Top Takeaways
“Sell something that people actually want, which sounds flippant, but I think a lot of founders don’t quite appreciate product-market fit.” – Gabi Lewis
- It’s incredibly difficult to innovate simultaneously on supply chain, product, and marketing. When you have a small team, you rarely will have the right skills to tackle all three problems in sync.
- Mass consumer behavior doesn’t radically change overnight, you need to frame your new product in the context of existing habits & routines.
- In the food industry, few food brands are able to grow meaningfully beyond a “hero” product. It’s important to be focused.
Guest
- Gabi Lewis, Co-Founder of Magic Spoon (2019-Present)
- Magic Spoon has “Hundreds of thousands of active customers.” The price point is $39.99 for a 4-pack.
- Previous Company EXO Protein (2013 – 2018) sold to Aspire Foods
- Co-founded both companies with Gregory Sevitz, a classmate from Brown University
Lessons on Marketing SEO & Conversion | Scaling Your Startup S2 E6
Gabi’s first startup
Their first company, EXO, sold Cricket Protein bars. They had the vision to bring Cricket to the mass market as a sustainable protein source.
“Insect proteins in general, crickets in particular, are an extremely sustainable protein source, compared to pretty much anything we conventionally eat for protein.” – Gabi Lewis
- Used Kickstarter to get early traction, and sold through paleo diet communities.
- Raised $5 from a wide range of influencers & investors like Tim Ferriss & Nas. Some of these influencers helped accelerate early sales.
- With crickets, they learned that you shouldn’t try to change too many behaviors at once. To sell crickets, the flavors that performed the best were the ones people were familiar with (PB&J, etc).
- Growing a cricket business beyond early adopters was incredibly challenging. They had to build up a supply chain as well as manufacturing and marketing.
- Sold to Aspire Foods when they realized growth was too slow to change the market.
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Launching Magic Spoon
Gabi & his co-founder Greg knew that they wanted to launch another startup together. This time they wanted to make sure they had the opportunity to compete in a large market.
- Saw an opportunity for reinventing a large food category with a low-carb alternative like Quest bar & Halo top.
- The Magic Spoon team settled on cereal because it was a well-loved category that really hadn’t changed in the last 30 years. Most cereals were high in carbs and sugar, the last major innovation was granola.
“It’s a product everybody loves. Everybody’s got amazing childhood associations with being carefree watching cartoons having a delicious bowl of sugary cereal. And what we wanted to do was recreate that same taste and texture we love from the classic cereals, but doing a way that is made with guilt-free grown up ingredients and optimized macronutrients, meaning high protein, low carbs, no sugar.” – Gabi Lewis
- Puffed cereal is a more complicated food product to make than protein bars or kombucha etc.
- Cereal requires an extrusion machine to make the “O” shape.
The standard food co. startup sequence (for most products you see in the grocery store)
- Formulate in a home kitchen, using a stove, Vitamix, etc, & sell small test batches
- Rent space in a small commercial kitchen by the hour, where there is some larger-scale machinery. Regularly making ~1,000 protein bars is possible here.
- Find a small co-packer (a contract manufacturer) to be an outsource partner, they use bigger machinery and can make 10K+.
- Bring manufacturing in-house (not every brand will do this).
How Magic Spoon made their product
- Spent six months of testing endless formulas came up with a texture that mimics the texture of classic cereals. This made the base “O”. Because the protein content is over 40%, they had to spend a lot of time perfecting the light, crunchy texture. They tested every protein powder possible.
- Experimented with dozens of natural sweeteners and settled on Allulose.
- Spent the next several months on flavoring. They worked with a bunch of different flavor companies tasting, for example, dozens of different cocoa flavors and slightly different lighter, darker vanilla notes.
“I think first learning is sell something that people actually want, which sounds flippant, but I think a lot of founders don’t quite appreciate product-market fit.” – Gabi Lewis
How Magic Spoon Competes with Big Cereal
- General Mills, Post, and Kelloggs control about 80-85% of the market and dominate shelf space.
“If you look at traditional cereal as a category, it’s sort of a microcosm of everything that’s wrong with the food system. It’s industrially processed, subsidized grains and sugar.” – Gabi Lewis
- Big cereal struggles to create healthy products because when they try to change their ingredients, they are typically conservative. These small changes still change the taste and generate backlash because their customers don’t buy for its health properties.
- Magic Spoon is a premium product that is 3-4 times the price of other cereals
- There is a strong precedent in other food categories for people to pay a premium for a better product (health beverages vs. Coca-Cola, RX bar vs. chewy).
- Magic Spoon positions itself as protein powder in the shape of cereal, they show that they are cheaper than a protein bar per gram and nutritionally the same.
Magic Spoon’s sales & distribution strategy
- They have a core offering of five-six evergreen flavors (Fruity, Peanut Butter, Cocoa, Cinnamon, Frosted, Blueberry)
- They launch limited-edition flavors every six weeks (Examples: Maple waffle, Cookies & Cream).
- Sold DTC only from just their website for the first year.
- Launched on Amazon in April 2021 because they were seeing tens of thousands of searches a month for Magic Spoon on Amazon, some of this traffic was being bid on my copycats. Also, some people only shop on Amazon.
- Limited flavors do not launch on Amazon.
- Gabi didn’t expect they would be able to grow this big being DTC. They’ve been developing relationships with the large retailers since their last business.
“Eventually we will be everywhere that cereal is purchased.” – Gabi Lewis
DTC Marketing Strategy
- Gabi hasn’t seen an impact from recent Apple Privacy rollouts. Magic Spoon purposely created a mass product, so they haven’t relied on narrow targeting.
- Although some people like their product because it is a keto diet and doesn’t spike blood sugar, they are careful not to position it as a niche product.
- Magic Spoon uses Facebook, Instagram, influencers, and a lot of podcasts. Some larger ones like Tim Ferriss &Pod Save America as well as a bunch of smaller ones.
- Generally, for influencers, the smaller the better in terms of return on ad spend.
- But, you cannot build a big DTC business only by working with influencers with 5000 followers.
- To grow quickly, you need to operate in the 100K-2M follower range. That’s where Magic Spoon is currently focusing. It’s the right blend of efficiency and scale.
- Above 2M, lots of managers get involved and contracts take longer. It also becomes more of a brand awareness play.
- Most of their influencers are on Instagram stories and YouTube, just exploring Tick Tock as well.
Returning to the office
- Magic Spoon will be returning to the office in NY.
- Gabi’s take: the smaller your company is and the faster things are moving, the more important is to be in one place. Magic Spoon is only two years old with 20 people total and a few people in each function. Being together improves learning.
- Being remote helped their hiring process. They relied more on projects on case studies rather than charm.
Why Magic Spoon is sold in a box
- Even though DTC does open up the possibility of different form factors, Magic Spoon still chose to go with a cereal box.
“From a purely practical function perspective, boxes are not the optimal choice. We we chose a box mostly for branding reasons.” – Gabi Lewis
- The Magic Spoon cereal boxes have gotten great reviews for their design, and they convey a sense of nostalgia.
- Also, since Magic Spoon plans to move into retail, they want to have a consistent form factor. Typically only granola is sold in bags. As a cereal product, selling in anything other than a box would confuse retail buyers and slow the rate of adoption.
Raising money & repeat investors
- After raising money for cricket protein bars, raising for cereal was comparably easy.
- Some investors were concerned about investing in the category of cereal because it was in decline year over year. However, it is still an $11B category annually in the US with no innovation.
- Because of its premium, healthy qualities, Magic Spoon has the opportunity to increase the price of cereal and expand the number of cereal people eat.
- Magic Spoon had lots of repeat investors. Even though most of them didn’t get the outcome they wanted with EXO Protein, they built a lot of trust in Gabi & Greg from the five years of working together.
“What is going to matter is whether I know and trust my investors and we get on well, day to day.” – Gabi Lewis
- Gabi prefers to work with people over longer periods of time.
- If the business is a success, slight variations in valuation won’t really matter. Going out to other investors
Magic Spoon Review
- Jason loves the product & his family eats it.
- Jason’s favorite Magic Spoon is doing a flavor combo of frosted & peanut butter.
- Gabi’s favorite is peanut butter & cocoa.
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