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 finally 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 realized alongside the way in which, and why Magic Spoon needed to elevate practically $100 million to deliver change to the breakfast cereal aisle.

Dave Knox: Let’s begin by discussing what Magic Spoon is for many who will not be 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 centered on direct-to-consumer gross sales, however we’ve got since expanded to omnichannel and promote by main retailers as properly.

My co-founder is Greg Sewitz, and we really 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 wished to remain within the meals trade, however we had been on the lookout for 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 increased high quality components and higher macronutrients, much like what we had seen in different classes like sweet and snack bars.

Individuals informed us that cereal was a dying class and huge firms 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 might 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 packing containers seem like a grown-up model of basic characters, and the flavors are deeply rooted in nostalgia. Our aim was to make flavors that remind individuals of the cereal they loved whereas rising up, however with increased high quality components and higher macronutrients. The thought is that it tastes like it is sugary and have to be unhealthy for you, however it’s really excellent for you.

Knox: You talked about that your first enterprise, Exo Protein, had its challenges. What classes did you are taking from that have and apply to launching Magic Spoon?

Lewis: The most important 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 absolutely admire how troublesome it could be to persuade mainstream customers to attempt it.

For Magic Spoon, we wished to deal with a large present class and create a greater product that might go from zero to 100 in a number of years. We wished to enhance an present product slightly than create a brand new class from scratch. This method allowed us to focus extra on product-market match and make it possible for 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 necessary to have a robust product-market match and deal with making a product that individuals really need and wish, slightly than simply pursuing an fascinating thought.

Knox: The way in which buyers take into consideration CPG manufacturers has modified so much because you launched Exo and even because you began Magic Spoon. What have you ever realized about how buyers take into consideration the class, and what recommendation would you give to others following an identical path?

Lewis: I believe it is determined by what you wish to accomplish and what sort of buyers you are going after. For us, we knew we had been getting into an unlimited class with three extraordinarily giant rivals, all of which we knew would copy us. We believed there was a chance for a really 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 major quantity of capital to develop the enterprise rapidly.

To do this, we wanted buyers who had been deeper-pocketed than your common angel investor and who understood our imaginative and prescient and the velocity at which we had been attempting to maneuver. We additionally wanted buyers we trusted and who trusted us. Our first spherical of funding was principally from buyers 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 seek out buyers who’re aligned with the size and velocity at which they wish to construct their enterprise. It is also necessary to suppose by the proper 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’ll be able to, however that may make it tougher to develop your online business. 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 pleased with 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 in a different way between these two channels?

Lewis: Truly, we did not launch with the intention of turning into a D2C model. We launched as a wholesome cereal firm and thought we might go into retail inside a number of months. Nonetheless, our D2C enterprise grew so rapidly that we determined to deal with that solely for a number 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 the whole lot that comes with that. Once we had been able to develop into retail, we had a pull technique from the retailers coming to us slightly 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 number of of the biggest 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 in a position to have a extremely sturdy 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 tons of of cereals in a given retailer.

General, we did not have to consider constructing our model in a different way 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 potential to attach with our clients.

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 number 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 clients 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 aim has all the time been to be a cereal that is obtainable wherever that cereal is purchased and bought, so we wished to go to mass retail fairly rapidly slightly than beginning with extra unique smaller retailers.

Our launch technique centered on constructing deep partnerships with every retailer and creating custom-made advertising and promotions that resonated with their particular buyer base. We additionally offered them with information and insights on our efficiency and buyer habits to assist them make knowledgeable choices about our product. General, we’ve got 5 most important retail companions, and we’ve got actually good, deep partnerships with every of them. This method has helped us in direction of our aim of being the go-to wholesome cereal model for every type of customers all over the place.

Knox: Along with your growth to among the greatest retailers on the market, has the enterprise needed to change or evolve in any approach to stability driving D2C versus driving retail, or in another elements of the enterprise general?

Lewis: The most important 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 wonderful 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 deliver to the retailer a set of capabilities that almost all manufacturers haven’t got, akin to the flexibility to work with the numerous tons of 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 excellent 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 stability 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 deliver our product to much more customers by conventional retail channels.

Knox: You have talked about the significance of nostalgia, the breakfast day half, and healthfulness in your model. What are the intangibles that you just be certain your advertising and product groups by no means stray past?

Lewis: It is a good query, and we debate this internally so much. We attempt 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 precisely the place these product guardrails lie and speaking to our clients about it as properly. As our buyer base evolves, we’d like to verify 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 necessary for our clients to have over 12-13 grams of protein on common, now some individuals are saying that 10-11 grams is okay. As vitamin tendencies 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 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 a long time ever for model constructing and new manufacturers being launched in CPG, with new classes rising. What do you suppose 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 nearly 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 whole lot of funding going in direction of these disruptors, and in some circumstances, it might be taking place in classes the place it is not likely essential. There are in all probability some classes which might be simply high-quality 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 really bettering the product itself.

At Magic Spoon, we have all the time been very cautious to make it possible for we’re not simply making a cool cereal, but in addition a greater cereal. For us, branding, design, and characters are all necessary in conveying the sensation we wish our model to have, however they don’t seem to be 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 numerous classes.

General, I believe we will proceed to see disruption and innovation within the CPG house over the subsequent 10 years, with a deal with more healthy, better-branded variations of present merchandise. And I believe there shall be extra deal with manufacturers bettering the product itself along with the branding and design.