Shaulablog

Hey ho folks! It’s been a bit of a busy spring.  One upside of our “new normal” is many companies have reached out to support the CPG industry with free, high quality, online presentations.   Enjoy the sun while it lasts and get excited about the next stay-in-weather day when you can browse these gems:

I have written many times about my work with Tera Johnson of the Food Finance Institute at U of Wisconsin.  I’m on a weekly call with her as a consultant and she suggested this workshop on pricing your product for distribution to retail:

https://www.foodbizsuccess.com/profit   – it’s $97, two hours, and absolutely worth it. Sari Kimbell is a former buyer for Whole Foods and she really understands retail distribution.  She has many other workshops, which after this first taste I think you will be ready to select from.   Sari also has her own YouTube channel with some free videos here: https://www.youtube.com/FoodBusinessSuccess/

In the Pricing For Profit video, Sari shares the screen with Shannon Roddy of Marketplace Seller Courses: https://www.marketplacesellercourses.com/

Shannon shares a really valuable overview of selling on Amazon.com.  I have seen consumer products not pay attention to Amazon while they focus on distribution. When they turn their attention to Amazon a year later they discover it’s a wild west: Their own product for sale from half a dozen resellers doing varying degrees of an acceptable job of presenting the product and making it a nightmare for the would-be customer.  This really is a case of investing less than a day, total, now, will save you days and many dollars down the road.  Take the Pricing For Profit Course, check out Shannon’s website where there are two free promo videos, and draft a plan for Amazon whether you are ready to execute or not.  Tera says 50% of online food sales are from Amazon. Shannon reports that Amazon can deal with frozen or meltable, but not refrigerated. (and shelf-stable, of course!)

Another hot tip from Tera: The Specialty Food Association (hosts of the Fancy Food Show) has been putting on weekly webinars about working with buyers, as well as Continuity and Risk Planning.  “All webinars are free to the whole industry” and prior webinars are currently available for replay here. Thanks, SFA!   https://www.specialtyfood.com/shows-events/summer-fancy-food-show/education/webinars/

The webinar series I’ve manged to catch a couple of is from The Hirshberg Institute.  COVID hit just as they were about to do their annual Entrepreneur Bootcamp. Instead they did a webinar series called Tales From the Trenches – leaders from all kinds of food companies talking about how they built their companies.  They’re not currently recording new ones but past webinars are available online. Check it out here: https://hirshberginstitute.com/webinar-series/ 

Hang in there!  Pivot, don’t pause!  It feels like disaster but it’s actually disruption – breathe deep, look for opportunities, don’t be ashamed of realities, and care for yourself.

The path I’ve been learning so far for food products to grow is to start with farmers markets or other direct sales, then move into self-distribution to retail locations, then move up to working with a distributor and brokers.   Getting into restaurants is a variation and leads into the discussion of targeting “Food Service” vs “Retail”.   What exactly does that entail?  The key seems to be finding segments where a gatekeeping purchaser makes a narrow product selection to offer to their audience.  No marketing investment required to the end consumer – they have few enough choices they’ll likely try your product.

I found an old paper written on the Food Service Industry from the perspective of developing a hospitality career.  They identified up to 12 segments for the food system based on a breakdown from the International Foodservice Manufacturer’s Association.   Market research firm CHD also makes similar breakdowns here.

The big breakdowns seem to be Commercial (retailer & restaurants) vs Non-Commercial (also called Institutional).  Sometimes included in Non-commercial, sometimes separated out is Military & Prisons & Schools.  The key to non-commercial is that it’s food service at an establishment whose primary business is something else (vs restaurants).  They’re not in the business of providing a wide variety of comparable choices to the end consumer in the way a retail establishment is.  A detailed segment version might break into:

• Employee feeding (aka “Business & Industry”)
  • This breaks into cafeterias where employees may or may not pay for their own meals. Also includes break rooms and vending. Might include meeting/event catering.
  • Much of this market is contracted out to 3^rd parties. Think Aramark. 
• School systems (primary/secondary)
  • Here you’re participating in school lunch programs – I’m thinking prepared food.
• Colleges & Universities
  • Here there’s a mix of faculty (employee cafeteria) student meal plans (so a pre-committed budget but variable consumption) snack bars and vending. Catering again. A mix of prepared food and packaged food.
• Daycare
• Transportation
  • Airline meals, transit concessions
• Military
  • Some prepared food. Commissaries. Canteens and snack bars.
• Nursing Homes
• Elder care
  • In-home meal delivery, elder day care sites
• Hospitals
  • A complex array of cafeteria, meal delivery, concessions.
• Correctional institutions
• Vending

Market-research firm Technavio divides the prepared-food system into 4 categories by how the preparation is done.  This is an interesting framework for thinking about how your product might fit into a food service model.

Conventional – food is prepared onsite and kept at service temperature until served.

Centralized – sounds like what I’ve heard described as a commissary model. Food is prepared at a centralized location and then distributed to kitchens for service, may be frozen, chilled or held hot for transport.

Ready Prepared – food is prepared ahead and chilled or frozen and then reheated on demand for serving.

Assembly serve – the teaser I read didn’t go into the detail of how they define this category, but perhaps this involves pre-prepared products from vendors that get assembled into a final result.  We’re also still missing individual meal service or kits.

Their full report is available for $1000.   Looking ahead, they called out mobile food service (IE Food Trucks) and delivery plus ghost kitchens as trends to watch.

It seems likely to me that each channel of foodservice will have differing requirements on shelf-life, ability to do refrigeration, quantity packing, sales, order & payment cycles.  The IMFA looks like they have a one-day seminar designed to cover the current state of the industry. Next one is June 16, 2020 – let’s check it out!

I, like so many others, seem to have a romantic notion of farming.  There’s some kind of longing to get back to nature, to feel a relationship with my food, to accomplish something tangible.  Yet the truth is it’s very difficult to build a financially sustainable small (less than 100 acres) farm. Especially with a diversity of crops that have different equipment and process optimizations.  So why do we keep trying?  Last summer my mom’s East Coast CSA had an interesting article in their weekly newsletter about it. I had hoped to do a little more reading, processing and writing, but in a New Year’s to-do list cleanup, let’s at least share that original fascinating article about why American’s might feel a particular affinity for the small farm.

Here’s to 2020!

I covered a great assortment of resources in an earlier blog, so be sure to check that if you haven’t seen it yet.  Since then a few more have crossed my mailbox.  These are resources that I know I’ll want to grab hold of again so I’m capturing them here.

Impact Washington:  “a nonprofit providing high performance business and technical assistance to Washington’s small to mid-sized manufacturers.”  They first came to my attention when OlyKraut got a grant to work with them on LEAN manufacturing.  Then Erin Adams of Seattle Good Business Network let me know that they have a range of technical assistance programs directed specifically at food manufacturers. Check it out!

To get more environmentally sound in Washington State, EnviroStars is the program to check out. They offer technial assistance to help you sort through what rebates and programs will be most useful to your business.  I’m bookmarking this one to do in advance of the next BCorp certification or re-certification I am part of.  Seattle Good Business Network may be able to hook you up with a free 30 minute consultation from them.

The Seattle Office of Economic Development has a page dedicated to the detailed steps of opening various food businesses here.

In Olympia, Enterprise 4 Equity has a long running food/Ag business training program, the Agripreneur program.

When it’s time for fundraising, going where the investors are always helps.  I’ve begun to notice there’s a real hub of energy in Colorado. This year I learned about a two-day business bootcamp focused on food businesses called The Hirshberg Institute.  It’s accessible for startups and is still probably helpful for early stage.  It happens in June.

And then one for the producers – the place to be is Organicology in Portland around February.  Seems like lots of folks attend that and it has serious education.

Each small act of kindness and respect contributes to a cycle that fosters greater civility among the people in one’s network. Giving works the same way. Giving thanks, acknowledgement, attention and feedback is civility in its finest form. (p 52)

More thoughts after my week with Tera Johnson of the Food Finance Institute and several local businesses….

In tech people like to talk about the “attention marketplace” – that we’re competing for click-throughs and page views. Competing for attention is also true of retail and product marketing. No longer is it good enough to get onto the shelf or into the corner location. You need to fight for people’s attention and do marketing and promotion. To grow quickly, you will need cash to invest there and build sales, which hopefully will remain stable and repeatable at your target price once your promotional efforts have driven customers to try your product.  Tera said often: you have to drive trial.  Do demos so they’ll taste, do Temporary Price Reductions (TPRs) to get people to buy it just to try it, do couponing.  All of that costs money and is not easily financeable with debt because it isn’t asset backed.

What is financeable with debt is equipment.  What I learned in this class is to be aware that equipment often comes with “environmental costs” – that new sink needs a bigger drain. That new oven needs a bigger hood/ventilation system. That killer new processor needs tri-phase power that your space didn’t have.   Equipment can be a big capital investment, and using outsourced manufacturing can be a pragmatic step in growing quickly – it might be less optimal and efficient but it lets you avoid raising the capital and building the line until you’ve proven out the sales.   Grow sales on co-packing and then you’ll have the cashflow to support the debt to buy the equipment and build your own line.

In tech as an investor I’ve learned to want companies to “stick to their knitting” – really narrow their focus/target their customer. It’s too easy to try to “boil the ocean” and get nowhere.  Food is different because cashflow management is such a big thing.  In food, it can be company-saving to diversify.  The immediate cash generation of direct-to-consumer can be a key part of floating the company through the long receivables periods of growing a wholesale business.  The stability of wholesale can help balance the variability of a direct-to-consumer -be it popups, farmers markets, or a retail location, maybe catering.   Those can be important compliments that help smooth out both cash and capacity utilization of space, equipment, labor.   Building out a product in food service before tackling wholesale can be part of both market testing and cashflow building and perhaps brand-building if they’re willing to promote you.

To be successful in food you will have to manage your partners.  It’s not enough to get a distribution contract, you will need to monitor that they pay you they way they’ve promised to pay you and when they promised to pay you.   You will still need to hire brokers to get your product on the shelf and you will need to manage them. You will have to do your own promotion and marketing.   You will have to pay the distributors for your own data. When you hire copackers you will need to monitor the quality of your product that they produce.  Expect to inspect.  Don’t shoestring it and look for partners to save you:  this is you growing your company and managing it actively.  Buzzwords to study up on: copacking, 3PL (third party logistics), cold storage.

It’s important to understand financing, because it’s an essential part of growth.  Food companies need to grow in steps because growth involves expensive changes in both distribution and production – you’ll need to ready (study up to ensure the cost of those changes will be covered by the growth they enable), steady (model cashflows, be realistic and organize financing) and go!

Here’s a quick roundup of some resources I have to think about local farming in the Northwest, inspired by a friend’s question.

The resource said friend shared with me:
A PhD Farmer Sara Taber from North Carolina who does interesting writing and podcasting:
https://www.farmtotaber.com/

Erin Adams of Seattle Good Business Network/Seattle Made just hooked me up with this blog: https://kingcountygreen.com/category/local-food-news/

There’s a book that was all the rage one year, I’m not sure anyone has validated it:
https://www.amazon.com/Compact-Farms-Detailed-Productivity-Efficiency/dp/1612125948/

Viva Farms has a farm school program in Skagit in partnership with WSU – one quarter of farming and one quarter of farm business. (ooo, actually looks like there are 3 quarters now). I know the folks that founded it. https://vivafarms.org/practicum-in-sustainable-agriculture-2/

Many folks do WWOOFing to learn farming. https://wwoofinternational.org/ I don’t know how many become farmers, access to land is an issue for sure.

The class I’ve organized here in Seattle is from the Food Finance Institute of the University of Wisconsin. https://foodfinanceinstitute.org/ She doesn’t do “production agriculture” (IE how to be profitable with crops) but everything beyond that from distribution to value-added-production to marketing/branding

This publication gives me admiration for what government can do. I only hope it can still produce things like this: https://www.ncbi.nlm.nih.gov/books/NBK305181/ it’s pretty amazing.

Multiple times I’ve heard that Farm Accounting is a different beast.  I’m starting to understand why. Tera of the Food Finance Institute commented that you don’t have clear COGS when you’re farming – instead you’ve got all your inputs and then your outputs and how you find value for them.  I’ve heard about this in meat production – a challenge to organic meat production is you might be able to get an organic premium for steak and hamburger, but where’s the organic premium for offal? So how do you make the whole business model work?  Or you produce apples, but what price you get depends on how much of what quality you end up with, oh and of course what’s going on in the commodity markets.  So the usual business accounting of price-cogs = gross margin doesn’t cut it.  Instead you have to think, well, I could invest more in these kind of resources to improve the % of apples that come out to be worth more and that will change the total revenue.  I’ve discovered Steve Bragg of AccountingTools Inc, and I love what I have read of his stuff. He has a book on Agricultural Accounting that is totally what I’d reach for first, but I haven’t managed to read it yet so I can’t make a total endorsement.  Anyone want to let me know?

I had the privilege of working with Tera Johnson of the Food Finance Institute last week to put on part 1 of her Consultant Training and her Entrepreneur BootCamp here in Seattle.  Business Impact Northwest hosted the training.  Tera is great because of her wealth of experience in food, beverage and agriculture businesses.  After a week of trainings we drove up to the Skagit Co-op (I finally joined!) and met with folks from the local SBDC, the Puget Sound Food Hub, and Viva Farms.  Hopefully we’ll organize future trainings up there.  Tera’s specialty is value-added processing and selling products.

The first week of training focuses on the importance of being in touch with consumer markets – crafting products consumers want and can understand.  Then it moves into figuring out who’s your target market, where they are, and then matching your business model and your market size.   If you’re in a big area like the Puget Sound region, you can probably make a living for yourself and some income for others making your product in a shared kitchen and selling at farmers markets if you have a unique niche.  If you want to go into wholesale distribution, that’s frankly a different business with much lower margins and requires much higher volume – you need to gather your resources and shoot to get to the next level of stability ASAP. Trying to grow slowly and incrementally can accumulate operating losses that eventually drag you down.  The next sessions of class will be about how to finance these different kinds of business.

To better understand where the market opportunities are, Tera shared a wealth of resources for staying informed about market trends.  Most of these are free.

• Organic Trade Association (OTA) Industry Reports https://www.ota.com/resources/market-analysis
• International Dairy Deli and Bakery Association (IDDBA) “What’s in Store” and Industry Reports http://iddba.org/
• National Restaurant Association Industry Reports http://www.restaurant.org/Research
• Specialty Food Association Knowledge Center https://www.specialtyfood.com/knowledge-center/
• MINTEL (great stuff, not free!)

The best trade shows to attend to get a sense of your market:

• Natural Category – Natural Products Expo West http://www.expowest.com
• Gourmet/Specialty Category – Fancy Food New York https://www.specialtyfood.com/shows-events/summer-fancy-food-show/  The SF show is smaller, as west-coast companies this may make more sense.
• Mainstream Retail – IDDBA http://www.iddba.org One entrepreneur attending our workshop endorsed this show – she said there’s an ‘Expert’s Hall’ where attendees can make appointments to get free consulting from different experts in every aspect of food business.
• Food Service – National Restaurant Association, Chicago- https://www.nationalrestaurantshow.com/

Attendees also shared their favorite local resources for businesses.  Local CDFIs Ventures https://www.venturesnonprofit.org/ and Business Impact Northwest https://businessimpactnw.org/ offer lots of workshops, as well as the local SBA.  The University of Washington has many programs where student groups will do projects for businesses, market research and target marketing was one such project through the BIG program.

https://foster.uw.edu/centers/consulting-and-business-development-center/undergraduate-student-programs/

Other Northwest local conferences mentioned included Provender.  Seattle Good Business Network in Seattle has been organizing some food-business related events, and Davis Wright Tremaine in Portland has started an annual invitation-only Farm-To-Label one-day conference.

Last fall I sat on a panel at Startup Week to about B2C (Business To Consumer) businesses, especially food businesses, here in Seattle. One of the questions to panelists was: Is Seattle a particularly good place to build this kind of business? And honestly, when I see what a well organized angel stack we have built around tech companies and healthcare, I have to say a relative NO – Seattle is not a particularly good place to build a food business. It can be done, we have a food truck ecosystem, there are commercial kitchens around, restaurants get developed constantly though not in any way that is transparent to me. I think we could do better.

The Edible Alpha podcast I mentioned a post or two ago is put out by a woman with the University of Wisconsin Extension program. She has developed a bootcamp for Entrepreneurs, and a training for would-be company consultants (or investors!) about how to structure financing for a growing food business. Margins in food businesses are lower than in tech companies, and cashflows available earlier, so it makes sense to combine debt with the equity. This is not something Northwest investors have as much experience with.

I am partnering with Domonique Juleon at Business Impact Northwest to bring Tera out to do her trainings. For each group it would be: two days of training, a 4-6 week break (mostly for the entrepreneurs to do some work in response) and then two more days of training.  If you are interested as an entrepreneur, please contact DomoniqueJ at businessimpactnw.org. If you are interested as a potential investor/consultant, please contact me. Our goal is 6-10 of each type in order to bring this training here. In an ideal world, we would aim for March or April of 2019 to start.

My focus as an angel investor has been about where can I help create employment, opportunities for personal development that lead to more broadly-spread financial security, and opportunities for self-determination. Small business is that intersection in my mind. Businesses small enough that employees are an important part of the business, and that relationships with customers and vendors can be as much about the persons as the positions.  I am interested in businesses that grow at a measured pace, such that they can do team building and culture building at the same pace they grow their revenue. There’s plenty of need for investment at that level – especially as we become an increasingly hourglass economy and fewer and fewer people can raise 50K among their own friends and family.

A movement of such businesses started a couple years ago in Portland, Oregon and called themselves Zebras, to distinguish their measured growth plans from Unicorns – the current buzzword for that one-in-a-how-many-ever company that will grow to a billion dollars or more, quickly.  Leading Zebras were recently featured in a New York Times article about growing companies that don’t want Venture Capital or those style deals.  There’s a great quote in the article from a VC who says he sells jet fuel, and it’s fine that not everyone wants to build a jet.  The trouble is, investors who get professional advice get directed to jet-fuel returns, and investors without advice or willing to take more measured returns, don’t know where to go.

Traditionally angel investing has been Venture Capital style -more about placing bets where the chance for payoff is large, so the chips come back and more bets can get placed, on a short enough cycle that it can be an ongoing activity.  Main Street Investing requires more patience and less ambition. Traditionally it’s more about debt, but most companies can still grow more quickly with equity. That matters because on the growth curve for a product business it often needs to be step-wise rather than smoothly linear. Equity helps climb the next step.

That more patient-return equity from investors seems to need a broad swath of folks who have done well for themselves to pay it forward once or twice. They should be looking for opportunities that are sustainable enough to return that initial investment and more, as well as being a desirable part of the local or regional economy.  For that to really happen, folks need on-ramps.  We can’t all become experts for something we’re only going to do once or twice.  The smaller return expectations mean there’s not margin for intermediaries to guide us, either.

Just in the last month two long-time small-business advisors I respect have launched opportunities to help average people begin main-street investing in an organized way.

One is the new Fledge Angel Accelerator.  It combines the successful-at-training-investors Seattle Angel Conference model of bringing new investors together to make group investments and be self-managed, with the successful smaller-business-friendly Fledge model of structuring those investments as revenue-based-financing. Revenue-based financing returns capital along the way at pace businesses can afford.  I’ve been aware of both models for years and combining them seems like such an obviously good idea I’m a little embarrassed I didn’t think of it myself!   This first Fledge program will run locally in Seattle starting in March, but Luni has done an excellent job of allowing the spread of the original Fledge model so likely you’ll have a chance to bring it to your own city.

The next program is Main Street Angels, launched by Jenny Kassan.  Jenny has literally decades of experience helping small businesses raise local capital, going back to when it was done by Direct Public Offering. Jenny helped create the JOBS act.  At some point she decided to add a professional coaching certification in addition to her law degree because she realized small business owners, especially women, need more than just straight legal advice as they grow their businesses.  Growing businesses it quickly becomes apparent that we need to be growing the investor pool as well, and Main Street Angels, launched this year, is her answer.  This is a national program with monthly webinar/calls that just started this February. I’ve joined and I’m interested to see where we go!

2/12 UPDATE: Jenny Kassan will be in Seattle at the end of March and I’m hosting an evening with her. You can sign up via EventBrite here.