Fall of CAKE – My personal thoughts on Why ?

Two months after CAKE bankruptcy, I am closing my series of LinkedIn posts around this organisation by sharing with you my humble postmortem view on the reasons why it fell…

Disclaimer #1: The intention of this article is not to blame anyone, especially the amazing team that worked very hard on this project over the years. This is just my own reflection on the context and what could have been done differently based on my experience in launching the French CAKE operations (first subsidiary to be launched outside of Stockholm HQ) and thenafter leading European operations and deployment (70% of global volume). Anger and frustration are now gone so I can write peacefully on what happened. Kudos to Mats Forsberg our former CCO and my partner in crime for the past 2 years, holding the true vision of the changes that we should have operated…

Disclaimer #2: I am also the founder of the Classic Riders, a unique global motorcycle community founded in NYC with 10k members in 50 cities in the world with the mission to gather same minded people around a common passion: Motorcycling. Having one foot in the thermic world and one in sustainable mobility allows me to understand how the 2 wheels industry as a whole is evolving. Also, my past professional experience in large corporations holding positions in the finance area (audit, restructuring, FP&A, M&A and CFO) but also years in startups (Sales, Marketing, Operations) gives me confidence (and credibility I guess) in writing the below reflection…

Internal Roadblocks analysis will be split between:

1. EXECUTIVE SUMMARY

If you don’t feel going through the full article, below is a summary of the key takeaways. Root causes of CAKE fall should be seen from 2 angles, the External and Internal views

From an External standpoint, the world’s macro economic situation in the past 5 years, accelerated by post COVID effects, showed increasing tensions and finally signs of a recession, setting unstable ground for CAKE to expand: high interest rates, high inflation, complex supply chain and logistic environment together with decreasing appetite of venture capital market. The liquidity market was dry and CAKE had to survive with financial bridges that our historical investors were willing to grant us to ensure business operations continuity

In the last months, CAKE was looking for any potential buyer to take over the company without success. This led to its fall

From an Internal standpoint the company faced a number of issues

1. No Clear Focus on Customers Needs

Qualification issues of product market fit across product range
Weak understanding of how products are operating in the marketplace
No development of relevant post purchase revenue streams
CAKE not customer centric enough. Purpose and Design was the priority

2. No Clear Sales & Marketing Strategy

Unclear communication of our value proposition per platform
Issues in improving qualified leads to the sales funnel
No company and product awareness outside of home market (Sweden)
Weak activation of wholesale and export partners true potential

3. Inefficient Internal Operations

Managing orders to delivery processes manually avoiding scaling
Weak automation of both internal and customer facing processes
Issues in managing and improving quality of our products and services
A true lack of maturity in CAKE being data driven

4. No Mature Proposition for Service and Maintenance

Unable to provide cost effective service for our existing D2C fleet
Issues in creating and scaling our wholesale partner offering
Issues in providing service based post purchase revenue streams

Distribution model changed in 2023: moving from a single channel model (D2C) to a omni channel one: D2C (B2B+B2C), Wholesales, Distribution and Licensing

2023 showed that CAKE was stuck in its way to operate. No scalability was possible until we fixed our own basic processes: Get the basics right

Below is the action plan created by Mats Forsberg, Steinar Danielsen and me that was supposed to be implement a few weeks before bankruptcy

2. BACKGROUND

Cake has been founded in 2016 by Stefan Ytterborn, design guru (ex IKEA, founder of POC) with a true vision and purpose for simplistic sustainable mobility with the mission to inspire people and corporations, contributing to accelerate the journey towards a zero emission society, combining excitement with responsibility. Simplistic nordic design is the key of everything

The launch of CAKE in 2016 (pre COVID) coincided with an increase of the EV bicycle/moped/moto interest and first substantial sales in EU/US together with an exponential number of new startups working on cool prototypes and pre-series, even from historical OEMs.

This trend was accelerated by strong tailwinds like congestion increase in cities (estimated 60% of global population will live in urban areas by 2030), 150+ cities worldwide announcing emission/diesel bans, 50% tighter emission targets for the EU by 2030 etc…

*Source: Internal CAKE Presentation document*

CAKE products consisted in 5 product platforms: Bukk, Kalk, Ösa, Makka, Åik, with a range from e-bikes and mopeds to motorcycles, purposed for different needs: commuting, exploring, free-riding, racing and delivering. CAKE brand positioning was premium with focus on Quality, Performance, Innovation and Vision

CAKE was a Startup financing its growth and development by raising funds with private investors (venture capital). Last funding was $60mio as B Series in 2021. From early 2022, the company was looking to raise a C round of $150m (without success). To date, CAKE raised (and spent) $75m over the period and sold around 6.000 units globally

After an aggressive geographical expansion in 2022 with the establishment of sites in Europe and the US to support our D2C (Direct to User) growth strategy, an Omni-channel strategy was established during 2023 (focusing on developing Wholesales)

With the lack of funding and low sales volumes, CAKE engaged in Jan 2023 a global sales re-organization and re-sizing with -30% headcount reduction (focusing on sales team only) with the effect to close down UK, Spain and Germany newly created entities

In June 2023, CAKE continued the re-sizing with a global company re-organisation this time, impacting the whole company with -20% global headcount reduction

Our original sales target communicated to our investors for 2023 decreased from 9k to 6k units. Our latest re-forecast continue melting to 4k and 2,5k. Final sales outcome 2023 was 1 700 units globally

Few months before bankruptcy, a global CFT (cross functional team) program has been launched addressing the key 6 issues the company faced (but it was too late):

3. EXTERNAL ROADBLOCKS

COVID marked a turnaround in the global macro economic environment. While the raise of new and lighter mobility was obvious (electric bicycles and micro-mobility in general) during the pandemic, post COVID brought a wave of economic changes plunging the world into a crisis:

Interest rates raising from negative values to unseen rocket rates

Same applies for Inflation (aka price increase) – US had similar trends

Global supply chain cost jumping to the roof: supplying parts (chips, cells, raw material costs etc..) became outrageously expensive with an automotive industry taking a large monopoly on available supply purchase

Global Logistic turned complex and a luxury from a cost perspective when your manufactured goods need to be moved around the world

COVID dried out Venture Capital markets appetite to invest, especially in hardware. The volume and value of deals wildly decreased from Q3 2022. SVB (bank) collapse in March 2023 did not help for sure

CONCLUSION: Negative macro economic environnement did not help CAKE to raise fresh cash to continue its growth and despite a micro-mobility industry boom, competition became strong and agressive

4. INTERNAL ROADBLOCKS

Strong marketing, product and go-to-market strategy together with operational excellence are the keys to success for any company willing to grow and be successful. I am looking at an organisation through its P/L. Below is a summary of the main areas that need to be controlled:

Talking about CAKE specifically, with no specific order:

A. COGS (Cost of Good Sold aka manufacturing costs)

At CAKE, each vehicle has been built with specific custom parts, engineered to fit the design. This has the following effects:

Supplier dependency and lack of room to negotiate prices
Long logistic lead times with potential shortages blocking production
High costs until proper volume kicks in
Low Gross Margins to absorb additional commercial actions

Also, the selection of specific parts within the BOM (Bill of Material) could have been challenged. One can argue that having expensive Öhlins suspensions on a 125cc equivalent is not a game changer from a performance point of view (Kalk was not an enduro bike) but you see the effect of it on the BOM

B. Manufacturing

You don’t invent yourself a motorcycle manufacturer especially if you target exponential sales and growth. Below the risks:

High manufacturing costs due to full manual process
Potential quality issues in manufacturing
Challenge of scaling a manufacturing line to fit sales needs
Lack of overall expertise in manufacturing optimisation

Once could think of outsourcing manufacturing operations once you reach a specific volume. This option should have been implemented

In addition at CAKE, Design drove Engineering leading to technical incoherences in the vehicle built. The right balance between design and parts selection / optimal manufacturing process in a cost effective manner should be found

C. Product Complexity

CAKE products were split into 5 platforms with many variants leading to a huge number of SKU’s (multiplicator effect, more than 100! ). Not counting 3 kids bikes. As examples:

Makka had 3 frame colors (Polestar special edition, grey and white), 2 engine powers (25km/h and 50cc), 2 versions (Classic for B2C and :work series for B2B), US and EU homologated products etc…

Osa had 2 frame colors (grey and white), 3 engine powers (25km/h, 50cc and 125cc), 3 versions (Classic for B2C, :work series for B2B and Anti-poaching), 2 homologated products (US and EU markets) etc…

Kalk had 8 versions – 3 homologated versions (:work for B2B, & and Ink &) plus 5 non homologated (Anti Poaching, Ink, Ink Race, OR and OR Race) etc…

Product complexity has following effects:

Additional workload for the team to handle back office administration and operations. CAKE headcount was very small
Confusing customers with too many products while they are approaching the electric world in cat walks. As a fact customers should first be evangelised on electric before deep diving into the products. This double complexity does not help
Increase manufacturing complexity, more suppliers and BOM cost increase

D. Product Pricing

CAKE was a premium brand. Product prices have been set at the launch 3 years ago. In the meantime, agressive new competition in the field of moped / motorcycle made CAKE products even more expensive. Quality issues, lack of service and no clear use case for some products to be added. Key thoughts here:

High prices allowed the organisation to absorb high COGS and have decent gross margins but you loose in competitiveness on the market so you sell less
High prices (premium) comes with customer expectations. If you can’t deliver on these premium expectations, you loose credibility and bottom line, sales

CAKE had an inconsistent pricing strategy:

Using significant discounts to sell bikes with no discount strategy
Premium approach put at risk with all year discounts
No standardised approach in price at product level (within the range, gap between Makka and Osa way to big)
Lack of reliability on pricing data source (website / Salesforce / Business Central / Pricing list) because of manual processes and non integrated IT tools
High weight of accessories on the global selling price
Prices in our systems including VAT making pricing offers to our Wholesalers/partners complex to build

A few month before bankruptcy, a deep analysis on products have been made to better understand prices and action plans:

E. Marketing

CAKE had issues finding a clear focus on customers needs. Our products were great but unclear where they stood in the market and for what usage ? You can love the design of a product but when it comes to buy it and use it in real life, there is a gap

CAKE was not customer centric enough. No customer insights was gathered, just pushing existing products to the market hoping that they will sell by themselves using the brand ora and coolness that has been created around the products

Because, CAKE as a whole, was a Marketing organisation, we managed to create a full and comprehensive universe around our products through outstanding content and brand identity, recognisable by anyone. And this is unique !

However, with the complexity of the audience driven by so many Products (B2B, Off Road, Commuter, Kids, Last mile delivery etc…) and Personas, Marketing content kept focusing on showcasing wheelies where more specific local content should have been created, addressing true customers and market fit. Inventing a market is difficult

CAKE Marketing department was more of a PR and Content Agency rather than a true Sales Marketing support to the Sales team. We had no CMO actually. No marketing campaigns existed, each month was a new bid on what could work. The goal obviously was to create enough leads so that the sales team could convert to sales.

The ownership of lead generation was left to the accountability of Sales department, having Marketing only focusing on content creation. This can hardly work…

Only few months before bankruptcy, Performance Marketing was implemented (Paid advertising, SEO, Meta Campaigns etc) to drive leads. Only tiny budgets were allocated to this while our appetite for sales growth (requesting 50* more leads) was huge. The company did not understood the importance of performance marketing usage, or only too late. The concept of CAC and LTV was unknown to the organisation sadly

In the same vibes, we automated our sequence emailing with Salesforce so that we could maximise opportunities, again, too late

Customer Journey is also key in any organisation. You need to ensure the proper support to your customers throughout the full funnel, prior to the purchase and even more after (post purchase). Issues post purchase is the only thing your customer will sadly…

F. Distribution

CAKE started as a uni-canal business, selling online (web) solely. Realising that only a few people could pull a credit card and pay $14k online to purchase an electric bike, also realising that people needed to see, touch and ride our products, the decision has been taken to open subsidiaries outside of Stockholm (process called )

After a while, it became clear that both Online + Brick and Mortar was not enough to drive exponential sales and therefore new growth should be supported by External Partners. The following distribution model has been defined in 2023:

D2C (Direct to consumer): B2B and B2C via online sales, inbound/outbound leads, events and site activations. This was the original approach from 2022 (prior 2022 was only online managed by HQ in Stockholm)
WS (Wholesales): Developing a network of dealers in each country. This started mid 2023 but never had time to finalise it
Distribution: Large deals with partners (Japan, South Korea, Israel, India, Thailand etc…). Distributors were accountable in developing themselves CAKE network in their area. This was live but the value proposition to distributors should have been reworked (partner support, service, pricing etc)
Licensing: New approach to overpass lack of funding and pivot to a new business model where a Chinese partner would have manufacture our Makka for local sales in China. The advantage is that no money needs to be invested (100% Gross Margin) and CAKE would have received royalties from the volumes sold. This was never launched

The key watch point moving from an online business to a distribution model is to ensure you have enough gross margin embedded in you selling price to absorb the 15% to 20% (if not higher) discount level partners are expecting to take on your brand onboard. In short, watch your COGS ! We did not, and this slowed down the expansion…

G. Service and Maintenance

Service and Maintenance value proposition was not existing or weak.

During the last months of CAKE life, the development of our Wholesales network was essential as dealers would have also take the role of Service Partners. A few have been signed through Europe but not enough

In regards with our value proposition, key documentation and process were not defined/implemented. This covered workshop manuals, training material, tooling, software update, marketing tools, spare parts / accessories interface, service booking system, warranty policy and routine, recall routine, service plans and books. Also, Service as an additional revenue stream was not so much taken seriously

Service and Maintenance was clearly not sexy/fun and for a marketing company, less interests in developing these aspects while this should have been the backbone of our company

*Action plan roadmap from Andreas Aronsson for CFT#6 Service & Maintenance*

H. Internal Process

Most of our processes at CAKE were manual and based on non integrated systems. We used Salesforce as CRM and sales funnel management tool, an expensive system oversized for the volume of business we had and Business Central (Microsoft) was used for the invoicing, inventory and operational transactions

The complexity created by a high number of SKU’s and non integrated systems created workloads and bottlenecks all around the frugal organisation we had. The process relied on different stakeholders (4): Sales, Sales Operations, Finance and Manufacturing not always talking each other (dramatically improved a few months ago though)

The key process from Lead to Delivery was a painful flow not allowing any scalability if the business was to increase exponentially

I. Go to Market

With the B round raised ($60mio) CAKE engaged in the expansion of its physical presence. First with Paris (my mission when I joined) to then the UK, Germany, Spain, Italy with the opening of short term boutiques in City centers. In parallel, a Flagship store in Los Angeles has been launched with shortly after a small boutique in New York City. Amsterdam and others would have been next.

It was obvious that very few market analysis was done to ensure the market/location fit was suited for CAKE deployment while in parallel, a lot of money was invested to build these locations to CAKE brand standard. To me, launching the US in parallel was too optimistic (especially from a cost perspective). This market is a beast by its own and thinking to develop a brand without analysis and even validating the product/market fit in its home region (Europe) was dangerous

When I took over the European operations in January 2023, I have been asked along with a small team of key employees to re-think our Sales organisation. The outcome of this re-organisation was the creation of regions: US – Europe and Rest of World, to ensure the right focus in terms of ressources and avoid dilution of efforts. Along with regions, a transversal team has been created to cover global strategies of different sales streams and processes

After setting the new structure, my role was first to close down a majority of these presences as the ROI was clearly negative and keeping the key markets in Europe. This, with the cash distress we had, was the first sign of a tough period to come

On the topic accountability, none of the Market GM were P/L owners. Weeks before the unexpected bankruptcy, specific country based P/L (revenues to EBITDA) were set as part of our Budget 2024 to ensure country leaders could have the freedom to steer their market but also be accountable for the success and failures

Finally, ensure you have the right set of Targets and KPI’s (Corporate, Regional, Local and individual level) to steer your business in the right direction and react when needed. Teams need to know what management expect from them. Their performance needs to be measured and assessed towards clear metrics. Below the set of Targets and KPI’s for Europe only that I’ve defined along the journey but difficult to implement in the environment we were in:

It was obvious that the company was not ready to scale. You can’t expand if your own processes at HQ are not set, formalised and proven in working order. 2023 showed that CAKE was stuck in its way to operate. No scalability was possible until we fixed our own basic processes: Get the basics right

Take aways:

Ensure you have strong processes internally at HQ to support geographical expansion
Define clearly your go to market strategy
Set clear accountabilities to your local teams: give targets, measure, fail, redo, succeed…

J. Ad-hoc comments

A few other comments on top of the above that are more subjective but to my sense so important

Avoid mixing family and business. This leads to internal tensions that can be catastrophic within an organisation
Every company should be data centric. Without data intelligence you are blind and can’t make any proper assessment
In line with the lack of data intelligence, CAKE had no culture of performance management in place. Metrics (if existing) were not shared internally to at least second line of management and staff, no Company targets (at volume, revenues, profit, both regionally and country wise) shared, no Individual targets within the organisation defined, no clear business KPI’s in place. There was no internal reporting in place. I had to implement a full and detailed Budget and re-forecast process at volume and revenue level as well as generating Sales reports for the organisation. Performance measurement was not existent making hard for the organisation to have visibility. As a result, employees (Sales) had no clue where to go, they were only asked to sell. No one was ever challenged. Unreal culture in a wonderland.
In every company you have the Founder view of what a product should look like but at the end, there is Market reality. Listen to your teams, get customer insights, accept comments, critics, different views. Acknowledge them and integrate it to ensure full alignement
Management and Leadership was clearly lacking at CAKE. This is key in any organisation
Communication in any company is key. From top to bottom, bottom to top and in a transversal way. CAKE inventory of vehicles in December 2023 was enormous. Miss-communication between the target of selling 9 000 units in 2023 vs an actual sales of 1 700 vehicles led production to manufacture way too many vehicles versus what the market and our sales were really. By mid of June 2023 thousands of vehicles were produced and sitting in inventory while we only sold 800 by that time for the year. A better internal communication and realistic view on CAKE sales capabilities to deliver would have avoided this situation. This inventory cash would have give us a few months more of life
CAKE launched a recall on Kalk batteries a few weeks before bankruptcy. US Osa models were also impacted by a recall plan. Not fun…

5. CAKE LEGACY:

Overall, despite the above, I strongly believe that CAKE brought a lot to the industry over the years. With no specific order I would name:

CAKE managed, in a few years and with $75mio to come up with 5 platforms and a true story around the company. Ask any major EOM in the motorcycle industry, they will tell you that this would have taken them much more time and maybe 5 times more cash to build what CAKE did
CAKE managed to create a strong and recognisable brand image around the company and its product. Such a DNA is rarely to be found in any industry
CAKE is the world´s most awarded electric motorcycle brand
CAKE developed 5 modular B2B and B2C platforms
CAKE has 6k rolling fleet in the world
CAKE developed a global presence with sales, assembly and manufacturing on 3 continents
CAKE developed and built from scratch, securing revenues during entire product life length
CAKE had new licensing and distribution partnerships enabling asset light growth going forward
CAKE minimised environmental footprint and TCO by extending product life cycles
CAKE generated $9m revenues 2023
CAKE inspired people with a unique and disruptive design

As a final word, I want to present my deepest thoughts to customers, left alone in the dark with no visibility on how to service their bikes, purchase accessories etc… Hoping that the new owner will be on top of all these aspects.