Let me preface this post: This was a hard one to write. It took a long time for me to be ready to write about it, too. But, I think it’s important to be transparent with you, my reader for just over 4 years – 2/3 of the life of my company.
A few months ago, I decided to close Green Mountain Mustard.
In this post, I’ll walk you through the deciding factors, trying to sell the company, and what I’m doing now. Plus, what you can learn from my food business experience.
At the end of 2015, I opened a commercial kitchen (you may remember). It was not a well-calculated move. The kitchen closed in July due to a number of factors – we ran out of money and our anchor tenant pulled out, being our top two. Just eight months in, we folded. The ship sunk fast.
To keep the mustard company going, we produced 8,000 jars of mustard just before the kitchen closed. It was my hope that the large production would get us through the remainder of 2016. It did, for the most part, but I wasn’t able to recover as quickly as planned with a “Plan B.”
At the same time we produced the mustard, we listed Green Mountain Mustard for sale. I thought someone else might want to sell the 8,000 jars of mustard. That was an experience in itself.
What it’s like to try to sell a food business:
I decided to try to sell because I could see the writing on the wall. This business simply was not going to make it, with the margins I needed to put food on the table. Plus, I have know who I am. I love to start ventures. I’m the guy who thrives at 0-5 years, not the 5-10 you truly need to get something off the ground. I can get a product to market, establish a brand, and setup the foundation.
Green Mountain Mustard was profitable. We streamlined expenses, reduced our COGS, and had loyal retailers and customers. The downside, as I found out, was that the majority of my revenue – and ultimately profit – came from direct-to-consumer events: the farmers market, online sales, and a handful of fairs and festivals around New England. Turns out, not a lot of people like to spend 30-35 of their weekends every year selling mustard.
Buyers wanted retail sales.
You see, retail sales are predictable. They don’t require as much weekend investment, outside of your demo programs. Retailers have thousands of customers who shop the shelves 1-3x a week, and eventually your product turns over, prompting the retailer to re-order. You get the check 30-45 days later, and you repeat the process. But, multiple this by 100, 1,000, or even 2,000 retailers, and you’ve built a business. Sure, I knew that (I did go to business school), but I loved directly connecting with customers – and I hated retail. It was cold, confusing, and low(er) margin. It was important to me to find a buyer who understood where I was coming from.
In July 2016, we started talking to a business broker who has brokered the sale of many other food brands. After signing the contract and agreeing to a brokerage fee of $5,000, I sent the broker my financials for the past three years. I knew there was growth and decline in my sales (which over-shadowed my consistent net profit), but one thing was still a mystery: how the heck do you actually throw a valuation on a specialty food company.
It’s all about the numbers.
Most business are valued at a multiple of their net-profit (that’s what you make after you subtract your product costs and your operating costs). If you build a rock-solid business, your company will get valued at a multiple of your top-line sales #richlife.
In my case, Green Mountain Mustard was initially valued at $75,000 (inclusive of all inventory). We arrived at that number by multiply my net profit, roughly $25,000, by 3.
My first thought was “if I could get $75,000 for my business that’d be awesome!” Well, as our listing aged, and we talked to about a dozen interested buyers, we kept dropping the selling price. As I started to sell off the inventory I just made, our valuation kept dropping. In the end, after about 8 months of being listed, we had received three offers.
Here they are in chronological order:
- $60,000 – that offer came early and was later reneged by the prospective buyer.
- $50,000 – 10% down, and payments over three years. Payments were not guaranteed.
- $11,000 – all cash
Pretty sharp difference, huh? Here are my thoughts on all offer #2 and offer #3:
Offer #2: This would have been fine, but there was no personal guarantee. For all I knew, the prospective buyer could have crashed and burned Green Mountain Mustard, and never paid me beyond the $5,000 down payment (which would have actually been around $3,650 after taxes. Mind you, the broker’s fees were $5,000. There was way too much risk here.
Offer #3: This was from a local entrepreneur who was buying up local food companies because he could control the manufacturing and end up with pretty good margins. He low-balled with $11,000. At this point, we didn’t have a lot of inventory. Take out the broker’s fee and the taxes – I’d be left with roughly $4,980.
I just could not sell Green Mountain Mustard for $5,000. Almost seven years of blood, sweat, and tears was not worth that amount of money. I profit 2x that amount at one farmer’s market alone.
We pulled the listing down in March 2017 and amicably split with the broker.
What was the plan now?
I had this crazy thought of trying to bring the mustard company back to life:
- What if we only made four flavors?
- What if we took out the eggs and butter out to reduce costs?
- What if we produced out-of-state?
- What if we used smaller jars?
- What if we just sold wedding flavors?
- What about food service mustard?
- What if we made ketchup and relish, too?
A million thoughts raced through my head. With each direction, I ended up discouraged by the reality of my Excel spreadsheets. There was no way to make this work. With increased costs due to higher production minimums and the cost of labor, I’d be right back where I started. Ultimately, it was not worth my time and energy to continue to put resources into something that didn’t quite have legs beyond the northeast. The foundation was crumbling.
In March, I notified customers, retailers, and fans of our closing. At this point, we had two flavors of mustard left. I held a case sale and the product flew out of my parent’s basement – selling almost 30 cases practically overnight. We’re down to just a handful of cases now.
My Next Adventure:
In October 2016, I started a full-time job as an Account Director at Place Creative Company in Burlington, VT. We work with some of the most amazing brands: Darn Tough Socks, Pete & Gerry’s Eggs, Lake Champlain Chocolates, and more. Plus, one of our specialties is consumer-packaged goods packaging and branding. If you ever need branding help, I’d be be happy to talk to you outside of the Gredio blog. My job is what I love most about the food business – branding, messaging, design, and strategy. I’m excited that this role provides me an opportunity to work with new and established brands every day.
What about Gredio?
Gredio will live on – at least for the near future. With Green Mountain Mustard behind me, I’m going to start thinking about other ways I can help you all. The Gredio audience is almost 4,000 subscribers strong. We’re all here to help each other learn and grow. Even though I don’t own Green Mountain Mustard anymore, my passion to help your food brands survive is stronger than ever.
Feel free to keep the discussion going in the comments below – I’d love to hear from you and see how I can best help through the tools and articles I provide on the Gredio blog.