June 2, 2010

54) Hotel Chocolat

危 wēi  danger

Hotel Chocolat, the upmarket confectioner, was founded by Angus Thirlwell and Peter Harris in 1993.  I’ve always been a fan – not least because the company has consistently turned its challenges to opportunity.  For example, when it struggled to maintain quality cocoa supply it bought an Estate (Rabot Estate in St Lucia) – this in turn became a phenomenal provenance story.  Or, when it couldn’t muscle its way into big retailers it direct sold through catalogue.  It also grew a Chocolate Tasting Club (a subscription service which currently has about 100,000 members) which has created a community of evangelists and made demand more predictable.

It’s a great business, since its launch 20 years ago it has been profitable every year bar one and has continued opening stores during the downturn.  The company has been self-financed to date but its recent successful US store launch has revealed the global potential.  It’s time to expand before competitors enter the local markets but surely the team will have to give up its 200% ownership to fund expansion?

机 jī opportunity

As always Hotel Chocolat has approached the problem creatively.  Instead of raising expensive equity or debt it announced a very different approach – the company plans to raise £5m by selling “chocolate bonds” to its most loyal customers, taking advantage of rock bottom interest rates.  The investment opportunity will be marketed to the members of Hotel Chocolat’s Tasting Club – ‘Investors’ can subscribe for a three-year, £2,000 bond, which will deliver a “tasting box” of chocolate worth about £18 every two months — equivalent to a 6.7% yield.   The money raised will help to expand the high street chain from 42 to 72 shops, enlarge the Huntingdon factory, develop a new cocoa plantation in St Lucia and expand the business overseas.  Angus Thirlwell, co-founder, said: “We would rather pay interest to our customers than a bank. Many who have money sitting in the bank getting a low interest rate may prefer to be paid in chocolate.” The company is on track to deliver a 20% rise in turnover to more than £50m this year.

How About…

  • Fundraising from less obvious sources, e.g. your most loyal customers?
  • Using the fundraising process to bring in a community of evangelists?

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May 11, 2010

51) Clover Food Lab

危 wēi  danger

Starting any business is scary.  Starting any restaurant business is very scary.  It’s expensive to set up, there’s legislative hoops to jump through, location and menu are critical (and it’s tough to do market research before making the leap) and quality standards have to be maintained.  Finally, consumers are fickle so even if it’s initially successful you can’t rest on your laurels.  Surely you can only start by jumping in head first at the deep end?

机 jī opportunity

To the contrary, my colleagues Ryan and Colin (thanks guys) told me about Boston-based Clover Food Labs, a startup that has cunningly overcome these challenges.  Instead of committing to a site and launching a concept blind Ayr Muir has taken a more creative approach.  First, he took a job in Burger King solely to learn.  Once ready to go it alone, he decided to keep location flexible and costs low by opening a food van.  Muir tries different locations and menus with the goal of homing in on the right restaurant format.  Everything that Clover Food Labs does is in Beta (hence Labs) – it has taken some clever design to be so flexible.  For example, the truck itself is a giant whiteboard enabling Muir to edit menus instantly (see the image below).  In addition, Clover is completely open with the public – publicizing the bad stuff (see Muir’s Great Sandwich Disaster post here) in addition to the good stuff.  The open experiment approach seems to be working, I read that the van sells out often and mistakes seem to be less frequent – maybe Muir’s homing in on his restaurant format – it will be interesting to see if he can give up on the flexibility his van yields…

How About…

  • Starting small to learn? And staying in Beta forever?
  • Questioning every sacred cow?
  • Being totally transparent (even the bad stuff) to shorten the feedback loop and create a real dialogue with your consumers?

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here’s a photo Colin took of the stall itself – with menu in progress…

April 9, 2010

46) Netflix (again!)

危 wēi  danger

As per my previous post on the subject Netflix has done an incredible job of disrupting the video rental incumbents, particularly Blockbuster.  Part of its success was moving away from the traditional physical retail channel by harnessing internet distribution – providing opportunities to improve the customer value proposition that would never have been feasible in physical stores (including personal recommendation engines and instancy).  However, the former is notoriously difficult to develop and improve – the required algorithms are incredibly complex and require significant development.  They are, however, very valuable to the company (allowing it to predict how much someone is going to enjoy a movie based on movies that they have enjoyed in the past).  Should Netflix risk hiring an expensive team of experts to improve their algorithms, if so how would they possibly select the talent capable of making the most significant progress?

机 jī opportunity

Netflix found a creative way to avoid hiring anyone at all.  Instead, on October 2, 2006 it announced a $1m prize for the first team to better its own prediction software by 10% and a series of ‘progress prizes’ of $50k for the teams that made the most progress each year.  The strategy was immediately effective – within a year over 20,000 teams from over 150 countries had registered for the competition and 2,000 teams had submitted over 13,000 prediction sets.  Over the same period a handful of front-runners with very different backgrounds traded first place.  The competition reached its climax at the end of 2009 when a series of front-running teams decided to join forces to try to achieve the full 10% improvement. On September 18, 2009, Netflix announced team “BellKor’s Pragmatic Chaos” a merger of teams “Bellkor in BigChaos” and “Pragmatic Theory” had won the grand prize of $1m by only 20 minutes (the formula in the title is a very small excerpt).  The winning entry factored in an amazing variety of variables, including the effect that human memory plays in rating and the effect of moods on ratings for different days of the week.

How About…

  • In situations where the challenges or costs associated with solving your toughest problems are highest opening it up to the wisdom of the crowd?
  • It wasn’t until leaders joined forces with also-rans that real progress was made in this contest – how might you drive progress by merging competing teams?
  • The best solutions came from unorganized people who organized organically – how might you allow teams to self-mobilize in your organization?
  • The most extreme approaches that had seemed least effective when initial progress was being made actually made all the difference in the end – how might you harness extreme perspectives to build competitive advantage?

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