Ep. 111 – Why Early-Stage Strategy and Finance Don’t Always Get Along

February 1, 2024

For a company that is small and unprofitable, growing through product launches promises an immediate revenue hit. If the product margins and distribution costs are good, finance will be very excited to pursue it. 

And then keep it. Even if it is stagnant, not growing, small and a drag on administrative resources. Or not a favorite of your co-man to produce. 

And so it won’t take long, without a very focused strategy, before this becomes your entire growth strategy. Adding UPCs.

Adding UPCs to replace the ones that got delisted, the ones that stagnated or never took off. The ones only one retailer seems to want. 

You can see where this leads, can’t you?

The solution to any topline problem becomes launching another UPC!

As opposed to crafting a strategy with a longer-term view of where you want to head and then using the 4Ps to get you there with your fans’ help. 

After several years of running finance, sales and ops this way with trade marketing on the side, it can be very hard to break free from the belief that simply launching more UPCs will accelerate growth.

To be clear, you can grow this way. Absolutely. But it could easily be 10-20% annual growth. For years. If you’re EBITDA negative you will run out of cash.

Where finance really can fight against strategy is during a pivot.

Pivots require you to focus on a subset of Hero UPCs and slowly, structurally let them die or engage in a managed delisting. 

If you make the pivot decision months after selling in two new UPCs, this will feel really awkward. Non-strategic finance people will fight your desire to walk away from revenue deliberately in your bid to pivot to UPCs that produce better organic growth.

The entire trade show machine will convince you to keep ALL your UPCs until delisted and to keep launching new ones to grow your topline.

In fact, there is a school of thought out there, a very conservative one, that says you should spread your risk across a hefty number of UPCs, even across categories in the store. If your cookie UPCs don’t work out, maybe your granola bar UPCs will. Or your crackers. Or your flour. Or…you get the idea…

It’s not that these kinds of risk averse platform brands fail at a higher rate. It’s that they are much less likely to scale. In fact, the growth rate of early stage food and beverage brands tends to decelerate as you add categories for sale. And then there is an enormous administrative burden on sales and co-manufacturing. 

As you pile on category after category, you end up functioning like a small private label ordering desk. Oops. Funny. Your co-man’s base business is making retailer store label. How ironic. This is exactly how their top clients behave.

How devastating. Since, you are a branded supplier. 

But a certain kind of financially risk averse founder likes this business set up. And it is a viable business strategy if you have a really good order-taking sales team trained just to make what each buyer wants. And can afford minimal trade support to keep things at least flat, if not growing with inflation.

I know brands where their UPC mix is actually a combination of one-off account sales based entirely on what specific buyers said they wanted from their sell sheet vs. what they strategically sold in….which is nothing…

When you spend too long in a cash flow chasing nightmare, it is understandable why a founder might start to frame every buyer meeting as a sort of ‘major win’ or ‘major rescue.’ The buyer becomes God and you her humble servant. POs drive cash flow in retail-centric consumer businesses, so the inability to look strategically beyond a B2B transactions fueling your P&L is understandable. You are lost in the B2B funhouse, where the mirrors keep you from paying any attention to the end consumer.

Strategy requires walking away from opportunities that work against the strategy. That may sound completely obvious, but, when you are in the room with a buyer who is lusting after a UPC in last year’s sell sheet that you know you are delisting soon, it takes serious fortitude to walk away from that PO. 

Strategically managed businesses seek retailers they can partner with and not all of them will…not right away, when you’re young and small. This doesn’t mean you should be a snob when it comes to opportunities, but it does mean that fewer accounts that get what you’re doing and that you can really support outside the store are the absolute best engine of early growth. 

Support your hero UPCs…stop launching sh*t to grow.