Nick McCoy, managing director of Whipstitch Capital, genius and all-around good human, hosted a masterclass for the TIG Brands community last fall. During his presentation, he shared a slide that bifurcated the path to exit. On one side, he wrote “building for growth,” and on the other, “building for profitability.”
I will take a Buddhist approach and add a middle way: building for profitable growth.
I find it very frustrating that this middle way is virtually unavailable to natural products entrepreneurs. Instead, the vast majority of the capital available to them requires them to choose to build for growth. As a result, we build great brands but not many good businesses. This approach is harmful to our industry.
Historically, niche brands found their way to store shelves and digital platforms by bootstrapping. They cobbled together friends, family and angel investors to propel them until they became bankable. This route has become harder and harder for entrepreneurs to navigate successfully.
Why? Because venture funds, which traditionally searched for home runs, now seem more intent on finding walk-off grand slams in the seventh game of the series. They want to invest in unicorns.
However, when applying the unicorn lens to the natural products industry, there are very few venture-backable brands. It takes a lot of white space, capital and luck to rocket to $100 million or more in revenue. What about brands that don’t meet this threshold? Should they just give up now?
The answer is no, do not give up. The foundation of the American economy is entrepreneurs who build profitable businesses. But in CPG, we have lost sight of that side of the equation. We’ve grown enamored with building great brands, forgetting about building good companies. That is why I am frustrated.
In part, I blame the way we fund our founders. In search of that 10X opportunity, we step over hundreds of good companies. We overlook brands that meet the niche needs of shoppers, have solid unit economics and could become $20 million-plus businesses that are EBITDA and cash-flow positive.
Not every consumer want or need results in high velocity or ubiquity. But a brand that fulfills certain wants and needs could be a viable investment opportunity if investors just think differently. I am not opposed to the walk-off grand slam. However, if we are going to meet consumers’ wants and needs, then someone needs to step up and fund the singles and doubles.
Granted, funding those companies necessitates different valuations, terms and conditions, and structures. And that requires innovation. But that’s what we do in this industry. Innovation is our jam.
I am confident that investors can make good money funding entrepreneurs who are building $20 million-plus businesses that are EBITDA and cash flow positive. No doubt the journey will differ. The growth slope won’t be as steep, the geographic reach will be more constrained and there will be less category expansion.
But these entrepreneurs will be good stewards of investment dollars. They’ll focus on unit economics, capital efficiency, penetration over distribution, and discipline—all good traits in my book.
I will root for the unicorn but invest in the Tardigrade. Singles and doubles are good bets. Reach out to me, and let’s talk.
Elliot Begoun is a 30-year industry veteran, author, podcast host, founder of TIG Brands and champion of Tardigrades. TIG Brands supports a community of entrepreneurs interested in building nimble, capital-efficient, resilient brands that become Tardigrades, not Unicorns. Learn more about TIG Brands’ programs.
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