The biggest myth in small business and the real story…………..

Over the past 12 years, the most common entrepreneurial misconception I’ve encountered as a business coach and specialty food consultant is ….

Build it and they will come!

Nearly every specialty food company seems to believe THAT if you provide an outstanding product, the consumer will FIND it and BUY it and CONSUME it in massive quantities. Or at least enough so that Kraft foods will buy your business for many times the money you have invested.

Sorry! It doesn’t happen that way.

So, tens or hundreds of thousands of dollars are spent developing a homemade product into a commercially viable one, finding a co-packer, tweaking it with a food tech and packaging it in unique and beautiful ways without any upfront marketing strategy. (In my cynical view, this is actually what is meant by “small businesses provide most of the jobs in this country”….as consumers of goods and services other small businesses provide).

Little thought normally goes into “what does the consumer want or need?” and “How am I going to sell it?”
The assumption is that once it’s made, the retailer will be so enamored that price won’t matter and logistics will solve themselves. The consumer will find this unadvertised, high-priced delicacy amongst the 1,000s of products on the shelves and be creative enough to figure out how to use it….at every opportunity.

Again and again I see quality products made, brought to market, sold… but little or no money made on the entire effort. And so what I see repeated over and over is a fine product gets made which has very little margin. Once it’s presented to the marketplace, retail buyers may have complimentary things to say about product quality, but want pricing, promotions and placement considerations. Frustrated by 2 years of product development only to be turned down by key retailers and distributors, owners think the system is broken.

So what is the truth?

Everything hinges on price! If the price doesn’t resonate with the consumer, it just won’t sell. Retailers know what their customers want and may reject the product outright. If there isn’t enough margin built into the pricing structure for a distributor discount, broker commission, promotions, marketing and profit……then why do it??

What is the reality?

The product gets made. “Everyone” loves it. The price is too high. Inventory needs to be sold, so margins are compromised to get to the right price point or to pay for the unaccounted for sales and marketing expenses.

What is the solution?

Determine what the consumer wants or needs UPFRONT. Find a niche. Research a target audience. Find an opening in a growing category where you provide a unique selling proposition. What sets you apart? Why would your target audience buy yours over another brand….perhaps one they already love?

  1. Create your product from the retail price backwards to the cost of goods you’ll need to obtain in order to be profitable after all expenses.
  2. Next is a business plan the outlines all the nuanced expenses unique to your niche….and then add 30-50% to that as a buffer.
  3. Work within the system; understand who you’ll need to partner with and how much each layer will cost. You are not going to change the system! Learn the lingo, ask questions, go to work for a specialty food company, get a coach!
  4. Set a dollar amount you are willing to invest….and lose. Most entrepreneurs get in and then find they spend half their time managing cash flow, raising money, securing lines of credit or putting in more of their own money than they ever expected. Once in, they feel the big break is right around the corner and they have a hard time throwing in the towel. After 3-5 years of losing money, they want to sell the business but have little chance of recouping their investment much less making a profit. However, if you are thinking of starting a specialty food business, buying an existing one and taking it to the next level is an ideal way to jump in and create immediate value by increasing revenue rather than starting a new company from scratch.

I know buying and running an exiting business doesn’t celebrate your Grandmother’s cookie recipe, but……is it about that or having a thriving business?

You decide!