The Startup CPG Podcast

Mott Smith
You know exactly what you're going to do. The studio is not the place to experiment. The studio is the place to execute. And so I think it's a great way to think about it. Commercial kitchens are a place where you iterate and learn and experiment. And then when you know exactly what you're doing, that's the time to go into a coman and just push play.

00:26
Jaime Valenti-Jordan
A contract manufacturer, which by the way, is the definition for comand in the industry. People also use co packer, contract packager. They're supposed to mean different things. They all mean the same thing. Just depends on where you grew up. But at the end of the day, the co man is really looking at only ordering the very, very specific ingredient that you have designed for your product.

00:51
Daniel Scharff
They say if you can't take the heat, get out of the kitchen. Well, actually a lot of startup brands can take the heat and they start in a commercial kitchen. If you have a really good product, you might scale your way to a million dollars in sales in just the first year or two. There are two main ways to do that. You can be in a commercial kitchen or work with a co man. And today we're going to talk through both of these paths as well as the pros and cons of each. And we're going to get a bunch of tips from experts along the way. We've got Mot Smith to talk about commercial kitchens. He's the co founder of Amped Kitchens, which runs commercial kitchens in LA and Chicago.

01:22
Daniel Scharff
You can check the show notes if you want to reach out to them for a tour for comands and also self manufacturing. We're going to talk to Jamie Valenti Jord. He's the program manager for the Food Finance Institute and the CEO of Catapult Commercialization Services. They work with hundreds of brands to help them scale up. You can also check the show notes for their contact info. All right, enjoy. All right, let's just jump in here, guys. Mot coming to you first. First of all, what do you do and what is a commercial kitchen?

01:54
Mott Smith
Okay, so I am the co founder and CEO of Amped Kitchens. And we are, I think we might have been the first commercial kitchen of our kind in the country. We opened up back in 2015 and what we provide is large CPG forward commercial kitchen spaces that you could move into and start producing basically right away. We've gotten the buildings 90% of the way to where you need to be to get your permits. Whether they're direct to consumer retail permits or wholesale permits. Even USDA or SQF certifications. And we make it very easy for you to start and scale production. Most of our clients are people who are under $5 million a year. A lot of people are under a million dollars a year.

02:40
Mott Smith
And our goal is to provide a platform where they can scale up to that level where they can start making a decision about whether they want to self manufacture or go to a co man because it's the best business decision for them as opposed to the only choice. So we like to provide people choices.

02:57
Daniel Scharff
Okay, so let me talk everyone through what it's like to actually be in a commercial kitchen from a novice's perspective, because I've been to Amped kitchens, I've been to a few others. So you get there, it's a big building. Feels, you know, like you're going into a warehouse or something.

03:09
Mott Smith
Yeah, like 60 to 100,000 square feet, basically.

03:12
Daniel Scharff
So that's pretty big. And you go in and it'll feel then like, oh wait, no, I'm going into like a lab or some kind of production facility. You got to put on the goggles, you're walking in and then you walk through these kind of windy corridors and then there are just lots of rooms there. The rooms is where the magic happens for the brand. You're renting this private kitchen space and inside of there is all the equipment that you're going to need to test, create, make your product. And then outside of the room also, there's a lot of infrastructure, right, because there's a room where, hey, like come and actually build your orders here, come in here, you can pack everything up. Also we have a room where we keep all of your ingredients.

03:51
Daniel Scharff
And if you need them cold, we can keep them cold as well. There's another place we can put the finished products. And then the other thing that I notice is just trucks coming in and out. So you can have pallets picked up, pallets taken out by distributors, scheduling pickups, all of that kind of stuff. Is that a good lay of the land for everybody?

04:08
Mott Smith
That is beautifully put. And just to add a little bit of color to it, I mean, there are commercial kitchens out there that are more ghost kitchens for food service for, you know, restaurants without you to go and delivery. There are commercial kitchens that are very catering focused and usually those come equipped. So we do get phone calls from people who say, hey, you know, what kind of steam ovens do you have? And we're like, well, I mean, yeah, we do have them, but that's not our thing really. What we Provide is raw space that is fully infrastructured, structured, where people can come and add their own custom manufacturing line, you know, mini manufacturing line basically and produce whatever it is they're going to do.

04:42
Mott Smith
You also talked a lot about the storage, Daniel, and that's totally key that when we ask people what's their favorite thing about amp? I mean usually the first thing they say is the people. The second thing they say is the community of other manufacturers that are in the building. And the third thing they say almost without fail is the fact that we have extensive amounts of palletized, cold, frozen and dry storage and we have a dock staff. So if getting a pallet full of cheese from Switzerland that's arriving at 6am and has to be temp logged and all that stuff, you don't have to get out of bed or fly back from your sales call in Vegas. We'll do it and we'll log it and put it in storage for you.

05:21
Daniel Scharff
Okay, so one stop shop. All of this early stage stuff. It sounds great. It sounds like a really fast paced way to kind of get your business off the ground where you need to be changing things quickly and just kind of like, you know, not having to email tons of people and find out if different things happened. And yes, actually I think when I was at your space I did see like one company that was probably doing a lot of catering type stuff, maybe some baked goods. But then there were a lot of brands from our community there, CPG brands, and they had often brought in a piece of equipment that they needed, some kind of a mixer or some kind of a specific sealer and that was sitting in their room.

05:55
Daniel Scharff
The other thing I'll also say is there are different kinds of commercial kitchens so your setup is really cool. There's also a co working space so you can have your team meetings in there and do your office work. And then there are others that are also even open where not as much happening in your own dedicated room. Maybe it's a bigger shared space. So you're going to find different kinds of options, different kind of price points. You can go for a smaller room at first, you can get a bigger room later when you need it.

06:19
Mott Smith
Right.

06:19
Daniel Scharff
So a lot of customizable options.

06:20
Mott Smith
Totally. Yeah. We've got everything from people paying us under $2,000 a month for a small space, you know, pre revenue companies all the way up to, we've probably a couple of billion dollar a year companies who are currently clients of Amped, who just are looking for a kind of, you know, regional production cap for fresh grab and go and stuff like that. So we serve the full spectrum of everybody.

06:42
Daniel Scharff
I know you guys have had some big timers in and out of their different points in their lives, right? I think Beyond Meat, maybe Early Days had been in there and I think Fourth and Heart early days also.

06:53
Mott Smith
Yeah, yeah, both of them. And, and actually, I mean Fourth and Heart was real early days. I mean they came to us when they were just doing DTC and farmers market type sales and they grew to become America's second largest GI company while they were at Amped, which was really exciting, taught me what GI was and got me addicted, frankly. Beyond Meat came to us after they were already a public company when they came to us. But their idea, and this is actually something that Jamie and I have talked about and I love this. When you outfit a manufacturing line either at a coman or your own large manufacturing facility, it's often a multimillion dollar investment. And as we know, no product survives the journey from the benchtop, as we say, from the test kitchen or the lab to scale to production at scale.

07:40
Mott Smith
No product survives that journey intact without a lot of iteration and a lot of change. And they were the first ones who taught me this. It was actually their product development engineer, it was a woman named Marianne Barber, who's awesome. She explained that they could do this sort of the traditional way where they do develop the product and the process in the lab and then they design a manufacturing line, spend millions of dollars on it and throw away hundreds and hundreds of thousands of dollars of product. Or they could come to a place like Amped and manufacture pilot runs that were actually the initial runs of the beyond Burger for national sales. They were at every Whole Foods in the country coming out of our LA north location.

08:19
Mott Smith
They could do that and maybe they'd lose a few thousand dollars of product each week as they kind of tweaked it and tuned it. And they get real time feedback from the retailers about what was working and what wasn't. And then when they make the multimillion dollar investment in a manufacturing line, they've totally nailed what they're going to do and it's a much lower risk proposition.

08:38
Daniel Scharff
And I've lived that life because I worked in food tech and I saw just needing so much space to build out your own pilot plants basically and getting equipment that you only use once. I know Jamie's smiling because he and I live this in the food tech world. And you know, just gosh, I mean, all of those food Tech companies, I think those early days, money was free, right? And you could just like it was just go, go build. Like that would in and of itself probably increase your valuation. So there was a lot of that. But you know, I think even, probably working less at scale would have been advantageous for a lot of people. Even spending just more time hand making stuff. Commercial kitchens, much more control because there are big differences between products. I ran a beverage company.

09:20
Daniel Scharff
We like used a formulator, had the product come out, were making some tweaks when like different ingredients we needed to kind of swap in or if we realized something about the product we wanted to change. But at those kind of food tech companies, they have a team of people working on the product every day, trying to improve it. There's really tech in there. So fundamentally those are different kinds of companies. And I think probably that also really impacts your choice, right, Matt? Because like, do you need to be in here actually continuously doing product development or are you just going to make the thing and now, okay, like hit print? You need to make tons of it.

09:53
Mott Smith
Yeah, well, there's usually an evolution that happens. I mean, when people, the typical client that comes to amp shows up and they've been making something out of a home kitchen or an hourly kitchen or maybe an incubator. They're great places like the Hatchery in Chicago and their hourly kitchens, like crafted in Los Angeles. They're really high quality and they know how to make it with typical kitchen equipment with their hands. And when they come to us, it's usually just them or them and a partner. And they'll spend the first 90 to 120 days with us, typically just doing that. And then as their sales start to grow and the opportunity to scale starts to happen, they usually hit their first growth crisis, as we call it, where it's like, oh, I can't do this myself.

10:35
Mott Smith
I need to hire a kitchen manager and I need to maybe get some different equipment that works a little bit more efficiently. I mean, I'm thinking about people who might have a very bespoke handmade product, like, you know, a breadstick, for example, which they would, you know, roll and stretch themselves. And they realize, oh, you know what? I really need to get a machine to do that so I can start fulfilling those orders for this for the local supermarke markets. And so that starts to happen in the first year that they're with us. You'll often see them go from a completely manual process to a partially automated process. You'll see them go from One or two people, usually the founder and co founder to a small kitchen staff, you know, three or four people. That's the first bump of evolution that we typically see.

11:16
Daniel Scharff
Okay, so let's say standard kind of process for a brand that wants to get out into the market is first they gotta figure out their product, right? So they're gonna be working on it. They could come with idea or they could be working that out in a kitchen, at a commercial kitchen. And then they need to figure out, you know, as they're like getting certifications or whatever, how they're going to source everything that they need to make that product at more scale, right? So the kind of ingredient suppliers they can have, the packaging suppliers, then they start actually making the thing as they start selling it, right? So then starting to churn those things out, make the product, put the product in the packaging, start actually fulfilling orders that hopefully orders are coming in.

11:53
Daniel Scharff
And as you're making those products, also you need to be doing QA testing, making sure everything is working out well, and then over time, just continually improving the product, making sure you're making it to spec and that it's good and trying to make it better as well. If those are kind of the basic steps, what do you think about making something in a commercial kitchen versus other options in terms of like, hey, your cost, doing all that stuff, how quickly you can kind of get out to market through all of those steps, how much can it scale? All of your thoughts, basically.

12:22
Mott Smith
Okay, wow, I've got so many thoughts about that. I mean, the first one is being in the CPG business is just like any other creative enterprise. It's like you're in a band, you're on a sports team, anything that requires kind of you to really excel at something. And if you and I know, Daniel, you and I are both musicians, so we can talk this language. But like, if you're a musician and you want to make it big, you don't go to some little town in the middle of the Arctic. Like, you go to la, you go to Nashville, you go to Chicago, you go to New York, you know, you go to a big city and you immediately try to hang out with musicians who are like the best possible musicians you can learn by osmosis from them.

13:02
Mott Smith
And that's one thing that I see all the time at a place like AMP is people come in and just by watching the successful brands around them do what they do, they just pick up little tips and tricks that are obvious to the successful guys, but maybe not as obvious to Newbies. And a really clear example of this is we had somebody who was making a product that used jam that was made by a third party as an ingredient. And I remember walking into the dry storage area with a commercialization expert who looked and saw pallets and pallets of Knott's Berry jam, like little 12 ounce jars of it. And they're like, I have a suggestion for those guys, they should be buying it by the barrel because it's like a fraction of the cost, it's a fraction of the effort.

13:45
Mott Smith
And like that was revolutionary for them. And you know, just being in this place where somebody is going to see them doing something that maybe they could do a lot better, really low hanging fruit for running a more efficient business. Like that happens all the time. People are learning from each other like that. You talked about kind of how, I mean there's so many aspects to your question. There's like, you know, how much money do you need? How much time do you need? What should you be planning on? And I would say that a lot of will happen when you come to a community like amp, where again there are lots of successful people around who you can sort of watch and learn from is you'll pick up the basic stuff pretty quickly.

14:21
Mott Smith
I was talking about the first challenge being going from a completely manual process to a partially automated process. The second challenge that we see is people, if you ask somebody what they think it's going to be, they might say, well it's probably, if I going to go to a major retailer like Target, it's probably getting SQF or something like that. And those sorts of challenges are really, I would say, well defined. Like you could hire an expert to help you get SQF certified. And it's pretty straightforward how you do it.

14:48
Daniel Scharff
And what is SQF for everybody listening who doesn't know.

14:51
Mott Smith
Oh, thank you. Safe quality food. It is a. Jamie could probably say more about it than I will, but it's, it is a product of the Global Food Safety Initiative which happened when all the big retailers, I think it was in the 80s, 1980s, got together and said we all have our own quality manuals, our own quality standards. So I'm talking about like Walmart and Tesco and all these big international retailers and they said why don't we standardize our quality manuals and all do the same thing. And I believe that's sort of again, Jamie's going to correct me and give me the real story. But I think that's more or less how the Global Food Safety Initiative was formed. And it's basically like a private industry health department.

15:28
Mott Smith
You could say if you're going to sell to big retailers like Costco or Target, I mean, some of them have their own quality programs still that you can opt into. But usually SQF is a safe standard that you can apply if you want to be able to sell anywhere at scale. But so anyway, that's something that people get intimidated by, but turns out to be less of a big deal than I think they think it is.

15:47
Mott Smith
The really big deal, when you make your leap from say, doing $250,000 a year direct to consumer and at local retailers to a million dollars a year or $5 million a year sell international outlets is really cash because when you're on a $250,000 a year run rate and you're kind of used to spending, you know, X dollars per month on ingredients, et cetera, et cetera, and then suddenly you get an order for $200,000 worth of goods and you realize, oh, I got to buy the ingredients for that. That can often really be a challenge for people to figure out. It's like, how am I going to pay for this growth that is sitting here? Right. You know, it's right there for the taking. I just need the money to do it. I've seen people do that well and I've seen people do that badly.

16:32
Mott Smith
And I think that's a really important frontier for people to be prepared for.

16:36
Daniel Scharff
All right, Jamie, let's tap you in here. You've been waiting very patiently listening along, and you have worked with hundreds, maybe thousands of brands at this point, I don't know, guiding them towards sometimes commercial kitchens, sometimes towards comands, even also sometimes towards building their own manufacturing, which I know you know how to do at the small scale as well as at the largest scale. So. So as you're hearing what we're saying about this commercial kitchen experience, just anything that you wanted to add on that maybe we didn't cover initially?

17:04
Jaime Valenti-Jordan
Absolutely. Thanks for having me, Daniel. So, yeah, I'd say as we're thinking about commercial kitchens and kind of wrapping up that discussion and whatnot, just to kind of close that story there's a lot of value in being able to iterate your product and kind of learn how to best deliver on your target consumers need from your product, it's really about building that user experience, right? That's what generates that repeat purchase. And that repeat purchase is how you actually make money in the food industry. It's not about getting a single Sale once. That's a different industry. That's the industry where you have like a nice consumable good, like a, let's say a coffee maker, you're only going to sell one to that particular individual.

17:41
Jaime Valenti-Jordan
But with the food industry, where you're trying to sell the coffee over and over again, you have to deliver on that consumer experience, which means you have to have it dialed in. The best way to do that is when you are hands on with the product and can make rapid changes. Let's carry through our musician analogy, right? So we have two different types of musicians out there and obviously this is not exhaustive and the analogy breaks down real fast. So don't go with me too far on this. But you've got the kind of the garage band, the jam band, right, that's just kind of exploring what their sound's going to be, how to work together and things like that. That's a commercial kitchen, right? You're really doing the heavy lifting on developing who you're going to be.

18:18
Jaime Valenti-Jordan
And then you've got those that then transition to a record studio and you lock down your sound and you print and you press right, you're going quote making it legit. You're going to go for scale, you're going to go for money. Becomes harder to change later, right? Not impossible, but it just takes a lot more work to do that. And so that's where I think, you know, the CO man kind of steps in and provides that kind of continuous growth and scalability out of that.

18:42
Daniel Scharff
I like that analogy a lot. I can tell MOT does also. And I was just thinking when I recorded my album, I was a, a novice musician, honestly when I started and let's say I had a garage band, whatever, were playing shows, honing the songs that were original songs and then eventually went to go record them in a studio. And it was a huge learning process for me. And then by the time were finishing, I was like, wait, I got one more song in me. It just came to me and I pretty much just wrote it in a day and then went right in the studio and did it. And it actually worked out great. We were able to record it live. The other ones had just taken much more time recording every instrument on its own.

19:17
Daniel Scharff
But I needed that because I really was just figuring it out. And by the time we got to the last song, I kind of knew what was going on. I had practiced a lot in that time. A year had gone by actually between the beginning and end and so I wonder. I think for that analogy, it also still kind of works. Like, if you really need to figure it out, commercial kitchen is where you can have the time to be doing that. But also if you're just coming and you're like, this is what we need to do, you know, I know what I'm doing. I'm very confident this is what the product is. Hit print. You might be jumping into the studio or co main or your own facility pretty quickly.

19:49
Mott Smith
I would add that, you know, there have been some hugely successful albums that have been recorded in people's living rooms using GarageBand and sometimes the studio is the only option. And studios are so freaking expensive that the time to go to the studio is when you've rehearsed, you know you're going to get it in one or two takes. You know exactly what you're going to do. The studio is not the place to experiment. The studio is the place to execute. And so I think it's a great way to think about it. Commercial kitchens are a place where you iterate and learn and experiment. And then when you know exactly what you're doing, that's the time to go into a coman and just push play.

20:23
Jaime Valenti-Jordan
Absolutely. Like, for example, if you're developing new flavors, things like that, and you need to test. We're going to make a hundred of these and go test them and see what kind of feedback we get. Perfect place to go to a commercial kitchen, get those tests kind of developed, go through, not only change one ingredient here or there, but maybe try a whole new platform, maybe take the business completely different direction. Let's look at putting cardamom in our products. Right? Let's look at like really just kind of going off the rails and get that feedback from who we want in order to. Which means that as you're looking at sourcing and things like that, you can be more flexible. Right. So now I'm going to pivot kind of some of these things to how a command is different than that.

21:03
Jaime Valenti-Jordan
A contract manufacturer, which by the way, is a definition for comand in the industry. People also use co packer contract packager. They're supposed to mean different things. They all mean the same thing. Just depends on where you grew up. But at the end of the day, the coman is really looking at only ordering the very, very specific ingredient that you have designed for your product. They want to maintain your quality, and the only way that they know how to do that is through specifications. Meaning you've told them nothing else on the planet works. Except for this one ingredient. Now they may have a similar ingredient. They'll ask you, hey, does this work? Too cool. You can go check it out. They're not going to substitute it in without your permission, right? You're going to put in your specifications, only use this one ingredient.

21:46
Jaime Valenti-Jordan
Unless you find out the other one works, in which case use whichever one you like. They both work. They work perfectly well. They swap out one for one. No big deal. The comand is not just going to use whatever they're already using. What they're going to do is they're going to look at the ongoing pricing because the pricing for individual items on the large scale market changes over time. Also, there's occasionally shortages or recalls or bad crops or suppliers. They freeze like in Texas and they can't get any of their product moved out. Right.

22:13
Mott Smith
Tariffs, for example, or whatever.

22:15
Jaime Valenti-Jordan
Right. Or there's floods and something happens. Right? What you do is you give them the flexibility to adjust to the ingredients that you have already given them permission to work with. And that allows them to give you the best consistency in your product at the most consistent cost. They don't have to yank you all over everywhere following a floating market on individual ingredients.

22:37
Daniel Scharff
Okay, so Jamie, let me ask you some questions here to get your overall guidance you would give to brands who are coming to you with this question. We're trying to figure out like, hey, you're trying to make your first million in sales here. A brand comes to you, Jamie, all about this stuff. How should I be making the product? What are the kind of questions you're going to ask them initially to figure out, hey, is the best route for you, commercial kitchen or coman, let's say, for simplicity?

23:00
Jaime Valenti-Jordan
Sure. Do you make your products yourself now or do you have your mom do it? Right. If you have your mom do it, then you probably don't know how to work your product necessarily on the benchtop every day, all day, which is what you're gonna have to do in a commercial kitchen, right? You probably should know your product, but let's say you need to learn your product or whatnot. Commercial kitchen's the route to go for sure. Next question I'm gonna ask, do you have a formula that uses industrial ingredients? If not, you're going to rapidly going to have to change your product anyway, Right? So what we're talking about now is that rapid product development, were just saying, is ideal for a commercial kitchen. You need to go do that using industrial ingredients.

23:37
Jaime Valenti-Jordan
If you don't have industrial ingredients, 99.5 or 6% of the comands in the US don't want to talk to you. I mean, there's a few out there, but they're very few and far between.

23:47
Daniel Scharff
Are you saying they don't want to open up all those jars of jam.

23:50
Jaime Valenti-Jordan
They don't want to open up? Well, they don't want to source things that they can't have in their plant because they're not FISMA compliant.

23:56
Mott Smith
FISMA being the Food Safety Modernization Act.

23:59
Jaime Valenti-Jordan
There you go. That's the thing that really solidified a lot of the efforts around the GFCI that you were talking about earlier around what drives people into sqf, BRC or ISO, which are the three most notable third party audit systems that retailers require. So if they are in fact using industrial ingredients, then the next question becomes, okay, how do you manufacture your product? Do you describe it as a cup of this and an ounce of that, or is it done on percentages that you have to do percentages all the time? Time, it's super easy to convert. But just as you're thinking, that gives you an insight into how you understand how your product's assembled.

24:36
Jaime Valenti-Jordan
What I mean by that is, are we thinking about how long we blend for, you know, what type of shear effects and all sorts of engineering things, what type of packaging are you putting it in? What type of requirements do you have? Do you understand your ph and your water activity to understand how safe it is, what your shelf life is? The real kind of nuts and bolts around the product development? If a lot of those are pretty well specified, they don't all have to be fully specified, but if most of them are pretty well dialed in, then we can find a contract manufacturer that operates in that space. Contract manufacturers, as much as they have huge equipment, it has very narrow capability. It does the same thing over and over again, really well. It doesn't do new stuff well.

25:18
Jaime Valenti-Jordan
And so what we want to do is we want to figure out what pathway has already been laid out for your product in a contract manufacturer with the equipment that they have today. So we can walk in and say, hey, this is going to run on that, right? They'll say, no, no, we only make bread. True. But you make flatbread. And if it turns out if you take plant based products, let's say a plant based egg patty and you put a bunch of leavening in and it's going to work exactly the same way as a flatbread. Cool, great. Then we can actually take that plant based egg patty to a flatbread manufacturer and they will be able to scale that up. Right. So we try to figure out where the path is already laid.

25:55
Daniel Scharff
Okay. And what role do you think funding and like, business objectives, how quickly you need to grow, how much capital you have play into this equation?

26:04
Jaime Valenti-Jordan
Sure. So there are commands for most applications. There are groups out there that will make you five or ten containers of something. They don't like doing that. They want you to grow to hundreds or thousands, but they will make you a small amount if that's what you want. There's not a ton of those. So what they're looking for when they're looking at folks, is what's your vision? Where are you taking this? How quickly are you getting there? Can we support you along the way, being able to make your projections and things like that? And are you going to graduate out? Right. And when? Because what they're doing is they're looking at their master planning. Everybody that they're working with and making sure that they can execute your product. Those are kind of unique, kind of commands.

26:43
Jaime Valenti-Jordan
Most commands want to figure out, can you run on their smallest system? Can they run in a efficient manner? And by that I mean in a way in which they're not charging you $10 a container just for processing it. Right. So if you're making 50 peanut butter, okay, maybe you can afford $10 a container. But if you're trying to go for $5 peanut butter, that's not going to work. Right.

27:05
Daniel Scharff
All right, so very helpful. And then, Jamie, lastly, like, what percent of brands do you see actually electing for that commercial kitchen route versus, let's say, going a co man route? Is it only the few, the strong that are ready to bear down and, you know, commit to making their own stuff, but they can realize the many benefits of it? Or do you see a lot of people actually starting that way?

27:26
Jaime Valenti-Jordan
I'd say the vast majority, 95% of them at least spend some time in a commercial kitchen. It's where they get the initial certifications to be able to sell over state lines, for example, and things like that. Right. There's limits to cottage law and things like that around what you can make at your house.

27:40
Daniel Scharff
And what kind of brands are so likely to start in the commercial kitchen versus what kinds are? Not sure.

27:46
Jaime Valenti-Jordan
Actually, the ones that skip over the commercial kitchen are the ones that are heavily funded already. So they've already got a good understanding of what it is they want to make. They may have never tasted it before, but they very much understand exactly what they're going to do. And so they'll have other people develop it and take it straight to a contract manufacturer.

28:02
Daniel Scharff
And any specific kinds of products that you see it really likely, one way.

28:07
Jaime Valenti-Jordan
Or the other, not as much. It's mostly around the funding scenario.

28:10
Daniel Scharff
Okay, amazing. Mot. Anything you want to add on that?

28:12
Mott Smith
I just want to say, like, if we're going to carry out the music analogy here, they would be like the boy bands of the food business, you know, where like a studio says, I want this, I want the one guy with a mustache and another guy with long hair and like, and I'm going to have millions of dollars behind it. That's perfect for the Conan route. The other thing I want to say is I agree with 100% of what Jamie says. I always learned so much from Jamie that I secretly love these conversations so I can hang out and listen. It's interesting because I think about this from a slightly different frame, which is almost entirely about revenue and sources of capital.

28:46
Mott Smith
Because when you are literally below $10 million and absolutely below $5 million, I mean, you know, Jamie was talking about how if you are just doing very limited runs, most of the comands aren't going to want to talk to you. And if you're below a certain level of production, again, if you're above 10, you're probably good. If you're below 10, but above 5, you might be good. And if you're below 5, you're probably not that good. It's just so hard to solve your problems with a contract manufacturer because their needs are so misaligned with your needs at that level of production.

29:19
Mott Smith
To get a little bit more specific here, if you are at the low end of that revenue spectrum and you want to use a coman, the things that will make you a good candidate include, like Jamie said, the if you use industrially available ingredients, also if your product is very standard. So if you're just making a regular nutrition bar that has a normal shape and uses normal foil packaging and all that stuff, you could probably find a Conan even at a relatively small order quantity. On the other hand, if any aspect of your product is special, that increases the difficulty of finding a con man significantly. And it could be everything from the ingredients to the process to the packaging.

30:06
Mott Smith
And one of my favorite examples of this is we have a client at our La Sal facility that a lot of people even around the country now know. It's Zab's Hot Sauce. And I love these guys. I go through like a bottle a week, which is faster than I Go through my bourbon. So, you know, that says a lot. Anyway, they came to us because they were well capitalized, they were well resourced from a process and know how perspective. And the one thing about them was they wanted to stand out on the shelf. And most of the hot sauce comans in the USe bottles that look either like Tabasco or Tapatio. And so they didn't want to be a Tabasco bottle with a different label. They wanted this old style Louisiana bottle.

30:48
Mott Smith
And they couldn't find somebody who would manufacture at their quantities with that particular bottle. And so like, all right, we're going to do it ourselves. And by the way, if Zabs is listening and I got any part of that story wrong, please message me and I'll publish a correction. But I think this is how I understand their story. And you know, they created their own hot fill line and they get their peppers in Florida and they do a beautiful job and they're crushing it. They're crushing it in a commercial kitchen and they will probably move to a co packer at some point, but they're doing it on their schedule and on their terms as opposed to with their backup at against a wall.

31:24
Daniel Scharff
I love it. All right, so they are not the boy band analogy where they went in and said, I want it that way. And the co man said bye, bye. Instead they went to amped kitchens and figured out, okay, we want to prioritize this bottle. Which makes sense to me because hot sauce is a tough category. The purchase frequency is so low and it's. There are so many of them and the barrier to entry is also very low. So I like how they just figured out a solution to be differentiated on market. Jamie, you want to add something?

31:53
Jaime Valenti-Jordan
Yeah, yeah. So I think as MOT's kind of glazing over a lot of different things there around contract manufacturers and how they work differently. I think it's not so much that the needs aren't aligned, it's that the business models are functionally different. So with a branded product that you're having a contract manufacturer make for your goal is really to own the whole process and convert your inventory to cash. Their whole process is to convert your cash into inventory. Oversimplification. Absolutely. But they have to convert it to inventory that's sellable and things like that. But the way that they conceptualize the world is usually around the paying of individuals. Right. At the end of the day, they have to pay the people working on the line.

32:31
Jaime Valenti-Jordan
So the easiest way to build out paying somebody is to have them work one product for an entire shift. So what they're looking at is a total shift cost investment. What I mean by that is if they have to stop and clean everything out in order to cut over flavors, that's going to hurt their productivity. Still have to pay those people for that cleanup. But if you're trying to run four different flavors in a shift, you're going to make 15 minutes of one thing and then stop for an hour or two hours to clean everything up, and then run for another 15 minutes and then stop. That's incredibly inefficient. And so that person's cost for that day gets added to what you pay. Now, when you divide it by a lot less numbers of product, well, now that cost is astronomical.

33:13
Jaime Valenti-Jordan
And that's why running low volumes for contract manufacturers is difficult, because they have these costs they have to pay their people no matter what. Right. Regardless of how much product that they make. So what they're trying to do is they're trying to pass that cost along because you're going to pay their people, but you only have to pay them for that day rather than paying them for every day. If you have a commercial kitchen or you're running it yourself, you are paying those people every single day for running. Now, a co man can run a hundred times faster than you can run in a commercial kitchen. That's by design. That way you can only pay for 100th of that person's time over those hundred days instead of all 100 days worth of time.

33:53
Jaime Valenti-Jordan
When you divide all of that out, you can see how a business model that's focused on the investment of a shift, the depreciation of their equipment over the course of each shift, that it runs, in fact, is how they run their business model. Right. Therefore, when you're putting all of this together, yes, their business model is separate from yours and different. But if you can engage with that, with how you operate with them in order to deliver a superior product experience, you guys can work together to continue to build that. It's not a vending machine. Right? I love dropping that analogy. Cobands are not a vending machine where you stick in money and get out product. There's a lot more going on there. But that's why they don't like something special, because it changes their efficiency. Right?

34:32
Jaime Valenti-Jordan
So if they have to completely overhaul a line and put plastic down and everything like that messes with their whole flow of things. Not that it's bad, it's just it's going to Cost you more.

34:41
Daniel Scharff
Yeah, I like that analogy. I also like to put it into perspective for people. It's not like Coman's, you are not like a dime a dozen to them. They do want to just like hey we want something that works with our equipment. We want to make the crap out of this thing. Like just hey let's hit go big volumes because we make money off the margin on, off every product running efficiently, all that stuff. But also it's not like they're onboarding so many different brands that you're just a number to them. Like there are some co mans right. That may only be working with I don't know, like five or 10 clients at a time. Jamie.

35:11
Jaime Valenti-Jordan
Right.

35:11
Daniel Scharff
Where like they want to onboard the right brands. They want, you know, good partners who, they'll take them when they're small if they believe in them but they want to grow with you. You know, they have capacity limitations for their people and their business. How many times they can change things over. They want to be running the line with the right kind of products and they will care a lot about your product.

35:30
Jaime Valenti-Jordan
Absolutely. And by the time you factor in how much time they put into getting the products to run on the line the way that they're supposed to with ordering the ingredients, setting up the vendors, getting all the trucks in, everything like that and you amortize that over the cost of the relationship and things like that, they are usually losing money year one on you. That is a, a net loss from the amount of time that they have to pay their people to onboard you. They only really make money in most cases in year two, different points in year two. But it's usually not until year two and you hitting your goals and your inventory levels and things like that, like your production levels, that's the only time that they start to make money.

36:09
Jaime Valenti-Jordan
So they really want a multi year relationship but that's why they put a two year commitment on most contracts is that they want the ability to make money over the life of the relationship.

36:19
Mott Smith
This is like when you get the free or discounted cell phone at the beginning of your cell phone contract and they want you to stay with them for two, three years. So it's actually worth it. The end for the phone company.

36:28
Daniel Scharff
I guess probably the difference is like you're also not making money probably at that stage you're like a startup, you've got some overhead on the business and you're not making a lot of margin. The product's expensive because you're at low. So I kind of like thinking about like you're both kind of in it together at that point. So Matt, as you're on that path to making a million, you're in a commercial kitchen. You're starting to go from some units to pallets to trucks. You're really starting to churn out orders. What's going to start stress testing your model, what's going to break as you start to scale your production in the commercial kitchen where the pain points are really going to be as you start to scale exponentially?

37:03
Mott Smith
Yeah, I mean it's going to be a lot of the same stuff as if you were in a coman, although you're going to be dealing with these things more directly yourself. You're in a commercial kitchen. I mean supply chain is obviously huge. Like Jamie was talking about industrial ingredients. There's going to be a point where it's not going to make sense to be opening 12 ounce jams of jars due to your stuff. And so you're going to have to think, okay, now I'm buying by the barrel. Now I'm now I'm buying a different, maybe even from different sources. Maybe I'm no longer buying from a Cisco and I'm now buying from more industrial ingredient suppliers. The second thing is going to be staffing.

37:35
Mott Smith
The more you are selling, the more you are selling and the more you're out there in the world meeting with the, you know, meeting with the markets and meeting with the people who are ultimately going to be your channel to consumers. And somebody has to be back in the kitchen running things. And so staffing up is going to be the next thing. You people will often hit a wall with their packaging where the stuff doesn't stack. And so you can't do pallets with the stuff that you were selling DTC in bags. And so now you got to think about that a little bit differently.

38:08
Mott Smith
And again, you're also going to hit a wall with your quality assurance where as you again scale to bigger and bigger retailers, they're going to be more thinking about like you know, again, sqf, bcf, ISO like Jamie was talking about. And you're going to have to get various quality certifications. If you're selling a meat product that you've been doing dtc, you're going to have to get USDA once you start going wholesale. And that's something we can accommodate. We have USDA offices at our buildings, but not everybody does. And then finally, probably the most unexpected thing for a lot of our clients is that cash it's being able to pay for the ingredients to turn it into the inventory. I love that way of thinking about it, Jamie, where you're turning cash into inventory and then back into cash again when you sell it.

38:53
Mott Smith
And getting that initial wad of cash to create that inventory is often a challenge. And I was just talking to one of our clients, Kanpai Foods, Isaac Medeiros. They're one of the fastest growing brands at Amped. I can't believe how they've scaled up so quickly. I mean, they started off in just a normal single space and within a year they moved into probably our largest space at the building. And I asked Isaac what his advice is and he said if you think you need to raise 1 million, raise 2. Whatever you think you need, basically double it. And that's true whether you're in a commercial kitchen or a co manufacturer. To be honest, it's the same problem.

39:26
Daniel Scharff
Okay, cool. So, and then Jamie, same question to you. Just on this co manager side, I mean, like for me, when I go to a big coman and I see the line spinning so fast, I'm like, gosh, if one thing is going wrong here, you got a lot of stuff going wrong. So as you scale and you're getting to your first million in sales, starting to run faster, line times like take out more products, sit on more inventory, what's the stuff that you can see really go wrong or the biggest pain points?

39:55
Jaime Valenti-Jordan
I think, especially in the quest for the first million is I think people don't do enough financial planning to know that the first million is probably not enough to actually start paying yourself a salary for all the hours you're putting in. I mean that in the nicest possible way. But let's do the math real quick. You do a million dollars in sales, let's say optimistically, you have a 25% gross margin on that. That's a quarter million dollars now who you are selling it to. There's a cost of sales, right? Whether that's free fills or that's paying for downstream distribution, or that's just SG and everything else, getting everything all set up, generating marketing materials, going to Expo West. Right. It takes chunks out of that. You're probably paying yourself at best minimum wage. Minimum wage off of a million dollars in sales per year.

40:46
Jaime Valenti-Jordan
Right. That's reality for a lot of folks out there. You really aren't looking at being able to reinvest into the business and make it grow and things like that until you get past that point. So I think a lot of people do everything but sacrifice everything in their life to get to that first million in sales and realize that they are only at the starting line. Right. Sometimes there's a lack of awareness for some folks, especially with working with comands that a million dollars in sales is. Is going to get them to a point where they're going to feel comfortable. Entrepreneurs, I know entrepreneurs who get to a hundred million in sales and don't feel comfortable. That's probably some psychological discussions they need to have in a different forum. But there's definitely. This is a marathon, right.

41:26
Jaime Valenti-Jordan
And so a lot of people will burn themselves out before they get to the point that they are getting to this. So it's a lot of work. It's a lot of different directions you have to get pulled. You have to be an expert in a lot of different things in order to get there. There's a lot of hats you have to wear. My recommendation with most folks is figure out which hats you're good at and hand the other ones off.

41:46
Daniel Scharff
Honestly, if you're a founder and you actually have bootstrapped your company and you can even earn minimum wage, that's actually a pretty good position to be in when you're making product in the early days because there's a lot of stuff you're going to waste money on. You're going to be paying the dummy tax, learning things, having to throw out product. So just getting back to cost for a second maybe you can weigh in on this. So overall cost, like total cost of goods sold in a commercial kitchen versus at a coman. I mean, I think probably like you have more control, you can make your product at a smaller scale. Right. So you don't have to load up on probably as many ingredients. You don't have to create as much inventory that's going to be sitting there.

42:21
Daniel Scharff
Make it more kind of on demand as long as you have the staffing to do it. But yeah. What do you think overall? Cogs Commercial Kitchen vs. Coman?

42:27
Mott Smith
It's a great question. Before I answer, I just want to lend my support to what Jamie just said about that first million. That the reason you're going for the first million is not because that's a resting point where you're suddenly making it. If you can get to a million dollars, it means you stand an excellent chance of being able to get to a hundred million. It's like a lot of people get stuck at the $50,000 a year level or the $75,000 a year level and never break through. And a million Means you've got some traction action and it's a really good sign. It doesn't mean you're there yet. It just, it's like you're on your way. And so that's really cool. As far as cogs, it is kind of all over the place.

43:03
Mott Smith
But I'll say that if you have again, a very generic product and your way of differentiating yourself is branding, like you've got incredible marketing, but your product is again, a, a totally rectangular nutrition bar, your cogs are probably going to be a lot less in a co manufacturer at almost any scale than in a commercial kitchen because of the equipment you need to make something like that. On the other hand, I have seen really smart producers get incredible margins at amped. And I'm not going to say who this is, but there was somebody that were working with who got to about $4 million in annual sales and decided to make the leap to a coman. And again, like, you know, like somebody at that level, they did it on their schedule and their terms and they did it over about a year.

43:52
Mott Smith
And when they did their unit costs actually doubled at the coman. But they made the decision to do it because they were able to get out of the manufacturing business and they were able to 5x their production at the coman. And for them, even at those thinner margins, that additional volume and just being able to be in a good headspace and not be freaking out about running your own kitchen was well worth it for them. And so they did it. And so it really depends on your product. It depends on your responsibility, resourcefulness, etc. I'll also say that we have many clients at AMD who are kind of co man refugees who went to a Conan probably a little bit too early and didn't work out for them. And they came back because they were able to increase their margins by self manufacturing.

44:36
Mott Smith
And it goes both ways. I mean, going a little bit off topic for a second, Brett Parada from Chubby Snacks, who I know has been on your podcast before, we love him. We love Chubby. He talks about how by self manufacturing he gained. Gained particular. Like he basically he learned how to work with the ingredients in a way that his co man that he ultimately went to didn't. And he, his co man had a, I think it was a jam in a jam machine and didn't know how to handle it. And Brett, because he had been self manufacturing this stuff, knew exactly what to do to get. Get the stuff unstuck and get it to work. So it. Anyway, long answer to a good question.

45:16
Daniel Scharff
So, yeah, I mean, I think honestly, my dream for everybody who's doing this out of passion is to, like, not have to raise so much money, which, when I came out to California, Silicon Valley, that's just what you did. Like, hey, go and do your business in SF so you can get access to all those VCs, raise that big money, go for it, become a trillionaire. And, I don't know, being on the other end of it, you always hear from people like, hey, it's cooler not to raise money. I really understand it now, having lived through that and just seeing the entrepreneurs who go through this business. Raising money does not mean you have made it.

45:50
Daniel Scharff
It may just be the beginning of a long, painful journey for you where you're just, you know, living your life accountable to a lot of people and a lot of expectations. And I really wish for everybody to find a way to do this business efficiently, even if it's going to be more slowly and just trying to get things right. I think from a personal standpoint, for me, that's a much better fit, and I believe in all that. But I also can tell you candidly, I'm not the kind of person who's going to want to be in a kitchen. I just know that about myself. I don't cook. Even. I don't. I don't, like, get a lot of pleasure from it. And when.

46:20
Daniel Scharff
I mean, one of the amazing brands from our community, Nowhere Bakery, they do make their own products in their own commercial kitchen. And like, hey, Mauricio, like, do you want to come to this event? He's like, man, I got, like, I'm in the kitchen. We have a lot of orders coming in, and I got to run the team in there. I'm like, yeah, okay. That is amazing that they. They have this super strength where they can do this. And it's probably. It's not the investment I personally would make, but I do think it is the right choice for a lot of founders. And, yeah, I don't know. Like, yeah, you need to think about where do you want to spend your time?

46:51
Daniel Scharff
Do you want to be in there perfecting your product, really being careful at the margin, or do you want to maybe like, okay, I need to, like, pay out a little bit more money and take on more risk, but get someone else to make this. I think you guys are really covering the right framework to think through this and figure out what is the product call for, what is your business strategy call for? You need to have a financial model and really understand how the whole thing is going to work and come together and what's the right thing in the early stages and what is the right thing as you start to scale and just, yeah, overall, what is your ambition and your goal?

47:21
Daniel Scharff
So I think as we wrap up here, maybe I'll just come to each of you guys for some final thoughts. Maybe, Jamie, I'll start with you. Anything you want to add that maybe we didn't cover?

47:29
Jaime Valenti-Jordan
Yeah, I think at the end of the day, we are here on this podcast. You're listening to us because we are hoping that we will tell you one thing or the other. The answer really is based on each individual's experiences, skills, and passions, really decides the question of when to change your production model from one thing to another and where that tipping point is. It's different from every person. It's different for every brand. I get asked all the time, should I go this way or that way? Well, let me learn a little bit more about you. Do you like doing these things? If not, then no, absolutely. Do not go down that path for as long as you can. Right. Everybody's answer is different. You have to answer that for yourself.

48:09
Jaime Valenti-Jordan
There are people like the three of us who would be happy to chat with you anytime to help you find that right answer for you. And yes, my information will be all over everything because it always is. But always feel free to reach out. You're not alone in this, and you don't have to make this decision offline of three talking heads on a podcast.

48:26
Daniel Scharff
All right, very well put, Jamie. And that really, it's from, you know, someone who has just tons of experience. And I think one of the things I appreciate the most about Jamie is you aren't going to ask him a question and just get immediate. This is what you should do. He really understands that there just is a lot of inquiry that's going to be necessary to understand because, like, the recommendation is so unique to the business and the individual. And so if you do come across people who just tell you how things should be and what the right way is, like, run the other way. Go find the people who actually are like, well, let's. Yeah, let's figure this out. Let's ask some questions. I don't know the answer immediately. Let's get there together. So thank you, Jamie.

48:59
Daniel Scharff
Matt, coming to you for last thoughts here.

49:01
Mott Smith
Yeah, and I love the it's complicated answer because that's almost always correct. And I second what Jamie said. Like, always reach out. We're happy to Share our experience. And one of my favorite things to do is we have so many people in the community that have been on both sides of this that I like to just put people together with others who've been down that path and who could share their experience. And again, that's not giving you a prescriptive. You must do this answer. It's. Or just here's how it went for me and, you know, learn what you can from it. I think that what I'm taking away, if I were going to kind of summarize this conversation, which I really appreciate. Daniel, I love what you're doing.

49:30
Mott Smith
I love how you create this forum, is when you're at that iteration stage, when you don't yet know exactly what you're doing and what direction you go, you're going in. Commercial kitchens are probably the only real option for you. And as you learn more and as you nail your product and your process more, you've got that choice to make. And I will say that the people that we see getting the most success out of it, and that's success defined broadly. It's success meaning either is hitting their goals if their goal is to get to $100 million in two years, or if their goal is to be at $500,000 but have a good lifestyle and make, you know, enough money that they're happy.

50:12
Mott Smith
Whatever their goal is thinking through, in particular the financial aspects of this is something that when somebody comes to us and we see that they've actually thought through their kind of business plan that includes their life, those people are more likely to be successful in our experience. And again, we're always happy to share our thoughts, even if you're calling us from, you know, Boise, Idaho, where we don't have a facility and you just want to talk things through, or we enjoy that and we're happy to have that conversation.

50:40
Daniel Scharff
All right, thank you, both of you, for all of these thoughts. Definitely. If anybody wants to reach out to Mott and the Amped Kitchens team, maybe chat about their commercial kitchens in LA or Chicago, check the show notes. You can also check out their websites and also for Jamie as well. If you want to reach out to the team at Catapult, we'll include his contact information in the show notes here. Thank you, guys. Again, I think this has just been a really interesting discussion for a lot of early brands. Hopefully not all of the answers they need, because, yeah, reach out to people just really kind of test your thinking there. But these kind of decisions can just have huge ramifications. So it's great to get as much information as possible. So thank you a lot to both of you.

51:20
Mott Smith
Thank you. And I'm going to go start a boy band.

51:22
Daniel Scharff
Let's. Let's do it.

51:24
Mott Smith
All right, we see one more guy, we're there. All right, see you guys.

51:27
Jaime Valenti-Jordan
All right.

51:28
Daniel Scharff
Matt, can you play anything that goes through the mic right now?

51:30
Mott Smith
Yeah, I could.

51:32
Daniel Scharff
Can we do a jingle for this episode?

51:34
Mott Smith
Jingle? Let's see.

51:35
Daniel Scharff
I don't know how the sound works if. If you can be playing and I can be singing.

51:39
Mott Smith
Oh, that's a good point.

51:53
Daniel Scharff
Yeah. Gonna make some product Gonna make it right I'm gonna be in the kitchen all day and night Gonna make it right all right. That's not bad. All right. All right, cool. Let's see if the editor can get that on a good clip. I feel like we nailed it.

52:15
Mott Smith
Yeah, I feel like we did too.

52:17
Daniel Scharff
Jamie, are you coming to our concert?

52:18
Jaime Valenti-Jordan
I will definitely be there.

52:20
Daniel Scharff
All right, you guys, thanks, guys.

52:22
Jaime Valenti-Jordan
See ya.

52:26
Daniel Scharff
All right, everybody, thank you so much for listening to our podcast. If you loved it, I would so appreciate it if you could leave us a review. You could do it right now. If you're an Apple podcast, you could. You can scroll to the bottom of our Startup CPG podcast page and click on write a review. Leave your company name in there. I will try to read it out. If you're in Spotify, you can click on about and then the star rating icon. If you are a service provider that would like to appear on the Startup CPG podcast, you can email us at partnershipstartupcpg.com lastly, if you found yourself grooving along to the music, it is my band. You can visit our website and listen to more. It is superfantastics. Com. Thank you, everybody. See you next time.