Advice From Food Entrepreneurs to Food Entrepreneurs

Underground Food Collective’s Horizontally Integrated Business Model

Jonny Hunter, co-founder of the Underground Food Collective, talks about his company’s horizontally integrated business model. A horizontally integrated local food company is a company that reaches financial sustainability in a local market by developing a series of interrelated food businesses that share common a common brand, administrative services and marketing. Underground Food Collective also controls their own manufacturing for producing meats, including a shelf-stable meat product, which is defensibly unique in that particular category.

The multiple business entities of horizontally integrated local food business models achieve economies of scale and operating efficiency through shared ownership, experienced management, administration and marketing. In addition, they are able to learn about food consumers from the retail, catering, restaurant and national wholesale brand perspectives. They began with the catering business and that allowed them to start in a shared kitchen, then in their own commercial kitchen and then expanding into manufacturing with support from the infrastructure in Wisconsin as well as the Department of Agriculture. Those creative revenue streams, while difficult to manage, allowed them to expand their reach and try different things to reach the consumer.

Branding and Building Defensibly Unique Brands

Matt D’Amour, Co-Founder and Chief of Yumbutter, talks about the importance of having multiple things that distinguish your food brand so you can remain defensibly unique and mitigates the risk of competition. He talks about Yumbutter having 3 Ps:

  • Potions: They include unique and disruptive mixes in terms of flavors and nut butter combinations.
  • Packaging: They were the first to use a reusable 7-ounce pouch, which provides unique functionality and an eye-catching difference at the grocery store.
  • Purpose: They have a buy one, feed one program to feed lower-income people in Guatemala and are a certified B-Corps.

Matt also talks about how entrepreneurs need to be sure they are solving a problem, including “scratching their own itch” and maintaining a passion for what they are doing to get through the endeavor. They joined the local food scene when their category (nut butters) wasn’t crowded yet and they were positioned well to overcome roadblocks.

On Overcoming Obstacles (And There Will Be Obstacles)

Having your own business is difficult and as a founder, you start out with just you. So many things that are difficult to deal with happen in business and how you adapt is key to business survival. For example, Underground Food Collective opened a restaurant in 2010 which burned down and the insurance took 2 years to finish and pay out (since the building was the source of the fire), severely limiting the company. Because they had started experimenting with the meat processing business, they focused on that while dealing with the fallout of the fire, expanding their skill-set and making them more well-rounded.

Yumbutter started processing in Bloom Bake Shop for a couple months in a Black & Decker food processor, then to CommonWealth Development, with the founders eventually moving out their manufacturing to a local co-packer in Mineral Point as well as on the west coast where lots of their distribution was located. Then, they started getting financing but their financing fell through as they were about to roll out in target naturally. They had to shift and get creative with financing, allowing them to re-evaluate their business model and how they are financed. So, it made them stronger in the end.

Trends in New Products

Jonny grew up in a missionary family and traveled to 37 countries, allowing him to pull back to memories and influences. He sees the United States food system having tragic influences on health, environment and food systems, as well as maximizing the fatty, salty and sweet flavors. He sees the biggest trends taking advantage of underexplored flavors like Umami and doing other things to stand out within that system.

Matt sees 3 large trends. In the nutbutter category, he sees consumers wanting a “value-add” in the flavor profile and health benefits rather than just another peanut butter. He also sees the social impact piece as really important in delivering value to consumers, as well as more herbs, probiotics and other things meant to be somewhat therapeutic, rather than just delivering nutrition.

Funding and Funder’s Expectations

All food businesses need money to grow and often grow in rounds or steps. And, in addition, many deals or financial packages often involve putting together multiple sources of money together to fulfill different uses. For example, many food businesses, especially wholesale brands, underestimate the amount of working capital they will need.

You can approach banks and investors with a profitable business, but even if your business is not profitable right now, it is important to approach them with a clear business plan, including your plans to pay them back and your future profitability. They speak the language of numbers, and so having the key metrics you will use top of your mind is very important as well as realistic proforma projected financial statements.

For investors, you specifically need to demonstrate an exit for them and your expected timeline of that exit. And, it is important to match your company with investors that will provide more than money, like advice, mission-alignment, networks and experience.