Okay, I admit to being to being a business wonk.  I like to study all kinds of businesses, understand patterns, understand profit drivers, learn from strategic successes and failures, and see how this learning can be applied to whatever business I am currently working in or advising.

I love businesses that build big moats, that have network effects, that have increasing returns to scale, like ICs.  But I also love businesses that spin gold from refuse or near refuse–as well as businesses that spin gold from digital bits (software).  I ran across a bunch of those businesses in the food industry and continue to marvel when I find some of these companies.  Examples include:

-The entire rendering business which literally salvages the remnants of the slaughtering process and turns the products into protein and fats used in a variety of industries.  Not a growth business, but plenty of profits.  See DAR on the NYSE.

-The closely related pet food business which uses everything that is left over from all sorts of other processes, mixes and heats it up, packages it, and then markets it to you like you are feeding your child.  It’s like the fabulous infant formula business, but with cheaper ingredients and no way for the consumer to complain!

-Processed cheese singles (or any form).  The formula for the product can vary depending on commodity prices, but no matter how you cut if, it’s a great product.  Heck, it helped Kraft pay for Cadbury.

-Other great examples are businesses that learn how to take their remnants/rejects and turn them into premium products.  Great examples are some of the mixed juice products, flavored pretzel bits, and my all-time favorite “baby” carrots.  By now, I hope most of you have figured out that those are not small carrots, those are the large, moldy ones with the mold cut off and then cut in to baby carrot shapes.  Voila, profit.  (Ever wonder why you see so few green ends on them?!)

-TerraCycle and other companies are cool companies turning consumer refuse into neat consumer products, bags, purses, playground equipment.

-And, of course the entire scrap aluminum recycling business (which my father has worked in for decades) is another great example. Maybe that is where my fascination started.

What are your favorite examples of industries or companies that make “silk from a sow’s ear”?  Oh, yeah, pig’s ears are sold as dog treats, right?