Status of the Cottage Food Industry
I recently received a few questions from Sid, who’s doing some research on the cottage food industry. The questions are high-level enough that I realized they’d make a good blog post, so I’m sharing my answers here.
1. What are some ways to estimate the revenues generated by the CFO operators? Do you have an idea as to how much revenue might CFO operators be generating in the state of California?
It’s pretty hard to estimate, quite frankly. And even if you could estimate the legal businesses, it would be difficult to estimate the revenue from all homemade food, including the many more illegal businesses. To start, this is what I know about the number of CFOs, and then you have to figure what each CFO makes. My guess is that the national average for a CFO’s annual sales may be below $5K. That’s a complete guess, but most businesses don’t become super successful, as is true with all startups. It is difficult to start a successful business — it’s as simple as that. Many CFOs run their businesses on the side, for extra income or as a fun cash-positive (hopefully) activity. I don’t think there are too many CFOs in CA that have hit the sales limit yet.
2. Why did you close the marketplace for CFOs? Was the industry not willing to adopt to an online medium or were there any other reasons?
We closed it because it wasn’t working. Nobody signed up for it, likely due to the chicken/egg problem. In retrospect, the real value of our marketplace could only be provided to CFOs if we had buyers… in other words, the technology we created was really worthless until some future time when we had users. Future possibilities are not a strong incentive for signing up now.
Since starting Forrager, I have witnessed many similar startups run into the same issues: a common trend that I’ve noticed is that we entrepreneurs tend to underestimate the resources needed to start an online marketplace — the most important resource being people.
3. Do you think this industry will grow and the demand for cottage operators will increase? Is the potential for this industry hindered by laws such as limited product offerings allowed and prohibition on shipping?
It’s definitely growing and will continue to. At the core of the cottage food industry is community involvement (sense of belonging) and empowerment of individuals. Both of those values will always be popular, and neither relies on high profits to define success.
Some people choose not to start their business because of the limitations of the industry (not wise IMO), so I suppose the growth of the industry is limited by the laws to some degree. Removing limitations would probably help it grow even more. However, limitations spur creativity, and I’ve definitely seen a lot of that coming from this industry.
Perhaps the answers aren’t entirely comprehensive, but they are my initial thoughts. They are, of course, my opinions, and I didn’t change the answers to be less divisive, nor did I do additional research to make them more correct. I’d be happy to further clarify any ideas in the comments below.