Start Small and Nuture Big


Is there another way to build a business?

The most frustrating thing about developing new products for the world’s largest food companies is their unwillingness to start small and nurture a product into success. Instead, they set unrealistic expectations at the outset (“We’re going to launch a $200 million product line!”) which necessitates the development of “vanilla” products to appeal to the broadest range of people. The problem is that consumers of vanilla often lack passion for the product –often further obscured by marketing and promotional push.

These same companies will go out and purchase an upstart brand whose success was built by starting small and earning the passion and loyalty of a small number of rabid consumers. What I don’t understand is why big companies are willing to pay multiple times earnings to purchase brands --once they reach a certain volume threshold-- when they could develop these businesses themselves for pennies on the dollars they pay to purchase them!

Why don’t they do this? Most big food companies are uncomfortable building grassroots product support. They’re much more comfortable buying trial (paying slotting fees) and repeat purchase (couponing, discounting).

They could learn a few things by studying brands like PowerBar. Brian and Jenny Maxwell cooked early bar samples in their kitchen and handed them out where their target customers were (running events). PowerBar didn’t start out as a multimillion-dollar brand. It started out as a couple of hundred dollar brand. Can you imagine Nestlé (PowerBar’s parent company since 2000) building a business in this fashion today?

Why not?! Why couldn’t Nestlé empower mini businesses that operate like start-ups—without all the big company procedural constraints? I know some brilliant people at Nestlé. If I was running the company, I’d give them a budget, kick them out of the comfortable “Nest” for 3 years, and let them build a niche business—using co-packers, alternative channels of distribution, and good old fashioned street-level sales tactics.

Of course the big food companies have considered this. But why can’t they actually make it happen? Well, for one thing, it requires patience and a willingness to stay the course. A start-up business may only generate $2 million in year one. But maybe it will be $10 mil in year two. And $25 mil in year three. Wouldn’t the premium paid for an acquisition be better spent building 12 or 13 of these targeted businesses? I’d argue that it’s safer to spend a few million to do this than spend multiple millions to buy a single business that may or may not pan out, itself, in the long run.
Footnote: Brian Maxwell passed away unexpectedly in March of this year at a too-early age. This column is in tribute to his memory and passion and willingness to build the business one bar at a time.

Nestlé Acquisitions. Could these have been “home-grown”?



Posted: Mon - March 21, 2005 at 09:24 PM        

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