The cofounders of startup Magic Spoon on breaking into a food industry dominated by legacy players

May 4, 2020, 11:00 AM UTC

This is an installment in a special series, Startup Year One, interviewing startup founders about the major lessons they learned in the immediate aftermath of their businesses’ first year of operation.

No more bagels on the way to work. No more doughnuts in the office. No more lines at the coffee-store chain for a stale muffin.

For employees working from home amid the COVID-19 pandemic, the entire day looks very different now—starting with breakfast. If mornings are frantic—as they are wont to be—adults, especially those with kids, might find themselves reaching for whatever’s easiest, including sugary cereal.

But if Trix was for kids, then Magic Spoon is for adults. This isn’t a plain white box with block lettering and flavorless flakes inside. Cofounded by Gabi Lewis and Greg Sewitz, Magic Spoon is meant to be a guilt-free option. The colorful, illustrated boxes, as beautiful as they might be, might call to mind some other cereals filled with artificial flavors. But Magic Spoon is a high-protein, low-carb cereal with zero grams of sugar. And in celebration of its one-year anniversary, Magic Spoon is releasing a special Birthday Cake flavor, which is not quite eating cake for breakfast, but it might be the next best (or at least healthier) option.

Those colorful boxes serve another purpose in the social media age: Magic Spoon has gained 10 times the number of Instagram followers as legacy cereal brands, made possible with posts from celebrity fans such as Amy Schumer, Questlove, and Chrissy Teigen.

Fortune recently spoke with Lewis and Sewitz to learn more about their first year in business, the lessons they’ve learned, the hurdles they’ve overcome, and their plans for the next year.

This conversation has been condensed and lightly edited for clarity.

Magic Spoon cofounders Gabi Lewis (left) and Greg Sewitz.
Courtesy of Magic Spoon

Fortune: Direct-to-consumer cereal, for adults, doesn’t seem like the most obvious space to disrupt or launch a new business in. What inspired the launch of Magic Spoon?

Lewis: We both grew up loving cereal, eating a bowl every morning. It was a time-honored tradition from our childhood, but as we got older, we cut cereal out of our lives completely. It just didn’t evolve with us as consumers and, quite frankly, is pretty terrible for you. We started chasing this idea, “What if we could re-create everything we loved about cereal as kids, but without all the junk ingredients?” 

And so we started experimenting with different formulations to see if it was possible to mimic the taste and texture of “traditional” cereal, without all the bad stuff. Once we cracked the product, we got to work on building the brand, filtering everything through the lens of creating a childlike cereal for grownups. We wanted to bring fun back to the morning routine, help people embrace their inner child, and spark a moment of joy at the beginning of the day.

We were also motivated by this idea that consumers shouldn’t have to choose between healthy and delicious. Every time you go to the market, and this is especially true in the cereal aisle, there is a huge visual disparity between all the healthy and the junk food. All the unhealthy cereal has bold, bright pops of color, exciting designs, lovable characters. Meanwhile, the so-called healthy options have bland, muted, and dull packaging. Just because a product is healthy does not mean it has to be boring. There’s no need for this tradeoff. Why not have healthy and fun? So we set on a course to create a brand and product where healthy, playful and delicious could all coexist.

Sewitz: Magic Spoon was actually the second company we started together, so we already had the benefit of navigating the CPG [consumer packaged goods] world once before. Gabi and I met in college and launched our first business, Exo, during our senior year at Brown University. After Exo, we always knew we wanted to continue working together, but we didn’t know what was next. When the light bulb went off about Magic Spoon, we knew we were onto something. We had the experience to get it started and knew we had to be extremely innovative in our approach in order to compete in the cereal aisle. 

We thought there had to be a ton of people in our shoes who loved cereal but had stopped eating it—i.e., millennials like us with a health-conscious mindset; parents who wanted a better option to feed their kids; people on specialized diets, et cetera. It wasn’t enough to bring something new to the table for them, we needed a novel way for how to break through. We chose a direct-to-consumer model which has been extremely valuable in helping us quickly scale and expand. We bypassed the traditional cereal aisle entirely and have proved the viability and appetite for this new way of shopping for cereal over the last year.

Magic Spoon’s initial four options: fruity, frosted, cocoa, and blueberry.
Courtesy of Magic Spoon

Beyond tapping into dietary trends like grain-free and keto-friendly, how has technology shaped the development of Magic Spoon, whether it be the influence of big data or social media?

Lewis: Since day one, social media has been instrumental in building our brand. In particular, we’ve worked closely with influencers to generate word of mouth, buzz, and legitimacy for what we’re doing. Influencer marketing has gotten a bad reputation lately because consumers can see through it when influencers are insincere about the products they’re promoting, and it feels just like a money grab. But the intention behind influencer marketing holds up—in its purest form, it’s people with circles of influence who are authentically sharing things they love with others. We can get behind this, in our own way. We never pay influencers, so if you see them talking about our brand, it’s because they genuinely want to. In fact, half of our first round of financing was made up of health and wellness influencers who believed in our product so passionately, they wanted to get very involved.

Sewitz: We make sure that if anyone comments on our posts, we respond to each one. Our feedback loop has played an integral role in shaping the brand. And while technology has undoubtedly helped accelerate our brand, we’ve also taken some pretty low-tech approaches too. We will set time aside in our day to cold-call customers and ask for feedback. You’d be surprised how many people are ready and willing to tell you everything on their mind about their cereal experience—and probably caught a little off guard to hear from a founder of the company.

What were some of the biggest hurdles you faced in the last year? What surprised you the most?

Sewitz: Getting the right ingredient formulations in the first place was definitely the biggest challenge. But if it was easy, someone else would have done it! We set out to create flavors and textures that tasted just as delicious as the sugary junk we loved as kids, but without all the bad stuff. We were meticulous in R&D and continue to refine our flavor and nutritional profile.

Lewis: When we first launched the brand last April, we thought we had made enough inventory to last several months. But we actually sold out of the product within just a few weeks. Of course that’s a good problem to have, but it was still very challenging at the time, especially as a small team with endless people writing in about not being able to purchase even though they want to. And then when we launched our first limited-edition flavors, it happened again. Learning how much product to make, how quickly we can sell through it, and how often we need to place more orders while keeping our cash flow in check has definitely been a learning curve.

What kind of feedback have you received from your customers, and have you (or will you) apply that feedback to how you sell your products in the future?

Sewitz: When we first launched the brand, we made an educated guess as to what would resonate with customers most. We led with our high-protein, low-carb nutritional profile to plant a flag in the ground and make this one of our key differentiators. Through focus groups, social media conversation, and cold-calling customers, we gathered insights into what brand attributes mattered most. We learned that consumers really valued how we created Magic Spoon without all the sugar of the legacy cereal brands they grew up with, but that it still had to taste incredibly flavorful.

We applied this feedback by updating our packaging to reflect zero grams of sugar in a big nutritional callout on the front of the box. We also increased the size of the high-protein and low-carb callouts on the box to draw attention to this trifecta of important nutritional qualities.

Magic Spoon’s new Birthday Cake cereal
Courtesy of Magic Spoon

Obviously, amid the coronavirus pandemic, consumers’ purchasing habits, practices, and even their relationship to food is going to change. How does Magic Spoon plan to adjust and fit into whatever this new normal might be?

Lewis: We feel incredibly fortunate that as a shelf-stable food brand delivering to people’s homes, we haven’t experienced the same devastation that so many other industries have. And in fact we’ve seen an uptick in demand across the board—both from new customers who are discovering Magic Spoon for the first time, and existing customers who are simply eating more cereal as they’re staying home. It’s hard to predict what tomorrow’s new normal will be, but we’ve certainly seen a shift in how people shop for food, and the trend towards digital grocery taking over is accelerating.

Looking beyond the post-pandemic era, which could be anywhere from a year to a few years from now, how do you plan to grow Magic Spoon, and what do you want the business to look like five years from now?

Lewis: Our long-term plan is very similar to our short-term plan: keep making delicious cereal that looks and tastes like people remember, without the junk. We have lots of exciting new flavors in the pipeline, but don’t plan to expand product categories beyond cereal given the size of the market and how much there is to do.

In terms of distribution, eventually we do plan to be everywhere and anywhere that cereal is bought and consumed, so expansion beyond DTC [direct to consumer] will happen at some point, but for the time being we’re very focused on just selling online.

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