The Decision to Quit Your Startup
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Note: Startup Stir is hosting a talk on startup failure on November 10th, 2016 in Boston. To register for this event, click here!
Editor’s Note: In 2012, Boston entrepreneur and Startup Stir friend Katherine Shamraj set out on a mission to influence eating habits by making healthful fresh food delicious, convenient, and fun.
For two and a half years she pursued her dream job — she describes her entrepreneurial journey as challenging, exhilarating, and gratifying. In the end, not everything panned out as planned. Katherine shared some thoughts on her business, why they shuttered, and what she learned in an email with me a few months after winding down. They’re reprinted here with her permission:
The Startup – Sproot
- Sproot started from a vision I began pursuing in 2011: to teach young children how to eat well. We started by delivered fresh, nutritious lunches and cooking classes to preschools in the Boston area
- Being geeky and scientifically inclined, we leaned heavily on evidence-based research in our product design
- We built a fantastic team of 15+ employees who believed fervently in our mission
- At our peak, we achieved 87% retention with our B2C preschool parents and a Net Promoter Score of 60 with our B2B parents (Quote from one mom: “I can’t believe my daughter ate butternut squash today!”)
- At our best, our margins at our tiny volume were competitive (prime costs at 66%; industry standard for $1M+ in revenue 60-65%)
- We were tracking towards $250K annual in revenue when we closed
The Decision to Close
- Strategic Reasons. We could not prove our initial investment thesis with confidence: Food delivery + food education = a differentiated product with higher-than-average stickiness / willingness to pay in a sufficiently large market (roughly >$5M annual).
- Tactical Reasons. We did not discontinue unprofitable business lines; we were spread too thin; we did not “Do one thing and do it well,” we did too many things at once, we did not take time to reflect. We tried out both kids markets and adults markets, and:
- Kids Market – We chose a marginal niche in a fragmented market in hopes of avoiding competition; we did not reevaluate our pricing strategy when we switched from primarily B2C to B2B; we underestimated the complexity of the channel and the psychology of parents and teachers; We did not test the B2B schools market early enough.
- Adult Market – Is a B2B channel the right place for nutritious food? I see successful B2C food companies aligned with our values EVERYWHERE! (Pret-A-Manger, Tossed, Mixt Greens, Sweetgreen, Life Alive, Freshii, etc.) They are serving customers who have chosen a place that serves nutritious fresh food, not employees whose lunch choice has been made by someone else.
Lessons Learned
- Make time and space for strategy. There will always be fires to deal with, but ignoring strategy is fatal.
- Don’t think you have to prototype everything—Asking the right people the right questions can give you insight that saves months of experimentation.
- Decide proactively whether to burn through cash quickly, or remain lean, and know why.
- Experiments are NOT pivots: experiments should have a beginning, middle, and end—set metrics before starting and adhere to them.
- Beware of confirmation bias, listen to detractors not just to improve the product but to assess the market.
- Never stop thinking about your sales channel—are you in the best possible channel for your product? Is it a highly fragmented market? How does that affect sales strategy?
- Love your product and your customers—they’ll know it.
- Write a post-mortem! The mundane task organizing contacts became a joyful journey through days past—how wonderful to reconnect with people from so many different eras!
Katherine Shamraj
Katherine Shamraj is a consultant-turned-entrepreneur with passionate interests in food, technology, and systems thinking. A Boston-based graduate of MIT's Sloan School of Management.
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