Categorized | Shoestring Startup

Good Business is Never Half Baked

Good Business is Never Half BakedWhen life gives you pits, make cherry pie. Naomi Poe, CEO of Better Batter Gluten Free Flour, LLC (betterbatter.org) certainly knows the value of this proposition. In the two years following her sons’ diagnosis for gluten enteropathy – a condition which does not allow her children to eat wheat, oats, rye, or barley and other gluten containing items – Naomi struggled to find recipes and methods that would allow her to bake her family’s favorite heirloom recipes. In 2006, a combination of desperation, prayer, and a little luck led to a middle-of-the-night dream and the birth of the formula for gluten free flour that was to launch her company.

It was April, 2006, and having spent the better part of the day in pursuit of the perfect pie crust (with failure), Naomi sent up a sincere cry to the Almighty for a way to make her mother’s crust and went to bed. Waking up from a dream in which she mixed various ingredients into a flour, Naomi ran downstairs and –finding the ingredients in her kitchen – whipped up what was to become Better Batter Gluten Free Flour.

As she shared her discovery with friends and associates who also struggled with gluten free baking, she received many requests for the flour. Many (free) pounds of flour later, a few of her friends, feeling guilty for mooching, offered to pay for the flour ingredients. Naomi, of course, was happy to oblige; and as demand grew, and friends of friends started calling and stopping buy for the gluten free flour, Naomi began to charge ‘just a bit’ for her labor and packaging material.

Every great product or idea has a tipping point, and it was in April 2006 that Better Batter Gluten Free Flour reached its own – having sold ro given away over 700 pounds of gluten free flour, Naomi realized things were no longer at the ‘hobby’ stage – it certainly wasn’t easy-breezy and physically carefree to mix that much flour – and she decided to start a business. Naomi took $500.00 that she’d saved from her ‘labor income’ sales of the flour and assorted baked goods and registered for a business license and a web address. Quickly – almost too quickly – word spread via the internet, and Naomi found herself with a thriving business and a growing customer base.

Word of mouth was the primary means of exposure for the company, and Naomi enthusiastically threw herself into learning how a business operates and how to price and package the gluten free flour mix that was starting to take over her kitchen. Within two years, Naomi was mixing over 3000 pounds a month in her little Kitchenaid, and was straining all available shelves – and her back – in the process.

It was at this point that Naomi decided to take on investors to help cover the cost of a commercial lease on a warehouse and production costs for contract manufacturing. She spoke with two of her lifelong mentors about the business and the rate at which it had grown, and about her dreams for expansion and growth. Two close associates offered $30,000 in expansion capital, the company reformed as an LLC in July 2008, and a hard push for internet sales began, with a complete revamp of her website and branding, and a good hard look at the best ways to promote the company.

The vast majority of Better Batter’s early sales were internet driven, and while the gluten free flour and additional mixes that were developed – gluten free versions of seasoned flour, brownie mix, chocolate cake, yellow cake, and pancake mixes – are sold in stores throughout the United States and Canada, the internet continues to be a significant part of Better Batter’s business approach and income stream.

As Better Batter has grown, Naomi faced many of the same challenges that most small entrepreneurs face – lack of funding, lack of advertising to the public, lack of staff. For each of these challenges, Naomi believes there is a creative way to approach business.

Funding is always a concern to quickly growing companies. Committed to maintaining a low/no debt policy for the company, Naomi chose to engage investors for small infusions of cash as needed. To do this properly, Naomi explains that you must have a solid understanding of the risks of business and your projected cash needs and must be able to adequately justify your projections to potential investors. Small infusions of cash can be helpful because you have a chance to build a history of success that makes it more likely to secure a larger investor when you need one – a working business model is always better than a great-idea-on-paper. Having explanations for all questions that may come up (and data to back up your assertions) is essential, as is a working, detailed business plan that takes into account your short term realities as well as your long term hopes.

Naomi also stresses that it is essential to have solid legal documentation for all business endeavors (including nondisclosures and a clear operating agreement) and a good grasp of what your company is really worth before you start asking for cash infusions. She recommends being ‘frugal’ with the percentage of company you are agreeing to vest away from yourself – especially in the beginning stages – so that you leave yourself free to raise capital as needed later without losing control of your own company.

Finally, Naomi emphasizes, maintaining an open dialogue with your investors is vital, helping you to raise their level of trust and increase the likelihood that they will be interested in investing again later or bringing their network of interested investors into the equation. Using this strategy, in the first 3 years of incorporation Naomi was able to raise about 238,000 of the $500,000 total she anticipated needing for the first 5 years.

In seeking to increase expansion and advertising, Naomi chose to focus social networking, giving, and advocacy instead of traditional means of advertising – she explains that traditional media attempts in the first two years of Better Batter’s expansion provided no statistical return on investment (ROI). A side benefit of social networking and advocacy is that it allows the company to interact directly with the customer – building trust in the company and increasing the sense of ownership of the brand at the consumer level. Many of the advertising dollars Better Batter spends go toward free samples for support groups and bloggers who would like to review the products, financial aid for those in need or with autistic children, and discounts given directly to customers via electronic opt-in updating, such as Twitter, Facebook, Newsetters, and RSS feeds.

Staffing can be the final hurdle for a new company to overcome – Better Batter is still small, and Naomi emphasizes that most of her staff wear several hats every day. The majority of staffing costs are attributable to overhead (paying the lights) and taxation (withholding, worker’s comp, etc). Naomi realized early on that bringing all services ‘in-house’ would be an expensive proposition and chose to work around this by networking with other independent entrepreneurs and companies, to allow them to serve her as independent contractors instead of seeking to hire full time staff internally. Naomi’s contracts include product manufacture, order fulfillment, phone services, cleaning, book-keeping and accounting and technical and design work. In each of these, Naomi feels that supporting another business has added advantages beyond saving money. Increasing the flow of money in the local economy is one obvious advantage, but Naomi believes the real advantage is that each person is best suited to do ‘what they do best’ and is freed from bureaucratic roadblocks and hierarchical grandstanding. Naomi says, “We can concentrate on doing what we do best – caring for our customer – and let others shine as well.” As a result, Naomi’s overhead has stayed relatively stable throughout the first 3 years of incorporation, which her sales and profitability are steadily increasing. Naomi expects to be profitable before her first 5 years of incorporation are completed – an impressive task in this economy for any business, and ahead of the curve for a start-up.

When asked what other advice she would give, Naomi emphasized the need to prepare for the worst. The first step is to obtain liability insurance, as well as any other insurance that is necessary to the long-term health of your company, such as recall insurance or key-person insurance.

Beyond this, it’s important to remember that just because things have gone swimmingly to date does not mean they won’t go catastrophically wrong tomorrow. Naomi shared two major events that happened in quick succession earlier this year – a product recall due to the discovery of undeclared dairy in one of the components of one of her mixes, followed by a delay in governmental approval for relabeling (because of a backlog caused by another, nonrelated, recall) caused their company to be unable to sell fully half of their catalog for more than 4 months of this year and cut their projection for sales in more than half, from about $500,000 to a projection of around $200,000.

On the other end of the spectrum – a mention of their product in Gluten Free on a Shoestring (a wildly successful gluten free book) caused their demand to outstrip production within a two week period – causing further delays and out of stock status and lost sales. By planning for how to reduce costs in advance and keeping a sufficient ‘pad’ of emergency funding in the bank, Naomi stated that their company was able to survive this odd mixture of disasters with minimal disruption to their bottom line.

So what can be learned from this? Naomi, originally a homemaker, has had to remake herself into a busy CEO of a growing corporation. Reflecting back on the last five years, Naomi says:

Good Business is Never Half Baked1) Be a learner. Naomi consistently asks for advice from others who have built businesses up from nothing and listens for common threads binding the stories together. Hard work, frugality, and patience have all been key points in others’ success stories, and Naomi has found this to be true for her as well

2) Stay focused – the thing that made Better Batter great was Naomi’s passion for her children to eat normally at affordable costs. By sharing this with her customers and allowing it to drive her business model, Naomi was able to build a brand based on trust. Naomi keeps her business steered toward this ultimate goal and allows her customers access into her passion because this is the only way to ensure that “the magic element” that made her successful will continue to grow the company.

 

3) Avoid debt. Naomi realized early on that she would have to use credit to a small degree to build enough of a credit rating to engage in business on a larger level, but Naomi found that it was better to bring on interested and valuable partners – people who can contribute advise as well as cash – rather than pay someone for the loan of their money for the meat of her operations.

4) Develop the skills you need and gather others around you whose strengths cover your weaknesses. “This is the one thing I did right,” says Naomi, a self-professed networker. “Hire people who are better than you at what you want them to do. Allowing people to really shine in their own area of interest is really important and oils the machine of success.”

5) Have a plan for how you will support yourself while you’re founding the business. Entrepeneurship is peopled with risk takers, but Naomi found that having a nest egg to live on while she learned to be a professional and helped her business grow was essential to preventing much of the stress and poor decision making she sees others make when beginning this journey. “I’m blessed,” she says, “because we have chosen to live on my husband’s salary and I do not have financial pressure to bring home a paycheck.” This has allowed her to work hard at building the business (putting in a full time job) without needed to cannibalize the start up capital. “Be ready to make nothing for the first five years,” she repeats, “and to work full time to do it.”

Growing a company has not always been easy – or fun . Naomi had to learn to put away the ‘mommy’ mode and to do hard things, like letting nonproductive people go and turning down advertising opportunities. It’s been a journey, “ says Naomi, “and I’ve had to become more task oriented and focused.” While this has not been easy, Naomi is thankful for the chance to evolve into a more detail oriented and professional person.

Eventually Naomi hopes to grow the company large enough to sell or license to a parent brand, but in the meantime, she’s committed to continue to serve the gluten free community and to grow the company by treating others the way she’d want to be treated. “I’m better because of Better Batter,” she says.

Better Batter can be found in stores throughout the US and Canada and can be ordered on Amazon.com or at betterbatter.org. Interaction with the company can be obtained by utilizing the following internet platforms:

Facebook: http://www.facebook.com/betterbattergf

Twitter: twitter.com/betterbatter

Website: http://betterbatter.org/our-company/contact-us

Good Business is Never Half Baked

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