Why Zume Died: How Melting Cheese Burnt a $2.3B Pizza Delivery Startup Run By Robots
Cautionary lessons on over-indexing on technology, creating a big value gap, failing to focus, and making big disruptive pivots.
👋 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.
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Hi, friends 🧟
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—unpacking important takeaways on what not to do with our products.
Today, we’re visiting the plot of Zume. 🪦 A startup that represents the excesses of pre-pandemic venture investing.
You’ve likely never heard of them, and that’s ok. It makes this analysis all the more interesting.
Long story short, if you can’t make a pizza with $445M in venture funding, you’ve earned yourself an unapologetic invite to become a cautionary-tale Hall of Famer.
Ok, that’s a little harsh. Zume wasn’t just making pizza—they 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’re a dough-flipping, marinara-spreading, and cheese-sprinkling human at Dominos, you’re good for now. The robots haven’t figured out how to deal with sliding cheese.
Apparently, hot mozzarella + R2D2 + moving pizza truck = closed $2.3B startup.
But, the issue of messy cheese and mediocre pizza quality is just one slice of Zume’s problem pie that led to their failure. Was that too cheesy? 🫣
As we’ll 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’re not aligning it with market needs.
Okay, without further waffling, I bring you…
Actionable insights 🧠 🛠️
If you only have a few minutes to spare, here are a few of the tactical takeaways from Zume’s failure — from a building perspective.
Technology should 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.
Be careful of raising too much money. Money comes with written, and unwritten, terms. The more you take on, the bigger the expectations, and the more you’ll have to do very quickly to show growth, even if it means failing to follow…👇
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.
Focus, and don’t juggle multiple objectives at once: Startups, especially those pre-product-market-fit, should prioritize solving one primary problem effectively. Spreading resources thinly across multiple fronts can lead to inefficiencies and a lack of clarity in direction.
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.
Quick slices over. Let’s get to the full pizza. 🍕
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Obituary: Here lies Zume 🪦
May 2015 - June 2023
I eat a lot of pizza.
We eat a lot of pizza.
Enough to create a $140 billion global market, with more than a third of that coming from the US. And that demand in the states, roughly, is met by about 75K pizza restaurants across the country. Domino’s leads the industry in sales with ~6.5K locations nationwide.
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.
However, the pizza shop part is interesting. In a Yahoo! finance interview with Alex Garden, after Zume Pizza failed and they pivoted to a focus on packaging, he said something like this:
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.
Besides the fact that it didn’t work, that was a smart move. Create a reference customer, be that reference customer, dogfood your unproven product to learn and iterate, and then show the reference customer’s success to the market so you can start selling your real product.
Except, I’m not quite sure that’s what Zume actually did. Given that’s how Alex explains Zume Pizza’s purpose prior to their pivot to single-use food packaging, it sounds like too good a story to tell everybody in retrospect.
Anyway, we’re jumping the gun slightly.
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.
It turns out, hungry people don’t care much for technological innovation if the end product is worse than a classic human-run pizza joint. Shocking.
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.
At first, the idea was to drive this through partnerships where Zume would function as a ghost kitchen of sorts. Then, the business model shifted to licensing their tech out for others to own and run. But it didn’t take long for that grand vision to implode. The storiesﾠfrom former employees revealed a classic case of Silicon Valley hubris where big money meets big egos, and someone forgot to execute.
So once again, with poor adoption, in 2019 they shifted focus to…boxes.
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.
With this less sexy business—although, much more important given the lofty goal of replacing big plastic in the food industry—Alex and Julia touted big revenue projections to investors and raised more capital for their new pivot. Except, their packaging wasn’t legally allowed to hold food in some places, including San Francisco, because it contained PFAS.
So, not to pull the band-aid off slowly here, in June 2023 Zume officially laid off all the robots and humans and closed their doors.
A $2.3B (at its peak) darling of the FoodTech space had enjoyed a big climb and a gradual, hard-to-watch, demise.
While you might think that such an epic downfall would kill Silicon Valley’s faith in robot pizza as a profitable concept, it doesn’t seem like that’s the case. Though Zume may be gone, a different startup—this one founded by a former SpaceX engineer—is currently trying to succeed where Zume failed. Stellar Pizza Inc. recently enjoyed a $16. 5 million contribution from Marcy Venture Partners—Jay-Z’s venture capital firm—and, in March, the company rolled out its cheesy products at a college campus in Los Angeles. So, who knows? Maybe Stellar will succeed in finally bringing us the automated pizza nobody asked for. 🤷
Anyway, let’s go deeper into some of the main reasons Zume failed, with a key lesson from each. 👇
Post-mortem: What we can learn from Zume’s 3 leading causes of death
Food supply chain automation was Zume’s category to lose…which they did…so let’s look at how they dropped the ball and burnt through half a billion in capital.
Our startup autopsy suggests 3 primary causes of death:
Over-indexing on the technology at the expense of the customer and market needs
Creating a big value gap by overpromising and underdelivering
Failing to focus, and making big, internally disruptive, pivots
Outside of those, Zume also faced regulatory challenges and, like Quibi (read Why Quibi Died), suffered the consequences of overfunding and ungrounded valuations.
We’ll just focus on the big 3 today. So let’s start with the product, and the inability to Zume to ever find product-market fit.
1. Cool tech, but no problem solved
Let’s give Alex the benefit of the doubt, and let’s assume that from the beginning, the point of Zume Pizza was really to just serve as a reference customer for Zume Inc’s larger ambition of automating the food supply chain.
Doing so to prove to the market that your product works is smart. But, for that to work, the reference customer needs to be successful.
As you know, Zume Pizza was not, which got the team stuck in a cycle of trying to figure out this reference customer’s business first.
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.
And to compete, you need to solve a problem in a better way. Otherwise, why order from you vs Domino’s? The thing is, nobody on Earth cares if their pizza is made by a robot. The novelty of preparation is a non-factor. All people care about is a well-priced pizza that tastes good and arrives warm enough and on time.
Zume Pizza just didn’t compete because, simply put, they were spending money on the wrong things. They were investing in figuring out how and where to remove humans and use robots, instead of focusing on the core product, and how to make a 10x better pizza or 10x faster pizza…if that’s even possible. I don’t think it is.
What you can do with that: 🛠️
A clear lesson, especially in the world of AI: Don’t over-index on technology as a solution. The technology should enhance the core product, not replace it. Always prioritize the primary value proposition, and always make sure your product genuinely addresses a market need.
Rapid scaling without validation, or a proven path to profitability
Zume expanded aggressively, aiming to capture a significant market share. However, this expansion came without thorough validation of their business model in Zume’s initial markets. For instance, before fully establishing a successful and profitable model in the Bay Area, Zume announced plans to expand to other cities.
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.
It’s somewhat surprising they were able to keep raking in more funding without the numbers to support it. But because they did, they saw a runway and believed they were well-capitalized enough to just push for growth.
This led to a substantial burn rate because the infrastructure was very expensive to develop, deploy, and maintain—and besides failing to create enough demand and stealing share from the other chains, pizzas are not exactly a high-ticket item, meaning Zume needed to sell a lot of pizzas.
Now, Zume isn’t exactly alone in raising money and taking on losses to grow with the promise of profitability later. This is classic Uber. Except, Uber had a real product-market fit, and always figured that if they invested in less rapid expansion, they could net a profit. Which was true.
But Zume just invested in expensive pursuits without showing clear revenue streams or a roadmap to profitability. Meaning, long-term sustainability was always an issue.
So, the money didn’t last. A prime example of venture capitalﾠexcess — an expensive, fruitless attempt to supplant an industry that no one really had a problem with in the first place.
What you can do with that: 🛠️
Validate in smaller markets before scaling, and always have a clear monetization strategy. Build it and the money will come is a risky bet. Know your business model, and know what you need to sell in order to have a long-term business that can sustain itself. Here’s some step-by-step advice:
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.
Research and understand your market:
Competitive analysis: Identify direct and indirect competitors, and understand their revenue models, strengths, and weaknesses.
Customer segmentation: Identify your target customers (ICP) and understand their willingness to pay for things like your product.
Choose the right business model: Whether subscription, freemium, affiliate, e-commerce, etc, you want to choose one that aligns with your product, market, and customer behavior.
Consider different pricing strategies:
Cost-Plus Pricing: Calculate the cost of delivering your product/service and add a margin.
Value-Based Pricing: Price based on the perceived value to the customer. The best IMO.
Competitive Pricing: Price based on what competitors are charging.
Tiered Pricing: Offer different pricing tiers with varying features.
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.
Monitor and adjust: Regularly review your business model and financial metrics. Be prepared to pivot if certain aspects aren't working.
Bootstrap when possible: If you’ve ever watched Shark Tank, you know the value in using some of your own resources to build and test your model out before going to investors. This not only reduces dilution but also helps derisk the idea and demonstrates your commitment.
Plan for scalability: Ensure that your business model can scale. As your customer base grows, your costs per unit should decrease, leading to higher profitability.
Cash is king. Profitability isn't just about revenue, it’s about being cash flow positive. This is crucial for the sustainability of your business. Model out what your break-even is, and know what levers you can pull if you’re ever burning too much and need to get back to break even.
2. Creating a big value gap
It’s good to have a big vision. That gets people excited. But, Zume brings us an important lesson here: You need to have a good enough win rate of delivering on your promises—and that’s promises to your customers, your team, investors, and even yourself.
The less you do that, and the more you fail to meet people's expectations, the wider your value gap will be—which eventually creates a hard chasm to close back up once the cracks get too big.
What’s the value gap?
Simply, it’s the divide between what other people perceive the value of your product to be, and what you believe it to be (and the price you assign as a result).
The bigger the gap, the more likely your customer is to churn. Or the more your team will face poor retention, or the more push (or pull) you’ll get from existing investors, or the more likely you’ll be to burn out.
Just consider the case of the value gap with their VCs. Because they promised so much (including big revenue targets), and because they had been given so much capital, there could well have been extra pressure to show rapid growth and returns on investment. This could have driven the urgency to expand and dominate without a proven model—setting Zume on a hard path to recover from.
But from customers to investors, the biggest driver of Zume’s value gap was the founders’ grand vision in tension with the reality of the market.
They promised the world and missed the mark consistently.
And there lies the challenge: The balancing of a founder's passion and vision with the practical realities and demands of the market.
While vision is crucial, adaptability based on market feedback is equally important. Said differently: ego over execution is fatal.
What you can do with that: 🛠️
Obviously, minimize your value gap.
How though? 🤷♂️
First, figure out if you have one and how big of a problem it is. A few things to look out for that could indicate a big gap.
Campaigns are not performing or underperforming.
Conversion rates are low.
Your churn rate is high.
Problems growing user base.
As Aggelos Mouzakitis, Growth Product Manager at Growth Sandwich, says:
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.
The biggest challenge most companies face is identifying the problem early enough to avoid burning cash on treating the symptom rather than the solution.
So, what’s one to do if you find that your user expectations don’t match the user experience? Start by identifying the problem with this two-part approach (credit to Aggelos for the framework).
Evaluate your strategy
Reflect on your product's positioning and the clarity of its copy. Misaligned positioning or unclear messaging can lead to mismatched user expectations.
Assess if you're underestimating or underselling your product. Startups often don't realize their product's true value compared to competitors.
Ensure your product delivers as promised. If there's a mismatch between your product's performance and customer expectations, it can lead to low conversions and high churn.
Consider if your product is being used differently than its original intent. The market evolves, and your product's value might differ from its current positioning.
Differentiate between fresh and power users
Understanding the difference in experience between fresh and power users can help you better identify and solve value gap problems.
A fresh user: Someone new to the product or has used it briefly (less than 10 minutes).
A power user: A loyal user who has fully adopted the product. Their usage might vary; some might find alternative uses for the product, while others might be brand ambassadors.
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.
Now, once you know what the problem is, you can get to fixing it by:
Collecting data: Gather feedback from both user groups. This can highlight discrepancies in expectations and experiences.
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.
Developing strategies: Based on research, devise go-to-market strategies and methods to bridge the identified value gap.
Onto the third big cause of death.
3. Big pivots, and a lack of focus
First, let’s talk about their GTM, where they were a technology, pizza shop, and sustainability play all in one. For a budding startup with plenty of unknowns, this lack of focus and the mistake of taking on too many bets was a real problem. Startups pre-PMF should be laser-focused on solving one problem well. All resources should be pointed at getting there. Nothing else matters before that.
Zume essentially opted into fighting 3 wars before ever winning a single battle. 🙅♂️
Here’s just one example of why trying to achieve three things at the same time was a problem. So, Zume was trying to be a tech company and a sustainability company. While it’s all good and well to aim for sustainability with their predictive analytics helping reduce food waste, the flip side meant that Zume had limited ability in managing surges in demand. Balancing sustainability goals with customer satisfaction and operational flexibility was a hard task.
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.
The good old pivot.
Absolutely nothing wrong with it, and it’s what helped turn my startup around back in 2018. But, there’s a delicateness to pulling it off, where pivots should be data-driven and align with the company's core strengths. Zume's shift seemed more like a reaction to challenges in their original model rather than a strategic move. This drastic change could well have confused stakeholders and highlighted a lack of clear direction and focus for the company.
This pivot also bought Zume into a super competitive market of food packaging, where again, they didn’t have any real advantages inherited from the pizza operation. Then when Covid happened, they even dabbled in making Covid masks.
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.
Remember, focus on what you can be great at. Do one or two things extremely well vs trying to be all things to all people and ending up being average at them all.
This lack of it—along with that value gap—led to a related issue.
Poor team retention 🪣
A startup's success is pinned on building the right team. A team that’s skilled, fast, aligned, and cohesively working towards (1) product-market-fit, and (2) growth once PMF is reached.
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.
Also, poor retention is prone to becoming a negative cycle—like a bank run. One or two key people leave, and others may soon follow.
What you can do with that: 🛠️
For this takeaway, let’s just focus on pivoting in the least disruptive way possible. While pulling off a soft landing isn’t an easy feat, when done right, it can set you on a path to greater success. So let’s look at “what done right” generally looks like:
Make sure it’s needed: Before considering a pivot, really make sure that it's genuinely necessary. Are you facing insurmountable challenges with your current model? Is there a significant change in the market landscape? Pivoting should not be done lightly.
Stay mission-driven: While the strategy or product might change, your core mission should remain consistent. This helps in retaining brand identity and customer trust.
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.
Engage your team: A pivot shouldn’t just be a top-down decision you announce in an all-hands. Aim to engage with your team, get their insights, and ensure they're onboard and motivated for the change. You’ll need them to pull it off.
Communicate with stakeholders: Keep investors, your team, and customers in the loop. Clear and over-communication can help manage expectations and reduce uncertainty.
Start small: Before making a full pivot, try to test the new direction on a smaller scale. Think of it like another MVP where you need to validate the idea and reduce risks. You don’t want to be like Zume where you’re pivoting regularly.
Have the runway to pull it off: Pivots can be resource-intensive. Make sure you have enough money in the bank to support the shift without running out of cash.
Stay flexible: Once you’ve made the call, it’s important to commit to the new direction. At the same time, you’re a startup and must remain adaptable. The pivot might require further adjustments as you learn more.
Learn from past mistakes: The worst thing you can do is make a pivot without a proper retrospective of why you’re pivoting in the first place. Analyze why the original model didn't work from multiple lenses, and make sure you don't repeat the same mistakes post-pivot. That’s called a blunder if you do.
Ask for advice: Sometimes, an outside perspective can provide clarity in an otherwise murky situation. If you have mentors, industry experts, or other entrepreneurs you know who've successfully pivoted—chat with them.
Rebrand if necessary: If the pivot is drastic, consider rebranding to better align with the new direction and signal the change to your customers. E.g., Slack.
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.
Review and adjust: After the pivot, continuously review its success. Are you meeting your milestones? Is the new direction proving to be viable? A tweak is needed.
And that closes out our third edition of Why They Died.
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Until next time.
— Jaryd✌️
Brilliant read! Reminds me of ‘sliceline’ a company featured on the Silicon Valley HBO comedy
To add to all of this, it sounds like they were even competing against their future prospects by trying to disrupt the pizza delivery business?
Can't imagine them approaching local pizza chains to sell them AI supply chain tech would land well after those pizza places were competing against Zume for retail pizza customers.