When You Start, Scale, Sell and Then Buy Back Your Business From Hershey And Coca Cola with Jon Sebastiani (Krave Jerky) and Mark Rampolla (Zico)

29:40Walk me through that whole time for you and also like your kind of decision making if you actually should bring back Zico. Sure. So a little different than John. I maintained some great relationships at Coke. So I still knew a lot of people. but they were very clear they were going to run a process that's it and and so um they were in fact they made an announcement you know soon after covid had hit they were going to sell off or shut down 200 brands globally to focus on the core zika was just one of them so i i knew the whole m &a department and their their comment was look we just figured this out we don't know what the heck we're doing we need a little time right which brands are they going to shut down which Are they going to sell?

30:28And so I just said, look, we just want to be in the mix. And so, you know, like John, I was now on my way with my partners, one main partner, Dan, now, you know, building what is now a, you know, half a billion dollar asset management firm, right? So we have institutional investors. So this absolutely could not be just a pure personal decision, so much so that I actually recused myself from our investment committee process. My team did diligence, like John said, and his did like they would any other deal. That being said, of course, you know, I've got some inside information and some knowledge.

31:04You know, there was a fascinating personal part to this, too. I, you know, I came in one day when I first got the call and I saw my wife coming downstairs. I had a big smile on my face and I had the sort of smile that scares her. She's like, what's up? and I said we might be buying Zico back and she was really upset and she said what are you talking about and I told her the whole story she said can you give me a moment to sit with the fact that they want to kill it oh right right so we needed as a family to sort of go through that emotional old process. My second phone call, my immediate phone call was to my partner, Dan, like, look, can we consider this?

31:53Should we consider this? How would we consider this? So we ran a process and we competed. There were bidders. But we knew, I think I felt like everything else being equal, we would get it. We weren't going to get it below market or below others. But if we competed and you know ran worked through the process i thought we had a shot and we did a similar process to john we did a lot of consumer research we had a lot of retailer conversations um what was interesting here was um while this whole process was happening market share was falling fast because as soon as they announced they were shutting it down retailers were done they're like forget about it so we had a challenging process to get back on shelf literally at one point after we took over the brand, but before we actually started distributing it, market share hit zero.

32:43There's data, it's like zero. And so, but we knew they had spent 50 million on marketing for a few years. So the consumer awareness was through the roof. Every major retailer we talked to said, look, we love the category, Vitacoco needs a competitor. We love Zico. We didn't like dealing with Coke, with Zico. So bring it back, you know? And out of the gate, I also knew, I don't think I have quite the stomach john has like i i needed to make sure i had somebody running it out of the gate so before we even closed the deal in fact as part of the negotiating team negotiating process we brought on a team so we knew we had a team out of the gate so they did a lot of this work to kind of vet it and then we we kind of were building a plan simultaneously as we acquired the brand and And like John said, it's been a tough two years.

33:37Our biggest challenge was actually freight. You know, you can imagine a single source product out of Asia when freight goes from 2 ,500 to 20 ,000. So, you know, we basically paused on everything for about a year until freight normalized. But now the business is, you know, really starting to take off. So it's going to be an interesting repeat ride for sure. But again, like John said as well, for us, this has to make money. It has to. We're a firm. We have funds. This isn't a fund. Our investors expect a return on their capital, and we are committed to give them what we hope will be an extraordinary return on capital for this.

34:20Did you also feel like, I appreciate you sharing about the distribution side and talked to some of the retail partners about how they said they were still kind of Fedococo needs a competitor. We love Zico, but we just really didn't like dealing with Coke's people. Totally understand that from maybe that standpoint. But on the product side itself, did you feel like you had to go back to maybe like the old recipe, old formula? Or how were you thinking about that from that side too? Yeah, good question. Aside from some really bad innovations, some just ridiculous flavors, some combos that made no sense, the core coconut water product was as good or better than ever.

35:06We had built, after having years of challenging supply chains in Brazil and Philippines and Indonesia, we had finally started to build a really world-class supply chain before we sold the business. And Coke kept that intact and kept the entire team intact. The whole commercial team was gutted, but the supply chain team remained intact. And in fact, they had invested heavily. And so they had, for example, a testing protocol, methodology, and equipment that without a doubt is the best in the world today. We can test any, in fact, any natural product, but specifically coconut water from anywhere in the world and tell you where it was grown, when it was grown, at the sort of biochemical basis from the soil based on the water.

36:02and including how many people add sugars and additives and other things. Because there were up to 80, I think 80 brands in the market by this time. And the vast majority of them were false, falsifying their information. And so we were able to have the data to support that. So that was, in fact, extraordinary. But at the same time, as soon as Coke made this announcement, all the suppliers started saying, well, clearly Zico's done. So we're going to start doing other things. So we had to scramble to rebuild those relationships as well, because we effectively bought the brand, not the business. And so we had to build back the business.

36:44So that took some time and effort, but we were able to get that back fully, fully intact and ready to grow again. That's great. How did also, since it's not quite a rebrand, it's obviously now a staple. both Crave and Zico are brands that have been with us now through years and years. But how do you also think about, of course, you have to convince the retailers, which you both talked about, that these brands are back and we now have dedicated teams. Maybe they hadn't maybe had that in some time that are really focused on the product. But how do you also think about on the consumer in mind when you're bringing brands back and making sure that consumers know that this is maybe the original brand that maybe you fell in love with.

37:33We went through maybe a rough patch here, but now we're back. How do you think about these types of things? Maybe John, we'll start with you. Yeah. I think first off, I mean, the very sort of easy tactical shifts that need to be done is you've got to convey that something new and fresh just happened. And the best way of doing that is going through a fairly comprehensive of packaging improvement or change. And so we didn't completely shed the brand and the positioning, but we gave a meaningful facelift to the package, to the brand logo. We created some new flavor profiles. We were a bit of a late follower into the zero sugar segment, but nonetheless, we developed very quickly a series of zero sugar lines that were driving a lot of the growth in the category.

38:24But I think, you know, predominantly where the consumer needs to really land is inside the bag. And, you know, I think as I shared a few minutes ago, the dominant reason why the brand began to decline is the quality did not meet the expectation. So we had to really rebuild the manufacturing network. We went back to some of the original commands that we worked with. We now today have built a vertical integrated model where we don't own the facility, but we are JV'd so that we can really have a margin profile that's equivalent to our competitive set. We can compete on trade spend and compete in promotion and so forth.

39:12And I think the consumer needs to see you, building back the retail relationships is probably the hardest part. And in order to do that, you need to demonstrate, obviously, progress and improvement in your velocities within the market. So we've been very laser focused on a few case studies of retailers that have brought the brand back and we've monitored what's happening to the category. Let me take 30 seconds to explain post-Hershey acquisition of Crave what happened to our category. The surging position of premium drove penny profit growth among retailers from natural channel to the math channel to the drug channel.

39:58After Crave sold and then Epic sold to General Mills, there was a mushrooming effect of value brands. And the value brands during the hold period of Hershey began to own more of the share. And I think there was a retail mindset that like, you know, premium is dead. Value and private label is where we're going to get more value to our customers and a higher penny profit. But when you really look at the category in the five years after Crave was sold to Hershey, the health of the category slowly deteriorated due to no premium brand really leading the category. And though that's been a part of our argument as we reintroduced the brand, I know it's two years, but we're still in the process of rebuilding relationships, that a healthy premium segment of the meat snack space is really critical to driving a profitable category for retailers.

40:56So it's been a nuanced category story. It's been fixing quality so that the consumer gives us a second chance by seeing a packaging change. But then when they put the product in their mouth, they're like, wow, there really is a change. And they go tell three or four friends about it. It's really that cyclicality that we had to go deliver against. No, I appreciate that kind of dissection when it came to premium and how as well you thought about premium. There wasn't really a clear leader at that point. Mark, how about yourself? Yeah, it's so interesting. I think the takeaway, I think, for others from this that I'll preface before I answer is details matter, right?

41:38Nuances matter. The specifics of the category, the brand, and the situation, and the supply chain, and the business, and the margins. And our situation is we have very totally different challenges and opportunities and strengths and weaknesses, but that's just the nature of doing the work, right? So as we dove in and understood the category and understood the brand, we concluded something very different. And this is just the reality of the situation that Zico in the coconut water category went. The category appeared when we were making the acquisition to be flat, if not down. and that you know creates some skepticism among our team among you know just looking at data we want to see a growing category but as we dove into it we realized is in talking to retailers they themselves told us well they're well keep in mind coke is category captain okay so you know that that parlance means hey they they own this space they're supposed to manage this space well they don't care about this space right so that that took things down next thing zico was a material player, you know, at one point, whatever, 30 plus percent market share, maybe it came down to 20.

42:50So all of a sudden that brand starts to disappear. So that brings the category down. You've got pricing going through the roof because of freight. You've got all these competitors coming in that are low value. So there were some dynamics that made that very specific. And what we, the thesis we had and what we believed is we don't actually have to do anything but put it on the shelf because the product quality was there, the brand integrity was there, and there's still this base of fanatically loyal consumers that just love Zico. So fortunately, that played out. So we've done nothing on marketing.

43:25We do very little on trade spend. Our goal has just been to get it on shelf. That's it. And fortunately, the velocity where we do get it on shelf has been extraordinary. Now, there's a balancing act. We've got a ridiculously complex supply chain. So, you know, building, it's like the proverbial cows, right? You know, when you got to milk them, the milk's coming, right? The coconuts are coming. So when we contract growers, we got to buy. If we buy, we got to sell. So there's that balance. So we can't, it's hard to build back to 100 million overnight. It's got to take a little bit of time. But our goal has been choose the retail partners that make sense, that stepped up that are committed to support us.

44:11Get it on shelf, keep it on shelf there. The velocity has been fantastic and then we'll expand little by little. So I think just the nuances of the category and the brand and the situations are different and those are really where you start to create value. No, I appreciate that. Thank you. Thank you, Mark. I know that obviously when you both sold your companies, life-changing money, right? I mean, just incredible, incredible amount of money. But is there anything that either of you would maybe have done differently, maybe in the diligence process, or just any, I'll just kind of keep it open, that you would have possibly done differently when you did have strategic kind of approach you?

44:55Maybe, Mark, we can start with you on this. Sure. I'll come. I mean, look, I don't spend really any time on woulda, coulda, shoulda, right? I made the decisions I make and I live my life as much as I can today and moving forward. That being said, I can at least look back and sort of with real sort of compassion and curiosity, isn't it interesting, the decisions I made? And I understand why I made them, but I can certainly go back and think through, interestingly, I believed that this was, you know, Coke was so good that this would be a no-brainer, right? What diligence am I going to do on Coke, right?

45:39I would think differently about that. I also own that we built a really great team and it was not built the last. Everybody in my team knew. Everybody was teed up. As soon as the deal got done, they started to scatter to the winds, right? They all went on to do amazing things at all sorts of brands. I didn't have the intention of building that, and Coke didn't have the desire of building a team that was going to remain intact. And I can see those now, and I'm choosing to do things very differently. We are building a team and organization now that's built to last, and that could be run it forever.

46:20It could be IPO. It could be acquire other brands, or it could be that it is acquired, right? But it's built to last and it's built for a culture and performance and results. And I think, you know, we'll be, we're economic animals, right? So we'll be very rational about this process. So, you know, I'm not going to say somebody comes up and offers stupid money, we're going to walk away. But I do think we'll be a lot smarter about negotiating. I didn't have a lot of leverage back then. And so we'll make sure we have adequate leverage. And effectively today, there's one way to get leverage, profitability.

47:06No one went broke making money. So this business will be profitable. It'll be run profitably. And that buys us the leverage we need to decide and set our own future. No, that's great. That's great. How about you, John? Yeah, I would also say that I'm not one that's going to second guess my decision. I think I made the right decision. I mean, it's it you occasionally can play when you compare yourself to others that held on a little bit longer. And maybe maybe this could have happened or not. But I I think most every day I would make the same decision again. But two things I would offer is thoughts.

47:45One is more professional. That is, I think, you know, Mark touched on it, which is these big businesses that are multi-multi-billion dollar, multi-category businesses. in my mind, I had Sonoma Brands Capital on my next to-do list. And I think if I were to go back, and I enjoy everything I'm doing today, so I wouldn't change that for anything. But for a buyer at a stage of business, like Crave was in, really the team, as Mark talked about, the magic of these success stories is often not just the founder, it's the team that the founder has assembled. And so that team kind of evaporated pretty quickly at Hershey.

48:33And that was part of the problem. That magic went away. And so I think professionally, there's a conversation between strategics and founders that all of us should be having about how do we increase the probability of success, which part of that is creating a longer bridge for the founder and the buyer. And there's examples of great founders that are colleagues to in the same sort of graduating class as us, like Justin Gold of Justin's that, you know, is still working with Hormel. And I think, you know, to a large degree, very successfully. The second part is more personal. And I would say that, yes, you opened up this question, Mike.

49:12It's like you talked about the money part and it's like, that's great. And it's yes, it's don't get me wrong. I mean, the day that that wire comes in is a pretty cool day. But I think I completely over-exaggerated in my mind that that was such the deal. And I totally underestimated how quickly, and I mean, I'm talking like a couple weeks, that you get used to it and that you miss the team. You miss the daily wins and losses. You're so close to the flame in terms of your business, your baby, and that journey. We all talk about, you know, we're so focused on the destination in life of the deal, the sale, the profit, the IRR that we miss sometimes enjoying the ride.

50:00And I think, you know, my journey was start to finish five years. I mean, it was pretty, pretty quick. I think if I would talk to my younger self at that time, I would have said, enjoy the ride more. I just was like a nervous Nelly every goddamn day that some surprise with some recall, some something was going to like, you know, take derail me. And I miss that. I miss that. We both, Mark and I live very complex lives. We don't just have one kid. We've got like 20 kids now. Well, I would echo that completely. And I think, yeah, I'll even give a little bit more sort of personal side for me. I thought I was done.

50:40Like, I thought I might literally be done with business. And it's not like I didn't make the kind of money some people make when they're done. But I had, you know, not many years before that, I was a Peace Corps volunteer making 200 bucks a month happy as a clam. You know what I mean? So it wasn't only about the money for me. But the reality was I hadn't fully accepted yet how much I love this, you know. And so this time around, though, I will admit as well, I think I would have been, I could have gone longer if I had had a true number two. I needed somebody that was a better, frankly, operator than me.

51:18I did a fine job, but there's better people out there that live and breathe. Guy Tom Hicks is running Zico now. Like, he's just a grinder, right? He could just do this forever. And so what I love now is like I talk with my team at Power Plant. We talk about a hundred year plan. You know, how do we build a firm that will last for a hundred years? And clearly I ain't around for that long. So it's just interesting to think very differently about this. And to John's point, I think I needed that part of the journey. I also needed a couple of years off, you know, to get to a point now where I can be a little bit more measured.

51:56I mean, don't get me wrong. We both, John and I work really hard and, you know, but I'll speak for myself. It's at a different pace, you know, and there's, I create time to be thoughtful and have a life. And I find that that brings value because, you know, the CEOs, the founders are the ones that are grinding away. It's helpful to have a partner around that can bring a little rationale, bring a little thought process, bring a little calmness sometimes to the madness of the situations. No, I really appreciate both your thoughts on that. And yeah, just everything around that period. I mean, what's also pretty fascinating, I know we've kind of brought this up a couple times, but that you both, after you sold Crave and Zico, you each started your own private equity firms, Sonoma Brands and PowerPlan, of course.

52:52um how do you think because it's it's pretty interesting that you're not only making investments you also have you know a portfolio of brands that that you own right how are you thinking about that part of your day-to-day because as you as you pointed out markets or or john it's not just one brand now that you're managing it's like 20 brands or at least you're working um day-to-day on 20 brands how how do you think about whether to maybe invest in a company or maybe to buy the company outright? I can talk about that. So by and large, our view is we are growth equity investors. We invest in world-class teams and we are comfortable and sort of intend to back them.

53:39So that means we're taking a minority position. That's our default position. And we like to say we bring really a sort of private equity-like approach to growth investing, which is when we go into an investment now, we're writing 15 to$30 million checks. We bring a partner, a principal, a vice president, an associate, and a group of operating partners all to one deal. But the vast majority of those are minority. That being said, we're comfortable in majority positions and situations that come up. So for example, we had a thesis during this time of strategic stepping away from brands, obviously Craven's Eco2 examples, but there's a lot of other ones.

54:21Would there be opportunities for other spin outs? And we had a thesis around coffee, had some reasons to believe that there was an opportunity there. We wound up acquiring Chameleon from Nestle. So we own that, you know, 100 % as a fun three investment. But by and large for us, they're all portfolio companies. You know, they're all managed like a portfolio company. We spend time on them like portfolio companies. So even Zico, of course, I got a lot of heart for it, but I sit on the board. I'm chairman of the board, but there's a board. I don't make the only decisions. We have outside board members.

54:59We have other parts of my team involved. There's a management team. I spend as much time with Zico as I do the five other boards I sit on. And so that's our lens. This time is a little unique. And that I think I would expect that we may acquire some other brands. That group that we used by Chameleon are great operators. We'll probably acquire a couple other brands under that platform. So fortunately, we have an investor base, what we call our LPs, that have been supportive enough to allow us to have some flexibility. And we'll kind of look at situation by situation. Appreciate that. How about you, John?

55:39Yeah, I think we too are minority investors. So Crave and Chef's Cut are one of the few of our total portfolio companies that we own a majority of. I think, you know, we both being past entrepreneurs gives us a very different approach to a prospective founder that we want to build a relationship with. There's a lot of experience and scar tissue that we've experienced in building our own businesses that create empathy and camaraderie that a different investor with a different background, say banking, just wouldn't be able to provide. We also have direct relationships that in many cases are transferable, whether they be brokers or retailers or what have you.

56:29So I think for me, when I started Sonoma Brands Capital, I built the firm on this founder first approach. And I didn't fully appreciate the real magic of a founder when you make an investment decision. I kind of thought that we had the secrets to success. We had the pattern recognition. We had the relationships that we could own a company. We could incubate a company. they were all the same. Well, it took me a year, year and a half in the early days of Sonoma to realize I was a little wrong and that, in fact, the best companies in our portfolio that are thriving are from phenomenal founders and that I think a brand success is the founder.

57:19So we have steered our ship even more away from ownership positions just because like we're not good. I'm not a good multi-company operator. And I can be great if I run one company, at least I was in the past. But I think we're not, we believe at the stage of business that we invest in, you need that founder that's 24-7, that's fighting for survival, that has a moment in their life like I had and like Mark had in our founding story. There was something to our, We didn't just decide because we were bored to go start a company. We were looking to transform our lives. And it could be very personal.

58:04It could be something that happened in your family or it could be some shock. But it's really, I'm going to win or I'm going to die trying. And I think that mentality is what we back and we look for. I appreciate that. Thank you. Thank you so much, John. I have a final question. This one's actually only from Mark because, John, you answered this the last time you were on the show. you put what's one book that inspired you personally, one book that inspired you professionally, John, you put different escaping the competitive herd and also the four agreements. Mark, what are, what's maybe one book that that's inspired you personally, one that's inspired you professionally.

58:43Well, the four agreements is a, is a, is a good one. Yeah. Look on the, on the personal front, I'm going to go with Thomas Merton, spiritual writer. You know, I was raised in a pretty Catholic home and Jesuit education. And so there's some perspective on life that's actually been really helpful to me in life and actually business as well. And on the business front, since I happen to have it right in front of me, this is my latest, 15 Commitments of Conscious Leadership. Really extraordinary book and kind a program that we're following that brings sort of a different level of communication and awareness among our own firm and among our companies as well.

59:31Awesome. We're really excited to add that to the list. Mark and John, thank you both so much for your time. This was a lot of fun. Thanks, Mike. Nice chatting, John. See you. See you, Mike. And there you have it. It was such a pleasure chatting with John and Mark. I thought this was a pretty unique episode because, again, it's not every day that you You start a business, you scale a business, you sell a business for a good outcome, and then you actually buy back those businesses from the acquirer. Ben, thanks again for your help making this happen. Gabriel, thank you for joining me today. How are you?

1:00:05Yeah, really great. Thanks for having me, Mike. No, I really appreciate it. So how also should one think about which platform to choose when it comes to running their portfolio? Because, for example, like we saw like a Shure go down last year. And I know that investors that I talked to were like very, very nervous of even like new platforms that are starting because that kind of had a bit of a chain reaction. How is Vobin, why is Vobin like pretty well positioned, do you think? Yeah, that's a great question. And I think, you know, based on the current market, counterparty risk is very real. even with SVB in the recent days.

1:00:51So yeah, being very mindful of who you're working with, especially with investments that's gonna be held for a long period of time is very important. Very unfortunate scenario with Assure where they went under and they were one of the leading SPV providers in the market. I would say how we differentiate ourselves and how we provide comfort is we're a Carter company And Carta has multiple different revenue streams from equity management, venture capital, total compensation, as well as Carta liquidity. So it's not purely the SPV and VC fund model that they're relying on. It's a holistic package of products that they have.

1:01:33They're extremely well capitalized from that side as well. And so, yeah, with the backing of Carta, we do have resources from a large organization who's been around for 10 plus years to provide additional comfort to the long term investments that we structure through our product. That's awesome. That's great. And how can you sign up to Vauban if this is something that you might be interested in doing or even getting started? if it's like your first time experiencing any of this and just interested in investing? Yeah, definitely. You can definitely check us out on our website, www.vobon.io. Alternatively, feel free to reach out to me.

1:02:15My name is Gabriel.Chin at vobon.io. And we're happy to kind of walk you through the platform. It's great. There's a lot of people who are starting their angel investing journey and want to share their deal flow with their own network. So it could be a small group of friends who want to get into angel investing. It could be a large angel syndicate or angel network. Yeah, we're happy to accommodate the various angel investors. If you are loving the show, I highly recommend checking out the newsletter at theconsumervc.com where you'll receive all new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening.

1:02:55I'm also doing some more events. So you'll also be the first one to receive information about those.

1:03:07We'll see you next time.