Earlier than the founders of Magic Spoon tackled the cereal aisle, their first startup was a line of protein bars utilizing cricket protein known as Exo. Whereas the enterprise was ultimately bought, it taught them the significance of product-market match and the issue of constructing a class from scratch. I sat down with Gabi Lewis, co-founder of Magic Spoon to debate his journey as a CPG entrepreneur, the teachings he’s discovered alongside the way in which, and why Magic Spoon needed to increase almost $100 million to carry change to the breakfast cereal aisle.
Dave Knox: Let’s begin by discussing what Magic Spoon is for many who is probably not accustomed to it.
Gabi Lewis: Magic Spoon is a breakfast cereal model that recreates your favourite childhood cereals with extra protein, much less sugar, and fewer carbs. We launched the enterprise in 2019, so we’re approaching our fourth anniversary. We initially targeted on direct-to-consumer gross sales, however now we have since expanded to omnichannel and promote by means of main retailers as nicely.
My co-founder is Greg Sewitz, and we truly met at Brown College. We beforehand constructed a sustainable protein enterprise known as Exo Protein, which we operated for 5 years earlier than promoting it in 2018. After that, we wished to remain within the meals trade, however we had been in search of a class that was giant and had restricted innovation.
We had been strolling by means of a grocery retailer and realized that the 2 largest classes, soda and milk, had been saturated with innovation, whereas the cereal class, which is the third largest, had remained largely unchanged for many years. We began asking folks why no person had tried to create a greater cereal with increased high quality components and higher macronutrients, just like what we had seen in different classes like sweet and snack bars.
Individuals instructed us that cereal was a dying class and enormous corporations would not enable us to get on the cabinets, however these causes did not appear legitimate to us. We knew that if we constructed a model and generated sufficient hype and momentum, we may get on the cabinets and create a better-for-you cereal model.
We developed the branding to be a nod to traditional childhood cereals with a barely grown-up psychedelic twist. The characters on our bins appear like a grown-up model of traditional characters, and the flavors are deeply rooted in nostalgia. Our aim was to make flavors that remind folks of the cereal they loved whereas rising up, however with increased high quality components and higher macronutrients. The concept is that it tastes like it is sugary and have to be dangerous for you, nevertheless it’s truly excellent for you.
Knox: You talked about that your first enterprise, Exo Protein, had its challenges. What classes did you’re taking from that have and apply to launching Magic Spoon?
Lewis: The largest lesson we discovered from Exo was the significance of specializing in product-market match. With Exo, we launched a line of protein bars utilizing cricket protein, which was tough from each a provide and demand perspective. We thought it was an attention-grabbing concept, however we did not totally recognize how tough it could be to persuade mainstream shoppers to strive it.
For Magic Spoon, we wished to give attention to a large current class and create a greater product that would go from zero to 100 in just a few years. We wished to enhance an current product somewhat than create a brand new class from scratch. This method allowed us to focus extra on product-market match and be sure that there was demand for our product earlier than we launched. We additionally discovered the significance of making a powerful model and constructing a group of early adopters by means of a direct-to-consumer mannequin, which helped us generate hype and momentum earlier than launching in retail shops.
General, we discovered that it is vital to have a powerful product-market match and give attention to making a product that folks truly need and wish, somewhat than simply pursuing an attention-grabbing concept.
Knox: The best way traders take into consideration CPG manufacturers has modified so much because you launched Exo and even because you began Magic Spoon. What have you ever discovered about how traders take into consideration the class, and what recommendation would you give to others following the same path?
Lewis: I feel it depends upon what you need to accomplish and how much traders you are going after. For us, we knew we had been getting into an infinite class with three extraordinarily giant opponents, all of which we knew would copy us. We believed there was a chance for a very more healthy cereal to seize a small however significant slice of the cereal market, however we knew there was solely room for one or two manufacturers to do this. So we went all in and raised a big quantity of capital to develop the enterprise rapidly.
To try this, we wanted traders who had been deeper-pocketed than your common angel investor and who understood our imaginative and prescient and the pace at which we had been making an attempt to maneuver. We additionally wanted traders we trusted and who trusted us. Our first spherical of funding was principally from traders who backed us in our prior enterprise, which gave us a stage of belief and credibility that the majority first-time founders do not have.
I might advise different founders to search out traders who’re aligned with the size and pace at which they need to construct their enterprise. It is also vital to assume by means of the fitting timing for every spherical of funding and to align everybody’s expectations and valuations across the subsequent stage of progress. It is easy to fall into the lure of elevating too excessive of a valuation simply because you may, however that may make it more durable to develop your small business. As an alternative, take into consideration the tip level and what rounds of funding are wanted to get there, and again into affordable valuations at every stage so everyone seems to be pleased with their efficiency.
Knox: You began as a D2C enterprise earlier than increasing into retail. How did it’s important to take into consideration constructing a model in another way between these two channels?
Lewis: Really, we did not launch with the intention of turning into a D2C model. We launched as a wholesome cereal firm and thought we’d go into retail inside just a few months. Nevertheless, our D2C enterprise grew so rapidly that we determined to give attention to that completely for just a few years earlier than contemplating a retail growth.
We had been lucky as a result of we had constructed a powerful D2C enterprise, a big social following, and every little thing that comes with that. After we had been able to broaden into retail, we had a pull technique from the retailers coming to us somewhat than a push technique. Each main retailer was in our inbox, which allowed us to create a deep partnership with them. We had been capable of name up just a few of the most important retailers, give them an replace on our efficiency, and create a robust launch in retail that was a real partnership the place either side contributed to the success.
In consequence, we had been capable of have a very sturdy launch and shot close to the highest of many of the rankings within the retailers we’re in. In some instances, now we have the one best-selling cereal sku out of lots of of cereals in a given retailer.
General, we did not have to consider constructing our model in another way for retail versus D2C. As an alternative, we targeted on constructing a powerful model that resonated with our target market, whatever the channel. Our success in each channels is a testomony to the energy of our model and our capacity to attach with our prospects.
Knox: What was your launch technique when it was time to go to conventional retailers? Did you select to go broad or decide a single retailer?
Lewis: We launched with Goal as our first retail companion, however just for just a few months. We selected Goal as a result of there was a detailed model affinity between our model and theirs, and we discovered that there was a big overlap between our D2C prospects and Goal’s shopper base. Goal additionally has a protracted historical past of launching D2C manufacturers into retail, which made them a pure match for us. We then added Sprouts three months later and launched into Kroger, Albertsons, and Walmart in January of this yr. Our aim has all the time been to be a cereal that is accessible anyplace that cereal is purchased and bought, so we wished to go to mass retail fairly rapidly somewhat than beginning with extra unique smaller retailers.
Our launch technique targeted on constructing deep partnerships with every retailer and creating personalized advertising and promotions that resonated with their particular buyer base. We additionally offered them with knowledge and insights on our efficiency and buyer conduct to assist them make knowledgeable selections about our product. General, now we have 5 most important retail companions, and now we have actually good, deep partnerships with every of them. This method has helped us in the direction of our aim of being the go-to wholesome cereal model for all sorts of shoppers in all places.
Knox: Along with your growth to a few of the largest retailers on the market, has the enterprise needed to change or evolve in any method to stability driving D2C versus driving retail, or in some other points of the enterprise general?
Lewis: The largest change has been from a staff perspective. We initially constructed our staff to be a best-in-class D2C staff, with logistics individuals who had been superb at optimizing small parcel supply to a person’s residence and a advertising staff primarily targeted on direct response progress advertising. We have needed to work with everybody to evolve their abilities to the brand new actuality of being an omnichannel enterprise.
Normally, this evolution has labored out actually properly. We’re capable of carry to the retailer a set of capabilities that the majority manufacturers do not have, akin to the power to work with the numerous lots of of influencers we have labored with over time for D2C to drive site visitors into shops and make sure that it is incremental aisle site visitors for the retailer. We’re additionally getting excellent at utilizing D2C progress advertising levers to drive in-store trial and purchases, which is a win-win for everybody.
In fact, we have to stability this with the general enterprise and ensure there’s not an excessive amount of cannibalization, however up to now, it appears to be a rising tide that lifts all boats. General, we’re excited to be an omnichannel enterprise and to have the chance to carry our product to much more shoppers by means of conventional retail channels.
Knox: You have talked about the significance of nostalgia, the breakfast day half, and healthfulness on your model. What are the intangibles that you just make sure that your advertising and product groups by no means stray past?
Lewis: It is a good query, and we debate this internally so much. We strive to not be too dogmatic about it. We talk about the idea of nostalgia and the product guardrails, akin to having zero grams of sugar in all our merchandise. We debate internally what it could imply if we had been so as to add two grams of sugar to one thing. Is zero sugar actually key to Magic Spoon, or is it simply being meaningfully decrease in sugar than conventional cereal or different merchandise within the class we’re in?
We’re nonetheless working by means of precisely the place these product guardrails lie and speaking to our prospects about it as nicely. As our buyer base evolves, we want to ensure we’re evolving with them whereas nonetheless staying true to our model values. For instance, whereas a few years in the past, it was actually vital for our prospects to have over 12-13 grams of protein on common, now some individuals are saying that 10-11 grams is okay. As diet developments evolve, we’re ensuring that we adapt whereas not alienating our earlier buyer base.
General, the important thing intangibles for our model are evoking pleasure and nostalgia, being enjoyable and colourful, and being the antithesis of well being meals that takes itself too severely. We consider that staying true to those values will assist us proceed to develop and succeed.
Knox: We have simply come out of one of many best many years ever for model constructing and new manufacturers being launched in CPG, with new classes rising. What do you assume we’ll see over the following 10 years as you proceed to develop Magic Spoon and watch the grocery aisles proceed to develop and alter and evolve?
Lewis: I feel we’ll see virtually each class being disrupted by somebody coming alongside and making a more healthy, better-branded model of it. We’re already seeing this occur in each single class, with some in all probability being too area of interest. There’s loads of funding going in the direction of these disruptors, and in some instances, it might be occurring in classes the place it is probably not needed. There are in all probability some classes which are simply tremendous as they’re and do not want millennial fancy branding. In some instances, the improved branding expertise is overtaking an precise improved product expertise. So I feel there’s going to be a correction there, the place manufacturers or new manufacturers focus an excessive amount of on the sensation in branding and fewer on truly bettering the product itself.
At Magic Spoon, we have all the time been very cautious to be sure that we’re not simply making a cool cereal, but in addition a greater cereal. For us, branding, design, and characters are all vital in conveying the sensation we wish our model to have, however they are not the core of our innovation. Our innovation is making a cereal that is 15 instances increased in protein and 20 instances decrease in sugar than conventional cereal. Hopefully, we’ll proceed to see extra of this type of true product innovation in plenty of classes.
General, I feel we’ll proceed to see disruption and innovation within the CPG house over the following 10 years, with a give attention to more healthy, better-branded variations of current merchandise. And I feel there can be extra give attention to manufacturers bettering the product itself along with the branding and design.