This may sound too good to be true. However, this article focuses on a self-proclaimed Finnish nomad — turned 8-figure mushroom entrepreneur.
Yes. You read that correctly. Tero Isokauppila has developed an 8-figure mushroom business.
By combining his family’s farming background with a market opportunity, Tero capitalized on the health and wellness industry’s boom. This led to Four Sigmatic’s founding in 2012.
As the son of a 13th-generation farmer, Tero was exposed to mushrooms at an early age. In fact, mushrooms just kept popping up throughout his life. He became obsessed with experimenting with herbs and creating natural products as he learned about their health benefits and best off-the-beaten-track ingredients.
With mushroom coffee and plant-based protein products, Four Sigmatic offers nutrient-dense, “really good for you” everyday magic products.
In this article, we’ll also learn how a farm boy from Finland started and scaled an eight-figure mushroom coffee company that has served over 100 million customers. We’re also discussing Tero’s criteria for reducing risk and evaluating which companies to invest in — from both a private equity and venture capital perspective.
Taking an 8-figure mushroom coffee company to the next level
Our story started in 1619. That’s how long Tero’s family has farmed. As he explains, he’s a 13th-generation family farmer. In addition, Finland has a very food-friendly culture. In particular, many mushrooms are grown in Finland, he says. He also studied chemistry and nutrition later in life. In fact, he and a friend discovered a mushroom variety over 50 years ago and won an innovation award.
As a nation, Finns drink more coffee per capita than anyone, he adds. Most countries, especially the US, have more sugar and perhaps less caffeine than most other countries. But, due to German and Russian attacks during the Second World War, Finland ran out of coffee beans and suffered a shortage. The Finns brewed this mushroom that grew in their backyards called Chaga which they call CHAG.
As a result, the University of Helsinki started studying it and found that it is one of the world’s highest antioxidant sources. Essentially, one cup of mushroom coffee contains the same antioxidants as 30 pounds of carrots. Tero learned about agriculture from his father, an agronomist. It was his mother who taught him physiology and anatomy. The inspiration for this is coming from his family’s lineage, coffee, friends who are into similar things, reading books, from studying both in and out of school, and that’s how it all began.
As with every company, Four Sigmatic has evolved its products and what it does, but that’s the story behind its origins.
Fast forward to today. Four Sigmatic sells in more than 60 countries through omnichannel channels. Distributors are heavily used worldwide. Both are sold within the US. He explains that the company’s biggest business is its own dot-com, FourSigmatic.com, followed by Amazon. In addition, they have served more than 100 million customers.
Selling your products on Amazon
To serve as many people as possible, Amazon is a key player for Tero. In that light, he would say industry and category matter when it comes to Amazon online sales and your direct consumer business.
He adds, however, that not all categories are equal. It matters what stage the business is at, how much capital they have, and its price point. Although, in a perfect world, you would like the customer to buy direct from Amazon, this could be a more cost-effective option if you can’t drive traffic to your website and are in a category with many organic queries.
At the same time, there’s always the risk of it disappearing. If you don’t have access to capital, you fall into a category where people search for such products. It is possible to be on Amazon. Considering its size and volume, it is impressive. The company is shifting as well, just like any large company, but now they’re investing in advertising, which wasn’t the case previously. This AMS advertising has been created to compete with Google, Facebook, and Meta, Tero says. The marketplace is also shifting in that regard.
It doesn’t matter whether you sell on Amazon through yourself or someone else. Keeping that from happening is very difficult. His approach is to manage it instead.
In his opinion, you should manage the company rather than someone else. Despite this, he can understand both arguments. Therefore the size of the industry category, the availability of capital, and the availability of qualified workers who understand these channels are all important factors.
Simply put, there isn’t just one method for managing Amazon and your own website.
CPG investments: private equity versus venture capital
Private equity and venture capital are two popular avenues for investing in CPG. They have a lot in common, but there are also some key differences.
CPG companies with stable revenue streams are usually where private equity firms invest. Many target mature businesses and provide capital and expertise to accelerate growth and maximize value. In contrast, venture capital firms focus on early-stage or high-growth CPG startups. They help these companies scale quickly with funding, mentoring, and networking.
Venture capital is for high-risk, high-reward opportunities, while private equity focuses on steady returns. Each avenue has its place in the CPG landscape, catering to different stages and goals. Investors wanting to enter the dynamic world of CPG investments must understand these differences.
As an investor, Tero recommends investing in things that make the world a better place while giving you a profit. However, if you’re new to it, he recommends avoiding early-stage CPG deals.
CPG vs. tech startups
Technology startups and consumer packaged goods (CPG) are both profitable investments. CPG companies make and sell tangible products consumers need daily, such as coffee. Technology startups, on the other hand, are driven by disruptive business models and innovative technologies.
Brands and predictable revenue streams are common in CPG investments. These companies usually need money for marketing and expansion. By contrast, tech startups are fueled by cutting-edge ideas, trying to change the world. Funding will help them build prototypes, conduct research, and scale up.
When investing in CPG or tech startups, you should consider your risk appetite, industry expertise, and long-term goals. A CPG company has stability and market presence, but a tech startup can grow exponentially and disrupt. In the dynamic world of CPG and tech startups, you have to consider these factors.
Tero says there’s also a difference between technology startup failures and early-stage venture failures. There are intellectual property, customs locked in, and other ways data plays, so you can add value over a long period of time, so then the multiple and upside, especially with digital products, scales well.
He says you can scale it much better than physical goods once you hit product-market fit. If you get 2 out of 10 CPG startups right but 1 out of 10 tech startups right, then the one could be so outsized that the blended portfolio does better. Keeping that in mind is also important regarding technology and CPG.
Identify winning investments and reduce risk
When investing, you must find the right balance between identifying winning opportunities and minimizing risks. To get you started, here are some key strategies:
- Research. Analyze market trends, financials, and competitive landscapes before investing. Find companies with strong fundamentals, sustainable business models, and a successful track record.
- Diversification. Don’t just invest in one asset class, industry, or region. By diversifying, you reduce your exposure to the performance of one investment.
- Due diligence. Analyze growth potential, evaluate risks, and assess management teams. Make sure claims are correct, legal and regulatory compliance is in order, and ask for expert opinions.
- Long-term perspective. Don’t focus on short-term fluctuations, but on long-term prospects. Look for investments with strong growth potential.
- Risk management. Invest in risk management strategies like stop-loss orders, hedging, and regular portfolio reviews. Keep an eye on your investments and adjust them as the market changes.
Investors can reduce overall portfolio risk by combining diligent research, diversification, due diligence, a long-term perspective, and effective risk management.
Tero has an extra layer that’s not financial. Instead, it’s about making the world better. That’s where he starts. He’s comfortable with it, even if it doesn’t make the best investment decisions. You can achieve this in many ways, whether a product or service.
Getting him excited is critical. Normally, he looks at the total market, like how big this market is or how big it could get. It’s important to look at the team and their tactics because, especially early on, you need to find these arbitrage opportunities.
The importance of understanding business valuations
The importance of understanding business valuations cannot be overstated. Insights into a company’s worth help investors and negotiators decide how much to invest.
You need it for these reasons:
- Investment decisions. Proper valuation helps investors determine a company’s potential return on investment and whether it’s overvalued or undervalued. As a result, you can make better decisions, ensuring investments align with your goals.
- Negotiations. Understanding a business’ valuation is key to getting a fair deal. Buyers can compare the asking price with their valuation analysis, while sellers can justify their asking price based on the company’s value.
- Capital raising. Valuations play a big role in funding decisions. The worth of a company determines its risk and potential for growth, which impacts how much money it gets.
- Strategic planning. Valuations provide insight into a company’s strengths and weaknesses. Planning and identifying areas for improvement and growth is easier when you know the value drivers.
- Exit strategy. It’s important to do a business valuation when you’re planning an exit. Maximizing returns requires understanding a company’s value, whether you’re selling, merging, or going public.
Investing and entrepreneurship can be improved by understanding business valuation, negotiating effectively, raising capital, strategically planning, and maximizing value when exiting. In business and investing, it’s fundamental.
For example, if you have a business with a multiple of 3 and number 6 and then a multiple of 4 and number 1 or 2, you probably want to invest in the higher value, maybe overvalued. Still, number 1 or 2, Tero clarifies. Maybe they’re ranked 1 or 2 for a reason. That’s why sometimes it’s worth it.
Achieve greatness as an entrepreneur and an investor
It takes passion, perseverance, and smart decisions to succeed as an entrepreneur or investor. To succeed in both roles, here are a few key principles:
- Continuous learning. Keep learning and stay curious. You’ll be more informed if you stay on top of industry trends, market dynamics, and emerging technologies.
- Embrace risk. The best things in life come from taking calculated risks. Get out of your comfort zone, take chances, and learn from your mistakes.
- Build a network. Find people who share your vision and surround yourself with them. Get guidance and support from mentors, advisors, and like-minded entrepreneurs and investors.
- Vision and execution. You need a well-defined strategy for your ventures and investments. In addition, adapting to changing circumstances and executing your plans are equally important.
- Resilience and perseverance. You can’t achieve greatness overnight. You’ve got to stay resilient, learn from your setbacks, and persevere.
- Balance and well-being. Prioritize self-care and keep a healthy work-life balance. Taking care of your body and mind will help you achieve greatness.
- Patience. There’s a lot of Type A entrepreneurs and people in general, Tero says. Sometimes they feel entitled. However, patience, compounding returns, and slow but steady progress get you far as an investor and entrepreneur. He says there’s no doubt it’s a marathon and not a sprint.
Following principles can help entrepreneurs and investors thrive. Make a lasting impact in entrepreneurship and investment if you embrace the journey, learn, and seize opportunities.
Featured Image Credit: Andrea Piacquadio; Pexels; Thank you!