Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I do interviews with entrepreneurs about how they built their businesses.
When I was a kid, the only chips that were available to us in the store were just Lay’s potato chips, pretty much the exact same thing as all the competitive chips. I remember as I got a little bit older, even as a teenager, I said, “I’m not that excited about chips. I wish there was something healthier. I’m kind of into healthy food, but it’s not around.” Now, there’s like this healthy food revolution where healthy food is actually tasty, where it’s interesting and it’s available in more and more places.
At the forefront of that is a company called Rhythm Superfoods. They make healthy snack foods that you can buy, snack on and share. And the cofounder of the company is — actually, Scott, are you the single founder of the company, no cofounder this time?
Scott: No. There are cofounders, yeah. I had a couple of guys that started it with me.
Andrew: There’s Scott Jensen. He is the cofounder of Rhythm Superfoods. I invited him here to talk about how he created this company, why he took on such giants in the chip and snack business, and why there’s such a change in the way that snacks are sold and bought today. This whole interview is sponsored by two companies. The first will host your website right. The second is a conference that I’m going to. So the first is HostGator and the second is Fireside Conference. I’ll tell you more about them later. Scott, good to have you here.
Scott: Thanks for having me. Appreciate it.
Andrew: I’m sure you get asked this a lot, so maybe you have a ready answer. What’s your favorite snack of all the ones that you produce?
Scott: When we were running a barbecue sauce business, the Stubb’s BBQ Sauce business — we still have the Stubb’s BBQ restaurant here in Austin, it’s a great place, great live music venue but awesome barbecue. I always wanted the restaurant to turn into a Chinese restaurant once a week, so you get tired of the same old things. So I often find myself adapting to our new products and loving them.
I’ve been eating kale chips for six years now, and it takes a lot to get me excited about kale chips now. I think our beet chips, there’s a coconut sugar and cinnamon version, which puts a little bit of sweetness on it. That’s my favorite snack right now that we make. I love other snacks too. I’m a big fan of nut snacks, and I love dried fruits and all kinds of snacks, but the beet chips are my favorite right now.
Andrew: I know Stubb’s, by the way, which you brought up, because I go to SXSW from time to time, and at SXSW they will often do events at Stubb’s. I think I even did an event at Stubb’s. I didn’t know you founded it. I thought it was named after a musician, wasn’t it?
Scott: The guy Stubb himself, if you think of the Stubb’s BBQ Sauce, the gentleman on the bottle is C.B. Stubblefield.
Andrew: Who went by the name Stubb.
Scott: He was born in East Texas, traveled a lot throughout the Southwest, sharecropped through the early part of his life, joined the Army and went to the Korean War, twice decorated with injuries in the line of duty, came back and was wondering what he was going to do with his life. So he created a career of barbecue excellence and learned how to barbecue better than anyone else. It was his excellence that caused us to start the barbecue sauce company. His face on the bottle, that’s the name.
He loved music, though, always loved music, was always entangled with dozens of musicians in Austin and West Texas. The folks that gave him the start were these wonderful, famous musicians that basically would play at his small little honky-tonk place in Lubbock for free to bring a crowd in to make him a little bit of money. So his heart was in music. When we opened the Stubb’s here in Austin, we built a big stage in a big live music amphitheater. It’s a about a 3,000-person amphitheater right in Downtown Austin with live music.
Andrew: I see.
Scott: Sold out shows, 90 or 100 of them a year.
Andrew: I see. I kind of assumed he was a musician. I guess he wasn’t, but I do see the connection to it.
Scott: He would get on the stage and sing, so, to a certain degree, he was a musician.
Andrew: How did you get into that? Why go into food?
Scott: My background from the early days of stealing the Frito Bandito erasers out of Frito-Lay corn chip packages when I was six years old in public supermarkets, my fascination with food —
Andrew: Wait, you used to go into the supermarkets, take out the eraser from the bag and let the bag sit there on the shelf afterwards?
Scott: Yeah, until my mom found out and made me go tell the store director what I was doing. That was also my first interaction with a store director. For whatever reason, early fascination with consumer products, did my undergraduate and graduate degree basically focusing on marketing and worked for a major advertising agency in Dallas out of undergraduate and then worked for big brands, Dixie cups and Dixie plates, when I came out of my MBA.
We wrote a barbecue sauce business plan with Stubb while I was getting my MBA, my two partners and Stubb and I did. So we started that barbecue sauce business because we loved him, loved the food, and figured that if we could make a business out of it, my friends and I were kind of like displaced Texans up in the New York area, that was going to be our magic carpet ride back to Texas, which it was. We ended up getting some of our friends to invest in the barbecue sauce company. That came first. We all moved down to run a barbecue sauce business.
Andrew: So it was first barbecue sauce.
Scott: Yeah.
Andrew: This was after you were working doing marketing for Dixie cups and plates.
Scott: Yeah. We started writing the business plan literally when I was roommating with one of my partners, John Scott, and Eddy Patterson, my other partner, was in New York City, displaced Texans too. Stubb called up our apartment, and he was broke and needed some money to pay his rent. And John led the charge in raising from friends and family like $1,400 or $1,500, sent it down to him and said, “Get out of hock.” That was it.
A couple months later, he decided to send some hot barbecue meat in a cooler, counter to counter. Back before 9/11, you could go to a counter of American Airlines and say, “Please ship this to another airport.” So he did that. Three hours later, we had a hot cooler of barbecue, several bottles of his barbecue sauce that he had mixed up for us. They were in old Jack Daniels bottles.
The light bulbs went off and it was like, “Let’s start a barbecue sauce company.” So we spent the next year, year and a half kind of daring each other to quit our jobs but also writing the business plan, talking to people about what it takes to start a company.
Andrew: What did you see there? I get that you like the food. What I’m trying to understand is as a business owner, as an entrepreneur, what did you see in the market that led you to think, “I can come in here, I can actually create a product that sells, I can build a real business?”
Scott: Two things. One was authenticity. Stubb himself was as honorable a man as I’d ever met. He was true to his quality roots. If it was going to have his face on the label, it had to be excellent. The feedback from people who tried his barbecue and barbecue sauce were basically saying, “It’s better than anything I’ve ever had in my life.” So you had this instant consumer gratification. That makes you think it’s all going to work out.
The second thing is when you’re young, you’re a little dumb. You don’t do all the research that you probably do later in life. So, really, we didn’t want to take no for an answer. When we looked at the category, we’re like, “Who can’t succeed in the barbecue sauce world?” There’s only 75 other regional players that are selling to regional supermarkets, and there’s five multibillion dollar corporations dominating 90% of the shelves. So we were just dumb.
Andrew: And it turned out to have gone well for you. How much revenue did you hit at your height?
Scott: I think with the sale of it two years ago, it was in the mid $30 millions. So not a $400 million — the barbecue sauce category is $500 million or $600 million. We were like the number three, number four player in the branded category of barbecue and marinade, the strongest independent, of course.
Andrew: Why? Why did it work out for you? Frankly, if we were looking at this back then, I would have told you, “Stop it, look at the competitors. Look at how they have reach here. For what? Barbecue sauce that someone’s going to have to try first? How are you going to get them to try it? It’s not like you can throw a barbecue at the supermarket and explain to them what they’re tasting.” So what allowed you — I know we want to talk about Rhythm Superfoods, that’s my goal here, but I’ve got to ask you about this. Why did it work out? What did you do?
Scott: So, first of all, you are right. You’re talking about a category of barbecue sauce that was growing at one to three percent a year, so no growth in it, kind of growing at the population and that’s not very good. That’s a macroeconomic indicator that’s wrong. When we got into it, the marinade category blew up for four or five years. There was no marinade category. That gave a lot of extra space in the condiment aisle.
We just happened to be early adopters at developing marinades and launched them early, early, early. People were using salad dressing to marinate their chicken. So a little bit was luck. That helped grow it for three or four years. Ultimately, it was one of those things where you’re either strong and won’t take no for an answer and when you get kicked in the stomach, you get back up, that’s what the perseverance is in an entrepreneur success story, typically. You’re going to get kicked.
There’s only a couple of brilliant unicorns per decade that come out of nowhere with an unbelievable idea. Even with those, you think it’s simple, but it’s not. This business is hard. I think perseverance and having a good team of people that you trust, my friends were people that were like — they were the ones sleeping in the car next to me if we didn’t have money for a hotel.
Andrew: Give me an example of something that you did that would have knocked most people over or a time where you felt like you could have got knocked over back then.
Scott: I remember my partner, Eddy Patterson, was in Cincinnati making a presentation to I think his name was Steve Smith at Kroger. We had this really cool old bluebird school bus, like a yellow school bus. There was a gentleman in Central Texas called Reverend Bobby Love, his name was, and he had converted that school bus into a camper. It was painted red, white and blue like the flag of Texas. So we would drive that around because we had a smoker inside and a full bar, and you could kind of plug into the campground of America for $12 and not pay $80 for a hotel. So it was kind of like a roaming sales machine.
So Eddy had driven it up to Cincinnati to see Kroger and went in and made his presentation for our line of barbecue sauces. Sometimes when you’re a young company, you kind of have to prove yourself. If might have been the third year that we had been presenting to Kroger. Eddy parked the big bus/camper outside. It was something to see. It was part of our personality. It had all this Stubb’s memorabilia inside of it.
After he had what he believed was a successful meeting with the buyer up there, the broker we were with said, “Yeah, you really need to — let’s go to lunch. You’ve got to see this camper they drive around and make sales calls in.” To someone that’s such a big retailer like Kroger, that’s kind of an interesting, funny little thing, “I’ll go see your old Texas camper.” Eddy had parked, I think, next to a fire hydrant. So by the time they had come down there, they spent 30 minutes walking down to it just hyping up how great this thing was. Steve was hard to talk in to going to lunch.
By the time they went down there, if you’ve ever liked lost your car in a parking garage, you’re kind of confused and disoriented for the first few minutes like, “I think I parked it right here.” There was a fire hydrant, but nothing parked in front of it. He had been towed. That was like the end of the lunch. He was like, “I don’t have time for this. I’ve got to go back in.” Eddy had looked at that as the marker that we had failed.
But two months later, we had found out we made the cut, and that was the first time we got in with three of our barbecue sauce flavors. So you get kicked in the stomach like that. You think you’re doing well, you make a product, and the first runs of it are 30,000 bottles of it and you didn’t think you had to pasteurize it because it didn’t have enough. The pH was a certain level and then two months later, bottles are popping in the stores because there’s too much pressure.
Andrew: That happened the first 30,000 of them?
Scott: Yeah. We did a run and the technology and the pH and everything was there. It was like, “We really don’t need to cook this. It’s going to be shelf-stable for a year based on the pH level and the acidity in it.” We were wrong on that, and so were the food scientists that told us. We had sold 30,000 bottles worth of stuff. People were opening it, and as they opened it, the cap was bursting and people were getting sprayed on their clothing and asking for reimbursement.
So all of those things are the entrepreneur’s journey, particularly in the very beginning the first time. You just make so many mistakes. But if you can pick yourself up by your bootstraps and get up the next day, something good is going to happen if something happened the day before.
Andrew: What was it that got you to keep going? I was just talking to an entrepreneur who had gone bankrupt and he said, “I can’t go back there again.” He wrote on everything he could he wrote the number $10,000, because that was his goal. Now he’s got a cabinet company that’s doing really well that $10,000 would be a slow hour for him. He needed that vision to keep him going. What was it for you that got you to keep going?
Scott: I could see it. Here at Rhythm, we’re six years into our journey right now, and there are days where we’re kind of produce-oriented. We’re very deep into the supply chain of produce. We’ve got to have kale and beets and broccoli growing in two or three different regions of where we’re making the products because storms come in, wash out the fields, make it difficult to get in and pick. We’re really kind of produce people.
So we’ve got to keep our eyes on the weather. That’s something I never had to do in the barbecue sauce world. You get kicked in the stomach every now and then. You think you’ve got it all figured out, and then Mother Nature tells you something else and you either have it to get up and know when you see the white canvas, you’re like, “Okay, I can see it. It’s coming together.” It’s like being in the Matrix, almost. I see the ones and zeroes on this blank canvas and I know where we’re heading.
Sometimes we’ll go a little slower than I’d like, maybe the cash is burning faster than you’d like. Maybe you’re getting no’s more often than yes’s than you thought. But an entrepreneur feels it because you’re touching all the areas in the business. Right now, that’s what I feel about Rhythm, same way I felt for Stubb’s. For Stubb’s, I don’t think we broke even until the eighth or ninth year of doing business. We lived lean and took very little investment to turn that company into a success. But sleeping in cars is something you do when you’re 25. I’m not sure I’m going to do that in my 50s.
Andrew: Wow. There are two other things before we move on from Stubb’s. The first is you told our producer how you manufactured the first bottles, and Stubb used to actually make it himself. I think I read he would put it in jars. What were the jars made out of that he used?
Scott: Yeah. They were little glass mason jars, the kind your mom would put jelly or jam in.
Andrew: So you guys said, “We’re going to turn this into a business. We’re going to produce some.” And you decided you were going to produce it yourselves. Where’d you get the ingredients? How’d you bottle the first ones?
Scott: Yeah. So the first time, when he was bottling it alone, we had a very, very small commercial kitchen here in Austin and a small little 60-gallon kettle over a burner, and we were actually buying the ingredients from HEB at retail. So we were buying the tomato paste in little six-ounce cans and buying the Worcestershire sauce in little eight-ounce bottles and took a long time to make a case of barbecue sauce that way.
Andrew: Yeah.
Scott: We’re buying the ingredients retail and then selling the finished goods wholesale. So that’s a recipe for cash burn, by the way, buying your ingredients retail.
Andrew: Yeah.
Scott: So we were introduced to a company that was up in the Dallas area, a contract manufacturer. When we first started, we didn’t even know what a contract manufacturer was. They had the equipment for 500-gallon and 1,000-gallon jacketed kettles, an automatic filling line that was filling bottles at 60 bottles a minute and labeling at 100 bottles a minute.
We go in there and they’re already making barbecue sauces for four or five other people, so they’re buying tomato paste by the truckload at $0.30 to $0.32 a pound and we’re buying it basically at like $1 a pound. So the word scale and scalability and what that meant to operations and production and what it does to cost of goods, it was one of those like eureka moments like, “Wow, we just dropped our cost of goods by like two-thirds.” So it was finding a good contract manufacturer.
Andrew: It just shows how green you were that you didn’t know about this, that you didn’t go in there looking for this. Still, you built this company, you sold it. Do you remember like when the sale felt real? Was it when the wire came through? Was it some other time? Can you take me to that moment when you sold the business?
Scott: Yeah. So I had already started Rhythm Superfoods. So I was a shareholder and a board member at the time and obviously involved as a board member with the sale process, but not as the lead person leading the sale. I was still leading Rhythm Superfoods. A lot of meetings, when you have big companies that are buying companies, there are lots of legal things that you have to make sure you’re completely tied up on.
So processes like that take months. I think by the time we had said we were prepared to go into that process, it was probably about eight months later that it was finally consummated. I don’t think like during the entire process, there wasn’t a lot of discussion about the money, per se. The company was so emotionally tied to all of us, not only us as people that founded it, but the investors. They were like family. They were all family and friends. We had gone through a 20-year sojourn of building a company together.
So there were a lot of sentimental moments of conversations of hoping and praying that the quality of the brand and what we had tried to build was going to stay in the right hands, and we found the right company to do that, first of all, with McCormick. But that was more of the sense of like, “Is it real?” It was real when some of the McCormick leadership came down and my partner, John Scott, had the entire company over for a success dinner, if you will. We successfully transferred the brand over to these new owners.
That was the moment for me it was real. It was physically meeting several of the folks that were going to manage the brand after that. The money had already wired. That was good. It was nice to be able to make sure that there was a safety blanket for my wife and my two sons after working for so many years on it. But really, it was more about the brand. When you work from the beginning for 20 years on something, it’s really your baby.
Andrew: Struggling for the first eight years to really break even, sleeping in your car, how much did you guys sell the business for?
Scott: A little over $100 million.
Andrew: Wow. Let me take a moment and then I’m going to come back. I’m going to take a quick sponsorship message break and then I’ll come back and I want to ask you about how does a guy who sells barbecue get into kale? I thought that people who ate barbecue make fun of the people who eat kale.
All right. First, I have to tell everyone I’m going to be speaking and participating at a place called Fireside. Fireside is like a conference that doesn’t have much of a conference. It has more about the conversation. Do you go to a lot of conferences, Scott?
Scott: We go to so many tradeshows every year there’s barely time for the conferences.
Andrew: Yeah. The problem with conferences is you sit down and you’re supposed to watch people for eight hours. For the most part, it’s boring and you don’t want to sit in place anyway. That’s why we left school, right? What we want is to get to know the other people who are going to the event. That’s what Fireside decided to do. They said, “Let’s forget all the boring speeches. Let’s just get rid of the slides and the PowerPoint and all that and just create an environment where people can get together fireside-style, cabin-style and get to know each other.”
So what they’re going to do is they’re going to have waterskiing and tennis and basketball and rock climbing, which I’m excited about. There’s a private lake, which I’m looking forward to swimming in. I’m sure I’m going to get to do some running. I’m a pretty active person. There are going to be meals that we’re going to get to have together. We’re all going to sleep in cabins together. In fact, they said, “Andrew, you’re a big shot. Do you want your own private room, your own private cabin?” I said, “No, if everyone else is sleeping together with other people in their rooms, I want that. I want that kind of bonding.”
So that’s the idea here. We’re going to get a bunch of entrepreneurs together to learn from each other, to hang out with each other, to drink scotch together, I’m hoping to do scotch night there, to have dinner. If you are listening to me and want this kind of experience, go to not just FiresideConf.com, but go to a special URL where they’re going to have you skip the line, skip the invitation process and automatically get accepted in. The URL is FiresideConf.com/Mixergy.
We’re going to get to have dinner together, get to talk, get to know what we’re all working on and also put the phones and computers and everything away and just have fun experiences together. That’s the idea here. That’s why even though I say no to so many conferences, I do not want to speak at them, I’ve said yes to being an active part of this one speaking, but that’s more like leading a conversation there and having dinner and hanging out with everyone.
So if you want to be a part of it, go to this URL, FiresideConf.com/Mixergy. This is my last time talking about them, so write it down, FiresideConf.com/Mixergy. That’s Conf as in conference, FiresideConf.com/Mixergy.
So let’s get into how you got into kale chips. It had to do with these two guys that you met. Who were these two guys, and what was it about them that drew you into this business?
Scott: Yeah. So when I was preparing to jump from Stubb’s to something else, I didn’t really know what I was going to do, but I knew I wanted to do something and I knew I wanted to do it in the area of expertise that I had, which was food. At the time — and this was only a little over six years ago —the natural products and organic products world has escalated a lot in the three or four or five years, but for the three or four or five years previous to that, it was pretty nascent.
Even though we’re here in Austin, where Whole Foods is headquartered, Stubb’s and one of the ingredients that we had, I think there was originally sodium benzoate in the Worcestershire sauce we were using that was originally Stubb’s original Worcestershire sauce brand that he used. We finally figured out how to ask that producer if they had a version without sodium benzoate, and then suddenly we had a natural product that could go into Whole Foods. So it was only in the last couple of years that I was at Stubb’s that we were even aware of the boom that was happening in the natural/organic products business.
So I just started paying more attention to it, went to a couple of the expo tradeshows in California two years in a row and committed myself personally just on my own path, fork in the road, about to leave Stubb’s, what do I want to do, decided I wanted to work with a company that was manufacturing something with transparency, with health, with benefits. I didn’t know what it was, so I had to kind of like wander around a little bit and talk to a lot of people, but one of my cofounders, Clayton Christopher, who had started Sweet Leaf Tea Company and sold that to Nestle also started the Deep Eddy Vodka Company and just recently sold that two years ago.
Andrew: One of your cofounders at Stubb’s is also the creator of Sweet Leaf Tea?
Scott: No, the cofounder of Rhythm Superfoods.
Andrew: Got it. He was also the creator of Sweet Leaf. You guys were friends.
Scott: He had just sold his interest in Sweet Leaf Tea to Nestle Water. So I was just leaving Stubb’s, and he had a couple of ideas and turned me on to a couple of gentlemen, Robby Larkin and Keith Wahrer. Keith Wahrer was the cofounder of a company called Daily Juice, a juice and smoothie bar here in Austin and elsewhere.
But they had a little dehydrator in the back of one of their juice bars. They were dehydrating and making kale chips and putting them into bags for one and a half ounces of dried kale chips. They were also making them there. It’s a commercial kitchen, a county health inspected commercial kitchen, and they were selling them two or three stores, like one or two Whole Foods and then a co-op here. And for $9.95, they could barely keep them on the shelf, and it was an ounce and a half of kale chips.
I was like, “This is pretty cool.” This is a new way of thinking about snacks, taking vegetables from the garden and for the kale chips, mixing them with a flavor of some sort, creating some sort of season, whether it’s sweet or savory, and making it crunchy and shelf stable in a package that made — we were all drinking the Kool-Aid — changed the universe, the snacking universe from Lay’s potato chips and Doritos, which I still love and eat those too, but create an offering segment that was something where you can eat five bags of it and your doctor would say, “Good job.”
That was the beginning of it, a couple people dehydrating some kale chips in the back of a fruit and smoothie bar called Daily Juice. From there, it was let’s create the concept in a different package and prove the concept out. We brought in a couple of other people to write some checks, the original financial founders and David Smith, who started Sweet Leaf Tea with Clayton and also started the company, High Brew Coffee, here in Austin. He was one of the original founding investors. You just get in there and jump in and start making more product and . . .
Andrew: I hope I didn’t just lose you. Let’s give the connection a moment to catch up. You also told our producer that you sent out a few samples out to some friends in retail, to some brokers, you wanted to get feedback from them. What kind of feedback did you get from them?
Scott: First of all, we sent it to — I wasn’t sending it to like Kroger or Walmart, the big guys, at this point. We knew with as esoteric a product as this kale chip, no one had ever really seen it before. We were sending it to a couple of regions of Whole Foods. Brokers in the Whole Foods natural community, they’re big risk takers. They love something brand new, healthy. It was a good story. It was something absolutely brand new that no one had ever seen before. The feedback was phenomenal, universally delicious, awesome. But we were also hand-making these things.
Andrew: Again.
Scott: One leaf at a time at that point. The cost of goods at that point were really not a concern. It was really about let’s get this product in the hands of thought leaders that we can trust their opinion and the opinions all came back really, really strong. At that time, there were a lot of people trying to develop raw foods, things that were not cooked at a higher temperature, kind of a dietary belief in eating things that have a living enzyme in them.
So there were other people making other items that were considered raw. So we were dehydrating these kale chips at a relatively low temperature, and it would take literally overnight to dehydrate a batch of kale chips. So you’d put them in, in the afternoon and then 6:00 in the morning, they were just dry enough to take out. My do not disturb did not disturb. Sorry.
Andrew: No problem. I get it. Let me ask you something. Do you believe in this raw food thing? Do you believe in this kind of food, or is it more of a business proposition for you?
Scott: So I from the very beginning knew that we weren’t going to go into something that I couldn’t find the scientific efficacy for, because in the natural and organic channel, there are a lot of people hyping things. I’m not going to say that it’s not right or it’s correct because I know lots of people that are very raw in their consumption and they’ve got a great glow about them, they’re incredibly healthy. But we were careful not to go deep into putting raw in our name and speaking too much about raw. I think it wasn’t that I wasn’t believing, because I was eating a ton of raw stuff, but I also wasn’t a 100% raw eater. I was more careful just because there are FDA rules, consumer confusion rules.
Andrew: I’ve talked about unhealthy snacks. You’ve made a point a couple of times in this conversation to say, “I also eat Doritos. I also eat this other stuff.” I’m wondering how much is this your flavor? How much do you really enjoy this, and how much is it more of a business for you at this point?
Scott: I’m all in.
Andrew: You’re all in? This is your kind of food?
Scott: Yes, but it’s part of my food. Again, it’s a careful concern here, because I think for the first like — in the beginning of the ’60s through the ’70s, the people that were proselytizing a vegan or vegetarian lifestyle got stamped and tattooed as being hippies and out of control and not understanding the real world. Sometimes just small little inches of change are monumental in a group of consumers like here in the United States.
We’ve got massive obesity. We’ve got a lot of people that if you just go after them with the finger pointing that, “You need to go vegan. You need to go vegetables. The only thing you can do is plant-based this and that.” Some people are very successful in their own personal lifestyle and diet doing that. But we made a careful effort to say that’s not the company we’re going to be.
We’re not going to be the shouters. We’re going to be the nudgers, because most of us are. 10%, 20%, 30% of our diets have turned much healthier in terms of the employees that are working here and me myself the same. But I’m not a vegan. I don’t want to tell people that they have to be vegan to enjoy my products. But if you just make a couple of changes here and a couple of changes there, you’ll get used to the fact that it’s not unusual to eat a product like this. It’s not unusual to find a vegetable-based burger patty, to put that inside a bun instead of an actual beef burger patty.
On the other hand, I’m not going to tell someone that’s eating a beef burger patty that they shouldn’t because that’s not our mantra here. It’s not that we’re not full believers in one thing or another. We’re believers in what we’re doing, and we think it’s right. We’re just not shouting, “You need to be a plant-based only person.”
Andrew: All right. So you had this idea. You had some validation. You raised some money. You were starting to professionalize the manufacturing and then you go after some big retailers. You go, of course, after Whole Foods. They’re very open to new ideas. In fact, they intentionally court new ideas. And you said you go after HEB retailers. Can you talk about those two and how you got those two first customers or early customer?
Scott: Yeah. It’s funny because when you show up with a bag of kale chips when no one has ever seen a bag of kale chips before, sometimes it takes a couple of meetings before people get over the first —
Andrew: Even at grocery stores, even at Whole Foods?
Scott: Even at Whole Foods. Yeah. We weren’t getting yes’s immediately. But we did get a yes in the Southeast region based out of Florida. That was the first one. We didn’t necessarily get a yes for region-wide here in the Southwest where our own town was. We were still self-delivering to five or six of the single stores that would let us in, but we weren’t approved for the whole region, got denied in the mid-Atlantic region two times. So, you know, there are hundreds of people like us coming up with products and going after them. There’s a limited finite amount of space, so you don’t expect everyone to take every product you come out with.
But HEB, there’s a buyer down there that was pretty progressive, and they’ve got some really nice natural sets within the store that have a gluten free section and a snack section and natural products section that can be anywhere from two to four aisles. So, for 100 to 140 stores at that time, Yvonne, the buyer there at the time, fell in love with them and he gave us a chance and brought us in and put us on one of their primo pick promotions, which introduced everyone by putting a little end cap for one of the months when we first got in there. So conventional store but with a real good natural set of stores that they market to and then over the years, the subsequent two or three years, we got into all the Whole Foods.
Andrew: You got into all the Whole Foods?
Scott: Yeah, eventually we did.
Andrew: I see. I thought there was an issue with Whole Foods too.
Scott: Well, the way their model has worked — I think this year is the first time we’re presenting to them on a national basis, yes or no comes on a national basis this year. Traditionally, there are 10 or 11 stops you’ve got to make depending on whether you want to go into Canada or not. So our sales team literally has to go to each one of the regions back then and knock on the door, present the case, and those regional buyers are there to make sure that the products that are in tune with their region, you can imagine if you’re in the mid-Atlantic region, there’s a lot of seafood versus someone’s that’s buying for the Midwest office out of Illinois.
So there’s a difference in shelf sets in the Bay Area than there is in the Texas region. So each one of them has their own characteristics and not every product is right until it becomes something national.
Andrew: By the way, if you notice that I was sitting down. I’m trying a stand-up desk. I’ve got to tell you, Scott, it’s great when you’re standing up and enjoying it, but after hours of standing up, I feel like it’s a little much. So I brought the little stool out I’ve been experimenting with, so much more comfortable. I think I’m going to do my interviews sitting down again.
Scott: Okay.
Andrew: I saw you looking because —
Scott: What did brand did you buy? I’m looking at those too. They seem to say that they’re healthier for you to stand up.
Andrew: The stand-up, sit down desk — it’s called . . .
Scott: Deep vein thrombosis disappears if you’re not sitting on your butt all day long.
Andrew: Uplift desk. It is really good.
Scott: That’s the one I’ve seen the ads for.
Andrew: You get the right size that you want. I like the mechanics of it so I can set whatever height I want for it. The mistake I made was I also put a treadmill under here. I said, “You know what? If I’m going to spend money on this, go all out.”
Scott: Good idea.
Andrew: The problem with that is if I’m working, I feel like it’s a bit of a distraction to be on a treadmill. We’ll see. I’ll give it a couple of days and then I’ll decide.
Scott: You’re hardly huffing and puffing and all during this interview.
Andrew: No. I would turn it off for an interview. I think it would be too distracting. For phone calls, though, when someone’s not looking, I definitely can walk. This is meant to be super quiet. This is made by LifeSpan, the treadmill, super quiet. People can’t tell I’m on it.
I thought there was an issue with Whole Foods. You were telling our producer that one of the challenges you had was getting enough supply. You promised them a certain amount. You couldn’t get it in there. You want to talk about that?
Scott: That was in the second or third year. We had gotten into a couple of the regions. I guess just to any entrepreneurs that aren’t living their life this way, you don’t know how many people are going to say yes and how many are going to say no when you go out and pitch. There is a cycle. Your product may be, if it was barbecue sauce, there’s like a two to three-month period of time from December to February that every supermarket reviews the category of the barbecue sauce and marinade. They make their decisions in March and April, and by Easter or Memorial Day there’s a brand new set that’s going to live in that store for the next year. That’s a cycle that happens around the country.
Andrew: Wow.
Scott: But with the kale chips and some of the areas of the store we were finding ourselves in, the natural snack, every retailer was not aligned with the exact same time. So we’re going through and talking to this retailer in February, this one in April, this one in June, this one in October. Whole Foods, on the other hand, the buyers from each of the regions were reviewing it all at the same time. We’d get around there and we’re pitching all the Whole Foods regions. We were only in two of them at that time. We’re also making presentations to three or four other grocery chains that were conventional stores.
You wait for the next month or two or three for the set to be determined and over a 30 or 40-day period of time, we had three out of the four conventional retailers and three more regions of Whole Foods all say yes and all of them were basically setting their shelves at the same time. We flat out didn’t predict that. It was almost like a 90% hit rate for the sales calls we had made. The volume coming in at that time in terms of orders, 60, 90 days later was 50% more than our capacity of our machinery.
So, first of all, the machinery, these are half-million dollar dehydrators and tray systems. They’d take about four to six months when you put your deposit down to actually create them and make them. They’re bigger than an 18-wheeler, so they’re big massive pieces of equipment. They’re not sitting on a lot like a Toyota Camry where you come in, buy it, take the key and leave. So we got the yes, had to scramble to come up with the money, put the deposit down, plan on raising more funds to pay for the rest of it and the next growth that was going to happen.
We got caught short. There was probably six to nine months where across evenly all of our customers, the new customers that we had promised we would have this product out, we were short-shipping them, 70% to 80% of their orders were going out, which meant some of their shelves were empty.
In the grocery business, there’s no sympathy for that. No matter what your excuse is, they’ve got a job to do. They’re filling their shelves. They’ve got margin and sales requirements, and they’re giving you the shelf space. If you can’t manage to supply them what you promised, then there’s a short fuse before they have to take your stickers off and put someone else’s stickers on the shelf.
That’s what happened to us. There were a couple of regions where it was probably perceived that we were maybe shorting them but not shorting someone else, and every retailer has to demand to be top of the list. We were just trying to treat everyone equally during this four or five-month period of shortage. So we lost some regions that we had been approved for. That stuff happens. That’s the kicks in the stomach that you have to get up and try to make something good happen the next year or the year after.
Andrew: All right. I want to do one last commercial break here and then when I come back, I want to ask you how you bounced back from that, from letting down a new customer like that. I want to find out how you’re getting into so many stores and more importantly, if there’s someone listening to us, what they could learn about getting into a lot of retailers too. You told our producer about a couple of big challenges. We want to talk about that and how you deal with them and finally where your revenue is now.
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All right. Let’s come back and talk about bouncing back, Scott. How did you bounce back from that issue where you couldn’t meet demand, where you were short — what did you call it — short packaging them or short-delivering?
Scott: Short-shipping them.
Andrew: Short-shipping. How did you bounce back from that?
Scott: Well, first of all, you want to crawl up in your bed and not go to work because the conversations are not going to be pleasant. So I just had to prepare for that, first of all. It’s not like it’s one call, right? So you call and let them know you’re shorting them and they’re like, “What the hell?” Two weeks later, you’re calling and shorting again, you’re trying to explain the situation and they’re like, “You either put me to the top or I’ll find someone else. I’ve got competitors of yours that are dying to have your shelf space.” Those are the kinds of conversations you have because they’ve got objectives they’ve got to meet. So when someone finally says, “I can’t deal with this anymore,” three months into it, you beg and plead, then you beg and plead.
Andrew: Really? You were on the phone saying, “Please, I can get this going. I’ve got a new company here. Don’t crush us. Allow us to grow,” that kind of thing.
Scott: Absolutely. You have to.
Andrew: Were they receptive to that?
Scott: Well, I remember one buyer wasn’t. So she shut us off quick and didn’t want to talk to us for another two years. But two years later, because we would pitch her every year, we finally got the yes. So we spent a lot of time dealing with her region and making sure we were marketing to her region and making sure that we looked good in her region, not to her stores, but to the competitors around there so that she would know that when we finally got the new dehydrators in and got caught back up on capacity, we spent a lot of time making sure that our competitors in that market had our products, not to do anything bad to her, but I wanted her to see us in that market.
We would send her an email every three or four months saying, “When you’re up for review again, just know that we’re back up to snuff. We can handle your business.” She and her team put a lot of work into putting our products on the shelf, and then they had to do a lot of work to take us off the shelf and put someone new in. So you’ve got some bruised egos and sometimes that happens. But you’ve got to keep your chin up and keep friendly with these people. Some of them that may be pushing their thumb in right now may need your help a year later in a different position than they’re in.
Andrew: You mean the next job that they’re in.
Scott: Yeah. You’re going to see them around in different jobs. So don’t let a bridge get burned when these things happen. Just know that you can come back to it. We came back to her. She was the one that eventually said, “Okay, now I’m going to give you a shot again.” Sometimes you have to wait until there’s a change of position and there’s a new buyer there so you can create a new relationship.
Andrew: What else do you do to build relationships that allow you to get into so many stores? What is it about you guys that allows you to get into stores so fast?
Scott: Well, first of all, we go to all the trade shows that are relevant to us, the expos, east and west, we go to the Fancy Food Shows east and west. Because we also do a pretty good piece of business in the produce department, we’ve got some snack sets and snack racks and a whole produce ethos because all of our stuff is coming from gardens, if you will.
We go to the PMA show, Produce Marketing Association. That’s their big tradeshow for the produce department. We’ll be at NACS, the convenience store show this year for the first time because we’ve now got single serve small bags. So we are there when the industry converges. I don’t go to as many seminars or confabs or get-togethers. I would love to.
Andrew: It’s all about showing to potential customers what you’ve got.
Scott: Correct. Exactly. We’re getting to the point where most of the retailers for our top items have us in their best stores. We may not be in 100% of their stores, but we’re in the right sets with our best products.
Andrew: But is it, Scott, just about going to the Fancy Food Show and other tradeshows? If there’s someone listening to us who’s got a new drink, who’s got a new food and he’s saying, “I want to learn from Scott. This guy’s been in this industry longer than I have. What can I do to get in those stores?” What advice would you give them based on your experience? What’s worked for you that would work for them?
Scott: First of all, I was listening to a gentleman this morning tell me that he was in the Costco in one of the regions and it was early on in their career and he was actually in the Costco stores, one of the ones that’s right next to where their regional buying office is. So he was in there at the customer service desk with a couple of packages of his products in their earliest package form. He’s standing in line with all the people like bringing back TVs and frozen blintzes and whatever else they’re bringing back to get the refund for. He’s there to basically say, “How do I talk to someone that lets me in and sells my stuff in Costco?”
So that story resonates with me, because it’s like that just happened because that store is right next to the buying off. The buyer for that region in the category that he was in just happened to be in the store at that time. When he approached the customer service desk, the person that was running the desk knew that they had seen the category manager or the buyer and kind of microphoned her over on her cell or something like that, “Come over.” That introduction took place. They’re now doing a ton of business with that region of Costco.
So, as simple as you need to know the store you’re going to. You can’t just like call up the buyer and say, “I’m ready to go into your stores.” How many of the stores have you gone into where you know where your products are? Is your bottle of barbecue sauce like this big but the shelf is this big? You have to know the store. How wide is it? How many products are there? What’s the price of the high end and the low end of the product that’s there?
Are there restrictions in that particular store? Not the particular store itself, but there are certain stores like a Whole Foods that if you don’t know what the ingredient restrictions are and you’re making your stuff with something with sodium benzoate, you don’t call up that buyer. So, learn the store, first of all, because if you go in there and haven’t visited their stores, don’t know how they merchandise, haven’t picked up their little fliers and you know how they go to market with their weekly promotions, then you’re not talking the language and you’re likely to fail because the buyer’s going to know that you haven’t even done your homework.
The second thing is — and I think this is the most important — is you can be successful within the 100 or 200 or 300 miles of your centric circle here. I’m in Austin. I can drive in three hours to Dallas or Houston or San Antonio and I can manage that business. But there’s a whole life outside of your circle that are hundreds of retail brands that you can be selling your products in. I’m not saying you come right out of the gate jumping into New York and California and Chicago and Florida, but you need expertise in those regions.
There are brokers, sales brokers within our industry that are experts for retailers in their region. So there’s a lot of paper work to fill out. There’s a language that each retailer, they don’t talk about customers at Costco. They talk about members. They don’t talk about stores. They talk about warehouse. So it’s a different language at every retailer you go to. So you can be eloquent and knowledgeable and be that person that is already sophisticated by knowing the store you’re going into and going in with someone within that region that has expertise.
So hiring a broker to represent you, they’re the ones that know when the reviews are happening for a specific category. They’ll make sure that you’re prepared for it, they’ll review your documents, make sure your sales presentation doesn’t — if you’re going in to see Whole Foods, it doesn’t have the Albertsons logo on the front of the thing because you forgot to take it off. So expertise is one thing and knowing the store before you go in there.
Andrew: This really is like old fashioned sales. It’s not about landing page and emails and templates and all that. It’s old fashioned sales. Know your customer, have a good presentation, keep beating a path to their door over and over.
Scott: Yeah. It’s Willy Loman 101. You [inaudible 00:53:10] to put the leather shoes on and go hit the street and talk to people. The first time they see you, the buyers are trained to reach out and find new things because they’ve got to. That’s what they have to do. If they’re putting shields up to block you, they’re not doing their job. So just know that is their job. They’re paid to find things that are exciting and to be first to market in their market with something that’s exciting and new.
So they are looking for you. All they want to do is they want to reduce their risk of failure, so they want to know that you know what you’re talking about, so, if you can prove to them through a few little things that you know what you’re talking about, go into their stores. If you go in there and say, “I’d like to be in your stores and knock this brand off the shelf,” and they’re like, “We don’t carry that brand.”
He knows immediately or she knows immediately that you don’t know what you’re talking about and the high risk of failure, which means they’re going to look bad because you’re not a business person that has done your homework, that’s a high risk to them. So make sure they know that you know what you’re talking about, going in with a broker often reduces that risk.
Andrew: We asked you about big challenges and you said, “One of the big challenges is how quickly people’s opinions of their diets change.” What do you mean by that? How is that a challenge for a business?
Scott: I was talking to some folks this morning about that and yesterday. It’s top of my mind right now. So if you were a manufacturer 20 years ago and you wanted to sell your cereals, you’d have all three networks Saturday morning, Tony the Tiger talking to them at 8:00 in the morning and 9:30. You make sure you’ve got the product stacked high in the stores that week and the kids walking down the aisle with their moms are saying Tony the Tiger. That’s how a brand becomes a mega brand, a big brand.
So the big CPG companies were able to build incredible — we have the best food in this country. Everyone trashes what’s been going on. As we moved into the things like organics and non-GMOs, but these big CPG companies, we’re able to create a pipeline of food that’s delicious for very little money for us. But those brands, as we’ve learned now, maybe you shouldn’t be eating that much sugar. Some people have gluten intolerances. So dynamics change.
A person that has a dehydrator in their garage can, if given the right voice through social media and blogging and how they look at diet, not diet in terms of reduction of weight, losing weight, but diet, just what I eat, if you have a belief system that you think that people should be eating hamburger meat that’s made out of vegetable proteins and you’re able to get millions of people to follow your lead, then you’ve got a brand new brand that’s disrupting an inherent industry, like the meat industry.
At the same time, there’s someone that’s basically saying, “You know what? That’s like frankenfood. What we really need is buffalo and bison free range and putting their hooves in the ground to make the soil rich and we can cull those herds in a responsible way and create enough meat protein in a responsible way that we’re not having to create scientific food. Both of those people have a voice and because of the nature of the internet, they’re able to build a strong brand as strong as Tony the Tiger was without having to spend $150 million on marketing.
So anyone with a product and a social voice is able to create a following if what they do and say and make is believable.
Andrew: So do you do that socially using social media? Are you creating a voice? Are you out there doing this?
Scott: We are. No, we’re pretty strong on all the major social media networks. But we’re not trying to proselytize. I get worried about the snake oil sales people that are inherent in the food and beverage industry. So I don’t like to see people that are coming so close to making claims that it’s uncomfortable. So we try to do it. Everyone has to market in a certain way. I just felt like in getting in the natural and organic side of this business, I wasn’t aware how much thought leader proselytizing goes on out there.
Sometimes it’s to a dangerous level that makes me uncomfortable. Certain supplements do it, certain drinks, certain snacks. So we had to try to follow the right line that I felt comfortable with. I want to sleep at night knowing that we’re being honest with people. So, we’re going to make highly nutrient dense snacks out of plant-based things like fruits and vegetables, trying to process them in the most minimal way.
But I’m not going to badmouth someone that might be frying something and eating meat or something like that. We’re just here to make people make small changes in their life. If they can buy a bag of kale chips once a month or a bag of beet chips, over time they’re going to see this isn’t goofy. It’s not hippie food like was thought in the ’60s. It’s now mainstream, so that’s the voice that we’re coming out with.
Andrew: It actually tastes good.
Scott: Yeah.
Andrew: All right. I’ll close it out with this final question. What’s the revenue right now? Annual revenue at Rhythm Superfoods?
Scott: Yeah. So we’re right in the $15 million to $25 million range. I like to keep it somewhat esoteric. There are a lot of competitors out there. We’ll probably have our biggest segment of growth. We’re right now in the middle of 2017, so the second half of this year and the first half of next year is all about utilizing this brand new plant that we just built the added capacity. We’re scaling up with a lot of growth over the next 12 months. So we’re going to see a big growth curve over the next 12 months.
Andrew: And you’re available online on Amazon?
Scott: Yes, we are.
Andrew: It is very expensive, though, isn’t it, for an Amazon chip or am I misreading the sizes of it?
Scott: Yeah. Two ounces?
Andrew: Let me take a look. Actually, I have to be honest, I don’t know what two ounces means. That’s one of my problems with shopping for food on Amazon. I can’t tell am I going to end up with a big bag or a small bag? So here, two-ounce, four packs, two ounces each. Is that $23? Does that sound right?
Scott: That’s not a bad price with the marketing and delivery costs of what it takes to do business with Amazon. So you’re looking at one average in retail stores anywhere from $3.99 to $4.99 for a kale chip. To give a context to that, it’s like a little two-ounce thing of kale, but it starts out with this big bunch of kale. If you were to buy a 14-ounce or 16-ounce bunch of fresh kale in the supermarket, that’s what it starts out with. We take it, we take the stems off of it, it gets triple washed cleaned, then we mix it with a flavoring sauce that’s made out of sesame seeds and sometimes cashews and seasonings to bring a flavor —
Andrew: Nacho is the one I’m looking at now.
Scott: Then you throw it in a dehydrator and what may have weighed previously over a pound evaporates out of the exhaust chamber of the dehydrator and we lose about 90% of the weight when we dehydrate it. So that big salad of kale — you’d have trouble eating the entire bunch of kale yourself — dehydrates into that two ounces of kale chips. So you basically got what started as an inedible amount of fresh kale dehydrating down through evaporative loss of the moisture inside the kale to a little two-ounce snack.
So that’s really where the expense is on dehydrated products. Like if you look at freeze dried fruits and stuff, you’re getting little half-ounces of strawberries for $3.99 because the strawberry was there and plump and heavy and you pay $4.99 for an entire pound of them, but you lose 95% of it in the dehydration process.
Andrew: I see. It looks like the Amazon Fresh version is always cheaper and that’s probably because of their shipping methods for that where it’s their cars or sometimes I notice the Post Office cars come with their bags.
Scott: Yeah.
Andrew: But look at these ingredients, by the way — as we’re talking, I ‘m looking at the bags, I’m pricing it on different sites online. Here are the ingredients for the nacho version of the kale chips — kale, sunflower seeds, tahini, which is just ground sesame seeds, onion, red bell pepper, apple cider vinegar, cane sugar, carrot, sea salt, garlic, lemon juice and chipotle powder. There’s nothing here that I don’t recognize. I don’t know why I never thought to look before.
Scott: Yeah. That’s the nacho one so there’s not even cheese in it. We’re able to achieve this kind of nacho flavor without putting any whey protein or whey or milk or cheese or something like that.
Andrew: And only apparently one ingredient is non-organic. Anyway, congratulations on this business. Rhythm Superfoods, for anyone out there who wants to go check it out. Thank you so much for doing this interview. I also want to thank my two sponsors, the company that will host your website right is called HostGator. Check them out at HostGator.com/Mixergy. And final call if you want to come see me live and we’ll say grab a drink, we will grab scotch but we’ll also hopefully go rock climbing and do other things. Come check me out at Fireside Conference. The URL is FiresideConf.com/Mixergy. Scott, thank you so much.
Scott: You’re welcome. Thank you for having me.
Andrew: You bet. Thank you all. Bye, everyone.
