Startup general interest

The SpoonRocket lesson – US success shouldn’t be copied without critical thought

By March 16, 2016 4 Comments

The wires have recently been awash with news that US food delivery service SpoonRocket is shutting down. That’s a real shame, largely for their employees and investors (who put in $13.5m), but also because the product promise was amazing – sub $10 meals delivered in under ten minutes.

That product promise is so amazing that the tech press wrote a lot about SpoonRocket even before they graduated from YC. That got people thinking over here, and by the time they raised their $11m round the UK was awash with copycats, including Rocket Internet backed EatFirst. We looked at investing in three that I can remember, and I’m sure there were more. I won’t name them because we passed and I don’t want to hurt the companies – but EatFirst has pivoted and I haven’t heard subsequently that any of the others are doing well.

The consensus post mortem on SpoonRocket says they couldn’t provide a quality service at their promised price point. In other words, the fundamentals didn’t add up – after the cost of ingredients, preparation and delivery there wasn’t enough left to cover customer acquisition costs. There’s a strong suggestion that they cut the ingredients budget to try and make the numbers work, but quality suffered and customers turned away.

These are similar reasons to why we didn’t invest in any of the copycats and they could have been predicted much earlier, possibly at the outset.

In the office this morning we were discussing why businesses like SpoonRocket get cloned. Entrepreneurs should and do look everywhere for inspiration about their next startup, and headline friendly ideas from the US naturally catch attention, particularly when they’re backed by YC or get big Series A investments. However, the interesting question is why ideas like SpoonRocket seem to get uncritically copied. We think it’s because the founders are thinking more about whether they will be able to raise money than whether the idea is going to work over the medium to long term. There’s an assumption, possibly valid, that the hype and momentum around the US equivalent will be enough to carry a financing without anyone poking too much at the model.

The takeaway here is obvious: potential for long term success is far more important than ease of short term fundraising. This approach might mean harder work at the beginning, but as SpoonRocket has shown, it pays dividends in the end.

Note that SpoonRocket’s demise doesn’t mean that on-demand food doesn’t work as a category. Sprig, for example, looks like it is succeeding with a higher price point and slower delivery.