#37: Lessons Learned from 7-Figure CPG Brands: Operations (Part 1 of 3)

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Karin Samelson: [0:45]

Welcome to the first episode of our three part miniseries, Lessons Learned from Successful Seven Figure CPG Brands. We’re joined by Alli Ball, creator of Retail Ready, and Adam Pollock of Rodeo CPG to talk about everything, operations, retail and digital marketing for your CPG brand. Today’s episode kicks off the series with a focus on what you need to consider around operations in your business to be a successful seven figure CPG brand led by Adam Pollock. We’re going to be talking about demand production, procurement, and cash flow. Let’s get into today’s episode.

Alli Ball: [1:25]

Okay, you guys, are you ready to do this? Are you ready to talk ops?

Adam Pollock: [1:28]

Let’s do it.

Alli Ball: [1:29]

Okay. Adam, I think we need to kick things off though with a high level. What the heck do you mean by operations? What is that?

Adam Pollock: [1:38]

Sure. Well, and I guess before I start really quickly, I mentioned what I do at Rodeo, not what Rodeo does. So Rodeo helps brands with three main things, R&D, operations and sales management. So we have service offerings that do that. And then increasingly we’re building technology to help with that as well. So just so it doesn’t seem like I’m some random person spouting off about ops. So this is what we do as a company for a living. So to kind of break ops down simply, it’s basically everything related to making your product. So when you think about packaging and ingredients and manufacturing and all of that kind of non-sexy behind the scenes stuff that goes into going from an idea or a bunch of disparate pieces to a finished pretty product that’s on the shelf, that Alli, you help brands move, that’s kind of operations. And then you hear about supply chain every day today and the disruptions in it. And that’s very inextricably linked with operations as well. So just think about basically all the components and things that go into making your finished product that’s typically what we mean when we say ops.

Alli Ball: [2:45]

Yeah, and that makes sense Adam. And I’ll tell you, I know that we’ve shared a lot of clients and we often find that brands come into Retail Ready and they don’t quite have their ops dialed in. So I love that it’s a focus of yours, a passion of yours, both at Rodeo and personally you have all that experience with ops. So let’s start from the beginning and talk about what the best brands do, where they start from that ops perspective.

Adam Pollock: [3:13]

And just to address your point, most founders don’t get into this to be operations experts. They want to create a brand, they want to sell, they want to do that side of the business. So it’s not uncommon to come in with very little fundamentals here and it’s not uncommon to not want to do this. It’s a very, very important part of your business, but it’s definitely not the most fun part. So that’s a totally common refrain. That’s fair. So one thing I love, there’s an old Mike Tyson quote that I think I find myself saying a lot, but everyone’s got a plan until they get punched in the face. And that happens to hold very, very true for CPG, particularly right now when things are kind of a mess. That said, it all starts with a good plan. You need a plan, it’s going to change and that’s okay, but you can’t go in with no plan.

So to make a plan, so before you even get there, you need a firm grasp or at least a pretty educated guess if this is your first time doing this or your business is brand new, around four main things. So first thing is demand. So what are my distributors or my customers going to order for the next month, six months, a year or so? The second thing would be around production. So how much am I going to manufacture and when? The third thing would be procurement. So what materials do I need to order when and in what quantity? And then the last important piece of working towards a plan would be your cash flow. So understanding what’s my cash balance on a particular date. So how much cash do I have for the next month, three months, six months? So, and I think in general the key here is always be very, very conservative when you’re thinking about revenues and very, very aggressive when you’re thinking about costs and time. So in other words, assume that things will cost twice as much and take twice as long as you think they will take. That’s always just a very important thing to build into your models, especially if you’re doing this for the first time, it’s never going to go according to the plan and it’s always going to take longer and it’s going to cost more.

Alli Ball: [5:10]

I think that’s super solid advice. Okay so the four things that you were saying in planning, I just want to recap them here.

Adam Pollock: [5:14]

Yeah.

Alli Ball: [5:15]

Demand, what are people going to want for the next month, six months, year, right? Demand. Production, how much am I going to manufacture and when. Procurement. So all those supplies and moving things that go into making your product. And then tell me the last one again.

Adam Pollock: [5:38]

Cash flow.

Alli Ball: [5:39]

Cash flow.

Adam Pollock: [5:39]

So, and this is a huge one, and this is particularly in the world of selling wholesale, selling through a distributor into a retailer, your cash cycles could be six to nine months. And so this is where I see most brands fail is around, especially once again, if this is your first time, you think you’re going to get paid in 30 days, which would be the case if the clock started now. But from when you outlay the cash for the raw materials to the time that you’re actually getting paid back, it can take up to nine months. And so this is where it’s really, really important to be thinking about that. And if you don’t have any knowledge of this, working with someone who’s done this before to help you understand this is how much cash you need to have on hand. So those are the four main things you need to have a grip on before you even start planning. So just trying to make sense of those four main, we’ll call them pillars and then from there, you can start moving towards creating plans around each of those.

Karin Samelson: [6:36]

That is such a good note to always remember that it’s going to cost twice as much and it’s going to take twice as long. And if I could tell every single founder we’ve ever worked with that or we ever will work with, that’s just such really great advice. So you just talked about what you should do to start, what do you do or what should the founder do after they have a really good handle on their demand, production, procurement, and cash flow?

Adam Pollock: [7:03]

Yeah, so this is now where you move from getting a handle on these key pieces of information to actually planning. And each one of those four things should have its own respective plan. So for instance, if you were say, trying to do a sales plan for retail, you’d want to generate what’s called a bottoms up or a consumption based sales plan. So that’s like a velocity driven plan, how many units I’m going to sell by product or skew, by month, by key account. And that’s typically developed by a sales team if you’re a solo founder, you’re the sales team. So that’s developed by you. But the idea is instead of saying we’re going to sell… That the market size is a billion dollars and we’re going to get 1% of that and work your way kind of top down, you work your way bottoms up by account. And then in that plan you’d also have assumptions around, we’re going to reach out to these 50 accounts, we’re going to close 20% of them. And then you’d put timelines against all that. So we actually have a tool at Rodeo that’s free that you can use, you can create an account at rodeocpg.io and create your own consumption based plan, which is super helpful for a lot of brands. So, that’s=

Alli Ball: [8:16]

Well I’m going to interrupt you, Adam. Is it okay if we put that in our show notes and we’ll just put that link right there for our listeners?

Adam Pollock: [8:22]

Yeah.

Alli Ball: [8:22]

Okay. Awesome.

Adam Pollock: [8:22]

Yeah. That would be great. That’d be great. There’s a free tool there for that. And then there’s some other free tools in there as well that are great. So when you’re thinking about demand, that’s a piece of it. Obviously the sales side and then there’s also, you’d have your own separate demand plan as well, which is kind of more of, I guess internal facing or production facing. But the idea is based off of a demand forecast that you put in place and any other pertinent information from sales and marketing and your research and development teams, it’s basically what will actually be ordered versus what you plan to sell in this bottoms up sales plan. So those two kind of consumption based sales plan, demand plan sort of work together there. And then you could create from a production perspective, a production plan. So that kind of lays out what finished goods you’re producing, when, and then taking into consideration your own limitations if you’re self manufacturing or your co-packers.

And then the last one would be, so we talked about procurement and getting things together in that realm, once you have that, you’d create a material requirements plan. So that’s basically takes into consideration the raw materials you need to order and when to meet your production timelines. So basically we talked about demand, production and procurement. From a planning perspective, you’d be looking at creating a bottoms up sales plan, a demand plan, and a production plan to support what’s happening in those specific pillars. And the key thing to remember with all these plans is people will ask frequently, when do I update these plans? And instead of doing a monthly cadence or whatever, the best thing to do is always to have it be more event based. So for instance, you are launching a new product in three months, that’s obviously going to have a big impact on sales and your production capacity.

So you want to update your plans around that. You’re going to open new accounts over time. So anytime you open a big new account, that’s going to have a big impact on your operations, your production, your cashflow, everything. You discontinue products from time to time. So all of these things are big events, you think about when you get insurance as an individual and these qualifying life events happen and you can update your insurance out of open enrollment. Very similar here with your business. You’ll have these big qualifying business events I guess that happen and you’ll want to update these plans accordingly because they’re going to impact, opening a new account is not just a sales problem, it’s an operations problem, it’s a cash flow problem, it’s a whole set of other problems, which are usually good problems, but problems nonetheless. So just key to think about, these plans aren’t static. They update when big things happen and you want to make sure that that’s when you’re sitting down with your team or yourself and making sure that the plan you made three months ago still holds water.

Alison Smith: [11:12]

Love it. And I love a good plan and absolutely love that you guys are providing more tools and roadmaps on how to actually create these things because it’s definitely not easy. And I would love to hear from you based on clients that you work with, how many people are coming to you with these in place? Or is this often a misstep?

Adam Pollock: [11:35]

Yeah, I would say from the plan we see, well we see all of these plans a lot. Most of the time someone’s coming to us to create it. So most of the time a client doesn’t have it. I would say in general we see a lot of founders are able to come up with a sales forecast, but once again, it’s not necessarily grounded in this sort of bottoms up way. It’s much more lofty or I would say idealistic. So if you’ve never done this sort of bottoms up planning before, it’s just like it’s, you don’t know what you don’t know. And so I would say for the most part we see varying degrees of completeness in these plans from the clients we work with, but the expectation is that we kind of help them get there. So never a big deal for us if a client doesn’t have a proper bottoms up plan. That’s when we can probably help the most.

Alison Smith: [12:26]

Awesome. That’s great to hear. Okay, so you have the plans in place, what is the next step?

Adam Pollock: [12:33]

Yeah, so you’ve got plans in place, so then you want to be thinking about executing and we’ve been around over a hundred brands launches and growth at this point, particularly brands who are launching into retail, selling wholesale through distributors. So I think the key thing I want to note is that sales and operations are so linked and it’s hard to realize that a lot of the times, but that’s a really, really important thing that most brands get wrong, is that their sales and operations teams aren’t talking in the way that they should be. So one of the things that you always want to do before you say yes to retail account. So it’s always super exciting, big meeting with a retailer, they want to bring you in, it’s going to change your business. It’s always very, very important to be thoughtful about that before you say yes. So one of, or a few of the things to be thinking about before you say yes to say a new retailer and how that will impact your operations is can you even afford the inventory?

So a lot of times brands just, new stores more dollars, but in the short term it’s always more cost. So if a brand says or a retailer says “We’re going to put you in a hundred new stores.” Do you even have the inventory to support that? And if you need to create new inventory, do you have the cash to pay for that inventory? The answer may be no. So timing in that sense might not make sense if you’ve just got to go and fundraise or do accounts receivable factoring just to pay for the inventory, it might not make sense. Can you even make the launch date work? So let’s say a retailer says yeah, “We want you in 30 days.” But you have to work through a co-packer to make that product. You don’t have, once again, you don’t have the inventory so you got to be thinking about how long will it take to make the product, how long will it take to ship from the co-packer to warehouse, how long will it take to ship from the warehouse to the retailer?

And then with all of that, is the product going to reach the distributor or the retailer with an adequate amount of shelf life? So some retailer, distributors require 70% shelf life or some require nine months of shelf life. So after all that’s said and done, if you can’t ship product that’s actually going to meet those requirements, you’ll be in basically double trouble because you’ll ship the product to them, they’ll ship it all back and charge you back for it and that’s brutal. So those are all things to be thinking about before you say yes. And then saying no can very much be your friend here. And Alli I know will probably speak to this, but it’s so hard. It feels like when you get deep into a retail account and there’s a fit and they want you, it’s so hard to say no and you feel like you can’t say no cause that’s your only chance.

But in my experience, almost always, if a retailer wants you today, they’ll want you in six months and in six months, your business might be on more solid footing, you might have a better inventory picture, there might be a whole bunch of other reasons where it makes sense. But if you say yes today and you don’t deliver, there is no second chance, almost like uniformly, that’s what I’ve seen.

Alli Ball: [15:29]

None.

Adam Pollock: [15:30]

So it’s always really important to, if you have to say no and say and explain why. And most retailers are really accepting of the fact, especially those that want to work with small brands, that there’s complexity right now. It’s incredibly challenging and they would much rather have you show up and be in a relationship with you when your business is able to actually sustain that and handle that. So I think that’s kind of a key thing. That saying no piece is just so important and I talk about that a lot.

And then I think another key thing here is before you say yes, and this kind of goes back to the previous points, but if you’re working with a co-packer, you have to make sure they can even handle the growth or they can handle another purchase order, it’s not always the case. So a lot of brands will go and say “Yes.” And then go back to their co-packer and the co-packer says “I can’t do anything for you.” And then the brand’s in a really, really tough spot. So if you’re working with a co-packer, something we’ve seen work very, very well is submitting what are called rolling purchase orders. So basically if you know over the next year you’re roughly going to open up hopefully X, Y, and Z retail accounts, basically creating purchase orders for those dates with kind of escalating amounts of what you’re going to need so that the co-packer can start mapping their schedule to that.

It’s not binding, it’s not like you’re forced to do that amount and if things change, co-packers will understand that, but at least it puts you both on the same page and gives you some visibility. Like in six months we do plan to launch in Whole Foods in these two regions, in another three months we plan to grow direct to consumer by X. And so that way everyone can start seeing very tangibly what we think is going to happen and in planning accordingly so that it’s not this crazy mad dash when you get into a new retail account.

And that’s not to say that things won’t happen and things won’t pop up, but it gets you much, much closer to a shared vision, which is really, really important here. Because obviously the product can’t get pulled out of thin air. So I think key is if you’re working, if you’re doing your own production, asking yourself questions around can you actually deliver this if you’re working with a co-packer, making sure they can and to the degree you can, making sure that your co-packer knows what to expect for the next 12 months or so. And as things come up trying to be as in front of it as you can. So if you know something’s coming in three months, letting them know now, that’s always really, really important. So I think it all boils down to just very strong communication and then being very self-aware around what your business can do right now and can’t do. And being honest with your partners around when you can’t do something, why you can’t, and explaining what you might be able to do instead.

Alli Ball: [18:15]

Yes, you’re giving a little sneak peek for next week’s episode on the retail side of things too, Adam and I have to say, you are speaking my love language here, understanding that producers should say no more often than they say yes. And just if you guys are listening, just slow your role both on your wholesale accounts and what you’re doing with your co-packer to make sure that you and the co-packer or you and if you’re producing, you and your own production facility have the capacity to support the sales that you’re moving towards. I love that, Adam. That connection between operations and sales is so strong and I feel like producers often forget that they’re so linked. I love that you brought that up.

Adam Pollock: [19:01]

Yeah and it’s easy, especially if you’re working with a co-packer who’s removed from your day-to-day workflow, it’s easy to go out and do your sales and forget about them. But you have to treat it like imagine you owned the production facility and you had a COO working with you, you would tell them if you went out and won a big new retail account, you’d tell them as soon as possible, they’d belong for the ride. So I think that the nature of working with this complex web of third parties makes it such that just stuff gets lost in translation. It’s not intentional. It’s just you don’t have someone sitting next to you in an office, so you don’t think to pull them in as much and they’re a stakeholder in your business but they’re not an equity holder in your business. So it’s just a different relationship. But I think that that’s why it’s so important we treat particularly these big partners like your co-packers and 3PLs, like they’re for now an employee in your business and you’re pulling them in as early and as often as possible to any sort of big changes like this.

Alli Ball: [19:59]

Yes. And you as the brand founder, you need them more than they need you.

Adam Pollock: [20:04]

Yeah.

Alli Ball: [20:05]

Co-packer doesn’t necessarily need you, but you really need your co-packer.

Adam Pollock: [20:10]

Way more brands than co-packers out there. So that will always be the case. So always treat them the way you’d want to be treated, treat them like a full-time employee. That’s a big miss I see a lot too is just brands thinking co-packers is this necessary evil, this necessary partner and just like they’re just making stuff for me, they can do a lot more for you. And if you have a good relationship with them that’s built on trust, communicating frequently. Even one of the simple things to do is, so yes, these PLs are important, an important thing. Most people I see never ask their co-packer for a weekly meeting and most co-packers would be happy to do that. Most of them aren’t email people, so they’d prefer to just have a quick agenda, meet for 30 minutes every week, that keeps you top of mind with them, make sure nothing falls to the cracks. And what you might find is they know packaging people, they know retailers, they know other raw material suppliers, they can do a lot more for you than just make your products. So definitely pull them along for the ride, not just as it pertains to making your stuff, but as like any partner, any good relationship you have that’s built on a honest, open, transparent dialogue.

Alli Ball: [21:14]

Yes. Again, sneak peek to our next episode. So Adam, I want to start to wrap up here. And you alluded to this at the beginning, but you mentioned things shifting in our current environment and things feeling potentially even more challenging than ever. And so I want to know, based on your experience, what are some of the best brands, the most solid brands right now doing in our current environment to set themselves up for success?

Adam Pollock: [21:41]

Yeah. Well, an unfortunate little spoil alert, things aren’t getting better. There was a brief moment of time early this year where things were looking good and then unfortunately due to war and a variety of other things, it doesn’t seem like for the next couple of years we’re looking at a stable supply chain. So just know that and know that in the current environment there are a few things you can be doing that the best brands we’re seeing are doing. And that’s if you’ve got the cash flow, so this goes back to planning. If you have enough cash on hand and you can buy more raw materials than you need and hold them, that’s always a win. That’s something you definitely should be doing. If you can’t, then we talked about this volume contract scenario, so you’re committing to a certain amount but you’re not necessarily laying the cash out for that.

You’re just kind of planning in a way. And that if you can commit to volume contracts, that’ll stabilize pricing and ensure availability. So that’s a big one. Just saying at the beginning of the year, we plan to do this amount of volume with you. That’s always a really important thing. You can do it. And I would say lastly, the best brands have done a significant COGS, cost of goods audit. So they’ve gone through every single line item that goes into making their product and figured out if it’s gotten exorbitantly expensive or unavailable, what can we swap it out with or if we refuse to swap it out because it’s critical to our product, then we’ve got to raise prices. And they’ve with a microscope, they haven’t done this once, they’re doing this monthly or quarterly at a much more significant cadence than you ever needed to do because things are dynamic and the availability of things seems to be difficult to pin down. So I think it’s either buy more than you can and hold or try and get in place volume contracts when you can. You’ll be surprised even for small amounts if you can commit to something for a year, you’ll get breaks there. And then just going through your cost to goods that go into your product just with a fine tooth comb and substituting things out or raising prices as needed to offset the increasing costs.

Alli Ball: [23:47]

Yeah, I hear this theme of planning around your operations, planning ahead-

Adam Pollock: [23:52]

Planning.

Alli Ball: [23:54]

Planning, have a plan and executing your plan.

Adam Pollock: [23:56]

One last thing I’ll say too is just being flexible. Knowing that whatever your first choice for anything is right now probably isn’t available. So knowing that’s the case for every single brand right now, even the biggest brands, there’s no one who’s getting exactly what they want. So just go into it knowing like the cans you wanted probably aren’t going to be the cans you get. So based on there’s going to be cans out there that are fine, how do you make those work? How do you make those an opportunity? Because there is a lot of creativity that I’m seeing around the constraints and so it doesn’t need to be all bad, you just need to go into it knowing things aren’t going to go the way you want them to. And that’s okay, but there’s going to be another option. And so how can you make that option work? I think that’s, that’s key.

Alli Ball: [24:36]

Yeah, flexibility. Okay. Adam, as we wrap up here, so I know you said best brands have gone through their cogs with a microscope and I know that you’ve got a couple other action tasks here. This is how we’re going to wrap up each episode of this three part series. So Adam, tell us what brands can do right now around their operations and then we’re going to turn it back to Karin and Allison. They’re going to tell us how we can keep in touch with them as well, how we can keep in touch with you and Rodeo Adam. And then we will wrap up and say goodbye before we roll out episode number two next week. So what are those action steps that folks can take after listening to today’s show?

Adam Pollock: [25:17]

Yeah, so I mentioned it before, we have a bottoms up, a consumption based sales plan tool at rodeocpg.io. So I would check that out and create one. That’s a really simple thing that I mentioned. Some other cash flow forecasts and some other things. But I think if you can get a good handle on what you think you’re going to sell into retail over the course of the year, that will guide almost everything else here. That’ll help you understand the materials that you need to buy and when you need to buy them and how much cash you need. So I think that consumption based or bottoms up sales plan is a great place to start. And then the last thing which you mentioned was just, it’s really simple to look at your COGS and look at it. Ideally if you’ve been around for a year, look at it year over year or look at it six months over six months.

But just get a really good handle on where things are at and where they’re going. And don’t be afraid to reformulate or to find a new supplier, to do whatever .feels very daunting, but it’s pretty necessary right now. So those are the two things. Just check out our free planning tool and then really look at your COGS and make sure that they’re holding up. Because what we’re finding is most brands COGS from a year ago don’t hold up anymore. They just, either the product, what they were using isn’t available or what they were using is so expensive that they would’ve had to triple the price of their product, which wasn’t feasible either. So they’ve made some solutions and swaps.

Alli Ball: [26:35]

All right, fantastic. So we’ll write those two action items in our show notes. We’ll link up that consumption based sales plan tool right in our show notes. And Adam, I imagine people can find out more just atrodeocpg.io. Is that the best place to find you guys?

Adam Pollock: [26:52]

Yeah, our general site is rodeocpg.com. Eventually. Rodeo cpg.io and.com will be folded together, but I would say go to rodeocpg.com. You can get to io from there really easily and then you can learn more about everything else that we do. And then we’re at RodeoCPG on all social media. And I’m adam@rodeocpg.com if you want to send me an email.

Alli Ball: [27:13]

Awesome. Thanks Adam. Okay, UMAI ladies, how can we keep in touch with you?

Alison Smith: [27:19]

Yeah, well we are going to also be giving away some freebies on episode three of this series. So I’m really happy, Adam, that you’re hitting COGS very hard because our freebie, you do need to know your COGS down pat. So for now, we’ll leave you with our Instagram. Please feel free to follow us. We share a lot of helpful tips and tricks. It’s at umaimarketing and then we like to chat with anyone and everyone so feel free to shoot us an email at hello@umaimarketing.com.

Alison Smith: [27:55]

Thanks for joining us in our three part miniseries, Lessons Learned from Successful seven Figure CPG brands where we’re covering everything ops, retail and digital marketing to help you build your own million dollar brand. Join us next week as we chat with Alli Ball of Retail Ready about how to get on and stay on retail shelves. We’ll meet you back here for next week’s episode.

UMAI Social Circle is a CPG agency driven podcast based out of Austin, Texas. We’re excited to share more behind the scene insights, chats with industry leaders and whatever else we learn along the way. Follow us on Instagram at umaimarketing or check out our website, umaimarketing.com. Catch you back here soon.