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The Top 3 Reasons Food Businesses Fail

Nut butter entrepreneur Justin Gold

Nut butter entrepreneur Justin Gold Photo courtesy Justin's

One day, there was a little jam company you loved, and the next day—poof! Disappeared, and gone from the shelves at your local store. But it was doing so well, right? People loved their products!

As I interviewed the founders of fast-growing food and wine businesses for my book, Cooking Up a Business, I found that there are common mistakes even the most promising start-ups make. Here's what many wish they could have avoided—and the genius ways a few successful companies bounced back and grew.

1. Forgetting that cash is king. Cameron Hughes and his wife, Jessica Kogan, had the idea of making their own wines from excess stock from nearby California wineries. They poured their savings into creating the blends, then loaded up their car with bottles and went selling from store to store. But when promising new bulk buys of wine surfaced, they couldn't afford to buy them—all of their limited cash was tied up in the cases of bottles sitting in their Volvo. Without cash, they couldn't expand their business; "It was a classic case of getting buried under the cash flow snowball," says Hughes.

After this first attempt at a wine company died for lack of cash flow, Hughes and Kogan created a new business—Cameron Hughes Wine—and masterminded a plan: They created samples from excess wine on spec (not paid for), and then took the samples to the Costco buyers. It was only when Costco placed a purchase order for the wines that Cameron Hughes Wine bought its stock—meaning they never had cash tied up in unsold inventory.

2. Failing to secure repeat customers—quickly. When Zak Zaidman and Stephen Brooks launched their company Kopali Organics in Whole Foods stores across the West, they were most excited about their banana vinegar. A staple in the Caribbean, banana vinegar was versatile, delicious and unknown to American consumers. But while dreaming up their business in Costa Rica, they hadn't considered how hard it would be to get someone to try a completely unfamiliar product. "But even if they did try it, and liked it, and bought a bottle, here's the problem," says Zaidman, "They are never going to buy a bottle again, because vinegar can sit in a cabinet for years." Unlike rapid-turnover products like milk, cereal and salsa that customers put into their shopping carts every week, vinegar is a pantry item that isn't regularly restocked.

Kopali's founders knew they had to transition away from the vinegar, but wanted to stay true to their mission of providing a sales channel for indigenous organic farmers. They found success in single-serving snack bags of fair trade, organic chocolates that are sold at checkout—the epitome of a rapid-turnover, impulse purchase. Now Kopali's customers are buying a new bag every time they shop.

3. Taking products out of context. Justin Gold knew his idea for peanut butter protein squeeze packs was a good one, so he raised $60,000 to buy and recondition a packaging machine. He sent the packs to the sporting goods store REI, where he thought they would be sold next to the power gels that long-distance athletes use. Gold also dropped off a few trays at his Whole Foods accounts (where he was already selling jars of nut butters), and placed them next to energy bars like Clif Bar—after all, these were protein energy packs. But after a few weeks, nothing was moving, and the manager told Gold he'd have to take them off the shelves.

Gold asked for one favor: Could he move the squeeze packs next to his nut butter jars? He got his chance, de-emphasized the "energy pack" and emphasized the peanut butter and almond butter. He placed them next to his jars—and to his immense relief sales of both took off in tandem. Gold was elated: "In a matter of weeks, I went from despair—had I wasted my life savings?—to realizing I could actually do this thing!" What had changed? "People didn't understand what a protein energy pack was, but when they were placed by the peanut butter, people instinctively knew what to do with it—the squeeze packs were travel size, portion-control size, kid size or sample size," says Gold. In short, context mattered.

Related: Coolest Crowdfunded Food Projects
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