Reminds me of recent Instacart news.

http://www.bloomberg.com/news/articles/2016-03-11/instacart-...

Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..."

In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area).

Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.

Ignoring the app, and disruptive gimmick, I have to wonder what your average diner could have achieved with $13.5m in funding. You could build a small, well branded chain. Probably selling food above cost to boot! :)

"Positive unit economics; couldn't cover engineering salaries, marketing, or G&A" is how I'd read that.

This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders.

Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order.

If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)

"contribution margin positive" ought to win a creative writing award.

It appears they were still at the "do things that don't scale" stage. Every company goes through this, even a diner. Why it took $13+ million to get there, though, is the real question.

Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).

I'm pretty sure you are, that's serious bubble talk

"But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?

The former. The logistics/overhead costs were what damned them.

Those are "lifestyle businesses", this is a "startup". They're different, because reasons...

Yes - I assume there is some cooking labor and other items (electricity) factored in. So yes, they're on par with the deli. :-)

With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs"

What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.

I would guess that the customer-acquisition costs alone are way higher than the food itself...

There are lots of startups that expect to lose money for a lengthy period of time while they attempt to capture the market or grow to a sufficient scale that their business becomes profitable.

In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.

Good. It's not just me that reads this stuff and constantly wonders at the the complete lack of reason in Silicon Valley. (silly con?)

"All logistics costs" being delivery? That does sound like what they are suggesting.

I find it strange when companies use this terminology:

"We were exploring different strategic options, but deals fell through last minute."

Of course deals fall trough last minute. It's not like they would fall through a few months in advance.

Their meals were not just unhealthy, they were off the mark entirely. For example, they had a partnership with Stouffer's. As in, reselling Stouffer's lasagna. Like the same Stouffer's frozen lasagna I can buy at Safeway that feeds 8 people. At that point I just laughed and closed my app. Why would I ever choose to pay a premium for that?

I found it so funny and off putting I sent a screenshot to my friends: http://imgur.com/He7Hfkj

Excellent points. Honestly it's the founders fault why this happened. They ignored these obvious signs and shouldn't be surprised. It's easy to order unhealthy food. It's a pain to make healthy food.

Ironically UberEATS launched officially today.

As a middle class person I signed up to two subscription services the other day. This is on top of my netflix, A-Prime and other common subscriptions. I realize they might not qualify to "on-demand services" 1:1 but seeing as the customer demographic is pretty much the same I believe on-demand services will always be viable as long as people demand things. And my god do some people demand things.

One start-up is an insignificant sample size.

A few months ago there was a lot of talk about "negative gross margin" businesses, particularly in delivery, going under: http://avc.com/2015/10/negative-gross-margins/ .

It was a lifesaver for those times when it was 6pm and you didn't have dinner ready for your kids.

It makes a lot more sense if you don't make dinner, which I think is pretty common. (The ROI on that life decision is also ridiculously low.)

Dude, tell me about it, I was a VIP with them, and ordered almost every single day due to a busy schedule, they would show up within minutes... the meatloaf stack, the enchiladas, the pasta, I always enjoyed it except for a couple times in all. RIP I will miss you Spoonrocket!

Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...

Indeed. Thanks to the VCs I was able to have something delivered for less than it would be to walk across the street and buy it myself.

It was like the pizza place down the street if the pizza place made all their pizzas in the morning, put the into a truck and drove it around all day until they were delivered. Enjoy the pizza!

Yeah I don't get how you brand restaurant delivery is a tech startup. Absurd. I can understand a 'meal sharing' service like airbnb or uber, but not this.

reminds me of the time in the 90s when literally just adding .com to a company's name and having a website made its valuation jump

Because there has been a mini-bubble in the "on-demand economy," a.k.a., delivery businesses. Investors are highly subject to groupthink and trend chasing. When one or more companies start to take off in the same space, a category is (theoretically) born. And then everyone wants exposure to the category.

Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical).

All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.

They had essentially the same stuff everyday, all of it super heavy and NOT healthy. What other competitors are you even referencing?

Not a uniform experience. From the OP "I ordered SpoonRocket a few times soon after launch. However, I and other customers I spoke to found the meats to be sketchy and the whole meals to be somewhat gross. I ended up switching to SpoonRocket’s more expensive and slower competitor Sprig."

Have you tried Sprig?

When they started they were cheap meals under $10 out in Berkeley or Oakland (I forget), and they did raise prices after they started expanding into SF. The problem was most of their customers were use to the lower price point of the service.

Is the delivery person aware of whether you tipped before the delivery even occurs? If so, I will never use their app.

>Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc.

I really don't want to buy food from random strangers that are not regularly being inspected for the cleanliness of their operations. A dirty room or a car is an inconvenience. A meal prepared in an unsanitary way could potentially kill you.

> Who doesn't like the sound of buying a home cooked meal from a neighbor?

I won't claim this is a rational fear, but I'm personally far more apprehensive about buying food from my neighbor than I am about staying in said neighbor's home (airbnb) or getting a ride in their car (uber / lyft / etc.)

> - Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc

This is already happening here: https://josephine.com/

> Who doesn't like the sound of buying a home cooked meal from a neighbor?

It'd take a lot for me to consider it, because it creates all kinds of awkwardness if the quality is poor, and I'd have little reason to trust that they'd deliver consistent quality.

It'd need to be far cheaper than any alternative, and I'd need to not afford the alternatives, before I'd consider something like that.

We tried a variant of this with Mise very early on but we've since pivoted to a much more stable model with massively improved results & proper regulation.

There are some highlights from what we learned trying "Airbnb for food."

1. Our target was not home chefs, but instead professional chefs. We worked in the industry for several months and identified how difficult being a chef. Lack of progression, opportunity, and a chance to showcase your skill.

2. We rented out a commercial kitchen for chefs, let them work their own hours, and cook the things that they wanted. We took on amateur chefs as an experiment, using their passion and food samples as determinant/predictor of success.

3. We wrote stories for every chef and dish. We'd even take photos of the chefs and edit those to make sure that they looked just as respectable as they sounded.

The Findings:

1. Food quality was inconsistent, ranging from inedible to passable. Because most professional chefs (professional doesn't mean much) and home cooks don't have any experience running a business of their own, their ability to scale and cost-control is poor.

2. That resulted in not only inconsistent food, but insanely overpriced meals ($15 for a bowl of chili, $16 for shrimp & pesto pasta).

3. The amateur chefs we worked with did not understand how to cook outside of recipes and/or they'd cut corners in production. Resulting in some shockingly bad food or overpriced mediocre meals.

4. Because there is no one checking over the food during production, you can't catch people cutting corners. If any of our chefs woke up on the wrong side of the bed that day, one of these things would happen (shitty food, tiny portions, unfulfilled orders).

5. No rational user is going to stick around and experiment their way around a Wild West marketplace that has such a wide range of quality and price. And no amount of "humanization" with stories, photos is going to save the fact that the food sucks.

6. Chefs are really good at pumping up their own food. "Best in the Bay Area", "everyone tells me they love it", "people ask me to open my own restaurant all the time", "there's so much love in this", or "I cooked for X person for Y years". (None of this means anything.)

7. Poor retention (and deservedly so from shitty product) and declining sales. With small orders, our chefs earned minimum wage or worse, which either drove them away ("I quit, fuck you!") or encouraged them to cut even more corners (smaller portions, terrible inedible quality).

8. We experienced ridiculous turnover (someone would quit every week, mad rush to find someone else to replace, unconsciously lowering standards in desperation).

9. At the end of the day, if the food sucks, it sucks. Doesn't matter if it's coming from your "neighbors" or "supporting the local chef down the street".

We've now partner with the best Bay Area mobile food businesses and sell their most popular items. Mise is now sustainable, food quality is consistent/high, customers are really happy (feels awesome whenever we have power users). And we've been able to offer more affordable and better-tasting meals week over week.

Ben (my awesome cofounder) and I take a lot of pride in what we do now, because we know it's awesome food going out to awesome people at affordable prices.

Order for the week ahead, get it all delivered to your door on Saturday, and enjoy a meal on your own schedule. :)

www.eatmise.com

> Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them

Given the current lay of the land, I sadly find that to be a less likely to survive the regulatory requirements.

http://newyork.cbslocal.com/2013/09/11/cbs-2-investigation-u...

Isn't one of Gobble's selling point is that it's super cheap? like $10/person? I remember seeing that as their main homepage jumbotron, which seemed to successfully target and reassure their audience of parents who wanted to know how much it'd cost to feed a family of X.

Half-kidding, but where is "growth" in your calculations? A big reason why companies discount their "fixed costs" (e.g. full-time employees' salaries, rent, etc) is because if they can get a marginal profit on their goods, then it's a matter of "making it up in volume". A company can still be losing a tremendous amount of money but have a bright future (I think this is what Amazon did for years): if you're making $0.50 per item, but have $1b of overhead costs, it very well might be possible to get to a profit, it just means you have to move a LOT of items.

Sprig's ingredients are actually quite high quality and delicious.

No, that's not it. As mentioned in the article, Sprig is still making sales.

How long it can survive at current unit economics is a different story.

The standalone app perhaps, but it's been available in many places for a while.