Know Your Cash Burn Before You Ship Your First Case
Given the supply chain costs post-pandemic, the flame-out threshold may have actually lowered since the research that went into my book. Not sure.
Many entrepreneurs think they have the next Big Thing. You kind of have to believe this to push through the unceasing firehose of “NOs” and people that will happily tell you for free: “that won’t work.”
Seriously.
Yet, 70 to 80% of early-stage brands in food and beverage never even get to $500,000 in sales. Whoa.
As you sit back and contemplate that number, it seems awfully small, doesn’t it? And in reality, when you look at the media that covers the CPG industry, you’d swear that everyone’s drowning in multi-million-dollar seed and series A raises.
Unfortunately, the media’s predilection for covering outlier companies who simply raise lots of money continues to confuse many of my clients. The clickbait-ish nonstop coverage of the oversold plant-based food sector is the most egregious ethical failure of trade journalism I’ve witnessed in my career. I watched one publication destroy its subscriber base with this irrational fixation.
This is all noise.
The reality is that most folks who don’t make it to $500,000 in net sales, aside from the folks who decided that $100,000 is all they ever wanted, those folks generally make unforced errors. The most common is not raising enough seed monies to cover the first 2-3 production runs and the first 120 days of operations before distributors tend to pay you. An inability to forecast your early cash burn is a close second. Gary Hirshberg wants to scream “cash burn” into your ears until they bleed and you finally relent.
More thoughts in an upcoming episode of Startup Confidential in April. Subscribe here, so you don’t miss it.