Profile: Recipe for Success: Cereal Ingredients
Cereal Ingredients mixes superior products with business savvy to put food on tables around the world.
By Kate Leibsle
Entrepreneur:
Robert Hatch
Company Information:
Cereal Ingredients
4720 S. 13th St.
Leavenworth, KS 66048
(913) 727-3434
www.cerealingredients.com
Type of Business:
Food flavor particles
Year Founded: 1990
Employees: 81
Keys to Success:
“To really motivate employees, you have to get them on the same side of the table with you and your objectives. You’ve got to listen to your people.”- Robert Hatch
If you’ve ever sat down for breakfast and poured out a bowl of Cookie Crisp cereal, popped a toaster pastry in the toaster or buttered a piece of cinnamon swirl bread, you’ve gotten a taste of Cereal Ingredients, a Leavenworth-based company that manufactures the chocolate chips on the cookie cereal, the topping on toaster pastries and the cinnamon that makes the swirl in swirl bread.
All told, the company researches, develops, manufactures and distributes about 250 food-related products from its 14.5 acre Leavenworth campus. Products include the special sugar that covers packaged donuts, multi-grain and high protein crisps, and all sorts of flavored and/or colored particles that can be used in a variety of baked and other food products. The Cereal Ingredient products, Flav-R-Bites and Nutri-Bites, are made from both natural and artificial ingredients, and tend to have a much longer shelf life than real fruit, berries or chocolate, said Robert Hatch, the company’s founder, chairman and CEO.
Hatch has a long history in both the food industry and the corporate world. He spent more than 20 years working for General Mills, before coming to Kansas City as CEO of Interstate Bakeries (which recently changed its name to Hostess Brands). Not long after leaving Interstate, he formed Cereal Ingredients. Hatch also is CEO of two other startup, employee-owned companies in Kansas City.
Point of Difference
When he founded Cereal Ingredients, Hatch knew what he wanted to do: create better products than the then-standard fat-based or candy-based particles on the market. He and a team of researchers worked for nearly 10 years on the products and processes before they ever went to market.
Hatch calls it the “meaningful point of difference.” He said the ultimate question entrepreneurs need to ask themselves is, “Are you creating a meaningful point of difference for customers?”
Hatch knew he had that point of difference, but also knew he needed a strong foundation before he took his product to market. So, instead of rushing product development and getting customers right away, Hatch took a slower, more methodical route—obtaining patents to protect his business plan.
“We took seven years to get patents,” he said. “That was and is the foundation of our business.”
Today, the company has seven issued international patents and has official filings for six more. Hatch called the patents a true difference maker. They make it easier to defend the company’s point of difference, because if you have patents, he said, you can avoid “me too” competition from less imaginative competitors.
It’s All About Money
Still, having a good product and patents on both the products and processes didn’t automatically mean success for Cereal Ingredients. In fact, Hatch had a great deal of trouble getting outsiders to share his vision and, more importantly, share their money.
“We visited 23 banks in the Kansas City area and no one would give us a loan,” he said.
Hatch finally found financing from two places: Leavenworth County and the Small Business Administration.
Originally located in North Kansas City, by early 2004, the company was looking to expand production and needed the facilities and room to do so. Hatch had originally planned to lease a building in Leavenworth. When that deal unexpectedly fell through on Christmas Eve, the Leavenworth County Development Corporation and the Kansas Department of Commerce Business Development Division sprang into action so Leavenworth wouldn’t lose the company. It offered several incentives and financing mechanisms so Cereal Ingredients could build and own its own facility.
It offered industrial revenue bonds to help build the plant and add equipment and made a deal with the company: If Cereal Ingredients would guarantee the creation of 55 new jobs within five years, the city would grant the company the title to six acres around its current building.
“The five years was up May 5, 2009, and we created 75 new jobs,” Hatch said.
But the real financing boon to the company occurred when Hatch discovered programs offered through the Small Business Administration. Hatch had shown bankers all of his business plans and projections, based on initial sales and the research and development the company already was doing, but they wanted to see more profitable history before they would loan any money for expanded facilities and full-scale production.
When he sat down with the SBA, things changed for the better and turned Hatch not only into a full-fledged business owner, but an outspoken advocate for the agency.
“Basically, they said, ‘We, the SBA, will work with the banks,’” Hatch said. “The SBA’s 504 program puts up 40 percent of the money, the company puts in 10 percent and the bank puts in the remaining 50 percent, but has 100 percent of the collateral.”
Hatch has returned to the SBA time and again for help when he’s needed more expansion funding and would recommend all entrepreneurs take advantage of the agency’s programs.
“I’ve maxed out all of the SBA money I can borrow,” he said. “It works like a charm.”
Listening is Key
What other advice does Hatch have for fellow entrepreneurs based on his experiences?
“Listen,” for one. It’s a lesson Hatch really learned when he was with Interstate.
Interstate was “borderline bankrupt” when Hatch joined the company. He knew that employees on the ground would be his best barometer of where the company really stood and how he could get it growing again.
“I’d never been in the bread or cake business,” he said. “So in the first three months, I spent a lot of time on the delivery trucks with the drivers. These are the people who fundamentally understand the strengths and weaknesses of the products they were selling. I had them making lists of suggestions and when we compared, I was writing the same things.”
Today, Hatch listens a lot to his employees. He has to, in many cases, as they are most of the shareholders who own Cereal Ingredients. Cereal Ingredients is a sub-chapter S corporation. Hatch has made shares in the company available to management employees—but at a cost, not as an automatic benefit of employment.
“I make it easy, but they have to buy the stock,” he said.
Having employees who have an equity stake in the success or failure of a business is essential to getting their buy-in to the company’s mission, Hatch said.
“To really motivate employees, you have to get them on the same side of the table with you,” he said. “You’ve got to listen to your people.”
Giving Back
Another important business credo for Hatch is giving back. A few years ago he found a way to help entrepreneurs around the world realize their dreams and improve their lives.
After serving in the Peace Corps, Hatch’s brother, John, came to him with the notion that the poor aren’t a bad credit risk. They don’t have any collateral, but they can be trusted to repay loans, he said. So Hatch agreed to test the concept of a revolving loan fund that would be available in third world countries. They founded FINCA International as a “village bank” in 1985.
“If we give a woman $50, it will make a huge difference in her life,” Hatch said.
This year FINCA loaned more than $806,000,000 to more than 700,000 borrowers in 22 countries. For the loans to continue, all the women in a 30-person “bank” have to repay them on time.
Hatch said watching the way the women have embraced the freedom that comes with financial independence and the bonding that’s gone on as they’ve helped each other start businesses or save for important needs is inspirational.
“We’re creating entrepreneurs,” he said. “We see women first focus on educating their kids before putting glass in the windows of their homes, or floors in the houses. “
Moving Forward
While Hatch is happy with the way his company has grown, he’s certainly not resting on his laurels. Recently Cereal Ingredients was named the Kansas Exporter of the Year.
Being international was another decision based on acquiring patents in the early days. Each country has its own patent requirements and it just made sense to get the international patents as well, in anticipation of taking products outside this country.
“These are products they can’t get elsewhere,” he said of his international customers.
Hatch is ready to take Cereal Ingredients into new products and even into more facilities. The company has a wide swath of land around its headquarters, and research and development is an ongoing process in the CII Technology Center across the parking lot.
“We want to keep growing at an accelerated rate,” he said.
Kate Leibsle is managing editor of KC Small Business. (913) 432-6690 // This e-mail address is being protected from spambots. You need JavaScript enabled to view it
