Dominic Mullan, former New Frontiers Programme Manager at the Institute of Art, Design & Technology (IADT), Dún Laoghaire, recently organised an event called Spilling the Beans, delivered by TU Dublin and IADT for food sector programme participants and alumni from across the country. In this article, he shares some of the insights from the event.
‘Sure, launching a start-up is so much easier these days, with all sorts of tech tools and open-source options drastically reducing upfront costs and time to market,’ or so they say! While that may be true of purely digital plays, the same can’t really be said for food ventures. A chat with any food founder will undoubtedly involve tales of the strife associated with raising investment, establishing an efficient production model and building strong channels for distribution. It was this trio of challenges that the Spilling the Beans event aimed to address for current and past New Frontiers participants with a focus on food.
Programme alumni Shane Ryan of fiid (LIT) and Alison Stroh of Dr Coy’s (IADT/TU Dublin) joined us to share the learning points they have amassed along the road to scale. Providing further valuable insights were Stephen Twaddell, Chair of the Food Investment Syndicate within HBAN; Louis Eivers from the HPSU team at Enterprise Ireland; and Jacquie Marsh, the driving force behind the growth of the Butler’s Pantry up to its sale in 2018.
Investment: When, and how, to raise money?
On quite when is the right time to raise money, both Alison Stroh and Shane Ryan would recommend holding off as long as you can before completing a seed round. Instead, make the most of supports like Local Enterprise Office (LEO) funding, Foodworks Ireland and Enterprise Ireland’s Competitive Start Fund (CSF) to build a more investable proposition. For Shane, this allows you to demonstrate to potential investors just what you have been able to achieve with a small team and limited resources. Clearly, as Louis Eivers of Enterprise Ireland pointed out, be careful not to stretch things too far before taking investment and possibly missing out on the commercial opportunity or running out of cash entirely.
Assessing your investment proposition
Jacquie Marsh shared her checklist for assessing a food sector investment proposition:
Product: Does it address a problem or a need experienced by a lot of people on a frequent and repeat basis? What is its unique point of difference? Crucially, is the consumer prepared to pay a proper price that will avoid the need for discounts and offers that erode margin?
Strategy: Is there clarity in terms of the short-term and long-term strategy? Is the focus on growing a family-owned business, for example, or on the type of dynamic growth that could lead to a trade sale?
Founder: Is the founder ambitious and passionate, as well as bringing expertise in the product area or in sales and marketing? Do other team members and key hires offer strong complementary skills? Are the founders well equipped to network proactively and positively with possible advisors and investors?
Synergy: Is there a strong sense of culture and values within the team? Are these aligned with the founder’s own values and outlook?
Customers & Sales: Is there evidence of significant sales and an ability to generate sales? Have the founders been able to build good relationships with their early customers?
Finance: What have the team achieved so far with their limited start-up resources? How far will the immediate investment requirement carry the venture before focus needs to return to the hugely time-consuming process of raising more money?
Adding to this, Stephen Twaddell encouraged founders to remember that they themselves are the core element of any investor proposition. He said, “You can change and influence most things in a project, but it’s hard to change people.” So don’t be shy about telling of your passion and your story so far.
Stephen also flagged a positive development in the food ecosystem recently which saw Hilliard Lombard (ex-CEO of Valeo Foods) and David McKernan (ex-Java Republic) launch Biavest – Ireland’s only dedicated food investment vehicle – with their first investments being with Nobó and Offbeat Doughnuts. For Shane Ryan, this type of smart sector-informed money trumps non-specialist investors every time.
The production dilemma
While the question of in-house or outsourced production seems to offer only two possible answers, the third and resounding response from our panellists was that, while your production model is important, it pales into insignificance against the potential power of your brand. This, for investor Stephen Twaddell, is where the magic lies and where the most value can be created. Generally, your customers will not know and will probably not overly care if you produce in-house or through production partners. It is your brand and the quality of your product that will influence their buying behaviour.
The possible exception to that is where your brand story specifically ties in with a method or place of production. Take by way of example the Wicklow Wolf Brewing Company, of which Stephen is Chair and whose brand story includes messaging such as Independent by Nature and beer brewed the Wicklow Way.
In the case of fiid and Dr Coy’s, both notably offering ambient products, specific technical requirements meant outsourcing production to partners in the Netherlands and Belgium respectively was the only realistic option, and the model has worked well for both. Louis Eivers of Enterprise Ireland clarified that outsourcing production within the EU presents no obstacles to High Potential Startup (HPSU) investment, provided the venture is still likely to create 10 jobs in Ireland. Bord Bia support on the other hand is typically predicated on production being within the Republic of Ireland.
For Jacquie Marsh, who built a business focused on short-shelf-life products, The Butler’s Pantry’s in-house production model was underpinned by two key strategic considerations: firstly, achieving a margin that would not have been possible otherwise; and, secondly, being nimble and adaptable in terms of offering quality and variety to the customer.
As for any entrepreneur, the risk of seeing outsourced partners effectively stealing your product ideas was on the mind of a number of our New Frontiers participants. Shane Ryan was quick to point out that, yes, they probably will copy your ideas, as will other companies and quite possibly your retailers too, which brings us back (once again!) to the key role of brand, brand, brand! As Jacquie Marsh pointed out, the big players are afraid of emerging, nimble players with brands that are so much more engaging and relatable for the consumer.
The distribution challenge
The “biggest challenge for food start-ups in Ireland” and “a total nightmare” was how Alison Stroh and Shane Ryan characterised the whole area of distribution, and both had lots of helpful perspectives for food founders who are looking to establish strong distribution channels.
Both companies deliberately managed their own distribution for extended periods before securing central listings or significant distribution agreements. The donkeywork of supporting dozens of stores across Ireland yielded huge value in terms of learning about the marketplace and building relationships with store managers.
On the question of central listings with retail chains, Alison sounded a note of caution: yes, central listings mean that store personnel can order in your products from their hand-held devices, but “if only they did!” It is more than likely that you will still need to engage a merchandising team to visit stores and encourage managers to place orders.
For Shane of fiid, relationships built with store managers in the early days have proven to be the foundation of major in-store campaigns which might not have been feasible or affordable otherwise.
Both fiid and Dr Coy’s now work with major distributors, which allows them to focus less on logistics and more on brand, which is all the more important when you are likely to be competing with the likes of Unilever for your distributor’s attention.
For Jacquie Marsh, it’s crucial to focus on retailers that really fit your brand and customer profile, while Stephen Twaddell would encourage any food start-up to focus initially on developing quality growth with one retailer before spreading yourself thinly across multiple retailers or geographies.
Key conclusions for food startups
So a conversation that was intended to focus on three aspects – investment, production and distribution – kept coming back to the same theme time and time again: brand, brand, brand!