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Keep Production In-house or Outsource to a Co-man?

To set the stage, let’s assume we are working with a brand that had utilized a commercial kitchen to get started, had some sales and now is deciding to raise $$$ for equipment and space or find a co-manufacturer to work with.

The decision to keep production in-house or outsource really depends on the end goal. Is a founder building a brand/product to exit in under 10 years or building a company to last much longer?


As controversial as it may sound, if you are looking to sell in under 10 years, a strategic acquirer would be most interested in your brand and product rather than the organization. Large strategics as Kraft and Mondelez have very solid admin teams and very large scale to produce volumes with retail access points of sale across the globe.

When the time arrives to decide whether to keep outsourcing production or build in-house capability, ask yourself of the end goal for your venture!

PLAN A – EXIT IN LESS THAN 10 YEARS:


Founders who are building brands on current trends that are transitory in nature, SHOULD use a CO-MANUFACTURER (CO-MAN).


=> PROS: do not need to raise $$$ for equipment, leased space, production workforce. No production headaches (after a few first ones), don’t have to worry about certifications, QC, etc. (all things equal…)


=> CONS: you do need to raise capital for working capital as production quantity minimums at a CO-MAN operator can be pretty high for a young brand and will require as much as 4-6 months-worth $$$ upfront!


PLAN B – BUILD A COMPANY WITH NO EXIT PLANS:


=> PROS: Product innovation is in your hands, and you can pivot and adopt as fast as you can run. Your destiny/production and speed from concept to shelf is under your control.


=> CONS: You’d need to raise much more capital for your equipment, space, and sales & marketing, which is why this is more appropriate for brands that generate income and have proven consumer traction.


One caveat to consider – at times a new concept requires a custom made or adopted equipment that may not be readily available at a typical co-man. This may require you getting into your own facility and production staff. Solution – find a co-man that would allow you to take small space in their facility and train their staff to make your product. This isn’t easy but a smaller co-man would agree to something like that.


When the time arrives to decide whether it is appropriate to keep outsourcing production or build in-house capability, ask yourself of the end goal for your venture.

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