Food Companies Grow In Stair Steps, Not Incrementally

Food Companies Grow In Stairsteps

Lots of food entrepreneurs, at least here in the Midwest, want to grow their food companies slowly, without outside money. Sometimes this is because they are debt or investor averse, whether because of the fear of the cost of capital or fear of giving up some control. Sometimes this is because they don’t want to bite off more than they can chew and growing slowly, in their minds, is growing responsibly.

While established food companies can grow slowly and still be profitable, this is much harder, if not impossible, for emerging food companies. Food companies, because they deal in physical products often produced from a long and complex supply chain, grow in stair steps, not incrementally, in order to reach the right scale to be profitable. And, these companies often have to quickly leap up each step so they don’t run out of money, often with the help of outside capital.

Let’s take food companies that need a physical retail space, for example: opening a retail space requires raising enough capital to get the right space, whether that space is owned by the entrepreneur or is built out and leased with the landlord. This is in addition to working capital needed to pay staff and cover other parts of the operation before sales begin and until sales are sufficient to cover costs. Most food entrepreneurs don’t have this kind of money on hand and can’t generate it with their current sales alone.

On our podcast this week, Marie and Matt Raboin of Brix Cider, a hard cider company in southern Wisconsin, talk about their stages of business development and the steps they had to climb to get there. This included taking the step to legally sell their product by moving production out of their basement and into a local winery with extra capacity. Now that they have started generating sales, their next stage to get the business to be profitable for the long term is to open their own tasting room. Increasing production by partnering with that winery required outside capital to give Brix the “boost” to make that first step. They will also need outside capital to find and optimize the retail space that makes sense for them for the next “step” they have to climb in their business.

To grow quickly enough to compete in today’s marketplace, food companies have to make the “leap” to their next stage of business, usually quickly and with outside capital. Sometimes this leap up the steps can feel more daunting than simply “taking the next step” and more like perilously riding a motorcycle off the edge of a cliff. But, with the right plan and the right capital structure, aspiring food entrepreneurs can make the leap towards profitably on the other side.


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