Michael Schwartz explains business incubation and the importance of local manufacturing, and offers an inside view of small food and beverage manufacturing in New York City.
Could you give us a brief history of the business?
My original business is BAO Food and Drink. That was started in 2009 and it makes a variety of fermented food and beverages. When we first started BAO, nobody would help us out, but we ended up being relatively successful and moved from our very small space in Hell’s Kitchen to this space of 12,000 square feet in Long Island City, which was way too big for us. Over the first year of business, we met a lot of people who were trying to do the same thing as us and were facing the problems that we had already solved. Since we had this space and had the know-how, we invited a few companies in to help share that knowledge, the space, and obviously the rent cost. That was in 2010. In 2011 we realized that this part of the business model was really successful, so we formed the Organic Food Incubator and actively pursued other companies and had them move in. Now, three years later, we’re working with 55 small food and beverage manufacturers, ranging from natural chewing gum, to juice, to bitters, to organic truffle products. Along the way, we’ve learned from them and they’ve learned from us.
What does the Organic Food Incubator do?
OFI offers a variety of services to people who want to get started in the food and beverage business. We offer educational classes, coaching and consulting, and space rental on both a monthly and a shift basis. We’ve also expanded our services to include small batch co-packing*, which we began about two years ago, and to include the possibility of organic certification. With small batch co-packing, we do really small-run production of artisanal products, usually ranging from 25 to 150 gallons, which is far below what most co-packers will handle.
*The business of processing and packaging other companies’ products to their specifications. These companies can focus on other aspects of their business (such as promotion and distribution) without being weighed down by the responsibilities of production.
Can you describe what a business incubator is?
It depends on what world you’re in. An incubator in the tech world is a cooperative work space. What they do is offer legal, bookkeeping, and concierge services and generally the incubator takes a percentage interest or some kind of equity stake in the businesses using its services. A food incubator offers a range in services from just work space, to equipment, to assistance with labor and employees. We incorporate all of that and we include permanent workspace and contract manufacturing. We’re trying to add a bookkeeping service that we can offer on a shared hourly basis to try to save businesses some cost. We’re also looking at the possibility of doing distribution and then, of course, the end goal is to take an equity stake in some of the businesses that start.
Tell us about your tenants.
Over the course of three years, we’ve had 70 or so companies come through our doors and they use a variety of services: from consulting, to contract manufacturing, to shift rental. Some of them stay on and use this space on a monthly or weekly basis, 20 of our clients are permanent residents, about 18 of them are daily shift users, and the remainder are co-packing clients. We’re starting to attract clients from outside of NYC for the co-packing, which is really great. We have six companies from outside NYC that come into the city to have their products made.
What kind of equipment do you use? Is any of it highly specialized?
I come from the restaurant world and I thought that this was going to be a really easy move: I get a couple stoves, a couple kettles, an oven and I’m in business. It turns out that food manufacturing uses completely different equipment than restaurants do. The machinery needed to package is very specialized. It varies from solid to liquid. And even within the liquid world – whether it’s thin or viscous, whether it’s hot or cold – you could potentially need a different filling machine for each product. So what we’ve tried to do is find solutions and be able to either create or resource machines that are able to do more than one job. I think that’s one of our strengths as a co-packer. It helps that we’re very small, but we have five different types of liquid filling machines, used for a variety of products, and that’s just liquids. If you get into power bars, for example, it’s completely different machinery. If you get into chewing gum, it’s completely different machinery.
Can you describe OFI’s focus on organic and local-centric brands?
One of the main goals of OFI is to promote local food manufacturing and local sales. We really want the companies that work here to be selling in NYC, and maybe the region, but our goal isn’t really to have them go national. By the time they do go national it’s likely time for them to move on to a bigger space. At that point they’re too large for us.
The organic aspect is also very important to us. We encourage companies to get certified organic, however we understand that it is quite costly. We do what we can to help decrease those costs by sharing our license with them. They actually join our license at a reduced rate so that they can save that desperately-needed capital for their manufacturing. We have twelve different companies on our organic license right now.
While we do want people to be certified organic, it’s not mandatory. We do however draw the line at chemicals and additives that we think are not healthy. We don’t allow companies to use high fructose corn syrup in the facility or sodium benzoate. In addition to that, the facility is gluten-free and vegetarian. The main reason for being vegetarian is that the regulation is easier: once you bring meat and fish into a facility you have extra regulations and bigger pest issues, so it’s cleaner being vegetarian. One of our first clients was a gluten-free bakery so we kept the entire facility gluten-free for them and that has helped us attract other gluten-free businesses that have nowhere else to go.
What would you consider some of the biggest challenges of being a business owner in NYC?
Working in NYC has been a very interesting experience. I’ve had two businesses here for five years and for the most part it’s been great. I’ve worked a lot with the NYC Economic Development Corporation and with Made in NYC, which has been an awesome partner. There are a lot of resources available when you have your business in NYC, but they’re not always the easiest to find, so you really have to do your homework to find those resources. The other side of it is that it is very expensive to work here. Here I pay eighteen dollars a square foot for rent and I could go to another town outside of NYC and pay five or eight dollars a square foot. Trucks charge more to deliver here because they have more tolls. So those are issues that we have, but for the most part I love New York, I’ve been here for 25 years, I consider it my home, and I love having my business here.
What should people know, foremost, about OFI?
The key goal of the OFI is to help other small businesses get a leg up, so we do a lot of things that are not necessarily in our interest, economically, to help other businesses get started. I really believe in – and it’s one of our main goals – promoting local food and small food manufacturing. For environmental reasons and for the strength of NYC alone, I think that those are really important. And I think, nationally, eating local food is really important, so anything that I can do and that I can afford to do to help further that goal, I do. Sometimes it hurts my bottom line, but you know what? That’s OK. Because I think that the more growth we have as local manufacturers, the more advantages we’ll start to have. That’s the main thing. OFI is here to help other small businesses get started.
What’s next for OFI?
The OFI started off at 12,000 square feet and after Hurricane Sandy we took another 8,000, so we total 20,000 square feet of space and we’re at the bursting point. We’re approaching the limit of how many people we can help and we have a seemingly endless list of people who call and want to do something. We’re looking at either a second space or a larger space, and we’re looking to increase our co-packing options so that we can service both the companies that are here already and growing, and newer or more mature companies that aren’t quite ready for a full-on, large-scale co-packer. So growth in size and in potential space rental, and in the co-packing aspect of the business are where our main options are right now.