Join me in this podcast as special guest Tera Johnson and I discuss the importance of managing your cash flow as a startup business, especially during a pandemic, and tools to help you.

Tera Johnson is a serial entrepreneur whose mission is to create the next generation of environmentally and economically resilient food and farming businesses. The founder of teraswhey® and host of the Edible-Alpha® podcast, Tera participated in the full arc of creating a successful investor-financed company. Now the founder of the Food Finance Institute at the University of Wisconsin System and winner of the UW-Extension Chancellor’s 2017 Wisconsin Idea Award, Tera is a frequent speaker, teacher and financial consultant to sustainable food and farming businesses, communities and economic development organizations, as well as social venture funds and investors.

Learn more about Tera and her work by visiting the Food Finance Institute website, subscribing to the Edible-Alpha® podcast,  and liking Edible-Alpha® on Facebook.

Get the Cash Flow Mini Course or the Pricing for Profit Workshop.

If you want more help turning your delicious dream into a real, profitable food business, apply for FoodBizSuccess.com to see if it is a good fit for you. 

 

Sari 
I'm Sari Kimbell and I've done just about everything in the food industry. I have helped hundreds of packaged food business entrepreneurs. And now I want to help you make your delicious dream a reality. Whether you want to be successful at farmer's markets, online, or wholesale on the store shelves, Food Business Success is your secret ingredient. I will show you how to avoid an expensive hobby, and instead run a profitable food business. Now let's jump. All right, everyone. Welcome to the Food Business Success podcast. And I am so excited to welcome my very first guest on the podcast, Tera Johnson with the Food Finance Institute and the Edible Alpha Podcast and she's going to tell you a lot more about that. But when I thought about it, who I wanted my first guest to be on this podcast, I really wanted it to be Tera. And I want to tell you really quickly why I wanted it to be you. And I'm so excited to have you on here. So I knew when I left Whole Foods Market in late 2015, that I really had a passion for helping small local food businesses, those small entrepreneurs, you know, so desperate, like got on to the Whole Foods Market shelves, and they were trying to get off of them. And I wasn't sure exactly what that would look like. I knew how to help them in Whole Foods in that system. But I kind of wandered around and was in restaurants. And then I was working with a nonprofit that had a mission to strengthen northern Colorado's food systems. And it was there a training. I looked it up in January of 2018. And I was invited to attend that training. Where you came in, through the Food Finance Institute, and it was a consultant training. And I remember when I first attended, I had no idea who you were. And I just was like, a free training. Okay. And at first I was like, yeah, yeah, yeah, I know all of this. And then I quickly realized by lunchtime that I needed to, like, sit up and pay attention and that you were going to be really instrumental in my next steps and your training that two day train- well I guess four day training -really helped give me the confidence to go out and talk to young food brands at farmer's markets, at small trade shows, and introduce myself and tell them how I could help. And I got my first client that spring, Blue Owl Preserves, and I started consulting with the Small Business Development Center. So I just wanted to first say thank you so much for doing that training. For being my mentor. You really helped launch what is now Food Business Success. So thank you, Tera. And that's why I wanted you to be my first guest. You had a real impact.

Tera 
Oh, that's awesome. Yeah, no, it's awesome, because I actually didn't know that I was going to be your first guest. I that's, that's awesome, too. I, I, that consultant training that you that you mentioned is something that I did when I did. It was one of the first things I did at the Food Finance Institute after I realized that there was kind of an infinite need for the work that I was doing. And I couldn't possibly, I didn't want to be the person who would just try to raise money and hire people all the time. I really, I really want more young brands like the ones that you're working with to get started and thrive. And the only way to do that is to kind of have an army of people like you around the country or helping people

Sari 
Yeah, your model of training the trainer, you know that the you basically are teaching me and all of the other people you train to do what you were doing with young emerging brands. So.

Tera 
Yeah and I and just for you know, for for people who don't know me on your on your show, I, most people know me as the founder of that whey protein brand Teraswhey that is still pretty ubiquitous around the country. I started that brand. Let's see, we launched in 2009. So it's kind of an eerily familiar thing. Right. And that was when the economy fell apart that the last time and now we're kind of in another version of that. Yeah, so we launched that brand, I had to raise a I had to raise a lot of money to start that company because there wasn't any organic way on the market at the time because there was no factory that could segregate the protein. It was one of those, you know, the bottleneck is the processing thing. So I was the crazy person who raised $14 million to build the plant

Sari 
In a recession no less yeah.

Tera 
Right? Exactly. And the economy fell apart and but but you know, we got the plan up and running and then Whole Foods took the brand pretty much nationally right out of the gate and that you know, back in 2009, if you wanted to be in the natural category of Whole Foods was 50% of the category at the at that point right now not true anymore by a longshot but, but that was a big deal um and had to raise more money. And I have investors and we grew very, very quickly. The brand did it grew very quickly. We also had a very big, actually bigger then the brand, private label part of our business where we were supplying infant formula companies and so and exporting all over the world and that all have that came together really fast. And then coming out of the recession, we were really valuable because all of you who are listening who are toiling away with your brands right now, this is a thing to remember that when you when you have a recession, not as many companies start and not as many companies survive, so if you are one that starts and survives a recession like this, there's going to be more attention to your brand than there ever would have been because of the shakeout and also if you've raised a bunch of money and are looking for an exit, you'll be attractive for exit. So we were attractive for exit and ended up selling to a public company in 2013. And then I decided to start this Food Finance Institute because I am too young to retire and I wanted to be able to help young entrepreneurs or not even young, any age entrepreneurs, but early stage or growing and and as the way things have evolved over the years we at FFI probably focus more on growing and scaling brands. But and we we do finance but in order to have people, we help people raise money and it you can't do that if they're if your business model isn't right, so that leads us into doing other things as well. But our focus on our real uniqueness's is our our ability to help companies raise money in food. I tell people don't ask me if you do software I know nothing about raising money for software cuz it's so different, right? But food brands and value added AG enterprises. We're really interested in regenerative agriculture and bringing conservation finance into food. And then we also do some food systems work. So, yeah, that's how it started with me consulting. I think, by the end of this year, I'm gonna have six employees, which I find kind of crazy.

Sari 
You're back to being the CEO, the director. Yeah.

Tera 
Yeah, no. And along the way we did, we launched a podcast called Edible Alpha, where I tried to try to focus on all the stakeholders around, you know, Value Added Ag and food systems and brands, specifically around finance and money and how companies handled that. So yeah, that's,

Sari 
I love it.

Tera 
So that's what I've been up to.

Sari 
Yeah, I mean, you You definitely have worked with early stage brands. And, you know, that's really been where I have created my niche around those just an idea folks and then the ones that are ready to you know go to the next level, go from a farmers market to the small wholesale and the regional wholesale and, and you and I both know it's a it's a stair step not a, not a you know direct line up I know we learn that and your your training and the Valley of Death which I want to get into to money and that conversation here in just a minute but I love it that you were able to take your knowledge and then train various consultants like myself, who then have different niches so that we can serve our clients the best.

Tera 
And this is a big wide world. There is plenty. You know, I think people get all nervous about competition or something and I just kind of roll my eyes because there, it is such a big wide world and there's so much work to do. So yeah. Yeah, exactly, yeah,

Sari 
There's plenty of people to serve and, you know, and that you, you do really have this niche around money and that if, and profit and business models and that if, I mean, you actually probably work with more people who have a product who are ready to scale up like they've had some success, but you kind of take people back to the basics, the stuff that isn't sexy that they never did at the beginning, and I'm trying to reach the people right before they start so we don't have to backtrack.

Tera 
Right? Which would be great, right? Because you do tend to dig yourselves into holes when you don't do this stuff in the beginning, so yeah, right/

Sari 
Everybody likes to start with their logo and their their package and that's not that's not a bad thing, but having a balance of like the money part and am I actually gonna make a profit. So with that, let's jump into money. And I think, you know, I love your style, and just like no holds barred about, like, a business needs money. Talk to me about your stance on like money can be a dirty word but we need to clean it up.

Tera 
Yeah, no, exactly. I think there's a there's a sort of psychological thing around money too, right? Like money, money in our culture is power. And it symbolizes all kinds of things. So it's a weird thing, right? In our, in all cultures about money and, and I think food entrepreneurs in particular, like if you, if people really want to make a lot of money, they don't typically start a food company because, you know, they're kind of attracted to software and, you know, apps and stuff these days. Yeah.

Sari 
The tech sector. Yeah,

Tera 
yeah. So we tend to see people who are less motivated by money. They love their food, they love their idea. They want to transform the world through their food company, that kind of thing. Which which means that we have a population in our in our world that is just not, they're just not focused on money. And that's great until you're trying to run a business. And then it's like yeah, I tell people actually I you know, done all that I've done and I run started the Food Finance Institute and I don't like money either but it's because I'm not I don't I'm not primarily motivated by it but um, but if you don't get the money right, then you can't change the world either. So through your business anyway, so. So yeah, the first thing I think with people is just get coming to grips with the fact that the way this you know, the way you achieve your goals is actually by making money at this. And so spending the time you need to spend to do the work you need to do in order to do that is is really important. And and as Sari said, like, the sooner you start working on it, the better. Because you do dig yourself into a hole if you're not thinking about that, right, beginning.

Sari 
And I always, you know, every a lot of my people are, they're bootstrapping they're coming in with you know, 500-$1,000 I mean, some of them do have a lot more and, and that's great, but you can start. I find that there's this this contradiction where you can make this food so easily out of your home, and you share it with everyone and everyone tells you what an amazing product it is. And they love it and you're solving a problem right? Maybe you're doing gluten free or allergy friendly or you know, whatever it is, or it's just an amazing family recipe. It's so easy to make and share. But then when we get to the business side of it, like you said, it's you don't go into a food business to make money. We talked about small, small profit margins at the end of the day. But like you say, you know, no business no impact, right? Yeah. If you don't, no money, no business no impact. Yes.

Tera 
Yeah. And and then the other big thing I would say about money and food businesses, I mean, you sort of you hit on it that it's real. I mean, compared to a software company or something, it's really easy to start a food company, right? Like because you can make it in your kitchen or now there's shared use kitchens all over and so the barriers to entry are pretty low in food. What gets hard is the next stage right? So you get up and running and now you've maybe you get into your first distribution and that kind of thing. And sorry, I've got a dog I hope you

Sari 
No, no problem. Benefits of working from home.

Tera 
I hope you can edit, yeah, edit out Casey. So the hard part is the the scaling actually in a food company, right? Because then you actually need more money. And I think what I tell people is that usually it takes more money than anybody ever thought it would to really successfully scale a food company to a place where it can break even and pay the entrepreneur to be in the business. And then it's sort of another round of money if you wanted to get bigger than that and have a bigger impact than that. But it's kind of like every every stage along the way, you need more, you need more money than you thought. Yeah.

Sari 
Absolutely. And I would say even at the very beginning, I mean, we're fortunate in many states to have cottage food that does allow people to start with a very low investment. But really, when you get beyond cottage food, I mean, yes, I agree with you that the barriers to entry are relatively low. But I always use the example if I was gonna if I wanted to start a scarf business, and knit scarves like, I could be in business tomorrow. But food still has like, you know, regulation, the FDA. I mean, there is when you start scaling up and you go into that even that small next stage, there's a lot to maneuver. And most of my people who I serve are like, this is their hobby right? Their. Their's their side hustle, that passion that they go to their day job and, and then they're just thinking about this thing all the time. And and they're starting to develop their entrepreneurship. muscle. Right, right. Right. They've never been an entrepreneur and, and kind of figuring out. And the best entrepreneurs go and seek resources and don't try to learn it all on them for themselves and, you know, do all the trial and error Right, right, but there won't be enough on their own.

Tera 
Right. Right. Yeah. So I know my first, you know, pearl of wisdom for people is to plan on it needing more, plan on needing more money than you thought. And then, and then have a plan, have a financial plan, you know, I mean, that's the other thing entrepreneurial people don't tend to be planners, you know? They're doers. And so which is great, because nothing would happen otherwise. So it's great. It's just that at some point, you need to get into plan mode here in order to make to raise money so right and that that also is a point when people tend to need some help.

Sari 
Yeah, there's no there's no lack of enthusiasm for making our product most people are happy to make their product they just want to get in that kitchen and make it. They want to sell it. They want to put a logo on it, you know. That's the fun part. But let's talk about kind of going back to the beginning and and I find I mean, we start with you know, you start with a business model, and we need to really clean that up. And I typically ask people to think through like a one year like, what's their one year goal? Where do they want to be with this idea? Or if they're, they're already at a farmers market? And then why is it important to have kind of both the short term and the long term strategy? Because I tell people a three year goal and then a one year goal.

Tera 
Yeah, well, and I use the word path sometime with people because, well, now especially with COVID, having kind of, you know, thrown all the dice in the air almost, it's hard to plan right, for companies. But but a path is really helpful. So what I mean by that is, you know, is your longer term goal to, to bring in investors and have this thing you know, be the next Justin's? I mean, that's a path right? The big ambitious path that is definitely going to require outside investment. And then there's the you know, maybe you want to be a regional brand or something, then something like that will require investment but not as much. And then maybe you want to be a small local company, in which case, you may have to have a more vertical business model and sell direct to consumer and you know, out of the same place you make your your products for wholesale, something like that. Those pads have really different money requirements with them. And it's very helpful, I think, to get clarity is early as you can and it's not possible for everybody to get clear about this early on, but right, the sooner you can, the better.

Sari 
Yeah, I tell people that you know if your goal your is just is to be a really successful farmers market, and maybe you want to go online, you know, your own e commerce then that is a very different path than if you want to do wholesale and e-commerce. And it helps us to know kind of the longer term path not that it can't change, of course, but it does help us to plan and be more efficient with our resources. We can say no, don't get this license yet, but plan for it here. And you know, to be able to save money at the beginning, but then know when to spend it and kind of that push pull to planning ahead is I think is really, really important in our to have that path, like the path to market. And there are so many options. And of course, we've seen and I will talk about pivots that you've seen because that's really something you're, you're focused on is showing those examples of brands pivoting. But to stay on this track for a little bit longer. Do you find I mean, I know I find that most people come to me and say, 'Oh, yeah, I'm making money'. You know, and they have like, maybe a simple spreadsheet or napkins. You know, they're like, yeah, I mean, I, you know, my, my ingredients are this and then I made selling it for double at the farmers market and I'm making money right? Yeah. And then we talk about what cost of goods sold is and all of that good stuff. So let's talk about profit and planning for profit and why we need cash as well.

Tera 
Yeah, yeah, yeah. So, um, so that that whole exercise is something that I know you guys do really well with your folks because, um, because I've gotten, I've heard that. And it's, it's so important. I mean, understanding this weird number of Cost of Goods Sold as a Percent of Sales. Cost of Goods Sold by the way for those of you who are listening and don't know it's all your variable costs, and I mean, all of them. So variable labor, too, is part of it, and that number that percent is something that banks and investors and they use that number to judge whether food businesses has the possibility of being financially viable. It is an incredibly important number and so when you start your company had no idea was even something you needed to think about and then it and then people like if you are trying to raise money then you're you're you don't know this you haven't done the plan, you haven't done the work and people like a banker might ask you a question about your cost of goods sold and you don't even know how to answer. And then they they don't give you money and you don't know why. Right? And and so on. Yeah, and the reason it's such an important number is that it it's the it is a management indicator of the profitability potential in the business. And I tell people Sari hsd heard this that, you know, for startup brands, that number can be very high. Like you're trying to get to something that is about 65% of, of sales cost of goods sold. 50 is even better, but usually startup food companies, especially if you're doing things manually, it could be 70%. Right? So, um, so having part of the management and the planning process can be working on trying to get that number better because that generates cash after you pay for the variable costs, to reinvest in marketing and pay yourself a salary and pay the utilities and all those things. Yeah, because you need you need that cash to cover the rest of the expenses in the business.

Sari 
Well I find most people don't calculate their COGS correctly, Cost of Goods Sold and I'm sure you find that to be similar, I mean, they do understand that it's their ingredients and their packaging buut the labor I think often gets missed because they're making the product themselves and they're not thinking ahead to say, well, if I'm going to really actually be able to pay myself someday and be able to, you know, some people may want to stay manufacturing their own product, that's where they really thrive. But then you still need money to be able to pay for somebody to do your social media or your Amazon or your wholesale, or vice versa, right? So at some point, you do have to pay yourself or pay somebody to make this product and and so I find people never put in enough money for labor right? Which is why maybe people are thinking well, but but my cost of goods sold, you know, my gross margin is is 50% or even higher, but they haven't actually calculated correctly at the beginning, and then you start to work on all the other numbers where your pricing. You know, we talk a lot about price price parity, right where your pricing for not only direct to consumer, but your pricing for self distribution, going into wholesale, and then going into distribution. And that those you know, I think that can be shocking for people when they see what I have to give the grocery store a margin and then

Tera 
Right? And now and the distributor is gonna take 25% like, really? Um, yeah, it's shocking for people, I think. Definitely. And then I see a lot of lot of people price not thinking that they're ever going to sell through a distributor in the future. And then they quickly realize that driving their own their products around in the back of their car is just actually not going to work forever. And that's right, right and they need a distributor and at that point, pricing goes amuck right because there wasn't enough headroom in there.

Sari 
So yeah, you really taught me that, that lesson around pricing through distribution. And at the beginning, it's always a worst case scenario. Like I never want people to be like, Oh, this isn't possible. I can't do this, you know, at the beginning, but helping them understand that there are like, this is the worst case scenario. And then here's the efficiencies that we can create. And I have four videos on YouTube all about maximizing your Cost of Goods Sold and to actually make a profit. So I'll link to that in the show notes. But you know, figuring out like, okay, worst case scenario, we can only go up from here. But planning ahead, like you said, I mean, we got to have the plan for that path and that pricing through distribution.

Tera 
Yeah, yeah. Yeah. And plans for getting it to be better. And this is something that you know, hundred year old food companies are still working on, by the way, so it's not like this ever goes away. It's just part of how it's an integral is that a pronounce a word, part of running a food company is just constantly focusing on Cost of Goods Sold as a percent of sales and how can we improve it over time? Yeah, absolutely. Yeah.

Sari 
Because if you're, if your numbers are if you're, you know, garbage in, garbage out, so if you're still write numbers, your COGS aren't correct, then we're, you know, so I did that workshop pricing for for profit, and was Shannon Yeah, taking it through Amazon. But the first half of it is like, this spreadsheet that I'm so proud of that I built out Uh huh. Like, starts with your COG, right? Explain all the things and then we need to price through distribution. And then if we're going into e-commerce, what are all the other little additional costs that we need to account for and then if we're going into it distribution or self-distribution, you know, the you know, if you want to offer a promotion like how does that eat into your own, you know, your own profit? Yeah and what does that look like at the end of the day? And I think sometimes that number can be shocking for people that are like, what I had to sell, you know, 500, 5,000 of this product whatever it is to actually

Tera 
Right? To make it worthwhile to do it. Yeah, I'm on the board of a brand that has raised investor money a big like series A and, um, and there, they're their accounting firm developed a little spread little Excel spreadsheet is just to capture what you're talking about, like so the sales people can use it and management can use it for every- going into a new store, and they want this, this promotion and that promotion, and they want free refills and they want slotting or whatever it is, and you can put it in here and figure out if you'll ever make money at this account. Right? It's very, very helpful. Yeah.

Sari 
But you know, even when we're talking on a small of course, we were not gonna define right here, all those terms, but I'll do that on another podcast.

Tera 
Sorry, I tend to go off.

Sari 
No, I know we go here, but totally,

Tera 
It's, it's relevant. It's just relevant. I think it the more I kind of encourage people when they're when they're starting out that, you know, and this is my philosophy about how I teach is that I'm not the person to be able to, you know, to anticipate ahead of time what people are going to know and not know, right? like, people show up with various backgrounds. So I teach what what is like everything and I use the complicated terms and all of that, and then people people tend to learn you'll learn what you're ready to learn, like, you know what I mean, and if the if the content is there, and you have a good good on consultant like like you are on then then clients can go to you and go I didn't understand that. What does that mean?

Sari 
I know I have a whole module just on understanding the food industry. All the lingo Yeah, and the wholesale is

Tera 
That is super super helpful because everybody, right have their own lingo and how it works and and then people get frustrated and they think well you know what my brand is so cool. I won't have to do all that and then the answer is no.

Sari 
It applies to everyone.

Tera 
Yeah, cuz it's a bit

Sari 
But even when you're going, I think that there's that tenant that tendency to be like, well, I'll just go e-commerce or I'll just go Amazon or a farmers market, but all of those have their own fees as well. And so it's tempting to think like like, oh, easy, Amazon's practically free.

Tera 
Right. Right, right. Yeah, not really.

Sari 
Yeah, and even farmers markets, you have percentage of fees and boost sales and your sales tax and all of those things that need to get factored into it. So doing that, that worksheet I, I've heard such good things from people about that Pricing for Profit worksheet that we did and that tool so I will link that to in the show notes. But, you know, I know when you get to kind of switch gears to pivoting and sort of your recommendations, and I mean, I love you started a consultant huddle right out when, when COVID hit and we were all sheltering in place. And just to place for you to kind of for everyone, but I mean, you're you're the guide there that is giving kind of industry updates and what you're seeing and then a lot of great consultants contributing to that. But one of the things you said to us right at the beginning is that cash is king. Right? And so maybe talk a little bit about why it's so important. I can tell you that most of my people, even though I say it over and over and over again, is that they need that 13 week rolling cash flow and nobody wants to do it but why why should they do this? Why is it so important.

Tera 
Yeah, yeah, so this is true always with startups. So when I started out Teraswhey my son was getting a PhD in finance at Stanford at the time, you know, in the middle of Silicon Valley, the land of startups and and he would call me and say how's cash mom? And I'd be like, why is he asking this question all the time? And and he said, you know, out here we don't, with startups, um, a hundred percent of the focus is on cash. Um you know, cash and burn rate. So how much cash are you are you burning through every month? What you're, you know how long you can survive? And that's a startup company. It should be a startup company thing anyway. So I developed this 13 Week Rolling Cash Flow Forecast Tool in conjunction with my accounting firm at that time, because remember, we started up in a recession too, right? And in recessions just magnify this because, um, because you don't know how the consumer is going to react like are they going to I mean, typically, when we're in a recession, people don't spend a lot of money they tend to save money, which is what is going on right now. Like our savings, right, in the first quarter or the first since March. I just saw something this morning was like 25% of income was saved during that period, which is unprecedented, right? That means people aren't spending money. And you don't know like when when I started the huddle and when we all were locked down, right? We didn't nobody knew what was going to happen and and what has ended up happening for food companies has been all over the map. You know, this has been devastating for some food companies and fabulous for some other food companies. It what's weird is I don't, I don't see, I see very few companies that are saying oh yeah, it's not really affected me at all, right? It seems to be like a Tale of Two Cities. And and actually with both of those scenarios, either your accelerated growth or it catastrophically slowed growth having enough cash just to survive right now is the goal, right? Just just pile up cash. So I told people, I told you guys and then you all went out and told people you know, take the PPP take the idle, stick it in a bank account. Like don't, and people did that and they're calling me going well, I have this new piece of machinery that I've always wanted to get. I'm like no but you're 
not going to do that.

Sari
Do not buy fancy things.

Tera
Do not buy! Because we don't know, right? And and you know when we came out of it and people were, you know kind of when it was April May June and people were pretty pretty excited and then things heated up in Texas and Florida and we kind of all got caught depressed about things slowing down again and, um, you know, we're not out of this wood. So have this that 13 Week Rolling Cash Flow Forecast, what that tool does is incredibly helpful because you just map out when do I have to pay stuff? When am I going to get paid for stuff like week by week, so that you can see when your cash is at the ebbs and flows of your cash. And in normal times that ebbing and flowing thing is something you have to manage really tightly in a startup that's growing really fast. And then if you're in a recession, you have to do it too. So for all right, guys, I can't. It's interesting too. It takes time to set up. But once you have it set up, it's not a lot of time to keep it up. And everybody I've talked to who has done it is come back to me later and said, Oh, my God, this has been transformational for us. It just yeah, gives you visibility is 13 weeks into the future. So you're not like waking up at two o'clock in the morning, wondering whether you can pay your people next week or pay yourself or, you know, have enough money for your packaging that you're going to need to order next month.

Sari 
Right. Yeah. And that's the big thing with a product based business I think people forget sometimes is that, you know, you have to put all the inputs out first as a, as a product based business and you know you have to pay for all the labor to make the product. So, so even if your business is booming because of COVID, you know, you're in a immune- you have some, you know, functional food or some comfort food that, you know, really took off. But you still have to put all of your outputs first. You have to pay the employees or pay, pay the kitchen time. Pay for the ingredients.Pay for the packaging. I mean, scaling up takes takes money, whether you know, you whichever side of things you you landed on in the current situation.

Tera 
Yeah, exactly. Exactly. And a lot of it. So when you're growing a food company that all those expenses up front, um, the other one that is even more insidious, because it's not as tangible, right, we think about Oh, yeah, I gotta buy packaging and I need money for that. What's harder is, you know, when you start selling through hope wholesale on they don't pay you in cash, right? They're paying you on time. So you need working capital just to to cover the gap between the time you bought all the ingredients and the time you actually get paid from UNFI or whoever it is. And that could be months. Right?

Sari 
Right. I mean,that's that first sale in I you know, I use your same chart that you showed us where it's like, you got to plan almost on 120 day cycle to, for that first account into Whole Foods or distribution till you can get on a flow and, but that I mean I saw it at Whole Foods where I would help onboard local producers in our new stores. And, you know, I was basically a success manager but trying to help them navigate that new cash flow and I unfortunately, some didn't make it because they didn't plan for the cash outlay that they would need ahead of time. And then they put in all this money to make the product, to do the demos, to do the promotions, to free refills, to all the things and then they're waiting to get paid and it's you know, 120 days later and they don't. They end up having to shut down and you know, it's really sad when that happens because they they initially think like I got into Whole Foods I'm in 18 stores This is amazing. I've you know, hit the lottery but then reality sinks in, right?

Tera 
Yeah, you know, when I say when I launched Teraswhey people told me it would be a million dollars, and now we're talking a national, right? To launch a national brand on like three skews. All right. And, and I was like, oh, Midwest, baling wire and duct tape. Wow. You know, we'll do it cheaper. And it was a million dollars and that was in 2009. Right? So fast forward, it's way more than that. So, you know, if you're gonna do 30 stores, it's a lot less than that, but it's a lot more than people think. And it's invisible. And then the other weird part about it is if you think about receivable, it shows up on your balance sheet. It doesn't show up on your income statement. So people who are trying to understand the financial side of their business are spending a lot of time usually on their P&L. QuickBooks calls it a L&L, Profit and Loss. But but that whole receivable thing I was just talking about sits on your balance sheet. So it's it becomes almost invisible. And then inventory is like that to you buy, you know, packaging and stuff in in small food companies you're not usually buying it Just-In-Time basis, you're buying, you know, to get better volume discounts or whatever you have these lumps, right. All right, that sits on your balance sheet and he had to pay use cash for that, too. So that that rolling 13 Week Cash Flow tool captures both the things that are happening on your income statement, your balance sheet and does it in a really conceptually clear way. And that's why it's so powerful. So you don't miss all this.

Sari 
Right? Yeah. Right. And so yeah, I used your tool and put together a mini course. So that's it on Food Business Success. But two really key things to Pricing Through Profit, and then that cash flow and so hopefully, because I feel like I harp on this with my class, but maybe if they hear it from another source I could seriously do this. You have to do yeah.I love it. Yeah. Souh, so let's talk about some of the fun. I mean, some of them are fun. But you've you've been taught like on the edible alpha podcast, you talk with a lot of different brands in different places. And I know you've really focused lately on the those pivots. So what are some? Well, I guess even a backup, like, is this a good time to start a food business? I think people are wondering, wondering that. And then yeah, how have you seen some some food brands kind of come out of this and pivot? Yeah. Good entrepreneurs. Yeah.

Tera 
Well, so to answer the first question, is it a time to a good time to start a food company? I think it's a really good time to get ready to start a food company. If that makes sense? Because right now, I think one of the things that is hardest is, you know, getting meetings with buyers to try to get on the shelf. Like that stage of a food company right now, um, is hard. There are brands and I've been interviewing someone on Edible Alpha that are getting new distribution. It's usually, my impression is that it's usually places where they already had a relationship. It's not entirely true. Like they were already talking to Sprouts say, then COVID hit and things got bogged down. But now they're, now those conversations are back online and they're going in, right? That right. But if people were at a stage where they'd never talked to Sprouts before, it's much harder right now to get meetings with people. I'm sure. Farmers markets like for a while we didn't know whether they were going to be back. My impression is that they're back and because people have figured out ways to manage them. Whether it's order and pickup or they're allowing people in but we're enforcing social distancing, wearing masks or something. And so, you know, so that channel of distribution has opens I think, again pretty well. And certainly online. I mean, the giant pivot that has happened that is, you know, the cat is out of the bag and not going back in is is digital food sales. So prior to COVID, when people would tell me they were going to sell their food online, I said, Okay, well, that's nice, but most of the people that I work with, it's a very small percentage of what they do because people have been so reluctant to buy food online, and COVID

Sari 
it's definitely a category that's lagged across the board.

Tera 
Way behind. Like, you know, like more gross before COVID like the total value of books and toys sold online was bigger than food and those are really small consumer categories compared to food, right? It should have been way bigger, right? And

Sari 
Right.

Tera 
People had all kinds of theories about why that was true, but pretty much the big one is that- and this is still true- that that when people are going to buy food, they don't go, they don't think in terms of one item at a time usually. So it's like I want some granola. I'm gonna go online and buy granola from the Nola company. It's not how we think, right? We're like, Okay, I need granola and I need, I need coconut milk and I need, you know, peaches to have on it and and then I need bread and I need water and dish soap and right? That's how we think about ordering food. So if you think that way from where the consumer is thinking it's really hard to, now you're the granola maker, really hard to get the attention of somebody to buy your granola on your website.

Sari 
I take that extra step and and do that

Tera 
and separate out the shopping, right? So that explains why marketplaces like Amazon have worked really well, in COVID. The other marketplaces that have grown really fast for food online are Target and Walmart, because for the same reason, like you can go there and get your dish soap and your water, your granola and everything all at once. So, um, so food but as on whole, like, like the amount of food that has been purchased online, is it grew astronomically. And and nobody thinks it's going to go back. I mean it maybe it'll go back but not as much.

Sari 
So I think I think once we got people over the hurdle of like, Oh, I don't have to touch and feel and see every item of a food, right? I don't know. I think that there's something about as consumers I was like, I want to see this. I want to hold it.

Unknown Speaker 
There's a psychological thing. In fact there's a, there's brain research that shows we we are hardwired to want to forage. So our amygdala lights up in our brains when we go shopping for food, particularly veg and fruits apparently. And so that, that is hard to replicate online. Right? But maybe the future is that people go to farmers markets and do that part. And then they order everything else online. I mean, I don't know. But

Sari 
Right, right.

Tera 
Yeah.

Sari 
I think we had people had to, they had no choice,

Tera 
Right.

Sari 
to get over that hurdle of Oh, I'm just gonna

Tera 
Right. And now, that's over so that like, so now. Now, it is much more realistic, I think, to think that you could have a food company that that pretty much has. It's an online food company. In fact, I have I have worked with one company right now for whom that is true. They don't sell anything out. It's 100% online, um, and that just would not and they're, you know, they have a couple million in sales now. So that, that would be inconceivable, even five, you know, maybe even a year ago. So that's the in terms of pivot, like, that's the biggest one. And then that is opened up, though, like you're doing all kinds of programming around it and other people too, that, that it's almost like digital has channels within a channel, right? Like, and you have to have a whole strategy about how you develop that and it because everybody thinks I'll just, you know, put a shopping cart on my website. And that's probably going to be the smallest channel of all.

Sari 
Absolutely.

Tera 
Right, so, so yeah, that that whole thing is opened up an incredible opportunity, but it it requires a whole new skill set that even people who have bigger, may, small startups may actually have an advantage here because because the you know, the people have been selling wholesale for a while, never really developed this capacity, and they have to keep their wholesale business up and learn this thing, right? Whereas you guys, as new people, you can say, Wow, I'm going to sell online. I'm going to get really good at that. And that's where you're going to focus on right. So, um, so, yeah,

Sari 
I love it when people have a holistic strategy, but I do encourage people to pick one at the beginning. Like, don't try to do Amazon and go big on your wholesale at the same time. Especially when you're bootstrapping and it's just you or maybe you and one other person, a partner, like yeah, you just don't have the bandwidth. Like you're also maybe making your food or, you know, you're doing all of your you're wearing all the hats and so let's pick one, get good at it and then yes, pick B, go to the next one.

Tera 
Totally. Totally. Totally true. Yeah. So, so big that that online thing is a big pivot that's happened. Um, I think the other thing and this relates to people are trying to figure out how long lasting this is going to be. But on the average consumer spent 45 minutes before COVID in a grocery store, and now they're spending 15.

Sari 
Wow, I hadn't heard that.

Tera 
Yeah. And that is because people don't want to be in there. Right? Like, we don't want to be in places where there are a lot of people, you know, potentially bumping up against people in the cart next to us and all and just people, right? So in and out quickly. That means,

Sari 
Plus we got rid of all the demos so nobody is lingering around.

Tera 
Right? There's no fun anymore, right? It's just boring and in the problem, so So now you are amazing. stream brand. Right so set let's pick one like Annie's is is a mainstream brand and it's in natural and other categories. Um, you know people know your brand and they're going to go get Annie's mac and cheese and throw it in the cart and keep moving, right? Now your your start up with a cool new mac and cheese that's on the shelf next to Annie's, if somebody's there for 45 minutes, they'll see you. And they'll, you know, it's sort of like the treasure hunt effect, right? But now nobody's seen that. Right? So that's the and then he can't demo. So it's really challenging for people going into wholesale right now. If you if you have a brand that people don't know to try to get the attention of a consumer.

Sari 
Absolutely. We talked yesterday, I love that you talked about kind of kid-friendly being a place that you can maybe pivot, like if you had a snack food. That was one idea. And then of course, if you're in like the functional space, the immune space, like, how can you turn your product even if that wasn't your main focus? How can you turn some of your messaging into being that like, I'm boosting, we're boosting your immunity, or health but yeah,

Tera 
Yeah, no, because those are categories that people are thinking about right now. Right? And yeah, it you know, food trucks that, food trucks that used to do lunches for office workers downtown, and nobody's in the offices anymore, and now they're saying they're not calling people back four months on, you know, they're going how can we take those food carts somewhere else? In, you know, suburban, and now they're now people are buying food for dinner, and they that involves kids now, which gets back to the kid friendly idea.

Sari 
Right? Plus lunches. I mean, all the meals are made out of the home now and people who aren't You know, kid a lot of kids aren't in school they're doing it virtually. So, parents need those quick snacks for kids as well as all the way easy to make meals.

Tera 
Totally. And that's why like grab & go has done so bad, is suffered so much because nobody's going anywhere. So

Sari 
exactly,

Tera 
little snack foods, right, but packaging them up because mom. I mean, now we got we were homeschooling and and working from home and trying working. You know, it's not like we suddenly have time to, to do a lot of cooking.

Sari 
To do all that cooking. Yeah, and get really into it. Sure. So

Tera 
I think you know, like anything in the food world. I always encourage people to go start with where's the consumer and then back up and see where does what does that mean for my brand? Right.

Sari 
Right. Right. How can we repackage that and pivot it? Yeah. So to wrap up because we're almost out of time here. So I heard a great quote, let's strive for No, let's not let me say that again. I heard I heard a great quote. Let's not strive for normal. Let's strive for better. So how do you think that the food industry will come out better? Because of COVID and and all of the crazy things happening in 2000?

Tera 
Yeah, I think I think COVID is giving us all an opportunity in the food industry and everywhere to really elevate our game, right? So and what I and I see this in I shared in my huddle yesterday that you heard me say this Sari that on that big companies are starting to do this now. Not all of them right but but a company like Dannon from from France on is is really stepping up with with, on funding, on climate change related initiatives. They're very, they're very supportive regenerative agriculture. You can see that in some of the work that Patagonia is doing. So brands are on. And to translate this, I'm doing a boot camp right now that I have somebody who's got a craft brewery here in Madison. And during COVID, they'd said, um, he happens to be a person who is who's for whom his Catholic faith is really important. And he was just devastated when he couldn't go to church anymore. He was thinking about his parish and what would happen if they're, you know, they can't raise money from folks going to church. So he started, um, this drive-up event in his parking lot that was raising money for his church, and he sold his craft beer and he got a whole bunch of have local food vendors to come in and sell food too. So it was local food vendors and restaurants that were closed. And he said, You know, I did my first one and I thought, you know, I had no idea how many people would show up. So he just kind of, but he said, look, I had the beer anyway. And so we just did it. And he said, he got the word out through his lists of people and then also kind of through the congregation. He said there was a line that stretched for a mile the day that he did that. And it's continuing so he's still doing this and now his the, I don't know what they call it but uh, parishes are part of groups that are regional and I wish I knew the name of what that was but I don't. But anyway, the word got out about that and, and now he's doing them on a traveling basis to different churches. On behalf of different churches, and he'll come and do it in a church parking lot. It's completely transformed his business. Like he's now thinking that, and he was he, he in boot camp I, we work on getting people capital ready. And the first part is like this business model cleanup, and he was all worried. And I think he had talked to some consultants who are saying he's losing focus or whatever. And I'm like, I don't think so. Like this is mission, this is where your heart is, you got it, this is a path with the heart for you. And this is where your energy as an entrepreneur is going to be. So we got to figure out how this could be a sustainable portion of what you do. And really, it's your sales and marketing channel. Just think of it that way. Um, and that may and then he's like, yeah, and this means that, I mean, cuz he's, he's selling more beer than ever. And he said, one of the things that I hate about my business is having the craft beer world, like every month everybody wants you to have a new new flavor of beer. Right? That that thing. He said, I'm so tired of doing that. And I'm so yeah, he's just burned out with that business model and like you don't need that anymore. Because people, people are coming to these events. They're not coming because they have a different flavor of beer has nothing to do with it anymore. So it's really

Sari 
He's creating those raving fans that they see up in the liquor store

Tera 
Totally, and and elevated the brand right to be about more than itself. And I think I think we're in a world that is full of anxiety and fear and doubt and that drags people down. And if you show up in this world, as somebody who is offering an alternative that is positive with hope, you're going to get people so,

Sari 
I love it.

Unknown Speaker 
I don't, think that everybody has their own mission, right? Like I happen to be really, really concerned about climate change. But that's not everybody's mission. You know, it's up to you to find your mission. But I think we're in a world right now, that really is dying for us to express that in our companies.

Sari 
And people love to have their money be double duty, right? Like, be more than just buying a product that that money also goes towards something that they're aligned with.

Tera 
Oh, totally. And then the only other you know, my only caveat about that is that when you do that, you have to be transparent, and you have to actually do it. You can't just say I'm going to give money to poor people and then not do it or whatever it is, right? Because in the world of social media, people will figure that out in a heartbeat.

Sari 
Right. You have to be really authentic,

Tera 
You gotta be authentic. But if you show up that way, right now people really are looking for that and I think that, you know, the natural category was sort of where that used to happen all the time. And now that that is sort of become more of a mainstream thing where where we have to look at ourselves and say, What is the next? What is the next level of that look like? And I think this mission thing is what that looks like.

Sari 
I love it. Great. Yeah. Thank you for sharing that. Well, I so appreciate your time. And thank you again for coming on and being my very first guest on the podcast.

Tera 
I'm so honored to be your very first guest, and it's so awesome to see the work that you're doing and and yeah, I can't wait to see what comes next for in your world.

Sari 
Yeah, just growing. I love it. So fun.

Tera 
I do too. Thanks so much for having me.

Sari 
Thank you. And you can learn more about Tera and her work by visiting the Food Finance Institute website and subscribing to the Edible Alpha podcast, and also liking the Edible Alpha page on Facebook and we'll make sure and put all those links into the show notes so you have a fantastic day.

Tera 
You too.

Sari 
And thank you again so much for your time today.

Are you ready to start that delicious idea that you make in your home kitchen, or grow your existing packaged food business and take it to the next level? The most successful food business entrepreneurs have support, guidance, focus and accountability to help them make it happen quickly without wasting time or money. Plus, I think starting your packaged food business should actually be fun. Food Business Success is your secret ingredient to creating your food business dream. Please don't go this alone. Check out the private free Food Business Success Facebook group to connect with other foodprenuers, get your questions answered quickly, share your wins and receive special training and tools I only share inside the private community. Just search for Food Business Success on Facebook, or get the link in the show notes. Curious about how Food Business Success can help you. Head over to FoodBizSuccess.com and fill out the application to see if you're a great fit for the program. Together let's make your food business dream a reality.

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