Start-ups: Where to spend and where to save
From commissioning packaging designs to recruiting staff, starting a new food or beverage brand can be costly. So, where should you spend and where should you save? We get the financial lowdown from those who have successfully trodden the start-up path.
How much should you invest in a start-up?
This is a big question, and likely one that most start-ups will want to know the answer to. However, the investment at the start-up stage will vary enormously, depending on the type of product you’re launching.
It’s also important to understand that start-up costs will be split into pre-opening and post-opening costs. Pre-opening start-up costs refer to the costs required to establish the business and include things such as packaging design. Post-opening costs meanwhile refer to costs incurred upon the opening of the business such as advertising and promotional activities.
So, what should you spend your money on?
Invest in your brand
Once you have your product and you’re ready to take it to market, you’ll need to decide on how you want it to look, and this is worth the investment as it’s the first thing a customer will see. Plus there’s a strong chance it will be the deciding factor on whether a purchase is made or not. So, how do you go about finding the right packaging for you and your brand? The answer… research.
“I heavily researched,” said Fan Yang, founder of plant-based snack brand, Other Foods, at the recent Bread & Jam event in London. “I was constantly on Pinterest and conducting research on packaging and branding. I was going to different supermarkets and retailers to see how brands had made it. And I created a mood board of what I wanted the brand and the packaging to look like.”
And this extends to your website. For many brands, their website is their shop window, so make it look good. But this doesn’t have to cost the earth when you’re only starting out.
“The average cost for a Shopify website is twenty grand,” says Mike Stevens, founder of sustainability consultancy firm, Stevens.Earth. But there are plenty of alternatives to the professional website builders.
“I spent one thousand,” says Yang. “And I just asked for a holding page. I wanted to test the market and see if I received any orders because if the idea does not work then it's not worth any money.”
And once your brand has proven to be successful, then you can further develop, and invest in your site, with the money made from sales.
“We wanted to start with a professional website and the ability to take orders,” says Nirali Mankodi, co-founder of confectionery brand, Superfoodio. “But as we’ve grown, we’ve added things. We’ve spent more as we’ve needed to.”
Distributing your product
Deciding how and where you want to distribute your product is a big decision, particularly as there are multiple options available, in terms of distribution channels. Many start-ups, and established food and beverage manufacturers, use wholesalers, as they function as the link between manufacturers and retailers, making selling at scale more easily achievable.
However, wholesalers are not the only option available.
“We knew we wanted to scale quickly,” said Mankodi. “So, our first step was to find an outsource partner that had all of the certification and would allow us to grow in scale and would allow for more capacity than what we initially required.”
Maintaining a career while establishing a start-up
If you’re concerned about costs and the potential financial risks, you could establish your business while maintaining your existing job. This will ensure you have a reliable income while also investing money into your new business venture.
“We actually started manufacturing ourselves,” explains Dan Featherstone, founder of snack brand, Made for Drink. “I’ve got three kids and a mortgage, but I really wanted to start this business. So, I started it as a project. I was nervous about taking the plunge and starting a business, but this was the way that I could get going. And I was literally cooking and producing the product at home, but I thought if I could qualify my idea by taking it to a pub or a local shop then I could prove myself. And I actually ended up taking it to Heston Blumenthal’s Fat Duck Group and, long story short, they loved it.”
Think before investing in premises
Depending on your circumstances, investing in premises to operate your business may be necessary. But don’t assume that it is. Consider what you need the space for and decide if it's an unavoidable cost before making the commitment.
“Coming from a corporate background, I was used to working in an office and having a team around me,” says Mankodi. “But for Superfoodio and journey we’ve been on - we’ve been through lockdowns in COVID - we actually realised that we didn’t need that space – we could use co-working spaces and working from home.”
Should you recruit staff straight away?
This is an important decision as employees will be one of the biggest overheads your company will have. However, if you need them and you don’t have them then you’ll struggle to produce your products. So, when should you recruit staff for your start-up?
“I would say, if you feel like it’s too much and you need help then that’s the point at which you take people on,” says Yang.
“You might think you need a big team, but you can start small and build up,” adds Mankodi.
And there are options available that mean you don’t need to recruit full-time staff immediately.
“I took on freelancers and paid them an hourly rate,” says Yang.
Starting a new business can be challenging, but it can also offer great rewards, so enjoy the ride.
Good luck!
