Building a company in 2023 has a vast number of challenges: increased competition, constricted financial markets, and higher supply chain costs. So what are founders to do about it? Mike Fata joins me to share his perspective on what founders can do today to set themselves up for success tomorrow.
Mike is a prolific writer, mentor, and entrepreneur in the CPG industry. Mike co-founded Manitoba Harvest in 1998, which he grew for over 20 years until selling to $419 million. Since selling the company, he’s published a new book, Grow: 12 Unconventional Lessons for becoming an unstoppable entrepreneur, and has invested in a number of companies including Nuts For Cheese, Mid-Day Squares, and Sol Cuisine.
Startup to Scale is a podcast by Foodbevy, an online community to connect emerging food, beverage, and CPG founders to great resources and partners to grow their business. Visit us at Foodbevy.com to learn about becoming a member or an industry partner today.
Jordan Buckner: [00:00:00] Today I am the honor speaking with Mike Fata, who is a prolific writer, mentor, and entrepreneur in the CPG industry. Mike co-founded Manitoba Harvest in 1998, which he grew for over 20 years until selling for 419 million. Since selling the company, Mike has now published a new book Grow, which talks through 12 unconventional lessons for becoming an unstoppable entrepreneur and has invested in a number of companies, including Nuts for Cheese, midday squares, and soul Cuisine.
So Mike talks with hundreds of founders and has a really good pulse on the industry, and so my goal today is really to learn what founders should do today in order to set themselves up for success tomorrow. Mike, welcome to the show.
Mike Fata: Yeah, thanks for having me.
Jordan Buckner: So, building a company is obviously different now in 2023 than 1998, but I'd love to hear from your perspective how things are have changed from when you [00:01:00] started to what you see founders going through today.
Mike Fata: Yeah, I think a lot of , the fundamentals in business haven't changed. But there are some things that have and it relates to. Competition really like back in, before social media and, you know, a lot of data at retail, especially for C P G data, you could have a great idea, a great product, and have and create a clear runway for yourself of maybe a couple years before you're gonna have stiff competition.
We're not living in that time anymore. Even if you create a great thing and it's very authentic to you, you maybe have three or six months before it's going to be copied and, and certain categories get. Kind of copied rarely rapidly. And all of a sudden you have like half a dozen or dozen competitors trying to do the exact same thing as you.
And so that speed to market and access of information has really changed the game over the last number of years.
Jordan Buckner: I like that you actually mentioned that business fundamentals have stayed the same, because that's one kind of time honor, truth. But it seems that. You know, a lot of companies really in the last decade have taken this approach of, you know, hyper [00:02:00] growth.
Right. So even me, when I launched my company TeaSquares, honestly believe that I was going to grow the company and sell it within five years. Right? Yeah. And like that didn't have to, and far from it. Yeah. So what advice would you give to founders who are looking to, you know, quickly build and sell as May has been popularized by technology or VC companies?
Mike Fata: Yeah, I just don't think that you should be thinking like that foundationally build a company because you like doing it and build something that you're so passionate about that you'd want to do forever. And just focus on building a good company. If you do that right, then there could be a potential for you to sell the company one day where I see a lot of founders fail, and quite honestly, it's a turnoff for me As an investor is when someone says I'm building this company.
And to sell it, you know, not to say that you shouldn't have a thought of an exit strategy, but I think it's been shown that founders and entrepreneurs that focus on that exit too early on can screw up a lot of things in business. And quite the opposite is true if you just build a. Solid business and you enjoy the journey of being in business and you [00:03:00] become, you know, known for quality and build a world-class company, hopefully you're gonna have every opportunity to sell that business when the time's, right.
Jordan Buckner: Yeah. I think that's key because I think people see Companies, right, that have large exits or acquired and they think, oh, like, oh wow.
Like I want that to be me without knowing the full story. Right?
Mike Fata: Yeah. And they think it's a process. You know, I'll talk to a lot of founders say, yeah, I'm just raising my seed round. And then next year it's gonna be a series A and then series B, and then series C, and then we'll sell the business like five years from now.
And you go like, Whoa. You know, you have to create a really differentiated product , and a story and have a good enough margin in that business and gain the distribution and gain your minimum viable community and then a greater community and do that all well, like, you know, being profitable or having enough equity to actually accomplish that.
And all of that is near impossible. And you can't just think about here's a , funding round to funding round to funding round, and then you're gonna be successful. Like that's Cinderella story and , Hey I have one of those stories from an exit, but we built the business over 20 years.
You know, Sol cuisine, my latest exit drawer, bell shine, built the business over 25 years. And those are [00:04:00] more of the real stories, even though the headline could just see, you know, nine figure exit and then everyone wants to dream that up.
Jordan Buckner: But Mike, how else am I supposed to get my mansion by 25?
Right? Yeah. If I don't build this company, I mean, you know, it's interesting because even the other thing that I see and interesting, again, your take on this is I see a lot of complicated products out in the market, right? And a lot of times it might start with a founder, you know, need that they're trying to solve for, but products that have.
20 ingredients, even if they're all natural or using like very unique and in some ways, like odd, maybe they're beneficial, but like odd ingredients that no one has heard about on the consumer side. Do you think that the product industry has gotten, has like over innovat and gotten too complicated and the products that they're putting out into the market, or do you think that you've seen the demand for things like that?
Mike Fata: You know it's a fine line there. You want to be highly differentiated when you're creating a product. And I think it's really important that you need to be, you know, there's gotta be a really good fit with the founder of why the [00:05:00] founder is creating that product.
So, I. You know, if you're highly differentiated and you know, to use your example , there's very unique or ingredients or novel ingredients in there that could be your moat for a certain amount of time because you have a lock on that supply chain or you really, that's a really good fit with your founder story or whatever reason you're doing that.
And there's lots of great examples, right? Like I've been in the industry long enough, 25 years that we saw when, you know, goji berries came being popularized and a number of other foods. From around the world, or superfoods or supplements. And so, you know someone was early on enough to say like, we're just gonna take that risk and go for it.
And it was an uphill battle. Same thing with hemp. When we were getting hemp to market, it was very, very strange and weird. But that was our differentiation. That's what made us unique and just continuing on with that. So I think the flip side of that is also true though.
If you highly overcomplicate your product, you make your supply chain very difficult and one degree of separation and you can't get that product or you can't get it for the right cost or you can't get it in the right time, you could be challenged in business just because of that.
Or on the consumer end, like, [00:06:00] I think the consumers generally are going to, especially in the food business more simple like you'd make it at home ingredient decks and as more consumers are starting to read ingredient labels they wanna be able to understand what's actually on the label instead of like, I think, highly engineered foods.
I think there's less consumer draw to some of those things.
Jordan Buckner: You know, I totally resonate with that because with I was creating TeaSquares as well, it's like, all right, let's make it as unique as possible. So essentially they were energy bars, fuel with, you know, organic tea inside.
But we, one used like tea as a main ingredient in including their name. We made 'em bite size squares instead of a typical protein bar shape. We made a multi-serve pouch instead of a bar and instead of a single serve. And then we also had flavors like citrus, green tea matcha, which tasted great, but no one has ever tasted anything that was like a citrus green tea matcha in edible form in the grocery store.
And I to use your phrase too, right, like we built a mote that was differentiated, but we also built a mote around our consumers where they couldn't get in cuz they couldn't understand what the heck we were selling. Yeah.
Mike Fata: [00:07:00] Yeah. And you know, you realize as a founder, it takes so much money to actually go on market and educate people if there's any differences, like when, when I learned that there's like 250 commonly eaten foods and if you're outside of that, like how challenging it is to get a consumer to try it and become part of their normal lifestyle, it's just, it gets really, really tough.
So you have to really choose where you're gonna differentiate and be unique, but don't make it super complicated. You know, it's similar to even messaging when we got into the hemp business, like telling people how healthy hemp was and how much essential fatty acids and how much protein and how sustainable and how organic it was.
And realized that the majority of people didn't care that much. They wanted it easier to buy. And so we just, by simply changing the messaging up that hemp parts were taste good, easy to use and good for you, made it a lot more approachable to the market to be able to come in and access the brand.
Jordan Buckner: What are your thoughts on brands or the founders telling consumers that like, this product tastes good? You know, it's interesting because. It's highly subjective taste, obviously, and everyone has an opinion on it, but that's the [00:08:00] number one survey point of like what most consumers are looking for from food is like something that tastes good.
Yeah. So like as a founder, how do you navigate that path of, one, making your product taste good, but then also sharing that message around taste?
Mike Fata: Yeah, I think community is really important there because you said it like, We've learned, especially some natural food products a natural food consumer.
And so in that natural food consumer community would say this tastes good. If you put it to a mainstream consumer that's used to eating like highly processed, lots of sugar product, they like, ooh, it tastes. Too earthy, you're too natural, you know? And so I think knowing what community you're talking to is important there.
But generally, being in the food business for 25 years, I always said our biggest strategy is putting our product into people's mouths. We're living in a time where you can have digital influence too.
And so, you know, making food porn shots or having influencers that are showing how delicious the product is. I think all that's really, really important. But , know who your target market is and especially if you're making what would be called a, typically a healthier product a lot of mainstream consumers just aren't quite [00:09:00] ready for it yet to have that as part of their everyday diet.
Jordan Buckner: You know, the industry is interesting. You've been in it for a long time, but it feels like there's been a little bit of shift to me where there's almost like two sides to this natural product industry. There's like the better ingredients led by organic non G M O certifications, but typically they're like standard foods , that people have tried before.
And then there's also this. Like food as medicine approach, which has almost led to beah foods performing as supplements in how they're marketed. How are you kinda seeing the market and like the product industry develop around those two ideas? Or do you see any others that are really standing out?
Mike Fata: Yeah, I think there's healthier junk food, right? They're taking nostalgic kind of things, whether it's ice cream or treats and make it a lower glycemic sweetener in there, or clean up the ingredient deck to not put out.
S or preservatives in it. And there's a huge market for those type of products and those are making the world a healthier place. But then there's definitely foods that are sold on functionality, not just flavor and nostalgia. And I think that's where, you know, you're having a lot of [00:10:00] ingredients that have some kind of beneficial effect.
They're energizing you, they're calming you they're helping with your sleep. They're helping with your mood. I think those are the items that are. Popularized now from consumers of looking , for that benefit. And so you see those kind of items whether they're supplemented foods or just contain some of these ingredients and , founders are trying to share that benefit just in a different eating occasion.
Jordan Buckner: Do you think founders hold themselves in by going after, like, functionality as their poor message? And I ask because even I struggle with that in figuring, like we were talking about like focus and energy, but it's really tough because like, well, tea has caffeine and for some people that gives 'em energy.
For some they think of it as like a relaxing beverage. So it's really a messaging around it. But you know I don't seem the scene too many companies kind of hitting plateaus around like functional language. I'm curious if you see the same or if you seen
Mike Fata: Yeah. You know, I've learned a tremendous amount over it over the years. We did , a very large consumer research project and marketing project you know, a couple hundred thousand dollars spent. And what I learned from that to highly summarize it was. [00:11:00] In food and beverage consumers are care, 75% on taste and 25% on benefit.
And that 25% benefit is from my understanding all the benefits. You know, like, oh, it has ashwaganda or it has this kind of herb in it that gives you this kind of effect, or it's organic or it's sustainable. Or that company is donating to social causes for the business, kind of all those benefits.
But it's, you know, 25% when 75% is generated by taste. You know, that's still a little bit of a rounding error, you know, and if you don't get taste right, you're not gonna have a lifelong customer. It doesn't matter how healthy it is, how sustainable it is. And so I think you gotta be front and center.
Focused on when you formulate, formulate , on taste and that nutritional benefit that it's offering and all the other kind of benefits coming in tandem, but like right after the taste, I've made some poor tasting products that I thought were gonna be awesome because hemp parts and our other hemp foods were great and people loved it, that it had protein essential fatty acids and they just didn't sell.
You know, people bought 'em once and they wouldn't buy them again.
Jordan Buckner: Yeah, I [00:12:00] think it is. Taste is highly under talked about and underestimated in the community. Quite frankly. I see very few people like making really delicious food or it's kind of the second or third on the list. So I think that's something that should probably be highlighted by them, you know?
Taking a company and starting a company is really expensive. I'm curious to hear your thoughts on, you know, how founders should fund their companies, especially those in the first couple years and the right time to take on investment to really grow.
Mike Fata: Yeah, it is tough and every business is different.
I personally like the. The farmer's market kind of approach to business, especially in food or food and bev where, you know, you could start out and you have an idea and you make it in your kitchen first and you make it for your friends and family. So you think you have something cuz people like it and they're asking for it.
And so you could make a run of like a hundred or 200 and go to a farmer's market or go to a consumer's show , or go to your local store and do a demo there and sell those products and sell that, but then also learn, you get feedback and hear from consumers and then ramp that up to 250 or a 500 piece run.
And learning all the way [00:13:00] along, but also being responsible to make and sell. Make and sell where you're generating like cash flow and understanding what your product margins are before you scale up. So, From a founding and a foundation of business , that's how I see the most successful companies really starting, especially if you start with like most founders, limited equity.
And then the gold standard for financing and business that I've learned is if you could bootstrap your business to $1 million , in sales, which you know, I couldn't do, and the majority of people couldn't do. But it really sets you up after that for you know, proper capital raising. If you don't have that money, it for sure before you generate a million dollars in sales.
It's gotta be friends and family or angel investors from your local community because most of the time they're investing in the idea, you know, they're investing in the entrepreneur. But you know, until you have like a million dollar business , in consumer packaged goods, food, you know, it's questionable if you're ready for any larger investments to really start to spend.
Because , I think, you know, you probably, you need to be Three, four, $5 million company, easy, minimum before real financing, like a venture [00:14:00] capital back to and start , to spend to grow the business. So I see it fail by founders getting funded too early, spending those resources when they're not really sure where to spend it. and then they use up all the equity and they can't raise anymore.
Jordan Buckner: You know, first off, I like the idea of Farmer's Market. I actually just saw a couple posts by entrepreneur named Lex Evan, who has Lexington Bakes and like gourmet brownie Company, and he launched in farmer's markets to support his launch in Erewhon.
So you can like, get in front of consumers and meet them outside of the store and then use that to drive traffic in the store and. He said it was really successful at being able to do so, and I say think that, you know, even limited time launches to really test it out with a plan of growth is really powerful.
And on the funding front, you know, I think that bootstrap approach is so key. And I love that you said that. What do you kinda say to founders who are like, start off essentially kind of run out of money and they're like, okay, I need money and I need to find investors to even just get this off the ground.
How do you like build those relationships with [00:15:00] angels? Like if you don't have an immediate network how do you make yourself presentable so that someone wouldn't want to invest? And you say like a local angel.
Mike Fata: Yeah, I think you know, get involved in the local community. And so if that me, if there's an opportunity to do a, an incubator or an accelerator for your business that could be one avenue.
Sometimes it's getting involved with the with the local university Or colleges cuz they have entrepreneurship programs there and there's a community of kind of angels and support hanging around there as well. Sometimes it's like a nonprofit, you know, we have like the naturally network across the us for natural product entrepreneurs or like similar organizations where you can get into that local community and go for minimal costs and network.
And then I would magnify that by you know, being on LinkedIn, as I think about LinkedIn as a 24 7 trade show where you can go and tell your story and network with other, you know, whether it's angel investors or other founders on how they're finding a path to raise that capital and raise awareness for themselves and for their business.
Jordan Buckner: What qualities stand out in founders to you [00:16:00] personally that you either want to mentor or invest in?
Mike Fata: I think a strong founder product market fit is number one. Like why is the founder creating that product? You know, and I have my personal example of, you know, being a hundred pounds overweight, getting into my weight loss journey, but doing that from the no fat diet.
And so when I learned about hemp and essential fatty acids in hemp, I was hooked, you know, and so anyone that that spoke to me , in the early years of the business really got why I was into hemp foods. I'm looking for that. In different business categories and different founders, like what are they really into?
Gimme an example. One of the portfolio companies bloom and Karen at Bloom you know, was just sensitive and couldn't drink coffee, but wanted, the coffee shop wanted that experience, that latte experience, and created bloom for herself. And then it took off from there because she met other like-minded consumers.
But when you talk to her, you could really see how she has that product that founder product fit. And so look for that. But also, you know, entrepreneurs that are smart and you hear it all the time, like know your numbers, but you really, you gotta know your business, right? Like, you have to understand like how much your revenue projections are and how much margin that you're [00:17:00] actually making.
And I think that financial aspects of the business, it's hard to be successful without that. So, Founder product fit and then being a smart founder and knowing the business well, are the two foundations for me, no.
Jordan Buckner: I think those are so key as well, so I love that. And then, As founders are growing, right?
Most founders start as like a single person or maybe a two, three person team. They're asked to wear all the hats, right? Be the finance person, be the marketing person, be the product development person. And most people like, it's unreasonable to think that anyone has all of those skills. Maybe they're good at one of those or maybe two.
And so how do you think about and recommend founders like start growing their initial teams as they're getting started to build up those skill sets and expertise?
Mike Fata: I write about this, there's a couple chapters in the book on this actually, because it starts with Doing a personal SWAT analysis for yourself, understanding your personal strengths and weaknesses before like what you're really bringing to the business.
I think if you're a sole founder it's really tough. You gotta cover the sales, marketing, ops and finance and then, you know, capitalization of the business. If you [00:18:00] have multiple founders. The best case scenario is when the co-founders all kind of tackle one functional area, and they have sales expertise or they are coming with consumer marketing, or they are a, you know, a back of the house kind of person and are really comfortable in ops and finance. And so, you know, it's important to understand the different roles in the business and then understand what your strengths and weaknesses are and where you can have the biggest impact.
From there, you could put a hiring plan together. Like my example, , I'm naturally more of an operations and finance person. My mom was an accountant. Finance comes really easy for me. But as a founder, I knew I had to grow as a sales and marketing percent to grow in sales and marketing. I couldn't be doing the ops and finance pieces of the business.
And so we had another co-founder that was covering ops, but one of my first hires was a controller. To do all the day-to-day entry and accounting entry so I could just go and spend all my time with customer and consumer, cuz that's where I was really gonna be able to drive value in the business.
Jordan Buckner: Do you think that founders can outsource sales?
Mike Fata: You can, but it's more challenging. I think some of the best founders, most successful entrepreneurs are, you know, have a marketing talent to [00:19:00] them, have a sales talent to them either natural or developed.
And they put a lot of e energy there because, You gotta understand your consumer that's buying your product and be able to communicate more with them. And then sales, like, you know, understanding distributors and brokers , and retailers and trade relationships and what's important to them, like outsourcing that especially too early on, just seems so dangerous compared to, you know, taking the time and going to school, educating yourself on how you can be better.
Jordan Buckner: One piece of advice I got from Ibraheem Basir from a dozens cousins was that, you know, as a founder, he goes out to all the, the key like selling meetings, but then hire someone to do sales support, right? Like that as a founder, that wasn't providing the incremental value for his time, and that's something that he could hire for.
So after the deal went through someone to fill out all the paperwork and make sure everything was correct but he was always kind of the face doing the sales, which worked really well and also freed up the other time.
Mike Fata: Yeah, and I think that's myself as well. Even when we grew bus harvest a hundred million dollar business, I was out there with our sales team in key customer meetings because the founder can bring the, can bring more marketing to the [00:20:00] conversation.
Like why is the founder in the business? What, you know, what's the business's purpose? What's the vision and mission? and all of that is really. Critical in customer relationships. But it's hard for a trained salesperson to cover that aspect. But then when it gets to what's the new intro deal?
What's the promotional allowance, what does the advertisements look like to support the retailer, the follow up with all those pieces of it, you know, those are foundational sales roles and activities, and so that's where a founder and a salesperson can compliment each other.
Jordan Buckner: As founders who are kinda navigating the financial landscape that we talked about a little earlier right now, do you think they should be focused on building to profitability first, or focused on building growth first?
I know it definitely is gonna vary by situation, but as the, maybe the default that founders should think about. What do you think?
Mike Fata: Yeah I think Growth is important because it keeps people interested in the business and keeps more opportunities coming. I think gross margin is more important in the early years than profitability.
You have to, because you're creating that product. And depending on your supply chain, are you manufacturing yourself? Are you co what's, you know, [00:21:00] what moats do you have around your formulation? So , can you have a good solid gross margin? And I think for me, a target is 50% gross margin. And I know even people confuse like,
what makes up a gross margin? That's why you know, we give away a fleischman.org we have a proper c p g food and beverage p and l template that founders can use because, you know, you want to calculate your gross margin properly, but if you have a strong gross margin you know you're gonna spend especially as a startup below the line for a new people on your team , and selling and marketing opportunities and your office and your kind of other infrastructure stuff. But if you have growth and a solid gross margin then , you're much more of a fundable business cuz you know that the equity dollars , they're gonna go to growth.
, and when you continue that growth, you're gonna have a strong margin, you know, if a business is already underway then, you know, the most important thing is you gotta protect your runway. And if you're not profitable you know, you're gonna hit a brick wall center later if you don't bring in new equity.
And we're going into a time, which really reminds me of 2008, 2009, 2010. I live through that at Mental [00:22:00] Harvest. , we are fortunate to grow the business through that because we had an equity partner private equity that, or venture capital that was involved in the business.
But if you don't have that next round of equity you need to be really conscious on how do you change your operational plan to preserve the runway of cash and your capital.
Jordan Buckner: I think that's a great thing as well. And all the founders listening in. Make sure you have that cash to continue on and stay in business and to build your vision into reality.
Cuz it's probably gonna get a little bit easier the next couple years. But there's not gonna be the floodgate of funds coming into the industry as it was before. Mike, thanks so much for being on today and talking about what founders can do to really drive success in their business.
Mike Fata: Yeah. Thanks again for having me.