Magic Spoon co-founder Gabi Lewis has a created a better-for-you breakfast cereal
Earlier than the founders of Magic Spoon tackled the cereal aisle, their first startup was a line of protein bars utilizing cricket protein referred to as Exo. Whereas the enterprise was ultimately offered, it taught them the significance of product-market match and the problem 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 realized alongside the way in which, and why Magic Spoon needed to increase practically $100 million to convey change to the breakfast cereal aisle.
Dave Knox: Let’s begin by discussing what Magic Spoon is for many who might not be conversant in 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 centered on direct-to-consumer gross sales, however we’ve got since expanded to omnichannel and promote by main retailers as nicely.
My co-founder is Greg Sewitz, and we truly met at Brown College. We beforehand constructed a sustainable protein enterprise referred to as Exo Protein, which we operated for 5 years earlier than promoting it in 2018. After that, we needed 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 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 individuals why no one had tried to create a greater cereal with greater high quality elements and higher macronutrients, much like what we had seen in different classes like sweet and snack bars.
Individuals instructed us that cereal was a dying class and huge firms would not permit 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 basic childhood cereals with a barely grown-up psychedelic twist. The characters on our containers appear like a grown-up model of basic characters, and the flavors are deeply rooted in nostalgia. Our objective was to make flavors that remind individuals of the cereal they loved whereas rising up, however with greater high quality elements and higher macronutrients. The thought is that it tastes like it is sugary and should be unhealthy for you, however it’s truly superb 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 realized 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 troublesome from each a provide and demand perspective. We thought it was an fascinating thought, however we did not totally respect how troublesome it might be to persuade mainstream customers to attempt it.
For Magic Spoon, we needed to give attention to a large current class and create a greater product that might go from zero to 100 in a couple of years. We needed to enhance an current product fairly than create a brand new class from scratch. This strategy allowed us to focus extra on product-market match and guarantee that there was demand for our product earlier than we launched. We additionally realized the significance of making a robust model and constructing a group of early adopters by a direct-to-consumer mannequin, which helped us generate hype and momentum earlier than launching in retail shops.
General, we realized that it is essential to have a robust product-market match and give attention to making a product that individuals truly need and wish, fairly than simply pursuing an fascinating thought.
Knox: The best way traders take into consideration CPG manufacturers has modified loads because you launched Exo and even because you began Magic Spoon. What have you ever realized about how traders take into consideration the class, and what recommendation would you give to others following an identical path?
Lewis: I believe it is dependent upon what you wish to accomplish and how much traders you are going after. For us, we knew we had been coming into an unlimited class with three extraordinarily giant rivals, all of which we knew would copy us. We believed there was a possibility for a really more healthy cereal to seize a small however good portion of the cereal market, however we knew there was solely room for one or two manufacturers to try this. So we went all in and raised a major quantity of capital to develop the enterprise rapidly.
To do 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 attempting to maneuver. We additionally wanted traders we trusted and who trusted us. Our first spherical of funding was largely from traders who backed us in our prior enterprise, which gave us a degree of belief and credibility that almost all first-time founders haven’t got.
I might advise different founders to search out traders who’re aligned with the size and pace at which they wish to construct their enterprise. It is also essential to assume by the appropriate 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 possibly can, however that may make it tougher to develop your corporation. As a substitute, take into consideration the top level and what rounds of funding are wanted to get there, and again into cheap valuations at every stage so everyone seems to be proud of their efficiency.
Knox: You began as a D2C enterprise earlier than increasing into retail. How did you need to take into consideration constructing a model otherwise between these two channels?
Lewis: Truly, we did not launch with the intention of changing into a D2C model. We launched as a wholesome cereal firm and thought we’d go into retail inside a couple of months. Nevertheless, our D2C enterprise grew so rapidly that we determined to give attention to that completely for a couple of years earlier than contemplating a retail growth.
We had been lucky as a result of we had constructed a robust D2C enterprise, a big social following, and every 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 fairly than a push technique. Each main retailer was in our inbox, which allowed us to create a deep partnership with them. We had been in a position to name up a couple of of the most important retailers, give them an replace on our efficiency, and create a strong launch in retail that was a real partnership the place either side contributed to the success.
Because of this, we had been in a position to have a extremely robust launch and shot close to the highest of a lot of the rankings within the retailers we’re in. In some circumstances, we’ve got the only best-selling cereal sku out of a whole lot of cereals in a given retailer.
General, we did not have to consider constructing our model otherwise for retail versus D2C. As a substitute, we centered on constructing a robust model that resonated with our target market, whatever the channel. Our success in each channels is a testomony to the power 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 a couple of months. We selected Goal as a result of there was an in depth 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 an extended 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 12 months. Our objective has at all times been to be a cereal that is out there wherever that cereal is purchased and offered, so we needed to go to mass retail fairly rapidly fairly than beginning with extra unique smaller retailers.
Our launch technique centered on constructing deep partnerships with every retailer and creating personalized advertising and promotions that resonated with their particular buyer base. We additionally supplied them with knowledge and insights on our efficiency and buyer habits to assist them make knowledgeable choices about our product. General, we’ve got 5 major retail companions, and we’ve got actually good, deep partnerships with every of them. This strategy has helped us in direction of our objective of being the go-to wholesome cereal model for every type of customers all over the place.
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 strategy to steadiness 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 dwelling and a advertising staff primarily centered on direct response progress advertising. We have needed to work with everybody to evolve their expertise to the brand new actuality of being an omnichannel enterprise.
Normally, this evolution has labored out actually properly. We’re in a position to convey to the retailer a set of capabilities that almost all manufacturers haven’t got, equivalent to the power to work with the various a whole lot of influencers we have labored with through the years 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 superb at utilizing D2C progress advertising levers to drive in-store trial and purchases, which is a win-win for everybody.
After all, we have to steadiness this with the general enterprise and ensure there’s not an excessive amount of cannibalization, however to date, 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 convey our product to much more customers by conventional retail channels.
Knox: You’ve got talked about the significance of nostalgia, the breakfast day half, and healthfulness in your model. What are the intangibles that you just ensure that your advertising and product groups by no means stray past?
Lewis: It is a good query, and we debate this internally loads. We attempt to not be too dogmatic about it. We focus on the idea of nostalgia and the product guardrails, equivalent to having zero grams of sugar in all our merchandise. We debate internally what it might 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 precisely the place these product guardrails lie and speaking to our prospects about it as nicely. As our buyer base evolves, we’d like 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 essential for our prospects to have over 12-13 grams of protein on common, now some persons are saying that 10-11 grams is okay. As vitamin traits 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 significantly. We imagine that staying true to those values will assist us proceed to develop and succeed.
Knox: We have simply come out of one of many biggest a long time ever for model constructing and new manufacturers being launched in CPG, with new classes rising. What do you assume we will see over the subsequent 10 years as you proceed to develop Magic Spoon and watch the grocery aisles proceed to develop and alter and evolve?
Lewis: I believe we will 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 a variety of funding going in direction of these disruptors, and in some circumstances, it might be taking place in classes the place it is probably not needed. There are in all probability some classes which might be simply effective as they’re and do not want millennial fancy branding. In some circumstances, the improved branding expertise is overtaking an precise improved product expertise. So I believe 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 enhancing the product itself.
At Magic Spoon, we have at all times been very cautious to guarantee that we’re not simply making a cool cereal, but in addition a greater cereal. For us, branding, design, and characters are all essential in conveying the sensation we would like our model to have, however they are not the core of our innovation. Our innovation is making a cereal that is 15 occasions greater in protein and 20 occasions decrease in sugar than conventional cereal. Hopefully, we’ll proceed to see extra of this sort of true product innovation in a lot of classes.
General, I believe we will proceed to see disruption and innovation within the CPG house over the subsequent 10 years, with a give attention to more healthy, better-branded variations of current merchandise. And I believe there can be extra give attention to manufacturers enhancing the product itself along with the branding and design.