STEVE INSKEEP, HOST:
Small businesses are often called the backbone of the U.S. economy, with about half the nation's private sector employees. But many start out with a workforce of one, like a solo entrepreneur in Rochester, New York who's trying to compete in the breakfast food market. It's proving to be daunting. Here's Zack Seward of the Upstate New York reporting collaborative, the Innovation Trail.
ZACK SEWARD, BYLINE: Almost every day for years, Ian Szalinski ate muesli cereal for breakfast. Sometimes he'd eat it with milk, sometimes with yogurt or cooked hot like oatmeal. But no matter the brand, Szalinski says it was almost always the same mix of oats, whole grains, raisins and nuts.
IAN SZALINSKI: I just got sick of eating it after years and years. If I had some extra walnuts in the cupboard, I'd throw them in, or some coconut, something like that. But I'd never go out of my way to get extra ingredients just to add to my muesli.
SEWARD: And thus, a business idea was born. The recent college grad formed his own company, bought raw ingredients and rented some space on Rochester's east side. Before long, the 23-year-old Szalinski was, among other things, president of Muesli Fusion.
SZALINSKI: Bagger, marketer, salesman, inventory manager, accounts receivable, you name it.
SEWARD: In six months of sales, Szalinski has had some early success. His muesli is in nearly two-dozen health food stores in four states. But as a one-man operation, he mixes and packages every bag by hand. So far, he's sold about 6,000. And as he refines his product lineup and plans a package redesign, Szalinski is beginning to feel the pinch.
SZALINSKI: It is going to increase my costs right now, which is difficult as a small business, cutting down my margins when I don't even have great margins to begin with. It's certainly difficult. But it's going to give me overall better product, and that's what I need to get to that next level.
LOUISE KRAMER: The challenges are scale, really.
SEWARD: Louise Kramer is the spokeswoman for the National Association for the Specialty Food Trade. She says small food manufacturers like Szalinski have a hard time staying competitive on pricing. With small production runs, ingredients and materials are more expensive. But Kramer says the specialty foods sector is thriving. Sales grew by more than seven percent in 2010, and she says cereal is not a bad place to be.
KRAMER: Consumers eat cereal for breakfast, lunch and dinner and snacks. I have cereal for dinner myself. I'm a guilty party.
SEWARD: For small producers like Szalinski, one option is finding a so-called co-packer that would increase production and help Muesli Fusion find a way into bigger supermarkets.
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UNIDENTIFIED WOMAN: $274.42. Do you have your Shopper's Club?
SEWARD: Szalinski's Holy Grail for now is Wegmans, the much-loved Northeast grocery chain.
JO NATALE: We are in the cereal aisle of Nature's Marketplace.
SEWARD: That's Wegmans' spokeswoman Jo Natale, and she points out that the cereal aisle is one of the more daunting sections of any supermarket. There's a lot of choices. Still, she says the natural and organic food section is the fastest-growing area, company-wide. And a major consideration for landing on Wegmans' shelves is how well you stand out from the crowd.
NATALE: What kind of a marketing plan does the company have? Big or small, you need to let customers know about your product in order to create demand.
SEWARD: Natale says Wegmans has already met with Muesli Fusion, but the store is waiting on that package redesign before making a final call. Beyond the cereal aisle, many entrepreneurs face similar challenges. For small food manufacturers and tech startups alike, small isn't always sustainable, and the path to scaling up is littered with companies that couldn't. For NPR News, I'm Zack Seward in Rochester, New York.