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NOTABLE! Food business/entrepreneurship startup guide

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@Scot Thanks for putting this guide together - very helpful! I've been doing a lot of due diligence in the food space and need to decide on the route I'm going to go. Great to see another person diving into the food space.

You make a very good point on focusing on category trends, not product trends. More importantly, focusing on making food products that solve real needs / gaps in the market. Once you think customer first, rather than product first, it makes it easier to find out where your target market is hanging out and put your offering in front of them. Much easier way to get market validation, and help refine your product while you're in the small batch phase so that by the time you get to launch, you've got a product that customers have refined for you.

A good book I came across is "Good Food, Great Business" by Susie Wyshak.
That's definitely the way I'm approaching this, is starting at the customer and solving their needs. But that may not work with every product category.

I need to get that book, it's been on my list forever.
 

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One question I was wondering while I was sleeping ( it might be a silly one) which are the common mistakes one can make when launching a food product? and also how do you minimize costs until the launch of it? I would not like to over spend before I do the launching.
There are literally a million mistakes you can and will make - just like anything else. Those mistakes are part of what will give your business value when you go to sell. Food (fortunately or unfortunately) also has a lot of barriers that aren't there with other businesses (e-commerce)
I'm sure I'll think of others later, but here's some things we've run into in the last month or so. We're launching a new product line, so it's actually a timely question.

Product:
  • Ingredients - If you use a copacker in one state, make sure your ingredients meet labeling requirements in all states. The benchmark state is CA. We design all our products to be CA law compliant for two reasons: One, the laws in CA will be the laws everywhere in 5 years. Two, CA is a country sized market unto itself. You don't want to exclude yourself from it. You also likely won't get picked up by a national retailer if they can't sell the product in their CA stores.
  • Ingredients 2 - Make sure all of your components and ingredients are easily sourced if you're trying to create a mass market product. If you're going for ultra-premium at a high margin, this may not apply. Example: Our product has seasoning. The seasoning contains an ingredient that the manufacturer only buys for us. This means an extra 8 weeks in lead time. If possible design the product around components/ingredients that everyone in your supply chain keeps in their normal inventory for all their customers.
  • Be straight forward with your vendors about your capital constraints - We have an overbox we're making for this product, but we don't even have a customer for the product yet, so it doesn't make sense to pay $300/color for 6 color plates for 3 different skus. Our box guy will use digital printing and an inferior board that gets us to 90% of the quality we want, and the unit cost is only slightly higher than the higher run box that would require us to pay for plates up front.
  • Learn about how your components are made - No one will be as interested in finding inexpensive creative solutions as you. If you need boxes, learn how boxes are made. Learn what kinds of boxes are out there. Go look at what's on the shelf and how it's packed. I spent an afternoon in a film plant learning how film for snack product packaging is made. Because of that, we were able to move a bunch of things around and find a way to make the film with a 10k up-front investment instead of the 30k everyone was telling us it would cost.
It's a learning process. The key is being ultra curious about how everything that goes into your product is made.

There's also a gazillion things to do with marketing, pricing and down channel stuff that's way too much to condense. If you run into specific issues when you're preparing for launch, put them here and someone will probably be able to help.
 
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  • Ingredients - If you use a copacker in one state, make sure your ingredients meet labeling requirements in all states. The benchmark state is CA. We design all our products to be CA law compliant for two reasons: One, the laws in CA will be the laws everywhere in 5 years. Two, CA is a country sized market unto itself. You don't want to exclude yourself from it. You also likely won't get picked up by a national retailer if they can't sell the product in their CA stores.

Uh... what? Damn.. I didn't even realize different states had different laws. Are we talking labels here or ingredients?
 

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Uh... what? Damn.. I didn't even realize different states had different laws. Are we talking labels here or ingredients?
It's really how you label ingredients. The way I phrased that was probably a little misleading. So, you can sell a product with a prop 65 ingredient in CA, but you have to put the Prop 65 warning on it, which is basically like the "This shit will give you cancer" warning they put on packs of cigarettes. For obvious reasons, it's best to just avoid those ingredients.

I wouldn't imagine this would effect your product @Scot as I'm sure the nature of the diet it's for means the label is pretty clean. You should still check for prop 65 compliance just to make sure though. I'd also google the ingredients to make sure there's no weird EU regs, either. You're going to have demand for that product in Europe too once you take it to market.
 
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It's really how you label ingredients. The way I phrased that was probably a little misleading. So, you can sell a product with a prop 65 ingredient in CA, but you have to put the Prop 65 warning on it, which is basically like the "This shit will give you cancer" warning they put on packs of cigarettes. For obvious reasons, it's best to just avoid those ingredients.

I wouldn't imagine this would effect your product @Scot as I'm sure the nature of the diet it's for means the label is pretty clean. You should still check for prop 65 compliance just to make sure though. I'd also google the ingredients to make sure there's no weird EU regs, either. You're going to have demand for that product in Europe too once you take it to market.
Awesome, thanks I'll look into Prop 65. I can't imagine any of my ingredients are scary, but I'll double check.
 

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There are literally a million mistakes you can and will make - just like anything else. Those mistakes are part of what will give your business value when you go to sell. Food (fortunately or unfortunately) also has a lot of barriers that aren't there with other businesses (e-commerce)
I'm sure I'll think of others later, but here's some things we've run into in the last month or so. We're launching a new product line, so it's actually a timely question.

Product:
  • Ingredients - If you use a copacker in one state, make sure your ingredients meet labeling requirements in all states. The benchmark state is CA. We design all our products to be CA law compliant for two reasons: One, the laws in CA will be the laws everywhere in 5 years. Two, CA is a country sized market unto itself. You don't want to exclude yourself from it. You also likely won't get picked up by a national retailer if they can't sell the product in their CA stores.
  • Ingredients 2 - Make sure all of your components and ingredients are easily sourced if you're trying to create a mass market product. If you're going for ultra-premium at a high margin, this may not apply. Example: Our product has seasoning. The seasoning contains an ingredient that the manufacturer only buys for us. This means an extra 8 weeks in lead time. If possible design the product around components/ingredients that everyone in your supply chain keeps in their normal inventory for all their customers.
  • Be straight forward with your vendors about your capital constraints - We have an overbox we're making for this product, but we don't even have a customer for the product yet, so it doesn't make sense to pay $300/color for 6 color plates for 3 different skus. Our box guy will use digital printing and an inferior board that gets us to 90% of the quality we want, and the unit cost is only slightly higher than the higher run box that would require us to pay for plates up front.
  • Learn about how your components are made - No one will be as interested in finding inexpensive creative solutions as you. If you need boxes, learn how boxes are made. Learn what kinds of boxes are out there. Go look at what's on the shelf and how it's packed. I spent an afternoon in a film plant learning how film for snack product packaging is made. Because of that, we were able to move a bunch of things around and find a way to make the film with a 10k up-front investment instead of the 30k everyone was telling us it would cost.
It's a learning process. The key is being ultra curious about how everything that goes into your product is made.

There's also a gazillion things to do with marketing, pricing and down channel stuff that's way too much to condense. If you run into specific issues when you're preparing for launch, put them here and someone will probably be able to help.
Amazing thank you I will definitely come back to this post or another thread related to food. I already told some people about the idea and they think is a good one, I am now contacting others in my country who have done it in the past and see all the legal regulations/steps you have to make before lauching a food product.
 
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Amazing thank you I will definitely come back to this post or another thread related to food. I already told some people about the idea and they think is a good one, I am now contacting others in my country who have done it in the past and see all the legal regulations/steps you have to make before lauching a food product.
Look forward to seeing your progress thread.
 

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what sort of capital are we talking about for a startup. For getting the science consulting firm and copackers to get your drink or snack started
 

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what sort of capital are we talking about for a startup. For getting the science consulting firm and copackers to get your drink or snack started
Man, that’s an impossible question to answer.

Between $1 and $100,000

So many factors come into play.

Is it shelf stable?
Is it acidified?
Can you make it at home?
Is it a liquid, solid, baked?


Sometimes your product will have super high MOQ’s, which means more startup costs.

I’d honestly plan to sink minimum $10,000 per product and be pleasantly surprised if it comes out cheaper.
 

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Missed this thread, upgraded to NOTABLE.
 
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Missed this thread, upgraded to NOTABLE.
Thank you MJ! Trying to convince some of these guys about how cool the food biz is instead of Amazon. Because I’m getting lonely over here haha
 

RedBaron

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Man, that’s an impossible question to answer.

Between $1 and $100,000

So many factors come into play.

Is it shelf stable?
Is it acidified?
Can you make it at home?
Is it a liquid, solid, baked?


Sometimes your product will have super high MOQ’s, which means more startup costs.

I’d honestly plan to sink minimum $10,000 per product and be pleasantly surprised if it comes out cheaper.
ya totally, so its a product that is baked or dehydrated, its a vegan mushroom jerky.
 
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ya totally, so its a product that is baked or dehydrated, its a vegan mushroom jerky.

Jerkies seem to be a pretty simple product actually. There are loads of Home based jerky products out there.

I’d start with research, find out what goes into food safety with jerky. Look up your local cottage food laws and see if you can make it at home.

Then I’d start looking for jerky copackers. Call them all, see if they have their own R&D guys and price it out. We long as there’s no weird proprietary method to making this, it should be less than $5,000 to get the full development.

I’d start with calling copackers. Getting quotes is always free.
 

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So, you want to make a food product?



I've got my insider progress thread here,
https://www.thefastlaneforum.com/community/threads/progress-creating-specialty-food-products-for-medical-diets.73591/
but wanted to put together a general "how-to" guide on the outside for everyone else.


First step: What's your product?


This is the obvious beginning. What are you making? Do you have a killer recipe for a drink you make home? Or a family recipe for cookies? What about a special sauce you put on everything?

You need to have a solid concept or flavor profile before you start production.

Some things to consider. What makes you special?

Right now, more than ever, you need to stand out in the crowded food market. We are in a food startup boom right now. With the ability to market online and be scrappy and larger grocery stories exploring specialty foods, you're going to be swimming up stream. These are thing you need to have down because a buyer from Whole Foods is going to want an answer.

Are you creating a healthier version of an old product (kale chips)? Are you utilizing an ingredient that's new to your country (all the new super food products)? Do you have a special process to make your food (cold brew coffee)?

What if you don't have a recipe? This was me, skip to step 1.5.


Step 1.5. Get your recipe (or have one created)


My situation was unique, I didn't have a product first, I had a market. So I needed a recipe.

You'll need either a food scientist or a research and development group.

Finding a food science consulting firm is expensive and hard. But no worries, most good copackers have a chef or food scientist on staff. This is the route I went. Often times, if it's the copacker you plan on manufacturing with, you can bundle pricing. Well go over copackers in a later step.

Things you need to have down solid during this phase:

-- Recipe measured out in weights. Things like pinch of salt cannot be used. This is a recipe that needs to be 100% reproducible and scalable.

-- A step by step process to cook/manufacture your product that matches the capabilities of your facility. Again, think consistency and scalability.

-- Food safety signoffs. Depending on the type of food, they will have different regulations on food safety. Things like acidified food, canned food, and most shelf stable foods require specific conditions. These are all things your food scientist should handle for you. You do not want to screw this up.

-- Next, you'll need your nutritional panel, serving size, known allergens, ingredients list, net weight statement, and any lab tests required by your category. Again, a good food scientist should have this bundled into their services and pricing. For most foods, your nutritional panel will be based on the FDA's food database and not an actual lab test. If the food label is extremely sensitive for any reason, you can always opt into doing a lab test, but it will cost more money.



Who's going to make your food?



Let's start first with, probably not you. Cottage food laws vary by state, so check yours first. I know in my state if you plan on making more than $10,000 per year, cottage food laws say nope. Also, where you plan on selling makes a difference too. If you only plan on selling at farmers markets, then you may get away with cottage food laws.

You'll either need one if two options.

Copacker or Commercial Kitchen.

If this is a product you believe you can reasonably make consistently yourself, a commercial kitchen mat be an affordable way to start.

Things like snack bars, granola, baked goods can all be made yourself in a kitchen. However, always check your local and state regulations on this. There specific licenses and certifications your facility will need to be able to create and distribute food. Check with your local Dept of Agriculture to find out more. Most kitchens require you get food safety certified. This is pretty easy to get. It's usually $100 ish and most restaurant managers get this, so they're easy to find and get.

A lot of food products however will need a commercial packers or copacker to create your product. This website is a great directory to find copackers. The Directory

I recommend starting with copackers local to you. Being able to show up in person means you can get quicker turn around times on tasks and benchmarks and ensure quality.


Things to consider with a copacker.


Did they have you sign an NDA or confidentiality agreement? If not, red flag. Make sure the NDA covers both your and them, not just them. Also, beware if they offer a private label. I have heard horror stories of copackers using proprietary equipment and processes for other clients they did not have permission to use.

Find out how they charge for production. Do they do a percentage or do they charge an hourly rate? Find out at which level they offer price breaks. Do they sourced ingredients for you? Do they charge a sourcing fee? When you have actually get your pricing sheet, you want them to be transparent about every single charge and where it comes from. Because when you get to scale and you are selling into retail, $0.10 multiplied by 100,000 units adds up.

What is their timeline? Do they have a two week lead time? This is important if you are dealing with retailers that are notorious for short notice purchase order. You want to make sure your copacker can handle a rush order without charging an arm and a leg for it. Seasonality is important here too. Ask them if their lead time changes throughout the year.

Other things to consider are, do they have a logistics department? This is important because trying to coordinate shipment to distributors, warehouses, and vendors is a lot to handle when you're a start up. It's a plus if they can coordinate this for you.

Communication is key. This is one thing that's burned me already. In the early phases, make sure they are punctual with getting back to you. For example, one error in communication has already cost me one month of my time. If they throw up warning signs of being difficult to get a hold of or slow to respond, it may be time to find a different copacker.

Shop around. Don't fit on the first copacker you find. Visit as many as you can.

If you are developing a recipe in conjunction with the copacker, make sure that you own the formula. Any formulations you create, make sure you have copies in your possession and make sure you have in writing that you own all rights to the formula. They should own nothing of yours


How to sell my food?


I'm not gonna teach you how to market your food, that's on you. But I will tell you what you need in order to be able to sell.

Most states require that you have a food distribution permit which is typically a change to your local department of agriculture. You may also need additional licenses and permits depending on your state. It's a good idea to call your local department at a culture, department of business relations, and the FDA. Typically, To obtain a few distribution permit you need it to have a physical location. In some states this can be as simple as having a storage unit in a commercial storage facility. Again, check the local regulations.

Obviously, hustle your a$$ off to sell your product. Find a list of all your local flea markets and farmers markets. Be out there every day you can and sell. Build a local following. Build an online following.

Also, there may be a point when you are looking to get in the grocery stores. If you're going to local independently owned stores, typically you can going to the store, ask to speak to a manager or ask for the buyer.

This is a simple sales pitch where you'll need to sell your product to them. If you are brand new, they may offer you a consignment deal. The best deal is to actually sell bulk of your product to the store. Keep in mind, re-orders are where you make your money. So don't assume you can just sell them a case of your product wash her hands and walk away. You need to market and get people in the store to buy your product. If it's not moving on their shelves, they will not keep you on the shelf.

You may also want to consider targeting larger chains. This could be done in a number of different ways. You can attend food tradeshows and attempt to connect with buyers there. Also, you can attempt to get in front of buyer for larger change. When it comes to places like whole foods, they typically have regional buyers at local stores that you can get in touch with to pitch your product.

You may also look into working with a food broker. A broker is essentially a salesman who has connections with buyers. Typically for a commission they will facilitate deals. The problem is, many brokers are very picky. There is in an abundance of the new food start ups, and they can afford to choose who they want to work with. So, you'll have to sell them on the idea before they sell it for you.

There is a lot more that goes into distribution and sales of food products. I can't give you too much of ice here, because I am not that deep into this stage yet.


--

There aren't many food guys here on the forum, but I hope people who are interested in a food start up can get some use out of this guide.
How the hell did I miss this thread from one of my favorite entrepreneurs? Subscribed.
 
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How the hell did I miss this thread from one of my favorite entrepreneurs? Subscribed.
Same way you still haven’t seen my last 20 updates on my progress thread haha

Also, I imagine your alerts notification just has a small infinity symbol over it.
 
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@Scot

Awesome post. I have a question and I'm not sure if it's appropriate for this thread or the product sourcing one.

How would you suggest I research souricing limitied products? I'm interested in slanging truffles to high end restaurants, but finding a truffle dealer is notoriously difficult.
 
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@Scot

Awesome post. I have a question and I'm not sure if it's appropriate for this thread or the product sourcing one.

How would you suggest I research souricing limitied products? I'm interested in slanging truffles to high end restaurants, but finding a truffle dealer is notoriously difficult.
Oh man, I have no idea on this one. Especially with an industry as old school and secretive as the truffle industry, I wouldn’t have the first clue on how to source this stuff.

My only thought would be to go directly to where they’re harvested and start shaking hands with suppliers.
 

Redeye

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Welp, I found some info on where to start on Reddit. Seems shady, and fun! I just need to learn some pricing and I might try it out.

It doesn't seem like a long-term business, but it does look like a nice hustle.
 

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That is a great video. I remember watching it a while back and thinking how close his hustle is to a drug dealer .

I have reached out to a wholesaler to find out more info. It seems like a decent option to grind some capital for a long-term business. I could be wrong, but I'm going to do more research to assess the viability of selling a high price product that goes bad quickly.
 
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So. Much. INFO!
And your thread on the inside.
Thanks @Scot , I'm going to start playing with recipes at home :)
I replied to your PM, but I think its important to post publicly what I said to you (just this, nothing else private)

Make sure you have your target market identified. Your market is just as important as your recipe.

If you bake the best tasting protein bar you've ever tasted... who cares? There are 100's of other protein bars, that are better funded and better marketed than you.

Find the white space. Find a good recipe that caters to a group of people who are under-served by the current options. This will give you the best chance to succeed in the cutthroat food industry.
 

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Thanks for posting the food industry info. My wife went to culinary school after retiring from the Navy. We've been looking for ways to scale her knowledge. Could be interesting.
 

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How I would sell a food or beverage product:

1. Call up my local venue for hosting events. A place to host parties of a couple hundred people or so. Ask them how much to rent out the place for a night and include the costs of chairs, tables, etc.

2. Call up every local business and ask for them to sponsor your party with hundreds of people. The local plumber would love to network and get business. The local pizza shop might want a slice of the action. The local car dealership might pay $200 to park their new car out in front of the venue and send salespeople to come network with everyone. Ask the local restaurants to come and bring a small bit of food in exchange for advertising at the event. Invite enough until there's food for everyone.

3. Once you've secured enough sponsorship cash to fund the event + pay for the cost of your own food/beverage for everyone there (cost = what you would sell it for retail), go to the local church, DM the local instagram influencer and invite everyone you can to a free party. You'll get people to show up.

4. You RSVP these people and get their info. You have them sign in when they get to your event.

5. You have a great time, party, meet people, shake hands and you just sold hundreds of units of your food/beverage. You may have even made some extra money if you did a great job getting a low-cost venue and got businesses to pay lots of money to sponsor your event.

6. You add everyone that came to your social media, call them and thank them for coming, keep notes about them when you met them at your party, and market your other products to them to purchase again.

7. Repeat.

Just an idea I had recently. I'm sure it's been done before. It can work for anything that is sold locally. Think about what facebook is. You show up for free and the businesses pay to advertise. A party sounds nice and it is, but there's just enough networking going on for it to pay for everything. If companies can get people to show up for timeshare seminars, you can get people to show up for a fun party.
 
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I can only see this working in a very small subset of products, mostly in alcoholic beverages.

Or maybe if you’re making the next Chex Mix...

Throwing a party with influencers is something you do for a new fashion brand, not launching a plant based cream cheese.
 

Kevin W

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Hello !
I am just starting out and plan to launch and grow a semi-new category in the Beverages Market.

I just read an interesting Book: Build your Beverage Empire.
It covers drink manufacturing and working with distributors, retailers, ect...
Hopes this helps someone

I am still in the initial stages though, and going to spend some money on personally formulating and testing the drinks in farmers markets....
On another note, I am in Canada, but plan to drive+live in the US to make and launch the product. Much less regulation, and 10x the market size. It seems like California is a good place to start.

Regards !
 

Eskil

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Some people also just have a superior product and create their own trend that everyone else tries to copy later.
Me personally, I'm focusing on creating/growing a whole category vs a specific item.
Late to this thread, but thanks for sharing a TON of great info about the food market - a space that most people here never even consider since the vast majority are into physical goods or ecommerce.

But consumables and food is still a huge world that interests me from a business perspective. I constantly get new product ideas pop into my head and write them down for "maybe some day" since I need to stay focused on my main business and avoid shiny object syndrome. However...I recently got this one product idea for a consumable that seems almost too good to be true. One of those category/trend-defining ideas that is just too good to leave alone, and now I'm like "damn....I HAVE to test this out" LOL...

You've got success stories like Honest Tea who sold 40% to Coke for like, $60 or $80 million
They saw that the trend in mass market snack foods was to add non-traditional flavors to snack products. End result: Sold the company to Hershey for a ton of money
We all know that acquisitions, multiples, and valuations can differ from industry to industry. For e-commerce, FBA, or even B&M, the sales price of a business is most often decided by an annual profits times X multiple.

For apps or SaaS on the other hand, companies can sell for huge amounts without even having profits or even much revenue - but the value is in the user base.

But from what I have seen in the food / consumables industries, it seems that neither strict annual profits or a 'user base' is necessarily the determining factors in acquisition price evaluation - but that brand strength or even the new product trend or category factor can play a BIG big role.

@G-Man / @Scot - Could you share a little more about what you know about acquisitions in the food / consumables industries?

Thanks!
 

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