nutpods: Madeline Haydon

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32:23Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2013, and Madeline has launched a successful Kickstarter for Nutpods, her plant-based creamer. And she finds a co-packer in California that's willing to do a first run of the products. But that is just the beginning. It's just so interesting to hear how complex this process was. I mean, because you would think, OK, you got the money from Kickstarter, and there you go, you're good to go. But actually, this process will eventually take you two years of testing. Two years. It took my 401k money. It took my insurance money from when I got hit by a car.

33:01It's a crazy story. Wait, you got hit by a car? When did you get hit by a car? I got hit by a car, ironically, by a Prius in my apartment community. Wow. And you were okay? I had a concussion. And I went through all the things. And then they said, well, we're just going to run a blood panel just in case. And they told me I was pregnant and I didn't believe it. That's when I found out I was pregnant with Claire. Wow. So I guess the accident happened, obviously, back when you were pregnant with your second daughter, but presumably it took a while for you to get the money from the insurance. And by the way, how much was it?

33:35It was$12 ,000. And that helped you, which was sort of like a kind of a hidden blessing because it gave you some cash to help finance these trials. I'm curious that your husband was an investment banker. I mean, and you described him as a successful investment banker. Did he have any resources to contribute to this venture? You know, his salary was supporting our family and his bonuses were going to nut pods. And it feels so vulnerable when you're an entrepreneur and you have this idea and then you ask family and friends. it's difficult because my circle wasn't the circle of angel investors. And we were, you know, in our 30s and we were living paycheck to paycheck.

34:20And how much money do you think by that point you'd gone through, like over$100 ,000? Easily, over$100 ,000. And you wanted to save money and you probably had like... Oh, there was no saving money, Guy. I mean, we had two young kids. We had a dog. We were living in an apartment when everyone had a house in Orange County. And we were young professionals, but it kind of felt like college days again when you were really poor and your dates were going out to happy hour because that's what you could afford. Yeah. And I'll tell you one thing. Jeff has been by my side through this entire thing. Jeff's your husband, obviously.

34:54Jeff is my husband. Yep. And it was difficult for him to support and give his bonus money towards an idea that he honestly didn't think was a good idea, but he wanted to support his wife. He didn't want to let me down when I really finally found that dream that I would cry over like the American Idol people. He thought this was too narrow, too niche of a product that like even though Coffee Mate or the coffee creamers in your hotel room seem ubiquitous, he felt like this was too. It's too small of a niche. It's too difficult to produce. And that's why the big food companies didn't bother with it.

35:34Yeah. And I said, not all good ideas come from big food companies. What are the two biggest or the biggest, I mean, I'm assuming like Denone and I don't know, like Nestle are probably big players in the creamer. Right. So Nestle owns Coffee Mate and Denone owns Silk and So Delicious and International Delight. All right. I mean, obviously huge multinationals. And these are probably rounding errors for those companies, these products. They're so big. Exactly. They're so enormous. It's so big. Yeah. But you know what? That's actually our secret weapon was that for them, anything under$10 million, right, is like not worth it.

36:10Not worth your time. Not worth the innovation. Anything under$50 million is not worth your time if you're that big. But when you're a startup, it's like, woohoo! You know, it all was enough for us. And, you know, I just didn't have any built-in network of people that were investors or even knew about this. So Jeff, to his credit, he tried to make introductions to different entrepreneurs that he had helped even exited his business. But we just didn't get any bites. And I took it so personally, Guy. I felt like they were saying my idea was terrible or I am inadequate. But who were you going to? I was going to anybody.

36:52I was going to angel networks. I was paying money to pitch to angels. So I didn't have any money. I needed money, but I still had to come up with thousands of dollars to pitch to angels in the hopes that some of them would invest. I also flew all the way across the country to this one guy that could be an angel investor in the dairy space. And, you know, you learn these really painful, costly lessons, which is don't ever take a red eye across the country just for one meeting. You have to have multiple meetings set up. And I came home empty handed and I took it so personally that they were rejecting me or my business or my team.

37:39But really, when I look at back at it now, it could have been as simple as the stage was not appropriate for their investment portfolio or they were more in apparel or hard goods and they didn't know food. And this is an important point because a lot of people, because it's your baby, it's you, it is you, it's your product, but actually it's really important to separate yourself from it. It is very important. And that's what I would tell like other people that look for me for advice is that you have to make sure that you understand there's a whole host of the reasons why they're saying no. But I hated it when my husband would say, this is just a numbers game.

38:18And the more no's you get, gets you closer to the yes. Oh, it's such great advice. But it's terrible receiving it because they're not saying no to him. They're saying no to me. Yeah. When you were pitching this, before you were even on the shelves or you had a product to sell, did you have market data that you were sharing with potential investors to show them the opportunity? I only had what was available on Google. And so, you know, you could sometimes have just a snippet of an industry report like Ibis on coffee and coffee creamers. And I would just try and like reach through and see what fuzzy parts, you know, behind the paywall that I could get in gleaming.

39:00And so. Because you don't want to pay for the. Can't pay for it. You don't want to pay for the subscription. Yeah. To get the market data. Yeah. Exactly. This happens all the time. You get the fuzzy bits. You're like, how else I can see the fuzzy bits? Exactly. Yeah. I think one more thing that I wanted to just explain about why we were this incredible underdog story is not only because, I mean, you have to take a look at me objectively. I am a female founder, person of color, pregnant when I started this company, never been a CEO before, brand new to the industry. And Jeff had a real estate portfolio company that, you know, went sideways when the bubble burst.

39:38and we actually had a bankruptcy to our name as well. So you couldn't get credit easily? No, I could not get any credit. In fact, we started a company with those prepaid Green Dot credit cards. You know, the one where you give$500 and then you get a$500 credit line. But I was still going for it and I was still talking and I was still running through the numbers. Oh, I kept hearing the whole like, you've just gotta get your anchor investor. And then the other investors that are on the fence will follow. And Jeff introduced me to one of the entrepreneurs that, you know, had had a successful sale.

40:18And so this person initially verbally committed to$100 ,000, which was like so much money. And I used, you know, his verbal yes to get all of the people off the fence. And within 24 hours, he called me back and he backed out. And I was just utterly crushed. I cried. And now I just felt like that game of sorry, where you fell all the way back down and you had to like start all over again. And I had this ethical dilemma of, do I tell the people that got off the fence because of the anchor investor that the anchor investor then backed out? And then I ended up saying like, I just can't start a relationship without disclosing that.

41:02And so thankfully, the majority of the people that committed still stayed committed. All right. Let's talk about the other challenge with what you were trying to do, because at this time, the concept was pods. It was like little pods of creamer that were single serve. And so presumably the idea was you would buy a big box, a packaged box of these. 24. 24. And that's it. And that's how it would work. But from what I understand, this is a problem, right? Because you really, to make this work, they have to be in hotel rooms. They have to be at the breakfast buffet at the Holiday Inn. And that's not a traditional retail channel.

41:43That's like working through Cisco or one of these huge distributors that deals with hotels and restaurants. Exactly right. And I think it's important to say I started this company from the lens of a consumer. What kind of product I would have wanted to buy and what format I wanted. And so when I went to do this, I remember back when Whole Foods had a local forager program. No. So they had local foragers. So it would be someone like you. And you would specialize in the San Diego area. And you would see what trends are trending in your area. You could bring in special items that met that trend for your region.

42:23Right. I met the one for Orange County and the local forger at the time, his name is Dwight. He said, you know, it's an interesting concept. I think I can see it in our stores, but have you thought about making a carton? I said, well, no, our name is Nutpods and we want to make the little pods and it's going to be convenient and it's on the go and it doesn't require refrigeration. And he said, I can see consumers buying it in our store maybe once a month. But if you make a carton, they'll buy it every week. Let me know if you make a carton. A carton. But you were resistant to this idea. I was resistant because our name was Nut Pods.

43:00Can we be Nut Pods without the pods? And so I went back to my industry, you know, advisor team. And I said, okay, this is what the Whole Foods forager told me. And the marketing advisor said, starting out as a premium brand, which means you're going to be more expensive and unknown in food service is very difficult. And so the consensus was then maybe we should consider cartons. And so this kicked off the whole like, well, can we be nut pods without the pods? And a little bit of soul searching. And the answer is yes, because what do you call a nut that is growing in trees? Oh, my God. Thank God they're called pods.

43:42Coconut pod, yeah. And so we then produced the cartons. You mentioned an advisory board. I want to go back and ask you about that because who were these people? How did you get them to agree to give you advice and did you pay them? Did you give them equity? How did that work? So my advisory board were people that I came across at trade shows or any type of industry events. If it was someone and they were friendly and I could ask them a question and I said, I'd love to keep in touch, you know, I would immediately link with them on LinkedIn. And then I would ask them maybe just one question because I didn't want to annoy them.

44:23And then when it came time to do an advisory board, I had heard from someone else about Y Combinator had this fast advisory board template. And it laid out in terms, and you can download it for free, that if you are a startup and you need more input from an advisor, and maybe that means instead of once a month call, maybe once a week call, then the more you ask of them, you give them a little bit more equity. And it could be 0.65. It could be 0.75 % in equity. Still a vesting schedule. And that investing schedule is very important because you don't want to have an advisor that is not being responsive to you or not giving you value.

45:08And then you've already given them equity and you can't take it back. All right. So you had this advisory panel and now you've got this – you're sort of now thinking, all right, really we should focus on making cartons. Presumably, you needed more money to get to a point where you could actually get this manufactured at scale. So this is around 2015 or before 2015 because you're getting ready to launch. How much money did you need to raise from people to get this made? I needed a couple hundred thousand. And I was still scratching the ground, Guy. I mean, like I entered a business plan competition at Seattle U where I got my MBA because the first prize was$10 ,000.

45:53And so that's how small we were trying to eke together money. And everybody was on consultancy. I couldn't afford anybody. I was a full-time paid volunteer for Nutpods for the first three years. So I was trying to get just enough money to finish the commercial formula and make one run. Just one run. It was going to be a big run because of the minimum order quantities. And then it should last me nine months to a year. So it gave me that time to talk to grocery stores, sell it online. And so at that time, my husband, Jeff, knew of this company called Circle Up and they had a platform. Circle Up.

46:32Circle Up out of San Francisco. And it would matchmake investors to vetted companies. And then these companies, you know, had a built-in angel network. And then in return, Circleup made a percentage off of what was raised. And so that really was our Series A round. All right. So in 2015, you guys are finally ready to launch. And how exactly did you do it? Like, where did you first start selling Nutpods? We launched on Amazon because at that point I had 510 Kickstarter backers that had waited two years to see product. And I also launched in a small 12-store chain up in Seattle, Washington called PCC Natural Markets.

47:21And a lot of entrepreneur startups start in the Natural Channel because the Natural Channel is a great incubator for small startup brands. How did it do? Wow. The initial reviews came back and they were very positive. And I remember talking to Jeff saying like, do you think they're just being nice because they're Kickstarter backers? And he said, no. And he said, if I waited two years and the product was just mediocre, I'd be pissed. And so it ended up being number one new release, number one bestselling item. It was just this rocket ship that was amazing. And so we ended up constantly stocking out and getting back in.

48:03And I was protecting that 12-store chain PCC, making sure that they didn't run out of product because I didn't want that retailer to kick me out. So we would short ourselves on the Amazon side to keep the retailer in stock. And actually, you know, it worked to our favor because we just had this like scarcity theory going for us on Amazon where it's like, okay, we stocked back out and now we're back in stock and people would order it. And were you, I mean, what was revenue like? I mean, in those first three years, were you making enough to at least keep that reserve in check that you didn't have to spend it?

48:43So when you sell on Amazon, you're getting paid very quickly. And so the cash flow on Amazon was so much quicker than it was in stores because in stores they can take net 30, which is really net 40. And so the cash flow was really alleviated for us by being able to sell on Amazon. Yeah. Don't get me wrong. We were still short. We were still short on cash, but I would say, you know, for the nine years that we've been in business, we've been profitable for five of them. Did you start to see competitors come up right away pretty soon after you launched? Pretty soon after we launched. And so, but that's one of the things about designing a product and making sure it's differentiated.

49:26You know, were there other French vanilla products out there? Yes, but we were unsweetened, which meant that you could use your own preferred sweetener and sweetness level, including none at all. And so with nut pods, we were differentiated because it's very difficult formulaically to have an unsweetened product that still has flavor that you can taste without the crutch of sugar. I read a story about how when you decided to really lean into direct-to-consumer, initially through Amazon, really through Amazon, you actually got pushback or some warnings from industry veterans who said, you know, you really got to be in retail.

50:10That's where the money is. You can't be, you're not gonna make money in Amazon. Did that give you pause? Because I think that was your whole business model, right? It was my whole business model. And it was gonna be the quickest way that I could reach people to sell en masse. And I remember attending a trade show and I got introduced to the Silk marketing manager. And I'm like, oh, hot dog. I finally get a chance to talk to someone that's right in my lane. And Silk, of course, is a leading plant milk brand. Yes. And I asked him about what do you think about going to e-com as an initial channel strategy?

50:47And he said, e-com is going to be about 20 % of your revenues and really where the money is at is at retail. So you really should push for retail. and I was just ruminating on what he was saying and just thinking am I am I building this business wrong and I'm doing it in the backwards way and I realized he's talking about it from the perspective of silk silk is huge and yes for silk e-com is probably a very small ancillary channel for them But it's enough for me at Nutpods and it has benefits. I don't have to wait to get into retail for whenever the reset periods are. I don't have to pay slotting.

51:30I'm already paying Amazon for their commission. And now I look back and not only does it make sense, but it was absolutely the right choice for us. It also allowed us to just have a couple years of learning our brand before we made that significant investment in retail. I think the biggest thing is that you can't scale that retail without significantly increasing your team. But whether or not you sell$1 ,000 a day on Amazon or$100 ,000 a day, you can still do it with one person online. When we come back in just a moment, Madeline eventually makes the jump to retail, but then worries that the stores are putting our product in the wrong aisle.

52:15Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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53:39Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2018, and even though Nutpods has been pretty successful on Amazon, Madeline is still having trouble getting the company to the next level. So I was still raising money, still raising money and having limited success. And I remember there was an investor that I really wanted to invest in Nutpods. and he said something that was crushing to me you know Madeline it seems like you've really been able to prove yourself online and that's great but I need to see that you're not just going to be an internet darling and you might find it will be very difficult when you go into retail you know I'd love to see you when when you get into more distribution and I was just incredulous because this particular investor that I really wanted to invest in our company just something he said about still doubting us even when we had built this multi-million dollar business online past five million dollars and still had doubts about whether or not we'd be able to make it in retail yeah so in order for me to raise that next round of capital for us to feel our growth i'm gonna have to prove to these investors that we aren't just an internet brand but we're going to be able to be successful in retail and that was the first year that we were not profitable because I had to invest in a sales team and brokers and pay slotting fees.

55:07And it did take me a couple of tries. The first try I took getting into a store outside of PCC, they didn't like the fact that we were selling online because online, Amazon then was considered their competitor. And so I ended up reframing it to make it be less about risk for the retailer. We will say we're bringing with our brand an installed base of, you know, a multimillion dollar business online. And we know that our consumers would like to buy our product in your stores. Did it help at all that your product was shelf stable? Like, did that make it any easier to get it into stores? Well, it was actually our curse at retail because when you went into a store like Sprouts, you could either be in shelf-stable milks or you could be in the coffee tea aisle or you could be in the chilled creamer set.

56:00And we knew psychographically where would you look as a consumer for a non-dairy or plant-based creamer. It's going to be in the chilled set with the milks and the other creamers. But we couldn't control where we were at because we didn't need to require refrigeration. So after three years of trying to talk to retailers into putting us psychographically where we should be, which is in the chilled dairy set, we ended up saying, fine, we will make a refrigerated product. And that was the unlock with Kroger. They wouldn't put us into their set that didn't need refrigeration. And so when I committed to the buyer that we will come with a gable top, and he asked me, okay, are you ready to swing for the fences?

56:48Because you're going to have to supply us. And can you really supply Kroger? And I said, absolutely. Then we got to work. I think that was probably around the time where you were also raising another round. And you did in 2019, you announced that you'd raised over$30 million in a Series B. So by that point, I think you'd raised close to$40 million. I mean, given how much traction you had had and that you were in Kroger and Publix and Wegmans by that point, what was the raise going to do for you? I mean, what was the idea at that point? Was the idea to really supercharge this thing so then there could be some kind of exit?

57:26Because, of course, that's what ultimately it has to be about if you have investors. So I would say, first of all, you know, it sounds like a lot of money. But when you compare even our, you know, call it 42, like total raised, That is a fraction of what our competitors had raised. Whether or not it's Super Creamer or Ripple or Calafia, it takes a lot of money to go into the grocery store. This is not an industry where it's easy to bootstrap your way because grocery is just so expensive. And so the purpose of that was to really have growth equity. And so it allowed us to build out our team. And our team is still a very small guy.

58:11We are like 36 employees and we're the number one plant-based creamer in both the Natural Channel and Ecom Channel, number two for Melo. So we are competing against those huge multinational companies that we talked about before, the Nestle's, the Danone's, now the Starbucks and the Chobanis with like 36 employees. And so, you know, we've always felt like a David and Goliath situation. So, and you continue to grow. And through the pandemic, I mean, the pandemic didn't, it seems like it did, I mean, not only didn't affect you, you grew remarkably during that time because I guess more and more people were discovering the brand online.

58:50So we launched Nationwide in 2018. That next year, 2019, was this magical year where we were Amazon Small Business of the Year. We were Entrepreneur of the Year. We were Inc. 5000, number 13 Nationwide, number two for food and beverage. And then, yes, then the pandemic hit. But because we had built this robust online channel, when the pandemic hit and consumers didn't shop in the stores and turned online, we already had our supply chain and logistics well established. And yes, we did grow through the pandemic very quickly because we had put that firm foundation down on, you know, e-comm. Awesome.

59:35In January of 2024, it was announced that the brand was acquired by... Emper Rock. Emper, and I think they're a private equity group, right? It's a joint venture between Mid-Ocean Capital and Per Rock. Right. And so they acquired an undisclosed amount, but obviously I'm sure it was a great exit for everybody. Tell me about that decision and what does it mean for you? Are you still involved with the company or will you be kind of moving out over the next year or so? Sure. First of all, my job is to make sure that I'm doing the best decisions for the brand, including its leadership. So have I ever built a$100 or a$200 million brand before?

1:00:18No. I mean, well disclosed, this is my first time as a CEO. And am I the right person to lead this brand at this stage? And I realized that my professional goals have shifted a little bit. You know, I want to contribute to helping make it easier for other female founders to access capital, to be able to have board diversity, not just in terms of I'm a female and I'm a person of color, but also I don't come with a traditional financial outlook that a lot of board members tend to be on corporate boards. And so I actually just announced that I have worked with the board for the past few months, and we have handpicked and identified a wonderful CEO successor to me.

1:01:06And I am going to take some time off, and I'm going to find out what I want to lend my time and efforts to in this next chapter. Madeline, when you think about where you are today and the journey you took, I mean, how much of it do you attribute to the work you put in and how much do you think has to do with just getting lucky? It really is a mixture. It's a mixture of product fit at the right time in the marketplace. When we launched, plant-based was becoming a thing. E-com was becoming a thing. And, you know, I also give a lot of credit to the team. When I was maxed out on credit cards, I had an amazing founding team.

1:01:50You know, Michelle, who was one of my first marketing hires, she put our trade shows on her credit card, including the travel and hotel. And I really believe in, you know, the culture eats strategy for lunch, as Peter Drucker says. So in addition to that, yes, you have to have a good amount of luck. You can call it luck or you can call it God. And I think that it's really important to have success, have sometimes like people like me so that other female founders, other people of color be able to say, OK, Madeline did it. So maybe, just maybe I can do it, too. That's Madeline Hayden, founder of Nutpods.

1:02:35Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. and as always, it's free. This episode was produced by Alex Chung with music composed by Ramtin Arablui. It was edited by Neva Grant with research assistance from Catherine Seifer. Our engineers were Gilly Moon and Patrick Murray. Our production staff also includes JC Howard, Casey Herman, Sam Paulson, Kerry Thompson, John Isabella, Chris Messini, Carla Estevez, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

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