Building a megabusiness from the ground up

Large-scale food entrepreneurs are building huge supply chains from scratch where they find the ingredients, build the farms and open retail locations that sell their produce.
Written by Ina Muri, Weekend Editor

The only business that has more startups than the tech business is the food business: Every new restaurant, coffee cart, farm dairy, and butcher shop is a story of micro-entrepreneurship, New York Magazine's Grub Street reports.

Large-scale food entrepreneurs are building huge supply chains from scratch and creating vertically integrated concerns that span the globe form farmer to consumer. They are searching for the ingredients and building the farms with millions of dollars worth of capital. Then they open retail locations that will sell what they grow. Although this is not a new process, it is usually how people start a company.

Usually, people in the food business try to nail down one aspect before moving on to the next. Steakhouse chain Le Relais de Venise, for example, was founded by Paul Gineste de Saurs to provide an outlet for his family's Chateau de Saurs winery. But this was only after the family had already mastered the wine-making part.

Hugh Jackman's Laughing Man Coffee & Tea does everything from growing coffee beans in Ethiopia to serving up coffee on Duane Street in Tribeca. And all the while they're trying to build a business that will eventually generate substantial amounts for educational charities. Jackman told Grub Street in October that he hopes Laughing Man can grow into a brand as big as Newman's Own, which also started with a trip to a coffee farm in Ethiopia.

The most ambitious project to take this approach is Cacao Prieto, from Daniel Preston,  an inventor who served as the CTO and CEO of Atair Aerospace until 2008. Cacao Prieto started as a chocolate company when Preston set up Brooklyn Cacao; a company that is devoted to designing, building, buying, refurbishing, fixing, selling, and dealing with the machinery that is needed to turn cacao beans into chocolate.

But when Preston was working in Prieto, he also set up Cacao Biotechnologies; which is a company that explores the antioxidant capabilities of cacao, and a farm in the Dominican Republic called Project Coralina. The operation is so massive that it has almost $10 million in equity holdings.

By growing their own raw ingredients from scratch, owners also cut out third-party purveyors and have total command of their product's quality from the beginning until the end. This means that they don't have to worry about fluctuations affecting their supply.

Although starting a project such as Laughing Man or Cacao Prieto is more expensive than most of us can afford, there is still something in the air right now. Banks are likely to play it safe in the food industry, but there are many equity investors out there with the idea that there's a small chance of creating something big. This could mean that the timing is just right for a certain kind of food entrepreneur to build fast with other people's equity--instead of building a business slowly with a debit capital.

However, the risk for these projects is much greater than it is for the person who hopes to open a coffee shop in Brooklyn. Failure means potentially burning through tens of millions of other people's dollars, and possibly ruining part of another country's ecosystem. But success means that a whole business is built  on a solid foundation. And if they're successful, they might help change the way that food businesses get started--and help save the world while they're at it.

[ Via Grub Street for New York Magazine]

Photo: istock

This post was originally published on Smartplanet.com

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