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Accelerate Your Start-Up with Fortune 500 Allies

Geplaatst op dec 24, 2013 in News

Meet Phil. He’s just graduated from college and wants to spend more time rock climbing, so he decides to sell burritos to pay the rent. Where to start? He heads to his local Costco and buys $200 in bulk bags of rice, beans, and tortillas. He cooks up a few batches of burritos and begins selling to small convenience stores, heading back to Costco whenever he needs to restock his ingredients. Soon Phil is trucking along and realizes there might be a business in these burritos. But to grow outside of his town, he needs to land a major store account.

Enter Whole Foods. The local Whole Foods buyers like Phil, and they like his product. They decide to give it a chance. Soon, Phil’s line of burritos—now known as EVOL—is on shelves across the country. And they’ve just announced that they’ve sold the company for $48 million dollars.

In the world of early-stage food startups, two heroes have emerged: There’s Costco, which gives small entrepreneurs the power of bulk buying. And there’s Whole Foods, which connects entrepreneurs with customers. Both of these big businesses empower small start-ups. Phil’s story fits into a pattern I heard over and over again as I interviewed successful food entrepreneurs for my book, Cooking Up a Business, and is indicative of a larger startup tactic: identifying empowerment players on both ends of your supply chain. Here’s what you can learn, and how it applies to any young business:

1. Harness the power of collective bulk buying

In start-up world, every penny matters, and getting more for less is a win.

Costco offers food entrepreneurs a way to buy like the big guys: when you have limited resources of money, buying power, and manpower, you can come to one place and use the power of Costco to get many of the benefits of a bulk buy without the need to truly buy in bulk or negotiate with supply chain vendors. While you walk out with just what you need, in theory you’re joining together with hundreds of other entrepreneurs. Phil was so successful with this strategy that he used Costco for the first three years of his business—so much so that one day he got a call from Costco: he was actually the #1 buyer in Colorado for the previous 52 weeks!

Costco is the obvious choice for food start-ups — in other sectors, there are other bulk wholesalers which are also accessible and consumer-facing like Amazon Web Service for cloud computing power, Paper Source for paper and printing goods, and Joann’s for fabric. Look at your supply chain, whether it’s goods, services, software, cloud space. If there’s not an existing bulk provider, can you create a loose amalgamation of start-ups that can come together to harness the power of a bulk buy?

2. Harness the power of the local or startup-friendly re-seller

Now that you’ve secured your supplies, it’s time to look upstream for customers. In food startups, that means selling to a grocery store chain.  And over the last few years, Whole Foods has emerged as the go-to spot for the startup entrepreneur. Why? Because Whole Foods strives to source 25% of its products at the local level, so buying from regional, often small and new companies, is actively encouraged.

This means that companies like Phil’s can walk in and know they have a better-than-average chance of getting on the shelves at their area store. And if their product sells well locally, then they’ll be able to talk about moving into other districts.

But what if you’re not selling food (or beauty, which has a similar Whole Foods effect)? Early on, identify a handful of buyers who make it part of their mission and protocol to work with and buy from early-stage companies. For example, later-stage and well-funded start-ups often make it a point to buy from other start-ups, whether that’s services, software, or consumer goods like food, clothes, electronics, furniture, or more. At an early stage, your own version of Whole Foods can offer an accessible path to larger growth.

At the end of the day, Costco has become a massive, but relatively unknown, supplier to Whole Foods. It may be counterintuitive, but the two behemoths often anchor opposite ends of the supply chain for early stage food startups. An entrepreneur can buy from family-size, warehousey, no-frills Costco, and a few weeks later the product of those raw ingredients (with the magic of packaging, branding, and a stellar pitch) can literally be on shelves in Whole Foods, where they’re dressed up with great lighting, storytelling, and a feel-good atmosphere. (And while food companies obviously sell at Costco, they’re usually much larger and more established by the time they reach that stage and have their own supply chains in place—they’re no longer buying at Costco! For example, Phil’s company EVOL is now doing millions of dollars worth of sales at Costco each year.)

Putting this supply chain strategy into action in your start-up requires identifying your sector’s key empowerment players—and being strategic about who can help most in the early stages of your growth. As a food company grows, it will outgrow Costco as an ingredient source and the local Whole Foods will be just one data point of thousands. But in the beginning, knowing and using your empowerment players is priceless.

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