Fast, Cheap, Iterative: Rethinking Early CPG Production
Startups have the advantage of speed and agility. You can achieve a lot with a tiny team, a small budget and a sense of urgency.
That agility advantage allows you to respond quickly to feedback in order to make your customers happy. If you come from the world of software, you’ve maybe experienced getting some customer feedback, your team pulling an all nighter to make the feature, and then releasing it the next day to delight the customer. Or some version of that, within a short timeline.
One of my frustrations with CPG was that I couldn’t iterate that quickly on the product in order to delight customers. There are some constraints that get in the way of really tight feedback loops. I’ve spent a lot of time thinking about how to shorten feedback loops so that I can tighten up product and find product market fit faster.
The MOQ Challenge
MOQ’s are an important acronym to get comfortable with in the CPG game. Minimum Order Quantities.
If you approach a copacker to make your product, there will be all sorts of things you need to think about, which deserve their own post, but their MOQ is what dictates how big your first check to them is going to be. Broadly speaking, copackers and comans run businesses that do best with volume. Their big customers are the money makers, and fitting in small startups on their production lines involves:
more communication than with their larger customers (hand holding less experienced operators)
smaller check sizes (start up brands often want exactly the minimum the factory will make)
new formulas and ingredients to do paperwork for and get set up in their procurement system, as well as trial on their production lines
Small + smart CPG bets
To get up and running, sometimes making ~500 units is all i want to do. Enough to test demand, positioning and the market more broadly. Here are some alternate approaches you could consider:
1. Commercial Kitchens - if you’re NOT a supplement brand, and doing food or beverage products, often you can find a local commercial kitchen that has all of the required certifications and licenses where you can go and make your first few hundred units. The advantage of this is you can make small tweaks day to day as you perfect your formula. I think it’s great to get the founders in the kitchen so they know their product inside out. It’s low cost, but will cost you time instead. I looked into doing this with a supplement brand, but the headaches didn’t seem worth it given the extra certifications.
2. Go private label - if you have a hunch on a broader market trend, and you want to prove that out before you invest a lot in a custom product, you can often buy off the shelf products in smaller unit quantities and put your own branding on it. This is WILDLY common, and sometimes on Amazon you can tell a category has been private labeled because all of the products will converge on a too-specific amount of the active ingredient… probably coming out of the same factory! I’ve seen minimums as low as 300 units for private label. I don’t love it, because I like to build formulas from scratch to be more precise to a specific use case, but for cheaply testing a market this can be a great approach. It’s also fast - often lead times are 4 weeks.
3. Put in the hours finding copackers who will bet on you. This is the most time consuming path up front, in that you have to not only find copackers with lower minimums (they are out there), but convince them that you are worth betting on. It’s much easier if it’s not your first rodeo or you have some other selling point like an influencer or celebrity cofounder.
Copacker MOQs
MOQs at copackers will also vary based on what you’re making, here’s what I see in the market:
- Capsules. 3000 to 5000 bottles of capsules is standard. I have found much lower but it takes some serious searching.
- Stickpacks. 50000 to 100000 stickpacks is standard (per flavor). These machines involve a lot of tweaking to get perfect, so there’s often wastage and the set up time is longer. Generally that’s when you see the MOQ go up higher.
- Bulk fill powder. 3000 to 5000 units is common. Certainly can be beaten if you have existing relationships.
- Gummies. There tends to be a higher MOQ here and they are expensive to make so it’s usually the more expensive option to get started in my experience.
There are lots of other formats with different MOQs, but I’ll leave it at these common supplement formats for now. All of the numbers I have here are for US based manufacturers, which is my preference for producing products. I know some folks will source from India or China too and they can get much lower COGS, but I’m not certain what the MOQs look like.
Once you find a way to produce low MOQs, you have a cheap way (and hopefully fast) to get feedback on your product ideas from real people. I encourage anyone starting a brand to try and get a small run size done quickly so that they can test out their messaging and product on real customers. Not just friends and family, they are always biased. First timers have a tendency to wait too long to pull the trigger on their formula. I wasted 6 months perfecting my first formula, and wish I had just launched 3 versions early to get real feedback. In my case, I worked with some incredible chefs that I knew on the first version of my hydration brand. I forgot that chefs over their career come to be less sensitive to the taste of salt. So when that first version of the product launched, the main feedback was that it was too salty. Back to the drawing board.
Lead Times
The smaller your early bets, the cheaper it is to iterate on your product, and ultimately build it into something fantastic. Lead times is the other variable you need to be thinking about in order to get quick feedback loops. The shorter the better, so that once you get feedback you can implement it quickly. The bane of my existence once we were at a larger scale was that I couldn’t quickly produce new flavors or functions to test. We’d have the idea, build the design, formula etc. And then it would be ~3 months to get the product to market. Brutal! (Apologies to those reading with experience making products that require mechanical engineering… those lead times can be upwards of 12 months!)
Owned Production
Oats Overnight Subscribe button, showing the free new flavor with every box.
I know of a handful of brands that own their factories rather than working with copackers. The advantage here is that you control your lead times far more closely, and no customer can bump you out of a production slot. You also dictate your own MOQs, and don’t have to pay a margin to a copacker. One of my favorite examples of a brand taking advantage of owning their production is Oats Overnight. Their subscription plan comes with a bonus flavor each month, which isn’t listed for sale on their site. It’s an R&D flavor that only the subscribers can access. A new flavor every month is really hard to pull off unless you have in house R&D and in house production. But that bonus feature probably drove a ton of retention and good will with their customers.
Getting Feedback
The last part of having a tight feedback loop is actually getting the feedback from those real customers. How good are you at getting it? Do you have a post purchase survey tool? Are you sending a more in depth survey to customers once they’ve had the chance to try the product a few times to learn how you can improve?
Survey design is an art and a science - I’ve levelled up over the years with the help of Sam McNerney’s newsletter, and a few survey roasts. I highly recommend signing up for both of these. The usefulness of data coming out of our follow up surveys probably 3x’d after a session with Sam, and we were able to take those insights and incorporate them into our next R&D cycle.
What it’s all about: survive and scale efficiently
The reason I spend a lot of time on these 3 areas is that it allows me to grow a business cash efficiently. Whether you’re raising money or bootstrapping, every dollar should count, and you should be going through this cycle repeatedly until you find that elusive signal of product-market-fit. This should allow you to make multiple bets on product and marketing as you grow, rather than putting all your eggs in one basket, the Hail Mary equivalent which can work but is riskier.