This post presents a small CPG food company that I recently met. What follows are the facts I know about the company, its struggles and my recommendations.
This company is 4 years old with the founder as sole employee. He is also the product inventor.
There are 6 consumer retail products that are flavor variations of its core flagship product and an additional 6 products, some which represent additional flavor variations and the rest which are entirely new product lines. These can be moved into production fairly easily. The products are classified as natural and healthy with supporting lab and nutritional analysis.
The company outsources its production to a commercial co-packer, although the founder works on with the co-packer during production.
The founder handles the logistics of packing/shipping product to distributors, retailers and resellers.
The product is currently unique in the marketplace and has no direct competitors, although substitutes products are numerous. The company relies on customer word-of-mouth and in-store product sampling as its marketing vehicles. Its packaging is distinctive, differentiated and “pops” on shelf compared to other products in its category. The company attends tradeshows as a way to promote its product in the trade press.
With several years of sales history, the company has been able to learn from and optimize its product packaging size and price to maximize sales and product turnover on shelf. It is in multiple small retailers and in several locations of regional and large mainstream natural products grocers. It sells to several online resellers.
The founder has supplied all capital to date. The company currently earns little in net income.
The owner seeks capital and personnel who can help him grow the company faster than his current rate of growth. With the added personnel, he wishes to be able to focus his responsibilities on product innovation, production and in-store sampling activities.
- The co-packer has developed experience for producing the company’s product and has capacity to increase production;
- The product is unique in its flavors/ingredients;
- The product has a proven track record of sales with price and product size optimized to generate maximum sales and shelf movement and there is demand for the product.
- The founder is not able to source additional funds for cash flow and inventory and is stuck in a slow growth pattern;
- The founder is the sole employee and is not able to allocate more time for sales and marketing;
- The founder has no means for paying additional personnel.
This company is not unlike many small CPG companies in the natural product segment. They are at a virtual ceiling in their ability to grow because they do not have the funding to break through to the next level. The next level requires a healthy six figure investment to prep the company for fast growth. The next level is also much different from an operational and cultural standpoint because it jumps from one as a sole proprietor to one with equity/debt investors, corporate governance, personnel HR, systems and processes.
So, what plan would I recommend to the founder to help break through the virtual ceiling?
- Re-allocate time so that the founder can spend less in production and more in sales and marketing. The founder has trained the co-packer to produce the product and should step away from the minutia involved in production.
- Hire a third-party logistics (3PL) company to manage the inventory and retail shipments.
- Focus on larger retailers, not small ones. They require more time but offer much more sales potential. It’s good to use small retailers when first starting out to understand how the product sells and test various in-store marketing tactics, but this company is past this stage.
- Forego attending expensive trade shows.
- Reduce sampling, as it is a very expensive, for any size company. Rely more on the packaging to do the selling and other in-store promotions that do not require a sampling team.
- Make sure there is a basic website with information about the product, its benefits and the company. Be sure to have the company website on the packaging with a call to action inviting customers to visit the website.
- There should be positive customer feedback in the form of online reviews posted through the online re-sellers. If none exist, start selling the products through Amazon to get reviews in place.
The founder needs to get the company on a plan to interest investors.
- Find managers who are experienced with growing CPG brands AND fundraising; you can’t pay them, but if you can identify them and put them on your business plan as part of the management ream, that will help with investor interest.
- Develop a written business plan with supporting financials and executive summary. Get help from others if you have never done this before.
- Ask people for help with investor introductions.
In summary, the founder needs to re-prioritize time for sales and fundraising. This is a somewhat simplistic view, as growth challenges are never simple, especially building a team and raising money, but any little step in this direction is a start.