Vibrant Chocolate: Launching a Lean Startup in the Foods Industry

I’ve gotten more than a few questions about leaving my previous startup to found Vibrant Chocolate in February. After all, I’d spent the last 15 years in tech, doing everything from mass-market productivity software to mobile photo infrastructure and location-based games. But Vibrant Chocolate made perfect sense to me as my next venture. I saw the need for an incredibly delicious way for people to get the healthy nutrients they needed every day. Nutrients like vitamin D, calcium, and omega-3 fatty acids that they are trying but failing to take regularly because the experience is so unpleasant. I thought this was a clear user experience problem that could be fixed with a delightful fortified food that people could look forward to enjoying each day.

The realities of establishing a new company, let alone a new consumer product, are tough. Consumer products are ultra-competitive, and it’s very hard to get noticed without a big marketing budget or a unique channel. There are also all kinds of difficulties with a physical goods business that don’t usually show up in software: managing inventory, maintaining product quality, shipping logistics and costs, even government licenses. Most venture capital firms won’t want to risk backing a foods business, and getting a bank loan can be incredibly difficult, especially these days. All this was fine by me though, since I was dedicated to entrepreneurship and I planned to tackle any new business, software or not, with a lean philosophy and internet marketing strategy.

I’m not an expert on the teachings of Eric Ries, but here’s what a lean online business strategy looks like to me:

1. Be ruthless about not wasting time, money, and energy
2. Get validation that the market wants your product before you even build it
3. Get more validation when the product is just barely viable (before it’s finished or perfect)
4. Keep adjusting your product and your delivery of it until your market is just buying and buying
5. Ramp up your investment in product development and marketing as the cash register rings

In a way this is all just good business sense. It’s what almost any bootstrapped business owner has to do when they don’t have a cash cushion to burn while they figure out what the market wants. This lean startup methodology has been the guiding strategy for Vibrant Chocolate over the last seven months.

So how exactly did I develop Vibrant Chocolate like this? I’ll break it down by the business questions I needed to answer, and how I went about answering them.

• Question:if a delicious vitamin-fortified chocolate could be made, would people want to buy it?
  • Technique: Purchased 2 new domains via GoDaddy, did keyword research, ran Google AdWords ads, did A/B testing of landing pages via Unbounce, Wufoo form for consumers to be notified upon product availability.
  • Answer: Yes, people coming in through AdWords clicks were definitely interested in vitamin-fortified chocolate.
• Question:what kind of margins could I expect for a product like this?
  • Technique: Priced wholesale ingredients, commercial kitchen space rent, labor, and things like lab tests and custom formulations.
  • Answer: Margins looked to be healthy with efficient operations.
• Question:Can a delicious vitamin-fortified chocolate really be made?
  • Technique: Contracted with pastry chef to run explicit experiments with chocolates and caramels. Experimented with quite a few recipes myself. Abandoned most of these. Did a few blind taste tests.
  • Answer: Blind taste testers were happy with some recipes and would eat them again. This was close enough that it gave me the confidence to hire a highly skilled chocolatier and start a larger consulting contract with a senior executive pastry chef to further improve the products.
• Question:Did our first set of professionally designed chocolates compare well to other high-end chocolates? Were they good enough that people would pay gourmet chocolate prices for them?
  • Technique: Exhibited at the Seattle Luxury Chocolate Salon put on by Taste TV. Approached a few local chocolate retailers about wholesale purchases. Worked local women’s events by offering samples and boxes for sale.
  • Answer: Yes to both questions. We won six medals for our chocolates at the salon. The Chocolate Box and Fremont Avenue Cellars started carrying, selling, and reordering Vibrant Chocolate. We sold a few thousand dollars’ worth of chocolate at local events.  Customer purchase rates were strong at certain events.
• Question:Would our shipping and handling work for cross-country delivery?
  • Technique: Sent test boxes to family members and friends on the East Coast during July and August. Followed up on product quality as received.
  • Answer: Yes, our packing method and USPS Priority Mail shipping were working, even in the summer.

One of the hard things about sticking to a lean strategy in foods has been that industry experts sometimes don’t know what to make of me and advise a different path.  One such expert loved our product idea but was appalled that I was selling chocolates before I’d perfected the branding, messaging, packaging and recipes. Early customers might be turned off and never come back. It would be safer to go through several rounds of focus groups and branding research to lock all the aspects of the product into final launch form. This kind of advice is especially hard for an entrepreneur like me to ignore, because of course I want my product to be perfect, and the consumer’s entire experience with my company to be perfect. But for Vibrant Chocolate, spending $50,000 on market research before we got the kind of validation that only comes from the cash register ringing would already make for a failed startup. And while fast and cheap market research techniques can come in very handy (Survey Monkey + MTurk + Craigslist can get you some comparative data quick), what people say and do are often different. There’s just no substitute for sales.

I’ve stuck to this strategy so far, and overall, it’s worked well for Vibrant Chocolate. I’ve kept expenses and investment low while creating and testing our product. The business is up and running with a Volusion-powered online store that supports our unique chocolate subscription model, and we’ve tested each part of our product pipeline: from AdWords, to online credit card transactions, to packaging and shipping. Most importantly, Vibrant Chocolate has strong validation that people really enjoy the chocolates and buy them at our current prices. There have also been some terrific validation points of people getting excited about Vibrant Chocolate and helping to spread the word about what we do. The videos we created to explain the Vibrant Chocolate products and vision led to the grand prize for North America in Verisign’s .COM for Small Business contest, and I’ve recently secured outside financing from local super-angel Andy Sack’s Lighter Capital. Now, the company is ready to increase its burn rate and start moving a lot more Vibrant Chocolate. It’s exciting, because in the next three months we’ll put everything we’ve learned to the test, and determine which advertising channels and customers are the perfect fit for our business. Of course, we’ll also be working to improve every aspect of our business by investing more and more as the cash register rings and validates that we’re giving our market just what it wants.

Author: Mike Arcuri is the founder and CEO of Vibrant Chocolate, the VP Marketing of Zipline Games, and a Seattle entrepreneur whose background spans TechStars, Ontela, and Microsoft.