432 N. Lake Street Madison, WI 53706  608-890-0780

Reality Keeps Your Food Business Grounded

Being a food entrepreneur is in some ways about balancing empirical reality and a belief in something you cannot see clearly, like where your business will be in 3-5 years. You need to believe, and yet you need to be able to empirically and defensibly say that you have a clear path forward to justify that belief. That’s where clearly stating your assumptions comes in.

We often work with entrepreneurs to help them understand what are realistic assumptions about their sales growth, or their capital structure, given their business model. Food and beverage companies largely serve understood markets, meaning that there are already dominant business models that determine how business is done and profits are made in the food and beverage industry. It doesn’t mean that there isn’t room for business model innovation, but the people most likely to innovate are the ones that understand the dominant models and their realistic financial drivers.

Our assumptions about scale and optimal capital structure are based on our work and dialogue with entrepreneurs to ensure that we are grounding ourselves in the current reality of the marketplace. For wholesale brands (CPG) companies, we have found that it is financially unrealistic for them to slowly scale up to national distribution. Thus, once they are committed to going national, we encourage them to get there as quickly as possible. This often means taking on outside investors to finance their growth, largely to invest in marketing, to get people who have never heard of their product to try it.

Sometimes entrepreneurs assume they have to say yes to every opportunity in order to grow the way they want, but not all opportunities fit with the business’ model. As Rufus Haucke of Keewaydin Farms talks about on our podcast, when he was building his local food distribution business, he accepted an offer to move the aggregation function of that business off of his farm to take advantage of infrastructure in a nearby town that might support future growth. However, doing so meant he was farther away from his supplier farmers, thus making his operation less efficient even as he increased sales. He stared this empirical reality in the face and reflected how his current operations were not meeting his goals as an entrepreneur. So, he chose to strategically shrink his business and moved operations back to farm, building on efficiencies to eventually make his business profitable and grow again.

It can be hard to know what is realistic and what isn’t without mentorship and help. We encourage all food entrepreneurs to clearly state their assumptions about the future and test those assumptions constantly, asking the advice of people who they can trust to ground-truth their ideas and actions. Only then can their business be grounded in reality so they can be free to dream big.


And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Food and Beverage Business Models

Business Model Insights

Raising Capital

Raising Capital

Grocery Store Shopping

CPG/National Brands

Grocery Store Produce Section

Market Trends

 Regenerative Agriculture

Farming and AgTech

Mergers and Acquisitions

Deals/M&A

Events

Industry Events

Categories: Insights Newsletter