Monthly Archives: March 2013

Food Law

Lei attended the Just Food Conference today and was in a food law workshop. Here are some notes from the workshop that might be of use to you. When slides are available, Lei will post them here.

The presenter was Jason Foscolo, Attorney at law, founder of Food Law Firm, a private practice that specializes in all aspects of food regulations and laws.

Food is subject to unique regulations

  • Legal exceptionalism, special rules for food producers
  • Unique obligations for food producers
  • Exemptions to broadly applicable laws that confer advantages

Sources of food law

  • Clean Water Act – food producers are exempt and as much as 40% of water pollution is related to food production
  • Fair Labor Standards Act
  • Capper Volstead Act – exempts food producers from anti-trust laws
  • Farm Bill
  • Chapter 12 Bankruptcy
  • Packers and Stockyards Act
  • Civil Liability
  • Forward contract leases, labor laws, contracts, trademark

Types of risk

  • Regulatory risk, absolute quantity of penalty known ahead of time
  • Civil liability risk, there’s really no known quantity ahead of time. Depends how big your scale is and how many people you can get sick
  • Economic risk, producers need to manage risks of planting crops

Strict liability

  • Civil liability, the entire burden falls on you as food business
  • Liability without regard for negligence
  • If you make someone sick, you are liable. In a chain of distribution, all parties in the distribution chain can be collected from, the parties then need to settle what each party’s relative liability
  • Litigation moves quickly, since it is strict liability
  • If you are a small business, you have zero margin for error, since you have no defense and can quickly get bankrupted
  • Does consumer have any liability? If they fail to follow instructions, it depends what makes them sick

Contracts

  • Contracts are promises that stimulate the economy
  • Interlaced promises are key to promoting trust among businesses
  • Agreements facilitate risk management

Food product liability: risk management
How do you manage risk?

  • Procedural controls, be preventative, invest heavily upfront in food safety all along your production chain
  • Corporate shield, get limited liability, be careful and don’t abuse it
  • Product liability insurance: you need it. If your business is new, go with the minimum $1M standard policy required by retailers. If you have a larger company and personal assets, buy more insurance, don’t go too minimal if you have a lot to protect.
  • If you’re thinking of a home based business, you need commercial insurance. None of your existing homeowners insurance covers this. You need to be extra scrupulous to prevent food safety problems
  • Top three things you need: legal incorporation (based on what benefits you most from a tax perspective), insurance, trademark your brand.
  • Product recall plan: how do you get faulty product back as quickly as you can? Met a farmer who spent $500k to recall 800 lbs of beef. Traceability is key.
  • Recall insurance
  • Contracts with suppliers, know the rules, read contracts. Most retail outlets will not adjust their contracts to suit you. Most retailers will also try to direct all liability to you.

Why compliance is important in food labeling (retail and packaged food)

  • Anything non-compliant is “misbranded”, it could be as little as a misplaced font!
  • Warning letters, administrative detention
  • You may face criminal sanctions
  • Allergens, see below
  • Wholesale buyers are gatekeepers to your success
  • Small scale producers often get exempted

Allergen labeling, really really important (email for slide)

  • 8 major food allergens: milk, egg, tree nuts, wheat, peanuts, shellfish, soybeans
  • Declarations in plain English
  • Labeling exemptions: less than $500k gross a year, but a wholesaler may require labels. Fresh produce, zero nutrient foods, deli and bakery goods are exempt
  • You don’t make functional claims: nutrient content, health claims, qualified health claims

Trademarks
Why file a trademark?

  • Offense, carving out a space, easier to issue cease and desist if someone treads on your toes
  • Defense, don’t step on other people’s toes, do your homework with other brands or you’ll get a cease and desist
  • National registry: check it for names

Statement of identity

  • Product name as plainly and simply as possible
  • Acceptable names may even be determined by law or regulation

Wordmarks

  • Fanciful: Xerox
  • Arbitrary: Apple (computers, try it for cider and good luck)
  • Suggestive: Brewla Bars
  • Descriptive: International Business Machines
  • Generic: Hard Wood Flooring

Here are the slides:
Just Food 2013

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Lean Startup Principles

In preparation for our next meetup event, here are some links to useful resources to learn about lean startup basics and principles:

We’ll be finalizing details about the meetup and have that info posted soon.

More from Launching a Food Business on a Lean Budget Event

Here’s an excerpt from the opening remarks made by Alex Ginsberg, Founder of Lean Food Startup, at last week’s inaugural Lean Food Startup event hosted by Union Seminary:

First, some introductions are in order about who has helped organize this event:

Columbia Food Lab is a new group out of the business school dedicated to making Columbia the top school for food entrepreneurship, help students launch food businesses. Make sure to keep an eye out for our conference April 12, here at Union Seminary. We have early bird tickets available in the back after the panel.

 
Lean Food Startup NYC is a group on meetup.com that you should go join. We are seeking to apply concepts from the Lean Startup movement in the tech world to the food world.

The Columbia Union-Kitchen is a joint venture between the Food Lab and Union Theological Seminary to create a kitchen space open for local entrepreneurs to develop and produce their products without investing in their own commercial space.
 
And now, on to the main course of the evening. We’re all here because we’re interested in helping increase the success rate of aspiring food entrepreneurs.

The Lean Startup movement has its roots in the tech world, where it advances practices that get startups to focus on only those actions that add value to customers, so that entrepreneurs don’t spend precious time and money building something that nobody really wants.

Constantly improve your understanding of what customers want through frequent experimentation is at the heart of how lean practices can help entrepreneurs eliminate waste. A key component is to make tweaks to your product, business model, sales pitch, marketing, and other business operations based on measurable feedback. Instead of building the perfect, all-encompassing product right away, lean advocates building the minimum viable version that can test the riskiest parts of your idea and business model.

One of the big premises of the Lean startup movement is that it’s easier and cheaper to experiment, learn and start up a company in the tech space than ever before. While much of the Lean philosophies seem to be applicable to food, it is unclear whether the premise that experimentation, learning and starting up is cheap and easy applies to the food industry.

I would argue that new business models such as food trucks and pop-ups, and resources such as incubator kitchens are making learning cheaper. But, do these lead to sustainable businesses? This panel (and the Lean Food Startup as a whole) is going to address some of these topics and this question as a whole.

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Highlights from Launching a Food Business on a Lean Budget

Hey folks, our friends over at Harlem Food Local did a great job with a writeup on our inaugural event, Launching a Food Business on Lean Budget back on February 27th. In it, the highlight 15 of their takeaways from the panelists, so if you didn’t get a chance to go, here are their crib notes 🙂 We encourage you to sign up for The Lean Food Startup NYC MeetUp Group and come to the next meeting scheduled for March 26th.

Interested in starting a food business? Here are the top 15 take-away tips from the panel that will help you navigate this insane startup business.

  1. Delusion is a Necessity. You must have uncompromising and unwavering belief in your product, your idea, and your mission. But, this delusion must be anchored by the slightest bit of reality, where you also have to realize that you are not going to have any idea what you are doing for most of the time.
  2. You must be intensely and extremely stubborn (coupled with the aforementioned ‘delusion’, they work very well together). Every time someone tells you’re wrong, tells you that your product stupid or that your packaging is ugly, and that you’re never going to succeed, you have to dig your heals in even more and stay committed.
  3. However much money you have for StartUp and Operating costs, chop that amount in half and use it as your actual budget. Don’t worry, the reserved half will get used too (on costs you never anticipated) but you’ll be under much less financial stress if you budget conservatively.
  4. Have a very honest conversation with yourself about how much money you have, what your costs will be, and when you need to start being profitable. Remove all of the delusion from this step. Really figure out if, with the tools and capital you have, your plan will turn into a winning equation. If you aren’t absolutely certain, take inventory of where you feel you could improve, and do that before you sink a ton of cash into discovering your hunch about it not working out was right.
  5. Plan for a ton of costs that you never anticipated because they are ‘unknown unknowns’ and they will materialize when you least expect them.
  6. Question and Negotiate EVERY expense. Go through each and every line item on your debit sheet and if you don’t know why you are spending that amount on a particular item, try to get it for cheaper. The worst that can happen is that you’ll be paying exactly what you are right now.
  7. Everyone is NOT your Target Market. Know who your market is and get to know them on a personal level. Stop pretending that your product is so amazing that every consumer in the world will want it, because they won’t.
  8. When designing your business model, keep scalability, agility, and adaptability in mind.
  9. If you are selling a packaged food item (specifically to a grocery chain, or a gourmet specialty store), make sure any and all of your potential clients taste your product in front of you. If you leave it up to them to taste it, they never will, and you won’t get a new customer.
  10. Creating different product lines, with different costs, and different margins is one of the best way to ensure profitability. BUT, don’t expect to launch multiple products simultaneously.
  11. Plan for profit margins of no less than 50% because it is very likely that margin will shrink.
  12. The best way to learn about the industry is to get yourself a mentor. Seek out a successful business that is like yours (but does not directly compete with you) and make friends with them.
  13. Don’t think that Kickstarter (or similar types of crowd fundraisers) will get you all of the cash you need. You will need alternate funding sources. Successful crowd fundraisers require an extremely developed and vast social networks with high visibility. If you don’t have a social network like that, don’t expect for Kickstarter to be the answer to your prayers.
  14. You will need an internet presence, but chances are, you aren’t a food industry professional that is also an expert web developer. Whether you decide on a site that will be dynamic or static, outsource what you can of it. You don’t need to learn how to be a web developer while building your business. It’ll save you a lot of time, effort, and frustration if you outsource the project to someone who can do it painlessly.
  15. By throwing your hat in the ‘entrepreneur’ ring, you are signing up to have an adventure. Bound to encounter a few of your lowest lows and your highest highs, remember to have fun the whole time, because it’s an adventure of your own creation.
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Our Next Meetup

Just a real quick update on a tentative next meet up for the Lean Food Startup NYC Meetup Group. We’ll be exploring the principles of lean startups and discussing whether and how they can be applied to food startups. Please join the Meetup group if you’re interested in attending! Hope to see some of you there

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