Scaled and Failed #1 – Recompose and Halolife

Death Startups & Dead Startups

Jan 22, 2021

Welcome to the first issue of Scaled and Failed! My name’s Amil Naik and I’m an aspiring VC and founder at The University of Texas at Austin. I write about startups that scaled and startups that failed to draw insights about the patterns of startup failure and how to avoid them. Everything is clearer in hindsight, so it’s worth looking back.

If you haven’t subscribed already, do it here:

TLDR

Today’s Topic: Death Services
Scaled: Recompose; Very competitive pricing, transparency in an extremely consumer-exploitive industry, and wise choices on market segments to tackle have led to survival through the pandemic and further fundraising.
Failed: Halolife; Ingrained consumer behavior that denied product-market fit and challenges from stakeholders on both sides of the death services market led to the closure.
Lessons Learned: A solution may solve a problem, and targeted consumers may have that problem, but this doesn’t mean there is product-market fit as the solution may not work for the market you are chasing. Plan for and mitigate beyond business risks like regulatory or legislative challenges. When faced last-minute, solving the consequences of these risks may take longer than there is runway.

Today’s Topic: Death Services

Death. It’s not a topic many like to talk about, but it’s a path we all take one day. More conversations about it would save people a lot of grief and money, but it’s tough to open dialogue about it. The death industry is worth about $21B in the United States and is projected to grow to $68B in a few years. Despite the size, there isn’t much venture capital interest in innovation or disruption to it, with only $117M funding death service startups cataloged by Crunchbase. Traditional death services such as burial and cremation are quite expensive for most consumers and very environmentally unfriendly, consuming large amounts of land and generating lots of CO2. Much of the business and accompanying paperwork is also still handled in person without much tech enablement (though the pandemic has accelerated technology adoption). With an industry stuck far in the past, there’s definite room for improvement.

Unfortunately, death traditions are deeply rooted in religion, culture, and regulations, and changing those types of behaviors is no easy feat. While younger generations have embraced technology and change in all aspects of life, they aren’t exactly the biggest market segment for death services, so industry shifts will take time. Significant legislative change has to take place to allow different kinds of death services to thrive in the United States, and it isn’t really a pressing issue for most lawmakers. However, green burials, water cremation, and other types of cheaper, more eco-friendly death services are growing in popularity. While we can’t know what comes after for ourselves (though I hope it’s a bit how Gandalf describes it), plenty of great startups want to make sure family and friends are prepared. The stairway to heaven and highway to hell aren’t going anywhere, but your body has a lot more options nowadays.

Recompose is behind one of the more creative solutions for commemoration; the startup composts human remains into soil that is returned to the families or used in a nonprofit land trust forest in southern Washington. Their philosophy revolves around a positive ecological impact and life after death by returning to the Earth. They recently closed several million dollars in funding from mission-aligned investors and were able to open up shop near Seattle as Washington became the first state to legalize human composting. Similar laws in California and Colorado have been delayed due to the Covid-19 pandemic and related budget issues, but have strong support behind them and are likely to pass in the future. While the pandemic jeopardized the company’s future for some time, they managed to pull through. Halolife, founded in 2015, was meant to decrease friction and increase options with existing death services rather than change the industry as a whole, serving as an online platform for planning and purchasing death services. Though admitted to Y Combinator and 500 Startups, ingrained stakeholder behavior that was unlikely to shift in the near-term left Halolife unable to find product-market fit, leading to its close near the end of 2016. Incremental innovation is often easier to sell than large disruption, but that wasn’t the case with these two startups.

Scale: Recompose

Recompose has been the result of seven years of work so far, kicking off with founder Katrina Spade’s thesis proposing a space for the decomposition of human remains in an urban environment during her Master of Architecture program at the University of Massachusetts Amherst. From there, she worked on developing the idea in her spare time and became a part of the Echoing Green Fellowship in 2014 to work on it full-time. Later that year, Spade founded the nonprofit Urban Death Project to develop the initial composting system. Some years and a few research studies, crowdfunding, TED Talks, and design changes later, the Urban Death Project was closed, and Recompose was founded in the fall of 2017. The company raised a seed round the same year and performed further research the next as well as pursuing legalization in Washington once the method of decomposition was getting closer to consumer viability. Legalization was successful in Washington in 2019, making it the first state to allow Natural Organic Reduction. From there, the end of 2019 was spent preparing for launch in 2020, though the pandemic caused some trouble. The initially planned location for the Recompose center in Seattle had to be ditched, but the company was able to find another, smaller location. Recompose completed a sizeable raise in the summer of 2020, launched a pre-need service (pre-fund the costs of Recompose), and began accepting bodies in December 2020.

The thought of composting one’s own body into soil for loved ones doesn’t cross many people’s minds, but the barriers to adoption are primarily rooted in culture and norms rather than any issue with the process or costs. At $5,500, Recompose’s service is cheaper than most traditional death services like burial and cremation. In an industry notorious for preying on grieving individuals and a lack of price transparency, the up-front pricing and full explanation of the process online is a welcome change. In most states, unfortunately, those two options are the only ones since laws have not caught up with the times, but that can be overcome as evidenced by the success in Washington for Recompose and in other states with other interesting death service startups.

People’s aversion to nontraditional death services is rooted in religious traditions demanding burial and the fear of death as a part of our reality. America has a consumerist culture focused on looking and feeling young. Aging is inevitable and refusing to acknowledge it is really unhealthy for our society as a whole as it has created an environment where these traditional services have thrived off of the lack of competition and manipulation of the bereaved. People hate talking about death, so they don’t ask questions about whether all the bells and whistles are really necessary, whether embalming to preserve the living look of bodies is required, and whether grandma would be angry if they don’t shell for the nicest casket. We try to preserve and maintain the look of life because we don’t want to accept the inevitable change of death.

Fortunately, this attitude is slowly changing. Cremation has overtaken burial’s popularity already, and more and more conversations are happening about death before it takes place. When people think rationally about it, a lot of the chains of the current industry disappear. Younger generations that are used to technology and don’t hold strong beliefs about what should happen to the body after death will foster a much healthier death services industry when they begin reaching the end of their life expectancies. This secures the long-term future of more green alternatives to traditional burial and cremation. In the short-term, there are already concentrations of people more open to things like Recompose. It’s no accident the company got its start in Washington and is pushing for California and Colorado next. It seems far more likely that less religious, more progressive people would be interested in things that flout funerary traditions. There’s a large market to tackle already, and it will only grow. While Recompose still has a ways to go to become a very successful startup and still has a lot to prove, the company has tackled some big hurdles.

Along with these landscape factors making Recompose viable, Spade’s unwavering dedication has been instrumental in success thus far. She has spent many long years partnering with academics to develop the company’s process, as well as getting it on the docket for the legislature. She is deeply committed to the mission of changing how we view death, not just creating an alternative method of body disposal. The opportunity wasn’t just there ripe for the taking; she developed it through years of determination and hard work.

Fail: Halolife

Halolife was founded by Jake Beyer after his experience dealing with the loss of his grandparents and the difficulty in dealing with the death services industry. He wrote a detailed post-mortem of his own startup that I’ll cover some of the main points from; kudos to him for diving into what went wrong so that others could learn.

After identifying the pain points in death services being the lack of price transparency and comparability between options and a lack of tech enablement dragging down the process and making it more guided, Beyer spent a lot of time conducting extensive first-hand research with stakeholders in the industry, including the pre-need planners, families of the deceased, hospice workers, nursing home staff and residents, funeral home workers, pre-need funeral insurance companies, and estate lawyers. He built out the MVP after spending months with these groups, bootstrapping for the initial costs before he was admitted to Y Combinator and 500 Startups and got some seed funding. With funding and a working product, Beyer’s next focus was establishing a solid customer acquisition strategy to show traction and bring in further funding.

Unfortunately, neither the acquisition channels he utilized nor the fundraising attempts were successful, so he attempted to pivot Halolife into a better market. Previously, he had used data scraping to compile a marketplace of death and funeral services and run pilots with several hospices to use Halolife’s system with the families of the deceased. Problems arose on both sides of the market; funeral homes wouldn’t pay a referral fee via the marketplace, and the hospices would not utilize Halolife it wasn’t a true marketplace showing all options available. A platform with a curated group of service providers would be easier to monetize, but hospices would refuse to utilize it. Additionally, there were a lot of utilization issues with the social workers and families of the deceased, who tended to be older individuals not used to technology in the process. The social workers would bring an iPad onsite to pilot Halolife, but it seemed to create more problems than it was meant to solve for the users. For that reason, Beyer chose to pivot into a platform and attempted to tackle the pre-need market via lead generation at retirement homes and using online educational content about death planning. However, he still ran into the same issue of the primary market demographic being older and technology-savvy. Snail-mail lead generation dominated the pre-need market and customers often preferred to do their business in person or over the phone. With no further funding available, Halolife closed down in 2016.

While it’s clear there are problems with the process in the death services industry, problems are easier to identify than solve. Although the research Beyer did found the pain points he had experienced were common to many, the solution he built was not a solution the bulk of the market could utilize. Halolife may have made the process easier for younger generations, but it wasn’t younger generations that would be using Halolife. The problem fit the market, and the product fit the problem, but the product did not fit the market. With the referral business model and product used, Halolife was meant to have a broader reach than some of the more interesting death service startups, but it couldn’t gain any ground with its core target groups. As referrals bring in a lot less revenue than selling the services, business needs to boom to keep a company going. Thus, the inability to generate broad appeal was a death sentence. As Beyer said himself in reference to the lack of technological proficiency and interest of the target market:

You can’t bet a venture-backed business on changing consumer behavior that drastically.

Lessons Learned

Halolife and Recompose both have some hard-to-swallow lessons that many aspiring entrepreneurs don’t like to hear. Perhaps the hardest to accept is that no matter how amazing a solution is for addressing a problem, if customers won’t use it or pay for it, the solution can’t be a successful startup until something changes. You can lead a horse to water and give them a cell phone to call their grandkids, but you can’t make it drink or dial a call (though it will still complain of thirst and about how the grandkids never visit or talk to them). In Halolife’s case, that was deeply entrenched consumer behavior in their target demographic. If Halolife had appeared in 20-30 years with Generation X preparing for the grave, things may have turned out very differently with a solid product-market fit. Unless there’s an immense, tangible value-add, changing consumer behavior is difficult. Death services are something that people hopefully won’t utilize very often. Even though they are overpriced and create a lot of stress, people are unlikely to invest the time to learn how to use technology well just to plan a funeral. Even with a great idea and a good solution, it may just not be the right time to tackle a problem. This happens many times with companies that are “ahead of their time” when technology just isn’t physically capable of delivering the envisioned product or when a market isn’t ready for disruption yet. Research your target users to see not only if they have the problem but to see if the MVP you have in mind will work. Keep it lean on development until you have an idea of the solution to chase.

Another difficult lesson hinges on looking beyond the business in terms of work to be done. Recompose worked hard to get the entire basis for the company legalized for the first time, and that’s a lot of time that wasn’t spent on the product or the company. I doubt many people building startups enjoy political lobbying, but it’s not a practice reserved just for big companies looking to shut out competition or create artificial barriers. In Recompose’s case, many barriers and red tape in death services were set up by the lobby from traditional providers in the first place, but it’s possible to tear down the walls with a bit of political activism. Many great opportunities for startups could be held down by regulations that might not have a good basis for existing, but they’re laws nonetheless. There’s no guarantee that trying to get these laws repealed will work, and in some cases, it could involve lengthy lawsuits and fights that will outlast runway. Recompose took this into account from the start for their business plan after watching a debacle involving liquid cremation in Ohio play out. In some spaces, there may be no precedent and you could just be betting on the wording of a law being interpreted in your favor rather than against. If you know the risk exists, plan for and mitigate it even if it isn’t beneficial in the short-term. While it may turn out to not be a problem, years of work could disappear in an instant if you aren’t proactive and prepared to tackle legislative challenges. Don’t bet on good luck.

Scaled and Failed