Live from SXSW: George Milton and Erin Link – How They Founded Yellowbird Sauce

0:00Both of us ate a lot of sriracha. I think we'd go through two or three bottles of like sriracha a week. What kind of led you even to start a business? We did not have any intention of starting a business. Whoops. Because I was trying to imagine myself as a like 50 year old bar musician. I had a hard time doing that. I didn't want to do that. So I was like, I should be hot sauce entrepreneurs. How did you all land Whole Foods? Whole Foods like called us. We see Yellowbird is everywhere. We'd like to put it in Whole Foods. And I was like, you do? Hello, I'm your host, Mike Gelb, and this is the Consumer VC Podcast, brought to you by Propeller Industries, the leading strategic finance and accounting partner for venture stage companies.

0:38On the show, we discuss the intersection of venture capital and consumer innovation. If you're enjoying the show, please, please, please subscribe on YouTube or whichever platform you're viewing this content, Spotify, Apple. And if you want the full experience, I highly recommend checking out the newsletter at theconsumervc.com. You'll get weekly updates of all the fundraisers that's happened, distribution news for consumer brands, as well as notifications on when the latest episodes drop. So check out the consumervc.com and feel free to subscribe to that newsletter. All continent episodes are for informational and entertainment purposes only and is not investment advice.

1:17This podcast episode was a little bit different. This was a live podcast from South by Southwest in Austin. Thank you so much for Michael Best and uh mark nathan for for hosting us it was a pleasure chatting with george milton and aaron link they are the founders of yellow bird sauce which is one of my favorite hot sauces uh they have the serrano habanero jalapeno um sriracha blue agave sriracha and i and i think uh ghost peppers and i think i think a few others as well they're in places like whole foods and also walmart it was a pretty amazing hearing how they got into whole foods how they also got into Walmart and also how their approach to retail expansion was.

1:57George has been on the podcast. He was one, actually the first guest. Thank you, George, back in 2020 when I was first starting this thing. But this was so great doing this live with George, meeting him in person, also having Aaron on as well. And hearing about Aaron, how her approach to actually building the brand of Yellowbird and how her approach to kind of branding and positioning in for Yellowbird 2. So this is a fun one. really great time with them. Highly recommend checking it out. Well, I guess you are checking it out. Here they are, George and Aaron.

2:37Thank you so much, Mark, for having us. Thank you so much, Michael Best, for producing this whole, whole, whole thing and also Funded House and Q Branch. George and Aaron, so great to finally meet you both in person. This is awesome. Yeah, it's great to be here. Thanks for having us. Yeah, no, really appreciate it. How many of you all are like CPG founders or like in like the consumer space? Oh, good. All right. Awesome. Awesome. Awesome. Well, I'm Mike. I founded this podcast called The Consumer VC Podcast slash newsletter, interview venture capitalists, and obviously incredible founders like George and Aaron.

3:14Huge fan of your sauces. Our entire family is also big, big, big fans of your sauces. So this is going to be a lot of fun. Thank you. Yeah. Well, let's start with, how did you both meet each other? Classic love story. We met at a bar in Houston. I was a dueling piano bar player for a long time, and Erin was in there with a bunch of her friends. It was love at first sight. For one of us, it was. It took a little while. It took me about a year of convincing her to to hang out with me so um but yeah that was in houston we lived in houston then so i know george you were always a hot sauce fan you put hot sauce in everything was it same with you aaron so i got introduced to hot sauce when i was in college of course eating the super cheap food and just drenching it in the very well-known other sriracha and that was kind of my first intro into super spicy food.

4:17Got it. Got it. And I imagine now you're still eating a lot more or yeah. From there I started working in a Mexican restaurant called Hugo's in Houston and obviously they have a lot of spicy food being an authentic Mexican restaurant and ate a lot of habaneros there, fell in love with fresh habaneros. So yeah, didn't ever look back. So that's awesome. So is that, is that part of the reason? Like why did you, because I know that the first sauce that you all started with was the habanero, right? Why was it the habanero and not like a jalapeno or like a serrano? We were just making it for ourselves.

4:51We did not have any intention of starting a business. Whoops. So we were just, both of us ate a lot of sriracha. I think we'd go through like two or three bottles of like sriracha a week. Wow. I know, I know, right? Yeah, thank you. Thank you. Whoever clapped for that. But it was, it got to the point where we were like, okay, we wanted something because that stuff is like, it's like half sugar and preservatives and like, and it wasn't spicy enough at a certain point. So we wanted something that was like spicier and just made with food instead of like sugar and preservatives. So that's kind of how we started was we were just making something for us and it was, there were like a million different versions of it.

5:36So we didn't have a business plan or anything that a VC fund or anybody would like when we were making sauce. We were just making sauce. But to answer your question, a habanero is just a superior pepper. Yeah, it's pretty great. So we had at one point, Aaron was growing. We moved from Houston to Austin. And at one point, Aaron was like, we tilled up our backyard. Like we rented like a commercial tiller and tilled up our little backyard and grew. How many pepper plants? A hundred. A hundred pepper plants. We had 100 habanero plants. I won't do that again. In our backyard. We had like rows. We have like just a regular ass backyard.

6:14And we had like rows of like peppers. Like it looked like a tiny farm. And so that's what we made. First was the habanero sauce because we loved it. And then we actually started a business. I refused for like three years to make another product. Again, things that like investors would probably hate. But we didn't have any then. Well, I mean, you both were consuming so much of your own sauces. What kind of led you even to start a business in terms of like actually giving out this? What was it? Giving out to friends. Friends started liking it. Or like what was like the. It didn't take a lot. We had a lot of friend dinner parties.

6:52And one of his friends was like, you should bottle this and sell it. And he was like, yes, we should. Everybody has a friend who says that about something that you make. Right. so we didn't take it like too seriously because it was just people say that about so like I was I was playing in bars when we first moved here like I was a bar musician um and so like we would have little like versions of it and I was like I would just like take it around to people and be like hey try this and and like it got to the point where people would come up to me like at a bar and be like hey man hey that was a good set and everything and I was like trying to sell albums because I was a musician.

7:32I was like, man, I'm going to make it. I'm in Austin. I'm going to make it. And they'd be like, no, dude, but I heard that you're like the hot sauce guy. So instead of carrying albums in my bag, I would just carry hot sauce in my bag. And after a while of doing that, I was like, should we? He was the real Beyonce. Yeah, right. I was like, after a while of doing that, I was like, should we? Because I was trying to imagine myself as a 50-year-old bar musician, and I had a hard time doing that. I didn't want to do that. So I was like, I should be a 50-year-old hot sauce entrepreneur instead. So we started making it and taking it to...

8:14Well, my first customer was a guy at one of the bars that I played at, and he opened up a corndog stand on 6th Street, so right down the road from here in front of Pete's and Buckshot's and whatever. And so he sold corn dogs and it was just unlabeled habanero sauce at a corn dog stand. And then we were like, we need to put a label on it. We should put some ingredients on this bottle. Yeah. That's amazing. That's amazing. Well, I mean, since, of course, you were obviously experimenting, figuring out what the best flavor profile or what the best kind of ingredients mix was right. Did you ever have bad batches?

8:59Yeah, like most of them. And so we got there. Well, so we have kind of a funny story about like, there's a bunch of funny stories about early batches that we made that were pretty bad. But like I went through a phase where I was like trying a bunch of different stuff and I would just like go to a bunch of different like local restaurants in town and be like, what do you think about this? Does this suck? And the answer was yes, a lot of times. But like we were doing this thing. we were trying to do, we were doing like natural fermentation, like initially, like you would do with like a gochujang or something like that.

9:37And I was trying to figure out a different way to do fermentation. And so I was using like different yeasts to ferment like pepper sauces. And I used a champagne yeast one. You remember the story, but like at one point I was using champagne yeast to ferment peppers and then I make it in a hot sauce. And so what you're supposed to do is you use the You use the yeast to ferment the sauce, and then you do a cook to kill the yeast to stop it. But I had a particularly virile, I don't know. It was just a very strong yeast. And so I did a cook that was supposed to kill the yeast, and then I bottled it, and I took it around to some restaurants.

10:15And there was a chef at, where was it? We took it to Whippin. Whippin, yeah. And this is maybe like 2015, 2014. Yeah. It was a while ago. This was 2012. This was a long time ago. Okay, yes. This was before we had a recipe. But, like, I took it there. I took it there, and, like, the chef, like, called me, like, really mad. She thought I was trying to, like, play a prank on her because she opened it, and it, like, exploded, like, to the ceiling like champagne, right? Because it's, yeah, champagne yeast. And so we had, like, that batch, and we took them in the backyard. We were like, surely it can't be that bad.

10:50And we were, like, popping bottles in our backyard, and it was, like, 20 feet. It was like, I'm glad we didn't hurt anybody. But that was pretty bad. She took the sauce after that. She said, yeah. She did. Yeah, they were one of our first customers when we finally got it right. I think she just wanted to be like, okay, you got it. But we had another. Fun joke. But yeah, tell me some sauce. We had another one where we would do the Austin Chronicle Hot Sauce Festival. So the very first year we did that, we entered as individuals. They used to have an individual category. I don't know if anybody here knows that.

11:24I don't know how many locals are. But like, so they used to have the Austin Hot Sauce Festival. They would have like an individual category and then a commercial category. And so we entered the individual category. And they had this tasting tent. And it was like 220-something different sauces. And they put them in like just like the same containers with just numbers on them. And so people were unbiased. Blind. Yeah, it was like blind taste tests. And people would try them. And so I went down the line and I found the one that I had made. And so I just kind of camped out and I was like, this is early, early market research.

12:00But like I just camped out and I was like watching people. I was like, it's 47. And I was just watching 47 to see what people. And like we had like people actually like spit it on the ground. It was just like, so yes, to answer your question in a very long way. Yeah, we had some pretty bad versions. I think that was the question. Yeah. Well, I guess what point then did you feel like you had maybe like an acceptable or decent, you know, version of it to finally, I know that you all went through like farmer's markets and got in there, but like where it actually makes sense to actually commercialize it.

12:36Well, you remember our first. It was all me. He was making all of these like funky batches that were just kind of, eh, they're all right. and he had to go out of town for a gig and he was like, I'm just going to throw all of the stuff that we have into a pot, see what happens. Blend it up, put it in the fridge and then he's out of town. So I'm home eating this and I'm like, this is really good. What is this? And I keep eating it. It's so good. Super spicy, super creamy, just everything about it was perfect. When he got home, I was like, this is the sauce. I was like, what did you do? And he said, I have no idea.

13:11I have no recipe. So now I have to reverse engineer my own hot sauce recipe. But that was ultimately how we landed on the habanero hot sauce. It was an accident. Wow. So what was that process then getting into, you know, farmer's markets and kind of commercializing and actually getting like the product out there? I think it was like a, it was kind of an ongoing, and anybody who's done any sort of business, there's kind of some hurdles you have to jump over at every stage. So like farmer's market, you have to have you have to make it in a in a commissary kitchen you have to be inspected and all that sort of stuff which it for the for like the hot sauce festival and the like local kind of people the corn dog stand like you didn't have to have any of that stuff you didn't need an ingredient label or any of that stuff to sell unmarked hot sauce to a corn dog stand um but once you get in once you get in farmer's markets you've got to get your health certificate and sourcing as well is that like could you still like use your own peppers or do you have to also so we were you partner with farmers yeah we were using our we were using our own peppers and then getting stuff at like costco or like you know like working with like local so we'd go to like brothers produce or hardy's produce or something once we started getting a little more volume than we could get at the grocery store or something so like it was kind of a mix of local and and then like local kind of wholesalers or distributors and we would oftentimes just buy that entire basket of habaneros at fiesta or something you know but yeah um so how how did you land and like one of like the first big accounts you all got into is whole foods um how did you all land whole foods well so in the early early days when we first did put a label on it finally it had my cell phone number on it which doesn't anymore but uh we we were selling it to a couple of local places in town so like uh counter cafe and gourmands rest in peace and at that point it was already in whole uh wheatsville it was in wheatsville but we had it in a couple of like we literally had two Weitzvilles and then like three, like two counter cafes and gourmands.

15:33And then Whole Foods like called us. They used to have a local forager program. And so it's just somebody because the Whole Foods office is here. And they called my phone one day and they were like, hey, we would like to put Yellowbird. We see Yellowbird is everywhere. We'd like to put it in Whole Foods. and I thought it was a joke. I thought somebody was playing a joke on me, but when they said they saw it everywhere, it was like the Whole Foods global team or Southwest team or whatever would just go to the three restaurants that I sold Yellowbird to. So that was like, I could not have done it.

16:09I didn't do it on purpose, but I could not have planned that better. They were just cycling these three restaurants for lunch every day. And so according to them, I was everywhere. Like, Yellow Bird was in every restaurant that they ever went to. And so they were like, we just see it all over the place. And I was like, you do? And they said, they were like, we want to put it in, you know, we would like to put it in, like, the four Whole Foods in the Austin area. Can you do that? And I was like, that seems like a lot of volume. Let me see if I can figure it out. And so we had to get, we figured out the commissary kitchen first because I needed, like, more commissary kitchen time.

16:47and so I called him I called him back like we were doing a bunch of shuffling to figure out like okay well how many cases do we think they're going to need every week and so we got enough commissary kitchen time we figured out where we're going to get all the ingredients and I called him back and I was like we're ready for those four stores and they're like we think it should be 40 though and I was like oh okay at that point we were maxing out at like a case a week maybe yeah I think how How much were it in a case? 12 bottles. We did 12 in a case, yeah. Oh, wow. So not a lot. Yeah, it wasn't a lot.

17:21Those were the 19-ounce bottles, so the big bottles, but still, it was not very much sauce. So that's when we tried out co-packing for the first time, I think, when we launched with Whole Foods. So we went and found co-manufacturer for our sauce, for our Whole Foods launch, and then we had to do a recall for our first batch because they were adding water to our product. It was a whole, man, we had a time. Now that I think about it, we really had a time. I mean, so when you actually then got to the co-manufacturer on the sourcing side, is this when you also went to farmers and also sourcing directly from farmers the raw ingredients, the peppers, I imagine fruits as well because those were the hot sauces too?

18:12or were you still kind of going to Costco and going to maybe different grocery stores to buy the ingredients? So we were doing a little bit of everything. The dream for us at that time was to launch a fully organic hot sauce that was scalable. So we had already started talking to farmers to see if we could contract organic peppers because organic has never been, in some categories organic is really big, but you don't see a lot of organic hot sauces or organic peppers because people don't really ask for them, right? So, like, people will take a fully organic meal and put, like, Tabasco on it or something, which is not organic.

18:54So we were trying to, like, okay, we want a fully organic hot sauce. The hardest thing to source organic was the chilies, and then you have, like, your garlic and onions, and then citrus is a little easier. Organic vinegar is pretty easy. the organic sugar, whatever, all that sort of stuff is pretty easy. And there's no such thing as organic salt. Or organic water. Yeah, if you didn't know that, no such thing as organic salt. It's a mineral. It can't be organic. But people ask us about that every week. Like, why don't you guys use organic salt in your organic sauces? And we're like, well, let me tell you.

19:32But no, at that time, we were still kind of doing a mixture of whatever. Like, we would buy peppers from, we'd buy peppers and carrots, and depending on the season, we'd, like, onions and stuff from Johnson's Backyard Garden. Again, rest in peace. That's a local, it was a local, like, 200-acre farm that was just east of Austin. And we sourced more and more stuff from them. We ended up, like, there was a little while where I was, like, working directly with family farms in, like, the Yucatan in Mexico. so that was a kind of a that was a wild time as well we had a lot of there's like a lot of wild times it was like going down to the yucatan and like making these deals and i do not speak very good spanish either so just going down there and like making deals with these like local family farms and then like shaking hands with them and being like oh man do do we think that that stuff was going to show up that anyway did it sometimes and sometimes it didn't so that's uh but we were kind of doing whatever we have uh at this point we have a we have a pretty steady supply chain but that's kind of a result of doing everything and yeah everything ourselves and kind of seeing what stuck and by the time we saw what stuck we had like we had like redundant supply chain and then And when Hui Fong is out of peppers because they have one supplier and it didn't work out, we're a tenth of their size and we have ten suppliers.

21:06So we're all good. But that was kind of by accident. We kind of backed into that. Well, I was going to say, so it seems like that the first time that you worked with a co-man when you got into Whole Foods, sounds like it wasn't a great relationship or didn't get off to a good start. You talked a little bit about, because I know that you now have your own manufacturing facility and everything. As you say, you are much more vertically integrated. Talk to me about why that kind of didn't work out with actually having someone, having a co-man rather than doing it all yourselves. Yeah, I mean, having a co-manufacturer, it can be a blessing and a curse.

21:49obviously anybody familiar with co-manufacturing? Okay, cool. How many of you love your co-man? How many of you are a co-man? I mean it can be a blessing and a curse because if you're going to scale something it is probably the least capital intensive way to scale a product up. You don't have to open a facility and have HR and deal with OSHA and organic certifications and audits and all that stuff. You just go do like sales marketing and customer support and all that sort of stuff so for us the big thing was that we were our when we did finally put together a business plan we were like the only way this works is if we can scale up the farmer's market quality like the product has to still be this good when we're making a thousand or ten thousand or a million of them it has to still be this good so we went to a co-manufacturer and we were like fresh carrots fresh peppers go and they're like no yeah because that's hard and it's expensive and it's you know because we do all of that stuff now ourselves like we have our own you know like a 30 ,000 square foot manufacturing hot sauce factory now I know pretty cool right and that is very hard it's really I mean it's every day to bring in fresh stuff and then we are always going through the process map and being like, where can we be more efficient?

23:25Because on the consumer side, the customer, especially right now, is very sensitive to the price. Walmart is one of our biggest customers. We do business with Costco, so people are sensitive to what the price is. So like carrots are our number one ingredient. Like that's by volume, the largest ingredient that we use. There's a lot of fibers in carrots. When I was first doing it myself, it would take me 10 hours to like stew the carrots to where you could turn them into a sauce and not have it be all pulpy. So like doing the process map for that at scale is tough. It's very tough. And so I don't necessarily, I mean, it was very hard going to a co-manufacturer and saying, this is what we have to do.

24:15And they're sitting there trying to figure out how to make some pennies off of a bottle. I mean, that's a hard business to be in as well. And it's like, they look at it and they're like, we can't stew carrots for eight hours or 10 hours or whatever. So what about if we use like a carrot flavoring or a carrot powder or something like that? or we're going to add water because that makes the process go faster. So it was not what we wanted to scale up ultimately. Yeah. So you were kind of forced to make some concessions probably also because you're still like a small brand at that point, right? You just got into 40 stores and all of those, which is incredible, but it's still like not – you still weren't as – you weren't as scale.

24:56You probably weren't even like a priority probably for the command either. Yeah. I don't think we were a priority for anybody. Well, I mean, like, so it seems like, but it seems like since obviously you're in Whole Foods, you're obviously in Walmart, you're in Costco, it seems like you were still able, even though it was like a bad batch or the flavor wasn't quite right, you were still able to sell through in Whole Foods and kind of, and people clearly kept buying it. Was that difficult because you felt like the quality wasn't there? well we didn't sell the stuff that was not good yeah we we we took all of that stuff back and then i made it i made the replacement i made all of it yeah because they're like we fired them but we didn't have any place else to go right so i actually had a commissary kitchen it was like what 1200 square feet yeah it was tiny um so i had so i had got i had like signed a lease on this little it used to be a catering kitchen or something yes in round rock and it was like 1200 square feet it had a little office and a little cooler and so i just i was just in there and so when we were in the co-packer like we still had that space i was like subletting it out to a couple of other there was a chocolate company in there and there was another guy making hot sauce in there too.

26:23And so when, when the, when I had to pull all that stuff back from Whole Foods, I just, I just, I don't know. I don't know how many hours I was in that kitchen, but it was like, it was like a, just a solid, like two weeks of just like remaking everything and just like bottling it myself for like 40 Whole Foods. This episode is brought to you by Propeller Industries. If you run a high growth business and your focus on profitability, extending your runway and improving your operational efficiency, you probably need a finance and accounting whiz that will grow with you. Well, instead of hiring someone full-time, what would be cost-effective is working with Propeller Industries.

27:03Propeller Industries is a leading strategic finance and accounting partner for venture stage companies and has partnered with over a thousand startups and high growth businesses across consumer products, consumer tech, and enterprise. Some of the brands that they've worked with are Liquid Death, Olipop, Hymns, farmer's dog away movie pass and giphy propeller also provides specialized support for fundraising and m &a with transaction advisory services propellers ta team of former investment bankers and investors can step in a more of a project basis when pursuing full-scale financing and m &a there's a link to propeller industries in the show notes if you want to learn more information was was whole foods pretty understanding that they they had to go back and and kind of read We do everything?

27:45I mean, we got to stay in Whole Foods. So to the extent that they didn't immediately kick us out, yeah, they were understanding. And Whole Foods has always been really good. I don't know what it's like now to start as a small brand in Whole Foods. But for the time that we were growing, they were very, very good at being a large company that dealt with really small companies. and so they were like yeah you i mean basically like you get one but like get it right because this is not the product that we bought for our stores yeah and i mean they did give us like another good chance you know they realized that we had product issues and we're like yeah we do have product issues that we need to fix and so they said fix it and we'll put you back on the shelf got it and then after those 40 stores like what was like the next kind of growth opportunity that you all were like thinking about?

28:42Seriously, I mean, obviously it first was let's get our manufacturing, you know, kind of right. Was that at that point you both thought we need to open like our own facility? Maybe we need to raise money in order to raise our own facility? Or like, how did you think about solving manufacturing issues you were experiencing at scale? So we actually found in 2015, oh boy. So in 2014, we launched with Whole Foods and we moved all our packaging to glass bottles at that point. There was kind of like in the natural industry, there was a lot of, we initially launched our product. I don't know how many people are familiar with our product, but it's squeeze bottle hot sauces.

29:25We initially launched in like squeeze bottles with hot sauce. It was sriracha, but better in Austin. and so the squeeze bottle was like a big part of the product and we went into whole foods there were a lot there were a lot of there was a lot of clamor kind of around packaging in the natural space about the you know that plastic is not as reusable that I mean we all know like plastic we know we know I don't have to tell you about plastic but but people were not a fan of it And so when we launched in Whole Foods, and it was also easier for co-packers to deal with to hot fill in glass, right? So like when we launched in Whole Foods, we launched in glass packaging.

30:14And all of the same people who demanded the glass packaging did not buy it because it was not as good of a product. They wanted to squeeze it. They can't squeeze that glass. So we ended up switching back to plastic bottles. in 2015 we ended up finding we did find a pretty good co-packer who actually worked through the process with us and they were doing a pretty good job for a while and then anyway I'll talk a little bit of shit about them, why not? They're not here but they kind of wanted to make it they got to the point where they wanted to make it cheaper and easier and they eventually kicked us out They fired us, and I had to show up with a moving truck and get all my stuff out.

31:02It was a very fun day. But basically, at that point, they fired us, and we got them to do one last production run at triple the price. They agreed to do it at triple the price, and we had enough inventory for three months. So we're out here. At this point, we've got three regions of Whole Foods. So that was our next growth. was we were expansion just with Whole Foods because we kind of like figured out how to talk to the Whole Foods customer and do that stuff. But so we had three regions of Whole Foods, probably about 150 stores total when you included all of our local stuff here. Plus we were doing online business.