Milkrun’s predictable nepo baby faceplant

It’s Groundhog Day. Again.

We’ve earnestly pondered, on this platform, the tenuous unit economics of final mile delivery start-ups, as far back as July last year* and prior.

(*Read my “The final days of the final mile” from 2022; and “Misplaced Amazon mania?” from 2019.)

Like entitled children, people just aren’t learning the lessons and therefore the lessons keep being repeated.

For the record, one more time, two plus two will never equal five or six with delivery logistics just because you sprinkle fairy dust on it and call it “saving the world” or whatever…

Last July we noted Voly and Milkrun (following the sudden exits of Send and Quicko) as “the last ones standing” in the Aussie grocery delivery scene.

Like a funeral procession, Voly disappeared (literally mid-transaction for many shoppers) along with Deliveroo last November and just this week,?Milkrun ostentatiously tapped out, confirming?it’s done and dusted from today, 14 April.

VC backed messiahs

It seems?every first-of-its-kind breakthrough venture?needs a messiah.?

Lots of new stuff too. Genuinely new newness. New buzz-words, new bold, previously unthinkable ideas and plenty of new money.

History will judge – or maybe just completely forget – where Milkrun sits in the pantheon of final mile experiments, but for now let’s not forget some milestones thus far.

May 2022: less than 12 months ago, colourful founder Dany Milham claimed “within 10 years, the company will be a bigger business than Coles or Woolworths”.

(Roughly the US’s Walmart or the UK’s Tesco equivalents here in Aus.)

From that?same AFR article came these great moments?and pearls of wisdom… “It’s always debated if modern-day footballers [sorry, an Aussie sporting trope] are better than old ones, but they’re so different, they’re pretty much different games.”

“We’re better at managing people, we’re better at unit economics, and we’re better at marketing and acquiring customers.”

And also, “I'm obsessed with the operating model of businesses, and we’ve got so much better at running teams with agile [methodologies] and scrums. It’s so much better in every single way”… “it’s a one-player market… we’re the player in Australia. It’s a great opportunity because we’re going to have the entire Australian market.”

"It’s my first battle with incumbents. [But] they can’t disrupt their own business faster than we can do it. It’s been proven time and time again.”?

Pregnant pause here…

Is it just me, or does this all sound a?tad Neumannesque and "WeWorky"??

A lot can happen in 11 months. Incumbents one and Milkrun zero.

Fast hot easy money in a “Nepo world”?

It’s no secret that there’s been an enormous pool of VC money sloshing around out there after several years of fiscal stimulus. In fact, it’s been whispered to be a case of money chasing projects for a good while now.

And one thing that has “been proven time and time again” is that a much hyped, fast-start, rapid growth, new venture can be flipped very quickly netting mouth-watering returns for founders and backers. Especially if the hype persists long enough and the narrative is right.

(Becomes hard to spot where “Ponzi” ends and value creation begins.)

But this game is strictly invitation only (as we’ll discuss below) or perhaps you’re borne into it, either way it’s a very short guest list…

Without labouring through it all, there seems to be a magic formula, with a few ‘old chestnuts’ that keep recurring almost like a template.

You need a showy founder cast as a serial entrepreneur, preferably an overnight “rich-lister”. Someone who can?point to a prior venture where they delivered big turnover quickly. Even better if they’re from a perceived family of entrepreneurs and it’s “in their genes” or they were born to it. (Tick, tick and tick).

There’s got to be a really strong “new and old divide” (but not too abrasive) in the narrative. The old aren’t bad per se, they’re just not hip and with it as much as?we?are. Our new ways (as mentioned) are self-evidently better. And a few wild claims will certainly help. (Tick).

It’s vital to send a strong Environmental Social Governance (ESG) message. We pay our workers differently, we care deeply about the environment, the community and we’re changing the world. It’s actually not about the money, that’s just incidental, it’s about purpose and our values. (Tick).?

(And to be fair, to the extent that Milkrun had already made its workforce employees and is now covering all entitlements as part of its wind-up, it should be commended and be a striking example to gig-economy companies everywhere.)?

And finally, a sudden?but seemingly incredibly heartfelt, gushing last-second broadcast?about the business winding up when it finally faceplants. “We tried so hard, we fought tremendously, no one feels it more than I do and thank you, thank you so much for the huge effort, you guys were amazing” kind of thing. (Tick).

Notwithstanding this checklist, the cracks in the wallpaper start to appear once you scrutinise the numbers, then past track record, and join the dots.

Milkrun had received an initial A$11m seed funding and then a whopping additional A$75m in something of a second-round coup in January 2022. Let’s call it say, A$90m round figures to date. Not chump change…

Its B series funding document?(reported by the AFR), showed it was losing about A$13 for every order it fulfilled?before?funding costs?as recently as April 2022, and that figure would only have gotten worse in the intervening period.?

This staggering shortfall goes to the core of the issue here. During a once-in-a-generation event (indeed Covid-19 combined with vast economic stimulus) yielding exceptionally favourable conditions (suburban lockdowns for most), and a market of withdrawing competition, the best this experiment could manage was minus A$13 per order.?

That’s not a cosmetic issue. It’s a business model issue and a management issue which all but confirms, the brains trust must have had little clue what they were doing and no idea how to turn things around, other than to go for additional funding.

Hmmm. I thought “obsession with operating models” was the Superpower here?

Maybe the game hasn’t actually changed quite so much and modern-day footballers aren’t all that much better than-(or different to)-older players.

Game theory

Speaking of games, I smell an underlying game here and I’m happy to offer a theory on it.

If you recognise the game and know how to play, perhaps you too can win big, but only if you’re invited or destined…

It starts with a charismatic front man and serial entrepreneur. Then you need an industry that’s “tired”, “old”, “antiquated”, and “ripe for disruption”. Then finally, you need the shiny new venture or project that will magically transform all this, combined with some fast, hot money to bring it all together. To ignite the powder and start the chain reaction. Oh! And I almost forgot to mention…you need hype, lots and lots of hype.

In this scenario there is a symbiosis. Venture capital needs the charismatic front man, who in turn also needs venture capital. They both need an industry supposedly ripe for disruption and the much-hyped shiny new venture simply becomes a vehicle for them to use to reach their respective destinations.

Great. Until it hits a brick wall as it did in this case. Although even then, there are most likely still winners and it was only ever a game.

Where did all of the funding go? We’ll most likely never know (unless there are clues when the?next “Rich List” drops). How much went to the founder, how much will be recovered by the VC Fund(s) taking all operating transactions into account, how much to other backers, or was it only ever an optional tax write-off in the first place?

Perhaps if the ‘Nepo Club’ really do want to change the world, they could take a peak just beyond the limelight. There’s still an awful lot of schools, bridges, roads and hospitals to be built out there and no shortage of poverty to tackle… But that would require a “patient profit” mindset and no doubt the returns would be much too low.

Finally, also contrary to popular opinion and the endless noise about how we “should be attracting more venture capital into the industry”, I’d have to say that all of this by and large, is bad for business and bad for the industry.?

Whether it’s local grocery delivery or global supply chain management, maybe it’s time the industry recognised the “game” a little better and politely told some of the VC money to “shove off”.

(Russell Wood?is a senior columnist for Loadstar Premium. He reports to Alessandro Pasetti, head of Premium. You can contact?Ale?here?)