8. The Crumbling (pun intended)
At the end of 2017, with all the the growth we’d experienced in the final quarter it felt like we were “there”. I knew I needed to put some better systems in place if we were going to keep the momentum going so I spent December ‘17 and January ’18 reading thru the book “Traction”, and actually implemented some of the relevant things in the book into our operation.
I needed to do a better job of delegating and better processes to help us scale up the operation.
We were still an extremely small team consisting of:
- Operations Lead
- Outside Sales
- **Contracted Bookkeeper
- **8 Part Time Production Guys
- **15+ Brokers
….BUT 2018 turned out to be rough to say the least.
A few high level issues:
We’d grown the previous year, but a lot of those orders were one time orders for the Christmas season. We were making progress on improving our instore execution, but still had a ways to go.
Walmart decreased our store count to 147, as we weren’t hitting their goal for sales. It was mostly a merchandising issue. Just keeping the product on the shelf proved to be super difficult. The problem was actually in how we distributed to the stores …more on this later.
The distributors we picked up for Winn Dixie and Publix were not doing well either. I was getting hit with so many deductions I was loosing money on almost every order to them.
After getting into these major distributors and retailers we saw how the supply chain, if not managed correctly, can kill you.
Here is an example of the issues we had with Publix …just to give some context:
In order to deliver to Publix, they made us go thru their preferred distributor, KeHE. This is because they do not give space in their own warehouse to new “unproven” products.
KeHE is huge, has 13+ distribution centers around the country …and over 40K customers. They are not an easy company to deal with if you are our size.
Here is an example of the order flow for Publix using KeHE as the distributor
GMommas — -> KeHE — -> Publix — -> Consumer
Step-by-step from the beginning
- Publix Headquarters decides to put our cookies in a certain number of stores. (for us 120+)
- They then notify KeHE, there preferred distributor, to bring our products in and distribute our cookies to those designated stores.
- We get setup as a vendor with KeHE i.e. contract, insurance, etc.
- We get our initial order from each KeHE DC that service those 120 stores and ship it to them.
- KeHE then ships 1 case of each flavor to each of the stores. The product makes it to the designated spot, and we are off and running.
Where the problem arises …let’s take Chocolate Chip for instance:
- The initial 6 Bags are on the shelf day one in a store…and after a week that stores sells 4 bags. Now 2 remain.
- Publix reordering system is automatic, and is based off the current inventory in that store. So if they set the reorder quantity to 2 — when the inventory gets to 2 bags— the system will reorder another case (6 bags) from KeHE….without any human intervention.
- KeHE pulls another case out of their inventory in their Atlanta DC — and places onto a pallet being shipped to that store. The pallet is full of a bunch of other brands and products — in other words easy to get lost in the mix.
- A few days later that pallet is delivered to that store.
- The Publix employees then go thru and sort everything on that pallet into correct bins in the back of the store to be ready to be merchandised on the actual shelf.
- By this time the 2 bags that were left on the shelf are either sold or moved around on the shelf …resulting in a high probability of loosing our spot.
- A lot of times our cookies never made it to the shelf …and after a few months of sitting in the back of the store, the store would do inventory and see that the shelf life was too short to put on the shelf.
- They would send it back to KeHE, and KeHE would bill us back the full cost of the product PLUS an “admin” fee.
- So the case we sold for $15, we now had to pay KeHE back $15 + plus an admin fee.
Now multiply that over hundreds of stores …and you can see this can turn into a big problem fast! It is safe to say we made little to no profit from Publix or Winn Dixie because of the distributors we had to work with.
Thus my reasoning for hiring a field salesman to help correct inventory issues and work on getting more shelf space in the retailers we’d worked so hard to get. Still, one person can’t keep up with all of the issues that arise in that many stores.
We were also having issues getting the Sea Salt Caramel cookie launched. As you might recall this was apart of our strategy to get our sales volume up and gain additional distribution. We had the packaging and customers lined up …but the bakery didn’t have the line time to work on it. We should’ve had the new flavor launched in 2017, but it wouldn’t be until mid 2018 before it hit the market.
I’ll digress ….
With all the issues I’ve been so eloquently complaining about …the 2 most pressing issues were:
- We were running out of money
- Communication with our bakery was beginning to breakdown
I picked up our efforts to raise a round of “growth capital” as well as quickly find another bakery. I even attempted to raise capital from a bakery that could help produce the product as well. For those that have gone thru this process know how many emails, meetings, phone calls, and “thinking time” is spent in this process — not to mention continue to operate a business.
I went back to a lot of the bakeries I had talked to during the beginning, but they either didn’t have the line time or didn’t have the interest in baking it because of the lower volumes.
It got so bad with our baking partner in PA that at one point, I went nearly 8 weeks without cookies and almost lost all of our major retailers in a few weeks time. I couldn’t get anyone to answer my emails, phone calls, or text messages. I even booked a flight to PA to just go bang on their door to see what the hell was going on.
In the meantime …Payroll, Bills, Rent, Marketing expenses, etc…. with no cookies to sell for 2 months was a killer. In 2018 almost all of our orders were late which totally jacked up our cash flow situation.
As we approached the end of 2018 the wheels were starting to fall off.
Panic mode was beginning to set in …
The 2 full time guys I hired could sense what was going on. Our Ops guy was able to find another job quickly as well as our sales guy.
After multiple potential investors bailed, I started to try and sell the brand and had multiple conversations and meetings that lead to dead ends. I’m sure everyone I talked to could hear the desperation in my voice …not good when you’re raising capital.
I even drove all the way to Savannah for the “chance” of a meeting with a potential buyer / investor — took me 14 hours of driving …to only have about 3 minutes of facetime before I was blown off.
At this point I had to shift to “damage control”.
I had to turn down new customers coming on board, and one of those was Fresh Market who I’d been working on since 2015. They really were the target customer for our brand …and after working on it for years having to walk away for the opportunity was tough.
I notified all of my customers, vendors, brokers, service providers what was going on and that I was having to shut it down. I let my vendors know we’d be late on some payments …which got the collection letters going. That’ll ratchet up the stress!
I took inventory of my assets …in other words what I could sell to pay the debt and bills …. just so I didn’t become insolvent.
Those were some tough days, weeks, and months. I was totally spent, exhausted, frustrated, disappointed, confused, and panicked all wrapped in one.
Personally, I wasn't just broke — I was broke broke …as I was personally responsible for the debt the business had accrued.
I just had to take it one day at a time and #1 figure out how to pay my bills, and #2 sell the equipment I had as fast as I could to be able to keep from defaulting on my debts.
Over the course of a few weeks I took apart every piece of equipment myself, built every shipping crate, and sold everything. I sold some of it thru eBay, a few to industry contacts, and also did an online equipment auction with the more specialized equipment.
I was able to term out the remainder of my debt after the sell of the equipment — and personally I was able to pick up a few consulting gigs to help pay my own bills.
Probably not great writing to just end this part here and there is obviously a lot more to it …..but I’m tired of complaining about it and not much more to say.
I’ll wrap the whole story up in the next post.
Next: Putting it to bed
If you want to read them all now here are the links: