The Good Food Transformation

Why is This so Hard?

It’s Time to Transform Our Thinking

We Get to Admit We’re Winning

We Get to Thank Consumers

We Get to Get Real About Food Entrepreneurship Business is The ProblemBusiness is Part of the Solution Food systems are made up of an ecosystem of businesses. When the businesses succeed, the system succeeds. What can business thinking teach us about how to get to where we want to be?

Food Enterprises That Work Defensibly unique offering Sufficient market and business scale to generate adequate cash flow The right brand, packaging, pricing, sales and distribution channels, and promotional programs The right staff, production facilities, & QA Enough appropriate capital to fund growth – Businesses need both equity and debt to differing degrees as they grow. – Both can be either slow money or shark tank. – Public funding for public benefits A transformed food system is made up of economically and ecologically sustainable enterprises that share these business model characteristics.

Changing Consumer Demand in an “Understood Market” Understood markets already have a dominant business model that determines how business is done and profits are made; nobody’s product is so healthy or unique that they won’t have to play by the dominant business model rules.

Defensibly Unique Competitive Advantage David can beat Goliath, but the balkanization of food brands is making defensible differentiation more necessary and harder than ever.

The Locavore’s Dilemna Take grass-fed beef… 568, Madison Metro Region Population 240, City of Madison Population 58.4 lbs/yr per capital consumption of beef 14,036,031 lbs/yr market in Madison 3% of beef consumption US = grass-fed 421,081 Lbs/yr; 7210 people = Madison grass- fed beef market 580 lbs/animal average yield 726 animals/yr – 29 local herds of 25 animals 60% of beef consumed is ground that can come from dairy culls so number of beef herds significantly less 15 animals/day – rate small scale slaughter 48 days of slaughter/yr Local is great if it can support a viable food business. Nobody wins when we encourage local businesses to do things that cannot work.

The Right Distribution Food Product Manufacturer Local Direct to Consumer Internet Distributors (& Brokers) Multiple Stores &/or Restaurants Large Retailer DC’s Multiple Store Locations The mainstream food distribution system evolved the way it has to solve real problems that occur when we take food from farms and get it to consumers. New enterprise models have to solve the same problems.

The Right Facilities & QA Programs We’re living in a post-Chipotle-meltdown world. Expect all customers to require a third party inspection and audit sometime in the near future.

Enough Cash to Grow Sources of cash usage in food companies Low volume = high cost Pay to play for new accounts – slotting, free fills, demos Delayed payments from new distribution Bulk buying requirements, unique ingredients Low profitability generates little cash internally to fund rapid sales growth Most food companies burn up more of their cash on their balance sheet than on their income statement. They need help understanding this and raising the money they really need.

The Right Capital Structure New Business Models CSA’s On-farm Processing Direct to Consumer Sales Consumer Food Brands New Sources of Capital Kick starter Micro-lenders – WWBIC, Seed-to-Table Fund, Willy Street Loan Fund, FCI Crowd funding Royalty-model private loans Direct investing convertible debt Conventional equity Packaging diverse capital sources is a key success factor to financing

Public Funding for Public Benefits Common public benefits of our work: Farmer and consumer education Transportation infrastructure Premium prices to farmers Getting good food to schools A private business would never attempt to pay suppliers more for a higher quality product then try to sell it at a premium price to its most price sensitive customer. Why do we expect a farmer cooperative HUB to do this?

A Business Model Path That Works Viable Local Food Business Models That Achieve Scale and Cash Flow Go Where the Market is Diversify Income Horizontally Integrated Businesses Vertical Integrated Processors Stay Small Most local food companies can be positioned to follow one of these three paths to success. Each presents different financing requirements and opportunities.

Go Where The Market Is

Diversify Income HorizontallyVertically

Stay Small & Direct

How Much Capital is Enough? Direct Sales Local Brand High percentage of direct to consumer sales Shared use facility Often little or no other labor cost High cost of goods sold Inventory high % of sales AR low (direct model) Equity: F & F, Kickstarter, Prepayments Debt: Microloans

Typical Funding Needs for Growth Other Business Models Local Vertical - $500,000 sales, $55,000 equity, $50,000 debt Regional Brand - $950,000 sales, $160,000 equity, $200,000 debt National Brand - $10,000,000 sales, $1,000,000 equity, $300,000 debt

Sources of Funds for Food Companies Food companies always need both debt and equity, even startups. Getting clarity about how much a company needs, what sources are appropriate for what and when, and who to ask, is critical.

Transformation is Up to Us What I’m doing with my work & FFI Edible-Alpha program for technical assistance providers Capital Source Cultivation What Will You Do Next?