Working outside of your core competencies can put you out of business.
By their nature, many entrepreneurs are idea generators, and have never had an idea they didn’t like. I was the same way back in my twenties, which was only amplified by that fact that I had another trait entrepreneurs have: I was always swinging for the fence.
If you have read some of my previous posts you already know that when my sister and I were running the family candy company, my decision making was guided by my ego. In the quest to grow, many of the decisions I made led to making products that sold great but were more costly to make because they involved manufacturing procedures that we were not competent in or couldn’t pull off on a large scale. Not only that, I didn’t anticipate all of the bottlenecks this would create which added costs that I did not capture.
Had I “stuck to my knitting” in the first five years of the business, we would have only made products that we could manufacture efficiently with the equipment we had. The result after five years would have included some of the following:
- We would have had the business paid off.
- We would have been profitable.
- We would have been debt free with a balance sheet that could support growth.
During that five years I would have also been able to put together an executable strategic plan for years five thru ten instead of swinging for the fences all the time with my latest, greatest idea. Like many entrepreneurs, I knew a home run would make us really profitable.
The “home run” came when we landed the Starbucks account. For three or four years I had been submitting potential products to them, only to receive rejection letters (yes, companies used to do that). I kept all of these rejection letters with the intent of framing them along with our first PO and a copy of our first check from them.
During that time, we developed a Bavarian pretzel that was coated in peanut butter melt-a-way then covered in milk chocolate. This was an industry innovation that, while slightly outside of our core competency, was not entirely because we packed and sold them in bulk to coffee bars in Nordstrom cafes and in the coffee bars that Eddie Bauer used to have in their stores. I was dying to sell these to Starbucks.
One day I received a call from the buyer at Eddie Bauer telling me she was leaving EB, couldn’t tell me where she was going but would be calling me when she got there (How many times has that happened to you?). EB was headquartered Seattle. I was chomping at the bit, and yes, she landed at Starbucks.
I flew out to Seattle and took her and the buyer I would be working with to what at the time was the most expensive dinner I had ever taken a customer to. I remember calling the number on the back of my credit card after we got the bill to see if I had enough credit to pay the $350 bill!
The buyer wanted us to create what would be another industry first: a chocolate covered s’more. Keep in mind two things before you read about the product: First, it had to retail for $2.99 and be packed in boxes of six. Second, it takes all kinds of expensive automation to make this product if you plan on making any money on it. Automation we did not have. The volume was enormous.
This s’more was a graham cracker with caramel on it, and marshmallow on top of the caramel. Those are two separate procedures we would need to do by hand, at separate times, before ever covering them in milk chocolate and then decorating them with dark chocolate. We did not have the capability to do the contrasting decorating. Below are the steps to making it and whether or not that step was automated or manual for us:
- Making the caramel: manual
- Making the marshmallow: manual
- Applying the caramel and marshmallow: both manual, thru a hand funnel on graham crackers that were hand place on large trays.
- Loading them on our enrober to be chocolate coated: manual
- Chocolate coating: automated
- Cooling: automated
- Packed into individual bags: manual
- Bag sealed: manual
- Bag labeled: manual
- Box packed: manual
- Box labeled: manual
- Box taped: automatic
- Boxes stacked on pallets and shrink wrapped: manual
I can’t recall exactly but I think we sold these for at most, $1.80. The bottlenecks alone probably cost more than the selling price and we would get POs for 20,000 cases at a time.
This product threw my entire manufacturing operation into complete shit shows when we had to make these orders. But hey, I was growing the business. We even had to subcontract the labeling of the bags prior to a production run because we couldn’t keep up the labeling. When I finally purchased a used flow wrapper, it helped the packaging but worsened the bottlenecks after that because we didn’t have automated case packing.
The product was selling well, and the buyer wanted to come to our booth at the Chicago candy show. We were not exhibiting there so I flew out to take her to dinner, essentially, to use up one of her nights so that a competitor couldn’t take her out. At that dinner, she wanted us to make another product for her. I won’t go into detail on this one, but it was even harder to make than the S’more and there was no way I was going to take on an even harder product. I just lied. If you knew me then or have read my earlier, “How to Fail” post entitled: Sell,sell,sell, you know I would not walk away from this. The complexity of this product eventually led to us losing all of the Starbucks business. The S’more ended up going to a competitor I could not stand, who had been making simple, chocolate covered graham crackers for them for years. He was good at sticking to his knitting and had the cash to invest in the automation.
At the time, we were only doing about $1M per year in business and I can guarantee you that both of these products for this huge customer had negative gross product. In other words: We were taping dollars to boxes when we shipped them an order.
Takeaway: Growth is good, but growth that is out of control and not supported by a written and achievable strategic plan is not. Growth grounded in a desire to make it big and do so fast, can put you out of business. Yes, there are times when you need to pivot and times when you need to go for it. But decisions to do so are only made after critical contemplation and analysis. Otherwise, stick to your knitting, make money in ways you know you can while setting yourself up for future growth.