Commercialization Strategies

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04/02/2025 Added

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Commercialization Strategies by Dr. Tony Moses, At One Ventures. 2025 High Pressure Processing and Dehydration Workshop

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[00:00:00.000]Thanks, Grace.
[00:00:04.920]Yeah, after hearing the talks before me, I'm ready to launch some products.
[00:00:09.700]So let's talk about that.
[00:00:11.960]I'm really excited by the group that's here, too, because I think from the UNL staff to the vendors here,
[00:00:20.000]they're great partners to help you launch products.
[00:00:23.060]So I'll get into that a little bit, and I'll tell you a little bit kind of of where I'm coming from
[00:00:29.360]for this talk and why, and I'll give you a little bit of my background as well.
[00:00:32.580]Kind of my motivation here is that a lot of times the product developer, the entrepreneur,
[00:00:38.660]has the idea in mind of the product that they want to launch.
[00:00:42.600]So you're going to develop the gold standard for that.
[00:00:45.300]The commercialization process is how to get from that gold standard up to the sales process.
[00:00:50.800]So I won't talk about what markets are out there or how to create a product to hit those markets.
[00:00:57.220]It's going to be how to get.
[00:00:59.080]Those products into the marketplace and just there there's a it's a pretty tough road to commercialize a product.
[00:01:08.700]Even if you have something that really is there there there are a lot of startups fail.
[00:01:15.280]Typically in our portfolio we look we expect about half of companies to go bankrupt.
[00:01:21.200]And we really only expect like two or three out of 30 so about 10 percent to do really well.
[00:01:29.060]So it's a challenging road out there.
[00:01:30.740]This is across all small businesses.
[00:01:33.380]I think manufacturing is especially difficult because you're trying to make a product.
[00:01:38.000]So you're going to have to have working capital.
[00:01:40.940]You're going to have to have a lot of capex to support the production that you make.
[00:01:45.340]So I think I imagine if these stats were put together for a hardware or food business they'd be even more difficult.
[00:01:53.480]But you know half a business fail because there's no market need.
[00:01:57.440]Hopefully you figure that out really quickly.
[00:01:59.040]Before you start scaling up your product.
[00:02:02.080]We see companies that are doing great that run out of cash.
[00:02:05.600]So just having enough cash on hand to make your product and get it out there as well as you know support your needs as an employee of that.
[00:02:13.320]And then there there may be one in five in these statistics that have pricing and cost issues.
[00:02:19.140]We see that happen way more.
[00:02:21.180]We usually tell our entrepreneurs you don't set the price of your product the marketplace sets that and so you need to be very comfortable that
[00:02:29.020]you understand the shelf set that's out there.
[00:02:31.140]And it was a great intro this morning talking about freeze drying getting into that market with a six percent margin.
[00:02:38.260]Don't do it right.
[00:02:39.880]Make sure it's it's worth your time.
[00:02:42.060]It's really the marketplace that sets that and you need to make sure that that pricing works for the cost that it takes to make
[00:02:48.760]that. And then one in five had a poor product offering.
[00:02:52.660]Sometimes you don't figure that out until you get into the marketplace.
[00:02:56.140]I I spent some time.
[00:02:59.000]Time at Conagra.
[00:03:00.220]They redid their operations to basically say, like, hey, we can do all these consumer surveys.
[00:03:06.600]You can talk to Ellie about this, too, because she was she she had more interactions.
[00:03:11.240]But you don't really know until you get it out in the marketplace and it tells you what works and what doesn't.
[00:03:17.420]So when you're launching a product, you sometimes have to be ready to iterate really quickly.
[00:03:22.880]Your friends will tell you nice things about it.
[00:03:25.040]Consumers will tell you nice things about it, but you want to see them buy it.
[00:03:28.980]Okay, so the challenges and the kind of five aspects that I'm going to talk about for commercialization
[00:03:34.920]today.
[00:03:35.920]Safety and quality.
[00:03:36.920]I think this is really unique for a low temperature, low thermal area because that's traditionally
[00:03:43.740]we use high temperature to ensure a safe product among other things.
[00:03:48.840]Margin and sales.
[00:03:50.580]The group that I work for, we're climate tech, but we won't invest unless we're confident
[00:03:55.780]that you can see a nice margin and sales.
[00:03:58.960]We have to get return on our investment, so I might overemphasize this.
[00:04:06.480]Manufacturing and distribution.
[00:04:07.480]This is really tough.
[00:04:08.480]That's a nice thing about this workshop is you've got a lot of people here that can help
[00:04:13.720]you with that.
[00:04:15.860]Funding is always a challenge, and I can talk through that.
[00:04:18.400]I think food right now is especially challenging because we kind of had a little funding bubble
[00:04:23.340]in 2020, 2021.
[00:04:26.460]You're hearing about companies like Eat Just.
[00:04:28.940]That raised hundreds of millions and built a new facility, and now those facilities are
[00:04:32.740]idle.
[00:04:34.140]Same thing with Meaty.
[00:04:36.180]They raised hundreds of millions, and I think last week they just laid off all their staff.
[00:04:41.520]So the market is really shy to fund food right now.
[00:04:45.500]It'll come around, but you want to launch a product now, not when things come back around.
[00:04:51.140]And then the product market fit.
[00:04:52.920]That's really challenging for food because how your product is made, what equipment you
[00:04:57.500]have for that.
[00:04:58.920]Sometimes determine your product features.
[00:05:01.140]So you have to get really creative and I like to call it kind of a stepwise approach where
[00:05:06.640]you scale your business.
[00:05:08.700]You're oftentimes working with different partners as you scale that business from universities
[00:05:15.480]to contract manufacturers to maybe one day you'll be building your own facility.
[00:05:20.560]You just run out of capacity, a contract manufacturer.
[00:05:23.400]So that'll be kind of the approach there.
[00:05:26.960]Just a little bit of background.
[00:05:28.900]I'm with a firm, At One Ventures.
[00:05:31.020]My title is entrepreneur in residence.
[00:05:34.740]I don't know what that means outside the venture world, but what I do is after we invest in
[00:05:40.140]a company, I help them scale their product to market.
[00:05:43.500]Like Grace mentioned, my background is in chemical engineering.
[00:05:46.120]I graduated from Lincoln with my undergrad.
[00:05:50.980]I've been in the commercialization groups at Merck, the pharmaceutical company, Jividon.
[00:05:56.760]This group probably knows Jividon.
[00:05:58.880]He does the flavors and fragrances.
[00:06:00.180]I was on the flavor side.
[00:06:02.700]Conagra.
[00:06:03.700]And then after Conagra, I was with an engineering firm where we would do design and build of
[00:06:07.700]manufacturing facilities for food and pharmaceuticals.
[00:06:12.040]So we've kind of seen that commercialization process in its full kind of development.
[00:06:21.740]The company I'm with now, we do seed and series A investments.
[00:06:26.560]The venture community calls it deep tech.
[00:06:28.860]It's things that are based on science and engineering principles.
[00:06:31.600]We don't do software, is kind of what that's saying.
[00:06:34.700]We're hardware companies.
[00:06:35.880]You have to make a physical asset, again, no software typically.
[00:06:41.180]And we look for technologies that radically improve the environmental impact or climate
[00:06:46.420]tech.
[00:06:47.420]But we also believe that if you're reducing energy or if you're reducing mass used, you
[00:06:51.560]should be improving the economics too.
[00:06:53.940]So it's got to have both of those.
[00:06:55.520]We don't believe that you can really get a green premium anymore.
[00:06:58.840]We've seen a lot of times consumers don't pay for that.
[00:07:03.820]So just an idea of what we're about and kind of the biases that I have.
[00:07:08.200]We've got about half a billion of assets under management.
[00:07:11.080]So that means we've raised from, they're called limited partners, about half a billion and
[00:07:16.340]invested that into companies.
[00:07:18.120]And they primarily use that for operating expenses.
[00:07:22.220]We really push them away for using it for CapEx because CapEx is just costly and they're
[00:07:28.820]ways to do that as you're early and growing.
[00:07:31.960]And we have four or five food and pet food companies in our portfolio, but we also have
[00:07:37.000]things like Steel and HVAC.
[00:07:39.020]So we're industry agnostic, but we do have some food.
[00:07:43.800]As you can imagine, they're kind of like vegan cheese.
[00:07:46.440]We have a vegan pet food company.
[00:07:49.500]They just launched a vegan cat food, which is interesting too, because you have to supplement
[00:07:55.300]the amino acids.
[00:07:56.360]Cats are obligate carnivores, that kind of a thing.
[00:07:58.800]So that gives you an idea of what we do, and I'm getting reactions in the audience here
[00:08:04.800]to cat food, so we're off to a good start.
[00:08:09.480]So real quick, I'm going to give you my bias on how I see the industry working, and I'm
[00:08:13.460]going to go through this quickly, because Matt, I think, and Robert did great jobs kind
[00:08:18.720]of framing basically how low thermal processing works, but there's a couple things I want
[00:08:25.720]to point out.
[00:08:27.400]There's a lot of times cleaning.
[00:08:28.780]And sanitation steps on the front end of the process, because you can be pulling in raw
[00:08:33.540]agricultural inputs, so that's an issue.
[00:08:37.420]And then processing, the freeze drying, HPP, even for the ovens, you saw Robert saying
[00:08:43.780]that these have significantly reduced throughput typically on these.
[00:08:49.280]So I'll get into that in a little bit, but this is my simplified version of the industry,
[00:08:54.160]and I'm going to blast through some of this just for the sake of time.
[00:08:58.760]I think some of the challenges then that this industry has are going to be we're working
[00:09:04.840]with fresh produce and meat.
[00:09:06.400]So that's an opportunity to introduce pathogens, and that's really going to be a challenge
[00:09:10.660]on the food safety side.
[00:09:13.200]Same with temperatures below lethality.
[00:09:15.480]And we were just talking about this this morning, but now you have to have a different set of
[00:09:21.260]expertise to work with you on are you getting a safe product, the batch and manual production
[00:09:28.740]processing, along with the reduced throughput.
[00:09:31.820]This is a huge challenge to your unit economics because the biggest way that you can improve
[00:09:38.220]the cost of your goods is push more through your facility.
[00:09:42.640]So you can think about if I had a bakery and it was just me, if I got added a second oven
[00:09:48.360]and could double my throughput, I could significantly reduce the cost of my goods going through.
[00:09:53.740]So that's a big challenge for this industry.
[00:09:56.760]The high yield losses.
[00:09:57.760]I added this.
[00:09:58.720]I added this while I was watching Roberts and Matt's because you're essentially losing
[00:10:04.820]80% of your product that's water that you're evaporating off.
[00:10:09.520]And then there's a lot of specialty equipment in this.
[00:10:12.580]So what all of this to me adds up to is you start to get into markets where you're looking
[00:10:18.040]at high value, high priced and kind of specialty ingredients is where my head generally goes
[00:10:25.660]to this.
[00:10:26.760]If you're going to try and compete with the kibbles
[00:10:28.700]of the world, I love -- this is the first time I heard the word un-kibble.
[00:10:32.160]You have to give yourself a differentiator in that marketplace
[00:10:35.940]so you can charge a higher price.
[00:10:37.880]Otherwise, it's not going to be worth all the challenges that you have to overcome.
[00:10:42.480]Makes sense?
[00:10:47.360]Yeah.
[00:10:48.200]Okay. All right.
[00:10:49.320]You had a look on your face, so.
[00:10:53.000]Okay. Okay.
[00:10:54.200]Good. All right, so this is how I see the --
[00:10:58.680]commercialization pathway, and kind of that second row,
[00:11:01.860]like the founding, precede, seed, that's kind of venture talk.
[00:11:06.180]I'll put it on there if you're interested
[00:11:09.480]in having institutional investors put money
[00:11:13.220]into your company, that's kind of what you're looking for.
[00:11:15.940]But I think the top row, the opportunity, the proof of concept,
[00:11:19.820]that kind of thing should be universal to every business.
[00:11:23.180]And so, you know, the opportunity or the founding, that's typically you riffing
[00:11:28.660]in your kitchen or I've seen like grandma's recipe, you know, things like that.
[00:11:34.080]Feeding your cat different things and seeing what they go for.
[00:11:37.480]When you get into that proof of concept stage,
[00:11:41.360]you're starting to get a minimum viable product, something that you could take
[00:11:47.060]out to a farmer's market or a local store and start selling and getting feedback on that.
[00:11:51.880]When you start to get to saleable product, you're starting to look
[00:11:58.640]at kind of local distribution for that.
[00:12:00.820]And then once you kind of master that phase, then you get to scalable business.
[00:12:06.920]And this is where you start to hit like national distribution, international distribution.
[00:12:11.060]This is where you start to kind of move things up.
[00:12:13.880]And I know that there's not clear lines in between this, but I think it's useful to think
[00:12:19.020]about your business in these phases because it helps you with some of the issues
[00:12:25.080]that I mentioned on the first slide.
[00:12:27.060]So I want to --
[00:12:28.620]I want to jump into those issues now as long as there's no questions or objections
[00:12:35.860]to what's been on the slide so far.
[00:12:38.740]Okay. All right.
[00:12:42.920]So I want to start with safety and quality because this really has to be at the top
[00:12:47.640]of your list, and if you can't make a safe product, you just can't get it in the marketplace.
[00:12:52.060]When it's in your kitchen, it could be a bad night's sleep because your stomach hurts,
[00:12:57.140]but when you get into --
[00:12:58.600]to a scalable business, you could potentially be killing people if you don't have --
[00:13:03.640]or pets, if you don't have a safe product.
[00:13:08.420]So as you scale your business, your opportunity to cause harm scales significantly,
[00:13:14.840]and the other challenge that you have is that you're no longer controlling your product.
[00:13:19.740]You've got potentially third parties controlling it, and sometimes you now start working
[00:13:27.400]with staff that is not --
[00:13:28.580]doesn't have the same level of training or education that you have.
[00:13:32.700]So that becomes a challenge as well.
[00:13:36.020]So the risk goes up substantially as your business scales.
[00:13:41.020]And I should say, in all of our interactions with founders, we've never --
[00:13:47.080]there's nobody out there that can handle every aspect of commercializing a product, right?
[00:13:52.700]You -- you know, if you're a foods scientist by training, or if you're a business person
[00:13:58.560]by training, you're going to have very different skills.
[00:14:00.640]There's not enough time in the world to develop that whole skill set.
[00:14:04.180]So as I go through this, hopefully some of these things are familiar to you,
[00:14:08.060]hopefully they're not, and I'm going to talk about just some ways to potentially address that.
[00:14:13.120]So with the safety and quality pathway, the phrase that I hear is log reduction.
[00:14:20.420]So this is basically talking about the amount of pathogens that could be in your product,
[00:14:25.540]and reducing them by tenfold.
[00:14:29.100]So typically, you're looking for a log five or log six reduction.
[00:14:33.080]This is something that I think can be really challenging in the low thermal processing industry.
[00:14:42.080]And where I would take this is to expert consultations,
[00:14:46.880]to make sure that your processing technique is getting a high enough log reduction.
[00:14:52.860]And I think that's where being at UNL, they've got a great facility to do that.
[00:14:57.760]But I would...
[00:14:58.520]Hire that out.
[00:14:59.220]I would not hire that person internally because they'll get you through that pretty quickly
[00:15:04.100]and then they won't have much to do.
[00:15:06.260]As you scale your business to, you're looking for a safe product
[00:15:13.260]and your food safety program is really going to be your key to that.
[00:15:18.640]I would recommend developing this for kind of every phase that you're at.
[00:15:23.220]So if you're going to a farmer's market, you're probably in a commercial kitchen.
[00:15:26.720]If you're producing out of UNL's lab,
[00:15:28.500]those are environments where you're going to have a lot of control over that.
[00:15:33.740]There's not going to be as much risk from cross-contamination from other allergens
[00:15:40.400]or pathogens within a facility.
[00:15:42.560]Imagine now going to a contract manufacturer
[00:15:46.320]where they're running multiple products a day in there.
[00:15:48.620]There's potential for a lot of cross-contamination.
[00:15:51.080]You no longer see it, and you need to know that your product will be safe,
[00:15:58.480]that the contract manufacturer can afford to run your product.
[00:16:01.140]If you're overzealous about that, it'll cause your cost to rise,
[00:16:06.800]and that it's scalable with that.
[00:16:09.040]And then as the business owner,
[00:16:12.120]you want that consistent high quality of your product.
[00:16:14.840]So what I'd recommend with that are standards and protocols.
[00:16:18.500]Is there a way that you can test the product analytically as best
[00:16:23.660]to know that it meets your quality standards?
[00:16:28.460]One of the things we do in the industry is we taste it and say it meets spec.
[00:16:32.340]That's challenging to translate that.
[00:16:34.920]So if you have a reference product that people can taste against
[00:16:38.860]and rate the difference between the reference and the produced,
[00:16:42.520]that's another thing.
[00:16:45.140]You're going to hear hopefully this theme at the bottom there repeated throughout this
[00:16:50.740]is that as you're starting a product in its life cycle,
[00:16:55.240]it's really critical that you partner.
[00:16:58.440]It's find good production facilities, find good consultants initially,
[00:17:03.060]and then hire that staff as your company grows.
[00:17:06.740]All right, the sales and margin piece of this.
[00:17:11.380]What we typically see when somebody founds their business,
[00:17:17.320]there's going to be no profit or revenue from it, right?
[00:17:20.140]But what's critical is that they have a way, they have a vision,
[00:17:25.100]they have a plan to get to profit and revenue.
[00:17:28.420]So a lot of times we'll see companies develop what's called a TEA,
[00:17:33.020]or in the food industry, sometimes it's known as a product P&L
[00:17:37.800]or a cost of goods model, a COGS model.
[00:17:39.940]It's critical that you have one of those and you understand
[00:17:43.300]what costs you can bear for raw materials, what yields you need to have,
[00:17:47.260]hit, how much conversion costs that you can bear on that.
[00:17:51.150]So that would include your labor.
[00:17:52.630]That would include if you're working
[00:17:54.990]with a contract manufacturer, the fee
[00:17:56.970]that they would charge you.
[00:17:59.190]As you advance through your journey to commercialization,
[00:18:07.250]you need to start seeing positive contribution margin.
[00:18:13.830]So that is typically your direct costs.
[00:18:17.330]Your variable costs don't cost more than it
[00:18:20.550]costs you to sell the product.
[00:18:22.410]And then as you get towards that scalable business,
[00:18:25.590]you need positive gross margins.
[00:18:27.570]And you want those to be at least in line
[00:18:29.970]with what's out there in the industry,
[00:18:31.990]especially if you're looking to be acquired.
[00:18:34.150]If ConAgra is looking to acquire you,
[00:18:37.570]and your gross margin is lower than what they get,
[00:18:42.450]it's going to be very unattractive.
[00:18:43.810]I think even if you're not looking to be acquired,
[00:18:48.510]you're going to struggle in the marketplace a little bit,
[00:18:51.010]because what you're doing isn't giving the same value
[00:18:54.210]as other products, and it just probably
[00:18:55.990]isn't worth your time.
[00:18:57.190]The profit that you're realizing from that business
[00:18:59.530]just probably isn't worth it.
[00:19:03.910]So how do you manage your way through that?
[00:19:07.270]The realizing margin, that business, that financial model
[00:19:10.870]that I talked about, that product P&L,
[00:19:13.150]it's critical to manage your business towards that.
[00:19:16.270]And the best companies that I've seen do that
[00:19:19.170]know what the big ticket items are.
[00:19:22.990]So if I'm at a 30% yield and I should be at a 50% yield,
[00:19:27.790]that's something that will move the needle a lot.
[00:19:29.790]So I'll work on that first.
[00:19:32.410]If running with a staff of two instead of three,
[00:19:36.530]that might only move my margin a little bit.
[00:19:39.190]So it's critical that you have that financial model,
[00:19:42.490]you manage your business to it.
[00:19:45.110]Same with working with a contract manufacturer.
[00:19:47.450]A lot of times you'll get price breaks
[00:19:49.090]as you increase your volume.
[00:19:50.770]Know where those happen so that you
[00:19:52.690]can be looking at how you're running
[00:19:56.410]your distribution and your sales so that you
[00:19:58.290]can get those price breaks.
[00:20:00.790]The market traction is a big challenge that we see.
[00:20:05.170]Really finding multiple different customer
[00:20:08.590]partnerships is important.
[00:20:10.330]We've seen some companies kind of put all their eggs
[00:20:12.490]in one basket where they're like, hey,
[00:20:14.050]I'm going to launch with Costco.
[00:20:16.190]If Costco doesn't pick it up, then you're kind of stuck.
[00:20:19.970]So you want to work with multiple customers
[00:20:25.270]as you bring your product to market.
[00:20:27.230]And you want to make sure you have agility to flex
[00:20:29.490]between those partners.
[00:20:32.550]Especially with larger corporations,
[00:20:35.990]people can change roles quite often.
[00:20:38.250]And so, for example, if you've got the Midwest Costco
[00:20:41.430]salesperson really excited--
[00:20:42.490]well, suddenly, they get a promotion,
[00:20:44.410]and you've got to start all over again.
[00:20:47.290]So you need to make sure that you're
[00:20:49.430]agile with who you're working with.
[00:20:52.090]And then ramping revenue is another critical thing.
[00:20:54.750]And the best companies that we've seen do this
[00:20:58.030]have a pipeline.
[00:20:59.010]It's just an Excel sheet.
[00:21:00.430]And it's like, here are the customers that we're targeting.
[00:21:03.710]Here's the probability that they'll hit.
[00:21:05.850]And they're also watching repeat orders.
[00:21:08.590]That's the biggest thing that we see
[00:21:10.670]for building that revenue.
[00:21:12.170]It's great to go out and acquire customers.
[00:21:15.230]It's much easier and much more profitable
[00:21:18.170]to just keep reselling to them.
[00:21:20.270]All right, I'm gonna do kind of two for one here
[00:21:25.430]'cause I think these go hand in hand.
[00:21:27.470]But the product market fit, excuse me,
[00:21:30.450]and the manufacturing distribution,
[00:21:32.510]they're so closely interlinked
[00:21:34.050]that I wanna talk about those together.
[00:21:36.590]So I think I alluded to this a little bit earlier,
[00:21:39.290]but when you found your business,
[00:21:41.990]you typically, hey, I'm a little shy about my new ideas,
[00:21:45.630]so I'm trying it, my friends are trying it,
[00:21:47.890]my pets are trying it.
[00:21:49.090]Like that's kind of the feedback
[00:21:50.470]that you're getting at that stage.
[00:21:52.870]As you push more into the marketplace,
[00:21:55.430]you can get some interactions based on feedback,
[00:21:57.750]but you'll also get feedback based on what's selling.
[00:22:01.170]And that's the most critical piece of that.
[00:22:03.270]What sells, talk to business owners.
[00:22:06.670]For those in the Midwest, Hy-Vee is really good about this.
[00:22:10.590]They'll let you into
[00:22:11.810]their stores, store by store,
[00:22:14.990]but then you have to go into those stores
[00:22:17.210]and get the manager's feedback there.
[00:22:19.070]They're great working with entrepreneurs.
[00:22:22.610]And then as you go into a scalable business,
[00:22:25.690]you might start buying like SpinsData or CircanaData
[00:22:29.150]to see really what's moving,
[00:22:31.270]where in the store is moving it,
[00:22:33.410]or where in the store is it moving, that type of thing.
[00:22:36.810]But you really wanna see that large scale adoption
[00:22:39.290]before you scale up there.
[00:22:41.630]It can be an iterative process, right?
[00:22:43.790]Imagine launching in a local store
[00:22:46.750]and seeing one flavor sells over another.
[00:22:49.370]Then you need to understand what's working
[00:22:51.050]about that flavor, what isn't.
[00:22:53.290]From my days at ConAgra, I've seen stories
[00:22:56.890]of where the secondary packaging is blocking the label,
[00:22:59.670]so you can't even tell what flavor it is, right?
[00:23:01.810]Like sometimes you need to get in the stores
[00:23:03.430]and see what's selling, that type of thing.
[00:23:06.010]But as you get in there, into the marketplace,
[00:23:11.450]more towards what sells and less on feedback
[00:23:14.930]from consumers and friends.
[00:23:18.410]And then with the manufacturing and distribution,
[00:23:22.070]really when you start at the founding phase,
[00:23:24.950]you're more or less in a kitchen, right?
[00:23:27.770]As you scale your business, you start
[00:23:31.690]to get into production line trials.
[00:23:34.910]And these can be semi-automated.
[00:23:37.330]They can be manual.
[00:23:38.810]But you need to pace yourself.
[00:23:41.270]And where it makes sense that your sales are matching
[00:23:45.530]what you can produce and the costs are still manageable,
[00:23:49.270]initially, your margins might be pretty bad.
[00:23:51.890]They might be zero.
[00:23:54.090]But as you sell and get into the marketplace,
[00:23:57.150]have plans to get more automated.
[00:23:59.310]Have plans to get larger scale trials and production runs
[00:24:03.710]so that you can increase that margin.
[00:24:06.310]And kind of the gold standard of food production is you get as
[00:24:11.090]automated as possible.
[00:24:12.870]It's not this-- you know, this area of food
[00:24:15.650]is unique in that you can't probably completely automate.
[00:24:19.430]But can you automate the packaging?
[00:24:21.410]Can you automate some of the prep?
[00:24:22.970]Can you automate some of the wash steps?
[00:24:25.430]That type of thing.
[00:24:26.810]So that's what you want to do is when
[00:24:30.290]you start manufacturing and distribution,
[00:24:33.290]you want it to be flexible.
[00:24:35.130]That means more manual.
[00:24:36.750]As you start to get set in the marketplace
[00:24:39.050]and really understand what--
[00:24:40.910]the need your product fulfills, that's
[00:24:42.990]when you want to push towards automation.
[00:24:44.690]And that's going to help with your margin.
[00:24:46.430]But don't do that until you really
[00:24:48.290]understand where you want to take your product
[00:24:51.150]and what's selling.
[00:24:53.590]So I think I already talked about this a little bit.
[00:24:56.970]But one way that you can work with that evolving product
[00:25:02.410]needs is to work with contract research and manufacturing
[00:25:07.150]facilities.
[00:25:07.790]We've seen some companies set up their own research lab
[00:25:10.730]and they're only using it a fraction of the time.
[00:25:12.810]It's a horrible waste of money.
[00:25:14.810]Don't put it into brick and mortar or CapEx
[00:25:17.410]until you're certain that you're going to need it,
[00:25:20.950]you're going to use it, and it's going
[00:25:22.490]to have a high efficiency of use.
[00:25:24.630]So that includes vendors.
[00:25:27.710]So Wagner, Robert was talking about how they love R&D.
[00:25:32.990]If you know that you need extrusion
[00:25:34.890]and you know that you need that kind of line drawing,
[00:25:37.550]go to Wagner.
[00:25:38.930]If you don't know what you need, I'd
[00:25:40.550]say go to Ellie and UNL and work with them
[00:25:45.110]to help you through what your process looks like,
[00:25:47.250]what your product looks like.
[00:25:50.330]The physical assets, we just went through this crazy time
[00:25:54.350]where investors were giving money
[00:25:59.490]to build these big facilities.
[00:26:01.910]Don't do it.
[00:26:03.210]The term that I hear is asset-light manufacturing.
[00:26:07.490]You even see companies like Nestle, ConAgra,
[00:26:10.370]when they launch a new product they typically don't invest
[00:26:14.190]in capex and the brick and mortar until they know it's going
[00:26:17.770]to be a product out there on the market.
[00:26:19.270]So they'll use contract manufacturers.
[00:26:21.270]They'll use their existing lines.
[00:26:23.190]I really think that's a best practice.
[00:26:26.150]Once you get to the point where you know you need
[00:26:28.290]that equipment when you're starting to look at lines,
[00:26:31.330]another thing that you can do is do equipment financing.
[00:26:34.970]So there are organizations out there like Farnham Street
[00:26:37.810]or CSC that will basically
[00:26:40.190]put a lien on that piece of equipment and you order it,
[00:26:45.130]you know, Parker would send the invoice to them,
[00:26:48.990]pay that invoice and then you pay that equipment financer
[00:26:53.270]over three years so that they can recoup the cost
[00:26:56.090]of that equipment.
[00:26:57.090]So it keeps that precious capital with you
[00:27:00.430]so you can pay your salaries, you can pay for product to get
[00:27:03.770]out and market and grow your business that way.
[00:27:06.350]The terms on that though typically are in the mid-teens
[00:27:10.010]so what that does, it's going to be a little bit more expensive
[00:27:15.170]than buying it in cash but it allows you
[00:27:17.490]to distribute those costs over three years.
[00:27:21.270]The technical and operations expertise,
[00:27:24.330]I said at the beginning of my talk I've never seen one person
[00:27:28.170]who is an ops person, an R&D person, a safety person,
[00:27:31.270]a business -- it doesn't exist, right?
[00:27:33.250]So as you launch that, look to blend your core employees
[00:27:39.830]and it could be core employee, it could be a business
[00:27:42.430]of one with consultants.
[00:27:44.630]If you're looking into co-founders,
[00:27:47.230]try and find somebody that has maybe a different skill set
[00:27:49.890]than you and I think that this conference is great
[00:27:55.170]because you might not even know who those consultants are
[00:27:58.210]but you get a few key contacts in the industry
[00:28:00.830]and they can help you understand who's out there,
[00:28:04.470]who they typically use.
[00:28:06.470]And then matching supply to demand, this is another thing
[00:28:09.650]that people really struggle with.
[00:28:11.590]So you don't want to go out and sell your product
[00:28:14.910]until you know you can make it, right?
[00:28:16.290]Because then if you can't deliver on that PO
[00:28:18.890]that you get from the customer, they're not going to order again.
[00:28:23.010]So you want to use different manufacturing sites.
[00:28:27.690]There's not going to be a one-size-fits-all partner,
[00:28:29.990]unfortunately, in the journey.
[00:28:32.250]And you want to ask them about if they're flexible
[00:28:35.210]with different orders, right?
[00:28:36.230]So if you're working with a team at Universal Pure, they might be
[00:28:39.470]willing to do one batch a year at a minimum order size
[00:28:42.490]and talk to them about, like, if I grow, what does that look like?
[00:28:46.470]Do you have capacity for me?
[00:28:48.230]That type of thing.
[00:28:50.230]So it's complex.
[00:28:52.230]Matching that supply to demand is complex, but it's critical.
[00:28:56.690]All right.
[00:28:57.830]The last piece, a little financing piece,
[00:29:01.130]where do I get my money?
[00:29:03.510]This is a very kind of institutional look at things.
[00:29:09.290]Actually, in the Midwest, we're starting
[00:29:12.570]to see a lot of venture capital groups pop up and angel groups
[00:29:18.110]that are more amenable to smaller businesses.
[00:29:21.050]If you get to the Silicon Valley type venture capital firms,
[00:29:25.790]they're looking for companies to get that unicorn status, which
[00:29:29.010]means a billion in value of the company.
[00:29:32.370]And that's hard to get with a niche product, right?
[00:29:35.570]But there's great venture capital groups like Move Venture
[00:29:39.110]Capital or Grit Road here at Omaha and Lincoln
[00:29:43.430]that are more amenable to kind of smaller businesses.
[00:29:46.710]But initially, it's angel investors and friends
[00:29:52.010]and family that are willing to take a big risk with you.
[00:29:56.570]And as you get a proof of concept, prototypes, things
[00:30:00.290]like that, you can start to get into more
[00:30:02.490]institutional investors.
[00:30:04.470]And then finally, when you have a scalable business,
[00:30:07.190]that typically means our rough rule
[00:30:08.930]of thumb is you're $10 million in revenue,
[00:30:11.630]and you're at least break-even.
[00:30:13.410]But if you could be margin positive, that's better.
[00:30:15.890]Then banks will say, hey, this person has a viable business.
[00:30:19.430]I will loan money.
[00:30:20.430]I can see how I will get my money back out of this.
[00:30:24.530]Venture capitalists, angels, they're
[00:30:27.190]saying maybe 1 in 10 is going to return my money.
[00:30:31.250]I don't know the ratio for banks,
[00:30:33.590]but I guess they're more after 9 and 10, something like that.
[00:30:38.750]So who you would go to for that.
[00:30:41.870]Even better is if your business starts generating cash,
[00:30:45.990]and you can put that cash back in and invest
[00:30:49.470]in scale up of your business.
[00:30:52.610]So if you can make a margin at the farmers market,
[00:30:56.150]you can reinvest that into your business
[00:30:57.990]so that you can grow bigger.
[00:31:01.070]That's even better.
[00:31:02.070]But these are kind of the types of institutions
[00:31:04.850]that can supplement the cash coming in from your company.
[00:31:08.570]And just to kind of go through some of the challenges,
[00:31:13.930]starting up is so tough.
[00:31:16.550]I cannot believe how much work that entrepreneurs
[00:31:20.330]do to get their business up and running.
[00:31:23.850]And it is basically a second job, right?
[00:31:27.170]There is this great podcast, How I Built This.
[00:31:31.690]Angie and Dan Bastian have this episode
[00:31:33.810]where they talk about how they started Angie's Boom Chicka
[00:31:36.570]Pop.
[00:31:38.390]And Angie was a nurse in a psychiatric ward.
[00:31:41.790]And she was in the middle of a takedown of a patient.
[00:31:43.970]And her husband called her up, Dan, saying, I got it, popcorn.
[00:31:47.770]And she's like, what are you even talking about?
[00:31:49.910]So they were working their jobs and then on the weekends
[00:31:52.510]selling popcorn.
[00:31:53.710]And their big break came when the Vikings picked them up.
[00:31:56.230]But you know the popcorn sellers outside of Hy-Vee and grocery
[00:31:59.490]stores?
[00:31:59.990]That's what they were doing on the weekends
[00:32:01.790]to get their business going.
[00:32:04.110]So a lot of times with entrepreneurs,
[00:32:07.050]it's this really scary stuff.
[00:32:08.210]It's this scary step of when they leave their first job
[00:32:10.790]and step into just focusing on the second job.
[00:32:16.190]Getting money is always a challenge.
[00:32:18.330]I recommend that stepwise growth.
[00:32:20.570]You want to grow it as fast as you can,
[00:32:22.790]but you need to take reasonable steps and risk to do that.
[00:32:26.450]And then the debt versus equity, I
[00:32:29.370]hope that the entrepreneurs in this room
[00:32:31.790]are able to consider equity someday.
[00:32:34.130]But what that means, it's free money.
[00:32:36.630]You don't have to pay it back, but you
[00:32:38.030]have to give up part of your business.
[00:32:40.370]So then you have somebody like me sitting there saying, hey,
[00:32:44.750]you're not growing fast enough.
[00:32:46.090]Or, hey, I don't like this contract manufacturer.
[00:32:49.450]What are you doing here?
[00:32:50.410]Yeah, something like that.
[00:32:51.790]So debt, you have to pay back with interest.
[00:32:56.150]But you typically don't have somebody
[00:32:58.470]that gets their fingers in your business.
[00:33:02.170]So those are things that you have to consider.
[00:33:07.850]If you love the equipment debt, there
[00:33:10.730]is another option for debt, too.
[00:33:12.490]If you ever get venture funding, banks
[00:33:14.570]will offer venture debt, too.
[00:33:15.930]It's basically like an equity line of credit.
[00:33:19.470]Get it right away, and you can use it for whatever you want.
[00:33:21.950]It helps you extend your runway.
[00:33:25.590]It helps you keep the lights on and prevents you
[00:33:29.890]from running out of cash quicker.
[00:33:31.550]So there's some creative debt options out there, too.
[00:33:35.510]All right.
[00:33:37.670]My plugs before you leave.
[00:33:40.590]This is such an awesome ecosystem of different people here.
[00:33:45.450]So try and meet as many as you can.
[00:33:48.550]The sponsoring companies and vendors that are here are key for that kind of later stage
[00:33:53.830]growth when you've figured out your product and you're ready to scale it.
[00:33:59.070]They're there to help you understand what equipment you need.
[00:34:01.730]Eventually, I hope you're in the situation where you're buying your own equipment.
[00:34:06.230]They're there for contract management.
[00:34:07.490]They're there for manufacturing.
[00:34:09.950]Understand UNL's capabilities.
[00:34:11.470]You're going to meet a lot of those subject matter experts here even if you don't meet
[00:34:15.730]them.
[00:34:16.730]If you get to know Ellie and Grace, they can help connect you within that community.
[00:34:21.130]The food processing center's capabilities are a great way to start too.
[00:34:26.230]We see that a lot of our entrepreneurs run into the same issues and they can help each
[00:34:31.170]other out.
[00:34:32.170]So we've seen even within different industries, somebody will say, "Hey, I need an HR policy.
[00:34:37.310]And people were, you know, nobody wants to work on that, right?"
[00:34:42.550]So you can share things like that with each other.
[00:34:46.690]It's a long road, right?
[00:34:47.910]So even just to have someone there to support you helps tremendously too.
[00:34:53.290]You know, we're always looking for new investments, so if you think you're having an outsized
[00:35:00.930]impact on the planet in a positive way, of course, love to hear it from you too.
[00:35:06.270]If you've had
[00:35:07.130]different experiences than what I'm presenting in this presentation, if you have some hacks
[00:35:12.070]that I'm missing or you're like, hey, you're way off base here, I'd love to hear that too.
[00:35:18.850]Just give me a moment to emotionally process the negative feedback, right?
[00:35:23.930]And that's all I got.
[00:35:25.270]If you want to send comments too or questions or connect, there's my email.
[00:35:29.730]Thank you.

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