Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I usually interview tech entrepreneurs about how they built their businesses.
When I’m not doing these interviews, I sometimes will watch an old period piece where people are fighting each other with swords on horseback. Whenever I see that—maybe you guys do that too—I can’t help but think if I had a machine gun, I’d own all these people. I’d really just be able to take over the world back then. Now, of course I can’t go back to medieval times with a machine gun, but what today’s guest did is essentially that.
He went into the food industry with all the ideas that you hear here on Mixergy, all the ideas that have made tech companies today into phenomenal, fast-growing businesses, things like minimum viable product, customer development, he took all that into the food business and he created a brand that I see now in stores all the time. It’s a high-end gourmet jerky. It’s called Krave.
His name is Jon Sebastiani and he did it. We’re going to talk to him about how he came up with the idea, how he used some of the Lean Startup methodology and other software company ideas to grow it and how and why he sold it and what he’s up to today. His new company is called Smashmallow. It is America’s first snackable marshmallow made from the best all-natural ingredients.
Jon Sebastiani is his name. I’m looking forward to how he built this business and having you hear the story behind it, and it’s all thanks to two great sponsors. The first will host your website right. It’s called HostGator. The second will help you hire your next great developer. It’s called Toptal. I’ll tell you more about them later. Jon, welcome.
Jon: Thank you. It’s great to be here.
Andrew: Hey, I’ve got an article here about how much you sold the business for that says you sold to Hershey for somewhere between $200 million and $300 million. Is that right?
Jon: That is right, somewhere in between. Yes.
Andrew: You know what’s amazing about that? You’re a guy who came from a phenomenal family, right?
Jon: Yeah.
Andrew: Sebastiani Vineyards has been around for about 100 years. You really could have been this guy who was just kind of lazing about. I’m looking at you now for the first time. You look good. Why weren’t you freaking lazy? Why didn’t you just live off of your family? Why’d you have to go and create this? What drove you to that?
Jon: Well, first off, when I was a kid, my family is the farthest thing from the type of parenting style that just gave me things. So when I was nine years old, here we are in summer in Sonoma Valley right now, when I was nine years old, I was out in the vineyards picking weeds and picking up rocks. So I grew up with a pretty hardcore work ethic, and it was just drilled into me.
The other thing that is a reality in the family business, but certainly in the wine business is when you’re part of the family, if you want any respect, you’ve got to work twice as hard to earn half the respect. It’s just the reality. As a son, the fourth generation of this family, the perception is you have a silver spoon in your mouth. The perception is, “What do you care? The guy can do anything. He’s well taken care of.”
So, as long as I can remember, I worked my ass off. I’ve wanted to be the guy that was regarded as busting his ass because at the end of the day, that oftentimes is the difference in whether a business will make it or not is how much you put into it.
Andrew: How did your parents instill that in you? I think there are a lot of people who are listening who are building phenomenal businesses who are going to be really successful if they aren’t right now, rich, and they have to pass on the right values to their kids. How did your parents do that with you?
Jon: Well, I’m a parent myself now. I have a nine-year old. I struggle with that question. I think it’s fair for me to say that I didn’t have a terrific childhood. I wasn’t at the summer camps learning how to craft pottery and paint pictures. I was out in the vineyards with 100-degree weather picking weeds and picking up rocks and learning what it took to work a grapevine and slowly as I aged through my teenage years, I worked every summer.
So it wasn’t until you hit my age now where I reflect back on that childhood and those were hard lessons I didn’t understand then but I do now. So, as I think about my own daughter, what are the principles that I’m going to put and instill into her, I’m not putting her out in the factory lines helping me bag Smashmallow right now, but I am trying to teach her some respect and some dignity.
When you grow up in an agricultural environment, which is Sonoma, it’s very entrepreneurial because when you think about 100 years ago, these were entrepreneurs that started planting grapevines. But it’s still agriculture and there’s a sense of humility instilled in people and farmers that are working the hard day.
Andrew: That’s one of the challenges you and I have with our companies. I’d like to bring my kid in here and help him do some work. My dad manufactured clothing, women’s clothing. There was always stuff to do around his warehouse. I’d bundle up clothes in dozens and put a rubber band around it. I’d print out the labels that go on the back. I don’t do that here. What am I going to do? Turn the lights on and off? I’ve got a remote control to do that. I wish I did have what your dad did.
Meanwhile, you were also entrepreneurial. In fact, you told our producer, “I looked at the iron-rich soil and a vision came to me.” What did you notice when you were a kid looking at the iron-rich soil and what did you do with it?
Jon: Well, I was 10 years old and clearly, when you’re in the wine business, part of our business is we’re a tourist center. So millions of consumers now come to the Napa Valley, Sonoma Valley to taste wine in our tasting rooms. So, as tourists are always looking for special mementos to purchase when they’re in a tasting room, one of the unique characters of this particular vineyard that I worked in was this iron-rich soil.
We took this soil—it was the day of the pet rock, where somehow marketers were able to convince consumers to buy a pet rock. In this case, it was our soil. It was a piece of Sonoma Valley that uniquely was red because of its high iron content. I shoveled it into these little bottles and we put a little label on it and sold them in the tasting room for a buck a jar. God dammit, I cannot believe it, but people actually bought them. I tell that story quite a lot because that is my first entrepreneurial startup, if you will.
Andrew: Was it indicative of who you were as a kid, or was it just like a random event that now has meaning?
Jon: Well, I think both. I’m asked a lot on do I believe that you’re born an entrepreneur or can you truly learn to become one? I do think that there is a DNA strand in entrepreneurs that start at a very young age. I was always fascinated by consumer science, the trigger, the catalyst to cause a consumer to make a decision, whatever it was.
Andrew: How did you study it and what did you notice? Was there a book that you read? Was there something you did to experiment?
Jon: I grew up in the wine business, as I already said, started working at nine and then over the years evolved up the ranks, but I’ve always been fascinated by what was the reason why a consumer chose option A versus option B.
Andrew: What did you see when you were working the winery? What did you notice when you were doing pourings or tastings? Did you notice anything that you remember about that, about consumer behavior?
Jon: One of the elements of the wine business, certainly I picked up on, but is pervasive within the industries, there’s a lot of romance involved. So, when you think about storytelling, we are master storytellers when we’re in the consumer space, even if you’re making jerky. I know we’ll get to Krave in a minute. But in the wine business, you’re selling romance, you’re selling drama. When somebody opens the cork of a bottle wine, they want to feel it dripping with excitement and quality.
Andrew: So how do you do that when you’re having a conversation? I can’t even think of how to do that here in this talk with you.
Jon: Well, imagine if you and I were going to pop a bottle of Cabernet Sauvignon together and we were sitting here at a bistro table in the vineyard of Sonoma Valley. I would start by sharing with you that 100 years ago, my great grandfather began planting that vine in this specific vineyard and begin to layer in the heritage and the work ethic and then really the methodology of how to properly grow a grapevine, all of the elements of each season.
So, in the spring, this is how we properly prepare the vine for the grape clusters to emerge and in the summer, we’re leading the vine. I’m going to get really geeky with you on all of the elements of a grapevine of what separates a modest, an average vine versus an excellent vine. Then we’re going to get into the oak. I’m going to share with you the specific forest in France that we chose this particular wood and toasted it very carefully to extract the best flavors.
So I’m going to go through all the manufacturing steps to arrive at this very romantic bottle of wine and then we’re going to talk about the vintage. The year this grape was harvested, what was unique?
Andrew: You know what? I don’t follow any of that and I can’t remember it, but here’s what I kept hearing as you said it—atmosphere, connection, legacy, that’s it. I can’t recall a single thing you said, but I do get the feeling that you had it. The other thing that I took away from that was share the backstory. I should be talking more about how we put these interviews together, the backstory behind it, the work that went into it and so on. I get how that communicates value, romance, a sense of appreciation and slows me down to appreciate the wine if you tell me that.
I’m looking at an old SF Gate article here from 2008 about the sale of the vineyard. Is it true, as the headline says, that a feuding family sells Sebastiani vineyards? Was it the feud that caused the sale? What was going on that led to the sale? Your life was transformed because of this thing, because of the sale.
Jon: It was. So there were a number of wineries that the greater family owned. I think it’s fair to say it’s well-publicized that in family business and in our family specifically, there were some feuding family members. I think running a large business as a multi-generational family is challenging to do. There are differences of opinions that are pervasive throughout the business. In my family’s case, we sold the winery. It was due to a number of different factors, not just that.
Andrew: Like what? Some people said, “We need to go bigger,” some people said, “We need to stay where we are.” I’m imagining that kind of thing. Some people said, “You’re not doing enough work.” Others said, “We shouldn’t be.”
Jon: I think in my particular family, it was my parents’ generation that owned the Sebastiani Vineyards asset. So it was their decision to make to sell. I think there were many different areas, each one of them had an opportunity to run the winery at various stages. I think when you think about liquidity and you think about accessing part of the value out of an asset, it gets very difficult to do when you take one asset and pass it into multi-different family generations.
Andrew: You guys did try to sell the individual parts of it and that was—I guess that wasn’t enough. There was also an issue I’m reading here about one brother took down the number of cases that were made and sold, another increased it. I get it. I get a sense of it. I don’t want to get too deep into that issue. What I do want to see is what happened to you as a result of it? You told our producer, “My life changed. I was 35 years old and now I had to reinvent myself.” Why? What did you think you were going to be and how were you starting to think about the world when this happened?
Jon: Well, as any career-focused individual, my career was the wine business. I grew up in the wine business. Right after college I went directly back into the wine business. I became president of one of our family’s startup wineries and led the growth of that, the dramatic growth of that winery. All of it came to a stop, an abrupt stop when I was 35 years old. It was one of those intersections that we experience in life.
I had to decide what I was going to do. I was scared shitless. I had no idea what life outside of the wine industry would be like. I had a very prominent name in Sonoma Valley. So one would expect, “Why in the world given your last name as the fourth-generation member of a wine making family would you do anything else but the wine business?”
I was too old to consider going into banking or going into real estate or something. So I was at that time preparing for the New York City Marathon, and my epiphany was I started to consume this jerky as a way to get protein in my body.
Andrew: Why would a marathoner want jerky? I thought you’d want more carbs.
Jon: Well, during, when you’re running a marathon, you want carbs because you’re burning that carbohydrate into energy. But in terms of building your body preparing for a marathon, you want to lose as much weight as you can. So you don’t want to over-carb just as your daily eating.
Andrew: I see. Okay. You’re eating this jerky, and what’s the opportunity that you noticed as you’re eating it?
Jon: I’m in this space in my life where I recognized I had to reinvent myself. I did not want to go back into the wine business for a lot of different reasons. I felt like I needed to voyage outside the wine industry. I wanted to carve my own path. It was a frightening step for me, but it’s what I was going to do. The epiphany came as I was eating this jerky because of its functional benefit to my body. As I studied the industry, I uncovered that this was a $4 billion U.S. industry.
Andrew: Which I had no idea.
Jon: Crazy, right?
Andrew: You know what? It’s usually some piece of garbage stuck in one of those plastic containers that you’re supposed to use the tongs to pull out a little bit of jerky, and I know that other people aren’t. Because it is displayed in such a low-rent way, I never think of jerky as a big business.
Jon: This was literally a way for large meat manufacturers to monetize waste. They would sell the scraps to jerky manufacturers, which would then blend them together like in the form of a hotdog, throw tons of sodium into the mixture so that you couldn’t taste anything else but salt and then sell it. So you’re right.
Andrew: Now you’re thinking of things like—I don’t want to put words in your mouth—but I think of stuff like Slim Jim at that point. It’s highly manufactured. I don’t even know that I would call it jerky. But that’s why I don’t think of it as a big market. You looked at this and said, “Where’s the big market here? What’s the size of the market?” You realized that it was a $4 billion a year industry and you said maybe what? What were you going to bring to this business that was different?
Jon: The real thread there was I felt that when you manufacture the product the right way using a whole muscle cut and using good ingredients that I could change the conversation around jerky. It was a bold idea that literally a gourmet jerky, if you will, could be a better for you snack. I could create the sentence where jerky was as good for you as a Cliff Bar, as a health and wellness app.
Andrew: I would even suggest better than a Cliff Bar. I love them, I use them for my runs, so much so that I actually, at some point, have enough with them, so I’m a big buyer of them, so I’m not putting it down, but I do feel it’s still manufactured, where jerky doesn’t feel manufactured to me.
Jon: Absolutely. Meat is the original protein snack food. It’s centuries and centuries old.
Andrew: I’m still wondering—this seems so obvious in retrospect, but I was eating jerky 10 years ago, I didn’t think of that. What was the process that you went through? Did you start looking at a lot of different foods and say, “What can I add romance to the way that we did with wine?” What was your process for coming to that or was it just an epiphany like you said?
Jon: Well, definitely there was an epiphany. I wish I could create more romance around that I studied 100 different food categories and landed on jerky for all of these very intelligent reasons, but truth be told, I was at this moment of my life where it was survival. As wealthy as my family may seem, I was at a point in my life where I had to get something done.
Andrew: Because you didn’t have much money?
Jon: Let’s put it this way. I had a lifestyle that was built that I no longer had an income to support.
Andrew: I see.
Jon: My parents were not, after the winery sold, I personally received no liquidity from it. So I had to start my own business. So jerky was there. The epiphany was real. The MVP, back to that term, was used to build out a test case.
Andrew: I’m curious to hear how you used the lean startup methodology to create a jerky brand. Let me quickly talk about my sponsor and then I’m going to come back and ask you about what specifically you did. How do you MVP, minimum viable product, for jerky? What did you think about the design and so on?
First, guys, you’ve heard Jon talk about how he sold sand, literally sand, when he was a kid. One of the things that I’m interested in his how many entrepreneurs just kind of experiment with a bunch of things, just toss stuff out, see what sells, see what works. They just have this place to express their entrepreneurial creativity. That’s one of the reasons why I like and recommend HostGator.
HostGator has this plan that’s super inexpensive but gives you unlimited domains. What does that mean? It means if you have an idea tomorrow, you could just create a quick website for it on its own domain—just buy the domain, obviously, but they’ll host it for free as part of your package—and you can test it, see what it feels like. Is it something you like? Is the landing page something that people are drawn to? If you don’t like it, just go create another one. Let it sit there if you want or close it out. It doesn’t matter.
You get unlimited domain hosting with HostGator. Keep experimenting. Mixergy was an experiment. I had unlimited domain hosting, so I decided, “Let me try interviewing.” I put it out on one Saturday night, I remember or Friday night. I locked myself in a separate bedroom of our home. I got myself online and I just created a website. I said let me see what would happen if I fired up WordPress and designed something that I put interviews on. A few years later, here we are.
So I keep telling you how if you hate your hosting company, you should go check out HostGator. I keep telling you that when I started my bot building business I hosted it on HostGator and it did great for me. But I’m going to tell you if you don’t have an idea, if you don’t have a website, if you don’t already have something that’s going for you, there’s something called the baby plan on HostGator where you can get unlimited domains, experiment.
Who knows? Maybe what you do is you get sand of the world and you sell it on your site. Maybe what you do is you review jerkies and sell it. Maybe what you do is you come up with a brand new idea that I can come up with on the spot here from this ad, but you experiment and you see how it feels and if it works, you keep growing, if it doesn’t, you can close it.
HostGator is going to give you a big discount if you go check out HostGator.com/Mixergy, up to 60% off, unmetered disk space, unmetered bandwidth, unlimited email addresses, 24/7, 365 tech support means they’re around all the time and if you think that I’m full of it and you don’t like it—let me say the words. Since you cursed, Jon, I’m going to curse too. If you think I’m full of shit and you don’t like it, they have a 45-day moneyback guarantee. Check them out at HostGator.com/Mixergy.
Jon, were you intentionally using the tech startup process to build your business or is it—how intentional was it, I guess is the question?
Jon: Pretty intentional. I was in the Columbia MBA program with Steve Blank, who is the author of Lean Launchpad and just a mentor of mine, became an investor of mine in Krave. During that time, it was essential that very key component of I like the product, I had my own thesis around what I was doing, but did the consumer even care? Before I spend too much time and too much capital actually building this, we need to create an MVP to see if our hypothesis was actually true, whether the consumer actually would adopt and repeat purchase the product that we were presenting.
Andrew: How do you create a minimum viable product, an MVP, for jerky?
Jon: Well, one of the realities of the food and beverage space is that there’s excess capacity at a number of manufacturing plants anywhere in the country. Pick a product, as you just went through in your ad, any idea you might have, I’m sure I could help that person find a co-packer which really eliminates the capital need as well as the time necessarily to build a plant. You don’t need to build your own plant.
In my case, I found a copacker that I was able to—that directionally had the equipment already in place to produce the minimum viable product that I sought to create. Simply put, as you already outlined, the Slim Jim of the category, I wanted to be everything that was not. So I wanted my jerky to be moist. I wanted my jerky to explode with flavor. So we wanted to marinate the product overnight so that moisture and that eating texture was conveyed through the eating experience and chewing experience.
So this co-packer, we designed five recipes. We were able to produce enough product to support a small 20-store launch. We put the product in 20 stores and studied the consumer interaction, the consumer purchasing behavior. We demoed it. We did questionnaires. We studied for months and months what happened in these 20 stores.
Andrew: Questionnaires for what, for people who bought it?
Jon: For people that we would put—myself was the driver of this, but we would also hire hourly people to stand behind a demo table at your local independent grocery store and say, “Hi, how are you? Do you consume protein? Great. How do you get your source of protein? What do you buy?” really understanding some of the purchasing decisions of what consumers are making and why.
Andrew: What did you learn that you didn’t learn before about this? You knew the industry. You were a customer of it. What did you learn?
Jon: Number one is what we did know, we did not understand completely and thoroughly that there is a shift of consumers making better health decisions for their daily diet. We are also snacking more frequently than we ever have. The idea of a sit down lunch has moved more to frequent snacking throughout the day. Thirdly, moms and parents want to make great purchasing decisions for their kids and their families.
We felt that what we learned during some of these in store demos is that consumers by in large view jerky the same way you did, that this is a gut stuffer, junk food, full of artificial ingredients and artificial preservatives. But what people did is they had a memory somewhere of an experience with jerky that they loved. Everybody had a story that they wanted to tell, “Oh my god, back in Wisconsin on Route 48, there was this little butcher that had this. . .” So, there was a love affair of some type with jerky, but the consumer didn’t know how to find it.
So Krave became a repeatable solution to deliver to them a better for you product they felt good about. The other theory, which was a page out of the wine business was we created flavor, we gave the product a romantic storyline, we talked about the founding story of why eating protein is important to the body. We talked about the functionality of if you’re seeking a fit lifestyle, why snacking on protein is better for you than potato chips or pretzels or even a cliff bar because of all the sugar in a cliff bar.
Andrew: How did you do that? You did it on the packaging? I’m trying to find an early version of your packaging to get a sense of how you communicated the value and the quality.
Jon: Well, there were messaging points and good source of protein, low in sugar, low in sodium, gluten-free, which eight years ago was an important thing. Today, it’s stretched a little bit too far. Then the colors of our packaging were very important. The flavors of the jerky was very important. It sounds ridiculous, but at the time that we started the company, teriyaki was the last form of flavor innovation in this $4 billion segment.
So I came from this highly competitive wine industry space where there literally thousands of brands that you were fighting against to get shelf-placement and joined a $4 billion category where there were three competitors and they were literally all doing the same thing. They were selling salt-laden artificially processed product to cowboys and Indians in gas stations. Nobody had changed the conversation to gourmet, better for you, all natural ingredients and protein.
By the way, introducing flavors like basil citrus with colors that made it permissible to women because the existing category had sort of alienated women. If you remember Slim Jim, their marketing partners were the WWF.
Andrew: Snap into a Slim Jim, yeah. I have never eaten one of those. It just looks too manufactured. It looks too weird.
Jon: I’ve been to the plant where they make them. You would never eat one if you go there.
Andrew: It doesn’t look appealing. So now I’m vegetarian, to be honest with you, but beef jerky is one of the things I miss about eating meat because to me, if I found the right beef jerky, it felt like it was pure. There was not a bunch of crap on it. It wasn’t like even if I go to the restaurant right downstairs and I get anything other than a steak, I feel like they’re going to load it up with stuff. I feel like with beef jerky, it looks weird, like I’m eating a raw animal, but it also feels good because of that. There’s no a lot of crap on it.
I’m looking at the different flavors. You have lemon garlic, chili lime, black cherry, barbeque. What’s the first one that you created? What are the first flavors you came out with?
Jon: When we launched the company, we had five. They were chili lime, sweet chipotle, pineapple orange, garlic chili, and smoky sweet teriyaki. So that was our normal flavor.
Andrew: Was there any feedback from customers that led you to those flavors?
Jon: Yeah, there were
Andrew: What was it?
Jon: When you think about the flavor profiles, in heat intensity, on the one spectrum, we had garlic chili pepper, which was a spicy, very hot flavor. On the other side of the spectrum, we had a pineapple, orange, which was a very fruity, almost sweet-like flavor and then we had flavor profiles in between that rounded out what the palate wanted.
Andrew: This is because people told you they wanted spicier or they told you they were afraid of spicy? How did you get to that?
Jon: In the thematic approach of an MVP, we wanted to test our hypothesis around flavor profiles. One of our beliefs was that is in wine, that consumers want to explore. They don’t want to drink the same style of water every single day. In the case of jerky, maybe one day or a different time of the day, you might want something a little bit spicier versus a little bit more savory versus a little bit more sweet. The original hypothesis was we wanted to create a range of flavors to see which, if any, consumers migrated towards.
Andrew: I see. This MVP was your way of testing your theory that they wanted lots of different flavors. It wasn’t that you did a survey that told you they needed some spicy days and some—
Jon: Correct.
Andrew: Okay. That seems like a pretty expensive minimum viable product. I’ve had conversations with Eric Ries about this. At what point is it more of a product and how much is too much to spend on an MVP? What were you going to say as I launched into that question?
Jon: I got that MVP out the door for less than $10,000.
Andrew: Even that I wonder why do that? Why not just go and get beef jerky from somewhere, flavor it maybe even at home and sell it in plastic zip lock bags at the farmers market.
Jon: That’s illegal.
Andrew: Is that right?
Jon: Yeah. So like alcohol, meat is governed by the USDA. So to legally resell meat products, it has to be produced in a USDA-approved plant. So that’s one requirement in order to have a commercially legal product that you’d have to go through.
Andrew: I see.
Jon: Then of course, we believe that—I agree that there are steps that could have been taken in terms of creating an MVP that precede a $10,000 investment, but I felt at that time that to properly present the product proposition was to have packaging and the packaging had to convey a sense of what the brand DNA was about.
Andrew: I feel that. I remember starting to see Krave in stores and I noticed it because the packaging was so different. How did you get the packaging designed?
Jon: Well, we used some of the graphic teams that I have from the wine business. So the MVP was a pretty down and dirty approach. Literally, it was just colored labels that were produced from printers making wine labels, and then I bought bulk black bags and by hand, I would take the stickers off of the wine label kind of rounds and then hand apply them to a bulk black bag and then everything was hand filled. So the biggest expense was printing the labels.
Andrew: How did you get the first 25 stores to accept this and to test it for you?
Jon: Favors. The stores that I did my shopping at—clearly we started in Sonoma in about four different supermarkets and then the radius was extended into neighboring towns—Marin County, Petaluma, Napa. So ,just by way of any entrepreneur has a network of enough people to test their product and in my case, I had friends and family and favors that I could call and get 20 stores going.
Andrew: It was you personally, calling them up and saying, “Can I put this with you?”
Jon: Yeah.
Andrew: You told our producer, “What I noticed was consumers would come back the next week and purchase after they tried it, after they bought it.” I’m wondering how you know that. How can you possibly tell in 25 stores who’s coming back week after week? Google is trying to solve that problem. People are working on this for a long time. I’m imagining you had a simpler way of solving it. What was that, figuring out when people come back?
Jon: Well, I think certainly with 20 stores and having a personal relationship with the store managers that we’re able to get some of that data insight the old fashioned way just by talking to people, if it were 2,000 stores, that data would be a little bit harder for a startup to get. So, we relied on our store relationships.
Certainly, we were actively in the store. So, if we were doing multiple demos at a given location, we would begin to see the same people come back and when they would come back and share with us, their usage occasion story is, “Oh my god, I’m now eating this every day for a snack. I used to eat pretzels and now I’m eating jerky, instead of having that deli sandwich for lunch, now I’m eating a bag of turkey jerky.”
We would hear so many different stories. That repeatability of purchase, obviously in the consumer brand segment was the key element that we needed to extract and build upon to raise more capital as well as to tell our incrementality story. The value of Krave from the get-go was not that we were going to cannibalize Slim Jim and Jack Links’ business. Our campaign was we were going to lead the category on a renaissance.
We wanted to reinvent the jerky category and remove the stigma associated with it. In order to do that, we had to embrace health and wellness. So, we wanted to compete against Chobani Greek Yogurt, compete against Pop Chips. We wanted to be in that sentence, not the Slim Jim sentence.
Andrew: You talked about a lot of the positives that you got from demoing in stores. What’s a negative? Did anyone not like it? Did anything not work out?
Jon: I think there’s certainly the stigma associated with jerky even to this day is still so strong that people are like, “I don’t do jerky.”
Andrew: They just wouldn’t touch it. What turned them off to jerky when they put that x up as you did with your hands?
Jon: I think two things. One is the competition, the brands that were in the marketplace for decades prior to Krave had led the quality of product down to such a low degree that in the consumer’s mind, jerky represented a waste mitigatory. It was not a whole muscle cut of a chuck tender piece of the cow or a turkey breast. So the quality conversation wasn’t there. Secondly, I think there’s just a very natural objection to having bagged meat that may be six months old and not understanding the manufacturing process and the preservation of that.
Andrew: As we were talking, I was hunting down the early bags that you mentioned, the ones that you personally put the labels on. I see it. It’s a black bag with a little hole on it and then a sticker put on top. It doesn’t anything like what it—
Jon: They’d be like crooked or they’d be a little bit to the right.
Andrew: I see that at some point, you also had a Krave Klub where people can buy monthly. This is kind of you reproducing the wine clubs, is that right?
Jon: Absolutely.
Andrew: Did that work? Were you able to sell jerky on your own website too?
Jon: If you go to KraveJerky.com today and you see two years in the hands of Hershey, they still have the Krave Klub going now. So, absolutely, the club was very successful. Over time, it became less of a priority for us as we built our distribution, but having a direct contact with your consumer where you can convey the messaging in your own voice, which is what a club allowed us to do, every month we would create a different usage occasion recommendation, we would create recipes.
We would help the consumer think about how to use our product in other ways than just eating it when they’re hungry—how to work out with it, how to prepare for a century ride with it or how to run a trail marathon with it, all kinds of different shifts.
Andrew: Look at this. The reason I couldn’t find the Krave Klub is your video was over the button for Krave Klub. So now I clicked it. I see it. It also called my attention to something called tasting room, which I can see. Look at the design of this. I see a wine glass on a table. I see—I don’t even necessarily see the jerky here in this meal, but I do get a sense of what this looks like, what feel you’re trying to communicate.
Okay. I get how you were doing this. I understand why it worked. Let’s talk about going bigger. When you went to the bigger clients, you ended up with 5,000 stores. You got into Safeway. How do you go that big?
Jon: Well, in our case, it was serendipitous, for sure. There are conferences around the country where buyers come together. I didn’t, of course, know what the hell I was doing other than utilizing the toolbox that I had learned from the wine industry. So, in the year 2010, I show up to the Fancy Food Show in San Francisco, which is an annual show. This show aggregates literally 70,000 people in a three-day show at Moscone Center.
I had my three-foot sign that cost me $90 at Staples to make. I’m tasting my bags that some of the labels are crooked. I have five flavors and I’m taking it very seriously. I’m telling my story as I’ve just shared with you to all buyers that are interested. At that time, I probably had maybe 30 to 50 supermarkets. I’m able to talk about data a little bit. I’m smart enough to understand how to phrase an opportunity that I am incremental to a category rather than just stealing market share.
One of those such buyers that came by my booth that year was Safeway. And of course, when I saw Safeway on their nametag, I had thought that Jesus had just come up to my table. I started the discussion with them, shared our vision, shared the data success story and that conversation began in 2010. Within six months, Safeway had agreed with our hypothesis and in fact ordered product for all stores. So, in that relationship, we went nationwide instantly and really the same sense of incrementality in velocity that we had seen in our test stores continued on into a nationwide software platform.
Andrew: What is incrementality mean?
Jon: Incrementality means when we think about a base user of a jerky product, that’s the $4 billion US space, we wanted to bring a new user to the category. We felt it was important to demonstrate that the brand and our approach was actually not stealing share from an existing competitor, but adding new consumers to the overall category. That’s an important [inaudible 00:41:03]. . .
Andrew: I see. We always think about how this is better than chips and better than whatever it is that we’re competing against and you’re putting up another approach, which is don’t say better or not just better. It’s not going to kill the competition. It’s going to add to your existing sales.
All right. I’m still, as you’re talking, I’m looking this stuff up, I want to get a sense of it and so I’m looking at Amazon reviews to get a sense of what people were saying. What caught my eye is the way you guys are displayed on Amazon doesn’t look like usual jerky. You show the food. It’s like you’re selling me on a restaurant reservation when I’m looking at your stuff on Amazon.
All right. Let’s talk about my second sponsor and then I want to come back and ask you what’s it like to stand in a store after you have your name attached to a 100-year old winery, what’s it like to stand in a store and sell jerky. What’s it like to go to that level and then why did you decide to sell?
But first, I have to tell everyone about a company called Toptal. That’s top as in top of your head, tal as in talent. There was a question on Quora where someone said, “Hey, is Toptal any good?” And a guy named Drew came in—is it Drew? Where is that? There are a bunch of different stories here. I want to make sure I get the right name. It’s the founder of a company called Sidekick who responded to that question. He said, “Look, I leverage Toptal for mobile app design and UX.” He basically wanted a mobile app design for him and so Toptal had these great designers who he said designed the thing for him.
Then he said, “Well, I need to raise a little more money for this business.” So, he went to Toptal and it turns out Toptal also has finance people. He said to them, “I’m going to raise money. What are some of the questions I can expect? How can I get myself prepared?” Toptal will do that. They’ll help you with your financials. They’ll help you with your deck. They’ll help you with the questions that you can expect from VCs.
The reason they do it is they expanded beyond developers to talented people from lots of different industries. One of the industries is finance. They have people who work full-time or used to work full-time in finance who now are part of their network that you can hire. So, he did. He says he got a tremendous return on investment just from that brief Toptal finance engagement.
And then finally, he said, “You know what? I need someone to develop this even further.” And he went and he looked at cheaper developers and he at least was going to go with them for a bit until he realized, “You know what? Toptal is a little more expensive, but they can work ten times faster at a quarter of the cost.” So, he ended up hiring Toptal developers. You could read the whole case study on Quora if you look at the question, “Is Toptal any good?” Actually, wait, “What is Toptal like from the perspective of a firm hiring a Toptal engineer?” That’s the question on Quora.
I’ve got to tell you, I’ve hired Toptal and I had similar experiences. They are just really good and they have more talent in lots more areas that I can communicate to you in this ad. So, my suggestion to you is if you’re looking to do what Doug McKay did, which is hire someone to design your app or your site or your product, go check out Toptal, they have designers.
If you’re looking for someone to help you with finance decisions, like maybe to put together the spreadsheets you need for financing or maybe help you figure out pricing or help you do some cohort analysis, Toptal has top finance experts in their network. Or if you’re looking for a developer, you know I’ve talked about this for a long time. Toptal has some phenomenal developers, the top three percent developers in their network.
All you have to do is go check out the special URL where you are going to get 80 hours of Toptal developer credit when you pay for your first 80 hours in addition to a no risk trial period of up to two weeks and that special URL is Toptal.com/Mixergy. That’s top as in top of your head, tal as in talent, Toptal.com/Mixergy.
Jon, that ad went a little bit longer. I was a little like diverting. I do love sales, but I know as I wing it, sometimes it ends up being the greatest ad ever and I bring in the guest and other times I feel like, “Why is Jon sitting here for that?” Did you feel that all? Did you say, “Why am I sitting here?”
Jon: No, I did a quick check of my email, but you sold me. I’m going to go check it out right now.
Andrew: They do end up with a lot of my interviewees signing up. So what was it like to stand there in a store, have people do tastings, stand there at the Fancy Food Show and have people try your thing, embarrassing at all? Did it feel like a comedown?
Jon: There’s two real distinct realities at this stage, right? The first is the departure of the wine industry. Truth be told, the wine industry is this incredibly glamorous industry. My family being in the wine industry for four generations gives us a pretty fair amount of credibility. To leave that industry and then announce to my community of family and friends and colleagues that I am starting a jerky company, people had thought I lost my mind.
Now, given the headlines that you read to me when we started this interview, there’s a fair amount of media attention that was calling to reasons why this family business was sold, family feud, this, that and the other. So it was a very sensitive time for me. Actually, me really processing my own self-doubt and my own self-confidence in taking this idea seriously, I was a little bit hesitant to even share what I was doing for fear that people would judge me in a negative way.
So those were some dark days of fighting through my self-doubt. Now to your question, to be behind a table with my family name, which is still on a wine brand, but owning—this now being my widget, this was my idea, this was no longer in the shadow of my family name and the wine business. I had ventured totally outside of the industry and was alone in my own world. It was a very exciting time.
I have to say that I was very fortunate to have some early success, to have some results that gave me some tailwinds of confidence that led me to keep going because when you start a business, in the food business, getting one store, you need hundreds and hundreds of stores before the economics of your business even remotely make sense. I didn’t pay myself or my first hire for years. So we worked for free. The bootstrapping nature of starting a food company is grueling.
Andrew: Is this right? I’m looking—whatever you’re saying I’m looking up and I’m doing more research as we’re talking. I’ve got a lot of research from before the interview and as you know, we have producers who put together stuff for me. So I was looking up an old New York Times article, which had this really interesting point that you made back then, which was, “Hey, at one point, wine was considered alcohol and now it’s considered this fancy addition to a gourmet meal. I’m going to do the same thing for jerky.”
Then it says that this $500,000 order that you got from Safeway came halfway through your course, the one that you took with Steve Blank. So this whole thing was still going on while you were in Steve Blank’s class.
Jon: It was a live case study. This was happening real time while I was in Steve’s class.
Andrew: What does it mean that it’s a case study? You’re all supposed to do not just research and homework, you’re supposed to experiment with ideas on a real business and that’s what you picked?
Jon: Steve taught this course called advanced entrepreneurship, but in practicality, it was the Lean Launchpad course.
Andrew: He took one person, just you?
Jon: What’s that?
Andrew: He took one student, one case study and everyone did it or every student had their own?
Jon: The entire course was basically submitting—you had to apply to even be admitted into his course. Upon your application was your business idea, your value proposition. So, the entirety of the course was going through the Lean Launchpad with your business idea.
Andrew: I see.
Jon: My business idea happened to be Krave jerky. So the entire course every week when we would present our business canvas were updates from the Lean Launchpad. I was able to show up at like week nine. It was later in the class, literally with a photocopy of the check because what I failed to mention to you was not only was Safeway willing to take a risk on me by putting the brand into all these stores, they understood that I was capital-deprived and they prepaid me for that purchase.
Andrew: How’d you get them to pre-pay you and not say, “He’s capital-deprived. Why are we even in business with him?”
Jon: I’ll just say it was a long negotiation, but in the end, they understood the capital that we needed to produce the product and they believed in me enough to extend that trust. The results are well documented now that it worked.
Andrew: Steve Blank also talks about your competitor in that article. He says there’s this new brand of gourmet jerky like Perky Jerky.
Jon: Yeah.
Andrew: What was different about—why are you smiling about that one?
Jon: I’m enjoying the memory.
Andrew: What was different about yours or if this was starting to come out—I know what’s different about yours—they’re still appealing to the same thing, they have sticks like Slim Jim and is Perky a reference to caffeine or something?
Jon: Yeah. The original value proposition of that brand was they did blend in guarana into their marinade. So it was a caffeinated product on the heels of using jerky as the platform. They had to pivot away from that because the USDA does not allow you to fortify a meat product and adding guarana falls within that. But their name never did change.
Andrew: Your photos are spectacular. There is a photo of jerky on a cutting board. There’s no reason for jerky to be on a cutting board with actual lemons underneath it. You really are turning this or at least at the time of this article that I’m looking at, which was from 2013, apparently they let you include your own photo or they included a photo. No, this is a New York Times photo. They took a photo of your jerky on a cutting board.
Jon: You really get to see the parallels of the early formation of Krave alongside the wine industry and really picking up the conversation about pairing flavors. When you think about wine and food, they are married together. They’re paired specifically because certain flavors draw other flavors out in blending as well as in pairing. So, we wanted to build the image jerky by introducing it in that same conversation.
So we had in our first website wine pairing suggestions, beer pairing suggestions, spirits pairings suggestions. We’d work with restaurateurs to have Bloody Marys that would include a garlic chili pepper jerky, anything that we could do to create a more culinary, more artisanal approach to the product.
Andrew: Now I’m thinking of what else is like that. You can’t do gourmet chip. That’s kind of been done. But now I’m going to start looking through the grocery store and say what else could be made more upscale? What else is sitting there? All right. Let’s talk about why you sold the business and then talk about the next thing you are working on, Smashmallow. Why did you sell the business?
Jon: Well, a couple things—one is I am an entrepreneur. I would say it’s fair to say when I started the company that having gone through four generations of a family business that my overarching strategy was not to build a jerky business that I would hand down to my daughter. I didn’t get into it with any time limit on when I wanted to exit, but I knew at some point I wanted to build a company that I would sell. Along the journey, I learned a lot about how the consumer products space works, about the very significant dynamic shifts that are occurring between large CPG brands that are using share out to more nimble, smaller, qualitative-driven companies.
But five years into my journey, I was at a tradeshow in Las Vegas, the National Association for Convenience Stores. By that time, the brand had grown enough where we were now going back into the dreaded gas station and helping the gas station now reach a premium customer by using Krave when Hershey came to me. I admire the heck out of this company, but at that time, they shared with me a vision that they recognized that Hershey as an organization needed to embrace snacking in a way that they hadn’t before and they needed to embrace healthy snacking.
So they had a strategy that they wanted to have a portable protein product and they made a determination through their own research that Krave was the country’s premiere innovative brand and an acquisition conversation began. Through many areas of the conversation, we arrived that this was the incredible company to sell Krave to, to be able to participate with a brand that I created in helping Hershey pivot not away from their existing chocolate foundation but to embrace a new direction towards healthy snacking was just an incredible opportunity.
Andrew: I guess you had investment bankers come and do that deal.
Jon: You reach a certain threshold and it’s not too different than tech, where once you’ve been noticed, you’re on the radar, the bankers start to knock on your door. So I had bankers knocking on my door for a good year before Hershey approached me. So it wasn’t out of nowhere that a strategic approach—in fact, I had been approached by a different strategic even before Hershey that gave me an offer that we did turn down.
Andrew: Can I mention who that is?
Jon: I’d rather not.
Andrew: You’d rather not. Okay. I’ve got it. All right. You sold the business. You moved on. Why marshmallows? Why do you feel like that’s the next step?
Jon: Well, three minutes ago, you said, “What else can you do within the grocery store where you can change the conversation, you can pick the product upside down and reposition it in a different manner?” So, at Sonoma Brands, which is an incubator that we have here in Sonoma—
Andrew: Yeah. That’s your incubator. One of my past interviewees, you funded or you incubated Dang.
Jon: Yes. We are the largest investor in Dang Foods. Absolutely.
Andrew: They make those shaved coconuts. I see them now every freaking where.
Jon: Yes.
Andrew: This little idea the guy had that he talked on Mixergy about how he sourced it at first, how he grew it. I didn’t realize you were an investor in that business. Okay. So, in Sonoma Brands, you’re trying to do the same thing you did for jerky to other products, create a more gourmet experience.
Jon: Absolutely. So, in our space, there is a playbook, in my opinion, on how to build a brand in any category. It’s channel strategy, it’s merchandising strategy. It’s channel supply chain strategy. So we are an investor in and creator of emerging brands at this new entity that we call Sonoma Brands. So, in addition to investing in Dang, we also landed on Smashmallow, which our intent is to reintroduce the marshmallow, both a) as a snackable, better for you, delightful, indulgent treat, but also to change the usage occasion.
We want it to be a better for you, snackable concept. When people think about a marshmallow, most consumers are going to say, “I know what a marshmallow is. I use them summer time when I go camping and I make s’mores, or I use a marshmallow to use to put on hot chocolate when it’s cold in the winter,” or, “I use a marshmallow with my kids to make Rice Krispy treats.”
So there’s a very defined usage occasion around the consumer’s relationship to the marshmallow. We wanted to change it because when you produce the product with clean ingredients and then you create a flavor profile like we’ve done with Krave, where we have cinnamon churro, mint chocolate chip, strawberries and cream, coconut pineapple, root beer float, Meyer lemon poppy seed—these phenomenal, fun, delightful flavors, we’re going to try to make and we’re actually very successful so far, making the marshmallow snackable.
So instead of grabbing that Red Vine or grabbing that cookie or grabbing that gummy bear or piece of chocolate that have far more calories, far more fat, a marshmallow has only 80 calories with zero fat per serving.
Andrew: That’s for four marshmallows, 80 calories.
Jon: Correct.
Andrew: So 20 calories per square and it is a square marshmallow, isn’t it?
Jon: It’s a square marshmallow, correct.
Andrew: I thought marshmallows were all sugar. I thought it was nothing but sugar.
Jon: The traditional marshmallow that we’re all familiar with, the campfire or the jet puff is full of corn syrup.
Andrew: I see.
Jon: So we changed that ingredient out and perfected a recipe using organic sugar.
Andrew: And yours is nothing but 100% organic sugar is what at least this Amazon listing says.
Jon: Yes.
Andrew: How do you get sugar to have a flavor like cinnamon churro?
Jon: The basis of sugar is an organic sugar and then as we whip it, which is what creates the mallow is whipped, heated sugar, we’ll add in natural ingredients. So, in the case of Meyer lemon, we’re going to add in Meyer lemon extract.
Andrew: I see. So organic sugar with the extra ingredients.
Jon: Exactly.
Andrew: I see. Also, made with gluten free ingredients, gluten is still a line worth adding.
Jon: Still alive.
Andrew: I see that on everything. I buy a bag of peanuts and it says gluten free. Well, of course, it’s peanuts.
Jon: I think it’s no longer an outlier to be gluten free. It’s more common, but I think that we are seeing there’s a value add to being gluten free.
Andrew: Aren’t you now going in the opposite direction of where you were before, where before you were saying, “This is lean, this is super healthy,” now it’s a snack. It’s sugar. It’s sweet.
Jon: Agreed. In part, when you compare it to the Krave product, it might be more sweet than actually Krave jerky, but when you compare a Smashmallow to a Red Vine or a gummy bear or a brownie or a cupcake or a piece of chocolate, it is much better for you than those products. So, in that effect, we’re changing the conversation in the sugar category. Sugar has received very little organic and better for you innovation over the last decade. So, rather than running away from sugar, it’s still a $36 billion category in the US, sugar-indulgent snacks.
Andrew: When you sold Krave, what did your dad say, the guy who made you work the fields, the guy who you said was a little dictatorial growing up, what did he say when he saw that?
Jon: That’s a big question there. I’m going to answer it in the framework of what my mom said.
Andrew: Okay.
Jon: My mom obviously was incredibly proud. I think in Sonoma with it still being a dominant wine industry here, we have changed the conversation about the food business in wine country.
Andrew: Is your dad around? Is it inappropriate for me to bring that up?
Jon: He’s around. I think it’s fair to say that in our family business, he’s an incredible mentor and coach of mine, but through many of the business dealings, I’m not as close to him in my relationship as I once was.
Andrew: I’m sorry to hear that.
Jon: I wish I could hear more of his proud commentary about it, but I haven’t.
Andrew: That’s too bad. All right. Do you want me to reunite the two of you? I’m good with conversation. That’s too bad. I’m excited to see what you were able to build here. I’m excited to see how you’re expanding what you’ve learned from Krave and helping out Deng and I’m imagining a lot of other brands. I feel like the Sonoma name is really powerful. Do you know Sonoma Rye, the distillers there?
Jon: Sonoma Ride?
Andrew: Sonoma Rye. It’s this rye whiskey.
Jon: Oh, rye. Yeah. There’s a number of distillers that are emerging. In fact, my cousins are in the boutique spirits space. But wine country, Sonoma and Napa is becoming this epicenter for innovation not just in wine, but in spirits and in food and in hospitality, restaurants and so forth.
Andrew: Yeah. This whole gourmet attitude that they brought to wine, the way that they changed wine, they’re now trying to bring that to other food, I see.
Jon: I’ll tell you, when I built Krave, showing up at a retailer saying that I was from Sonoma meant something.
Andrew: Right.
Jon: I am so thankful for this town. I give back tremendously to this town for that reason.
Andrew: Yeah. I kind of imagine Sonoma as so much larger because I see how much they’re producing. It’s smaller than Napa, right? It’s tiny.
Jon: Sonoma Valley is tiny. Sonoma County is bigger than Napa County, but Sonoma Valley, which is the community that I live in, is a tiny little community.
Andrew: I see. That would be the part that I would go into, like Carneros Inn that I got to sit in sometimes and work, that’s part of Sonoma Valley?
Jon: Yes.
Andrew: I see. That’s why to me it seems so freaking tiny. All right. Krave is Krave, you’ll probably see it everywhere. I used to see it in a few stores, now I see it everywhere. You guys can go check that out. More importantly, go check out Smashmallow. Am I pronouncing it right, Smashmallow?
Jon: You are.
Andrew: And SonomaBrands.com to get a sense of what Jon is up to. Jon, thank you so much for doing this and thank you to my two sponsors, HostGator.com/Mixergy and Toptal.com/Mixergy. Thanks, Jon.
Jon: Thank you.
Andrew: Thanks, everyone.
