David Tran of the Sriracha sauce with $60 million in revenue: “I make sauce good enough for the rich man that the poor man can still afford.”

THE MAN BEHIND THE ROOSTER SAUCE

rooster-sauce-srirachascreen-shot-2013-04-21-at-8-07-30-am

David Tran, the 68-year old creator of Sriracha.

“Tran started Huy Fong in a tiny office in L.A.’s Chinatown, grinding jalapeño peppers by hand. It took him only a few days to come up with his recipe—a blend of jalapeños, vinegar, sugar, salt, and, of course, garlic—and it hasn’t changed much since. He figured he’d sell it to fellow Asian immigrants. “I had no idea Americans would ever even eat spicy food,” says Tran, and he determined from the start to keep the price low. It’s about $4 per 28-ounce bottle. As he likes to say, “I make sauce good enough for the rich man that the poor man can still afford.””

My Favorite Entrepreneur Story In A Long Time

MARK SUSTERposted yesterday

Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at his Startup Blog, BothSidesoftheTable.

If you don’t like it hot, use less,” he said. “We don’t make mayonnaise here.” 

This morning I was reading my social media and came across an article that Christine Tsai had posted on Facebook.

It was about the founder of Sriracha sauce, David Tran, displaced from Vietnam when the North’s communists took power.

As the son of an immigrant myself, I am a sucker for an immigrant story.

Moving to the U.S. with nothing but hard work and ambition. Having a strong sense of values. And wanting to build for the next generation.

It is of course why immigrants power so many successful businesses in the US and why we need to embrace them. They have nothing to lose. They bring new ideas, new cultures, new business practices. But they mostly want to be – AMERICAN. That’s all my dad ever wanted for us. Even while he clung to his native traditions and culture himself.If you ever want to read the great American generational immigrant business story read American Pastoral by Philip Roth, which won the Pulitzer Prize and was voted by Time Magazine as one of the best 100 books of all time.

It also chronicles the forces behind the decline of the American city (which has been revived in the past 10-15 years) and the rise of global manufacturing.

My own fascination with hot sauces began a few years ago. I was never into spicy foods growing up but after living in the UK for nearly a decade and having so much great Indian food around me all of the time I developed more of a taste for it.

I moved back to the US and after a stint in Palo Alto / San Francisco I moved to LA where I started to notice Cholula sauce at some of the best Mexican restaurants I visited.  I absolutely love the stuff. Addicted.

So I started noticing hot sauces more and the more I looked the more I noticed this funny rooster bottle with a strange sounding name I couldn’t pronounce and that familiar green cap. Sriracha.

Where was it from? What did it mean? What nationality was it? It seemed to be in every kind of ethnic restaurant.

The company name sounded Chinese – Huy Fong Foods. Was this the latest Chinese product to take off in the US?

Turns out it is a family-owned business started by a refugee from Vietnam (of Vietnamese and Chinese roots) and named after a small village in Thailand Si Racha. So grateful was David Tran for the people who provided safe passage from Vietnam for him that he named his company after the Taiwanese ship that carried him away.

Tran moved to Los Angeles and started his business in Chinatown with a need he personally had. He noticed that Americans didn’t have good hot sauce. So he made hand-made batches in a bucket and drove it to customers in his van.

But his goal wasn’t to make a billion dollars. He wasn’t driven by quick riches. He was driven by wanting to provide a great product. How much could the new generation of entrepreneurs learn from that?

I know it’s what I look for when I want to back companies.

“My American dream was never to become a billionaire,” Tran said. “We started this because we like fresh, spicy chili sauce.”

And build a great business he did. While still owning the business he now does $60 million in annual sales built from nothing.

Could he have grown faster with outside money? Or by selling to a big company and taking it international? Sure.

But it wasn’t his ambition.

You’ll absolutely love this quote:

“This company, she is like a loved one to me, like family. Why would I share my loved one with someone else?”

How many of you could say that?

He didn’t want to compromise on product, as he knew he would be forced to if he had to expand too quickly. He wanted to keep his prices low (apparently he has never raised his wholesale price in 30 years).

What I learned from the article? What touched me? What lessons could you learn from a Vietnam refugee who makes chili sauce? Quite a bit it turns out …

1. Extreme product passion. When his packaging suppliers tried to get him to change his product to make it less hot or more sweet for American customers he refused: “Hot sauce must be hot. If you don’t like it hot, use less,” he said. “We don’t make mayonnaise here.”

2. Uncompromising product quality (he processes his chilies the same day they are harvested)

3. He had a guiding principle for the company

4. Focus on the customer and provide value – ”We just do our own thing and try to keep the price low. If our product is still welcomed by the customer, then we will keep growing.” He said this in response to the fact that several other companies are now stealing the Sriracha brand name. He can’t trademark it since it’s the name of a city. By the way, he has never spent a dollar on advertising

5. Provide something distinctive. What will you be known for? Given the brand dilution going on with the name Sriracha how can he still grow his business? The distinctive design of his packaging. That crazy rooster. All those freaking languages on the bottle – the mystery of it all! And the green caps.

But I have to say, despite it all, and it’s impossible to take away from the success of David Tran, I kept wondering if modern business practices couldn’t solidify this into a global product. Branding matters. Organic word-of-mouth worked until this point, but I wonder as this becomes an international product line. I wonder how agressive they are with digital distribution. I wonder if they could trademark a broader name than Sriracha so that they can get some defensibility.

I hope the next-generation Trans have some thoughts on these topics and more. I would love to see this company continue to succeed.

 

Sauce Boss David Tran

When we started spotting bottles of Sriracha sauce at decidedly non-ethnic restaurants and markets, we knew it was time to meet the mind behind the big green-capped bottle that’s starting to replace ketchup on America’s hottest tables.

Problem is, David Tran, the 65-year-old Vietnamese American founder of Huy Fong Foods of Rosemead, California isn’t eager to have the world dip too deeply into the origin of his sauce. One reason may be that, to some extent, its burgeoning sales is based on a happy misconception that Tran may not be eager to correct.

Most people know Tran’s hot sauce as the Sriracha sauce. That’s the most prominent word on the front of the plastic bottles that hold over a pint of the red puree of chili peppers, vinegar, sugar, garlic and salt. Strictly speaking, Tran is misappropriating the name of a Thai sauce named after the beach town of Si Racha in central Thailand. The real sriracha sauce originated as a much thicker, sweeter and tangier paste for use as a seafood dip at local restaurants. The thinner Huy Fong version is usually squirted into bowls of pho and sometimes onto burgers and other foods.

Tran’s sriracha also isn’t the first commercial chili sauce by that name. That title belongs to a Thai company named Sriracha Panich which was acquired by Thai Theparos Foods and sells the sauce under the Golden Mountain brand. If that company moves into the U.S. market with the “Sriracha” brand, a trademark dispute would center around the origin of Tran’s claim to the name associated with his sauce sultunate.

Such abstract concerns haven’t kept David Tran’s Huy Fong Foods Inc from bursting at the seams. In October of 2010 its operations were so cramped for manufacturing space that it signed a deal to build a $40-million 655,000 square-foot headquarters and factory with the City of Irwindale. That’s the biggest new construction started this year in the entire County, according to the LA Times. The City was so eager to snag a big new employer, it’s financing the $15-mil. purchase price for the lot.

Tran’s success has already inspired rival companies to squeeze into the “sriracha” niche. Even the rooster logo and the big clear plastic bottles with bright plastic squirt caps have come under assault. Asian markets often stock several brands of sriracha sauces bearing animal logos ranging from a Vietnamese phoenix, a Chinese shark, a Thai flying goose and even a Thai “cock”. Consumers often do confuse these products with Huy Fong’s. The difference in taste among these brands isn’t always apparent, though David Tran might hotly dispute that assessment.

Tran was a sauce maker since 1975 back in his native Vietnam, he told the New York Times. He used peppers grown on his older brother’s farm in a town north of Saigon. The sauces he made there were a far cry from the one that has become an Asian American household word. He was selling an oil-based sauce in recycled Gerber baby food jars obtained from U.S. military bases. He sold batches to jobbers who distributed them to stores in the region. It became popular as the ideal condiment for roast dog.

By 1979 Tran had saved enough from his business to buy his family’s passage out of Vietnam. After a period of waiting in Southeast Asia for the UN Refugee Agency to resettle them, the family made its way to the U.S. Tran resumed his sauce-making business in a 2,500 square-foot space in Los Angeles Chinatown in February of 1980.

“I remember seeing Heinz 57 ketchup and thinking, ‘The 1984 Olympics are coming. How about I come up with a Tran 84, something I can sell to everyone?’” Tran recalls.

Tran doesn’t dwell on the thinking behind taking the sriracha name for the sauce he decided to produce. The emerging popularity of Thai restaurants around that time probably had something to do with it. But he does recall buying his peppers at Grand Central Market and delivering his bottles in a Chevy van. It was natural that his first sales successes were in the pho shops that had begun sprouting up in and around Orange County, especially the emerging Little Saigon of Westmister and Garden Grove.

In 1996 Huy Fong Foods expanded into his current Rosemead plant, then bought a nearby warehouse once used by Wham-O for frisbees and hula-hoops. Currently the company has grown to annual sales of around $35 million on about 20 million bottles of hot sauce. But about 80% of Huy Fong’s sales continue to be to Asian American outlets and the company remains a family affair, employing eight family members and a total of 70 seasonal manufacturing workers. Tran’s 33-year-old son William is now the company president.

The popularity Huy Fong’s sriracha sauce has since attained as a way to spice up everything from burgers to sushi took Tran by surprise. During the past two years chefs at restaurants from Appleby’s to the most chi chi Manhattan bistros have begun proclaiming their devotion to sriracha sauce as a secret ingredient of some of their dishes. More importantly from considerations of sheer sales volume is its recent jump from ethnic markets like Ranch 99 to generic outlets like Wal-Mart and major regional supermarket chains.

At this point demand is so strong that the only thing holding back an immediate tripling of production is lack of space. In fact, once the business moves into the new Irwindale building it will begin ramping up manufacturing capacity tenfold by 2016 just to keep up with backlogged demand.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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