Planning to start a food business? Top 4 Mistakes to Avoid

11 May 2021 – Written by Jamie Loveday

Are you ready to take your food idea and turn it into a business? Not so fast!

According to Forbes, 90% of start-up businesses fail. This should be very sobering to us. Given how romantic and attractive the food sector is, we imagine this number may be even higher in our world. Almost everyone I talk to when they dream about starting a food business tends to describe the perfect café or restaurant where they serve coffee and beautiful healthy treats to their customers all day long. Ironically, we also hear from the café and restaurant owners themselves, who only dream of getting out of their business, wishing they had started differently.

If starting a food business is your dream, we are not here to quash that for you. However, we do think it is of primary importance to consider some of the main reasons that people fail before getting started. And that is exactly what we want to show you. Check out this list of the top four reasons that food businesses fail.

1. Incorrect Product-Market Fit

This one is lethal. Building something that nobody wants is the number one reason that destroys food businesses. In fact, this one kills all new start-ups.

As food entrepreneurs, we have a tendency to fall in love with our own recipes and brilliant ideas. Our love for baking, making and growing food develops in us an illusion when we assume that just because our friends and family love our ideas, the world will too. We want to jump right into building a product or a solution based on these awesome ideas before even talking to customers. Or we might not have even spoken to any customers at all and be blissfully unaware that there already is a well-established or better version already on the market.

“An incorrect product-market fit is when we fall in love with our ideas without talking to our customers and sell our products to the wrong people or in the wrong places. Or, they just might not be great products to start with.”

Our top tips for finding product-market fit:

  • Don’t wait until your launch day to speak to customers. Speak to them from the very beginning. Find your ‘tribe’ through markets, Facebook groups, joining the FoodLab program, or special meetups and start talking to them intentionally about flavours, packaging, you name it!

  • Research all the competitors in this space (not all of them will exist online).

  • Stay on top of the latest global market insights, food trends and megatrends.

  • Work out how you can start taste-testing your product or service into your everyday life. Whether that’s a tasting party, blind testing, or samples at friend’s parties. 

Learn how to start a food business

2. Growth

Unexpected or rapid growth is the second biggest reason food businesses fail. Very few business owners in their early days of operation have a plan in place for scaling operations to meet increased demand, putting quality control measures in place, sourcing viable commercial kitchen space, or hiring new staff members, the last of which can be detrimental when hiring the wrong person.

Wise food entrepreneurs must take scalability into account from the first moment they launch their business and develop an exit strategy before they even start.

A few ideas to get you thinking about scalability

  • Write your recipes down on recipe cards (if you are an alumnus you can find templates on Canvas).

  • Develop written systems and processes for everything: from how you speak to a customer, how you manage your relationship with suppliers, to how you handle food.

  • Create a ‘sick day’ plan – for when you fall ill that one day and you cannot work on your business.

  • Develop a clear set of business values from the beginning (what will you never compromise on?), and let it dictate what to look for in a co-founder, partner, or employee.

  • When you do hire, don’t micro-manage your business. Love your staff, empower staff and take care of them. In turn, they will care for you.

3. Ineffective branding

Remember the old adage ‘if you build it, they will come’? This doesn’t really work in food business. Failure to build a thoughtful brand ‘heart’ and identity, as well as executing proper marketing strategies will result in a failed business. This is because customers ‘eat with their eyes’ when it comes to food. In other words, 90% of first-time buyers will buy your food based on a first visual impression.

Effective Branding for food businesses

Food is an experience. It is the most sensory product that you can consume – you can see it, taste it, smell it, hear it being eaten, touch it.

Name a product as intimate as food! Think deeply about ‘the experience’ you might be giving to your customers from the second they see your logo or product, right up until when they throw the packaging away and recycle it.

Some more tips for effective branding:

  • Translate your personality and unique journey into a brand identity: What kinds of colours, shapes, and words, fonts, pictures, art, you want to instil into your customers about you?

  • Conduct a sensory analysis on your product or service, think about the aromas, appearance, music and sounds, taste and texture and packaging which all play vital elements of the branding experience.

  • Be intentional with developing a holistic, integrated marketing strategy. Our program takes you through the most effective marketing strategies for small businesses in-depth!

4. Insufficient cash flow and funding

Imagine this: there may be one day when you may not have the cash to pay for your only employee. You will have to face up and tell your employee this, red-faced and teary-eyed. This situation is what people mean when they say ‘cash is king’. In your early days of starting a business, constantly ask yourself if people are willing to put ‘currency’ behind your business idea, rather than their encouraging words and passionate responses.

For us business owners, first and foremost, we are salespeople. Learning how to actually sell our product, being bold enough to interview a customer, doing cold emails and cold calls, walking around the markets asking people to visit your stall, going to a networking event to find new contacts, are all fundamental realities as a business owner.

If we don’t learn to sell early, it is a tell-tale sign of not being able to make sales three years down the road. This will eventually turn into a lack of cash flow which burns our food businesses, and therefore our passion.

Here is a few starting points to managing money

  • Make a simple budget and decide how much money you will put into the business before you can no longer realistically continue.

  • Understand food seasonality and changes in customer buying habits and supply.

  • Keep track of your financial performance by using financial software (such as Quickbooks, Xero or MYOB). However, make sure you understand how these financial statements work on paper before you use them. 

  • Price your products and services correctly, taking into account indirect costs as well as direct costs. It may be more expensive than you think.

Hopefully these top four mistakes have helped ground you in some practical and simple tips to avoid failure in your own business. There are a lot of things that we didn’t cover in this article, and this is in no way an exhaustive list.

If you are inspired by these tips and want more great information on running a food business in Sydney, why not join our program or contact us to learn more about FoodLab Sydney?