BRAND SECRETS AND STRATEGIES

PODCAST #203

Hello and thank you for joining us today. This is the Brand Secrets and Strategies Podcast #203

Welcome to the Brand Secrets and Strategies podcast where the focus is on empowering brands and raising the bar.

I’m your host Dan Lohman. This weekly show is dedicated to getting your brand on the shelf and keeping it there.

Get ready to learn actionable insights and strategic solutions to grow your brand and save you valuable time and money.

LETS ROLL UP OUR SLEEVES AND GET STARTED!

Dan: Hello, everybody. Thank you for being here. I really appreciate it. I hope you're getting a lot of really good value from these free weekly webinars. So let me know what topics you want me to cover, and we'll certainly try to get it on today. I've got the privilege of introducing you to stew. I'll let him talk more about himself, but first of all, were you here for how to learn? You're here to learn how to explode sales with the right strategic investor. And I think Stu is the perfect person to help us with that conversation. I want to thank all the people that are helping me. The companies that are helping me present this to you. Plant-based solutions. ECRN range me, Phil Lempert the supermarket guru, promo mash, whole foods, magazine green circle capital, which is Stu the produce moms Bricktown and group, which is actually Eric.

Dan: He was on before big orange summit, um, some sales and marketing food business success C-suite network, a C-suite radio, social nature and force brands. Again, I'm honored to have them be a part of this and help me raise the bar in our industry. So my mission, the reason I'm doing this is to help make our healthy way of life more accessible by helping you get your product on more store shelves and into the hands of more shoppers. And that includes online. So as I mentioned, please help me raise the bar, natural, share these resources with any brand wanting to grow and scale. And on that note, what keeps you up at night? Let me know, send me a note, reach out to me and I'll do my best to put that either on the podcast, in the webinar series or I'll address it on YouTube.

Dan: So we're here for you as the bottom line. So the next two frequently free weekly webinars. Next week, I'm going to be talking about how foolproof promotion strategies to conflict grow and scale your brand. This is a must-attend. And the reason this matters is because in 2017, 224 billion with a B with spinner promotions, and it only increased sales by 2.4%. The point is your promotional strategy is the way that you get your brand in front of other customers and new customers, potential customers, et cetera. But the reality is that most promotional spinnings wasted so attend that you'll definitely want to pay attention to that one. And then the week after Jessica Bates is coming on, and we're going to be talking about thinking about equity, thinking beyond equity, and she's got some creative strategies to help you get funding when you need it without having to go through a bank.

Dan: And, and, you know, we'll talk more about that later, but it's something that I think can help a lot of brands, especially during these uncertain times. And then also to help you out during this, these trying times, I am making my proven strategies to maximize trade marketing ROI course free. If you use the code trade essentials. Now, in addition to that, there's a free trade promotion, ROI calculator on my website, and it'll go into how to use that. So just want to put that out there because I think the best way to help you grow and scale is to help you use your money more effectively. And that's what we're going to be talking about Stu today. So I'm going to stop sharing and Stu would you like to please tell us a little bit about yourself and your journey to where you're at

Stu: My journey? This can take a while. Thanks for having me, Dan. My name is Stu. I'm the founder and a managing director at green circle capital partners. And my shop is a, um, a boutique investment bank that focuses solely on pro products, meaning food, beverage supplements. Um, we're actually spinning up a restaurant practice right now, uh, may seem like a crazy time to do so, but we actually think out of chaos comes the opportunity. Um, do you want me to talk a little bit about my background?

Dan: Yeah, please do.

Stu: Um, okay, well, I'll try to keep it brief. I've been, um, an investment professional for most of the last 30 years, um, which I know is amazing because your viewers are probably wondering, the guy only looks 29. I could that, um, I started on wall street, uh, in 1990 working for big firms. My first job was with UBS. Um, what was it, the time pain, whatever my last one was with Oppenheimer company. Um, didn't love that part of the business. And I've also been a lifelong vegetarian. Um, I stopped eating meat at the tender age of 14. That may not be so strange to listeners today, but when I was 14, it was 1980 and it was, it was quite unusual. Um, so this is kind of a way of life for me. Um, it's very important to me to work with companies and I'm very gratified that I get to all the time that make better for you products that are, you know, helping people live healthier lifestyles, but also doing some good in the world, um, beyond just trying to make a buck and ancillary projects to help the planet, the environment, other people.

Stu: Um, but in 2005, I kind of, I finally got up the courage to quit, uh, work in this wall street life. And I started a natural products company, my own. Um, it was a natural soda called snow beverages. I ran that company as CEO for six years. Um, ultimately the brand didn't make it, which you know, was tough and we could do another three episodes on that alone. Um, but you know, I, I raised millions of dollars as an angel, you know, uh, through angels, through small firms from my own business as CEO and the product was in thousands of, we, we feel very unique. My, my team in that both of my partners and I have all been operators, which is kind of unusual for an investment banker or a consultant, we, we actually sat in those chairs and I learned a tremendous amount.

Stu: Um, certainly learn how hard it is to try to scale up, a food or beverage company. And when I left snow in 2011, basically a year or two later, I kinda started green circle. After a couple of years of doing a few other things, we did some healthcare stuff. Um, we kinda decided to hone in on what we know and understand, which is a consumer and specifically, you know, food beverage supplements. And that's pretty much been the focus of what we've done for the last five, six years. Um, and like I said, we are launching a restaurant vertical and expanding it to one or two areas that are kind of adjacent, but that's who we are. Um, our typical client, you know, we used to say like 10 to 100 million in revenues, but, you know, until a year ago, the preceding five years, the space was so hot that, you know, you wouldn't see a lot of 60, $90 million food of natural food or beverage, you know, businesses that remained independent.

Stu: So it seems like the vast majority of folks that we talked to as prospective clients fall within a pretty narrow band between like 10 and 10 and 50 million in revenues. Um, and that's, that's been what we do half of what we do is sell companies. And half of what we do is help raise growth capital for early stage of growth-stage companies in the space. Um, that's something that every middle-market investment banker loves to do as much as to get a good sell-side M and an assignment. My team embraces it. Um, we, we believe that you know, there's a tremendous opportunity to kind of pick out who might be the next great, you know, brand and to partner with those folks. And we're a little bit more flexible than some of our competitors and being willing to work sometimes with something that's a little bit smaller, a little bit less out of the box, um, because we kind of see ourselves in the guise of a merchant bank where not only do we act as a middleman to connect capital to companies, but we're also making an investment in this case with our time. And we take some of our compensation in the form of equity options, you know, once or twice a year, we'd find something we really believe in. And we look to be longterm partners to those growing companies. Um, anyway, that's kind of, excuse me, that's kind of the basics on us. I should probably stop there

Dan: Actually. No, that was great. I really appreciate it. And the reason I wanted you to share that, and the reason this matters so much is that you're not just credit, just not an ATM machine. You're not just a bank where someone goes in you're, you're cold and, you know, steal, et cetera. But more importantly, you've got that relationship with the industry, that understanding of the industry and the reason this matters from my perspective, Stu is that the brands that are looking for investors, you've got a choice as we were talking about before, where you can just go to someone who is quote-unquote, the money, as you said, or you can go to someone who understands space. And the reason this matters is because I think a lot of the brands in this space that are trying to figure out how do I raise money, are sometimes making the mistake of just choosing the money over someone who understands the space. And so the expectations of the brands sometimes I find are more about how do you return an investment? How do you return growth to the investor, as opposed to what is the longterm vision look like? How do you align with a customer down the road? Can you talk a little bit about that and why that matters?

Stu: Absolutely. Yeah. I mean, I think you nailed it and we've spoken about this human eye a little bit in advance, but, um, you know, this kind of a spectrum, well, there's two things to unpack in there, right? It's my firm, why we have specialization and some guys in my industry do some don't. Um, and maybe the second thing is, you know, what can you get out of a capital partner besides just capital, right. And how do you identify who the right value-added partner is? And what is it that you could perhaps expect, you know, in that relationship? Post-transaction. So talk about the first part. Um, I'll try to do that more briefly, um, you know, kind of partly business decision purposefully, and partly just, you know, as a function of who we are, you know, we focus on this industry, you know, for better or worse, you know, it doesn't make us better or worse than the next guy.

Stu: It's just kind of who we are. There's there are a lot of middle-market investment bankers who were just kind of generalists. Um, there are firms that I know that great firms who have a specialization, but it isn't by industry or vertical as much as it is geographical. You know, they could be, you know, very connected in the great lakes region or the Midwest, if they're a smaller, you know, middle-market firm. Um, for us, it was a function of domain expertise and understanding the industry. Um, not only have I been living this lifestyle 40 years, I was an operator for six years in a, one of my partners, Jeremy Friedman, um, was an M a banker at bear Stearns. And then, um, invested solely in the health and wellness space working for two different family offices before he joined green circle. My other partner, Begley Smith was a food and beverage analyst at bank America.

Stu: And then a Jeffrey's. So this is kind of our thing, right? It's something we know some stuff about. It's something that we're just interested in. And from a marketing perspective, you know, I think it's effective because your client company, isn't looking to hire, you know, a good banker, right, or a good lawyer, or a good accountant, but they want the best guy, right. And the best guy for them. So there are plenty of firms that are much bigger than mine, but who would be the best firm for a 10, 20, $40 million food or beverage company? You know, we think that we fit that bill. Um, and because of our focus on understanding the industry as former operators, and then also within our network. And it's interesting because, you know, when you, a banker, you get contacted, there's a million private equity firms and venture capital firms out there.

Stu: And we get actually inbound, cold solicitations to get introduced to these guys all the time because they're looking for deal flow. And this may actually sound funny to your listeners because, you know, you kind of think about it as the guy who needs the money is chasing around the guy with the money, you know, soliciting and asking for money. Well, that relationship does turn around. You know, when you, when you're the company that's growing and kind of breaking out of the pack, you know, with great growth with products in the marketplace that are becoming highly visible, you actually start getting inbound calls the other way. Um, for us as middlemen, you know, we'll get solicited by companies that want our help. We constantly get solicited by investors who are looking to be included on our dish contribution list. When we have an investment opportunity to share with folks and the rule of green circle for the last five years or so has been if they're generalists, we don't really track them or connect, you know, w we typically won't even invest the time to do an introductory phone call.

Stu: I mean, there are databases for those guys, you know, I could run a screen on pregabalin and find a thousand generalists PE firms. If I wanted to, what we've done over the years is focused on building deeper relationships with a smaller universe of investors who are folks who really focus either exclusively or primarily on natural products, food beverage supplements. Now, as I said, maybe expanding that into some adjacencies like restaurants, but even on the restaurants, it'll be better for you restaurants that are concerned about sustainability, you know, using technology in a more effective way. So, you know, we don't know every investor on the planet doesn't maintain relationships with them, but we do know almost every investor for a growth stage, natural food or beverage company. And we try to get to know those folks well, so that we have produced and more, um, you know, proactive relationships with them.

Stu: So that I know not only are they going to pick up the phone when we call, but I understand them, you know, I can be more effective in helping my client by knowing who's really the right fit for them who might not be by knowing not only the firm, its mission it's, you know, kind of infrastructure its resources, but also even just culturally, the people behind the money who would be a cultural fit with this particular client, which might be different than, than the next guy. And that's kind of a good segue probably to talk about the more important part of this question, which I infer, which is, you know, how do you kind of find the right capital partner? What can you expect? What can you get from someone besides money? So, you know, particularly in the venture capital world, um, you know, there's a real perception that firms try to prevail.

Stu: That they're much more than just money, you know, for the best deals you should choose them. And not one to they're competitors because they're going to do a lot more for you than just give you money. And there's kind of a spectrum. There's no black or white, there's no right answer, but you know, this is what I would call like a spectrum between a passive investor, which is someone who literally intends to just write you a check and then leave you alone for better or worse, not help you, but not bother you. And hopefully, in four years, get a phone call that they made a bunch of money all the way to extremely active investors who would insist going in on having board representation or participation on having certain consent rights over what key decisions the company can make. I'm playing a very active role, if not in the day to day management, certainly in the strategic, over restate of the company at the board level, and also just on an ongoing basis and communication with the CEO and the leadership team.

Stu: And then there's everything in between, you know, now, depending on the, or the gal, you know, on the founder, the CEO, the owner, what do you want in an investor can really vary? Right? So many of the folks in our space, you know, for a long time that was running the most exciting companies were first-time founders, you know, people who were young might be in their thirties, early forties, maybe even in their twenties, it might be the first, you know, company. They started we've, we've seen tremendous founders who are running a business that is their first job out of college, you know? Um, and so what would that guy, or that gal need, you know, it could be a great deal. Is that person humble or, you know, cooperative enough to invite that sort of support from an investor. So you kind of have to check those boxes, right?

Stu: Is it someone who needs certain help? And if so, what is it? Is it someone who's going to invite that sort of help and a participant tative, you know, sort of approach to managing the business? What do they really want? Investors, who just leave them alone? Well, we can find you a variety of different options depending on who that person the founder is and what would make sense for them, and what they think you know, would make sense for them. Now, I'd say most of your early States CEOs, they do much more than not. They want active investors, you know, and, and in some industries that are like this perception that VCs can be like bad. You know, they are going to try to tell you what to do when the first sign of a problem, they're going to try to throw you out and steal your company.

Stu: I can't really speak for other industries, but I'll tell you it's been my amazing pleasure over the last five years after 15 years at big firms on wall street, where I found that to be true quite often, and found a real arrogance among a lot of my colleague's professionals in the natural products world, it's the opposite. Most of the billionaires billion dollar funds or the representatives who manage the money for them. I think the vast majority of them are great folks. And I have the pleasure of talking to the biggest investors in this industry all the time who actually really care and have the same shared values that I do that many of my clients do. Like these are folks who really care about impact investing, not just making money about the product, being healthy about what the company might be doing to help save the environment, et cetera.

Stu: Um, so anyway, as I said, there's a big spectrum, but it kind of also depends on what the company needs, right? So is the founder, the CEO, the management team, are they, are the folks who want active investors or do they want to just be left alone? And if they do invite that sort of help, what is it that they do or don't need? What varies greatly from company to company? I think the biggest determining factor is probably the background and experience of the CEO. And so in a lot of companies, the guy who launches the company is kind of a sales and marketing type who might need help in certain areas. But, you know, again, there's, they come in all stripes, right? So you might have the young mom or dad who just wanted to make a healthier product for their children, or you might have a real professional who was a financial professional who had an idea for a product.

Stu: So based on what their strengths are, you know, you can go find some help in capital partners who kind of specialize in certain things, just as much as you could in hiring vendors. You know, there could be someone who doesn't know as much about trade, you know, spend an execution and they might hire you, but you could have a guy who this is his third rodeo and he ran, you know, sales or marketing being at other PR companies before he launched this one. Well, that's not what he needs. You know, maybe there's some other stuff he needs. Um, and, and there's, you know, a great difference in certain firms with what they bring to the table besides just money. And we know, you know, some firms in the space that are really great at helping folks with sales and distribution. Some that are really great when it comes really to marketing and to brand architecture, there are firms, you know, where we were discussing something right now with a firm that really kind of has an operations infrastructure that they provide to all their portfolio companies, almost like a shared back office. So it really depends on what the needs are. The interests are and then finding the right marriage. And, you know, we're not the only guys who do that. We have a few competitors at all. So I know the space and know these people and their strengths and their resources really well too, but having a good advisor in the role that we play can be really helpful in making the right marriage. That was a really long catharsis. Let me stop and ask your question.

Dan: Oh, I think that's great. I mean, it's exactly, this is why I wanted to have you on the podcast and to go back, I mean, there's a lot to unpack here, so thanks. But to go back to what you were saying, you know, from my background, working for big companies, et cetera. Yeah. VCs did have a bad reputation. And the reason for that is because it was all about the money. That was it. Period. How do I get my money back and not thinking about how that, how that brand really interacts with, with the street interacts with customers? I gave an example. I used to work for Kimberly Clark and the CEO came out and said that, Hey, my greatest accomplishment was, I never laid anyone off. We were so focused. We were very similar to a natural brand in that it was all for one, one for all.

Dan: Well, the person that they put in place was all about the money and he just started getting rid of people regardless. It doesn't matter, but you know what? The valuation, we look at our wall street, we were the number one brand in every single category that we competed in prior to that, they are not the number one brand, including in a lot of the categories that they created. My point being is that when you're saying that when you align with the brands that you're working with, that's so very important, and this is why I want to have this conversation. Thank you. Because it's those it's people like you, investors like you that understand the bigger picture that understands in the example that we're talking about, how, you know, you can't expect to have a small brand to have a 99% ACV within a day, one day, whatever, but how do you get there?

Dan: And then, more importantly, we'll talk about this more in a minute, not only the velocity of the brand but the contribution they give back to the retailer. So part of the question I'm trying to change in this industry stoop is instead of the traditional strategy, where we focus on squeezing as much margin out of a single item, right? So blew back up a little bit. Retailers cannot possibly be an expert in and everything they sell. So they need brands to help them understand who their core customers, et cetera. And so if I can help a brand, help a retailer understand and appreciate the value that they bring to the shelf, not only from that little sliver of space that they sell their real estate in terms of their shelf but more importantly, how does that brand interact with other categories, other brands, other products within store and in our space.

Dan: What's cool about that is that we have an opportunity to drive more traffic, more mass-market basket sales, et cetera, to the store than other brands. So I really appreciate the fact that you've gone through so much of this. So let me ask you some questions. So when you're talking about how you're a the, the evaluation, one of the things that, you know, in the article that you sent me, et cetera, that I was looking at, you're talking about evaluation. You're talking about how there was a sea change in this industry. So what did it look like before and what does it look like now and where I'm going with it going here, Stu, the reason I'm going down this past too, is that if I'm a brand and I want to find an investor, why do I choose you versus someone else?

Stu: Well, um, okay. So again, a couple of things to sort of unpacking there, let me get to the last part last and I'll take on the first part first, what's the sea change. There has been a real evolution in the investment community's approach to this space. And in some ways, it's kind of come full circle. Although I hope only in part, um, when I started snow in 2005, um, you know, the vast majority of institutional investors, the VC community, 90% of them wouldn't even pick up the phone if the deal was a consumer. Um, and there's a reason, right? These are CPG. Businesses are tough, you know, with a lot of moving parts, a lot of execution challenges where things can go wrong. And with margins that are usually thinner than some other industries that have typically been most attractive to venture investment, um, in Oh five.

Stu: I mean, even if you could find a guy who was open to consumers, you say food and Bev, you made it harder. And if you said beverage, you got a dial tone. I mean, it was killed. He tough. That changed. Right. And what happened was there's been a revolution as anyone who would be in your audience, knows in the consumer's approach to healthy nutrition, right. And America, the Western world, and kind of everywhere. There's been a revolution in the way that we view food and what was accepted for so long. You know you put sodium, benzoate potassium, sorbate in my food. So that's fine. If it's on the shelf in the store, then it can't be bad for me. Well, this has been this real, as you said, like see a change in consumer's awareness and approach to that. And so this natural and organic revolution led to, you know, real loss in market share by all big CPG companies that make food and beverage products, all these legacy products.

Stu: I mean the last few years, 90 of the top hundred food and beverage companies have lost market share. Um, so, you know, they're losing it to small and immediate midsized, natural and organic alternatives to these legacy products and brands. Well, as, and in some cases, there were strategic acquisitions where they said, you know, instead of fighting them, join them. And so we had these, you know, like headline-making acquisitions of, you know, 15 years ago, vitamin water, you know, at 10 times sales a company who'd maybe never made a profit was sold for this unbelievable valuation and Coca Cola. And it, and it was a very positive event at the time for Coke stock, because soda was just beginning to start to decline and finally being acknowledged as on healthy, right? So here was a way for Coke to start modernizing and diversifying their portfolio.

Stu: Since then, you know, we all know some of these marquee deals, you know, crave, reinvented jerky with our teasel option. And sir, Kensington's, you know, kind of disrupted catch up. And we had some of these deals where people made tremendous amounts of money, you know, at valuations that were really, um, newsworthy. Well that brought, you know, that got the attention of the investment community and brought a tremendous amount of venture investment to this world, food, and Bev, or, you know, growth-stage food and Bev that we really had seen before. Um, in fact, you and I spoke about this, I forgot where I read this, but there was a statistic, um, a few years ago. So I noticed in one year the number of, uh, venture stage deals that were done by, um, different firms, the number of firms in venture stage deals in food and Bev went from 50 to 250 in one year.

Stu: So think about that five times a number of, you know, professional investors that would have invested in food and Bev, you know, suddenly we're investing there. Did they understand the space? Did they understand the challenges and nuances will some date I'm sure. And plenty probably underestimated how different this business might be from others, but that liquidity, like anything else, right? If you're selling a house or a car, the more people who want it, the more money chasing it, the higher the price goes. And so multiples on an early-stage food and beverage companies over the last few years, driven to valuations, that folks like me thought were crazy. Right. And when I say folks like me, I don't mean guys who, you know, like are smarter. No, cause we don't, but I, but I've been around long enough to have seen ups and downs, right.

Stu: In markets, which always cycle, whether it be interest rates and the stock market, you know, markets cycle, that's kind of just the way it goes. So we saw that valuation gets stretched to levels that we had never seen. And it didn't make sense. Right. And it got to where it was kind of standard that my office would get a phone call from a brand doing five, 7 million in revenues, not remotely close to ever turning a profit. And they thought their company was worth $20 million, you know, and the lesson lost on those folks. And it was, it's not the fault of the founders. It's the fault of the investment community if anything, but the lesson lost on them was, you know, business is supposed to make money, right. At some point along the way, profit is the keyword. So this is a tough industry to generate any sort of positive, positive cash flow until the business establishes real scale, you know, kind of 10, 15 million-plus in revenues for it's easy to really make a profit.

Stu: So, you know, we had venture capital money flowing into the space that drove the valuations on those companies high to where we constantly had people who thought they should rate, be able to raise money at three, four, five times sales, which is really hot, you know, compared to most normal metrics, most normal standards that are turning around. Um, and as you said, you know, I mentioned in my article that we haven't even published it yet. Um, but I just shared it with Dan. Um, last year that was already turning around organically. And we saw a stat in the New York times that the amount of capital that floating adventure venture stage food and beverage in 2019 was half of what it was in 2018. When you take that kind of, you know, uh, volume out of the system, it's kind of like releasing air out of the balloon, you know, and valuations absolutely were coming down.

Stu: Anybody who's active in the space and, you know, working on deals in our industry last year knew that as the year went on, a valuation was starting to come down to earth and Connie kind of normalize it and then COVID hit. Right. And we'll probably look back years from now and they'll be CEOs of companies that didn't make it, who will say, Oh yeah, it causes COVID hit. But that's probably not the real reason. Right? Like COVID longterm is a positive for anyone who makes the packaged food product, that's sold the grocery nodded and food service. Right. But it's been really disruptive and it has kind of, you know, put a realistic lens around valuation and every industry, at least to some degree. Um, and so what COVID is not, is not caused the, uh, a reduction of valuation, but maybe accelerated, you know, what was already kind of underway.

Stu: It just, you know, made it happen in a month or two when it might've taken another year or two. And where we are now is probably towards a more normalized world in terms of valuation. Um, you know, you can still raise money. There are definitely still in the industry who were looking to do deals. We launched a new process for a $10 million natural food company, a natural snack food company in the middle, uh, at, toward the end of March, like right when the news was worst and scariest. And we debated it internally and with our client quite a bit, whether this made sense or not, for, for a variety of reasons, he, you know, he decided to go to the market and we found that there were definitely some, you know, firms that were saying, Hey, we're, you know, just managing our portfolio right now. We've got our hands full.

Stu: There were plenty of folks who said, Hey, we're open for business. You know, send it over. We want to see it. And I'll tell you over the last few months that has changed substantially back towards normal, where you know, people now are starting to figure out the new normal, how they're going to do business, how they're going to navigate this, going forward, seeing that the world hasn't ended, knowing that they're in a consumer, non-durable, you know, like food where that's never going to go away and that there's still plenty of longterm opportunities. And there's definitely interest in deals. It's going to be a more normal valuation. Um, but that actually could, in the end, end up being good for everyone anyway. And I'll wrap up this long speech. I've been making several today by saying this it's really important to founders and early-stage companies to understand.

Stu: I learned this lesson when I was an entrepreneur and I've repeated it a thousand times to other folks, but nobody goes out of business because of dilution. You know, and it's interesting because you know, CEOs also run the gamut, you know, between like super concerned about valuation and knowing that it's not necessarily something to obsess over and everything in between, but, you know, we, we do a little matrix for our clients and prospective clients showing them sometimes the difference in dilution to their personal stake in the company on the lowest valuation, they think might be fair and their dream valuation. And it's, it's stunning. Sometimes when they see on paper, how little of a difference it really makes, and I can walk you through those numbers. But my point is the vast majority of startups that failed fail when they run out of capital. Right?

Stu: So if that's the case, I have two pieces of advice. Stop talking so much about marketing programs. You can't even afford board and focus on raising money and knowing what your strategy is for the next capital raise and laying the groundwork for how to make that successful. And secondly, worry a little less about valuation. Make sure you get the money in the bank because of the, if you are running an early-stage consumer brand and it ultimately is successful the valuation in which you did your series around, it means almost nothing, right? You're either going to fail in which case it never mattered, or you're going to succeed. In which case those founders generally make tremendous returns and a little bit this way or that way. Isn't the thing to focus on when the risk in, you know, turning down an offer that you think is a little less than it should be is again, you know, having a liquidity crisis, it's much more important to get the capital. And also, you know, I'll, I'll, I guess I'll add one thing. And also, and I think today is this is your theme, Dan, and to get the capital from people that can help.

Dan: Absolutely. So let me see if I get this straight. You're saying that just because my mom loves it doesn't mean it's valued at some astronomical figure. I get that all the time. Uh, thank you for unpacking that. I really appreciate it. One of the things that you mentioned, you're going back to how big companies are losing share. This is one of the areas that I like to focus on. We were talking about this before Stu the reason I believe that's true is that small natural brands are closer to their end consumer. And they're innovating based upon what the customers want. Rather we think about how do they innovate to support their supply. So the supply chain, et cetera, how do they keep the lines running? And so in 2016, I was invited to do a feature article for the 2016 category management handbook, where I was able to prove using all outlets and Nielsen data that natural organic products are the ones that are driving sustainable sales across every category.

Dan: And I used organic in that example, but plant-based, which is relevant to you, those numbers are even greater. So the point being is at the small sliver of the pie that plant-based takes up every category. If you take that out of the category, every category is flat or declining and this yeah, but people don't, they overlooked that. So we're talking about numbers and data and stuff like that before. And that's such an important factor, by the way, Dustin, I see your question. I'll, I'll make sure we answer it in a little bit. And by the way, please put in more questions. Thank you for doing that. But my point is having someone like you that understands the business, understands the consumers, understands the lifestyle is so much more relevant than having someone to just give you a check because what I find stew, let me know your thoughts on this is that a lot of the brands don't know what they know, what they don't know, what they don't know.

Dan: And even the brands that had a position and, and like a Nestle or a PNG or something like that, that now get into the natural space, don't understand what this space is like. And those things that they don't know, create additional bottlenecks and constraints, et cetera. So you were talking about, for example, the revolution in terms of the investment money, and what's out there, I'm glad that things are getting to what you would call the more normal than the way that they should be, which I think is fairer because the best defense against any virus is a healthy lifestyle is a healthy diet. And so the fact that you understand that as opposed to you looking at a brand as an ATM machine is really, really important. So as you're working with these brands and you're trying to help these brands understand why you versus someone else, what are those conversations look like? And how do you help them get to the point where they understand that you are a value add? Just because you understand the industry, then how do they get to, how do you help them understand that you also value add because you have a big Rolodex and then more importantly, because you're involved or invested in what they're trying to do

Stu: Well. Um, and to be clear, I think in this conversation, we're not talking about how we're the value add green circle, but rather how we're cause we're middlemen. Right? Um, we, we actually have a principal investing division to my firm at Cole green circle, food tech ventures, where we invest, where the investor, not the investment banker. And we invest in, um, tech-enabled businesses that disrupt the way that we make or distribute food. Um, that's a newer enterprise for us, you know, actually, we closed on our first deal in January way.

Dan: If I may sorry to interrupt, if I may have value, add meaning you understand the business. So an ATM machine that just spits out cash and you figure out what to do with it versus somebody that can help. I'm sorry, go ahead.

Stu: Oh, got it. But I also just wanted them to make the distinction between, I think the value add that we're talking about that a brand is going to get this from their investor, not just from their banker who plays middleman to connect them with the investor. And I was just simply saying, we actually are investors. In some cases, we're merchant bank, where sometimes we are the principal investor sometimes where the middleman, the investment banker today, we're talking about the part of our business, where we're the middleman, right. With a CPG brand. We don't make investments in those companies, but we broker them as a middleman. So the value adds that they're going to get from us is, and I'll make this really quick. Yeah. It's knowing the industry and understanding their business, having been operators, being able to capture the essence of what's great about their business and why the challenges will be overcome and be able to spin that in a way that's honest but is most attractive, you know, to the investment community.

Stu: And then again, by having focused on that investment community, in my case for 15 years, you know, knowing who they are, what pushes their buttons, what their advantages, their resources, their drawbacks might be, and being able to thoughtfully advise our clients on how to navigate the process, how to extract the best price and terms, how to find the best partners. Now the value adds from the longterm capital partner. Cause once that transaction is done, in our case, we stick around and help our clients. Post-transaction um, for a variety of reasons often because we become shareholders. Um, but your real partner is the guy who gave you five or 10 million bucks. You know, what is it you're going to get there? Well, one thing when we, when we look at the loss of share by big CPG to these natural and organic alternatives and upstarts, one thing that's changed a lot during this time that we're talking about.

Stu: Is that again, going back to like, when I started snow in Oh five, it's not like I was the only natural soda, but I gotta tell you, there was only a handful and we were all friendly competitors, you know, like I could name who they were. Right. So what's interesting is when you competing for Crohn's, right, like soda has over the last 10 years lost every year, like around one, one and a half percent of that market share to healthier and natural alternatives. It's a market. So big, you know, it was like 70 billion. When I started now, it's probably like a little less than 60 billion, but still, 1% is $600 million, 600 million in sales is being thrown up for grabs every year from what's lost by. So if there were only two or three upstarts competing for that market share, could you imagine how unbelievably lucrative that would be, but there's, but there's a hundred actually.

Stu: In fact, in beverages, there's about one new beverage company created every day in America, a nonalcoholic beverage trademark is registered about once a day. So if there are 300 companies competing for those scraps, that's a very different competitive dynamic than what there might've been 10 years ago or 20 years ago before this revolution really kicked in. You know, so you have to differentiate and not only be able to compete and, you know, clause some crumbs away from these, you know, older legacy brands that are starting to lose market share, but also compete effectively with the hundred other guys that are trying to climb over to you to get to those same crumbs. In addition, I always say, and I know that you'd agree with me that the food or beverage industry is weird because having a great idea that doesn't really mean a whole lot in any industry, it's got limited value, but in this industry, in my experience, having, having been an operator and having worked with a ton of companies since then, it really comes down to execution.

Stu: You know, it's the stuff that's not sexy that separates the winners from the losers, or like to use the football analogy. Like these games are one of the lines of scrimmage. It's the blocking and tackling by 300-pound linemen. It's not the, you know, diving catch in the end zone. You know, that, that, that makes the headlines that really separates a lot of these brands. I thought your point about trade span was astounding at the beginning of this conversation, hundreds of billions of dollars that had so little effect because so few brands, especially smaller ones, really know how to perfect implement and then scale their promotional program. And if 40% of groceries in America are sold on promotion, isn't that important? Not necessarily your social media campaign, that's gonna, you know, may or may not be seen, right? Like at the point of sale in the store, you have such an opportunity to do it right.

Stu: Or to do it wrong anyway, to get to the heart of what you wanted to talk about today. There are firms that are really great at that, you know, and, and I'll tell you, so first, the first bar is, are these good people, right? Are these honest, decent people who want to support us and partner with us rather than just use my company like an ATM machine, as you keep saying, well, that's a reputational question, right? I mean, there are pretty easy ways to actually do diligence on investors. Once you get down to a shortlist of folks who claim to be really interested and have done a lot of work so that you see that they're not just talking like they've invested time in getting to know you and to understand your business. Now, you know, maybe these guys are serious about making an investment. It's not that hard to pick up the phone or to email the CEOs of their portfolio companies or past, past portfolio companies.

Stu: And usually in my experience, when you ask someone, tell me about you, people love to talk about themselves. It's not a hard sell, right? So you get that guy on the phone and you ask him, or her, tell me a little bit about your business. What was your experience with ABC private equity firm? You know, sure. You're going to get, whenever you get an, a reference, you'll get some sugar-coated version of the truth, but you'll start to get a sense, you know, and in our experience as a middleman in my relationships with investors, it's pretty obvious. Actually, there are some firms that say to me all the time, Hey, you know what, tell your client, they can talk to the CEO of any firm we've ever invested in. You'll see what great things they say about me and my team. Even just the confidence to be able to make that statement.

Stu: There's gotta be something behind that. Right? But also having trafficked in these circles for, you know, 15 years and six or seven years acting as a bank, or like you just get to know folks, you know, and you get to know, you know, what their relationships have been with other companies and, you know, past performances and a guarantee of future results, but it is an indicator it's directionally accurate. You know, there are a lot of firms that I know these guys really build great partnerships with their portfolio companies. These guys can be a real pain in the ass. And then, you know, for a variety of different things in between and different reasons that it might or might not be a good match, culturally, you know, these are folks who really are aggressive. They want to go from 10 to a hundred and sell it to Nestle within three years.

Stu: Well, there are certain firms that could be the right partner for them. Certain that wouldn't, you know, here's a team that this is a family business. They're concerned about risk. They don't want to take on debt. That could be right for certain investors and not right for others. Well then also it's what is it you need, right. And what could these guys provide to you? There are certain firms that we know that have incredible resources for some stuff and not for others. And again, it's just like finding, you know, fitting together the puzzle pieces in a way that'll make for the best marriage.

Dan: Thank you for sharing that. In fact, on that note, that kind of helped me rethink how I wanted to put this. My point is that you should be doing the deal, you like the brand should be doing deal due diligence on the potential investor that the company is going to invest in your brand, which I think is something that's not talked about a lot. This is exactly why I wanted to have this conversation. So thank you. And then back to the point about execution, you're absolutely right. The majority of the brands struggle with this. And the reality is that again, you don't know what you don't know, but because of the way the industry is structured, our supply system is so fractured. It makes it difficult for small brands to get a shelf compared to big brands. And that's the problem I'm trying to solve. So thank you for that. Let me jump into a couple of questions. If I don't get to all of these before the M please, don't worry. We'll reach out to you and we'll, we'll make sure we answer them. So doesn't ask for smaller companies, what have you seen as the biggest gap between those that end up being successful and those that rise fast and then fall fast stoop,

Stu: The silence you heard was thinking, I don't know that there's um, thanks for your question, Justin. I don't know that there's a standard answer. I mean, there's a line from Anna Karenina, the first line of the book, you know, like happy families are happy for the same reasons. Unhappy families are unhappy for so many different reasons. It might be the same case here. There's a lot of reasons that companies fail. Um,

Dan: I guess because he's

Stu: Specifically mentioned rising fast and falling Fest, you know, let me the key on that aspect of the question and say, and also because we're here talking about finance today or how to capitalize your business, there's been a real focus as there was this liquidity available, you know, anything that was natural and had a good growth rate and, or good Veloce city was able to get the fun thing didn't really matter that you were profitable. I mean, I've heard people that I really respect who were really experienced really smart folks, advise companies to completely ignore the bottom line,

Dan: Which was always to me

Stu: Kind of odd, you know, being an investment professional for so long and having looked, you know, worked in other industries too, you know, it always seemed like there was some disconnect there between, you know, reality and perception. Um, almost like, you know, the music was bound to stop at some point. So maybe that's one element, you know, that's worth talking about, you know, there are smaller food and beverage companies that are profitable. We just had a client this year, some great guys that are friends of mine, that from the day they bought this natural food business when it was like a million in revenues for 20 years in a row, they grew it very methodically and conservatively never raised capital before. And every single year, a group for 20 years and every single year, it was profitable. Now they didn't get rich and they didn't have an exit like crave, but there was never a juncture where no matter what was going on in the, in the business and the industry and the economy that they had to worry about, whether they were going to go out of business that year.

Stu: Right. And now that company, you know, is, let's say a $10 million business today with substantially positive cash flow at the EBITDA level, which is kind of unusual for a brand of that size. Um, so I think what I guess what I'm getting at is today in particular, I think there's a real need to focus on the bottom line, not just on top-line growth and that's not what, CEO's the growth stage brands we're encouraged to do for years by the investment community, because these deals were done on multiples to revenues and companies were financed, no matter how much they were burning. You know, we've seen so many, five, 10, $15 million natural food or beverage brands that are losing two, $3 million a year, and investors didn't care and we're happy to write another check. Those days are over. I mean, there's been a real change in view on that sort of investing in the space.

Stu: So I think there's a real onus on brands to get lean and to look at both top-line growth and get to profitability in a way that really matters today. And that will prevent seeing, um, Justin's question is apropos to many brands that we've seen that get out of the box and get off to a great start. They're not building a sustainable business, right, because they're not focused on the bottom line. And also, I guess, you know, I mean at the risk of stating the obvious, because they're not building distribution strategically, but rather opportunistically. So going to any customer that says yes, in any channel, in any geography, whether it's the right or wrong fit, whether it's going to cost a fortune in slotting and marketing spend, that's required to go into the chain. Um, they do it anyway, and that can lead to tremendous top-line growth for a couple of years until that house of cards comes crumbling down right.

Stu: Better to take a year or two longer and build it with a stronger foundation. And at the end of the day, I mean, you know, we've talked about this too, in this industry, what has not changed is that the most sophisticated investors are very focused on unit Veloce and not just on, you know, growth in dollars units. So just going into new distribution, that's not really gonna pay off longterm unless you have a, you know, a program in execution for distribution trade span, you know, to support it in all ways that it's going to make it successful as you go into that new distribution.

Dan: Thank you for sharing that in my 2 cents. Dustin, thank you again for the question is, and this is exactly out there. No, I appreciate it. No, I think your question was great. I mean, your answer was great. And, and Stu, this is one of the reasons why our mutual friend, Michael JL Donald who's on the call, we did a course or put together a course about business strategy and the point behind that. Exactly what you said, that from my perspective, I believe that your business strategy needs to be so robust and so well thought, thought out that someone else can come in and run your company for you on your behalf, on your behalf, in your absence. The point being is that few companies have the discipline to do that. And so we were joking before about how a lot of the companies, when I read their, their, their pitch deck, it's I sold $5 last year, and I'm going to sell $5 million next year, but they don't have a clear path to how they're going to get there. And to your point, I love the way you put that opera up at that word, opportunistic distribution versus strategic, you know, that solves a lot of those problems. And it goes back to what we've been talking about all along in terms of how do you choose the right investor, et cetera, Stu I know we're at the top of the hour. Do you have more time?

Stu: I actually have to go, but why don't we, I have a call I have to get to, but why don't we take one last question? Cause I don't want to leave on a bit on a tangent

Dan: By the way, everyone. Thank you. So what I'm going to do is I'm going to take these questions. I will share them with Stu and there will we, we will get back to you. So I appreciate that too. So any also, Pete, thank you for your question. Pete says, hi, thanks for the amazing events. What are strategic buyers looking for as top-line driven multiples return to realistic values? Good question.

Stu: Well, this could be the question. Um, there's been, you know, a real, you know, concern and change in strategy at some of the bigger strategic buyers in this industry. Um, because a lot of the acquisitions that we've talked about, Ooh, I don't mean to pick on crave, um, the amazing brand launched by two really good guys, really smart guys. Um, but Jon Sebastiani just bought the brand back for pennies on the dollar. Cause it just didn't work, you know, add inside of a much bigger company. Um, that's not a unique story, you know, and it's actually interesting. I would separate food, excuse me. From beverage. It's always been my opinion. As you know, I'm kind of like a little bit of a beverage guy. I mean, not the expert because we didn't really succeed, but I, you know, I was in, I was in triple a, you know, in the beverage industry for a while.

Stu: So I know a little bit more about that kind of ecosystem, the beverage industry, really the not by the way only non-AP is what I'm talking about. There really isn't a robust innovation and big not out beverage companies. If you think about it, what's the last major innovation that cake came out of Coke and Pepsi. No offense to you guys love you both. Um, maybe it's diet coke, you know, when did that happen in the eighties? I mean that's a long time, right? Cope black was an innovation failed badly, you know, in Vika was in innovation, Coke and Nestle working together, a drink that has, it takes more calories to drink it then more in the drink. So it's a weight loss product. They got sued by like a bunch of attorneys general that didn't work. Um, you could call bubbly a success, but I wouldn't say that seltzer isn't innovation, you know, with all due respect to Pepsi.

Stu: So those guys have embraced in a big way. The idea of incubating small brands Coke's been, you know, they've changed strategy there, but you know, they've had a robust program at VEB. Pepsi is doing some really cool and innovative things now, um, not only in beverage, but in nutrition, more broadly in health and nutrition more broadly and not trying to innovate internally, but rather looking to entrepreneurs to do what they do, you know, to like come up with the great ideas and work 24 hours a day. And when it bubbles up out of the muck, they could step in and partner with them, buy them, et cetera, in food it's different. And this has actually been a concern of mine for our ecosystem of early-stage, natural organic brands. Don't count them out. You know, like big food has a rich history of R and D and innovation.

Stu: So different from the beverage industry. Most of your major food companies, you know, they have very robust innovation programs, R and D teams, multiple teams, and they're constantly inventing and innovating new product lines, new skews for existing brands. Do they meet us? Do they have to pay seven times sales? Couldn't they make a version of pasta that takes out the flour and puts in? Well, they did the biggest pasta brand in the world is now competing with bonds and explore the cuisine, a client of ours, um, because Barilla created a better for you pasta. I don't think it's as great as the guys that are my friends. Um, but you know, it wasn't that impossible for them to do that. You know, um, you see noodles made out of vegetables. Well, why can't bird's-eye take a potato peeler and make some noodles that zucchini the same way that CCS did no offense to those guys, great brand, but you know, they did, right?

Stu: And so there's, you know, a, a really complex dynamic and what strategics are looking for. I think that because they're capable on the food industry of innovating and because there have been some marquee deals that have failed to create value, there's a real kind of, re-evaluation taking place that several of the larger food companies right now, I think you're going to see fewer deals done at less lofty multiples, particularly to revenues. And it's different, right? If it's really just a sizable business, you know, um, when our mutual friend, you mentioned Eric ski, when he sold, Rayos not only was that just an incredible breakout, like super-premium brand, but the positive cashflow being generated with tremendous margins, it was simply just a rock-solid business in addition to being a high flying brand where there's always a market for that, right? Because these guys are always looking to simply build cashflow. You know, so again, it kind of leads us, I guess, to maybe the same point I've made a couple of times in this conversation. This may be a time to really kind of focus more on the execution of bottom line than solely look at top-line growth, which had kind of been the norm in this industry for the last few years.

Dan: Good point. Thank you for sharing that. I know you got to go. I just copied all the rest of the questions. Thank you everyone for submitting those. I really appreciate that. Thank you everyone for being here, Stu. I really want to thank you for making time for us and sharing your insights and your wisdom. I'll be certain, I actually put it in the, in the show notes. I mean, in the chat, how to get ahold of a holder Stu uh, do me a favor. One, make sure you show up to the nest next week's free webinar, but you thank you again. I'll be making this available to everyone and I'll let you know when that comes out. Um, but yeah. Thank you so much. I appreciate it. Thanks, Dan. Thanks.

Stu: Thanks a million for having me. It was fun. Thanks for everybody listening. Have a great weekend. Thanks. So expect me to reach out to you pretty quickly with the rest of the questions everybody, and I'll send them to Stu so he can answer them. So anyhow. Thanks. Bye. Bye.

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