Ideo Spinoff ShopWell Says Better Health Starts at the Supermarket; Part 2: Ingredients of a Startup

With the ShopWell concept for helping consumers make more sense of the nutrition labels on food, Ideo thought it had a winner. But while the design consultancy has many of the attributes of a startup incubator—a large flock of creative thinkers and a commitment to testing new ideas, to name just a couple—it’s not equipped to fund and staff new companies on its own.

As soon as Ideo senior designer Michelle Lee and entrepreneur-in-residence Brian Witlin had formalized their pitch on ShopWell in mid-2009, Ideo partner Brendan Boyle put out the word that the team was looking for venture support—preferably from a firm that understood how to manage the spinout process.

“Within one or two hops, somebody told Brian, ‘You should talk to these guys at New Venture Partners,’ and that is how they found us,” says Robert Rosenberg. “It was actually a cold-call e-mail that came in via LinkedIn.” (Score another one for PayPal alum Reid Hoffman’s professional networking service.) [Correction, 11/2/10: Rosenberg sent Xconomy this revision: “The thread that actually brought Ideo to New Venture Partners wasn’t LinkedIn.  It was somewhat high tech (someone at IDEO posted the question “does anyone know anything about spinouts?” on a Stanford GSB listserve), but it was also a little old fashioned in that a person who saw the post forwarded it to Frank (Rimalovski, a partner at the firm).”]

[Editor’s Note: This is the second article in a three-part series on ShopWell, a Palo Alto, CA, Web startup that rates food products based on shoppers’ personal health goals. Part 1 appeared Monday, November 1.]

Rosenberg is a longtime partner at New Venture Partners, which has offices in San Mateo, CA, and Murray Hill, NJ, as well as the UK and the Netherlands, and purports to be the world’s only venture firm specializing in corporate spinouts. (In a two-part conversation in September with another partner at New Ventures Partners, David Tennenhouse, I learned exactly how that process has worked in cases such as Freescale’s spinoff of magnetic memory startup Everspin.)

Jasmine Kim and Brian WitlinLee, Witlin, and Boyle presented their plan to Rosenberg and his former colleague Frank Rimalovski, who has since left New Venture Partners to head up NYU’s Innovation Venture Fund. “One of the first things we saw was how fully thought-through the whole concept was,” Rosenberg recounts. “The prototypical entrepreneur has a hammer and everything looks like a nail; they think they can take over the world with their hammer. What Brendan, Brian, and Michelle had was a much more realistic and frankly more nuanced vision. I think part of the reason is that at Ideo, where they come from, they have the discipline to think that way. But it also reflects the fact that ShopWell itself is not a point solution. There are lots of innovations that brilliantly spot a problem and pair that with a brilliantly conceived solution, but with ShopWell, it’s that times two.”

On the consumer side, Lee and Witlin had come up with a plan for offering personalized food ratings reflecting consumers’ specific circumstances—not just their age, gender, height, and weight, but their health conditions and fitness goals. “This stuff is not just for health nuts,” says Rosenberg. “There is a real desire to understand the health impact [of different foods]. It’s just really hard to get at that on a personal basis. The tools that are out there are the quintessential one-size-fits-all tools—the USDA Food Pyramid says, ‘Eat this, not that.’ Well, what’s good for me could kill my mother.”

And on the producer side, ShopWell was offering a solution to food manufacturers’ age-old problem predicting what new products consumers will buy. “These are some of the world’s largest companies, and they are swimming in data from supermarket scanners and from generations of focus groups sitting behind one-way mirrors,” says Rosenberg. “But it turns out that all of the brilliant quant PhDs in the world cannot pull out of this data some insight as to why consumers buy this and not that. So there is this void, this dissatisfaction. These companies spend billions on focus groups and market research and product development, but they are flying blind.”

All startups try to cash in on some kind of unfair advantage. In ShopWell’s case, one of these is Ideo’s longstanding connections to food industry and consumer-product giants like ConAgra, Kraft, and Procter & Gamble. “It takes the relationships like the folks in Ideo’s food and beverage practice group have with their clients to really get at that need to understand why” consumers buy what they buy, says Rosenberg.

In August 2009, New Venture Partners agreed to put $1.1 million in seed funding into ShopWell, and the startup officially left the Ideo nest. (Figuratively, anyway: the spinoff is still renting space from Ideo on High Street, on the outskirt’s of the firm’s Palo Alto campus.) But while the ShopWell team had a great idea and some passionate and skilled co-founders in Lee and Witlin, that was about it, Rosenberg says. “What they didn’t have was any lines of code, any engineers who could write the code, or anyone who could be the CEO of this business—a dispassionate third party who could help them prioritize their product roadmap,” he says.

That was where Rimalovski and Rosenberg could help, just as New Venture Partners has done for nearly 60 other spinouts over the last 13 years. While they were assembling a term sheet, Rimalovski and Rosenberg also recruited Antony Brydon to be ShopWell’s acting chief executive. Brydon is a serial CEO and angel investor who’d previously led startups in the digital music market (IUMA, later part of eMusic, later part of Vivendi-Universal) and corporate social networking (Visible Path, acquired by Dun & Bradstreet). Brydon invested in ShopWell’s seed round and “thought the ShopWell vision was very exciting,” according to Rosenberg.

As interim CEO, Brydon’s job was “recruiting terrific engineers who could take the concept and implement it…[and] establishing a culture of how to recruit and how to prioritize on a rolling basis so that product development and engineering and management were all focused on the most important things,” Rosenberg says. New Venture Partners’ job, meanwhile, was to “ensure that the graft took between Antony and the founders. Then we played a role in marking when it was time to hire a go-forward CEO, which was about nine months later.” In the meantime, in February 2010, New Venture Partners signaled its confidence in the startup by upping its investment to $2.4 million. (Another $1.1 million followed in September, bringing the startup’s total funding to almost $4 million.)

To find a permanent CEO, ShopWell hired an executive search firm, which ultimately recruited Jasmine Kim, a UCLA MBA who’d led international marketing for Yahoo in the Web portal’s early days, then held brand marketing positions at Procter & Gamble and LVMH Luis Vuitton Moet Hennessey. Perhaps most importantly, Kim had been general manager at parenting site, a San Francisco subsidiary of Johnson & Johnson. In Rosenberg’s words, Kim “has a real hunger to build businesses, and not just any old business, but as general manager for BabyCenter she has been involved in building businesses that really focus on moms, who are a key demographic in purchasing. She marries a Web background with a really solid grounding in classical consumer packaged goods.”

But Kim didn’t make the ShopWell recruiter’s job easy. The first time the recruiter called, “I said ‘No, I’m too busy,'” Kim recalls. “And she called me up again and said, ‘Jasmine, I know you’ve worked a lot in the consumer space and that you’re really interested in food and nutrition and that you know a lot about what moves moms.'” That caught her interest—especially since she’d been through a serious illness some years earlier that had turned out to be the result of a food intolerance.

But ultimately, it wasn’t the company’s pitch that convinced her to join. “I came to meet the team and fell in love with them,” she says. “It’s the most, amazing, diverse team, using this very human-centric design methodology. I had never called it that, but I think I had tried to practice that in all the work I’d done before.” It didn’t hurt, Kim says, that the project was backed by Ideo, which “has a huge halo effect.”

Cooking Up a Consumer Service

The first thing you notice when you visit ShopWell’s office, a street-level storefront space on the same block with the Palo Alto branch of Whole Foods, is the blizzard of Post-it Notes. There are green ones and pink ones and blue ones and yellow ones; there are so many Post-its that the startup has taken to stacking them against the walls several layers deep on 4-by-8 sheets of foam core. Kim and Witlin say this is how the company brainstorms new features for the ShopWell website. It’s also how they prioritize product development tasks and plan the “scrums” and “sprints” that comprise the agile software development method, which the startup wholeheartedly embraces. (In the same way Apple gives a name like “Tiger” or “Leopard” to each iteration of its OS X operating system, ShopWell names each sprint after a nutrient; when I visited, the development team was in the midst of Linoleic Acid.)

Post-it note boards at ShopWellIf 3M hadn’t invented Post-it Notes, Ideo would have had to. “You’ll see the same type of thing in any Ideo office,” says Boyle. “They are powerful tools, because you can move them quickly and synthesize and gather themes. If you look at the design process, we will first go out and do our insight phase, and we will come back with deep, qualitative stories, and we’ll post those on Post-its and the team will share those and start to move them around and look for different stories. Things that aren’t interesting can literally fall to the floor. The design process is fluid like that.”

What ShopWell has designed so far is a beta version of a consumer-facing website, together with a mobile app released just two weeks ago that extends the service right into the supermarket. Immediately upon arrival, ShopWell site visitors are asked to customize their experience by telling the system about their gender, age, weight, and height. This helps the system figure out, among other things, whether the “percent daily value” numbers on standard Nutrition Facts labels are overestimates or underestimates for a given individual. Users can also give ShopWell specifics about what they want and don’t want in their diet (whole grains, yes; preservatives, no), and what allergies and intolerances they need to worry about.

Then there are “preselects” for common health conditions. If you say you’re working to manage your weight, for example, ShopWell’s algorithms will give a preferential score to products with lots of fiber, protein, and whole grains, and will penalize those with lots of sugar, corn syrup, refined grains, fats, cholesterol, and sodium. Behind the scenes, the algorithms parse the data on nutrition labels and ingredient lists, mix in your preferences as well as evaluations from expert dietitians, and come back with ranked lists of common consumer food products. All foods are scored on a 0-100 scale and sorted into three buckets—red, yellow, and green—based on how well they meet your preferences.

You can also browse foods and their personalized scores in more than 100 categories, from cereal to relishes to baby formula. If you find a product you like or that you’re planning to use in a meal, you can put it on a shopping list, which you can print out for reference. If you’re at a supermarket and you’ve got the ShopWell app installed on your iPhone, you can get ratings for a specific product by pointing the phone’s camera at its UPC barcode. (There are no versions of the app yet for Android phones or other platforms.)

One interesting use of the ShopWell database is as a discovery engine for people looking for safe alternatives to foods they know they shouldn’t eat. “Let’s say I have a lactose issue,” says Witlin, as he walks me through a site demo. “I love yogurt, but it’s been giving me stomach aches. When I search for yogurt, wow, look at all these zeroes—it’s telling me that all of these contain lactose. But if I sort by highest score, here’s something called Wildwood’s Probiotic Soy Yogurt. I didn’t even know that soy yogurt existed! I’ll add that to my shopping list.”

There are many, many features that haven’t yet made it into the live version of ShopWell, as a quick glance at all the Post-It Notes around the office illustrates. On Witlin’s triangle diagram of health, taste, and value (see Part 1), the company is really only tackling one corner so far—health. Kim says the company will eventually offer electronic coupons for items that users put on their shopping lists, which would begin to address the value corner of the triangle, while also bringing the company an additional revenue stream. (The coupons would essentially be pay-per-click advertisements bought by grocery chains or manufacturers, but would likely bring ShopWell far higher rates than typical display or search ads).

But now that the site is up and the company is attracting users, ShopWell “is no longer an experiment,” Kim asserts. “It was spun out as a company, and the funding is validation in itself. We recently celebrated our 1-year anniversary. We have an incredible team, and we’re getting consumer traction.”

To Witlin, the serial entrepreneur who still has Golaces on his own shoes, ShopWell feels like a bet that could pay off both personally and socially. “One of my long term goals, separate from launching a lot of things, is being part of something that’s much bigger than me,” he says. “Ideo was willing to take a leap of faith in a difficult economy, when no one was getting funded, with a side project that was unrelated to their standard consulting work, just to see what would happen. Having Ideo and New Venture Partners looking out for us, it’s like we’re set up to win.”

Coming tomorrow in Part 3: How ShopWell plans to put a price tag on consumer data, and whether shoppers will really eat what they’re putting on the table.

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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