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A CPG Entrepreneur's Guide to Growth

Feb. 10, 2021
Learn how Dr. James Richardson, a cultural anthropologist turned CPG expert, has helped CPG entrepreneurs achieve profitable and sustained growth.

In today's episode, our host talks to Dr. James Richardson. Richardson is a Ph.D, a cultural anthropologist, and the author of Ramping Your Brand. Through his company Premium Growth Solutions, he helps CPG entrepreneurs create strategic plans to achieve exponential growth. In this episode, we talk about why entrepreneurs want to grow fast and set unrealistic forecasts as well as the mistakes that CPG entrepreneurs repeatedly make. 

Transcript

Erin: Hello, James, welcome to the Food For Thought podcast. How are you doing today?

James: I'm doing great, Erin. Thanks for having me.

Erin: Let's start off filling the audience in with who you are and what your background is.

James: Sure. I'm a cultural anthropologist by training. And I left academia over 20 years ago to get originally into the work of market research. And I joined a company out near Seattle that specialized in natural organic food. So, it was an interesting segue. I think I talked about it on another podcast in the following way, which I think it was willing, appreciate, which is, you know, anthropologists are notorious, especially American anthropologists are notorious for, sort of, studying weird, deviant, marginal, sort of socio-cultural groups around the world or inside the United States. We're attracted to weird stuff. And that is, sort of, how my mind thinks.

When I left academia, I was intrigued by the natural organic food movement, which I wasn't a participant in, evidently. It seemed weird to me, so that was automatically interesting. I liked the idea of a company that would just be focused on something that bizarre. It tickled my mind. So, that's my professional sort of training per se.

The rest of my background is in the world of market research and strategic planning for large and mid-size, sort of mid-market CPG brands, as well as personal care and beauty brands. You know, the work I used to do before I went out on my own was more about the application of emerging industrial trends, consumer trends onto these businesses. But right now, I work mainly with early-stage companies.

Erin: In your book, Ramping Your Brand, you talk about why a number of CPG entrepreneurs want to grow fast and set unrealistic forecasts, which turn out to be counterproductive. Can you explain that a little further?

James: Yes, I often meet... I continue to meet them, folks who seem to believe that with enough forethought in today's market, you can declare a product done, get it out into thousands of doors, maybe 1,000 or 2,000, as fast as possible, and then raise some money, and then hit the gas anymore. And that your journey to 10 million is gonna be relatively quick or even meet people who think their journey to 100 million is gonna be relatively quick.
Usually what's going on is that they spent a couple of years already making no money, developing a thing. And it's often the no money that they have, like their own money they've spending. And this induces a massive amount of impatience in a lot of people. And so then they want to get big, they wanna get seven-figure, eight-figure really, really fast.

The problem with that is that this is usually the folks who are absolutely new to consumer packaged goods and they don't understand how oversupplied the market is at the shelf. And they don't understand how competitive it is, during this journey towards 100 million bucks or even 50 million, and have an oversimplified view of how fast they're gonna grow. Some of these folks that have their mind poisoned by investors who don't know what they're doing, as well to be honest with you. Because they will then find someone who they think they can control that entrepreneur and then they will fund them too much, and tell them to hit the gas.

Then the entrepreneur is actually being led by someone who actually doesn't know what they're doing. That's actually more common than you might imagine. And that has to do with the oversupply of capital. There's two forces misguided on investors to venture capitalists as well as just naive entrepreneurs who are rightfully, I think, getting a little impatient at the end of their product development cycle, that initial product development phase, they're like, "I wanna get out and make money."

But as I say in the book, I would challenge most innovation teams and big companies that listen to this as well. I’ve worked with many who have tried and failed to sell in a test and learn, testing market, iterating market model to their senior management, they won't do it. But the data is very clear that that's the absolute best way to innovate, especially on the higher end of the market, where every nuance matters.

You cannot market research your way in advance and then solve the problem. There's just no way. I used to do that work for years, it doesn't work.

It really didn't work for premium fields. Folks need to throttle their growth so that they can iterate in the market, at very, very small scale, scale with very little capital expense. And then when they find out that, you know, the flavors are wrong or something else is wrong, they have time in the luxury of small scale to change what they do. And once they've adapted it in the marketplace with real consumers and not these weirdos who take 25 minutes surveys, market research companies, in which they imagine what it would be like to have your thing in a two-dimensional linguistic description. But real people actually putting it in their mouth, that's when the magic happens. That's when you actually are able to learn. "Oh, okay, this is what we need to do." So I'm very passionate about iterating in the market. And I mean, I can't share publicly, but this is a very long rolling list of folks who try to hit the gas, they have a flawed product, and it blows up. It continues to happen. So, that was one of my big inspirations in writing the book was slow down, folks. Slow down.

Erin: How can these entrepreneurs set a reasonable fast growth rate while competing with a bigger, more well-funded companies?

James: So, I recognize that, as I said earlier, it's an oversupplied market. It's oversupplied with venture capital as well. Even with a pandemic, it's still oversupplied. So there's a lot of forces of potential growth. There's a lot of fuel out there.

There’s an environment in which you do wanna move relatively fast. Once you've finalized your thing and you've figured out your playbook, you do wanna hit the gas a lot earlier than you would have 10 or 15 years ago, Erin, for sure. But when I talk about the growth rate that's optimal, it's between 75% and 200%, year over year. Now, for some people, that seems like crazy, like, I've never grown that fast. But the people that I wrote the book for, the folks who are actually tempted to try to basically launch a rocket. What I like about them is their ambition. But what we need to do is pull that back in a little bit, so that you can get to say a quarter million or a half a million in annual sales as fast as possible. But then constrain your growth on a year by year basis to that, you know, 75% to 200%.

And I like to people just to think about doubling your business every year from that point onwards. And what that does is it buys you a couple of years there and where you can iterate and you’re not overnight becoming a $10 million business because once you do that, you are gonna have far fewer ability or far less ability to retool your business. Or if you do, it is going to be an excruciating and stressful and painful thing to go through. When it's your business and even when you have investors involved because if they gave you money at $5 million and you say at $10 million, you wanna redo your brand identity and then you want to switch to your category, they're gonna run. So get to that half a million or so as fast as you can then throttle your growth race in that range I talked about, iterate complete, know why your consumers are buying the product. Make your final tweaks before you start raising money and hitting the gas. And so, it usually ends up being a couple of years, which is the difference.

And that's where you have to have patience. You gotta realize a lot of these people, they spend a year or two screwing around with product development in a somewhat amateurish manner with co-manufacturers, right, who are professionals, but they're not really putting a lot of thought into what they do as an entrepreneur, because they have too many large private label runs, they have to get perfect for Kroger. They don't spend a lot of time with my clients.

So you got a semi-finished idea out in the market, the entrepreneurs have been waiting to sell, they're impatient, if it takes them a first year to get to half a million, that's actually a really good year, by the way. When you do random sample analysis of startups, that's actually a fantastic first year. But very unlikely, by the way. Much more likely you're gonna get a couple 100,000. In your local market on the next year, you can double and then double and then double. But if you do the math, I mean, that is a much more gradated exponential growth curve with a lead into the ramp. Then you get coming out of people's mouths at trade show conversations where they get very excited about the future and the potential, they start thinking 10 million in two years. And all I can say is getting to 10 million in two years, you're more likely to wind up with... Honestly, the data is very clear from the research I've done, you're more likely to wind up with a failed line extension from a big company than a growing business that's healthy. Because when you grow that fast and you don't have a marketing budget, you can't build awareness then you're just shipping product and it says so there. And this has happened many times. It continues to happen. So, that's the magic target rate, 75% to 200%.

Erin: Other than what you've talked about so far, what are some of the mistakes that you see food founders, entrepreneurs repeatedly making?

James: It's interesting, I work primarily in the natural organic end because that's where 95% of the actual innovation is, in terms of the number of brands being formed. I think those who are working and listening in bigger corporations may not be aware of that. But that's where actually most of the launching is happening, is in this premium end. The one I've already talked about is over-distributing too quickly.

Another mistake that I see is taking on too much money too early from investors. And all I can say is that I've circulated in the investment environment long enough now to tell you, and some of them have endorsed my book, although maybe a few regret it. With investors, the farther down the revenue curve to toward the zero revenue that they come clamoring to you to invest, the more suspicious you should be. The most seasoned, very smart value investors don't invest in anybody under $10 million. They just don't, especially in food.

Food brands are particularly tough to scale. And I think a lot of that has to do with just the cultural, behavioral, and nurture that humans have with food choices, it's much different than beverages and much different than personal care and household cleaners. Right? So, it's very hard to get people to switch out a brand for anything. You know, it's much harder.

Another mistake that founders make is they underestimate what they need to store to build memorability and build enthusiasm, and to drive trial. And be honest, it often gets dismissed as, "Oh, not necessary, because you're too small for that. You don't have the money for that." And the people who usually tell my clients that are usually brokers and sales consultants who, again, don't know quite exactly what they're doing. But the reality is in the market that will be supplied. Like I said, before, you’ve got to work even harder, basically, from day one, figuring out how am I going to with my limited cash, get the word out, at least in my original market so that people become aware that I even exist, right? How am I going to do this without paid advertising? And there are hundreds of tactics I talk about in the book that allow you to go do this and they don't cost hundreds of thousands of dollars a month.

But here's the thing, you should be probably going, "Well, if they're so cheap, James, why aren't they all being executed?" Like, you know what? They take time. They take time and they take charismatic leadership to suck time out of employees and part-time workers. In other words, there's a leadership burden early on. If you want to grow exponentially, from very early on, you've gotta be working at a store and you can't be using the expensive normative techniques that Pepsi and Coca-Cola would use with a product launch. You can't afford them.

What you can afford are time-intensive things like field marketing, event marketing. And honestly, with a lot of founders I meet, they're so exhausted from ops, and sell-in, and everything else that they're out. They're like I'm out, "Nope, I'm out. I'm done. I need to sleep." And, you know, that's a personal decision that I would never judge anyone for making. But if you run your company that way, in the first couple of million, I'm willing to bet $1,000 cash you'll never read the graph. And maybe you don't need to. Maybe you'll grow geometrically at 20% of that is private business, you'll be fine. I know people who run $5 million businesses that didn't grow and they're happy because they're stable. Right? I mean, that's a whole year.

I think if you really wanna grow and scale your business and have that big impact with your innovation, you have to be doing basically a holistic 4P playbook right from the beginning. And that is what is very rare. I see people who not just for reading my book, but just from networking, they're also following that model. And I'm telling you, man, if you bake it into day one of your operations, it's much less exhausting, than if you get to like a million-and-a-half, and James Richardson comes in and says, "Yeah, you need to start doing event marketing."

That's why I wrote the book; because I wanna get some of this stuff out, obviously, before you ever come to work with me or anybody else, just understand these ideas, bake them come into your company early, because the big weapon you have against Pepsi and Coke, or even a big nine-figure premium or natural brand is that you're not boring yet. You're interesting, you're new. And if you do play your cards right you can have a more human connection that's intimate with your fans in the first five years or so than they ever can, than they ever... Their bureaucracy will ever let them have. And you've got... And that is all about time and sweat. It's like no other way around it. Because, you know, the guys at General Mills aren't gonna go and do exhausting field marketing. They didn't get an MBA to do it.

Erin: I don't remember if I read this in your book exactly or if it's just the time of year that it is, it's almost as if you're saying, don't throw all your money at your 30-second Super Bowl ad. You would be much better off talking to the people who would consume your product locally near where you're at and do your product development locally rather than the 30 second splash that you'll be lucky if anybody remembers who you are six months from now.

James: So, I think the advertising thing is, yeah, it's generally beyond the reach financial. So it's never even considered but the reality is that, you know, in the early years, when you don't have a lot of cash, people think they can't do anything at a store. They're like, "Well, I can't afford anything." Every time I call someone and they give me a bid and I was like, "Stop calling agencies, stop calling all these vendors. Stop right now. You're gonna do the out of store work, you're gonna literally beg your friends and family to do it with you."

My favorite thing is you gotta hire your fans part-time to do it because that's exactly what Kind Bar did. And that's actually not expensive. Right? So, Kind Bar was a master once they figured out that yoga teachers were basically selling their product to thousands of people for free, they just started hiring part-time. So, they would flood them with cases of product, get them out in the events. They also had their own internal staff. But then that mix is really nice because it's high energy. Get out there, show your passion. People respond to passion, right?

If you can get out into your local community once this pandemic eases, right, it's gonna be a lot easier to do what I'm talking about and it will come back. But that's what you need to do is get out of your local community. You keep showing up at events that are weekly and monthly, obviously annual, but preferably weekly, and monthly, keep showing up. That's your free advertisement. And, you know, as I talk about in the book, to create like a million or $2 million business in one city, large city, you don't need a lot of customers there. This is not about mass conversion. I mean, we're talking literally 10,000 people. So, that may seem like a lot near zero but if it keeps showing up, it builds. And you're more likely to get an efficient return out of event marketing and just showing up in public, dressed in your trademark, than you'll ever get from social media at the same level of scale.

When brands are new—or when a trademark is new—people instinctively don't trust it. And especially because it's going inside your body. So, you would prefer to have a known brand, Fiji, not some fly by night, run by an amateur, right? That doesn't inspire anybody to try. So, if you show up as a human, literally giving your thing away, you have something that's much more effective than, like, showing up in somebody's Instagram feed in the same city randomly. It's much more memorable and also a lot cheaper. So, you know, you've gotta be going to take that risk. And memorability has a human dimension to it but there's also a symbolic dimension to it, in terms of what you were communicating.

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