How to Scale & Exit a Food Company

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Paddy Willis co-founded and exited his successful organic baby food business Plum Baby Ltd, which was voted into the Top 10 of Startups Hot 100. He made a 10-million-pound exit to Darwin PE and the company delivered 5% market share within 20 months of the launch. Willis has since worked with a number of other entrepreneurs as an adviser, mentor, investor, and CEO. Most recently, he has taken on the role of co-founder and director of Grocery Accelerator Ltd. The company supports ambitious food and drink founders and has already backed thirteen businesses, including over £2 million of seed investments. He has also led the development of Bathtub 2 Boardroom, a charity that provides co-working space and business support for early-stage entrepreneurs across all sectors.

How did you find the process of starting up and scaling Plum Baby?

I co-founded Plum with my then wife, Susie. Neither of us had any experience in retail or the fast-moving consumer goods sector. We had the idea in early 2004 and approached Sainsbury’s later that year. They offered us a listing immediately, but it took us until March 2006 to launch. Our biggest challenge was finding a manufacturer. A year and a half later, we ended up with a French company, which was able to make the product the way we wanted, but still, we had to invest in equipment and the training of their staff. Even though they had assured us they could expand to meet growth, it turned out they couldn’t secure funds themselves. So, within twelve months of launch, we needed to look elsewhere. We had a very uncomfortable four months in which we were transferring production to a larger supplier. During that time, our first company was shorting us and we had to short our supermarkets in turn, which is never good. Fortunately, we had a great Sales Director who was a young mum herself. She worked part-time for us, but was very experienced. We figured we needed £400,000 to achieve a multi-million pound exit. Within two years of launch, we had raised £3.75 million in equity and debt. Never underestimate the need for working capital in a fast growing products business! This involved several different rounds and was a massive drain on management resources.

How long after launching the product did you make an exit? Did the buyer approach you or were you actively looking for a sale?

We started the sale process about four years into the trading of the business. We used Spayne Lindsay, whom we had been introduced to early in our history and who we trusted. Initially, we thought it would be a fight between Heinz and Numico, but in the end, they weren’t interested and we had to turn towards Darwin PE.

Was the decision about selling your business easy? Was it the right time to do so?

We always targeted a five-year horizon. In the end, it became a prudent move to look for a buyer, because we had two VCT investors who could invoke a sale on their terms some 18 months after we started the sales process. The business was still growing, but it also suffered from a catastrophic drop in foreign exchange. The euro was at 1.25 when we started, but fell to 1.10 in a matter of a few months. With most of our products made in Europe, the profit was being ripped away. Given this was 2009, it was never going to be a good market in macro terms, but the issues with the VCTs meant we couldn’t be complacent and wait.

What was the exit process like for you and how long did it take?

As mentioned, it was a tricky time in the market and we were very surprised at the lack of interest from trade buyers. Spayne Lindsay did a good job, but there was a worrying period when the bids were low and Susie and I would have fallen victim to the preference shares that the VCTs had. We might have walked away with almost nothing whilst they got their millions back.

What do you think Plum Baby had that the buyers wanted?

Darwin and Lion Capital, the eventual front-runners, really wanted a premium food brand for their portfolio, but had both missed out on some iconic consumer brands like Innocent and Gu. We had also commissioned a third-party research that showed how the brand could extend to following kids and parents for a longer time, beyond the toddler stage.

What do you think are the necessary ingredients to be an attractive business for a buyer?

I think a business is attractive to a buyer when it has a strong brand, a powerful market proposition, loyal consumers, decent margins - or the prospect of them -, and growth potential through the deepening of a range or brand extensions. We had left export very undeveloped in anticipation of trade buyers plugging it into their own model of distribution, but evidence that a brand will travel is also important.

Would you say that, in order to get your food and drink business on the map, a business should arrive at a certain level of revenues or is it possible to exit before you get to that scale?

It depends on how hot your brand or proposition is. When Vitamin Water launched under Coke onto the UK market, Pepsi panicked because they didn’t have a competitor brand. So they bought V-Water for a silly amount of money, just to be in the game. However, this is rare and I believe you need to have demonstrated real traction and the ability to broaden the market, while still showing plenty of room for growth on the curve.

Do you think that entrepreneurs should have the exit in mind from the start of their ventures?

Absolutely. They should know where they’re headed and build their strategy accordingly.

Was it a surprise to you that Plum Baby was such a great success?

Yes and no. The response from Sainsbury’s was very heartening, and basically every other retailer wanted us as soon as they could range review after the three-month launch exclusive. So that showed that we had hit the zeitgeist with parents.

What was the main tool you used to market your business and create consumer awareness with Plum Baby?

Lots of sampling. When we launched, there was limited Facebook activity, so we relied on guerrilla marketing tactics and retailer offers to prompt trial. If you’re doing a good job, parents will spread the word quicker than wild fire. We also pushed the “Mumpreneur” angle with Susie, and that triggered a lot of good PR.

How do you get onto the shelves of major retailers?

By being persistent. Plum was fortunate, because we even had people ring us, which is rare. You should understand the retailer interests, timescales and ranging windows. Shelves are not elastic, so you need to know where you fit in and where you don’t. Make a strong case, know your market, and show how hard you’ll work to pull products off the shelves.

Why did you choose to co-found Grocery Accelerator rather than go down a more traditional angel investment route in food and drink startups?

I was curious that the model for business accelerators I was seeing and experiencing in the tech world was not yet deployed to the food industry. So I wanted to explore whether it might work, given the generally longer timescales for things to happen. When I met Rob Ward, the co-founder, we both agreed it had to be possible, and here we are.

What key tips do you have for food and drink entrepreneurs wishing to enter the food and beverage industry?

Be prepared for a hard slog. Lots of people make great food and drink products in their kitchens, but translating them into a great brand and a commercially viable product is a whole different ball game. If it were easy, everyone would do it. Never underestimate the cash you’ll need. Be lean, be agile, and don’t be afraid to change things to make the product fit the market.

What are the main mistakes entrepreneurs make?

They don’t communicate clearly or understand the eating occasion for their product, so they can’t help consumers engage with the brand. They don’t raise enough cash or are profligate with what they have. You can get amazing deals on things like branding if only you’re canny.

How do you think the industry has changed since you started Plum Baby? Is it harder for entrepreneurs nowadays?

The big retailers are starting to recognise that, after several years of supplier and range consolidation, they need innovation. This means that they need the smart ideas coming out of startups. And that’s a good thing. Overall, it is easier today if you consider the amount of support that exists in programmes, like ‘meet the buyer’ events, seminars, commercial kitchens, etc. Social media also allows you to be seen punching above your weight. I also think there is more evidence of the “lean methodology” being applied from tech to foodie businesses. People are testing concepts at street markets and food fairs, and the availability of cheap design makes it a much lower threshold to get entry. Supermarkets responded well to the cash margin opportunity we presented with Plum. Today, however, it is all about overall percentage margin and committed marketing budgets that buyers are measured on, which is more limiting for new companies.

How do you think the industry will change in the future?

I believe we will continue to see more fragmentation of the weekly shop, with more short-term purchasing, focus on food waste- which could have an impact on multi-buy, and increasing interest in provenance, brand story, etc. This is particularly true for the millennial consumers, who would prefer their purchase to have some good impact. I suspect we will see more diversity in the subscription services, and naturally, the monster that is Amazon will continue to grow. They may not be a threat immediately to the big multinationals, but they will be increasingly nervous as to what Bezos, Amazon’s CEO, might do next!