Know that investors come with expectations.
They give you cash and you grow your business. Right? Well, not exactly. Investors come with expectations, and those expectations can end up bogging down the business and keeping you away from your ultimate goal.
Ori Zohar, co-founder of the equitably sourced spice company Burlap & Barrel, has the unique experience of having funded companies via both profits and outside investment. He took on venture capital for his previous company, a home financing business called Sindeo. And he wouldn’t do it again.
“A big, venture-backed company is about growing as fast as possible and growing at all costs. It made us make decisions that looked good to investors but weren’t in service of building a profitable business,” he explains. With Burlap & Barrel, “We’re much more in the present, naturally letting the company evolve and grow. We’re doing it based on what business can afford and what our customers are asking for.”
Do all you can with what you can.
As a food scientist working in product development for large CPG companies like Coca-Cola, Rebecca Dengrove became intrigued by the idea of creating a popsicle for adults with natural flavors inspired by coffee and tea. She spent a couple hundred dollars on popsicle molds and started experimenting in her New York apartment kitchen. Naming the brand Brewla Bars, she first shared them with friends and family, then at farmer’s markets, events and from a cart in downtown Manhattan. After the brand gradually acquired a fan base, she started making the pops out of a facility at Rutgers University in New Jersey. “I was still working full time. I had to take a vacation day, drive two hours, and make as many popsicles as I could in five hours before cleaning up and closing. Then I’d have a car full of containers of dry ice to get them back in the test freezer I had in my apartment. We did a lot of crazy things to make it work,” she remembers.
But make it work, she did, with help from an interest-free loan from the Women’s Enterprise Action Loan Fund as well as a small Kickstarter helped them buy the popsicle maker they needed to scale and test new flavors. The company eventually started using a co-packer and selling in retailers like Fairway. Overall they raised less than $1 million from angel investors in the course of their growth, and sold the company to Ruby’s Rockets in 2017.
“Find an inexpensive way to test the idea and see if it resonates,” Dengrove advises other founders. “If you’re going to grow grassroots and organically, you have to build influence within your community. It may be slow, but if it’s working and it’s profitable, then take your time.”
Zohar also preaches prudence when it comes to taking outside capital. “If you can get through the initial hump of getting your company off the ground, like through an SBA loan, there’s a magical point when you get past $1M in sales you can get access to lower-cost capital,” he says. Five years into starting Burlap & Barrel, and “now banks are starting to take us seriously.”
Learn from doing it the hard way.
The downside of too much money is that it lets founders skate on advertising to acquire customers. Those customers tend to be more expensive, less loyal and more reliant on discounts, says Zohar. Fewer resources means fewer choices, and the need to reach customers in clever, inexpensive ways. For most small companies, that’s actually a boon to their long-term success.
For Burlap & Barrel, the strategy started with going door-to-door to New York chefs. “We gained an audience from restaurants we respected. That gave us enough money to buy the next round of spices or get on a plane and meet more spice farmers,” says Zohar. This long-term investment in sourcing and relationship-building ultimately paid off in the strong supplier networks they built that allowed them to make good on their value proposition.
What’s more, “the chefs gave us credibility and legitimacy,” explains Zohar. “We always had a website up and running for consumers. We tried to do as much press as possible, reaching out to journalists, sharing the story of Burlap & Barrel and what was different about it, where cinnamon comes from, how peppercorns are grown. We offered our spices for them to try and consider including in gift guides. Then we extended to affiliate marketing with ShareASale. It happened over time.”
Focus on customers, not funders.
Really knowing your customer—what they like, don’t like, and honestly feel about your product and the need it fills or doesn’t—is the most important factor of a brand’s success. “You don’t have to convince everyone to like your product, but you should take all feedback into consideration. Really listen,” advises Dengrove. They’re also people who can help you in different ways, from getting the word out to sharing skills and contacts, she points out.
“Having a groundswell of excitement for your brand is really important,” she adds. “Create a network of influencers that are excited by what you’re doing, who want your product and are telling retailers about it. Find what it is that’s resonating to find more people like that, tap into that passion and find ways to reward them for their loyalty to your brand.”
Zohar has evolved the Burlap & Barrel business based on a) what they can afford and b) what customers are asking for. It’s a simple but compelling formula whose results speak for themselves. When they heard multiple customers asking for one of every spice they carry, they created a complete collection. “In 2020 we did over $100K of that product alone. It makes a great gift for housewarmings, weddings. I wouldn't have thought of it, but it’s a hit,” says Zohar.
He takes care to request feedback from each new customer, take every request for a new spice seriously, and to make any complaints right. In his view, “customer support is not a cost center. It’s an opportunity to win over customers for life.”
Keep your short and long-term goals in mind.
There are pluses and minuses to each route you take, whether it’s taking money from loans, friends and family, non-professional angels or institutional investors—or no money at all. It comes down to what’s of greatest importance to you, the founder.
“A lot of people look at venture capital as the goal, the destination. A lot of time it’s the opposite,” says Zohar. “Too often people celebrate raising money. They’re celebrating selling 20% of their company.”
For others, parting with equity is a fair trade-off. For Veronica Lehman, who sold her snack bar company Pure Organic to Kellogg in 2016, giving away pieces of the company over the course of her journey gave her peace of mind. “It freed me to spend my time doing what I knew I was good at—marketing the company, being the founder and spokesperson,” she says. “So when we sold, I didn’t walk away with the entire bucket of money, but I still did better than I ever thought I would.”
Chart your own course.
Many of today’s entrepreneurs have grown up in an environment of easy capital. The perception that money is waiting for food & beverage founders in particular has only increased with last year’s COVID-driven CPG sales. But it’s never so simple.
“COVID was hard for emerging brands. People weren’t going in to browse at the store,” says Nadine Habayeb, co-founder of the snack company Bohana. While she managed to pick up a $200,000 loan from Kevin O’Leary on Shark Tank, she’s found that “the leverage isn’t really there with VCs and institutional investors.” That led the team to the non-traditional route of equity crowdfunding via Republic.
At the end of the day, every business and every founder is different. Some categories and products, be they in food & beverage or food tech, are simply too operationally complex to be bootstrapped by a founder not blessed with a trust fund. But being realistic with what you can expect from your business in what timeframe—and what your investors expect of you—is crucial.
“Look at it as your passion. You love what you do, and it’s something you want to earn a living at and potentially earn a big chunk of money,” advises Lehman, reflecting on her experience building and selling Pure Organic. “It’s a healthier balance.”
round?