I know what you’re thinking… what?! Teffles is over?! (In case you didn’t know, I was working on starting a food business, making healthy frozen waffles that were made up entirely of alternative, high-protein and gluten-free flours, like teff, almond, and coconut.)
Everyone hates hearing a business failure story. Especially in this case, I know you were hoping that you could come over for waffles, and that’s not super likely anymore. (Will we still be friends?!)
Although you may be sad, I am not! From the get-go, I approached this business without emotional attachment, and with the idea that I wanted to validate if it was viable, all while limiting my investment to the point of breaking even. I respected that there are so many factors involved to have a successful business, and I thought that the learning would be worth it, even if I decided it wasn’t going to work at the end of the year. In the process of trying, I turned down an awesome job, missed some volunteering I would have loved to do, and missed some fun weekends with friends, but it was so worth pursuing. All of those other things will come again at the right time.
Let me tell you a bit about my waffle startup story, some of the things I learned, and my decision to leave the business!
Validating the business idea
My idea was to start as a side hustle, and validate the business while working. If things were clearly looking super promising, then I would re-assess and shift my priorities. My validation process had 3 components:
- Do customers love it?
- Do I love it?
- Do the costs and margins work?
Do customers love it?
My main focus was item one, and I tested my product with customers at the spring and summer Farmer’s Markets. I developed a recipe, and kept refining the recipe until people’s eyes widened upon trying it, and until customers bought a 4-pack of waffles for home immediately after trying a sample. I felt like I achieved this step in the validation: I had tons of repeat customers, and everyone started asking me where they could find the waffles in the grocery store. And that was at $10 per pack, too. (In comparison, Nature’s Path is around $5 in Canada.)
To be clear, I wanted to sell my waffles in the frozen section of a grocery store, as a premium and healthy alternative to Eggo. The Farmer’s Markets were a testing ground.
Do I love it?
I’d say that this part of the validation was less concrete. I can’t say that I was infatuated with all parts of the business, that would be a lie. There were parts I really liked, usually the creative parts like designing the packaging and developing the recipe, and the people parts, like making friends at the Farmer’s Markets. There were also parts that were incredibly energy-draining, and these were usually the most laborious physical tasks, to my surprise. (I love exercising, so that was weird!) I did not enjoy setting up for Farmer’s Markets, physically driving from Squamish to South Vancouver to pick up wholesale ingredients like a truck driver, (my orders were under the minimums required for delivery!) and the task of standing for 7 hours to make 100 waffles by hand for the markets. I knew, however, that as you grow, you can start to delegate some of these energy-draining tasks to contractors, so this didn’t seem like a blocker. The ratio of things I loved and things I disliked seemed quite balanced, and I felt like I could just suck it up for the next few years.
Do the costs and margins work?
The financial viability was ultimately what failed the validation exercises. This part was trickier than I thought, and if I’m honest, I think that I wasn’t fully facing the facts for longer than I’d like to admit. The food industry is a tough one. Today, and until direct-to-consumer grocery (like Amazon) really takes off, there are tons of middle men and women. There’s a distributor, the retailer, and even a broker. You have to account for all of these margins, like this:
- Cost of goods sold: say my total costs, including ingredients, packaging, and labour to produce each package work out to $4 per package.
- Let’s say I want my product to sell on the store shelf for $8 per package. The store needs its own margin to carry your product, typically around 38%, so you would sell it to them for $4.80.
- That leaves 80 cents per package profit, right? Unfortunately, not exactly. Once you get to a certain scale, you need to hire a distributor, and they expect a margin too, usually around 20%. They would sell it to the store for $4.80, but they’d need about 96 cents per package for their cut. Now, you’re down to a loss of 14 cents per package.
- Now, you have to factor in all your other costs, including any storage fees, admin fees, marketing, perhaps financing fees like interest.
I think you get the point! Basically, there is downward pressure on price in many food categories, but there are many costs of doing business with all these different layers. To make it work, you need a product that’s so different, that it doesn’t have that downward price pressure, or you need to simply make a huge investment to make your costs scale enormously. As a small waffle producer, I’d be walking into an industry with food giants like Kellog’s (Eggo’s) and Nature’s Path, so there is definitely a price ceiling for customers, having bought Eggo’s waffles for $4 their entire lives. My whole product vision was based around premium ingredients like teff, almond, and coconut flour, so that also created a lot of upward pressure on the cost side. To make a viable profit margin, I’d have to either sell my waffles for an insane price like $12 per package (which I didn’t think the market would bear), or I’d have to downgrade my product significantly to bring the costs down– which was totally against the whole point of bringing my product into the world!
I mentioned earlier that I was avoiding the facts for longer than I’d like to admit. For quite a while, I didn’t read too much into my financial analysis, because I predicted that my cost structure would vastly improve as I scaled. Then I got to work with Denis, the founder of Nomad Nutrition, on a cost economics sheet. After completing his analysis template, it was finally clear to me, like the rare day in a Squamish winter when the clouds finally vanish and you remember there is sunshine. (Yes, I talked about sunshine in the same paragraph as cost economics, and during an article about a failed business!) I had a high-cost business (premium ingredients, operating at a small scale, plus the need for expensive frozen storage and transportation), I didn’t want to downgrade the product as that was my differentiation and reflected my values, and the market wouldn’t bear the price to cover those costs.
Learning about the food industry
Over the past year, I also tried to learn about the food industry at every opportunity. Most of my learning came in the form of phone calls and meetings with food company founders I admire, but I did take a couple formal courses.
Company founders I learned a lot from:
These are the types of people who hustle around the clock to run their companies, and they took the time to provide guidance over the phone, sometimes even over a run:
- Terry of Bremner Foods
- Melissa of Spread Em’ Foods
- Denis of Nomad Nutrition
- Simon of Stoked Oats
Formal courses I took:
- Feeding Growth, from UBC Farm… amazing course! It’s one half-day session a month over 4-5 months, and each course covers a specific topic, like brand, finance, and production.
- Scale Your Business workshop from Good to Grow
- Food Safety (this was required, but I actually really enjoyed it!)
During Feeding Growth, we got to hear from the founder of a different food business at the end of every course. From these talks, it was very clear that the food industry is a super tough one. Most of them, even 5, 10, 15 years in and as successful as selling at the big chains like London Drugs and Costco, are still in full-on startup hustle mode. They’re still doing all of the business functions themselves, not taking vacations, taking huge risks to achieve a feasible scale (like building a factory at startup stage!), and still uncertain if the business will succeed. Two of the founders actually admitted that they aren’t sure if they would do it all over again, if they were given the chance. Basically, if they get bought-out, then it will be worthwhile, but otherwise it won’t be. (Those 2 companies are well-established companies I look up to.)
Other fun memories from the year
A few stats:
- Attended 11 Farmer’s Markets (mostly in Squamish, which was my favourite, but also in Ambleside and Lonsdale)
- Fed approximately 1,100 people with healthy teff & almond-flour waffles
- Traded other Farmer’s Market vendors for all kinds of the most amazing local products: homemade soups, local water buffalo milk and cheese, veggies, sour kraut, Humblebee mead…
- Highest market revenue was $292 at Squamish Farmer’s Market on a sunny August Saturday, lowest market revenue was $121 at a cold, torrentially rainy Squamish market in April (it was so cold that my lips were blue)!
Some of the things I learned:
- A new skill, how to quickly cut through red tape to get shit done (food permit approvals, for example).
- The best way to learn: I would reach out to company founders who inspired me, ask to have a phone call or coffee or run, and it resulted in many hours of the most amazing mentorship.
- How to do a financial viability analysis (they taught this during business school, but it’s quite different when you’re evaluating your own business). Next time, I’d bring objective outside mentors in sooner to look at my spreadsheets.
- I actually like admin, which was strange to discover. And, I really dreaded the labour of making 100’s of waffles!
Thank you to my amazing community!
First off, thank you to every customer who supported Teffles– you gave me daily inspiration and made this all worthwhile.
Thank you to everyone who provided hours of mentorship (Cam Lloyd-Jones, Nomad Nutrition, Bremner Foods, SpreadEm, Stoked Oats, everyone in the Feeding Growth community).
Thanks to talented professionals I got to work with: Mark Locki Photography for the incredible support with food photography, and to Studio Millie for the most amazing packaging design.
Big hug to The Nest for being the most supportive and flexible commercial kitchen, I was so infrequent in my schedule but they let me keep all my supplies there regardless!
Thank you to everyone I work with for being so flexible and supportive!
Lastly but definitely not least, thank you to my friends and family. Julien, thank you for helping me set up and take down at every single farmer’s market. Thank you to my parents for coming all the way to Squamish to support, and to my friends, my lovely friends, who all showed up after runs, tired and hungry, to support me. I know it was a hassle to cut your all-day runs short to make it in time for the market’s closing at 3pm. 😉 Some of you, like Tara and Alex, even drove whole cities over bridges to come! And to Will, I owe you a lot of surprise lattes when it’s pissing rain.
What’s next, you ask?
I’m definitely not finished with my entrepreneurship journey, and I think that’s why I’m 0% sad. This business wasn’t viable. Time to move onto the next!
In the meantime, I will be working as a consultant, currently I’m spending most my time doing technical writing for an awesome company called Mobify. I’ll be spending most of my free time running, skiing, and organizing my biggest adventure yet, which is to “run” the 1,100km Great Divide Trail from Waterton Lakes to Kakwa Lake (north of Jasper) as fast as possible, in July/August 2020.
To send Teffles off in the best way possible, I’m going to conclude things with a fun charity breakfast in Squamish to use up all the remaining ingredients in the best way possible. The date and specific charity will be announced soon, so stay tuned!
If you want to learn from my experience, please feel free to reach out to me. You can find me on instagram, or out in the forest.