Missing the home run…
After 4 years of hard work, close to one million groceries delivered, and a few millions of pounds in venture funding, we decided to shut down operations at Home Run. I wanted to share the story, the struggles and the learnings which would hopefully shed some light to the industry and help other founders.
Starting Home Run has been the most intense journey I’ve ever embarked on but also the best school I could have ever asked for. The relationships I developed, the experiences I was fortunate to have and the wonderful pain I felt along the way, cannot be bought, these can only be earned. I’m immensely grateful for that and ready for the next chapter.
Home Run was an on-demand online grocery delivery service based in London, UK. Similarly to Instacart in the US, we built a platform where customers could shop their weekly groceries from the supermarkets they love and get them delivered in as little as one hour. Everything from the online customer journey to the tech and physical operations (picking, packing and delivery) were designed, built and run by Home Run. Unlike other grocery models we didn’t own any warehouses, stock or delivery vans. We partnered with supermarkets, used their physical stores and turned them into what we called “real-time fulfilment centres”. We also had part-time and self-employed workers handling the picking and delivery using our software but their own equipment and vehicles. All this contributed to building a capital light model, having a great product variety and delivering orders really fast.
Though not a crazily funded silicon valley-type startup, from our first rollout back in 2014 until 2019 we’ve delivered close to a million groceries, on-boarded more than 100 people (most of them part-time and as self-employed contractors) and raised capital from angels and some of the most prominent London and European VCs. Our core team was based in London and part of our tech team was based in Athens, Greece and also in Spain.
Online grocery delivery & its characteristics
Online grocery delivery is a tough business. During these roughly 20 years that the model has existed, only a handful of companies have ever made money. From the poster child of the dot-com bubble, Webvan, back in 2000, to recent startups and large grocery retailers, online grocery has proven to be operationally challenging with some even more challenging economics.
Unlike other e-commerce businesses, groceries have some key characteristics that make them uniquely different. If you think of your typical Amazon basket, it usually consists of a couple of products — in my experience, most of the times no more than one. In comparison, a typical grocery basket consists on average of 25–35 items of different weight, size and sensitivity levels and require three different temperatures (ambient, chilled, frozen). Picking, packing and delivering these baskets requires time, attention to detail (you can’t mix raw chicken with vegetables in the same bag) and specific knowledge (how to pick a ripe avocado or how to identify a fresh pineapple). A physical grocery store can have up to 30 thousand items and an online store even more. At Home Run we had 60+ thousand items which needed to be regularly updated on a per-retailer, per-store and per-hour basis, while making sure that the stock availability within the stores was reflected in our online stock availability. What happens if the bananas are green and not yellow? What if the 2% fat yoghurt the customer ordered ran out of stock a minute ago? What if there is traffic on the road? Unlike the parcel industry, where daily routes are designed to fit the companies needs, in the grocery industry it is the customer who dictates when and where to have their order delivered. Drivers need to be at a specific location, at a specific time and meet the customer upon delivery. Add to that the fact that groceries have some of the thinnest margins in all retail (net margins can be as low as 1%) and customers don’t like paying for it, and you get an idea of the level of challenges this business has to face. However, ordering groceries online is something that people want and the growth that the industry is experiencing shows no signs of it slowing down anytime soon.
This is the opportunity we saw back in 2014 and the challenges we sought to address.
The Home Run Journey begins (back then it was called Convibo)
In 2013 one of my classmates (and later co-founder) and I decided to conduct academic research in online grocery supply chains as part of our Masters Degree at the University of Warwick. Combined we wrote 60 thousand words in which we analysed the online grocery industry and all the models that existed thus far around the world. Our goal was to develop a new model which could solve some of the issues the industry had whilst delivering a unique service to the customers.
From a business point of view, the main problem was that profitability was almost non existent in online grocery. Expensive and inefficient warehouses, refrigerated vans and non-optimum routes eradicate all margins. And from a customer’s point of view, they weren’t getting a great service. You had to order a couple of days in advance, be at home for the delivery (delivery windows being up to four hours) and when items were out of stock you would get a surprise replacement at the door which you may or may not like. So, how did we try to solve all of that?
We started Convibo (Convenient Box, in short). A same-day grocery delivery service with a completely different supply chain infrastructure. We built temperature controlled lockers (similar to Amazon lockers but with three compartments: ambient, chilled and frozen) and placed them in various locations including apartment buildings.
We used existing supermarkets as warehouses and delivered with bicycles. We also developed a platform/marketplace through which you could order the groceries you wanted from the supermarkets you liked. Orders would come in (we had a cut off time) and we would then pick, pack and deliver everything to a specific location (the locker). Customers would receive a pin code to access the locker and had 24 hours to pick up their groceries. And it worked! Orders were rolling in, economics worked well and customers were happy because they would get their groceries on the same day without the need to be home.
Our early traction also got us to the final stages of Y Combinator, but after bootstrapping Convibo for a year we realised that it was unscalable. The cost of the lockers in addition to the limited available buildings in the UK and the long negotiations with property management companies made us realise that we had to change something.
We took all the learnings from the locker model, tech and operations we had built thus far and shifted to a home delivery model.
The first pivot.
As a customer, you could get groceries from your favourite supermarket delivered to your door in a matter of hours. We spent a couple of months testing and getting traction and the results were positive.
By this point we were three founders, we all had part-time jobs, shared a flat and ran the business. But we knew that if we wanted to scale it further, outside investment would be needed. So we started approaching everyone we knew who might know an investor. After a lot of rejection we found a VC (Venture Friends) who believed in us. Their partners had previously built and sold a food delivery business so they understood what we were after and backed us. The amount was small (£80,000) but enough to get us started. We quit our jobs and the Home Run journey began.
London start — 2016
We had 12 months ahead of us to acquire customers, get retail partnerships, build efficient operations and robust tech. If we would manage to do all that then we would be in a good position to raise a new round of funding and start growing.
Getting initial traction wasn’t easy. Actually, nothing was easy. On the one hand we had to build a customer base and on the other hand, retail partnerships, from which we would get revenue share deals and access to their stores. And for all of this to work we had to have robust tech and operations to support the entire end-to-end customer experience.
We were just a team of three and all of this took time and a lot of hustle. I still remember trying to reach out to Marks & Spencer for a meeting. We tried everything, from reaching out to our network, common friends who knew people working there to pitching store managers with the hope of getting a meeting with the right people. Nothing worked. Frustrated I decided to cold email the CEO of Marks & Spencer. At that time, I didn’t even know who he was. I googled his name, typed in a bunch of variations of what his email could be and sent him a concise, to the point email. The subject title was: “Home Run — 1 hour grocery delivery for M&S”. An hour later I received a call from them, 24h later we had a meeting at their headquarters in London.
These are the things we had to do in order to get through their doors. A combination of “fake it till you make it”, persistence and above all good execution. But the most important thing was that we had fun doing it. We shared a flat, worked from our living room and hired the first shopper/driver after 4 months.
A year later, we had some good traction, promising partnerships and a roadmap that seemed to be going in the right direction. Most importantly we had a great deal of conviction and we wouldn’t stop no matter what. All of that helped us raise our first big round of funding led by JamJar Investments, the fund behind the innocent drinks founders. With the participation of our previous investors and some amazing new angels we closed the round.
Ready to grow (the real roller coaster begins)
We were finally at the stage we had been pursuing for the last 2 years. Money in the bank, good traction and a thirst to disrupt the market. We started growing, building an incredible team and a unique product for our customers. The first partnerships with retailers also started coming in and soon we were the only service to get a full basket of groceries from the largest supermarkets in the country in as little as one hour.
The journey continued, with new, more demanding goals. It was time to not only grow but to prove that the business worked, meaning it could scale properly and make money.
Things money can’t buy:
Love, happiness and Product Market Fit
Although the first two are important for almost everything in life, if the latter is not taken seriously, it will destroy your business.
Looking for Product-Market-Fit (PMF)
I believe that in the first 18 months of a startup the single most important thing is to work towards PMF and be very honest about it. PMF basically means that your business is growing rapidly (growth), you sustain a good number of customers (retention) and you make money (positive unit economics).
On the growth part, our customer base and revenues were growing at around 15% MoM, which was not bad but also not great. Our data clearly indicated a pattern coming from busy families and affluent individuals and our marketing campaigns were working reasonably well. However, we still hadn’t identified a sustainable channel to get organic traffic and most of the growth came from paid acquisition, which at the time we didn’t think was something to worry about. We knew that we had to spend money to become known.
In terms of retention, we had customers using us multiple times per month, some even multiple times per week. But a big chunk of them weren’t repeating customers and we were experiencing a big drop from first to second time customers. We knew that we had to improve a lot of things on our product and overall proposition so we thought that once we did all that retention would naturally improve.
Unit economics. Grocery delivery is notoriously known to be unprofitable so we paid close attention to it. Due to our proposition, we were reaching good average baskets of £65 (most on demand food/grocery services even today are around £25) and we had no significant peak times throughout the week and throughout the day.
This allowed us to optimise our operations and achieve good levels of staff utilisation (pickers and drivers) which started giving us the first signs of healthy economics. However, at the scale that we were (covering 36,000 London postcodes), profitability is not a simple task to prove, or even understand. We simply didn’t have the necessary drop density and hadn’t exhausted the potential revenue streams and operational efficiencies to be able to see the full picture of how our economics worked.
Finally, on the partnership front, we realised that those negotiations would take longer than expected. The organisations we were in touch with are some of the largest in the country, so from getting to the right person, discussing our proposition, setting up a deal and eventually starting was a long journey. One that cost us a lot.
In B2C startups, especially ones with thin margins, growth is king. While you should focus on getting that early, you should also be realistic about what to sacrifice in order to achieve it. Then you double down on that.
In our pursuit of PMF we didn’t sacrifice anything. We were allocating resources to all fronts. Growth, unit economics, retention, tech features and operational optimisation. More often than not we were overwhelmed and tried to re-focus, but a combination of internal disagreements and different investor’s opinions/requests resulted in doing a multitude of things all at once. Our thirst for improving resulted in extended work hours and the building of new things non-stop. Very few times did we take a step back to evaluate whether we were actually heading in the right direction.
We were now a year in after our latest funding round, already having a team of 10 people working full-time and kept growing at a steady rate. However, we clearly hadn’t found PMF. That wasn’t the worst thing though, rather the fact that our numbers, and most importantly our conviction, didn’t allow us to see this. The only evidence for it was the fact that if we continued at that same pace, we would run out of money soon. So we decided to evaluate alternative, more cost-efficient ways to grow so we could increase our runway.
Second pivot — kind of
We knew that to grow big we needed to acquire new customers. Lots of them. Until that point however, acquiring those customers had proven to be very expensive and unsustainable. Some of the retailers asked us if we would consider building a white label solution for them. At the time we didn’t see it as an attractive proposition because we were building a B2C business and this was clearly a B2B play, which we didn’t have much interest in participating in. But since our B2C side of the business wasn’t taking off as we hoped, we started considering it.
Our focus on efficiency, though so far hadn’t contributed to exponential growth, had led us to build very robust operations and advanced tech. We had systems in place to onboard, train and monitor picker’s and driver’s performance across multiple stores. By predicting demand our ops team was matching it with the supply of pickers and drivers in order to eliminate lost orders while utilising our staff in the most efficient way possible.
Our tech team had built live systems in which orders were automatically allocated based on supply and demand and mobile apps for both pickers and drivers with live order status tracking to verify task completion and minimise errors.
We even had a real-time replacement management system, which intelligently suggested the most appropriate replacements for the customers, so pickers didn’t have to waste any time searching through the store for replacement suggestions.
All of these were attractive to retailers. None of them had something similar and building it themselves would have required a lot of money and time. Our assumption was that if we licensed it to them, they would get a great proposition for their customers in a fast and low-cost way, and we would get to boost our bottom line and get access to many new customers.
We announced this to our investors and started pursuing it. In the meantime we raised an additional round of funding to support these new efforts while continuing to grow our B2C side of the business.
If you decide to pivot, stay FOCUSED and pivot.
As Aaron Levie wrote recently, “Dilution of effort will crush you”
We started negotiating with UK retailers, mainly the ones who had little to no tech and were interested in our proposition. We had given ourselves 6–8 months to get the first deal and we were already far in our negotiations with four large retailers. While half of the company was trying to grow the B2C channel the rest was trying to build solutions and support the efforts for B2B deals.
Three months into our negotiations we had a strong lead with one of the oldest supermarket chains in the country. Having already a partnership with them on our B2C platform helped us to quickly introduce our B2B offering. The person in charge and their c-level executives were positive. We had a meeting scheduled to negotiate the final terms when all of a sudden 24 hours prior to that meeting I received a call from the person in charge telling me that due to unfortunate events he will be leaving the company and someone new will take over. The new person was an external who was hired at the last minute. Needless to say that the meeting was a disaster. The new person knew nothing about our on-going negotiations and wanted to start the process from scratch and evaluate all options which would delay their decision significantly.
In the next months a second lead decided to pause the whole process. A combination of fear, internal politics and restructure led them to decide not to pursue such a route. Our chances were shrinking. We had to close a deal by the end of the year and start rolling it out at the beginning of 2019. This would give us enough leverage and traction to raise a new round, which we knew we could get, because some investors were already interested. It was time to seriously evaluate our options once again.
We had less than 5 months of runway left, B2C wasn’t exploding and we still didn’t have a B2B deal. We decided to create another plan which was an entirely different product. Even if the B2B deals needed more time, this new product on its own could generate enough revenues to keep us afloat. It was a promising product and we decided to give it a go.
We designated a team to build the new product, the rest worked towards the B2B deals while also running our B2C operations. We were now a few months away before completely running out of money. The new product was being developed, but we still didn’t know how much traction it could bring and we still hadn’t signed a B2B deal. It was time for honesty among the team.
Creating an honest and transparent culture will help you get through the toughest moments.
We gathered everyone and told them what the deal was. How much money we had in the bank and what our options were. We also mentioned that there was a chance we wouldn’t be able to make the last month’s payroll if this wouldn’t work out. But we wanted to try and we needed everyone to deliver their best performance.
That meeting was probably the hardest thing I had to do from the moment I started Home Run. But it was very important to include everyone and to be transparent. To this day, I feel very proud of the way we handled this and feel super blessed to have had such a team by my side. More than 90% of the team agreed to work as hard as possible to save Home Run. And with the possibility of not getting a salary. This was just an extra boost for me that I needed to deliver even more this time. And off we went.
It was amazing to see people working harder and smarter than ever before. However, this didn’t come without stress. Having this uncertainty in the back of our minds and knowing that everything we had worked for was at stake, took a toll on everyone and created friction amongst the team.
It took us more time than expected to launch the new product, and as soon as we did, the last B2B prospect we had decided to delay their decision for another quarter. We had almost no time left. It was the beginning of 2019 and there was nothing else we could do. Runway was less than one month, the B2B deals were almost all off the table or delayed and we hadn’t managed to fully launch the new product and get the necessary traction.
I believe that everyone in the company grew more those last months than the entire time we were running. The learning was non stop, the iterations daily and the efficiency of the team through the roof. But we had to face reality.
We had to make the difficult decision to shut down. It felt weird but we had to keep it together even now. We knew we had two things to take care of above all: our people and our investors. We managed to make last month’s payroll and it was time to start helping everyone find a new job. And this is what we did. I am happy to say that all of our team found jobs that they loved quickly. To our investors we explained what had happened and about our decisions and we started the legal processes of shutting down.
It was now March 2019, in our apartment, the one we used as an office in the early days, my co-founders and I. Exactly how it started. A wonderful startup journey had come to an end.
I want to thank to everyone involved in this journey. Our investors, advisors, employees, partners, customers, supporters and most of all my co-founders Gregor and Christian.
Thanks to Réka Ács, Christian Lerke, Gregor Tschurtschenthaler, and Michael Michailidis for reading a draft of this.
Peace & Love