[00:00:06] Ray Latif: Hey, thanks for listening to the Taste Radio podcast. I'm Ray Latif. I'm here with Mike Schneider, Jon Landis, and John Craven. We're at the BevNET Studios in Watertown, Massachusetts. This is episode 64 of the podcast. And thanks very much for listening. Seems like quite some time since we've been here. Yeah. Yeah, it does, doesn't it? We were all traveling this week. And some of us were in New York City for the Summer Fancy Food Show, and one of us was in Las Vegas for the Institute of Food Technology Show.
[00:00:31] Mike Schneider: Yeah, one of us is still rehydrating. 120 degrees every day.
[00:00:35] Ray Latif: Yeah. Mike Schneider, how was Vegas?
[00:00:36] Jon Landis: It was great.
[00:00:37] Mike Schneider: I mean, I got to go to the IFT show for the first time for me and got to learn a lot about food technology and all the new innovations happening in food tech. Good stuff.
[00:00:47] Ray Latif: It was. The Fancy Food Show was good stuff too. Jon Landis, how was your show?
[00:00:52] John Craven: It was really good. It's interesting. This is, I think, my fourth or fifth time there. And I really felt like I spent 95% of my time talking to people that I know, which is great. Catching up with all sorts of people face-to-face is always awesome. But there is some cool new stuff out there happening. And it would be nice if I had more time to talk to some more new people.
[00:01:15] Mike Schneider: There's a lot of people can talk about FOMO. I definitely just had Mo.
[00:01:18] John Craven: That's it.
[00:01:19] Mike Schneider: I just had the Mo part because I saw all the amazing foods you guys were tasting, drinkable soups, you know, collagen water.
[00:01:27] Ray Latif: Maple water.
[00:01:29] Mike Schneider: I want to try the new maple water.
[00:01:32] Taste Radio: So, so much stuff. That was actually a first fancy food show I went to was 20 years ago and pretty crazy to think about how different it is now. I mean, and all that stuff that you see, the meat, The chocolate, that was basically all it was back then. And now it's, you know, this thing where there's like new, innovative, like exciting stuff.
[00:01:52] Mike Schneider: So much cheese. So much stuff.
[00:01:55] Taste Radio: And fake cheese too. Let's not forget about that.
[00:01:58] Ray Latif: I've been going to the fancy food show for a long time too. And I remember when I saw Hint Water, Hint Water was like the hot new beverage concept. This is maybe 10 or 15 years ago, had to be 10 or 15 years ago. And it was, that was like the big beverage innovation. And now there's just so many new cool things there in the natural organic space. We cover a lot of that on our social media and also on the site. So if you're looking for coverage from the show, check out both, BevNut.com and Instagram, Twitter, Facebook, all that. And Project Notch. And Project Notch too, of course. We got a segment coming up on that next week, don't we? We do, we do. We're going to be talking about some unique and innovative products that we saw at the show. So stay tuned for that. In the meantime, we've got a great interview for this episode, and that is with Gary Hirshberg. Gary Hirshberg is Co-Founder and Chairman of Stonyfield Farm. He's one of the foremost pioneers of the organic food movement. He's been doing this for a very, very long time, and myself and Jeffrey Klineman sat down with him yesterday to talk about a variety of things. It was a pretty amazing interview talking about the foundations of Stonyfield Farm, his take on the organic food movement and how it's grown over the last 30 years, everything from trials and tribulations of starting the company to selling the company, and now in a position where he's having to sell the company again, and we'll get to that soon.
[00:03:17] Taste Radio: And he's, for people who aren't familiar with him, a real godfather of the natural food industry. I mean, he's someone who, I think if he didn't do what he had done, along with some other people who are in his era, all this stuff kind of wouldn't exist today, so.
[00:03:32] Ray Latif: That is very true, and you'll get a sense of that in this interview, so let's roll tape. All right, we're here at the headquarters of Stonyfield Farm in Londonderry, New Hampshire, and we're joined by the one and only Gary Hirshberg, who's Co-Founder and Chairman of Stonyfield Farm. Gary, thanks so much for being with us. I'm happy to be here with you guys. This is a little bit bigger place than when you first launched the company, isn't it?
[00:03:55] Jon Landis: You noticed. Yeah, well, we started, of course, with seven cows about 40 miles west of here in a little farm that We always joked that we had 11 months of winter, one month of poor sledding. What we lacked is everything that you see here. We didn't have pavement, so our trucks were often literally being dug out of the mud. We didn't have really a modern facility by any stretch. Samuel, the real founder of Stonyfield, by the way, the real creator of the recipe, I joined him about a couple months after. formally after he started. Samuel was just a genius with that old line of, you know, putting baling twine and bubblegum together and stainless steel and duct tape in this case. But yeah, things have come a ways. We're now running around $370 million a year and growing pretty nicely. Pretty amazing. How did you and Samuel meet? Way, way back. Now we're talking in the 70s. Samuel was the founder of something called the Rural Education Center, which is an organic farming school. And he was also the founder of NOFA, what is now called the Northeast Organic Farming Association. At the time, I was the executive director of a sustainable ag and energy research institute called the New Alchemy Institute down in Cape Cod. You were doing windmills, right? Windmills, exactly. I was building water pumping windmills and then when I would climb down I was raising money to support all these crazy scientists who were doing what is now thought to be still cutting-edge research in terms of integrated solutions for food and waste treatment year-round, solar enclosed. environments for aquaculture, organic agriculture, and so on. So I would come up to NOFA conferences and give talks, and Samuel and I became, and Louise, Samuel's wife, and their kids, and our families got very close. We all became friends. And I joined the board of the Rural Education Center. which was uh... like our non-profit always always a hand-to-mouth operation but things really became dire when ronald reagan had got elected because literally on that the first afternoon of his presidency as promised in his campaign he slashed funding for uh... the community services administration fact he eliminated the csa which was a uh... a backer of a lot of grassroots activist uh... uh... kind of rabble rousing from the reagan administration's point of view but but shortly thereafter he slashed funding for renewable energy organics basically any kind of federal support and so uh... my institute's budget was about a million dollars a year down in cape cod his samuels was about two hundred thousand a year and You know, those cuts and the ripple effects they had were just devastating. So we used to sit around at the farm at board meetings, and Samuel had one cow at that time, Lilibel. I was going to ask if you remembered the seven, the names of the seven. Oh, I do, I do, yeah. I can't really ever forget them. But we would eat his delicious whole milk plain yogurt that he was, uh, you know, Samuel was sort of like a mad scientist. He was a master tinker. He was completely into fermentation. He made beer, kimchi, wine, uh, all kinds of vinegars. And of course he made this incredible yogurt and we would sit there at these board meetings, sort of pulling our hair out. How are we going to find revenues? And one day, The problem with this story is none of us remember who that person was. But one of us pathological optimists said, why don't we sell this stuff? And Samuel and I literally had a debate and a discussion about whether to sell beer or kimchi. Thank God we chose yogurt. And the idea was simply, as you heard Bob Burke say in your excellent podcast with him some weeks ago, was really to sell in this sort of 15 or 20 towns around us to essentially make up for the decrease in grant support. Just to be clear, it's not that we were, depending on federal support, but when federal support went away, private foundations had to become the safety net for non-profits, and therefore philanthropy essentially went dry for kind of progressive, future-oriented stuff like ours.
[00:08:13] Ray Latif: So why was food the choice? Why was food the vehicle for you to be an agent of social change?
[00:08:20] Jon Landis: Yeah, I mean, of course, this was our lives. My background here is that, first of all, I grew up in New Hampshire. I watched family farms disappear. Literally, we would get our milk just down the road, and our chickens, and our holiday lambs, and all those farms disappeared in my lifetime. But each of Samuel and I, from our various and different paths, had come to the conclusion that food was not just something that people do every day, but it's probably the most powerful way that we interface with the environment, with the planet. My specific background is that I studied climate change back in the 70s in college. I was out at Hampshire College in Western Mass, and at a time when no one was really talking about this stuff, I was doing dendroclimatology.
[00:09:06] Ray Latif: What is that?
[00:09:08] Jon Landis: It was how you study the evidence of climate change by looking at tree rings. And my thesis work was actually on the causes of a dendroclimatological investigation at Treeline on Mount Washington, New Hampshire, where I was looking at Treeline species right on the edge. And you could see dramatic changes in the historic climate record. So by looking at these little one-inch diameter trees that were actually 140 years old, I was headed down a PhD course. My advisors wanted me to head down the science route. And I thought, I could choose to spend the rest of my life studying the problem, or I could switch over and focus on the solution. And that's why I went to New Alchemy. Samuel got to food from a kind of more food justice perspective and also from a biodynamic agriculture perspective, understanding that much of what was on the supermarket shelves in those days and still is today is not really food. America's obsession with cheap food is just an utterly broken foundation because cheap food is neither. It's neither food nor cheap, because you wind up paying for it somewhere in your health care and the depletion of natural resources and the demise of ecosystems and disappearance of species. So both of us saw the idea of eating consciously. And I'm choosing my words carefully here, because words that we throw around today, like organic and so on, these weren't around then. So the notion of sort of conscious eating, that every purchase you make is really a vote for the kind of world you want, was something that made sense to us both. And the other sort of more obvious and sort of blunt thing to say here is that everyone enjoys eating. Everyone is aware that we are what we eat, even at a subconscious level. And we just thought that leveraging both the aesthetic and the enjoyment side of ingesting great food and that as a way to get closer to where and how it's grown was a great lever, a great way to reach the kind of emerging environmental movement, at least, if not you know, parents who did not want to keep feeding their kids. I mean, the kind of junk is out there. I mean, I just tell you, you know, part of my consciousness raising, you know, at 77, I was on a beach in Maine, and I found the center of an Oreo floating The cookie was long gone. The food part was gone. But you know, sand, surf, salt, seagulls, birds, bees, you know, fish, nothing had eaten the center. And there wasn't like an ant floating on top of it? Well, it could have been. And you know, of course, I thought at that time about the 800,000 Oreos that were probably still inside my digestive system. And you know, we were all, many of us in the environmental world, many activists, You know, if you trace the roots of the modern natural foods industry, you know, scratch a little bit, you'll find an environmentalist who couldn't make a living doing that work. John McKenna, you know, began with an environmental consciousness. The co-founder of Whole Foods. Yeah. I mean, Drake Sadler, who started Traditional Medicinals, came at it from an environment and health place. And most of us in the 60s and 70s had sort of run away from business, thinking it was the source of all evil. So another powerful moment for me in all of this, I was on the board of the Rural Education Center. Reagan had done these cuts. I was visiting my mother for Christmas in 1981. She was the senior buyer at the Epcot Center in Florida, which is the Kraft Foods-funded, where they had the, at the time, Kraft Foods-funded land pavilion, where they were showing millions of consumers where food comes from. And of course, as you might imagine, their view of how food ought to be grown was slightly different from my kind of hippie ecological view. You know, we were wandering around barefoot growing tilapia with chicken waste.
[00:13:16] Ray Latif: So the stereotype was true.
[00:13:18] Jon Landis: I'm afraid it is true, yeah. It was and is. You know, we all have pasts. And I went to the land pavilion and watched this. And what they were really basically saying, I mean, they literally had robotic cows singing a song, DDT is good for me. And basically, the gist of the message, to boil it down, was, You know, leave the food growing to us. We won't worry about inputs and we won't worry about, you know, byproducts. We won't worry about externalities. But we will get it cheap and we'll do it big. And this is the sort of Earl Butz, get bigger, you know, the former ag secretary back under Nixon saying, look, food growing is really too sophisticated for all of you mortals out there. Just leave it to us and we'll deliver. And what was most horrifying to me about that Epcot visit was not the messaging, because I knew the messaging. This is the messaging of mainstream of a world that had sort of gone off into a cul-de-sac. I don't think of it as a dead end. I think we had just kind of gotten off track with our industrial ag revolution. But what was most horrifying for me was that I had 25,000 people visiting New Alchemy Institute every year. That's how many people are visiting Epcot every day.
[00:14:29] Mike Schneider: It's amazing to me the asymmetricality of what you were doing, which is basically running a for-profit business to support a non-profit. Yes. And coming out of, you know, the sort of political and environmental stances of the co-ops, which were offering up, if you want to talk stereotypes, like the beans and dirty Kohlrabi. Yeah. As a political statement.
[00:15:01] Jon Landis: We always say organic used to mean you have to chew extra.
[00:15:03] Mike Schneider: Yeah, yeah. And to then turn it into against the, you know, factory on the New Jersey turnpike that's basically creating all the scents and flavors, you know, that ragtag band has flipped the game.
[00:15:23] Jon Landis: Yeah, and I think as it turns out, we were all entrepreneurs. We just didn't know it. I mean, many didn't make it. You know, I think of the Koss brothers who started Earth's Best at the time. I mean, they had their bumps and their company got sort of bought out from under them and many others. But there was, you know, in those fields and meadows as we, you know, at the NOFA conferences, as we sort of shared our experiences and each brought our kind of crucible experiences like mine at Epcot. We were incubating. And I can look back and very clearly see two things that were really working for us. Well, three things. One, incredible amount of passion. Because you're right, we were, I mean, I always say we had a wonderful company back then, just no supply and no demand, right? I mean, the world was, this was not an economic proposition. It was a passion proposition. Second, the things that we were growing and culturing and lovingly processing were really incredible. I mean, incredible, incredible foods. The famous story for Stonyfield Farm we were up on the hill making this yogurt, sort of knocking ourselves out 24-7, and this Iranian refugee who had, Ayatollah Khomeini had come in, you might remember the Iranian hostage crisis, and she had moved to Milford, New Hampshire, and she found our yogurt, you know, we used to hand deliver to our local Earthward, the local natural food store, and she found a quarter of our yogurt, and she drove up, she said, this is the most amazing, you know, this is so, every day Ayatollah Khomeini's on the front page of the newspaper screaming, down with America. She wrote up there and she said, look, this is the best thing I've found since I left my home. And of course, they know something about yogurt in Iran. They've been eating it for like 9,000 years. And she said, I have a great idea for you. You should call it a taste of Iran, which was a piece of marketing advice we did not accept. But we were producing really great stuff. And then the third ingredient is that we didn't know what we didn't know. You know, I had no idea we were going to need what you've seen here today, you know, thousands of meters of stainless steel. And that naivete was actually a critical ingredient. You know, you scratch, you know, go to Tom, the Tom's from and Tuckett Nectars, or like I've mentioned, Drake Sadler, or Steve Deimos, or all my buddies back then. None of us understood what it was going to take. Had we known the kind of capital that was going to be needed, I think all of us would have run back to our teepees with our wet goats, right? We would not have done this. But in my case, I had an especially fortunate circumstance. Samuel, like I said before, was a genius, truly is a genius when it comes to food production, but he was also a genius with engineering. I made the joke about the duct tape earlier, but he could solve electronic, electrical, mechanical, pneumatic problems. We had one night where he was We were in the farmhouse. And by the way, this message is for all of those startup folks who think, I can't do this, because this will tell you that you can. Because if we did it, anyone can. Samuel went for a routine medical appointment 40 miles away in Nashua. And it was camp time, my shift on the yogurt. And I was in there with his daughter. And the machine, the filler, which was complicated piece of technology broke down. The cup filler. Cup filler, yeah. And Samuel, it turned out, his doctor had told him at that appointment, look, you're about an hour from a diabetic coma. You have advanced type 2 diabetes. I'm putting you in the hospital, putting you on an insulin IV for three days. And so I was wondering why Samuel hadn't shown up from his appointment, and we didn't have cell phones, right, in those days. And this machine died. Well, the only guy who could fix the machine, I mean, I was pretty good mechanically, but not electronically, was Samuel. And so to make a long story short, over the consternation of his nurses, who were trying to keep this guy from dying, We strung a phone line about 150 feet from the office out, and I laid under the yogurt machine with apricot and mango and milk dripping on me for seven hours while he, from his hospital bed in Nashua, narrated to me how to rewire, how to hotwire, and actually to get around the electronic problem we had because the part was, you know, I would have had to send a postcard to get the part, right? And the worst of the story was that I'm incredibly colorblind, and I had to connect red poles with green poles. And he kept saying, don't do the red to the green. But I mean, like with so many other stories of companies, we had an unusual set of skills is what I'm trying to say. And sure enough, at 4 that morning, we hit the switch, prayed that the world wasn't going to end. And the machine started, and it was time to milk at that point. So we just kept on going.
[00:20:15] Ray Latif: Yeah, it was real mission impossible, it sounds like, in so many ways. At that point, did you consider co-packing?
[00:20:23] Jon Landis: Well, first of all, there were no co-packers. I mean, we were a rounding error versus production. Before we began this interview, you guys were asking me about Columbo, which was how we found Bob Burke, and that was the big, giant $70 million yogurt company down the road. Even if we had wanted somebody like that, we would have been utterly uneconomical for us. Plus, we were kind of a gnat they were just trying to get rid of. Our 32-ounce courts, right from the beginning, were immediately kind of in their face. So no, the answer is no. I thought what you were going to ask is, did I consider quitting? And I'll just say that, like I said, I'll go back to that theme of naivete. Let me just maybe make this more in chronological order to connect the dots. So we sat at the board meeting. We said, let's start this yogurt. We didn't have money between us. We were running nonprofits. I remind you, my salary that year was $11,000. Samuel had no salary. All the yogurt he could eat, but no salary. He went out and found $35,000. in loans from the Sisters of Mercy. Mercy was probably the right word. This is a group of Catholic nuns who had sold their campus here in Hooksett, New Hampshire, and they wanted to sort of seed locally socially responsible business at the local level. Samuel applied and got a loan. He presented a business plan that was actually written by someone else who knew what a business plan was, because neither of us knew. A guy named Michael Swack. The business plan was garbage in, garbage out. We wrote a plan requiring $35,000 in capital for what I now know we needed $250,000 in capital, but it was enough to not only get the loan for the nuns, but we even got a nun. Because one of them was a bookkeeper.
[00:22:06] Mike Schneider: Let's talk about an angel investor.
[00:22:07] Jon Landis: Yeah, well said. She was our first bookkeeper. In hindsight, I think they would admit they weren't sure that they could trust us with their money, so they sent along Sister Mary Louise Foisy. But nonetheless, we got this thing started in April of 83. producing about 50 gallons a week of yogurt. So put it differently, 50 cases, which is 600 cups a week. And I had by then resigned my position at New Alchemy, planning to join Samuel, but not until the fall, until September. So I was helping him. Once I made the firm commitment to him in May of that year that I was going to join in September, he did what any self-respecting entrepreneur would do. He just stopped paying the bills. He figured the guy who knew a little bit more about business was going to take care of that. He could just focus on the milking and the making. And so any check that would come in for our yogurt went immediately to buy feed for the cows or cups. And so when I arrived on September 15th of 83, four months into this thing, there were three army surplus desks in the non-profits offices piled high with unopened envelopes. And I figured, okay, I'll spend my morning separating the checks from the bills. Well, trust me, Samuel knew the checks. He had opened those. And I discovered before my first lunch that we were $75,000 in the black with a business that was- In the red. I'm sorry, in the red, excuse me, sorry. Dream on, Gary. We all know you in the red. Yeah, we were bleeding. And I knew that that was just what I could see. And I knew that we probably were more like 100,000 in the hole. And by the way, the business was churning at about a $75,000 a year business. And again, it's part of a nonprofit. And I was really there to help run the nonprofit and help him drive the business. So I did, again, what any good entrepreneur does. I called mom, and I borrowed $30,000 from my mother down at Disney, and I borrowed from other friends and family. The one thing I was pretty good at from my years of running nonprofits, especially post-Reagan, was I could raise money. So we kludged it together with $5,000 here, $6,000 there, and got ourselves the $100K. But again, $100K isn't what we needed. We needed $250K. And you needed revenue. Well, we needed revenue. use the money not just to pay off our debts and get things properly positioned, but we also got some more equipment and we got ourselves some proper loans and personal guarantees and giving away our children and grandchildren as security as one does. And, you know, beg, borrowed, and stealed our way so that the next year, 84, we did about $250,000 in annual sales. And the next year after that, we did about 500,000 in sales. And this gets me back to your question, Jeff, which is co-packers. Because first of all, somewhere in there, we sold the cows. There was one night, we had then grown our herd. I'll tell you a quick story about that. We were delivering our yogurt to a handful of independent grocers. Still north of the borderline? Oh, yeah. We hadn't gone all the way. to cross to Massachusetts, you know, roughly, you know, what, 30 miles, 25 miles away. But we were selling to some independent grocers, and one night the nephew of the owner of Demoulis Market Baskets, Jack Demoulis, the legendary buyer, called us, called Samuel at his home. I was sitting there eating dinner because we were all living together on the farm. And he said, Mr. Kamen, why are you selling to my competitors and not to me? Because we were selling to one little independent called Keeley Farms down the road. Or to Alexander Supermarket, excuse me, down the road. And Samuel said, well, to be honest, Mr. Demoulis, thank you for your call, but I don't have enough cows to sell to you. He said, well, get some more damn cows. And he slammed the phone down. And we took that as very good business advice. So we grew our herd to 19 cows, started selling to the 30 store, now then 30 store, Demoulis Market Basket chain. And we were growing. One night Samuel had finished milking, so this hill you got to understand was exactly the wrong place to make yogurt, to do anything. It was a hilltop road with a 90 degree turn at the top. It was one of those places where if you had a fire, you sent a postcard to the fire department. It was not an easy trek and when the power went out, from winter storms, which were plentiful here. We used to have real winters then. We were like the last line to get filled. So one night Samuel had finished one cow of the 19 milking, and he came in, and Louise and I were having dinner, and he said, look, I need, we got to go hand milk the other 18 because the power's gone out. Well, you know, we finished milking the last of the 19 cows, almost in time to start milking the first one again. And then we still had to do our yogurt making shifts.
[00:27:16] Mike Schneider: Yeah, that's truly amazing.
[00:27:18] Jon Landis: It was ridiculous. And so we, one other secret weapon, by the way, Samuel had six children. And they were like their dad and mom, you know, incredible, incredibly diligent, hardworking, dedicated people. And they were our yogurt makers and our truck drivers and our So we the kids and we all just you know, we're sort of digging our way through this day after day with crisis after crisis and We sold the cows and found a dairy who would produce not organically and biodynamically but close to it like we were doing And then, to your point, we, within a very short while, outgrew the farm. And we did find a co-packer in Western Mass who was a friend of ours who had another of these early pioneer co-op natural foods dairies. This was called New England Country Dairy. And in our desperation, and again, this gets back to the naivete of who we were, we really didn't do any kind of due diligence on his balance sheet. We just were desperate. He had a filler, he had pavement, he had a dock where you could actually load directly onto a truck.
[00:28:25] Mike Schneider: What a novel concept. put it down and then lift it back up.
[00:28:29] Jon Landis: Believe me, in winter, we used to, you've watched curling, right? We used to, our forklift in the winter, we would have two feet of snow in a blizzard. One of us would be shoveling in front of the forklift as it drove one inch at a time to go to the barn to get our cups and lids to bring it back.
[00:28:48] Mike Schneider: Now, across the border in Vermont, that's known as a good time, right?
[00:28:53] Jon Landis: Well, there were a lot of us struggling back then. I don't think anyone was having fun. But anyhow, again, to make a long story short, we got into this dairy, we continued our crazy growth, which was really about 150-200% a year. We were in there for about six months and on the, I'll never forget this day, on the Friday of the famous crash, Black Friday in October of 1987, his banker called me that Thursday night and said, Gary, we're not going to renew his SBA loan, this co-packer. He's in his third year of an SBA loan and he's defaulted on his covenants. Would you like to buy him?" Money was going out the door like water down a drain. We had no money. I said, look, how long do we have? She said, I don't know. It's up to my president. And the next morning at 7 a.m., they went in and shut them down. Chapter 7. Left my cups, my lid, had all my inventory, let my employees out, but otherwise padlocked the place and required that I come up with $100,000. My sales at this point were probably $750,000. Annually, they needed me to come up with a hundred thousand dollars just to get my inventory out and you know in the perishable business you have to open the door just to get my stuff and Then of course I had to bring it all back up to Wilton to the original farm. There was nowhere to go Yeah that we had already exceeded a year before its growth six months before and So there we started a period that I still get chills down my spine when I talk about it. But we began 24-7 yogurt production around the clock. One of Samuel or me making yogurt every other night, in other words, not sleeping every other night, just trying to stay in stock. Burning, by the way, $25,000 a week. Our gross margins, for those of your listeners who understand this stuff, dropped to about 11%. This was not our net margin, our gross margin. There was no net margin. And it was just survival. And we did this for 21 months until we were eventually able to, through a long other set of odysseys. And you can imagine all the disasters, the fires and the breakdowns and the employees who couldn't drive because of the ice storms and the pumps going out.
[00:31:07] Mike Schneider: You did this for almost two years.
[00:31:09] Jon Landis: Yeah, we did.
[00:31:10] Mike Schneider: You took production back in-house to a smaller facility
[00:31:14] Jon Landis: Yeah, well, first we had to get the roosters. They had moved into the old yogurt works. We had to clean it out and spend the weekend. But, you know, we borrowed money from anybody. I used to say, you know, anyone with a necktie was fair game at this point. I was having to find $25,000 a week.
[00:31:30] Mike Schneider: And how was it that people were so willing to lend and to support? Were you showing them evidence of growth and customer love?
[00:31:45] Jon Landis: Yeah, yes. That's the punchline is that they love the yogurt. I mean, to be fair, for everybody who did lend or invest, I probably had talked to 10 others. And you can imagine there were no institutional investors who would talk to us. We were like, you know, Martians to them. We were just burning all this cash. But like that Iranian lady years before, people just love the yogurt. And, you know, Gene Burns on the Dining Around Show and Joe and Andy, you know, on the talk. I mean, we would get free earned media because radio folks and TV folks would just start spontaneously talking about this unusual, incredible product. And that's what kept it going is the fact that people loved it.
[00:32:30] Mike Schneider: And how much were you sticking to principle at that point?
[00:32:34] Jon Landis: That's, again, the word naivete comes up. We were We were throwing away a lot of yogurt because it didn't meet our standards and it was nightmarish. I mean, we were feeding every pig in Southern New Hampshire because when you're going 24-7, you know, you're not doing the inadequate amount of cleaning. Cleaning for us, we had two 200-gallon tanks. You would climb in the 200-gallon tank and scrub it. That's so you couldn't be claustrophobic, my poor kid brother. And you had to do it every 24 hours. So, you know, you would pause yogurt making for four hours to do a thorough cleaning. But let's face it. sleep-deprived and panicked and you know I was off raising money most of the time and of course I was doing my yogurt making shifts at night so we were not in our best form and yet to our credit and I will say particularly to Samuel's credit and even more particularly to his daughter Darren and his wife Louise who are our head yogurt makers and a wonderful woman named Doreen Shaput they lived by the gospel here they would not let the product out the door if it didn't absolutely meet standards, which was, you know, carve off, like Samuel used to say with his Brooklyn accent, like the white cliffs of Dover. But, you know, the other answer to your question is, I mean, I learned a lot about fundraising, and we had lots of manipulative, sneaky, sleazy institutional investors who wanted to come in for the kill. They thought we were desperate, which we were. They had reason to think that. We had one dairy in northern Vermont who we negotiated a deal with them. We literally financed a fax machine. Fax machines in those days cost $4,500. We had, I think, the first one in southern New Hampshire because they were up there and we had a lawyer, which was my mother-in-law. I should have told you this earlier, my largest investor. Never a good idea. I don't recommend it. be in bed at night are you know my my room was about fifty feet from the office which is about a hundred feet from the other works and thinking my wife was asleep i would tip toe over on wednesday nights the night before payroll to call my mother-in-law on the business line to see if i could you know borrow another twenty five hundred dollars to meet payroll and i would hear the click click of call waiting as my wife told my mother-in-law don't do this mom And we eventually, my mother-in-law sort of perniciously and slowly wound up becoming the biggest investor. And we kept that a secret from my wife for years. But anyhow, she funded her lawyer to help us negotiate this deal with this co-packer. And we thought we'd finally had it. They were going to make our product for us. And we were going to be able to focus on our sales and marketing and get out of this desperate downward spiral of, again, I mean, at this point, we were like $1.7 million in the hole. We drove up there to close the deal, and they ended up, you know, instead of the big, thick deal that we had negotiated so carefully, line, chapter, and verse, they had a one-page letter where they basically said, look, we've decided to do this differently. We're going to give you, credit you one penny per cup of yogurt, convert all your shareholders' equity into debt, and you can pay down their debt, which we estimate will take two years, and at the end of the two years, we'll figure out your future employment. Just friendly milk farmers.
[00:35:51] Ray Latif: Yeah, right. So I do want to ask, I mean, you mentioned institutional investors and you've, you know, I kind of want to fast forward here. You've seen the amazing growth of Stonyfield Farm at this point, growing year over year. You get to a point about 13, 14 years later, where you are a very well established company with great sales. And at that point, an institutional investor does step in. Yeah. And, you know, why did you decide to go that route? You know, what was the, what was the reasoning behind it?
[00:36:17] Jon Landis: It's a perfect segue. Yeah. Yeah. So as you might, your listeners might have figured out by now, I had a lot of investors. Yeah. Because I had dairy farmers who would accept $5,000 of stock when I couldn't pay for milk. I had, you know, friends, family, my ultimate Frisbee team, you know, my mother-in-law, you know, whoever, anybody who would lend, To be more precise with you, I had 297 shareholders. Oh my goodness. Yeah. And the average shareholding was probably $28,000. OK. I did have some big ones, like my mother-in-law and a couple of others. So I needed the time period you're referring to, just to put this straight, is the late 90s at this point. 1999, we're doing about $78 million in sales. and uh... i just felt an obligation to get my shareholders an exit you know many of them had loaned to us are borrowed to us uh... either because they were drunk or under duress or something but you know at that time you know they were single and now their kids were going to college i mean a lot it happened in the intervening years and again i've i remind you i had my mother and my mother-in-law's money in here so that's not something that you know you don't sleep well under those circumstances well you're gonna get the shares eventually right Well, you know, trust me, my shares at that point were, you know, liabilities, not assets.
[00:37:39] Ray Latif: How many times did you defer to your mother-in-law on child rearing? I'm wondering at this point.
[00:37:44] Jon Landis: Yeah, we shouldn't go there, at least in case my wife is listening. We were, you know, things were going, we were making money, and miraculously, you know, the multiples weren't what we're seeing now, but they were good. You know, by then we had established ourselves, we had meaningful market share, we were, I think, 5 or 6% of New England yogurt sales, for example. Colombo had already, we had already passed them. You know, we were humming. And so, you know, at first I thought, well, let's take the company public, But I was good friends with Ben and Jerry and watched what happened with them when they had begun innocently enough with the idea of the Vermont-only offering and the idea that let's have our consumers own our company. When Dryers made their hostile takeover bid and Ben found himself in a boardroom in New York with 21 lawyers around the table, he was paying for all of them and none of them represented him because of being public, all the pension funds and so on. That's when I realized Going public is a sale of the company, and you can't fool yourself. And I wasn't ready to sell the company in the sense of making myself vulnerable to those kinds of forces. I thought about private equity. Again, had received some very egregious offers. These were just financial calculations with discounted cash flows. And by then, I had sort of learned stock and trade of finance, on-the-job PhD here. want to just make this a financial proposition. So the thought, and I had a pretty good board at that point, including, by the way, the guy who had founded Yoplay USA and eventually sold it to General Mills and some other savvy folks. And I thought, let's find a strategic. And so we went out, and again, I'll condense a long story. You know, began a negotiation. We actually talked to 30 companies and eventually got it down to three. But one of those who was the most persistent and with whom I had a two-year negotiation was Danone, owners of Danone and Evian. And the deal I was proposing, and I hope this is of inspiration to your listeners, was a pretty unusual deal at the time. Now, since then, I've been a part of negotiating many more that have mirrored this deal. But as I told you before, I didn't want to sell the company, but I wanted to get my shareholders out. And the deal we negotiated was that the 297 shareholders owned 80% of the company, 74% of the company. Excuse me, excuse me. We had 26%. That is we, the employees, and Samuel and I. and so uh... by said look we'll do a deal with you where you'll, in two stages, proving yourself along the way, you'll initially get to buy 40%, take out these shareholders at an excellent valuation, and eventually, if you do a checklist of things that I need you to do to show that you're really gonna walk the talk here, you can buy the other 40% to get yourself to 80. But after that, I still need to be in control. which is a pretty, you know, brash, you would say, chutzpah kind of thing to do.
[00:41:00] Mike Schneider: They owned 80% of the company in non-voting shares.
[00:41:03] Jon Landis: Well, the way we structured it, which was clever, and I give them a lot of credit because they helped figure it out, is that I would get, because Samuel was retiring at this point, I would get two board seats. They would get their three because in order, according to Gap, in order for them to consolidate, because again, we were profitable. They wanted our earnings to consolidate. They would have to be able to prove to the IRS that they had control. So they got three seats. But we made one of their three legislated into the deal. It would always be me. And that way, I wound up with three of the five board seats. And, you know, in the end, it was just so simple. It was beautiful. To get to the point, we ended up closing in December of 2001. My shareholders got a phenomenal return. Two years later, Denon did do what they said they were going to do. My shareholders got an even better return on their remaining escrowed shares. And our deal was as long as I remained CEO, which I did for another, at that point, 11 years, I would continue to control. They had a few vetoes, which were fine, but we ran it pretty much the way I wanted. And of course, I sold and I stopped being CEO at the end of 2011 to move into some more activist endeavors, but I've remained chair ever since. I did end up selling all of my shares a couple years ago. So as you know, the Stonyfield Farm for sale again. I'm not an equity holder, but I'm actively involved in discussions with the new prospects.
[00:42:36] Ray Latif: So did you consider the deal you made one where you were able to kind of look at Stonyfield Farm what you built is still sort of being an independent entity or one that was run by an independent kind of
[00:42:46] Jon Landis: Very much so. I had three motivations. One, I mentioned getting these shareholders a great exit. Two was getting their plant and manufacturing know-how. Because we were now pushing, by the way, in those two years from the $78 million, by the time we actually closed the deal, we were now over $100 million. So we were pushing the limits of our own internal knowledge. Denon runs dairy plants, yogurt plants all over the world, and we did. We got a lot of great know-how. And then the third was I wanted to influence the parent. I wanted to increase their organic, you know, again, remembering this whole thing began as a goal to grow the organic sector, right, to grow the amount of healthy, pesticide-free, chemical-free food and agriculture. And indeed, you know, we started a little company in France called Le Divash, which is now the fastest growing yogurt in Danone's whole universe. It's the fastest growing yogurt in Europe. It's 100% organic yogurt. We've now started in Italy and Spain. I say we, I'm now separated from Danone, but This was one of the real tragedies of the divestiture that led to the sale, is that I'm no longer involved. But I worked with them on launching, with Mohammed Yunus in Bangladesh, a dairy that now produces yogurt for $0.03 a cup to the poorest of the poor. We worked on their climate strategy and climate footprint. My sister and I both put, Nancy was our Director of Natural Resources, we put huge amounts of time into really influencing the parent, the mothership.
[00:44:15] Mike Schneider: We had this discussion last week about John McKenna on the same sort of principle, and I actually referenced what you had done, which is this introduction of a radical tenet to the food system. You can say culture. You can say culture. But I'm not going to. I'm going to say radical tenant.
[00:44:36] Jon Landis: Yeah.
[00:44:37] Mike Schneider: But I'll use culture because it actually infects, grows within the mainstream and pushes the mainstream further out. Yeah. And I wonder if you see that as being the largest impact of the sort of The Stonyfield Crusade.
[00:45:00] Jon Landis: Yeah, beyond a shadow. I mean, again, if you go all the way back to Samuel and me and our one cow, his one cow, we had pretty high ambitions. We understood that the absence of attention to how we're growing how we're taking care of the cows, how we're treating the land has led to enormous amounts of ecological and health chaos, but also crazy amounts of inflation. I mean the cheapest form of health care is not getting sick.
[00:45:32] Mike Schneider: Sure.
[00:45:33] Jon Landis: And we as a society have made ourselves sick and just go out on the streets and look and you'll see it. The obesity epidemic, the diabetes epidemic, the cancer epidemic, these are related to how we eat and this broken relationship to the planet. So we, as you said earlier, we used yogurt as the medium to kind of reach people. But in the end, I would sort of summarize it this way. I'd say a lot of us mission-driven folks in the early going began with similarly ambitious missions. The first thing we had to do was learn how to be business people. I can check that box now. I sit on 11 boards. I've been on many other boards. I helped lots of companies struggle with and solve problems of every stripe. But the second thing we had to do was learn how to speak the language that large companies, and I mean by that large food companies, distribution companies, retailers, suppliers, agrochemical, and others speak, to be able to infect them, and I mean that in the most positive word, with a different kind of approach, with sort of getting our relationship to the planet straightened out. And I'm very proud of the relationship with Danone. I mean, Danone's acquisition of WhiteWave, I think Emmanuel Faber would give me credit as his inspiration. I took him around Expo West and he knew the WhiteWave folks, but I think I helped Emmanuel and Lorna Davis and the other leaders there understand this. And I just want to go back quickly just to say before going to where I know you're going that You know, the reason I chose Danone, because other companies were willing to go with me on this kind of imaginative approach, right? I mean, let's face it again, you know, in fact, the woman who was heading M&A for Danone, At one time, she said to me, in the process, she said, you know, because, you know, French love to say the word no, right? And when I described to her what I want, she said, Gary, you mean to tell me you want to own 20% of your company and still remain in control? And I said, yes. And she and all the other bankers in the room started laughing.
[00:47:41] Ray Latif: Did she say, denon?
[00:47:42] Jon Landis: Denon, oui. But the deal was closed because Franck Riboud, the very visionary chairman of Danone, said it best. And I mean, first of all, he said, yes, we're going to do that, told his team. And he shook my hand and looked me in the eye and said, we're going to do this. But when we were closing the deal, we were interviewing with The Wall Street Journal. And The Wall Street Journal guy was asking all about return on assets. And Frank interrupted him and said this line I will never forget. He said, Nick, to the reporter at the journal, he said, I promise you, if you want to know all the finance questions, I'll turn you over to my CFO. I promise you this deal is going to be good for us financially. But if you only focus on finance, you'll miss the reason we're doing this deal with Gary, which is that Stonyfield represents an ethic that we at Danone must adopt if we're going to be successful in the 21st century. And as you look at General Mills' acquisition of Annie's, and Honest Coke's acquisition of Honesty, and Harmel's acquisition of Applegate, and on and on. And I've been on the boards of all these companies. Absolutely. You'll see that these companies have willingly come to the table with serious money, crazy multiples in many cases, like Jeff Bezos, to your point, coming to John, to say, OK, look, we're willing to walk on the wild side here. Why? Because it makes sense.
[00:49:02] Mike Schneider: So, going back then to that two-step deal... Yeah, the 40, then the 40. That's something that remained as part of the ethic in the Honest Tea deal. Yeah.
[00:49:15] Jon Landis: In all the deals I just mentioned. Yeah, in the... Applegate, everybody.
[00:49:19] Mike Schneider: Late July. I want to ask, is that element of let's prove it. First of all, was it ultimately necessary over the course of your tenure with Danone that you have to prove it? And is it becoming less necessary as the world starts to change?
[00:49:44] Jon Landis: Those are really good questions. So just to underscore, I'm still on the board of companies that I've helped to get acquired, I'm still on the board of Late July, still on stock with Nicole and Peter. And why, in part, it's because, yeah, we're constantly challenging the parent to be loyal to the promises that they made and also to the essential, incredible ethic and mission of late July. We still have an advisory board with Applegate and Hormel. There was a big pushback moment with Honest Tea early on. Oh, yeah. We had many more than only one, but probably one that you were aware of, and I know which one you're talking about with the label. Yeah, but it takes two to tango. So let me sort of say this at the macro, and then I'll go right to the micro of your question. I don't know that I have to persuade you that the values that we started Stonyfield with are still my values to this day. This is what I consider to be the work of my life, is correcting our relationship to the planet through food and other businesses. And that's why all the investments and all the boards is I try to sort of help companies steer through this. Having said that, the great news about the organic sector is that we're now $47 billion in annual sales. You couldn't even use the word organic and sector in the same sentence when I started. It was more of a sect. Well said. That's good. You got some good one-liners. The bad news is that we're 5.5% of U.S. food, right? We're still a rounding error. Yeah, no, it's just under 10 trillion, right? Yeah, and we have got to, as a processor, distributor, retailer, or consumer, if you care about the fundamental promise of organic, which is to reduce the amount of unnecessary toxins in the biosphere, to create a planet that's actually habitable for future species, to reverse climate change by trapping carbon, which is what organic does every day, and sequestering it in soil, and all the other amazing things that we do. Not to mention, if you support the idea of preventative health care to reverse the cancer epidemic, then you have to embrace the idea of these big companies coming into the space. And the reason you have to is because guess what? They're not going to hand us the keys. You know, they're not going to say, Gary, I've read your book. Yeah, you're right. You win. I lose. Coke hands it over to Seth at Honesty. And so, as I started to say a moment ago, these deals are not any different from marriages. It takes two. And there's a lot of give and a lot of take. And the bigs don't trust the littles as much as the littles don't trust the bigs. A big part of this is trust. A huge part of it is results. And the formula, and it's a little overly simplistic to say this, because really there is not a formula. These deals are all case-specific, depending on what the pressures are of the big, or the pressures are of the little, or the opportunities, or the competitive landscape. I mean, when I helped Happy Family into Danone, that was a very different set of circumstances than Stonyfield going into Danone. But the bottom line is that you have to get very clear on what each needs. And when you have that, when it's all up front and you understand that Danan, I understand your needs, and Danan, you understand my needs, then you, it's like a marriage, right? Then you have the prospect of success. So to be particular and precise here, I will say, all this sounds really good, but I will say it worked best when I was still CEO. The day I stopped being CEO, in early 2012 was the day when our relationship with Danone fundamentally changed. I no longer had the leverage I had. I no longer had the contractual or the day-to-day opportunity for influence. In other words, I guess using the marriage analogy, I was sort of away from home more than I should have been. And that's not to take anything away from Steve Torrance, the CEO here, who's an amazing, incredible CEO and the entire management team. When I moved into advisory role, Steve had been a Danone employee. So at the end of the day, they had a little bit more leverage on him. It was less of a handshake of equals. And so that's why Nicole and Peter are still at late July. And Seth is still involved with Honest Tea. I think when the founder steps away, it's hard. Now, having said that, again, I go back to the point. If we're going to change the way the world eats, then we have to not only embrace these large companies, but we've got to endeavor to make sure that the DNA that's in our companies, in these do-gooder, better-for-the-planet, better-for-you brands, is in the cell tissue of the sub, but also of the parent. So that it's because we're all gonna be compost eventually, right? We can't all stick around.
[00:54:46] Mike Schneider: I think you probably lasted the longest of any of the insurgent food companies' CEOs who've been bought by strategists.
[00:54:55] Jon Landis: Well, it isn't even past tense, because I'm still, it's lasting. Well, but within the company. Yeah, as a CEO. John Forker at Annie's is getting there.
[00:55:04] Mike Schneider: Yeah, he may break the record.
[00:55:06] Jon Landis: Yeah. No, 11 years is longer than John has been there, but, you know, John's, I mean, again, I was on his board. We're very dear friends and I'm lucky to consider myself a friend and advisor for him.
[00:55:17] Mike Schneider: Does one of you have to run the parent company someday to fully get that DNA installed?
[00:55:27] Jon Landis: No. What I would say to you is that the DNA... Well, let's just level the playing field here, right? Level set. Where's the growth? Well, the growth is all inorganic and non-GMO and better for you, better for the planet foods. So these companies are not walking, they're running into this space. And by the way, many of them, despite their best intentions, have a tendency to bring disruptive management behaviors that can actually hurt. And there's a lot of examples of this. And Mills is interesting. They hurt some early organic companies, and now they're doing a better job this cycle. They're even bringing some of the early ones back, like Cascadian Farms. But I've seen plenty of good deals. I've seen plenty of bad deals. What I would say is crucial, and again, I'm speaking now as somebody who's right here in the company, as we're now for sale again, talking to strategics again, I would say it's on the management of the acquiree to get the results that the parent needs. If you're getting the results, they have no reason, if it ain't broken, they're not going to try to fix it. Where the command and control top down, negativity comes. And I'm not fully answering your question, because you're talking about reverse influence, but just with the acquiree. Where that comes is when a company is stutter-stepping. And it always happens when you're hiccuping on the way. But you've got to. It's a game of expectations. It's the same as running a public company. You've got to over-deliver what you promised. And I'm not saying sandbag, but you've got to be sure that there are multiple ways to get those results. Then they're not going to bother you. And then to answer your question directly, in terms of reverse engineering, again, it's the same exact thing. I helped, we helped Danon Yogurt to go authentically non-GMO. They literally, unlike Chobani and others who claim to be non-GMO, Danon's actual cows are not getting GMO feed. Now, I'm not going to want to say this for too long, because they're soon to be my competitor. But credit where it's due. The parent and Mariano Lozano, the CEO of Danone, and Emmanuel Faber, the chair of Danone, credit where it's due. They understood that what we were talking about here at Stonyfield Farm a carpenter friend of mine says he likes to be a carpenter because you can't bullshit a nail. You know, if Danone was going to be serious about playing in the better for you space, they had to go authentically non-GMO. And so that's getting into the DNA.
[00:58:00] Mike Schneider: That's pushing the change up the line.
[00:58:02] Jon Landis: Right. And by the way, it has to be bigger than us. I mean, it can't depend on us as individuals to be present.
[00:58:07] Mike Schneider: You described a nightmare situation of founding for nearly a decade. And now you're digging into these early companies. And I want to shift gears here and talk a little bit about whether or not they have the same level of nightmares that you did and what their experience is like early on.
[00:58:38] Jon Landis: Well, of course, everyone has nightmares. It's all relative. It was fun for me to hear Bob Burke talking about how he's open to talking to entrepreneurs, and he does a kind of a quiet assessment when he meets them. And what I would add to his- It's an intake assessment. Yeah, what I would add to his intake assessment here at the asylum is the mark of a likely success is not how somebody behaves when things are going great. It's how they are when they get knocked down. And everyone gets knocked down. And if you think you're not going to get knocked down, then don't do this because that's just simply wrong. But you're asking about the degree. The difference between the entrepreneurs I'm helping nowadays and us back then, like I said, the earlier joke, no supply and no demand back then. I mean, the marketplace did not know what to make of us. They didn't know where to put us. There was no category. There was no sector. There was no segment. There was no funding. There were barely any consumers. Our yogurt cost, our small cups cost $0.20 more than the nearest competitor. That's an under $0.69 item. Our big stuff cost $0.40 more. I mean, it was like ridiculous. We had no advertising, no marketing, and we usually had one SKU on a shelf. So there was no resilience in the marketplace. There was no marketplace. Although that sounds like the cold press juice set right now.
[01:00:05] Ray Latif: Talk about opening a whole nother can of worms there, Jeff.
[01:00:08] Jon Landis: No, I mean, look, a big part of the excitement now is that a lot of these entrepreneurs are not just inventing products, they're inventing categories. But the conditions are different because retailers and consumers, and we can't nowadays talk about one without the other because direct to consumer is It's pretty easy to interpret what's happening when Amazon owns Whole Foods, right? Where the world's going here. There's going to be a whole lot more different ways of reaching the consumer now. The constituents, the marketplace, has been rewarded by supporting innovation.
[01:00:40] Mike Schneider: Yeah.
[01:00:41] Jon Landis: New things have come along, and they've worked. Mama Chia, you know, Janie, I mean, she invented a category. and the kombucha folks, and Seth at Honest, and Douglas and Justin with Harmless, and so many others. And I'm on the board of Forager with Steve and the cashew milks and yogurts. But you've at least got an environment where people are open-minded now. By the way, you now have something called Whole Foods. You now have co-ops. NCGA. NCGA is a $2 billion entity. Yeah. I mean, I'm a co-op shopper. I live in a town where we will never have a big natural food store. Our big store is our co-op. Infra is a $2 billion, the independent natural foods association. You know, fancy food, which a lot of you guys have been at this week. You know, there's a whole expectation of a marketplace here for organic and natural that wasn't there. So the nightmares aren't as big because at least you can see a conducive marketplace. But the central proposition remains, which is that your product has to be better. than anything that's out there. Or forget it. It's not worth doing. If it's the same as, I mean, look at the kombucha space, right? As you guys know, my son is launching a new product, a new subcategory. It's fun to see the next generation in. It's not for the meek, but the only reason that he's able to do it, because he grew up at Stonyfield Farm. He packed cases. You know, tasted yogurts, and he was at Harmless Harvest. The only reason he's doing it is that he knows that what he has tastes better than anything else that's out there. And if it doesn't, go back to the drawing board and don't launch until you do. Because at the end of the day, it's not getting on the shelf that matters. It's staying on the shelf. that matters. And at the end of the day, we all, you know, all the features and benefits and ingredients and, you know, left brain stuff, notwithstanding, it's about taste.
[01:02:32] Mike Schneider: Your portfolio has so many family members in it. When you think about John Caddo, when you think about Ethan, I know that your wife- Ethan being your son. Yeah, John's my nephew with Peak Organic, yeah. I know that your wife has a very close relationship with Nicole and Peter. How does that feel to you as someone who's an investor and an advisor who's been in the mud of the farm? I mean, what do you tell them to prepare them? I get what you're saying.
[01:03:10] Jon Landis: Yeah, I mean, they're all my kids. Even some who are my age are my kids. Bob invoked the name Andrew Abraham of Organe, one of my proudest. I mean, I got Bob into that company and onto that board. It's one of my proudest investments. Andrew is just absolutely incredible. He's twice the entrepreneur I was at his age. And I could, you know, the sweaties at Sweet Earth and so many others. I kind of hinted at it a moment ago, so I'll just say it a little more directly. I think that there are really fundamentally two things that are essential. Everything else is fungible. One is your product has to be superior. And I mean taste superior. I mean, you can be nutritionally superior, but if it doesn't taste incredible, you know, think about some of the early iterations out there. And the second is you have to have the ability to endure unlimited amounts of pain. You've got to be determined. Determination, I think, is the most undervalued essential ingredient characteristic for a successful entrepreneur. The marketplace is inviting and welcoming and encouraging. And like Bob was describing in his interview with you, you go to a fancy food and some Whole Foods buyer loves you and all that. Irrelevant, irrelevant. What matters is six months later when your supplier has, you know, delivered you a bad run of X or your machine craps out and you've got a programmable circuit that it's going to take you seven days to get there. What matters is what you do under those moments when there's a, you know, a contamination in your factory. And the people you just mentioned, John, you know, from Peak, Nicole and Peter, The ones I just mentioned, Andrew, they have proven themselves through trial by fire. And if I'm a buyer looking to make a buck in my retail or online establishment, I want to put as much energy into getting to know the entrepreneur as the product, because I want to know that they're going to be reliable when inevitably merit happens, which it does.
[01:05:24] Mike Schneider: We see the Danone influence.
[01:05:26] Ray Latif: Earlier in the conversation, you thought Jeff was going to ask you if you got to a point where you were going to quit Sony Fields, and you just mentioned determination as being a critical factor for any entrepreneur to move forward. determination, how do you define it? I guess, you know, what is the driving force behind you staying on course, staying on track? Yeah. And is it the social mission? Is it the belief that you want to change how consumers eat and view food? Or is it, hey, I just need to pay my bills? I mean, what is it? You know, what is it a combination?
[01:06:00] Jon Landis: Well, of course, I'll, I can only answer for myself. And every entrepreneur listening has to answer for themselves or every manager, not all our entrepreneurs. In my case, just to be blunt, the reason venture capitalists want F and F money, friends and family money in, is because they know you might get up and walk away from them with their nice shoes and their Harvard MBAs. But if your mother and your mother-in-law are invested, you're not going to walk away. That's skin in the game. Yeah. And in my case, my mother-in-law had too much money in. My mother had too much money in. you know, their relative portions. I mean, Thanksgiving was always a board meeting. I mean, my wife never, ever failed to remind me, and she's written a whole book about this. You ought to interview her, by the way, because she's talked to hundreds of entrepreneurs about this. She might interview us. Yeah. But she, you know, always reminded me that if Stonyfield goes under, you know, we're going to have bigger problems than just my mother-in-law. Her brothers, I mean, their entire legacy was at stake. So in my case, number one priority was don't lose mom's money. Number two, you put your finger on it. It was the mission. The reason in my investing now, that I focus on companies, mission-driven companies, is A, it fulfills my mission. I really think organic needs to get to double digits as a percentage of, and I'm looking for companies who will get us there. But B, because I know that if the entrepreneur, manager, owner, the person controlling the checkbook is dedicated to that mission, then they're likely to stick it out through a lot more of the stuff that is going to happen. It just is going to happen. In our case, One night at the farm, in the middle of this every other night being awake thing, I was standing in boots. Because of the contamination problem of being 24-7, we used an excess amount of chlorine and other cleaning solvents. And we would stand in these foot baths. because feet is, that's where you bring in most. And one night I was on my fifth hour of the night shift, which is to say I had been up for probably, you know, 20 hours at that point. And I realized that my boot had leaked and my foot was burning. And as it turned out, I had severe chlorine burns on my foot, but I couldn't stop. I had to keep running the line. And when I pulled the boot off, you know, when my shift ended three hours later at dawn, the yogurt makers came to relieve me, I looked, and literally I had like frostbite burns, you know, like I still have the blisters today. And I was showing that to Meg, and she said, you know, don't you think it's time to surrender? And this is my wife who knew what was at stake with surrendering. And you know what? She was the only sane one of the two. I wasn't even asking the question. Because there was no question that we were going to do it. Why? Because we now had, at that point, 15 farms who were dependent on us. And we had gotten them to move to organic methods that they would otherwise never do. And if we went under, they went under. and they went back to commodity milk production they probably would have failed we have many many many farmers multi-generation farmers who have stayed in business because of stonyfield you know that with through our arrangement with organic valley in our own direct farms is one thousand six hundred and fifty dairy farms at their average herd size for our entire system is about 75 cows. And so you carry them on your shoulders. You carry the mom on your shoulders. You carry your employees on your shoulders. And if you're not someone who's going to stick it out, then I'm not going to invest in you. But also, you probably aren't going to succeed. And just back to the earlier point, if I could just add a tad, this ought to be the way that acquirers think. It isn't the way all acquirers think. that that founding spirit, if not the person, if that founding spirit isn't there, because let's face it, this is a ruthlessly competitive space now. In my day, by the way, the positive side is if you got yogurt on the shelf, you were probably given six months to succeed. Now what are you given? 60 days. Yeah, 60 days. So the marketplace is a little bit more forgiving. But if you come in recklessly and think that the DNA If you think that this is an accident why that drink or that product tastes better and is better, then you shouldn't be investing because it's never an accident. It's always the result of a combination of passion, mission, smarts, dedication, but also somebody who just, you know, did the impossible.
[01:10:42] Mike Schneider: So, Gary, in talking about all these farmers who were reliant on the earliest days of Stonyfield Farm wonder what that says about Stonyfield's current situation, how reliant they are on the company now, and whether or not that's brought your involvement up to another level as Stonyfield Farm back in play.
[01:11:13] Jon Landis: Yeah, that's an excellent and obviously incredibly timely question. I don't know when this is going to air, but the acquirer might even be announced by then. It's any moment now. Yeah, this is my life right now. To be fair, as chairman, I have been a bit more Denon focused in the last bunch of years, growing these organic lines in other countries, sitting on boards for them, and less involved in the day-to-day. And I had, by the way, expected to have a role in Denon Wave. when the deal was finally approved. But, you know, none of us knew that the company, that the Department of Justice was going to require the divestiture of Stonyfield. So the day that was announced, I had to reluctantly resign from all things done on, this is after a 15 year relationship, including having started, you know, some brands. You're a potential competitor immediately. Well, so yeah, I'm a potential competitor immediately, but even more, you know, you never forget your baby, right? And it isn't just the farmers who you've mentioned, but there's, you know, 400 employees here, half of whom, you know, I hired or were here when I left as CEO. And there's a brand I believe in and I love, and there's a marketplace screaming for more of the innovation that I know I can help contribute. So for the last six weeks since the sale was announced, I've really thrown myself in here in a very major way, working closely with Steve and Diane and Linda and the team, helping on strategy for the very reason that you just mentioned, which is that, unfortunately, our owner, until recent owner, is now about to be our most formidable competitor. And look, I compete with a lot of my friends. I mean, Jerry Wallaby was a buddy and, you know, I could go down the list. I mean, I love, you know, Albert Strauss, Strauss Creamery, and I, you know, I'm the biggest fan of Sue Kesey, of Nancy's Yogurt. I mean, these are not trivial relationships I've had. These have been friends for decades. I don't mind competing with friends, but in this case, you know, Denon Wave is pretty formidable. They've got non-GMO, they've got non-dairy, they've got organic, and they know everything there is to know about Stonyfield. Literally where the bodies are buried, they know. Maybe not literally. Well, okay, all right. But you know, they know our velocities at every customer and so on, and so this is going to be an artful transition. Do you think that's affected the sales process though? It has. It means that whoever is going to come in here as the buyer needs to be serious and needs to understand that they can't come in here and casually, you know the timetable in the marketplace nowadays, you've got to be, I mean right now, late June, we're laying the foundations for 2018 sales. So there's a year and a half's worth of impact of things that are going to happen in the next 30 to 60 days. And so the buyers have to have their eyes open through the process with Danone and Lazard's obvious encouragement. I have a number of the buyers have obviously asked to spend time with me. My name is still on every cup. I'm still kind of involved here. And I think that we have helped to educate the buyers so that they will have their eyes open. We've also been working on innovation. Until six weeks ago, Denon knew everything there was to know. And now we've had to sort of go, a firewall went up. They've been observing the proper process here. And so let the games begin, right? It's going to happen momentarily. What's interesting for me behind your question about this moment, and maybe I just kind of conclude with this, is that how many times in your life do you get to do this twice, get a do-over? One really important thing that's happened for me and for the company is that I've now had 15 years of working inside or with a large strategic, not just through Stonyfield, but through these other companies. I understand how the game is played better. There are things I would have done differently now had I known them, and I will try to help do them here. This, I promise you, we will be a formidable competitor. But it's going to take two to tango. We are going to need to have somebody who understands the core of this mission, because at the end of the day, it's never been about SKUs and mix. I mean, as you know, the yogurt case has become so complex. There's so many sectors. What is central about Stonyfield's proposition is the core mission of supporting family farmers, the core mission of educating consumers, and the core mission of delivering incredibly pure nutrition. Do we have to morph with the times and develop other sectors as we have with drinkables and Greek? Yes, we certainly do. We need somebody who's going to invest in innovation, but most importantly, We need the buyer to be entrepreneurial because that's what makes us successful.
[01:16:02] Mike Schneider: Are you finding those kinds of buyers out there right now?
[01:16:05] Jon Landis: Yeah. The process has been narrowed down now to a handful. I can say that some to greater degrees than others, but these folks have their eyes open. They know who they have to be in order for Stonyfield Farm be what it has to be. So, you know, now we've just got to get across the finish line.
[01:16:25] Mike Schneider: Do you foresee a more active role in the new entity?
[01:16:30] Jon Landis: With the right buyer.
[01:16:31] Mike Schneider: Are you getting brought back in?
[01:16:34] Jon Landis: Well, we don't know who it's going to be yet. So I'm not being coy with you. I mean, I will have to, my signature stays on the cup if I continue to believe in what this product stands for and what this company stands for. And again, the signature is never about just endorsing the ingredient label. It's the 360 degree package. It's the relationship to the family farmers. It's the commitment Now, with the abandonment of our nation's commitment to meaningful efforts to reverse climate change under the unmentionable one in the White House, it's up to business now to lead. And Stonyfield's commitments to carbon sequestration, we were the first to be talking about this way back when, and we need to lead. And it's all the other many mission commitments here. And if the buyer, the right buyer, embraces those, as I do, then yeah, I'll remain very active.
[01:17:27] Ray Latif: Well, here's hoping to us maybe coming back here in a few months and talking to you here at this great facility that you have, and maybe talking a little bit more about that buyer process and your role, perhaps, at Sony Stonyfield Farm.
[01:17:42] Jon Landis: Well, we will see. We will. A friend of mine says, don't take life too seriously. It's just a temporary condition. But when you think about these issues that we're talking about here, it's got to be taken seriously. And business has to lead the way.
[01:17:54] Ray Latif: Great, indeed. Gary, can't thank you enough for all the time you've given us and for just a tremendous conversation. And like I said, I hope to be talking to you again really soon.
[01:18:05] Jon Landis: Excellent. Thanks, you guys.
[01:18:06] Ray Latif: Appreciate your interest. Thanks for having us up here. A really great interview with Gary Hirshberg. If you ever have an opportunity to meet him, you should. He's at a lot of the trade shows. He seems pretty open to talking to entrepreneurs and he definitely has a passion, as you can tell, for organic and natural foods. And if you want to talk to him about that passion, I suggest you do. You'll get a lot of really good information from him.
[01:18:28] Mike Schneider: Classic entrepreneur, right? I mean, you look at the brand, you look at what they've accomplished, and then you get into the backstory and you realize what a struggle it was.
[01:18:36] Ray Latif: What a struggle it was, but determination was the key for him. He was going to make it work, and he had that sort of high-level view of the world and said, you know what, if I'm going to be a pioneer of this organic, if I'm going to be part of this organic food movement, I really need to do whatever it takes to get us there. So kudos to Gary Hirshberg, and hopefully we'll talk to him again soon.
[01:18:58] Mike Schneider: Yeah, thanks. We've been chasing him for a while, huh? How'd you get him? Did you follow him into the restroom?
[01:19:04] Ray Latif: Well, as he noted in the interview, Bob Burke was the key for those of you who haven't listened to our podcast interview with Bob Burke. It's pretty great. Bob and Gary have been working together for a long time and they're great friends. And yeah, thanks Bob Burke. We've got a great Elevator Talk as well. Mike Schneider, tell us all about it.
[01:19:22] Mike Schneider: Elaine, Aviva, collagen, so hot right now. Let's get into it. Let's go. Welcome to Elevator Talk, where we put an entrepreneur in the elevator with their dream investor for 45 seconds. We ask three questions. Who are you and what does your company do?
[01:19:42] Independence Day-length: Hi, I'm Elaine Morrison. I'm the founder of Eviva, which is a collagen elixir in three flavors.
[01:19:50] Mike Schneider: Is there anything coming up that you're excited about?
[01:19:52] Independence Day-length: I'm excited that we're about to do our first production run in Southern California in the next couple weeks. So within the industry, I'm excited that collagen is becoming such an important trend. And I just read this morning, there's now a collagen infused gin. So you can have your cocktail and drink collagen that's coming out in Europe.
[01:20:13] Jon Landis: What have you been geeking out on besides your brand?
[01:20:15] Independence Day-length: I'm excited about collagen as a trend. It's even made its way into a gin-infused beverage.
[01:20:24] Ray Latif: Good stuff from Elaine Morrison, the owner of Aviva. Hope to see her product here in the area soon. All right, that's all we have for episode 64 of the Taste Radio podcast. Thanks so much for listening. If you have any questions, comments, concerns, ideas for future podcasts, please send them to us at podcast at BevNET.com. Until then, we'll see you next time.
