CASE From Cricket Protein to Direct-to-Consumer (DTC) Cerea

CASE From Cricket Protein to Direct-to-Consumer (DTC) Cereal: How… CASE From Cricket Protein to Direct-to-Consumer (DTC) Cereal: How Magic Spoon’s Cofounders Built Instagram’s Favorite Cereal ExoAfter attending a panel about turning insects into sustainable protein, Brown University students Gabi Lewis and Greg Sewitz became obsessed with crickets. They spent time between philosophy and English classes farming and crushing crickets into protein powder to pour over shakes and bake into bars. Shortly after graduating, the two turned their passion into full-time jobs, launching cricket protein company Exo in the spring of 2013. The company first sought funding on Kickstarter (a popular crowdfunding platform) where they raised $54,911 from 1,241 backers. In early 2014, they partnered with Michelin star chef Kyle Connaughton to concoct blueberry vanilla and cocoa nut cricket protein bars. “You would’ve never known there were crickets in there unless I told you,” says Lewis, now 31, who originally hails from Scotland. They went on to raise $1.6 million from Wild Ventures, Collaborative Funds, among others, and sell their bars in Equinox and other health-forward retailers, landing on the Forbes 30 Under 30 list in 2016. After running the business for five years, they sold it for an undisclosed sum to consumable insect giant Aspire Food Group in March 2018. After bringing a new protein to the masses, they wanted to shake up a breakfast staple: cereal.  Magic SpoonAfter six months of research and testing, Gabi and Greg approached investors with Magic Spoon: a grain-free, keto-friendly breakfast cereal with zero-to-two grams of sugar and 13-plus grams of protein. And unlike every other breakfast cereal, Sewitz and Lewis insisted they would sell Magic Spoon direct-to-consumer. For Exo investor and Wild Ventures founder John Durant, backing Sewitz and Lewis’ next venture was a no-brainer. “I invested before the company was called Magic Spoon – before the cool brand and packaging—purely on the basis of the cofounders, who I’d backed through five-plus years of slinging cricket bars,” he says. “Insects are literally the hardest thing to sell in food and beverage, and Gabi and Greg sold a lot of cricket bars. Backing them again was one of the easiest decisions I’ve made.” Three years later, the company has raised $16.5 million from investors including Allbirds cofounder Joey Zwillinger, Harry’s founder Jeff Raider and others.  Though the cofounders declined to share revenue, they say the company—which has about 300,000 fans on Instagram, more than Kellogg’s, General Mills, Quaker Oats, Post and Kashi combined—has experienced triple digit growth year-over-year. Celebrity backers include Questlove (who is also an investor). Magic Spoon’s cereal comes in six flavors ranging from blueberry to peanut butter and is sold in packs of four (delivered all at once or on a monthly basis) for $39. This is in stark contrast to standard cereals like sweet Frosted Flakes and healthy Kashi GoLean, which both retail at less than $4 per box and sell in nearly every U.S. grocery store.  “I do think because nobody was used to buying cereal DTC that was an opportunity but also a hurdle,” says Sewitz. “We were able to get out in front of people’s eyeballs and really educate them on why we were different – that would’ve been a lot harder if we were just one box on a shelf of different cereal boxes.” The company manages to educate consumers and convinces them to spend $40 on cereal from the internet, by using influencer marketing as well as social media and podcast advertising. To appeal to younger consumers, they released a limited-edition cereal with Josh Richards (the fifth highest earning TikToker of last year). For older customers, they pay for expensive sponsor spots on popular podcasts like Pod Save America and the Tim Ferriss Show. Right now, the company is doubling down on growth, hiring for 11 positions including a director of marketing to bring its 22-person workforce up to 33.  In the future, the co-founders hope to see Magic Spoon “everywhere cereal is sold,” but are focused on investing money into their social media presence – to build brand awareness with popular influencers and podcasters before competing with Cap’n Crunch, Tony the Tiger, and Count Chocula to win over consumers at the local grocer.  Sources:Exo: Protein Bars Made from Cricket Flour. (2014). Kickstarter. Retrieved July 17, 2022, from https://www.kickstarter.com/projects/exoprotein/exo-protein-bars-made-from-cricket-flour Sternlicht, A. (2021). From Cricket Protein to DTC Cereal: How Magic Spoon’s Cofounders Built Instagram’s Favorite Cereal. Forbes. Retrieved July 17, 2022, from https://www.forbes.com/sites/alexandrasternlicht/2021/07/06/from-cricket-protein-to-dtc-cereal-how-magic-spoons-cofounders-built-instagrams-favorite-cereal/ QUESTIONAccording to the most recent Crunchbase data, Magic Spoon is well positioned for rapid growth having raised close to $100 million in funding since 2019.  (4a) What are potential external and internal growth strategies that Magic Spoon may consider? Choose one (1) internal growth strategy and one (1) external growth strategy and discuss one (1) advantage and one (1) disadvantage associated with each.  (4b) Identify two (2) potential problems that Magic Spoon may face if it plans to expand internationally and suggest one (1) solution for each.  Business Entrepreneurship ICP 615

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