BRAND SECRETS AND STRATEGIES

PODCAST #80

Hello and thank you for joining us today. This is the Brand Secrets and Strategies Podcast #80

Welcome to the Brand Secrets and Strategies podcast where the focus is on empowering brands and raising the bar.

I’m your host Dan Lohman. This weekly show is dedicated to getting your brand on the shelf and keeping it there.

Get ready to learn actionable insights and strategic solutions to grow your brand and save you valuable time and money.

LETS ROLL UP OUR SLEEVES AND GET STARTED!

Dan: Welcome. If you like this show, subscribe, share it with a friend, and leave a review on iTunes. Also, don't forget to listen to the end of the episode, where I give you a free downloadable guide to help you grow sales to help you get your product on more retailer shelves and into the hands of more shoppers.

You spend a lot of time crafting and building your product, and now you need to decide how do you scale that product. It's a lot more complicated than simply multiplying your recipe times some number. There are a lot of different things you need to take into consideration.

For example, can you get consistent ingredients that you can trust? What happens if you need to make a substitution? Do you have the necessary food safety standards in place to protect your brand and protect the value and the trust that your customers have in your brand? Have you considered everything that's required to have someone else produce your product for you?

While this can certainly seem overwhelming, finding the right people to help support you, to help guide you through this process is critical to your success. If you don't get this right at the beginning, this could cause a lot of problems down the road. This is where you cannot afford to skimp. You need to hire the best people to help you build your brand, scale it, and get it onto retailer shelves, but how do you do that?

That is exactly what this episode is about today. It's about helping you take your product from your kitchen in your home and scaling it to the point where you can get it onto retailer shelves, scaling it to the point where you can properly meet retailer demands, where you can supply the product that they need to grow their business without worrying about out of stocks.

Here's today's guest, Jeff, with The Kitchen Coop. Hi Jeff. Thank you for coming on today. Can you please start by telling us a little bit about yourself and your journey to The Kitchen Coop?

Jeff: Well, the name is The Kitchen Coop. It was an intentional play on the term co-op because it is intended to be a cooperative type environment where we're working side by side with our clients throughout all the details.

How it came to be, I was working as a consultant to a mid-sized food company, very well-established, a few hundred employees, had been around for 50 years. I had a great time of it trying to help them improve their operations, and decided that I would go and look for a food company that I was going to join.

There was a local startup that a business associate had connected me to that needed an operations guy, and that's how I got started on this side of the fence working with brands. A week after they brought me onboard to be their operations person, the facility where they were intending to produce failed on them, gave them the bad news that the equipment that they had promised they were going to be buying on their behalf in order to make their products, that that whole deal was falling through and therefore they had to find another manufacturing partner.

My first week or so on the job with this new startup food company was to find a manufacturing facility that was able to handle their products, and as it proved out, it was very, very difficult to do. When my engagement with that food company ended, I realized that there were a lot of companies that were in the same position where they had an idea, they had done some work in a commercial kitchen, but they couldn't really take that next step.

I took all the research that I had been doing on their behalf looking for manufacturing facilities and extended it to go nationwide to see who was really there to help bridge the gap and work with these smaller emerging brands, and really found nothing. That's what led me to say, "Okay, this looks like a really great opportunity, or at least it's a niche that's not being filled and there's all this demand for it," so I decided I would start The Kitchen Coop.

Dan: Well, how did you do that, because it's got to be very expensive to just open up a kitchen, you've got a storefront and everything else?

Jeff: Yeah, and it is. That was one of the things that I knew from having worked in manufacturing for many years is that there was a lot of money that was going to be required in order to do this right. We modeled it out and looked at how big a facility and how big a team we had to have in order to support a certain number of companies, and yeah, that's part of what I did.

I pulled together a business plan and convinced a very large bank that I was a good risk for them to bet on and got some financing that way and was able to find a facility that had a lot of the infrastructure that we needed and just needed a little bit of refining, and then we needed a lot of equipment, but yeah, it was a large capital outlay that was required in order to bring this project together. That's part of why it hadn't happened before.

Dan: Well, and I've been to your facility. I haven't been into the backroom of it, but I've been to your facility, so you're in a pretty new building altogether. To get in a new building, I would assume that the rent is probably fairly substantial in addition to everything else. How do you justify? How do you make this work?

Jeff: Well, to answer your question, our building was actually built in about 2001, 2002, and renovated twice, back in 2005 and then again by us in 2012 when we moved in. In addition to it being expensive rent, because it's in a really great location, it's only 15 minutes from downtown Boulder and 20 minutes from downtown Denver right off the highway, and right next to an airport, which is why the original outfit that built out the space took it because they used to fly their corporate plane into that airport. This was one of many facilities that they had around the country. That's part of what attracted us to the facility that we're in is that it had a lot of that infrastructure already built out by the [inaudible 00:06:21].

Then, how do we make it all work with all that capping? Well, that's a good question. We really try and pull together and pull in as many different small manufacturers as possible. We do our best to maintain as much flexibility in our equipment as possible so that we can accommodate the widest range even within a product cluster so that we can say yes to as many different companies as possible and take advantage of the economics of sharing to spread that capital and that cost of capital around to as many different brand owners, client partners as we can.

Dan: Thank you for sharing that. I think we kind of jumped a little bit ahead. Probably should've talked about what is The Kitchen Coop? What does it do for you? Why would I need it? What kind of brand would I be looking for first, and then we'll come back to this, because what I wanted to illustrate is that to start a brand, you've got to be able to scale, and you're probably not in the position where you can hire some co-packers or produce it on your own. It seems to me, and correct me if I'm wrong, that you're the ideal middle person to help fill that void and more importantly, you seem like the kind of person, the organization that's really going to help these brands get up and running faster.

Jeff: Right. Yeah, so The Kitchen Coop, as I said, was built on my experience working with the startup company, and that is kind of what we're trying to serve, which are emerging brands. They've done proof of concepts, whether it was in their own kitchens or a commercial kitchen or with a professional formulator or product development company, that they've developed a product and they've got interested parties and retailers that want to pick up the product, et cetera, channels that are interested, but they can only make a little bit and they can only make a little bit at a very high price per unit.

You need to have some scale, because the economics of what you can sell the product for are dictated by companies that by and large are much more established and much larger and they're spreading all this overhead and all of their R&D and all of their other capital, big expenses, over a much, much broader base.

We really do try and work with that type of entrepreneur or group of entrepreneurs that they've already done their proof of concept, but they need a manufacturing partner to really refine the product in terms of maybe designing it in such a way that it's easier to manufacture, less expensive to manufacture, taking advantage of experience that we've had along the way.

That's really who we're targeting, so these are smaller companies. Some of them come to us and they're only selling in 15, 20 stores. It's hard to say exactly what they're doing in business, but they come to us looking, saying, "Hey Jeff, in order for us to take the next step, we need to grow three, five, ten X. We know that in order for our business plan to work out, we need to be selling a million dollars worth of product a year or three million dollars worth of product a year, and we don't really know how to get there from a manufacturing standpoint. We don't know how to make it for this price that our business plan requires in order for us to hit our margins in order for this business to actually work out and sustain itself."

That's where we get involved. We'll, to your point, consult with a brand owner and say, "Okay." We'll build some cost models and say, "This is what it looks like right now. Here's some improvements or changes that we could make, whether it's to the product or to the process that might make it a little bit more affordable, easier to produce even at smaller scale so that you can break in and take this to the next step."

We'll get them started and say, "Hey. Oh, by the way, you're going to have all these requirements thrust upon you, whether they've been mentioned or not, by distributors and retailers related to food safety, mostly related to food safety and also with just general regulatory compliance." We [inaudible 00:10:55] upfront and say, "Might as well get this out of the way now and make sure that you're doing everything the right way from the very, very beginning so you don't cause any hiccups when you want to make that big sales presentation, and then you find out, 'Oh my goodness, we needed to be doing this for the last six months in order to demonstrate that we know what we're doing and we're not going to kill someone.'"

Yeah, so those are the types of companies that we're looking for. They've got a great idea, they've got a great concept, but they need a manufacturing partner that can handle food safety, can handle the supply chain, the logistics, and then also help them with manufacturing at a cost that works for them.

Dan: So, let me ask you, and I appreciate you sharing all that. When brands come to you, how much do they really know about the world that they're jumping into? How much hand holding do you need to do, and how much work do you need to do to educate and to get them up to the point where they can even really effectively and efficiently work with you?

Jeff: There's a super wide range, so although we do have some clients that are brand new to the game and require a lot of consulting and hand holding, we also have industry veterans that are coming off their last sale of a huge brand to a strategic partner and they're coming back into the game with us and working hand-by-hand. They don't need as much hand holding by any stretch of the imagination. Oftentimes, some of those brand partners push us to even be better and better at what we do.

Dan: Good.

Jeff: It runs a wide gamut. We've built a process that makes sure that we cross every T and dot every I and make sure that we take it step-by-step and don't miss anything, and it's just with some entrepreneurial groups, that takes a little bit longer. With others, we might speed through it more quickly because they've already gone through steps 1 through 11 by the time they've even spoken to us.

Dan: Fantastic, so you do get to use your degree in psychology, then, it sounds like, being over on the couch and say, "Okay, calm down. Here, we're going to solve these problems."

Jeff: All the time.

Dan: All the time. It sounds like a little bit of babysitting at the same time, which that's what we all do when we're helping out these brands, but the best part about it is they're wide-eyed and they're so excited and enthusiastic. It's great to be able to help them along and help them realize their dreams. Let's say that a brand comes to you and wants to get started. What is the first thing you do for them?

Jeff: Well, the first thing that we do for them is we actually help them vet their own opportunity. That's really important for everyone involved. I just had a call 20 minutes ago, someone saying, "Hey, I've got an idea. I want to see if I can get this to market." The first thing that we really do is say, "Okay, let's scope this out and really try and understand what it is that you're asking of us and what the opportunity looks like."

We'll then try to figure out, okay, what's the target cost, right? Let's begin with the end in mind. If we know that we want to land at a certain number because you've got to sell it for a certain number because your competitors are already selling it at that price or what have you on the shelf immediately next to you, well, we've got to start with that in mind and figure out how to get that, so we do what we call a target cost analysis.

We'll develop a quality standard. Most companies come to us and they pass what I call the amateur test, which is they've done it a million times over in order to get it perfect, in order to get it right. Well, like I said, I call that the amateur test and we're striving for the professional test, which is that they do it so many times that they can't do it wrong.

In order do that, we have to develop a quality standard. We have to define exactly what is right and wrong because if a brand owner's going to trust us to make their product, we want to make sure that we understand what their product means, because we don't want to make our version of a product. We want to make their exact product, so we'll help them construct what we call an objective quality standard that we'll use in all of our conversations and will be a helpful tool as we go forward.

We'll help them with their policies and procedures. Oftentimes, they'll bring a recipe. Often, it just starts with a recipe, and recipes sometimes are no more than the ratio of the ingredients, and mix these together, but that's not really detailed enough in order to execute reliable manufacturing, so we'll scale that up into full standard operating procedures. We'll help them vet their suppliers, make sure that since they have to guarantee the safety of their products to their consumers, we'll make sure that their suppliers are doing the same.

We will draft a food safety program for their product, and it's in these last couple of items that a lot of our newer food entrepreneurs really completely underestimate the amount of work, the amount of time, and the amount of diligence that goes into it, but if you're making a brand promise, when you're selling a branded product, that this is going to uphold these standards of quality and safety, well, you have to put the work in behind it to make sure you can back that up.

Dan: Absolutely. Well, I appreciate you sharing this, and one of the reasons I wanted to have you on today is really unpack some of this, because I don't think a lot of people really understand what's involved in going from an idea that you created on your stove, your kitchen, whatever, and then getting it onto a retailer's shelf, and more importantly, then scaling that and getting it onto more retailer's shelves. You screw up maybe a couple batches or something like that. You don't make your order if you're in a couple small stores, but if you've got commitments, you can't afford to mess up.

Jeff: That's right.

Dan: Yeah, it's so very, very important, so let's unpack that a little bit, if you don't mind.

Jeff: Sure.

Dan: When you're talking about the food safety program, I have seen a couple of them, and they look like phone books. They're pretty thick. There's so much involvement. It's not a matter of, "Well, I'm going to make sure that I wear gloves or a hair net," whatever, but there's so much, the temperatures and everything else. What are some of the things that really surprise the brands when you're talking to them about how in depth or how deep into the weeds they need to be?

Jeff: Sure. It really depends on who the entrepreneur is, who it is that's sitting at the table with us. Those who haven't done it before, a lot of their experience making food or buying food is going through a grocery store, and that in and of itself has gone through very many layers of verification and validation, such that the stuff that you're buying on that shelf has gone through that program, but they don't realize the work that's gone in behind it.

When we talk about a food safety program, we take every single ingredient that is in their product and we have to analyze it for how is it that this possibly could get contaminated, how is it that this could possibly be adulterated or cause a problem in the food, things that we take for granted.

I think the most illuminating example is spices and seasonings. People think that they come from an aisle in the grocery store, but in reality, they come from nature, and they come from nature in places where birds fly over them, right, and those birds carry certain diseases, and those diseases get dropped onto those seasonings, onto those plants in the normal course of a bird's activities, right?

Things have to happen in order to make sure that those seasonings, those herbs are pure, are safe. They have to be refined. They have to go to a lab. They have to get the lab results back and they have to be willing to testify and willing to document that they are going to stand behind the fact that no one's going to get sick from any of these spices or herbs because they've taken all the proper precautions.

Dan: Good.

Jeff: We have to do that for absolutely every ingredients that's in the deck, that's in the product.

Dan: The reason I wanted you to talk about this is because to your point, I don't think people realize what is involved in just getting a product on the shelf. I don't think people really appreciate or understand what's in the food that they eat.

I always make the statement, "If you are what you eat, then what you eat matters," and what I mean by that is that if you eat food that provides the proper nutrition to your body, it's going to help fuel you longer. You're going to feel better, et cetera, but what does that mean, and then to what degree do I need to be paying attention?

The audience that we're talking to is very focused on making sure it's clean, transparent, and that it's healthy and that there are no contaminants or whatever, so what type of an education process do you have in place or what do you do to help educate the brands on how rigid this is or why this needs to be this way? Is that usually an area where they push back, because they're probably thinking it costs too much?

Jeff: No, no, we don't get any pushback on that anymore. I think if we get any pushback on food safety, then we know we're talking to the wrong potential partner, so the reality is, it's really that by the time that they've gotten to us, they will have also have spoken to some retailer or some distributor who will tell them they absolutely positively have to have a food safety program in place in order for them to even continue the conversation. Even though they haven't been informed as to what the details are and what the actual [inaudible 00:21:04] is, they've been told or should have been told by someone that it's absolutely critical and necessary.

That, I think over the course of the last three or four years, has been made more and more obvious over time as there are fewer and fewer loopholes. It used to be certain retailers were much more lax on that front, and as long as you were a local product and you said that you're natural and you're making it yourself, you had a relationship with the local buyer, you could get your product onto the shelf.

Well, that's not the case as much anymore, so especially recently, we've had less and less pushback on that, and in fact, we have customers coming to us saying, "Hey, I know I need to have this food safety plan. This distributor just laid this down on me. What is it that you can do? What can we have readily available?" That's when we talk them through and be like, "All right, this is what we do and these are all the things that we can provide you," then they breathe a huge sigh of relief.

Dan: Good.

Jeff: They're like, "Okay, good. At least I don't have to do that. I'm glad you guys are on top of it."

Dan: Well, I appreciate you sharing with us, and the reason I made the comment about pushback, obviously you can't push back. This is something that's so critically important, but as a small brand, you're thinking, "I've only got so much money. How am I going to afford this?" The fact that you guys are providing those resources are tremendous.

If someone were to go out and to have this done on their own, have this vetted, this process taken care of on their own, how much more expensive would it be and would they still have to go through the same process with you? I would assume they would.

Jeff: Yeah. There are some independent consultants that do some of this work, as well. Either way, it's going to be in the thousands of dollars range. It's a lot of work that goes in. I've heard some companies spending up to $20000 just to do all this background work, food safety plan and get a supply chain together, and do that research with a formulation company.

We do it so often that we're able to offer some discount to that, but we do charge for it. I think one of the ways in which we do business which enables us to work with small companies is we're fairly transparent with our pricing and we try and align our costs and what we charge clients, so we share with them, "This is the amount of work that's going into basically getting you set up and getting you off the ground, and we're going to charge you for that and we're going to be upfront about it," because it's a real cost. Some of them are like, "Whoa, I didn't anticipate that," but it's not such a big number that they're like, "Okay, we're not going to do it," as a result. They know they have to.

Dan: Well, and I appreciate you sharing that. Just for anyone listening, I would adopt the mentality of pay me now or pay me later and it's going to cost a lot more later if you don't do it right, so the fact that you're helping them-

Jeff: Exactly.

Dan: Exactly. Well, can you expand on that, from your perspective?

Jeff: Yeah, sure. There's a lot of things in that regard, right? If you don't do it straight away and let's say you go ahead with a recipe that you think works just fine and then you launch it and then you find out subsequently that it's not, well, now you've got a bunch of product that you can't sell to anyone, so you've wasted all that money that you've invested. You've got to redo all of your packaging, and that's going to take some time, and it might set you back two months.

In that two month interval, you're not going to have products on the shelves and all the investment that you made in your demos, in your marketing, in your launch is going to be lost, right, so it's going to actually cost you much more if you've got disruption than if you just do it right from the get go and not have any of those issues and just be able to say yes to every requirement that every distributor throws at you, or every retailer throws at you. If you launch prematurely, you run that risk that you're going to end up with an obsolete product because there's one ingredient in it that turns out, the supplier won't stand behind, and therefore the retailers are not going to permit it on their shelves.

Dan: It's got to be overwhelming to some brands to be starting out, but again, part of having a brand is to have trust, to build trust. If people, consumers, cannot trust your product, then you don't have a brand anyhow. The antithesis of this is if you have to go through a recall or something like that, that can be devastating. It could be the death of your brand, literally, in addition to all the other stuff you would have to face.

Jeff: As expensive as it might be upfront to do the work, to suffer through a withdrawal, whether it's a mandatory recall or a voluntary one, to suffer through a recall costs much, much more. Most companies don't have the wherewithal to survive that in their first year or two.

Dan: Well, I appreciate you spelling all this out, so now let's talk about the suppliers. When you say vendor suppliers, let me ask you, do you have a program or the ability or the capability to leverage buying power within your facility to help these brands out, or do they have to get all the ingredients on their own?

Jeff: Well, the way that we operate, because again, we are paid to make their product, we will use whatever ingredients that our clients direct us to use. However, because we've been doing this for a while, we have some preferred vendors or some vendors that we have established relationships with, that when we see an opportunity to consolidate purchasing across multiple brand partners, we will do the R&D necessary to verify that an alternative ingredient still makes the product work just as well.

That's part of why we do that objective quality standard at the outset, because if we can get the same end result with slightly less expensive, albeit just as good ingredients, then we're doing our client a huge service because we're giving them the benefit of that buying power. More often than not, as we consolidate buying power, we also get better service.

One of the things that most food entrepreneurs suffer from is that it's very, very difficult to buy ingredients efficiently in small quantities, and it's not just efficiently from the standpoint of what you're paying as a purchase price for the materials on a per pound basis, but it's very, very difficult to find someone who's willing to sell you only 400 pounds of an ingredient. They deal in pallets and truckloads, so to them, a decent order is 22000 pounds, so when you come along and say, "Yeah, I need 220 pounds," they'll be like, "I'm sorry. Talk to some distributor and try and find a distributor in your area that maybe carries our product, but we can't do business with you directly," right?

Kind of the extension of that is even if you were to get them to sell you that product, it might be a one shot deal and when you call them three weeks later and say, "Hey, I need another order. We just landed into a new retailer. We're going to grow," they'll be like, "Okay, but we don't have it right now in stock. When the next shipment comes in that we can break apart into smaller shipments, we'll send it to you. It'll probably be in about 6 to 10 weeks," which means that they can't fulfill the order, which means that all the excitement that they just generated with this new buyer kind of goes for naught.

My point being, if we're able to consolidate some of that volume into preferred suppliers, we also get preferred treatment, so it's not unheard of that a customer calls up and says, "Hey Jeff, guess what? Such and such retailer just doubled their order. I know we've got a run coming up in three weeks. Can we increase the size of that run?" We have to call a supplier and say, "Hey, this is what's going on. I know it's kind of out of the ordinary, but can you ship us an extra thousand pounds?" They'll be like, "Yes, of course," because they know that we're buying on a regular basis from them. We have a lot more buying power than that individual client would.

Dan: So many things that brands don't think about, and yet this is so critically important. I can't tell you how many brands, I'm sure you've seen it too, obviously you've seen it, all the brands that are out there that get over their skis, that get a commitment that they cannot begin to make or they promise things that they can't deliver on, and then the other challenge is, again, back to the reputation. You never get a second chance to make a bad impression, a second chance to disappoint a customer, my point being that you're absolutely right.

If this isn't done right, this is the future of your brand, and while you're still learning how to crawl before you get up and start running and start really producing, you've got to be able to do this right because it's critical to your future if you don't do it right, and if you can't prove that you can take care of a small retailer, big retailers are just going to ignore you, and that could be a huge negative, as well.

Jeff: One other thing that we've seen just on the supply chain side, especially with newer entrepreneurs, is they find an ingredient that they fall in love with and they build their brand around it, and it's one particular supplier's version of a certain ingredient. They haven't verified that that supply chain is actually going to be viable at any decent volume, right, so you kind of have the reverse problem. "Oh, I bought this stuff in the grocery store when we were doing R&D and it's the only one that works."

Okay, well, now that product is actually only available in two pound packages, and therefore you can't buy it at a price that's going to make your product viable economically, or even worse, this brand that owns it, their primary outlet is for retail and they're not really interested in selling wholesale and you're not going to be able to scale with them, and so as you grow, that ingredient's not going to be available to you.

That's another reason why very early in the process, we go through and vet the supply chain and make sure that we've got something that can be reliable. Even still, we'll go after not just a primary supplier, but make sure that we've got a backup.

Dan: Good idea.

Jeff: And that we've already done test runs with the backup ingredient to make sure if we have to make any recipe adjustments because we're using the alternate ingredient, that we already have that laid out, so it's not a fire drill when we find out that such and such supplier has just run out of our key ingredient.

Dan: Ouch. Well, and I really appreciate the fact that you are working with the brands to help them be successful, to help them get up and running and be able to do all the things that they need to do so that they can get that runway, so that they can live another day to succeed and get on another store's shelf.

When you're helping these brands out and you're starting to pull all this together, what are some of the other challenges or questions that brands have that they haven't obviously thought about, but you're helping with? So, you talked about vetting a supplier, doing the food safety quality program, the policies and procedures. What else do we need to cover?

Jeff: I think one of the things that clients sometimes fail to appreciate is just how subjective the quality of their product is, so they know their product is their product, but they don't necessarily walk in knowing that this is exactly how you would describe it, or this is no good.

This really came from just years of experience of having done this for a while, where every once in a while, you'd be like, "Jeff, this product, it didn't come out the way it was supposed to," right? We would do a quality test and we're like, "What do you mean, it didn't come out the way it's supposed to? We mixed the ingredients exactly as you said in exactly those proportions, did everything the exact same," et cetera, et cetera.

"Well, it's just the texture is different. The mouthfeel is different," and I'm like, "Okay. Well, there must have been something that we didn't capture. There must have been something about this product that was important to you that you didn't mention," whatever that is, and they're like, "Oh, that's right. When we did this, we always blended this in first to make sure that it encapsulated this other ingredient and made sure that it blended better."

Dan: Oops.

Jeff: Oh, okay. Yeah, oops. Right, so there are qualities of the product that aren't obvious, right, because it's one of those things that's kind of the observer problem, right? When you're the speaker, you know exactly what it is that you mean, and when you're the cook, you know exactly what it is that you're trying to cook and how it should taste when it comes out, but when you're handing it off to somebody else, now all you are is an observer and you can't actually interact. You really have to make sure that you're vastly more explicit in what it is that you're trying to achieve, because you don't get the opportunity to taste it and adjust it.

Dan: Absolutely, so then, okay, you start building these products, then how do you help these brands scale? How far can you help these brands before they outgrow your facility?

Jeff: It really depends on the product, and in the product spaces that we do most of our work, which is in spreads, especially those made from nuts like peanut butter and almost butter and such, and then baked goods, cookies, brownies, blondies, breads, crackers, that kind of stuff, in those spaces, they generally don't outgrow us so quickly.

Where companies have outgrown us is when we have taken a flier on a brand new concept, brand new product that was kind of outside our core strengths. Otherwise, what we do right when a brand comes in is we kind of map out a growth plan, right, of, "Okay, here's where you are now, and let's take a look at your one, two year, three years out, where you think you're going to be, and we can help plan for, okay, when you're doing that level of sales and you've got that product line built out, these are the changes that we're going to make in order to maintain our ability to serve you," right, so these are conversations I'm having with clients all the time.

We've got a client who's new expanding dramatically, and so we're like, "Okay, great. We'll implement the plan that we had, which is we need this site change to our setup and our equipment and we'll run longer shifts and we'll make some other tweaks to the process," and lo and behold, we're able to increase our output dramatically and reduce our costs at that higher volume level, because again, we're dividing it over a lot more units, right?

Volume helps in a lot of ways. What we do is we try and help them plan for that volume, right, so we'll often do multiple different production plans for different levels of volume and say, "Okay, here's where you are in year one. Here's where you want to be in year two, and here's where you want to be in year three," and we can evolve the process in that direction. We have line of sight for what this company looks like when they're doing $10 million in sales, what does their production line look like? We can take it in steps of how we're going to get there.

Dan: So, how do you evaluate or how do you determine what the forecast or the probability, the potential would be for a product?

Jeff: Yeah, that's more art than science. A lot of it is how do we evaluate the brand partners that we're working with. That's a big part of it. I mentioned some of them are brand new to the game, and therefore, we might guide them more in terms of when we're doing forecasting. We might talk about, "Let's look at the data from spends or from what the buyers are telling you about some of your competitors and let's use some of that information to inform what this forecast could look like," right? If it's a very new company, it's really hard to forecast. We don't really have much data.

Then, other clients come to us and say, "Well, we're going [inaudible 00:38:14]. This is what our plan's built out." We do have a number of clients who have a lot more sophistication built into their business plan, and this is what their investors are requiring of them. Therefore, this is the growth path. This is how big they need to be in order for their whole plan to work out, so we've got that forecast, as well, so it runs the gamut. It really depends on the entrepreneurs that we're working with.

Dan: This is a lot of the area that I play in, so I know it well. It can be challenging at times to figure out what is the opportunity long-term, how many stores can you get in, et cetera, and then the other challenge is having the brand or the people that do your selling for you execute at the level that they need to to be able to support that plan, so of course that's the other side of the equation. How do you-

Jeff: There's an interesting question that I always challenge some of our clients to answer, because they say, "Hey Jeff." They'll always ask me, especially during the sales process, "Hey Jeff, when are we going to outgrow you? How do I know that you can keep up with us? We're predicting that we're going to sell X units or X dollars next year. How do we know that you're going to be able to do that?"

I can actually, in the production models that I build for them, I can show them exactly how many hours and how many people and how many resources it takes to generate that amount of product, so I'm prepared to answer that question. What they're not prepared to answer necessarily is the one I ask in turn, which is, "Well, let me ask you a question. I understand that you're projecting for this amount of volume, but how much are you going to guarantee that you're going to produce?"

When you ask them that question, they sit back and they're like, "Well, I can't guarantee any of this." I was like, "Exactly, so we have to figure out how we can get you more comfortable with the numbers that you're projecting," so we have come up with how do we really generate a real basis for this, so who are we going to talk to? Where are we going to get that information?

Dan: So, how do you solve that problem?

Jeff: How do we solve the problem of narrowing it down?

Dan: Yeah.

Jeff: Well, it becomes a negotiation, a discussion, right, because we're going to say, "Listen, if you want us to be able to produce this amount, some proportion of that is going to have to be guaranteed because we have to plan that months in advance." We can't bring equipment to bear with no lead time even, and hiring people takes time, in order to hire quality people, so we tell them, "Yeah, we need some notice. We need to work on this over time," so it becomes a negotiation of, "Okay, where do we realistically think that we're going to be?"

The number that we can actually settle in on is generally somewhere well shy of what they're hoping for, and it looks a lot more like what they're currently doing plus a little bit, because most entrepreneurs are naturally very strong in sales, or at least that's the area in which they are spending a lot of their time. A lot of sales is you have to be optimistic.

Talking about psychology, my mentor of psychology, a gentleman by the name of Martin Seligman, who talked about optimism as the defining characteristic of what makes a successful salesperson, and so optimism can get you into trouble if you think too much of it, so I try and pull them back and be like, "Let's look at this realistically. Let's really think about how many stores and how often it's being used."

One of the things that we do that's really interesting with some of our customers is we talk about use case, right, which came from my software development days, but we talk about, "Okay, how is the consumer actually using this product? If they're using it in that way or those three ways, how often are they really consuming it and how much are they consuming? Okay, great, so let's try and figure out how often an individual buyer is actually going to buy a jar or buy a package, and then let's figure out, all right, how many of those people do we think that we can attract and how are we going to do that?"

We do do a bottom's up sales forecast for velocity, and that exercise has proven very fruitful, very interesting, especially when it comes to new products and new product development, because certain ones, when you go through that exercise, you're like, "Oh yeah, you know what? I guess people aren't need going to need it that often." Even though it's a great product, it's an amazing product, they're not really going to eat it that often, so it's kind of a specialty thing. The velocity is not going to be there, maybe the volume's not going to be there, and maybe we should tweak this and look at the numbers a different way.

Dan: Fantastic. I'm glad you provide those kind of resources because that's so important, and unfortunately, brands don't get that kind of support, that I've been finding on my own. That's why I do what I do, so the fact that you're filling in that void, it's so critically important.

So, with everything that you've shared, and I really appreciate the fact that you've unpacked this, what other things that we've missed? What other questions should I have asked you?

Jeff: We talked about how important it is to have a good fit between the entrepreneur and the manufacturing partner.

Dan: Right.

Jeff: We talked about types of product. We talked about supply chain.

Dan: How about getting the product out of the building? Is that a challenge?

Jeff: It's interesting. Well, it's certainly a challenge for our clients, and I got into this business because I love operations and I love manufacturing. Sales and marketing is not where The Kitchen Coop really earns its keep. We are reliant on our brand partners and sometimes outside professionals and consultants and stuff like that that we might recommend to them to sell their product, and there certainly are challenges, and that's one area where The Kitchen Coop doesn't really stick its nose in it, so to speak.

Dan: That's got to be tough for you to be sitting on a lot of product. You're not a warehouse.

Jeff: Right, and well, we've struck through our deals with our clients so as to create this incentive for us to be sitting on product. Like I said, with our model and how we cost things out and how transparent we are with our clients, we make it very plain to them that it's disadvantageous to be sitting on too much product, and so we're in constant communication with our clients to make sure that that doesn't happen.

We have had a number of clients, and it happens almost ... There's always some level of this where the enthusiasm of it, they're getting big orders and they're growing and growing and they want to make sure that they have enough, and then some deal doesn't come through, and all of a sudden, now they're sitting on inventory that they need to try and move out of the way so that they can keep growing.

I can't say that I've had an answer, that The Kitchen Coop provides an answer to that. We're actually normally preparing for it so that we don't have to put ourselves in that position. One of the things that we've prided ourselves on, or pride ourselves on, is that we're able to manufacture in batches that aren't too big, so we're not generating or holding a lot of inventory that's waiting to go to retailers, so we can be a little bit more responsive.

We can take it, as long as we've got the materials, and that goes a long way when we're vetting the supply chain and we make sure that we can get the materials when we need them and that those that we can't, we keep a safe inventory of. That enables us to be more responsive and not have to build up too much inventory and have too many problems like that, but it's inevitable because it's always a guessing game, right? You never know. It's always a guessing game.

Most retailers, distributors, what have you, they're not really set up to allow you to produce to order. It's not like you get an order, be like, "Okay, great. We'll just make that and we'll fulfill their order," and have just in time inventory. I used to teach that to other manufacturing companies, and when you're really, really small, that's really, really hard to do because-

Dan: Well, that and the fact that it's perishable.

Jeff: Everything's perishable, but also the orders are infrequent and unpredictable and jumping around in size, so it's very, very difficult to say, "Yes, we're always going to produce to order," and you've got these lead times on some of your ingredients. It's already on the label. It's not like you can substitute, "Oh, you know what? I don't have sugar. I'm going to use honey instead." You can't do that. It's on the label. That's what you've got to produce with. Maintaining some nimbleness comes in handy in that regard.

One thing that I have, just to talk about some of our experience, we've seen some companies go to produce on their own. Some companies have come to us having produced on their own, and then other companies have come to us and then gone on to produce on their own. I haven't heard too many big success stories of companies producing it on their own that either started with us and then went onto their own.

There are some that start on their own and stay on their own and they've got good operations people and that works, but most of the success stories that we've had, they've been making it on their own, they come to us, and they then can focus on sales. Even if it's they come to us and then they go to a much larger specialty co-packer that makes a product that we can't make in large volume, and then again, the key is that they're focused on sales, right, because as long as you got the sales, the production we can handle.

The production can be handled, but the sales are really the hardest part is making sure that they have the volume. With all manufacturing, if you've got volume, if you've got the orders, everything else is just a matter of execution, planning, and bringing it about, but the orders, that's a lot of hard work.

Dan: It is.

Jeff: It takes a lot of time to have a steady stream of orders and a steady following for the product, so whatever entrepreneurs can do to spend more time on that is of tremendous benefit.

Dan: Fantastic.

Jeff: Whenever someone talks about what they're investing with a co-packer, I always put it on back on, "Well, how much would you be willing to pay if you had this much more time of an experienced person selling your product?"

Dan: Exactly. That's a good way to look at it, because a lot of people, entrepreneurs aren't good at everything, sadly. None of us are, but a lot of people think, "Oh, I've got a brand. I can make it," but when you hand it off so that you can focus on the key things that you're really good at, your superpowers, that's what's going to help your brand more so than worrying about or fretting over do you have enough supplies and that juggling.

Honestly, I can't imagine how difficult it would be for someone like you to juggle all the manpower and the ingredients and the needs and the holding the hands and all that other stuff you do. That's got to be quite a lot to be managing at the same time.

Jeff: Yeah, exactly. Even for us, and this is all we're doing all the time, and we're very focused on it, it's not a cake walk every day. With a supply chain of perishable items, something always comes up. There's always an issue somewhere, somehow. Transportation, as great as the transportation network is in this country, it's not without flaws. It's not without things getting dropped and broken and contaminated or shipped to the wrong address or anything like that. I think that's another thing that people underestimate is just the SNAFUs that occur in supply chain, as you just have all these layers, and then all these things have to come together. You can't make a product that's a 90% product with 90% of the ingredients.

Dan: That's true.

Jeff: 90% of the ingredients, you still have zero product, so even for us, it's still a lot of work day in, day out, but it's rewarding when at the end, we've got an entrepreneur who's seeing their dream come true and really hitting it big in the marketplace, so those success stories really keep us going.

Dan: After seven years and three months, you're happy with where you're at?

Jeff: No, I'm not.

Dan: Where do you want to be?

Jeff: That's my nature. That's my nature. I want to be helping more companies. I want to be further along and even more deeply partnered with more brands, so no, I don't know when I'll actually be content with where we are, and that's just my nature. I'm happy with what we've done, but I also, with every step of growth that we enjoy, I see another two or three steps of other great exciting opportunities of how we could do better and how can do more.

Dan: Oh, good for you. That's the spirit that we need to have. That's what I love about naturals, what makes natural natural. Hopefully this conversation will help spur some of that interest.

Jeff: I hope so.

Dan: That would be great. Well, I appreciate you making time for me. Is there anything else that you want to share?

Jeff: I think we covered a lot of ground, and I appreciate the opportunity to talk about The Kitchen Coop.

Dan: Thanks. Yeah, thank you for your time, and thanks for being available. I look forward to the next time we bump into each other.

Jeff: Sounds great, Dan.

Dan: I want to thank Jeff for coming on today and sharing his story and telling us about this important area that a lot of businesses don't really have any window into when they're just starting out, when they're trying to decide whether or not they have a viable product and what the opportunity is to go forward.

Having these kind of resources available to you are so critically important to your success, so thank you again, Jeff, for sharing and telling us about The Kitchen Coop. I'll be sure to put a link to The Kitchen Coop on the website and on the podcast webpage. You can get there by going to brandsecretsandstrategies.com/session80.

Today's free downloadable guide are my top 10 strategies to help you succeed. You can get there instantly by texting 10 Strategies to 44222 or by going to the website and downloading them from there. As always, I appreciate your listening, and I look forward to seeing you in the next episode.

The Kitchen Coop http://www.the-kitchen-coop.com

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