The $800M exit that started with a single muffin

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1:30I will say I've had many poor roommates over the years who have dealt with my kitchen antics. I take over the entire kitchen and there's, you know, just powders all over the countertop. Almond flour, hemp seeds, coconut sugar. Caitlin Smith was a mad scientist on a mission. She knew there had to be a way to make delicious snacks with healthier ingredients. I didn't found this company to make money. I squarely remember points in our history where I was like, well, I could lose all of my money and this would still be worth it.

2:29It just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

2:44I'm Jeff Berman, your host this week on the show, how Caitlin Smith grew Simple Mills into a better-for-you brand powerhouse. From tinkering with recipes in her apartment kitchen to selling the company for nearly$800 million. It's an incredible story of scaling with purpose. Caitlin, welcome to Masters of Scale. Thank you. Thanks for having me this morning. I've been so looking forward to this because I'm a longtime consumer of the products that you have brought to market. And before we get to Simple Mills and the company that you've built and now sold, take us back. Where does the origin story start on your entrepreneurial journey?

3:29For me, it really started with changing up my diet. So back in my early 20s, I was a management consultant. I was traveling around a lot and eating a lot on the road. And to be honest, I really wasn't feeling my best. One of my friends suggested to me to take a look at my diet and change up what I was eating. And so I switched to a primarily whole foods-based diet. And with that, I mean, just everything changed. And it was shocking to me how much our food affects. And, you know, I'd been brought up believing that it affects your waistline, it affects diabetes. But I think especially over the past 10, 15 years, we've gained such an appreciation for all of the other things that food can affect as well.

4:13And as I started to personally have this realization, I grew really motivated and inspired to help change what people are eating and really change our food industry. And so I kind of set out on this ambitious mission for myself where I was like, okay, how do I change what people are eating and make it easier for people to eat real food and eat things that are nutrient dense? And that's really where Simple Mills began. It's one thing to have this insight to change your diet, to have the experience. It's another thing to say, I want to help other people make this change in their life. It's yet another thing to start doing it.

4:54What was the first thing you did? Probably the very first thing that I did was start working on recipes. And I didn't know exactly where I was going just yet. I was thinking about how to use the simplest ingredients possible to create nutrient-dense, easy-to-eat solutions. So I was thinking about maybe it's meal kits, maybe it's an easier way of, you know, being able to cook salmon for yourself in the evening and a sauce that goes alongside that. Or maybe it's a bread mix that can go alongside your dinner. And so as I started experimenting more in the mixes and playing with different ingredients, then that's really where I started going down this vein of developing baking mixes that are made out of really, at the time, extremely unconventional ingredients.

5:38If anyone knows anything about our brand, we make a lot of things out of almond flour. So these mixes are made out of almond flour. And this is a time where nothing in the grocery store is made out of almond flour. I think it had just shown up as an ingredient on shelves. And then I'm thinking about, okay, what do I sweeten it with? And my mom finds coconut sugar on the internet. And I'm like, oh, cool. This is a much better sweetener. And so start developing these products in my kitchen, mixing things together, seeing how they react. You're literally in your home kitchen doing this. Yes. This is my kitchen in Atlanta.

6:13I will say I've had many poor roommates over the years who have dealt with my kitchen antics. I take over the entire kitchen and there's, you know, just powders all over the countertop. But I'm playing with a lot of different ingredients. And some of the things turn out, some of them don't. And I'm asking friends and family to try like, oh, does this one taste better? Does this one taste good? And seeing what I can come up with. What then is the jump from being in your apartment in Atlanta, playing with these new ingredients, figuring out recipes that will work, to actually creating a brand and showing up in a store?

6:50How do you make that leap? So many steps. So, I mean, I'm doing everything from researching how to create an ingredient label and FDA rules. I'm learning the FDA rules. Literally going on the internet to research this. Yes. Yes. Literally Google searching how to create even just an LLC, searching how to find a commercial kitchen in Atlanta because, of course, to manufacture products that are available for sale, they need to be made in a commercial kitchen. I'm researching how do you get into retail stores and how are products delivered? and so for our first customer was my local Whole Foods store which was the Whole Foods Ponce de Leon store in Atlanta and I called up that store was like you know maybe five minutes from my apartment and asked them okay how do you get in here how do you get into Whole Foods and the store buyer is like well you come down here and you talk to me and he's like you want to come out on Thursday.

7:52And I'm just in the research stages. I don't feel like I've got a complete recipe or anything, but I don't think you ever really feel ready as an entrepreneur. And so I say, well, I'd love to come out and meet with you, but how about Saturday? Now, the background here is I'm still working full-time as a management consultant. I'm flying every Monday, flying back every Thursday. And he says, sure, yeah, come down and meet me on Saturday. So I meet him on Saturday and bring him some baked muffins. And he tries them and he's like, these are really good. He's like, that mix made these muffins. Like, yeah.

8:30But he couldn't believe that those simple and nutrient dense ingredients could create something like that. And so he's like, all right, let's get you in here. And so I started all the paperwork, which takes a while. And at that point, Caitlin, did you have a brand? Did you have a label? Did you have a commercial kitchen? Like, were you there already? Or was it like you got the yes and then you had to figure it out? I had developed a label on, I don't know if this website still exists, but it was called 99designs. So you could basically crowdsource logos and crowdsource package designs and all of that for a low cost.

9:08So I kind of rigged up my printer to be able to print the package designs and got this like massive ink cartridge from China just to keep the cost down as much as possible. The least organic thing that you were working with. Yeah. I mean, you just like do these crazy and creative things to just try and figure out, like, I need to put this into a package. As far as commercial kitchen, I did start searching then for a commercial kitchen. I mean, getting into Whole Foods at the time took four months just to get into that one store. Because of the paperwork and the approval process and all of that?

9:45Yeah, exactly. How big is that first order from that one local Whole Foods? It's probably something like four cases, maybe eight cases, where a case has typically six units to it. Okay. So it's not a huge order. Not huge. The toughest part was actually trying to figure out how much I would need because that's an initial order. That's like just to get product on the shelf. But the question is, how fast do the items leave the shelf? And so I found a contract manufacturer up in the Northeast to help me manufacture it. It's like, what size order should I place? And how much, you know, how many pounds of almond flour should I send?

10:23So I remember after that manufacturing run, getting all of it back to Atlanta and looking at it and just thinking, oh, I made way too much. Oh, I made way too much. This is going to go bad. And so then my parents were like pawning it off to our friends and family. And then like two weeks later, I was like, oh, my gosh, I don't have enough. Oh, no. Because that first run at Whole Foods sold out quickly? Yeah. We sold through it a lot faster than I anticipated. And we also started adding on other Whole Foods stores in the region, too. So, you know, dialing in how much to make and when, especially in those first couple of years, and then also funding the working capital for that.

11:02because, of course, you don't get paid the day that Whole Foods receives the order. So you're floating money for a period of time. Like, it was very hand-to-mouth. I ended up selling my car and maxing out all my credit cards and spending all my savings just pretty much on working capital. Wow. Were you also going to friends and family to get them to start putting up money like a lot of entrepreneurs do, or was that not part of the journey there? Well, the funding journey started a little bit later. So one thing we haven't talked about just yet is I, at the same time that I started Simple Mills, I was also applying to business school.

11:41And in my mind, they were like these two completely independent things that didn't really have anything to do with each other. And it's just kind of what you do as a management consultant several years in. And so I went up to Chicago to go to the University of Chicago, their business school, Chicago Booth, and started at Booth around the same time that we were going into our first stores. So we're probably in something like 10 stores when I start at Booth. And in my mind, the business was always number one. So in order of prioritization, if something had to fall, it was never the business. And so I was taking courses that let me work on the business.

12:25Like I would take entrepreneurial selling. I would take accounting because I was also doing our QuickBooks and trying to figure out how on earth you classify these transactions.

12:37And one of the classes I ended up taking was the New Venture Challenge course at Chicago Booth, which the focus of the course is fundraising. And I get in the course and I'm like, that's all great. But like, I don't really need to raise money. Because why? Why didn't you think you needed capital? You know, it was obviously really naive. But I think that for one, I really underestimated what it takes to build a consumer brand. And particularly the marketing investment and also what things cost. Like it's one thing to make things on a, I don't know, printer in your living room. But as you scale, a good package design, as an example, doesn't cost what it costs on 99designs.

13:20And having a really good package design is something that is really important. It is your number one marketing vehicle as a consumer brand. So there was the underestimating what things cost and what was needed. But I think also really underestimating the working capital requirements of the scaling brand. And so I had just kind of this perfectly little built model that as a consultant does, and I was like, all the money we'll ever need is$200 ,000. and I had like a family friend who was like, oh yeah, I'll give you$200 ,000 for that. And so I was like, I'm set. I don't need to raise money. But as I would have it, the deal with a family friend fell through.

14:01And that was really heartbreaking on multiple levels. And I think around that time, I was starting to realize just how much money we were going to need. And thankful to the coaches at Chicago Booth who were helping me realize that we were going through like these, you know, the P &Ls of public food companies. And they're like, look at how much they spend on marketing. I mean, for a sense of scale for your listeners, I mean, a lot of times to launch a single brand or a single product line and some of these CPGs, they spend$50 million. Yeah. Five zero million dollars. It's not like my like$200 ,000 that's going to cover working capital and everything else.

14:42And I don't know, salaries. I guess I didn't think I needed any people on the team. Well, and also to your point, your earlier point about Whole Foods, so frequently in these CPG deals, you're not getting paid on the purchase order. You're not even getting paid on the delivery of the product, right? And so you are fronting a lot of capital here. So you've got a lot on the line. At what point do you say, oh, shoot, I'm really going to need a lot more money to get this done. I think it's right around that time that the deal falls through with a family friend. My parents end up, they were really upset about this because they've been a long time family friend and I come home and tell them this and they decide to mortgage their house and give me$200 ,000.

15:27Whoa. Yeah. It's a big bet. Yeah. Still ahead, how Caitlin Smith built her team, scaled Simple Mills and eventually decided to sell the company.

15:47This is Mike Nicholas, Capital One business customer and co-founder of Ansett Uncles, a plant-based restaurant and community space in Brooklyn, New York. And he's telling us how they started a product line. We already had a space in the community. The food was an extension of our lifestyle and our values. So we know we wanted to create something that was an offshoot to that. our pepper sauce. That's my grandmother's recipe. That's like a liquid gold, right? If someone wants to approach us and ask us, what do we do? We provide flavor. Growing a product line is no small investment, but Mike and his wife and co-founder Nicole were able to manage with the help of their Capital One Business card.

16:26Working with Capital One Business, we're able to leverage our limits and utilize those points, making sure we can continue the scale at the speed that we need it to go. To learn more, go to CapitalOne.com slash Business Cards.

17:06Did you have concerns about them doing that? Oh, yeah. I mean, we ended up raising our first round about four months later. And when we raised the first round, I actually asked that half of it get paid back because it's so stressful having your family's money on the line like that. Sure. Yeah. What was that conversation like with your parents when they said, we're so upset about this family friend deal falling through and we want to mortgage the house and give you the 200? And they were just determined to do it. They were angry. I think I, more than anything, I was kind of resigned. I was like, oh, I guess this happens.

17:44And they're like, this is not okay. Like, he's trying to renegotiate this deal because he sees how well you're doing. So you take the$200 from your parents. What happens between getting that capital and raising money four months later? I started talking to people left and right and left and right. And it's hard getting funded the first time as an entrepreneur. It's also 2012. It's become a lot easier to get funded as a consumer business in the past 10 years than it was then. But at the time, just everyone just wants the tech unicorn. And so, like, why am I going to invest in a baking mix company?

18:23Well, I think this is really important and hopefully helpful for entrepreneurs who are raising money in categories that are not AI, for example, right now. How did you figure out who to pitch and how to tailor the pitch so that you would have a shot at raising capital in a category that didn't have a wealth of investors rushing into it? I think casting a wide net, first and foremost. I mean, I was talking to probably eight different investors every day. I do think that another aspect of this is really kind of looking at the angel investment space because all of our initial investors, and in fact, for a long time, like our first three rounds were all angel investors.

19:08Those are the same people who just kept coming back. And there's something about angel investor groups where they can take a little bit more of a passionate and liberal approach than perhaps a group that's focused on something really specific that also gets a lot of high demand to it. And so those angel investors really turned out to be a big deal. But talking to that quantity of investors, I think, was a big part of our success and getting funded. And just to give you a little bit of an anecdote on this, I had talked to so many investors that the way that we got our lead investor, which finding a lead is, I think, the key to getting a successful fundraise done.

19:55He goes into a Whole Foods store to look at our product on shelf in Charlotte, North Carolina. I live in Chicago. He looks at the woman next to him, asks her, what do you think of this brand? And she says, I'm looking at investing in it. Stop. Yeah. So it is at the point where I have talked to so many potential investors that two potential investors are standing side by side in a Whole Foods store in Charlotte, North Carolina, talking to each other about the fact that they're interested in this brand. Wow. Did they both come in? She did not. But he called me up later that day and he's like, I want exclusive rights to take a look at this deal for a week.

20:35And I said, yes. And at the end of that week, we had a term sheet and we're moving toward a signed agreement. And how much did you raise in that round? A little bit over$2 million. How did raising that$2 million change the business and change what you were doing? What happened once you got that capital? So raising that money really, it enabled us to level up a little bit what we were doing. To give you a sense, in our first, call it eight years of business, I think we raised less than$10 million. So we've been extremely capital efficient over our history. So we're not kind of going out and getting fancy office spaces.

21:15We're not going out and paying crazy salary packages to people, but we're doing the stuff that really matters. So we did invest in a new package design, which is, you know, we've had iterations throughout our history, but it's largely the package design and brand that you see today. So this was a large investment. I start hiring team members for the first time and I start with some junior team members and then also identify some experienced talent that I could bring into the team and really help me grow my understanding of the consumer product space, which was just huge. We start leveling up our manufacturing operations and also getting our first full-time salesperson who knows the space well.

22:03It enables us to do the fundamentals. Caitlin, beyond building out the team, I'm curious about the role of being at Chicago for business school. What role that played in this? A lot of entrepreneurs who were experiencing the journey that you're on might have considered dropping out of school. Well, I did drop out after the first year. Once I raised money, our investors were like, so you're not going to keep doing this, right? And the answer was right. I'm not going to keep doing this. So was Chicago the right choice? Should you have gone and spent a year at Chicago or in hindsight, do you think you should have just powered through with being an entrepreneur without business school?

22:42I suppose, first of all, I think that so many things happen because you're in the right place at the right time. So I couldn't go back and change that. I would not go back and change that because fundraising was so much easier. Having been at Booth, even the courses that I took, like entrepreneurial selling, super helpful. It was also a great opportunity to take a break from my career in a safe environment where it's not like I was backtracking on my career, but also gave me the space to really explore what this could be. So I wouldn't take that part back. I also wouldn't take Chicago back either in that I didn't realize just what a ripe consumer brands environment I was stepping into by choosing that city and that school.

23:35There's probably no better place in the United States to recruit consumer talent. Why is that? The business schools there focus on it. It's also where a lot of the large CPGs are located. And this maybe I would share for future entrepreneurs, being where the talent is, is huge. And also affordable talent too. Some cities can be extremely expensive. And so your dollars, it will go so much further in a city like Chicago. It strikes me that in those first several years as you were building Simple Mills, you went from what even is coconut sugar and where do I get it to an increasingly crowded landscape of, I guess we'd call them maybe better for you brands.

24:23Were there moments where you hit challenges because that marketplace was getting more crowded? And how did you figure out how to keep breaking through with your products without exorbitant marketing budgets? I think for us, the most important thing has been the product positioning from the very beginning. And that what I wanted to create and continue to create today is these products that are made with astounding ingredients and putting them into delicious tastes and forms that consumers love. And so using these unconventional ingredients like almond flour and crackers, or we've got cookies made out of watermelon, sea flour, or a couple of years ago, we came out with these cheddar pop-ups, which are like these snackable cheddar crackers made out of butternut squash and red bean.

25:14And so as a food product, first of all, must taste great. And second of all, when you're able to offer a lot of benefits on top of that, which is a stunningly simple ingredient deck and ingredients that work hard for people is kind of a no-brainer. Take us forward to late 2024, early 2025. You made a decision to sell the company. Why? Oh, you know, I think that throughout our history, my goal has been to make this as large and impactful as possible. So one of the things that I tell our team is that the larger that we grow, the more impact we're having, both in terms of the crops that are grown across our country and across our world, the impact that we're having on more people.

26:07And as we thought about partnering with flowers, it opened just our eyes to so much opportunity to expand in ways that we could not do on our own. What's an example of that? So I think that one, accelerating our distribution, getting into more stores, which to your point on a crowded marketplace, that is something that's really important. And also important as you see your competition making moves like this too. Another is continuing to accelerate our innovation pipeline and putting the right resources against that. I think another is we increasingly are able to and are focused on reaching a broad consumer base.

26:53And so being able to reach that broad consumer base versus just, as I put it, the people like me who are already trying to make good decisions with what they're eating. So we just saw so much opportunity in it. And also, it really helped that we got to know Flowers over a number of years. I've known Ryle as the CEO for over five years at this point. And the cultural match between our organizations, the degree to which we see the world the same way, the degree to which he's excited about what we're doing and our mission as an organization, it was just a really wonderful fit. in a way that a lot of times these things aren't.