In 1999/2000 we expanded our family business to a factory of 14000 m2, and after selling the business in 2009 we have consulted in Germany, Zambia and Belgium in setting up completely new industrial bakeries.
The three businesses out of our practice had 2 things in common:
- the business was new to the industry
- the technology was new to the business, its owners and its staff
From our five experiences (including our 400 m2 test bakery/ lab) we will share our knowledge with regards to this topic.
The basics: Products and Business plan
This might be too obvious, but you’d be surprised how many people start a business just out of a gut feeling. We have no problem with that, but next to getting paid our fees we like to see our customers prosper. Only recently we developed over 100 new products for a customer, where the brief was: “only the best quality and price is not important”. Within 3 months after scaling up they found out that the main competitor had reduced their prices to block the new entering business; making approximately 1/3 of all development, training and coaching efforts directly obsolete and a divestment; in this case and estimated value of around € 100k.
It helps if there are already 1 or 2 customers on board, who are willing to wait until you’re ready; but we know this can’t be always the case. When you’re expanding current business this will be more often the case. When being new to the business, it’s very important to do the homework on:
- Who are the potential customers and consumers?
- What are their needs?
- Where are they based?
- How do you get to them?
- How is the pricing and volumes per country/ area?
- Where is the biggest potential (Volume, Flexibility, Price, Area)
- What stage of the Product Life Cycle are your future products?
In short: ask yourself and your peers a lot of questions starting with: How, What, Where and Who…
After having done this: find someone who is by nature sceptical and will point out to you Critical Success Factors; be open to their criticism and see it as an opportunity to improve your plans. This is a very simple and very difficult step in the process, as it might leave you disappointed and forces you to rethink or even stop your plans. Don’t throw them away, as you will have an opportunity to reflect and some business plans need maturing: The first business plan for Bakery Academy was 5 years old before starting the business…
However when all lights are on green you will then find yourself on a crossroad for a fundamental business approach: will you try and sell yourself and your future business without products and/or production or will you first develop the products and then sell or even first realise production facilities before starting to sell?
Starting a business without products and production facilities:
This implies a very well thought project, with tight schedules and a very high pressure (make or break) towards deadlines with customers and production start up. We were involved with a bakery at their start: developed their initial recipes for the 3rd meeting with their customer, which was successful enough to agree on a start 6 months later. In these 6 months the factory and equipment layout needed to be made and built, tested and run. After three months we were invited again and had to redevelop to new briefings, train the staff and scale up the production; only 2 months delay for the 1st production line and 3 months delay for the 2nd production line forced the company to immediately start producing with very high cost for fail productions. It took them another 4 months to stabilise production and reduce fail cost to a minimum. The biggest advantage was that they exactly new what to produce for their customers. This however, increased also the pressure: their customers discontinued their current suppliers…products had to be great and delivered. The stakes were very high for all parties involved. Be aware that this can be too much pressure for some.
Starting a business with developing products before selling:
The risks here are a lot lower, but you might still be ending up with a product your customer doesn’t want (this happened initially to the inventor of the Dyson vacuum cleaner). You might end up spending (too) much time in a development phase; trying to perfect the product according to your own belief/interpretations. This approach needs you to manage the development and commercial processes very well.
Starting a business with a production facility and without products:
Ever too often nowadays equipment manufacturers sell a production line with a: “Yes, you can make this product on this line.” or you have bought it with a support to make one product. However this product is not optimised for your line and raw materials available. You then end up with very expensive black box solutions without a clue how to make a better product. On the other hand, you might start developing (with or without consultants) products after you’ve ordered your factory to be built. When after scaling up you see that the time is ready to start selling you might conclude that you would need a certain quality standards to which your factory is currently not suited or that the product has switched to a different product life cycle. The most interesting part we came across is that a product we developed couldn’t be made: the promised functionality of the equipment was not ordered with the "full package" and product design had to be reviewed; leading to one of the most successful innovations of that company...showing that you can’t control everything - which is a good thing!
After having shared all this: you still need to decide on some more items. One of the first would be what would your production capacity look like? You will need to decide if it will be 1000 kg product an hour, a shift, a day or a week and what kind of flexibility would you like to have with it? We’ve seen 2000 kg/hr where it should have been 5000 kg/hr, and we’ve seen 1000 kg/hr where 250 kg/hr still would be too much.
And sometimes it even might be interesting to not just invest in one production line, but be able to put several lines in the factory to easily scale up; this allows you to serve small and big customers/volumes in the same time. By deciding for multiple lines, you could also order first one or two; making the initial investment lower and more easy to start the business. In the end the flexibility will have a higher investment than one production line doing the volume of four or five lines, but with many uncertainties it could be a more attractive way.
Another subject of concern are the Technical or Quality Requirements you would like to fulfill or that potential customers demand. Demands for HACCP, BRC, IFS, ISO, GMP, Gluten free, Kosher and Halal have a core that is alike, but differ on other topics. This can imply dramatic costs afterwards, whilst taking them on board during factory and equipment design.
Large retailers have sometimes developed their own Quality Standard, which could be described as BRC+ or IFS+, in the case of a UK, German or French based retailer. The requirements can have major implications to warehousing, personnel facilities (toilets, changing areas, canteen, etc.), segregation of products and process flows, etc. This only implies that if your company has the ambition you sometimes need to prepare to be able to easily establish the requirements for those demands afterwards. From our own experience, we know that after having realised a working relationship with a high profile UK retailer a lot of money went into rearranging building structure to meet their demands, while would those items been done at the factory design less than 5% of the total cost into rearranging would have gone into building work.
By now, a complete set of requirements, demands, growth directions and a preliminary product portfolio has been set. And by having done this difficult exercise of formulating this a grown awareness of Critical Success Factors, which will help you as a business owner to focus and plan your project well.
In our next article we will focus into more detail on the consequences of the choices into factory and equipment design and how to select the right supplier for this.