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Food entrepreneurship startup guide

Discussion in 'Product Creation, Inventing, Importing, Sourcing' started by Scot, Aug 2, 2017.

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  1. Scot
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    Scot Ductus Exemplo Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    So, you want to make a food product?



    I've got my insider progress thread here,
    https://www.thefastlaneforum.com/co...cialty-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 ass 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.
     
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  2. Cableabe
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    Awesome, this is great information, many thanks!!
     
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  3. Scot
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    @G-Man and @acerseller let me know if I missed anything or if y'all have any other insights.
     
  4. JAJT
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    Great stuff. Awesome value.

    Hopefully this will help a few budding food entrepreneurs :)
     
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  5. G-Man
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    Great info!

    Only thing you left out: Sell your company to Pepsi Frito then spend the rest of your life lounging on a private island with lady singers.
     
  6. BrooklynHustle
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    Sharing this with my friend who has started selling her sauce locally. Thanks for the share!
     
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  7. Scot
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    Invite her to the forum!
     
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  8. G-Man
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    Also - think about the "moment" people consume your product in. It might lead you to outlets you've never thought of. We stumbled onto a channel that has tons of potential and almost no barriers to entry (which is why I'm not saying what it is) and made it into a $10k/mo channel in the last 8 weeks. It has the potential to do $1m/year with only 10% penetration. All because we saw an instagram of where one of our customers was consuming the product. Be creative.

    If someone tries to go this route, offer an alternative. Offer a guaranteed "Spoils Allowance" that they can take no questions asked. If they really push, offer a markdown program. Consignment is bad and buyback is worse. With food products you're dealing with something that has a very finite life, so you have to learn to manage channel risk early.

    If you're new, regional chains are a great ROI. They're easier/cheaper to get on shelf than a national chain, and often buyers at the larger chains use smaller ones to validate products. For example, say you get on the shelf at Shaw's or Wegman's in the NE and stay there for 2 cycles. I know for certain that Ahold Delhaize buyers walk the aisles at those chains. They'll see that you're still there, and think it's not so risky to place you.

    Broker only if necessary. They're usually pretty lazy. No one will sell your product as hard as you. No one will watch down channel to minimize risk like you. No one cares about the person that actually buys your product and feeds it to their kids as much as you. Give the broker his 5 points if you have to pay to get the meeting, but don't put your faith in them.
     
  9. Daniel...D
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    Thanks for your great guide, it can be useful for me
     
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  10. Scot
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    As always, I still have much to learn about this industry. Thanks for the insight!
     
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    Def! I've pointed her to this discussion so hopefully she enjoys it as much as I do and becomes a repeat visitor
     
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    This is fantastic, one of my ideas is actually in the food sector, specifically smoked meats. It used t be a big thing sometime ago but now everyone seems to have forgotten it. I will be the one to bring back the flavor! Good to see a Fastlaner who has also thought of the food production route.

    Let's see where this goes.
    Godspeed.

    K.
     
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  13. Scot
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    Here in the US, a huge trend is to bring back lot styles of preparing foods while also doing it in a healthy way.

    Nostalgia definitely sells. Good luck!
     
  14. jasoncuellar123
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    Man, I need to get into this business. If I'm gonna sell a product, I should at least be able to eat it.
     
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  15. Scot
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    The food industry is brutal but I will say this, product development is loads cheaper than prototyping a physical product.

    Most things you can make in your own kitchen or modify an existing recipe. Then you need to modify it for production and scale. If you find the right operation like I did, less than $1,000 for R&D is loads cheaper than what a prototyping firm charges.

    Just something to think about...
     
  16. Camilo Ardiles
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    Great this is very valuable thank you. Anyone on the forum with experience selling vegetarian food like Hummus? Another trendy product is Hibiscus Tea and I have not seen it in many places.
     
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    Wow very useful information thanks for sharing .
     
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  18. Scot
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    There aren't many of us food guys on the forum, so probably not.

    With food products, you want to find up and coming markets, but not be trendy. Fads eventually end.
     
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    Or you create the trend then dump the company onto a multinational for a massive profit and let them deal with watching the fad die. e.g., Vitamin Water. I suspect the same thing will happen to Bai.
     
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  20. Scot
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    Yeah, that too. I know a lot of the "hot startups" are hitting VC capital hard, expanding rapidly and hoping to exit in 5 years. IMO it's no different than a tech startup if you're taking that approach.

    You've got success stories like Honest Tea who sold 40% to Coke for like, $60 or $80 million. But you've got a graveyard of 100's of dead startups too.

    I'm not trying to make a legacy brand, I'm open to edits, but I also think if you're trying to hit the Kale market fast and furious, you'll be left crippled in 3 years when Whole Foods forgets about Kale and moves into the next "superfoods" trend.

    Edit:
    Ps.
    Let me clarify what I mean by trends. Following category trends is good, product tends bad.

    For example. Making minimally processed food is a trend that will last. But going out and trying to capitalize on the kambucha craze will end in bust. Look at Acai berries. 5-7 years ago they were in everything, now they've died down.
     
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    It's one thing to capitalize on trends. Other people create them. Stewart Resnick at Wonderful has done it with like 5 products (Pistachios, Cuties Oranges, etc). Anyone interested in food - google that guy.
     
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    Do you think it would be best to keep a pulse on what the 'general' food trend is (IE: Healthy, limited ingredients, etc) and then try to set up your product to be the answer to that?

    EDIT: General food category, rather than trend.
     
    Last edited: Aug 11, 2017 at 5:10 PM
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    That's actually kind of backwards. Look for a need in the market then design a product that meets the need, but in a way consistent with current trends.

    Example: A guy down the street from me is trying to sell his clean label snack bar company. It's a good product at the right price and in the right packaging. It's also on trend. The problem is that there's a gazillion of those products already out there. The market just doesn't really need another clean label snack bar.
     
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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.
     
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    Err, I may have also made a typo. I meant to say category. Something broader than trend (guess it could also be defined as Need)

    "People want to eat something that's healthy and natural. We sell dried Platypus Meat, and market/design it be an all natural alternative to typical jerky snacks. It has minimal ingredients and tons of protein to give you the energy you need to get through your day. All platypus meat is sourced ethically."

    Then, your brand has Platypus Jerky be the perfect on the go snack for those who are health conscious and want a boost of energy. It's limited ingredient, just Platypus Meat and a 100% natural preservative.*

    *This is all assuming your exotic animal jerky meets these claims. Don't lie on your marketing.