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To Always Smell Like Onions or Not -- The Pros and Cons of Outsourcing Your Food Product

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For those of you who have followed our first few posts, we've been providing (hopefully) amusing tidbits to those thinking about starting a food company. Now let's just say you have an awesome salsa recipe that you've spent months perfecting. Everyone goes nuts for it and your Aunt Doreen swears she'd pay $10 for a jar of it if she could buy it at the grocery store. What to do? Today's post is for people who already have a recipe that they like and are trying to determine the best way to actually bring their product to life.

One of the first decisions for a new food entrepreneur is whether to make the product themselves, or to hire another manufacturing facility to do it for them. There are numerous legal and logistical considerations when making this decision, but here are a few initial things to keep in mind:

PRODUCING YOURSELF:
Depending upon your city and state, you will need to follow certain health regulations when making your food. In order to attain your seller's permit or to get placement in prominent retail stores you will have to abide by specific facility registrations and strict food-safety procedures. It is extremely doubtful that the kitchen in your studio apartment will qualify as an appropriate commercial food production facility. Without these certifications, you still may be able to sell your salsa at farmers' markets, or out of the back of your Hyundai -- but your business will be impossible to grow from there.

Note: You can rent commissary kitchen space which would allow you to operate in a regulated commercial kitchen (thus negating the above concern). This type of cooking facility can sometimes be found in large restaurants, culinary schools or other food production locations that already have the extra space.

Pros:

  • You are able to maintain complete control over your culinary operation. It's the easiest way to ensure consistency over the taste and packaging.
  • Your batches can be as small as you want -- thus, the most economical way just to get started.
  • Your labor cost will likely be cheaper as you won't be paying yourself and you can occasionally blackmail your sister into helping you chop vegetables for free.
  • Think of how many cool Facebook photos you can tag of yourself looking stylish with a chef knife and an apron.

Cons:

  • Difficult to scale up production if your product starts taking off
  • A lack of familiarity with commercial food production can lead to food spoilage, waste and theft -- thus driving up expenses
  • Finding "good" commissary kitchen space can be challenging and expensive. Aside from paying by the hour, you may also be sharing space with others and only able to access the kitchen during odd hours.
  • You will be spending ALL of your free time in the kitchen. This could sound fun at first, but will get annoying if you have a day job and would rather do something else with your weekends/evenings.

GETTING SOMEONE ELSE TO PRODUCE FOR YOU:
For some entrepreneurs, it may be easier to get someone with professional production facilities and process expertise to make your products for you. This typically occurs in two ways: 1) Finding a local restaurant, roaster, or bakery that has excess capacity and is willing to help you out for a fee or 2) Engaging a third-party manufacturer (often referred to as co-packers or private label manufacturers).

Even if you end up not hiring a co-packing facility, it is worth calling one or two as they are experts in bringing food products to market. Sometimes they're nice and will help you walk through the process from start to finish.

Pros:

  • You won't need to spend all of your time in a kitchen and can instead focus your efforts on marketing, sales, and new product development.
  • Because third-party facilities often produce in large volumes, you may be able to get discounts on your ingredients, bottles, labels, and packaging materials.
  • Good manufacturers may help you tweak your original recipe for larger-scale production and introduce you to some of the distributors with whom their other food brands sell.

Cons:

  • It's much more difficult to control the quality of your product as you will be unable to taste your salsa while its midway through production. You're stuck with the final product.
  • The minimum batch size for third-party manufacturing can be large -- so this may not be a viable option for entrepreneurs who are just getting started and want to test the market.
  • For some people, the entire allure of starting a food product business is being in the kitchen and getting their hands dirty. Hiring a manufacturing facility removes the romanticism of being a cook and instead keeps you in the business role of selling food.

For what it's worth, we are using a third-party manufacturing facility and are currently experiencing all the pros and cons that we mentioned. The reason we ultimately decided not to produce ourselves was because we are creating a completely unique type of hot sauce, and needed to spend as much time as possible marketing our products, educating our consumers and writing longwinded Huffington Post articles.

Thank you everyone for indulging our desire to write a serious post. More fun ones coming soon!

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