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Petitioner: I'm starting to put things together to start a chocolate manufacturing business, with an initial investment of about $75k, so relatively modest. I don't have exact estimates of the quantity of beans I need yet for production. The focus of my business will be on ethically sourced, single-source, and sustainable beans.  I'm curious to know when working with craft chocolate makers, do you sell samples of different varieties? Or if there are any beans that you'd immediately recommend for making chocolate (well fermented, not too many inclusions, etc.), preferably at least two or three sources? Within the next three months is the current estimate I have right now for sampling + creating recipes in small batches. Afterwards, between 3-6 months it would be purchasing inventory and equipment.

Alchemist: How much chocolate have you made?

Petitioner:  You nailed it there! I'm new and haven't made any chocolate yet. My background is manufacturing and I'm just completing an MBA. I am going to be hiring a consultant for picking the right taste profile for my business. My apologies if these questions seem quite ignorant.

We have come to the end of The Iron Triangle of Anguish and it is time to start tying it all together in the context of starting and running a chocolate making business. The above question is really an example of how not to do it and it’s a fine spring board to talk about starting a chocolate business, how that might look and the different trade offs you’ll face.

Starting a chocolate business. The very first thing to ask yourself is why.

Why do you want to start a chocolate making business? Is it your passion? Does it seem like a fun way to spend your days? You expect it to make you rich beyond your wildest dream? There are (and aren’t) as many answers out there as there are people that have the thought.

 

Back some 20+ years ago when I had just moved to Oregon from Florida I had it in my head I wanted to work in a vineyard. I loved wine, I loved to brew beer. It seemed like the perfect combination. I tooled around, made some calls. I spent a weekend talking to some winemakers. Mostly I got nowhere. Finally I talked to this grizzled old guy (where the hell is my cringe emoji? - shit, he was probably 60 {I’m 54 now}) and he asked me why I wanted to work a vineyard and make wine....and I kind of mumbled something about loving wine, and being enamored about grapes and he stopped me right there and said “Hang on there now son. Why do you want to work your ass off 60-80 hours a week and live in poverty?”.....

...and I didn’t have an answer

....except

....damn it, I realized he was right.

I know now he was seeing why I was there, what I was willing to give and more importantly, what I was willing to give up. I didn’t have a passion big enough for the life trades I was going to have to make. The reality is I just wanted to be a hobby winemaker and hobby grape grower. And that is and was absolutely ok and thank goodness I learned that lesson early. I learned I had to ask myself what was I willing to give up for what I wanted.

So before we even get into the section of this article where we talk about running a chocolate business the first thing is to determine if you even should start a business and/or if you even can.

What do you have to offer or give up depending upon the point of view? What are you bringing to the table? As I see it you have time, money and passion. Somewhere in there you also have ability and experience but at the outset, those three will do just fine.

What will you trade?

Money and Time for Passion? I was not willing to work 60 hours for little money for something I thought I loved but didn’t really.

Time and Passion for Money? That is so often what happens when you take a hobby and turn it into a business. You put your heart and soul into the business, have no time to spare.....but make money.....and learn too late you have stopped enjoying what you used to love.

Passion and Money for Time? This is possibly the worst and happens when you start a business and spend all your time doing things that have to be done and have to hire someone for the things you wanted to do in the first place. This is also the result of bad planning and having expectations that don’t meet reality. You toss in a bunch of time, all your time, you burn yourself out and still don’t make money because you didn’t do your research.

Know this: Running a business is a lot of work.

Chocolate making isn’t dancing around with hip music, filling chocolate molds and having a great time as it so often looks like on Instagram. You are not going to have nearly as much fun as you think you are going to. If your work/fun ration is 75/25 you are doing fantastic, and I mean really, really fantastic.

Did I have 10 hours of fun last week running Chocolate Alchemy? Probably not. There was maybe 5 out of my 50 hours. An hour a day? Yeah, that is about right.

And I still feel blessed.

Now that isn’t to say the other 45 hours were bad. They were just not Instagram level fun. They moved the business along. Too many folks come into this thinking the work to fun ratio should be 10/90. If that is what you are thinking, keep chocolate making the kick ass hobby it can be.

So let’s go back to “Why” from above and expand on it a touch.

Why do you think you are able to run a chocolate business?

Why do you you want to do it?

Why will people support your business?

If you’ve spent a couple decades starting and running businesses then this article is not for you. And you most likely have all the answers and will be well aware of the Iron triangle trade offs. I’ve seen this happen a few times and in some ways it looks like magic. The person wants to start a chocolate making business....and does it and it is successful....but they have traded money and experience for that success. That paid for their current ‘magical’ success by most likely failing (and learning) a LOT and spending (or wasting) money doing it. I’m come back to a couple personal examples later on.

The point is the OP above isn’t there.

“The focus of my business will be on ethically sourced, single-source, and sustainable beans.”

Raise your hand if you had too keep yourself from rolling your eyes a little. Please know, I really don’t mean that unkindly although I get it if you think I’m being a jerk. My whole point is that pretty much the entire Bean to Bar chocolate industry can say this and when everyone says it, it no longer stands out as something special. When everyone is special, no one is special. Not convinced? Try this.

“The focus of my business will be on ethically sourced, single-source, freshly roasted and sustainable coffee beans.”

You can’t hard drive a block and not see this kind of business. It is a great thing but what is going to make you stand out from the crowd. Ditto for focusing your business on ‘the best chocolate’. Lowest price? There is a reason prices are where they are. I made this mistake in my youth. I thought I could make this line of expensive items for less than the competition.....and what do you know? I could never quite turn a profit. Expenses I had not accounted for kept creeping up. My wet behind the ears naivete kept me from seeing this. I seasoned business person would have seen it immediately and not made that mistake.

I want you to be aware that there is a LOT more to running a chocolate business than passion.....except some passion is essential. That passion is what keeps you going. It is what you pass along to your customers and is why they come back. Passion is what that winemaker was looking for in me. And it is what keeps me going....oh, but contrary what you might think (spoiler), I have little passion for chocolate. What I have is a deep and abiding passion for experimenting, building, inventing and teaching. Chocolate just happens to be the market I’m in. I hope that doesn’t deflate the image you have of me too much.

Alright! You have decided you freaking love chocolate making, you are passionate about whatever it is you are passionate about, you are damn well going to do this!!!....so it is time start weighing your options with the Iron Triangle...because you can’t have it all.

I can’t solve this for you. My goal here is to give you some information to make informed choices. This is going to be more conversational versus laying out all the options....because there are just so many freaking options.

Do you have money? Or more to the point how much money do you have? This is going to go hand in hand with how much spare time you have? I started Chocolate Alchemy nearly 20 years ago with one single bag of cocoa beans from Ghana. It was a few hundred dollars with shipping. I experimented with it in my spare time when I was not working, helping to care for my daughter or running my small dairy goat farm. I got well acquainted with 4 am and 11 pm. I used the profits from that bag of beans to buy two bags of beans, which then was followed up with 3 bags. It was a long and slow road where I didn’t take a paycheck for nearly a decade. I could do this because I had a full time paying gig as an analytical chemist.

I traded a really long timeline for low capital investment, nearly no overhead and a ton of sweat equity. But there was another reason I took this route. I had a goal of bean to bar chocolate being an industry but I didn’t have the PR skills, nor money, nor knowledge how to do that quickly. I recognized it had to grow organically. Joe Shmoe down the street had no idea why bean to bar chocolate was any different from that bar of Hersheys that they could get for $1.25.

Just because you build it does NOT mean they will come. The only reason it worked in the movie (aside from it being fiction) is that baseball is known and loved. I knew I could build it (both the business and the bean to bar world) but I had to have the time for word to spread, and have others help carry the load. I very consciously decided upon a business model with low overhead so I was not burning money when I was not making money. I ran it out of my home for a few years. My product was shelf stable so I didn’t have to worry about it expiring. I didn’t take a salary because I had one from being an employed chemist. For a while there I advertised but the ROI (return on investment) was effectively zero. I only moved to a leased facility and hired employees when I could no longer fill orders in the time and space I had AND sales covered the cost of the overhead.

What I’m hinting at here is something that I really understood, that I thought was common sense. but that I’ve found over and over is not. Realistic finance projection. I’m sorry to say, passion won’t pay the bills any more than exposure will put food on the table for an artist.

I’ve watched people rent space in a commercial kitchen, come up with a product they are passionate about and get it all packaged up. They work out they can make 150 bars a week, determine they need to sell 50 bars a week to cover expenses.....and sell 10. They utterly failed to have a back up plan for not meeting their goals. For some funny reason it is frowned upon to force someone at knife point to buy your chocolate. They ended up folding in about 6 months when they had maxed out all their credit lines, sales had not increased and they could not pay those bills off with their passion.

I’ve also seen someone who was a pretty good sales person and happen to be flush with cash go out and sell 2000 bars of chocolate, have all the equipment to do it.....and have never made a bar of chocolate in their life. In our Iron Triangle worldview here, this was a case where money could not be traded for experience when they thought they could. But at times it can go the other way.

I’ve seen more than one really good businessman appear to jump into chocolate. Their passion was business and but not so much chocolate. They saw a business opportunity, made a business plan, worked out overhead costs, production capacities, sales goals to cover and exceed expenses and made back up plans for not meeting those goals. They were a seasoned business person after all. They then either used personal capital or went for financing and got it because they had researched the market, learned where there was a gap and went in and bloody well filled it.

You’ll notice I’m not really giving you any answers. But hopefully I’m giving you some more things to think about. Let’s continue.

Scale and market.

How big do you want to be?

Do you want employees or is this always going to be yours and yours alone?

If you want employees how much to do need to sell to cover their expenses and what happens to them if your sales go down? Chocolate is very seasonal and there is almost never a steady cash flow.

If it is just you, how much chocolate can you make with different sizes of equipment in a given time span and do the equations work? i.e. if you need to make $50,000/year profit, and that will take $70,000 in equipment, can you afford the equipment and can you sell that much chocolate? Going the other direction, if you can afford $2000 in start up expenses, will the time you have available allow you to make (and sell) enough chocolate to give you the income you need/want?

Where is your market going to be? Will it be local or be ‘everywhere’ because of the internet? Pro-tip, try and stay local. 90% of my wholesale customers you will never have heard of because they produce in small local markets. If you are going big and want to get into a large chain grocery store or high end boutique, how are you going to stand out? More than once I’ve gone into one of these boutiques and watched people stare at the wall of artisan bean to bar chocolate, full on deer in the headlights look, and just leave.

If you do go big and use a distributor have you accounted for the fact you will have to cut your price roughly in half so when they mark it up, it aligns with other brands?


Were all your calculations above based on a higher margin retail price or 1/2 (or 1/3) wholesale price?

Since this is the conclusion of the Iron Triangle, it is a good time to talk about your needs vs your customer’s desires, and let’s bring your employee’s needs back into this.

Let’s be honest, you probably want as much money as you can make. I’m not talking about unhealthy greed, but reasonable financial security. And it is no surprise your employees want the same thing. Likewise, you customers probably want to pay as little as they can but given they know they are buying a high end product, they are not looking for the bottom of the barrel, cheapest chocolate they can find. You also want (and demand) that you pay a fair if not better price for your cocoa beans so that the whole supply line is prospering and sustainable.

The issue though is that everyone can’t have everything. Your employees could well think they should be making $70K/year ala the Dan Price model of business but I’ve never seen how that can work with a small physical product like chocolate where there are so many hands in the proverbial pie when there is already talk that $10-12/bar is too much. But that is where many of the solutions to the financial equations come out....and you may start to question if the bean to bar market is a sustainable market and one you want to get into.

Before I go down the rabbit hole of despair about that I want to pull us back and just note you are not going to meet everyone’s needs. The Iron Triangle lays that out very very clearly.

It means you are going to have to dig in, crunch some numbers and see if what you want is something that is practical. It may be that with what you have available to you, you can’t open a chocolate business. Or maybe, because you want to keep the joy, and have some income from other places, you can keep your business nice and small and that is perfectly good.

I love the concept of enoughness. Above I mentioned, you, the owner, probably want as much money as you can get. I don’t actually believe that is universal. I know I don’t think that way. But I do want enough. And maybe that is what Dan Price was getting at. Larger is not always better so don’t necessarily get caught by that demon. Look for the sweet spot where everyone is getting enough. You. Your employees. Your suppliers (of course meaning the farmers) and your customers. Find that balance. That is where I personally believe you are going to find a satisfying, successful and sustainable chocolate business.

I’m going to go ahead and tie up this Tie up conclusion.

One could probably write 50 if not 100 pages on how to start a chocolate business.....and in fact....I’ve been talking with a successful chocolate maker who fields these questions all the time with his customers. He started putting together thoughts and notes of what he has learned over his years of experience starting and running multiple businesses. He has tailored it to how it applies to starting and running chocolate making business. Once he had over 70 pages written he sent them to me. I’ve been reviewing them and they are a treasure trove of information. My thoughts above are just the tip of the iceberg to his excellent Guide (coming soon).

Below are a few excerpts to give you a token flavor of what I hope and expect to be offering. It will come at a modest financial price. High enough to weed out those not serious, not so high to keep the information out of the hands of those who would benefit from it.

Excerpts from The Business of Small Chocolate by Brian Mikiten of Casa Chocolates - coming soon.

 

Fighting with Success
Understanding retail sales trends can be confusion if not impossible for a small business. We all can assume larger sales during holidays, but the rest of the schedule can be confusion. I’ve tried to correlate sales in several businesses to weather, pay periods, seasons, and other dates or factors but have never found anything reliable. What I have seen is that as the customer base grows, there will be factors that you will have to be prepared to deal with on a regular basis.

1) What if you sell out every week? The simple answer is to make more products but that
isn’t the only path to consider. Should you raise your prices? If you are happy with your
overall income and don’t want to expand you can simply shorten your work hours
devoting off time to making more bars. Look at your sales data and let it help you make
this decision using data.

2) How can you expand if you can’t keep up with the customer demand? You’ll need new
equipment. We address this in the next section on Capacity Planning.

3) What if you have a period of very slow sales? The assumption has been that the
products sell out each week but that is rarely the case. Excess inventory has a cost.
Excess production capacity in the form of un-used machines has a higher cost. Selling
bars wholesale is the natural solution to this gap. The magic comes in balancing
wholesale (unpredictable) sales with your normal production. One way to do this is to
talk to your clients at least once a month to gauge their sales and provide forward looking projections for yourself.....

BACK TO Defining Costs
One simple way of doing this is to make a list. This one isn’t exhaustive, but it is a great start to make sure you don’t miss any of the big items. These are the actual things you buy to make the end-product for sale.

Cacao Beans Cocoa Butter
Outer packaging Inner wraps/foils/sleeves
Sugar (sweetener) Additives (milk, nuts, flavorings, etc.)
UPC codes (yes, you buy these) Labeling

The most important lesson here will be recognizing the cost and risk of buying these items in
larger versus small quantities and how that affects your costs and profits as well as cash
position at any time. We will look at some specific examples of the costs involved in making 50 bars versus 500 or 1000 shortly.
It is important to note here that I have not defined how long it takes to make or sell 500 or
1000 bars. This is a very important discussion.


Fixed Costs
Simply put, fixed costs are those things that exist.......

Regulations

Health Codes and Licensing are in place to ensure that you do not supply unsafe products or
cause illness to the public either via a retail or wholesale channel. All states have some form of legal requirement to produce food that will be sold to the public. In the most basic form when you sell DIRECTLY to the end consumer, you’ll follow a form of Cottage Industry laws. Each state is different, and you are required to know these rules for the transaction, labeling and the collection of Tax. In a very general sense, you are interacting directly with the customer, so they know you and have traceability to the source of the food product. Most states require the listing of allergens and other ingredients.

When selling wholesale where a second or third party is involved, you’ll need to produce the
food in a commercially certified kitchen so check your local food inspection rules. Some
products require FDA traceability as well. You’ll need to purchase bar codes for your retail
vendors use in their Point-of-Sale system as well. Vendors may require production and/or Good Until dates.

REMEMBER – Chocolate is a LOCAL business often not operating more than 150-200 miles from the manufacturing location. We ship all over the US, but the bulk of our sales are all in that proximity.

 

Finally, in addition to this upcoming treasure trove of information I will officially be offering Consulting Services on a per hour bases.  Disclaimer.  This will in no way affect the freely given email support I have always given and will always give for free.  This will be in depth conversations, one on one, after you have done your due diligence and research and are ready to get serious.

That finishes up our Iron Triangle of Anguish.  At this point I expect you to have a firm grasp of how to apply it in both chocolate making and your life in general.  

Happy chocolate making.

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