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The natural products startup checklist

Thinkstock signing a business deal
You’ve got an idea. You’ve got passion. Now let’s make a plan. The following 11 steps are essential for getting your natural products business off the ground. Forget one … and it could be curtains.

You’ve made the momentous decision to start your own business. Congratulations—but before you quit your day job, know this: Over half of all new businesses fail. One reason? Many forget at least one crucial cornerstone of building a company. You can improve your odds (and save time and money) with careful, step-by-step planning. Here’s a guide to the basics:

1. Make your manifesto

“Start by asking yourself ‘Why am I doing this?’” says Andrew Aussie, president and co-founder of Earnest Eats. What do you want to do, change, achieve? Are you passionate about natural skin care, organic food, the environment? Are you trying to solve your own personal issues, like an illness or celiac disease? Once you’ve solidified your reason for being, nail it down with a mission statement. It can be as short and simple as a one-sentence declaration (“We make gluten-free treats for kids,”) or as long and elaborate as a company manifesto that includes charitable missions, partnerships with service organizations and long-term goals and visions.

“Years down the line, as you grow and have many people working for you, it’s like a bunch of cats running around with their own ideas of what the company is about,” says Aussie. “The only thing that provides some guardrails will be the company’s manifesto.”

2. Know your competitors

What else is out there? How are you new, different or better than competitors? You don’t have to hire an expensive research agency—hang out in grocery stores, search online, hire college students. “We put an awful lot of time into understanding why the world needed another cracker,” says Mary Waldner, chairman founder of Mary’s Gone Crackers. “It’s a lot of work to start a company, and I didn't want to put all that effort into making just another cracker. We realized no one was making a cracker with whole grains and seeds, and no flour, sugar or oil. Everyone else focused on recreating products people wanted to eat like Oreos or pizza.” Know your competitors, and create a distinctive difference. The rest of your business development will be that much easier.

3. Nail the name

Spend some time on this step—it’s going to be the basis for everything else you do. Do a trademark search at the U.S. Patent and Trademark Office, and search every possible derivation of your name online, to make sure no one else has anything similar. Register your name with your state, and apply for a trademark. And grab the web address, fast; you don’t have to set it up right away, but make sure you have it. You’ll be glad you did. For more details on naming your company, check out these tips on finding the perfect name.

4. Populate your ecosystem

No matter how smart, clever or motivated you are, you probably don’t know how to do everything. “No one does,” says Aussie. “You may be brilliant at developing a product, but are you an expert at fundraising, packaging, finances, production?” Surround yourself with people who have the skills you lack. It may be friends who have legal expertise, spouses who know how to run a kitchen, moms who are looking for part-time bookkeeping work, college students who can do web design or run in-store demos.

“They don’t have to be hired help; you might seek out advisors or mentors who can guide you,” says Waldner. “People in this industry are really eager and willing to share their experiences.”

5. Figure out finances

You have lots of options. You can bootstrap it, financing your operation from your own pocket and paying as you go with earnings from sales. Business loans are another option (the U.S. Small Business Administration’s website has many resources). External sources of financing are trickier. If you take on large investors too soon, you’ll give away a substantial portion of your equity. Some small businesses start with angel investors—usually individuals who invest their own money—versus venture capitalists who invest money from a professionally managed fund. Friends and family are likely first investors. The downside to friends and family is that there’s enormous potential for personal and emotional conflict. Weigh the pros and cons—you may decide a second mortgage on your home is less fraught with peril.

6. Estimate costs

What will it take to get you from the idea in your head to a retailer’s shelves? Start with conservative one-time costs, like new computers or manufacturing equipment. Then estimate your ongoing expenses. These might include kitchen rentals, website costs, insurance, ingredients and packaging. “If you’re a first-timer, this part can be really tricky,” says Ryan Black, CEO and co-founder of Sambazon. “Hidden costs, like trade discounts, returns, allowances, transportation, warehousing or advertising, have to be taken into account. If you don’t, you can really get beat up.” And then there are the costs you can’t control, like exchange rates or price on raw materials, or increasing costs of oil and how that may impact your packaging costs. “All you can do is hope that as your efficiency improves and you improve your gross margins, you’ll cover any unforeseen costs,” says Black.

7. Create your space

Do you need a specialized kitchen, like a gluten-free operation? Do you need an executive suite, or would a virtual (cheaper) office suffice? Even if you’re working from home, you’ll need to set it up in a way that’s conducive to your business and meetings you’ll hold there. If you’re working from home, use a mailbox service to keep your home address under wraps (especially if you’re doing internet sales). If your company will depend on phone sales, you may consider a virtual receptionist service or an 800-number as well. It’s a good option that gives your company instant validity.

8. Do the paperwork

The first step is deciding which business entity—LLC, partnership or corporation—is right for your company. File the paperwork with your state’s Secretary of State, then get your Employer Identification Number (EIN)—also called a Federal Tax Identification Number—with the IRS. You can apply directly at the IRS website—it’s free. Beware of sites that file for you, which may charge you as much as $200 and give you no added value. You’ll also need a business bank account, credit card exclusively, worker’s comp, wage withholding and unemployment insurance, various city or county licenses and permits, bookkeeping and payroll services.

9. Build your business model

This includes such issues as the company’s mission statement, the need addressed or problem solved by your product, and practical considerations such as operations, sales, marketing, distribution channels, competitive analysis, substantiation or market research, market trends, budget, resources and timetable. The business model is usually explained and documented in the business plan.

But, says Aussie, “Most of them are dated the minute you write them, or they get shelved. They’re not alive. They’re good documents to show investors, but otherwise, it’s more important to have a solid, well-planned strategy, and not get too hung up on a written plan.”

10. Know your go-to-market plan

It may not involve a brick-and-mortar commercial location. Online sales have become an increasingly viable and attractive option. Selling online reduces or eliminates many of the costs of going to market. “If you sell nationally in a big chain with 300 stores, you can expect to spend $40,000 to $50,000 in free product,” says Aussie. “You’ll also have to knock 10 to 20 percent or more off the first order, and retailers will expect you to do ads. Put all that together, and you’re talking a lot of money.” You may start by selling in small outlets, like coffee shops, food service, juice bars, farmers’ markets or small, independent grocers. It’s like beta testing—make your mistakes on a small scale, get customer feedback, and revise packaging, products or marketing plan before you launch in a big way.

11. Get the word out

If you have the budget, a professional PR company that specializes in green marketing can get the word out fast. Otherwise, online advertising and social media marketing are easy (and cheap), and offer paper-free, environmentally-sound options for promoting your product.

Or go grassroots. Distribute business cards, flyers and other promo materials to local businesses—think yoga studios, fitness centers, coffee shops, anywhere your target customers congregate. Ask for testimonials and post them on your website; do demos and give out samples; pitch an article to your local green or healthy eating publications. And network like mad: join local natural products trade organizations, participate in events, go to trade shows, talk about your product every chance you get. In fact, no matter what course of advertising you choose, that’s never a bad idea.

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