Search

Your Startup Guru

Launch and Grow Your Business

Category

Strategy

What Flamin’ Hot Can Teach Us About Entrepreneurship

Very loosely based on actual events but Flamin’ Hot can teach us a few things about entrepreneurship.

Flamin’ Hot is a fictionalized dramatization of how the wildly popular Flamin’ Hot line of products was created. A more detailed account of the creation of Flamin’ Hot Cheetos and related products can be found in this LA Times article. Although it is very loosely based on actual events, the film can teach us a few things about entrepreneurship.

Warning Spoilers Ahead

Entrepreneurial Spirit

Richard Montañez, the supposed creator was a natural entrepreneur since childhood. In the film, he was bullied by his classmates about his burrito lunch. He persuaded them to try it and got them to buy burritos from him. Richard then sold burritos to the entire school. Richard also showed interest in machinery early on which helped him understand the chip manufacturing process.

Not everyone is born with the traits and proclivities to create something new, but if you are, it’s a big advantage.

No Shame

Selling drugs got Richard in trouble with the law which limited his career options. So he pleaded his way into a janitorial job. Richard swallowed his pride and did the work.

Our perceptions about our self, how we think others perceive us, where we think we should be in life, pride, shame, etc. are all factors that can sometimes limit us. Overcoming this is probably more important than being a natural entrepreneur.

Industry and Market Research

Richard learned his job as a janitor but also learned how the chips were made. He also asked questions about chip manufacturing to people that were not in his department; thus crossing over departmental “cliques” — sanitation doesn’t mingle with engineers, etc. This allowed him to learn more about chip manufacturing than almost anyone. His willingness to overcome shame/embarrassment, in this case overcome corporate culture, also allowed him to access knowledge that others were unwilling/uninterested in learning.

Additionally, Richard’s Mexican-American background gave him exposure to spicy food and awareness about the large Latin-American population. In 1980, 6.5% of the US Population was Hispanic; by 1990, it grew to 8.8% as the total US population grew 22 million in that time. He saw how his friends and family would add spicy seasoning to their foods. Richard also saw, when he was on a delivery run with a coworker, that mainstream snacks were the only option in neighborhoods like his. A large and rapidly growing market did not have a spicy option.

This is all part of industry and market research.

In reality, Fred Lindsay, a Frito-Lay salesman that worked the Chicago and Great Lakes region noticed spicy products from regional competitors out-selling Frito-Lay.

Learn everything you can about your business, other people’s businesses, your customers, their customers. Knowledge is power.

New Product/Service Creation

It is important to note that Flamin’ Hot Cheetos (according to the movie) did not happen over the course of a couple of years. Richard was working at the plant for over 8 years when the idea came to him. Also, in the movie, Richard’s wife Judy, developed the recipe in what seems like less than a year.

In reality, Lynne Greenfeld and a team of product developers at Frito-Lay was assigned in 1989 to create a snack designed to compete with spicy snacks sold in the inner-city mini marts of the Midwest. Greenfeld would go on a field marketing tour throughout the Midwest and bring back 50 different bags of snacks that were all new to her. Eventually, she and her team honed in on a flavor combination and chubby devil branding that we know today. This process took around a year.

Bootstrapping

With the recipe in hand, Richard needed to acquire chips to coat the newly developed spicy slurry with. At the Frito-Lay factory, brown chips were thrown out because they only wanted the lighter colored chips. Richard took the discarded chips to create his first batch.

Finding inexpensive solutions is a crucial task in entrepreneurship.

Pitching

A pivotal moment in the movie happened when Richard looked up the contact info of Roger Enrico, CEO and Chairman of PepsiCo Inc., the corporate owner of Frito-Lay, to pitch the idea to him.

In the movie, Richard stumbles when asked about market share and product yield. This is where our services come in. Our industry leading pitch decks come with industry and market overviews, projected sales, and much more. Companies from a wide range of industries have used our pitch decks to raise funds from banks, SBA, and angel investors.

Guerrilla Marketing

Even after convincing Enrico to launch the Flamin’ Hot line, it was not all smooth sailing. In the movie, Frito-Lay did not launch an advertising campaign as most companies do for most products and services. As a result, the products were not selling.

To raise awareness for the product, Richard resorted to guerrilla marketing. He rallied his friends, family, and coworkers to start giving away unsold bags for free to anyone in the neighborhood. This strategy, more specifically, is called product sampling, and is commonly used by companies to raise awareness and increase the chances of initial purchases.

In reality, the Flamin’ Hot line of products had the full force of Frito-Lay’s marketing department. Unfortunately for most entrepreneurs, they do not have a large corporation driving awareness for their newly launched product.


Contact us today for help with your new product development.

Strategy consulting

Strategy consulting helps organizations solve complex business problems by developing and implementing plans. Your Startup Guru work with clients to identify their goals, analyze their current situation, and develop a roadmap to achieve their objectives.

Zavros came to us for help with a pivot to one of their existing businesses. They were looking at new industry sectors to enter where they would enjoy a competitive advantage and protection by barriers to entry.

Through meticulous industry research and market analysis, we found a growing niche that met their goals. A 5-year financial projection model comprising of an profit & loss statement, balance sheet, and cash flow statement was also created so Zavros could see how much to charge customers, when to acquire new assets and at what price, as well as overhead expense budgeting.

Equipped with a strategy, Zavros now has a clear picture of how to enter into this new business endeavor.

Contact us to create a winning strategy for your business strategy.

Launch and Grow Your Business

Lost Over $200k Trying to Start a Business

This post on Reddit talks about how an entrepreneur lost over $200k trying to start a business brings up excellent things to consider when starting a business.

Every business is different, but some key lessons that apply to almost all businesses are numbers #3, #7, and #9.

Lesson #3: Don’t Build Everything At Once

As an entrepreneur, you are likely the CEO and janitor. In other words, you have a lot to juggle and little cash to spend. Getting the core product/service to market takes precedence over spending time and money adding bells and whistles.

Lesson #7: You Can Be Either Low Frequency or Low Price, but Not Both

In other words, you can make infrequent big sales or frequent small sales, but not both. Most businesses fail because of illiquidity (i.e. not enough cash). Expenses never stop and must be paid even in between sales, so make sure you are always generating sales. A SaaS/user-base business is slightly different because the revenue model is based on data and advertising, but a similar maxim still exists.

Lesson #9: A Founder’s #1 Job is Sales

Once the CEO is done with janitorial duties for the day, it’s back to the phones making calls. For example, one of the main jobs of a partner at a law firm is increasing yearly revenue. They might not be doing contract review or picking up trash, but they are rainmaking.

See the full Reddit post below:

Launch and Grow Your Business

Contact us today for guidance on how to not lose money trying to start a business.

SBIR Seed Funding

The Small Business Innovation Research (SBIR) is investing up to $2 million in seed funding, aka America’s Seed Fund. America’s Seed Fund is a program within the National Science Foundation and housed within the Directorate for Technology, Innovation and Partnerships. This congressionally mandated program aims to foster innovation and help create businesses and jobs in all areas of the United States, and small businesses funded by our program have since gone on to tremendous success, changing industries, and helping people and the planet. Click here for more information.

Contact us today to get started on your pitch deck.

The Case for Small Businesses

The case for small businesses is a strong one. From job creation to patents filed, small businesses are a major driving force in the economy.

Small Businesses are an Engine for Job Creation

Despite losing 9.1 million jobs in the first two quarters of 2020, small businesses’ job growth rebounded swiftly following the COVID-19 recession. In the four quarters following, small businesses have gained 5.5 million jobs, making up for 60 percent of the decline during the early pandemic. Small businesses have generated 12.9 million net new jobs over the past 25 years, accounting for two out of every three jobs added to the economy. Source.

Small Businesses are Drivers of Innovation

Experts often use patenting activity as a proxy for innovation. Data from the National Science Foundation show that small businesses that engage in R&D generate more patents per employee than larger businesses that engage in R&D. However, small business patenting activity fell significantly following 2010.

The decline is now reversing. Small businesses recovered to two-thirds of peak patent application levels from 2015 to 2018 and recovered to half of peak patents received levels in the same timeframe. Source.

Small Businesses Need Support

Unfortunately, more than 90,000 restaurants that have closed across the U.S. in the past two years. Restaurant industry sales in 2021 were down $65 billion from 2019’s pre-pandemic levels. A touching article in High Country News tells the touching story of the last day at DeDe’s, a mom-and-pop restaurant in St. George, UT.

She suffered a stroke a year ago and hadn’t been able to visit. “When DeDe found out, she made my mom’s favorite meal — a ham, mushroom, and spinach omelet with Swiss cheese and a slice of cantaloupe — and delivered it to the care facility,” Feesago said. “It’s more than food. DeDe made us feel like family.”

This type of value-added service without an exorbitant surcharge would be unheard of in a corporate restaurant scenario. The personal touch is also gone. Optimizing for profit results in diminished customer experiences. The typical story of a small company that grows until it catches the eye of a larger firm is common. The value and brand that the small company created are gutted to make room for shareholder value creation. The original loyal customers eventually leave because the magic is gone. This is done over and over again until Main Streets throughout the US begin to look exactly the same with the same 15 corporations.

The tragic irony in all this is that corporations spend a considerable amount of resources trying to recreate a “we treat you like family” environment that customers want. Unfortunately, it is just marketing, and the user experience is not genuine. The corporations would do better as a holding company that lets the small business operate with minimal interference. The parent company could provide occasional funding for expansions, hiring, and process improvements.

Small improvements can lead to significant benefits. Our blog post Competitive Advantage and Coffee talks about how a simple gesture such as remembering regular customers’ names can result in higher coffee sales. Another example is DK’s Donuts a small independent donut store in Santa Monica, CA that has been in business since 1983. Even when mega-chain Dunkin’ Donuts opened a block away, business did not suffer because the user experience, customer service in other words, was not there at Dunkin’ Donuts.

Launch and Grow Your Business

Contact us today to discuss how you can start your own small business.

Pharmacy Valuation

Valuation Methods

Our client needed a valuation for the purchase of a pharmacy. A valuation is crucial to determine a reasonable purchase price range for a business. Several methods, adjusted specifically for pharmacies, had to be used to arrive at a valuation. The methods used were Enterprise Value, VC Method, Discounted Cash Flow Method, and the Multiples Methods based on historical financial statements. Then an average was taken from the calculated values to arrive at a valuation.

Enterprise Value

The Enterprise value (EV) measures a company’s total value, often used as a more comprehensive alternative to market capitalization, also known as Equity Value. Also, if the company is not publicly traded, market cap is not an option. To calculate EV, you subtract the market value of liabilities and non-operating assets from the market value of assets and add in non-operating liabilities. Essentially, it is the value of the company’s net operational assets to all investors.

VC

The Venture Capital valuation method is a common method used by venture capitalists to value an investment. To calculate this method, one estimates the investment needed, forecast startup financials, determine the timing of the exit, calculate the multiple at exit, discount to the present value at the desired rate of return, and from there determine valuation and desired ownership stake.

Discounted Cash Flow

The Discounted Cash Flow Method is considered the most detailed and most heavily relied form of valuation for a business. To valuate a company using the DCF method, an investor makes estimates about future cash flows and the ending value of the investment and adjusts those future values to the present value using an appropriate discount rate. The sum of the discounted amounts is the intrinsic value of the investment.

Multiples

The Multiples Method is a valuation method based on the theory that similar assets sell at similar prices. The method takes a financial ratio, such as price-to-earnings, or equity value, or enterprise value (as discussed above), then multiply it by a specific number unique to the industry sector that the subject company is in. This gives a calculated value of what the company is worth.

Launch and Grow Your Pharmacy Business

Pharmacy or not, no matter what business you are considering, contact us today to know that you’re getting a reasonable price for the company.

The dominos are starting to fall in the U.S. economy.

From NPR’s Morning Edition:

The dominos are starting to fall in the U.S. economy.

As the Federal Reserve pumps the brakes on the economy, many American companies are retrenching. There is a growing fear that as the central bank aggressively hikes interest rates to fight high inflation, it could tip the U.S. economy into a recession, and executives are cutting back.

A host of companies have announced job cuts or hiring freezes in just the last two weeks. They range from Tesla and JPMorgan Chase to Redfin and Coinbase.

Netflix last week announced a second round of job cuts for the year, this time eliminating around 300 positions. Earlier this year, the entertainment company announced it had lost subscribers for the first time in more than a decade. Since then, Netflix has eliminated roughly 450 positions.

Read the rest of the article here.

Contact us to find a strategy to weather this upcoming storm and put you in a stronger position.

More Recession-proof Businesses

Is a recession on the horizon? U.S. stocks slumped lower Thursday, giving back all of yesterday’s post-Fed decision gains and pulling the Dow below the 30,000 point mark for the first time since early last year, as investors re-set prices on risk assets around the world in anticipation of faster near-term rate hikes and relentlessly high inflation.

The Federal Reserve delivered its biggest rate hike since 1994 yesterday, boosted its Fed Funds rate by 75 basis points to a range of between 1.25% and 1.5%.

What to do in a Recession?

Adaptability Charles Darwin - Your Startup Guru

As Charles Darwin observed, the most adaptable wins. We’ve been here before, a looming recession and people are worried about losing their jobs. Now is the time to think of the strategy that will help break one free of the whims of cost-cutting management.

Recession-proof / recession-resistant businesses

In a previous post, some recession-proof / resistant businesses were listed. Adding to that list are several more businesses that deserve consideration:

  • Gym / Fitness: Although fitness centers took a massive hit during COVID-19, it wasn’t for the lack of demand. According to the IHRSA, a global health & fitness association, the industry has been long thought to be, if not recession-proof, at least recession-resilient. Revenue from North American fitness clubs in 2009 (during the Great Recession) rose nearly 4 percent in 2008 from the year before, and membership grew by more than 10 percent, according to the IHRSA.
  • Independent contracting / Freelance services: When a recession hits employers turn to independent contractors as an alternative to hiring full-time employees. So, freelancing is a viable alternative to the traditional career path. The great thing is you can diversify your services so you can create multiple revenue streams. Most workers have a diverse set of skills that they can leverage. Also, there are many platforms such as Fiverr where you can easily share your skills.
  • Health and senior services: According to the Bureau of Labor Statistics, healthcare and other services for seniors are expected to grow by 23% by 2024. This service sector has already been expanding rapidly over the last decade. In fact, in 2019, there were 71.6 million Boomers making them the second-largest demographic behind Millennials with 72.1 million. As life expectancy continues to increase, the wide range of needs this market demands is large and profitable.

Sell Shovels in a Gold Rush

If you’re saying to yourself, “but I don’t have any experience in these fields.” Keep in mind the saying, “Sell shovels in a gold rush.” What this means is don’t be one of the thousands or millions of competitors jockeying for one goal. The thousands or millions of competitors can now be your customers. Find a product/service that meets their needs. Look to your transferable skill sets and network for inspiration on how to pivot into a career.

Feasibility Study

Once you have an idea of some pivot options you have to do a feasibility study to see which one is the best option for you. A feasibility study is a curtailed business plan-like document where you outline your product/service, the business model, your competitors & your customers, and expected revenues/expenses/startup costs. A well-done feasibility study can save hundreds of hours and thousands of dollars in sunk costs.

Contact us today to create a feasibility study for you.

What Angel Investors Prefer

Not all industries get the same attention, and there is a pattern to what angel investors prefer. For example, according to a recent report based on an analysis of 2,492 transactions across 2,444 companies, all completed in 2019, angel investors are more likely to prefer certain industries and deal structure types (e.g., convertible notes).

Selected portions from the report below:

Industry

The 2019 data revealed a first-time decline in the information technology/software segment as a percentage of total transactions relative to other investment segments (2019/2018) — 29% of the investments (2019) were in information tech, compared with 38.6% (2018). Yet Information Technology still remains the dominant segment for angels.

Angel Investors Prefer: Consumer Products / Services sector saw significant growth, up from 18.2% (2018) to 25.75%.

If Healthcare and Biotech were combined, they would comprise 21% (2019) of transactions versus 18% (2018). We added Biotech as a discreet sector to track in 2019, but for comparison sake, you can observe that even without Biotech, the Healthcare segment continues to be a major category for angels.

We also noted an increase in Financial Services’ Fin Tech in 2019, which was too small in 2018 to warrant its own category. In 2019 companies in this sector participated in 3.55% of all transactions. The Energy sector also rose to over 3%, with a few related Environmental companies included.

And for this year, we found enough companies to warrant adding Ag Tech (1.2%) as a separate category and clearly growing. While Info Tech and Software is still the leading category for angel investing, but by a much smaller margin than in the past, we also acknowledge that Info Tech / Software is often a necessary core component of many other sector investments.

Deal Structure Type

While we continue to see the use of SAFE notes, they are a minor percentage of all Seed transactions at 4.7%. The primary structures were 51% Convertible Notes and almost 41% Priced Preferred. SAFE’s are not reported in our data as frequently as we hear them discussed amongst early-stage entrepreneurs.

Series A transactions were (as expected) Preferred Stock 86% of the time, with 12% standard Convertible Notes associated with a Series A, typically a bridge to Series A, but distinctly beyond the Seed stage.

We did find SAFEs were most frequently used in Mid-Atlantic Region at 12%. The Mid-Atlantic use of SAFEs may be heavily influenced by US Federal DOE, NSF, NIH, and other grant money, which does not permit debt as a liability while grant funds are in use; hence early-stage companies who do not wish to price their round are opting for SAFE notes.

California was #2 in SAFE usage at 10%, influenced by California incubators and possibly by science companies vying for Federal grant funds.


There are considerable pre-money valuation and round size discrepancies when it comes to the various demographics of entrepreneurs. This highlights a disturbing flaw in the angel investment community, but that goes beyond the scope of this blog post.

Launch and Grow Your Business

Your Startup Guru fundraises for clients from a broad spectrum of industries, including restaurants, SaaS, fintech, and more. Capital ranges from $10,000 to over $10 million have been found.

We have solutions for you even if your industry is not what angel investors prefer because capital is sourced from private equity, banks, economic development authorities, grants, and more.

Contact us today for your fundraising needs.

How to Be More Influential

One of the best podcasts for business is the Freakonomics Radio podcast. This particular episode was especially interesting because it discusses how to be more influential. Influence has direct relevance to sales. One of the biggest issues for any business is generating revenue. To do that, your revenue centers must be skilled at influencing clients to purchase from your business.

The social psychologist Robert Cialdini is a pioneer in the science of persuasion. His 1984 book Influence is a classic, and he has just published an expanded and revised edition. In this episode of the Freakonomics Radio, Cialdini discusses the seven psychological levers that manipulate our self-described rational minds and lead us to act, follow, or believe without a second thought. The seven levers of influence are reciprocation, liking, social proof, authority, scarcity, commitment and consistency, and unity.

Some key excerpts from the interview:

  • Reciprocation – Reciprocation is the rule that is installed in all of us, in every human culture, that says we are obligated to give back to others the form of behavior they’ve first given to us. 
    • For large groups, he would ask the first person for an order, and no matter what s/he ordered, he would frown, lean down so everyone could hear, and say, “That’s really not as good tonight as it normally is.” And then he’d recommend something slightly less expensive from the menu. “This, this, and this is really good tonight.” So, what he did was to say, “I’m being so honest with you, I’m willing to recommend something that will give me less of a tip.” Then when he returned at the end, he would say, “Would you like me to recommend a dessert wine or a dessert?” And people would all look at each other and say, “Of course, Vincent, you know what’s good here, and you have our interests at heart,” and they would spend on wine and dessert.”
  • Liking – Being likable makes you more persuasive.
    • “But how do you make someone like you? One is to point to genuine similarities that you share. The other is praise. Because, first of all, people like those who are like them, and secondly, they like those who like them and say so.  Car salespeople, for example, are trained to look for evidence of such things while examining a customer’s trade-in. If there is camping gear in the trunk, the salespeople might mention, later on, how they love to get away from the city whenever they can; if there are golf balls on the back seat, they might remark they hope the rain will hold off until they can play the 18 holes they’ve scheduled for the next day.
  • Social Proof – We are more likely to say yes to a proposal or a recommendation if we have evidence that a lot of others like us have been doing so. 
    • The power of social proof is so substantial that people who watch a presidential debate on T.V. are said to be significantly swayed by the magnitude and direction of the applause at the live event. This is not at all a recent phenomenon.
  • Authority – Deferring to authoritative figures and sources.
    • In one study, someone called the nurses in various wards of hospitals and claimed to be a doctor on the staff who the nurse had never met and ordered the nurse to give a double dose of Astrogen to a patient. They’re not supposed to take these orders by phone. The dose was twice the maximum dose that was on the bottle of Astrogen. But 95 percent of them were on their way to give the drug to this patient before they were interrupted by a researcher who said, “Wait, don’t do that.” The researchers concluded that one would think there would be multiple intelligences operating to decide whether to give this amount of drug or not. But it turns out that, because of the principle of authority and the deference that the nurses were giving to the physicians, there was only one such intelligence function. As highly trained and intelligent as nurses are, in a fast paced challenging environment, it is easy to unthinkingly follow an authority’s directive.”
  • Scarcity – An insufficiency of amount or supply.
    • In the book, you tell the story of your brother when you were much younger, that he would buy and resell used cars. And his big trick was to tell all the prospective buyers to come view the car at the same time, so that he’d have everybody come Sunday at 2:00 p.m. to create a sense of demand or a false scarcity.
    • Another example is companies that create an artificial scarcity, essentially by limiting the amount of production they engage in. Let’s say it’s a T-shirt, a sneaker, a luxury watch. They could make a million a year. They choose instead to make 10,000 a year and charge 100 times what it might go for on the market as a mass-market item.
  • Commitment & Consistency – Seeming to appear true one’s decisions, beliefs, and/or actions
    • In one study, when six- or 12-person experimental juries were deciding on a close case, hung juries were significantly more frequent if the jurors had to express their opinions with a visible show of hands rather than by secret ballot. Once jurors had stated their initial views publicly, they were reluctant to allow themselves to change publicly. Should you ever find yourself the foreperson of a jury under these conditions, you could reduce the risk of a hung jury by choosing a secret rather than public balloting method.
  • Unity – The power of social identities to drive people’s behavior
    • In the United States, citizens agreed to participate in a survey to a greater extent if it emanated from a home-state university. Amazon product buyers were more likely to follow the recommendation of a reviewer who lived in the same state. People greatly overestimate the role of their home states in U.S. history. Readers of a news story about a military fatality in Afghanistan became more opposed to the war there upon learning the fallen soldier was from their own state.

The most fascinating takeaway is that the more “rational” aspects, such as features, benefits, quality, value, or pricing, are not major direct decision-making factors. Although it is arguable that quality, features, etc. can fall under Like; they prefer substance over style, etc.

Listen to the whole episode here:


Another effective marketing strategy is using the MAYA approach, “Most Advanced Yet Acceptable” also incorporates some of the levers of influence, namely Liking and Commitment & Consistency. Read about MAYA here.

Up ↑

Skip to content