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Silicon Valley tried to mass produce fancy marshmallows. It got messy, fast.

Adam Rogers   

Silicon Valley tried to mass produce fancy marshmallows. It got messy, fast.

Jon Sebastiani saw fancy marshmallows for the first time in Paris, and thought they looked like money.

A scion of a big-deal winemaking family from California, Sebastiani was already rich. He ran one of the family wineries for a while, but that wasn't his big hit. "When you grow up in a small town like Sonoma, in a notorious family business where everybody knows who you are — it was important to me to carve my own path," he says.

That path led to snacks. In 2009, inspired by the offerings at a local butcher shop, Sebastiani founded an upscale beef-jerky business called Krave. Easier to chew and sweeter than convenience-store jerky, Krave got huge during the paleo craze. In 2015, Sebastiani sold the company to Hershey, the chocolate-bar people, for $240 million.

He ran the company for Hershey for a year, then left to found a food-focused investment firm. But Krave had been more than a financial success. It created a whole new category in the snack industry. And Sebastiani found himself jonesing for that high. In search of it, he went to Paris. There — in cute bakeries, in nice shops, on haute dessert menus — he discovered next-level marshmallows.

These weren't the pot-bellied, chemical-laden puffballs that Americans roast on sticks and slap on s'mores. They were toothsome little pastel-shaded cubes, in a range of classy flavors that called to mind meringues and Michelin stars. "When you peel back the layers of a marshmallow, it's actually a better product for you, with less sugar, than most candies," Sebastiani realized. "We could be a less-guilty, better-for-you sweet indulgence."

The plan: Create a premium snack by using (nominally) healthier ingredients than commodity marshmallows and smashing together flavors and colors inspired by Paris. That was the source of the new company's name: Smashmallow. "I don't want to say it was the Krave playbook," Sebastiani says. "But it was my next concept that I believed was going to disrupt a category."

Maybe you've heard of Smashmallow; maybe you even bought some. In the couple of years before the pandemic, they were everywhere. Now? Pfft. The problem wasn't the marshmallows — they were, by all accounts, delicious. The problem was scale. Smashmallows were designed to look like an artisanal, boutique product, but that wasn't enough for Sebastiani: He wanted to manufacture billions of them, to build a company that would bestride Candyland like a squishy colossus. That meant he had to grow fast and figure out the engineering on the fly — the classic entrepreneurial strategy of Silicon Valley. When it works, you get Tesla; when it doesn't, you get Theranos.

This is the story of the Theranos of marshmallows.

Like their denser cousins nougat and taffy, marshmallows are, formally, aerated confections. Dissolve sugar in water with a goo-like gelatin or egg white, then whip until tiny bubbles form. The gelatin locks the bubbles in place. Cook it gently and you get an airy bite of sweetness — a "foam made of finely dispersed air bubbles within a sugar candy matrix," as one candymaking textbook puts it.

It wasn't hard to make a better version of store-bought marshmallows. Jens Hoj, a former chef at the renowned restaurant Chez Panisse, had figured out the cooking process that turned Krave into a giant of the jerky world. He was confident he could do the same for Smashmallow. "We wanted a marshmallow to have a little bite to it, not just be a foamy air," he says. First, he replaced the corn syrup in commercial marshmallows with tapioca syrup and invert sugar. Then he cooked the mixture at a slightly higher temperature, to give the marshmallow more texture than the basic Kraft offering.

It took only a few months to get all that right. But then Hoj ran into a problem. He couldn't find anyone to make his marshmallow.

Typically, when someone turns a food into a business — mom's chili, auntie's kimchi, whatever — they end up moving to an industrial-scale facility called a copacker. Copackers for meat are common; finding them for Krave had been simple. Locating one that could handle a delicate, airy confection proved a whole lot tougher. Which, in retrospect, should have served as a warning.

Hoj's team eventually found a commercial bakery in Los Angeles that was willing to learn. Smashmallow bought big, commercial Hobart mixers to combine and whip the sugar and gelatin. They poured the mix onto huge cookie sheets, on top of starch to keep it from sticking — a process called "slabbing." They bought special cutters to slice the hardened marshmallow into cubes, and learned how to dust them with sugar and cinnamon to make a churro flavor, to blend in other flavors like strawberry and root beer, to include chocolate chips or coconut flakes, to pour out multiple layers to get two-color versions. "It was all hand-done, so it was extremely expensive," Hoj says. "Imagine 30 people making marshmallows every day, seven days a week."

Sebastiani had the contacts to get the product into stores, where it proved even more popular than he'd hoped. "This wasn't a novelty purchase where they go 'Oh, that's cute' and then never buy it again," Sebastiani says. "Customers were actually buying it and then buying it again in different flavors. Retailers were clamoring for more seasonality, for smaller packages so moms could buy it for grab-and-go for their kids' lunchboxes." It had taken Krave five years to reach $5 million in annual revenue. Smashmallow got to $5 million in its first year. The next year, its revenue doubled. Retailers like Target and Walmart were clamoring for more, and Sebastiani was bringing outside investors on board. "We got extra excited," he says. "We weren't just premium. We were — I call it a usage occasion disruption."

We weren't just premium. We were a usage occasion disruption. Jon Sebastiani, Smashmallow founder

Smashmallow had a killer brand — but the product was still basically being made one batch at a time, on kitchen counters. To automate the assembly line, Hoj knew they'd need to switch from slabbing the marshmallows on cookie sheets to "extrusion," the conveyor-belt process used for mass-produced marshmallows. Extrusion is cheaper, faster, and less labor-intensive than slabbing. It's basically a marshmallow printer, and it's why American marshmallows are so ubiquitous. But when Hoj went to visit Doumak, the company in suburban Chicago that pioneered marshmallow extrusion, the experts just shook their heads. "We love your product," they told Hoj. "But it's too complex for our system."

The colors and flavors Smashmallow was using were too thick for Doumak's mixers. The tapioca syrup and invert sugar would have required new tanks. Oh, and nobody had ever made a square marshmallow on a commercial machine, much less a marshmallow that wanted to mimic the rough-cut straight edges of a slabbed one. And that doesn't even get into the coatings and inclusions, like chocolate chips. Doumak's engineers told the would-be Wonkas that it couldn't be done.

Look: Nobody was forcing Sebastiani to turn Smashmallow into a national brand. The company was already generating nearly $15 million a year. It had dozens of employees. It was making a product that people loved and wanted to buy. Rather than trying to blow the company up into another Krave-size winner, Sebastiani could have just … stopped.

"It could have been a boutique regional brand," Sebastiani acknowledges. "And there's something authentic and noble in not having to be defined by your revenue, or millions of customers, or the retailers you have. But for me, I'm driven by growing things — not to infinity, but to a high ceiling." He didn't just want to make marshmallows. Sebastiani wanted to change our eating habits.

But if Theranos taught us anything, it's that a business model won't work if it hinges on a technology that doesn't exist. Sebastiani wasn't an Elizabeth Holmes-style grifter. Marshmallows are real! But he did ignore the experts, and proceeded without having the necessary technology in place. If there wasn't a machine that could mass-produce his marshmallows, he would just build one. How hard could it be? In Silicon Valley parlance, he would fake it until he could make it.

At a Las Vegas trade show for food-equipment suppliers, Hoj saw a booth for Tanis Food Tec. Based in the Netherlands, Tanis was an internationally respected builder of candymaking machines, and it specialized in marshmallows. So Hoj walked over and broke open a bag of Smashmallows. "This is what we need," he told them. It wasn't the kind of confection the Tanis people were used to making, but they were willing to give it a shot.

Hoj went to the Netherlands to see the Tanis facilities. The company even mailed samples of marshmallows it had produced to Smashmallow's specs. "Those met all the requirements," Hoj says. It was going to cost a lot. But that was fine — maybe even good! The new technology would be a trade secret that could protect Smashmallow from aspiring competitors. So Sebastiani agreed to buy a brand-new system from Tanis for $3 million, with a two-year exclusive on the unique, customized parts used for adding inclusions like chocolate chips.

Tanis put Smashmallow in touch with a copacker in Pennsylvania called Wolfgang Confectioners, which agreed to build a whole new facility to accommodate the machine. It would be the size of two tennis courts: kitchen, mixers and aerators, heating system, extruder, and 100 feet of conveyor belts. But copackers hate new machines. They're expensive to install and maintain, and they're basically useless if the company using them fails. So Wolfgang's facility came with a condition. "We needed to make 1,200 to 2,000 pounds an hour," Hoj says. A ton of marshmallows every hour, all day long — otherwise Smashmallow would be required to pay penalties.

Smashmallow fired the teams who had been slabbing its product. But when the Tanis machine finally arrived at the Wolfgang facility in August 2019 and Hoj's team spun it up, the marshmallow printer failed to print. "They couldn't get the kitchen to make a marshmallow for quite some time," Hoj says. "And we couldn't get the product onto the belt for another 2 ½ weeks. And then the belt wasn't functioning correctly, and pounds per hour were less than stated." The whole thing was a disaster, but Hoj was undeterred. "We were thinking, this is just startup," he recalls.

Even more alarming, the coat of starch that was supposed to coat the extruded marshmallows went airborne, filling the facility with starch dust. Aerosolized dust isn't just an inconvenience. If a single particle catches fire, it can set all the particles nearby on fire as well, creating a rapidly expanding, three-dimensional zone of combustion. This is what's known, in technical terms, as an "explosion." An inspector, hired by Wolfgang, shut the whole thing down. "They were hesitant to produce product until it was fixed, which of course we hated hearing, because we needed the pounds," Hoj says. To get up and running again, Smashmallow was forced to bring in an all-new dust-handling system.

The problems cascaded, one sugar-coated disaster after another. The conveyor belt that carried individual marshmallows to the bagging station turned out to be too short, so they didn't have time to dry, which caused the marshmallows to stick together in the bag. The machine's die and cutting blade couldn't replicate Smashmallow's handmade irregularity; it could only turn out perfect, identical-size marshmallows. When the machine tried to re-create Smashmallow's most popular flavor, churro, the cinnamon coating didn't stick and blew into the air. Workers had trouble breathing through the thick clouds of spice. Once they figured out how to get the cinnamon settled onto the belt, it turned out to be heavier than starch, and the motors couldn't handle the extra weight. They replaced the motors, but then the cut ends of the marshmallows didn't get as much cinnamon coating. So they had to take the cinnamon and sugar off the line and put it into a drum that could toss the marshmallows in the mixture. "It took about six or seven months to come up with that," Hoj says. And even that didn't work, because the cinnamon — heavier than starch, but lighter than sugar — prevented the sugar from sticking to the marshmallows.

Then COVID hit, slowing things down even more. The production line wasn't fully "commissioned" — able to make things that could be sold — until 2021, nearly two years after it was delivered. Even then, Hoj says, it didn't produce the amounts Wolfgang was demanding: "Sometimes we hit 1,400 pounds. But the average, if you looked at a whole month, was about 850 pounds."

Wolfgang's quotas weren't the only problem. The sales team had gotten Smashmallows into 15,000 stores, and those retailers were signing agreements for product up to 18 months in advance. Sebastiani had made a deal for coveted end-aisle displays for Halloween — "Malloween!" — in every Target store in America. "We were expecting a significant growth curve," Sebastiani says. "We were taking on investment dollars, not only from my firm, Sonoma Capital, but from limited partners and endowments. My reputation was on the line."

The manufacturing team started hand-tossing marshmallows in the cinnamon-sugar mix. QA teams inspected every run, hoping for a salvageable product. "We had to deliver something," Hoj says. But customers could tell that the machine-produced marshmallows weren't as good as the originals. Sales declined. Stores cut back on their orders. "We were producing four days a week, and then we were down to three days," Hoj says.

The relationship between Smashmallow and Tanis finally broke. Smashmallow threatened to withhold payment until repairs were made, and canceled the installation of the experimental component designed to improve the addition of inclusions. Tanis responded by ceasing tech support. An acrimonious meeting aimed at resolving the issues ended with the establishment of a payment plan tied to production levels. If Smashmallow couldn't produce enough marshmallows, Tanis wouldn't get its dough.

In the end, Smashmallow couldn't keep up with its obligations to investors, retailers, and the copacker. Sebastiani's dream of candy dominance was dead. Wolfgang sued to recover the nearly half a million dollars it said Smashmallow owed for not keeping up with sugar quotas; Sebastiani settled by giving them components from the machine. He, in turn, sued Tanis to recover not only the costs of the entire fiasco but the potential value of the company, had it been a success. In 2022, Smashmallow shut down for good.

In court, Tanis insisted that the machine had, at times, gotten up to full speed and satisfied the terms of the contract. It accused Smashmallow of slowing the assembly line's output by switching up the flavors too often, requiring time-consuming cleanup. But at trial, a Tanis engineer admitted that the samples Tanis had sent to Smashmallow to prove it could produce the product were actually made, in part, by hand. Apparently Tanis, too, had faked it to make it.

Everyone agrees that it ought to have been possible, engineering-wise, to make a machine that made Smashmallows. Everyone also agrees that, in the end, no one was able to. "The fact that Tanis said they could do it was interesting," says Richard Hartel, a food engineer who leads the candymaking program at the University of Wisconsin. "Their engineers must have said, 'Well, this shouldn't be a problem.' They probably figured this was going to be easy, and it turned out to be harder than they thought." The jury agreed, awarding Smashmallow $20 million in damages. After some legal back-and-forth, the parties settled for an undisclosed amount. (Tanis and Wolfgang declined to comment for this story.)

Sebastiani says he can imagine bringing Smashmallow back someday. Meanwhile his investment company is still running the premium-product-at-blitzscale playbook. Bachan's Japanese-style barbecue sauce is one of theirs. Guayakí yerba maté, too.

Smashmallow had crossed over into that rarest of territories — a brand synonymous with its product.

The thing is, even though Smashmallow failed, Sebastiani didn't. During trial prep, his lawyers had a fun idea. They thought they might bring a bag of Smashmallows to trial, to show the judge and jury what they were talking about. One of the attorneys, David Kwasniewski, called a bunch of Bay Area stores, and a clerk at an REI in Santa Rosa said they had a bag in stock. "Come on by," he said.

Kwasniewski hopped in a car and drove up from San Francisco — it takes about an hour. He walked into the store and found the clerk, who went behind the counter and handed him a bag of gourmet marshmallows. But they weren't Smashmallows. These were made by a small Colorado company called Hammond's, which sells cube-shaped premium marshmallows in toasted coconut, chocolate chip, and a two-layer strawberry créme, among other flavors.

The lawyer was gobsmacked. Smashmallow had crossed over into that rarest of territories — a brand that's become synonymous with its product. "In that industry, a snackable marshmallow is a Smashmallow, like a copy machine is a Xerox," says Kwasniewski. Smashmallows don't exist anymore, "but the brand is still out there."

Sebastiani really did disrupt people's usage occasions. He created a whole new category of snack, and changed people's eating habits. When he created Smashmallow, the annual market for marshmallows in North America was about $250 million. By 2028, it's projected to hit $535 million. Sebastiani won't see a dime of that money, because his business plan required a technology that didn't — and maybe couldn't — exist. He built a sweet brand. But the product was mostly hot air.

Adam Rogers is a senior correspondent at Business Insider.

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