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You Must be Capital Efficient
I write around this subject a lot but never hit it straight on. I call out the importance of building a growth hypothesis, driving discovery, channel strategy, and more. All share a common denominator, and that is cash. Too many early-stage natural product brands are capital inefficient. That inefficiency is the number one killer of promising young brands. The cause is known, and it is not the fault of distributors or retailers. Indeed, they contribute, but the actual reason is a lack of understanding on the part of founders. Tough love here, but too many of you don’t grasp the economic fundamentals of your business. That lack of understanding leads to bad decision making.
Here is what you must clearly understand: unit economics, channel economics, and the effect both have on cash. Starting with unit economics, be clear on your baseline COGS. Know what contributes to the final cost, such as ingredients, packaging, and tolling/processing. Once you establish that baseline, attack each with a mindset of continuous improvement. You must have a line of sight as to what changes can be made to drive out costs. When I ask this question, the most common answer I get from founders is volume. Frankly, that is weak. You should understand not only the impact your run size has on costs, but also investigate potential formula adjustments, purchasing options for packing and ingredients, and what if any…
