Barriers to Entry in the Food Industry

During my time consulting and working on bringing new products to life, I’ve realized that it ain’t that easy. There are several gates that block your path to success when it comes to commercializing that can cause some headaches unless you have a lot of money.

Yet compared to decades ago, it is now easier to make a food product and some say, it is the best time to make a food product.

As the barriers to entry shrink, how can you stay cost competitive? Sure, you can spend more money to get your product in people’s hands but perhaps there’s a better way.

Cost

Is it easier to make a food product now than ever? I guess.

With copackers opening their doors to the general enthusiast, there are more products available than ever before.

It’s still tough. Scaling up is not a step by step product, but rather a leap of faith to the next cliff. This is due to the physical parts of creating a CPG product.

Let’s go through a bootstrapping scenario.

After you exploited your basement for production space and your family as a free source of labor, it would cost about an upfront of 4 figures to set up room and scheduling at a commercial kitchen before you create products. This is due to space, workforce, and of course, ingredients.

After you grow too big for that, you need to invest about 5 figures to communicate with the copacker to create your product exactly how you’d like it. Which depending on your product can be very easy, or a nightmare.

It takes about a million in sales to escape terminal velocity. This is where people with money are now interested in your idea and will fund your expansion. It is that point where scale becomes limitless.

Yet the cost of making a gallon of your weird protein drink and selling an incomplete version at a farmer’s market is a low barrier of entry. It takes work to do this but from what I’ve realized is that this is one of the key indicators for success at a bootstrapping perspective. Growth from the farmer’s market to superstores is a very powerful story.

There are many factors that help with this. What if your farmer’s market booth had an email list signup ipad? What if you gave away a product on facebook but you could only do it if you tagged a friend? What if you hosted events at a local fitness club to teach people about what you do?

Though these do not directly impact the cost of creating a product, this gives you a foundation of traction. When the time comes, then you can ask for money. Your job is to grow a pyramid of support, not a mushroom cloud.

Distribution

The internet has changed everything in the physical products world.

I know a lot of people who self-publish books but have you ever thought of how much energy it takes to get you to buy a book and read it all the way through?

Think about the chances it takes to pick up a book from a bookstore, or Amazon.com, and read it, buy it, and then read it all in the comfort of my own home? It’s really hard.

Compared to downloading a free podcast or reading a free blog, the effort it takes for someone to buy a book is extremely taxing. The benefits of creating a book and publishing it also look less and less profitable every year.

This is actually why most authors build a brand, or platform to encompass not only books but podcasts and blog posts. This is highly important to show that your product is good enough for people to buy in.

This reflects well in the CPG space, which is why sampling is huge in this industry. If you don’t have people try your samples for free, then it’s a lost cause. Food especially is one of the easiest ways for people to buy-in. It just needs to taste really really good. The validation that a product is good enough to buy can take a no to a yes in an instant when being consumed.

Yet branding and having it associated with your product is still very important. Brand images are bombarding you every day. So how do you “stand out?”

To a point, small brands who have an online presence, that make their consumer feel special and actually talk to their users will get the most benefit.

It’s now more important than ever for when starting out, to start small and develop true fans. Fans that know you’re taking care of them, who when connected enough, will buy anything you throw at them.

Since distribution is limitless, the secret is to create shiny objects that attract just a few people with a specific quirk. Maybe a nutrient drink for gamers, a protein bar for cross fitters, a twitch stream for roleplayers. These brands all started out from a core niche. To be successful, it’s much better to care for this niche as they will be the best salespeople.

Quality

If costs are lower and distribution is almost free, then what happens is a race to the bottom occurs. People can churn out crap, and if it resonates with the audience, it can possibly succeed.

This was a combination of several podcasts that Seth Godin’s Akimbo had posted, made me realize: When the barriers of entry are lowered, you get less quality, you are perceived to get less quality outputs.

And you view this as a numbing effect that there’s too much of the same thing.

One huge example of this is the protein bar industry, where some grocery stores devote aisles of them where a sickening display of these bars makes you want to not even buy one.

And these 100s of protein bars might be great, the best ever made but since these are swarming on the shelves begging to be eaten, the noise becomes too much and you run away.

Quality is not just the consistent taste of your product. It means something else in all brands. It’s about the amount of care you put into your brand.

Zappos had the best customer service, Zynga had the best data collection team. This is what made their company stand out. Their ability to go all in and polish an aspect of the business no one thinks about. The issue is that when you think of it now, it becomes a gimmick. When you discover it later, it becomes a mission.

Luck

How do you get struck by lightning twice? You plant more lighting rods near you. Now you might not get struck by lighting, but the chances of getting zapped is higher.

Most novice entrepreneurs think that their product is the best and it will come to them. I thought this way when I first dipped my toes into this wild ride and failed hard.

The luck factor is how many at-bats you get per day. Your at-bats for the food industry is how many of the right people are exposed to your brand or product.

Though you can’t increase your luck, you can increase the luck factor.

We call this, marketing. More specifically, creative marketing!

By being creative on how you share and position the product, the right people can find your perfect product. And then the fun begins.