A Compass Conversation with Nick McCoy, Managing Director & Co-Founder of Whipstitch Capital
June 28, 2022
Recently we spoke with Nick McCoy, one of the two Co-Founders of Whipstitch Capital, a local investment house with a national impact, focused on health & wellness products in the Food & Beverage categories. Nick spoke to us about future innovation areas and shared with us a few tips for incoming entrepreneurs.
What was your initial inspiration for launching Whipstitch Capital?
The initial inspiration for launching Whipstitch Capital was that the industry did not have an independently owned investment banking firm that was solely focused on branded better for you food, beverage, VMS, personal care and alcohol companies. The exclusive industry focus is critical for the development of a deep knowledge base of what makes brands successful and how to harness the power of data to benefit clients and the industry as a whole. Being independently owned, we have the ability to choose who we work with and how to best align our common interests over the long-term without worry of organizational changes at our firm compromising the results of our clients.
Which areas of innovation are you most excited about and why?
I am frequently asked the question, “if you were to start a brand today, which category would you choose?” and my answer is always that the category is less important than the size and growth of the white space in the market that the brand can address. That being said, there are some macro trends that provide tailwinds to brands that choose to embrace them in their ethos and innovation. Here are a few:
Impact in Sustainability – Consumers are increasingly understanding sustainability and brands with sustainability as an attribute are growing 2% per year more than those that do not have this attribute.
Multicultural Cuisine – The rapid growth of the non-white U.S population is also benefitting companies that embrace diversity of thought. Large CPGs with above average diversity in their customer base are growing 3.4% more per year compared to those with below average diversity. These stats are based on data from NielsenIQ and SPINS.
Supply Chain – I am very intrigued by the potential for increased profitability and impact in the supply chains of brands. The COVID pandemic has permanently changed the shopping patterns of consumers. Between that and the $5 trillion of stimulus that has been injected into the economy since the start of the pandemic, global supply chains are strained and increasingly expensive for all companies. Many companies are backward integrating into manufacturing to have greater control over their production and realize the potential incremental margins. From my observations of innovative founders there is also significant savings from logistical optimization. There is also a developing trend where founders partner with financially vulnerable farms to guarantee the demand that they need to convert to regenerative farming increasing their profits and sustainability while providing the brand with a tracible higher quality ingredient.
Speaking directly to today’s start-ups, what advice would you give them?
I admire the passion and entrepreneurial skills of founders. Every brand is unique and the tools that make one successful may not move the needle on another. There are so many decisions a founder must make for the first time as they scale their companies and each one impacts their capital efficiency of growth. In my presentations, I provide data backed “tools” to help founders and investors find the rising tides, increase the credibility of their projections and make better decisions.
Here are a few nuggets:
Go Deep Before You Go Wide – The wider the distribution of a product the more expensive it is to make changes to it. Every brand I can think of has made multiple changes to package design, size(s), manufacturing strategy, price point and even ingredients between founding and exit. A brand’s success in retailers will be greater once it has fine tuned its offering. Going wide when velocity is stronger means less chance of discontinuations and potentially lower slotting, better shelf placement and less costly mandatory promotions. Going wider once manufacturing strategy has evolved means more contribution margin to invest in brand growth and less cash burn.
Build Your Team Broadly – The more you broaden your team beyond your org chart the more expertise you have at your disposal. This can be done by outsourcing key functions to outside specialists who have a broader team and deeper knowledge base. Our industry is more community like than others I have seen. Developing authentic relationships within the industry is highly beneficial. Think about diversity of thought when building your board, advisor group, employees and outsourced consultants. Seek those that share your passion the most authentically and be vulnerable enough as a leader to enable them to reach their fullest potential.
Expect the Unexpected and Plan Accordingly – A founder brand will have many “first time” challenges no matter how experienced the founder is. All of these will require resources to overcome. Develop a strategic plan for achieving the next milestone and then raise at least 1.5x the amount you estimate is needed to get there. If you raise too little you will not have the validation to boost valuation in your next raise. If you raise too much you have extra cash in the bank you are in a better position to negotiate your next financing terms and you can make further progress ahead of your next raise while you raise it.
Embrace Your Humility – You will have more achievements if you have clarity on the journey ahead than if you compromise it by focusing on validating your past. This industry embraces humility and vulnerability.
Annette is skilled at identifying growth opportunities and successfully guiding products from concept to launch. At Compass, she advises leading brands and category disruptors in the health & beauty, personal care and home appliance sectors.