On the founders background:
- Gary's mom said that it was insane, starting a business
- Soney field has more ups and downs than just about any other. It's an unlikely tale than ever; two guys milking their own cows
- Gary is the co-founder. He didn't really set out to build a company, but knew what it was to build one. His dad knew how to build a company in New Hampshire. In those days, their manufacturing was based there
- Gary's childhood was volatile. The Family's business went bankrupt, the parents got divorced, and his childhood role model died. Lifestyle changed completely after the family lost everything
- His mom supported five kids herself; she became a buyer for a local family chain. Eventually, she became the senior buyer for Sheraton and Walt Disney
- Gary wanted to run away from all things business as all family was just screaming at each other as they were all involved. Business was something where people yelled and hung up on each other. After college, Gary went and worked at an organic farm and did environmental sciences at college
- The other co-founder, Samuel was mostly teaching organic farming, and running the farm as a non-profit
- Reagan came into office at that time, and cut off the lifeline for sustainable research
- Samuel had one cow, and he was experimenting with yogurt. He made everything that fermented, milk, kimchi etc.
- Samuel was from Brooklyn, and knew how to make Jewish yoghurt and learned everything from the Jewish community
- They started selling yoghurt to make up for lost grant money. He got some catholic nuns to give him 35k USD (sisters of mercy) as they were selling a monastery. They gave Samuel the money to build this company
- Gary helped run the farming school while Sam ran the yogurt venture
How did the yogurt start:
- All started with one cow. The money from the nuns was used to buy six more cow and to finance a small factory, a closet / barn with a wood fired boiler
- Started producing on April 9,1983 and took the yogurt to the local market
- Sam didn't know about the price, so he started selling at 1.39/six packs
- They couldn't afford a refrigerator, so drove really fast to the stores. The product was selling through, but Sam was out of cash. Working capital was missing. They were 75k in the red, so Sam called his mother. Gary went to many former founders and get some money
- They first 10 years was about proving that organic food is possible. After that, it was about making money, and doing organic at the same time
On transition:
- What % of the world education revenue is coming from yogurt? 75%. That made them a business not a non-profit. They bought the firm as IRS said it was not legal to run it as a non-profit. They valued the business at 1 million dollars. Sales were 250k that year. They sold some stock to the original lenders
On continuing troubles:
- "1 kept hourly cashflows" - Gary. Whole foods didn't exist back then. Selling in 1984 was tough. All natural foods coops were not fully on board.
- Gary's frisbee team, that's what got it rolling for everyone. Was it stressful ? Yes 24x7
- "If you build it, they will come"
- They needed money for a lot of things going forward. Needed to switch over from wood oven etc. to get the real things. Cows were now 19 in count. They realized that they had to sell the cows one day when the power went out. They tried to sell the cows no farmer wanted to feed cows organic feed. They were betraying their values but there were no options
- They had their mothers and mother-in-laws money. VC's know that family and friends money, gotta give it back at the end of the day
- Never had cash in the bank for payroll. Gary's wife said - "mom don't do this". She saw that the whole thing was a nightmare. Meg loved Gary and the yogurt there was no where else to go. She had signed on to this crazy thing.And it got a lost worse
On even more troubles:
- 1.5 years later, they expanded the plant, buying milk from farms. They had 1.3 million USD/year run rate by then. They had maxed out of the farm. They were looking at another factory. They got a new factory without due diligence.
- In 1987 - a fateful weekend - on a Thursday night, a banker called and said - "Gary you wanna buy the dairy?".The SBA announced that the manufacturer was bankrupt
- The thing went into receivership. 100k was required to get inventory out of there. Shareholders paid up, but no yogurt was being made then without a factory. Volume had gone up; the old factory was restarted. Shareholders lent more money, and everything restarted. 247x production was needed to keep this going.
- Markets were too difficult to get more funding from capital markets. Fruit suppliers were still shipping fruit at the end. If you don't ask you don't get. Desperation was breeding the business
On finally turning a profit:
- Ultimately they found a dairy in Vermont to answer to problems. It was a much larger, 70 million dollar company by then
- 1 million dollars of mother in laws money was in it. Meg said "you promise me, all this is done?"
- Lenders decided to switch things over then. They tried to throw the founders out and threatened to call the debt. With no choices left, Sam and Gary almost signed the deal. Sam had given up; Gary' heart was broken
- Then, they start designing a yogurt plant and didn't sign the deal. 597 k USD was required to start a new loan; 80% was available from the bank of new England. Gary told the bank on having the equity piece. Shareholders were called for the 125k equity piece; It worked. They paid off the debt - 2.5 million USD. 10% each of the company was held by Sam and Gary.
- Revenues were 3.4 million / year by then, 6.5 million the year after, 10.1 million after that. They made 125k profit in 1992, first year of making profit.
- 44 million in sales in 95. Now they were going back to roots by buying organic milk again.
- 99- 100 million sales today
Why sell?
- Sold to Danone eventually. Some people came in during 984, they needed some ROI and wanted to cash out. Gary felt a moral obligation to pay them back. Sam wanted to retire. Gary asked to keep control
- Head of M&A at Danone laughed at him; eventually it worked
On Luck vs. skill:
- Luck counts a lot. Lucky to have met his wife, mother in law, lenders
- Skill helps too - Sam made it possible
