You’re the Boss Blog: Pitching an Organic Cigarette for Hipsters

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In my last post, I reviewed a company focused on helping students find their passions. This week, I review a pitch for a product that may seem a bit contradictory in nature — an organic cigarette.

You can view the original video pitch and my review of the pitch below.

Here’s the pitch:

And here’s my review:

Hestia Tobacco positions itself as the first truly independent organic cigarette company, and there are a number of strong elements to the pitch. It starts very clearly with David Sley introducing himself, the company and a three-pronged investment thesis. What he has created is an organic cigarette company, aimed at the young, socially conscious market that still engages in smoking.

Mr. Sley seems to know precisely who his customer is: hipsters who shop at “farmers markets and vinyl record stores.” I have a clear picture of who that consumer is — but the size of the market seems a little fuzzy. He claims there are 20 million smokers between the ages of 18 and 35, but how many of those smokers fit the hipster mold?

Also, he cites 40 million smokers who consume 15 billion packs of cigarettes in the United States each year, but that isn’t relevant if half of those individuals are not part of his target market. Plus, there is an inherent question as to why people who are socially conscious would pollute the atmosphere and their own bodies with smoke — other than because they share the often hypocritical nature of most human beings. The market-size validation could have been bolstered by citing the sales and growth rate of the main organic cigarette competitor in the market, American Spirit — more on that brand later.

Mr. Sley also overcame a big hurdle by noting one objection right upfront. He cited rising cigarette taxes as an explanation for positioning Hestia Tobacco as a premium brand. He argued that with rising taxes, a premium pricing strategy becomes less of a barrier, and I do agree with that. But the math on what the strategy will net isn’t entirely clear. He mentioned profits of $25 a carton, but that was the only income- statement-related number in the pitch.

Competition is often a red flag in a pitch, and it was here — although not as much as I expected. Mr. Sley says there is only one other major marketer of organic cigarettes: Natural American Spirit, a subsidiary of R.J. Reynolds Tobacco, one of the largest tobacco companies and the maker of Camel, Salem and many other major brands. As Mr. Sley correctly points out, this gives American Spirit less credibility as a truly independent brand, which is probably important to the target customer. On the other hand, it also gives the brand tremendous resources, making it an 800-pound gorilla of a competitor. Additionally, when there aren’t a lot of competitors in a market, there is often a reason; sometimes there just isn’t a big enough opportunity or the barriers to entry are too high.

Distribution is another issue. Assuming that organic cigarettes do appeal to independent thinkers, how is Hestia going to reach them? I would imagine that standard distribution (like the drug, mass and grocery channels) would be very difficult for a small brand to crack. And I can’t really see this product being sold at Whole Foods.

I also have some concerns about the production of the pitch. The narrative voice-over of the gentleman smoking landed somewhere between pretentious and creepy for me. Investors want to engage with the entrepreneur, and this did not give a warm and fuzzy first impression. I suggest erring on the side of sounding genuine rather than hip.

Finally, when you are pitching, it’s critical to know your audience. With a polarizing product like tobacco, you want to ensure upfront that your investor is amenable to the offering. I personally am an antismoking advocate, so I am the last person who would invest in this company (but I tried to remain objective from a business standpoint in this review).

Given my feelings about smoking, I would not take a meeting on this pitch, but I do think it presented some compelling information as a business opportunity. If I did not have a moral issue with the product, I might well have been interested in taking a further look.

What do you think?

Carol Roth is a business strategist who has helped clients raise more than $1 billion in capital. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/08/30/pitching-an-organic-cigarette-for-hipsters/?partner=rss&emc=rss