From The Kitchen to $40 Million: Lessons In Scaling Up From The Honest Kitchen
When the Postins’ family dog, Mosi, came down with skin allergies, their immediate response was to try to solve the problem. Lucy Postins suspected that the allergies were linked to food so she began making meals for the dog in her kitchen using natural, human quality ingredients. Mosi’s problems promptly cleared up but Lucy was left with a two-hour daily chore to prepare the meals. To save time, she began exploring dehydrated ingredients to make the meals.
Meanwhile, friends down at the park noticed the positive difference. After dialing in the formula, Lucy and husband, Charlie, decided to start selling the food in plastic containers. They would be selling into a growing market. According to Euromonitor, global sales of pet care products exceeded $100 billion in 2016, growing at a faster pace than other consumer goods categories.
“From the beginning, we were clear about our mission to help pets through better nutrition. We weren’t sure that it would turn into the business that it’s become,” The Honest Kitchen president Charlie Postins said. Early indications were positive though as they received their first online order before they were able to test their website. That was soon followed by an order from a local pet supply store. Their garage quickly was repurposed as a warehouse and shipping center. Lucy ran the business while Charlie continued in his day job as a designer at Nissan and prepared customer orders at night.
From the start with a single dog food formula in 2002, The Honest Kitchen (THK) went on to produce new formulations for different dietary needs for dogs and cats. The company also received clearance from the FDA to claim “human grade” on their product labeling. By 2009, the company was producing more than 100,000 pounds of food. In 2011, the company brought in its first outside investment. With a staff of 50, the company now sells in more than 5,000 retail locations around the country.
Along the way, The Honest Kitchen products have fostered a rabid following from pet owners who turned to them to address pet health issues. Satisfied owners have shared thousands of success stories which the company then dubbed Honest Kitchen True Stories.
Clearly, a good idea and a good product are fundamental to building a successful business. However, creating and scaling that company for long term growth presents a myriad of challenges. Navigating those issues often matters more than the original idea. The Postins’ built a $40+ million revenue company from their kitchen at home. Here are some of the principles they used to guide their progress.
Scaling Tips from The Honest Kitchen:
- Mind the mission. “Build a mission you believe in and it will guide you along the way,” Postins said. “In our case, the whole business was built around a core idea: to help pets through better nutrition.” Their full mission statement is: To help as many pets as possible get on the road to good health through good, proper food. That clarity of purpose helped them make decisions. “We could always fall back and ask ourselves how each decision served our mission.” They also put huge value on who they serve. “In a real sense, we would always place pets before profit.”
- Know your own weaknesses and cover for them. While Lucy had experience in animal science and pet food formulations and Charlie as a designer — and they’d both been part of entrepreneurial ventures — some of the challenges of creating and running their own company were new to them. So they turned to others for advice. “We were very humble about what we did and did not know,” Charlie said. “And we weren’t going to pretend we knew.” As they were building a business plan, the Postins’ leaned on friends and colleagues with expertise in areas where they needed help. That circle of experts also helped them assess the validity of their idea and their direction. “Having that gave us sort of a reality check on what we were planning to do.”
- Recognize where your value proposition best fits the market. THK understood early on that their product may appeal to a different sort of consumer: pet owners who believed in natural ingredients and were willing to undertake an extra step in feeding their pet. Since that education process was so important, THK decided that two avenues would best fit their product: independent specialty retailers and online. “We felt that our products were suited to environments where consumers could learn about them…through hearing a seller tell the story or through exposure to our message,” Postins said. While it may be tempting to pursue the biggest orders early on, those may also bring the biggest risk. Considerations include:
What is best way to reach your target consumer? Where are they buying now What organizational capabilities are needed to satisfy both consumer and customer needs? If you decide on retail or distributor routes, what can you do to ensure your sell through rate meets their expectations?
Prioritize the sell-out over the sell-in. Be sure to understand what it will take for your product to sell out to the end user, not just the sell in to the retailer or reseller. “When we started hiring sales reps, we were fortunate to get people with experience at bigger companies. They’d go out and get an order for a rack display of product. Since we were offering a new form of dog food that required consumers to add water, we knew that our product wouldn’t fly off the shelves straightaway. It needed education. Instead of getting racks full of product at stores and then risking returns for slow sales, we wanted customers to try with one box at a time. Our sales process was step 1: get box on shelf. Steps 2, 3, and 4 were to educate the sellers.” As the retailers built success in selling THK foods, the company did install display racks. For most companies, validation of the business concept shouldn’t come from the first order. It should come from repeat customers and reorders.
Find good people and take care of them. In the early stages, each employee has an enormous impact on the business. Some of these principles may help in building that core team.
Be slow to hire. Things change fast in growing businesses. Look for ways to confirm that a long term opportunity exists before making a full hire. “We were sort of always a step behind in staffing,” Postins said. Still, at some point, you need to move. “For us, a big thing was admitting what we didn’t know and hiring for that.
Take pains to ensure fit. “We were always careful about who we brought into the business,” Postins said. “They really are like family so we wanted to be sure that they believed in our mission and also that they wanted to be part of it.”
Ensure that they know they matter. “Our very first employee is still with us. We weren’t always able to afford everything that big companies could but we would find ways to make sure that our people understood how important they are to us.” Their commitment to people has been reflected in being named a top workplace by Entrepreneur and Outside Magazine and one of the city’s coolest companies by San Diego Magazine.
Mind the money. Financial resources are important in any company particularly in the early days and also when the success comes. Cash flow can sometimes be the choke point on growth. THK were mindful in three main financial areas…
Be deliberate in where you want to grow. The majority of pet food is sold in big box pet retailers, grocery, and mass retail. Despite having opportunities to sell to big stores, the company’s philosophy was to focus on specialty independent retailers. Bypassing initial bigger orders in exchange for the longer term business building may be a difficult choice but it also reduces near term risk of product return if sell out rates are slower.
Keep overhead growth lagging behind sales growth. THK took a pragmatic approach with overhead expenses and inventory levels. They avoided a common pitfall many growing companies make of jumping too far ahead in building infrastructure. “There was no goal when we started so everything we’ve built has been done gradually. It’s been a constant process of upgrading.” In the end, this approach may cost more money but it also breaks up risk into smaller pieces. Operating systems were the main exception where they shifted from QuickBooks to SAP a few years in.
Be careful in selecting investment partners. Investors typically bring more than a checkbook. “Make sure that you only bring in money when you really need it…and make sure it comes from people who share your vision, culture, and values. They need to be bought into the mission.” For THK, that meant the way they were running the business didn’t change much. “Our fund-raising process took three years which probably frustrated some. In the end, we wanted to be sure that we were lined up with people who believed not only in the investment potential but also in our mission.”
De-risk the business whenever possible. While the old adage that without risk there is no reward may be true, the most successful entrepreneurs usually look for ways to take out unnecessary risk along the way. With THK, the Postins’ reduced risk in a number of ways:
- Pursuing a business opportunity in an area where they had some experience.
- Leaning on friends and colleagues who were experts in areas they weren’t.
- Testing the concept before jumping in fully.
- Keeping the day job while growing the company.
- Taking care in the hiring process.
- Understanding the success factors in the category and delivering on them.
- Scaling infrastructure gradually with demand.
Most of all, The Honest Kitchen success is about establishing a clear mission and staying true to it…sometimes stubbornly. Many companies get sidetracked by pursuing too many things at once. That scattered approach weakens execution and also drains resources. “My advice would be to commit to the mission and strategy,” said Postins, “and stay the course.”
Original post: BottleRocketAdvisors
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