Growing Pains: What Entrepreneurs Need to Know About Scaling a Supply Chain
New York — Charmaine DaCosta remembers the exact moment she truly felt like an entrepreneur.
It was a sweltering summer day and she was setting out in her Toyota Corolla to deliver her Jamaican limeade drink, Limation, to grocery stores and delis in Manhattan and Brooklyn. DaCosta had designed a version of the drink she loved as a girl in her native Jamaica. She only had a few mom-and-pop customers, but seeing her drink on store shelves in New York City made her feel like she could tackle just about anything.
That was almost five years ago. Today, with a temperature-controlled truck that makes her deliveries seamless, she is one of a select group of Harlem entrepreneurs to have her product on the shelves of the recently opened Whole Foods in that neighborhood.
“This has been a big year for me,” DaCosta said. “Whole Foods is such a force and becoming one of their vendors has changed everything.”
Change has come to Whole Foods, too. Amazon completed its $13.7 billion purchase of the grocery chain this summer, and analysts have said supply chain logistics and expertise will be a large part of a successful acquisition.
James McQuivey, a technology analyst at Forrester, told USA Today that Amazon “will certainly be able to extract more value from its supply chain by combining the scale it has from its own massive logistics operations along with the infrastructure of Whole Foods.”
While DaCosta’s product may be on higher-profile shelves, the boost in business has also highlighted some key challenges regularly faced by entrepreneurs as they scale. Specifically, how to create a healthy supply chain and manage the flow of materials, supplies, and finances before a product reaches shelves.
“Entrepreneurs are busy keeping up with demand and dealing with sales so processes often become inefficient,” said Patrick Penfield, professor of supply chain practice for MBA@Syracuse, the online MBA from the Martin J. Whitman School of Management.
Getting Off the Ground
Like so many entrepreneurs, DaCosta started with a single idea. Limation was a favorite part of her Caribbean childhood but going into the food business was not in her plans. Moving from Jamaica, she started out as a singer/songwriter in the reggae girl-group Worl-A-Girl. She went on to become an ordained pastor, and in 2014 she used her own cash to launch Limitation.
“Harlem is full of people being resourceful and that was really important for me because I had to figure everything out from scratch,” she said. “I had no idea how to run a supply chain but I was determined to figure it out.”
DaCosta spent the past several years figuring out how to get her product to the market. She started out mixing the product at home, juicing her limes by hand. She walked into stores, asking the owners to try her drink. When the owner wasn’t available, or was too busy to listen to her pitch, she’d come back later.
“Even when I would get orders, I had challenges keeping the product consistent and finding suppliers who gave me consistent product,” she said.
DaCosta tried out several bottlers in search of a supplier who could bottle into glass using high-pressure pasteurization. She bought her fruit at a high cost from supermarkets but she knew that wasn’t sustainable as the business grew. Getting quotes from various wholesalers was time consuming but necessary as her inventory needs increased.
Just as new customers stocked DaCosta’s product, came a major setback. She’d hired a salesperson who got her product accepted by online grocery store Fresh Direct and A&P supermarkets. This would have been a major upswing for the business, putting her in 290 stores in the northeast. But A&P filed for bankruptcy just as she was readying her first shipment.
“That was really hard,” she said. “I could have easily given up. It taught me to slow down and analyze my supply chain so that it’s as efficient as possible.”
Penfield said launching and maintaining a healthy supply chain is a challenge for most entrepreneurs.
“They have to be careful where they spend their cash,” he said. “They have a time crunch, too, so cash flow becomes a challenge.”
Brian Todd, an economic data editor at the Food Institute, told the Center for an Urban Future (CUF) that initial start-up success doesn’t mean an easy road to long-term growth.
“Most new companies begin with a creative idea but lack the sophisticated strategies and resources needed to expand operations,” he said. “At a certain point, there needs to be an infrastructure for that business to take it to the next level.”
For DaCosta, 2013 proved to be an important funding milestone. After winning the Harlem Business Alliance’s 5th Annual Business Plan Competition, she received $5,000 in capital to make her product consistent. She began to structure her supply chain to support a growing food business.
Nikoa Evans-Hendricks, executive director of Harlem Park to Park, a social enterprise organization working with local entrepreneurs, said that to successfully scale a business for distribution to larger stores, companies have to expand their supply chains to include additional staffing, production capacity, distributors, and marketing dollars.
“Small food businesses constantly struggle to find funding to support the growth of their business,” she said. “Owners often feel overwhelmed with all of the responsibilities required to maintain the company's daily operations while also pursuing strategies to scale their company.”
While DaCosta was strategizing her company’s future, Harlem Park to Park was in talks with Whole Foods to create an economic development initiative to support local entrepreneurs as the grocery chain prepared to open on the corner of 125th Street and Malcolm X Boulevard in Harlem. The resulting Harlem Local Vendor Program would put DaCosta along with a few dozen other local food entrepreneurs into Whole Foods.
Time to Scale
According to a CUF study, small businesses like DaCosta’s that win contracts with large entities report average revenue growth more than 250 percent in the two years after their first sale. DaCosta has yet to see that kind of growth, but already she is experiencing the challenge of scaling her supply chains in a climate where funding and sales cycles are unpredictable.
Having more than tripled her number of customers, DaCosta now believes it’s time to think bigger about her supply chain: finances, pricing, production processes, quality assurance, customer service procedures. She’ll have to implement modern logistics systems, hire additional staff, purchase raw materials, and increase automation at production and distribution facilities.
“Yes, technology and new advances are changing the supply chain landscape. But this can be a good thing for entrepreneurs,” Penfield said. “Entrepreneurs have the advantage of being agile with new ideas and do things faster than large companies. They’re fast and nimble. And that’s something the big guys can’t always do.”
Citation for this content: MBA@Syracuse, Syracuse University’s online MBA program