally everywhere right now, was the Hula Hoop in 1956.
Turner: When you kind of think through it, it's probably enabled a lot of modern manufacturing.
Gaurab: 100%. Clothes, right? every piece of construction, fiberboard, insulation, that started off as a chemical. Same with your clothes. It all started off as a chemical. Before it was, you know, more natural resources. But now it's completely synthetic. What Solugen is trying to say is like, well, what if natural resources and natural products could now, with our technology, be as competitive as these synthetic things and at the right price?
All of a sudden, you look at how big that opportunity is and you can't unsee that. It's impossible.
Turner: We're talking about using coal, natural gas, and oil. It's all around us. I don't really think of those as being safe. is the current kind of chemical, I don't know, industry or, you know, society, like… is it healthy for us? Is it poisoning us? Is it neutral? How do you guys kind of square all that up?
Sean: I'll just try to relate to a recent example. So, I think in September 2022, Formosa Plastics in St. James Parish, Louisiana had their permit rejected by a Louisiana state judge purely citing environmental justice. So, imagine you're in a red state, this isn't a federal judge. This is a state judge just citing environmental justice as the problem in St. James Parish, Louisiana. So this is on the Gulf Coast.
Really, the challenge of the chemicals industry, it just comes down to two things. It's yield and throughput. And on the yield piece, chemical engineers like myself are actually really bad at converting feedstock into product. It's hard.
The ideal chemical plant is one pound of feedstock to one pound of product. Well, the way the whole chemicals industry works is 1 pound of feedstock goes to, like, maybe 0.6 pounds of product and 0.4 pounds of various other things. Some of them are air emissions. Some of them are wastewater emissions.
Some of them are called co-products, a very judicial term. Let's call them products. Right? We intended to make these things and then it's like, okay, well, we got this stream of co-products. How do we go find a home for it?
And the chemicals industry is essentially built on this really intricate network of different companies and different parts of the value chain, all finding homes for these different co product streams.
Gaurab: The margin of this industry is so tight because your yield is so poor. You have to be able to sell every single piece of product that comes out or else you'll not make money. So you're looking at an industry that traditionally best in class companies, and these are like specialty chemical like companies.
Gross margin is 20%. So it's not terribly great. Because of all the downstream separations that you have to do for these products. And that's an opportunity for us.
What are the ways that we can actually make that margin big? Is by increasing the yield, right? That's really the only way to do it.
Turner: So how do you increase the yield? And maybe can you explain what that means for somebody who's never heard this before?
Sean: If you just have general manufacturing experience, you've got a pound of feedstock. 100% yield, you could make a pound of product. So every, every pound of feedstock goes to a pound of product. If you have low yield, then it's less than that 1 pound of feedstock. 20% yield is 1 pound of feedstock to 0.2 pounds of product. And then you have all this waste stream that you have to dispose of.
And you have less product to sell. And so, like, for every pound of product, you have to buy 5 times the amount of feedstock. So now your cost basis is really high. And so the name of the game in the chemicals industry is yield.
And it's always been yield.
Turner: And you said chemical engineers suck at yield
Gaurab: Well, that's where Solution comes in, right? the industry has gotten super comfortable with 20% yield, right? Because they can make money on it. They've already deployed the CapEx. The question now becomes what are their incentives to actually make more money?
It's going to be a huge CapEx and R&D investment, so no one really does it. But then Solugen came in and said, hey, well, what if we actually change that yield from 20% to above 90%? And the way we did that was by introducing this concept of biology into chemical engineering. So how do you actually make that system more efficient, more elegant as an output?
And that was by marrying the biology piece of the world. I'm sure you've heard of synthetic biology and things of that nature, taking the best of biology and taking the best of chemical engineering and basically saying, we want to create something that has better yield than anything in the market. And that's, I think what we've done so far.
Turner: Why did nobody come up with it? Is it simply that you've got the fixed cost structure and it's too expensive to kind of retrofit or?
Sean: I'll be honest. I'm very much guilty and why this hasn't happened sooner. So, like, my background is very traditional petrochemistry. If I rattle off a couple of terms, methane, steam, reforming, Fischer tropes, things that probably doesn't mean much, but that's really what makes the world.
And so, like, the way you can think about it is that pound of feedstock coming in. My whole background is let's smash that feedstock with a hammer. Let's put it under heat. Let's put it under pressure and that molecule breaks apart it makes all these co products in these waste streams. That's the state of the art technology.
So my background is something called heterogeneous catalysis. It's a mouthful. If you're familiar with the popular phrase, like catalyze change, my background is in actual catalysis. when Gaurab and I started talking about this score of what, you know, was doing his PhD and actually cancer biology, my PhD is in more traditional heterogeneous catalysis.
Gaurab was like, you should think about enzymes. And I'm like, well, everybody in my industry is aware of enzymes, but enzymes are always too expensive. They're too fragile. Like you look at these things and they fall apart.
The beauty of enzymes is that they can do chemistry, perfect yield at room temperature in water. It is insane. Like, I do chemistry at 800 degrees, right? And at 800 degrees with very bad yields, and these enzymes can do it at room temperature with perfect yields. But the only problem is that they're expensive.
Gaurab: So I think the timing was one of the reasons why no one else did it. People did try a version of this concept while ago. The cost wasn't there. But now we were able to do it in a cost efficient manner. But on top of that, there's a lot of nuanced learnings that we uncovered when you marry these two principles.
You don't anticipate some of the problems that come, and so people gave up because they couldn't solve those critical problems. It's like, batteries, right? A lot of people attacked batteries, but there was some practical consideration of how you marry that technology together. But then a few companies were able to do it, and then that became the whole entire premise of the industry.
It's the same idea here. A lot of people have looked at it. We're able to unblock a lot of the big problems or at least solve a lot of those big problems that I think now is allowing us to scale. And I do anticipate a lot of companies are going to be trying to do something similar very soon.
Turner: And to get some definitions down, feedstock, what is that for someone who's never heard that word before? I think of like feeding horses or something.
Sean: Feedstock is, is whatever your plant uses to make things. So, like, if you're like, really upstream, your feedstock will be oil. It could be natural gas. It could be cold. If you're a downstream chemicals company, your feedstock could be ethylene. It could be propylene. It could be benzene.
Turner: Which are created from the coal, or natural gas, or oil?
Sean: Yea. So Exxon, Shell, Chevron, they're converting coal, nat gas, and oil into propylene, ethylene, and benzene. And then Dow, BASF are taking ethylene, propylene, and benzene and making
Turner: Like iPhone glass or something.
Turner: You know, I think I got a C in biology in high school. What exactly is an enzyme when you talk about using enzymes to do this?
Sean: It's protein powder. Like, it actually is identical to the protein powder that you would buy if you're trying to do bodybuilding.
But these proteins are folded in a way that you mix them with whatever feedstock you're using, and they convert them into product in water at room temperature with perfect yields.
Let's just say you're trying to convert a feedstock into a product that sells for. I'll call it $2 a pound, you're trying to sell a product for two bucks a pound. Historically, if you have an enzyme that makes one pound of product for every pound of enzyme and your enzyme costs you $1,000 per pound already. So I have to pay $1,000 in costs for every pound of product and I'm selling it for $2, but my enzyme costs $1,000 a pound.
You can't make money doing that. And so, that was sort of the world that I lived in, where I was like, okay, yeah, of course, enzymes could do this chemistry, just not economically. They could do it technically incredibly, just not economically.
Well, now, 2018 Nobel Prize went to Francis Arnold for directed evolution of enzymes.
I'll give you a real solid example. We have an enzyme that starting out made a pound of product for every pound of enzyme. That enzyme can now do over 60,000 pounds of product for every pound of enzyme.
And so, if you take that $1,000 pound cost basis, divide by 60,000, it's like, whoa. Now you have some economics behind this thing. Not only do you have the sustainability benefit, this yield, room temperature, and water, you now have the cost component to it. You have the full techno economics to actually bring enzymes into the chemicals industry and make an impact.
Turner: So you went from paying $1,000 for a pound to sell an output of a pound for $2, which doesn’t make any sense to even try making business around it. To then being able to buy the enzymes at like a cent a pound or maybe less than that if I'm doing the math right?
Sean: Yeah, so it essentially drops from $1,000 bucks a pound cost contribution to like, just a couple pennies a pound cost contribution.
Turner: And then you guys said something really interesting about you know Shell does this someone else does this blah blah blah. If you go to the Solugen website, there’s diagrams of “here's all our different processes in the plant”. It seems like you've kind of consolidated it all into the same location. You're almost doing it full stack, all in one spot. So it's faster, but cheaper because you're also saving money on logistics, not just the enzyme process. Can you kind of explain how that all works?
Gaurab: It starts with a customer actually. So this was an interesting insight that we had was we weren't originally thinking about being able to own that whole stack because we're like, okay, like, we're a technology provider and that's we're going to focus on this area. But once we really started learning about what the customer wanted, the customer didn't just want a chemical.
The customer wanted a chemical in some form that they could use. So, for instance, some wanted a chemical mixed with water, right? So that they can, you know, feed it into a system or a chemical mixed with something else. They wanted a form factor that actually allowed them to use it. That's where a lot of the value was.
And so because of how small we were able to build some of these plants, we had space to start putting on, you know, additional process technologies that allowed us to basically convert our product to a form that the customer really cared about. That's really hard to do across different, building bad chemicals assets because they're so massive.
You don't have like space to blend, you don't have any space to do that, but because our footprint was so small, we could add in new process technologies and new blend capabilities to service the end customer's needs. We call it, baking the cake versus just the, the actual like ingredients of the cake.
We want to give the cake, right? I want to give the full experience to my customer, and that's where we learned that We had to include a lot of that into the build out of the asset for it to be valuable.
Sean: Trying to come up with examples here to give people kind of a reference point for the chemicals industry. So I think you can actually think about the industry a lot of sort of how, like, the real estate industry works.
These are rough numbers, I don't know how precise the statistic is, there's like, 50 chemical companies with more than $10 billion a year in revenue. And there's 10,000 chemical companies with more than $100 million a year in revenue.
And so, when you zoom in and you're like, well, what are these companies? What do they do? They actually operate very much like the real estate industry where, like, you have you lose the sense of who the customer is because you're focused on the asset.
You're like, I have this black box. It takes this feedstock. It makes these 2 products. And just like in real estate, like, your main metric is occupancy. The only thing that you care about when you're looking at it at this, like, really zoomed in level is, “What's my occupancy of my chemical plant?” What the utilization? Is my plant on for 200 days a year? Can I get it to 300 days a year? Can I get it to 330 days a year?
And when you start looking at the chemical industry, that lens, you're not really optimizing for where you are in that value chain or where those customers are downstream or what those customers really want. You're so fixated on the asset. that's sort of how it arrived in the state that it's in right now.
Gaurab: The impact of that is the net promoter score of the chemicals industry is worse than a utilities company, which is saying a lot.
By actually being able to build smaller assets and bolt on these blending other pieces on that same exact infrastructure, it gives us more customer centric view of the chemicals industry. More akin to an Amazon versus which is much more exciting for us and much more exciting for the end customer as well,
Turner: Why would someone have a bad NPS score as a chemicals company? Like it's just, “oh, you made some petroleum or whatever, here you go? Like, isn't that pretty straight forward?
Gaurab: Sean, you want to tell him about the time we tried to order chemicals?
Sean: Yeah. I mean, we learned it very early on in our journey because, like, we we essentially were trying to build 2 businesses at the same time. It's like, Hey, we got to scale up our core technology, increase what are called technology readiness levels, get ready for deployment, all this.
And at the same time, it's like, well, our goal is to operate big chemical plants, and if you operate the chemical plants, you better be really good at supply chain and distribution you need to marry those customers as we're like, let's start doing supply chain and distribution blending and like building our customer base and like sampling our, our chemistry into it.
And so we were like, let's start trying to buy chemicals. Like, that's a great way to learn how this industry works. And you call up a big chemical company. And they say, great, we'll give you a tanker truck. I think it's 5,000 gallons and it's like, you're going to get it sometime over the next 4 to 8 weeks.
I mean, if you just think like, you need to have a 5,000 gallon tank at the ready in a four hour notice to be able to receive this thing. And again, because like their whole goal is to just keep the plan on, they're going to give you the tanker truck when it makes the most sense for their own tanks
Gaurab: It basically says, look at this huge tale of customers that the chemicals industry has, but the chemicals industry today saying we're only going to focus on the tiny percentage of customers that are so high volume that they sell out our plants. And that's where we're going to focus our customer service.
This whole end part of this value chain is going to be ignored. What Solugen said was, Why, why is that the case? Carbon wise, this is where a significant piece of the impact is happening. And we said, if we can build in these blending distribution pieces into our asset, all of a sudden we give access to a much broader swath of customers.
Rippling did this really well in the benefits area where they looked at all those medium sized businesses. They made a killing on it, but everyone, ADPs were focused on the big customers. It's the same story in the chemicals market.
Turner: You claim that Solugen has a negative carbon impact. You mentioned decarbonization. I mean, that sounds fake. Like when I hear that, I'm like, there's no way. How does that work that you have a negative carbon impact?
Sean: Oh, yeah, not happy to walk you through it. So, it's called a life cycle assessment. It's officially ISO 14, 000, right? And, there's all these kind of things around it, but like, if you just start very fundamentally, our feedstock today is corn and we're making glucose from corn.
And so, like, if you just do the math on how much CO2 is in that glucose, if I take 6 carbon dioxide molecules and I make 1 molecule of glucose, what's that weight ratio? I think it's something like there's 1. 5 pounds of CO2. And every pound of glucose, that's kind of roughly how that math works.
And you're like, okay, this is called biogenic uptake. That CO2 was in the atmosphere. then was made into corn, right? Photosynthesis. And now it's glucose. And that's all agent speed stock. And then what you do is you say, okay, well, there were emissions at the farm, there were emissions in transporting the corn.
There were emissions in converting that corn into glucose. And when you start factoring all those things in by the time it reaches the bio forge, instead of being 1. 5 pounds of CO2 per pound of glucose, it's around, I think, like 0.7 to 0.8 pounds of CO2 per pound of glucose. now you're at the bio forge.
So this is like the chemical plant portion. If you were in a traditional petrochemical plant, and you're using the speed stock, you're going to smash it with a hammer, right? You're gonna have all these emissions. the Bioforge is crazy efficient. we ran last year. I mean, at all this year, actually, I think every 40 days, we make 70 something tanker trucks.
And we have a 94% average yield of feedstock to product. amount of CO2 still left when you're doing all this carbon accounting still in that final product. And now you're at what's called the gate and so now you're going to the end use customers. So in our markets, in the energy sector, where we do saltwater disposal and in concrete, the final end of life of a molecule made by the Bioforge, it actually ends up being sequestered in the concrete or sequestered underground.
And then in markets like agriculture or industrial water treatment, where our molecules are biodegradable, then we're carbon neutral.
Turner: So it's basically just less CO2 is escaping during the production process and you're actually capturing some of it into the final product that never gets released?
Sean: Yeah, there's carbon from the atmosphere that ends up being in our molecule. So if you if you stop at what's called the gate, if you just stop at the bio forge in the value chain, we're sitting around like negative 0.7 pounds of CO2 per pound of product incumbent molecules like at. The petrochemical plant, they're usually in the 2 to 4 positive pounds of CO2 per pound of product.
Turner: Because they've created it during the, manufacturing process or the processing process?
Sean: They have their own supply chains that start at either oil, not gas or, or, um, coal and you kind of, you follow through the same way with the transport and the emissions and all that. And that's kind of where the math shakes out.
Turner: You’re essentially converting CO2 into high value chemicals.
Gaurab: The simplest way to think about it isn't like that. It's like, we're taking CO2 from biogenic source and converting it into that's fundamentally it. We're also taking directly CO2 and converting that into products, but that's a little bit earlier in our pipeline right now, but I think that's not an unfeasible goal to go after.
Turner: So going back to the beginning of the company, you guys met playing poker. How did that come about?
Gaurab: Yeah, in med school. We had a weekly poker game. I was really into poker for like 6 years. I was best friends with Sean's wife, his girlfriend at the time. We were anatomy tank mates in med school. It was, a lot of bonding, time, I guess you could say.
Uh, and then we ended up, having like a small friends group where we just play poker, every week. And then one week Sean was there.
Sean: My wife and I, we were long distance for 7 years Gaurab and my wife were in Dallas and I was in Boston, essentially one week every month, I would, I would be living in Dallas you know, med school people always talk about really medical things. It's like, you know, it's a lot of jargon, right?
Halfway through the medical program, Gorb started doing a PhD. And I was like, Oh, I'm doing, I'm in a PhD program too. We had a lot to connect on like the science and like what it's like being a grad student. And then it turned out that we were actually researching like very similar things, but like from two totally like orthogonal fields.
Gaurab: It was like, I was studying hydrogen peroxide production in pancreatic cancer, uh, of all things. And Sean was studying hydrogen peroxide production on noble metal catalysts, which are like so different. that the chances that we sat next to each other at this poker game and we're studying the same thing, the chances were low.
Sean: Even this like first conversation, it actually just Directly tells you sort of the problem with the chemical industry because like Gaurab’s talking about oh yeah, these cancer cells. I mean, these things are just making peroxide in your body at crazy rates. And it's just happening. it's not even really trying. It's just happening.
Meanwhile, I’m trying to get MIT to let me mix hydrogen gas with oxygen directly, in a flammable solvent, for the past year. My entire reaction setup is on the cusp of exploding at any point in time. Right. It's like, it's like physically dangerous to even set this up.
Gaurab: That's kind of how we started. We realized like there was, there was a world where if you married these two concepts intelligently, you could maybe take the best of both. And so we went to MIT and we pitched them on this idea at this thing called the MIT 100k competition.
We didn't win.
Sean: We lost, gloriously.
Turner: You gloriously lost. What does that mean?
Sean: Well, that's my that's my rebrand of not winning.
Turner: Okay. Seems like, seems like things went pretty well, even though you didn't win.
Gaurab: They gave us $10,000 bucks. Right. So what the, the second place or whatever place we were, they gave us $10,000 and Sean and I were like, okay, we have an option in front of us. It's a fork in the road. We can either keep going. And try to, like, make this thing happen or just, like, call it, right?
Like, hey, this has been a good run. It's been fun. And then we said, let's just try. Let's just see if we can make this happen. And so we went to Home Depot. Uh, we bought some PVC pipes. and I expressed some enzyme. Sean set up the reactor. And we just made it happen. Uh, and so at that point, we were like, wow, there might be something here.
The product that we were making at the time, it was peroxide mixed with some gluconic acid. And we didn't know where to actually sell this stuff. So we made a list. I still have the Excel sheet. It's this list of a hundred different markets where we could sell this product, right? So it was like weird stuff like, flowers, right?
How do we use this product to help flowers stay fresh longer? Uh, all the way to like, you know, antiseptic packaging and semiconductor stuff. It was wild, right? We had this whole list. And the only one that we could justify with the price for the product and our access to the market was something called float spas.
So float spas. Are these like, have you heard of isolation tanks? You just like lay in them?
Turner: Is this like cryo where you like freeze your body ?
Gaurab: No. It's like a, it's this water solution. It's just water with a bunch of salt in it that you can float in.
Sean: It's like sensory deprivation chambers.
Turner: So it's literally like a floating spa thing you lay in? And you float?
Gaurab: We were shocked as you Turner. The whole float spa industry and it was just so hot at the time. And we went and talked to them and said, well, what do you guys use to clean the water? And they're like, oh, we use peroxide, but they pay a lot for it. They paid like, I don't know, was it $20 bucks a gallon or something, $40 bucks a gallon. It was a ridiculous amount and at the time we were at such a small scale. It was a PVC pipe. We just said, you know what? Let's take over this market. Let's be the peroxide kings of a very obscure niche market.
Turner: And this was, was it only in Dallas?
Gaurab: It was at that, well at the time it was only in Dallas.
The thing that really allowed us to take over the market was this MIT $100k pitch. It actually came online, on Facebook or something. And one guy who was the head of this Facebook group that had like 300 float spas in it. He saw it and he posted it on his group and all of a sudden we were getting calls.
And, so that's when that, that business really took off for us.
Sean: I had a day job. Gaurab was in this last year of med school, and we just, like, rented lab space. And, it was a hobby. Like, I love telling everyone, it really did start as a hobby. We would kind of go in early in the morning, try to get this reactor at steady state, because we couldn't afford process controls.
We'd go and do our things, and be like, man, we pray that the reactor doesn't, like, overflow, right, or whatever. Which it did all the time. And then in the evening, we'd come and try to get back in a steady state. And then on weekends. We put the chemicals in our cars and we would drive around to the Dallas float spas, and actually for our first customers, we poured the chemicals in their tanks.
Gaurab: Full service, man.
Sean: Full service, right?
Gaurab: Full service. Yeah,
Sean: And it's interesting because like, that's when we like really realized the pain point of shipping and logistics. Like we experienced it firsthand because then we were like, well, our customers are all over the country and like we have to ship hazardous chemicals. And we were like, when we eventually went to Y Combinator a couple months later, and we talked to all these Cleantech 1.0 founders, it was this common theme that the old strategy was you just do a whole bunch of R&D, and then you IPO the company to build your first mega plant. You're essentially just painting this picture that you're going to be able to like push buttons, ship six rail cars a day of material, even though your core competency is like benchtop R&D.
And so it was like, oh, well, we're experiencing supply chain issues. That's a big pain point for us. That's a big pain point for our customers. Like, let's make that a core competency of Solugen.
Turner: And you did all this with the $10k? Did you use up all the $10k in your bank account? Or were you profitable and growing the $10k or?
Gaurab: Yeah. So that little PVC reactor within three months, I would say it was giving off about $10k a month, something like that in, in cash, again, for two guys
Sean: It's just, It's just, the two of us
Gaurab: Yea, it was like an infinite amount of money. That's where we got motivated for this whole YC concept.
We didn't know anything about, you know, YC or any of this startup stuff. And we started, I can't remember who we talked to. We talked to someone telling him like, oh yeah, it's like we got into profitability mode, blah, blah, blah. Things are going, things are going really well for us.
They're like, oh, you have to apply to this thing called Y Combinator. And we looked it up, learned a little bit more about it. It seemed really cool for software companies, but they didn't really have much of a track record at the time for anything hard tech.
So, we were pretty reluctant about it. But then we just did the application, we got an interview offer, and then we just fell in love with kind of the intensity of the people there. And we're like, maybe this can be good for us.
Sean: Yeah, I mean, I remember it very vividly because we did a six minute pitch to Jessica and Jared and I feel like, this entire interview, we essentially covered in six minutes. It was wild.
Gaurab: I love that intensity because we're coming from academic backgrounds. That's how it was for us, right? Like we get grilled on the spot and stuff. And we like, we loved that accountability that was created.
Turner: I think I actually found your application video on YouTube. I don't know if you guys want people watching it, but I’ll put it in the notes of the episode if anyone wants to watch it. It's like a minute.
Gaurab: I think I know what you're talking about. We're basically our whole pitch was dropping costs and increasing rates and increasing use. I think that was the whole entire focus of what we're trying to say.
Turner: I think Sean said the same thing like three times in a row, something about explosions. And then you made a joke.
So, then at one point, I don't know if this was before or during YC, you guys hit 80% market share of the float spa peroxide market or something?
I mean, that's impressive. But what does that even mean?
Gaurab: I mean, again, 80% of we’re talking maybe like $300k or something like that top line a year, but that was a lot for us at the time
Turner: And this is when you did the whole YC process? Did you move to San Francisco and stay there?
Sean: We actually relocated. We rented space from EasyPost. We took our stuff from the Dallas lab, put it in a pod shipping container. And then we relocated to San Leandro for, for the 3 months of Y Combinator.
Turner: I think I actually saw a picture of one of your initial reactors. It was in an office with one of drop tile office ceilings, like the white tile things, and the reactors was going into the roof through the tiles. Is that even, how did you do that? Like, that just seems maybe not the safest?
Sean: We could do a lot of things in that lab. It was a challenged lab. They didn't really care, but actually it was one of our main requirements for finding a place in California. We're like, we got to get taller ceilings. I think EasyPost had, like, 20 foot ceilings. We were like, yes, this is it.
Turner: My friend Seth Bannon at 50 years who invested, who also introduced us, so thanks to Seth. Is that the lab that he met you in? Cause he said he met you in this janky lab.
Gaurab: That was the lab he met us in
Sean: He’s the only the only investor that ever met when we were in the Dallas lab days, kind of pre Y Combinator.
Gaurab: He was, I would say he was the first investor that believed in what we were doing. He saw us from literally the beginning. It was really meaningful for us to have him along for the ride.
Turner: How did you meet him? And then how did that go raising that first round when you mentioned earlier YC had see never really done this kind of company?
Gaurab: So we met him through YC's internal, networking thing called Bookface. So I think he shot us a note on Bookface and we just started talking and that's when he came out to visit us. So this was right before we started YC. So we got to meet and get to know him.
And then for the fundraising at YC. We were told by our partners do not expect to raise any meaningful money. No one understands what peroxide is.
Classic, classic YC, like brutal reality check kind of stuff, right? And so we didn't have any expectations. I think we were so memorable because we actually brought the reactor to the Computer History Museum at the time.
Turner: Was that the demo day?
Gaurab: Yeah, during demo day, we had this reactor running in the middle of all these investors and everyone's just looking at this thing being like, what the hell is that? Is this like a, is this a, like a safety hazard? What is this thing?
Sean: Yeah. We carried it upstairs to the computer experience and I mean, we had the full intention right to run this thing. And like, we actually did run it for the 1st, 30 minutes, but it's got this crazy, noisy air compressor.
And then the event organizers were like, none of us can hear ourselves think, you need to turn this thing off.
Gaurab: It made it impossible for us to be ignored
Turner: No one understands what you're doing, but at least they know that you're there.
Gaurab: We did the whole pitch and stuff and people got it. I mean, just as we're talking right now, once you see how big this opportunity of chemicals and materials are, you cannot unsee it. It's like this whole matrix thing. Those are the markets I love, where you just can't unsee how much opportunity is there.
And that got people really excited about what we were doing.
Turner: It's definitely pretty crazy when you think about it that not many people talk about this market. I mean, it's kind of hidden, it's just a part of everything, but you can't see it.
Gaurab: And I think that's a piece of where early days, why we were successful in raising that seed round, is we were able to really complete the story of well, great, the chemicals industry is massive and it sounds like it sucks, but how do we fix it?
And Solugen was really the only player at the time that was really going after to fix that market.
Turner: So then how much money did you guys raise? It's probably more than the $10k that you first raised.
Gaurab: I think we raised around $4. 5 million or something
Turner: Oh wow, okay.
Gaurab: And we were not like a software company, so it was, it was a big, big deal because it showed that like, all of a sudden this is cool again, clean tech might be cool again.
Turner: So what did you do with the money? That's a lot.
Gaurab: Really interesting question because we were sitting there, and Sean and I were like, okay. We're going to invest and build up the next pilot plant, right? The way we like to do things, we like to think big, but like, figure out what are the small little steps that we can take to get there.
And he said, great, we have $4 million. What is the next phase? What's the next step? And so we said, hey, let's build a pilot plant and then a bigger version of our PVC reactor. And we sat there thinking, it's like, man, like if we sell this for the industrial price of peroxide. it just won't really be throwing off that much cash.
How do we, just like we did with the float spas, how do we up the price of that peroxide as much as possible? And how do we solve the customer's pain point? And then our float spa customers came to us. They said, Hey, can you guys make this in a wipe product that I can use?
Sean and I said, this is genius. We're gonna make a wipe because we did the math -
Sean: I would say, at every stage, like, we've, we've been very disciplined on the technology scale up, and it's all driven by techno economics, and the techno economics sort of inform this go to market. And so, traditionally every pilot plant in chemicals is not profitable.
We essentially set this goal. We're like, we want to have a profitable pilot plant. And I think we did a tech scale up. Of kind of the PVC reactor and we were also like, oh, we can afford to have the metal reactor now. So we can fully realize chemo enzymatic manufacturing, like the 1st iteration of the true bio forge on my new molecules.
Turner: This was your research you were doing of like what can I do with this?
Sean: Exactly, this is sort of the research we're doing, like, finally, we can execute on what we really want to do, which is combine enzymes with heterogeneous catalysis, do it at a 10xbigger scale. You know, if you had that 90% uptime on that pilot plant, I think in the wipes business, the theoretical max top line would be like $60 million a year is how the math shook out.
We were like, okay, this is amazing. It's a pilot plant tied to this product that has like a theoretical top line of $60 million a year. That's how much we'd be able to supply. And we did customer interviews. There's some pull from our current customers to go get it. Let's try to set this up.
Gaurab: But we underestimated how freaking hard CPG companies are. This is like classic founder, you know, hubris or ignorance, whatever you want to call it. At the time we were looking at it from a, hey, it solves the customer's pain point. They want this, there's a clear need for it. And I think we can make money on it.
But what we didn't realize is marketing is one of the most difficult and most expensive pieces of the puzzle that neither Sean nor I were experts in. Our first actually, Sean, do you want to tell them what our first branding was for Ode to Clean Wipes?
Sean: Yeah. I mean it was one of these examples where our investor base was like, we invest in you guys 'cause we really believe in you guys for making chemicals, changing chemicals. But you're not the founders that are going to execute on a CPG company. We're like, no, we'll show you wrong.
But in the end, they were, they were totally correct.
But I remember our first, uh, branding session, we hired a branding firm. We sat down with them and I, I proposed that the brand name or the tagline should be “everybody wipes”. And I was promptly forever fired from the marketing department.
Gaurab: But what we did was we built a whole entire brand. We built a whole entire supply chain. We built a marketing function. We built our own everything. We were doing our own packing of the product in Houston by ourselves.
So we didn't know anything. We didn't know that you could outsource a lot of this stuff. We just said, Hey, you know what? We're going to do it all. And we launched in 2018.
Sean: No, no, no. no. no. We launched October 2017.
Gaurab: Oh, sorry. 2017. You're right, you're right. We sold it in 2018.
So basically when we launched, we sold out of our inventory. That was shocking. And it was really funny because we were like, there's no way we're gonna sell anything. People aren't gonna care about this.
But for some reason, people got really excited by this ability to like, be part of the bigger Solugen mission, not just the wipe. That it did really, really well, at least by our standards at the time.
Fast forward a few months, I was running our Facebook marketing and everything like that. And it was pretty brutal to be frank with you. Like, I was in mom groups chatting with all these moms on Facebook. I was in every single one, you know, just everything that we could do to make sure that this brand was getting out I the world, I did.
It was not my skillset. So we said at that point, Hey, we were able to prove that this thing is real, there was a strong run rate that was on that business, we got an opportunity to sell that brand, and we sold it for a good chunk of money for us again at the time, but that turned into a, supply contract that ended up baseloading the next plant, which is exactly what we wanted from the beginning.
Turner: So the point of it was basically, you're not a CPG company, but the whole purpose was create this product just to prove that you could create products with this new material science you'd kind of developed and this whole new process and prove that there's demand and prove that the product actually worked. And then get some cash. Did you make money on the wipe business? Like at the end of the day, you generate cash from it?
Gaurab: We generated cash mainly through the sale, is where we generated the cash.
But it ended up being really good for us because Cleantech 1.0 again, going back to like, well, what was before us as part of this big idea maze was a bunch of Cleantech 1.0 companies who never thought that they should ever launch a product, right?
They should just focus on building the biggest technology possible. If you build it, they will come. YC really taught us the opposite, which was the customer decides what you build.
Turner: I've read something that, as part of the sale process, you were running hyper targeted ads, like at specific, personas at businesses that might acquire the company?
Sean: I mean, it was 1 of these things where we really tapped into the YC network. Like, YC has some folks that are just scary good at this marketing.
I forget who we were talking to that thought of this idea, but we were just like, essentially, if you're running a CPG company and you target single individuals with your monthly ad spend, you can create pretty scary echo chambers that are hyper targeted single individuals and Gaurab pulled it off.
Gaurab: I pulled it off. So basically what we did. So like within, you know, two or three months, we kind of had the feeling that like, okay, CPG company, super hard. How do we convert this into a win for the supply chain contract for the business? So we said, we have to get this thing bought out.
Otherwise, it's just going to take forever. Like these big companies move so slowly, so we have to force their hand. So the only way we could do it is doing super targeted LinkedIn ads.
I will tell you about a creepy billboard ad I did once. So basically we figured out, where one of the executives lives for a potential, uh, acquirer. And we figured out his drive to work. We bought every single billboard, on the way to the office and on the way back to the office.
So the only thing he saw was, what the hell is this thing? Like, why am I seeing this everywhere?
He calls me up because I had reached out to him before. He calls me up and he's like, all I see is this Ode to Clean thing. What is this?
Sean: And I remember, I remember having some friends text me first, like, I saw your billboard, like, I didn't know it was so big. And I was like, those billboards aren't for you. Stop looking at my billboards.
Gaurab: So there's just a lot of weird, like hacks and fun things that we were able to do early on. I think that led to a lot of our, kind of the culture and ethos of the company.
Sean: The other thing was, in 2018, that's when we raised our Series A. We acquired this facility that we're currently in. I'm currently sitting in right now, Gaurab is too. It's this former exploded polyethylene wax distillery, the home of Bioforge 1. And, in 2018, we were like, okay, let's go back to industrials.
Let's use the pilot plant. And do blending and supply chain and enter energy and industrial water treatment for various chemistry market pool reasons and having that product and being able to go into these different meetings and, like, put something on the table. It's like, wow, because I think we were still 3 people at the time.
It was just Gaurab and I and our 1st employee. And so it was like, wow, they're not an ideas company. Like, they made something, right? And like, you can
bring it home? And you can, you know, give it and show it to your kids? It just actually helped a lot on giving us that credibility to, like, really enter the industrial side.
Turner: At the time, you're proposing this crazy new product that they should buy. And there's probably career risk for them as an executive at like a, you know, multinational fortune 10 company.
Gaurab: So the key unlock in 2018 it's this philosophy that we learned on the customer side. There's. Trust and fear, right? So trust is, are you a credible company? Are you able to do what you say you can do? And then there's fear is how is my career going to be like destroyed if I work with this company? Is my reputation going to be hurt if this thing doesn't work?
So what we did was we optimized for both. We said, let's build as much trust as we can. I think the wipes business, the, all the press, all the, like the technical stuff helped a lot. And on the fear side, would just basically do free field trials.
We would go out to the market, and when they use the chemistry, usually people charge a lot for that. We didn't charge them anything. We said, hey, we'll cover everything. And if we mess up, we'll pay for your whole system. If we mess something up, we will pay for it all. So all of a sudden that fear amount started to decrease.
The trust started to go up. And all of a sudden, these customers were like, wow, these guys actually are able to execute and do what they say they're going to do. So very quickly in 2018, we became started to become a brand where if you were working with solution, it actually became a good thing for your career versus a risk for your career. And that's why in 2018, we were able to skyrocket. Revenue. We did 10x, from 2017, 2018, simply because we were able to unlock a lot of this trust aspect of the equation.
Sean: And I think on the trust piece side, this was also where we started leaning into the blending supply chain distribution because, if you're going to trust us to do a field trial, the 1st thing that you, our customer, who's like this decision makers, they think, can they even deliver a tanker truck to me on time? Right when I want it?
We had just a handful of customers, but we were like, let's give them absolutely insane customer service better than any of their other vendors that they're going to. If they want an order and they want it there in four hours, like we're going to move heaven and earth to get it there in
Gaurab: I'm in my Toyota Camry coming to your place right now
Sean: Towing the tractor truck with your Camry, yeah.
Turner: You guys said something that you kind of skipped over. You built your factor on like an exploded wax plant? I was going to ask about that. What is it? What's the story?
Sean: Yeah, it's kind of wild. So it was kind of right at the Series A. We needed to move out of our, we were in this, it was a former Napa Valley auto parts and our lab was carpeted and it was really that you can't build a 10,000 ton chemical plant inside of this. And our singular focus was, like, let's build Bioforge 1.
Gaurab: Which is the big commercial version. So we did our Series A, and that was to help fund the big commercial version.
Sean: You know, we looked all around Houston. It was really weird because I was on loopnet.com, and I ended up touring 60 facilities, but the place we're at right now is the first one I went to.
I sent in an email and within two hours I was on site touring it, and with Gaurav's dad, actually. We were like, oh, this is the one, this is the one.
So we partnered with the Houston Brownfield Redevelopment Program. It‘s this really great program where they want to take these brownfield sites that are, “environmentally challenged” is a phrase I'll use, and redevelop them. By doing that, they actually help you get, like, a small business administration loan to kind of move in. And so we're on a 5 acre facility.
I think when we moved in, we were 8 people at that point. We all kind of worked out of the main front conference room, but, like, I think the initial mortgage was like, $12,000 bucks a month? You're on a 5 acre chemical plant for 12, 000 bucks a month. I think there's 11 monitoring sites?
And so at this point, we have what's called a municipal site designation. So the facility is effectively remediated.
Gaurab: The reason the history is so cool is because we're in Petropolis, right? Houston, Texas is the middle of the petroleum industry. And here we are on this site of a petrochem plant that blew up. Blew out all of the windows in a five mile radius, and we're coming in and saying, Hey, we are a carbon negative chemical company that has risen from the ashes.
So for us, there's like something so meaningful about the history of this place that we had this opportunity. It really helped us keep the team really motivated during hard times.
Turner: And speaking of the team, you, I've heard you mentioned something that I thought was really interesting. You did these one week hiring sprints. it sounds like you don't do them anymore. It sounds like you stopped at a certain point, but can you kind of explain what that is and why you did it and how it worked?
Sean: This was a recommendation that came from our YC partners. It's very difficult to scale. That's why we don't do it anymore. for our first, like, 10 or so employees, we would essentially ask them to take vacation from work for a week. And then sign like a one week consulting agreement and work with us on a small kind of time-bound project. And it was super helpful because you're actually self selecting to a certain portion of the population that are risk takers. Right?
What you're asking someone to do, most people would just say no. And so you're self selecting. And then at the same time, you're also like, oh, do I work well with this person? How do they fit in with the rest of the team? And you're also getting a week of extra help. So it worked phenomenally well.
Gaurab: It was great because you can see all aspects of the person, not just the intellectual piece of them, but also how they respond to what seemingly a lot of change. Like even in that week, the company could change dramatically. And so they got the chance to see like what that was.
It's just the way the world worked for us back then. And we got to see the, like the kind of this candidate that we thought were awesome. By the end of the week, we were like, just go home. It's not going to work out.
Turner: Oh no! Okay.
Sean: And it's an interview as much for them because there's a whole contingent of people out there that like the idea of being a startup,
Sean: you know, and we're over a 200 person startup now. So it's a bit different. But like, a sub-10 person startup is a totally different experience. And so like, there's certain people that actually perform quite well, but they're just like, yeah, this is not for me. This is too crazy.
Turner: And you were probably hiring from just local traditional chemical industry people in Houston or?
Sean: Whole mix of individuals for various functions, generally acrobats though. We were looking mostly for aptitude, clock speed. Can they be an acrobat?
Turner: And then you mentioned revenue grew 10x in 2018. I think you mentioned it was due to oil and gas contracts. Was that just local customers around Houston?
What were you doing for them?
Gaurab: Well, the same kind of thing that we were doing for the float spa’s water, right? The product was used to clean up the water. When you make oil, you also, you actually make more water. And right now they either dispose of the water or try to figure out what to do with it. Our chemistry allowed them to clean that water up and reuse it for different applications. That was a big unlock for us, an environmental piece of the puzzle wasn't just saying no to oil and gas, it was saying, hey, how do we help oil and gas in these contexts? Because it's not going away for some time.
Sean: Yeah. You want to talk hidden environmental problems. I think it's every barrel of oil makes somewhere between three to eight barrels of water.
Gaurab: It’s four to ten. Four to ten is the new number.
Turner: And this is contaminated water?
Sean: It’s contaminated. Interestingly enough, it has very similar water chemistry to float spas. That’s the connection.
A lot of salt in the water. And so it was sort of like, okay, bigger volumes. It's an environmental challenge. It's sort of a natural kind of next step. We're in Houston. Right?
Turner: Good to have close proximity to customers, especially when you're doing the hands on work.
Gaurab: Precisely. And that goes back to the trust to fear ratio, right? Where it's like, all of a sudden you need to make sure that you're in front of the customer showing them how this stuff works.
Turner: And then I think summer of 19, you guys raised a Series B that wasn't that much bigger than the Series A?
Gaurab: Yeah, we didn't need that much cash at the time. But basically what it did is it allows us to continue expanding out our first Bioforge. So Series A money helped us fund Bioforge 1. But then we want to do some expansion. So we basically had the Series B to help do that.
Simultaneously, we had a R&D program for different products and different molecules. So it helped us accelerate a lot of that. And I think Founders Fund led that round.
Turner: And then when you've mentioned this Bioforge a bunch of times. That is what you call your big plant, correct? The name of the factory?
Turner: And you also mentioned earlier that you are essentially running two businesses. Can you really quick explain that? Cause that sounds super complicated. I mean, you guys have done multiple things at the same time throughout the whole history of the company, but -
Sean: So if I paint kind of one vertical, it's R&D of new molecules using enzymes and metals, and then you launch them on the Bioforge. What the Bioforge does is it sells bulk chemicals. So if you want tanker trucks, if you want rail cars, you can buy it from the Bioforge.
And then there's a vertical that's super customer focused. It's market facing. The blending, the distribution supply chain. The Bioforge will actually sell to the blending and supply chain distribution business. Actually, all of the customers from Bioforge 1 came from the blending supply chain distribution business. Effectively, it was the sole customer of the plant and it was sold through that.
But this market facing one so critical because it's North Star is delighting the customers, making them as happy as possible. And Bioforge 1 is there with sustainability, unit cost leadership.
Gaurab: So fundamentally, where we were at the time. The reason we were able to scale so quickly as a company is because we did that distribution piece of the puzzle. I think a lot of people told us that was stupid, just like the wipes. They said, don't do that. You're going to be, you know, burning resources, blah, blah, blah.
And we also knew that the most important thing to our customers was trust. And the only way to do that was to deliver consistency to them every single time the product is the same quality at the right price, delivered at the right time. The super boring stuff that technical people don't like to talk about, those are the things that customers care about the most.
I mean, everyone wants to say oh, we're sustainable and stuff. But if you're not able to deliver a sustainable solution on time, they don't have a product to sell. So at the end of the day for us, it's all about making sure that customer happiness is the true metric for us.
Turner: So you kind of started by selling other people's products, and then have slowly started to create your own. That's essentially how it all ties together.
Sean: And it's also kind of a mix where our goal is to eventually make all the chemicals right.
And when you look at it from a customer's viewpoint, they also don't want to have 20 suppliers, a supplier for each different molecule. So part of it too is, hey, we're coming to you with this. This is what the Bioforge can do today. Here's our road map. Let’s talk about partnerships.
And at the same time, it's like, well, what else do you need help with sourcing? You can think about it from a customer wallet share perspective. Where it's like, some of them tie into what is on our future roadmap, but it's the suite of chemicals that complement our existing offering, where we can go to that customer with the full package.
Turner: Based on everything I've gathered, the distribution and the selling of other people's products, you make margin on that. And you're essentially using that to reinvest in CapEx to build out a lot of your own capabilities.
Turner: So, smart strategy, but like you said, a little bit crazy. It's just not what people will probably tell you to do.
Sean: You always get conflicting advice from everybody. That's sort of the nature of advice.
Gaurab: So we just did it. And it works, and we're going to keep doing it. Because it's a tried and true playbook for us now that we're just going to keep doing.
Turner: Yea. I mean, it seems like you almost take just a first principles approach of how do we distill this down to solving the problem that the customers need, while making money doing it. Which I guess was a controversial thing up until recently, but…
So then when you talk about creating your own products, how do you do it? It sounds like maybe that's more Sean's domain, but like, how do you decide oh, we're going to make CO2 concrete, or water treatment? How do you decide what to do?
Sean: Gaurab. Gaurab is the product guy.
Gaurab: We're both hyper technical. Sean is super technical on the engineering side, and where I'm more technical is like, how does this all integrate into the product piece of it?
And the way we think about the product fundamentally is again, this is going to sound boring, but it's the customer. Let’s look at a single customer is not just buying one chemical or one product, they're buying a bunch. So the question is. If we look at our customer stack, what is the most common chemistry that they're buying at the highest volume that has the biggest price impact on the bottom line of the customer? That's what we go after next. So instead of saying, what is the technology capable of doing, it's a pull from what the customer is already purchasing.
Turner: And that's because, if they’re buying something that’s a big ticket amount that impacts their profitability, it's just more likely that they'll buy it from you?
Gaurab: The whole, the barrier is so much lower now. It’s all a very different approach than Cleantech 1.0. Cleantech 1.0 was all about technology first versus customer pull.
Turner: I was going to ask you about that. You think that was kind of the big, misstep, or if you had to summarize clean tech 1.0 failing, it was just not solving problems for the customers? Maybe going more tech first instead of customer first?
Sean: It's tech first versus customer first. But it is this sort of fundamentalist 1st principles view of a market entry strategy. Let’s just take an example, I'll call it a drop-in market. Let's say there's Molecule A, and it's like, very unsustainable you know, got dozen assets all around the world, fully depreciated and the owners of those assets have fully diversified balance sheets.
Even if you have a better process for Molecule A, you need to go build a $500 million plan. And your competitors can just drop the price, and actually have negative margins and sustain negative margins for years, while your brand new asset that you just got all this debt on just goes under.
And so here on the Molecule A side, it's Molecule A, it's a drop-in, you don't have to do any product innovation. I think what's unique about Solugen is we've got Gaurab and we do product innovation, right?
Sean: And so, a lot of what you're trying to match is like, how do I create differentiated value in the marketplace?
How do you tie it to that technology roadmap? Or like, you're delighting customers every step of the way. And every time you delight customers with a new product, it's bringing our organizational capability to deliver that next molecule even further.
Gaurab: And so fundamentally, when you look at it from a cost of customer, or a CAC basis, it's a lot cheaper for us to continue delighting one customer and expand wallet share than it is to go and try to market and get hundreds of other customers. So for us, it's just find the right set of partners and go super deep with them.
Sean: What is interesting is you do actually see a similar framework to this being used by the government now, of all places.
So the government in Cleantech 1.0 was all focused on this thing called technology readiness levels. And now with government grants, you have to tie technology readiness levels to what are called adoption readiness levels.
And that adoption is really to address this whole problem of, you can't just focus on the technology and go say, I'm going to go build a world scale plant and find customers later. You have to be working with those customers and qualifying in every step of the way
Turner: And technology readiness is basically does it work?
Turner: And you guys sort of have a little bit of like a, I hate the word ESG, but there's a little bit of a, Hey, we're actually safer for society? There's a little bit of that component as well?
Gaurab: It's an important piece of the puzzle just given what we're able to offer on the sustainability side. What I found though, is that that by itself, is at least today, it's not the thing that's really getting customers over the finish line. I'd say it's stability and quality of product, price point of that product, ability to deliver that product. And then last is sustainability. At least in the high volume markets, that's really what we're seeing right now.
Turner: When you're selling to consumers, sustainability is a little bit more of a marketing thing?
Gaurab: But even then, a consumer is not going to buy something that's 20% more. It's just impossible in today's, especially in today's world.
Turner: If you can save someone money or make them more money, that's ultimately all that matters.
Gaurab: That’s all that matters, man. Like it's honestly all that matters in the chemicals industry is that's why like one of the things like on a long term basis, when we look at what can we do? Like right now we're building our own assets and selling the product.
If you really look at what we're doing is we're changing the whole entire cost structure of this industry. Eventually, this is going to be really valuable to other chemical companies, right? So, it's not just us going out and building it. What if we can license a view of this or a version of this to other chemical companies, so our impact actually scales much faster? We're not there yet. I'd say we'll get there maybe in the next two plants, three plants, something like that. But I'd say, ultimately, that's where a lot of value can be derived.
Turner: What does the long term look like?
Gaurab: What I can say is we break down the company into phases.
Phase one of the company was demonstrate that the technology works and demonstrate you have customers for those products. We did phase one check.
Phase two is okay. Now that you've shown that you could build this stuff and sell it, go do that as many times as you can go build and sell and make as much money as possible. So that's that's where we are today. Phase two.
Phase three is now let's do it with a bunch of different products, not just the products that we know we can make. Let's do it with a whole suite of different products that we can go after.
And then, phase four is how do we start integrating all of this so we can give license packages to other customers so they can build their own chemical assets. So instead of us being the builders, how do we let customers or partners become the owners of their own chemical assets?
So that's kind of the progression of how we see the chemicals business. Eventually, I do want to be able to say we're making products. Like actual molds for cars, or insulation for homes, and things like that. But today we're focused on the chemistry.
Sean: Stage 4, you can really envision pursuing even deeper levels of vertical integration. Like, right now, it's the manufacturing plant. It's supply chain distribution. But in Stage 4, the chemicals industry underpins everything.
You could vertically integrate to the point that you're not even really a chemicals company, you're actually just decarbonizing the physical world.
Gaurab: And that's where we want to go. And a lot of companies claim to want to do that. And the only way to do that is to decarbonize chemicals. So that's where we want to play first.
Turner: Are you licensing out the patents on how to build the machines? or do you sell the machinery?
Sean: I like to use a car analogy. Imagine if I came to you with hey, I have the blueprints for the world's greatest car. Your first question would be, let me test drive the car.
And I'd be like, no, no, I only have the blueprints. You can't test drive the car, right? You'd be like, go away, right?
So our business model is very much focused on build and operate first, and building those core capabilities at a certain point. If you think about different markets where it would take us a lot to build core competencies, you really want to have partners. And what Solugen is at that point is providing technology packages. And then it's through this network of partners that you can then kind of enter Phase 4 and start to really not just decarbonize chemicals, but all the things downstream of chemicals as well.
Gaurab: Yeah, it becomes like “Intel inside” at that point.
Turner: How do you evolve from being a PhD to running a nine-figure revenue business? What advice do you have for other people trying to do that?
Sean: Get a coach.
Turner: All right. That settles it.
Gaurab: You know, it's funny. The best business advice I got was actually from Mary Curie, the, well, I didn't get it from her, but it's a quote from her about how the, this concept of fear is just, needs to be flipped on its head to curiosity.
I think once you have this concept of PhDs are trained to be curious, that's what we were trained to do. But if you apply it in the context of business, get really interested in the business that you're running to a point where you're just curious about every piece of it. I think that's how you can actually build a business that withstands time. It's just pure curiosity from founders.
Sean: The second thing I would add here is to have an amazing co-founder.
Sean: The co-founder relationship is one of those critical ingredients to essentially never stop growing as individuals, as a team.
Turner: How'd you guys know?
Gaurab: That we were good co-founders?
Turner: Yeah. Anything specifically you were thinking through or would encourage, maybe you got lucky, but like would encourage other people to think about?
Sean: I mean, it's complementary skill sets, but I think it's more of having a really, really strong personal foundation, friendship, respect.
Gaurab: Yeah. I feel like you should be at a point where you feel comfortable enough. It's going to sound weird, but comfortable enough crying in front of your co-founder about something. And you know that they're going to have your back. It sounds sentimental and soft, but I think that's the ultimate kind of test, can you be vulnerable with this person?
Sean: And the other analogy of Gaurab’s is, is this the kind of person that's going to bail me out of jail?
Gaurab: I have this very simple proxy when I hire people, which is, is this the kind of person that's going to help me get out of a jail in Tijuana or are they going to prevent me from getting into a jail in Tijuana? And so, at the time I needed, the company needed both of us to be able to kind of do both for each other.
Turner: Well, thank you so much for coming on. This was a lot of fun.
Gaurab: Thanks for letting us ramble. I really appreciate it.
Sean: This was a lot of fun.
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