From DTC CPG to retail (with Jarod Steffes, CEO of Muddy Bites)
Jarod Steffes co-founded Muddy Bites while he was a college student studying business management at Iowa State University. The irresistible snack is a treat that looks like the bottom of a sundae cone, and was a runaway success when they ran a crowdfunding campaign through Kickstarter in 2019.
Jarod Steffes co-founded Muddy Bites while he was a college student studying business management at Iowa State University. The irresistible snack is a treat that looks like the bottom of a sundae cone, and was a runaway success when they ran a crowdfunding campaign through Kickstarter in 2019. Since then, they’ve consistently sold out of DTC production runs and expanded into retail locations across the country. In this episode, Jarod shares his startup journey with Ramon and Blaine, and the business lessons he learned along the way.
3:35 - Starting with Kickstarter
Jarod and his partners knew they could have gone through the formal fundraising process, but wanted to get market validation first.
“Having some startup cash to kind of get going, especially when you're talking about a CPG brand, it definitely helps a lot for a lot of levers. For us, sure, we could've gone out and raised money. But you know, that's like a 3-6, maybe 9-month process to go get a full round of fundraising. And we just don't want to do that. We just want to make sure the idea was worth it to other people. And so for us, Tyler, my co-founder, he started in his mom's kitchen just making samples, making things, making sure that it was a good product and so on and so forth. And for us Kickstarter was this channel where we could put up a campaign. And for those that don't know, Kickstarter, if you don't hit your goal within the 30, 60 whatever day campaign you want to do, you just don't get the money. So for us, it was like, okay, let's put it on Kickstarter. If it does really good, great. We'll get the money. And if it doesn't okay, then we'll go back to the drawing board.”
9:49 - A viral launch
All of Muddy Bite’s original sales were completely organic, and they sold out of product before it was even produced. This meant manufacturing was the biggest blocker.
“We launched on Shopify and really from day one, I think day one we launched, we did like 25k in sales. And that was really just kind of all organic. And really from there for the next four to six months, it was like every single bag was sold before it was ever produced. We never really did Facebook ads, because it just organically every bag was sold before it's produced. And so it really was kind of this process of manufacturing. How do we increase the manufacturing? How do we speed up the manufacturing? And so it was really kind of a different kind of journey so to say, because most brands it’s like, how do I go out and market this better? How do I get more customers? And it really for us, it was kind of flipped.”
10:58 - Keeping customer transparency
In the midst of constantly selling out of product, Jarod and his team made sure to keep customers in the loop so they knew what was happening.
“There were some points where we maybe had 2,000 orders in the hole. And for us to catch up on those that take maybe two to three weeks. And so number one, we had full transparency with customers. The message was, Hey, we got all these orders. We can't keep up. You guys are amazing. We just need some time, please be patient. And we were really transparent with that for two to three years as we kind of got into better manufacturing for our process. And really because of that, we built a really strong foundation for customers that have followed us from day one.”
11:33 - Making a small facility work
Muddy Bites upgraded to a new facility…but it was still too small. They made it work as long as possible by creating night shifts and staffing with local college students.
“Going from like 400 to 2,000 (square feet in facility space) was a fairly smooth process, because it was kind of that transition from Kickstarter to Shopify. But after we kind of gotten our 2,000 square foot facility and really kind of got going, we had boxes up to the ceiling and we had 30 plus employees in there. And it was jam-packed within a small facility to where after six months, whatever it was like, we needed a bigger space, but we were locked in this longer contract. And managing cash flow was super tight. So we just created a day shift and a night shift. And this was in Ames, Iowa. So we found college student. it was really easy for us to find college students that are willing to come in and work for that. So it was really kind of good for us just being in Ames because of that, finding know easy workers, so to say. But we quickly outgrew that space.”
15:28 - Launching retail in the midwest
It turns out that midwest retail chains have great volume. Starting there quickly opened more doors in other regions.
“Being here in Iowa, we've got Midwest chains like Hy-Vee, Fairway Foods, just to name a couple. And so that's where our starting points were for retail were, in a word, pretty nice. Because Hy-Vee, I think they have about 110 locations, like decent volume for a Midwest chain. And really once you start kind of expanding into retail to where you get maybe 500 to 1,000 doors, it's almost like a chain reaction. Because different category buyers go to different stores just to see the market and stuff like that. And so it just kind of opens up more doors. And so really from the Midwest, we expanded east, west, south, north. And it just made it a lot easier to expand.”
16:34 - Using DTC to strategize with retail
The Muddy Bites online sales demographics helped the team know where retail product should be sent. This had a beneficial snowball effect on both the DTC and retail side.
“Anybody in the US can order from us and we could ship. But after a while we really saw more demographics out in California and New York and Texas. Really, those are kind of the top three. And so what's nice is as we really kind of expanded to retail—we really, really expanded retail here in October, and really here in Q1 and Q2 of 2022—it's like we know where the customers are. So if we can get it in retail stores near them, it makes them go to the stores and buy it, versus paying online and paying for shipping. But also, if they can go to store, it helps us move more volume within stores. And obviously if you can move more volume, you get more doors. You get more sales, it’s just kind of a win-win.”
23:07 - The DTC-Retail mix
Until now, DTC and Amazon have accounted for almost all Muddy Bites sales. Jarod expects that to flip going forward.
“As we finished up in 2021, our mix was like 97% DTC and Amazon, and then like 3% retail. This year it’s going to be probably 75% retail, 25% DTC and Amazon. And that's without us decreasing the budgets for DTC or anything like that. It's just we're ramping up retail really, really hard. So, over one to three years or whatever, retail is kind of our end game, and we want to be everywhere that we can. And obviously that's going to mix up with the DTC side. If we could be in every single store across the country between Walmart and Target, 7-11, I would say DTC might slow down quite a bit, just because if you can go to your store and buy it for cheaper than online, then sure. But either way, it's like we get sales. Because then the stores reorder, the distributors reorder. But for us, it's really just getting in more doors and creating brand awareness.”
24:27 - Growing the team
Jarod and his co-founder used to wear every single hat, including running social media. Now, they’ve leaned into delegating to others and following there lead when it comes to innovative content, like memes.
“In the early days of Muddy Bites, it was me running our socials, Tyler helping out with socials. I mean, we were wearing a million hats. We eventually got to the point where one, we can't do that. It's not sustainable. Burnout's real. And so we started just hiring key roles. Like we brought on Emma and Jessica under our social team and now they run everything. We don't tell them to do XYZ. We kind of give them full control and they've done an amazing job. And that's been a learning curve for us to hand that off. But really from there, one kind of key strategy that works really well for us as memes. If you were to tell me a year ago to post a meme, I’d think you were crazy. And our social team was like, let's just try it. And so we did. And now if you go look at our Instagram, every one of our meme posts probably gets anywhere from 500-2,000 likes. And every other post gets anywhere from like 100-400 likes. So we get a big engagement when we do memes, and we're kind of learning that like meme culture.”
31:49 - Seeking funding to improve production
Jarod knew it was time to pursue funding so that they could match production with demand, and grow the company into a business that can someday be acquired.
“The biggest problem with our bootstrapping was that production’s always gonna be kind of a holdup. It's going to kind of tie us down, so to say. We got to the point where we’re like, okay. Let's get some money into the business. Let's improve our production a little bit deeper to where it's not really a production issue. It turns more into a sales and marketing issue. And so we raised some money. We did that. And really the other piece of that with raising more money was that way we can increase that production capacity, but also then expand into retail. Really for us, if we could be everywhere, that's our end game. Get acquired someday. That's kind of our goal versus just a DTC company.”
39:28 - Standing out from the snack crowd
DTC snack companies are all the rage, but most of them aim to be healthy. Embracing the fact that Muddy Bites is a dessert has actually served the company well.
“The biggest thing with DTC right now is there's companies popping up left and right between organic, vegan, super healthy type stuff between snacks. And what's kinda nice about us, and especially when we pitch to investors or anything like that, or even retailers, it's we're not like a better for you product. We're sweet, we're not healthy. We're not trying to pitch it like we're better for you. So it actually makes retailers happy. Because we're seeing that in retail space and also DTC is like, everything's better for you, and we're not. And so that makes us a little bit different there. The other piece that's an advantage for us is we're basically creating a new category of snacks. We're not another cookie bar, we're not another Oreo. That's a big question we get from retailers is what category do you guys put us in? Are we in the crackers? Are we in the cookies? Are we in the chocolates? And so for us, it's like we're almost creating a category. So that allows us to be different.”