Life for food startups isn’t easy and that’s why nine out of 10 new food and drink businesses fail. So what does it take to get ones food-entrepreneur feet off the ground – and keep them there?
It’s probably the best coconut chai you’ve never tasted. It starts with whole leaf black tea from Sri Lanka. The tea – single-origin, ethically sourced – is blended with spices and there is a hint of coconut that gives it a creamy smoothness. No detail has been overlooked, even the pyramid tea bags are made from a bi-product of corn starch so they’re fully biodegradable.
So why isn’t Zigzag Fine Tea on the shelf of every major supermarket chain? Because it’s a food startup and it’s notoriously difficult to nab shelf space when you’re new, not to mention the challenges of production, funding and cash flow (or lack of it). The chilling fact is that nine out of 10 new food and drink businesses fail.
Zigzag Fine Tea founder Lucy Dolan is doing well by industry standards. She’s already in around 100 independent retailers but she knows the business needs to grow in order to survive and thrive. That is why she went to Bread & Jam – a two-day conference for emerging and growing food and drink brands – with the hope of putting her business in the successful 10 per cent.
Dolan says she wanted to meet buyers from key major retailers and “lap up some wise words from those who have been through this experience and come out the other side”.
Dolan wasn’t alone. Around 700 speakers, exhibitors and delegates descended on the two-day event in London. Bread & Jam co-founder Jason Gibb says 35 per cent were pre-revenue start-ups – the I’ve-got-a-great-idea-people – 25 per cent were earning less than £100k, 25 per cent were more established with a turnover of over £100k, while 15 per cent had turnovers of more than £1m. It’s that enviable 15 per cent table where budding entrepreneurs like Dolan want to sit.
Hugh Thomas, co-founder of Ugly Drinks, was one of the speakers at Bread & Jam. Ugly Drinks’ no sugar, no sweetener, no calories and no artificial ingredient line is now available in major retailers such as Holland & Barrett, Amazon and Whole Foods. He says that rule one is to make sure your product stands out in an increasingly crowded marketplace.
Ed Smith, co-founder of Doisy & Dam Chocolate, agrees that a business’s unique selling proposition (USP) is key. For them, the concept was to marry an indulgent food – think brownies, chocolate, ice cream – with a superfood – like goji, maca or cacao nibs. The chocolate worked and they got it into some independent stores quickly but it wasn’t smooth sailing. “The product was not exactly perfect, the packaging was illegal and it kept falling off the shelves but a few awesome grocers and independent stores around London took a chance on us!” he says.
Mistakes happen as Smith knows only too well: “The most unforgivable one was printing a full run of packaging with our goji and orange flavour written on the front and our coconut and lucuma flavour written on the side.” As for financing, that came initially from family and friends and then crowdfunding on Crowdcube earlier in 2017.
Crowdfunding is increasingly the path many food startups take. “Since the Government and banks are seriously letting us down, crowdfunding is the go-to solution at the moment, with 60 per cent of the businesses in our space considering this approach,” says Gibb. “In my opinion it is great for food businesses because you can trade for six months, value your business by sticking your finger in the air and coming up with a million-quid valuation and there are people out there who will invest.”
Will the bubble burst? Probably, but Gibb says it’s not showing any signs of it yet.
But funding isn’t the only problem says Livio Bisterzo, founder of Hippeas, organic chickpea puffs. “A lot of first-time entrepreneurs make big mistakes in supply chain and cash flow management as well as underestimating the challenge of distribution. From my perspective, the biggest reason is that most natural food entrepreneurs try to sell a product and not build a brand,” says Bisterzo, who just secured a $10m (£7.6m) investment from a US company.
Gibb agrees: “The biggest issues facing emerging food brands are funding, cash flow and getting distribution.” But the biggest mistake they make? It’s the belief that hard work and passion will bring success, he says.
“In fact, there are many other elements that need to be in place as well. I’m not saying it’s complicated, but for example, you need to have a product that people want to buy. Sounds nuts, but a lot of people have a product that they love, they are passionate about, they have made in their family for generations; but it isn’t a commercial proposition,” he says.
“I think the reality is that a good product isn’t enough to guarantee success. I don’t know what the formula is because we’re still very much in contention to be in the nine rather than the one,” says Doisy & Dam’s Smith.
Pippa Murray, founder of Pip & Nut, was another speaker at Bread & Jam. She understands the challenges – and rewards – of starting a food business. “As a new entrepreneur it can be difficult to build a strong supply chain from the start, yet without this, it is going to be almost impossible to scale the business.” She recommends looking for a genuine gap in the market. “This doesn’t have to be a whole new category; it is possible to spot a gap in an existing category that is in need of reinvigoration.”
And she says, don’t forget the basics. “Design matters, but the product matters even more. Repeat purchases are essential for growing your business so you need to make sure your product tastes great,” she says.
Bisterzo’s final words of advice? “Keep it simple. If you can’t explain your product/service in five seconds, don’t expect consumers to figure it out.”
Was the two-day event worthwhile for Dolan of Zigzag teas? Yes, she says. “All I know is that whenever someone drinks a cup of Zigzag they really do love it and that’s what ultimately keeps me going.”