February 25, 2015
How Food Entrepreneurs can Ramp Up Production Without Going Broke in the Process
By Jim Duffy
You’ve just sold your leading food product to a major supermarket chain and it wants to conduct a test run in 50 stores.
That’s great news because, well — isn’t it obvious? All of your hard work is finally paying off. Consumers are looking for more food choices than ever, and expanded tastes and expectations have created a demand for products that fall into a variety of growing categories such as organic, gluten-free and non-GMO. Changing demographics have also broadened the menu. You entered the market with a product you knew had real potential — and at least one major supermarket chain agrees.
So you are looking to hire employees. After all, your company just got bigger in terms of sales and opportunity, and now you need the workforce to match. Right?
Not so fast.
The power of outsourcing
Make no mistake, employees bring talents, dedication, stability, loyalty and industry expertise, not to mention they help stave off the loneliness inherent with being a solo entrepreneur, but over-hiring at such an early stage can often be a costly mistake. The true cost of an employee is much greater than a salary, and many entrepreneurs underestimate the incremental tangible and intangible costs. Tangible costs include the employer portion of payroll taxes, health insurance and other fringes. Another tangible item often overlooked is the impact that additional employees will have on overhead -- additional space needed, technology costs, software licenses, training costs, travel costs, etc.
A common mistake we see in financial projections is underestimating these additional costs that come with hiring employees. We also often see projections that consider payroll as a true variable expense directly linked to projected sales volumes, as if payroll costs will rise and fall evenly with sales volume. But for early stage companies, payroll tends to be more of a fixed cost than a variable one.
There will, you hope, come a time when you need the dependability and stability of a full-time workforce, but it’s not when you’re scaling up and every dollar counts. During that time, you have other options to help get you through.
Many of the services necessary for bringing your company from zero to thriving are only a phone call away. You can contract with top talent in manufacturing, accounting, sales and marketing, human resources, food industry expertise and just about every other area. Furthermore, outsourcing is a spigot that can be turned on and off fairly quickly, in most cases, in response to sales, customer demand, cash flow and other factors. Here are some of your leading areas of concern and the help you can find on an as-needed basis.
- Manufacturing. Contract packers, or co-packers, are food-processing facilities that will manufacture and package your recipe on a contractual basis. Such a relationship saves you the exorbitant costs associated with leasing production space, buying equipment and hiring workers. Furthermore, a professional co-packing operation knows how to get and stay compliant with the FDA, OSHA and other food industry and manufacturing regulatory bodies, saving you critical responsibilities. An experienced co-packer can help you scale up your recipe for mass production, and many also offer warehousing and distribution services.
- Food marketing. Getting your product on the shelves of a major retailer is only the beginning. Your next challenge is keeping it there. One strategy is food sampling, which means hiring people as your in-store brand ambassadors to present your product to shoppers, get them to taste it and answer their questions. With multiple stores and sampling schedules, it’s draining and labor intensive, and requires frequent hiring — unless you contract to do business with a company like Relish Food Project.
Relish Food Project and companies like it will act as an extension of your sales and marketing team, scheduling tasting events, encouraging sampling and boosting in-store sales. Your field marketing partners can also represent your brand at trade shows, festivals and other out-of-store events.
- Sales and advertising. You’ve made a major sale and garnered valuable name and brand recognition, and now you want to strike while the iron is hot. You’re determined to hire a sales team to hit the streets and creative types to write, design and produce ads and collateral marketing literature. But that’s what independent sales brokers, ad agencies and public relations firms are for. I suggest hiring the services you need and can afford without adding to overhead.
- Accounting and financial services. You’re keeping your own books, and you allow yourself a paycheck when you can afford to give yourself one. But with your major sale, your finances just got complicated. Sales and revenue went up, but margins probably went down. What about accounting for slotting fees? A CPA familiar with the food industry might seem costly, but the inability to answer basic accounting questions from customers and potential investors costs much more. It’s an outside expense that’s well worth the investment.
Congratulations again on your big sale. May it lead to long-term success. But in the meantime, welcome your talented team of outsourced experts.
Jim Duffy is the partner-in-charge of the commercial practice at Wiss. Reach him at email@example.com.