Private Recipe to Public Product: The Cost of Starting Up a Food Business

A cracker package rendering // Image by Andrew Welyczko

Image by Andrew Welyczko

It starts with a cracker. Or, rather, the lack of a cracker—the perfect cracker; the exact cracker you want. You start experimenting in your kitchen, and experimentation leads to coming up with something you like. Soon, you discover it’s not just you who’s a fan: your moody teenagers love it, your crabby aunt loves it, the people in your book club love it. They pay you the highest compliment: “You should sell this! I’d pay money for it!” Which leads you to wonder: How hard could it be? Just whip up a few batches, get a slot at a farmers market, and voila! 

You know the old saying: “If it sounds too good to be true…”

That’s not to say you shouldn’t enter the fray. But local food entrepreneurs have lots of stories about launching their artisan food businesses, and “easy” and “cheap” are not words that come up with regularity, if at all.

Case in point: Hannah Barnstable, founder of Seven Sundays Muesli. She and her husband discovered muesli while on their honeymoon in New Zealand and upon their return Barnstable began developing her own version.

Hannah Barnstable, founder of Seven Sundays Muesli // Photo by Becca Dilley

Hannah Barnstable, founder of Seven Sundays // Photo by Becca Dilley

Barnstable had worked for years in the financial sector as an investment banker and initially planned to make the muesli a side business—to sell it at farmers markets on weekends. However, she soon realized she couldn’t do both that and her job, so she left the banking world and focused entirely on Seven Sundays.

While launching a small business aimed at farmers’ market sales seems relatively low-key on spec, it still requires cash—and lots of it. “I had $50,000 of my own money to start off and that basically gave me two years to start a scrappy company,” Barnstable says. “I had the ability to work without pay since my husband was working, and I had some personal savings, too. But the $50,000 was for company expenses to get it off the ground before I could pay myself.”

The price shock is a common moment for budding entrepreneurs, says Lauren Pradhan, managing director of the University of Minnesota’s Grow North program. “Everything costs more than you think it’s going to,” she says. “Everything takes more time than you think it’s going to.”

Another aspect start-up food companies don’t take into consideration early or often enough is setting aside money for their own bank accounts. “The thing I so often see is someone will draw up a business plan but forget about themselves, forget about earning a salary at some point,” Pradhan says. “They should identify their ambition from the start. If their goal is to get national distribution at Target or Whole Foods, they should build their business plan with that in mind and keep their salary in mind the whole time, even if they’re not getting paid right away. 

“It’s about ambition levels,” she continues. “There are entrepreneurs who decide they want to go national from the start. There are others who want to stay small and local. That’s going to have different requirements than looking to go national. Not building in their own salary for the future could affect the price of the product down the road.”

Barnstable’s goal was always to go national and she built her long-range business plans accordingly. Today, Seven Sundays is sold across the country in stores including Costco, Safeway, and Kroger.  

A variety of the Seven Sundays products // Photo by Becca Dilley

A variety of the Seven Sundays products // Photo by Becca Dilley

Lynne Reeck of Singing Hills Goat Dairy had the opposite approach. From day one her focus has been hyperlocal, and for 10 years she has sold her Singing Hills goat cheese and related products at the Mill City and Fulton farmers markets in Minneapolis, as well as through community supported agriculture (CSA) memberships. 

Even after all these years, the desire to scale up isn’t there. “It’s designed to be a one-and-a-half or two-person operation,” Reeck says. “Maybe we could grow it. But we like having something sustainable at this size. We’ve identified our niche and filled out. We’re not interested in taking over the world. We never meant to buy out other cheese operations or get national attention. We want to be a small part of the local food system.”

Reeck’s vision, while geographically smaller in scale than Barnstable’s, didn’t translate to being cheaper. “We already had a farm, 25 acres, so we didn’t have to buy land,” Reeck says. “But we had almost no infrastructure, no animals.” To cover starting costs, she took out a $100,000 loan with the Farm Service Agency, refinanced her mortgage, and pulled out some equity. “Having the land helped—many farms would need half a million to start,” Reeck continues. “We used the farm as a resource [by taking out a lien on it] for borrowing that money. […] It would have been hard to borrow conventionally. I don’t think we’d have gotten what we needed from a traditional bank, because we didn’t have hundreds of acres.”

Specifically geared toward people who want to keep their operations small is the Minnesota Cottage Food Law. It allows specific types of foods and canned goods to be made and sold without a license, as long as the vendor sells no more than $18,000 of foods per year. (Above $18,000, the state requires a license.) The products that qualify are the same ones seen at farmers markets or on personal websites, all demarcated by signs noting: “These foods are homemade and not subject to state inspection.”

Singing Hills Dill Curd // Photo courtesy Mill City Times

Because every food product varies widely in terms of raw materials required to produce them, there’s no consensus on what the average cost is to start a business like Singing Hills Goat Dairy or Seven Sundays. For example, Barnstable says, most food purveyors need access to a commercial kitchen, pricing for which varies from by-the-hour to monthly fees of $2,000–4,000. It depends on how much time you need and how much R&D you need to do. 

For her own business, Barnstable found a creative solution. “I was lucky and had a friend with a restaurant that I could work in, and so spent about $200–300 a month at the beginning,” she says.

The scale of one’s business affects costs, too. When she was first starting out, Barnstable paid one dollar for each compostable bag used to package her muesli. Now that business has scaled up and she’s buying a larger quantity, she pays about 10 cents per bag.

And then, Barnstable continues, there are the myriad costs that many first-time entrepreneurs don’t think about: getting licensed, obtaining a food manager’s certificate, paying for a facility inspection if it’s not already certified, getting insurance, creating a website, locking in a food scientist. In the end, a project can cost anywhere from a few hundred dollars to a few thousand, depending on its complexity.

For operations of smaller scales, there are different decision points to consider. Reeck points to the cost of caring for goats as an example and explains why their herd is smaller now than it was 10 years ago. “It takes about $10,000 each year to feed the goats and provide veterinary care. We started with 30 milking goats, then went to 20, and now we’re closer to 15,” she says. “We’d need about 50 goats to make our cheese. But milking 50 goats twice a day is too much for two people, so we buy milk from a neighbor. […] We tell our customers that we buy from a neighbor, so we’re transparent about that. It costs about $8,000–10,000 each year to buy that milk, but it would cost more to have more goats and hire people to milk them.”

Despite the hurdles—many of which can seem overwhelming and daunting—Pradhan says she’s seen many companies like Seven Sundays and Singing Hills flourish and encourages anyone interested to pursue their dream. “I don’t want to deter anyone,” she says. “Right now is an incredible time for food and beverage businesses. If you’ve got something unique, go, go, go!”

Correction: A previous version of this article incorrectly mentioned a former colleague who was involved with operations at Singing Hill Goat Dairy. She is no longer involved and the article has been edited to reflect this. Additionally, Singing Hills Goat Dairy is licensed by both the Department of Agriculture and the City of Minneapolis, according to state and city laws as required of dairy producers, and is no way associated with the Minnesota Cottage Food Law.