Scale-up series part 4: Profit-driven scaling

In part four of our series supporting startups, we explore how best to implement a scaling strategy that can maximise chances of delivering long-term profitability.

29 January 2025

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Unlike tech startups that can rely on rapid scaling to disrupt untapped markets, alternative proteins face the challenge of competing with well-established, cost-sensitive markets where consumer loyalty to conventional animal products is deeply ingrained. Success in this sector depends not on aggressive growth, but on achieving competitive pricing, superior taste, and seamless integration into existing consumer habits.

Knowing when to scale

Scaling alt proteins requires a profitability-focused approach that accounts for the complexities of penetrating such markets. Moving through each scaling stage, from lab through to full-scale production, dramatically increases the burn rate and reliance on external funding, making timing and resource allocation critical.

To ensure long-term success, a profit-driven scaling approach is needed where the question shifts from “Do I have enough funding to scale?” to “Do I have the pathway and milestones to achieve profitability at full scale?”

Anchoring the long-term production cost

A profit-driven scaling strategy hinges on setting a realistic long-term production cost target. This is the level to which costs must fall to compete with conventional animal-based products and sustain profitability. This target will significantly narrow scale-up options, and by integrating it into every milestone and scaling decision, investing in technologies or facilities that cannot achieve a competitive enough cost structure can be avoided.

Squaring the reality of where costs of production actually have to reach for alt proteins to compete with animal proteins can be a brutal and uncomfortable task. A rigorous cost target must factor in all expenses: cost of goods sold (COGS), overheads, financing, and profit margins—not just for the company, but for every value chain player. Unlike venture capitalists, value chain partners won’t take equity stakes, and they will only buy products for which they can achieve margins equal to or greater than those from incumbent offerings. Assuming B2B customers or end consumers will pay a premium without solid market evidence, or setting an unrealistic cost target in the first place, can lead to fatal missteps.

Setting cost targets

The end-state production cost target must align with the maximum price buyers are willing to pay. For B2C markets, products need to compete directly with the prices of animal-based equivalents. In B2B markets, companies should focus on ‘cost-in-use’—where a product may be more expensive per kilogram than the ingredient it replaces but delivers overall cost savings by reducing or eliminating other expensive inputs due to added functionality.

As Dr. Casey Lippmeier, Senior VP of Innovation of Conagen, explains with the example of sweeteners:

Very often you’ll find that for a given existing incumbent solution to a problem the new solution isn’t just a drop-in…I could use our non-caloric sweeteners as a good example of that. They’re not just a different kind of sugar, they’re a different molecule altogether, and they’re 300 times sweeter than sugar…On a mass basis, these non-caloric sweeteners are more expensive than sugar, but on a cost-in-use basis, they’re much cheaper than sugar, so they actually have advantages over sugar based on the economics alone.

Similarly, alternative fats that encapsulate flavors can reduce the need for costly flavoring components—one of the highest input costs in alternative meat formulations. Cost-in-use advantages not only lower cost targets but also create a more compelling value proposition.”

Dr. Casey Lippmeier, Senior VP of Innovation of Conagen

Winning at every stage

A profit-driven approach can help to navigate one of the most challenging scaling dilemmas: going too fast and scaling the wrong version of the business, or going too slowly and running out of money. A long-term production cost target ensures a focus on profitability at scale, guiding decisions about when and how to leverage interim opportunities to ease the journey to profitability.

Companies need time to achieve the technological breakthroughs that will unlock the long-term production cost they need to reach to succeed in a low-margin market. Premium markets are one way that companies survive while they climb down the cost curve. They represent opportunities to generate smaller-scale profits or validate the business while building capabilities for mass-market production. But a premium play has a high danger of triggering the first risk: going too fast and scaling the wrong version of the business. Premium markets are rare, tend to be niche, and rely on meeting very specific buyer requirements. Betting on these markets can lead to premature scaling, only to find anticipated premiums are not realised. If scale-up hinges on any assumption of premium pricing for any or all customers in the value chain, extensive testing and sampling is essential to validate that enough customers will pay a premium at the level, duration, and scale expected. And even if a premium price can be charged, finding a premium market to scale up in might never create the conditions for the economies of scale needed for broader profitability.

At the same time, focusing exclusively on achieving cost parity in the mass market without considering intermediate opportunities can leave a company stranded. The resources required to clear the high bar of mass-market viability might outpace runway, leading to the second risk: going too slowly and running out of money.

Ultimately, the key is to avoid over-optimising for either side of the spectrum. Companies should consider hybrid approaches. This can look like commercial facilities capable of serving both high-value sub-segments and mass-market demands that share the same technological enablers, or monetising adjacent opportunities like selling culture media formulations for other industries.

The path forward

If you are interested in starting an alternative protein startup, there are many helpful tools on GFI’s global Entrepreneurship webpage.

This is part four in our new Scale-Up series. You may also be interested in part one, exploring key principles for start-ups looking to scale, part two exploring how to find the right target market, and part three on building a force-multiplying team.

Jennifer Morton

Corporate Engagement Manager, GFI APAC

Jennifer works to widen and deepen engagement and partnerships across the alternative protein supply chain.