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Small Business Success Story: Hot Dang Conquers Growth Challenges

April 22, 2015
Small Business
Small Business Success Story: Hot Dang Conquers Growth Challenges
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It started with an outrageous challenge. Martha Pincoffs, a trained chef and cooking instructor in Austin, Texas, was dared by her partner to eat every meal at home — made with local ingredients — for an entire year. The couple expected to save money and learn more about homegrown food, but Pincoffs had no idea that a concoction whipped up during this yearlong experiment would later end up in hundreds of grocery stores nationwide.

That concoction — a humble, grain-based patty Pincoffs assembled on the fly in her kitchen — launched her on a journey filled with many challenges: spending long, non-lucrative hours at the farmers market, learning to forge strategic partnerships, conquering production challenges and understanding how to navigate the retail grocery world.

Looking back, Pincoffs says overcoming these hurdles allowed her to fulfill her mission: “I wanted clean food for the masses.”

An unexpected product

During her year of culinary austerity, Pincoffs spent lots of time at farmers markets and grocery stores. She says she found herself falling in love with the small food business, becoming intrigued with making consumer packaged goods, and admiring successful local ventures like Dai Due and Salt & Time.

Hot Dang Martha Pincoffs

Hot Dang founder Martha Pincoffs.

Since Pincoffs and her partner weren’t dining out, their home became a social hub. One day, not in the mood to go to the market yet again, Pincoffs experimented with ingredients she had on hand and ended up with a grain-based veggie burger. She and her partner weren’t vegetarian, but she realized there was nothing like it commercially available. It became the most requested item by their frequent guests, and it occurred to her that other people might enjoy her veggie burgers, too.

“It’s made of all recognizable ingredients, and it’s something I really believed in, because at the time, a lot of the competition had stuff I didn’t recognize and texturized vegetable protein, which is a really processed version of soy,” Pincoffs says. She named the product Hot Dang, and she encourages people to eat it in more creative ways than just as a burger substitute (think crumbled on a salad or chopped up in a frittata).

On a Saturday morning in April 2011, Pincoffs awoke at the crack of dawn and spent hours preparing for her debut at Austin’s Sunset Valley Farmers Market. She describes the experience as backbreaking: Starting three to four hours before the market opened, she prepared her patties by hand at home and gathered a glut of supplies. Pincoffs then arrived and worked long hours to set up the booth, operate her station and break it down at the end — all for less than a livable wage, she says. Nevertheless, it was an ideal place to start because she found a curious customer base willing to try new things and received direct feedback on her product. Locals tried it, and they liked it. A few months later, Pincoffs was able to land her product in several Austin grocery stores.

Strategic partnerships needed

In the early stages of the business, it was a one-woman show. “I was bootstrapping it, so I was paying for it, making all the product, doing the demos and making deliveries,” Pincoffs says. She also had a life partner and two small kids, and all of her commitments eventually became too much to handle, she says.

“It forced me to look outside and give up some of the company in order to be able to get the vision further,” she says. In 2012, she found a business partner, Tim Murphy, who had valuable industry knowledge, including experience with General Mills and working with Naked Juice when it sold to Pepsi. Pincoffs says bringing him on board was by far her best move yet.

Pincoffs and Murphy took the first year together to redesign the product packaging, increase their offerings and improve processes on the back end, such as making production more efficient. Pincoffs says the operation had to be tightened up before the business could really grow. Though the company officially started four years ago, 90% of the growth has occurred in the past year as she and Murphy have optimized everything together.

Initial production challenges

When Pincoffs started her business, she made every veggie patty by hand. As the business grew, a key challenge was streamlining production and moving from her home kitchen to an actual manufacturing facility. Although Austin is quickly growing, it’s still a midsize metro area, and Pincoffs found that it lacked the infrastructure and support she needed to scale her product.

“We wound up going to Boulder (Colorado) for six to nine months, making our product there, because they had a manufacturing incubator that basically had to make our product at scale,” Pincoffs explains. “Then we could bring it back to right outside of Austin.” Her products are now produced at a facility in Buda, a small town a few miles south of Austin.

Taking a product from a farmers market booth to grocery store freezers is no easy task. “Getting into big grocery stores has been a mix of persistence, well-placed introductions and having brokers working for us,” Pincoffs says.

Making the jump

Her first goal was to get into Whole Foods Market, a health-oriented supermarket chain headquartered in Austin. She says Whole Foods has an unusual decentralized system, so a company can get into one store at a time and learn how the system works. “It gives the stores room to really embrace the communities they are in; they are great about scouting local products for their regions,” Pincoffs explains. Whole Foods employs a network of “local foragers” to find such products.

Hot Dang Serving Suggestion

Hot Dang encourages consumers to think of its products as more than simply burger substitutes.

How does someone get a product into Whole Foods? Lynda Berrios, Southwest local forager for Whole Foods, says the first step for small suppliers is to get in touch with the forager responsible for their area, like herself. After making the connection, suppliers go through a vetting and review process. “We will look at everything from ingredients, sourcing, packaging, cost, pricing and take a tour their facility or manufacturing space,” Berrios says. “Sometimes that process can take a matter of weeks or more than a year depending on how ready the supplier is for retail.”

Berrios adds that Whole Foods has very high standards for what ultimately makes the cut; this includes such things as adhering to animal welfare standards and requiring that items be free of artificial flavors, colors and preservatives. “Each category has its own set of deep and broad standards specific to that type of product,” she explains.

Hot Dang met the rigorous standards, and through Pincoffs’ own efforts, she got into all Austin Whole Foods locations. After her products performed well, she brought in a broker, Green Spoon Sales. This company presented Hot Dang to the rest of Whole Foods’ Southwest region and the Rocky Mountain region and successfully landed her products in those stores.

Not every business can expand into new markets so quickly. “We gauge that readiness on several factors,” Berrios explains, “including their production capacity, strong sales compared to similar products in that store, active demo support and the relationships they build with store buyers and team members.” This expansion can also be financially difficult for small operations, so Whole Foods offers Local Producer Loans — low-interest loans to small suppliers who need cash to grow their business.

Going from farmers markets or direct sales into wholesale retail is a big leap for small food suppliers, Berrios says. While visibility and brand awareness are huge perks, it’s a challenge to compete with products that may have more of a following — especially national brands. To overcome this hurdle, “we offer our small suppliers a lot of in-store signage through our local supplier profiles, the opportunity to participate in events and vendor fairs, and we are always looking for creative ways to promote our local suppliers via in-store events, pop-ups, community education classes or opportunities we might dream up together,” Berrios says.

Pincoffs next aimed to get into HEB, one of the largest grocery chains in Texas. The process there was quite different, she says. She and Murphy went on a sales call with HEB’s frozen foods buyer, thinking they might get into 40 stores if they were lucky. The meeting was a success, and they found out they got into 150 stores. She notes that it was hard to fulfill the first few purchase orders while they were in the midst of transitioning manufacturers, but once they got into their new facility, they’ve been able to comfortably fill all orders — and grow with them.

Hot Dang products are now sold in 300 stores in 14 states, with eight more states on the horizon.

Supportive local community

Pincoffs credits some of her success to being based in Austin, a supportive community full of creative food entrepreneurs. “There are wonderful people willing to collaborate, and it feels like everybody’s in it to see everybody else succeed,” Pincoffs says. “It makes a huge difference to have people ahead of you willing to take time and encourage you,” she says.

This camaraderie led her to create a group called ATX Makers Club, made up of locals who produce consumer packaged goods. “It’s a bunch of different food entrepreneurs that get together once a month and troubleshoot challenges and opportunities of growing a small food business, and it’s been really helpful,” she says.

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Emily Starbuck Crone is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @emstarbuck and on Google+.

Images courtesy of Hot Dang.