In unprecedented times such as the current COVID-19 pandemic, it is hard not to notice the overall speed at which our world is changing around us. It seems more of an upheaval that has dramatically accelerated us into a new way of living and doing business. In this episode, Elliot Begoun sits down with Bob Burke, principal at Natural Products Consulting, to talk about what we see in the CPG industry, what is going on, and what changes are most likely to stick and are transitory. Bob then answers some questions from the audience on going fully plant-based, starting D2C programs, managing success, developing a channel strategy, managing PR on a limited budget, expanding a new product line, and more. These things may not be able to take away the uncertainty of our current times, but what Elliot and Bob can do is provide you the support to see the challenges through. Don’t miss out on this great conversation.

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Keeping Up With The Changes In The CPG Industry With Bob Burke

I’m joined by the venerable Bob Burke. He’s also known as the industry’s Yoda.

I was going to say, “Happy, I am.” Except that would imply that I believed that and I didn’t want to go there. Venerable equals old.

We both qualify for that. We’re going to talk about all things that we see in the industry. I have questions for you. We want to talk to you all about what we’re seeing in the industry, what’s going on, and what we see is seed changes that are going to stick, what we see that is transitory, and to have fun and talk a little bit. For those of you who don’t know Bob, which is shocking. I don’t know that anyone possibly doesn’t know Bob Burke. Bob, why don’t you give everybody a little bit of an overview of you, your background, and what you do?

Thanks, Elliott. I appreciate being here. Before I start, they’re still taking registrations for the Hirschberg Entrepreneurship Institute. Anyone who’s reading this who hasn’t registered, it’s extremely affordable and of high value in terms of lessons, inspiration, great storytelling as well as all the interaction with the investors and the people who are pitching. That’s a great thing for anyone who’s part of your community here. On me, briefly, I’ve been consulting for years, mostly around bringing natural organic and specialty products to market across all classes of trade and all channels. I work with companies across many sizes and categories. I also, along the way, have done a how-to guide reference book called the Natural Products Field Manual, soon to be in its ninth edition.

I also put on seminars a few times a year. I’ve been doing this for a long time. We do a two-day sales seminar in Boston and then alternating San Francisco and Chicago in the spring, which went by the wayside. It’s also joined by a seminar on raising capital. For both of these, we have a terrific slate of speakers and experts. We also cover a lot of ground. We’ve been evolving these as the industries evolved. Part of the value, which seems like a foreign concept, is the interpersonal networking that goes on and all the magic that happens by getting a bunch of interesting people together in one place. I also am privileged to serve on a number of boards and advisory boards. For me, that’s a source of constant lifelong learning and stretching myself into new areas and having the great, good fortune to be associated with some terrific companies. That’s a little bit of my background.

Bob and me like to spend quite a bit of time, but I’ll start it off with a question for Bob and me to discuss. What are you seeing that has been a surprising outcome of the strange period that we’re in?

That’s such a good question that I wish you asked me before so I could give it some thought. Some of the surprises are the overall speed at which our world is changing around us. There’s a prevailing sentiment out there that a lot of things that were in motion anyway have been dramatically accelerated as we’ve gone through this new way of living. For many of us, whether we’re living in an area of the country that’s under lockdown, whether people are stepping up and doing far more eComm, home delivery, going into a supermarket with some trepidation and being cloth in masks, gloves and keeping our distance and all that. The speed at which things have upended our lives, that’s something that’s still hard to digest. The things that we saw unfold from that, some amount of panic buying and pantry loading. Some amount of getting used to homeschooling for people with young kids, activities like baking, cooking, and mixology, going to whole new levels.

Some of you know I’m on the board of King Arthur Flour. They’re having a period of time like you would never have believed where baking has replaced baseball as America’s pastime. As far as surprises, I’m struggling to come up with something that’s absolutely unforeseen. What I’m gratified by is the outpouring of support I’ve seen in the industry. I can’t say that was a shocker because this was a special industry and I’m referring broadly to natural, specialty, smaller companies. The community of entrepreneurs and advisors, investors, and others that have come together, such as a lot of the work you’ve done in terms of hosting events like this. Also, the articles and blogs you’ve put out where it’s coalescing a lot of the thinking of, “How do we navigate through this? How do we think about one eye on the here and now and one eye on where we are when we come out of this?” That’s been one of the heartwarming things that I’ve been able to witness and see firsthand.

I agree. I don’t feel like there’s anything that has shocked me in this. I feel like we had been looking through a sheer veil and not seeing things as clearly. This industry has shown itself for what it is, which is innovative, willing to rally around its founders, its entrepreneurs. It has been affirmational that we stumbled into the right business that we are here where we are. Not that it’s easy. You and I both talked to people every day who are struggling or who are dealing with a lot of anxiety and worries about their business today or their business tomorrow. There are lots of people willing to listen and to help and that’s all you can ask for.

We can’t take away the uncertainty, but what we can do is try to be there in support of that and sit through it with them. You and I both have the rare opportunity of looking under the hood of a lot of businesses. We see the good, the bad, and the ugly. If you were to advise any of the people reading about things that they should be doing, looking at their business, and asking themselves hard questions, what would you have them focused on?

Perhaps in no particular order, this is reminding me of Samuel Johnson, who said, “For the man who’s about to be hanged the next morning, it concentrates the mind tremendously.” There are a lot of things that are happening around us where we’re all busy, consumed with our daily lives, getting through emails, calls, meetings, activities, and things like this. Many companies are at a point where there’s absolutely no room and no tolerance for dithering or for putting off things that might’ve been good things to do but are a matter of urgency.

This might start with the reality of cash management and an intense focus on knowing where you stand and then doing every possible thing you can do to you stretch out your cash, depending on what your resources are at the time. There’s been a lot written about it. I know you’ve put out some good information on that on shortening that cash conversion cycle. Get whatever line of credit, if you have one, and download it as quickly as possible. Seeking out whatever’s available in the way of a debt financing, stretching suppliers, cutting out fixed costs. There’s the whole topic of cash management, which is absolutely important and reality no matter where the business is at.

The second is streamlining. One obvious place to start is being a little bit harsh, cold-blooded, and unsentimental about cutting underperforming items and skews in your line thinking in terms of 80/20, both in terms of what you’re producing and shipping. Things that might’ve been there and coming along, you got to take a scalpel to. I’m not going from being harsh and cold-blooded to being sociopathic. That might apply to some people too. We all want to be there for our teams. We want to provide good leadership, empathy, understanding, etc. A lot of companies will have people that might have been underperforming. It wasn’t urgent, but now it is.

If push comes to shove and your back is against the wall and it’s a question of whether you’re going to make it or not, that’s when everybody is forced to make some hard choices. That might mean trimming the staff, especially the ones that are easier decisions. Those are some of the big ones. Money, people, product, would be key things. You might have had a little bit of myopia in terms of being focused on getting into bricks and mortar. Anyone who can be doing eComm must be doing eComm. Anyone who’s thinking about direct-to-consumer, understand what you might be getting yourself into. A lot of people underestimate the investments around driving people to your site, digital marketing fulfillment, etc. Understand the full pro forma P&L before you go fully into it.

Almost everyone should be on Amazon and Thrive. Depending on your category, there’s plenty of special websites out there. When you think ahead to what’s likely to stick around post-COVID, whether you think that’s 3, 6 months, a year or longer out, it’s certainly going to be elevated eCommerce, direct-to-consumer, curbside pickup, and home delivery. Things like that are going to be moved up in a step fashion from where they are prior to this.

If you haven’t registered to Hirschberg Entrepreneurship Institute, do it because to Bob’s point, we stood on this soapbox together for a long time and that is the importance of cash or cashflow and cash management. If nothing else, the first hour where Andy and Gary go through their whole talk and outline about how to do that is worth the price tenfold of being there. I would highly recommend it.

They’re patented, fabled to Cassius King of which you could grind in.

I was going to say, but I’m going to give them a break. I want to add two things to what you said in there. There are two kinds of mantras that I would encourage people to use. One is to spend the time discerning the difference between what is interesting and what is important. I had an entrepreneur tell me. He is one of the early inventors of video conferencing. It was a codex machine and they were presenting it in a VC on Sand Hill Road. This was years ago. It was a big, huge thing that put out a lot of BTUs.

One of the associates with the funds said, “We should cover this. It looks ugly. Let’s cover the base of it with a tablecloth.” His partner is in Boston. He’s in Palo Alto. They do this video conference and it works, but the BTUs heat the tablecloth, and the tablecloth catches on fire and puts a big burn mark in the rug. He’s devastated about it and so forth. He kept saying, “I can’t believe we almost burned the office down.” His partner kept saying, “Yes but we did the first-ever coast-to-coast video conferencing.” That’s the difference between what’s interesting and what’s important.

I would invite all of the people reading this to look up the Eisenhower method and that is what’s urgent and what’s important. It’s a simple 2×2 way of making decisions and setting priorities. It’s an extension of what you’ve been saying.

I couldn’t agree more. The other quick one is the difference between being kind and being nice. This comes back to your skews and your people. There is a discernible difference between what is kind and what is nice. We’ve got some questions, this one is from Mark, “What’s the biggest success story that you’ve been involved with and the three reasons why that company was successful, Mr. Burke?”

I have been involved in hundreds, if not more companies at some level or another. The one that I was involved with, I would say one of the longest periods besides Stonyfield. One thing I left out of my background prior to being unemployed all these years, I ran marketing and sales at Stonyfield and left on happy, friendly, gracious terms. I still do a lot with Gary Hirshberg. I came back ten years later. I was on the board for five years. Stonyfield has been a tremendous success. One of them is Orgain. For those of you who aren’t familiar, it was founded by Dr. Andrew Abraham. He’s a remarkable human being who was both an MD and a cancer survivor. As a young man, a teenager, he was going through his treatment and was appalled at what the medical industry was giving people who are sick. Things like Boost, Ensure, it might’ve been filled with corn syrup and corn oil. It was calories with a bunch of synthetic vitamins. He came up with an amazing product.

I had the good fortune of working with him pre-revenue. I wrote his plan. I worked with him through startup and launch. I helped connect him to some brokers and contract sales and other resources. We stayed friends. Years ago, I joined his board and was on his board until the end of 2019. We had an exit of sorts. He had built this amazing company. Elliot, one of your mantras, because I hang on every word you say is, “Capital efficiency is the new velocity.” Andrew was able to build a significant cashflow positive business by being extraordinarily lean. Part of it is a smart guy, focused, driven, yet a wonderful family man. It wasn’t like he’s living in a cave somewhere.

He had an amazing work ethic. He was able to build a meaningful revenue, cash positive with him and an assistant and a sales guy and slowly build out the team. He’s deliberate about where he spent money. Not being penny-wise and not being shortsighted, but being laser-focused. That was a key part of his success early on and also a remarkable product. He looked at what was out there. He had a set of key principles and guardrails around. This was going to be organic first and foremost and it was going to be the absolute best product out there in terms of quality of protein, an excellent amount of servings of fruits and vegetables. Every ingredient that went in there was of the highest integrity. They delivered on their brand promise to the consumer.

The third thing was opportunistic in the sense of a quick innovation cycle. Andrew and his team were tuned in to where the market was going. They could respond quickly. It was the, “Innovate quickly, fail fast if necessary.” They were able to pivot effectively into new areas and capitalize on trends. They started out as a ready-to-drink protein shake company. We’re able to quickly move into powders. As plant-based became a thing, they were able to move into plant-based while keeping their dairy-based products. Their whey-based protein, which appeals to a certain segment of consumers and then built out a solid team. When you’re a one-man operator or a founder with a small team, you’re going to have limitations. If you can build a solid team around you, you’re going to go much further, much more effectively, and that’s what he did.

First of all, Andrew is one of the nicest guys. If anyone wants a case study for what to do right, it also starts with a good, decent human being who’s doing something that they’re passionate about doing and to distill it. It’s about being nimble. You’re always looking for the white space of the problem and being nimble in the way you construct your organization, the way you innovate, and all of those things. It’s about being capital efficient and it’s about being resilient. You have to be able to withstand things. Bob doesn’t give himself enough credit. If you’re a founder, it’s surrounding yourself with good people who think differently than you do and finding that balance between being strong-willed and malleable. It is a balance between both. You need to find where that sweet spot is.

I want to add one thing. For everyone, do yourself a favor and go to the Orgain website or on YouTube. There’s a short video on Andrew’s Story. I’ve seen it a number of times. It never fails to inspire me. I would strongly recommend everybody checking that out.

I would agree. Jenny asked a question around plant-base, “Do you think brands need to be fully plant-based if that’s one of their call-outs or can they put their toe in both pools?”

Orgain is a living proof. A significant part of their sales are still dairy-based, meaning whey protein. A significant part of their business is plant-based as well. They have both offerings out on the market. Stonyfield is still, obviously, mostly an organic dairy company and yet also offers some plant-based because of where that market is moving. I don’t think it’s about purity tests. One of the things that we’ve seen because we’ve been at this for a while, vegan and plant-based might be used interchangeably by some people. Vegan is a little more politically charged because it embodies a lot about the ethical treatment of animals, cruelty, and things like that, whereas plant-based tends to be a little more imbued with health, whole foods, a little bit of sustainability. In terms of some of the semantics and some of the nuances of what it means, it shifts a little bit that way. You can offer plant-based products and either dairy or animal-based products as well and not have to choose one over the other.

It depends on what you put your stake in there. I looked at the difference between plant-based and vegan. Plant-based is a lifestyle and vegan is a self-identity. That doesn’t mean one’s right or wrong. It’s a different perspective. If your stake in the ground is that you’re a vegan company, then you need to stay completely plant-based. If you’re a company that says, “We create products that meet different lifestyles.” One may be plant-based, one may be keto, one may be paleo, whatever we’re going to call it, that’s fine too. For companies that are perishable and looking at D2C as a needed distribution channel, where pre-COVID, they may have been retailed first. What advice do you have on starting D2C programs that are losing money out of the gate?

We’re not saying do D2C so that you can go off the learning curve. In the same breadth of saying, “You have to be mindful about conserving cash and stretching out your runway, etc.” Do your homework first. Know what you’re getting yourself into. Fully understand the economics. Understand what the fulfillment costs are likely to be. What’s that minimum order size where it makes sense? Does it make sense for people to order in those quantities? Can you connect all the dots? There are people out there who do perishable fulfillment. One is called Go Perishable, that I’ve come across and there are likely others.

When we had Katie Paul from KeHE on the Hirshberg Institute on a call, she mentioned how KaHE is doing a lot of direct-to-consumer as it thrives. They’re doing fulfillment for companies as well as direct-to-retail that way. I would say understand what you’re getting yourself into and make sure it works. One of the people doing it notably granted it’s a gift business is Jeni’s Splendid Ice Creams. They’re shipping super-premium or whatever comes after super-premium and after artisanal like Fabergé eggs. They’re shipping that with dry ice in coolers to people’s homes at a price that enough people are buying where it’s a good part of their business. They figured out that whatever the retailer was making, maybe 40%, whatever a distributor is making, 15% to 25% or 30%, they were putting that into fulfillment and they could make that work for consumers.

Hint Water is a significant business and that’s shipping water, which is in the grand scheme of things, lower value, expensive, cumbersome to ship, but their economics work. Not without doing a lot of homework and understanding it without plunging in. You may find that D2C doesn’t work right now for what we have. Maybe people don’t want to buy $100 or whatever that minimum purchase has to be for that particular category. We’re going to try to see what we can do on Thrive, Amazon, Amazon Fresh, and FreshDirect as alternative ways of reaching the consumers without shipping direct to their homes ourselves.

To add to that a couple of things, one is that know your waterfall. This goes for everything. We talked about cashflows. To me, the other important one is waterfalls. Take that price and make sure you take that retail price you intend to sell to the consumer and back out all of the costs that go in. The other thing around D2C, especially around perishable, is it’s all about network design. It’s all about how you design your fulfillment. If you’re going to tackle it nationally, you’re going to need multiple 3PL locations that can get to 90%, 95% of the population within the two-days ground.

The other thing that I would say is that I would not look at it transactionally, transaction by transaction. I would look at the lifetime value of what you expect a customer to be. If you don’t have a clear path to profitability over that lifetime value, then you don’t have a proposition that’s going to work. It’s okay to invest in that first order, the acquisition. It’s okay to be upside down. If you’re not certain that if you do that with your consumer, over their lifetime of purchasing from you online that it’s going to result in a profitable relationship, then there’s no reason to do that. One last thing and that is, the higher that threshold of costs that work, don’t freak out about that. Know that you’re going to have to think of other ways to drive discovery. If the trial is dependent on spending $60, $70, that’s hard to get people to make their first purchase of something like that. Using other types of outlets, locations, giveaways, and collaborations are good.

I’m a big believer that D2C, both ambient and perishable, can work and can work profitably. It’s okay to invest in portions but without a clear path to profitability, it doesn’t make sense. Let’s go to the Q and A, “Bob, Elliot, all my compassion and empathy for our brothers and sisters that are challenged and not to be insensitive, harsh, and cold-blooded. For those companies having exponential growth, how do you manage that success and leverage that forward?”

Sometimes exponential and unexpected growth brings the same problems as the opposite. It’s having as much understanding and control over your supply chain as possible. It’s not turning on and off a faucet. It’s ramping it up and ramping it down as needed. It’s thinking about if you do have this unexpected surge in demand, how might you capitalize on it? You’re getting a lot of trials, whether you’re a well-established brand or an early-stage brand. How do you help make that stick? Can you turn on your digital marketing, social media storytelling to embellish and share what your brand stands for and what it’s all about, your values, what passions brought these products to market? Get that out there, so some of the sticks afterwards.

I’ve been involved as a board member with King Arthur Flour. It’s hard to imagine a more mature category that is growing at a crazy 60% to 7% growth rates. Joshua and I both have some familiarity with the canned seafood business. Needless to say, that’s going through the roof as well. I’d say most of the companies I’m involved with as a board member or advisor are dealing far more with growth than the opposite. They’re all thinking about, how to make hay while the sun shines and try to get a bigger base of consumers to build their franchise so that after this subsides, which hopefully it does sooner than later, they have a much bigger business.

I would say also, it’s about being appreciative for what it is and communicating that appreciation. Also being wary of what it could mean and make sure you understand the potential unintended consequences of this upside. A lot of people are saying there’s going to be a downside. I don’t see that happening personally. There’s going to be a leveling off and a slowing down. For quite some time, in-home consumption is going to tip the scale more so than out of home and that bodes well. I’m going to ask us both a question. You and I have a unique opportunity of working with quite a few brands that are foreign to the US or coming into the US. What are you seeing that their view differs from that of an entrepreneur that is a domestic entrepreneur here?

To put it in context, you and I are both advisors to New Zealand Trade and Enterprise. I’ve been working with them for quite a long time. I’ve also been working with Bord Bia, the Irish food board. A number of Canadian agencies like the Québec delegation and Agrifoods Canada in various consulates. I’ve worked with a number of larger companies coming into the US from Finland, Ireland, and Vietnam, and other countries. I would start by saying one of the things with domestic producers is a little bit of moderating expectations. The streets of New York are not paved with gold. Even though this is a massive market, it’s hundreds of mini-markets. Not just the 50 States, but Southern California, Northern California. LA is different than Orange County, which is different than San Diego and so on. It’s helping them understand these micro markets.

The other big thing that is an expectation that you have to disabuse in many of the companies, in most other countries, they find a partner who is their exclusive partner for entering and scaling the business here. It could be their importer of record. It could be someone who’s buying that container of product, warehousing it. It has a sales team, works with other distributors, sells to retail. It’s the one-stop-shop, which isn’t how it is here. On the positive side with almost all of them, with domestic companies, I’ll encourage them to start online, especially if they’re an ambient product. I will almost always advise them to pilot in a region. They can validate all the assumptions they had coming in about having the right product mix, configuration, price point, category management story, stories that are through the trade and then the consumer and things like that before they grow. To summarize, getting them to narrow their focus and moderate their expectations. Be thoughtful about narrow, deep, and having success in a region or a channel before they start expanding too fast, which is pretty much the exact advice I give to domestic companies as well.

Like you, we see Bransom all over. The thing that I noticed, in particular, is the first point you made. They look at the US coming in, few of them. We have brands from New Zealand, Australia, Malaysia, and Greece. They come in with the understanding that there are a lot of independent markets within this country. They don’t look at it as one massive market or one massive acquisition target. Coming from New Zealand, for example, looking at California, California is nearly ten times the population of New Zealand. Most of those Kiwi brands would be thrilled to dominate California. A lot of our domestic brands, they start in California and two weeks later, they want to be national. I find that interesting. Here’s a great question from Stephanie, this one will be fun for us, “For a brand that is less than one year old, can you speak to the best way to go about developing a comprehensive channel strategy?”

I would build on what I said about piloting in a region. When it comes to a channel strategy, I’ll repeat what I said that if you can be on Amazon and some other eComm platforms, almost everybody should be doing that, especially shelf-stable items. As you get press, as you get some engagement with consumers, almost anyone can find you online. They’re not mutually exclusive. Meaning you can set yourself up on Amazon. Get some help to do it properly. We have a friend, Betsy McGinn, who’s not only a consultant but a co-author. She wrote a book called The Amazon Roadmap, $18 on Amazon. Good fundamental understanding for everyone. You can be doing that while you pilot in a region.

When it comes to a channel strategy, for most of the people we tend to interact with, they tend to start out in the natural and specialty channel. These retailers tend to less expensive, more forgiving, and a good match with the consumer. For most people, I would suggest starting in your backyard where you’ve got visibility in terms of what’s happening, finger on the pulse, unfiltered feedback. In the days before COVID-19, I would encourage you to do in-store demos and tastings yourselves. You get that feedback from consumers.

A channel strategy is essentially making lists. It’s a bottom-up plan. If you’re in Metro New York, you’re saying, “I would like to get into the following tastemaker accounts,” whether it’s Citarella, Gourmet Garage, Fairways, Zabar’s, and certainly Whole Foods if you can. West Side Market, University Market, or Integral Yoga. The usual suspects where you start building out that skeletal plan, which is a simple number of stores times number of skews times turns will be your revenue line. You can start to map out the timing and sequencing of customers. Usually, start with this premium high-volume independence, small chains before you start to increase the level of investment and risk of being wrong by going into some of the larger chain accounts.

The only thing that I would add to that is, in all likelihood, what you’ve created here in your product and your brand is solving a problem or meeting an unfilled need. Your first and foremost thing to do as you build your channel strategy is to think about how you drive trial, how you drive discovery of that. One of the things to do there is to think about how you get as close as you possibly can to where that problem is most pronounced or that need most acute. You start solving for that and building a route to that market. Retail may be one, eComm maybe another. One of the things that I’m encouraging brands to think differently is about the way they define influencers.

If you’re a health and wellness product, an influencer could be a yoga teacher in a community who has a strong following. Having your product available at his or her studio is going to build a passionate tribe of followers who then will walk into their store and want to find it on shelf. I would encourage you to think about where that problem is most pronounced and where that need most acute and begin to map it that way and then do exactly what Bob said. Jenny had a question for us, “Any thoughts and insights into managing PR on a limited budget with multiple new outlets picking up our story, and how best to capitalize on that coverage?

Their consumer marketing is essentially storytelling in the form of PR, social media, some digital, etc. A lot of it is within your reach. Meaning, if you can’t afford to go out and hire a PR firm who’s working on a retainer. You can certainly be putting together letters with info in your company, sending samples to local food editors for example. You want to get the echo chamber going, meaning that if you get something on Instagram, you’re reposting it on Twitter, YouTube, Facebook, and Pinterest. You want to do all those things within your reach. Certainly, getting part-time help, whether it’s the proverbial Millennial, college student, someone else who’s putting out good quality content on a regular steady basis with your oversight, with your guidance as a founder. It’s in your voice and it’s representing your brand and telling your story the way you want to do that. That’s within everyone’s reach. If you can afford to get some expertise, there are a lot of good PR firms out there who can amplify this in a strategic way. By all means, you should be doing as much as you can all the time.

Don’t forget little hacks in our industry and PR too, because influencing the buyers and the people in the industry. Also, don’t forget one of the great platforms for PR is your own LinkedIn profile. Your buyers are there. Some of your consumers are there. Your potential investors are there. Make sure that you’re doing that in terms of scrappy. Everything else you said is dead on.

For those of you reading this, you may be familiar already. If you’re getting the BevNET and Nosh daily newsletter, it’ll have something like, “News at Nosh.com.” They’re good about publicizing your news, your press releases, so does Specialty Food News. The Specialty Food Association puts on the fancy food shows and New Hope as well. I agree with Elliot that you want to build up your awareness among buyers, brokers, distributors, and of course investors who are getting these same newsletters.

That dovetails into this question from Gregory, “In terms of companies raising capital, I’ve heard a lot of talk about valuations being moved lower because of today’s climate. The logic behind it is that investors are taking more risk in an unknown environment given COVID. My slight pause on this subject is that it’s self-serving and in favor of investors and doesn’t gel with the notion that generally, CPG companies are seeing a push in sales and velocity overall.”

If you think in the big picture at a high level, investors are boiling a lot of this down to two fundamental questions. Will the business scale? How can they reduce risk? There’s the other fundamental, what are the margins? What is the velocity? How remarkable is the product? What’s the team like? Has there been proof of concept in different classes of trade? The whole COVID-19, the likely recession we’re going to be going into maybe a year or two years or longer. Sadly, the upwards of perhaps 30 million people unemployed, and all the implications of that are big unknowns.

The era of frothy valuations, high multiples of sales, we’re probably a bit past that. People out there raising money need to be a little more realistic about the environment. Also, the whole velocity metric, which was a classic proof of concept, is highly distorted going in both directions. If you’re a canned soup company, you’re getting record sales you haven’t seen in ten years. It doesn’t mean you’re going to scale and be a $50 million or $100 million company that’s going to sell at rational multiple years from now.

Likewise, if you’re in a category that hasn’t seen the same lift. I’ve heard things like energy bars and confection, etc. They might be growing because of the sheer shift from away from home to at home, but they’re not getting that 60%, 70% lift. That might also be distorted in an unfair way, which is hard for investors to make sense out of it. I don’t think you need to throw in the towel and sit out. It means you might have to temper expectations around valuation in terms and be a little more flexible if you’re looking to raise money. Any process, part of it is the intrinsic value of what you’re offering, all those key things I mentioned.

It’s also having a process where you’ve got multiple potential investors at the table. You’re not negotiating with one party. If you’ve got some options, you’re going to make a better deal. That’s basic no matter what you’re doing in business. I do think you can raise money. I do think you’re going to have to temper expectations around valuation and terms. The more interest you have by talking to more people, the more likely you’re going to cut a better deal as an entrepreneur.

I’ll add to that a few things. First of all, you got to remember they’re capitalists. When there’s an opportunity to use something that is improving their ability to get their returns increased, they’re going to do that. Understand that there’s nothing wrong with that. Also, I would say, especially savvy investors in this space, it is risk capital. The difference is that that savvy investors in this space feel that their participation can help to de-risk that investment. What they can’t do is de-risk the uncertainty that’s around the marketplace. They have no influence over that. That does have an increased impact in the level of uncertainty of any investment. Also, some tactical advice, that would be is, raise as little as you can. The more you can prove, the more that you can do and be dogged in your pursuit of capital efficiency, the better. Raise the capital that you need, not the capital that you want.

I wrote an article about this, a dark humor, calling it an apocalypse route. It’s saying, “You’ve got to put some uncertainty premiums into what you anticipate.” You can start that dialogue with investors by introducing some and saying, “I recognize the uncertainty in the market and I recognize that I have to differentiate my appeal to you from where I would have months ago.” You can do things that have a limited impact to your marginal dilution but have a big impact into the interest level of investors. Talk to the people who are advising you there and get some good suggestions. We have a question from Jeff, “What are your thoughts about product expansion and a new product line? Should a company stick close to their original mission statement or change with new opportunities? For example, we make plant-based coffee creamers. We are exploring an RTD coffee and an RTD tea expansion line. With small brands, how important is it to stay in your swim lane?”

I would start off by saying, things that you’re doing during the pandemic if resources of scarce, are different than what you might be doing as we begin to come out of this and/or if you have more resources. One of our mutual friends is Andy Whitman. Andy is the Founder of a small fund called 2X Consumer Capital Growth Partners. He’s fond of using the term platformization. In other words, where a lot of the value creation comes in is not selling items but creating a platform. What does your brand stand for? Where do you have permission to take it? In this example, if the brand is credible as a plant-based coffee creamer and it also makes sense to extend into other ready to drink products, coffee, tea, and other beverages. It means more growth, more expansion that allows a potential investor or acquirer to see where this can go.

Some extreme examples are Annie’s Homegrown, where they didn’t say, “We’re a mac and cheese company.” They said, “We’re healthy foods for kids.” They might be in a dozen categories from cheddar bunnies to fruit snacks to many others. Even if you’re not doing it but if you’re talking to investors or acquirers about your vision for innovation and expansion into other categories, both adjacent and maybe two-steps removed, as long as they make sense and they’re not a bridge too far. I do think it’s a good idea in the context of what resources you have, which include bandwidth, time, focus, attention, as well as financial resources.

I’m a proponent of the platform too, where it makes sense in the right adjacency. Specific to RTD, note that that’s probably one of the most competitive and expensive categories. Be mindful of that. There are some great brands that have great opportunities to take small platform stances. I would also say that you have to make sure that you’re confident and you know how to deliver consumers to your products first. If you have your RTD coffee creamer, make sure you know how to get consumers to buy your plant-based coffee creamer. You can repeat that model in other categories. If you’re trying to sell for both at the same time, it gets expensive. I got a couple more questions. This one is from an anonymous attendee and it starts as, “Great job as usual.” It’s one of our wives. “Do you have any additional tactics perhaps out-of-the-box for gaining trial and awareness for local retail launch? We’re launching whole foods in 30 stores this summer, assuming no in-store demos and limited opportunities to sample overall perishables and single serve.”

One thing I would say that I would consider is, even though you’re not able to do in-store demos like we’ve done in the past. One thing I would look into is, can you give a product to the people in the stores? If you’re going into 30 whole foods and assuming everybody’s okay with this, it’s being done in a hygienic and sanitary way, you’re giving packaged, sealed products to people. There’s been much greater awareness, appreciation and gratitude for the people who are working long hours and under risky conditions for their health and a lot of stress, etc. Express some gratitude, offer them some product as a way of saying, “Thanks for the great work you’re doing. By the way, we’re a new supplier. We’d love for you to enjoy some of this.” That may pay dividends way in excess of whatever you gave away in product.

If it means getting a better shelf position, whether it’s getting a secondary display, depending on the product and where it’s going. That’s something I would consider doing right away. You can also explore whether you’re able to do any shelf talker, any in-store violator, whatever you want to call it, to bring extra attention there. Even if you said it was perishable, a lot of stores might have a little perishable end cap and see if there’s a way of shoehorning your way into that maybe through charm and charisma and not because you’re running a promotion at the time to get that extra visibility. Of course, whatever you can do in the way of local targeted PR is important.

Getting back to the in-store, the employees in the store can become not only great ambassadors but great consumers. They’re in the store every day. That’s usually where they shop. One of the things you might want to consider too in terms of making that a little bit more scalable is sending each store manager, store director, coupons. Have made up VIP coupons to give to their employees as a thank you for being on the front lines and an opportunity to get one of your products. One it’s a nice gesture and two, it’s a great way to build ambassadors and consumers.

The other is to do what we talked about a little bit before, which is geotarget some potential brick and mortar influencer locations once they open up around there. That could be yoga studios and things along those lines. Try to get them some product and then let it be known that it’s there. To me, the lowest hanging fruit is right with the people working in that store every day. One last question from Vanessa, “How do you advise and educate on the need for digital marketing for the foreign brands you work with where this is less important than their home countries, possibly due to smaller competition/younger market, etc.?”

Digital marketing is often used to drive people to your site if you’re doing direct-to-consumer or driving them to Amazon, Thrive and other eComm platforms. If the goal is to build sales and I know this is fundamental but with every investment you make, it always should have a purpose. It should also have an objective. If your success is based on sales metrics, be highly disciplined about what results you’re getting for the investments you’re making. Whether its email marketing, Facebook, Instagram or something else, know what that return on ad spend is. Know how changing and altering your message is getting different results. You don’t go in and throw a bunch of money at it. You don’t go in and abdicate to an agency. You need to be highly disciplined about what results we’re looking for. Constantly test, fail, and learn to keep honing and refining both the message and the vehicle to reach consumers so you’re doing it in the most efficient and effective way possible.

I’ll add to that as a reminder to everybody that branding is the activity of aligning what people believe about your products with what you want them to believe about your products. That requires building a relationship and building a two-way form of communication. That’s what social media does. It’s not one way. It’s not you pushing your message out. It’s you engaging your consumer in a conversation. First of all, if you’re going to do social marketing in social media, make sure that you do it with that mindset that you’re going to engage them in a two-way conversation. Respond to their comments. Talk to them and support them on their pages and do that type of thing.

I don’t think it’s market-specific. It may not be as well-known or well thought of in other countries. Having a mechanism to connect to your consumer and build a relationship as a brand is important because people buy illogically. It’s not Mr. Spock that’s going shopping. It’s people who carry with them emotionality and make decisions irrationally. They make decisions based on things they like and they want to associate it with them. They bring them comfort. They feel like they would’ve bought a friend. That should be your mindset, developing a friendship with your consumers. Any last words of Yoda-like wisdom for those reading?

As we go through this, I’m constantly mindful and reminded of the adage of, “Adversity doesn’t build character. It reveals character.” All of us thinking about how we step up, how we behave, act during this time is going to be long remembered. That goes not only as us as individuals but brands, companies, reputation, etc. Empathy is important. Positive, constructive actions, knowing there are a lot of people out there who are frankly suffering both from health and loss but also economic anxiety. Be mindful of that all the time.

I feel like we had a universal gut punch. For those of us who are on the side of good fortune of being lucky. For anyone reading, I feel it’s incumbent upon us as individuals to not waste that opportunity to do some good with it in any way we can. I would encourage that. I call them karmic boomerangs. Get them out there. In all seriousness, because I love to give you crap, Bob. You walk that walk every day. You are one of the industry’s great givers of time and knowledge. Thank you for being a part of this.

Thanks for having me.

We thought we’d be done early and we could catch up, but we can’t. We got to jump to another call. I will ping you shortly. If not, hopefully, I’ll see all of you virtually at Hirshberg Entrepreneurship Institute. If you haven’t registered, do it. Thanks so much, Bob.

Thanks. I appreciate it.

Important Links

• Bob Burke

• Hirschberg Entrepreneurship Institute

• Natural Products Field Manual

• King Arthur Flour

• Stonyfield

• Orgain

• Andrew’s story – YouTube video

• Go Perishable

• KeHE

• Jeni’s Splendid Ice Creams

• Hint Water

• New Zealand Trade and Enterprise

• Bord Bia

• The Amazon Roadmap

• BevNET

• Nosh.com

• Specialty Food Association

• New Hope

• 2X Consumer Capital Growth Partners

• Annie’s Homegrown

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