Mitch Jaffe | Crain's Atlanta

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Mitch Jaffe

Background:  

Mitch Jaffe began PREP, a shared kitchen in Atlanta, in 2014. It serves as the commercial kitchen facility for 120 food companies—everything from caterers to food trucks to makers of bagels, coffee and salsa. Jaffe has also worked as an entrepreneur himself, running commercial development projects and condominium developments.

The Mistake:

At PREP, we deliver facilities and services for food entrepreneurs, so when we began the company, there was no blueprint for what we wanted to do.

We did a lot of research on what our customer would need, but we didn’t fully understand the reality of what it takes to be a successful food entrepreneur from the incubation stage. We were tracking retention rates at our company, from the moment the entrepreneur become a member to how long the business lasts. We started seeing that a lot of the companies were falling out around the same time, right around the one-year mark.

I had misjudged the amount of hurdles these people have to clear to get where they’re financially stable—and the amount of additional support they need in order to get out of the danger zone. The biggest mistake was underestimating the regulatory, financial and labor barriers and the food entrepreneurs’ ability to fully understand their business while they’re bleeding cash.

That was the aha moment, where we realized that we needed to not just look for someone who’s enthusiastic and is able to pay us money. That alone doesn’t mean we should take them. Now, we’re more tough love with people upfront. We tell them that they need to take a step back. We say, “We would love to have you involved with PREP, but we want you to do more research and understand the costs of goods and distribution.”

Around 20 percent of people who come to us need to do more research, and we tell them that. In the beginning, we were excited to take people when they were excited. But now, my staff and I say, “Let’s make sure the U.S. Department of Agriculture and the Department of Public Health really accepts this before you plunk down money.”

We’d rather do the homework first than take the money.

The Lesson:

You’re being tough on somebody for their own good. If you have a customer that wants to pay you, it’s better for both of you to say time out. It’s better to have this tough love approach and say PREP is not for everyone. Entrepreneurs can then figure out what’s missing from their business plan in order to be successful.

Failure happens. Life events happen that are out of your control. But it’s the things that are in your control—not having enough money, not understanding the cost of goods, not knowing the target audience for a product.

Everyone gets excited about their food product and expects everyone will just buy it. But have they thought about distribution, the cash amount you have raised up front, and how that product is going to be legally produced under the food safety laws? Whether you’re producing sushi or crackers, it’s two different things, and it requires different research.

Whatever research the entrepreneur needs to do, we help them by giving resources and making phone calls on their behalf. Some of it is homework for them and some of it is homework for us. But we’d rather do the homework first than take the money. It’s draining to have someone that’s not making it.

This changed our business because we’re putting a better product on the table. We’re not just selling someone a membership and facility. We’re also giving them a dose of caution. The attrition rates of small businesses in general aren’t good. We’re trying to be above average. Because these entrepreneurs come to us, we try to make sure they have a better chance.

Sometimes, people don’t want to hear this. They’re riled up. They think they’ve thought about everything in the world. Having those conversations is probably the toughest thing.

If our member companies are successful, that’s PREP’s best marketing. If their product ends up on grocery shelves or they end up opening a second food truck, people will see they’re associated with PREP. That’s the best marketing we could have.

Follow PREP on Twitter at @PREPATLANTA.

Photo courtesy of Mitch Jaffe

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