More than anything, the COVID-19 pandemic has taught us to recognize that we are what we eat, that the earth is not our subsidiary, and that policy matters to protect our health and family. As such, we become more conscious of the chemicals that surround our system, our home, and our environment. Talking about the impacts of COVID-19 and the need for a cleaner world, Elliot Begoun sits down with none other than Gary Hirshberg, the CEO of Stonyfield Farm—the world’s leading organic yogurt producer. Gary discusses the major shift that is happening in commerce, where values-driven businesses, especially those that people can trust and promote organic and healthy eating, are becoming more visible than ever. He then answers some of the questions in the organic business world about accelerating growth, meeting consumers, getting funding, doing consumer research, and more.

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Listen to the podcast here

Running And Growing An Organic Business With Gary Hirshberg

A reminder, it’s all about your questions. We’ll do our best to answer them and get to as many as we can or bunch together those that are similar. Before I turn it over to Gary to give a little bit of background, I’m going to editorialize. As kids, we admire people that we want to eventually emulate and that could have been your firefighters, police officers or sports figures. As adults, we tend not to think that way as much. I’m going to embarrass Gary and say that I hope that I have the same impact on the space that I occupy that Gary has with the generosity, the goodwill, and the wisdom that he shares as often as willingly as anyone that I know. It’s my pleasure to have my friend on with us and to answer your questions and for you all to have access to his wisdom. He’s made himself amazingly accessible ever since this has happened to guide us, to share, and to also get from others their lessons. Gary, thanks for joining. I can’t imagine anyone not knowing you or your story. I’ll turn it over and let you tell a little bit about yourself.

Thanks, Elliot. Folks may not realize that we spent two full days together at our institute. I’ve had you on my webinar before. This is the love fest. We’re sending good vibes back and forth.

We don’t like each other, truthfully. It’s all bullshit, but that’s okay.

I did learn to pronounce your last name finally. That’s progress. The reason I make myself available is that I know what the loneliness is of building a business. In my day, it was an organic yogurt company when nobody was eating yogurt and nobody knew what organic was. I always joke that we had a wonderful company, no supply or no demand. It was the early ‘80s. No one had a clue of what we were doing and why we were launching these little yogurt cups that cost 100% more than conventional that was out there. I would have killed for some counsel, wisdom, guidance that I never got.

I bring a sense of personal need to these discussions, but I’ll go to the other side of it and say I also have a sense of personal mission. Business is the most powerful force on the planet. My experience with Stonyfield has validated that. I began in the nonprofit world. Due to governmental changes, the money dried up for the organic renewable energy, sustainability, regenerative activities that my nonprofits were engaged in. We started a business using my partner’s incredible yogurt recipe to replace philanthropy to drive our little organic farming school. In the end, the tail wagged the dog. Stonyfield is a $400 million success. Of course, as they say, we had a lot of rapids to go through along the way. I sold the company to Danone.

In 2001, we were doing around $80 million in sales and then continued to run it for another eleven years in an unusual deal. We got it up to about $400 million. I then had the opportunity to influence this global company as well. We launched organic ventures. Obviously, we eventually led to the acquisition of WhiteWave. If you haven’t followed that, that’s Horizon, Silk, So Delicious, Wallaby, and others. I’ve been on many boards, some that have remained independent and some that have gone public. We’ve done strategic sales, Honest Tea, Late July, Annie’s, Sweet Earth, Applegate, and Happy Family. I’m always missing somebody on these lists.

In any case, lots of deals with strategics, unleashing the power of the mission of the acquiree. Particularly as we sit here in this COVID crisis, we entrepreneurs who have values proposition, be it better health, better for the planet, better for society, we have a decided advantage. In fact, I’ll argue that among the silver linings to this crisis is that we’ve probably gotten a huge boost as consumers. Citizens are making connections that they weren’t making before. Recognizing we are what we eat, recognizing that the Earth is not our subsidiary.

We are a subsidiary of a complicated Earth, that policy matters. If you want to protect your health, family, and your immune system, the first thing you want to do is get chemicals out of your system, out of your home. A slowed down, cleaner world in which we’re taking greater care of our environment and our neighborhoods, our communities, has some real appeal. This is an exciting time for me in the space. It’s another reason I’ve doubled down with all these webinars and why I’m happy to be with you, Elliot, and your group. There’s a major shift happening in business and eCommerce but more importantly in society and in thinking. This is a sea change, surge opportunity for value-driven business. I’m here and happy to help anybody who wants to go in that direction.

You and I have talked a lot about the fact that we both believe that real change is going to be driven by commerce. Values-driven commerce is the way to make good things happen. I don’t know how you feel about this. Other than the virus which is admittedly tragic and I don’t want to diminish that in any way, none of it is surprising me. Maybe the veil has been lifted or the Band-Aid has been torn off. Changes that were already starting to take place have been accelerated. They’ve been amplified. They’re more visible. You and I talk about this all the time. We’re both pathological optimists, as you would say. I’m excited by the fact that we could use this moment to take a big step forward, not just for our businesses but as a society. As a human race, we can do something. Let’s talk about that. You wanted an opportunity to posit that argument. What are the silver linings that you see at this moment in time?

First, let’s start back to what you said with what’s going on here. COVID is one expression of an unsustainable system, a system where we’ve stressed ecosystems. We’ve put pressure on animal agriculture, on the land. If it wasn’t this virus, it could easily be another. Our attempts to bring linear and rigid controls to natural systems, the feedback is here. Climate change, there’s no such thing as a place called away. You can’t mine the earth’s crust for fossil fuels and burn them and send the waste to some mythological place where it’s not going to come back. The feedback systems are here.

For those paying attention and for those who want to think systemically, the veil has been lifted on our narrow way of looking at the world. Go to the other end, the health end, the people who are most vulnerable to this particular pandemic are people who are health compromised, who are immune-compromised, obese, overweight, diabetic, cancer. We have the most expensive healthcare on the planet and we’re the sickest. Most of it has to do with lifestyle behaviors. We know that 95% of cancers are environmental in origin. They have to do with things that happen in our lives and not genetics. When President Obama took office, the President’s Cancer Panel reported that almost 1 in 2 Americans are going to be diagnosed with cancer in our lifetime. The number one thing they implicated was exposure to chemicals in our day-to-day life.

Go back again to the marketplace, and what do you see happening out there? They can’t trust the government because our government certainly is doing a terrible job of protecting us, lies, obfuscation, delays, absence of facts in the discussion all about opinion. Even the medical world, which has been all oriented to sickness care, not preventative care, is not offering solutions. People are seeking, are hungry. They’ve got their kids at home. They’ve got their elderly family members. The college kids are back living under the roof and they want to protect themselves and they want to protect their communities. You then get this more positive thing going on, which is that the air is cleaner. Water is cleaner. In Venice, they’re seeing fish in all the canals. They haven’t seen fish through the muck, the pollution.

You have the jellyfish.

Of all sizes and shapes, there are dolphins swimming in the canals in Venice. We’re seeing views we haven’t seen because of the lack of air pollution. People like it. People are moving slower. There’s an enormous health fear and there’s enormous economic insecurity. Like you, I don’t minimize any of that. If you boil it back to our proposition here about business, what you can say is that purchase habits have changed dramatically. There’s a real opportunity if you have solutions to all of that to be mercenary. If you have immunity somewhere on your label or you can make third-party medical validated claims that you are enhancing immune health, this is your moment. If you have probiotics, things that have been poorly understood in this culture and well-understood in most other parts of the world, then you’ve got a latent opportunity. If you have organic and you’re not introducing pesticides, herbicides, and chemical fertilizers into the supply chain or poor animal health, if you have plant-base, speaking of animals, you’ve got opportunities.

You have another opportunity, which is that people are home and they’re discovering how much they can get to their home without having to wander through retail stores. Obviously, restaurants are not a place that people go to. If you have eCom potential, you have a huge opportunity. This is not a finite list but there’s something else that people are looking for. In a time of uncertainty, they’re looking for entities they can trust. They’re looking for brands. They’re looking for influencers who they can exhale and say, “Things are going to be okay. I’m going to put my trust in that person.” It’s a democratizing of the marketplace. If you have a personality, if you have a blog, your signature, if you have photos, if you can show your supply chain, if you can invite people onto the farm, instead of being some anonymous factory that’s selling people stuff because people are sensitive about being sold, you have opportunities.

From that litany, put all that together. What if you have all of that? Most of the companies that you and I are helping, Elliot, has all of that. Health enabling, environmentally sustainable, eCom enabled produced by people who care, who have third party validators who can back up our claims so that instead of selling, we’re educating. That’s always been Stonyfield’s little secret. We were always still that original organic farming school masking as a big business. Put all that together and you’ve got a full sail of wind behind you.

In this moment of time, it’s awfully nice to be in this space because you’re surrounded by people who are doing the right things. There’s plenty of ignorance out there. Let’s not kid ourselves.

Everything I said, I recognize if there was a vulnerability to it. It sounds elitist. I’m talking elitely to elites. I come from the world as a struggling entrepreneur who needed to put two sticks together and rub them to make something happen. My world was about that big when I began. I have over time watched Margaret Meads’ outage. I’ve built my enterprise with the idea that you never doubt the power of a small group of people to change the world. My bubble grew big. It grew that way by the most powerful purchase influence there is, which is word-of-mouth. Word-of-mouth, if you analyze it, it doesn’t happen between the ears. It happens from here. If you get excited, inspired and turned on, then you’re going to tell somebody about it. If you hear somebody turned on, you’re going to get turned on. That’s all about loyalty.

Organic, the good news is it’s a $60 billion sector. They’re growing rapidly. The bad news is that it’s 5.5%, 6% of total US food. Organic is 1.5% of the total US agriculture. I have watched the tails wag the dog out there. Why? Faster growth is what excites the investors, retailers, wholesalers, bankers, and supply chains. When you go from this to this, it’s maybe a small number, but you’re moving the needle in dramatic ways and particularly among educated folks who read labels. Washington is a fact-free zone. It’s a science-free zone. The chemical protection agency, scientists are no longer allowed to speak. We’re denying climate science. We’re denying COVID science.

We’re denying common sense science. I have no Pollyanna-ish illusion that the people on this show are the dominant part of our culture. I do believe we’re dominant in terms of catalyzing real change, real opportunity, and real growth. Whereas in my world, for example, conventional milk, because it’s cheaper, a much higher percentage was in foodservice. Food service is gone. That’s why conventional farmers are dumping milk and many are going under. Organic farmers can’t keep up with demand.

To every one of those points, it’s also that this is a platform for change. The government is absent in that change. Facts are absent from a public perspective. From the perspective of good commerce for a good reason, that’s what’s driving this. There’s a huge opportunity. Everyone on this should feel emboldened by the role that they’re playing, their small role. It’s a great example, Gary, because you didn’t start out with the influence that you have now. You’ve built that over time by doing the right thing and building a good business and then giving back. That’s no different from anyone else. The same opportunity exists and the more of you that do that, the more of the impact that we get to see in our lifetime, which is hugely important.

I want to put this in graphic terms. Stonyfield lead product is YoBaby, our whole milk baby yogurt for kids. By the way, YoBaby is the original 32-ounce quarts we made on the farm. Moms told us that if they’re feeding a baby, it’s perfect baby food. It’s whole milk. It’s probiotic. It’s organic. It’s full-fat for brain development. Moms didn’t want to open it, serve it, and then close it. YoBaby was repackaging our core proposition. It still is our number one. YoBaby sells to about 1.5 million moms. That’s our universe. Obviously, when you sign a baby, you realize you’ve got them for about a year, and then they move on.

Our obsessions are twofold. One is how we keep that 1.5 million going to the next level, YoKids, YoToddler, eventually to adults. Also, our obsession is on how to grow that 1.5 million. If it goes to 1.6 million, 1.7 million, 1.8 million or 2 million, it’s gold for us. It’s leveraging existing infrastructure. Those 1.5 million are a subset of about six million who buy organic sometimes. We get about a quarter of organic users, although we are the dominant organic yogurt. I’m talking about all organic products. That’s a subset of about 26 million moms who will, in a survey, say that they are wellness-oriented, whatever that means. It’s like the word natural. It doesn’t mean anything. It means whatever is in the eyes of the beholder.

The point is that 1.5 million universe has about doubled. Suddenly, it’s gone to three million. The 26 million has gone to about 50 million. This is not my data. You’re seeing this in survey after survey. It’s not going to be the price or the proposition for every one of them but it’s about opening the aperture and increasing the portal. To the people reading, I would say, pick and stick with your lane. Get a pocketful of all the benefits that you can and communicate the living daylights out of it. This is what we saw case after case at the Hirshberg Entrepreneurship Institute. Tell your story. It’s not about advertising. Do good and be charitable. Make it known that you are a caring person, not just an anonymous corporation out there trying to make money. Start with whoever you’ve got but drive that group to get larger. I’m talking now of years of business at Stonyfield. We’re using the same formula we used years ago.

Things don’t change as much as they change, the core principles. I want to get to some of your questions because I know we’re spending a fair amount of time talking too high level. One of the things I know is on a lot of people’s minds is, “How do I make it to Thursday?” I want to recognize that, but I do also want to say that, to your point about staying in your lane, being generous, and all of those kinds of things. We build relationships with brands like we build relationships with people. In the moment of uncertainty, the brands that are there for us, giving us that confidence and some semblance of normalcy, consistency or hope, are going to be the brands we carry with us. Meet your consumers where they are in this moment and be that brand. It’s a golden ticket.

Part of that means don’t overwhelm them with too much messaging. That’s why I said pick your lane.

When you have solved a problem, all of you on this blog as entrepreneurs, likely started your business for one of two reasons. Either you were solving a problem for yourself or you were solving a problem that you saw or a need that was being unmet. Staying narrow on that message and being responsive to that contingency. I always think of it as an ecosystem. The narrowest you can find in that ecosystem where you can have the loudest voice, pure economics gives you the best chance to move forward.

Let’s turn to some questions, Gary. We’ve got one here from Asher Cowan. Asher, it’s nice to see that you’ve joined. Asher’s been doing some cool things around regenerative farming and getting locally sourced vegetable powders that are dehydrated. His question is this, “Would you recommend a small eCommerce brand that’s cashflow positive and growing at an 80% year over year seek investors to accelerate growth? We can fund our current growth rate, plus more with some existing cashflow so we don’t need it but we’re thinking about raising capital for productivity.” They’re not in any brick and mortar.

We both should try to answer this. It’s a good one. The conventional wisdom is if you have access to cash, get it. We all have rainy days. However, there’s a lot of money around as we saw in full evidence. A lot of money has left the stock market looking for places and particularly looking at eCom. There’s a price. There’s a pound of flesh that comes with raising. You have new people at the table, you carry extra weight on your shoulders at night, a little extra burden, legal costs, reporting costs, and also dilution. I always take this out of the entrepreneur. I believe that a lot of us entrepreneurs got drunk on the surge of money that came into our space in the last few years. All of a sudden, Anaheim was all suits looking around for deals and steals.

I shake and shudder about that because the longer you can go without having to dilute, let alone forever, the more in control of your destiny you are. The answer here, and I hate to sound like I’m waffling on it, but it does depend. If you must have that capital, if you can see the end of a certain street that you’re on now, and without innovation, it’s going to come to an end, the time to get your capital is not when you need it, it’s now to anticipate. If that’s an absolutely essential thing, you’ve got to have it. If you are confident and don’t need that and can double your size, you’re going to give up a lot less for the same amount of money.

I’ll add to that because I agree with everything you said and I’ll add a couple of things to it. First of all, we celebrate the unicorn in this space way too much. While those are wonderful things when we see brands that get built and have that hockey stick growth and are able to have these fantastic exits. It’s not the norm. It never will be. You only read about maybe 2 or 3 of those a year and we all know that there’s a hell of a lot more than 2 or 3 of you that start a brand each year. Recognizing that is important. It’s also a personal choice, Asher. It comes down to reality. As entrepreneurs, there’s a lot of shit that you sign up for, the worry, stress, unknowing and endless work. All of that comes.

One of the huge benefits is you get to design the place that you want to work. You get to build the business you want within the realm of at least the market accepting it and you get to decide how you define success or growth. I’d start there. You and I have talked about this so I know about it, but what does success mean for you and does investment get you closer to that success or not? If it does, and you have a clear path, take that money and turn it into at least 4x the dollars that you bring in on a revenue basis, do it, and if not, then no.

If I could say this, I know you could ask some more questions. Be honest. Look in the mirror and be honest with yourself about it. There are the benefits of bringing in the capital but be honest about the costs. The number of entrepreneurs I know who would say that their number one weight even when things are going well is feeling the burden of responsibility to their shareholders. It’s sizable and honorable people have that burden. There are plenty of Trump types out there who take other people’s money and don’t pay it back. I suspect the readers take it seriously. It’s the weight. I had 297 shareholders because no institution would ever invest in us back in those days. The day I was able to get them an exit, it was nineteen years into it. It was the first time I truly slept.

There are other ways to raise capital that doesn’t have to be equity, especially if you’re building a business.

It’s the crazy idea of profits.

It’s crazy and out of the box. Here’s another statement question and this one’s an interesting one, Gary. It says, “What about the fact that natural sales are down and conventional sales have gone back up? The natural retailers and distributors are not taking on any new products for the rest of the year? With online only being 10% of grocery, there isn’t a huge market to change the world for young brands.” I’m going to let Gary answer this first, but I’m going to say to the person who asked this question that I don’t agree with this assessment. I’ll tell you why but I’ll let Gary go first.

This is why we had Don Clark from Whole Foods and Corinne and Ben, formerly from INFRA and NCG. She’s still President Emeritus, so we shouldn’t say former. It’s why we have them there to talk about what’s going on in retail trends and it is true. Elliot’s about this. I don’t agree with the assessment either, nor did they. The lead time for new products is certainly a factor depending on the category. If you listen to Ben and Corinne, and we also had others from that space on my webinar. If you’ve got all these propositions that we’ve described and a value or price proposition, they’re interested in talking to you now. A bulk, a multi-pack, value pack, a family pack. In Stonyfield, it’s our 32-ounce sales that exploded because it’s more economical.

Number one, I don’t agree with the assessment. You can’t paint a broad brush here. There’s plenty of growth activity happening out there. Number two, the fundamental premise needs to first go back to what percentage of eCommerce are you capable of, not what’s going on in grocery. The model has changed. What people have discovered, they can consume and get at home now is incredible. This is a shift. If you primarily sell to food service, you’ve made a shift, but even if you primarily sell to retail, this is the moment to run, not walk.

Run at your own direct sales for a couple of reasons. One, better margin. Two, better control of your destiny. Three, you build a list of back to word of mouth, passion, and the loyalty thing. This is the time to go at it. I don’t suggest that it’s an instant panacea but it’s all about controlling your destiny. What is more controlling than to go direct to your consumer? I want to say one last thing. Not all retailers are in the same boat here. There are best practice retailers who get this. The coops, especially INFRA powered by the new relationship with KeHE, is super opportune here.

At the mega level I’m watching Costco and there’s almost an insatiable demand for natural and organic now. I’m seeing Target coming back hard in a couple of categories. I don’t agree with the assessment, but you definitely want to pick the ones who are ready to work with you. The last thing that I’ll say fast is there’s nothing like selling in your local area. Double down on places where you can have a reputation, give, donate and support local healthcare workers, frontline workers, truck drivers, bus drivers, and people who are out there being exposed every day. These can become ambassadors for your brand. You can have a true win-win and build a local word of mouth. We’ve ever had as opportune a moment as we have now.

First of all, I have not seen anything that shows me that natural sales are down during this point. Secondly, from an eCommerce standpoint, a study that I read had sales according to Brick Meets Click at 4% to 6%, pre-COVID. Forty percent of groceries being purchased online from March 1st to April 15th, 2020, and the estimate being that it’s going to settle around 20% to 25%. Whether it’s 15%, 20%, or 10%, it’s a massive shift in the way consumers are buying their groceries. The other thing to keep in mind is that home consumption is gone up immensely. Even if it is that 10% number online, it’s 10% of a much bigger pie because the out of home isn’t there. That’s one comment.

The other is it’s always been hard for an emerging brand to get traction at retail. I’m a little bit of a contrarian. I don’t look at things as distinct channels. I look at things as part of a consumer continuum. If you look at your consumer continuum, the whole path that they follow, where they shop, where they live, where they play, and so forth, your job is to find the various waypoints that you are best suited to intercept them and find them at that moment of need and where that problem is most pronounced. For some of you, that’s retail or eCommerce. For almost all of you, it’s a combination of that, plus some.

Too many people in my mind and founders think that retail is the end all be all or is the path to discovery. Retailers are great partners. They’re important to brands, but they’re an element of a brand’s ability to attract its consumers. The best brands are octopuses. They have tentacles reaching out to all different aspects of their consumers’ lives and find and meet them closer in different ways. Now is the time to be creative and think outside of the norm.

We talk a lot about influencers and most people think about the digital influencers but when the world opens up again, there are a lot of physical influencers. It could be yoga studios that have teachers with a strong following. It could be gyms, naturopathic offices, physicians, or wellness centers. All of those places are physical influencers as well. I would challenge everyone to be an innovator in the way you meet your consumer and think differently. Make sure your eCommerce enables both B2C and B2B.

We’ve got another one here from Bonnie. Bonnie says, “Elliot, you’re familiar with where OMG! Nutrition is. Our whitespace is natural high absorption magnesium. We had a successful first year, but I’m almost tapped out on self-funding the brand. What do you think of an opportunity to be financed by a wellness holding company, but I have to give up a majority stake? Gary said it’s all about controlling your destiny. How do I get the funding while retaining a significant measure of control?” That’s a good question, Bonnie.

It’s impossible for me to give Bonnie the justice that this question deserves without knowing a lot more. I’ll tell you a little bit about what I did. I’m a big believer in earnout. I don’t think that control necessarily is about the majority. I know for a fact because I’ve done it multiple times that you can put covenants in it to keep you in control even if you do give up a balance sheet majority. It’s more a question of, can you make a persuasive case to your investor that you deserve your shot, your upside. I sold 80% of the company but retained 20%. I retained 60% voting control on the board. People say that’s impossible, but they couldn’t understand why my gross margins were ten points worse than theirs and my net margins were the same as theirs.

It was a mysterious paradigm to them and I proved it to them. Essentially, you can’t produce organic products without paying a proper price to farmers and so on. That is how you build loyalty by paying a proper price and having farmers produce chemical-free, albeit labor-intensive foods. Bonnie, I don’t know if you have particular unique advantages. It gets back to Elliot’s point about picking your lane but also telling your story and driving it. There are enlightened investors out there who don’t want to run your company but will put in money and allow you to keep your control as long as you’re hitting certain numbers. That’s a generic statement that is hard to fit into a particular situation. I want to piggyback on something you said, Elliot. It doesn’t have to be equity. There’s an enormous number of Angels, family funds, and mission-driven folks out there now who are perfectly happy to take convertible debt, which is another way of performing. If you can drive your performance, value and price, you’ll have to do a valuation cap, but you can still give up a lot less by performing.

One of the things that I see is brands are sometimes trying to grow too fast and are trying to feed the beast to support that growth. You can grow smarter and be able to prove that you have a model. At the end of the day, as an investor, and this is advice for anyone, we all see hundreds and hundreds of pitches and decks and money’s going to be invested and the question is, “Why you?” You need to be almost laser-focused and be the best trial attorney you can be to sit and be able to take an investor through why you should make that investment to command the highest valuation. The norm to be able to show that is through revenue growth.

I will tell you that if you can show an investor that you have a proven model for being able to extract consumers from their cash. In other words, it could be a smaller subset of consumers where you’re not investing so heavily and broadly, but you’re staying narrow in your swim line and doing it capital efficiently, you can show to an investor that you have a model that is scalable. You can prove that you have figured out how your product resonates with the consumer and how they will buy it again. That’s an investable proposition and you can probably command a better valuation. Convertible debts are the way to go, you could also look at asset-based lending to finance some of your inventory and receivables. The biggest consumer of cash is growth. If you can grow a little slower, use a little less cash, and get a little bit further down the line, you’ll be in a position to raise.

The last thing I’ll say there is that the other thing we talked so much about is control and dilution. Two things, one is when you start inviting investors in whether you have control or not, you still have other cooks in the kitchen that you have to answer to. That doesn’t change whether they can outvote you or not. You’re still going to want them alongside you. It’s about picking the right partner for your business regardless. Secondly, the ultimate goal, if your goal in all of this is an exit is to see it, it isn’t how much of the business you own, it’s how much of the business you own is worth. If owning 30% of something that’s worth much more money than owning 51% of something that’s worth less, then you answer the question, which of the variables is more important?

I have one other answer for Bonnie that I learned the hard way and only understood it in hindsight. Another path to financing that might be appropriate to this exact moment is to do it with individuals, Angels, and have a lot of them. No one of them owns more than 1%. I told you I had 297 shareholders and 100 of them were my employees, by the way, because of stock options. Samuel and I owned a small percent of the company, but we had effective control because no other shareholder held much. Could they collectively get together and vote me out? Sure. It was an accidental funding strategy because I couldn’t find institutional investors. Thank goodness because if I had, I might have been out. It may be possible to do a crowdsourced type of financing. How about your consumers? How about your suppliers? How about a combination? How about a circle of loyal customers? Everyone takes a small piece, but nobody has anything significant.

By the end of the day, the right investors are investing in you. If they don’t think you can do it, they’re not going to invest. They’re investing because they think you can do it and they want to support you. Investors who are looking at this as not only the brand but you as a founder. The key is making sure that you are confident yourself, but also able to portray that confidence that you are the right leader for this business at this moment in time. If that’s the case, a savvy investor is going to want to put the wagon behind you. We’ve got a question from Joanna Terry. “If you had limited money, would you spend it on category data or would you spend it on inexpensive consumer research?” She’s unable to get it for free.

I would spend it on consumer research. The reason is that the category data is going to be suspect and corrupt anyways. Things are changing rapidly. Store counts are way down and supply chains have been messed up. I don’t think we’re going to have clean category data for a while. That’s at least something I would base my tough decisions on. What you want to know is how does the consumer react to your messaging? How’s the consumer reacting to your brand and position? Is it taking? That’s what I would do with limited dollars.

In the general rule of thumb, if you’re going to buy data or you’re going to do consumer research before you make that decision, know how you’re going to act on it. I see a lot of people do that and they have no plan for what they’re going to use that information to do. If you don’t have a clear plan to use that information to do something, then don’t spend the money.

I thought you’re going to say, “Are you going to use the data?” A lot of times, people get back data they don’t like, and then they don’t use it. It’s important to taste clues. What do you stand for these 36 messages on your package? Are you going to use the data? Don’t spend the money if you’re not prepared to get the answers.

Consumer research is something that you can do scrappy. It doesn’t need to be formal. Especially in this plugged-in Zoom world that we’re in, you could do a lot. From Kirsten, “As you scale, you find places you need to compromise, co-packer capability and sourcing minimums. Any tips on how you manage these compromises while maintaining your core mission and core values?” I’m assuming you’re talking about trade-offs. When and where you make those trade-offs?

I would be cautious about compromise or trade-offs. I always joke that I can ship the yogurt 3,000 miles, but it’s the last 18 inches that makes all the difference. Touch them out, they have to love it or I’m screwed. If there’s a compromise along the way, that makes it less than perfect then you can’t make it because it’s too competitive a space. I don’t know exactly what trade-offs we’re talking about here. If it’s about doing business with people you don’t like but the standards are locked in, fine. A lot of entrepreneurs, I’d say, “How’s your day? How’s your week? How’s your month?” “Terrible. I’ve got many problems.” That’s not the right answer. That is what business is.

If you don’t believe that you’re solving problems all day every day, then you shouldn’t be in business. That is what it is. It’s not about getting knocked down. It’s about getting back up. We all have many problems and many fights out there. The last thing you need to be doing is compromising on anything that would make your product less saleable, attractive and affordable, what have you. I’ve made a compromise my whole career, which is selling in plastic cups. There’s that compromise.

Believe me, I keep working. I don’t want to leave this Earth until I figure out a way that we can finish eating the yogurt, you’ll eat the cup. It should be compostable and there should be no waste. We’re the only species on the planet that thinks it’s okay to produce one-way waste. There are some compromises you have to make in order to be in commerce. Glass is too expensive in kilocalories to ship, it breaks, etc. There’s no other viable alternative that we’ve found that’s economic. You’ve got to pick and choose the things you compromise them, but I would never compromise them on the core offering.

Kirsten sent another one clarifying, “For example, the retailer loves them but wants a lower price, are you sure it needs to be organic?” Here’s what I recommend for anyone reading. First of all, sometimes with small brands, you don’t do this. You wait until you get bigger, but if you don’t have a real clear mission, vision, values statement around your brand, you’re missing your brand’s moral compass. What I would encourage you to do is think that through. Why are you doing this? What’s your long-term vision? What are your key values? Life is full of compromise. Life is full of these kinds of moments.

Sometimes, when we are enamored by the potential growth, it’s alluring, the opportunity to close a big deal, get a retailer to say yes to all those kinds of things, and get an investor to say yes. You need some type of mechanism that you can go back and test against does this hold true to my mission, vision, and core values I have for what I’m doing? Take the time to put those out. Make sure your advisor, friend, spouse, or whoever is the holder of that is going to ask you. If you answer it for yourself without anybody else looking at it, you’re not going to get the answer you want at that moment. Have somebody who you trust who will be there and question.

An example of organic, ask yourself if you do that, have you reduced your defense to somebody else? One of the key arguments for organic is it’s a hurdle. It’s another bridge for a competitor to have to get over. If you get to a point where it’s all a price play, are you going to be viable when somebody comes along and tries to buy your space with something cheap?

Gary and I both have the opportunity of working with a lot of brands of small entrepreneurs from other countries. They come over here, they look and go, “If I could kill it in Los Angeles, that’s five times the population of my country. I’m thrilled.” Here domestically, we tend to want to be everything to everybody. It’s much better in most cases to be good for a core consumer than it is to be average for everybody. Angus has a question about the best firm legal consultants in our networks for health claims and patents. Feel free to email me directly and I’ll shoot you some names or make some connections for you. Matt Perry, someone else we’re both familiar with, says, “I appreciate it’s early, but any macro consumer trends that you both think will stick coming out the other side of this?”

Organic. Matt will not be surprised to hear that answer because it’s, of course, something I’ve been pressing with him. The organic bubble has gotten bigger. Particularly if you can do organic in some configuration where you’re offering value. Not everybody, but a core part of our market is ready to be persuaded. They get that we are what we eat as never before and they don’t want to compromise. That’s for sure. Matt is a perfect example of this. I don’t think people are going to go back to walking up and down the aisles as often as they used to. They’ve figured out they can do stuff at home, so eCom. Matt, you’ve got the perfect product.

The macro trend for me is that the vast majority of discovery is not going to happen long-term in retail. Some will, but that retail is going to be more replenishment and more impulse if you’re an impulse item or if you’re a replenishment item. eCom is definitely going to be where discovery as well as alternative channels. Shopping trips are going to be, at least for the near term, more rote. These two things I’m bullish about is that there’s a democratization of little brands to big brands.

When we all play on heavy to win consumers by the way we message, talk, and interact with them minus ad spends, the playing field is level. When the choices consumers make aren’t filtered by distributors, buyers, and others, that lid’s off the pot. There’s an opportunity to transact business directly with your consumers. That’s going to stick. This digital interaction between buyers, the industry, and all of that is going to happen and that’s going to make things a little bit more efficient, affordable, and hopefully, more transactional.

No big brands started that way. Every brand started in somebody’s imagination. It’s important to get the whole thing about loyalty. The history of consumer products is about making your product as cheap as you possibly can so you have a big margin, and use that big margin to buy advertising and nail people with reach, frequency, and repeat. Eventually, wear them down and get to them using television as the holy grail. Little brands can’t do that. We can’t even start down that road. The opportunity, and my learning from my career, is that you can jump all the way to loyalty and not go through all those layers. The tradition is you get trial, get repeat trial, get purchase, repeat purchase, and then eventually, you get loyalty. The combination of mission, health, environment and eCom, allows you to jump the whole thing and go right to loyalty. Loyalty means you have greater control of your destiny. The other way is expensive and you give up too much.

Loyalty is huge and owning your customer journey. You’re getting as close to your consumer as you can, bringing them in, and having a two-way interaction. This one’s from Joyce. “Is it insane to opt-out of a large distributor if you’re direct and Amazon sales are far more profitable and beneficial to the brand?”

No, it’s not insane. It’s about control of your destiny. As a matter of fact, given that our day is only so long and we have only many fights we can fight, seize the moment. If you’re flying and you’re doing well, you’ll be able to talk to the distributor anytime you want and you’ll probably get more assets at the shelf. Walk away.

First of all, to remind everybody, distributors work for the retailers, they don’t work for you. If the retailer wants the product, the retailer wants the product because the consumer wants the product. Your job is to get your consumer to want your product. If you do that, the retailers and the distributors whenever you go back to them, will be willing to bring you in. If you don’t do that, they won’t. A lot of you, if you’re being objective, are caught in the valley of death. Maybe you’re on your way down or maybe you’re down at the bottom, but most of you are somewhere in that valley of death where you’ve raised money from friends and family or from an Angel or two, and you’re trying to scale.

We’ve seen thousands of brands in that valley of death and that valley has gotten deeper and wider. We had a brand that we both know. Three Twins is a great example. They got out in the middle of that valley of death and it was a trap for them. They didn’t have enough to get into the other side. If you’re out there and you have the ability to turn around, go back and become smaller, nimble, more resilient, more capital efficient, execute on eCom, maybe focus on your core market or core retail or just a curated few that showcase your brand, I would turn around and head back up the hill as fast as I could. Any parting thoughts?

One insight that I want to hammer is that between the marketing cases, the finance cases, and then all the pitching, if there was one common opportunity that I was seeing, it was entrepreneurs needing to come to a clear hierarchy about their messaging and make some Sophie’s choices. Many packages had many things that they were saying. Many fundraising pitches had many things that they were saying. Many organic companies are screaming out of our pores, 100 reasons to support organic. It is absolutely essential that you be clear and lucid on a message. Test and try it out. As Elliot said, you can do it cheaply. There were many cases where the messaging was not weighted or prioritized. This causes confusion and frankly, the consumer isn’t going to give you the time to wade through it all.

I have a couple of sayings that I like. One is to understand the difference between being nice and being kind. Being kind sometimes necessitates not being nice. It’s getting rid of a skew, pulling out of a retailer, getting out of a bad transactional relationship with the distributor, and letting an underperforming employee make the hard choices. It’s the time not to confuse nice over kind. The other has to do with the state that we’re in. You’ve got to be capital efficient. That’s the number one thing that you need to be focused on. Make sure that every dollar that you bring in the capital, whether it’s yours, it’s an investor or debt, you are using it to generate that ratio between capital and revenue. It’s critical, and more so now than ever.

Cashflow is destiny. If you control your cashflow, you control your destiny. Your folks would love the remaining webinars we’ve got going with the Hirshberg Entrepreneurship Institute. Maybe you can access the schedule. We have Danny Meyer, the creator of Shake Shack. We have Wayne Wu with insights about some of these category questions, and then some great entrepreneurs. Go to HirshbergInstitute.com and join us for these late afternoon webinars. They’ll be fun. Otherwise, thank you.

Gary, as always, thanks for everything that you do and for being such a good tribal elder for this industry and a good friend to me. Thanks. Take care.

Important Links

• Gary Hirshberg

• Stonyfield

• Danone

• WhiteWave

• Horizon

• Silk

• So Delicious

• Wallaby

• Hirshberg Entrepreneurship Institute

• Asher Cowan

• INFRA

• NCG

• KeHE

• Brick Meets Click

• OMG! Nutrition

• HirshbergInstitute.com

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