How One Company Lost and Learned from Doing a Postmortem
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A short case study of an actual company whose founders agreed to the blog under a fictitious company name and product.
Findaway Adventures experienced our first “failed” investment, although I cannot in all conscience call it a complete failure since we learned a great deal from the experience. For roughly the same sticker price in investment dollars you’d pay for four years at a good university or college, we received a lesson in entrepreneurship that we will use forever.
As an angel investor, it always hurts to see one of your companies fail. When it happened to us recently and the founders informed their stakeholders of their decision to close their company, we were saddened for sure. But I have experienced setbacks, small and large, before and wanted to be sure we availed ourselves of “postmortem” tools I’ve developed as well as those created by others to capture and document as much learning from the experience as possible.
Postmortem goals
Whenever I undertake a postmortem, I have three basic goals in mind. They include:
Fully evaluating the situation from beginning to end
Identifying and capturing key learnings and lessons
Identifying tangible steps you and your team will take to ensure that these learnings are reflected in new projects and tasks going forward.
In this case, the learnings will be applicable for the entrepreneurs that launched the business, as well as for Findaway Adventures as we apply learnings to our diligence and operating model.
The Bertie’s case study
Here’s what happened and what our postmortem taught us.
Context
The startup, a consumable food product we will call Bertie’s BeetBroth Borscht, launched in March of 2018 and successfully raised $1.175MM from 11 investors. With this funding, Bertie’s found its way into stores one year later and quickly grew to 4,000 stores with nationwide distribution.
A mere three years after its founding and rapid growth, however, the founders informed investors and retailers that the company was closing. The product currently remains on-shelf at key retailers without notice to consumers as they ramp down inventory. They are also working with key distributors to optimize the transition.
The main outstanding debt includes $53k in credit card debt, $72.4k in SBA loans and various other debts amounting to $30k. Current AP will pay for the credit card and half the “other” debt. The SBA loan is being worked through. Bertie’s has sold through most inventory with the exception of Amazon warehouse.
So, what happened?
Bertie’s had a very positive start. They enjoyed significant traction out of the gate with key retailers based on the excitement that our national sales broker put behind the launch. In addition, the borscht product delivered a needed solution into the marketplace in a unique format. Early consumer testimonials supported that this product was effective and delivered.
The company hired an effective and experienced team that maximized resources and stretched a shoe-string budget.
The team successfully implemented a price raise to help with margins.
Then the COVID-19 pandemic significantly affected the company. The sales strategy relied heavily on sampling in large grocery retailers and with the pandemic came empty stores that made it hard for new brands to launch. In addition, the packaging strategy was tailor made for brick & mortar retail where the consumer could learn about the brand on pack.
Given this, planned velocities did not materialize which limited revenue, which then impacted the whole budget; especially the amount of marketing dollars needed to support the brand in store. This created a vicious downward spiral for the young brand.
Lessons learned
There were many important lessons learned. First of all, the packaging, which was designed for ease-of-use at point of sale, was not readily adaptable to direct-to-consumer or Amazon. When the COVID pandemic hit and in-store sales plummeted, including the product in-store sampling that formed a key part of the marketing plan, the company could not pivot to D2C inexpensively as it would have involved a total redesign of the packaging.
This introduced a second important lesson, which was that the company raised too little money to support the launch. Yes, COVID likely played a large role in our problems, but our national sales brokerage had recommended a $2MM initial funding total to support the placement they were getting. And sure enough, when they got the product through 4,000 doors rather than the 1,200 doors we were budgeting for, the company couldn’t support in-store marketing effectively. Lesson: it’s hard to hold an excited sales broker in check, but it must be done.
Early retail “success” was a false victory, and we should have pushed hard on velocity growth within select retailers before claiming success.
We could have done a better job testing consumer/product/market fit in smaller, natural grocery retailers (based on the premium pricing). We thought the borscht would sell itself and under-estimated the need for larger marketing dollars needed to introduce and build a new brand in a relatively new category. Shelf placement also hurt Bertie’s since the product did not sit next to other premium brands. It looked expensive by comparison with its neighbors.
The pandemic meant we missed opportunities with sampling the product in store, which made conventional marketing vehicles impossible; and not being D2C ready caught us flat-footed when COVID hit the country. But the truth is that a large, traditional grocery retailer was likely a bad bet from the start for the smaller marketing budget that was allocated to support them.
Our national sales brokerage was very effective at setting up sales meetings with key retailers and helping sell the product, winning 9/10 pitches.
We were diligent with our funds, pushing hard for consumer data to drive the successful rebrand (and support the ultimate price raise).
Our financial planning and modeling was data-driven at every level (cash, marketing metrics, velocity, etc.).
But in the end, it was very difficult to budget with cash coming in incrementally and without visibility to future investment. The team also agreed there was too much dependence on outsourced help versus hiring internally.
What would we do differently?
The experience suggested several things to avoid or to introduce in the future. These included:
Think about the launch as a true MVP (minimum viable product) where we select specific retailers that would allow for a proper MVP to prove product/market/fit earlier, moving from e-commerce, to natural, to conventional, and to big box in a more linear way
Avoid extreme dependence on major distributors, which made it difficult to be cash flow positive in the early going
Fundraise from a place of greater knowledge to get the right amount of money from the right investors earlier in the launch
Focus on building the brand slow and steady, understanding the education needed for a new product in a new category
Understand and focus on velocity over buy-in.
What was the most gratifying part of the project?
We will always treasure the constant learning, friendship, and collegiality of the team as we interacted in daily meetings and various tasks, all in the name of supporting a mission-driven brand that made a real difference in the grab-and-go space.
How can we ensure that the lessons learned on this project or task get applied to the next, similar situation?
The best way is to ensure our findings are integrated into all Findaway Adventure’s criteria for investment. Additionally, conducting proactive, “worst-case scenario” postmortems with companies that haven’t failed may identify red flags before it’s too late to address any problems.
By the way, I would back the Bertie’s team again in a heartbeat because I know that they and we — together — all learned a ton. If we didn’t learn, the investment would have been for nothing. But this group of talented entrepreneurs can go forward boldly with their next idea. In fact, they are already on to something else, and I’m sure they’ll be successful.
For myself, it would have been easy to try to forget the fail, but where’s the wisdom in that? Never let frustration, pride, or bad feeling prevent you from learning from something that doesn’t go as planned.
Sincerely,
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All credit to my ghostwriting partner, Dave Moore, who is instrumental in getting my thoughts out in a coherent manner & into these blogs. Thanks Dave!