Earlier this year I attended the Stonyfield Entrepreneurship Institute conference put on by the University of New Hampshire’s Carsey Institute.  A big question on my mind was whether, and how, other entrepreneurs with families maintain balance in their lives.  The universal answer seemed to be that they do not, in fact, maintain balance in any way, shape or form.  I was a little disappointed not to discover the secret to finding balance, but I was also rather relieved to learn our chaos was quite normal.  It made me think I ought to share a typical day in the life of our foodboomerdom to give you a taste of this brand of chaos …

We were up at 6:30 am, which was the last possible minute we could get up and still get the school bus on time.   I’m still often awakened at night by my kids, ages 7 and 4, for a bad dream or a sip of water or a bathroom trip, so 6:30 is a rude awakening.

Paul stayed at home to get our son on the school bus and then to take our daughter to pre-school.   I went to the shop at 7:00 to begin the opening routine.  I baked six flavors of cookies, made the coffee, baked scones and cinnamon rolls (all scratch made).  The doors opened at 8:00.

After taking our daughter to pre-school, Paul came back to the shop, loaded up his car with product, and tore out to try to get as many deliveries accomplished as possible before he had to pick up our daughter at noon.

At nine I left an employee in charge and went back to our house to work my other (paying) job for a couple of hours from my home computer.  I also had to deal with water system installation guys and a satellite dish repair man during that window of time.

A little after noon I came back to the shop.  Paul had returned with my daughter, but then needed to load up with more product and head back out.  There were a few internet orders and wholesale orders to get out, so I worked on those in between serving customers and attending to my daughter’s many requests for help making a house out of cardboard boxes, snacks to go in her pretend kitchen, bathroom needs, and hug breaks.

A little after 3:00 Paul texted me that he would not be able to get home in time to meet our son off the school bus, so I loaded up our daughter and ran home once again.  If I don’t get there on time, the bus takes him back to school.  Ugh.  I made it.

Despite my son’s tearful protest, I had to bring the kids back up to the shop so I could finish getting the orders out and oversee the afternoon production work.  I set them up with snacks and a dvd in the office and continued the dance of customers, kids, and order filling until Paul got back around 4:30.   After Paul briefed me on his deliveries, he tried to get the kids back into the car to go back home, but of course, now they wanted to stay at the shop with me and there were more tearful protests.  He finally convinced them with a promise of something or other and back home they went.

Once the office was a quiet zone again I caught up on bookkeeping data entry and bill paying.  Oh, the bill paying!  I looked at my long list of to-dos — revising the business plan, preparing new sell sheets, finalizing the packaging on the new product, writing for my blog, coming up with an idea for PR — but they would have to remain undone on the list for another day.  We closed the shop at 6, and I joined my employee in the sweeping, mopping and other nightly closing tasks.

I got home a little after 6:30.  The kids were eating a quick kid-friendly meal of chicken tenders and broccoli.  I helped Paul finish preparing our dinner.   We ate quickly and then it was time for the kids’ bedtime routine of bath, teeth brushing, books and songs.  At a little after 8:00 Paul and I both collapsed on the couch.  There’s usually at least one business related thing we need to talk about that our passing-ships-status didn’t allow us to cover earlier in the day, so we try, but my brain is typically shut down by then and I just do a lot of nodding.  I’m generally too tired to engage in one of the activities I would love to do just for me, like yoga or learning to play guitar.  If I’m lucky I manage to read a few pages in a book or watch a show before I start to fall asleep.

Granted, much of the chaos of our lives is because of the double whammy of raising a young specialty food business while raising young children.   But in a weird sort of way, I think the maddening imbalance we experience trying to do both somehow keeps our bigger perspective in balance.   We cannot, by necessity, solely live, eat and breathe the business.  And we also, by necessity, cannot pull off being perfect parents, which is not possible anyway, but the attempt toward which seems to lead many parents into a different sort of imbalance.

It’s messy in our house, both literally and figuratively, but there you go.  At least now, after hearing the stories of other entrepreneurs, I know I’m in very good company.

We opened our retail shop, or “factory store” as we now call it, a year and a half ago.  At the time, we had gone grossly overbudget on our renovation costs for building out our space, so when it came time to deal with

Before - The Love Shack

signage, we decided to wait and spend that money later.  The result was that the outside of our building was a bland beige with very little to draw attention to it.

Fast forward to the present.  We decided to bite the bullet and invest in some better signage.  We got a recommendation on a good sign guy, Gary Blodgett.  We knew it was meant to be when we discovered that the name of his business was “The Color Shack.”  We had always called our little retail spot The Love Shack.

We had several ideas for what to add, and went back and forth on whether to do just a couple of them or to just go for it and do it all at once.  We ended up deciding to go for it.

We added several elements, a larger logo to the gable on the front of the building, as well as descriptive signs that say “Fresh Baked Cookies” and “Frozen Cookie Dough.”  Even though we had a good sized metal “Vermont Cookie Love” logo sign out in the front of the building, people had commented that they didn’t know what we did.

We had gone back and forth also about whether it would be appropriate to use our nickname for our shop officially.  I mean, “The Love Shack” could be misconstrued.  But after a long time of referring to it that way, we felt it could work as long as the graphics were appropriately playful.  Thanks to our beloved graphic designers, Gotham City Graphics, we felt sure that they could make that happen.

The Final Sign

We decided not only on adding “The Love Shack” but also we opted to add a number of colorful dots to the building in line with the dot motif on our packaging and our website.   The final sign – the Love Shack – was installed just two weeks ago.  Not to be cheesy, but we LOVE these signs, and so do our customers.

If I had a nickel for every time a customer has come in these last two weeks and said “I’ve driven by this place a million times and finally decided to stop…” – well, actually, I kind of DO have a nickel for every time!  The very day the last sign went up was our biggest sales day ever.  The base line sales level has risen by at least 50% in these last two weeks.  It doesn’t appear to be a coincidence, and now we are kicking ourselves for taking so long to make it happen.

Chock it up to experience.  The next time we do this, if there is a next time, we will know better.

So there I was as spring was about to sproing, registering my domain name, building my theme and planning the articles I would post on a regular basis.   And then business slowed down for us.  We were still staffed as we had been during December, the busiest month of the year last year, and suddenly we found ourselves under a too heavy payroll burden.

We had to cut back.  Fortunately we had two people for whom our hours were extra so it was not quite as uncomfortable as it could have been, still, I was nervous that we would lose them completely.  Time will tell.

What this meant for me and for Paul was that we were both suddenly back to doing the tasks that we had hired these other employees to do.   As a result, my beautiful new blog site sat inactive while I baked and packaged and sold cookies and dough to customers who came into our shop.  And Paul’s plans to travel far and wide selling our product to new stores was put on hold.

So how the heck are we supposed to grow this business when all of our time is spent on the daily tasks of the status quo?   When you’re bootstrapping a business financially, the only capital you have to fund your growth is new sales and your own labor.  The situation has made us seriously consider seeking investment funds, but we have mixed feelings about that.  Some of the specialty business owners we admire most here in Vermont have built their businesses without going down that road, and they recommend we follow suit.  And yet, do we have the endurance to do it?  Again, time will tell.

I do still have the best of intentions to get back to the meat and potatoes of this blog.  At the moment, doing so will be a little like a runner in the middle of a marathon attempting to answer her email.  But hey, stranger things have happened.

What kind of legal entity are you going to be? Do you know? Do you care? Should you care? Well, yes, and no. Let me explain.

I’m writing this article under the assumption that most of you who read it are starting a food business out of your kitchen, or if not literally out of your kitchen, then on a very small scale. I don’t think anyone who is raising serious capital and taking on multiple investors will be reading this blog. This article is geared toward the small-scale producer, and the small-scale producer doesn’t really need to over-think this choice in the early stages. If you’re going into this venture alone, don’t sweat over this decision at this stage. The practical reality is that being a sole proprietor and being a single member LLC will look almost identical in the early years.

What do I mean? One of the main advantages to several business entity structures is limited liability it affords the owner(s). This means that you may not be personally liable for the debts and legal snarls of the company except to the extent that you have invested in the company. The reality, however, is that you are likely to be on the hook for most of the company’s financial obligations because most lenders and vendors extending credit to you will in all likelihood ask you to sign a personal guaranty obligating you to repay the debt in the event that the company does not. They want the money the business owes them and don’t want you to hide behind your business entity structure to keep from paying the debt. So if you are alone starting a company, and you’re starting on a very small scale, it may not be worth it for you to go to the trouble of forming an entity for this purpose.

However, if you are going into business with other people, whether or not you are related or married, it is my opinion that you should hire an attorney to help you craft the details of that relationship, whether it will take the form of a partnership, LLC or corporation. The courts are full of business owners who did not work out those details with each other ahead of time and then disagree on how things should go down later on. It’s money well spent in the early stages.

Ok, so that being said, let’s review the most common options for entity structure: sole proprietorship, partnership, limited partnership, limited liability company (LLC), business corporation (C Corp), and subchapter S corporation (S Corp). It’s important to note that legal entity status is something that is created under and governed by state law. Each state will have its own laws regarding formation of a legal entity, filing requirements to maintain its status, and so on. Do your homework about what is available in your state, or better yet, consult with an accountant and attorney.

Now that we know our main options, I’ll go over what they are and the pros and cons.

Sole Proprietor: The vast majority of businesses in the United States are this form of entity. Being a sole proprietor basically means that you do nothing to create a separate legal entity for your business. You are your business, your business is you. All income is taxed to you, and all expenses are on your personal tax return. You are liable for all debts and any damages caused by your products. It’s all you, baby. A business owned by a married couple can be treated as a sole proprietorship even though there are two individuals involved.

Pros:

• There are very few, if any, expenses involved in establishing your business entity and maintaining its status. It is likely that from the state’s point of view, the only formal filing you would need to do is a trade name or “doing business as” kind of filing. This just makes sure that if your business uses a name other than your own name, the state has a record of that on file. In other words, they want to know who is behind “Acme Foods.”
• You would record your income and expenses on a Schedule C to your personal 1040, which is less complicated and less expensive than filing a partnership or corporate return. This means that the business is taxed only once (unlike a C Corp, which is taxed twice). One thing to keep in mind is that you can start out as a sole proprietor, and change to an LLC or corporation at a later date in the event that you find you need to start raising capital.

Cons:

• Exposure to liability. As I said, you are the one responsible for all financial obligations and legal liability kind of any kind.
• If you intend to sell the business, it can be a deterrent to a potential buyer that you are a sole proprietor. There are some complications that are beyond the scope of this article.

Partnership: This is where two or more people or legal entities are in business together without any formal limitation of liability of any partner. These are called “general” partnerships. State law governs how these partnerships are created and maintained as well as how liabilities and powers are allocated between the partners. However, even thought states have these laws that govern the relationship, the partners can create their own partnership agreement (and should!) which can change what would otherwise be the rules under state law. For example, in the absence of such a formal partnership agreement, each partner is liable for the financial and legal obligations of the business as a whole, even if that partner only owns a small fraction of the business. Similarly, each partner has equal power to create obligations on behalf of the business. I reiterate, however, that these so-called “default” rules can be changed by a formal written agreement between the partners.

Pros:

• One of the pros of forming a partnership is also one of its cons – it is incredibly easy to create a partnership. It’s basically the same as a sole proprietorship in that you may only need to file a trade name or “doing business as” filing to reserve the business name, and otherwise, you are in business together. So the costs of formation can be low.
• There are not as many formalities to maintain the partnership legal status as for a corporation.

Cons:

• The ease also means that partners almost always go into business together without formalizing their relationship in a partnership agreement, and then it can become very sticky to sort out the liability and responsibility issues down the road when the business is already in operation. Partnerships frequently fall apart for this very reason. Therefore, it is always advisable to have an experienced lawyer draft a formal agreement for you. In that event, however, the cost of formation will be much higher.
• Each partner will be liable for the obligations of the whole. What if one partner takes out a loan for a deal that falls flat and loses money? You guessed it, the other partner(s) will have to repay the debt.
• Filing tax returns is more complicated and hence expensive than for a sole proprietorship as there is a separate partnership return that must be completed (form 1065). If the books show a profit for the year, then that profit passes through to the partners as taxable income which they must report on their personal income tax return, even if the earnings are retained by the business for growth purposes.
• The partnership may end upon certain events, such as the death of one partner, unless there is an agreement setting forth what happens when some such event occurs. This may not be the result desired.
• It is more complicated to dissolve a partnership than to end a sole proprietorship.

Limited Partnership: This is another form of partnership where one or more of the partners has limited liability, in other words, a limited partner is only liable for debts and legal liability to the extent of that partner’s investment interest. This is a creation under state law, and each state’s laws regarding formation and maintenance of the limited liability status must be strictly followed.

Pros:

• It can be a very useful way to raise capital as offering limited liability to a potential investor may be an incentive for them to make the investment.
• The death, withdrawal, bankruptcy or retirement of a limited partner will not generally result in the termination of the partnership.

Cons:

• The cost of formation and maintenance is higher, as it is for a general partnership.
• State formalities must be strictly followed in order to form the limited partnership and to retain its status.
• It is possible for a limited partner to lose the limited liability status if that limited partner is deemed to have participated in the management of the business to a greater extent than is allowed under state law.
• Filing tax returns is more complicated, than for a sole proprietor, as was the case with a general partnership.
• It is more complicated to dissolve a limited partnership than to end a sole proprietorship.

Limited Liability Company (LLC): The LLC is a relatively recent creation under state law. It has only been around for thirty years or so, and some states have only recently climbed on board the LLC train. This entity provides limited liability for its “members” but allows those members to participate in the management of the business, unlike in the limited partnership.

Pros:

• Members enjoy limited liability, having liability only for debts up to the extent of their ownership interest.
  It is relatively easy to form, generally the only requirement is to file articles of organization with the state. This was a one page form when we did it in VT, for which we paid a fee of about $20 upon filing.
• There is great flexibility in management and control over the affairs of the LLC.
• If the LLC has only one member, then the income and expenses can be reported on a Schedule C on the member’s 1040 as for a sole proprietorship.
• The death, withdrawal, bankruptcy or retirement of a member may not result in the termination of the LLC, but consult with your attorney to determine what your state’s statutes provide. This issue should be addressed in an operating agreement drafted by your attorney.
• Ownership interests and rights to distributions can be divided differently, in other words, even if two members each own 50% of the business they can decide to split the distributions, for example, 60% – 40%.

Cons:

• Formation costs go up if you have an attorney prepare an operation agreement, which is always a good idea.
• It is possible for a limited partner to lose the limited liability status if that limited partner is deemed to have participated in the management of the business to a greater extent than is allowed under state law.
• If you have more than one member, you must file the 1065 tax return form as for partnerships, which is more complicated to prepare than the Schedule C for a sole proprietor.
• Some states impose a separate tax on LLCs.
• Even if the LLC retains earnings with which to grow the business, members must pay income taxes on those earnings.
• It is more complicated to dissolve a limited partnership than to end a sole proprietorship.
• You may need to convert to a corporation in the event you need to raise serious capital.

Business Corporation (C Corp): A corporation is also a creation of state law. It is a separate entity for taxation purposes, having shareholders, a board of directors, and officers for management of the business. In order to form a corporation, the founders must file articles of incorporation, a corporate charter (or the particular state’s equivalent) with the state authorities, which will detail the number of shares of stock that are authorized under the corporation, appoint an initial board of directors, and hold an initial organizational meeting of the board of directors. By-laws will generally be voted on an approved at the first organizational meeting. The by-laws can be general or very detailed. Certain formalities must be adhered to as required by state law, such as annual meetings of the board of directors, and minutes maintained of all regular and special meetings of the board of directors or shareholders.

Pros:

• Provides the most flexibility for raising capital.
• Shareholders enjoy limited liability to the extent of their investment.
• Directors and officers generally enjoy limited liability as well, although the “corporate veil” may be pierced under certain circumstances to expose individuals to legal liability.
• The entity continues until legally dissolved, regardless of the death, withdrawal, bankruptcy or retirement of any given shareholder, officer or director.
• Selling or transferring ownership interests can be more straightforward than with a partnership or LLC.
• If the corporation is for a small business, formation costs may actually be less expensive than for a partnership.

Cons:

• Generally speaking it is the most expensive form of entity to maintain. There are annual filing requirements and possibly franchise fees or taxes associated with maintaining good standing with the state.
• Earnings of the business are taxed twice. The corporation pays taxes on income (at a higher rate than that applicable to most individuals), and if there are dividends paid to the shareholders, they must pay personal income taxes on those dividends.

Subchapter S Corporation (S Corp): An S Corp is a corporation with that has made an S Corp election on form 2553 with the IRS. This means that the earnings of the corporation will flow through to the shareholders rather than be subject to the double taxation of a C Corp.

Pros:

• Pass through entity taxation. In other words, no double taxation.
• Some portion of distributions may not be subject to self employment tax.
• Shareholders enjoy limited liability to the extent of their investment.
• Directors and officers generally enjoy limited liability as well, although the “corporate veil” may be pierced under certain circumstances to expose individuals to legal liability.
• The entity continues until legally dissolved, regardless of the death, withdrawal, bankruptcy or retirement of any given shareholder, officer or director.
• Selling or transferring ownership interests can be more straightforward than with a partnership or LLC.
• If the corporation is for a small business, formation costs may actually be less expensive than for a partnership.

Cons:

• Just as expensive as a C Corp to form and maintain.
• There are a few more restrictions for raising capital than for a C Corp.

Recently I attended a business plan writing workshop hosted by the Champlain Valley chapter of SCORE (http://score284.org/) and Merchants Bank, which made me think this is as good a time as any to talk about the dreaded subject of business planning. I’m not going to tackle how to write one in this article.  This is more about the whys and wherefores of doing it at all.

I call the subject “dreaded” because those of us who are not business people going into this adventure are more than a little intimidated by the task.  I know it felt like a huge, daunting term paper for me, and I have plenty of writing experience. What was hard for me, I think, was the nagging awareness that writing a business plan could force me to admit all the things that I did not yet know enough about, which could, in turn, take the wind out of my sails. Gross margin, huh?  Market share, whaaa?  Although it did in truth make me feel mighty uninformed – if not downright stupid sometimes – writing the thing did not take the wind out of my sails. Far from it. It gave me focus and confidence (once it was all done), and a roadmap with which to sail the boat.

So what is the reason for doing it at all?  There will be times when you absolutely need a business plan, such as if you are applying for a loan, or if you are seeking investors.  For those purposes, you will want the best, air tight plan you can come up with.  But even if you are seeking neither loans nor investors, the best reason of all to write one is to allow you to think through your business idea thoroughly and solve the problems that you will inevitably see as you do your research.

I did not write a business plan before we started. In fact, I didn’t start it until we were a good six months into the business. And it probably took me another six months to write.  Before you are alarmed by that, bear in mind that with two kids and another job on top of the business, I could only steal a few hours every couple of weeks to do it.  I would guess that it took me about 30-40 hours of my time to complete.  It will take others considerably longer, and still others a fraction of that time.

Some will tell you that you really should write one before you do anything concrete related to the business. That is a good rule that we did not follow. For us, because we started so small with very little money out-of-pocket to get us going, it worked just fine for us to wait. For one thing, waiting gave us a little bit of real world sales data on which to base our projections. For another, we had a better sense of what we needed to do to grow, which gave the plan more purpose.  If you will be sinking some real funds into your business right from the get-go, I recommend you follow the wise advice and do the homework before you get started.

Let me digress here for a minute to say that, in my opinion, you do not need to spend money on a special business planning software package. I did, and ultimately, I did not use that software to write the plan. There are a number of free options you should take advantage of. SCORE, for example, has a free template you can use to build your plan (http://www.score.org/business_toolbox.html). I also discovered, after wrestling for months with one particularly user-UNfriendly software program, that Quickbooks has a built in business plan tool that allows you to import your actual financial data to build your financial models. Hellooooo. Much easier.

For me, one of the best resources for writing the plan was to review other sample plans.  There are numerous sample plans available for free on the internet.  For example, entrepreneur.com has a collection of 50 sample business plans to review free on their website (http://www.entrepreneur.com/businessplan/a-z/).

Definitely look for the SCORE chapter near you (www.score.org) and watch for one of their inexpensive seminars.  Although it really just gives the broad strokes of the basic elements that need to be included, it will make the process more accessible.  And get yourself a SCORE counselor to help you as you slog through the process. Send them each section as you have a “finished” draft for their comment.  Their services are free.  Can’t beat that.

If you want more of an in-depth course in business plan writing, look for a continuing education class through a high school or local college.  In the Burlington area, the Women’s Small Business Program offers a 15 week course on how to plan and start a business that results in a completely written business plan by the end of the course (www.wsbp.org).  It is not cheap, but they have financial aid available if you qualify.  I know one successful business owner in Burlington who swears by this course.

You can always hire a consultant to write your plan for you.  However, it would be my advice to go through the process yourself first, and if you feel your finished product needs more work, hire the consultant to hone it for you.  Sure, it would be great to have a professionally written plan, but if you ask me, the most valuable part about having a business plan is the education you got while writing it.

It’s two weeks into the New Year and I realize I am already behind. I wanted to have a clear sense of what we had accomplished in 2009 in a sort of “report card” kind of way, and a clear view of what we want for 2010. We’ve been meaning to have a “board meeting” (Paul and Suzanna talking over a meal at a restaurant without kids) since before the New Year, but it’s easier to solve the rubix cube than to get a night out alone. So here we are blindly slipping down the road of the future once again.

Just off the top of my head, here are some of the things we accomplished in 2009 that perhaps we should give ourselves some credit for:

(1) our gross sales were 25% higher than our projection, and more than triple our 2008 sales (not to mention that our projections were put together before the economy tanked);

(2) I think we passed the break even point, although I have to talk to my accountant to know if I’m right about that;

(3) we established relationships with three different distributors and are now in at least 3 states, with more to come;

(4) we initiated conversations with Whole Foods that could lead to placement in their North Atlantic region stores in the next few months;

(5) we probably doubled the number of stores that we are in (but we don’t really know because distributors sometimes don’t want to share that information);

(6) we landed a couple of really great bulk dough food service accounts (i.e., Ben & Jerry’s in the University Mall);

(7) we had a productive conversation with a co-packer about the possibility of working with them to automate the production of our cookie dough in the future and feel really good about that option;

(8) and perhaps the most important accomplishment is that we are still afloat, both in business and personally!

On the other side of the report card, in the “needs improvement” category:

(1) we need to reduce or at least control our expenses to maintain a better margin;

(2) cash flow became a huge challenge in the fall when the cash sales for the shop diminished and accounts receivable increased;

(3) we still feel like we’re fumbling in the dark when it comes to having a firm grasp on business finance;

(4) we have no more capital with which to expand;

(5) we still can’t really pay ourselves, which is taking its toll; and

(6) our website is not really paying for itself yet, so we need to put more effort into making that work for us.

Our business will turn three this year. A number of people have told me that it’s “normal” for a business not to turn a profit until the third year. Is that true? I don’t know. All I know is that this is what it looks like when you start a business with whatever you have in your savings account, and then beg and borrow money from family and friends as you grow.

Here are some things we’d like to make happen this year:

(1) We’d like to create an advisory board. We have already received amazing help from other entrepreneurs in the food industry, but we’d like to formalize some of those relationships and create some new ones.

(2) I want to revise our business plan so that I have a sense of what it is going to take for us to grow to the level that we would need to in order to enter into a relationship with a co-packer.

(3) I want to develop one or two new flavors to add to our product line, and I want to introduce our scones to the market.

(4) We want to jazz up The Love Shack with better signage and more merchandise.

(5) We want to put real effort into marketing our website to make it profitable.

(6) We want to increase our press exposure.

(7) We want to triple sales again.

Pie in the sky? Who knows? I thought my 2009 projections were out there, so hey, anything is possible.

Here’s looking at you 2010!

This is our third November in business and each one has been slow in comparison to the other months. This year is no exception. It’s noticeably slower, especially at the shop. But I’m grateful for the calm. It’s been a much needed time of rest after the busy summer, the whirlwind trade show experience and the busy leaf peeper season. December, traditionally, has been the busiest month for us, so we are preparing for the storm.

Sales of our dough in stores is always higher in December, about a third higher than our next biggest month. People do a lot of baking around the holidays! Not only that, but a new distributor will be debuting our products in its catalog in December, potentially leading to sales in a bunch of new stores that we are not currently servicing.

Internet sales for the holidays were just starting last year when we opened our shop and debuted our ecommerce site on December 15, but we had a whole lot more orders than we expected last year. Now that a lot more people know about us, we kind of expect this year to blow last year out of the water on the internet. Then there is Dakin Farm, a local mail order company, that has put a box of our cookies into one of its tower gift offerings (click here). We really don’t know what kind of volume to expect from that, but they say they do most of their business during the holidays. And then there will be more customers in the store itself wanting to buy fresh baked cookies to take to a party or office event or whatever. We anticipate that all of these things together will make December a total blur, in the best possible way.

I try to have perspective about November’s “slow” sales. Just two and a half years ago we ended our first day at a farmer’s market having sold $127 in cookies and dough. This past weekend Paul delivered $1,800 worth of dough to just two stores in New Hampshire. We’ve grown a lot and “slow” has a very different definition now than it did two and a half years ago. And there are ebbs and flows in business and in life, and that is just ok.

There’s another sort of storm we are readying for other than the ho-ho-holidays. That distributor I mentioned that will debut our dough in December serves stores throughout most of New England. There is the potential for getting our products into hundreds of new stores. This sounds great, doesn’t it?? Well yes, of course. But it makes us worry about one of the most challenging aspects of our business right now, which is production capacity.

Currently one person does all the mixing for us. She’s a mixing superstar, doing about 1,000 pounds a week in 88 pound batches. Then the rolls of dough are all cut, wrapped and sealed by hand as I described in an earlier post. If this distributor starts ordering large quantities, we will have to do some serious scrambling to amp up production.

In anticipation of all this, we met with a possible co-packing company two weeks ago. For those of you who don’t know about co-packers, they are companies that will manufacture your product for you so you can focus on sales and marketing. There are an awful lot of specialty food companies out there that are built on this model. If you would like to learn more about available co-packers in your area, you can contact the National Association for the Specialty Food Trade (NASFT) (http://www.specialtyfood.com/do/Home). This trade organzation maintains a database of co-packing facilities. While it may not be all inclusive, it is a good start. Call them at 212.482.6440 and ask for the Member Resources Manager. When I first explored this option three years ago that position was held by Heather Paul (hpaul@NASFT.org).

We think co-packing will be the best way for us to grow since we don’t have large amounts of capital on hand with which to build our own automated packaging facility. The biggest hurdle to going down the co-packing road is that we will have to commit to making roughly 30,000 pounds of dough a month whereas we are only making about 4,000 pounds a month right now. How will we bridge that gap? I think, although I haven’t really had a chance to analyze this yet, that we will have to get to the point where we are making and selling at least 20,000 pounds a month ourselves before we can make the leap to co-packing with confidence that we can move the product fast enough.

So we are faced with the potential problem of how we quadruple production capacity in our shop before we make the leap to co-packing. I don’t have the answer now. It’s what I will be chewing on right after I finish chewing on my Thanksgiving dinner.

I will do my best to post in December, if I don’t, you will know why.

Have a Happy Thanksgiving everyone!!

Suzanna

A follower recently mentioned in an email to me that my blog may discourage some people from choosing to go down this entrepreneurial path. That’s certainly not been my intention. It got me thinking though. Information from someone who has already gone through something that is brand new to us can seem a little daunting, maybe a lot daunting, maybe even negative or downright discouraging. So why would anyone in their right mind do it?

I had the experience myself this week of feeling a little discouraged by the experience and wisdom offered by some peers in the industry. I honestly don’t think they intended to be discouraging. One had been in the specialty food industry for more than 25 years and is very successful by anyone’s standards. But he had weathered a lot of ups and downs in those 25 years, and shared what he wished he had done differently. He shared what he had learned with the hope, I believe, of helping our road be a little less full of pot holes.

But here’s the thing…

Sure, business is business. And the specialty food business is a business and there are rules in business and defined ways to measure success, blahdy blahdy blah. What’s your gross margin? What’s your multiple for valuation? What’s your product velocity? No one goes into this intending to be blind to all that, but we ought not to go into it blind to the less tangible measures of success either.

I’m reading Eckhart Tolle these days. His message is to live in the moment, don’t judge it, don’t label it, don’t resist it. Just let it be what it is while being present for whatever that is. It doesn’t mean you can’t have fun planning for the next moment, as long as you don’t expect your happiness to arrive at some future point, because it will never arrive. You will always just be in the present moment. This idea has been a great comfort to me. It’s also transformed how I think about success.

How you measure your success should ultimately be up to you. Even before reading Eckhart Tolle I had decided that my idea of success in life is to enjoy myself. And for the most part, I do. I want to get up when it’s my day to open the shop. I look forward to learning the next thing I need to learn, and to creating and planning and to making people feel good with our cookies. People are in a good mood when they leave our shop. That sort of thing goes a very long way.

Whether we end up putting our kids through college with this business, or selling it, or going broke, I know one thing, that we are enjoying the ride, and that’s enough.

It has been an exciting week for Vermont Cookie Love. This week we moved further toward establishing a distributor relationship with Associated Buyers. It looks as if we will be added to their catalog of products in December . They cover most of New England, so this could mean a very large increase in our production and sales.

We also had a conversation with Ben and Jerry’s this week that could mean a large increase in our bulk dough sales. We sell our bulk dough in 15 lb. blocks. The company Ben and Jerry’s still owns several scoop shops here in VT (i.e., they are not franchises). They are considering buying our bulk dough to bake for cookies in these shops.

That brings me to one of the topics for this week, which is batching-up. How do you take a home sized recipe and increase it in size? How do you go from a recipe that fits in a 6 qt. home stand mixer to a recipe that makes the most of an 80 qt. Hobart mixer? When we started out doing this, we thought it was a matter of just multiplying the ingredients by two, four or whatever to increase the size. Turns out that’s not how it’s done.

The first step in batching-up, and in recipe development itself, was to reduce the quantity of each ingredient used to a weight, and preferably grams rather than ounces. Weighing ingredients by the gram was the single most important thing I learned in order to create consistent recipes. I had no idea when I started out how much different in weight a cup of flour can be from one measuring to another. Do you scoop it in the cup and level off? Do you sprinkle the flour into the cup lightly then level off? The difference in weight is staggering, and the outcomes very, very different. So when we developed our recipes, I weighed each ingredient rather than measuring. And when I made adjustments of an ingredient, that adjustment may have been too small to measure other than by the gram. But the difference in outcome was enough to notice.

Once you have your recipe written out in grams, add up all the ingredient weights to arrive at the total weight of your batch. Then you calculate what percentage of the whole batch each ingredient constitutes by dividing the ingredient by the whole. As an example…

Flour – 1000 g = 1000/1360 = .736 or 73.6%
Sugar – 200 g = 200/1360 = .147 or 14.7%
Eggs – 150 g = 150/1360 = .11 or 11%
Salt – 10 g = 10/1360 = .007 or 0.7%
TOTAL – 1360 g = 1 or 100%

Now that you have the percentages, you can pick a large batch size and multiply the batch size by the percentages to arrive at the weight of each ingredient for that batch size. For example, the first large mixer we used was a 60 qt. mixer, which could handle a 30 kg batch of dough. So for our example, the calculations would be as follows:

Flour – .736 x 30,000 (30 kg equals 30000 g) = 22,080 g
Sugar – .147 x 30,000 = 4,410 g
Eggs – .11 x 30,000 = 3,300 g
Salt – .007 x 30,000 = 210 g

Certain ingredients may not batch-up as well, such as spices or salt. We learned all this from Brian Norder at the Vermont Food Venture Center. He taught us that salt, for example, may need to be decreased in the final large batch because ingredients that are a very small part of your home sized batch may become overwhelming when batched-up. That happened in our case for some of our flavors. We ended up decreasing the salt content by about 25% from the batch-up recipe.

When it comes to packaging, we still have a lot to learn, and it is an ever-evolving work-in-progress. At the point when we were selecting packaging for our frozen cookie dough, we were heavily influenced in our choices by our desire to make the packaging look like a burrito (in keeping with the DOUGH-rito theme, now no longer used). But it was also important to create a barrier from freezer burn. We wanted to start with a layer that the dough would not stick too very much. We tried waxed paper, but it disintegrated. We decided to go with freezer paper because it is designed to protect the food from freezer burn and it created a nice foundation on which to wrap the aluminum foil. The foil adds another layer of freezer protection and provides a tighter seal than the paper. It also looks like a burrito, at least the kind you get in a California burrito shop.

We had our graphic designers create the “cuffs” that go around each log of dough with all the required label information and baking instructions. As I mentioned before, we started by photocopying our cuffs at a copy shop and securing them to the foil with tape. We closed the cuff with one of our logo labels. A year after we started, we had the cuffs redesigned and printed to look more professional. They are now on freezer tolerant paper with an adhesive strip to attach them to the foil.

The final piece to our packaging is the plastic outer layer, which comes in a tube form that is then sealed. We have to thread each log of dough individually into this tube of plastic and then seal it with a hand sealer.

As many of you may imagine, our packaging will need to be changed if we ever hope to become more efficient at producing the product. Chances are we will need to extrude the dough with a machine into plastic tubing, and have our label information printed right on the tube. We have resisted such an idea until now because we fear there will be less to differentiate us from the mega brands of dough in the refrigerator case. Unless we come up with another idea though, there may be no other way for us to grow the company.

If I were to advise another company starting out about packaging, I would suggest they think about the “what if” scenario where they need to produce thousands of units of their product very quickly. Would they be able to do that with the packaging they have in mind? If growth of that nature is not a goal, then it may not be an issue. Perhaps maintaining an artisanal profile is more important than growing the company. In any event, it’s something that is best taken into consideration early on.

I’m off to stoke to fire and find a really good beans and rice recipe for tonight.

Farmers’ markets are almost over for the season. Shelburne has one more week and Middlebury goes a few more. I have mixed feelings about the end of the season. As I mentioned before, I am tired, bone tired, and ready to have one less thing on my plate. But this may well be our last farmers’ market season, so I’m feeling nostalgic since Shelburne Farmers’ Market is where it all started. We will save the decision until next year (when we are more rested?) but as it stands, we feel spread a little too thin and are inclined to stop trying to do the farmers markets.

In the recipe development phase, we made all our batches at home. But we knew that we were going to need more dough to make our cookies and frozen cookie dough than our trusty stand mixer could handle, so we started exploring options for mixing elsewhere. Paul had learned about a wonderful resource in Vermont called the Vermont Food Venture Center where small food entrepreneurs could make their product. We called them up and set up a meeting.

The staff at the Venture Center was amazing. They provided us with a cd about starting a food business that outlined many of the steps involved in launching a product — from batching-up our recipes (i.e., turning our home batch into a gigantaur batch), to licensing requirements, to FDA nutritional labeling requirements and more. It provided lists of resources for labels and packaging materials and ingredient distributors and service providers for food nutritional analysis and graphic design.

The facilities at the Venture Center are great for a start-up company. It’s in a cool old manufacturing building in Fairfax, Vermont, about an hour’s drive from us. It has a large commercial kitchen, a 60 quart hobart mixer (important to us), a flash freezer and large walk-in storage freezers and refrigerators. Each company is provided with a little space to store ingredients, which can be delivered directly there by the ingredient distributor. And the best part, perhaps, was that a tiny company with no real capital behind it (more about that later) could rent all this on an hourly basis after becoming a member (which only cost about $100 a year). In our case, we figured one mixing session would last us a month at the beginning, so all we would need was a few hours at a time once in a while. At that time, rates were roughly $20 an hour, give or take depending on the equipment you needed to use.

With their resource cd in hand, we went about doing all of the things we would need to do in order to offer the frozen cookie dough at the first farmers’ market. The next thing on our to-do list was to figure out how we would package the frozen cookie dough, get labels designed for the dough and have nutritional analyses done to put on those labels. At first we planned on offering only two flavors as frozen dough, even though we had four flavors developed at that point. If those were received well, we’d go forward with the others.

The nutritional analysis part was interesting. I had never even wondered how that was done. Basically, you hire someone to take your recipe and break it down into the nutritional components that are required by the FDA to be on labels. One thing to note is that if you never plan on selling your product in “interstate commerce” then you don’t have to have this done. Basically, if you do not sell your product across state lines, then you can get away with just a list of ingredients, but the minute your product crosses state lines, then you must abide by all the FDA regulations. We had no idea if our product would ever cross state lines, but we wanted to be optimistic and do it right out of the gate to avoid having to redesign packaging later. (As it turned out, we did have to redesign packaging anyway, and will again soon, but whatEVER!)

Our nutritional analyst was and is Wendy Hess. She is based in Burlington, Vermont and must be kept very busy with all the food businesses that are started here. She was great to work with, turned our materials around very quickly, and even offered great email moral support.

When it was time to design the labels for the frozen dough, we once again turned to Gotham City Graphics. We loved the logo they had come up with for us, and we loved working with them, so it was a no-brainer. We had already decided that we were going to package the dough shaped like a burrito, although some of the details of that had yet to be worked out. Steph from Gotham designed what came to be called a “cuff” that would wrap around the burrito shaped log of dough and provide all the information. We wanted to keep expenses very low at first, so we decided these cuffs should be something that we could photocopy and adhere with one of our logo label stickers. Early devoted customers will remember the pastel colored paper we used — goldenrod for chocolate chip, baby blue for triple chocolate, green for peanut butter, pink for oatmeal, etc.

I’ll go into more detail about packaging decision for the dough in another post. For now, I want to talk a little about financing. In the beginning, our financing consisted of whatever money we had on hand. Since we had no financing to speak of, we were forced to start incredibly small. I wonder what it would be like to launch a new product on the market with real capital? We saw a few companies at the trade show that were less than a year old and had their acts together in a manner that made it clear they had some moolah behind them. I still feel like a freshman when I see companies like that. But on the positive side, we were able to test our product in a small market and figure out whether or not there was a demand and whether people liked it before taking on much risk.

A year into the business, when we had already placed the products in more than 20 stores, we finally sought some additional financing. But again, we have not ventured into the real world of capital yet as our only investors so far are family and friends. By the time we went begging with out hat in our hands, we had answered the questions about there being a demand and interest in the products. So here we are at the beginning of our third year in business and we really have no experience in raising serious capital. I may be trying to pick some of YOUR brains about that in the coming years.

I’m off to open the shop with both kids under foot. Paul is giving away samples at the City Market Harvest Festival in Burlington today.

I think I’ll go further into packaging and batching-up in my next post.

Until then…