Start-Ups 2010: A Company Cashes in on the Gluten-Free Trend
In 2007, Seth Mendelsohn quit his job as an IT consultant. "I figured I love cooking, so why not just make a career out of it?" he says.
Mendelsohn -- who was adept at creating tasty dishes for friends on gluten-free diets -- knew that the market for natural foods was growing, as was an awareness of gluten-related disorders. But gluten-free sauces were hard to find, so he decided to start his own line, which he called Simply Boulder.
Mendelsohn, 32, figured that the $50,000 he had saved would be enough to get his sauces to market -- and that profits would fund growth from there. Costs would be minimized by outsourcing manufacturing and sales; distributors would ship and warehouse his product; and he could offset the high cost of using premium ingredients like extra virgin olive oil and agave nectar by buying concentrated versions of other ingredients like vinegar, which reduced freight costs.
What Went Wrong
Hidden costs: advertising fees for the distributor; payments for in-store demo companies; broker commissions; and fees or cases of free samples to almost every new store in which his sauce was stocked. "It really adds up," says Mendelsohn, who estimates he has given away $25,000 worth of product over the past two years. Another surprise bite at his margins: Retailers and distributors require manufacturers to put their products on sale at least three times a year. Mendelsohn was forced to borrow twice his initial investment from friends and family. In January of this year -- just as he received a large order -- he decided to empty his retirement fund to finance operations. "I thought, I've already invested so much; why not just put all the chips in?" he says.
"A lot of people say, 'Just do it, just get it started,' " Mendelsohn says. "That's important. But the big thing is doing your research, so you really know what costs are involved to grow."
How He's Doing
Mendelsohn's gamble may pay off yet. Simply Boulder is stocked in 400 stores, including some Whole Foods.