The Six Biggest Mistakes Start Up Beverage Companies Make - Pt. 1 No Business Plan
Updated: Nov 1
One of the things that makes David and I unique as commercial beverage formulators is our experience as serial entrepreneurs in the beverage business. We have founded four gold medal award winning beverage companies and grown all of them from -0- to nationwide and international distribution. Motivational speakers say, “you win or you learn”. We have had our successes and we are the first to admit we have learned over the years as well. We learned from our own companies and we also learned from commercial formulation clients that ask us to help them do a turn around on their company. The following represents our OPINION of some of the biggest mistakes we’ve seen made by start-up companies. We invite you to take what works for you and leave what doesn’t.
Mistake #1 - They fail to create a business plan before starting.
“You’ve got to be very careful if you don’t know where you’re going, because you might not get there.”
If you want to travel from Los Angeles to New York City, you have to make a plan. Even with GPS these days, there are decisions you will want to make in how to get there. Are you going to go the southern route and travel through Texas, Tennessee and on up? Or will you go the northern route, up through Denver, Chicago and over?
It’s the same with starting a beverage company. These are just some of the things to think about and plan:
What is your brand image? Price or Upscale/Quality?
What makes you unique in your category?
What is your target market?
What is your plan for growing your distribution? Local, then regional, then west coast, etc.?
What are your cost of goods (COGS)?
When will you need to infuse more cash?
If you're a beverage company and haven’t started a business plan yet, and don’t really know how to write one, we recommend going the most direct route. Just buy business plan software and start filling in the sections that you know the answers to now. As you get more clarity and learn things along the way, you can change things.
We always recommend that you have your commercial formula created FIRST. You cannot calculate your cost of goods (COGS) without knowing the cost of the ingredients.
As you create your biz plan it is essential to have solid financial projections that demonstrate adequate margins and enough funding to see you to profitability.
You’ll want to decide where your beverage will live in the market, and you will need to decide how you will be marketing your product. Will you be in the grocery stores and/or in restaurants and bars? Also know as “bricks and mortar” distribution. Direct to consumers (DTC)?
Many see greater margins in DTC sales and plan to sell the majority of their beverages there. This is certainly an option, but sometimes that segment can be difficult to build significant volume that you may need to reach in obtaining profitability.
Using the 3-tier distribution model will give you a road to broader placement but can cost you on the margin side. Many distributors work on 25%-33% gross margin (GM). Typically, it can look like:
33% - 35% GM to the retailer
25% - 33% GM to the distributor
45% or more to the brand owner
Even though there will be many changes to your plan, it will give you a firm and well-thought-out road map that will be invaluable to the funding and growth of your company.