A startup begins as an idea, an inkling. Maybe the founder sees a pain point and thinks they can solve it with a bit of technology and shift an industry, but it doesn’t always go quite as planned. That’s what ShelfLife founder Lillian Cartwright found when she launched her startup. As the economy turned last year, and venture capital dried up, Cartwright was forced to shut down her company, taking the painful lessons she learned and moving on to whatever comes next.
When she started out, though, Cartwright believed that the beverage industry was ripe for digital transformation. While she was in graduate school at Harvard a few years ago, she came up with the idea of starting a hard seltzer business. She soon learned that sourcing the ingredients was harder than she imagined, and she began to envision a business, a two-sided marketplace where companies could find ingredients, negotiate a price, and invoice and pay — all in one convenient place.
It sounds like an idea an industry caught up in paper and manual processes would embrace, but Carwright would learn that she might have moved a bit too fast, especially on the accounting side of the business.
When you think about digital transformation, it’s easy to forget that long held manual processes can be hard to change. For a startup taking aim at an industry still mired in phone calls, faxes, email and paper invoices, even if digital is more efficient, even if it can save money and time, it’s not always easy to change entrenched company workflows.
“I was struggling in terms of understanding the supplier landscape, figuring out who would supply our juice concentrate, citric acid, cans, labels — all of it. In talking with other brands about what some of their issues were, I began to realize that there was an opportunity to open up this process and bring more transparency to it,” Cartwright told TechCrunch+.
At about the same time Cartwright was struggling with her seltzer business idea, she had a summer job at Bessemer Venture Partners, looking at e-commerce marketplaces. Without really knowing it at the time, she was laying the groundwork for her startup idea.
The business launched in February 2020 just as the pandemic was taking hold, perhaps an omen of things to come. But early on, everything looked rosy: She managed to raise over $300,000. She used that money to seek out a more technical co-founder. Eventually she partnered with John Cline, an experienced engineering manager, who had had stints at eBay, Blue Apron and Google before joining Cartwright to help build ShelfLife.
So far, so good
With Cline in the fold, they began building the platform. By the following year, she raised another $2.7 million. The platform began coming together. The future looked bright.
“Fast-forward to 2022, we actually launched our B2B marketplace in its most holistic form,” she said. “So the marketplace was basically a collection of about 10,000 different SKUs across 50 different suppliers for raw materials like chocolate oats, flavors, juice, concentrate, you name it, like anything you would need to make a food and beverage product.”
But that was only half the solution. “Then on the other side, we would connect branded manufacturers, contract manufacturers with those suppliers and get them pricing quotes and then allow them to send purchase orders and transact and all the way through, kind of, that procure-to-pay process,” she explained.
The company would get paid a percentage of each transaction for supplying the platform and marketplace to make the sale happen.
During this time, the company was growing: She hired three engineers, three people on the business side and had four contractors on the books, but all of this operational overhead was beginning to take its toll. They realized that they were going to need more money.
By the time Cartwright went looking for more capital, it was summer 2022, and the funding landscape was beginning to shift. Instead of investor exuberance, Cartwright began to feel the impact of economic headwinds, a confluence of factors from tightening money and higher interest rates on the money supply side to a resistance to her approach on the customer side.
“We were building a lot of products all the way from end-to-end, so from the marketplace listings all the way through to payments. We had a lot of engagement at the top of the funnel, so a lot of people were searching and discovering new products and then also submitting requests for quotes, chatting with suppliers, developing relationships, and that was going up and to the right from April all the way through October,” she said.
The problem was they weren’t using her platform for the payments part of the transaction. They might find the supplier this way, but the payments weren’t flowing through the platform, and that was a key part of the business model that wasn’t working. People were still using their own manual invoicing processes to bill and collect payments.
Reality bites
If Cartwright could point to one flaw in judgment, it was trying to build the end-to-end solution so quickly. People were used to the status quo and were resisting the digital changes her platform offered. The industry really wasn’t prepared to go all in on the solution she and Cline had built.
“They had their own processes, credit terms, all these things — and we were forcing them to join our system very quickly because we had built all this out. If I could go back and do things differently, I would [have taken it slower on the payments side].”
She said the suppliers she was working with had been in the business for generations, and they were still constantly fulfilling inbound product requests. ShelfLife was trying to change the way they sell, the way they accept payments. It would have forced wholesale changes in sales and accounting practices, and many of the customers weren’t willing to do that.
“It was just a lot of moving pieces that we just didn’t consider early enough,” she said.
By June 2022, things started to take a turn for the worse. The capital markets were in retreat, and ShelfLife was spending money too fast. They were beginning to see the end of their runway on the horizon. She needed to raise money, and suddenly VCs weren’t so forthcoming.
“By June and July the markets were shifting and there was a lot of fear,” she said. “Plus we definitely weren’t going to be hitting any sort of revenue targets anytime soon. We had a lot to figure out to move people into actually paying on the platform and diving into the sales cycle and payment terms. At the same time, we realized we would have trouble raising, and our burn was high, and so it became very clear that we needed to fundraise to give us another 12 to 24 months to continue to work on this.”
She spent the next several months fundraising. She did get her lead investor to agree to pony up some money, but only if Cartwright could find at least one other investor. Over the next few months, she spoke to 90 VCs, and not one was willing to do that.
“We couldn’t raise anything,” she said, an issue that was due to a combination of things. “But at the end of the day we couldn’t hit the revenue numbers, and we didn’t have enough proof of how we would get there within a year,” she said.
Her existing investors gave her advice, but in the end they chose not to give any additional financial help. “We had quarterly board meetings, which created some sort of structure given the stage that we were at, and I had biweekly calls with one of the investors and then monthly updates.”
She said that investors were keenly aware that the company had been missing the mark. “I think they were really great at asking the right questions and pushing us. But I don’t think that they ever prescribed anything [specific] or were in the position to drastically move the needle on what we were doing.”
By October she realized she wasn’t going to get any more money, and her only option at that point was to cut her burn rate. She began laying off her employees because she didn’t have the money left to pay them long term.
At that point, she wanted to sell the company, but no savior arrived. Finally, by the end of last year, she hoped she could at least sell the IP. None of that would happen, either. Her co-founder left the company, and in January, with few options left, she made the decision to shut the doors.
“So the first week of February I notified the investors in my normal regular update that I was winding down the company and returning the capital,” she said.
Throughout February, she was left to deal with the nuts and bolts of dissolving the company. “I actually brought in an accounting firm that does this for a living, and they helped me with all the paperwork and dissolving all of our entities in all the different states and our tax season and all that, and I connected with other founders that had been through it and kind of figured out the appropriate messaging for our investors, the appropriate messaging for our clients and suppliers, and all that [final] stuff.”
With the company behind her now, she has been questioning some of her decisions, but of course, she couldn’t know what she didn’t know. Cartwright sees the mistakes all too clearly now, but founding a company is no easy task. But she can take these learnings, dust herself off, and at some point down the road, after working at a company for a while, or perhaps at a VC firm, try it again — only this time with the wisdom of her previous experience in her back pocket.
Comment