Why (Some) Startups Fail

Why (Some) Startup Food Co-ops Fail:

Why great people with the best of intentions

sometimes lose their co-ops.

What are the odds ? Let’slookatthedatafirst.

Since 2008

89 new retail food

co-ops have opened.

Since 2008

45 of those new

retail food co-ops have folded.

That’s just barely over

50% of startup retail food co-ops that have opened in the last 8 years.

WOAH. (There is good news coming after this. We promise.)

So what’s the good news?

There are clear patterns in these closures, we know why startups close, which means we know what to

do for the best odds of success.

Why do startups fail? We’vestudiedourdataontheclosedstartupstwicenow,in2012and2016,andthereasonsareconsistent:

Poor location. Too small for the

market. Inadequate parking.

Under-capitalized. Cut corners,

underestimated costs.

Pushed Timeline. Moved forward too fast

with too few owners. Not enough community

awareness and buy in.

Reliant on Owner Labor.

Professional, trained staff are a must to meet customer expectations,

competently run the store.

But every deviation is a risk. Be honest with yourselves and your organization. •  Innovation is excellent, too much of it

can sink your project. •  Is your innovation cutting costs or

development time? Those are often not innovations but “special snowflake” thinking.

•  Test, test, and re-test. Is this deviation worth the increased risk of failure? Is it core to meeting your community’s vision?

•  Special snowflake thinking = it’ll be different for us, though!

•  Reality isn’t CAN’T – it’s reality. Being clear eyed means being able to properly assess and prepare for risk.

But the necessities for success still apply 99.9% of the time:

•  High visibility •  A way to load large

amounts of food safely and effectively

•  Adequate parking. (No, I will not stop saying it.)

•  Market study tested.

SITE

•  Plan for at least industry minimum for buildout/equipment cost

•  Cutting corners rarely adds up to long term savings, often adds up to trouble

COSTS

•  120 owners per sq ft is considered a minimum to open these days

•  If you can’t grow ownership pay attention to that canary in the coal mine, something is wrong!

TIME

•  Professional staff are often the line between success and failure

•  A fiscal plan dependent on volunteer labor is a recipe for crisis.

STAFF

Psst! 2 bonus reasons. Afewotherthingshavebeenconsistentinatleast75%ofstartupsthatclosed:

Lack of Industry-Specific Feasiblity Studies.

Proforma Financials: •  This is Bill Gesser of CDS Consulting •  No, really, we don’t know of a single startup that has

used proformas he “blessed” that isn’t still open and thriving.

•  Yeah, it seems impossible to be right that often, but he really is when it comes to food co-op financials. ;)

Market Study: •  Yes, they cost a lot of money. It’s really tempting to cut

corners here. Nope, we haven’t seen accuracy from any providers than: Debbie Suassuna of CDS-CC and Dakota Worldwide

•  “$10K for just one number?! I feel like I could have written this thing!” We’ve heard this before. But that one number is what *everything* hinges on for your co-op and you get what you pay for.

Disfunctional Boards. The health, commitment, and capacity of your

board can make or break your co-op. Seriously. Honestly assessing the health of your board regularly and investing in it is critical. Things to look for: •  Founders Syndrome – one person or two persons who’ve been there since

the beginning and seem to have all the facts in their heads and have their fingers in everything . . . To the point the rest of the board feels out of the loop and disempowered

•  In Name Only – “oh, we have a staff member now, our job is done!” OR board members who are on the board for prestige/to express their opinions only/for business opportunities.

•  Know It Alls – “oh I have an MBA so we don’t need to pay any experts!” “I’ve built a proforma before for my job, I’ve got this” Board members who are engaged and willing to work are great, board members who think they know and don’t need outside support are TOXIC.

•  Negative Nellies – “well, I just don’t feel convinced.” Doubt at times is a good thing, testing ideas, etc. People who sit on the board and never express full support for the project or even spread doubt in the community need TO GO.