In early 2022, the meal delivery company I founded, Tovala, went out to raise $100mm from venture capitalists. Our business could not have been hotter. We’d crossed $110mm of revenue, growing over 100% YoY. We had retention that was 3–4 times better than other meal delivery services. We had low awareness, lots of room for product innovation, and a seemingly clear path to an IPO.
Then the war broke out in Ukraine, and capital markets started to get spooked. All of the sudden, fast-growing, unprofitable consumer businesses were out of vogue. We managed to raise $32mm, not a small sum, but it felt like a failure.
It ended up being the best thing that ever happened to us.
A new game
That struggle made us realize the game had changed. Investors no longer wanted to fund unprofitable growth. In fact, they might never fund unprofitable growth in our category again. So we had to find a way to stretch that $32mm as far as possible.
That was easier said than done. In 2021, we burned $26mm. We had to change how we operated Tovala. Fast.
This was more than just cutting some costs. It meant a complete shift in mindset of every team member. For years we had been focused on scaling as quickly as possible. For example, for our operations team, that meant thinking about how we could safely fulfill an increasing number of meals every week and, in their spare time, figuring out how to improve our margins. We had to flip that mindset on its head. And instead of thinking about rapid scaling, think about where we could find efficiencies in the business.
We started to repeatedly pound the drumbeat of profitability. We talked about it at every company all hands, and most importantly, we helped everyone understand why it mattered. We celebrated wins as small as a slight reduction in our AWS fees and as big as launching new product offerings. We got much more disciplined with hiring and performance management, pushed every team to identify margin wins, and we scrutinized our P&L for any waste. We found big levers on pricing and marketing spend and small levers in renegotiating many contracts. It all mattered.
Focus, focus, focus
What most surprised me during this period was not just our team’s ability to execute. It was the value of focus. We’d built a company culture that was frugal and yet, when the team was tasked with finding waste and inefficiencies, it was everywhere. With the benefit of hindsight, it’s clear to me that it is not realistic to prioritize growth, (which the team had been doing for several years), while simultaneously having real rigor on minimizing all waste and inefficiency.
We ultimately achieved our goal. We haven’t raised a single dollar since that $32mm fundraise. We’ve been profitable for two years. And we’ve built a culture that can operate in the chapter we’re now in: one defined by growth and profitability.