Magic Spoon & Exo: Gabi Lewis and Greg Sewitz

In short

Podcast Summary: How I Built This with Guy Raz - "Magic Spoon & Exo: Gabi Lewis and Greg Sewitz"

Episode Overview In this episode of *How I Built This*, host Guy Raz interviews Gabi Lewis and Greg Sewitz, co-founders of Magic Spoon. They share their entrepreneurial journey, beginning with their first venture, Exo, which focused on protein bars made from cricket flour, and evolving into Magic Spoon, a high-protein, low-carb breakfast cereal that echoes the nostalgic flavors of classic cereals without the sugar.

Key Concepts and Discussions

Founding of Exo

Origin of the Idea: Gabi and Greg, both students at Brown University, initially created a protein bar for a class project that aimed to use wholesome ingredients instead of candy-like substitutes.
Cricket Ingredient: The idea of using cricket flour came from Greg attending a conference on edible insects. They saw crickets as a sustainable protein source but faced market resistance due to the "yuck" factor associated with eating bugs.
Product Development: They started by roasting crickets at home and creating prototypes, which sparked curiosity but also disgust among potential customers.

Transition to Magic Spoon

Lessons Learned: After struggling with Exo and ultimately deciding it wasn't going to break into the mainstream market, Gabi and Greg pivoted to breakfast cereals, identifying a gap in the market for healthier alternatives.
Market Research: They noted the decline in traditional cereal sales and recognized an opportunity to innovate by creating cereals that maintain nostalgic flavors while being healthy.
Product Attributes: Magic Spoon's cereal is designed to be high-protein, low-carb, and sugar-free, appealing to modern health-conscious consumers and those on keto diets.

Launch and Growth of Magic Spoon

Execution: Magic Spoon launched with four flavors (Fruity, Cinnamon, Cocoa, Frosted) using sweeteners like allulose to replicate the taste of traditional cereals without the sugar.
Branding: The name "Magic Spoon" was chosen to evoke a sense of fun and nostalgia, contrasting with their original name "Disco" which they felt was less fitting for a health-focused brand.
Direct-to-Consumer Model: They opted to launch directly to consumers first, leveraging their previous experience with Exo and the power of social media influencers to build initial traction.

Funding and Market Expansion

Investor Relations: They successfully raised significant funding to ensure they could scale effectively, attracting both venture capital and influencer investors who helped promote their brand.
Retail Presence: Although initially D2C, Magic Spoon has since expanded into major retailers like Target, Walmart, and Kroger, while still maintaining a strong online sales platform.

Future Outlook

Continued Innovation: Gabi and Greg plan to explore further within the cereal category and beyond, with aspirations to develop new products and flavors while staying true to their brand’s ethos of health and nostalgia.
Lessons from Failure: The co-founders reflect on their experiences with Exo, acknowledging that while they learned many lessons the hard way, the timing and market fit for Magic Spoon were key factors in their success.

Key Takeaways

Resilience in Entrepreneurship: The journey from Exo to Magic Spoon illustrates the importance of learning from failures and adapting to market demands.
Market Trends: The current consumer landscape is shifting towards healthier, low-sugar options, creating opportunities for innovation in traditional food categories.
Power of Branding: Strong branding and a focus on emotional connections with consumers can differentiate products in competitive markets.

Conclusion Gabi Lewis and Greg Sewitz's story is a testament to the evolving nature of the food industry, the challenges of entrepreneurship, and the importance of innovation in meeting contemporary consumer needs. Magic Spoon serves as a refreshing take on breakfast cereals, combining health with the joy of nostalgia.

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0:00Wondery Plus subscribers can listen to How I Built This Early Early and Ad Free right now. Join Wondery Plus in the Wondery app or on Apple Podcast. I love traveling with my family. We did an awesome trip this summer. And one of the things that made the trip so special were the Airbnb experiences we did. Immersive tours, cooking classes, a chance to get coffee with a world-class barista. I had so much fun on those experiences that I decided to host my own Airbnb original experience in San Francisco, designed to help you think about how to unlock your next big move in your career or even in your life.

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1:58And that's why eggs from Happy Egg are so delicious. Happy Egg partners with family farms across the Midwest to raise happy hens outdoors. The proof is inside the shell. A tasty orange yolk. It's the difference you can see and taste. I just made an incredible omelet with eggs from Happy Egg. It was delicious and so fresh. Once you crack open a Happy Egg, you can see and taste the difference right away. It's obvious. Visit www.happyegg.com slash built to find Happy Egg near you. All these numbers seemed crazy and huge, right? The amount of money we're raising from investors. that was more money than we'd ever really thought about in our lives.

2:47In terms of revenue, the first million dollars or so was faster and easier than anybody would have predicted for a company selling cricket bars. But getting bigger than that, that was really hard. To convince mainstream America to eat bugs was much harder than we thought.

3:11Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how two college friends set out to sell snack bars made of bugs and then pivoted to something that was easier and harder at the same time. a sugary breakfast cereal without the sugar.

3:46Over the past 30 years or so, the story of natural and organic foods went something like this. There was a product that everyone ate, and smart entrepreneurs simply made an exact copy of it, but just made it organic. This happened to mac and cheese, to Oreo-style cookies, to potato chips, to lunch meats, cake mixes, canned soups, salad dressings, you name it. Once you slap that organic label on, lots of people buy it because they think it's healthier. And in many ways, this is a relatively easy thing to do. You just replace regular sugar with organic sugar, or regular unbleached white flour with organic flour, or regular cheese with organic cheese.

4:32And today, there are very few foods left that don't have a corresponding organic version on the shelves. And so now, in 2024, we've arrived to a new era in natural and organic foods, an era where organic isn't enough, at least not enough to break through. In this era of natural foods, a new cohort of entrepreneurs are trying to create versions of foods you love except with no sugar, no grains, and almost no carbs. And if you ask any food scientist, they will tell you that this is really hard to do because sugar and grains and things that have carbs are, well, delicious. And it's pretty challenging to make an exact copy of an Oreo cookie or a Cheeto without that stuff.

5:20But some are trying, including today's guests, Gabby Lewis and Greg Sevitz. These guys are the co-founders of Magic Spoon. It's basically a high-protein, grain-free, sugar-free, low-carb breakfast cereal. And one more challenge? These guys are trying to replicate the flavors of nostalgic breakfast cereals like Cocoa Puffs and Fruit Loops. And they're doing it at a time when the overall breakfast cereal market is in decline. But Magic Spoon has raised tens of millions of dollars from investors who also believe the future of natural foods is going to be low sugar, low carb, and high protein. Now, if this sounds like a risky proposition, just consider what Gabby and Greg did before they launched Magic Spoon.

6:08For nearly five years, they ran a startup called Exo that sold a protein bar made of cricket flour, as in those chirping insects crickets. And as you'll hear, the cricket bars essentially failed. But Gabby and Greg drew on the lessons from that failure to build Magic Spoon into a brand that's in thousands of retailers nationwide. And just to be clear, Magic Spoon has no crickets in it. Greg Savitz grew up in Los Angeles and Gabby Lewis grew up in Scotland. They met in 2009 when they were both students at Brown University in Rhode Island. Greg, when I first met him and saw him, I remember he seemed very classically L.A.

6:50to me. He had the sort of L.A. surfer accent almost that I'd seen in films. And then being in similar dorms, similar friends, just quickly became friends. I think we had a couple of classes together. I remember we were in a math class together. And we were very good friends from then until now. Nothing bonds you together like multivariable calculus. In college, I don't know, I found math was, it's hard to teach because it's sort of these large lectures. It's probably a grad student just basically teaching from a textbook. So we kind of bonded over how challenging that course was. Yeah. And Gabby, I guess that you were also separately taking some classes in entrepreneurship, which Brown is kind of known for.

7:39And I read that actually the first business that the two of you guys started together came out of one of those classes where you had to come up with like a product and a business plan. And I guess that the idea you had was to make a protein bar, like a paleo protein bar. Is that right? Yeah. The main idea was that let's just create a protein bar that is legitimately good for you, unlike at the time what was mostly a sea of candy bars masquerading as health bars. Yeah. And so we wanted to use dates, cacao, nut butter, some kind of very basic natural protein. This is pre-Rx bar. Correct. And did you start to make them in your kitchen or wherever you were living?

8:20I did. The amazing thing about developing a protein bar business is you can make a basic version in your kitchen. You're just mushing ingredients together, forming it, and you can make lots of different iterations of it. This is a story of Lara bars and Cliff bars. It's the same story. All those companies, they started that way. Yeah, 100%. I think lots of bar companies, some beverage companies, it's just mixing ingredients. You can do it yourself at home. And I started writing this plan. And then a couple of months in, a company launched called AMRAP Nutrition, basically doing the exact same thing that I'd put pen to paper on.

8:57And at the time, it wasn't really the biggest deal that somebody else was doing it because it was really just an academic exercise of a business plan. And I had no idea at that point that I was actually going to launch this thing. And so I was really just maybe wallowing around at our house on campus thinking about how do I pivot this academic exercise? And that was when Greg introduced the idea of what if you add crickets into your protein bar? Okay, Greg. Record scratch. How did that idea, were you sort of interested in being involved in his protein business at that point? I wasn't at that point because where I got hooked was really the marketing challenge of how do you make this product that people care about?

9:41And at the time, I had just gone to a conference where somebody was presenting on the idea of edible insects. The United Nations had just put out a big report about edible insects all around the world. and we realized that actually the protein bars were a perfect Trojan horse, if you will, to potentially normalize this idea of crickets because really what it was is a vehicle for protein powder encased in nut butters and cacao powder and chocolate chips and things like that. Yeah. And where I got really interested was that theoretical idea of could you essentially normalize this practice that we all have an innate disgust response to, i.e.

10:30eating bugs in the U.S., through a well-branded, delicious food product, basically. And so that's what started piquing my interest. All right. Let's kind of just digress for a moment, talk about crickets, because I remember going to farmers markets like already 10 years ago and seeing people selling like cricket flour, you know, all of a sudden you start to hear people talk about crickets as a potentially great source and still do sometimes as a great source of protein and a sustainable one, right? Because livestock production accounts for like 10 or 12 percent of global carbon emissions, right?

11:07And was that what you were hearing at that conference? Correct. And we were sort of struck by some of the facts in that report, where crickets consume far less feed, far less water, and produce equal amounts of protein. But the hiccup, obviously, is that they're crickets. And we have no history or tradition of eating insects in America for a variety of reasons. But I think through our efforts at Exo and some of these other brands over those next few years, you really did start to hear about cricket protein and cricket flour as an alternative protein source much more. And cricket flour, I should mention, it's got, I mean, it's like by volume, it's more than half of it is protein.

11:52So it's got, it's very protein dense. So when you, Gabby, when Greg went to you and said, hey, why don't we try and figure out how to use crickets, you were instantly intrigued? No, I would say I was instantly confused or maybe even slightly disgusted. I think my reaction the very first time I heard it was similar to some potential customers the first time they hear it. But then the more I learned about it, the more I went from being unsure or maybe even disgusted by the idea to being really intrigued and then eventually really passionate about it because it makes so much logical sense. And then it seems like an incredible marketing challenge to figure out how do you actually get people over that psychological hurdle.

12:36So you guys start to talk about this idea, but what's the next step? How do you actually test it out? You'd already been making protein bars with, you know, egg white powder and dates. So, I mean, could you just at that point, this 2013, could you just order cricket flour? Well, that's definitely where it gets a little bit weirder because we tried to find a source of crickets that we felt we could serve to people. But there really weren't any. The whole cricket farming industry existed to service Petco, PetSmartz, and the reptile feeds of the world, basically. So we ordered some to try. From the internet or from Petco or what?

13:23I'll never forget. We basically found a cricket farm in Louisiana that would ship us crickets in the mail. And by the way, were there different grades, like food grade, like animal grade, human grade, or no, it's just crickets? There wasn't at the time because there really weren't any companies on a large scale trying to serve crickets to humans. So no cricket farmer would have ever in their wildest dreams thought that people would come knocking and ask to serve their crickets to people. So it was a really small-ish industry. It was, you know, there were a lot of family operated farms. And when I say farms, really, it's sort of their rooms full of bins of crickets.

14:08And you could just buy them. And this is to feed your pet snake or whatever. Exactly. Your lizard, your snake. And so we ordered a box and we walk back to our house on campus. We got the notification it arrived. And sitting on our doorstep was a shoe box with some holes poked in it. Yep. And we were like, oh, that must be the crickets that we ordered. So we take them inside and you can just hear instantly hundreds of crickets in this little box. Chirping. Chirping and sort of jumping around. We had other roommates at the time and we hadn't told them what we were doing. We really hadn't thought it all the way through.

14:47And so we started unpacking this box full of crickets. And we could see it was going to just be chaos to try and somehow get these crickets into the oven. Because the idea was, let's take them and just put them in the oven and cook them. Right. Because cricket flour is just whole roasted crickets that are ground into a powder. Right. So we put the box in the freezer because we Googled online, how do we, you know, what happens trying to feed crickets to your lizards? And I guess it is common to put them in the freezer because they're cold-blooded. They essentially go to sleep and then you can take the box out and do what you will with them.

15:31So we set rows and rows of baking sheets full of crickets, put that in the oven, roasted them. And then all of our roommates came home and were like, what is going on here? You just had roasted crickets on cooking sheets. Exactly. and I'm sure we seem totally crazy yeah there was a tradition in many countries for basically drying out insects in the sun and then grinding them into a high protein flour or powder that's then used for baking or breads and so that's essentially what this notion of cricket flour was we dried them out in the oven and then yeah we we threw them into the Vitamix blended it into a coarse cricket protein powder, essentially.

16:17And so with that powder, and by the way, you guys had no idea how this would affect the taste, like if it would be like rancid or funky, like you didn't know, right? Because I don't know, is cricket powder neutral flavored? It's quite neutral, slightly nutty, slightly toasted in taste. So as it happens, it didn't have a negative effect on the taste of texture in any way, really. But we didn't know that at the time. We were just purely blindly experimenting at this point. And you just like put it on a sheet of like parchment paper and then press it down and then cook it? Yeah, basically. And then we started giving some samples out to some friends.

16:58And you would say to them, this has cricket powder and probably some of your friends are like, I don't know, but probably some of them were like, all right, let me try it. Yeah. I think some of them we told, some of them, honestly, we probably We didn't even tell until after they tried it. And people were some combination of curious, confused, grossed out when they first hear of it. And then we'd explain to them why it actually makes sense. And they'd realize, oh, this actually tastes quite good. And it's good for the world. And it's good for me. And then they'd get it. And this was, I mean, you guys started this your senior year of college, right?

17:37Correct. And so by the time you, I mean, I guess by the time you graduate, which is in May, had you decided that you were going to pursue this after college, that the two of you were going to see if you could create a product? Yeah, we decided quite close to graduation. So I was actually planning to join what at the time was the largest hedge fund in the world. Bridgewater? Yeah. Okay. I just read that book about Ray Dalio. Very interesting book, by the way. Yeah, fascinating. Worth reading. The Fund. Fascinating company. Fascinating book. Are you happy you didn't go to Bridgewater after reading that book?

18:12I think regardless of the book, launching XO and Magic Spoon has been... This is where the no comment comes into play. It's been amazing. Wait, are you keeping the door open in case you still have an offer? Anyway, so you don't go to Bridgewater. So we decided to give it a shot. We had been giving out samples to our friends. We had been talking to professors. We had even spoken to a couple of angel investors in town. We had taken some samples to the local farmer's market, the downtown CrossFit gym in Providence. And everyone we spoke to was just getting so excited about this idea once they understood it.

18:52I mean, the facts are fascinating, right? It's high protein content, really protein dense, good for the environment. It's a neutral flavor. But of course, it's still crickets. Yeah, and honestly, that was what made it interesting enough, I think, for us to do that instead of our other possible choices. It was the fact that this seemed like such a worthy challenge and such an interesting marketing problem to solve that really played a part in us saying, hey, let's see if we can make this happen. And I also think the more we looked into the history of other foods that have made this transition from being weird to being mainstream, the more we felt compelled by the idea of a cricket protein bar.

19:33So there's a long history of foods that at one point were viewed as bizarre in the US. You could look at sushi, for example, which 50 years ago, eating raw fish was a little bit strange to most Americans. And the way it became popularized was that a chef in LA created the California roll and sort of hid that raw fish inside the rice and seaweed, reimagined it for a more Western palate, and then served it to celebrities in Hollywood. And so we saw parallels with using our protein bar as the sort of California roll to introduce Americans this idea of eating bugs. Yeah. And so we graduated. We decided to move to New York.

20:10We decided that doing a Kickstarter campaign would be an interesting way to prove demand, get some pre-orders. And so we launched a Kickstarter that summer when we graduated. And you guys came up with the name Exo as an exoskeleton, presumably? Exactly. Exoskeleton. We wanted something that sounded sort of sporty, like Nike or something, but alluded to the crickets without making it super obvious. So we landed on Exo. Good name. And also probably you guys were excited at the prospect that because this was such an outlier, because it was so different, you could get attention for it. People would want to know more.

20:49You couldn't you could not pass by somebody handing out cricket protein bars and not at least stop and look at it. Exactly. And it was also the era when all of the plant-based meat companies were first being founded and launched. And so there was a larger cultural conversation going on around alternative protein sources and the need for sustainable meat alternatives and things like that. And so crickets fit very nicely into that as well. So you're in New York and you decide to raise money on Kickstarter, which is smart because you can get attention, right? And it's a way to maybe even get some media coverage.

21:32Yeah, in hindsight, Kickstarter probably wasn't the easiest way to raise money, but it was an amazing way to get attention and get press and prove the concept. And so that month during our Kickstarter, we were in the New York Times, we were in Forbes, Fast Company, tons of press just because the idea was so buzzworthy. And based off of the success of that Kickstarter, which did it close to$60 ,000 in pre-orders. $60 ,000. Yeah, I mean, you wanted to raise$20 ,000. You raised almost$60 ,000. And just tell me what you did. Did you make a video? And I don't know, how did you put it together? Was it like a really slick video?

22:13Or was it kind of just an iPhone video? It wasn't especially slick. I would say it was the classic founder staring into the camera. Hey, I'm Gabby. Hey, I'm Greg. And here's our idea and why it makes sense. but we spent a lot of time thinking about how to position the messaging and really can you know get our point across about all the reasons to eat bugs but also acknowledge that people aren't going to purely do this based on an intellectual exercise you also had to really convince them that it was going to taste good and also meet the nutritional needs they were looking for from a protein bar because ultimately the product was going to live or die on whether people kept buying it for the use case that we were selling it for.

22:58And so you raise 60 grand. And with that money, what were you able to do? Yeah, I would say we were able to do less than we thought with that amount of money. So we had done this Kickstarter campaign to really prove demand and prove the concept. I think like many first-time entrepreneurs launching a Kickstarter, we hadn't even shifted gears yet to think about if we sell tens of thousands of these bars and pre-orders, where and how and when are we going to make them. And so very quickly we had to shift into gears to figure out how do we make tens of thousands of bars versus the dozens we'd been making previously in our home kitchen.

23:37And so what did you do? I mean, you had to locate a co-packer, a manufacturer. Yeah, so from Googling, you know, energy bar, nutrition bar, protein bar manufacturers, we ended up finding a place actually in New York State that was willing to take us on. And we did have a challenge in that crickets have an allergen overlap with shellfish. So any bar mini-bacter that was going to run us would have to disclose to their other customers that they were bringing in a shellfish allergen. And as you can imagine, that's not a very normal allergen for protein bars. And so we got a lot of no's. I mean, there was basically one place that was willing to do the full allergen clean after we were to run to let us produce there.

24:26But that probably was going to cost you a lot more money. It was going to cost us a lot of money. And at that point, we had enough money to make the bars because of the pre-orders, basically, from the Kickstarter. We didn't have enough money to make anything else besides the right amount of bars. But I would say before that, the first challenge was that there was no source of crickets to make the cricket flour to put in the bars. And so I flew down to Louisiana, actually, to one of the cricket farms we'd ordered from in the mail, had dinner with this, you know, old school cricket farmer who was, I'm sure, very taken aback by our request and probably didn't quite believe we had enough demand.

25:10How much, how many crickets were you looking to order? Like how many pounds? I don't remember, but definitely tens of thousands. Of pounds or of crickets? Of pounds. Wow. And they're used to setting like a shoebox of crickets probably doesn't weigh that much. No, exactly. And so we actually had to work with them to set up a separate room where they raise crickets. Specifically for us, we wanted to make sure they were fed organic feed and that the cleaning products were organic and, you know, raised the bar, so to speak, on just a lot of the products used in the farming of the crickets. And so it was a lot of work.

25:48Right. Okay. So they agreed. They're like, fine, you send us a check. We'll give you as many crickets as you want. Exactly. Did they think you guys were a little batty? I think it was, you know, this guy coming down. First of all, this 22-year-old coming down from New York City saying, we just raised $60 ,000 to make these bars full of crickets, and we need your help in going organic and supplying what we were pitching as, you know, a massive long-term industry and business. So I'm sure he half believed us and half thought he would never hear from us again. But he does. He will hear from them again.

26:27When we come back in just a moment, Gabby and Greg put their cricket bars out into the world until they realize the world is not ready for cricket bars. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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31:10Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2014, and Gabby and Greg have raised almost$60 ,000 for their Cricut protein bar on Kickstarter. And as they begin working on updating the formula, they decide to reach out for some help. In the fine dining world, there was also a bit of a bubbling movement around edible insects. And so we wanted to kind of bridge that divide as well. And so we got in touch with a chef named Kyle Connaughton, who used to work at the Fat Duck. And we met him for coffee as well in New York, told him what we were up to. And he also came on board to help us scale up the recipes and make new flavors.

31:52And you just cold emailed him? Yeah. Shot in the dark, sent him a long email about what we were working on. I mean, he's a super nice guy, and I think he was intrigued by the fact that these two 22-year-olds were trying to take this big swing. I think we got a lot of mileage out of being so fresh-faced out of college trying to do this big thing that just it seemed really interesting and cool and like a big challenge that a lot of people were intrigued by. I should mention Kyle is a very close friend of mine, so I know him very well. He had run the R &D kitchen at the Fat Duck famous restaurant in the UK.

32:29This is before he would go on to open up his restaurant single thread in Sonoma County, which is now Michelin three star restaurant. But but at the time he was intrigued. And so he agreed to help you kind of formulate the recipes that to make them into something that people would really want to eat. Yes. And we had Gabby's original recipe, which was a cocoa flavor, basically. and we knew we wanted to launch with a couple more. And so Kyle really helped us figure out what is a sort of gourmet twist we could bring to some of the classic protein bar flavors because we didn't want to do the same thing that everybody else was doing.

33:07So we came out with a peanut butter and jelly flavor, for example, and things slightly different that Kyle really helped us develop. So the idea was, of course, to get these orders out on Kickstarter, but eventually to get investors on board. Yeah. And thankfully, we're able to use the Kickstarter, as well as having this amazing chef on board, as proof of concept to then raise a seed round of, I think,$300 ,000 at the time as well. It seems like everybody you talked to was excited about this. I mean, when you started to raise money, because I know you raised about a million dollars, a little over a million dollars from investors at the end of 2014.

33:55Did you run into people who were like, I'm not interested in this? Or did it feel like everybody that you talked to was just really interested and intrigued? We definitely got a lot of no's. I mean, every business gets a lot of no's from investors. This was no different. I would say maybe the difference was the yeses were really passionate. And that inspired us to move past and ignore the endless no's. So when it was time to actually launch the product, I think you actually launched them formally in 2015. Is that right? Yeah, around 2015. And where were they sold? Did you sell them in stores or was it still direct-to-consumer online?

34:36At first, it was just direct-to-consumer online. And so we were able to leverage what at the time was almost all of the names in the paleo world. whether it's John Durant, Mark Sisson, Rob Wolf, Tim Ferriss, all of those people came on board as advisors or investors in the business. And so they were able to help us launch the business in a much larger way and much faster than if we were relying on the standard tactics of a direct-to-consumer company. And you got a lot, probably a lot of free coverage, right? Just because there was a lot of these influencers were writing about you. Yeah, 100%. There was lots of traditional media coverage, whether it was Forbes or Fast Company or New York Times.

35:19But far more impactful than that was having Mark Sisson, paleo primal blogger, write a blog post to his… Yeah, start at Primal Kitchen. 100 percent. Writing to his hundreds of thousands or perhaps millions at the time readers or email subscribers to check out this amazing new Cricut protein bar. So when you launched in 2015, I mean, how were sales? What were you guys like? What do you remember? Like in terms of revenue, were you doing like$30 ,000 a month,$50 ,000 a month more? I think we didn't have any real benchmarks. So in terms of whether it met or exceeded expectations, we didn't really know what to compare it to.

35:59And to us as 22-year-olds at the time, all these numbers seemed crazy and huge, right? The amount of money we're raising from investors, even the Kickstarter and the seed round, that was more money than we'd ever really thought about in our lives. In terms of revenue, when we look back on it, I think the first million dollars or so, which was roughly what we did in the first year after launch, was faster and easier than anybody would have predicted for a company selling cricket bars. These early adopter communities of paleo, of primo, of CrossFit, they were really into the idea. But getting bigger than that and growing beyond that early circle of early adopters, that was really hard to convince mainstream America to eat bugs was much harder than we thought.

36:46But getting those early adopters on board was easier. So just reading about this story is so fascinating to me because it's, you know, as I say, you've got a lot of attention. There's a lot of goodwill. you know you had at a certain point made the Forbes 30 under 30 list which you know say what you will about it but it is you know it is certainly something that people point to and you're getting attention and you're getting people wanting to invest in the brand I think to at a certain point you you guys raised what I mean how much did you did you eventually raise for XO total. Yeah, we raised another$4 million on top of that first million.

37:28So we raised a total of about$5 million for that business. So consumer, I mean, still only direct to consumer. This was not sold in stores at this point? We started to get it into some select stores. So we slowly went from being purely on our own website. And then we also sold in some CrossFit gyms, some Equinox gyms, and actually a few Whole Foods stores in New York as well. So there was a limited retail presence, but majority was still online. When did you start to, between the two of you, when did you start to kind of feel like you weren't breaking through, that it was, maybe it might just be a niche product for a certain set of people, CrossFitters?

38:11Before we got to the point where on the marketing and demand side, we felt like it wasn't breaking through or that there was a lower ceiling than we might've hoped, we actually encountered a lot of supply chain challenges because we were sort of developing this whole industry in real time where we were trying to essentially create the demand and the supply together. And it just got really hard to ensure that there was enough reliable and consistent cricket flour at a price that we felt would make us competitive. So we eventually wanted to make Cricket Flour the star of the show. I mean, our goal was to develop the use of insect and cricket protein, not to sell protein bars, really, in terms of the mission statement of the company.

38:57And so we actually ended up going to Thailand, where there's over 20 ,000 cricket farms. There's a long tradition of raising crickets in backyards. And we spent a lot of time there. We lived there on and off for six to 12 months, I would say, trying to see if we could build up a supply chain there that could lower the cost enough that it could really become competitive to even hopefully sell in tubs, for example, as a protein powder. Because how much were the bars? I think they retailed for$2.99. All right. So they weren't prohibitively expensive at all. The bars weren't, but there was... You weren't making a profit off that.

39:35The company was not profitable, no. Our margins were totally, you know, industry standard, but there was only, if I remember correctly, maybe 10, 11 grams of cricket flour in those bars. And so if we were talking about using the amount of cricket flour you'd need to get, you know, 20, 30, 40 grams of protein per serving for some of these other use cases we were exploring, the costs were way too high. But the reality of the supply chain was that it was nowhere near what the theory said. And so it was almost as if we were launching a beef jerky company when there's three cattle ranches in the country.

40:12You're just not going to be competitive. And so all of these theoretical promises of insect protein as a new food source and being so much more sustainable, and eventually it's going to be cheaper as well, right? We just realized the supply chain was so far from where it needed to be to make good on those promises. And we didn't see a path to getting there in even the medium term. And so it was a combination of not really being able to figure out how to create a more concentrated protein, like powder from the crickets. And at the same time, I have to imagine there was still that just that leap to make psychological leap.

40:50I mean, human psychology, this is a problem, right? If you can't get people past that thing, this is not the sushi problem. Totally. And it really started to feel like we were pushing a boulder up a hill by a certain point. And I do still believe that on the time frame of 10, 20, 30 years, it was totally something that could be viable as an entire industry. But on the time frame that we were working on and that we were interested in, we realized there wasn't really a path forward necessarily by ourselves. And Gabby and I took a long, hard look in the mirror and realized we didn't want to be cricket farmers for the next 10 or 20 years of our lives.

41:30So what was the thing that sort of prompted you to sell this business? Because you sold it to another company that was also in this space. And then I think they went on and sold it again. And you can still get these bars are still available online. And so the brand is still out there. But basically, there are some people, I should say more than some people, a lot of people are reluctant to become entrepreneurs because I think it's a natural human instinct to fear the possibility of failure. And any entrepreneur knows you've got to fail, right, in order to eventually succeed. And this show is often about failure because that is part of the journey, a massive part of the journey.

42:17But it's still painful. It definitely felt like a failure for a while. And I think not only in the sense that we hadn't achieved the mission we set out to achieve, but we also self-identified as the cricket guys. We'd go to Expo West and trade shows and we'd have our t-shirts that said crickets are the new kale or crickets are just tiny lobsters. And everyone would come over and say, oh, like, I love your product, love your brand. And we were pioneering that. And so, you know, a lot of our identity was wrapped up in it. So it definitely felt like we hadn't done what we thought we were going to do.

42:55And that didn't feel great. But I think that that feeling didn't linger for too long. And then we were able to dust ourselves off and quickly pivot to, all right, what's next? So did you have a plan in place for the next thing? No, we then spent some time thinking and reflecting. But the two of you knew that you still wanted to work together. You didn't hate each other at this point. you didn't say, all right, this was a disaster, goodbye, we're going our separate ways. No, no. I mean, I think the opposite. We felt on reflection, you know, once we got past the feelings around not quite doing what we thought we were going to do, we felt really grateful for the experience and we felt like it was an education in building a food business.

43:40And so then the next question was, what's the next food or beverage business to build together? And what kind of ideas did you start to bat around? So we basically wanted to have the opposite experience from what we had at Exo. So whereas with that business, we were taking this really niche idea and trying to push it towards the mainstream, this time around, we wanted to try and find a large category begging for innovation. And so at one point, we were really just thinking through, what are the largest categories in the grocery store? and has there been anything interesting there for a while? You know, you start off with milk and soda and obviously in milk, you've got endless innovation, whether it's oat milk, almond milk, pea milk, lab-grown milk.

44:25So it didn't seem to us that there's anything interesting to do there. Then you look at soda and similarly, there's just endless innovation, whether it's, you know, at the time it was perhaps peak kombucha, there's all the seltzers, there's probiotic sodas. And so it didn't seem like there was anything interesting there. and then you get to cereal and the cereal aisle five years ago looked pretty similar to the cereal aisle 25 years ago. And so we started asking people, why is nobody truly innovated in the cereal aisle? And why is nobody created, at the time the references we used were the halo top of cereal, the smart sweets of cereal.

45:03So we'd seen all these categories where somebody had come into a huge category. They'd either taken out the sugar or added in more protein or both. And in some cases, they've captured maybe 5%, 10 % of some of these categories are several billion dollars. And so we said to people in the industry, why has nobody done that for cereal? But why cereal? Just for a moment. Why the cereal category? Why not, I don't know, dog food or condiments? Yeah. So we were looking for a large category and we were looking for a category that was beloved by people. And cereal is beloved by people. I mean, I think it is, but I'm just kind of surprised because I would think cereal is like kind of a declining category.

45:49It is technically declining, and that's actually what was kind of interesting about it as well. So the cereal category is enormous, about$11 billion, and it's been declining slightly. And people would actually say that to us as a reason for why we shouldn't go into that category. When we said to them, hey, why has nobody created a cereal 2.0 with more protein, with less sugar? one of the answers we got was, oh, it's a declining category. You never want to go into declining categories. But what we saw was that it's an enormous category, only declining because none of the products speak to today's consumer.

46:19But P.U. clearly is speaking to some consumers if it's$11 billion. I mean, I'm not eating Lucky Charms in the morning, but I did when I was a kid loved them. But clearly there are still people who do it. Like when I was a kid growing up, we had Cheerios and Honey Nut Cheerios and Lucky Charms and Cocoa Puss. Now I just want to eat that stuff. But I would never buy that for my kids. Never. And I think you hit on something really important, which is that these brands are so iconic. I mean, there's no other category where there's probably 40 brands that your average person on the street could name.

46:53Crunchberries? Yeah, exactly. Not only name, but light up when they talk about it. And, you know, it sparks these memories of Saturday morning cartoons and growing up with your grandma. And there's so much emotional material. Yeah, exactly. These iconic, iconic names. And so there was this pent up demand we felt for something that could replicate that feeling that you're having, even thinking about these memories. But a product that could speak to essentially Gabby and myself. And you asked about something like dog food. The last criteria we had was we wanted it to be something that we could be users of.

47:32I see. You would eat dog food. we wouldn't eat dog food and we don't have dogs and we don't have babies. And so there's a lot of categories that just didn't feel as relevant and that we were the right people to really take on and build in an authentic way. I wonder how, but you said there was pent up, you felt like there was pent up demand. Did you feel it or were you able to actually, you know, do some research and confirm that to be a fact? It was somewhere in between. I think every time we'd speak to someone and we'd tell them this idea of, hey, what if we could recreate that delicious taste and texture of your favorite childhood cereal, but with more protein, less carbs, zero sugar, people would say, I can't even imagine that that could exist.

48:17That sounds amazing. And so we wanted to put in basically protein to replace the carbs and then use natural sweeteners to replace the sugar. And the idea was to create a healthy cereal really for anyone, regardless of whether they are a workout fanatic trying to get protein after they're at the gym or a parent wanting to give their kids a cereal that looks like it's sugary and tastes like it's sugary, but it's actually not. Or somebody is gluten free or grain free. And so we had these broad guardrails that we went into development with. we wanted to ideally be more than 10 grams of protein. We ideally wanted to be five grams or less of net carbs.

48:54And part of that was because when we were developing it, the keto diet was really at its peak. And so - Keto, right. Correct. So to be keto - Which meant that you had to make it without any grains. Correct. And also have the net carbs, ideally below five grams per serving. And net carbs for people who don't, this is a little bit of, it's, you subtract the fiber from the amount of carbohydrates and that's, and then you get the net carbs. So it might have 15 carbs, but if it's got 10 grams of fiber, then it's only five net carbs. And keep sugar either one gram, zero grams, really as low as possible.

49:27All right. You land on this idea of creating a cereal that had no sugar, lots of protein, and low in carbohydrates. Easy, right? No corn, no wheat, no rice. So how did you find, who did you find to help you kind of come up with what this could be? Because you're not using grains, you're not using nuts. We did all the actual original formulations ourselves. So we were using basically plain, regular cereal. And it was me and Gabby just ordering a bunch of ingredients that we thought could potentially work. looking at a bunch of products across different categories, seeing what was common amongst them, and then reaching out to flavor suppliers and saying, hey, can you send us something along these lines?

50:17And we taste it, we'd say, can you make it slightly stronger, etc., etc. And we made it all ourselves. But just to be clear, you couldn't literally make the cereal yourselves because it's complicated, or you couldn't make it at scale. So you had to find somebody to make it for you. And I guess you guys went to this big trade show in Las Vegas to find somebody who could sort of make this like loop shaped cereal for you. Is that what you were looking for? Yeah. So we kind of had we had a prototype that was unbeknownst to anybody, just regular cereal. You know, I won't name names, but it's sort of a loop, a plain loop.

50:57and we went up to a bunch of different manufacturers and said, hey, we haven't launched anything. We're looking for something that looks like this but is very high in protein and very low in carbohydrates. We're open to dairy proteins, vegetable proteins. We don't have anything yet, basically. And they said, well, who made that for you? And we'd say, well, we can't really say. We're still looking for our preferred partner. Are you interested? and we didn't have any good leads at the time, but one of the suppliers actually said, you know, we can't make that because of allergen concerns, but we think we know who made that sample for you.

51:39And we said, well, you know, we can't say. And they said, was it so-and-so? They actually have a booth. Did you get it from their booth? And we'd never heard of them before. But after that, we ran right over to their booth, and actually that supplier ended up being our launch partner. And they helped us develop back into basically a cereal piece that ended up being primarily dairy proteins and a little bit of chicory root fiber and some tapioca starch, essentially. So basically you take whey protein and you mix it with tapioca starch, which is from a cassava plant, I think. I can't remember. Yeah, exactly.

52:19And then which is paleo, right, and keto and gluten-free and all that. And then you add some chicory root, which has a lot of fiber. And those basic building blocks can create like a crispy loop. And it was a lot of trial and error. I mean, it took us a year, I would say, to develop the right ratio of those ingredients. And did you raise money to do this or were you bootstrapping at this point? As soon as we became clear with ourselves that this was the bet we were going to place and we're going to get into the serial game, we actually called up many of the old investors from Exo. And Collaborative Fund, which was the first VC in our last business, actually wrote the first check into this business as well.

53:04Wow. So you raised money from the beginning. This was going to be a different approach. It wasn't going to be like Kickstarter. Correct. Correct. And part of it was we knew this was not taking a small niche idea and taking our time to grow it. This was going up against some very large companies in an enormous category. And we wanted to do it right. And we wanted to build this business faster. So we raised a million dollars pre-launch, half of it from this VC fund, collaborative fund, and half of it was actually from health among us influencers who wrote small checks into the business and could then help us eventually launch it.

53:39And so with that money, you were able to really do the R &D to develop the recipe to make this. Correct. It was mostly R &D and a little bit of branding because we felt like the marketing opportunity was so massive given the emotional resonance of these brands that we were sort of inspired by because a key part of our positioning was that we were updating cereal for grownups, basically, and really going after Gabby and my, you know, ourselves, 20, 30, 40 somethings. That was the age group. You weren't going for children. No, we very explicitly were not going for children. And so the main insight was that every other category in the grocery store has evolved for the modern consumer.

54:23But cereal was just stuck in the past in this old paradigm of carbs and sugar and junk ingredients. And we were coming to upgrade this category. Yeah. In fact, one of our taglines early on was, why did you grow up but your cereal didn't? Why don't we come back in just a moment? How Gabby and Greg come up with the exact ingredients to make good on that tagline. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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57:13hey welcome back to how i built this i'm guy roz so it's 2019 and gabby and greg have raised one million dollars for their new high protein no sugar cereal and most of that million goes toward developing just the right flavors our first four flavors that we launched with were fruity, cinnamon, cocoa, and frosted. So we wanted to basically have a version for any cereal flavor profile that you might enjoy and remember from your childhood. And no sugar because you use something called allulose, which is a, you can buy it in bags. It looks like granulated sugar, but it doesn't actually convert into energy in your body.

57:56So it doesn't spike your blood sugar. Basically, your body doesn't consider it to be sugar. Exactly. So it's a natural sugar that it's a relatively new ingredient, but it really allows us to get pretty close to the taste of those classic cereals while having a very different nutritional profile. It's really a pretty magical ingredient. And we use that along with monk fruit. And monk fruit, right? And these are two sweeteners that have started to appear in recent years that were not really widely available five, ten years ago. So, and unlike those other sugars, allulose doesn't have a bitter, monk fruit has a little bit of a bitter taste.

58:35Stevia has a little bit of a strange aftertaste, but allulose just doesn't seem to. Correct. And we got very lucky with the timing because to your point, 10 years ago, we really couldn't have launched this business with a formulation that we felt was close enough to really make that tradeoff worth it of, you know, nutrition for flavor. And allulose, importantly, also functions like sugar when you're using it in the recipes. And so we were able— It melts or it dissolves. Exactly. And it can coat the cereal in a similar way. And so we were able to use a lot of the same equipment that regular cereal manufacturers use for our cereal.

59:15Some people might be weirded out by allulose, right? Because they might think of it as like a Frankenstein ingredient. And what is it? Does it—is it derived from corn? How do they make it? It can be derived from lots of different things. And it's basically, you can make it from sugar cane. You can make it from corn. It's found in raisins and figs. So it's a naturally occurring sugar that I think different companies probably are commercializing it from different places. And how did you come up with the name Magic? It's a great name. Magic Spoon. It's funny. We actually, initially the business was called Disco's.

59:51And we thought Disco. Yeah. Disco's like O's, like the shape of the cereal. okay and we were we're calling it that for a little while and people generally liked it and then i think we just had an aha moment one day that the name felt a little bit small and so we were thinking through other names eventually magic spoon popped up as an idea and the kind of reasoning behind it was that whenever we give people a sample what we want to observe what we typically do is that they're just amazed they think it must be magic like they cannot believe had this cereal taste so sweet, so colorful, yet there's no sugar in it.

1:00:28Yeah. Somebody did point out to us that disco, you know, I love disco music, but as an era, it's not so closely associated with health and wellness. And so for a brand that was trying to lead with its nutritional benefits, it felt maybe a bit like a bit of a misfit. Yeah. And we also learned that being disco-ed is called for being discontinued off a retail shelf. So there were a couple of connotations that we realized didn't quite make sense. And that was another reason why you changed the name. So, all right. If your target audience was at least initially sort of people who are into, you know, high protein diets, low carb, high fiber, they're the kinds of people generally, I think, who wouldn't go towards sugar and sweet.

1:01:12But who would eat like some coconut yogurt or maybe Greek yogurt? And they're not going to pour anything into a bowl with milk and eat it in the morning. It's certainly not something sweet. But I don't know. Did anybody give you pushback on that and say, yeah, I don't know. The CrossFit crowd is just not going to go for that. Well, we definitely got pushback on the idea in general. You know, some investors we spoke to were so anti the idea. They actually said to us, OK, you can do this, but don't use the word cereal. That's a dirty word. you've got to call it clusters or rebrand cereal somehow.

1:01:47So there was definitely pushback on the idea. But in terms of what we saw was when we were speaking to people, the kind of people you're describing who are very health-assessed, they perhaps were having eggs and avocado for breakfast, some of them were very happy with that and maybe didn't want something sweet. And maybe they'd lost their fondness for sweet foods over the course of the past several years. But many of them were pretty unhappy having a breakfast of eggs and avocado or green juice. Unhappy? It's a delicious breakfast. Clearly not you. You're unhappy. It's not going to make you unhappy.

1:02:21That's going to reduce inflammation. That's going to make you very happy. But for many of them, being able to reduce inflammation and get that protein and get those healthy fats, but do it while eating a bowl of delicious, colorful cereal, to some of them, many of them that we spoke to, that was really compelling. And we saw a lot of excitement in people's eyes when we said that to them. And we're not out here trying to say, never eat regular cereal or eat this every morning instead of your egg whites and avocado. But it was more just, it felt like a way to really create a brand that was just sort of positive and optimistic while also really making a product that was vastly healthier than what existed before.

1:03:05All right. You had a playbook from Exo, which was you really leaned into developing relationships with and raised money from influencers, from paleo influencers, some celebrities, and they were able to get the word out. What was the playbook here? You were going to approach this somewhat differently, right? Because unlike Exo, from what I gather, you decided that you wanted to raise a lot of money as quickly as possible. Yeah, I think part of it goes back to wanting to have a very different experience in company building to Exo. We knew that this time around we were entering a huge category dominated by really three very large incumbents.

1:03:47Talking about Kellogg's, General Mills, Post. Correct. And we knew if we were going to go up against them, we were going to need to be very well capitalized. we're going to need to nail the product, nail the branding, right? No time to kind of do a sort of cheaper version of the branding that didn't quite nail it and then pivot from there over the course of a couple of years. We knew we wanted to get it right on day one. And we wanted to build this business as quickly as we could to scale. And we also knew that if we had some success, those larger companies would likely create their own versions of what we were trying to do.

1:04:19We wanted to make sure that we could do every step of this right from the formulation to the branding and be well capitalized to really step on the gas and scale it as soon as we had any early signs of success. And we also at that time, we, you know, we'd spent five years really getting a crash course in launching and running a food business. So we felt like we had all the tools to really be operating a company at scale already. And we were, we were sort of willing that company into existence. And we wanted in a way to leapfrog all the years of time we'd put in at Exo of kind kind of the little bit of fumbling around in the dark, figuring out who the customer was, like maybe redoing the brand a few times.

1:05:00And we wanted to really hit the ground running as soon as we launched with Magic Spoon. So from the get-go, you had this box, and the box kind of has like a little bit of a psychedelic look. I mean, it's called Magic Spoon, right? It's got, it almost looks like, almost like a Magic School Bus kind of look. Yeah, we wanted to nod to the incredible job that serial companies have done historically in building brands and creating characters. And the goal is to evoke nostalgia, evoke that morning cartoon feeling. And that was the goal, even down to the choice to use a cardboard cereal box, right? When you think about it, a cardboard cereal box that doesn't reseal at the top is actually not the most practical packaging to use.

1:05:44A stand-up pouch that you can reseal from a purely practical perspective perhaps makes more sense, but that doesn't create the same feeling of joy and nostalgia. us. So even the packaging we chose was done from a sort of branding perspective. And tell me about how you guys divide what you do. I mean, Gabby, do you mainly focus on operations? And Greg, do you mainly focus on branding and product? Or is it just you'll both do everything? We're co-CEOs. And I focus more on sales, marketing, fundraising. And Greg focuses more on operations, product, manufacturing, finance? We actually are very similar personality types.

1:06:25And in fact, at the very beginning, investors told us that they thought we were probably too similar to really make it as a founder pair. Because I think people have in their mind, you know, some usually someone is like the, you know, designer, creative genius, and the other person's like the finance guy or something. Yeah. But there actually hasn't ever been a major decision that we've really ultimately disagreed on, I think, because we sort of approached things in a very similar way. So this was going to be a different, right, a different approach. And by the end of September, by the end of 2019, you raised another five and a half million dollars from some venture partners and some people, some individuals, investors who've been on this show, who've started brands like Warby Parker and Harry's and others.

1:07:14And the idea was, again, direct to consumer, that you would sell through the website, through a website? Yeah, that was the playbook that we developed at Exo. And we ended up running this business purely direct to consumer for almost three years. When we launched, we thought that was only going to be a few months. But our first month back in the middle of 2019 shattered all our expectations in terms of revenue. And so three months after launching, we then raised about$5 million. And that was some funds, but also, like you said, some individuals who could really help us level up the business. So the founders of lots of DTC companies, also several celebrities, lots of influencers.

1:07:53People were good. Schumer and Nas and some of these. Correct. Halsey, Nick Jonas, Questlove. My God. What do those guys know about cereal? Well, Nick Jonas, interestingly, is diabetic. And so he actually found the product from that point of view organically. Yeah. So I wonder how did you get the attention from customers? I mean, did you hire a PR firm? Did you get press early on? Actually, what we did when we founded Magic Spoon is we created an equity pool for these influencers who are investors in the business. And based on the revenue they drove through their sites or email lists, we divided up this bonus equity pool amongst them after the first year.

1:08:40So we were able to really incentivize these influencer investors to promote us frequently to their audiences. And alongside that, we ran paid social ads. Yeah, because customer acquisition is just much more expensive now than it was when you started Exo, for example. And so this is now a new strategy and I think an interesting one. And it's, you know, a lot of times you see a celebrity talking about a product. What most people don't realize is they are investors in that product. Yeah, very often. As it happens, some of the ways we found our celebrity investors were actually them organically posting.

1:09:15So Questlove, a few months into our launch, posted organically on Instagram. He knows a lot about food, actually. Yeah, yeah, yeah, he does. And he loves cereal. Like cereal is like, he throws cereal eating parties and things like that. Right, right. So we saw that organic post and we just DM'd him. So when you first kind of, so it was direct to consumer, right? Just like Exo. And when you first kind of, I don't know, launched this product, did you go to Expo West with this product? We went to Expo West, but not with the goal of attracting retailers. we knew really one month into Magic Spoon that we weren't going to have to go to retail as fast as we thought we were going to have to before we launched.

1:09:57So our first month, I think we were hoping to maybe do a hundred grand a month in sales towards the end of our first year. We blew past that after a few days. And so we instantly realized there is such pool for this product from online customers. We can build this thing for a while before we need to go to retailers. And over the course of those first few years, we had retailers coming to us constantly saying, can we bring you on? And we just kept on saying, we're not ready yet. We'd love to partner with you at some point, but we're not quite ready. And then that changed about three years in when we launched in retail.

1:10:31All right. So you launched it in 2019 and you're getting some good feedback. And was it a challenge to find a manufacturer? Because you're extruding a, it's not a grain-based product. So you can't, I'm assuming it has to be made in a grain-free production facility or they have to scrub it down. Was it hard to find a manufacturing facility willing to make these? Yes. It's a very hard product to make because it's so high in protein. And we use dairy protein, which is milk, and milk burns at a pretty low temperature. So when it's going, you know, when you're extruding it out, it's a very high pressure, very high temperature process.

1:11:13and it's the line between perfect puffs and burned brown shriveled puffs is very very very small it's it's really more of an art than a science i would say and it was very challenging to find people who could consistently make the product for us and scale it up and i mean we've seen extruders get lit on fire before we've seen all sorts of manufacturing disasters because of how difficult it is to make. I think we learned a lot at EXO about making sure supply chains can handle the demand. And so one of the reasons why we delayed going to retail for so long is that we really wanted to be ready for that huge step up in scale.

1:11:57And so we spent a lot of time on the supply chain, making sure that we could supply the demand when it came. And we do we do a lot of limited edition flavors on our website. We sort of in the first couple of years followed almost like a supreme sneaker model where we would do kind of limited drops and seasonal things. And that was a big part of our brand and our sales model. And even on those, like trying to come up with so many different flavors all the time. I remember there was, we were doing a pumpkin chai flavor for the holidays and I was doing all the formulation still. And I'd ordered a chai powder that unbeknownst to me had whole rose petals in it.

1:12:37And you just, you know, that's something that you just can't use when we're in our kind of slurry formulas. And so Gabby had to sit there overnight picking out, handpicking all the individual rose petals out of the chai powder. So there was a lot of manufacturing hiccups as we scaled and we were trying to iterate so rapidly. We still change our formula and try and make improvements based on consumer demand all the time. That's one of the big upsides of having such a large direct-to-consumer fan base is that we really can communicate directly with our customers in a way that the classic big cereal companies cannot.

1:13:11And let's talk about funding because the model is, again, it's a new, well, I shouldn't say unusual, but it is a, you know, it's a different type of model. You've raised, I think now almost$100 million in funding. I think your last big fundraise was in June of 2022. Is that right? Correct. We've raised a little over$100 million over the course of four years. And I mean, that's like tech company financing, right? Like it's not common that a new food brand raises so much. But in your view, you've got to have all of that capital in order to create a brand that can't be toppled. You certainly don't have to.

1:13:53This was a path that we deliberately chose. It's also worth mentioning that we've raised a little over 100 million, but the most recent round, which was about a year and a half ago, about half of that round went to some early investors to give them liquidity. And so not all of that 100 million has gone into the business. And some of that goes back to the supply chain too, because the machinery required to make cereal is massive. It's two stories and it requires like five operators at once and you need tons of power and water. And so you really have to start at scale. There's no way around the fact that you have to be running these machines for eight hour shifts, you know, pumping out tens of thousands of pounds of cereal to even make it worth anyone's while.

1:14:37And so it's just the whole product category operates at a much larger scale that's quite capital intensive. And so obviously you're now, I think you're sold at Target and you could buy it. Where else is a cereal sold besides online? We're in Target, Walmart, Safeway Albertsons, Kroger, Sprouts, some other smaller retailers as well. And so eventually, and actually before I ask you that question, you're not in Whole Foods, which is interesting. Actually, currently Whole Foods doesn't have products with allulose in them. So that's the reason we're not in Whole Foods currently. I see. That's their position.

1:15:16Correct. Interesting. So, you know, in terms of what still a very new product, right? You know, and it may be too early to answer this question, but is this a 10 year timeline? You know, you raise money, it's 2019. By 2029, you know, we're talking now, six, seven years in the future. What does it look like? Do you sell it? Do you, is it go public? What do you imagine? I think it could be either of those. And we're open-minded right now. Things are going really well. And from the early days, it was obvious to us that this was going to be so much bigger, so much faster than XO. Even down to the first month of Magic Spoon, we did a post from one of the same influencers that used to promote XO.

1:16:04And whereas at XO, if they did a post on Instagram about us, maybe generated a few hundred dollars. With Magic Spoon, that same influencer was generating several thousand dollars. So right now, we have so much more in front of us that we're itching to do. So we were entirely D2C for the first three years. We then launched on Amazon, very quickly actually became the number one best-selling serial on Amazon. And then we've only been in retail for about a year and a half. And already, every retailer we're entering in, we're performing tremendously well. And so there's tens of thousands of more retailers for us to expand to.

1:16:37And there's also lots more product categories we think we're earning the right to expand to. and we actually launched our first product outside of boxed cereal a couple of months ago. We launched our version of a Rice Krispie Treat and that's also going well too. So when you guys sort of reflect on the, you know, sort of the journey you took to get here now and obviously you're still growing and, you know, you could potentially make a lot of money off this business. You probably have already made a little bit and you think about where you've come from and XO and all that happened. How much of where you are now do you attribute to how hard you worked and how much do you think has to do with just getting lucky and timing and circumstances?

1:17:18I think so much of it is timing. I think the same people doing the same idea five years later, like one will work and one won't. But I think on the flip side, two different people doing the same idea at the same time, also probably one would probably work and one wouldn't. So I think there is a lot of luck and there's a lot of things that have to go right. And trying to claim too much credit for ourselves would just would be disingenuous. Yeah, it's funny when people ask us, what are we doing differently with Magic Spoon now? Like, why is Magic Spoon so much more successful than XO? The truth is, we're doing some things differently, but we're doing a lot of the same things.

1:18:05And it's working so much infinitely better now, partly because we've learned from some mistakes from XO and we spent five years banging our heads against the wall, but partly just because we have so much more product market fit. And it is a path that we chose because we thought that this was the way for us to create a mainstream best-selling cereal brand. It's by no means the only path, but it's one we've chosen eyes open and we think it's right given the goals we have. That's Gabby Lewis and Greg Sevitz, co-founders of Magic Spoon. As for the XO protein bars, as we mentioned earlier, they're still available on the company's website, along with cricket flour and recipes for how to use it.

1:18:51For example, you can make gingerbread cookies, which are pictured both in the shape of a gingerbread man and a gingerbread cricket, decorated with lacy white icing. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's free. This episode was produced by J.C. Howard with music composed by Ramteen Ereblewe. It was edited by Neva Grant with research help from Malia Agudelo. Our audio engineers were Robert Rodriguez and Maggie Luthar. Our production staff also includes Alex Chung, Casey Herman, Carla Estevez, Chris Messini, John Isabella, Catherine Seifer, Carrie Thompson, and Sam Paulson.

1:19:34I'm Guy Raz and you've been listening to How I Built This.

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From the publisher

Gabi Lewis and Greg Sewitz founded Magic Spoon to create a sugary breakfast cereal without the sugar. If that sounds daunting, consider their first business: protein bars made with cricket flour. Riffing on an idea that began as a college assignment, the founders ordered live crickets to roast at home, and worked with a top-rated chef to perfect their recipes. The only problem: getting people to eat a snack made of ground-up bugs. When Exo protein bars eventually stalled, the pair pivoted to another ambitious idea: breakfast cereal that tasted like the Fruit Loops and Cocoa Puffs of childhood–but minus the sugar and grains. Drawing on their roller-coaster experience with Exo, Gabi and Greg revisited winning strategies, and scrapped the plays that didn’t work, eventually building Magic Spoon into a nationwide brand.

This episode was produced by J.C. Howard, with music by Ramtin Arablouei

Edited by Neva Grant, with research help from Sam Paulson.

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