While renting space through memberships or hourly can be profitable with the right level of utilization, oftentimes services provide additional revenue streams to support the kitchen’s business model. Below is the Service Planning chapter of the Shared Kitchen Toolkit we developed with Fruition Planning and Management in partnership with Purdue University Extension, Local Food Program. We will be posting additional content from the Toolkit on our blog in 2019.
Kitchens look to value-added services to increase their impact and generate revenue to sustain their operations. There is a tremendous breadth of services that shared kitchens, kitchen incubators, food innovation centers and accelerators offer to food businesses and the larger community. The services vary depending on the community’s needs, the kitchen’s mission, and the organization’s business model. While many focus on early-stage business planning, a growing number aim to facilitate sales and accelerate the growth of small food businesses. These services are made possible through strategic partnerships with organizations and market channels in the local entrepreneurial ecosystem.
This post explores service opportunities and guides you through the process of evaluating which services are needed in your community and whether they will be self-sustaining or profitable for your kitchen. Kitchens that offer services to food businesses often fall under the incubation category but not all kitchens that offer services consider themselves incubators. Some shared kitchen operators also provide fee-based services on a consulting basis for kitchen clients and non-clients.
Incubators often offer individual advising, coaching, or consulting services as part of their membership or for an additional fee. They may also offer classes and workshops in a group format or cohort format. Many incubators also provide opportunities for businesses to be mentored by experienced entrepreneurs or managers. Food innovation centers generally provide additional technical and product development services. Fee-based and equity-based accelerators usually use an intensive cohort-based service model for a limited period of time to accelerate growth.
The level of service that shared kitchens and incubators offer varies from referrals and relationships to directly providing the service. Some of the mission-serving and revenue-producing services kitchens offer to food businesses include:
Business Planning and Launch Assistance
Marketing and Design Services
Sales/Market Opportunity Development
Product Development and Food Safety Services
Other Entrepreneurial Ecosystem Services
Business Planning and Launch Assistance
Marketing and Design Services
Sales/Market Opportunity Development
Other Entrepreneurial Ecosystem Services
Depending on the population you serve, you also may find the need to partner with other service providers to address non-business service needs that impact your entrepreneurs’ success, such as English language classes, childcare services, banking access, credit building, or immigration advocacy.
There are numerous service delivery models and approaches to generating revenue from services. Reaching out to other kitchens and incubators can be an excellent way to learn more about the considerations in different approaches. Kitchen managers are often generous about sharing their insights and offering tours. The NICK Facebook group can help you connect with kitchens and incubators around the country. InBIA also offers networking opportunities and numerous educational resources for incubators, including an online class on food business incubation.
Some kitchens also provide a host of other programs and services to support their food system, build economic opportunities, and strengthen community connections. These include:
Workforce training programs
Cooking and preserving classes
Food access and security programs
Gleaning and food recovery programs
Health and nutrition classes
Community dinners and pay-what-you-can-afford community cafés
An overview of these services is provided in the programming and special uses section of the Identifying Opportunities chapter of the Shared Kitchen Toolkit. This post is primarily focused on developing services for businesses and producers, but the process outlined can also be used to evaluate other community-focused programs and services.
If you intend to offer services, and especially if you will be counting on revenue from these services, you should research what is already available in your community and online. The goal is to identify gaps in service and look for opportunities to differentiate your offerings from other service providers. This will help you avoid developing redundant services that are not well-utilized. If you are not planning to provide service, you should still research services to develop your resource network for future referrals.
Focus your service research on assessing:
What services are most needed?
What services are offered by other providers and the quality of those services?
How well existing services are meeting needs.
How much interest/demand there is for services.
Cost of services and willingness to pay.
Opportunities for services partnerships.
This will give you the information you need to design compelling service offerings to advance your goals. Time spent researching services is beneficial even if you decide not to offer the services on-site. Knowing what is available to entrepreneurs and community members will enable you to make valuable referrals. Developing your network will also build awareness of your kitchen and help with future marketing.
Service needs are often discovered through your surveys, interviews, and/or focus groups. Interviews with entrepreneurs and producers will reveal common hurdles or pain points that create an opportunity to provide assistance. These discussions also provide insight into their perception of how important a problem is and how valuable they believe a given service would be to them. Entrepreneurs have many competing priorities, and understanding what they value will help you evaluate how likely they are to use different services.
Interviews will also help you understand if there are barriers for certain groups to access services, such as cost, location/transportation, childcare, computer access, or language barriers. It can help to make a list of what you hear and classify the needs into categories so you can more easily compare them to existing services.
Talking to others who work with your target businesses, such as service providers, business banks, licensing departments, and suppliers, can also reveal helpful information about service needs. Make notes of what preferences entrepreneurs have for service delivery, such as one-on-one drop-in versus classroom learning. You can use the Value Proposition Canvas tools to help you focus your inquiry and distill your findings
Remember that entrepreneurs can often benefit from services that they do not yet know they will need. New entrepreneurs sometimes do not know what is required or what they will need in their next stage of growth. For example, an entrepreneur may need the help of a process authority to be able to sell their product to retailers but not know the term for this or where to find that help. Because startups do not always know what to ask for, you will need to rely on your team/advisors’ food industry knowledge to identify additional needs.
Service providers often recognize that businesses just starting out need help navigating licensing requirements, developing a business plan, or managing their finances. There are often a number of organizations providing classes and services focused on the needs of startup businesses in a community. Some of these may focus specifically on food businesses while others cover general business planning. These providers often include:
You should research these organizations to understand what they offer, whether they have food-industry-specific services, and what business stage(s) they focus on. There are often more services for launching a business than there are for scaling a business. In your research, make note of the following:
Whether the service is tailored to the food industry or small businesses in general.
The formats and delivery methods (one-on-one, online, classroom, etc.).
The fee structure and any subsidized rates.
Their funding sources and/or business model.
Reflect on how well these offerings match the needs, values, and delivery preferences you gathered in your research. Sometimes there is an abundance of classes but a lack of one-on-one assistance. Sometimes a mentoring program is a missing link in your entrepreneurial ecosystem. Sometimes the classes are too general and do not address food industry concerns, such as food safety, margins, and packaging. Businesses need technical assistance on a wide array of food industry topics from food testing to food photography, and there are often gaps in these services. Consider the lifecycle needs that businesses will have as they grow past the start-up stage. Market- and growth-oriented services are particularly beneficial if you are aiming to scale businesses to create jobs. Think about how to differentiate and avoid duplication, particularly if you are a nonprofit seeking funding for services.
In your research, try to find out how much the other services are being utilized. Are there several open slots or waiting lists? Entrepreneurs often recognize their need for help more than they act on it because they have many competing priorities. As a result, it is common for businesses to express interest in more services than they will take advantage of. Asking them to rank their interest in different services, either in surveys or interviews, can help clarify their interest.
Asking survey and interview participants why they do not use existing services can give you an indication of whether it is a matter of awareness, time, location, or interest. As mentioned, discerning how important a problem or goal is to them also will give you insight into how likely they are to seek help with it. And, it will influence how likely they are to pay for help.
While some kitchens provide certain services for free, either to improve access or as part of their marketing, many service providers feel that charging a fee, either nominal or market rate, is necessary for entrepreneurs to recognize the value of the service and invest time in it. Use your fee research, insights from other kitchens/incubators, and your interviews and surveys to develop a proposed fee structure. Then gather additional feedback from businesses about their willingness to pay.
Researching service providers in your area will help you start to build a network of referrals and potential service partnerships. If you have identified a strong service or education organization in your area, you might explore establishing a more formal partnership to provide services. This could be a specific pre-incubation course that prepares entrepreneurs for starting in your kitchen, a workshop on how to apply for a business loan, or a set of specialized coaching services for growing businesses.
It is common for kitchens to offer services through a referral network and/or by inviting outside advisors, such as business coaches, lawyers, accountants, or marketing firms into the facility to hold classes or drop-in hours. Many advisors will provide this service free of charge or for a nominal fee because it falls within their mission or their business development/marketing goals. Working with outside advisors or organizations can be a cost-effective way to expand your services. However, remember that coordinating and hosting classes and other events can take time, so you will still need to budget for this. It is important to screen service providers and partners carefully to ensure their services meet your standards. Check referrals of past clients and peers to find out if they provide quality services in a fair and trustworthy manner. Sit in on a class or ask to see presentations before they teach. You may want to write up an agreement with these providers to make your expectations clear.
At the conclusion of your research, you may have identified service gaps you want to fill, exciting new programs you want to develop, or innovative and differentiated ways of delivering services. It also is possible that you will have concluded that you do not want to provide services directly but rather through a partnership with an existing service organization or a referral network. Sketch out your conclusions and service goals. In the next stage of planning, you will use these insights to develop your business model.
The value-added services you provide should align with the needs you discovered in your research phase. To successfully be monetized, there must be a clear need for the services in your market and your clients must value that service. If you are planning a service for which there are already other providers, you will need to have a competitive advantage to succeed. The time you have invested in understanding service needs, existing services, and delivery models will help you craft a distinctive, competitive offering. See the Researching Services section for further guidance. You may be able to differentiate by serving a different customer segment or delivering the service in a superior or more efficient way. Many kitchens add value through partnerships or a trusted referral network, as discussed earlier.
Think carefully about what assets you can bring that will make your services a compelling option for your target businesses. Consider how the services align with the strengths of your organization and the knowledge of your management team. If your team has experience with scaling a product for national distribution, services that leverage that experience and sales network will be a natural fit. If you are a university or organization with food science expertise, focusing on technical services can be an excellent way to leverage those assets. If your team has food production experience, co-packing might be a viable addition.
Think also about organizations you can partner with to create valuable synergies and bring additional expertise to your project. For example, The Hatchery in Chicago is a partnership between a microlender (ACCION), an incubator/ business development program (Industrial Council of Nearwest Chicago), and a community lender/developer (Illinois Facilities Fund).130 This partnership supports a wide array of food business growth services as well as access to microloans, in addition to their new 67,000-square-foot production facility.
Think about how the proposed services align with the goals and outcomes you outlined in the beginning of your planning process. Resist the temptation to veer into new activities that do not serve your ultimate aims. Use the Strategy Screen you created to filter service options. Use the Business Model Canvas to work through the different service options and revenue and funding approaches. This will help you think about what resources and partnerships they would require, and it will keep you focused on refining your value proposition.
There are a variety of ways to generate revenue from services depending on your market and business model. Often, shared kitchens/incubators will use a variety of fee structures for different services. Some of the variations include:
Bundled services. Examples are a certain number of advising hours included with a membership or a standard storage unit provided with a block of hours rented monthly.
Membership-based services. Charging for the opportunity to belong or participate.
Hourly fees. Common for advising/ consulting services.
Monthly fees. Often for optional, ongoing services such as mailboxes or receiving.
Flat rate fees. For specific activities such as product testing services or events.
Volume-based pricing. For co-packing or purchasing discounts.
Percentage or margin. Margin for distribution or a percentage of equity for accelerators, etc.
There also may be opportunities to earn revenue from services provided by others in your space, such as charging a nominal fee for classes that are provided pro bono by lawyers or accountants, or by adding a surcharge to a service fulfilled by an outside party, such as a cleaning company, to account for the costs of arranging that service.
In many cases, kitchens choose not to charge individually for each service they provide. Membership might entitle participants to the kitchen’s referral network and free assistance with the licensing process. Or a rental fee might include cleaning supplies and towel service. It is helpful to detail what is included in bundled services, flat rate, or membership-based services so that clients fully understand the value you are offering them. Also include the intangible benefits, such as networking opportunities that are embedded in the experience you provide to clients.
Mission-driven and nonprofit kitchens may prefer to offer a host of services below-cost in order to provide them to clients unable to pay market rates. They often subsidize these through grants or other market-rate revenue sources. A helpful tool for navigating the revenue side of mission-related services is the Sustainability Matrix Map.
Using the Sustainability Matrix, you can map the mission value and revenue value of different services. This can help you compare options and think about whether some services are important enough to be offered at a loss and subsidized by other revenues. By using a disciplined approach you can ensure that the items you are giving away below market value are the most impactful to your mission and that you are compensating for these with other funds or revenues.
When designing your services and business model, be realistic about what it will cost you to provide the service and whether the service will break even, make money, or need to be subsidized by other revenues. Revenue sources require inputs of time and other resources, and it is easy to overlook or undervalue these costs when planning. Calculate the net income for each service to figure out how a service contributes to your bottom line. Here are a few tips:
First, identify what position(s) will coordinate and/or provide the service.
Determine how much time these staff will dedicate to the activity and calculate that cost in terms of their expected salary or wages, inclusive of costs such as benefits, taxes and insurance. If the owner is the only one involved, calculate an annual salary for yourself to use in this analysis.
Consider any additional time or resources required to support the service (this could be planning, bookkeeping, cleaning, etc.).
Compare the total costs you identified in terms of staffing and other resources with the revenue you estimate gaining from the service to determine the net income gained.
Think about how this compares to other uses of those resources (staff time, space, etc.) and chart the service on your sustainability matrix to help you reflect on whether the service is worth it given your profitability and/or impact goals.
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