Recently, I watched a documentary on Amazon about Huy Fong Foods (the maker of the famous Sriracha sauce). The documentary follows David Tran, an ethnically Chinese immigrant from Vietnam, and how he built his company over the years. I was fascinated by the story and how the US version of Sriracha sauce came to be. Within that story, there are so many business lessons that we can learn. I will detail some of those lessons below.
The familiar Sriracha rooster is the Chinese zodiac sign of its founder David Tran. It also doubles as the logo we all know. The Sriracha sauce popularized that logo and people automatically associate positive tastes and emotions when they see that image of the rooster. Over the years, the brand has gotten so strong that it has become a household name.
Wide Appeal and Applications
Sriracha is used on pizza, hot dogs, pasta, noodles, and many other foods. I even had a former coworker who would put Sriracha on his oatmeal for breakfast (which I thought was kind of odd). It’s used in various restaurant dishes, sushi rolls, and as a flavor for snacks. Other companies have used Sriracha as a flavor in their chips, mayo, sauces, etc. There are just so many applications for it. The wide variety and quantity of variations has created a tremendous demand for this product. According to Tran, the demand for his product has increased every year since he started creating the product.
Tran has a factory in California that is able to produce a tremendous amount of hot sauce per day. His product is simply a sauce with several ingredients (chili peppers, vinegar, garlic, sugar, and salt). He has 3 different types of sauces (each with varying proportions of the base ingredients), and each sauce comes in 3 or 4 different sizes. He can easily mass produce these products to serve a huge market. Each additional bottle he creates requires minimal labor, time, and resources. His largest expenditures are probably the initial investments that he made to build his factory.
Since he is selling bottles of sauce, they can easily be shipped across the country to serve restaurants, grocery stores, cafeterias, distributors etc. Unlike more delicate items, or larger items, his shipping costs per bottle are probably very low. He can package a large number of bottles together without having to worry about damages. When he first started his company, he would deliver his product with a van. Oh how times have changed!
His product is very consistent. Since it is made with machines and fixed ingredients, he is able to produce a quality product every single time. Barring a disaster that harms his chili pepper supply (he has a single source provider), he will continue to produce the same great product for years to come. You can always expect the same quality regardless of where you purchase his sauce.
Social Media Effects
Apparently, Huy Fong Foods has never spent a dollar on marketing expenses. However, other people have made Sriracha videos that have gone viral. These videos have helped promote the Sriracha brand and popularized it in our culture.
What Could Go Wrong?
Despite Sriracha’s success over the years, no company is impenetrable and infallible. Due to its strong brand and wide appeal, if Sriracha were to fall, it would most likely be due to problems from within.
Since they use a single source provider of chili peppers, and have not developed other sources of supply, they are taking a risk that the supplier will continue to provide the same quality and volume of chili peppers. If that supplier, for whatever reason falters, it would take a lot of time and resources to identify another source. Its reputation and brand could be tarnished during that period.
When companies work with live, perishable ingredients, there is always the chance for viruses and bacteria contaminating the product. Therefore, there’s always the possibility that a virus or disease (E. Coli, listeria, etc.) grows and spreads within the factory. Similar problems have occurred with Chipotle, Yum Brands, and McDonald’s in the past. However, if this were to happen, it would be much easier to isolate the problem since there is only 1 factory as of today and there is a limited number of ingredients.
Another possibility that could hurt the company is succession planning. Tran is 70 years old and has kept a tight watch on his company since 1980. Not only did he create the product, he has grown his company to over 200 employees. What happens when he is no longer around? Who takes control? Will the others respect the new leader? Can the new leader sustain and grow the business? These are all questions that we can’t answer yet.
What Does This Mean For You?
Are you an aspiring entrepreneur? Do you have an idea for a product? You could definitely learn some lessons from David Tran and Huy Fong Foods. Think about the scalability and reach of your product. Think about the market, its demand, and its applications. Think about the branding and how you would promote your brand. At the same time, be mindful of the risks and figure out ways to mitigate those risks. One way to become wealthy is to build your own business, perhaps you have that next big idea!
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