Tom King, CEO of Jo's Candies, sells almost exclusively to huge companies like Starbucks and Borders. He offers four rules for doing business with giants who could easily wipe you out.
To the outside world, Tom King is just a maker of chocolate-covered graham crackers. But his real expertise is knowing how to manage the big companies that buy from him
About a year ago, while he was in San Francisco calling on Williams-Sonoma, candy manufacturer Tom King met one of his longtime mail-order customers. Louise Groper, a self-confessed "foodie," had been buying candy from King ever since she'd read about his chocolate-covered peppermint crunch in Food & Wine magazine three years earlier. As he'd done with so many of his customers, King had struck up a phone relationship with Groper. Over time he had begun to confide in her some of his more vexing business issues.
Groper's more than 20 years of experience as a buyer for Boston Bed & Bath made her a particularly helpful sounding board for King, who was expanding by selling his products to large and powerful companies. "I'd tell her about my deal du jour," recalls King, and Groper would, as she says, "walk him through the mechanics of the deal."
Since 1991, King had been transforming Manhattan Confectioners Inc., doing business as Jo's Candies, from a tiny storefront chocolate shop in a Southern California beach community to a rapidly growing wholesaler of chocolate-covered graham crackers, available in upscale retail and coffee chains like Nordstrom, Williams-Sonoma, Seattle's Best Coffee, and Starbucks. Revenues had been doubling every year, and King's grahams were carried in some 3,000 locations.
King loves to proclaim, "I built this business on one product, a bulk product at that, with no packaging." But his boast obscures the quandary underlying his growth: although the majority of his $2.6 million in revenues last year did indeed come from a single product--graham crackers that were typically displayed in that most valuable of countertop real estate, near the cash register--the few owners of this real estate played an all-too-crucial role in pushing the company's growth upward. Jo's Candies has a customer list that anyone would envy (see "Sweet on Jo's Candies," below), and it's no coincidence that the candy maker's five-year growth rate of 1,064% (1993 revenues: $221,000) has coincided with the healthy growth rates of many of those customers.
But those blue-chip accounts constitute 75% of the company's revenues--meaning that King had better be as much in the business of managing those relationships as he is in the business of dipping grahams in chocolate. He's in a delicate position. It's one he shares with just about any entrepreneurial company competing for consumers' share of mind in today's economic climate, in which rampant consolidation has made mass marketing prohibitively expensive for the lone bootstrapper. "It's incredibly hard to go it alone and build your own brand. For the capital-constrained entrepreneur, leveraging the distribution channels of large customers is a great way to launch a business," observes Amar BhidÉ, who has taught entrepreneurship at Harvard Business School and is writing a book on new businesses.
But what if one of King's biggest customers decides to make its own chocolate-covered graham crackers tomorrow? Nice as it is to piggyback onto the growth rates of the big players, isn't Jo's Candies at their mercy? "I frequently wonder why people go into such businesses," muses BhidÉ. "Unless you're in a high-margin business where you have customers hostage to the same extent that they have you"--he cites information-systems provider EDS as an example--relying on a few large customers can be risky over the long term. Even King's banker, Barbara Van Wormer, vice-president at City National Bank in Beverly Hills, keeps a watchful eye on his predicament. "The fact that large customers are attracted to his products gives him some clout," she says, "but at the same time, his dependency is something we will keep very close track of as we go along, so that if one falls out, it won't cause a great problem."
King is hardly oblivious to the inherent precariousness of his strategy. "Big guys will always dictate to little guys," he flatly states. "I'm not going to say I don't have any worries, because I do. But you can't put a patent on food, and I can't worry about things beyond my control." Besides, King isn't so sure that his big-company customers are as out of his control as even they might think. Other entrepreneurs may deride Jo's Candies as a captive supplier, but King doesn't consider himself anybody's hostage.
Not that he doesn't sometimes feel worn down by all the haggling involved--something that came across to Groper when he met with her last year. "When these large companies were beating me up, I felt increasingly cynical, bitter, and frustrated," says King. The 48-year-old Southern California native, who still relishes the perfect wave, was working seven days a week. As he discussed his growing dissatisfaction, he began to envision a role that Groper could play in helping him take his strategy of managing big-company customers to the next level. Since winning his first account, in 1991, King has managed his company according to a handful of rules that any entrepreneur doing business with much-larger entities would do well to keep in mind:
RULE #1
It's Your Job to Help Them Feel Special
R.J. Selfridge was in a bind. for the opening of Nordstrom's South Bay location, in 1986, the head of the retailer's restaurant division needed 2,000 giant Driscoll strawberries dipped in both light and dark chocolate within two days. (The chocolatier he'd signed up with had disappeared.) At the suggestion of a coworker, Selfridge called King. "He just said, 'OK," recalls a somewhat-incredulous Selfridge.
That serendipitous strawberry assignment proved to be critical five years later. In 1991 prolonged city street construction hampered customers' access to King's store, and he also went through a life-threatening bout with peritonitis. Business at Jo's Candies was suffering to the point that King was advised by his accountant at the time to file for bankruptcy. "I was too proud or too vain to do it," he recalls. "I felt that the stigma would be horrible." At the time, King had a minuscule mail-order business for his chocolates. He decided he would try to expand it and add wholesale distribution.
