110. Building a Sustainable Food and Beverage Business through Manufacturing

Cullen Gilchrist - Union Kitchen

Jordan Buckner: [00:00:00] It is no secret that funding for food and beverage companies has dried up in the last year, and many are left wondering how they're going to finance their business because let's face, it's really expensive. So for today's conversation, I've invited on Cullen Gilchrist, who is the c e o and founder of Union Kitchen, which is a food business accelerator.

They recently lost a 20 million dollar series a fund that supports their accelerator members and have made about seven investments in companies so far. So Cullen welcome to the podcast. 

Cullen Gilchrist: Jordan, thank you. I really appreciate you being here. I appreciate the intro. Anytime I get that, I feel good. So happy to be here.

Jordan Buckner: You have a very unique position and vantage point of working with dozens of founders over the last decade. And I know. Funding is one of those huge areas that brands are constantly concerned about. [00:01:00] So I'd love for you just to give a sense of what your view of the funding landscape is right now for food and beverage founders.

Cullen Gilchrist: Yeah, what is the funding landscape? So, I mean, it's changing, right? I think the VC world is , mostly what we're talking about, right? So if you need to raise angel money, you can kind of go to your network and raise that. And there's angel money out there. And that's 25 50 k checks. But for a lot of folks, we're talking about kind of the venture.

 Market, right? Because that's where most food companies are raising money. Private equity and acquisitions are way down the road, so venture kind of fills in 90% of the funding, you know, and so that's changed quite a bit. I think Venture for many years in food was taking a similar look at companies as maybe.

The tech venture world, and they were doing things that were based on like market size marketing, you know, really thinking about raising capital to spend it on marketing to grow market size, to grow access to markets. And I think that's probably still how most venture is thinking about investing.

But [00:02:00] they've also been confronted by the reality that's not always the best use of capital that's not been working the last few years. You know, as basically, online ads have completely changed, you know, that the changes in the iOS. So I think it's interesting, but yeah, we're seeing venture start to shift towards words like profitability, and sustainability and, to some degree maybe even being interested in brands that can manufacture brands that are doing things like private label.

 I've seen the discourse move towards that. I think in terms of dollars there's just less being invested currently as venture groups rethink their strategy. I'm not sure if they'll really change their strategy or if they're just going to kind of like weight out this tough period.

Jordan Buckner: Yeah. I was gonna say for me, like the cynical part of me is like there's talking about profitability because they're really saying we're just not gonna deploy capital to you, so you have to be profitable cause you get from me. 

Cullen Gilchrist: Yeah, exactly. It's gatekeeping of sorts, but like, listen, you have to be profitable and we know.

Most of you are not. So we can [00:03:00] kind of use that as our way to not invest and listen. They are investors. They want to invest right now. I think though, that they're challenged by here's the model we've used, it's not working. And they're spending some time kind of rethinking that model and hoping to find something else that either works or that model starts working again because the economy starts driving again.

Or, you know, we get a ton of money pumped into the economy again. You know, venture loves that. 

Jordan Buckner: I love that. Yeah. I think that's a good perspective. And then what do you think about brands who are coming to you or founders saying like, Hey, I don't wanna raise money, I wanna bootstrap my company. What does it take to do that?

Like, how much money do I need? Yeah. Can funding it based on customer orders? Is that enough? What does that kind of bootstrap environment look like? 

Cullen Gilchrist: Yeah. Well, you know, so that's kind of what we're about. You know, not necessarily bootstrapping, but the idea. Our fund and our accelerator are focused on companies that can grow sustainably and that do not require much capital [00:04:00] to do so.

So, you know, sometimes you're gonna see people raising as much capital as they have in revenue. You know, for us we really wanna see a company that can grow sustainably, that can grow based off of orders that can. And the key to doing it, the thing that we're thinking about more than anything is gross margin, right?

Are these companies having strong gross margins? And I don't mean on paper, I don't mean in theory. I don't mean the co-packer said they'll give you a good margin, but in reality, money and money out actually achieving a good gross margin. And that's a challenging thing that, you know, we have the fund now, so I've got probably gotten a thousand decks.

And very rarely do we see a real strong gross margin that's more than 40. In real life, not just on paper. And that, you know, isn't, Creating negative contribution margins after like, you know, trade spend and all that fun stuff. So, yeah, I, I do think it's possible. I think to do that though you really have to be focused not on, you know, sprinting towards market share, but rather thinking about building customers that love you and doing so with a pricing [00:05:00] structure that has the margin, the gross margin, the profitability potential at the same time.

And that's not been the way people have built companies in the food and beverage, you know CPG space for 20, 30 years. But I do think they can. And that's what we promote when our accelerator, and then as our fund, that's what we invest in. Yeah. 

Jordan Buckner: Yeah. I love that. I'm curious to hear your thoughts too, because I was listening to a podcast with Ali Cayne from Haven's Kitchen.

Yeah. The Sauce podcast, and she kind of made this distinction, which is between having a brand and then having a business. And the brand is really like the consumer perception of the world, the energy that you're putting out the packaging, the mission, all of that, versus having the fundamental business metrics that actually can support growth.

So as you mentioned, gross margin, having strong manufacturing relationships, having a product that has product market fit, and customers who are demanding. Have you seen kind of that split in terms of maybe some, a lot of food [00:06:00] and beverage truck companies talking about brand more than actually building a strong business?

Cullen Gilchrist: Yeah. You know, the people I speak to and let's say all the people that have companies that are asking our fund for money, and then let's also say all the people that are applying to our accelerator, we get a thousand applications a year to our accelerator. We probably get a thousand deck. To the fund, and I'd say, you know, 98% of those are people that want to build brands.

Because they've been told that's what you do. And it makes sense cuz you look at Nestle, you look at Mars, whomever, and they buy brands, right? They don't really buy companies, they don't buy factories, they don't buy, chief Operating Officers, they buy brands. So if you look at like the end of the food chain, like they're buying the brand.

So then, you know, you bring around some smart kid who wants to start a business and so they. Brand. I build a brand and I'm a brand builder, and everyone who's basically under 30 thinks they're , a really great brand builder. You know, cuz they look at the brands and the shelves and like these brands suck.

And I'm better [00:07:00] than that. And which is they're true, right? They are better than that. And that is important, you know, to think about. But yeah, like people are really, you know, there's brands and there's companies and I think the majority of the food industry is probably brands. And that does work, right?

We've seen a few hundred brands get acquired and make money. What I believe. Is building strong companies that are built to last based around manufacturing that can withstand the ups and downs, that can withstand the discriminatory practices of venture capital. Right. And I mean, broadly venture capital is going to pick certain things they like, and if you're not that thing, you're not going to work as a brand.

So meaning like you kind of work for venture capital, but if you build a real company, you work for. And you get to dictate how you build. You get to listen to your customers. Not to venture capital. You get to build things for your community, not venture capital. And so we love that sort of freedom. We love that sort of determination and we love that sort of separation from frankly, you know, venture capital doesn't know what the heck [00:08:00] they're talking about so often, and I don't think they should be dictating, you know, the growth of our industry.

So we wanna see companies being built when we're investing money. We wanna see it going towards operat. Towards equipment and towards building teams and structures. We don't wanna see it going towards marketing, which is crazy cuz every venture capital group in every industry is saying, do not spend this on operations, do not spend this on equipment, spend this on marketing.

So we're pretty different, you know than, than kind of the world when it comes to investing. 

Jordan Buckner: And I love that inverse model because I think you're great. Like you know, growing and building my own brand TeaSquares as I saw the same thing where we were trying to figure out product market fit early on it struggled with it, quite frankly, because we launched in grocery, the product velocities were low compared to how much we were spending on demos and things to drive it.

And it wasn't until a couple years late, probably five years in that we found it with selling to corporate offices with our energy bars. But then the pandemic happened. So that's a whole nother story. But I think a lot of those brands are spending [00:09:00] those early years trying to figure out how do I.

Find that product market fit well. At the same time, I need to show that my top line revenue is growing so that I keep getting money from investors, but a lot of them are losing 30, 50, a hundred thousand dollars a month just to sustain their business, and they have no sight to even like breaking even.

It's like we just have to keep getting investment, otherwise we're gonna go outta business because our burn is. 

Cullen Gilchrist: Yeah, totally. And we see that and we don't like it. We don't support it. We don't invest in those companies and we don't build those in our accelerator. What we do is we ask people to do the hard work of building a real company.

And that's really hard. And they don't teach you that. In undergrad. They certainly don't teach that in mba. The people that are the talking heads kind of on the internet don't say those things. And so it's hard, right? But one of. Kind of core things that we think about are one of our values is the opportunity is in the hard things.

You know, the opportunity here is to do the hard thing, because when you do that, you know, you've got this enormous defensibility, this moat around what you do, and now you have the [00:10:00] opportunity to go deeper into that, whereas the rest of the world, Is gonna skip around the hard stuff. Just leaving this thing wide open for you to take your time to build sustainably, to not have to lose 50 K a month while you're finding product market fit, but rather, you know, just do it bit by bit and not chase things.

Right. 

Jordan Buckner: Yeah. , I think that's huge. Are there any of the accelerator members that really stick out to you in terms of building a business with that model and things that they've done to be successful that our listeners can learn? 

Cullen Gilchrist: Yeah, that's a great question and yes, there's a number of them did to give context to build a company this way.

They basically to build it from zero to figure out manufacturing, to not have to raise a few million dollars just to figure out product market fit. It takes time. And so we see brands taking about five years on average to go from that to a million plus in revenue. And again, fitting our other metrics of having strong margins having good teams manufacturing, it takes five years.

So we're about five, six years into our accelerator and so we've got a nice core of [00:11:00] people that have done that. So, you know, in terms of examples, you know, Kabe. Juice. They're making this awesome fresh pressed or rather cold pressed juice do, like from the Dominican style flavor. So, you know, it's passion fruit, it's guava, mango that sort of thing.

And because they manufacture, they've been able to grow a business to change their product significantly, and they're doing north of 30 million in sales now running it out of their own factor. With the ability to iterate their product, make it better than others, and also hit a price point where they can make money.

So they're really awesome snacklins who, you know, I, you might have met before, you know, they built a factory. Yeah, Samy's the man, you know, incredible at kind of like telling a story, you know, a former radio DJ that if you're in the DC area, you know, and so great at building brands, great as bit of a mad scientist with flavors.

But what they've really done is they built a manufacturing plant and so they completely control their supply chain and they make a fantastic product [00:12:00] that keeps getting better, you know, and so they're able to grow their business that way and they've been able to stay fairly light on capital. Compared to their peers as they kind of build this thing out and be profitable, you know, that's the key.

It's gonna be hard to raise money the next couple years and, you know, if you're losing money, you're kind of in a tough spot. 

Jordan Buckner: So here's a question that I get from founders and I hear this from others as well, and that is, If you are self manufacturing and building a brand at the same time, it can feel like running two different businesses because the work that it takes to manufacture product, maintain labor, maintaining high quality standards is a different kind of type of work that sits complete thing, which is a little bit different than the sales and marketing side of the business.

Yeah. Which is about, you know, outreach, being out in the world, going to trade shows running e-commerce and Facebook ads and things like that. And some founders feel split because they feel this tension between , the business. How have you encounter companies kind of working through that? 

Cullen Gilchrist: Yeah, you do see that, right?

What we're trying , to tell people is that this [00:13:00] is the company and this is the business. The idea that kind of sales and marketing is a distinctive business than manufacturing operations, you know, for us isn't true. You know, we think that's kind of a, like a fallacy that trips people up.

You're making a product and selling it. Make it and sell it, right? , that's the whole business. If you wanna pay someone else to make it and just focus on the sales side, you know, that pathway is kind of what we've been discussing. Go for it. It has worked. If you want to build a company and a product and sell that product, you know, you can do that too.

 That is so often what companies do in this world. You know, you look at all the big companies in this world, the successful ones, even in tech, they make and they sell. Right? And so, you know, it's not really two companies, it's the two parts of a successful company that you have to become good at.

I think most people that are starting food companies are afraid of being good at both of those things. People don't like to sell. People don't like to manufacture. You know, sometimes people like to sell, almost never do people like to do the hard [00:14:00] work of manufacturing. So that's why I think , it makes it easy to say it's two companies.

It makes it easy to kind of say, if I can't run two companies, well no, that's one company guys. Like, come on, you're making your product and you're selling it. You know, you can learn these things. I promise that you can develop these skills on both sides of. 

Jordan Buckner: Yeah, I think it's definitely a part of the business and it is a challenge and I think that by approaching it as just what the business is means that you can look for ways to solve for it versus ways of trying to push it under the rug and not focus on it.

You know, with TeaSquares, we start self manufacturing our product. Went to in the commercial kitchen. Yeah, went to the smaller manufacturer. They could kind of hack together a way of making it, but it was so unique of making the product that they couldn't really do it well. To the point where they essentially dropped us because it was too expensive for them to do it.

We went outta stock at Whole Foods and then we went back to making it our facility added a little bit more equipment, found another manufacturer to test it. Spent about $15,000 between ingredients and [00:15:00] testing fees on a run at that manufacturer and a completely failed. And had to go and Right. They were like big and had all the fancy, you know, multi-million dollar worth of equipment, didn't have what we needed.

And then eventually went back to self-producing. And it was definitely like a challenge having, you know, labor and employees to manage, but also we were able to make a bigger impact on those people's lives and have more control over the product, have higher quality standards and be more flexible.

And so, Learned that, you know, at that point, having this idea of like going to a contract manufacturer isn't going to solve all your problems and just creates a different set of headaches that you 

Cullen Gilchrist: Yeah, it's a different set of headaches. And you know, this story you just told, I've heard probably a thousand times.

I'm sure you've heard that a thousand times. You know, what you put on paper does not happen in real life. So often when you give away your control to someone else. So we think about it that way. You know, you mentioned this, you know, the impact that we have on our community and the people that are on our team.

Is actually really important. You know, [00:16:00] manufacturing means employing people , and having a part in those people's lives. It's a really big deal, and we think a lot about that here. That basically we're making products that reflect our community and that's why they're gonna be successful. And we're building in our community, employing in our community, you know, creating manufacturing jobs that otherwise don't exist in our communities.

You know, sometimes in our country. That's actually really important work cuz we think about like, how hard it is to be an entrepreneur. Like, being an entrepreneur really sucks, you know, for a long time. You're like, it's cool and you, like, you post on LinkedIn or Instagram and all that fun stuff and, you know you gotta work for yourself, kind of, you know, you just work for everyone else in the world.

But it's really hard. It's really stressful and you don't have any money and you're facing challenges that your peers that you went to college. You grew up with aren't facing in their jobs. That suckiness, if you make it, pays off. But what I see so often that, period of suck, you know, of like just bad things.

It's hard to get through that if you don't have a really good reason to get through it. I've watched [00:17:00] a thousand, some people quit in that phase. And they're gonna quit if they don't have a strong purpose. And so one of the major purposes that you can have is the community that you build, the team that you build, the lives that you impact through employment.

And the way that you do all that stuff. Like it matters. And that can be a purpose and that can get you through all the tough periods that can get you through the suck. Because otherwise, like, why the heck are you doing this? You know, you can go get a job. You know, there's a lot of jobs out there in the world that you can go and work, you get paid a salary, it comes on Friday every time, you know, if it doesn't come like it's coming, you know, someone messed up and they're gonna make it right.

Or in the entrepreneurial world, that's never the case. You might go years without salary. So you gotta have a damn good reason. And so, you know, manufacturing for some people, for me creates a purpose as well on top of the financial benefits. 

Jordan Buckner: Absolutely love that. And I am a huge advocate for knowing your, not just your business, why ambition, but your personal why mission, as you said, because that's what's gonna get through all those rough [00:18:00] time when things don't look great and gives you the firmly planted foot to pivot in the right direction if you need to, while still being true to yourself and who you are.

So yeah. Thanks so much for being on the show today and definitely love all the takeaways for our listeners. This is very valuable, so anyone listening, if you are looking at building your business in this way and manufacturing yourself in staying away from some of the venture capital money, you can do it.

You can be successful. It's a different mindset that you need to move forward with, but it can and does work. 

Cullen Gilchrist: Cool. Jordan, thank you so much. This is awesome.