Part I: Lessons from Food Businesses – Hobby or Business?

Last year I started working with two entrepreneurs in the packaged foods business– one who was just starting out in specialty food and the other having been in the industry for quite some time. The previous six months, I worked with other food businesses that were part of  an incubator program (these businesses were provided tools, resources, and support to get their business up and going).

I thought by immersing myself amongst food entrepreneurs, it would be a great way to figure out if I really wanted to start my own specialty food business or not. For the last year and a half, I’ve observed or learned a few things while working with or alongside them. But as a disclaimer, I am in no means an  expert of any sort. So take what you will, as I share my own thoughts and experiences in a series of blog posts. If I decide to go down the long road myself, I will have these thoughts as reminders:

Hobby vs. Business 

Many of the entrepreneurs I’ve come across first started their business by having a skill or craft, making some kind of food product. This is a great way to get started, especially if the food is unique or not mainstream yet. But there is a misconception that goes on that I think hinders many of the business owners that I’ve run into. It’s almost as if they think that all they have to do is put their head down and keep making their product — and money will come in and they will be successful (whatever that means to them). I know this is a simplified, not wholly true statement, but much of what I have experienced in working with some of these entrepreneurs is that they forget to practice the business side. They get stuck in the day-to-day of being in the kitchen and creating their product, which used to be their “hobby” / passion — that they forget they’re running a business.

I think this behavior can be due to many things, such as: a lack of self confidence, lack of business sense and know-how, lack of “time” (excuse!), lack of commitment to running a business, lack of discipline, and overall, feeling overwhelmed by how much actually goes into running their hobby as an actual business. These roots and causes of behavior will be referenced in the next few sections.

However, I think that the quicker an entrepreneur can transition from the hobby to business mentality, the better off they are in making informed decisions.

Idealism vs. Realism (is it viable?)

I think even before turning a hobby into a business, the hobbyist must spend time putting together some form of a business plan (it doesn’t even have to be complete, as it’s always a work in progress). But writing down their mission, vision, values, and what they want to accomplish by turning their hobby into a business, is critical for when times get tough and their business isn’t doing well — they will have a reminder of what made them start in the first place and possibly help them regain focus. The hobbyist should also have a broad sense of what they want in 1 year or 2-5 years, both in their personal and business space, which will actually help drive the actions and decisions they take throughout the years (if they last that long). Many of the entrepreneurs I’ve come across have had a difficult time even putting together some kind of draft. They even forgo this exercise because they don’t want to sit down and really spend time thinking about it. They just want to jump in feet first, when they have no clue as to where they could land. As a side note, I’m definitely not this type because I like to plan and analyze risk and have a better idea of where I might end up — but I commend those who can seemingly, execute without a plan.

A hobbyists idealism has to be tempered with realism. One of the concrete ways to do this is by first having some understanding of where they want to go, what they want to accomplish, and also spending time to think about their financial situation. The numbers don’t lie (unless the data is wrong, but let’s assume that it isn’t). Looking at the numbers will afford the opportunity to separate idealism and realism — or what is truly possible and what is a fantasy. Often times, a food entrepreneur finds many ways to avoid scenario planning and looking at numbers (see some of the reasons I listed in the previous section), which only does a disservice to their overall business. The hobbyist likes to just “wing it,” “go with their gut,” “see what happens,” and “hope it all works out.” There is a time and place for intuition and when figuring out whether a business is viable and can make money or not — actual planning and reviewing some best, worst, and decent case scenarios based on some data will be much more telling than a “gut feeling.”

Costs/Expenses and Profit

What’s more powerful than doing something you love? Doing something that you love and making money to do it. I’ve run across situations where a lax attitude about finances — specifically, figuring out costs, setting budgets and coming up with plans, actions, and goals that align with said budgets often leads to a general lack of understanding of how much it’s costing to make the product from start to finish (raw ingredients/materials, packaging, labeling, graphics, display boxes, shipping boxes, hang tags, labor, freight shipping, etc) and setting appropriate pricing. The entrepreneur may lose money on each product sold. It’s scary to think that many entrepreneurs base their pricing solely off of their competition and don’t take the time to figure out what their specific product is costing them and then making sure they’re getting a reasonable profit margin on each sale.

With that said, I also believe that an entrepreneur should align what they want to accomplish with their budget and financial situation. Because let’s face it, most of us don’t have an infinite amount of resources or money to back our passion as a business indefinitely, unless we make some kind of money — and that doesn’t just happen because you make a good product. In fact, there’s a lot of crappy quality and disgusting products on the market that sell well. I won’t name any names, but there is much more to business than producing a quality product. Food entrepreneurs may often find themselves frustrated that crappier products on the market do better than their high quality product (more discussion on that in another post). What injustice! 😛

But I digress. An entrepreneur cannot afford to not learn their numbers and not have some kind of control over their finances. I think most people would call this basic business or common sense. However, you would be surprised at how many people lack this or continue to avoid learning basic knowledge that would only be beneficial to them. Again, this may stem from some of the things listed in the first section.

Conclusion: Entrepreneurs need to learn their numbers for finer control over their business. They need to be aware of the excuses they are making that continue to encourage avoidance of some of the most critical components that are required to grow their business and make better, informed, decisions.   

 

 

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