Small business vs. scalable company: Determining the best path forward

Cup of Coa Founder and CEO Jasmin McGinnis is attempting to scale her hot chocolate company into a well-known, global brand. According to the company’s team, Cup of Coa has over 200 wholesale partners and has done sales in 49 states and in five countries.

In addition to selling on Amazon and serving corporate clients through Office Depot and OfficeMax, Cup of Coa most recently announced its move into large retailers with products “hitting the shelves any day now” in HomeGoods and Nordstrom stores.

Based in Kearney, Cup of Coa attended farmers markets and directly reached out to boutiques and local grocery stores, such as Hy-Vee, to expand its early reach. These strategies can be seen in other burgeoning food-based ventures.

But McGinnis said she had greater ambitions from the start — even when growing the recognition of her initial coffee shop business, Barista’s Daily Grind, also in Kearney.

“I never looked at myself as a small business,” McGinnis said. “In fact, I think that’s one of the reasons why we’ve grown and done the things that we’ve done well is that I’m always looking to the top experts.”

McGinnis would participate in the NMotion Accelerator Fall 2024 cohort, a program aimed at early-stage, scalable ventures, and would go on to raise a $750,000 seed round of venture capital last year.

Cup of Coa presents a common consideration entrepreneurs face when launching their businesses: Are they going to build a small business, or are they seeking to scale a company to market dominance and/or acquisition?

SourceLink Nebraska Program Director Scott Asmus provided definitions to distinguish a small business from a startup. SourceLink Nebraska is an initiative through the Nebraska Business Development Center. It connects entrepreneurs and business owners to resources around the state to help them grow.

According to Asmus, a small business tends to offer a product or service to a defined customer base. It relies on funding from traditional sources, such as loans, personal financing and revenue. Startups tend to arise from an innovation or an unmet market opportunity. They typically scale from growth-focused funding, such as venture capital and angel investors.

“The simplest distinction is that a startup is generally designed for scalability and rapid growth, while a small business is typically designed to generate sustainable revenue and serve a defined market,” Asmus said in an email to SPN.

The Combine Director Brennan Costello, who works with agtech startups wanting to scale, said startups are often seen as the “sexier” pathway. He said consumer packaged goods businesses, such as Cup of Coa and Humbl Root’s Carinara, are a third pathway due to their own unique traits and trajectory points.

Stakeholders and experts in the Nebraska entrepreneurial ecosystem said both small businesses and startups play key roles in Nebraska’s economic success. These range from attracting talent and creating jobs to building wealth and keeping communities alive and thriving. The determining factors for which to pursue, they agreed, comes down to the founders themselves.

Humbl Roots Co-founder Jake Burkland said he and his wife, Jacque Burkland, envisioned since its launch their carrot-based pasta sauce brand scaling from Omaha into popular retailers. Burkland said their product is now on Amazon, in around 130 to 140 Hy-Vee stores and has recently expanded into Raley’s grocery stores on the West Coast.

He said he applied what he learned from the Nebraska startup scene: diving into market research and identifying a real problem to solve. Humbl Roots specifically identified a need for a pasta sauce that wouldn’t cause heartburn. Humbl Roots packaging its Carinara sauce at Kitchen Council in Council Bluffs, and the Burklunds accepting their pitch competition winnings at the Hy-Vee OpportUNITY Inclusive Business Summit in Omaha. Photos courtesy of Humbl Roots

NBDC Technology Commercialization Director Josh Nichol-Caddy said a core factor for choosing which business path to pursue is understanding what a founder’s goals are. Entrepreneurs may have great ambitions, but they also have individual limits on their time and how far they can realistically export a good or service. He added that the novel value business owners believe their ventures demonstrate may actually be more replicable than they think.

Nichol-Caddy said the end goal of a startup is usually exiting and selling ownership to a larger player on the scene, especially if it’s software or a product that plugs into an entity’s existing offerings. Both he and Asmus said they try to get to know the clients they serve to figure out the best steps forward for them.

“I ask open-ended questions that help the entrepreneurs explain the idea in their own words, clarify what they hope to accomplish, identify the market they want to serve and describe what they have already done and where they may need support,” Asmus said.

“Based on those conversations, I begin identifying the organizations and resources that best fit the business model, current needs and stage in the ‘life cycle,’” he continued.

Different funding types pose additional business considerations. Costello said that startups that take on venture capital are placed on a timeline. These founders may have gotten fuel for rapid growth, but they now face the pressures of less control of their companies and commitments to make their investors’ money back.

McGinnis said she was told she would have difficulties raising venture capital due to how her product wasn’t seen as attractive as tech startups. However, she said she still found investors. She credited her previous experience and success in the coffee industry.

Burklund said his team has bootstrapped Humbl Roots since the start with the goal of maintaining ownership.

A small business can enable its owners to have direct oversight over its product creation, supply, distribution and marketing. A growing brand, McGinnis and Burklund said, requires knowing the rules and processes established by the dominant market forces, managing tight revenue margins and knowing when to navigate to different market channels when the need arises — such as when calculating the shelf life of a product.

In comparison to a day at a farmers market, McGinnis emphasized how larger retailers require greater commitments and logistical infrastructure for the businesses they work with. Businesses may need to budget for multiple subscription services to increase automation efficiency, and they’ll likely need to form partnerships with third-party distributors to navigate higher packaging demands.

When doing business with HomeGoods, McGinnis said her team had to figure out the logistics behind the price tag stickers for their products appearing on store shelves.

“You have to get into systems that print their barcodes, their names, their font, the kind of sticker they want, like all of those kinds of things. Then your third-party shipper has to do all of that, and then you have to ship out to the stores,” McGinnis said.

“It’s a totally different beast, and you have to be able to not only meet those deadlines but learn how to operate all of those systems,” she added.

Both McGinnis and Burklund said they experienced “chicken and egg” scenarios, such as needing to have proof of clients to bring on distributors while simultaneously dealing with clients wanting to see distribution capabilities before finalizing a deal.

McGinnis shared experiences of attending trade shows to reach new buyers and having to learn how Amazon collects and determines the reviews that make a product stand out on its site. Burklund similarly mentioned the importance of trade shows in establishing business relationships, as well as discussions he has had to have with packagers over the ingredient use and taste of his products.

“We have every intention to grow at a pace that’s manageable,” Burklund said. “We’re definitely building a company that hopefully has incredible, innate value to it, and somebody’s going to want to purchase (it) someday. But we’re very early on in the journey.”

“We’re laying the tracks and the framework for something bigger, but we also have to prove ourselves in the here and now,” McGinnis said. “Can we meet these contracts? Can we grow responsibly? Can we stay true to the goals we set out as a company?”

For getting started as an entrepreneur, McGinnis pointed to resources that have been helpful on her journey, including GROW Nebraska and the University of Nebraska-Lincoln Department of Food Science and Technology. Burklund mentioned his team’s use of the Kitchen Council in Council Bluffs for early operations.

You can learn more about SourceLink Nebraska and its Personal Action Plan offering for individualized business guidance here.