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SpoonRocket shuts down

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Re: SpoonRocket shuts down

#141

Post by dsp1234 »

goodJobWalrus wrote: post #99
pbreit wrote: post #97

Earlier quoted context omitted.

"So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it." That's not what the passage you included says. It says it only covers variable costs.

Passage no, but TC report says they were contribution margin "positive", which, they way I understood it, implies it should cover fixed costs, otherwise it is still contribution margin-negative (vis-a-vis fixed costs) So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive". How would you understand the second term?

As I mentioned in an example above, just because you have covered all of your variable costs doesn't necessarily mean that you have the ability to cover all of your fixed costs at a reasonable sales rate. Contribution Margin Positive just means that each widget sold contributes towards fixed costs (as compared to negative, where each widget sold reduces the amount of money available to pay fixed costs), even if that contribution is one cent. So you could be positive by selling a product for $10 that has a variable cost of $9.99, but damn if you'll ever make a profit (where contribution margin * widgets sold > fixed costs).

Re: SpoonRocket shuts down

#142

Post by Laforet »

Fomite wrote: post #110
tptacek wrote: post #2

The company had actually reached contribution margin positive — it was selling meals for more than it cost to cook them. But due to other costs and the frosty fundraising climate, wasn’t able to get the money it needed to continue operating. Am I reading this correctly, and the business metric this company managed to achieve is simply "selling food above cost", like every deli and diner in the country does? Or is the…

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

Most non-fastfood resturants actually price their food at or near cost after the overheads are factored in. Profit actually came from (overpriced) beverages and drinks. If a startup is to compete with them there is no way for them to make much money.

Re: SpoonRocket shuts down

#143

Post by timr »

JoeAltmaier wrote: post #121
ruddct wrote: post #119

Earlier quoted context omitted.

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 sala…

That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fi…

Doesn't look like a misquote to me. And while, yes, unit economics are a thing, there can be a huge gap between being unit profitable and profitable as an organization. A bunch of delivery companies flew into the ground during the first crash under the same circumstances (including a few grocery delivery companies).

If you're running a company with 500 employees an a big office in San Francisco (where employees average ~$100k a year, fully loaded), and each of your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously low net margin for the grocery industry, even in logistically optimal scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) / .5 = 100 million sales a year just to break even. AKA, $5 billion a year revenue run rate.

So then you say: "OK, we'll just cut some of those expensive SF people, and we'll bring the curves closer together!" And that could happen. Or you could discover that getting those margins was only possible with X million sales a year, and getting those requires at least 500 employees to run operations without dropping the ball. And then your investors stop throwing money at you, because the business economics look scary, and the funding climate has changed. And then you die.

Again, this is not a made-up story.

When huge investors get involved in land-grab businesses before they're profitable, they're all betting that their horse will be the next Amazon. But there's only one Amazon. And even Amazon isn't that profitable. And Amazon started by competing in a high-margin industry.

Re: SpoonRocket shuts down

#144

Post by [deleted] »

JoeAltmaier wrote: post #121
ruddct wrote: post #119

Earlier quoted context omitted.

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 sala…

That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fi…

[deleted]

Re: SpoonRocket shuts down

#145

Post by mbesto »

Fomite wrote: post #104
tptacek wrote: post #62

Earlier quoted context omitted.

In fairness, that's because VCs can't really make money investing in companies like those.

Chipotle, even after getting hammered in the recent past, has a market cap of 15.5 billion dollars. It's rare, but it's possible.

That's not the point. VCs are interested in quickly (5-7 years) getting to 15B in market cap, not 22 years.

Re: SpoonRocket shuts down

#146

Post by mbesto »

goodJobWalrus wrote: post #99
pbreit wrote: post #97

Earlier quoted context omitted.

"So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it." That's not what the passage you included says. It says it only covers variable costs.

Passage no, but TC report says they were contribution margin "positive", which, they way I understood it, implies it should cover fixed costs, otherwise it is still contribution margin-negative (vis-a-vis fixed costs) So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive". How would you understand the second term?

> So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive".

TC has a terrible reputation for using business terms that aren't really generally considered business terms.

Re: SpoonRocket shuts down

#147

Post by adevine »

JoeAltmaier wrote: post #121
ruddct wrote: post #119

Earlier quoted context omitted.

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 sala…

That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fi…

While I agree that marginal probability is important, I think it is a fallacy to assume all of those other costs don't have some variable component as well. There will always be shopper worker churn that will grow as the business grows, additional (albeit low) costs in software to scale and add new regions, etc.

In a business with sizable margins, it may be OK to discount some of these other things, but in a business with teeny tiny razor thin margins like grocery delivery, one should have a very healthy skepticism about hand-waving away real costs.

Re: SpoonRocket shuts down

#148

Post by yishanl »

11thEarlOfMar wrote: post #86

Makes me wonder about Gobble. We've used it a couple of times and the food is awesome. Healthy, attractive. Very much enjoyed it. But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.

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.

Re: SpoonRocket shuts down

#149

Post by azinman2 »

tekklloneer wrote: post #138
azinman2 wrote: post #78

Earlier quoted context omitted.

Ya like meatloaf, ribs, burritos, etc. Everything was 700 calories+++

Not true at all. I'm a vegetarian and the veggie options were usually in the 4-600 range.

I'm not a vegetarian so I ignored those. I imagine that's often true for vegetarian dishes in the US that they're less calorically, with the exception of heavy pasta/cheese/butter dishes.

They also sometimes had salad. But in general the options were on the heavy side. I say this as a person who orders delivery from these apps regularly, and 80% of the time checked spoon rocket's options (and 5% of the time ordered).

Re: SpoonRocket shuts down

#150

Post by yishanl »

shrikant wrote: post #74
calbear81 wrote: post #43

Earlier quoted context omitted.

I can see how these businesses rationalize short term losses with a bet on a long term play that consists of one of the following outcomes: 1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives). 2) Economies of Scale - In many businesses, the marginal cost does go down…

Are there any examples of (1) actually ever happening in practice?

Airport terminals where there is only one "cafe"/snack kiosk.

I met Sama at one once. He was incredibly humble.

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