Data, discipline, differentiation: How CPG brands can find market success by focusing on the basics

"There is a lot of money out there for impact founders if you are doing the real work and if you are willing to go the distance to get that money. ... Gross margin, trade spend [and] cash burn are the things that are going to make or break you. The more money you can get in gross margin, [then] you are going to inch toward profitability," said Heather Terry, founder and CEO of GoodSAM Foods, during the webinar.

[Editor’s note: Are you a first-time founder trying to grow your brand? Then, check out FoodNavigator-USA’s Founders’ Fundamental podcast series, which is dedicated to the nuts and bolts of building a CPG business. Click here to listen to the latest episode, which discusses product-market fit and branding basics.]

‘The founder story is great, but it has to be backed by a data-driven strategy’

Venture capital firms have invested fewer dollars into early-stage food and beverage companies in the last few years as interest rates increased. At the same time, retailers are more selective of the brands that they put on their shelves, as they grow their private-label offerings.

Thus, CPG brands need to ensure that they have strong financial literacy and can tell a compelling story about their data, based on how well they are selling and planning to grow, explained Edricco Reina, Managing Director of SPINS.

“The founder story is great, but it has to be backed by a data-driven strategy. ... A lot of retailers will look at … where you are going to be sourcing the volume from if we make an investment. ... Is it another larger CPG brand where you are going to source from, or is it ... a competitor that we already have on shelf or is already in the marketplace?” Reina said.

To tell a data-driven business story, first-time founders must know financial terminology and reports, so they can better communicate how they create a sustainable business to prospective investors and retailers, Terry noted.

“If you do not know how to read a [profit and lost statement], a balance sheet and a cash flow statement, it is money well spent to go get a tutor. ... I had no idea how to read those things. I did not go to business school. I hired somebody to sit with me for several weeks and to walk me through how to deal with these things because I realized I was really being left behind in my first business, and that without that understanding, we would never succeed,” she elaborated.

‘Survival of your brand is key — be smart — know your numbers [and] have a focused approach’

Retailers and investors seek brands and products that are unique to the market and represent a market growth opportunity, angel investor Chris Robb explained.

“Investors and merchants are going to look at a new brand or product line similarly in the sense that if I do not totally understand your differentiation in the category, and then the way that it will make me money or you money ... that it is hard for me to bet on,” Robb elaborated.

Brands often must prove themselves to investors and retailers by taking a "small first step," including launching into a couple of local stores before moving to a larger retailer, Robb noted. However, investors on occasion will support pre-revenue companies if the product is compelling and the company has a strong business plan, he added.

“I will invest in you pre-revenue if you show me that your category differentiation and your brand position and all the things are buttoned up enough to where it really compels me. The best investment I have ever made is pre-revenue. We have made two pre-revenue investments already this year, so it is not that we would not do that. It is a lot harder to do that because you have to really be super clear on those things,” Robb said.

Additionally, brands with product differentiation and a disciplined financial approach will secure investment more easily when venture capitalists start to deploy more capital, Terry explained.

"Survival of your brand is key — be smart — know your numbers [and] have a focused approach. And as long as you can stay in the game, eventually either better times will come for capital raising or ... you will pique the interest of investors, [and they will say,] 'Wow, not only is that a great product, but they are smart,' and I think that is very key in this landscape," she elaborated.