Pizza and Robots. What went wrong?
Pizza has been a lifelong passion of mine — even before I was born. The story goes that my parents were having pizza the night before my mother went into labor, so I was born with the taste of gooey mozzarella in my mouth. I have also spent countless hours making my own pizzas and estimate that I have eaten at least 10,000 slices of pizza in my life, so paraphrasing Malcolm Gladwell, that makes me an expert.
Robots are a more recent passion. A little over two years ago, I co-founded InOrbit. We aim to put every robot “in orbit around the cloud”, allowing robots to tackle more of the dull, dirty and dangerous tasks while still keeping humans in the loop. I believe that the new batch of autonomous robots will bring many benefits to society at large, from growing food more reliably to lower cost of housing.
Now, personally I enjoy making pizzas by hand, but if I had to make hundreds of pizzas per day… I don’t think I would like that. So I thought, wouldn’t it be nice if these two passions had converged, resulting in a robotic pizzaiolo? Zume, Inc. tried and (sadly) failed. As the previous two links show, they went from shooting for a $4 billion valuation to shutting down the pizza business in 3 months.
Although our investors at InOrbit may have thought otherwise, at a personal level selling to Zume while they were still riding high would have sounded like the perfect exit. I would have even taken some of my shares in the form of a lifelong, all-you-can-eat pizza subscription (a million dollar value?) Their headquarters were less than a mile from my house, so I probably could have rolled back home from the office after stuffing my face with pizza at the company for breakfast, lunch and dinner. Yep, that’s how much I like pizza.
I’m glad that didn’t happen, as my pizza options would now be under water — and nobody likes soggy pizza. Beyond an excuse for writing about pizza, I wanted to explore in this article how a company can go from raising $375 million in late 2018, to shutting down the business less than 15 months later.
A big part of it may be timing. In a post-pandemic world, the notion of not just contact-less delivery but contact-less food preparation in so-called cloud kitchens seems perfect for suburban areas. Even at its peak, Zume had not quite achieved that, but was headed in that direction. In an end-of-the-world scenario, pizza seems like the perfect comfort food, and would be my #1 choice for a last meal.
Would Zume had faired better if they had stuck with the pizza biz for the last 6 months, when pretty much everyone started ordering food delivery? I guess now we’ll never know, as the company decided to pivot away from pizza and robots to food packaging.
Besides timing, which is at least partly outside of management’s control, the company’s approach to capital efficiency had a much greater impact. According to some reports, Zume was burning through $10 million a month last summer, with that figure rising significantly by the end of 2019. So even with a large war chest, Zume had scaled up operations and expenses well ahead of their ability to generate revenue.
The prevailing mentality for many startups way back in 2019 was to “grow at all costs”. However, it appears that Zume was suffering from what PG called the “fatal pinch”, with a significant amount of money in the bank but losing a lot each month and with limited revenue growth.
My intent is not to question Zume’s management’s choices or to judge their performance. Evaluating a startup from the outside, especially based on media reports, is moot: there are so many internal decisions, so many interactions among team members and so much context that an external observer would never have access to, making it nearly impossible to walk in another startup founder’s shoes.
I think it’s fair, however, to draw some lessons for other startup companies. Here’s my list of 3 lessons from this cautionary tale:
- Raising a huge round pretty much commits you to spending big, so you should make sure you and the market are ready for it.
- Keeping your burn low and extending your runway gives you more opportunities to test hypotheses, wait for the market to mature, or land a large customer/partnership that will carry you to the next round.
- Knowing when to pivot and when to hold is one of the most critical decisions in the life of a startup, and you will usually make that choice with incomplete information.
If you want to boil this all down to one sentence that may seem counter-intuitive to many founders, I’d say that:
sometimes less (money) is more (time)
Raising a smaller round that’s in line with the milestones you can reasonably achieve, while ensuring your company is “default alive”, may actually buy you more time to be successful. While many will think that more money = longer runway, that’s only true if you keep your burn the same. However, as Zume found out, “growing at all costs” is… well, costly.
