 Welcome to Adventures in Small Business. This is our first broadcast of this new program that we'll be doing here, thanks to ThinkTech. This is a collaborative effort to talk about small businesses in Hawaii, what they're doing, how they're making a difference, and just, you know, how they've made it. What strategies, ideas have gotten them to the point they are, where they're creating jobs, they're creating innovations, and they're making a difference in their community, as well as, yes, making money. So this is going to be a collaboration with the U.S. Small Business Administration, our Hawaii Small Business Development Center, the Mink Center for Business and Leadership SBA's Women's Business Center here in Honolulu at the Y, and our Veterans Business Outreach Center of the Pacific. So we'll be going through every other week, we'll be, you know, bringing in and talking to entrepreneurs, sharing ideas, technique strategies that have worked or are working for them. And this is just a perfect time for us to be launching this program, because we're coming up on National Small Business Week, a time when we really spotlight what small businesses do here in Hawaii, and even across the country, because all the other small business administration offices will be featuring activities for Small Business Week, and also recognizing outstanding small businesses with the SBA Small Business Awards. So we've got, we go around the state, it's a big process, but we're delighted that we have 29 small business owners, entrepreneurs, small business advocates that we're going to honor for their accomplishments this year. Now National Small Business Week is coming up on April 29th through May 5th, and we'll be having the statewide, the 31st annual statewide annual Small Business Awards presentation on May 4th here at the Hawaii Prince Hotel. So lots of fun, lots of information, great ideas, you'll meet a lot of people who are passionate about what they do in small business and for small businesses. I'm delighted we have one of our SBA award winners with us today, and we'll talk a little bit more about the program and really how this young man and his small business were selected to be the state of Hawaii's young entrepreneur of the year. This award recognizes a small business owner and entrepreneur whose owner operated their business for a minimum of three years. Now Dylan Butterbaugh has been in business a little bit longer than that, but he's got a great story to tell about developing a very unique business and really taking it to some very high levels of accomplishment, achievement, recognition and international awards in a very short time. So I'd like to now turn it over, talk a little bit more with Dylan about what he's done with his business, Manoa Chocolate, that is based in Kailua. How are you doing Dylan? Yeah, I'm doing well thanks. Thanks for having me. Good. I'm glad you're here. Congratulations on what is a pretty stellar 2017. Your business has come a long, long way. Yeah, 2017 was really good for us. Last year we, I've noticed in business that by year two things start to get a little easier. Then year five is that next point where things start to stabilize, and it's just a certain economy, a scale that we started to hit where we're starting to produce enough chocolate to make everything work on a business side of things, as well as making better chocolate as we scale and learning how to do the very best we can, because that's really our goal. Well, where did your idea or what happened that you got into making chocolate? It doesn't seem like something that a young guy in Hawaii might want to do. Right, right, especially because there wasn't an industry here at the time, but that was part of the appeal. I loved the fact that, so I was introduced to Kakao at the University of Hawaii on the agriculture side. My friend got the job studying the plant because UH is an extension agency school, and so farmers started to call into UH and say, hey, why is this pod yellow and this pod red, or why is this seed purple and the seed white, and it's in the same pod, and so my friend got the job studying this plant, and I'd go hang out in this lab and learn that Kakao gets fermented, that it gets dry, that it gets roasted and de-shelled, and I loved the bigger picture of going from a farm or like these trees and somewhat of an agroforestry system all the way to a really high-end product that we could export all over the world. So very quickly, I saw this big picture and said, I'm going to look more into this. Now people started calling in, or farmers started calling into UH. Does Kakao grow here? Is it an indigenous or- Right, so it's been growing here. It was brought here in May of 1800s for the first time, but never really took off, and it failed maybe two or three times from Hershey's Trine, from Dole starting it, and there were certain hiccups along the way. A lot of it was the cost of doing business here in Hawaii, because this is mostly a crop that grows in places like West Africa, Indonesia, South America. So wow, you've been able to kind of pick up and do what Dole and Hershey didn't do. Well, it's a timing thing, so I like to think of craft chocolate like craft beer or premium wine, and the market is now much more willing and excited to pay a higher price for a better product. And so that's where we're different than industrial chocolate. We're trying to make the best chocolate, not the most chocolate. Okay, and so you kind of started this endeavor really as a business just six or seven years ago? Yeah, so in 2010 is when I first started to learn about it, and I registered the business because I loved the bigger picture, that concept of planting trees and being able to sell a really high-end product. But in 2012 is when I'd outgrown my parents' kitchen and actually rented a space and turned this old real estate office into a tiny chocolate factory, and there wasn't a lot of people to ask, so we watched a lot of YouTube videos and assembled a lot of our own equipment, looking up things like bicycles and back massagers and turning it- I've seen some of those. Yeah, yeah, well we haven't hanged in the factory. We'll probably set it up again just for fun. But we made chocolate on the very smallest scale without a lot of money, and so it was very encouraging that we could make good chocolate on the smallest level. And so we also gave a lot of chocolate away in the beginning and saw that there was an interest. People then started saying, hey, I want more of that. I can't believe that cacao or that chocolate bar had fruity notes in it or spicy flavors or nutty notes. I didn't know chocolate could taste like that. And so with that in mind, we pushed forward and continued to create a company based around craft chocolate. So in your factory in Kailua, you start with the cacao? Right, so we actually start with the beans. So there's a jar of beans in front of you. We receive big burlap sacks full of cacao. We buy as much as we can locally, but there's only so much supply and we really need the best cacao in order to make the best cacao. So 95% of quality happens on the farm and we're on the chocolate making side. And so the idea is to start our own farm, which we're doing now. We're gonna have to wait three or four years before it fruits, but we buy finished seeds. So that means the farmer has to do a really good job. So we're buying from Hilo is our main source of Hawaiian beans. There's a few acres popping up here and there on the Windward Coast of O'ahu. And we've been making chocolate out of that too, so Waiahole and Kahalu. And then we're buying quite a few tons now from places like Ecuador, Tanzania. We'll probably get more from Peru, Dominican Republic. Tons of beans. Yes, we have a container of beans actually that's stuck in customs right now. Which we can talk about the issues of importing and shipping and logistics to Hawaii. But we have to bring in supply because we grew much faster than our Hawaiian supply of cacao. Okay, and you're hoping to see that increase by participating yourself as well, but over time you think you'll have better local products and greater. What I see happening is, so I love the concept of Napa Valley because people go to Napa because there's lots of really good wine makers. It's beautiful because it's covered in grapevines. And people go and drink wine and eat food. So I see that happening with chocolate here in Hawaii. Because we can add value to this crop. So we can take the fruit. We can do tours, show people how it's grown, how it's made. And then people can take presents home that are very authentic that grew here. And so there's a terroir aspect to cacao as well, which is why I like the wine analogy. Because if it grows in Wailua and then it grows in Hamaquah or it grows, say in Kauai, they're all gonna taste different because there's different soil types, terroir. Climate is different. What kind of soil or what kind of terrain do you need to grow it? Is it hillside? What kind of ag? Fortunately, we can irrigate. So we can control a lot of what the farm can look like. But you still need the soil to have the right pH and nitrogen levels and potassium. It likes potassium a lot. I'm much more on the chocolate making side. I do have a partner now for the farm, which is a different business. And he's a very high-end cacao consultant. Who has worked with lots of big farms to bring up the level of the seeds. And so that's mainly what we buy from other countries as well as after he goes there. And this is why our quality is much higher is because this post-harvest handling process was done really well and it was growing better. So you obviously had an interest and even a passion for the chocolate, the chocolate making, the agriculture that kind of was a springboard for getting started in business. Sure. Before chocolate, I was really looking for a business to start. And I was looking at things like renewable energies, sustainable forest management, green roof. So I wanted to do something environmentally friendly. And chocolate kind of just ticked all these boxes for me. Because as we grow as a chocolate company, we are supporting trees. And cacao likes these agroforestry systems. I love traveling. So the international aspect of my real passion was to go to these countries where we're buying from and surf and check out the cacao farms. But once again, the big picture is to start an industry here in Hawaii based on these trees. It was the farming, the food, the business that hopefully you could build a business that would also kind of take care of both your entrepreneurial aspirations and be able to give back. And also give you a job to help you pay the bills. A job, all my friends around me. So I tend to work with all my friends, which is really nice. The business has been a bit of a tornado. It's sucked in my brother. It sucked in my friends. It sucked in my wife. Now, my sister works there. At one point, my mom was helping out a lot. Please collect the mail and write the checks. Well, at least you have that system there. Because as we keep hearing, getting good employees is more and more challenging here with the low unemployment and workforce development issues and things like that. So do you find using friends and family, you have a little more leverage on them? It can go either way. But our team is really good. And of course, as we get. So we went from last year, you were talking about 2017 being good for us. We went from 11 employees to about 20. And a lot of that was assistance from things like the SBDC and the High Step grants and Innovate Hawaii. There's such wonderful resources here. And that was one of the main, it helped us grow a lot in production as well as hiring people. The Small Business Development Center, some of the grant programs with the state. It really does help. So I think we're going to take a quick break here. But we'll come back to that and see where those programs fit in and some of those things. We didn't talk about the other big milestone in 2017 and your International Chocolate Award. I think we have to mention that. So that you understand exactly what we're talking about with having passion for what you're doing, striving to be the best, and being recognized for being the best. Thanks for being here, Dylan. Yeah, happy to be here. I'm going to the game and it's going to be great. Early arriving for a little tailgate. I usually drink, but won't be drinking today because I'm the designated driver and that's OK. It's nice to be the guy that keeps his friends in line, keeps them from drinking too much so we can have a great time. A little responsibility can go a long way because it's all about having fun on game day. I'm the guy you want to be. I'm the guy saving money. I'm Jane Sawyer with the Small Business Administration, SBA. And we're here for Adventures in Small Business, talking with Dylan Butterbaugh from Manoa Chocolate. So 2017, kind of a milestone of a year, a lot of big steps. And one of the big ones was your International Award. So tell us a little bit about that, Mr. Year. So I'll back up a little bit. I wanted our company to be able to distribute internationally. I just love this idea of being able, from the very beginning at UH in 2010, when we had nothing happening except learning. I wanted to sell in Tokyo. I wanted to sell in Paris. I wanted to sell in London, New York, San Francisco. And so it was really neat in 2017 to be in Paris at one of these chocolate shows that I've been going to. And we didn't know it, but they told us a week before that we'd won for best chocolate bar for fine flavor. And it happened to be our Hawaiian chocolate bar. So that was really special. So we got to go up on the main stage at the Salon du Chocolat and accept this award and try and speak whatever few French words I knew. So that must have been a real thrill. And so you make a lot of different kinds of chocolate bars. I just kind of want to jump back on that. Where do you, the Hawaiian bar won, but you have a number of different. So that was the most special one to win for, because it was our only true Hawaiian bar that we have consistently. And additionally, at the Salon du Chocolat, Hawaii won for, in the top 50, three of the very best fine flavored beans. And then two of those were in the top 18. So people are starting to turn their head and be like, whoa, Hawaii is growing cacao and it's really good. And we got it on both the chocolate making side, as well as the bean producing side. It's just the quantities at the moment are very tiny. So you just may be turning Hawaii into the Napa Valley of chocolate. Yeah, and we have to be the best, because we can't compete with these countries that have much cheaper labor. So we have to look at the economics of growing it very carefully and focus on fine flavor. So if we're not making the best chocolate in the next five or 10 years in Hawaii, it might not last. So we have to set this new bar of quality standards. So you have cacao from Hawaii. Do you use any other Hawaiian ingredients in some of your chocolate? We used to use Maui sugar. That ended at the end of 2016. We'd have things like Hawaiian sea salt that we sprinkle on top. And that's probably that's one of our most popular bars. And then the other one would be, we sprinkle cone of coffee on top of another bar. That's called our breakfast bar. That one's really good. It's probably the one I eat the most of. And then so other chocolate you use, you've mentioned some before. It comes from Africa. It comes from the South America. And so because of supply issues here in the islands, we buy from Tanzania, which is really interesting because they're very, very bright and fruity. And so everyone's got this idea that chocolate just tastes like chocolate. But that couldn't be further from the case. It'd be like thinking all grapes taste the same. We know Pinot Noir and Chardonnay and calves don't taste the same. They're all grapes, but they have different flavors. And so this is how cacao works as well. And it's a lot more of what our industry focuses on. I know when I visited you and Tammy before in Kailua, you also play a role in trying to help people understand that by having little tours and show people how it's really made. So we're very customer service oriented. When you walk into our tasting room, which is in the front of our factory, we say, hi, have you been here before? Have you ever been to a chocolate factory? Well, let's show you around. And this is the cacao fruit. This is how all chocolate begins. And sometimes we'll have them open and we'll let you taste the seeds inside and talk about how it's fermented and dried. And then when we receive them, we kind of say, okay, let's look through the window here. You can see our roaster. This is where it's de-shelled. This is where it's ground up. And on a really small scale, you get to see how chocolate is made. And then we guide you through a tasting. And most people have never had a single origin chocolate tasting before. Yeah, and it is very interesting that how different they are and the different kinds of products or stages you need to go through to make chocolate that they all kind of... Right, and it's something that we're also familiar with on eating chocolate, but very few people have any idea it starts like this. Right, and you know, one of the world's greatest discoveries, chocolate. So, well, let's talk a little bit about the business side. Obviously, you have the interest, the passion, you know, for making the chocolate. What did you find, what surprised you about getting into business and really making it a business? Well, I have no previous experience in business. I didn't study agriculture or economics or anything. So, even learning chocolate, it was mostly just on the smallest scale in UH and then YouTube. That's how I learned. And then just by doing it over and over and you start to get better. But it was kind of like a Navy SEALs training for business and chocolate making. It was a sink or swim thing in order to stay alive. I'd gotten the loan. Our initial loan was about $15,000, half-backed by the SVA, or the CPB would not have given us any money. I mean, and I don't blame them because I was 24, living at my parents and had no real experience. I was just graduating, so. You must have been very convincing or I had a good proposal for them. Yeah, yeah, I had a good business plan together and was all in. And so it was, get the lease for the space, get the loan, then do the build out. And we took these time lapses of building out the chocolate factory so you can see how that came together. And then I got really lucky that we were able to retail. So our factory is above Cinnamon's, which is a popular breakfast location in Kailua. And people would be waiting for breakfast and then they'd kind of wander upstairs and be like, oh, it says a chocolate factory. I wonder what that means. Let's go check it out. And then we'd offer that experience and we were able to retail chocolate. My initial idea was to wholesale. And that would have been disastrous because the margins are too small and no one wanted to take us. Okay, the chocolate was okay. The package looked all right, it didn't matter. Who cares if it's Hawaiian if no one knows who you are or what you do. And so that was a really painful lesson but we got really lucky we were able to retail and that allowed us to use our own profits to grow. That just everything continues to go back into the company, which is why we've grown the way we have. And it's just kind of a seven day a week work thing where I'm very committed to making this company grow and I don't want a small chocolate factory that's not gonna be effective for me for the social environmental impacts that I wanna see happen. So you said you put all the money back into the company. So you started to see people coming into the shop, getting sales out the door. Did you place with a lot of other shops or vendors or what was your biggest distribution? Our first account in Hawaii was Whole Foods but it took almost a year to get in there. So that's why we're so lucky we were able to retail and Whole Foods, it didn't just start like that. It took a while for sales to increase and now Whole Foods is an amazing account and once Whole Foods took it, Food Land became interested and Down to Earth became interested. Recently we got Duty Free and Duty Free has been a really good account and so now we're hitting these economies of scale where we have enough volume on the wholesale side that it's just helping the whole business and that's also why we do distribution is it's selling pallets at a time, not selling cases and so that's the whole goal is we wanna sell pallets of chocolate all over the world and this just starts to make all the business side a bit easier and cash flow is getting easier as the banks start to work with us the revolving lines of credit increase and as long as we just pay all our bills, things keep working. Important factor to consider, you gotta keep the cash flowing and keep those bills paying so that you keep your credit established. And this is why we can't grow too quickly either if we grow too fast, we'll fall over. What has your production, how has that increased? I mean, very dramatically. So in the very beginning, one of the lessons, I, we didn't have enough money so we bought really small grinders. They would do five pounds at a time and I bought eight of them because it was half the price of buying one big one that would do the same quantity but I didn't realize what my time was worth and so I was spending the same amount of time to load five pounds as 50 pounds and so we did a Kickstarter shortly after that and that got us our first bigger machine and I realized, ah, scale, let the machines do the work so that I'm not actually loading these tiny little batches until two in the morning and hand-packaging chocolate bars. That's not what humans are supposed to do. I'm much rather... And not with the technology that we have available. No, no. And we've kind of, we finally hit this point in business where we have the smallest machines that'll do the best job and that starts to happen around like half a million dollars of equipment. So we have really, really nice machines now but they're still the smallest industrial machines you can get but now we can make the very best chakras. Now we're much more focused on our bean supply and doing a good job selling it. Okay. Yeah. And you've had, you've made a lot of progress and you do a lot of exporting now too. Yeah, so this has been where I'm really focused on going to all these different food shows and finding distributors that are good partners for us and like I was saying before, I want us to be an international brand. I want Kraft chocolate. We're one of the bigger Kraft chocolate makers in the U.S. And so we have to kind of like break down these barriers of price point because everyone thinks chocolate should be this cheap candy bar. It could be, get a little candy bar. Right, but we're starting with so much better quality seeds and the ethics behind it. Like chocolate on the big scale is kind of a dirty industry. It's coming mostly out of West Africa and it's similar to a blood diamond thing and most people don't want to talk about that but that's where most of the chocolate on the shelf is coming from. And so all of the farmers are paid much more fairly and the quality is so much higher. And so to me, I look at it and say you can buy the very best chocolate in the world for under 10 bucks and it'll last you a few days. That's not so bad. Okay, so but Japan, Asia, different areas in Asia, Canada, U.S. Singapore is doing pretty good. We're struggling to get into China only because of customs. Yeah, but we have people who want it there and somebody who's trying to help us out, a distributor there. Japan has been going great but I put in the effort there and they're one of our main customer bases here. Have you had to develop all of those contacts primarily yourself or? Yeah, yeah, one thing leads to another and it's mostly going to these shows. So, let's go there. So you have any big ones lined up this year or? Yeah, I'll go back to Paris. I'll go back to Germany. Germany's turned into a pretty good account. We also won for our Hilo bar at that chocolate festival in Germany. Let's see, Canada. We just got into all the whole foods in Canada. That'll be good. Yeah, that'll be great. And so we're taking it step by step but our scale went from doing these five pound grinders to these 50 pound grinders and now we've got a grinder that instead of taking three days to do 50 pounds, our ball mill will do 120 kilos. So like 250 pounds in three hours. Much better. Wow. And so now we can really focus on doing the best job on sourcing beans and roasting because that's really where the quality comes from. Our machines now got that covered and we can do the volumes. How do you get all these machines up to the second floor? Oh, so one of our main issues has been running out of electricity. Oh. Yeah, and so three years ago, so that first factory that we built, we ran out of electricity in that. That was 600 square feet. And then we took over the empty suite next to us and that was another 600 and so square feet. We ran out of electricity again and then we went to the bank and said, hey, we've got more demand than we can deal with. We'd like a loan, we'd like to build another factory. And so on that same street where we're at, we have another factory that we recently outgrew and so we're about to build another one and consolidate them. Oh my goodness. Yeah. And so we have all the machines now. It's just, now we have to build our fourth factory. Wow. And give one of them up. Well, this is a great story of really understanding what you want to do, having a big vision about where you wanna go and really taking that kind of, almost as a social enterprise, but really at the point where you're making money and growing by examining your business very, very well. Yeah, and it's giving farmers a reason to plant. So before there was no reason to plant cacao and there was no one to sell it to and we're now a buyer. And pretty soon being a producer as well. And we'll, we'll, we'll hear the great story. You know, well on that note, we're going to have to close out. I'd invite you to check out their Kailua shop, maybe go in and learn how great chocolate is made and see a great growing business in Hawaii who's also into exporting, into helping develop our agricultural section. So there are so many things to learn from this. Please do head over to Kailua. And remember the small, small business awards program coming up on May 4th. You can call the SBA or check out our website at sba.gov backslash hi. Thanks for joining us for Adventures in Small Business. We'll see you next week.