Food Tech Fail 2: How ChefDays’ Lack Of Planning And Perfection Complex Cost Them Their Future
This is the second of a five article series about lessons learned from five start-ups that have failed in the foodtech space: Pop-Up Pantry, Chef Day, Cheflr, Fresh Dish and Farmstr. To read the first of the series, on Pop-Up Pantry, click here.
ChefDay launched its invitation only subscription service on July 10th 2012 out of Brooklyn, NY. The concept was simple: ChefDay delivers all the ingredients needed to cook recipes designed by top chefs. Each recipe was developed by a local chef and members were able visit the ChefDay website to watch a video tutorial of how each chef prepared their meal. The start-up offered seven recipes to choose from at any given time and if you lived in Brooklyn or New York City hand delivered the ingredients to your doorstep. ChefDay also shipped to customers along most of the east coast via Fedex for no extra charge. Unlike similar services, like Blue Apron, Hello Fresh, and Plated, ChefDay fully prepped their ingredients making them the higher end version in the market. Having more choices, less work for the consumer, great video content and local delivery in New York, ChefDay was poised to build a brand that would be around for a long time. But only one year later, ChefDay was no longer in business.
Founders Julien Nakache, Laurent Moisi and Vincent Marger had a great idea. All three loved to cook but had the same challenge in the kitchen. As Moisi told a French magazine: “Cooking is fun but it causes too much stress, finding a good recipe, having the right ingredients in the right quantity, spending hours in the kitchen…. We knew we could find a solution to this problem.”
Vincent Marger, a programmer, became CTO. Moisi, who ran a luxury cookie business in France, became the COO, and Nakache, a world traveler and programmer, would lead as the CEO. A team of three solid founders with complementary skills and an up and coming concept, ChefDay had all the necessary ingredients for success.
To reach their goal of building a business that would beat out the competition, the trio built an ERP system to manage their orders efficiently and quickly. A Williamsburg warehouse housed the kitchen set for filming their video tutorials, and the company had seven employees ordering and packing ingredients and instructions. The result was high quality and extremely neat looking packages being delivered throughout New York. With a solid tech foundation, great product and over $400,000 in funding from an Angel investor, ChefDay seemed poised for success in an up and coming segment. After its first six months, the company was talking about raising two to three million dollars in funding at a six to nine million-dollar valuation. With all the pieces in place, ChefDay seemed on track to secure the capital that would allow them to continue building their brand and compete with the other players in the market.
In January 2013 I reached out to Julien Nakache about a potential partnership between ChefDay and The Fresh Diet . I had been looking closely at the space and wanted to find a brand that we could partner with to use our best in class infrastructure to help scale their business. My proposition: partner with us and take ChefDay to 15 plus major markets in the US. Using our kitchens around the country for production and our fleet for delivery, ChefDay would become the largest player in the segment overnight. Although the ChefDay team agreed with my vision, we ultimately could not agree on the details of a partnership. The ChefDay investor felt that I was asking for too much and ultimately walked away from the deal. The investor didn’t want to give up 50% equity of his investment. I wasn’t willing to negotiate down. I knew that what The Fresh Diet brought to the table was worth more than any future funding ChefDay would secure. Unfortunately for Nakache and his team, not doing the deal proved fatal for the company: only six months after our conversations, ChefDay announced on their website that they would no longer be delivering their product.
Unlike Pop-Up Pantry, ChefDay didn’t have institutional funding forcing their hand. In addition, they were in a segment that, although crowded, was still young and attracting capital. So where did ChefDay go wrong? Why did they feel that they needed to shut down operations after having their best month in June, with over 1000 meals served?
There were several reasons why ChefDay failed, but I will focus on two large ones.
Focusing on a complex product that was too early for its market segment. When I recently spoke with former ChefDay COO Laurent Moisi, he explained that the founders spent too much time perfecting their product and building an offering that needed consumers already familiar with the segment. Moisi believes the start-up would have been better off focusing on a simpler product, something more like Blue Apron or Plated. While ChefDay’s more high-end approach was the differentiator between it and the other dinner kit companies, ultimately the offering proved too intricate and expensive for the consumer. Moisi felt that ChefDay was too high-end, too early. If the company had launched a cheaper option, they might still be in business today competing for the millions in capital that has flooded the segment.
The above may be proven by the early success of another Brooklyn based start-up in the space, Ritual. Like ChefDay; Ritual is a higher end version of the segment hand delivering its recipe bags twice a week in New York City. Because of the millions of dollars being put into marketing by Hello Fresh, Blue Apron and Plated, Ritual does not need to worry about educating the consumer and is showing early signs of success having already secured institutional investors and steadily growing its market share. Ritual is also standing out not by building expensive content around local chefs but by focusing on the healthy eating trend and offering options for Pescetarian, Vegetarian, Vegan and Paleo customers.
Not Having a Long Term Funding Plan ChefDay’s sole investor was not involved in any of the day-to-day or strategic decisions. The founder of ChefDay made the decision to use his capital to produce content, while content is key to the success of a brand like ChefDay and was a clear differentiator for the start-up, it was very expensive to produce. Knowing the heavy cost of producing his videos, Nakache should have had a better plan to secure more capital as he grew his company.
Many entrepreneurs have found themselves in a similar situation as Nakache. I know I did. When I brought on my Angel investor, he promised to continue funding my business as long as we kept growing. Unfortunately, his situation changed and when I needed the capital to continue fueling my hyper growth, I was left scrambling when my investor failed to come through on his promises.
As entrepreneurs, it’s our responsibility to think three steps ahead and be prepared for when things don’t go as planned. For Julien Nakache and ChefDay, focusing on a higher end product and not having an investor who was in it for the long run proved to be the nail in their coffin.
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Originally published at www.forbes.com on June 25, 2015.