Pizza Hut Failure

[Karmen Mcarthun]

Technologyshould enhance the core product, not replace it. Always prioritize the primary value proposition, and always make sure your product genuinely addresses a market need. Hammers in search of nails seldom work out.

Balance vision with reality: While having a big vision is great for inspiring stakeholders, Zume's story underscores the importance of aligning that vision with market realities and consistently delivering on promises. A significant "value gap" can emerge when there's a disconnect between the perceived value of a product and its actual market value. This gap can lead to customer churn, team dissatisfaction, investor pressure, and your own burnout.

Validation before scaling, never the other way around: Zume's aggressive expansion without thoroughly validating their business model in initial markets led to significant resource allocation without clear evidence of sustainability or profitability.

Always have a clear monetization strategy, even from the get-go: To avoid crazy burn rates and short runways, never rely on a build it, get users, and the money will come" approach. A product only really works if people will pay for it, so from the beginning have a clear understanding of your business model and unit economics, like CAC.

Pivot, but do it wisely: Big changes like company direction, while sometimes necessary, should be strategic, based on lessons from past mistakes and real data, and always align with a company's strengths rather than be reactive shifts due to challenges or new trends.

As you can imagine, it takes an army of human workers to make all that dough and run the pizza-making engine across America. And with all that overhead, in 2015, Alex Garden and Julia Collins thought the pizza market was broken, and ripe for Bay Area disruption.

So, with the grand vision of automating the food supply chain as much as possible, they raised in total $445M from some serious investors, including SoftBank. Checks were written because Zume presented the market with innovation, including a neat goal of using robots in their kitchens to improve the consistency of pizzas, and the speed of getting them to the customer by cooking them in trucks during delivery. Plus, an interesting hook was how Zume aimed to improve sustainability by leveraging big data to control supply, allocate trucks, and minimize any food waste.

In that sense, Zume went to market with a tricky handicap: they were trying to be three things all at once. A technology company, a pizza shop, and a sustainability play. More on this soon.

Because bringing new and unproven technology to market to automate a supply can be so tricky, we created Zume Pizza with the purpose of creating our own reference customer. This allowed us to set out and solve the problems of pizza shop with our FoodTech hardware and software, and prove it to the market.

In 2016, they delivered their first pizzas with a partly-automated MVP. In the HQ, a robot arm spread the sauce. A human did the toppings, and the uncooked pies were loaded into food trucks. Pizzas were then cooked in these on-the-go trucks equipped with 56ﾠGPS-equipped automated ovens, timed to be ready shortly before arrival at the address, and then sliced by a self-cleaning robo cutter.

But, despite the fact that the pizzas got to the customer quickly, and Zume used higher-quality ingredients than the average chain, baking pizzas in the back of a truck proved an unsolvable challenge. The melted cheese just kept sliding off.

Faced with the melting cheese dilemma, Zume changed it up by parking their trucks in popular locations and using delivery drivers to pick up and drop off. Essentially, creating mini satellite operations around San Fransisco. But despite a massive war chest of cash, pizza troubles persisted. So, in 2018, Zume shifted away from pizza. Now, the aspiration was to reinvent large parts of the food value chain, aiming for a farm-to-fork transformation powered by their kitchen-tech hardware, automated food trucks, AI-enabled software, and numerous restaurant partnerships.

Zume was now solely in the business of automated production and the selling of sustainable, plant-based, food packaging for deliveries. In other words, after having wasted a ton of money trying to make pizza in the most complicated way possible, they decided that the best way forward was to try and sell boxes instead.

This created a problem of focusing on the micro vs the macro, and perhaps optimizing the wrong things. The technology side of what Zume was doing was interesting, and if this was the real play, their customer would have been other restaurants and kitchens. And with that as their ICP, Zume would have been trying to solve real problems in the food industry.

But, by making their go-to-market tied to the success of a robo pizza shop (regardless of whether this was a reference customer or the actual startup idea), Zume Pizza needed to compete in the very competitive pizza market from an end-consumer perspective.

Given they were a robot restaurant operation with food trucks to boot, this rapid scaling led to significant resource allocation, both in terms of capital and manpower, without a clear indication that the model was sustainable or profitable. Let alone that they were even needed.

Start with the problem: Before thinking about revenue, make sure you're addressing a real problem in the market. A genuine solution to a pressing issue is bound to make money if you attach the right price to it.

Focus on unit economics: Understand the cost of acquiring a customer (CAC) and their lifetime value. This helps you figure out things like the payback period, and of course, what your price should be.

Diversify revenue streams: This can come later, but long-term you don't want to rely on a single source of income. Explore multiple channels like direct sales, partnerships, and other products/services you can cross-sell or upsell to.

The value gap expresses itself in different ways. You can have both a value gap and a good product fit for a segment of the market. At times there can even be an antithesis in what's happening between the acquisition.

Each user type has its perspective on the product. For instance, if Slack shifted from team communication to community-building, a Fresh User would likely still expect it to be a simple communication tool. Any deviation from this expectation can lead to churn and low conversion rates.

Analyzing feedback: If Power Users expect one thing and Fresh Users expect another, there's a clear value gap. Use interviews, questionnaires, and data analysis to understand these expectations.

Addressing subtle differences: Often, the differences between user expectations are not stark but subtle. Ensure your product's unique value is clear, and you're targeting the right demographic.

Then, outside of their initial three-prong go-to-market (which failed), Zume pivoted a few times. The most notable one pivoting from their robotic pizza-making venture to a sustainable packaging operation.

Sounds like a rushed move to try to make some money. And not to give them too hard of a time for doing that (because we all needed masks), but that hopping around of priorities sounds like a total dumpster fire.

Unfortunately, Zume underwent several leadership changes and faced challenges in retaining key operators. For a startup, especially one aiming to disrupt an established industry, having a stable team that shares the company's vision is crucial. Frequent changes in leadership or key positions are not only demoralizing, but can lead to strategic misalignments, loss of institutional knowledge, and just general disruptions in day-to-day operations.

Gather data: Always base your decision to pivot on solid data and feedback, not just gut feelings. Really make sure you understand what's working, what's not, and where opportunities lie. You want to lean in where you have advantages already.

Stay customer-centric: This should go without saying, but your pivot should be directed at solving a customer problem in a better or different way based on new learnings. The bedrock of that is engaging with your customers, gathering feedback, and iterating based on this discovery. Never at a whim.

If you learned something new, or just enjoyed the read, the best way to support this newsletter is to give this post a like or share. It helps other folks on Substack discover my writing.

\uD83D\uDC4B Welcome to another edition of Why They Died. Your occasional trip to the startup graveyard, where we investigate what caused once high-flying companies to fail.

Welcome back to our third installment of Why They Died, where we take the odd trip to the startup graveyard for a post-mortem on a once high-flying startup\u2014unpacking important takeaways on what not to do with our products.

Ok, that\u2019s a little harsh. Zume wasn\u2019t just making pizza\u2014they were using robots to make pizza and cooking them in a food truck while en route to your door. Also, Zume tried to take a big-data approach to predicting pizza demand to efficiently place their trucks and manage ingredient supply.

However, as amazing as AI has become, it seems like if you\u2019re a dough-flipping, marinara-spreading, and cheese-sprinkling human at Dominos, you\u2019re good for now. The robots haven\u2019t figured out how to deal with sliding cheese.

As we\u2019ll see, over-indexing on technology, creating a big value gap, drastic pivots away from the core vision, and ego over execution can be fatal moves. Their story also gives us an important reminder (an obvious one, but always worth repeating) that just because you have innovative tech and lots of money to fuel growth, it means nothing if you\u2019re not aligning it with market needs.

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