Magic Spoon & Exo: Gabi Lewis and Greg Sewitz

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. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:46Guy Raz?

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• 1:32Guy Raz?

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• 2:16Guy Raz?

  on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. If you travel often, you'll want to hear about this unprecedented offer. For the first time ever,

• 3:00Guy Raz?

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• 3:45Guy Raz?

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• 4:27Guy Raz?

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• 5:12Speaker 01

  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.

• 5:20Guy Raz?

  Yeah.

• 5:21Speaker 01

  In terms of revenue, the first $1 million 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.

• 5:44Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 5:55Guy Raz?

  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.

• 6:19Guy Raz?

  Over 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 soup, 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.

• 7:04Guy Raz?

  And 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

• 7:48Guy Raz?

  to make an exact copy of an Oreo cookie or a Cheeto without that stuff. But some are trying, including today's guests, Gabby Lewis and Greg Sewitz. 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.

• 8:33Guy Raz?

  Now, if this sounds like a risky proposition, just consider what Gabby and Greg did before they launched Magic Spoon. For 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 sent thousands of retailers nationwide. And just to be clear, Magic Spoon has no crickets in it. Greg Sewitz 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.

• 9:17Speaker 01

  Greg, when I first met him and saw him, I remember he seemed very classically LA to me. He had the sort of LA 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 until now.

• 9:43Speaker 02

  Nothing bonds you together like multi-variable 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 them a textbook. So, we kind of bonded over how challenging that course was.

• 10:01Guy Raz?

  Yeah. And Gabby, I guess that you were also separately taking some classes in entrepreneurship, which Brown is kind of known for.

• 10:11Speaker 01

  Correct.

• 10:12Guy Raz?

  And I read that the first, 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?

• 10:28Speaker 01

  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.

• 10:39Guy Raz?

  Yeah.

• 10:40Speaker 01

  And so we wanted to use dates, cacao, nut butter, some kind of very basic natural protein.

• 10:47Guy Raz?

  This is pre RX bar.

• 10:48Speaker 01

  Correct.

• 10:49Guy Raz?

  And did you start to make them in your, in your kitchen or wherever you were living?

• 10:53Speaker 01

  I did. The amazing thing about developing a protein bar business is you can make a basic version in your kitchen.

• 10:59Guy Raz?

  Yeah.

• 10:59Speaker 01

  You're just mushing ingredients together, forming it, and you can make lots of different iterations of it.

• 11:05Guy Raz?

  This is a story of Lara bars and, and yeah, Cliff bars. It's the same story. All those companies, they started that way.

• 11:12Speaker 01

  Yeah, a hundred percent. 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 had put pen to paper on.

• 11:29Guy Raz?

  Yeah.

• 11:30Speaker 01

  And 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. I, I had no idea at that point that I was actually going to launch this thing.

• 11:41Guy Raz?

  Yeah.

• 11:41Speaker 01

  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?

• 11:54Guy Raz?

  Okay, Greg.

• 11:56Speaker 02

  Record scratch.

• 11:58Guy Raz?

  How did that idea, were you sort of interested in being involved in his protein business at that point?

• 12:03Speaker 02

  I wasn't at that point because where I got hooked was really the, the marketing challenge of how do you make this product that people care about? And 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 Really 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.

• 12:48Guy Raz?

  Yeah.

• 12:49Speaker 02

  And where I got really interested was that that theoretical idea of could you essentially normalize this practice that we all have an innate disgust response to, i.e. eating bugs in the US through a well branded delicious food product, basically. And so that's what started piquing my interest.

• 13:12Guy Raz?

  All right, let's let's 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 started 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% of global carbon emissions, right? And was that what you were hearing at that conference?

• 13:43Speaker 02

  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.

• 14:00Guy Raz?

  They're crickets.

• 14:01Speaker 02

  And we have we have no we have no history or tradition of eating insects in America for a variety of reasons. But I think through our efforts at Ekso 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.

• 14:18Guy Raz?

  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. So 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?

• 14:35Speaker 01

  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?

• 15:08Guy Raz?

  So, you guys start to talk about this idea, but what's the next step? How do you, 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?

• 15:28Speaker 02

  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, Pet Smarts, and the reptile feeds of the world, basically. So, we ordered some to try.

• 15:52Guy Raz?

  From, from like, the internet or from Petco or what?

• 15:56Speaker 02

  I'll never forget, we basically found a cricket farm in Louisiana that would ship us crickets in the mail.

• 16:03Guy Raz?

  And by the way, are there different, were there different like, grades? Like, food grade, like, animal grade, human grade, or no, it's just crickets?

• 16:10Speaker 02

  There wasn't at the time because there really weren't any companies on a large scale trying to serve crickets to humans. So, the whole, the whole, no cricket farmer would have ever in their wildest dreams thought that people would come knocking and ask to serve their crickets to people.

• 16:27Guy Raz?

  Right.

• 16:28Speaker 02

  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. And 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 shoebox 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.

• 17:13Speaker 02

  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. And so, we started unpacking this box full of crickets. And it was, we could see it was gonna just be chaos to try and somehow get these crickets into the oven. Cause the idea was, let's take them and just put them in the oven and cook them. Right, so, cause cricket flour is just whole roasted crickets that are ground into a powder. Yeah, 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.

• 17:58Speaker 02

  And then, you can take the box out and do what you will with them. So, 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 we're like, what is going on here? You just had roasted crickets on cooking sheets? Exactly, and I'm sure we seemed totally crazy. Yeah.

• 18:23Speaker 01

  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 threw them into the Vitamix, blended it into a coarse cricket protein powder, essentially.

• 18:49Guy Raz?

  And 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?

• 19:04Speaker 01

  It's quite neutral, slightly nutty, slightly toasted in taste. So as it happens, it didn't have a negative effect on the taste or texture in any way, really, but we didn't know that at the time. We were just purely blindly experimenting at this point.

• 19:18Guy Raz?

  And you just like put it on a sheet of like parchment paper and then press it down and then cook it?

• 19:24Speaker 01

  Yeah, basically. And then we started giving some samples out to some friends.

• 19:30Guy Raz?

  And you would say to them, this has cricket powder? And probably some of your friends were like, I don't know, but probably some of them were like, all right, let me try it.

• 19:39Speaker 01

  Yeah, I think, I think some of them we told, some of them, honestly, we probably 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, huh, this actually tastes quite good and it's good for the world and it's good for me. And then they'd get it.

• 20:04Guy Raz?

  And this was, I mean, you guys started this your senior year of college, right? Correct. 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?

• 20:24Speaker 01

  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.

• 20:32Guy Raz?

  Bridgewater?

• 20:33Speaker 01

  Yeah.

• 20:34Guy Raz?

  Okay, I just, I just read that book about Ray Dalio. Very interesting book, by the way.

• 20:38Speaker 01

  Yeah.

• 20:39Guy Raz?

  Worth reading.

• 20:39Speaker 01

  Fascinating company.

• 20:40Guy Raz?

  Fascinating book. Are you happy you didn't go to Bridgewater after reading that book?

• 20:45Speaker 01

  I think regardless of the book, launching Exo and Magic Spoon has been.

• 20:49Guy Raz?

  This is where the no comment comes into play.

• 20:51Speaker 01

  It's been amazing.

• 20:52Guy Raz?

  Were you keeping the door open in case you still have an offer?

• 20:58Guy Raz?

  Anyway, so you don't go to Bridgewater.

• 21:00Speaker 01

  So we decided to 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.

• 21:24Guy Raz?

  I mean, the facts are fascinating, right? It's high, high protein content, really protein dense, good for the environment, it's a neutral flavor, but of course, it's still crickets.

• 21:35Speaker 01

  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, let's see if we can make this happen. And I also think that 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. So 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

• 22:19Speaker 01

  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, you know, 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.

• 22:39Guy Raz?

  Yeah.

• 22:39Speaker 01

  And so we, we graduated, we decided to move to New York. We 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.

• 22:54Guy Raz?

  And, and you guys came up with the name Exo as in exoskeleton, presumably?

• 22:58Speaker 02

  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.

• 23:09Guy Raz?

  Good name. And, and also probably you guys were excited about 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. You couldn't, you could not pass by somebody handing out cricket protein bars and not at least stop and look at it.

• 23:30Speaker 02

  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 felt, fit very nicely into that as well.

• 23:51Guy Raz?

  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.

• 24:04Speaker 01

  Yeah. 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 that Kickstarter, which did it close to $60,000 in pre-orders.

• 24:32Guy Raz?

  60,000. Yeah. I mean, you wanted to raise 20,000, you raised almost 60,000. And what would, 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 or was it kind of just an iPhone video?

• 24:49Speaker 01

  It wasn't, 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.

• 25:00Speaker 02

  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.

• 25:31Guy Raz?

  And so you raise 60 grand. And with that money, what, what were you able to do?

• 25:36Speaker 01

  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?

• 26:09Guy Raz?

  And so what did you do? I mean, you had to locate a co-packer, a manufacturer.

• 26:15Speaker 02

  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 manufacturer 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.

• 26:58Guy Raz?

  But that probably was going to cost you a lot more money.

• 27:00Speaker 02

  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.

• 27:42Guy Raz?

  How much, how many crickets were you looking to order? Or like how many pounds?

• 27:45Speaker 02

  I don't remember, but definitely tens of thousands.

• 27:48Guy Raz?

  Of pounds or of crickets?

• 27:51Speaker 02

  Of pounds.

• 27:52Guy Raz?

  Wow. And they're used to sending like a shoe, because a shoebox of crickets probably doesn't weigh that much.

• 27:57Speaker 02

  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, raise 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.

• 28:21Guy Raz?

  Right. Okay. So they agreed. They're like, fine, you send us a check, we'll give you as many crickets as you want.

• 28:27Speaker 02

  Exactly.

• 28:27Guy Raz?

  Did they think you guys were a little baddie?

• 28:29Speaker 02

  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.

• 28:57Guy Raz?

  But he does. He will hear from them again. When 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.

• 29:25Guy Raz?

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• 30:09Guy Raz?

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• 30:52Guy Raz?

  NetSuite Next surfaces insights exactly when you need them, puts agents to work on routine tasks and problems, and lets you ask complex questions in plain language, like talking to a knowledgeable colleague. But technology is only part of the story. AI is also reshaping how people and teams work together, and that shift is already underway. That's why NetSuite wants to put a new expert-created business guide in your hands today. It's called Aligning for the Agentic Era: How AI is Changing Everyday Work. And right now, it's yours, absolutely free. Inside, you'll discover how AI could reshape work across your entire organization and how to position your business to prosper from it.

• 31:37Guy Raz?

  If your revenues are at least in the seven figures, get NetSuite's free business guide, Aligning for the Agentic Era: How AI is Changing Everyday Work, at netsuite.com/built. The guide is free to you at netsuite.com/built. netsuite.com/built.

• 31:56Speaker 03

  Confidence, it's listening to your gut. It's moving forward even when the path ahead is unclear. For nearly 160 years, Pacific Life has helped people keep their promises, building confidence for generations. Whether you're confident in your financial future or just beginning to envision it, we're here to help. Ask a financial professional how. Pacific Life, the power of a promise. Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life and Annuity, Phoenix, Arizona.

• 32:28Speaker 04

  Hi, Guy. This is Nick from Greensboro, North Carolina. I'm a scientist and a professor, and I love getting inspiration from your podcasts. My favorite is the Tim Leatherman one, where he took his Leatherman tool and sent it to every pocket knife manufacturer in the country, and they sent it back to him and said, "Well, it's a tool." And so he sent it to every toolmaker in the country, and they sent it back to him and said, "Yeah, this looks like a pocket knife." And so he went off and just created an entirely new marketplace all on his own. Sometimes you gotta do that in life.

• 32:58Guy Raz?

  If you want to share your favorite episode of How I Built This, record a short voice memo on your phone telling us your name, where you're from, what your favorite episode is, and why, a lot like the voice memo you just heard. And email it to us at [email protected], and we'll share your favorites right here in the ad breaks in future episodes. And thanks so much. We love you, guys. You're the best. And now, back to the show.

• 33:31Guy Raz?

  Hey, 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 Cricket Protein Bar on Kickstarter. And as they begin working on updating the formula, they decide to reach out for some help.

• 33:48Speaker 02

  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 Knodden, 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.

• 34:12Guy Raz?

  And you just cold emailed him?

• 34:14Speaker 02

  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 at a 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.

• 34:40Guy Raz?

  I should mention Kyle is a very close friend of mine, so I know him very well. He had run the R and D kitchen at The Fat Duck, famous restaurant in the UK. This is before he would go on to open up his restaurant, Single Thread, in Sonoma County, which is now Michelin three star restaurant. 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.

• 35:08Speaker 02

  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. So we came out with a peanut butter and jelly flavor, for example, and things slightly different that Kyle really helped us develop.

• 35:37Guy Raz?

  So the idea was, of course, to get this, these orders out on Kickstarter, but eventually to get investors on board?

• 35:47Speaker 01

  Yeah. And thankfully, we were 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.

• 36:00Guy Raz?

  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 in, at the end of 2014.

• 36:16Guy Raz?

  Did 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?

• 36:26Speaker 01

  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.

• 36:42Guy Raz?

  So when it was time to actually launch the product, I think you actually launched them formally in 2015. Is that right?

• 36:50Speaker 01

  Yeah, around 2015.

• 36:51Guy Raz?

  And where were they sold? Did you sell them in stores or was it still direct to consumer online?

• 36:57Speaker 01

  At 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 Duran, Mark Sizin, 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 our direct to consumer company.

• 37:25Guy Raz?

  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.

• 37:34Speaker 01

  Yeah, 100%. There was lots of traditional media coverage, whether it was Forbes or Fast Company or New York Times. But far more impactful than that was having Mark Sizin, paleoprimal blogger, write a blog post to his...

• 37:47Guy Raz?

  Yeah, start a primal kitchen.

• 37:48Speaker 01

  100%. Writing to his hundreds of thousands or perhaps millions at the time, readers or email subscribers to check out this amazing new cricket protein bar.

• 37:58Guy Raz?

  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, what are you doing like? $30,000 a month, $50,000 a month, more?

• 38:12Speaker 01

  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. And 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.

• 38:31Guy Raz?

  Yeah.

• 38:32Speaker 01

  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. But getting those early adopters on board was easier.

• 39:09Guy Raz?

  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 guys raised, what, I mean, how much did you eventually raise for XO total?

• 39:46Speaker 01

  Yeah, we raised another $4 million on top of that first million. So we raised a total of about $5 million for that business.

• 39:52Guy Raz?

  So consumer, I mean, and still only direct to consumer. This was not sold in stores at this point?

• 39:57Speaker 01

  We started to get it into some select stores. So we slowly went from being purely on our own websites. 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.

• 40:16Guy Raz?

  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.

• 40:31Speaker 02

  Before 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 have 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

• 41:15Speaker 02

  of the mission statement of the company. And 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.

• 41:45Guy Raz?

  Because how much were the bars?

• 41:46Speaker 02

  I think they retailed for $2.99.

• 41:49Guy Raz?

  All right, so they weren't prohibitively expensive at all?

• 41:52Speaker 02

  The bars weren't, but there was-

• 41:54Guy Raz?

  You weren't making a profit off that?

• 41:56Speaker 02

  The company was not profitable, no. Our margins were totally 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 20, 30, 40 grams of protein per serving for some of these other use cases we were exploring, the costs were way too high.

• 42:20Speaker 01

  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, you'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.

• 42:54Guy Raz?

  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. I mean, human psychology, this is a problem, right? If you can't get people past that thing, this is not the sushi problem.

• 43:17Speaker 02

  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 timeframe of 10, 20, 30 years, it was totally something that could be viable as an entire industry. But on the timeframe of that we were working on and that we were interested in, we just, 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.

• 43:49Guy Raz?

  So what was the thing that sort of prompted you to, to sell this business? Cause you, you sold it to a, another company that was also in this, in this space. And then I think they went on and sold it again. And you can still get these bars, they're still available online. And so the company, the brand is still out there. But, 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, and any entrepreneur knows you've got to fail, right? In order to eventually succeed.

• 44:29Guy Raz?

  And, and this show is often about failure because that is part of the, the journey, a massive part of the journey. But it's still painful.

• 44:39Speaker 01

  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 guy. 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 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. And that didn't feel great. But I think that that feeling didn't linger for too long. And then

• 45:21Speaker 01

  we were able to dust ourselves off and quickly pivot to, all right, what's next?

• 45:26Guy Raz?

  So, did you have a plan in place for the next thing?

• 45:30Speaker 01

  No, we then spent some time thinking and reflecting.

• 45:34Guy Raz?

  But you, the two of you knew that you still wanted to work together. You, 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.

• 45:43Speaker 01

  No, no. I mean, I think, 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. And so then the next question was, what's the next food or beverage business to build together?

• 46:06Guy Raz?

  And what kind of ideas did you start to batter out?

• 46:10Speaker 01

  So we, we basically wanted to have the opposite experience from what we had at XO. 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 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. So didn't seem to us that there's very anything interesting to do there. Then you look at soda and similarly, there's just endless innovation, whether it's,

• 46:54Speaker 01

  you know, at the time it was perhaps peak kombucha, there's all the seltzers, there's probiotic sodas. And so 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 has nobody truly innovated in the cereal aisle? And why has nobody created, you know, at the time, the references we used were the the halo top of cereal, the smart sweets of cereal. So 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.

• 47:32Guy Raz?

  Right.

• 47:32Speaker 01

  And in some cases, they'd captured maybe five, 10% of some of these categories or several billion dollars. And so we said to people in the industry, why has nobody done that for cereal?

• 47:41Guy Raz?

  But why cereal, just for a moment? Why the cereal category? Like, why not, I don't know, dog food or or or condiments or?

• 47:52Speaker 01

  Yeah, so we were looking for a large category and we were looking for a category that was beloved by people.

• 47:59Guy Raz?

  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.

• 48:10Speaker 01

  It 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 dollars. 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. And 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.

• 48:40Guy Raz?

  But P P clearly is speaking to some consumers of its $11 billion. I mean, not, I mean, I don't, 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, we got, we had Cheerios and Honey Nut Cheerios and Lucky Charms and Cocoa Puffs. Now, I just want to eat that stuff. But I would never buy that for my kids, never.

• 49:01Speaker 02

  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.

• 49:13Guy Raz?

  Crunch Berries?

• 49:14Speaker 02

  Yeah, exactly. Not only name, but light up when they talk about it. And, you know, it's, it sparks-

• 49:19Guy Raz?

  Cookie Crisp!

• 49:20Speaker 02

  These memories of Saturday morning cartoons and growing up with your grandma. And there's, there's so much emotional-

• 49:26Guy Raz?

  Count Chocula.

• 49:27Speaker 02

  Material. Yeah, exactly. These, 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, the last criteria we had was, we, we wanted it to be something that we could be users of. And I think-

• 49:54Guy Raz?

  I see. You wouldn't eat dog food.

• 49:56Speaker 02

  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.

• 50:05Guy Raz?

  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?

• 50:20Speaker 01

  It, 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. That 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 who's gluten free or grain free.

• 51:03Speaker 01

  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. And part of that was because when we were developing it, the keto diet was really at its peak. And so

• 51:19Guy Raz?

  Keto, right.

• 51:19Speaker 01

  Correct.

• 51:20Guy Raz?

  So which meant that you had to make it without any grains?

• 51:24Speaker 01

  Correct. And also have the net carbs ideally below five grams per serving.

• 51:28Guy Raz?

  And net carbs for people who don't, this is a little bit of it. It's, 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.

• 51:42Speaker 01

  Correct. And keep sugar either one grams, zero grams, really as low as possible.

• 51:48Guy Raz?

  All right. You, you land on this idea of creating a cereal that was had no sugar, lots of protein and low, low in carbohydrates.

• 51:58Speaker 02

  Easy, right?

• 51:59Guy Raz?

  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, you're not using grains, you're not using nuts.

• 52:10Speaker 02

  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 you saying, hey, you know, we, can you send us something along these lines and we taste it, we'd say, can you, you know, make it slightly stronger, et cetera, et cetera. And we made it all ourselves.

• 52:43Guy Raz?

  But just to, but just to be clear, you couldn't literally like 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?

• 53:05Speaker 02

  Yeah. So we kind of had, um, we had a prototype that was unbeknownst to anybody, just regular cereal. Um, you know, I won't name names, but it's sort of a loop, a plain loop. And we went up to a bunch of different manufacturers and said, hey, we're, you know, 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, you know, we don't have anything yet, basically. And they said, well, who made that for you? And we'd say, well, you know, we can't really say, we're, we're still looking for our preferred partner. Are you interested? And we didn't have any

• 53:49Speaker 02

  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. And we said, well, you know, we can't say. And they said, was it so and so? They're, they actually have a booth. Did you get it from their booth? And we'd never heard of them before. But after that, we, we ran right over to their booth and, and actually that supplier ended up being our, our launch partner. And they helped us develop back into basically a, a cereal piece that ended up being primarily dairy proteins and a little bit of chicory root fiber and some tapioca starch, essentially.

• 54:29Guy Raz?

  Huh. So basically you take whey protein and you mix it with tapioca starch, which is from a, is it from a cassava plant? I think, I can't.

• 54:38Speaker 02

  Yeah, exactly.

• 54:40Guy Raz?

  And then, uh, 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.

• 54:52Speaker 02

  Yeah.

• 54:53Guy Raz?

  Loop like a

• 54:53Speaker 02

  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.

• 55:02Guy Raz?

  And did you raise money to do this? Or were you bootstrapping at this point?

• 55:07Speaker 01

  As soon as we became clear with ourselves that this was the bet we were going to place and we were going to get into the cereal game, we actually called up many of the old investors from Ekso and Collaborative Fund, which was the first VC in our last business, actually wrote the first check into this business as well.

• 55:25Guy Raz?

  Wow. So you raised money from the beginning. This was going to be a different approach. It wasn't going to be like Kickstarter.

• 55:30Speaker 01

  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 and wellness influencers who wrote small checks into the business and could then help us eventually launch it.

• 56:00Guy Raz?

  And so with that money, you were able to really do the R and D to develop the recipe to make this?

• 56:06Speaker 02

  Correct. It was mostly R and 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.

• 56:31Guy Raz?

  You were, that was your, the age group. You weren't going for children.

• 56:34Speaker 02

  No, we very explicitly were not going for children.

• 56:37Speaker 01

  And so the main insight was that every other category in the grocery store has evolved for the modern consumer, but 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.

• 56:52Speaker 02

  Yeah.

• 56:52Speaker 01

  In fact, one of our taglines early on was, why did you grow up but your cereal didn't?

• 56:59Guy Raz?

  When 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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• 58:25Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2019 and Gabby and Greg have raised $1 million for their new high protein, no sugar cereal. And most of that million goes toward developing just the right flavors.

• 58:41Speaker 02

  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.

• 58:57Guy Raz?

  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. So it doesn't spike. Your blood sugar, basically your body doesn't consider it to be sugar.

• 59:11Speaker 02

  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.

• 59:25Speaker 01

  It's really a pretty magical ingredient and we use that along with monk fruit.

• 59:29Guy Raz?

  And monk fruit, right. And these are two sweeteners that have started to appear in recent years that are, were not really widely available five, 10 years ago. And unlike those other sugars, allulose is, doesn't have a bitter, monk fruit has a little bit of a bitter taste. Stevia has a little bit of a strange aftertaste, but allulose just doesn't seem to.

• 59:51Speaker 02

  No, 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 trade off worth it of nutrition for flavor. And allulose importantly also functions like sugar when you're using it in the recipes. And so

• 1:00:13Guy Raz?

  It melts or it dissolves.

• 1:00:16Speaker 02

  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.

• 1:00:25Guy Raz?

  Some 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?

• 1:00:37Speaker 02

  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.

• 1:00:54Guy Raz?

  And how did you come up with the name Magic? It's a great name, Magic Spoon.

• 1:00:57Speaker 01

  It's funny, we actually initially the business was called Disco's and we thought.

• 1:01:02Guy Raz?

  Disco or Disco?

• 1:01:04Speaker 02

  Disco is like O is like the shape of the cereal.

• 1:01:07Guy Raz?

  Okay.

• 1:01:08Speaker 01

  And we were 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. It's small. And so we were thinking through other names. Eventually, Magic Spoon popped up as an idea and the 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. They cannot believe how this cereal tastes so sweet, so colorful, yet there's no sugar in it.

• 1:01:38Speaker 02

  Yeah, 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.

• 1:01:54Speaker 01

  Yeah, and we also learned that being discord is called for being discontinued off a retail shelf. So there are a couple of connotations that we realized didn't quite make sense. And that was another reason why we changed the name.

• 1:02:05Guy Raz?

  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.

• 1:02:17Guy Raz?

  They're the kinds of people, generally, I think, who wouldn't go towards sugar and sweet, but who would eat like some coconut yogurt or maybe Greek yogurt. And they're not gonna pour anything into a bowl with milk and eat it in the morning, and certainly not something sweet. But but I don't know, did anybody give you pushback on that and say, I don't know, the CrossFit crowd is just is not gonna that they're just not gonna go for that?

• 1:02:43Speaker 01

  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, okay, 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. So there was definitely pushback on the idea. But in terms of what we saw was when we, 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.

• 1:03:11Speaker 01

  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.

• 1:03:26Guy Raz?

  Unhappy? It's a delicious breakfast.

• 1:03:29Speaker 01

  Clearly not you.

• 1:03:29Guy Raz?

  You're unhappy. It's not gonna make you unhappy. That's gonna reduce inflammation. It's gonna make you very happy.

• 1:03:36Speaker 01

  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.

• 1:03:54Speaker 02

  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.

• 1:04:15Guy Raz?

  All 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 gonna approach us 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.

• 1:04:44Speaker 01

  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're entering a huge category dominated by really three very large incumbents.

• 1:04:58Guy Raz?

  Talking about Kellogg's, General Mills Post.

• 1:05:00Speaker 01

  Correct. And we knew if we were gonna go up against them, we were gonna need to be very well capitalized. We're gonna 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. We 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.

• 1:05:41Speaker 02

  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 Ekso of 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. And we wanted to really hit the ground running as soon as we launched with Magic Spoon.

• 1:06:18Guy Raz?

  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, like almost like a magic school bus kind of look.

• 1:06:29Speaker 01

  Yeah, we wanted to nod to the incredible job that cereal 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. A 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. So even the packaging we chose was done from a sort of branding perspective.

• 1:07:07Guy Raz?

  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?

• 1:07:23Speaker 01

  We're co-CEOs and I focus more on sales, marketing, fundraising. And Greg focuses more on operations, product, manufacturing, finance.

• 1:07:33Speaker 02

  We actually are very similar personality types. And 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 designer creative genius and the other person's like the finance guy or something.

• 1:07:54Guy Raz?

  Yeah.

• 1:07:54Speaker 02

  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.

• 1:08:04Guy Raz?

  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 $5.5 million 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. And the idea was again, direct to consumer, that you would sell through the website, through a website?

• 1:08:33Speaker 01

  Yeah, that was the playbook that we developed at Ekso. 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, the founders of lots of D2C companies, also several celebrities, lots of influencers, people who could-

• 1:09:05Guy Raz?

  Amy Schumer and Nas and some of these-

• 1:09:07Speaker 01

  Correct. Halsey, Nexonis, Questlove.

• 1:09:10Guy Raz?

  My God. What do those guys know about cereal?

• 1:09:14Speaker 02

  Well, Nick Jonas, interestingly, is diabetic. And so he actually found the product for, from that point of view, organically.

• 1:09:21Guy Raz?

  Yeah. So I wonder how you, how did you get the attention from customers? I mean, did you, did you hire a PR firm? Did you get press early on?

• 1:09:34Speaker 01

  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. So we were able to really incentivize these influencer investors to promote us frequently to their audiences. And alongside that, we, we ran paid social ads.

• 1:10:01Guy Raz?

  Yeah, because customer acquisition is just much more expensive now than it was when you started XO, for example. And so this is a now a new strategy, and I think an interesting one. And it's, you know, a lot of, 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.

• 1:10:20Speaker 01

  Yeah, very often, as it happens, some of the ways we found our celebrity investors were actually them organically posting. So Questlove, a few months into our launch, posted organically on Instagram.

• 1:10:31Guy Raz?

  He knows a lot about food, actually.

• 1:10:32Speaker 01

  Yeah, yeah, yeah, he does.

• 1:10:33Speaker 02

  And he loves cereal, like cereal is like, he throws cereal eating parties and things like that.

• 1:10:39Speaker 01

  Right, right. So we saw that organic post and we just DM'd him.

• 1:10:43Guy Raz?

  So when you, when you first kind of, so it was direct to consumer, right? Just like XO. And when you first kind of, I don't know, launched this product, did you, did you go to Expo West with this product?

• 1:10:55Speaker 01

  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. So 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.

• 1:11:38Speaker 01

  And then that changed about three years in when we launched in retail.

• 1:11:41Guy Raz?

  All 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?

• 1:12:08Speaker 02

  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, when you're extruding it out, it's a very high-pressure, very high-temperature process. And it's the line between perfect puffs and burned brown shriveled puffs is very, very, very small. 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.

• 1:12:52Speaker 02

  I think we learned a lot at Ekso about making sure our 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. And 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 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.

• 1:13:35Speaker 02

  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. And you just, that's something that you just can't use when we're In our 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

• 1:14:19Speaker 02

  that the classic big cereal companies cannot.

• 1:14:22Guy Raz?

  And let's talk about funding because the model is, again, it's a, it's a, 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 a hundred million dollars in funding. I think your last big fundraise was in June of 2022, is that right?

• 1:14:40Speaker 01

  Correct, we've raised a little over a hundred million over the course of four years.

• 1:14:44Guy Raz?

  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.

• 1:15:02Speaker 01

  You certainly don't have to. This was a path that we deliberately chose. It's also worth mentioning that we've raised a little over a hundred 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 hundred million has gone into the business.

• 1:15:20Speaker 02

  And some of that goes back to the supply chain too, because the machinery required to make cereal is massive. It's these, it's two stories and it requires like five operators at once and you need tons of power and water. And, 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. And so it's just, the whole, the whole product category operates at a much larger scale. That's quite capital intensive.

• 1:15:56Guy Raz?

  And so.

• 1:15:58Guy Raz?

  Obviously, you're now, I think you're sold at Target and you could buy it. Where else, where else is a cereal sold besides online?

• 1:16:05Speaker 01

  We're in Target, Walmart, Safeway Albertsons, Kroger, Sprouts, some other smaller retailers as well.

• 1:16:13Guy Raz?

  And so eventually, and actually, before I ask that question, you're not in Whole Foods, which is interesting.

• 1:16:19Speaker 01

  Actually, currently, Whole Foods doesn't have products with Alulos in them. So that's the reason we're not in Whole Foods currently.

• 1:16:24Guy Raz?

  I see. That's their position.

• 1:16:27Speaker 01

  Correct.

• 1:16:29Guy Raz?

  Interesting. So in, 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?

• 1:16:56Speaker 01

  I think it could be either of those. And we're, 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 Exo. Even down to the first month of Magic Spoon, we did a post from one of the same influencers that used to promote Exo. And whereas at Exo, 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 D to C for the first three years. We then launched on Amazon, very quickly actually became the number one bestselling cereal on Amazon. And then we've only been in retail for about a year and a half.

• 1:17:40Speaker 01

  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. And 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.

• 1:18:02Guy Raz?

  So when you guys sort of reflect on, 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.

• 1:18:16Guy Raz?

  And you think about where you've come from and Exo 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?

• 1:18:28Speaker 02

  I think so much of it is timing. I think that 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 be disingenuous.

• 1:19:01Speaker 01

  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 Exo? The truth is, we're doing some things differently, but we're doing a lot of the same things. And it's working so much infinitely better now, partly because we've learned from some mistakes from Exo. 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 bestselling 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.

• 1:19:48Guy Raz?

  That's Gabby Lewis and Greg Sewitz, co-founders of Magic Spoon. As for the Exo 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. For 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.

• 1:20:14Guy Raz?

  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 Ramtin Arablouei. 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, Kerry Thompson, and Sam Paulson. I'm Guy Raz, and you've been listening to How I Built This.