If you were to tell me four years ago when we sold our first baking mix that we'd be the second largest natural baking mix company today, I would have laughed. Little did I know that's exactly what would happen.
There are things that have made a difference in our trajectory (and things that haven't). In this three part series, I'm going to share what actually mattered in those first years - and what not to waste your time on.
The First Year: What Matters
Get the product right. Find (low-cost) ways to make sure your product is right. We used demos in Whole Foods to attain this insight. People tried our products, shared feedback, and we recorded results. The more anonymous and data-driven customer feedback can be, the better. You need to know if your baby is ugly.
Benchmark it. Once we had formulas dialed in, we made sure the products measured up. Since we were selling our products at Whole Foods, we asked Whole Foods buyers their expectations - it turned out we were well over-performing. Benchmark your product against others in the market. Find a way to validate your concept.
Get pricing right. Price is based on what people are willing to pay, not what your product costs you. You want to have a margin, but if you price your product wrong from the beginning, it can cause other pieces not to work. Resist the urge to go too high, or make the mistake of going too low. For us, this meant pricing in line with other products on the shelf.
Get the packaging right. This is a place you should spend time and money - and where you shouldn't settle for something you're less than thrilled about. In consumer products, this is your #1 marketing vehicle. Changing this later will be painful. We rebranded a year in and our customers thought we had gone out of business. They told us: "I used to buy from another company with a green package" - little did they know, it was still us!
Get the branding right. For packaging, make sure your brand is clear - don't try to be everything to be everyone. Have a simple hierarchy. In food, you want to communicate at most six things, three of which should be your brand name, appetite appeal, and flavor. Even if your product is gluten free, soy free, dairy free, grain free, and paleo doesn't mean it all needs to be on the front of the package. Figure out how you want your brand to feel - is it Rustic? Bold? Casual? We settled on Sunny and Bold.
Create a financial model and prove the business is viable. This should go without saying, but you need a basic financial model where after reaching some basic efficiencies of scale, you can make money. Some things will cost more than you think. For example, we didn't expect marketing to cost 15 - 20% of sales as the company grew. But, if you look at the income statements of large consumer products companies, you learn that very quickly. Do research to make sure your cost assumptions are valid.
Get your first customers. This means you. On the phone. A lot. No matter how much you hate cold calling. It's you in the store, you at the trade shows. You wearing as many hats as you have to in order to get the job done. It's also you who will be your first and earliest customer service representative. Think through how you'll onboard - and service - customers before you launch.
Rack up proof points. When you get to year two, you're going to need to prove your business is worth it to investors, potential employees, and potential customers. Find a way to prove you're doing something neat. For us, this was becoming the #1 bestselling muffin mixes on Amazon. It was an exceptional data point that made it clear that we were onto something.
The First Year: What Doesn't Matter
Building out a big team. Hire one, two, at most three employees. Stay nimble and very cheap. To build a great company, you're going to need exceptional talent on your leadership team - talent that you can't afford or attract in year one.
Advertising. Many startup entrepreneurs assume advertising will generate business. But, it's expensive and useless if the other points above don't work.
Fundraising. Aside from personal savings and convertible notes, it is difficult to fundraise without proof of concept, which in consumer products means selling well in stores or online. Plan to bootstrap and run lean in year one.
Dividing up equity. Defer this conversation. 50% of zero is still zero. Shaving off equity when you have nothing can also give you less to work with when you really need to raise capital.