Mark Mathers was the founder of Munch at Mine. The founders of the company were optimistic about their venture’s potential. However, they were also keenly aware of the high failure rate of new businesses. They knew that many smart entrepreneurs paid attention to “affordable loss” – what they could afford to lose if the business didn’t work out as planned – when they started their firms.Jacqui Reaburn
THE CHALLENGE
Munch at Mine was founded to deliver recipes and ingredients so customers could cook healthy dinners at home. When Mark Mathers and a co-founder started Munch at Mine in the fall of 2014 they were optimistic about their venture's potential. However, they were also keenly aware of the high failure rate of new businesses. They knew that many smart entrepreneurs paid attention to "affordable loss" – what they could afford to lose if the business didn't work out as planned – when they started their firms. How could they start Munch at Mine while keeping in mind affordable loss and protecting their downside?
THE BACKGROUND
Mr. Mathers is a Canadian with corporate finance experience who went to Australia in 2013 to do an MBA at the University of Adelaide, and started talking about possible venture concepts with a friend in the program. Their spouses were on board with them taking the entrepreneurial leap. Everyone agreed that they would start the business with $15,000: this was the amount they could afford to lose. In the summer of 2014 they zeroed in on the Munch at Mine concept and started talking with food suppliers and planning the technology platform they would need. A pilot test was run in October and the business was launched in November 2014.
Munch at Mine was based on subscriptions. Customers could sign up to receive between three and six meals per week, and for either two or four people. A week in advance they were given a choice of menus to select among, and once a week a courier delivered a box for the week's meals, packed with ice and foam, and containing the cooking instructions and all of the ingredients (even spices), pre-measured for the recipe. Recipes were straightforward and could be prepared within 30 minutes.
In setting up Munch at Mine, the partners had to find a chef to develop their recipes, an IT person to develop the online platform, and suppliers for the ingredients. Acquiring a chef and an IT person was relatively easy. The chef was a friend of a friend who had previously worked in a Michelin starred restaurant in another city and thought the venture was a cool idea – and even gave them six weeks of recipes for free. The IT person was Mr. Mather's best friend since Grade 2, a software developer who built a custom website from scratch.
Finding the right food suppliers was a greater challenge. "We needed small suppliers who had the capacity to grow with us," recounts Mr. Mathers. "We wanted them to share our philosophy about the importance of food quality and healthy living. We spent months on this. When we were talking with a great vegetable supplier, we asked where they would go to buy fish and meat. We heard the same names over and over and so we focused on getting those people to buy into our vision."
By October 2014 their suppliers were in place and their pilot test had been a big success. How could they launch the business with only $15,000?
THE SOLUTION
Mr. Mathers said that affordable loss was very much front of mind and so they paid attention to their metrics. "We looked at the numbers of similar businesses in other cities and reversed engineered them to understand their growth trends. We used this data to set weekly milestones for our business. We monitored the numbers every week and told ourselves that if we didn't hit a milestone in four weeks, then we wouldn't continue. We didn't want to bleed money."
By having customers order their meals a week in advance, the business had no food inventory and no food waste, although food costs were higher as they bought in exact quantities. "In the food industry, while volume purchasing adds considerably to your margins, the ability to effectively manage and reduce food waste associated with inventory has the potential to become a larger contributor to profit margins. If we went up one more volume step, our prices to the wholesaler would drop 20 to 30 percent," says Mr. Mathers. "But we didn't want our money to be tied up in inventory. Their biggest expense was the commercial refrigerators and storage units that were needed to store the food between receiving it from suppliers and delivering it to customers.
To stay lean, the business was based in the home of one of the partners. They preserved cash by handling operations themselves, which involved learning how to do new things. Mr. Mathers laughs as he remembers how they became experts in food photography. "At first it took us six hours to photograph two meals, learning about lighting and standing on different things in the house to experiment with different viewing points. Within months we had that down to 60 minutes, including the photoshopping."
THE RESULT
Munch at Mine closed in March 2015, after operating for only five months. They didn't close because they ran out of money or because demand was low. In fact, Mr. Mathers reports that they had been accepted into a university-based incubator which was providing valuable business contacts, and they were three weeks ahead of their target growth when they shut down. Instead they closed because the partnership started to unravel, as happens frequently with startups because individual personal issues – Mr. Mather's visa issues and his partners' family issues in this case – create distractions and reduced the shared focus.
Even though Munch at Mine was shut down, Mr. Mathers doesn't regret the experience. "I would do it again in a heartbeat," he says. "It gave me experience outside my comfort zone Being this involved in day-to-day operations is a far cry from corporate finance. You can't beat the experience of interacting with your own customers – it was magic!" And, thanks to the partner's lean approach to start-up, it was also an experience they could afford.
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They now appear every Tuesday on the Report on Small Business website.
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