Collect Data And Pretend You Are Bigger Than You Are

Business Tip: Collect data and Sometimes, Pretend You Are Bigger Than You Are

Just like meeting a person for the first time, businesses often make judgments on first impressions. Here’s a business tip that you might want to consider- pretend you’re bigger than you are.

Potential vendors, co-manufacturers, distributors and retailers may be hesitant to take a chance and make a commitment to a very small start-up.

I am not suggesting that you lie or make up data. What I am suggesting is that you present yourself professionally as if you have been in business for a long time and that you know what you are doing.

Know your business. Understand your costs, production volumes, future areas for growth, which include cost saving measures, potential marketing plans and goals for the brand.

Have all your business formation information ready before contacting any suppliers. Make sure you have your EIN number, business documents (LLC, C Corp, etc), prepared W9, COI ( Certificate of Insurance), website and business email addresses prior to contacting vendors, suppliers, potential clients, or distributors.

Product and ingredient suppliers will often ask for this information prior to giving out bulk pricing for packaging and ingredients. They often prefer that smaller companies and individuals go through a distributor. However, it is essential for your business planning to know what the bulk direct and distributor pricing will be—even if it’s unlikely that you will order from them for months or years. Make sure you ask the price per pallet, the price per truckload, lead time, and the MOQ (Minimum Order Quantity).

It is highly unlikely that your business is really profitable at the beginning. The goal in business planning is to determine if your business and product can be profitable 1 or 5 years from now. To do that you need research and information. This often takes the form of a budget. First budget is where your profit and costs are now. Second budget is where they will be next year, anticipating some growth and larger purchasing power. The Third budget is where they will be in three to five years, at scale, with greater production and best costing.

In order to accomplish this, you must understand where the price breaks are for ingredients, packaging materials, and manufacturing. If you cannot find a way to scale, and your business planning does not eventually show a 25 to 30% margin, then you have a hobby, not a viable business.

As you do the research, some producers and manufacturers might be reluctant to give out pricing. Do not let this deter you. For example if you use sugar, a large company like Wholesome Sweeteners is not going to engage with you if you only want to purchase 50 pounds. Instead, they will direct you to a distributor. But if you say “ I plan to purchase 6 pallets per quarter, what is your MOQ (minimum order quantity)”, then you will get their attention. This is not a lie. You do plan to do it… someday.

After the data collection is complete, create a budget and a plan. This will help you make the decision.

It is ok to have a hobby. It is fantastic to have a hobby. As long as you know the reality. The worst scenario is to believe it is a business, with poor data, and then a few hundred thousand dollars later find out that it was a hobby. This research will help you determine if your great hobby will also make a great business.