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'Nobody talks about failure in Silicon Valley': I started a food delivery service that grew to $20 million in revenue before it tanked. Here's what happened.

Gagan Biyani
  • Gagan Biyani cofounded Udemy, an online education company worth $2 billion. He also started the Growth Hackers Conference and worked as interim head of growth at Lyft when it was less than 30 people.
  • Gagan also had a massive failure with Sprig, where he was CEO and cofounder. Sprig was a food delivery company that raised $60 million from Greylock and Social Capital. After Sprig, he took a three-year sabbatical and traveled the world as a nomad, living on almost every continent and studying anthropology. Now, he writes and teaches other entrepreneurs at 
  • On Twitter, he shared the story of the failure of his company Sprig, which was thriving until Uber Eats entered as a competitor.
  • After three pivots and multiple layoffs, they decided to shut down. "If you're gonna fail, do it fast. If you're gonna succeed, do it slowly," he says to other entrepreneurs.
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Nobody talks about failure in Silicon Valley, yet 90% of startups fail.
Three years ago, Neeraj Berry and I shut down our company Sprig, which raised $60 million from Greylock Partners and Social Capital and grew to $20 million revenue.
Then, it all fell apart.

In 2013, I was at Lyft, envious of how fast it was growing.

While working as a growth advisor to Lyft, multiple people approached me: What if we pursued Lyft for food?
We looked at Postmates and thought:
  • the food arrived sloppy and restaurants didn't seem to care about delivery
  • it took forever (about an hour!) to get your food
  • it was overall too expensive
We struggled through product iterations until we found "magic": Three taps and $15 and a healthy meal was delivered to your door in 15 minutes.
To make it possible, we had to run the restaurant ourselves; it would be expensive, but worth it. We recruited Nate Keller, Morgan Springer, and Matt Kent as founders.
We launched and had immediate success. The buzz was unbelievable. Within months, we were on track to do $1 million in revenue a year.
Our series A was a hot round. I did four partner meetings on the same day and raised $10 million by nightfall.
Great investors, a great team, and we were off to the races.
Two challenges eventually arose:
  1. The Health Department and Planning Department of San Francisco made our lives hell. They didn't like our innovations — we were a new type of business that didn't fit within the rules they had for caterers or restaurants. They didn't like that we asked for forgiveness instead of permission, and bogged us down in bureaucratic processes as a result. We had to hire lobbyists who had good relationships with the city to smooth things over and teach us how to manage the situation. At times, it felt more like a legal bribe than an honest transaction.
  2. As we grew, our burn rate grew, too. We were losing money on every meal — if only we could get to critical mass.
We had epic revenue growth with burn-rate growth. Soon, we were burning $1.5 to $2 million a month.
We were always "one to two months away" from managing the burn.
We finally got some progress on margins, but it meant degrading the product: Food is fickle. Less money in, worse food out.
Nonetheless, it was growing three times faster than Udemy, my previous company, had. Margins were improving — we were down to losing just $1 a meal.
Sprig's peak was February 2016:
  • 4,500 meals delivered per day
  • $22 million run-rate
  • 1,300 employees (including delivery workers)
  • $60 million raised
I had never felt better. I was confident and getting super strong reviews from my team. The public treated me like a star, which was both uncomfortable and awesome. Even my dating life felt like it had improved significantly.
But secretly, I was nervous — it didn't feel like a done deal.

All of a sudden, everything changed. 

On Feb 22, 2016, our growth curve inverted: +2% a week became -2% a week.
We scrambled to figure out why. Was it seasonality? Was it our rising prices? Was it the quality of the food?
Everyone was running tests to figure out why and what to do.
It was Uber Eats, which had launched that week.
After hearing all of the war stories from Lyft, I knew they were unsavory competitors. Super smart, ruthless with big coffers.
Board meetings were tense: Should we restart? We had $15 million in revenue still — if we closed, we'd lose it.
What about pursuing a sale? If we did layoffs, then we couldn't sell. If we didn't, we might die trying.
We decided to pivot to a new offering that focused on food quality. It was all f-----.
Everyone — family, friends, investors — thinks you're doing well and you can't tell them you're not. We were in pure panic mode.
We launched Sprig 2.0, shut down Chicago, and laid off a third of our HQ staff to conserve burn.
Managing external and internal parties was tough. I shut down external activities, such as talks and press, so we didn't become a Theranos. Internally, I leaned on my executive team. They were honest and kind with our employees. Through it all, we had only one departure.
Sprig 2.0 wasn't enough. We got to $0 margins, but the traction didn't improve. The board asked us: What would it take to be fully profitable?
We were running a restaurant doing $6 million in revenue but paying real estate for a place that needed $20 million in revenue to be profitable.
The team had fought hard — but we were all completely exhausted.
After three pivots and multiple layoffs, we faced a final decision. We had $8 million left and knew we had to restart or quit and return the money.

Berry and I made an executive decision: We shut Sprig down on May 27, 2017.

There were three causes for failure:
  1. In 2013, we mistook present for future. Delivery apps got better with scale. We got worse.
  2. The profit equation was off. The market size in San Francisco was too small for our big kitchen. We blitz-failed.
  3. Cap table + burnout. Hard to restart after losing $50 million.
I'm grateful for the experience. I learned way more in four years at Sprig than four years at Udemy or UC Berkeley.
Few grudges were held and we took care of the team. They mostly landed on their feet (Silicon Valley embraces failure).
A classy ending helped sow the seeds for forgiveness. All told it was just four years.

If you're gonna fail, do it fast. If you're gonna succeed, do it slowly.

In startups, remember to watch your flanks. Your competitors are not your direct competitors, but the whole market.
Thanks to everyone who believed in us.
SEE ALSO: A founder who bootstrapped his startup in the worst days of the Great Recession went on to grow the company to over $50 million in funding. Here's his advice for how to keep your business rolling in a big economic downturn.
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