Minh Tsai: How I decide to invest in your food business
Minh Tsai, founder of Hodo Soy, is an active mentor and investor in the Bay Area good-food community. He has grown his business from farmers’ markets to wide national distribution and every time we enjoy Chipotle’s Sofritas we’re eating his distinctive tofu. Minh shares his lessons and advice for aspiring and new food businesses with us here.
Q. Minh, you’re known as ‘The Tofu Mastermind’ and Bon Appétit called your tofu a ‘game-changer’ but has tofu always been your calling?
I love tofu, but my calling is making delicious foods for folks to eat, and tofu is a food that I love and see an opportunity to re-introduce it to consumers. I want to disrupt conventional wisdom about tofu being a bland meat substitute and prove that is it a delicious food with a wide range of applications.
Q. You’ve taken your business, Hodo Soy, from farmers markets to wide national distribution and an exclusive partnership with Chipotle. What are some key lessons you can share from some different stages of a business’s growth:
Farmers market or festivals: Farmers’ markets remain a critical testing ground and launching platform for food start up. It is a great place to get instant feedback on taste, price, packaging etc and the investments is less intimidating than trying to sell direct to retail stores. Farmers’ markets are the place you’ll get the most direct feedback on your products, especially from repeat customers – their likes and dislikes, their favorite items or flavors, frequency of purchase.
Local grocery entry: Local grocery stores are a good next step after farmers’ markets (or at same time as farmers’ markets) to get your products and brand out to consumers. Stores are great places for consumers to find you when you are not doing a farmers’ market. Getting into stores is not easy as you learn to deal with buyers and distributors (if you have wide distribution), and also learn the costs of distribution. Specialty grocery stores or smaller chains will often use a Direct Service Delivery (DSD) model for new products that they really want or for products with short shelf lives. This model allows the producer to manage their allocated shelf space themselves – merchandising and stock management. You get paid for what you sell and it’s a low risk arrangement for the store(s) to test your product.
Wider distribution: Unless you have big production capacity to make products, long shelf-life or shelf stable products, it is challenging to get wide distribution because most young companies do not have the customer support structure to keep products on the shelves. I remind producers often that it is good to be able to get products on store shelves, but the ultimate win is to get them off the shelves. Store shelves are like rental spaces, if your products do not sell, they store will not make money and will boot you off. Often, new companies do not have ready marketing and customer support infrastructure in place to support broad distribution. Many small producers have gotten themselves into trouble when scaling up too quickly into wide distribution only to find that their product is dropped once the buzz dies down. You need to have both the production, sales and marketing resources to not only launch but maintain sales in stores.
Q. What are some common mistakes or missteps you see food startups make at different phases of growth?
The two common mistakes I often see are: 1) Young start ups not being organized as a business. Founders often enjoy the attention and focus on the food itself, and neglect the other important aspects of the business, such as putting together a good plan with milestones and the team to grow strategically and in a sustained way. 2) Most young food start ups do not understand the true costs of making and selling a product. A business can appear to be profitable when they just sell at the farmers’ markets or to local grocery stores. But wider retail distribution involve brokers, distributors, customer support etc and these elements can take as much as 40% of cost of products.
Q. You play an active role in the good-food community in the Bay Area and beyond. What developments are you seeing that might help or inspire food startups?
Increased numbers of farmers’ markets is a boon for start-ups to test and launch business.
The Food Craft Institute and other food incubators are very helpful to understanding the legal and business side of launching a food business.
Lots of experienced mentors in the Bay Area, along with many creative ways to finance a food start-up, from Kickstarter-like organizations to Slow-Food type funding sources.
Q. Beyond Hodo Soy, you actively mentor and invest in Bay Area food companies. What are the factors that help you decide ‘Yes, this is a company I want to get behind’?
The two biggest factors for me to decide how to invest and mentor a company are: 1) How the founder(s) of a food start up plan and organize how to grow their business. 2) Whether the product(s) is unique/delicious and has potential to disrupt the market space.
Q. Many mission-driven food businesses struggle with balancing food quality and integrity with ingredient cost pressure. Any advice?
This is a challenging dilemma. I think at the end of the day, quality of the products and its ingredients are most important, and the company needs to invest time to educate the consumers so they are willing to pay more for such quality.
Q. You’ve developed quite a following from all FCI alumni who have taken the Business Operations course, so we’re thrilled that you’ll be joining us to lead the course on July 11-12. Who would you encourage to attend the course?
The two groups of folks that would benefit from the class are those with ideas that need to be turned into a solid business plan and those already with products that want to reach broader markets.
You can join Minh and meet other food startups at our upcoming Business Operations course. He’ll be covering essential early business decisions including: Where should I source my ingredients? Do I produce in-house or use a co-packer? Should I use a wholesaler, broker or go direct? What do I need on packaging? Labelling? How do I build the right team?
More details and enrollment information here.
Photo Credit: Bart Nagel, WSJ