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Beyond Meat

5 Lessons for Food Startups From Beyond Meat's Stunning Success

Passion, plants and prudence spelled success for this startup. Are those values the way forward for your company?
5 Lessons for Food Startups From Beyond Meat's Stunning Success
Image credit: Beyond Meat
Guest Writer
Advisory/Accounting Partner, Anchin, Block & Anchin
6 min read
Opinions expressed by Entrepreneur contributors are their own.

You may have heard of the new company Beyond Meat, maker of the first plant-based burger to be sold in grocery stores' meat section.The resounding success of that company's shares, whose price recently reached six times the level at the initial public offering, was no surprise.

Related: With $72 Million in Funding, the Entrepreneur Behind Beyond Meat Pursues Innovation Over Profit

Consumer tastes after all have shifted from conventional fare to products being marketed as healthier, more sustainable and able to accommodate special health needs or lifestyle choices.

Indeed, today's tastes run to gluten-free, non-dairy, vegan, low sodium and organic products or simply classic products made from new sources. An example? Pea protein, the magic ingredient in ... Beyond Meat. 

This particular trend has led to a nutritional gold rush among investors, and Beyond Meat -- whose products are now sold in 17,000 grocery stores and 12,000 eateries -- has been able to attract the attention of top venture firms, as well as high-profile backers like Bill Gates and Leonardo DiCaprio. Names like those have greatly increased Beyond Meat's profile.

Of course the company has yet to be profitable, but it is nonethless a true unicorn story that will encourage more research and development, accompanied by more investment in plant-based and other healthy-eating options.

In fact, "plant-based" is one of the most frequent terms heard these days at trade shows and in conversations between founders and investors. Beyond Meat was wise to get in front of this wave.

And while every startup won't have the same opportunity to prosper and attract investors, there are a few things food entrepreneurs can learn from Beyond Meat’s rapid trajectory -- moves they may want to emulate.

Related: 5 Predictions About the Future of Food From an Early Beyond Meat Investor

A story is better than a concept.

In his letter to the SEC as part of the IPO filing, Beyond Meat founder Ethan Brown detailed his experience as a kid on his family's farm, who learned to appreciate animals and to wrestle with the question: “Do we need animals to produce meat?

"Over the years," Brown wrote,"the question knocked more loudly and I set out to understand meat.” 

Despite the fact that veggie burgers -- generally not all that tasty -- have been around for decades, Brown’s personal story and passion and his commitment to a mass-marketable, savory burger have made him the darling of animal rights activists as well as investors.

He also understands that marketing to vegetarians, a small portion of the consumer market, won’t generate soaring profits, so he’s also marketing to meat eaters who occasionally want a healthier, high-quality option.

The idea of healthier eating is spreading.

Purple Carrot, a plant-based meal delivery service, has an origin story similar to Beyond Meat's. Purple Carrot's founder, Andy Levitt, suffers from Crohn’s disease, and as he explains on the company web site, he used to be “miserable and in a lot of pain.” That drove him to begin exploring healthy, tasty plant-based products that were, and are, more sustainable. “I’ve got kids and that made me think about the world I was leaving for them,” Levitt said.

Then there's Sunfed Meats; New Zealand’s Shama Sukul Lee was going by feelings similar to Beyond Meat's Brown when she founded her company, which recently raised $9.38 million in a series A funding round.

Lee's philosophy centered around both animal rights and the environment. As she said in an interview with an Australian publication, “In any energy system, the closer you get to the source of energy, the more efficient the chain gets, and so if we move closer to plants and skip the animal … then everything becomes inherently efficient and sustainable.”

It's important to reinvest in development.

A smart food company never leaves the lab. Beyond Meat’s operating cash flow is going back into development after having turned a negative margin in 2017 into a 25.6 percent gross margin in the first quarter of this year.

That money is being spent on marketing and on scaling up production, distribution and research to meet the growing demand and further expand the product line. 

Again, Beyond Meat isn't alone in its values: Consider vegan seafood pioneer New Wave foods, whose cofounders recently told Forbes of their concerns about the environmental impact of mass shrimp production. As a result, they've focused their venture capital on research, innovation and scale rather than rushing their products to market.

Interestingly, New Wave, Sunfed Meats, Purple Carrot and Beyond Meat all share a common investor with similar ideals: New Crop Capital’s mission is to disrupt conventional agriculture in order to fix “a broken system [that] poses the most vital economic and ethical imperative in our time.”

Investors are patient, but they have limits.

One of Beyond Meat’s biggest and earliest investors was Tyson Foods, which had a 5 percent stake in 2016, later raised to 6.52 percent. However, the poultry producer exited earlier this year, ahead of the IPO, to concentrate on its own non-meat products.

The dollar sum payout was not disclosed. If revenues grow as expected, other investors may look to cash out as well, given ongoing analysis that's suggesting that the stock may be trendy, rather than a long-term investment -- in other words, a snack and not a meal. 

In short, ideals about the environment are one thing; but money still reigns supreme: Even in boom times, private investors are holding brands more accountable for the speed of their cash burn, and increasingly are giving money in tranches rather than lump sums.

In this light, a “kid in a candy store” approach is a surefire way to spook them. After a sky-high boost in revenue pushing its market cap to nearly $4 billion, or an astonishing 50 times revenue, Beyond Meat is seeing gun-shy backers  begin to worry whether Beyond Meat will be able to sustain that kind of valuation.

The lesson here: Entrepreneurs who gain this kind of support should understand that it has a shelf life.

Keep in mind the competition that's of a different sort.

Then there is the issue of a different kind of competition: In addition to that from plant-based rival Impossible Burger, Beyond Meat must also contend with the advent of cultured, or lab-grown meat, which will  soon put actual, authentic meat on our plates that's been grown from the cells of living animals.

So, while there is no question that Beyond Meat has taken a big bite out of the natural food and meat alternative market, that fact doesn’t necessarily portend more huge IPOs for similar products.

Related: Beyond Meat's CEO Thinks Chicken Can Come From Plants

After all, there are far more cows out there than unicorns.

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