10 ms·

SpoonRocket shuts down

176 points by tomgallard 11y ago

tptacek 11y ago
The company had actually reached contribution margin positive — it was selling meals for more than it cost to cook them. But due to other costs and the frosty fundraising climate, wasn’t able to get the money it needed to continue operating. Am I reading this correctly, and the business metric this company managed to achieve is simply "selling food above cost", like every deli and diner in the country does? Or is the article instead suggesting that they were profitable after all logistics costs?
- EwanToo 11y ago
  I'm pretty sure you are, that's serious bubble talk "But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?
  - stult 11y ago
    Reminds me of that famous Marion Berry quote, "If you take out the killings, Washington [DC] actually has a very very low crime rate."
    - JoeAltmaier 11y ago
      Maybe its criminals being killed?!
  - ska 11y ago
    No, it is pretty bog-standard analysis. Over the long term, this is necessary but not sufficient to build a business line that makes sense. You also have to control all the other costs... which can be difficult if your business model requires large scale growth.
- marrone12 11y ago
  The former. The logistics/overhead costs were what damned them.
  - TheOtherHobbes 11y ago
    Just as well they worked that out after burning through only $13.5M in funding, and not after the IPO.
    - driverdan 11y ago
      Only?
      - Fomite 11y ago
        Seriously. I could run my lab for years on 13 million.
- untog 11y ago
  "contribution margin positive" ought to win a creative writing award.
  - eldavido 11y ago
    Actually, this is standard finance terminology for "if I add X revenue to the business, how much flows to free cash flow" - what we can reinvest/pay back to shareholders. I, for one, am surprised they shut it down if they in fact had achieved positive contribution margin. Probably just couldn't tell a good enough story for how they'd grow, and demonstrate good upside, for new money in, given all the preferences/dilution/creditors already in their capital stack.
    - deleted 11y ago
      [deleted]
    - tptacek 11y ago
      Are you suggesting that my read was incorrect, and that they are cash flow positive after not just food costs but logistics as well?
      - goodJobWalrus 11y ago
        From wikipedia: >> Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it. But then, why do they need to shut down? It looks like their def on "contribution margin positive" is something else after all. https://en.wikipedia.org/wiki/Contribution_margin https://en.wikipedia.org/wiki/Contribution_margin
        dsp1234 11y ago
        Fixed no, variable yes (or else they would just be profitable). An explanation with an example can be found here[0]. But let's throw out some easy (but completely false numbers). Assume: The fixed cost for the entire operation for one month is $1000. The operation makes 1000 widgets in one month. A widget can be sold for $2. Analysis: If the company sells all 1000 widgets that it made in a month, then it will have revenue of $2000. If each widget had no variable costs, then each widget sold 'contributes' $2 to paying off the fixed costs of the company. $2 is greater than zero, so the company has a positive contribution margin. Take the same assumptions as listed above, but the variable costs for each widget is $3. If the company sells all 1000 widgets, then it will have a revenue of $2000. However, each sale of the widget contributes -$1 towards the fixed costs of the company. Thus the company has a negative contribution margin. So the first situation boils down to "we sold a widget for more than it costs to make", and the second situation boils down to "we sold a widget for less than it costs to make". Where "costs to make" includes just the variable costs. Which is what the article implies, "SpoonRocket had reached a positive contribution margin — it was selling meals for more than it cost to cook them." Note also having a positive contribution margin also doesn't mean the company will ever realistically be profitable. Imagine a scenario where the fixed costs are $100.000 per month, and the contribution margin of each widget was $0.01 (ex: variable costs per widget $9.99, sale price $10). Each widget has a positive contribution margin, but the company would need to sell 10.000.000 per month to actually cover the fixed costs and become profitable. Edit: had fixed/variable backwards on the first line. [0] - http://www.accountingcoach.com/break-even-point/explanation/2 http://www.accountingcoach.com/break-even-point/explanation/...
- philfrasty 11y ago
  I would guess that the customer-acquisition costs alone are way higher than the food itself...
- anexprogrammer 11y ago
  Ignoring the app, and disruptive gimmick, I have to wonder what your average diner could have achieved with $13.5m in funding. You could build a small, well branded chain. Probably selling food above cost to boot! :)
  - wmeredith 11y ago
    AH, but you couldn't get any investors for that.
    - pc86 11y ago
      You could absolutely get investors. Just not any VCs.
      - tptacek 11y ago
        In fairness, that's because VCs can't really make money investing in companies like those.
        jedrek 11y ago
        In fairness, that's because VC culture is a parasite on normal society.
        bdcravens 11y ago
        Are they really? The high failure, high return model has allowed many programmers (and others within VC-backed companies) to have employment that wouldn't otherwise exist. I'm happy to be outside of SV, doing well in a 100% bootstrapped company, but I think VC culture has had the opposite effect of a parasite (or at worst, I'd call it a symbiote)
        bazqux2 11y ago
        Yes, in many many ways. They are money losers. It only looks like they are not because of a temporary bubble. This bubble is popping and their losses are becoming clearer. There are many that will personally make money despite running a fund that loses money. Their culture is steeped in groupthink. Which by definition results in malinvestment and destruction of wealth. This wealth comes from pensioners who can't get sufficient returns from lower risk investments. At some point pension funds and pensioners are going to run out of money which will be bad. Specifically for bootstrapped companies. VCs increase the input cost; labor and rent etc. And they subsidies competitors. E.g. Customers who would normally pay you for services get it free from a VC funded startup. Then VCs run out of money and competitor goes bust. This induces boom and bust cycles that mask steady improvements with hype. This hurts the market. Programmers would be much better of with a steady market where there is a discoverable market value for their work.
- anniecarvl 11y ago
  I find it strange when companies use this terminology: "We were exploring different strategic options, but deals fell through last minute." Of course deals fall trough last minute. It's not like they would fall through a few months in advance.
  - mikeash 11y ago
    Why not? Deals can easily fall through in early stages. "Last minute" basically means the details were pretty much hammered out, everybody was just about ready to sign, then something happened to scuttle it.
    - BWStearns 11y ago
      I think he was suggesting that when something falls apart it's always at the last minute for that something. Kind of like how you always find something in the last place you look. I guess it's kind of accurate since you wouldn't describe an early stage deal as having "fell through".
      - mikeash 11y ago
        That doesn't make any sense. If the deal falls through in the middle of negotiations, you would never describe that as "at the last minute" even though it turned out to literally be the last minute for that particular deal. That phrase means "right before we would have completed the deal," not "right before we stopped."
        BWStearns 11y ago
        Sorry, I wasn't intending to say it was correct, only that I think it's the only way to read what he wrote as internally consistent.
- tyre 11y ago
  It appears they were still at the "do things that don't scale" stage. Every company goes through this, even a diner. Why it took $13+ million to get there, though, is the real question. Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).
- deleted 11y ago
  [deleted]
- pbreit 11y ago
  "All logistics costs" being delivery? That does sound like what they are suggesting.
- mathattack 11y ago
  Yes - I assume there is some cooking labor and other items (electricity) factored in. So yes, they're on par with the deli. :-) With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs" What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.
- Fomite 11y ago
  Those are "lifestyle businesses", this is a "startup". They're different, because reasons...
  - Laforet 11y ago
    Most non-fastfood resturants actually price their food at or near cost after the overheads are factored in. Profit actually came from (overpriced) beverages and drinks. If a startup is to compete with them there is no way for them to make much money.
    - Fomite 11y ago
      "If a startup is to compete with them there is no way for them to make much money." Selling overpriced drinks? If a startup is in an area where "there is no way for them to make much money" then what the hell are they doing there?
      - Laforet 11y ago
        The line of thought was probably that they may reach a scale that can overcome these overheads since they don't have to pay rent or hire full time staff for every outlet. It makes sense if you consider very early examples like Amazon which took more than 10 years to become profitable. Unicorns like Twitter and Dropbox are not profitable and are unlikely to become so in the near future, but they have reached a scale that their finances are relatively secure for now.
- ruddct 11y ago
  Reminds me of recent Instacart news. http://www.bloomberg.com/news/articles/2016-03-11/instacart-gets-red-bull-and-doritos-to-pay-your-delivery-fees http://www.bloomberg.com/news/articles/2016-03-11/instacart-... Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..." In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area). Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.
  - JoeAltmaier 11y ago
    That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fixed costs. Most startups are actually looking for that magic formula. They spend spend spend until they find it, then scale scale scale to become a profitable business as a whole.
    - timr 11y ago
      Doesn't look like a misquote to me. And while, yes, unit economics are a thing, there can be a huge gap between being unit profitable and profitable as an organization. A bunch of delivery companies flew into the ground during the first crash under the same circumstances (including a few grocery delivery companies). If you're running a company with 500 employees an a big office in San Francisco (where employees average ~$100k a year, fully loaded), and each of your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously low net margin for the grocery industry, even in logistically optimal scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) / .5 = 100 million sales a year just to break even. AKA, $5 billion a year revenue run rate. So then you say: "OK, we'll just cut some of those expensive SF people, and we'll bring the curves closer together!" And that could happen. Or you could discover that getting those margins was only possible with X million sales a year, and getting those requires at least 500 employees to run operations without dropping the ball. And then your investors stop throwing money at you, because the business economics look scary, and the funding climate has changed. And then you die. Again, this is not a made-up story. When huge investors get involved in land-grab businesses before they're profitable, they're all betting that their horse will be the next Amazon. But there's only one Amazon. And even Amazon isn't that profitable. And Amazon started by competing in a high-margin industry.
- patio11 11y ago
  "Positive unit economics; couldn't cover engineering salaries, marketing, or G&A" is how I'd read that. This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders. Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order. If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)
  - deleted 11y ago
    [deleted]
  - ssharp 11y ago
    That's the way I read it as well. They were selling food for more than it cost them make/buy it and deliver it, but not enough to cover all other expenses. Under sane conditions, I'd presume this is the type of company that could get money, either through debt or equity. The business model works, it just needs scaled. However, that also assumes scaling the business does not also scale those other expenses at a ratio well below 1. If the ratio is closer to 1, it's a bit dubious to not count those towards the unit costs. Maybe the Uber playbook shouldn't be used for every on-demand service or maybe it would be smart for on-demand services to offer a non-commodity product so their success is a lower bar than shooting the moon.
- abrookewood 11y ago
  There are lots of startups that expect to lose money for a lengthy period of time while they attempt to capture the market or grow to a sufficient scale that their business becomes profitable. In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.
- foobar1962 11y ago
  Good. It's not just me that reads this stuff and constantly wonders at the the complete lack of reason in Silicon Valley. (silly con?)
autotune 11y ago
SpoonRocket actually had the most decent meals I'd seen out of any of the healthy food delivery apps and the most options. Just discovered it a week or two ago and this news is incredibly dissapointing.
- JoeAltmaier 11y ago
  Not a uniform experience. From the OP "I ordered SpoonRocket a few times soon after launch. However, I and other customers I spoke to found the meats to be sketchy and the whole meals to be somewhat gross. I ended up switching to SpoonRocket’s more expensive and slower competitor Sprig." Have you tried Sprig?
  - ssunstruck 11y ago
    Sprig's price is usually in the $11-14 range while SpoonRocket was a bit lower at $7-11. The extra money is definitely noticeable.
- azinman2 11y ago
  They had essentially the same stuff everyday, all of it super heavy and NOT healthy. What other competitors are you even referencing?
  - autotune 11y ago
    Sprig (pricey + limited selection), Bento (very limited selection), HealthyOut (super generic and not enough relavent results), Thistle (very limited selection).
    - azinman2 11y ago
      Sprig's food is way better than spoonrocket, so at least their cost is justified. For SF, it's pretty normal pricing. Bento is meh, but munchery probably is the highest quality (and most expensive) of all. Hadn't heard of healthyout or thistle until now, but they don't seem to be on-demand food services?
smeyer 11y ago
Was SpoonRocket still having issues with the National Labor Relations Board or were those resolved?
mbesto 11y ago
Well, this sucks, I've been really enjoying my VC-subsidized services.
- imperialdrive 11y ago
  Dude, tell me about it, I was a VIP with them, and ordered almost every single day due to a busy schedule, they would show up within minutes... the meatloaf stack, the enchiladas, the pasta, I always enjoyed it except for a couple times in all. RIP I will miss you Spoonrocket! Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...
  - azinman2 11y ago
    Their food was largely gross and very unhealthy. Mac and cheese daily, often with ranch and/or bacon?! And that Korean dish? I don't know where all they were located, but it felt more appropriate for dorm delivery than SF. Where's the kale man?!
    - ttam 11y ago
      I don't agree that their food was "largely gross and very unhealthy" - mac & cheese was just one of the options, they always had 2-3 other nicer options I was a user since 2013 and enjoyed their stuff, too bad it's gone wonder if sprig's gonna survive..
      - azinman2 11y ago
        Ya like meatloaf, ribs, burritos, etc. Everything was 700 calories+++
        imperialdrive 11y ago
Splines 11y ago
I'm not an on-demand-food customer because the economics don't make sense to me. I either bring leftovers from dinner to work (I just have extra from dinner and spend an extra minute packing it the night before) or snag something from my work's decent cafeteria. And yet, I still see food deliver signs at my work and see coworkers utilizing them. What's the deal? ROI for food delivery seems ridiculously low in comparison to other options. I don't want to sound like a curmudgeon but it seems quite wasteful.
- geofft 11y ago
  It makes a lot more sense if you don't make dinner, which I think is pretty common. (The ROI on that life decision is also ridiculously low.)
  - morgante 11y ago
    > The ROI on that life decision is also ridiculously low. How are you figuring the ROI? If you're not factoring in opportunity cost, then you're not even considering it as an investment. I make well over $100/hr doing contracting work. I can get a good meal delivered for $15. I highly doubt I could cook a decent meal in 9 minutes, and that's assuming ingredients and training are free (time and cost-wise).
    - raverbashing 11y ago
      $100 pre-tax right? Also, it may take 10 min but it won't require 10 minutes of unbound attention On a personal note cooking dinner is just relaxing, it's good to get off the screen sometimes
      - morgante 11y ago
        > $100 pre-tax right? Yes, but that's just a baseline. Even if you knock it down to $60, that doesn't change the overall result, especially when you consider the additional cost of groceries. If you derive utility from cooking dinner, that's fine! I totally respect making individual choices which increase your utility. It's just the attitude that those of us who don't cook (and don't like cooking) are being economically irrational that annoys me.
rco8786 11y ago
And so it begins
nemo44x 11y ago
Cheap meals with low quality ingredients sitting in a warm box being driven around all day in some random persons car didn't appeal to people?
- jamesjyu 11y ago
  Sprig's ingredients are actually quite high quality and delicious.
  - timdorr 11y ago
    Which is probably why their volume is 6x Spoonrocket's.
    - ttam 11y ago
      can you show us something to back this statement? I'm really curious
      - mcintyre1994 11y ago
        From the article: "Sprig had looked into acquiring SpoonRocket, but decided against it and is now doing 6X the meal volume SpoonRocket did in SF."
        ttam 11y ago
        Right, in SF, which is different from 6x overall volume. SpoonRocket also served the East Bay, which Sprig doesn't. Sprig also serves Palo Alto and Chicago, which SpoonRocket doesn't.
    - mcintyre1994 11y ago
      Edit: Meant to reply to a child comment, sorry!
- minimaxir 11y ago
  No, that's not it. As mentioned in the article, Sprig is still making sales. How long it can survive at current unit economics is a different story.
willchen 11y ago
As someone who's ordered from spoon rocket dozens of times over the past two years, I'm definitely sad to see it go. A quick timeline (from what I can remember): - Initially started out in Berkeley / Emeryville area by a couple of Berkeley alumni who had previously launched a food delivery startup focused on midnight munchies (aka, unhealthy food for college-type students). Each meal was initially only $6, tasted quite good, and delivery only took ~15 minutes. - Expanded to Oakland area (first Downtown, then eventually other areas like Lake Merritt). Meals were still only $6, taste was usually good but sometimes wasn't as good. Delivery was still fairly fast (usually <15 minutes), but could take up to 30 minutes. - Expanded to SF. Meals became more expensive and had variable pricing (I think it was first $8, $10, then $12, depending on which dish). A delivery fee ($2.50) was created. Food quality dropped (usually was OK, but not as good as it used to be); meals could take up to 1hr to get delivered (usually under <30 min though) - Started their elite food delivery plans which provided free meal delivery and a bit of extra credit, by agreeing to pay upfront each month (e.g. $20). Thoughts: - From a business perspective, I think SpoonRocket (SR) made a lot of the right moves. While a lot of people say "disruptive innovation" loosely right now, I think SR actually did it by: 1) focusing on a low-end market that wasn't well addressed (e.g. college students), 2) used a technology to rapidly improve the experience for this low-end market (e.g. using Google Maps to efficiently route drivers to deliver on-demand meals), and 3) go upstream in the market to gain market share in higher-end consumer segments. - So why did SR fail? I'm speculating here, but I think it's because scaling all these type of on-delivery startups is really, really hard work. Unlike Google or Facebook which could effortlessly scale up across the world with its technology-heavy solution, scaling up a company like SR requires hiring a linear amount of employees like drivers and support staff. As others have noted, it's difficult to get the economics right for an inherently low-margin business with a high labor component. - Can other food startups succeed? I'm willing to bet most food startups probably won't survive this fundraising crunch if it extends another year. As far as I could tell, SR was ran as a very lean operation where they tried to batch deliveries, produce a small set of meals in large quantities, and focused on efficiency (e.g. calling you two minutes ahead of time to minimize delivery driver's waiting time). If SR couldn't make the economics work, I'm not sure how others could. Perhaps by going more high-end than SR, and charging a higher price (a la Munchery) or is it perhaps by selling a lot more quantity? - Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc. Of course the economics would be challenging like any food business, but that's the kind of service that I could see myself regularly using. There's also the regulatory side (after all Airbnb itself has followed the policy of 'asked for forgiveness, rather than permission') Who doesn't like the sound of buying a home cooked meal from a neighbor?
searine 11y ago
Wait, so what made these people think they could beat seamless?
vkou 11y ago
SpoonRocket was an "on-demand pre-made meal delivery service"? So... Like the pizza place down the street?
- calbear81 11y ago
  It was like the pizza place down the street if the pizza place made all their pizzas in the morning, put the into a truck and drove it around all day until they were delivered. Enjoy the pizza!
  - vkou 11y ago
    Well... That's a viable business model, if you want to run a family pizza shop, and have a 50% chance of going out of business in two years. I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.
    - calbear81 11y ago
      I can see how these businesses rationalize short term losses with a bet on a long term play that consists of one of the following outcomes: 1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives). 2) Economies of Scale - In many businesses, the marginal cost does go down once you scale up significantly. They probably expected to cut the cost of food production significantly with volume pricing on raw materials and perhaps more automation of the cooking processes. I think all of these services understand that this is a low margin business so you have to make up for it in high volume and short term losses are acceptable if you will win out eventually and increase the margins.
      - vkou 11y ago
        I have a hard time seeing how you can get a monopoly on restaurant food/fast food. There are few barriers to small-scale competition, and it's very easy for your competitors to differentiate their offerings. If McDonalds were to buy up every competing fast-food franchise in an area overnight, it'd be just a matter of time before somebody would open a Kurger Bing across the street. Speaking of economies of scale, those are the kinds of economies of scale you need to compete with to make it big. You need to own half of your supply chain - which seems to be an anathema to VC-funded businesses. A better question to ask is: Why aren't established food franchises, who own their logistics networks, and can compete on price, not interested in getting into this game? Perhaps they are all missing the forest through the trees - or perhaps food delivery-as-your-core-business is a race to unprofitability. Now, if you do think that they are missing the forest through the trees, why not have your startup aim for a partnership with Subway, where they handle the food, and you handle the distribution?
Bjorkbat 11y ago
The on-demand apocalypse? Well, knowing Techcrunch they're probably overreacting, but this is a prediction I can get behind. Maybe now VCs can invest in companies that don't rely on questionable labor tactics in order to deceive themselves and others into thinking that they're unicorns.
- boulos 11y ago
  A few months ago there was a lot of talk about "negative gross margin" businesses, particularly in delivery, going under: http://avc.com/2015/10/negative-gross-margins/ http://avc.com/2015/10/negative-gross-margins/ .
- jonesb6 11y ago
  As a middle class person I signed up to two subscription services the other day. This is on top of my netflix, A-Prime and other common subscriptions. I realize they might not qualify to "on-demand services" 1:1 but seeing as the customer demographic is pretty much the same I believe on-demand services will always be viable as long as people demand things. And my god do some people demand things. One start-up is an insignificant sample size.
jstoiko 11y ago
meanwhile: http://techcrunch.com/2016/03/15/ubereats-standalone-food-delivery-app-launches-in-its-first-u-s-cities/ http://techcrunch.com/2016/03/15/ubereats-standalone-food-de...
tommynicholas 11y ago
One of the non-breakout members of the on demand food delivery space dies as capital consolidates towards winners and we're in for an apocalypse? We VERY well may be in for one but I don't think this is a strong sign of that.
jarjoura 11y ago
Weird that the article didn't mention, Postmates already has reached critical mass with high quality on-demand delivery. For the 5 minute meals, UberEats is literally eating these small startups alive. Maybe Lyft will acquire Swig if they're not already cooking something up. :-D
nlh 11y ago
Sad to see any startup die, but this was not unexpected. I know I am but a tiny sample of the overall SF food market, but I'm squarely in the target demographic (work at home, don't like to go out to eat). I used SpoonRocket a few times, but entirely gave up on them after trying a few times. I love Sprig and order from the often. Here's why: * SpoonRocket's meals simply weren't healthy. A lot of the folks in this space (Sprig, Munchery, etc.) are really focused on healthy food. I can call the Chinese place down the block and have an unhealthy meal delivered, but there traditionally have been very few good healthy options other than cooking yourself. SpoonRocket's food was heavy, carb-y, greasy, and just not that good. * I know they had to do this for time efficiency/cost reasons, but the requirement that you meet the driver out at the curb was too big of a psychological barrier. I live/work in one of the (relatively rare, to be fair) SF highrises, but knowing that a SpoonRocket meal meant getting up, waiting for the elevator, going downstairs, meeting the driver, then going back upstairs - meant that I just never ordered from them (especially when Sprig will bring the meal right to my door.) This just goes to show that in an absolute sense -- these relatively small differences might not matter (i.e. of course I'd rather go downstairs to pick up food vs. walk to a restaurant for lunch), but in the highly competitive environment where easier and healthier alternatives exist, their offering was unsustainable.
- free2rhyme214 11y ago
  Excellent points. Honestly it's the founders fault why this happened. They ignored these obvious signs and shouldn't be surprised. It's easy to order unhealthy food. It's a pain to make healthy food. Ironically UberEATS launched officially today.
  - gk1 11y ago
    It's also easy to see all the issues in hindsight. Perhaps at the time they thought there's a market for less-healthy-but-cheaper food, and perhaps they were right and messed up the execution...
  - jonesb6 11y ago
    Founders are responsible for the business, you are right. You were probably down-voted by a "founder" who become unhappy at that thought. Source: I'm a co-founder, if my business fails it's my fucking fault.
nickporter 11y ago
Damn, I will miss those breakfast burritos. These guys had some great food and the service was incredibly fast. Bummer!
11thEarlOfMar 11y ago
Makes me wonder about Gobble. We've used it a couple of times and the food is awesome. Healthy, attractive. Very much enjoyed it. But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.
- yishanl 11y ago
  Isn't one of Gobble's selling point is that it's super cheap? like $10/person? I remember seeing that as their main homepage jumbotron, which seemed to successfully target and reassure their audience of parents who wanted to know how much it'd cost to feed a family of X.
free2rhyme214 11y ago
Ironically UberEATS launched today. The founders have no one to blame but themselves.
- bdcravens 11y ago
  The standalone app perhaps, but it's been available in many places for a while.
mmanfrin 11y ago
I think part of their problem is that they hammered downward with the food quality in an effort to cut costs, rather than raising rates. People who are using these on-demand food delivery services wouldn't mind a couple extra dollars if it meant that the food was of good quality. SpoonRocket's food was abysmal; it satisfied the occasional need for shitty-hangover-food, but that's not sustainable (for them or for my gut).
- swang 11y ago
  When they started they were cheap meals under $10 out in Berkeley or Oakland (I forget), and they did raise prices after they started expanding into SF. The problem was most of their customers were use to the lower price point of the service.
S_A_P 11y ago
Why would a business like this get funding and ultimately be viewed differently than any other restaurant? It looks like the pizza delivery model to me, so why is the funding so much higher?(serious question)
- majani 11y ago
  reminds me of the time in the 90s when literally just adding .com to a company's name and having a website made its valuation jump
- jonnathanson 11y ago
  Because there has been a mini-bubble in the "on-demand economy," a.k.a., delivery businesses. Investors are highly subject to groupthink and trend chasing. When one or more companies start to take off in the same space, a category is (theoretically) born. And then everyone wants exposure to the category. Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical). All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.
chad_strategic 11y ago
Accounting 101: (No matter if it is 1900, 1950, 1999, or 2015) Revenue -Cost of Goods (food, in this case) = Gross Profit Gross Profit -Sales & General, Administrative = Net profit (SG&A = office space, Webdev, logistics, etc...) I'm sorry, but anything else is just plan BS.
- JonFish85 11y ago
  Half-kidding, but where is "growth" in your calculations? A big reason why companies discount their "fixed costs" (e.g. full-time employees' salaries, rent, etc) is because if they can get a marginal profit on their goods, then it's a matter of "making it up in volume". A company can still be losing a tremendous amount of money but have a bright future (I think this is what Amazon did for years): if you're making $0.50 per item, but have $1b of overhead costs, it very well might be possible to get to a profit, it just means you have to move a LOT of items.
  - chad_strategic 10y ago
    Yes, I suspect Amazon has razor thin margins, so does Walmart and Supermarkets, but they can make it up on volume. SpoonRocket... I suspect there is limited volume based on their market. (not everybody want's food delivered, people still like to go out every once and a while...)
choward 11y ago
They sound like these guys who I am afraid are going to end up the same way: https://foodjets.com/ https://foodjets.com/ They only operate in Sacramento. The main things I liked are that it takes usually under 10 minutes and there was no tipping or delivery fee. The price you saw is what you paid. However, they just added tipping to their app which isn't a good sign. On top of that, it asks you to tip before you even get your food and there is no option to tip later that I know of. I haven't ordered from them since I was first prompted to tip. Older article that discusses them: http://www.bizjournals.com/sacramento/news/2015/10/30/what-separates-foodjets-from-other-delivery.html http://www.bizjournals.com/sacramento/news/2015/10/30/what-s...
- Naritai 11y ago
  Is the delivery person aware of whether you tipped before the delivery even occurs? If so, I will never use their app.
stephenitis 11y ago
The free "VC funded" meal has ended. Time to whip out my free Chipotle burrito coupons.

176 points by tomgallard 11y ago

The company had actually reached contribution margin positive — it was selling meals for more than it cost to cook them. But due to other costs and the frosty fundraising climate, wasn’t able to get the money it needed to continue operating. Am I reading this correctly, and the business metric this company managed to achieve is simply "selling food above cost", like every deli and diner in the country does? Or is the article instead suggesting that they were profitable after all logistics costs?

EwanToo 11y ago
I'm pretty sure you are, that's serious bubble talk "But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?
- stult 11y ago
  Reminds me of that famous Marion Berry quote, "If you take out the killings, Washington [DC] actually has a very very low crime rate."
  - JoeAltmaier 11y ago
    Maybe its criminals being killed?!
- ska 11y ago
  No, it is pretty bog-standard analysis. Over the long term, this is necessary but not sufficient to build a business line that makes sense. You also have to control all the other costs... which can be difficult if your business model requires large scale growth.
marrone12 11y ago
The former. The logistics/overhead costs were what damned them.
- TheOtherHobbes 11y ago
  Just as well they worked that out after burning through only $13.5M in funding, and not after the IPO.
  - driverdan 11y ago
    Only?
    - Fomite 11y ago
      Seriously. I could run my lab for years on 13 million.
untog 11y ago
"contribution margin positive" ought to win a creative writing award.
- eldavido 11y ago
  Actually, this is standard finance terminology for "if I add X revenue to the business, how much flows to free cash flow" - what we can reinvest/pay back to shareholders. I, for one, am surprised they shut it down if they in fact had achieved positive contribution margin. Probably just couldn't tell a good enough story for how they'd grow, and demonstrate good upside, for new money in, given all the preferences/dilution/creditors already in their capital stack.
  - deleted 11y ago
    [deleted]
  - tptacek 11y ago
    Are you suggesting that my read was incorrect, and that they are cash flow positive after not just food costs but logistics as well?
    - goodJobWalrus 11y ago
      From wikipedia: >> Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it. But then, why do they need to shut down? It looks like their def on "contribution margin positive" is something else after all. https://en.wikipedia.org/wiki/Contribution_margin https://en.wikipedia.org/wiki/Contribution_margin
      - dsp1234 11y ago
        Fixed no, variable yes (or else they would just be profitable). An explanation with an example can be found here[0]. But let's throw out some easy (but completely false numbers). Assume: The fixed cost for the entire operation for one month is $1000. The operation makes 1000 widgets in one month. A widget can be sold for $2. Analysis: If the company sells all 1000 widgets that it made in a month, then it will have revenue of $2000. If each widget had no variable costs, then each widget sold 'contributes' $2 to paying off the fixed costs of the company. $2 is greater than zero, so the company has a positive contribution margin. Take the same assumptions as listed above, but the variable costs for each widget is $3. If the company sells all 1000 widgets, then it will have a revenue of $2000. However, each sale of the widget contributes -$1 towards the fixed costs of the company. Thus the company has a negative contribution margin. So the first situation boils down to "we sold a widget for more than it costs to make", and the second situation boils down to "we sold a widget for less than it costs to make". Where "costs to make" includes just the variable costs. Which is what the article implies, "SpoonRocket had reached a positive contribution margin — it was selling meals for more than it cost to cook them." Note also having a positive contribution margin also doesn't mean the company will ever realistically be profitable. Imagine a scenario where the fixed costs are $100.000 per month, and the contribution margin of each widget was $0.01 (ex: variable costs per widget $9.99, sale price $10). Each widget has a positive contribution margin, but the company would need to sell 10.000.000 per month to actually cover the fixed costs and become profitable. Edit: had fixed/variable backwards on the first line. [0] - http://www.accountingcoach.com/break-even-point/explanation/2 http://www.accountingcoach.com/break-even-point/explanation/...
philfrasty 11y ago
I would guess that the customer-acquisition costs alone are way higher than the food itself...
anexprogrammer 11y ago
Ignoring the app, and disruptive gimmick, I have to wonder what your average diner could have achieved with $13.5m in funding. You could build a small, well branded chain. Probably selling food above cost to boot! :)
- wmeredith 11y ago
  AH, but you couldn't get any investors for that.
  - pc86 11y ago
    You could absolutely get investors. Just not any VCs.
    - tptacek 11y ago
      In fairness, that's because VCs can't really make money investing in companies like those.
      - jedrek 11y ago
        In fairness, that's because VC culture is a parasite on normal society.
        bdcravens 11y ago
        Are they really? The high failure, high return model has allowed many programmers (and others within VC-backed companies) to have employment that wouldn't otherwise exist. I'm happy to be outside of SV, doing well in a 100% bootstrapped company, but I think VC culture has had the opposite effect of a parasite (or at worst, I'd call it a symbiote)
        bazqux2 11y ago
        Yes, in many many ways. They are money losers. It only looks like they are not because of a temporary bubble. This bubble is popping and their losses are becoming clearer. There are many that will personally make money despite running a fund that loses money. Their culture is steeped in groupthink. Which by definition results in malinvestment and destruction of wealth. This wealth comes from pensioners who can't get sufficient returns from lower risk investments. At some point pension funds and pensioners are going to run out of money which will be bad. Specifically for bootstrapped companies. VCs increase the input cost; labor and rent etc. And they subsidies competitors. E.g. Customers who would normally pay you for services get it free from a VC funded startup. Then VCs run out of money and competitor goes bust. This induces boom and bust cycles that mask steady improvements with hype. This hurts the market. Programmers would be much better of with a steady market where there is a discoverable market value for their work.
anniecarvl 11y ago
I find it strange when companies use this terminology: "We were exploring different strategic options, but deals fell through last minute." Of course deals fall trough last minute. It's not like they would fall through a few months in advance.
- mikeash 11y ago
  Why not? Deals can easily fall through in early stages. "Last minute" basically means the details were pretty much hammered out, everybody was just about ready to sign, then something happened to scuttle it.
  - BWStearns 11y ago
    I think he was suggesting that when something falls apart it's always at the last minute for that something. Kind of like how you always find something in the last place you look. I guess it's kind of accurate since you wouldn't describe an early stage deal as having "fell through".
    - mikeash 11y ago
      That doesn't make any sense. If the deal falls through in the middle of negotiations, you would never describe that as "at the last minute" even though it turned out to literally be the last minute for that particular deal. That phrase means "right before we would have completed the deal," not "right before we stopped."
      - BWStearns 11y ago
        Sorry, I wasn't intending to say it was correct, only that I think it's the only way to read what he wrote as internally consistent.
tyre 11y ago
It appears they were still at the "do things that don't scale" stage. Every company goes through this, even a diner. Why it took $13+ million to get there, though, is the real question. Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).
deleted 11y ago
[deleted]
pbreit 11y ago
"All logistics costs" being delivery? That does sound like what they are suggesting.
mathattack 11y ago
Yes - I assume there is some cooking labor and other items (electricity) factored in. So yes, they're on par with the deli. :-) With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs" What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.
Fomite 11y ago
Those are "lifestyle businesses", this is a "startup". They're different, because reasons...
- Laforet 11y ago
  Most non-fastfood resturants actually price their food at or near cost after the overheads are factored in. Profit actually came from (overpriced) beverages and drinks. If a startup is to compete with them there is no way for them to make much money.
  - Fomite 11y ago
    "If a startup is to compete with them there is no way for them to make much money." Selling overpriced drinks? If a startup is in an area where "there is no way for them to make much money" then what the hell are they doing there?
    - Laforet 11y ago
      The line of thought was probably that they may reach a scale that can overcome these overheads since they don't have to pay rent or hire full time staff for every outlet. It makes sense if you consider very early examples like Amazon which took more than 10 years to become profitable. Unicorns like Twitter and Dropbox are not profitable and are unlikely to become so in the near future, but they have reached a scale that their finances are relatively secure for now.
ruddct 11y ago
Reminds me of recent Instacart news. http://www.bloomberg.com/news/articles/2016-03-11/instacart-gets-red-bull-and-doritos-to-pay-your-delivery-fees http://www.bloomberg.com/news/articles/2016-03-11/instacart-... Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..." In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area). Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.
- JoeAltmaier 11y ago
  That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fixed costs. Most startups are actually looking for that magic formula. They spend spend spend until they find it, then scale scale scale to become a profitable business as a whole.
  - timr 11y ago
    Doesn't look like a misquote to me. And while, yes, unit economics are a thing, there can be a huge gap between being unit profitable and profitable as an organization. A bunch of delivery companies flew into the ground during the first crash under the same circumstances (including a few grocery delivery companies). If you're running a company with 500 employees an a big office in San Francisco (where employees average ~$100k a year, fully loaded), and each of your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously low net margin for the grocery industry, even in logistically optimal scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) / .5 = 100 million sales a year just to break even. AKA, $5 billion a year revenue run rate. So then you say: "OK, we'll just cut some of those expensive SF people, and we'll bring the curves closer together!" And that could happen. Or you could discover that getting those margins was only possible with X million sales a year, and getting those requires at least 500 employees to run operations without dropping the ball. And then your investors stop throwing money at you, because the business economics look scary, and the funding climate has changed. And then you die. Again, this is not a made-up story. When huge investors get involved in land-grab businesses before they're profitable, they're all betting that their horse will be the next Amazon. But there's only one Amazon. And even Amazon isn't that profitable. And Amazon started by competing in a high-margin industry.
patio11 11y ago
"Positive unit economics; couldn't cover engineering salaries, marketing, or G&A" is how I'd read that. This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders. Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order. If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)
- deleted 11y ago
  [deleted]
- ssharp 11y ago
  That's the way I read it as well. They were selling food for more than it cost them make/buy it and deliver it, but not enough to cover all other expenses. Under sane conditions, I'd presume this is the type of company that could get money, either through debt or equity. The business model works, it just needs scaled. However, that also assumes scaling the business does not also scale those other expenses at a ratio well below 1. If the ratio is closer to 1, it's a bit dubious to not count those towards the unit costs. Maybe the Uber playbook shouldn't be used for every on-demand service or maybe it would be smart for on-demand services to offer a non-commodity product so their success is a lower bar than shooting the moon.
abrookewood 11y ago
There are lots of startups that expect to lose money for a lengthy period of time while they attempt to capture the market or grow to a sufficient scale that their business becomes profitable. In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.
foobar1962 11y ago
Good. It's not just me that reads this stuff and constantly wonders at the the complete lack of reason in Silicon Valley. (silly con?)

autotune 11y ago

SpoonRocket actually had the most decent meals I'd seen out of any of the healthy food delivery apps and the most options. Just discovered it a week or two ago and this news is incredibly dissapointing.

JoeAltmaier 11y ago
Not a uniform experience. From the OP "I ordered SpoonRocket a few times soon after launch. However, I and other customers I spoke to found the meats to be sketchy and the whole meals to be somewhat gross. I ended up switching to SpoonRocket’s more expensive and slower competitor Sprig." Have you tried Sprig?
- ssunstruck 11y ago
  Sprig's price is usually in the $11-14 range while SpoonRocket was a bit lower at $7-11. The extra money is definitely noticeable.
azinman2 11y ago
They had essentially the same stuff everyday, all of it super heavy and NOT healthy. What other competitors are you even referencing?
- autotune 11y ago
  Sprig (pricey + limited selection), Bento (very limited selection), HealthyOut (super generic and not enough relavent results), Thistle (very limited selection).
  - azinman2 11y ago
    Sprig's food is way better than spoonrocket, so at least their cost is justified. For SF, it's pretty normal pricing. Bento is meh, but munchery probably is the highest quality (and most expensive) of all. Hadn't heard of healthyout or thistle until now, but they don't seem to be on-demand food services?

smeyer 11y ago

Was SpoonRocket still having issues with the National Labor Relations Board or were those resolved?

mbesto 11y ago

Well, this sucks, I've been really enjoying my VC-subsidized services.

imperialdrive 11y ago
Dude, tell me about it, I was a VIP with them, and ordered almost every single day due to a busy schedule, they would show up within minutes... the meatloaf stack, the enchiladas, the pasta, I always enjoyed it except for a couple times in all. RIP I will miss you Spoonrocket! Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...
- azinman2 11y ago
  Their food was largely gross and very unhealthy. Mac and cheese daily, often with ranch and/or bacon?! And that Korean dish? I don't know where all they were located, but it felt more appropriate for dorm delivery than SF. Where's the kale man?!
  - ttam 11y ago
    I don't agree that their food was "largely gross and very unhealthy" - mac & cheese was just one of the options, they always had 2-3 other nicer options I was a user since 2013 and enjoyed their stuff, too bad it's gone wonder if sprig's gonna survive..
    - azinman2 11y ago
      Ya like meatloaf, ribs, burritos, etc. Everything was 700 calories+++
      - imperialdrive 11y ago

Splines 11y ago

I'm not an on-demand-food customer because the economics don't make sense to me. I either bring leftovers from dinner to work (I just have extra from dinner and spend an extra minute packing it the night before) or snag something from my work's decent cafeteria. And yet, I still see food deliver signs at my work and see coworkers utilizing them. What's the deal? ROI for food delivery seems ridiculously low in comparison to other options. I don't want to sound like a curmudgeon but it seems quite wasteful.

geofft 11y ago
It makes a lot more sense if you don't make dinner, which I think is pretty common. (The ROI on that life decision is also ridiculously low.)
- morgante 11y ago
  > The ROI on that life decision is also ridiculously low. How are you figuring the ROI? If you're not factoring in opportunity cost, then you're not even considering it as an investment. I make well over $100/hr doing contracting work. I can get a good meal delivered for $15. I highly doubt I could cook a decent meal in 9 minutes, and that's assuming ingredients and training are free (time and cost-wise).
  - raverbashing 11y ago
    $100 pre-tax right? Also, it may take 10 min but it won't require 10 minutes of unbound attention On a personal note cooking dinner is just relaxing, it's good to get off the screen sometimes
    - morgante 11y ago
      > $100 pre-tax right? Yes, but that's just a baseline. Even if you knock it down to $60, that doesn't change the overall result, especially when you consider the additional cost of groceries. If you derive utility from cooking dinner, that's fine! I totally respect making individual choices which increase your utility. It's just the attitude that those of us who don't cook (and don't like cooking) are being economically irrational that annoys me.

rco8786 11y ago

And so it begins

nemo44x 11y ago

Cheap meals with low quality ingredients sitting in a warm box being driven around all day in some random persons car didn't appeal to people?

jamesjyu 11y ago
Sprig's ingredients are actually quite high quality and delicious.
- timdorr 11y ago
  Which is probably why their volume is 6x Spoonrocket's.
  - ttam 11y ago
    can you show us something to back this statement? I'm really curious
    - mcintyre1994 11y ago
      From the article: "Sprig had looked into acquiring SpoonRocket, but decided against it and is now doing 6X the meal volume SpoonRocket did in SF."
      - ttam 11y ago
        Right, in SF, which is different from 6x overall volume. SpoonRocket also served the East Bay, which Sprig doesn't. Sprig also serves Palo Alto and Chicago, which SpoonRocket doesn't.
  - mcintyre1994 11y ago
    Edit: Meant to reply to a child comment, sorry!
minimaxir 11y ago
No, that's not it. As mentioned in the article, Sprig is still making sales. How long it can survive at current unit economics is a different story.

willchen 11y ago

As someone who's ordered from spoon rocket dozens of times over the past two years, I'm definitely sad to see it go. A quick timeline (from what I can remember): - Initially started out in Berkeley / Emeryville area by a couple of Berkeley alumni who had previously launched a food delivery startup focused on midnight munchies (aka, unhealthy food for college-type students). Each meal was initially only $6, tasted quite good, and delivery only took ~15 minutes. - Expanded to Oakland area (first Downtown, then eventually other areas like Lake Merritt). Meals were still only $6, taste was usually good but sometimes wasn't as good. Delivery was still fairly fast (usually <15 minutes), but could take up to 30 minutes. - Expanded to SF. Meals became more expensive and had variable pricing (I think it was first $8, $10, then $12, depending on which dish). A delivery fee ($2.50) was created. Food quality dropped (usually was OK, but not as good as it used to be); meals could take up to 1hr to get delivered (usually under <30 min though) - Started their elite food delivery plans which provided free meal delivery and a bit of extra credit, by agreeing to pay upfront each month (e.g. $20). Thoughts: - From a business perspective, I think SpoonRocket (SR) made a lot of the right moves. While a lot of people say "disruptive innovation" loosely right now, I think SR actually did it by: 1) focusing on a low-end market that wasn't well addressed (e.g. college students), 2) used a technology to rapidly improve the experience for this low-end market (e.g. using Google Maps to efficiently route drivers to deliver on-demand meals), and 3) go upstream in the market to gain market share in higher-end consumer segments. - So why did SR fail? I'm speculating here, but I think it's because scaling all these type of on-delivery startups is really, really hard work. Unlike Google or Facebook which could effortlessly scale up across the world with its technology-heavy solution, scaling up a company like SR requires hiring a linear amount of employees like drivers and support staff. As others have noted, it's difficult to get the economics right for an inherently low-margin business with a high labor component. - Can other food startups succeed? I'm willing to bet most food startups probably won't survive this fundraising crunch if it extends another year. As far as I could tell, SR was ran as a very lean operation where they tried to batch deliveries, produce a small set of meals in large quantities, and focused on efficiency (e.g. calling you two minutes ahead of time to minimize delivery driver's waiting time). If SR couldn't make the economics work, I'm not sure how others could. Perhaps by going more high-end than SR, and charging a higher price (a la Munchery) or is it perhaps by selling a lot more quantity? - Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc. Of course the economics would be challenging like any food business, but that's the kind of service that I could see myself regularly using. There's also the regulatory side (after all Airbnb itself has followed the policy of 'asked for forgiveness, rather than permission') Who doesn't like the sound of buying a home cooked meal from a neighbor?

searine 11y ago

Wait, so what made these people think they could beat seamless?

vkou 11y ago

SpoonRocket was an "on-demand pre-made meal delivery service"? So... Like the pizza place down the street?

calbear81 11y ago
It was like the pizza place down the street if the pizza place made all their pizzas in the morning, put the into a truck and drove it around all day until they were delivered. Enjoy the pizza!
- vkou 11y ago
  Well... That's a viable business model, if you want to run a family pizza shop, and have a 50% chance of going out of business in two years. I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.
  - calbear81 11y ago
    I can see how these businesses rationalize short term losses with a bet on a long term play that consists of one of the following outcomes: 1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives). 2) Economies of Scale - In many businesses, the marginal cost does go down once you scale up significantly. They probably expected to cut the cost of food production significantly with volume pricing on raw materials and perhaps more automation of the cooking processes. I think all of these services understand that this is a low margin business so you have to make up for it in high volume and short term losses are acceptable if you will win out eventually and increase the margins.
    - vkou 11y ago
      I have a hard time seeing how you can get a monopoly on restaurant food/fast food. There are few barriers to small-scale competition, and it's very easy for your competitors to differentiate their offerings. If McDonalds were to buy up every competing fast-food franchise in an area overnight, it'd be just a matter of time before somebody would open a Kurger Bing across the street. Speaking of economies of scale, those are the kinds of economies of scale you need to compete with to make it big. You need to own half of your supply chain - which seems to be an anathema to VC-funded businesses. A better question to ask is: Why aren't established food franchises, who own their logistics networks, and can compete on price, not interested in getting into this game? Perhaps they are all missing the forest through the trees - or perhaps food delivery-as-your-core-business is a race to unprofitability. Now, if you do think that they are missing the forest through the trees, why not have your startup aim for a partnership with Subway, where they handle the food, and you handle the distribution?

Bjorkbat 11y ago

The on-demand apocalypse? Well, knowing Techcrunch they're probably overreacting, but this is a prediction I can get behind. Maybe now VCs can invest in companies that don't rely on questionable labor tactics in order to deceive themselves and others into thinking that they're unicorns.

boulos 11y ago
A few months ago there was a lot of talk about "negative gross margin" businesses, particularly in delivery, going under: http://avc.com/2015/10/negative-gross-margins/ http://avc.com/2015/10/negative-gross-margins/ .
jonesb6 11y ago
As a middle class person I signed up to two subscription services the other day. This is on top of my netflix, A-Prime and other common subscriptions. I realize they might not qualify to "on-demand services" 1:1 but seeing as the customer demographic is pretty much the same I believe on-demand services will always be viable as long as people demand things. And my god do some people demand things. One start-up is an insignificant sample size.

jstoiko 11y ago

meanwhile: http://techcrunch.com/2016/03/15/ubereats-standalone-food-delivery-app-launches-in-its-first-u-s-cities/ http://techcrunch.com/2016/03/15/ubereats-standalone-food-de...

tommynicholas 11y ago

One of the non-breakout members of the on demand food delivery space dies as capital consolidates towards winners and we're in for an apocalypse? We VERY well may be in for one but I don't think this is a strong sign of that.

jarjoura 11y ago

Weird that the article didn't mention, Postmates already has reached critical mass with high quality on-demand delivery. For the 5 minute meals, UberEats is literally eating these small startups alive. Maybe Lyft will acquire Swig if they're not already cooking something up. :-D

nlh 11y ago

Sad to see any startup die, but this was not unexpected. I know I am but a tiny sample of the overall SF food market, but I'm squarely in the target demographic (work at home, don't like to go out to eat). I used SpoonRocket a few times, but entirely gave up on them after trying a few times. I love Sprig and order from the often. Here's why: * SpoonRocket's meals simply weren't healthy. A lot of the folks in this space (Sprig, Munchery, etc.) are really focused on healthy food. I can call the Chinese place down the block and have an unhealthy meal delivered, but there traditionally have been very few good healthy options other than cooking yourself. SpoonRocket's food was heavy, carb-y, greasy, and just not that good. * I know they had to do this for time efficiency/cost reasons, but the requirement that you meet the driver out at the curb was too big of a psychological barrier. I live/work in one of the (relatively rare, to be fair) SF highrises, but knowing that a SpoonRocket meal meant getting up, waiting for the elevator, going downstairs, meeting the driver, then going back upstairs - meant that I just never ordered from them (especially when Sprig will bring the meal right to my door.) This just goes to show that in an absolute sense -- these relatively small differences might not matter (i.e. of course I'd rather go downstairs to pick up food vs. walk to a restaurant for lunch), but in the highly competitive environment where easier and healthier alternatives exist, their offering was unsustainable.

free2rhyme214 11y ago
Excellent points. Honestly it's the founders fault why this happened. They ignored these obvious signs and shouldn't be surprised. It's easy to order unhealthy food. It's a pain to make healthy food. Ironically UberEATS launched officially today.
- gk1 11y ago
  It's also easy to see all the issues in hindsight. Perhaps at the time they thought there's a market for less-healthy-but-cheaper food, and perhaps they were right and messed up the execution...
- jonesb6 11y ago
  Founders are responsible for the business, you are right. You were probably down-voted by a "founder" who become unhappy at that thought. Source: I'm a co-founder, if my business fails it's my fucking fault.

nickporter 11y ago

Damn, I will miss those breakfast burritos. These guys had some great food and the service was incredibly fast. Bummer!

11thEarlOfMar 11y ago

Makes me wonder about Gobble. We've used it a couple of times and the food is awesome. Healthy, attractive. Very much enjoyed it. But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.

yishanl 11y ago
Isn't one of Gobble's selling point is that it's super cheap? like $10/person? I remember seeing that as their main homepage jumbotron, which seemed to successfully target and reassure their audience of parents who wanted to know how much it'd cost to feed a family of X.

free2rhyme214 11y ago

Ironically UberEATS launched today. The founders have no one to blame but themselves.

bdcravens 11y ago
The standalone app perhaps, but it's been available in many places for a while.

mmanfrin 11y ago

I think part of their problem is that they hammered downward with the food quality in an effort to cut costs, rather than raising rates. People who are using these on-demand food delivery services wouldn't mind a couple extra dollars if it meant that the food was of good quality. SpoonRocket's food was abysmal; it satisfied the occasional need for shitty-hangover-food, but that's not sustainable (for them or for my gut).

swang 11y ago
When they started they were cheap meals under $10 out in Berkeley or Oakland (I forget), and they did raise prices after they started expanding into SF. The problem was most of their customers were use to the lower price point of the service.

S_A_P 11y ago

Why would a business like this get funding and ultimately be viewed differently than any other restaurant? It looks like the pizza delivery model to me, so why is the funding so much higher?(serious question)

majani 11y ago
reminds me of the time in the 90s when literally just adding .com to a company's name and having a website made its valuation jump
jonnathanson 11y ago
Because there has been a mini-bubble in the "on-demand economy," a.k.a., delivery businesses. Investors are highly subject to groupthink and trend chasing. When one or more companies start to take off in the same space, a category is (theoretically) born. And then everyone wants exposure to the category. Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical). All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.

chad_strategic 11y ago

Accounting 101: (No matter if it is 1900, 1950, 1999, or 2015) Revenue -Cost of Goods (food, in this case) = Gross Profit Gross Profit -Sales & General, Administrative = Net profit (SG&A = office space, Webdev, logistics, etc...) I'm sorry, but anything else is just plan BS.

JonFish85 11y ago
Half-kidding, but where is "growth" in your calculations? A big reason why companies discount their "fixed costs" (e.g. full-time employees' salaries, rent, etc) is because if they can get a marginal profit on their goods, then it's a matter of "making it up in volume". A company can still be losing a tremendous amount of money but have a bright future (I think this is what Amazon did for years): if you're making $0.50 per item, but have $1b of overhead costs, it very well might be possible to get to a profit, it just means you have to move a LOT of items.
- chad_strategic 10y ago
  Yes, I suspect Amazon has razor thin margins, so does Walmart and Supermarkets, but they can make it up on volume. SpoonRocket... I suspect there is limited volume based on their market. (not everybody want's food delivered, people still like to go out every once and a while...)

choward 11y ago

They sound like these guys who I am afraid are going to end up the same way: https://foodjets.com/ https://foodjets.com/ They only operate in Sacramento. The main things I liked are that it takes usually under 10 minutes and there was no tipping or delivery fee. The price you saw is what you paid. However, they just added tipping to their app which isn't a good sign. On top of that, it asks you to tip before you even get your food and there is no option to tip later that I know of. I haven't ordered from them since I was first prompted to tip. Older article that discusses them: http://www.bizjournals.com/sacramento/news/2015/10/30/what-separates-foodjets-from-other-delivery.html http://www.bizjournals.com/sacramento/news/2015/10/30/what-s...

Naritai 11y ago
Is the delivery person aware of whether you tipped before the delivery even occurs? If so, I will never use their app.

stephenitis 11y ago

The free "VC funded" meal has ended. Time to whip out my free Chipotle burrito coupons.