Small businesses are often called the backbone of the U.S. economy; they employ about half of the nation's private sector employees. But in many cases, small companies start out with a workforce of just one — like cereal entrepreneur Ian Szalinski in Rochester, N.Y., who's trying to stake a claim to the breakfast market.
Almost every day for years, Szalinski ate muesli cereal for breakfast. Sometimes he'd eat it with milk, sometimes with yogurt or cooked hot like oatmeal. But no matter the brand, Szalinski says, it was almost always the same mix of oats, whole grains, raisins and nuts.
"I just got sick of eating it after years and years," Szalinski says. "If I had some extra walnuts in the cupboard I'd throw them in or some coconut ... but I'd never go out of my way to get extra ingredients just to add to my muesli."
And thus, a business idea was born. The recent college grad formed his own company, bought raw ingredients and rented some space on Rochester's east side.
Before long, the 23-year-old Szalinski was, among other things, president of Muesli Fusion.
"Bagger, marketer, salesman, inventory manager, accounts receivable, you name it," he says of his job duties.
In six months of sales, Szalinski has had some early success. His muesli is in nearly two-dozen health food stores in four states: New York, Pennsylvania, Utah and California.
Small Margins For A Small Business
But as a one-man operation, Szalinski mixes and packages every bag by hand. He's sold about 6,000 of them so far. As he refines his product lineup and plans a package redesign, Szalinski is beginning to feel the pinch.
"It is going to increase my costs right now, which is difficult as a small business — cutting down my margins when I don't even have great margins to begin with," Szalinski says. "But it's going to give me overall better product, and that's what I need to get to that next level."
Louise Kramer, the spokeswoman for the National Association for the Specialty Food Trade, says small-food manufacturers like Szalinski have a hard time staying competitive on pricing. With small production runs, ingredients and materials are more expensive.
It is going to increase my costs right now, which is difficult as a small business ... But it's going to give me overall better product and that's what I need to get to that next level.
But Kramer also says the specialty foods sector is thriving. Sales grew by more than 7 percent in 2010, and she says cereal is not a bad place to be.
"Consumers eat cereal for breakfast, lunch and dinner and snacks. I have cereal for dinner myself," she says. "I'm a guilty party."
Making The Jump To Supermarkets
For small producers like Szalinski, one option is finding a so-called "co-packer," short for contract packer, that could increase production by handling manufacturing duties and help Muesli Fusion find a way into bigger supermarkets.
Szalinski's holy grail for now is Wegmans, the Northeast grocery store chain. Wegmans spokeswoman Jo Natale points out that the cereal aisle is one of the more daunting sections of any supermarket, since there are a lot of choices.
Still, she says, the natural and organic food section is the fastest-growing area company-wide. A major consideration for landing on Wegmans' shelves is how well you stand out from the crowd.
"What kind of a marketing plan does a company have?" Natale asks. "Big or small, you need to let customers know about your product to create demand."
Natale says Wegmans has already met with Muesli Fusion, but the store is waiting on that package redesign before making a final call.
Beyond the cereal aisle, many entrepreneurs face similar challenges. For small-food manufacturers and tech startups alike, small isn't always sustainable, and the path to scaling up is littered with companies that couldn't.
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