KANSAS CITY — Making it as a startup isn’t easy.
According to Nielsen, 85% of new CPG products fail in the marketplace. If that statistic isn’t daunting enough, life as a founder of one of these companies can be even more difficult.
“I could go on and on about the struggles,” said Dillon Ceglio, founder and chief executive officer of frozen peanut butter and jelly sandwich brand Chubby Snacks, Los Angeles. “I’ve had multiple sleepless nights. I’ve had weeks on end where I had absolutely no money. I’ve never felt lonelier in my entire life.”
Mr. Ceglio doesn’t share these stories for sympathy, he emphasized. But he wants people to know how difficult building a snack startup is — and that succeeding is still possible.
“You have to be willing to go up against all the weather and continue to tread,” he said.
Weathering the storm as a snack startup means overcoming waves of capital constraints, distribution challenges, tricky co-manufacturing relationships and much more. But those that make it to the other side can establish themselves as true disruptors of the industry.
Building the brand
Few startups make it big overnight. Most start out small, gradually building a consumer presence that can be leveraged into their first retail accounts. These initial steps are critical for a burgeoning brand to get off the ground, but they, too, can be a challenge.
“I found out very quickly that it’s really hard to even get these store buyers’ attention,” said Parker Olson, founder and CEO of FORIJ, a Seattle-based company offering functional granola made with mushrooms. “It’s a challenge to even have them know you exist.”
Committed to winning them over, Mr. Olson moved into a van, got it branded and drove across the Pacific Northwest region to potential buyers, delivering them product information and samples.
“I feel like that helped get us a lot of initial traction,” said Mr. Olson, whose brand just launched nationally with Sprouts Farmers Market. “How could you not give me 15 minutes when I’m literally going to drive to you?”
While Mr. Olson’s methods weren’t typical, he said, sharing a compelling story and compelling numbers is vital for brands to get their foot in the door with retailers. Startups must present them with a brand they can’t say no to.
“You need to sell with your data the larger you get,” said Blake Sorenson, founder of allergen-friendly bar company Blake’s Seed Based, Chicago. “If you can explain to your buyers how you’re bringing people to the category, rather than stealing share from competitors, that goes a long way.”
Mr. Ceglio said trade shows have been instrumental to the brand’s rapid growth over the past year as well. Chubby Snacks jumped from being in about 50 stores January 2022 to more than 500 by the end of the year, and it’s launching into its first nationwide retailer this year.
“We have the ability to really show our personalities and talk to buyers (at trade shows), and you don’t get that same type of engagement and excitement from a buyer when you’re just sending them a cold email online,” Mr. Ceglio said. “We really try to leverage in person opportunities to win accounts and so far, it’s been going really well for us.”
Making it onto stores shelves is a huge win for brands on the path to becoming a disruptor, but it’s far from the end of the game, said Lauren Chew, founder of functional cookie brand Love + Chew, San Francisco, which achieved its first nationwide launch with Sprout’s this year. Startups must follow this up with a strong marketing strategy that ensures their product comes off the shelf as well.
“One of the biggest things I’ve learned is that it’s on you as a brand to make sure everything goes smoothly (in retail),” she said. “Your buyer is managing thousands of SKUs and is very busy. It’s on you.”
An effective marketing plan requires a complete understanding of who the target customer is and doing everything possible to get product in front of them. Blake’s Seed Based, for example, is big on sampling events and in-store promotions to drive trial.
“We do demos in store at our key retailers because we know if we can just get our key consumers to try our product, they will convert,” Mr. Sorenson said.
Avoiding the big mistakes
The prospect of getting into new retailers or a nationwide release may seem too good for a startup to pass up, but growing too quickly can be a costly error, founders warned.
“The mistake I see the most is trying to load up door count as opposed to really making sure you’re winning the doors you’re already in,” Mr. Ceglio said. “There’s a common misconception that the amount of doors you’re in shows the success you have, as opposed to the quality of the store you’re in and the quality of your velocities.”
This is one of the biggest mistakes Jackson’s Chips, Crested Butte, Colo., has made, said co-founder Megan Reamer. The brand saw meteoric growth, thanks in part to an appearance on the popular entrepreneurial show Shark Tank, where it earned a $1.25 million investment. Jackson’s Chips soon went national in numerous retailers and released a variety of new SKUs across segments like tortilla chips and snack puffs. But Ms. Reamer said the company soon found itself stretched too thin.
“The challenges of growing quickly were that we never had enough capital; we never had enough dollars to spend and invest in the company,” she said.
Jackson’s Chips eventually had to recapitalize and pull back its product, relaunching with a simplified strategy and fewer SKUs.
“We’re pretty much back to where we were when we went out of market, revenue wise,” Ms. Reamer said. “But there was a lot of frustration, a lot of tears and a lot of pain, because we put a lot of work into it.”
While nationwide distribution is a common goal among startups, Ms. Reamer said, it isn’t necessary. Ms. Chew added that she knows many brands that have succeeded by making the most out of the region they’re in.
“You can make a decent living doing that and grow at like 10% to 15% a year,” she said. “They have high saturation in that region, use very little distribution or self-distribution, and the economics still work.”
Jackson’s Chips’ story is one of many brands that run into what is often the greatest obstacle in growing a snack company and often where the most critical mistakes are made: capital.
“Very few companies, especially in the early stage have adequate capital,” said Nick Desai, founder of plant-based salty snack brand PeaTos, Los Angeles. “And brands often underestimate how much time and money it will take to ultimately get their product off the ground and their company established. I made that mistake for sure.”
Mr. Desai added a key misstep many startups commit is focusing too much on profitability and too little on cash flow.
“Profitability is like food,” Mr. Desai said. “It’s something you definitely need to have, but there are gurus in India that go six months without it.”
He pointed to Uber as an example, which became a ride-sharing giant well before posting its first-ever profitable quarter in 2021.
“But cash flow is like oxygen,” he emphasized. “You can’t survive a few minutes without it.”
Blake’s Seed Based meets monthly to discuss its cash flow and provides investors monthly updates on its performance.
“When the time comes for fundraising, they know exactly what they’re getting into,” he said.
Another common mistake brands make, Mr. Desai said, is putting the wishes of the customer, often a buyer or retailer, over the wishes of the end consumer.
“These very large companies can tell you ‘I don’t like that flavor; I don’t like packaging; I don’t like this; I don’t like that,’” he said. “The problem is, ultimately, they’re not the ones consuming your product. (Brands) often over-emphasize what the customer wants, forgetting that maybe the customer doesn't necessarily know the particular category as well as they do, and therefore they lose with the consumer.”
Other pitfalls include mispricing product, rebranding too often and not fully understanding the core consumer, which can result in companies wasting valuable resources marketing to the wrong channel or audience.
And while founders often steer the company ship, they can’t do it alone. Mr. Sorenson said forming a strong leadership team is paramount.
“Having the right team is key to building and scaling a snacking brand,” he said. “We have invested in a strong team in 2021, and it's really starting to pay off.”
Navigating the co-man relationship
Many founders start by making the product themselves. Jackson’s Chips, for example, began out of the family’s kitchen, with Ms. Reamer and her husband hand-slicing chips.
But to properly scale up their business, working with a co-manufacturer becomes necessary for most. These co-manufacturers offer the equipment and expertise that can maximize efficiency and take a startup’s production to the next level. But a startup’s relationship with a co-manufacturer can present its own challenges.
“It’s unlike any business relationship I’ve ever had, to be honest,” Ms. Chew said. “The reason is because as a brand or technically a customer, unless you’re their largest customer, you technically have very little leverage.”
Startups are often low on the priority list for co-manufacturers, founders agreed. If the manufacturer has to make their own product or that of a larger customer, they will usually bump smaller brands off the line, leaving production up in the air.
“They don’t care as much about your product as you do, so you can’t assume that things will be done perfectly,” Mr. Olson said. “You need to pay a lot of attention to detail and make sure things are being done right, check in with them, and really build a relationship.”
Mr. Ceglio echoed that sentiment, noting Chubby Snacks has seen its product quality go down at times with co-manufacturers.
“It forced us to travel to our co-man more and more and get in the production line with their staff to teach them how to best make our product,” Mr. Ceglio said. “We did that probably over 10 times over the course of last year. You have to be okay with what you can’t control, and then really try to bridge that gap as much as possible.”
Startups in the health and wellness space also may find that many co-manufacturers don’t have the necessary ingredients or equipment for their products. Love + Chew’s cookies, for example, are made with a costly extruder few co-manufacturers have, Ms. Chew said.
And Ms. Reamer quickly discovered on its test run with a co-manufacturer that they didn’t know how to handle the chips’ coconut oil, which arrived in solid blocks.
“It was a total disaster out of the gate,” she admitted. “But they were such good people every step of the way. There were a lot of obstacles to overcome, but they wanted to partner with us.”
Mr. Desai said he takes a “Goldilocks” approach to co-manufacturers: not too big, not too small. While the large co-manufacturers that produce for the Frito-Lays of the world may be alluring, he noted a startup may be “just a number” to them.
“You're going to get deprioritized, and you're not going get the flexibility you need, especially at an early stage when there are so many changes happening,” he said. “It’s going be very difficult to thrive in that environment.”
Pick a co-manufacturer too small, however, and they won’t have the capital and resources to grow with you.
To build that relationship with the right co-manufacturer, Ms. Reamer added it’s important that startups incentivize them. Offering equity in the company is an effective strategy, as well as making the case that the brand is on a clear path for growth. Jackson’s Chips convinced co-manufacturers that with so much success in just the natural channel, the jump to conventional retailers would take their business to new heights.
“It became a much easier conversation once we showed them the volumes and opportunity for upside,” Ms. Reamer said. “It’s about what entices them and makes them want to work with you.”
The snack world is expanding with a flurry of new startups. And while this is great for consumers hungry for the latest and greatest snacks, it can be harder on the brands looking to make a name for themselves.
“I think there are hundreds of thousands of really good products and really good brands that go under because they just can’t stand out,” Mr. Olson said.
To accomplish this, he emphasized building relatability and a sense of community with consumers. Mr. Olson regularly posts FORIJ’s new designs and packaging on social media asking for feedback. And he doesn’t want users to hold back either — encouraging them to “roast” the latest designs. This open communication not only builds a stronger relationship between a brand and its consumers, but it also improves the success of product launches, Mr. Olson said.
“How are you standing out and validating some of your ideas and thoughts before rolling out all this product that may not sell and you have to buy back?” he asked.
In addition, the brand allows consumers to customize their bags when buying online and is testing a course they can take to help improve their productivity and brand health.
“Now consumers have a real relationship,” he said. “It’s like, how are you going a step further than 99.9% of brands?”
Mr. Ceglio added that to stand out today, brands need to tell their story.
“We’re seeing that in order to be a successful CPG brand, you also have to be a media company,” he noted. “You have to tell your story — the highs, the lows, everything in between.”
Mr. Ceglio does this by regularly posting on social media and appearing on podcasts and interviews, providing an unfiltered look at Chubby Snack’s journey, which has resonated greatly with consumers.
“People want to hear that,” he said. “Everything always looks like roses, but at the end of the day everybody knows it’s not. It goes a long way in terms of really building a community around your brand, which are going to be the soldiers and boots on the ground. That’s going to help you win a lot of those retail opportunities.”
Ms. Chew says she’d had a similar experience. While Love + Chew began by sharing a lot of content on vegan recipes and living a plant-based lifestyle, she soon realized what people are most interested in is the behind the scenes of the business.
“I’m trying to be more transparent,” she said. “Like what does it really take to get into Sprouts? What are the costs involved? How do you prepare yourself?”
And at the end of the day, Mr. Olson said snack startups must look in the mirror and ask two essential questions: Are you unique, and are you memorable?
“It sounds really straightforward, but in a lot of ways it’s really not,” he says. “You have to create something where a consumer looks at your product and is like, ‘Wow, nothing else was like that.’”
If there’s one guarantee in the startup world, it’s that sooner or later things won’t go as planned. Mistakes will be made, money will be tight and sleep will be lost.
But despite these obstacles, these founders agreed that the opportunity to share their story and passion with the world, all while building a brand they deeply care about, makes weathering the storm more than worth it.
“It’s really fun and exciting and exciting to be an emerging brand, to be receiving the recognition for something you clearly feel passionate about and hits close to your heart,” Ms. Reamer said. “The reward of that is really wonderful.”
Enjoying this content? Learn about more disruptive startups on the Food Entrepreneur page.