Lessons from failed ecosystems

Last week, I was with a client, and we had a very interesting conversation that can be summarised as “You talk a lot about current trends, but failures are actually as interesting, if not more”. And, I must admit that this is quite true: I tend to focus on the future and the latest trends. That’s maybe a form of optimism you must develop to survive the waves of hypes and crashes of the (agrifood)tech industry. So, today, let’s have a look at some “failed ecosystems” and what we can learn from them:

1 – Full-stack delivery: you can’t be good by doing everything yourself

Here, we go back to the pre-history of FoodTech, before the word was really used for anything other than advanced cookware.

  • What was the promise? Controlling the entire value chain of cooking and delivering meals, from the supply of ingredients to recipes to having in-house drivers.
  • Who was the leader? Munchery in the US with $125M raised (founded in 2010, complications appeared in 2015, went bankrupt in 2019). It started out of San Francisco, and with cash in hand, it opened many other cities, only to shut them down later on. Freshly acquired by Nestlé for $1B, it also requires a special mention.
  • Why did it fail?  High operating costs (central kitchens tend to be expensive to operate), obvious lack of economies of scale and competition from restaurant delivery startups (Deliveroo, DoorDash, etc.), which connected restaurants, drivers, and consumers through a platform which ultimately offered much more choice.
  • Is there any hope? Not really. A good summary would be to point out that Munchery relaunched as a recipe website.

2 – Vertical farming: oops, the energy is not getting cheap

While not all vertical farming startups failed, many went bankrupt, and most of the others have had to revise their growth strategy.

  • What was the promise? Growing produce, notably leafy greens, in or close to city centres in vertically stacked indoor farms.
  • Who were the leaders? No clear leader, but the most striking example of failure may be InFarm in Europe and AeroFarms in the US. Combined, they raised about $900M.
  • Why did it fail? In many instances, these startups tried to scale too fast while they were far from being profitable. This was compounded by the rise in the price of energy. Similarly to the previous example, many of the initial players were trying to operate the whole value chain: developing their own proprietary technology, building large-scale vertical farms, dealing with retailers, and creating their own B2C brand.
  • Is there any hope? Yes. As for full-stack delivery players being replaced by restaurant delivery startups, we observe the emergence of categories of players focused on specific points of the value chain, such as technology providers (such as IGS), software management tools, or high-value propositions (Oishii).

3 – The connected kitchen: the definition of a pipe dream.

  • What was the promise? For the past 15 years, I have heard about amazing new robots, cooking devices and connected fridges coming from Las Vegas CES…. and yet none has yet materialised in my kitchen.
  • Why did it fail? Beyond price and the lack of interoperability (different brands never agreed on a single “protocol”), these devices have a long lifespan (imagine the experience of finding updates for your 10-year-old fridge using a similarly old tablet).
  • Is there any hope? There are still new connected fridges being announced at CES, this time with AI…

As you can see in the first couple of examples, vertical integration is rarely a good option. Funnily enough, when a trend appears, startups that raise the largest amount of money are almost always fully integrated because of the lack of existing players segmenting the value chain. They also tend to disappear when companies with more focused business models appear. Another point these “failed ecosystems” have in common is what we could call “diseconomies of scale”, where their costs increase faster than their revenue.

While this is not a recipe for success, it provides some patterns to look for in current trends and innovation ecosystems.

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