Innovation

The power of simple

Written by Kara Aaserud

Life Choices Natural Foods Corp.

Location: Toronto
What it does: Organic and natural food processor
Fiscal 2006 revenue: $963,350
Two-year revenue growth: 162%
President: Matthew von Teichman

The first inkling that Matthew von Teich-man’s firm was in peril came while he was handing out free samples at a Loblaws store in Toronto. A woman came up to tell him that she had stopped buying his Life Choices frozen organic entrées after reading about the potential dangers of heating plastic in a microwave oven. She was so worried she wouldn’t even try the new flavours he was offering.

“It was my first big realization that there might be a flaw in my product,” says von Teichman, president of Toronto-based Life Choices Natural Foods Corp. It wasn’t his last. As the gap between his packaging format and the health-conscious consumer he was targeting grew, he faced an even bigger crisis. Less than a year after his dinners had hit supermarket shelves, an overly complicated supply chain and his inadvertent assumption of all the risks in the manufacturing of his product had put him on the slippery slope towards bankruptcy. It was a hard lesson that CEOs in other sectors would do well to heed: be very choosy about which business functions you handle yourself.

Although new to organic frozen foods, von Teichman was no business neophyte. Over the past decade, the athletic, tousle-haired 33-year-old—who, if he didn’t occasionally don a suit and tie, would be easily mistaken for a university student-owned and sold a pub and restaurant in Kitchener, Ont., passed a student window-cleaning business along to his brother and co-founded Jobshark Corp., an online job board that grew an explosive 1,641% from 1997 to 1999, ranking 13th on PROFIT‘s inaugural ranking of Canada’s Emerging Growth Companies.

When von Teichman sold his stake in Jobshark in 2001, he set strict criteria for his next business. He wanted to make a tangible good that was outsourceable, recessionproof and would build brand loyalty. Von Teichman spotted the potential of organic foods when he and his wife adopted healthier eating habits during her first pregnancy. Soon after founding Life Choices in March 2002, he signed deals to get his organic dinners into more than 200 outlets of grocers such as Loblaws, A&P and Whole Foods keen to target shoppers willing to pay more for health, taste and convenience. “I thought I had a really successful business right off the bat,” says von Teichman. He seemed headed for excellent profitability, thanks to an ultra-lean structure: just himself, because he had outsourced manufacturing, marketing and accounting—everything except buying and shipping ingredients.

But the outlook dimmed once Life Choices began processing orders. To gain a pricing edge, von Teichman had sidestepped his contract manufacturer’s markup by buying the ingredients himself and supplying them to the manufacturer, who would charge only a production fee. But he hadn’t counted on the complexity of sourcing ingredients worldwide. And he had made the challenge far tougher by making his first product line a selection of organic frozen entrées requiring upwards of 40 ingredients rather than, say, chicken nuggets requiring just five or six.

Handling the supply chain in-house took the onus off the manufacturer to produce the dinners without waste, and saddled von Teichman with the risky task of managing variable costs. The “yield” came in low, meaning the manufacturer had produced fewer units of frozen dinners than von Teichman had expected from the ingredients he’d supplied.

“It wasn’t that I lacked the knowledge to forecast, but, rather, my structure with the manufacturer placed the [responsibility for the] yield results on me, not them,” he says. “It became a larger headache and a much more expensive way of doing things. It just destroyed my margins.”

To make matters worse, while retailers were still buying his entrées, consumers were not. “It was a ‘healthy microwaveable’ product,” says von Teichman. “There was a bit of a disconnect, it seemed, between health and making it microwaveable.” His response was a band-aid strategy: he cut his retail prices by 10% and switched manufacturers. But it was a botched effort. Assuming that the problem lay with the manufacturer, von Teich-man stuck with his original business plan, including retaining accountability for the yield. He soon ran into the same supply-chain headaches—this time on a bigger scale because his new manufacturer required longer production runs.

Before long, consumers were complaining about inconsistent look and flavour from one box to the next. “I launched the most difficult product I could have with my first line,” says von Teichman. “Getting consistency of performance with such a huge ingredient deck was very difficult. The result was a virtual collapse of the company. My sales on that line dropped 30% in one year.”

Worse still, his UPC codes changed when he switched manufacturers, necessitating new packaging. “The retailers knew the codes were changing, but they also knew the product wasn’t selling very well because of consumer resistance,” he says. “So, a lot of them just delisted it.”

Three things saved von Teichman. First, he never stopped talking to his investors (at an undisclosed venture-capital firm), distributors, suppliers and retailers. “I do my best to develop informal relationships,” he says. “In a retail set-up, answers tend to get sugar-coated, but when you’re sitting across a table having a drink, you get more accurate feedback.”

He was told over and over that his entrées weren’t pulling their weight. It became painfully clear that he was trying to resurrect a product line with no future. Luckily, because organic foods were hot, retailers were very forgiving. And since von Teichman involves them right from the concept stage to give them a vested interest in his new lines, the retailers he had burned by providing a product that didn’t sell still wanted him to succeed.

Second, he launched a line of organic pizzas that picked up some of the slack from his failing entrées. This time, Von Teich-man acknowledged consumers’ view that anything micro-waveable can’t be good for you by ensuring that his pizzas could also be cooked in conventional ovens. He also let the manufacturer assume the risk of managing the yield: “When the pizzas started working, it was so efficient. It was just myself putting in an order to my manufacturer and shipping that order to a retailer—no complaints, no cost issues, no yield issues. Just simple business.”

Third, von Teichman had investors who still believed in him. “I had a good story and a bad story,” he says. “Bad story: the entrées were stumbling. Good story: from an investor’s perspective, they saw that I had corrected a mistake. I survived the storm by showing people that I’ve taken the lumps out and can figure out how to make it work properly.”

In August 2005, Life Choices launched a line of breaded fish and chicken, with a far shorter ingredients list. By then, von Teichman had his business recipe down to an art that made the new line a quick success: price points within 15% of rival non-organic products, sophisticated claims-based packaging to appeal to his target consumers and, above all, the simplest supply chain possible. “I lived and learned,” he says. “I don’t touch the ingredient side of things anymore.”

That has freed up more time for him to lead consumer focus groups and deepen relationships with retailers. It also helped him drive sales to $963,000 in the year ending March 2006. Life Choices’ two-year growth of 162% placed it in 41st on the 2006 PROFIT HOT 50—and made von Teichman the only person to have cracked the list with two different companies.

Today, he has shelf presence in every major grocery and organic-food retailer in Canada and five full-time staff, including a vice-president in Sonoma County, Calif. helping to lead a push into the U.S. Von Teichman’s goal is to make the business as simple, lean and profitable as possible, in hopes of selling it for $50 million-plus. He attributes much of his success to his decision to reinvent his strategy, especially his supply-chain management.

“If you have a failure but you like your business concept, then you have to get up and try it again,” says von Teichman. “If you accept that first failure, you’re never going to be a successful entrepreneur.”

Now entering its 8th year, the PROFIT HOT 50 ranks and rewards Canada’s top young growth companies. Apply now, or learn more at PROFITguide.com/hot50.

Originally appeared on PROFITguide.com
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