Thursday, June 26, 2014

Types of Chocolate Firms

The first thing that you learn when you start looking into chocolate makers is just how many there are in this $100 Billion market (depending on who you talk to.  CNN reports $110B in 2014, IBIS estimates $120B, Markets and Markets estimate $98.3 B by 2016). I have found over 1000 companies involved in chocolate production by consolidating lists across several sources, and I am sure that there are many that are missing.  These firms are either manufacturers or chocolatiers.  The manufacturing firms are those that take beans from the market and produce chocolate for their own end products or for wholesale.  The chocolatiers use the premade chocolate as a base for their products such as truffles and flavored bars.  The following describes each in more detail.

Manufacturing firms take beans from the market (usually wholesalers and commodity markets, sometimes from actual farmers) and create various levels of chocolate for their own end products or wholesale to smaller chocolatiers. 

Although chocolate manufacturers start with the same raw ingredient - cacao- there is a wide spectrum of how this is done.  For a majority of the chocolate on the market, cacao beans are purchased on the commodity market through dealers.  The largest supplier of cacao is the Cote d'Ivorie.  There has been a movement recently where chocolate manufacturers (mostly smaller start-ups) are sourcing beans directly from farms.  These firms are referred to as "bean-to-bar".   Firms go directly to farms for a variety of reasons such as reducing likelihood of unethical practices such as human rights violations (child labor), obtaining better quality beans, and supporting sustainability practices.  (Please note that some just do it for the marketing rights.) 

Big incumbents and old faithfuls –
You know who they are. They are the prize of every child's Halloween basket, the makers of Easter bunnies, and the permanent fixture at the check-out of grocery stores.  They give you a break, melt in your mouth, and satisfy.  These firms are the mass market producers and dominate the market.  In fact, Mars, Mondelez (Kraft), and Nestle have 40% of the market with Hershey, Ferrero, and Meiji making up another 27% (;

Subsidiaries –  
Over the last 50 years, there has been a huge consolidation in the chocolate manufacturing industry.  Some of the most contentious fights included the Kraft purchase of Cadbury in 2010 and Hershey's take-over of Scharffen Berger in 2005. 

Start-ups –
Since about 2009, the start-up chocolate scene has flourished.     Some describe this as the New American Chocolate Movement since there has been such a flood of companies entering the market.  But the increase has not been confined to the United States.  Check out the company list to see the new chocolate makers around the world.

This may be surprising, but most companies outside of mass manufacturers and bean to bar firms don't make their own chocolate.  These firms are referred to as "Chocolatiers" who use chocolate made by other companies as a base, but innovate with flavors, textures, fillings, and combinations.  For example, the majority of chocolatiers in the Bay Area that I talked with source their chocolate from Guittard in Burlingame, CA. Some of the best known figures in the chocolate world are actually chocolatiers such as See’s, Russell Stover, Lulu’s and Whittman’s.

Tuesday, June 24, 2014

Pitching a Fit

Today, the F50 held a pitch fest for their first season of firms ( at the Computer History Museum in Mountain View.  The founders of 25 companies presented their business ideas to over 200 investors along with a large room full of interested business founders and ecosystem participants (e.g. consultants, attorneys, and press).  F50 identified these firms as some of the “most fundable start-ups” and then matched them with investor mentors to help them raise capital.  Thus, it is no surprise that many of these firms have revenues and some have angel or VC funding already.  Many have been through Y-Combinator or (and) 500 StartUps Accelerator. Many founders are serial entrepreneurs.  This is not the typical start-up crowd.  They are experienced, savvy and ready to take on the world. 

“The best of the best of the best, Sir.”

It was a really interesting pitch fest with a wide range of ideas.  Some good, some excellent, some just plain bad. 

Almost all of them had something to do with the internet.  If the firm wasn’t completely contained on the internet then they relied heavily on it for reaching customers.  Seven were “platforms”.  Seven were market places (think ebay).  Eight were social such as dating, networking, or photo sharing.  (There is some overlap in these categories.) Other start-ups ideas included on advertising, gaming, and sensors.

What not to do while pitching:

Oh yes – it is back - the list of what not to wear (see previous post).  This time I have included what not to do based on what I saw here and comments that I heard.  I got to sit up front with the investors and VIPs and listen to their comments.  It was hilarious. 

#1 – Don’t dress like a slob.  Seriously.
Holy Guacamole!!
For the love of ironing boards everywhere – get one.  Half of the presenters were dressed like “slobs”.  (Direct quote – I can’t make this stuff up.)  One VC said that he was so distracted by the presenter’s horrible clothes that he completely missed what the company did.  Face it, the dress down look is so 2001.  Actually, if you want to stand out, dress well. All of the investors dressed professionally.  If that is who you are targeting, take note. 

Rule of thumb – First Date Attire or Better.  Dress as least as well as you would on a first date.  That is what this is, your first date with someone with whom you will have a long intimate relationship – if it goes well.  Dirty athletic shoes do not impress.

And do us all a favor – take a shower and shave.

One of these things is not like the other...

#2 – Don’t wait until minute 3 out of 4 to tell us what the firm does. 
We really don’t care if the firm has backing if we don’t know what your product or service is.  Same goes for your pedigree.  Give me a clue of what you’re doing before telling me that you are from Ivy League University. 

#3 – Don’t take your phone.
You think that I am joking.  Nope.  It was probably to help keep time, but boy did it look bad.  How long have I been talking?  Wait, let me look at my phone.  Oh, and Mom called.  (By the way, there is someone in the front row with 1 minute and 30 second left signs.)

#4 – Don’t be mysterious about how you will use the money.
Far too few of the presenters discussed what they would do with an investment.  Just because the firm has traction doesn’t mean that you know how to scale.  For all we know, you will spend all of the next round of funding on t-shirts for marketing.

#5 – Don’t read the slides.
Many venues have the technology that displays your slides in front of you in addition to the larger screen for the audience in back of you.  Unfortunately, some presenters now think that just because the display is in front of them, they can read it like a teleprompter.  Not so much.  And the audience might not know that there is a display on the floor in front of the presenter, so it just looks like he or she is staring at the ground. 

#6 – Don’t go over the time limit.
This is really difficult since the time is so very short.  However, you don’t want to be the one where the organizer walks on stage to usher you off.  The audience understands that you don’t have much time.  The audience is also watching another two dozen presenters (or so).  Don’t be rude.  Share the podium. Play nice. 

Thursday, June 19, 2014

Jennifer and the Chocolate Factory

Sometimes, I love my job.  As some of you know, I am working on a new research project about entrepreneurship and innovation in the chocolate industry.  I have learned so much already!  Many people that I have talked with requested that I post information about the types of chocolate companies out there and the choices for consumers.  So I am writing a series of posts that will describe the types of firms that exist or are being created, the choices that they face (suppliers, markets, etc … particularly entrepreneurs just starting out), and the products that reach consumers from these choices.  I am also making my list of firms available.  Since over 1000 chocolate makers exist, the list will be broken into tabs based on the location of the headquarters.  This is a work in progress and will be updated frequently based on the feedback I receive from you and any other digging that I do. So stay tuned. 

Monday, June 2, 2014

Crossing the Valley of Death

Research update here.  

In addition to chocolate and social entrepreneurship, I also study technology start-ups.  Recently, I have been examining how technology firms cross the valley of death with some pretty interesting results.  Without getting into the statistical model, this blog post shares some of the findings. 

So what is this “valley of death”?  Basically, it is the lack of funding between the invention of technology and launch of commercial product.  Government and private investments have emerged to help firms commercialize nascent technologies.  Government programs in the United States include Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. 

The SBIR and STTR programs are two of the latest and biggest programs that the U.S. government has enacted to support small business development (Bonvillian and Van Atta, 2011).  The SBIR program was implemented in 1982 to support innovation in small, often nascent organizations (Audretsch, Link, & Scott, 2002).  The STTR program was started in 1992 and focuses on supporting innovation collaborations between firms and public organizations such as universities and government labs. The primary objective of these programs is to support innovation in small business.  The secondary objective of these programs is to help organizations cross the valley of death. Through 2012, SBIR and STTR have cumulatively provided over $34 billion in funding (Small Business Administration, 2013). 

Nanotechnology is the control and manipulation of matter between one and 100 nanometers.  One nanometer is about three to six atoms across, so nanotechnology is incredibly small and difficult. And expensive.  A complicating factor is that matter at the nanoscale acts differently than the same matter at larger scales.  Nanotechnology is used across industries including cosmetics, packaging, optics, and semiconductors. 

So if any technology firm is going to risk the treacherous valley of death, it is a nanotechnology firms.  They must endure the trifecta of burdens: the firm's liability of newness, the industry's lack of legitimacy and cohesive structure, and the technology's inherent uncertainty (see Woolley article in Entrepreneurship Theory and Practice)

I analyzed all nanotechnology firms started before the year 2002 and it turns out that 60% obtained SBIR or STTR grants and 25% were award at least one of each type.  In comparison, that is a lot.  Overall, the acceptance rate of the SBIR and STTR programs is about 20%.   More interestingly, firms that obtained SBIR or STTR funding were more likely to patent than those that did not received funding and were less likely to cease operations.  These firms were also more likely to receive VC funding.

Go nanotech!