I’m a software guy.  I’ve been starting and building software startups for the past fifteen years.  Somehow (Captain Obvious?) I only just started thinking about how everything I’ve been involved with involves software e-commerce tying back to physical products.

In 2010, my Pear co-founder Alex and I (and our third co-founder Matt!) started EatStreet, a “baby Doordash” that provided food delivery to college campuses.  I spent nearly a decade connecting 15,000 restaurants to 15 million (often drunk and ravenous) college kids.  When someone ordered food through EatStreet, a pizza magically moved from a restaurant to their front door.  Lots and lots of physical products.

Now at Pear Commerce, we power e-commerce infrastructure connecting brand experiences to retailers that sell their products.  Every day we pull 500 million+ data points of what products are at what stores, and work with some truly exceptional CPG brands ranging from the very large to startup.  Everything I’ve done professionally seems to involve tying the online world to the real world.  Along the way, I’ve been part of almost $60 million of VC fundraising and worked with a lot of entrepreneurs who actually “make stuff” beyond 1’s and 0’s.

I take long showers, and 12 minutes into one of those showers, I started thinking “I might have a unique perspective about the similarities and differences between building tech companies and companies that make physical products.”  So without further ado, I’ll compare and contrast what it’s like to build a tech company and a CPG company from square one.  Sorry restaurants… you might get a blog post at some point in the distant future!

‍Mistakes‍

A tech startup adage is “ship fast and iterate.”  I think this adage applies to physical products as well, but there are some huge caveats that make a world of difference.

When we ship new code (typically multiple times a day), the code leaves our team’s laptops and beams to data center servers in Amazon Web Services.  I didn’t properly appreciate how nice this is until recently… we have exceptionally high uptime at Pear Commerce, but if a mistake ships (hey, it even happens to Google!) we have a big undo button.  Within minutes we can back onto older, higher performing code, ship those changes at the speed of light to AWS and the problem is gone!  This allows us to run a ton of experiments and move really fast!  Something’s working?  Double down on it.  Something’s breaking?  Undo undo!  Have an idea?  Manifest it to reality (after having a code review) on the same day the light bulb went off.  Software is like a box of legos you can constantly re-arrange in real time to build the coolest stuff you can imagine.

CPG has to be different.  You don’t want to send out a semi truck worth of half baked (no pun intended) stuff to Walmart, because there’s no undo key.  I’ve gained so much respect for the CPG teams that deal with quality control or new product rollouts, because there’s no such thing as a do-over.  Whatever you launch needs to be delicious, safe, and awesome, because if you’re an emerging brand selling into a new retailer, there are no do-overs.  In software engineering, it’s possible to make more mistakes than good decisions and still arrive at something great.  CPG faces a much steeper challenge.

‍Decision making‍

Because software can ship so much faster and with infinite “do-overs” (as long as your customers are happy with your service!), you can experiment a lot on the fly.  At Pear, we have a long term vision and a product roadmap, but in terms of “will people like the button if we place it on the left side or the right side of the screen?”, we get to find that out in real time!  We ship two experiences where everyone in New York sees one button and everyone in LA sees a different button and measure which button gets more clicks.  Heck, I’ve even seen software companies (we haven’t gone this far) who are deciding to build a feature and add a button to their product saying “Turn this data into a graph”.  If nobody clicks, don’t build it.  If someone clicks, say “Coming soon!”.  In software, we’re spoiled by the ability for our users and customers to literally tell us what they want with their actions.

I’ve met a lot of fellow software founders who turn up their nose at focus groups.  (We haven’t run one with Pear, but we did at EatStreet.)  These founders would say “who cares, just go out and do shit and see if people like it!”.  For a CPG company, this is a non-option.  For all the reasons I listed in “Mistakes”, CPGs have the unenviable reality of no do-overs.  Focus groups are invaluable ways to understand if the market wants a product before yolo-ing it into reality.  I think a lot of software minded founders would lose their minds about the “unknowability” of what’s going on with products on shelves.  At Pear, we’re trying to take a small dent out of this challenge, but it doesn’t change the reality that CPG founders need to think long and hard about their product decisions before shipping into the market.

‍Emergencies‍

So far, I’ve made CPG seem way harder than software (and I’ll admit, I think it is!), but no CPG founder has ever woken up in the middle of the night to find out that the chocolate chips in their cookies magically turned to strawberries overnight.  Software deals with this kind of emergency A LOT.  You’ve received a huge amount of traffic and your database is underprovisioned for the load.  A downstream vendor like AWS or Sendgrid is having an outage.  When you’re built on top of 1’s and 0’s and your 1’s and 0’s stop 1’s and 0-ing… you have an urgent and immediate need to address that problem.

The closest CPG analog I can think of is a product recall.  Boy, that must suck!  The real world implications of a recall are worse than software randomly going haywire, and there’s no way to “patch the code” to nuke salmonella from existing products.  I hope most founders don’t deal with this often.

‍Selling‍

I can’t speak for all B2B software founders, but at Pear, selling is really hard.  What we’re doing is really unique, which is super exciting, but also presents a huge challenge.  If we’re selling a new product to a company that’s never imagined that such a product could exist… finding the right person is like a needle in a haystack.  We bounce around where Martin tells us “Lucy would love this!” only for Lucy to say “This feels more like Martin’s thing” over and over again.  I’ve gotten vertigo.  The good news is that, when we finally find home, we’re usually presenting something really different/novel and that can lead to an easy sale.  Finding unbudgeted dollars isn’t always easy and oftentimes whoever is buying us has never bought software for the business before.  Still, we have plenty of success getting a deal closed once the right person falls in love with what we’re selling.

CPG feels like Stranger Things’ “the upside down” for us software people.  CPGs sell to merchandisers, or even better, people with the job title “BUYER”!  Most days, I’m insanely jealous.  But then I remember their challenges too… a category buyer will see literally hundreds of kinds of cookies… and your job is to sell your cookies!  The competition is ruthless.

All in, I’m not sure who has it worse, but it’s hard either way.  In software, it’s finding the “who”, in CPG it's selling the “why us”.

‍Fundraising and Liquidity‍

I pulled some stats from ChatGPT/Pitchbook that I found astonishing!

In 2024, software received $155 billion VC dollars.  By comparison, CPG received about $7 billion (numbers are less clear here).  That’s 22x more money for software!  However 2024’s exit liquidity was $41bn for software vs $4.1bn for CPG.  There are a lot of factors that taking a single year’s worth of data leads out (time horizon, etc) and a more thorough analysis would include a decade’s worth of data to normalize out spikes and a lookback window when these companies were funded, but private company data isn’t easy to come by.  Still, in this simple analysis, CPG invested dollars products 2x better Enterprise Value outcomes than software!  Wild.

These numbers point out the obvious: more money goes to software, but also the less obvious… investors might get a better bang for their buck on CPGs!

In terms of actual fundraising, software has a lot more options within VC.  While big firms like VMG exist to fund CPG ventures, for every one of them, there are a dozen VCs specializing in software.  The traditional mindset has been “software has huge customer lifetime value, high margins, and almost no physical overhead.”  No doubt, true, but CPG founders can take a lot of pride in these exit numbers!

I’ve found that angel investors sometimes prefer CPG.  I’m not the greatest sales person in the world, but the number of times I’ve seen a community member interested in deploying capital into the local startup scene’s eyes glaze over when I start talking about “proprietary software” is more than I can count.  Software fatigue is real!  I have CPG founder friends who have struck gold with angels who tell them “I want that… so go and make it!”

‍Closing thoughts‍

Building a business is hard, no matter which way you slice it.  To anybody out there building a business against all odds… I salute you.  I’m grateful to have learned from so many amazing CPG founders.  Let’s change the world!

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Eric Martell || Pear Commerce Co-Founder & CEO