Monday, January 11, 2016

What Color is My Tomato?

VC’s are now chasing food deals.  It’s about time, because in the past, if you were an entrepreneur in the food sector like me, it was a chore to convince people that food wasn’t just an old, boring industry, totally unsuitable for early stage investment.  The only exception to that was microbreweries – everyone knew that a microbrewery was an easy path to make money – at least until now when we’ve hit microbrewery market saturation just about everywhere.

Now that the money is coming into the food industry, what kind of deals is it chasing?  If you read the press, it’s app’s and software to make shopping easier, test-tube meat, soilent crackers, protein from bugs, drones for fertilizing, the uberization of food delivery.   It’s a new twist on the same notion.  Food is still a backwards industry, but now it is ripe for the kind of transformation that software development and biotechnology can bring, and it is attracting the real talent that is outside the industry and with it the money to make it happen.   These actually aren’t food company investments that VC’s are making, they are investments in technology companies dressed in food clothing.

Which brings to mind a question.  Will technology experts design companies for the food industry that will actually work?  Early stage investing is a very difficult game under the best of circumstances, so there is a good chance that many of these will not work, just like any other market segment.  It’s also fairly common that when people from outside an industry attempt to innovate in another one, they end up wishing they had known more before they started.

So what do those of us in the food industry already know?

It’s actually not the case that the food industry has been devoid of scientific advancements.  Food scientists can isolate specific tastes and recombine them into foods that people’s brains can’t resist.   We genetically modify plants all of the time.  Science applied to how we design food is one of the engines behind the growth of the large food companies and brands, all of which are in a period of rapid consolidation.  When food becomes molecules to be rearranged in expensive laboratories, it becomes a race to see who can rearrange them faster and cheaper and blast them to a mass market.

It’s a business model that seems to be reaching an inflection point.  The biggest global food brands, Coke, Pepsi, Mc Donald’s, and Kraft among them, are all struggling to achieve top line revenue growth through molecule rearranging.  They are now starting to buy smaller, innovative food product companies who didn’t have all of science but who were much closer to the consumer.  Some are even starting their own business incubation programs.  It’s an outsourced product and brand innovation model that has a very different economic model behind it.  Gone is the food scientist in the white coat, mass-market brand and mega-scale manufacturing; now we have the bearded hipster (wearing a beard net), a portfolio of niche brands and a universe of batch processing facilities.

On another side of the technology applied to food front, there is the example of on-line food sales.  Again, it’s not as if people haven’t been trying to make this work.  Companies like Peapod and Fresh Direct have succeeding in creating an on-line ordering and home delivery business model.   They’re up and running and working, but they haven’t been the home run everyone thought they would be.  Instacart claims to be changing this through the uberization of home delivery and Kleiner Perkins seems to think it will.  And that little on line retailer, Amazon, has also been at this for a while.  Yet despite the fact that consumers spend a huge share of their disposable income on food, food’s share of Amazon’s sales still trails almost every other product category.

With huge marketing forces and a lot of money behind these initiatives, why haven’t on-line sales of food absolutely exploded?  My theory is that there is something visceral about food for people, as though we are hardwired in our Amygdalas to not just eat it but search for it.  We want to pick out our own tomato, which involves holding in our hand, maybe smelling it, putting it down and picking up another one.  Stand in a produce aisle of a grocery store sometime and watch people.  Choosing produce could be a Saturday Night Live skit.  Ordering on line is an analytical exercise in comparison, and we all know that the color of the tomato we are ordering will be different on every computer screen and hand-held device we own.  Does this change if we use our favorite highly rated Instacart shopper to buy our tomatoes for us?  No, we still lost the experience of picking our tomato.

And how do people learn to eat new things?  By trying them.  No one wants to order an entire box of something new on line.  What if I don’t like it?  I can’t return an open box of crackers by calling my favorite Instacart shopping lady back to my house so she can take it back for me.  This becomes even worse if you are making something like crackers from insect protein.  Unknown brand plus unknown ingredient plus no opportunity to try it equals no purchase.

As is always the case with new technologies, just because it is technically feasible doesn’t mean anyone will buy it.  Food technology companies that make it will be the ones that recognize and enhance the special relationship that exists between people and their food rather than attempting to intermediate it.  They will also seize real opportunities and solve real problems in the market, things like consumers wanting healthier foods than big companies have been engineering for them, tools for helping companies sell safe products, and a globe that needs more resilient farming systems to continue to feed us in a climate changed world.

Monday, January 4, 2016

Why Edible-Alpha?

When I first launched teraswhey®, the back label of our whey protein included a personal note from me that said I started teraswhey® to cause extraordinary change.   At the time I wrote that, I really had no idea just how many dimensions there would be to that change.  The process of taking an idea, to a plan, to a $14M capital raise, to building a green plant, to a national product launch, and the successful transition of the company to a public company, is quite a journey.  It took every once of my intelligence, strength, determination and humility to make it through it.

It also enabled me to create a product that naturally feeds the human body’s ability to heal itself.  It’s gotten to the point where many of the people I meet already know teraswhey® and use it in their daily lives. Last week, when I picked 60 lbs of aronia berries from the bushes in my yard, I googled, “smoothie recipes with aronia” and the first one that came up called for aronia berries, a banana, and vanilla teraswhey®.  I couldn’t make that up even if I wanted to.  People randomly tell me an astonishing array of personal stories of healing, of recovery from surgery or chemotherapy, of neurological improvements, of weight loss and gaining strength.  I’m humbled by their gratitude, and all of this makes me want to see more companies like mine get started.

I got to cause extraordinary change because my business grew to become financially sustainable.  No money, no mission - it’s simple and very complicated.  And, I’ve discovered, very few people really understand how to make money in a food business.  It’s not rocket science, but it also isn’t easy and it’s getting harder every day.  And it’s getting harder at the same time that a huge consumer push for more healthy, local foods is causing an explosion in entrepreneurial food companies.  Communities are starting incubator kitchens, farmers are starting food hubs, and it’s happening all across the country.  Unfortunately, survival of the fittest capitalism in the digital age also means that business models that can never make money are going viral and are getting replicated across the country.   They’re doing this in Michigan, so let’s do it in Oklahoma, except it wasn’t sustainable in Michigan and it won’t be in Oklahoma either.

So I asked myself what I could do to cause extraordinary change once again, this time by helping thousands of food entrepreneurs and stakeholders around the country learn how to make money in food.  My answer is Edible-Alpha.

Edible-Alpha is a curated content service for food entrepreneurs, investors, consultants and other stakeholders.   In its first iteration, it’s my own blog about making money in food and value-added farm businesses.  Over time, it will evolve to being anchored on one side by my blog, and on the other a pro section of technical business model reports and financial benchmarking tools designed to help advisors, investors, and underwriters guide food entrepreneurs toward financially viable business models.  It will also include resources for entrepreneurs to learn the dimensions of corporate finance that are most relevant to food businesses without having to take an MBA.  Over time, our content will grow to include a curated collection of resources, developed by other contributors, that goes beyond summarizing what people are doing to what is working, and by working I mean making enough money that they can sustainably cause extraordinary change.