THE BLOG

When Krave Jerky Showed up in Class With a $435,000 Check

02/03/2015 01:21 pm ET | Updated Apr 05, 2015

I remind my students that I'm teaching them a methodology they can use the rest of their careers, not running an incubator.

Every once in awhile, a team ignores my advice and builds a company worth hundreds of millions of dollars.

Hershey just bought Krave Jerky, a team in our 2011 Berkeley Lean LaunchPad class, for more than $200 million.

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Jon Sebastiani and his team came into the 2011 Berkeley Lean LaunchPad class with several key observations:

  • Snack foods were a large category (about 35 billion), but the moribund food category was starving for innovation and modernization
  • Meat snacks were a 2.5 billion subcategory of snacks. So there was plenty of data that proved that Americans loved to snack and loved meat snacks.
  • There was an opportunity for a new company "Jerky 2.0." in the snack food market
  • Jon believed his competition was the conventional "Meat Guys" (the existing beef jerky companies.)

Jon's big vision was to build a company that disrupted the meat snacks business. He believed that he could use the "go-to-market" strategies of other food/beverage disrupters -- companies like Pete's Brewing Company, Boston Beer and Kettle Chips. These new entrants disrupted their food categories by offering high quality proprietary recipes, outsourcing their manufacturing, and using their cash and resources on sales and marketing to build distribution and a differentiated brand. And Krave Jerky was going to be packaged, priced and positioned to be an everyday high quality snack experience -- a "Mass Premium" positioning.

2015-02-03-jerky20.jpg

Get Out of the Building
Jon and the team came in with all the assurance of a startup that thought they knew what they were doing. Unlike most of the other teams in the class, Krave was already up and running. In fact, by the start of class they had approximately $750,000 in revenue for 2011 -- not quite Facebook but a nice small business. But Jon had much bigger ambitions.

(For the teaching team, this was our first opportunity to see if the Lean Startup process and this Lean LaunchPad class would work not just for new startups, but also for existing businesses, a test we would face years later teaching established Life Science companies rather than startups for the National Institutes of Health. The question was: Could we get these companies to pivot and learn when they already thought they had an existing business model?)

Their sales had given them some real data on three potential distribution channels: direct to consumer, brick and mortar retail, retailers. But they had minimal understanding of their target customer segment(s), and in the relentlessly direct nature of the class, we let them know it.

Rising to the occasion, Jon and the team got out of the building and went to the Sonoma County Fair and Wine and other food festivals, and spoke to 50 customers. They ran 10 in-store demos, which got them talking to hundreds of more customers.

Each week the team presented their findings to the class and teaching team. Take a look through the slides below and see how their business model evolved with feedback from customers, channels and partners.

If you can't see the slides click here

They refined their branding, got a better handle on who their customers were, and in a real-time example for the rest of the class -- had a full blown crisis. Krave's original outsourced manufacturing partner decided to raise their price -- to a point that Krave's business model was no longer viable. The team demonstrated awesome agility and resilience as they scrambled to get a new manufacturing partner while continuing to do customer discovery and validation -- and run their company.

What Do You Mean You Only Spoke to One Customer?
One of the rules of the Lean LaunchPad class is: 10 customer interviews each week (in-person or video Skype) or you get told, "Sit down, you don't get to present -- presentations are only for the teams that did the work."

In week 9 of the class, the Krave team stood up, looked the teaching team right in the eyes and said, "We only talked to one customer this week and we only have one slide to present. Let us just put up this one slide and then we'll sit down." It was a pretty gutsy request -- so sure, put up your slide.

I was completely blown away with what was on the screen.

2015-02-03-kravescheck.jpg

It was a check for $435,635 from a customer. And not just any customer; it was from one of the largest supermarket chains in the U.S. It was Krave's first national stocking order.

Krave generated approximately $35 million in net sales over the last 12 months.

Hershey plans to operate Krave as a standalone business within its Hershey North America division. Jon Sebastiani will continue to lead the business as President of Krave.

Congratulations to Jon Sebastiani for ignoring the rules!

Lessons Learned

  • The Lean LaunchPad class works for existing businesses as well as new startups
  • The only criteria is a willingness to accept that you may have to pivot - from the founders and investors

Steve Blank's blog: www.steveblank.com