Working with Suppliers: Leslie Barber Shares the Inside Scoop (Part Three)
You might know Leslie Barber as one of the fearless leaders of our QB Community. But in a previous life, she was the equally fearless leader of NutraBella and Bellybar. When Leslie and her cofounder set out to make a nutritious, delicious snack bar fortified with vitamins and minerals for pregnant women, neither anticipated how challenging it would be to find a food manufacturer who would work with them. Nor did they realize how complex it would be to successfully manage the supplier relationship.
By Leslie’s own admission, figuring out the supplier piece of her entrepreneurial puzzle was perhaps the hardest part of running her own business. Here, Leslie tells us what the experience was like, and what she learned along the way.
You needed to find a supplier. How did you start the process?
I knew it was going to be particularly difficult breaking into the food industry. If you’re not one of the leading bar companies, there aren’t a lot of options for manufacturers. Most of the big co-packers are dominated by the top bar makers. Their standard order might be 20 million bars.
We were a brand new company. Even the minimum order requirement of 250K was terrifying. That translated to over $100K in perishable inventory, which was both way too expensive and way too risky for us. We wanted to order 20,000 bars at a time.
Did you consider working with an overseas supplier?
Because our ingredients had a shelf life, we needed to stay in mainland North America. We considered Canada and Mexico, but there were issues around bringing ingredients across borders which potentially could impact shipping and delivery schedules. In the end, we decided to find a domestic manufacturer. Plus, we knew “Made in the USA” was a strong selling point for our pregnant consumers.
Tell us about trying to persuade suppliers to work with you.
We had to pitch our story to every manufacturer we met. That meant showing Power Point presentations, providing bank statements, sharing all our research and development. The onus was on us to convince a supplier we’d be able to pay them, that our company was a sound investment.
I get it. The manufacturer has to buy ingredients and packaging on our behalf. Problem is it’s really hard to prove your worth when you have no purchase orders and no active accounts to back you up.
Eventually, you were able to find a manufacturer for your bars. What clicked?
We finally found a co-packer in Oakland, CA that had just invested in a new “slab line,” which could make light, crispy bars like ours instead of the “extruded” bars which basically mush together all the ingredients. This supplier was willing to work with us and do smaller product runs because they wanted to test out their new production line. We were happy to be the guinea pigs!
How did you know how much inventory to order?
We really didn’t! Accurately forecasting the right production size is an art, not a science. If you order less in quantity or volume, you pay more per item or product. It’s tempting to order more inventory to keep your costs down. On the other hand, cash is queen. The less you let out the door, the better – especially in the early days of your business.
Managing inventory is the biggest headache and time-sink of a product business. If you’ve stocked up but can’t sell, too much inventory can kill your business. I became a big fan of ordering as little as possible and only what we needed. I also learned it’s okay to be “sold out due to high demand!” As a people-pleaser, that was a super hard lesson to learn.
What kind of financial agreement did you have with your suppliers?
A typical payment cycle meant we owed our suppliers 30 days after receiving our product. But our customers – the stores selling our bars – didn’t pay us for 60 days. Crazy, right? To make things worse, we were dealing with big box stores and had absolutely no leverage in negotiating better terms. For example, one huge company we worked with said sure, we’ll pay you in 30 days, but we’ll have to take 3% off the top. Another giant brand would take 25K out of our payment every quarter for “marketing” fees.
This crazy system works against the little guy. We fought what we could, but it meant spending eight weeks in a fight, begging to get our money back. By that time we were often drowning.
I think a huge part of why product-based companies go out of business has nothing to do with bad cash management. It’s death by a thousand cuts.
Leslie, this sounds so daunting!
It’s tough, I’m not going to tell you otherwise. My bottom-line advice for anyone starting out in manufacturing and inventory is this: go slow, go light and keep your cash. Then sell the heck out of every product you have.
Before you go
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Re: Working with Suppliers: Leslie Barber Shares the Inside Scoop (Part Three)
Amazing story, Leslie!!
One nice thing is that with our supplies we have always set 30 days, the problem came when our supplies didn't want to extend us credit (because we previously had no credit history and most of them would not accept personal credit) and we had to pay COD until we had more history established, then didn't get paid until Net 30 from all our customers. :)