Could you tell me a couple of words about your business? How did you start, what's your story? What do you do?
We started with Leon back in 2018. My grandfather has his gardening project with herbs and spices, which he began in 2008, and I was helping him to sell the products from his garden to restaurants. Because of that, I know many facts about herbs and spices and how to mix them well. On the other hand, Leon was interested in online business, marketing, and performance ads. So the idea of our start-up was born.
Now, it's been four years since we started our business, and during this time, we had many challenges which we managed to overcome and grow. It's stimulating to have your very own start-up. Our website is the biggest project we are focusing on at the moment. We got a lot of new ideas and a long to-do list. Sometimes it's challenging to fulfill all the requests.
What is the main challenge? What is the most difficult part of the business?
I would say the main challenge is finding and retaining qualified personnel and building a staffing structure. Also, financing is essential because it's not easy to make a profit in the first years. Another big challenge is to learn how to work with B2B Customers. We have some customers with really long payment goals, 60 days or 90 days, and we have to finance the whole goods upfront and then send them to the customer. We have to pay for two or three months, and there's no incoming money from the customer. So, that's a big challenge. I would say two pain points are qualified personnel and the financing.
How do you overcome these challenges?
In May 2021, we got an investor who helped us with most financing questions. It’s like mom or dad. If we have questions, we can go to them and ask for help. And with the personnel, it's about the experience – we live and learn. Now there are 20 people at my kraut.
Wow. This is a lot of people to manage.
Yeah, but it’s not all full-time personnel. Mostly there are students here from Cologne who help us pack the goods. For the last two years, we have learned a lot, now we can understand fast who would be good for the job.
You said the main challenges are the personnel and the financing since you produce the goods upfront. So, would you say that a cash gap can happen from time to time? After all, you still have to pay your staff. What are the other major expenses of your business?
The main thing, of course, is the staff and products that we have to fund. Also, we have a big budget for marketing – Google Ads, Facebook, and so on. Because in online advertising, you have to be risky. It's hard to tell right away how much you're going to spend on online advertising. In the first few years, I think you have to try to make a really big growth in the online business. If you don't take these risks, you can't win.
That's true. You said you now have an investor, which is really great. But before that, how did you find your financing? Did you go to banks?
In the first two years, we were in our parents' house, in their basement.
Well, Apple started in a garage as well, right?
Something like this. By 2020 we got our warehouse, the first personnel team. But initially got into a start-up program supported by the German government and got our first financing. Since it is not a traditional loan, we don't have to pay it all back. In 2021 we decided to take the next step and find an investor. Since May 2021, we have worked together with investors from Frankfurt.
Did you try to get financing from banks? I am just curious about your experience with the bank as a start-up.
We tried, but the banks are not fast enough. The initial answer takes around 1-2 weeks. After that, you asked to send many documents, including online marketing metrics, key performance indicators, etc. Sometimes it takes them one or two months to answer and to decide if they can provide you with a loan. Also, there are mainly working people from other generations who don't understand online business and e-commerce. So later, we decided to work with investors since they were also contacting us. I can say that it was the right decision for us.
They are young and innovative people who know about online businesses, performance ads, influencers, and Instagram. Also, they are quick in their decisions. When you have a question, you can be sure you will get a fast answer. That's important for us since sometimes when you get a new customer, we need to produce goods fast and we can not wait for the bank's answer for two weeks.
Are you talking about B2B customers here?
Yeah, about B2B, which is 60% to 70% of our revenue per month. With B2C customers, it's different since they order online and pay via PayPal or card. That means we get the money directly and do not have to wait 60 or 90 days. In the B2B food industry, getting paid in 14 days is difficult. For example, the biggest supermarket chains in Germany, Aldi, and Edeka, usually provide the payment in 90 or 180 days.
Though the banks are really slow, is the rate at which banks offer you credit attractive?
Sure, at the moment, we can get a loan for a 2% or 3% interest rate. Which is really good, but we still can not use it since the banks are so slow.
And you need it fast.
Yes. Also, as I said, at the banks primarily work older people who can not understand the principles of the e-commerce business.
Yeah. That sounds like a challenge.
The good news is that many products work online, like the Puls project. You can connect the bank account or PayPal and get the feedback within 24 hours, which is excellent for start-ups like us.
Tell me, please, what do you like the most about your job? What makes you excited?
You wake up in the morning, and you don't know yet what you have to do that day. Every day there are new tasks, and sometimes you think it's going to be a good day, and then it turns out to be a terrible day. And sometimes, on the contrary, you get an unexpectedly big and cool order.
And what happens then? When did this happen last time?
The last time we got such a big client was in November 2021. It was the furnishing shop "Depot" with 400 stores alone in Germany. They got the challenge to bring new products for Christmas since they didn't receive the packages or goods from China because of Corona. They bought so many products in December that it was 20% of our revenue for the year. And it was a challenge for us to finance the goods.
How did you do it then? Please, tell us.
It was no problem with working capital from the investor who also got this email. Investors finance the goods, and it returns when the customer finally pays.
Is it difficult to get a contract like this? Where do you think they found you?
We don't know yet how they found us. And two days later, after the first delivery, they asked for an order to cover the whole 2022 year. Only with this one customer, "Depot," and this large order, our revenue was the same as 2021 in the first days of January of 2022. It felt surreal and fantastic.
Wow, sounds awesome! So, for the next year, you'll be working with them?
Yeah. Every two months, they get a new delivery from us, and it's a big customer.
What is the perfect scenario for you to finance the production? Since to sell more you need to produce a large number of goods in advance.
I dream that the customer will always pay in 7 or 14 days. That would be a game-changer, but it's impossible. I think contracts can be ready for such short payments after four or five years of working together, but not after five or six months. At the moment, it's impossible to negotiate that.
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