Just like many of you, I love cereal. I constantly wish I could indulge in my favorite cereals from childhood. However, with all of the sugar, it’s just not practical. That is why I love what this week’s guest has brought to the market. Magic Spoon has taken all the things we love about those childhood favorites and reimagined them in a high protein, low-carb, and zero sugar cereal so we can enjoy them without ZERO concern. How they are doing this is EXACTLY what we talk about in this week's episode!
Just like many of you, I love cereal. I constantly wish I could indulge in my favorite cereals from childhood. However, with all of the sugar, it’s just not practical. That is why I love what this week’s guest has brought to the market.
Gabi Lewis is the co-founder of Magic Spoon. This company is reimagining your favorite childhood breakfast cereals into a high protein, low sugar, guilt-free daily indulgence. Their cereals are truly amazing and something you all should try. In this episode, I’m talking with Gabi about his entrepreneurial journey from the Scottish Highlands to the disruption of the largest breakfast food category.
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Gabi Lewis, co-founder of Magic Spoon
Gabi Lewis: Hi, this is Gabi Lewis, cofounder of Magic Spoon, and this is MY startup story.
James McKinney: Hello everyone and welcome to another episode of The Startup Story. Before we jump into this week's episode I want to let you know about three incredible opportunities that have come up out of our recent launch of the Grindology Coffee and Strategy Subscription.
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My guest this week is Gabi Lewis, co-founder of Magic Spoon. Magic Spoon is a company that is reimagining your favorite childhood breakfast cereals into a high protein, low sugar, guilt free daily indulgence. Magic Spoon launched in April of 2019 with four amazing flavors and is sold exclusive direct to consumer at magicspoon.com. But this isn't Gabi's first startup venture. In fact prior to Magic Spoon, Gabi cofounded XO a company that pioneered insect protein as a sustainable food source. But let me be clear, there are no insect proteins in Magic Spoon. But let me be real with you for a moment here. I love cereal, and I'm sure you do as well. In fact I'm willing to bet you have at least two boxes of cereal in your pantry right now. I'm also willing to bet that if you're over the age of 30 that you wish that you could indulge in those sugary cereals from your childhood. Well Magic Spoon has taken all the things we love about our childhood favorites and reimagined them into a high protein, lo carb, and zero sugar cereal so we can enjoy them with zero health concerns. You truly have to try their cereals, they're amazing.
In fact, Gabi has extended a discount code to all of you. Just visit magicspoon.com and use the code STARTUPSTORY to receive $5 off your entire order. I'm telling you, you're going to love it. How great would it be to give someone a variety pack of cereals that brings some childhood nostalgia back to them? Come on, you know you have someone in your life that is an absolute pain to buy gifts for. This is the gift giving season, and Magic Spoon cereal would be an amazing and surprising gift to them. So again, just visit magicspoon.com and use the code STARTUPSTORY to receive $5 off your entire order. All right, all right, all right. Enough of the cereal talk. If I spend any more time discussing how great cereal is, I might need to rebrand the podcast like the Breakfast Story or something like that. So with that in mind, let's start unpacking Gabi's entrepreneurial journey from the Scottish Highlands to the disruption of the largest breakfast food category.
Gabi Lewis: So my dad was an entrepreneur and my mum was and is a cognitive behavioral therapist. So my dad was always busy hustling, working on his business, a little bit stressed, working longer hours than maybe he would have wanted to. My mom was typically a more sort of calming presence, slightly annoyingly at the time making sure everyone was always okay, checking in a little bit too much. I grew up in Scotland where everyone is very sarcastic, very sort of actually anti therapy, so there's far more of a stigma over there about going to therapy than there is here in the US. So we'd always tease my mom a little bit for sort of trying to therapize us when we were growing up, and she'd always just be making sure we were okay. So I got a little bit of both sides. I always thought I would be an entrepreneur eventually. Unlike in the US, where I grew up in Scotland being an entrepreneur or founder is not really looked at as a classic and admired path for someone young.
So when you're young and you're ambitious, and you're doing well in high school it's a lot more pre professional. You're going to be a lawyer, a doctor, maybe go into finance and be a banker. But it's not really the done thing to do a startup when you're in your early 20s in Scotland. Partly that's the culture. We don't sort of typically dream like in a very huge way like Americans typically do, and part of it is sort of structurally there's not the venture capital community. There's not the angel investor community. And so even if you wanted to start a business without any experience, and sort of if you had the vision as a 20 year old in Scotland it'd be a harder thing to do typically. Or if you did do it, it would be a more sort of grassroots, bootstrapped business less going and raising a seed round from a VC just based on a five slide pitch deck and an idea.
James McKinney: Yeah. So when you think, one of the interesting things you said, you said you knew you'd be an entrepreneur eventually. You're from Scotland. Did you spend all of your childhood there? How long were you in Scotland for?
Gabi Lewis: I was actually born in Israel. My family moved to Scotland when I was two, and I lived there until I was 17. Then I took a year off and backpacked through South America, and then I came to the US for college at Brown in Providence, Rhode Island. Then when I graduated I moved to New York.
James McKinney: Got it. So that's a great timeline for us to work with. So the fact that you said, "I knew I'd be an entrepreneur at some point," and here you are in Scotland as a youth at the time, that entrepreneur culture is different than maybe the American listener or even the Australian listener right now who understands what their childhood was like as an idea of I want to be an entrepreneur. What did that look like for you? When you think of that idea in your teens, what did that look like for you?
Gabi Lewis: Yeah, and actually think I should start to slightly change what I said. I'm comparing Scotland to the US, but what I'm actually doing is comparing Scotland to New York or San Francisco.
James McKinney: Oh, there you go.
Gabi Lewis: I think probably what's actually true is Scotland is maybe similar to a lot of the US, just not similar to where I live now which is New York or some of the startup scene in San Francisco. So being an entrepreneur I think for me growing up, it was building a business and working hard, and bootstrapping it. I'd never heard of the idea of outside investors. And so it was a sort of different, slower process and it was probably built on a more sort of fundamental insight as opposed to a sort of like big, crazy idea that maybe has an 80% chance of failure but if it pays off it pays off huge. I didn't know anyone that tried to do that sort of thing. Everyone in my family or family friends that had businesses, they were real solid businesses that employed people but they sort of did normal, day to day things. They weren't tech startups.
James McKinney: Yeah, awesome. So you ended up going to Brown in the US. At this point in the game having spent a year off in South America, and again I've heard from so many different founders how pivotal travel was to their entrepreneurial journey, just having a different perspective than the area they grew up in. having had that year of travel, ending up at Brown and in Rhode Island as well, what did you think… what was starting to percolate from an idea perspective of what your entrepreneurial vision might have been at the time? Not maybe necessarily what you knew was going to come when we talk about XO and now Magic Spoon, but what did you think was going to be this initiative venture you were going to grow?
Gabi Lewis: When I arrived at Brown after backpacking for a year in South America I still thought I was probably going to go into finance for a while or do something other than start a business for a while. I arrived at Brown thinking I was going to major in economics and mathematics, that I was going to work very hard, that I was probably going to join a big bank or a hedge fund or something, and a couple things happened. One, I hated economics and I hated mathematics even more, and I really enjoyed philosophy. So I started majoring in philosophy. My parents, they let me go to the US for college which costs more than going to Scotland for college and so they didn't let me just major in philosophy. So I ended up doing philosophy and just enough economics and mathematics classes to do the double major. So I was still a little bit employable if it came to that.
Towards the end of my time at Brown, I had this major in economics and mathematics, I had spent a summer at a hedge fund, but I sort of realized why wait. I think a lot of people have this idea hammered into them that they'll do two years in banking or consulting, at least if they're coming from a certain educational background, they'll do that first, they'll pay their dues, and then they'll start a business. When people pressed me and if I pressed other people who tell me that's what they're doing, typically there's not a good reason for doing that other than that's just a done thing for a certain kind of person who's gone through a certain kind of educational system. I also think, and this goes back to when I was traveling, I realized that the happiest people I came across weren't the wealthiest people. I'm clearly not going to be the happiest version of me if I spend two years working 12 hour days in finance, and so like what's the point? Why not just go straight to what I think I want to do which is work for myself, do something interesting that I'm passionate about, and build a business? The idea for XO had been sort of percolating which we can talk about, and so I did that.
James McKinney: How? Okay before I ask this question, because if I ask people this question before people understand what XO is they won't understand the basis for my question. So can you share with my audience what XO was?
Gabi Lewis: Yes. XO is a company that is developing insect protein as an alternative food source. So insects in general and crickets specifically are packed full of protein and they're extremely sustainable as a food source. So to raise them per gram of protein requires less water, less feed, less space than traditional protein sources whether animal based or plant based. So rationally there's good arguments for people to eat crickets and insects as a food source. XO we started to try and cross over, breakdown that psychological barrier which many of us, at least in the western part of the world have and we have this aversion to eating insects which is not grounded in logic or reality, it's purely grounded in culture. And so we thought if we could come up with a way to convince people to eat these foods they think are weird, and if we could make these things aspirational and cool, and create some kind of product that makes it easy to consumer insect protein that could transform the food system, have massive environmental benefits, and also just be fun.
James McKinney: Okay, so here you are, ending your time at Brown, realizing I don't want to work in finance, I don't want to take these two years off. The happiest people you met were not the wealthiest. You have this idea I'm just going to start my own thing now. That said, I don't think most people their launching point is I wonder how I can popularize insect proteins in some edible form whatsoever. So first let's put a date stamp on this. When did this idea come to be? And second why did you want that to be the first? Now I understand what you wanted to do with it, but why did you say this was my launching point?
Gabi Lewis: Timeline wise we are now in early 2013 so this is a few months before we graduated. It was a slower process than simply saying I'm going to start an insect protein company. It started off as I was very into CrossFit and I was doing the paleo diet, which at the time were two huge trends that still exist to some degree. The protein bar market then seven years ago was not what it is today. So there was no protein bar that satisfied the requirements of the paleo diet at the time and that was like the biggest nutrition trend. So I had an idea to start the first paleo protein bar company. As I was working on it some other company came out, this company actually doesn't exist anymore, but they came out with the exact same thing. The same ingredients, the same flavors, everything. And so I thought okay, I've got to pivot this idea somehow and my college roommate at the time, Greg who was the cofounder at XO and my cofounder at my current company, he said to me, "What if you put crickets in your protein bar?" I said, "That's a ridiculous idea. Why would we ever do that?" And he sent me some articles.
Turns out that at the time there'd been a United Nations report which was their most downloaded report in the United Nations history about how if we want to save the world, improve the food system, deal with overpopulation, we need more sustainable food sources and one of the ideas put forward was insects given how sustainable they are. It was also a BBC article around that time, and so people were talking about this idea of eating insects for nutrition and environmental reasons. But nobody was talking about how you actually get people to do it. So we though what if we combined these ideas? What if we create a protein bar that is geared towards CrossFit, paleo, all these people who actually care more about nutrition than anything else, and actually pride themselves on being a little bit countercultural and doing things that other people think are a little bit weird? What if we created a cricket based protein bar, sold it to these niche audiences, and that was how we sort of introduced this new sustainable protein to the world, and that was the genesis of the idea.
James McKinney: It is a very big goal to try and popularize an insect based nutritional food product. In the US especially, we're vanity driven. I'm just going to call it what it is. Americans are vanity driven and the idea of selling a product that you have to popularize first in order to really even get them to try it seems just like a monumental feat. So when you think back to the early days of XO, the launching point of XO where now you have a product you're ready to bring to market, what were some of the thought processes across the founding team, those who were helping you with marketing, in order to get people to be open to the idea of an insect based protein?
Gabi Lewis: Firstly, we were young and we were naive, and we were overly confident and ambitious so I don't think I would have started that business now, and I don't think it was necessarily the most rational decision to do it. But with that being said, there was some logic to marketing and it was a marketing challenge that business over anything else. The question was how do you take this thing that people think is gross and how do you make it cool? There were a couple of tactics we took. One was we partnered with a three Michelin starred chef, and he developed all of our recipes. He helped us sort of seed it with some of the top chefs in the world and so we were sort of playing into this idea of celebrity chefs being the next frontier of rock star and celebrities. And actually at the same time that we were working on this, a lot of the best restaurants in the world were featuring insects on their menu for sort of culinary reasons.
There were also a lot of case studies we had of other products, or other food ingredients that had been weird at some point and now we think of as very mainstream. Things like sushi, lobster, bone broth, there's lots of foods that a certain amount of time ago people thought was weird or gross, and now we think is totally normal. The way you startup story get it across the chasm is you create an introductory vehicle, and so for sushi it was the California roll where they basically wrapped the raw fish in rice and seaweed and avocado, and they made it sort of more palatable for westerners. So we knew we had to create a similar thing to the California roll, and that was where the protein bar came in. we made a protein powder form the crickets, no taste, no smell, you'd never know, and we sort of eased people into it that way.
James McKinney: Interesting. And the reason I ask that question because I do believe that there's probably a lot of learnings in that go to market strategy that you brought into Magic Spoon. Obviously it's not nearly as different than what might be out there other than some of the nuances of the health side of it, but from a cultural perspective we love cereal. Everyone loves cereal so it's a little bit easier of an adoption, so when I look back at the challenges you might have had with XO I think those must have been tremendous learnings for you coming into Magic Spoon.
Gabi Lewis: Oh yeah. Once you've tried to sell crickets, selling cereal is a breeze.
James McKinney: I love that. Absolutely love it. Now I had made an error in a statement where I'd said what XO was and you had said XO is still around. The reason I made that assumption is because you're now with Magic Spoon. So what was the life cycle of your involvement? What was the life cycle of XO, where it is now, and what was your involvement and what was your exit out?
Gabi Lewis: Yeah. So we started XO in 2013. We sold the business to one of our suppliers about two years ago. And so from that moment neither myself nor my cofounder have had any involvement in the business, but it does still exist and actually I'm in Texas right now and I was at a gas station yesterday and I saw an XO bar at the checkout, which is the first time I've seen one in real life in a couple years.
James McKinney: Oh wow.
Gabi Lewis: That's pretty cool to see.
James McKinney: That's awesome. As you're no longer with XO and you sell this company, and again your first startup you have a successful exit which is incredible, especially given what you accomplished with making insect proteins something that consumers were buying. Again, absolutely amazing to me the ideas that entrepreneurs come up with continue to just blow my mind with the diversity of problems people try to solve. I absolutely love…. The greatest parts about doing The Startup Story is just hearing just the diversity of ideas and problems that people see out there and try to solve. So now as you're exiting XO what was your thought, like take some time off, got some money in the bank, let's travel again? What was your immediate process as you were ending your time with XO?
Gabi Lewis: I knew I wanted to stay in the food and beverage world. I knew I wanted to start something else pretty quickly. We had an exit but it wasn't a retire on a private island kind of exit. I think it left us really hungry. We had such huge ambitions from that business. We wanted to replace soy protein as the go-to protein source for like every product in the grocery store. We sold the business but we didn't go that far, so it left us very hungry for more. It left us with learnings around how we can start a food business and grow it much bigger, much faster. It left us with an appreciation for product market fit that I didn't have before. Maybe this is more of a sort of Silicon Valley mindset, a lot of entrepreneurs think it doesn't really matter what the product is if you're a good entrepreneur with hustle and grind you can just make it work.
I think a lot of venture capitalists reinforce that slightly mistaken idea that the business idea is less important than the founder. There's a mantra to bet on the jockey, which I think a lot of founders internalize which is obviously partly true, but I didn't until now have a deep appreciation for just how much product market fit changes the game. So we spent a lot more time making sure we picked the right idea, and we had certain criteria based on our experience last time. We needed an idea that we could lean very heavily into influencer marketing with, because we believed that was going to be part of the future of how you market products online. We wanted a product that was light and easy to ship, so it made for an efficient and profitable direct to consumer business. And a few other criteria as well. We ended up with cereal, that's what we wanted to get into next.
James McKinney: That's incredible. So XO was a two year endeavor for you.
Gabi Lewis: Longer, sorry. So XO was started 2013. We sold it probably 2018 so about five and a half, six years.
James McKinney: Got it, so 2018. So when would you consider the launch of Magic Spoon?
Gabi Lewis: We publicly launched April 2019.
James McKinney: April of 2019 so you really got into the research side of it very quickly in order to bring something to market really just we'll call it 16 months after the fact of leaving XO. So for those who may not know, and if they're living in a vacuum then they don't know, but I think anyone on Instagram should know who Magic Spoon is at this point. Again, whether it be because of marketing, paid ads, influencer marketing, whatever the case may be I feel like I see Magic Spoon all the time and maybe it's because I knew we were going to be recording so the algorithm just feeds me Magic Spoon all the time, but Magic Spoon is everywhere. So those who might be living in a vacuum, can you explain what Magic Spoon is to my audience?
Gabi Lewis: Magic Spoon is a breakfast cereal company. We reimagine all of your favorite childhood breakfast cereals into a product that is high protein, low carb, and has zero sugar. So we have a handful of flavors: chocolate, frosted, fruity, more recently peanut butter, salted caramel. They're all gluten free, grain free, keto friendly, no sugar, like I said high protein, low carb, tick every nutritional box you might want to tick except they look and taste like they are junk sugary cereals.
James McKinney: And that is for real. That last sentence right there, they look and taste like they are junk sugary cereals is 100% true. They are so unbelievably good-
Gabi Lewis: Thank you.
James McKinney: … it is amazing. Now I have to ask because I've consumed who knows how many boxes of Magic Spoon up to this point. Not knowing XO was part of your journey prior to a couple days ago-
Gabi Lewis: I see where this is going.
James McKinney: … are there insect proteins in Magic Spoon?
Gabi Lewis: No, we wouldn't have been able to slip that one in without anyone noticing. There's zero insect in Magic Spoon.
James McKinney: I just wanted to get that out there so people weren't trying to falsely make connections so that's excellent. So when you think of your going to market strategy for Magic Spoon, having come off the learnings of XO, what were some things that you immediately did differently because of what you learned in your first journey? Because I believe every single, whether the startup was a success or a failure there are tremendous learnings that come from that season that make our next one even better. So what for you was critical during your time of building XO did you bring into your development and launch of Magic Spoon?
Gabi Lewis: So we launched Magic Spoon primarily with influencer marketing. We saw at XO even having a product with very little product market fit the power of a health and wellness influencer in moving units online. So with Magic Spoon we leaned very hard into that. The first round of financing raised, half of it was from health and wellness influencers. These are not huge people with 20 million followers, these are people with very passionate 100- to 500,000 followings. So we have a few dozen of those types of health and wellness influencers who invested in our business. So at launch they were able to push it out to their audiences. That allowed us to hit scale very early on without spending an insane amount of money on Instagram ads that a comparable brand might have to spend in order to get that early scale. So that was one big thing.
Another we'd built a lot of relationships with XO that we were able to use for Magic Spoon. Our branding agency for Magic Spoon was a branding agency we'd met during our time at XO. Various other sort of service providers we'd met over the years are people that we still work w. lots of our investors backed us again. Sort of every part of the business was made faster and easier just because we've done it once before.
James McKinney: When you think back to XO, and one of the things we didn't talk about was funding and in fact you just brought it up right here when it came to Magic Spoon. XO, all bootstrapped self-funded or was there outside capital?
Gabi Lewis: No, there was outside capital. We probably raised about $7 million for that business.
James McKinney: Okay. And then for Magic Spoon obviously there was investment capital that was brought in. having come off the success of XO there's a chance you probably could have done it bootstrapped. Was the venture capital intentional or was there maybe some doubt that you could have done it bootstrapped?
Gabi Lewis: A bit of both. The cereal market is enormous and we couldn't understand why nobody had done before what we're now doing. In the past year since we've started doing it, there are more others doing it than I can count on one hand, maybe even than I can count on two hands. We knew that was going to happen if we had any success. We also know that things like branding, a lot of these things are to some extent a commodity. At a certain point, if there's enough competition money becomes frankly really, really important. So we wanted to make sure that we were well capitalized from the start, and that if we had some early success and a bunch of copy cats came along we could afford to stay ahead. That would have been quite tricky if we were bootstrapping it. We also wanted to move very quickly, and to move quickly and to sort of lock in zero sum marketing channels, certain podcasts, certain influencers requires a lot of upfront cash. So we knew we sort of had to raise money early.
James McKinney: Now was your launch strategy solely direct to consumer or were you in retail from day one?
Gabi Lewis: We're actually still not in retail. We're 100% direct to consumer today and we have been since we launched.
James McKinney: You're only direct to consumer?
Gabi Lewis: Mm-hmm, yep.
James McKinney: I don't know where I got that idea you were retail. I wonder if maybe there was just some influencer was carrying around a box of Magic Spoon through a store and I somehow assumed-
Gabi Lewis: There's a handful of stores that did buy full priced product from our website and put it on their shelves. Nationwide Walmart isn't in that but there's some small stores that do that, so it's possible you saw it somewhere, but no our business is exclusively direct to consumer.
James McKinney: Now do you plan on staying that way?
Gabi Lewis: Not forever. I don't think you can scale any business to the point we want to scale Magic Spoon purely D to C, and that's true whether you're selling glasses or mattresses or cereal. That being said I don't know where that ceiling of a D to C business is for cereal. Could be $50 million, could be $200 million, I don't know but I do know it exists. We will go to retail at some point to keep growing, but it's not in the immediate future.
James McKinney: Just because of how nuanced your brand is, and your brand is just so well positioned online, does the retailer who carries you, is that of consideration to you? Are there certain retailers you're like you know what we're not going to put Magic Spoon in that because it's just not on brand with who it is we are?
Gabi Lewis: We're considering very carefully who we eventually partner with, but it's not about what retailer is on brand or not on brand, because by definition the only people that care about that are the people that are in the store. Even if we picked the most off brand retailer, if we put it on their shelves its customers that love that retailer who are going to see us there. The same customer that sees us through an Instagram ad probably won't even know we're there, so I'm not too concerned about retailers that might be viewed as on or off brand. I'm more concerned about the fact that we are a relatively new type of product, so of course cereal exists but there's not a lot of high protein lo carb cereal on shelves. There's also not a lot of cereal on shelves at our price point. And so those are the types of things we consider. What does the competitive set look like, where in the store would the retailer put us, what does their customer typically look like, what does their customer care about? Things like that more than the sort of brand of the retailer matching with our brand.
James McKinney: And the reason I was asking that question because obviously there's certain brands that immediately come to mind when I think of Magic Spoon. I think of oh my gosh Trader Joe's would be a great fit for this, Whole Foods would be a great fit for this, a Kroger doesn't seem like a great fit but to your point if you're out at Kroger it's not because of a brand of Kroger you're there for convenience and whatever the case may be.
Gabi Lewis: Yeah. All these things trade off with each other and you have a similar trade off when you look at influencers for example. If we only worked with influencers that were most on brand for us, so influencers who have Instagram pages that are colorful and all about food and nutrition, and joyful recipes, that would limit the scale we got to and so we don't do that. We work with those influencers. We also work with people who are 50 years older than our target demographic because they also love cereal and want high protein foods, even if you might not look at their Instagram pages and think they are on brand for Magic Spoon. It's going to be a similar approach for retail. We want to create a product that has mass mainstream appeal here, and part of that means not being too precious about what we think our brand is and what we might think of as off brand.
James McKinney: That's a great point. I think a lot of times from an early days in the startup we can hold that brand itself so tightly and even lose perspective of what it is that we're about and that's the product and the service, versus the brand itself so that's great insight. So when we think back to the fact that you launched April of 2019 we're talking 18 months ago, and just massive, massive success. With that success comes tremendous logistics challenges. So when you think of your 18 months what have been some of the greatest challenges for you?
Gabi Lewis: A lot of challenges. The first month was hard. We had an amazing launch. We had an amazing launch day. Honestly at launch day we realized this was going to be bigger than we thought it was going to be, and we knew we sort of had to reevaluate everything. So those first few weeks we had to rethink where we're making it, we had to rethink how we're making it. We had to rethink the logistics partners, where we're shipping form, all of that stuff even down to how we're structuring our payment with our digital marketing agency. Every single decision we've made was based on assumptions that this thing was going to be much smaller than in fact it turned out to be even on day one we could tell.
James McKinney: Could we share a day one number? What was your expectation for day one and what happened that had you questioning everything?
Gabi Lewis: We were expecting our first day of sales to be in the hundreds of boxes of cereal at most, and it ended up being in the many thousands of boxes of cereal on the first day.
James McKinney: That's incredible. What an amazing multiple and I can see the challenges that would come from that, especially again all the way down supply chain. In fact, just last week we released an episode with Dylan Jacob, the founder of BruMate, and one of his early day challenges were very much logistics. He talks about his year two growth, it could have been so much greater had he had a solution for logistics until he partnered with a brand like Chipmunk that was able to solve a lot of things for him. So when you think about your 18 months what is something you wish you would have had in place knowing what you know now?
Gabi Lewis: More people probably. Hiring takes time in normal periods, it takes even more time during the weird period we're in right now where you can't meet people face to face. So I think we've constantly been playing catch up in terms of building our team. Part of that is we're probably a little bit too selective honestly. We have too many rounds of interviews probably, we're probably a little bit too perfectionist of terms of who we're hiring, and we could hire faster probably if I'm being self-critical. But we've been chronically understaffed since we launched.
I've had people tell me that you should hire for six months ahead, hire for the business you think you're going to be in six months. That always feels a little bit silly because for a startup who knows where you're going to be in six months so to say, "Oh, maybe we'll need a chief of staff in six months. Let's hire that person now even though I don't even know what they do right now," just always feels a little bit silly. But looking back on the last 18 months I do wish we'd hired a little bit faster, even just simple hires like maybe an extra person on the customer service team for example, just knowing that kind of the volume of inbound tickets that we get can grow very quickly in an unexpected way, and makes everyone's job harder if we fall behind on that. So I'd say hiring further ahead of time would be one of the learnings.
James McKinney: I want to ask a couple questions about the hiring challenges because I think a lot of people don't think about those things, or they read so many books that talk about how critical a great hire is, how toxic a bad hire is, and they create these multiple layers and they're unnecessary in the hiring process, so I want to talk about that. But I do want to ask from a startup perspective, in customer service, there are ways to outsource certain things. Why bring certain things internal so early on?
Gabi Lewis: So we're probably a case study on how not to bring things internally as a general rule. We have more agencies than I can count. We have several agencies that just focus on influencer marketing. We have multiple freelance designers. We have a lot of agencies we work with so I'm not anti- agency at all. That being said it gets hard to manage at a certain point. I think the goal of most companies is to bring most things in house so we're trying to do that for various departments.
Then there's certain things, I think customer service is a good example, that lots of people do outsource but for us customer service is really the front line of the business and if something goes wrong customer service knows before everyone else. Even if it's something on the operations side, or even if it's something on the growth marketing or digital advertising side, customer service knows before the person who is supposed to know knows because a customer catches it and they write in. so it's very important for us to have those people sitting beside us now, like a Zoom call away from us, to be able to let us know, "Oh, this ad is getting some comments. People don't like the model that we chose to use." Or, "Oh, this random page on the website that you didn't think anybody goes to, actually the button is broken on it and we got four complaints about it in the past hour." Things like that, that if we use an outsourced customer service agency that was just clocking in and clocking out, using templated responses, those problems wouldn't bubble up as quickly as they do. That's sort of the value we see there.
James McKinney: Okay. Now onto the hiring question. How did hiring become, to use your words, as long or as complicated as it has become in Magic Spoon? Again, you're a startup. I suspect it all started with you and a cofounder first, and maybe hiring number three and four. How did it get to the point that it is, and how could you streamline it?
Gabi Lewis: Yeah. Just to be clear it's deliberately long. I can't quite decide if it's too long or not, but part of it is when you're at the stage we're at, you're hiring single people for each department. So if you're only hiring one digital marketer, you're only hiring one operations person, ideally they're going to be "the" person and they're going to build out a team, and they're going to be leading that department for several years. So they need to be really, really good. And so our standard for hiring our first or even our second digital marketer is much, much higher than our standard for hiring our tenth digital marketer just because of the team they need to build and the responsibility that they're going to have. So part of it is just by nature of the stage we're at we want to take longer and we need to have higher standards than if we were a year from now hiring our 30th or 40th employee. Right now we're 10 people, so that's part of it.
James McKinney: Got it.
Gabi Lewis: We have become a little more streamlines, so there's a few sort of tricks we discovered. One thing we do now is I never do a first round interview for more than 15 minutes, and usually the first round interviews last 10 minutes, and it's always over video. That's the first stage for any role we interview with is a 10 to 15 minute video, we call it the meet and greet, because you can usually tell when you get into an interview within a few minutes if it's worth really digging in or not. We spent too much time knowing that in minute five and then feeling bad ending an interview that'd been scheduled for an hour after the 30 minute market. So now we just don't let anybody do first round interviews for longer than 15 minutes, we always cut them off there. That's helped streamline it a lot.
Then there's also been some benefits of the pandemic in terms of forcing us to become better at hiring actually. It's very easy to get distracted by liking someone's company in an interview. If you're meeting someone for a coffee or an in person interview some of your internal biases can take over, you're not aware of it. People can maybe sound smarter than they are with their body language or how they project themselves. I'm frequently told my Scottish accent makes me sound smarter than I am, that goes both ways. But with not being able to meet people in person we rely a lot more on projects and case studies, and written answers. That removes a lot of the bias from the hiring process and allows us to more accurately replicate them sort of doing the day to day function of the job. So we've been doing a lot more of those sorts of things in the hiring process which has also streamlined everything.
James McKinney: Excellent. Now for a startup one of the most compelling hires and yet the most challenging hires is the CFO position. It's the one that is overseeing the financials, the investing. Have you gotten to a point where you have CFO yet?
Gabi Lewis: We do not. We have like a part-time CFO, but not a fulltime in- house CFO.
James McKinney: The reason I say it's some of the most compelling is there are things, and correct me if you don't agree, but there are things inside the business financials that we as the founders and entrepreneurs, we may not see because we're only seeing certain metrics that are key to us, and it's the CFO that can come in and chime in and say, "you know what, we need to rethink our pricing strategy, we need to rethink our payment cycles," or whatever the case may be. Your part time CFO, your fractional CFO, how important has that position been for you as you grow Magic Spoon?
Gabi Lewis: He's probably going to listen so I have to be very careful what I say now. He's great and to your point, yes, he points out things that we're not thinking about and we're not looking for. It's impossible as a founder to focus on more than a few KPIs basically. He questions the KPIs which is important and he also draws attention to other things we might miss. There's I think if you ask most founders what they spend most money on, maybe of the five things they guess they'd be missing one or two probably. There's things that you don't realize you're spending a lot of money on until somebody points it out and so having someone who's laser focused on every line item only helps.
James McKinney: I've heard many, many different success stories where they thought the business was here, they were ready to scale, they finally leaned in on a CFO, and then they just realized wait a second there's a few more things we need to put in place before we just like pull that lever and just go crazy with that growth. I know for myself as a sales person, as a founder I can so easily fall into the hype. Even with the KPIs, I can fall into my own personal hype and so to have an outside party come in like, "James, you need to check yourself. You need to have a reality check real quick. You can see all these metrics, that's great, but let's talk about cash flow for a second here." When you look at the forward, Magic Spoon is so young. It blows my mind that it's so young because it seems like a brand that I've been acquainted with for quite some time and the success that you're seeing is tremendous. But when you think forward, is it always just cereal? What does Magic Spoon look like to you? Let's say if we were having a "where are they now" episode in five years.
Gabi Lewis: I think it'll be mostly still cereal. Cereal is an enormous market that everybody… a product that everybody eats. Most startups, most food companies, they need to eventually be able to platform. They need to have other products that they introduce but that's because most markets, most aisles of the grocery store are not as extensive as cereal is. Cereal is one of a handful of products where if you walk down the street and saw 10 people, 10 out of 10 of them would have a box of cereal in their cabinet, probably five or 10 boxes of cereal in their cabinet. There's really no need for us to go much beyond cereal.
I think companies typically go beyond their core product when they need to, when they tap out that market, when maybe their cost of acquisition is rising and they need to extend their lifetime value or they just need to take up more areas in the grocery store. But I don't think you need to if you're playing in a market as big as cereal. That being said, if we continue to run this business for 20 years I'd be surprised at that point if we were only doing cereal. But if we're talking about a sort of reasonable four to seven year timeline, I think we're going to be focused on cereal throughout that time.
James McKinney: With the success that you've had with Magic Spoon and XO before, you've been in this space for 18 months with Magic Spoon. You had XO for five or six years roughly for that, so you've been in the food space for some time. One of the things that I love about The Startup Story is giving people access to founders like yourself to get that guidance and mentorship that really a lot of times they wouldn't have access to. So if you were having a coffee with one of my listeners that had an idea for a food product and all they had was a napkin… well I guess a napkin would be weird for a food product but they had a notepad with some ideas of what they wanted to do, what guidance would you give them on how to go from that notepad to concept to product launch?
Gabi Lewis: The first thing is to make sure it's the right idea, and I think the key there is pick an idea that's not too sexy. It's very easy to want to make the next kombucha or cannabis infused beverage or nonalcoholic seltzer, but those ideas that seem so of the moment and seems like there's a massive opportunity for there's probably 10 other founders with the same idea working on their brand, getting ready to launch right now, and it's going to be really hard to break through. I think at the idea stage you want to try and find something that's ideally a huge market that others have overlooked. So cereal worked for us. A couple of years ago nobody was really thinking the cereal market needed to be disrupted or innovated. People had sort of written the cereal market off as this big, sluggish category that had year over year decline. So finding big markets like that, that others are overlooking, I think is one of the keys to sourcing the idea in the first place.
James McKinney: Love it. Absolutely love it. Now once you have that idea and that framework, how does someone start moving into some type of productions for a real concept? How does one start then testing? How can this person you are mentoring get to a point where they are actually selling their product online? What is that next step? Is it to actually get a product? Is there testing to be done without a product? In food, as an outsider I think you've got to have a product people have got to be eating it in order to test it.
Gabi Lewis: Yeah, and it depends on the product. Some products you can make yourself in your kitchen and so that's relatively easy to make a prototype and just give people to try and it doesn't need to be a formal focus group of 20 strangers who fill out forms. For both of our businesses it was making a small batch and giving it to friends. Our first batch of XO protein bars we gave it out to people at our house on campus at a party one night, and people I think didn't realize they were eating crickets but they gave us feedback on the taste of the protein bar. So taste is obviously paramount when it comes to food. All these other benefits, whether it's price point, health attributes, for food that's secondary and if people don't think it tastes delicious then none of that other stuff matters. That doesn't need to mean it tastes the best product in its category. Every food product has tradeoffs and so you need to figure out where on the taste, nutrition, price point spectrum you want to be and every product you can pick up in the grocery store has made tradeoffs. You cannot be the most delicious, the cheapest, and the healthiest. You're going to be two of the three and you're going to be somewhere in the middle there. So for Magic Spoon we decided to make it really, really healthy and 90% as tasty as the unhealthy cereals. You can't be 100%/100% so there's a little bit of sacrifice in taste. It tastes almost as good as the junk cereals but it's 100 times healthier.
James McKinney: I love it. Absolutely love it. When we think about your current day I suspect the pandemic probably boded well for the sale of Magic Spoon. Ecommerce went on an increase and a rise, new foods, unique foods was probably very compelling because a lot of people put on the quarantine 15 or whatever that number is for certain people. So I suspect that probably did well for you. When you think of the challenges that you face going into 2021 coming off of what was probably a fairly successful year for Magic Spoon what are those challenges that you look to solve for 2021?
Gabi Lewis: A couple of things. I'd say the first is figuring out how we continue to innovate knowing that we want to stay very focused at the same time. In order to get customers to keep coming back on a D to C business, you need something fresh and something new. I think that's why a lot of companies are tempted to release all these new product lines and expand to a platform. But you also want to stay focused and you want to do one thing very well. So for us trying to figure out how do we have the best of both worlds, how do we stay focused and be the best in the business at creating healthy, delicious cereal and doing nothing but that. But also make sure that our brand is growing and innovating, and that we're not becoming stale and we're not just stagnant.
So one of the solutions is new flavors, so that's a lot of what we're working on in the product development side. We have new flavors that launch basically every eight weeks and so formulating them, design, packaging, launch plan, that takes a lot of work and that cycle is very tight. There's a consumer feedback piece that comes in at both ends where the consumer helps us figure out what the flavor is that we're going to launch and then also the consumer helps us figure out whether we keep it or whether it was just a limited edition flavor as well. So that's a big focus.
And then the part of the business where I'm spending most of my time, which we discussed, is really just hiring. Our team has doubled since March and it's probably going to double again in the next six months. So still a very small team but we've gone from five to now 10 or 11, and we'll probably be 15 or 20 in a few months' time.
James McKinney: That's remarkable. As our time comes to an end I want to honor your time, I want to honor the time of our listeners. At the end of every episode I always bring these three questions to our founder because I think the perspective that our founders have is critical for my listeners for multiple reasons. That first question has to do with the idea of entrepreneurship. There's a lot of personas that are painted by mainstream media of what entrepreneurship is but do you think anybody can be an entrepreneur? Now, I want to clarify not wants to be. Not everyone wants to be an entrepreneur but do you think anybody can be an entrepreneur or is it a certain genetic makeup?
Gabi Lewis: I don't think it's a genetic makeup. I think if anyone wants to be an entrepreneur, they probably can be. Obviously if you start defining entrepreneur to be a narrow definition of somebody who can raise $100 million in capital and build the next rocket company or Tesla that I don't think anybody can do that. I think I probably can't do that. But entrepreneur broadly defined as having a new idea, bringing it into the world and growing it, yeah I think anybody can do that.
James McKinney: do you think, because you started off with the scaling so I want to peel at this a little bit, I want to unpack this a bit, you started off with the idea of the rockets and the Tesla. Obviously there's on Elon Musk in the world. I don't think there's anybody that's ever going to be able to disrupt fintech with PayPal, then move on to electric vehicles and then rockets like Elon. Elon is an anomaly. In fact we had Steve Jurvetson on who was one of the early investors in SpaceX and Tesla and a good friend of Elon, and even he says between him, Elon, and Steve Jobs they're both anomalies but there's only one Elon. He is the quintessential person of the American dream, the immigrant coming over and doing what he has done. You started off with that idea of entrepreneurship and I think there probably is a level of thought out there that that is what entrepreneurship is. How do you look at entrepreneurship?
Gabi Lewis: I think I define it in the broadest possible sense, which I think an entrepreneur is anybody who has an idea for something that doesn't exist and brings it into the world and makes it exist. That could be someone who has an idea for a better nail salon who creates it for him or herself, or it could be someone who has an idea for an entirely new food group, or an entirely new vehicle and they are very different skills and personality traits that are required for different kinds of businesses, and different kinds of skill. In the same way that I might be the perfect person to take Magic Spoon from zero to $75 or $100 million in sales let's say, I might not be the perfect CEO to take it from $100 million to $500 million. You can make similar points for different businesses. I think the same is true for different types of entrepreneurship and starting different kinds of businesses, but that's not to say that not everybody can be an entrepreneur for a business broadly defined.
James McKinney: Oh, I love that. Absolutely love that. Thank you for answering that secondary question where we peel that back a bit. I love getting the insight from those who are executing and doing, because for those listeners of mine that I call them the wantrepreneurs. They have a 9 to 5, they have a book full of dreams and ideas, but there's some narrative as to why they don't move on it and for them to have the perspective of someone like yourself who's sitting at a place that they probably desire to be one day, to hear that there's a potential for it as long as you want it bad enough, anyone can do it, it's not a genetic makeup.
Gabi Lewis: Yeah, and I also just want to be clear. I don't mean to make it sound easier than it is for certain people. I had a lot of advantages going into this, going to a certain university, having a certain network when I graduated that made doing certain things like raising investor money easier than someone that doesn't have that background. There are parts that are easier or harder depending on where you're coming from.
James McKinney: Absolutely.
Gabi Lewis: But I don't believe it's like about who you are fundamentally.
James McKinney: Absolutely. Oh I love that. Absolutely love it. The other thing that I don't believe is that I don't believe it's a solo journey. I don't believe this idea that it's just you and your laptop in order to build this next disruptive thing, just nose to the grindstone all the time, you're isolating yourself, you're in a sensory deprivation chamber the whole time. Again, it has worked, it is an anomaly, it is not the norm but people are starting to believe it's the norm. And so this next question is about disrupting that idea. I believe the way we disrupt this idea is what we hear from successful people all the people that they look to with gratitude for those who have contributed to their journey. So when you look back on your life entrepreneurial journey, who are the people you point to with such immense gratitude for where you are today?
Gabi Lewis: Oh wow, great question. I mean I think maybe a cheesy answer but I think my parents probably first and foremost. Not only for everything that went into my childhood and raising me, but also for being okay with me making the decision that must have seemed ridiculous at the time to not take a high paying job in finance and instead start a cricket protein company. That was objectively a ridiculous decision that everybody told me was wrong, and my mom said, "Do what will make you happy. Follow your dreams."
James McKinney: Oh, I love it.
Gabi Lewis: So you know if they hadn't done that then I probably wouldn't be sitting here.
James McKinney: I love it. I always say that if I had to trim The Startup Story to 20 minutes I would find some way to accelerate the story part and get to that question because it's so powerful for people to hear the fact that successful people didn't get there on their own. I love that question so much.
Gabi Lewis: Part of it is not getting there on your own, and part of it is none of this stuff happens as quickly as people think. There's at least in the food industry every time a new company gets sold people joke that it was like an 11 year overnight success. There are all these brands that oftentimes brands actually say they launched a few years later than they did. Maybe they rebranded or something which sort of gives them permission to say they're only a four year old brand, but actually the founder was working on it with other people for like five years prior to those four years he or she talks about. The stuff takes time and it takes a lot of people.
James McKinney: Yes it does, absolutely. So as our episode comes to a close we've been talking to tens of thousands of entrepreneurs and wantrepreneurs at a high level of just your journey. We've covered a few tactical moments, but this last bit I like to afford an opportunity for you to speak to just one of my listeners. Maybe that is the entrepreneur who is on the brink of losing everything because of COVID. I have no idea. Maybe it's the entrepreneur who is not going to lose their business but they've continually had challenges trying to get traction and any type of scale. Or maybe even having a problem finding real product market fit. Or maybe it's the entrepreneur who has that 9 to 5 and a book full of dreams and ideas, but some hesitation to move forward. Whatever that persona is, who would you like to speak to as we wrap your Startup Story episode?
Gabi Lewis: Seeing as this will be heard by a lot more people I'm going to try and make it broadly applicable but be a specific problem or challenge. And I think if you are someone who thinks entrepreneurship is a big black box and doesn't know where to start, and there's so many decisions to make and it seems like there's so much just to go into launching a company, I think it's very important to recognize that you only need to be good at a couple of things to have a successful company.
So if you're trying to launch an online business for example selling a product, it's very easy to trick yourself into thinking launching an online business means you need to be an expert at Facebook ads and Google search and influencers, and all these things that you probably think go into launching an online business. But actually you can just be good at one of those things and have a very successful business. You don't need to overcomplicate it, so just pick one of those things you're going to focus on right now. If it's an online business selling a product, Facebook ads is probably the easiest one to get good at and focus on, and ignore the rest of the noise. So just take your product, get the website up, run some Facebook ads and forget all those other things like Tik Tok and Pinterest, and influencers and advertising on podcasts (sorry).
James McKinney: That's all right.
Gabi Lewis: Just get good at one thing because you don't need to be good at all of that to have an effective online business.
James McKinney: Once you've had a few moments to process all the value Gabi Lewis brought us in this week's episode, please hit me up on LinkedIn, Facebook, or Instagram and share with me your thoughts on this episode. And lastly if you've been around The Startup Story for any length of time then you know how much emphasis I put on the idea that entrepreneurs support other entrepreneurs. And like I mentioned at the top of the show, Gabi has extended a discount code off your entire order at magicspoon.com. So to receive $5 off your order just use the code STARTUPSTORY at magicspoon.com upon your checkout process. I say it in every episode because I believe it with my very being, entrepreneurs support other entrepreneurs so let's show up for Gabi in a huge way as a way of saying thank you for all the value he delivered us today, and visit magicspoon.com to purchase something for yourself or for a gift for friends and family, but make sure to use the code STARTUPSTORY to get your $5 off your order. And now for my personal ask.
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