#247 - How to Build a Board with Seth Goldman, JUST ICE Tea

22:34We want him feeling the pressure, knowing it's all the line and with no fallback. And so I ended up actually doing that, taking that strategy. By the way, I can't say I'm recommending this for your listeners, but this point of view was like, you've got to stop raising money. You've got to be able to take, put your money where your mouth is and really put it on the line. And I did. And obviously it worked out, but that was kind of like, well, all right, this is what we're doing. So let's dig into that a little bit more, because I think also there's a little bit of a dynamic here of board members also looking out for your best interest.

23:08But maybe also theirs because they're investors. They don't want to get diluted more. They want you to go and make them a bunch of money. So you must have experienced that balance or conflict, whatever it is. Oh, yeah. Any comments on that? Well, first of all, it's important to remember the board's most important responsibility is to hire and select, in some cases, fire the CEO. The board isn't the one that says, oh, let's create a marketing jingle or something. It's their primary duty is hiring and managing the CEO because otherwise no one else is. and then, of course, helping the CEO find the right incentives and strategy to grow.

23:42But on the one hand, they do need to look out for my wellness, but it's not at the expense of the business. If they come to the conclusion that I'm not the right person to run the business, it's their job to hire me and find somebody else. So I won't say it's a tension, but there should be support until there's tension, right? So one of the great phrases that I've heard to describe boards is your nose is in the tent, but your hands are outside the tent, meaning you're looking in and you're seeing it all and you're speaking when asked or when you feel the need to, but you're not going in there and tinkering with the business on a regular basis.

24:17That doesn't help the CEO. Okay. That's also really interesting because I've heard about very different scenarios, which I don't know, Seth, I think like you run such a good business in such an ethical way that like maybe these things don't even happen to you because you just are above the board about everything that you do. But you hear some nightmare scenarios, right? And I have been in a few businesses where the CEO wasn't performing and then it is sticky because it is the board's job to recognize it and take action. And the CEO is just going to have inclined to say, well, you don't understand.

24:50And I've certainly been part as a board member of some CEO exits. And those are inevitably tough, especially when their founder or CEO isn't up to the task. And sometimes the business has their name on it also on the brand. And that's even worse. Yeah, no, those are tough situations. I'm a funny story to share. So we had a longtime friend of mine, Chuck Muth, who was my head of sales at Honesty. And then we brought him over to Beyond Meat, where we had a much more formal board. And he said to me one day, he said, I can't wait till I'm going to be a board member someday and tell people what to do.

25:24And then he got on some boards and he got in that situation you described, where somebody, you know, they had to make a transition with the CEO. And he says, this is such a pain. I can't believe this. I said, that's what you were asking for. So you don't just get the smile and wave as a board member. The board members earn their keep, especially if they have to navigate through a CEO transition. That's really interesting. And I actually did meet Chuck at an expo. Yeah, he's a legend. Yeah, it was super nice also. Yeah. Okay, so I also do hear about some horror stories where there are people on the board who they may block a transaction.

25:57I don't think they say it in the meeting, but it's because they're not going to get what they want them personally out of the situation. So there must be that some kind of an element where it's not totally altruistic looking out for the company first. I am a student of board governance. There are courses you can take. I've taken them, National Association, NACD, National Association for Corporate Directors. And there are legal rules of care and duty that board members do have to put the best interests of the company and the best interests of shareholders above all else. So a board member at least exposes themselves legally if they start putting their personal interests above that of the corporation or of that of shareholders.

26:34So that may happen, but I can't think of a situation where it's happened on boards I've been in because I would call them out on it right away. That is you as a board member, you have the duty of care. You have the duty to not try to extract from the company special favors or not put the company's best interest first. Okay. That's very good for people to know and just be armed with that knowledge in case they do encounter those kind of difficult board members. Although just like with any performance in jobs, it can get complicated where like, okay, the CEO is not performing well, and then they're going to assume it's for some other reason that they're getting kicked out, whereas that's complicated.

27:09Okay. But the next thing I want to ask you about, what's a good and bad way to deal with your board? If you're talking to a CEO who's, it's their first time really managing a board, good ways, bad ways. Thank you. There's a lot. So number one, obviously, we talked about the due diligence on the way in. So you know who you're dealing with and you know how to interact with them. Number two, really solid communications. So we just had a board meeting a few weeks ago and I spoke to each board member before the board meeting. I wouldn't say a difficult meeting, but there were some key decisions that people may not have been aligned on.

27:40And what you'd never want to do is surprise your board in a meeting with new information that they don't have any context for. And you're doing everyone a disservice. No surprises for your board. So communication about what's going on, certainly with respect to meetings, but all along the way. And by the way, this, of course, applies to investors, too. I make a point of trying to reach out to our investors at least once a month, just with any kind of update. Sometimes it's an article. I would never want my board or my investors to read an article about our business before or I share it with them, right?

28:12They're going to come across it. Let me help convey it to them. Number one, so they know I'm thinking of them. But number two, often it's good news. But even if it's bad news, I want to present it to them and help them understand the context of it. So frequent communication. And then when you're in the board meeting, and this is partially who you hire as a board member, you don't want people who are going to go out and just give a monologue. They've got to be people who can listen and who can listen to others. And it's also your duty as a CEO to make sure everyone's voice is heard. I go to the Beyond Meat board.

28:44I have some amazing board members there. Some of them are much more vocal than others, but they're all amazing board members. And so I never want to have us talk to an issue without having heard from every board member. And it's often the case as one particular board member, I'll sort of, if she hasn't spoken, I'll kind of give her the last word. And she inevitably just nails it and is like, okay, but it would be a disservice to the board to not make sure her views are solicited. And then finally, and this is a business strategy too, making sure your board has a diversity of views, right? You don't want a bunch of cheerleaders.

29:19It was very funny when we had, just after we had raised the money for Just Ice Tea, we had our first board meeting and one of the major investors spoke to me afterwards and, wow, I was really surprised by the rigor of the conversation. Like it was grilling you. I said, he wasn't grilling me. He was asking me the kind of questions that a board member should ask. I don't need a cheering squad. I need people asking tough questions. Yeah, it sounds like he's really trying to understand the business and be helpful in that kind of a scenario, not try to get you on something. Absolutely. And just because Barry and I have such a history, I was going back to when I was his student and he would cold call on people.

29:51And so I don't have a problem. No, it's like this part of what I look at as a CEO. I look at board meetings as a bit of like going back to this classroom model. Well, it's like a final exam. Like, do you have grasp of the information? Can you defend what's going on and present it? So look at these as tests that you want to pass. And if you don't pass, what do you need to work on? Honestly, this will tell you a lot about me. When you talk about all this stuff, it like stresses me out to imagine myself in this kind of a situation where I'm like, no, I need to run the business. I don't need to spend time like making phone calls for the pre-meeting and doing all this stuff.

30:27But I guess like when you're at your level, that is a lot of the job though, right? So what you don't want to do is distract your whole team. Instead of running the business, put a ton of time into doing a board deck. Like, no, but I want to make sure to kick the tires. Is this business defensible? Have we looked at this and does it make sense? And so it's funny as we just, as you know, we just raised money for our series B. And when we sent out one of the part of the due diligence, the new investor asked for was, can we look at some of your board materials? And they saw the rigor we put into understanding the information and presenting it.

30:58And they said, that's best in class. That's good for a public company. You're doing it for a small private company. And it really just shows you're on top of the business. When a board meeting is over, I do take a nice sigh of relief, like, oh, okay, we passed the test. But I also look at it as it's a great way to just make sure we're accountable. And, of course, it also makes it easier once we've done that. But inevitably, the materials we prepare for a board meeting we'll use in a retailer presentation or a shareholder meeting. So we're not just doing these. We are much more focused on the results than on the presentation.

31:31And I certainly encourage people to keep the presentations succinct. You don't need to present every piece of data. Find the most important ones. These are great tips, Seth. This is really awesome. Okay, let me ask you a little bit about almost like advice for earlier stage founders around the topic of control of the board, especially when you mentioned like, oh, they can fire you as soon as you fire. Like, oh, geez, what's going to happen? So what does that typically look like in the early stages? How much control are you giving up? How much should you be willing to? How should you try to manage so you have control so that doesn't happen to you?

32:03It's super important. And people always say, oh, this company got put out of business because their competitors. Rarely is not the case. usually they get business goes under because investors get control of the business taken in the wrong direction and the only reason they would get control is if you have to raise so much money that founders get diluted and aren't able to have that input so it is important and again maybe i'm fortunate because i've done this enough but even when i raised our first large raise for just ice tea we split the lead investment between two different entities and part of that was because I wanted two great partners in, but also to be able to split the equity, right?

32:42I didn't want one shareholder having that much control of the business. So strategically for me, if you've got folks who want to be in, if I get to have their wisdom and insight, maybe it's even better if I can get two folks in who have great wisdom and insight. That's pretty interesting because I almost would be like, oh, this is like twice as much work also in a year or two. But the alternative might be giving one investor too much say. Yeah. We're fortunate because I say this to their face, I'd say this privately. We have just great supportive investors who are on board for what we're doing.

33:14But in the beginning, you never know. And so it is risky. It's just like you don't want to put all your eggs in one basket. It's very dangerous to raise all your money from one or two investors because not only are you giving them control, but if they get investor fatigue or they have a change in their leadership and they change their minds, all of a sudden you don't have a wide base. So even as we've raised money subsequently, I've made a point of making pro rata participation available to existing investors just to let them, number one, make them feel like they have the chance to not be diluted, but also to let them know I appreciate them.

33:49And if we do need to raise more money from in the future, they'll know they were given that chance. Okay. So what about when you disagree with them? It's like you think you have a course. They are giving you some other advice. You're pretty confident in what you want to do. How have you resolved that in the past? Has it been pretty friendly, amicable, because you seem to have a really good way with people? Or have you gotten into situations where it can be pretty tense? In the companies that I run, I have not had that situation. I have been on boards where we have had to remove the CEO. Those are challenging for sure.

34:26And again, duty of care, you got to make sure, okay, we need to move this person out. But we've got to make sure the business can still function in a healthy way. But those are tough conversations. But in the cases where that has happened, the board has been aligned that this is the right step. What do you feel like it was that happened that really made that person no longer the best person to run the company? Were they disengaged? Did they just make bad decisions? Was it a personality issue? Yeah. So often attention you'll see someone could be a great startup CEO, right? They can get it up and running.

35:01They can sort of prove the concept, but they're not necessarily a good manager, not good with people, or they just can't sort of take that next step of scale. And so they're very personal driven. In another case, we had a situation where just the conduct of the CEO just was not something we could support. And so we had to make a change there. And that was a little more clear cut just because we said, look, we can't have this. Yeah, I gotcha. I actually was listening to another podcast this morning. They had Bill Gurley on there who did these epic famous investments into Uber and all these other places.

35:38And he was talking about that same journey of early stage founders then not always being the same skill set as the person who can then lead a thousand person organization, something like that. So you yourself have been on that journey and you also have coached people on that journey. Do you feel like you can learn that skill set even if you don't have it? What are the keys? Some people can learn it. But there's also a phrase I once heard I love, which is sometimes you can't teach tall, right? You need a basketball player to be tall. You can't teach them that. Like if they're not tall. I think you're just saying that because you're tall, Seth.

36:12No, but I mean, in this case, if someone could be incredibly effective, I mean, they see movies about NBC founder CEOs who have this vision. They can spread. They're so passionate. there's no one more effective than them as the presenter of the idea. So the right messenger, but they're not necessarily the right manager, right? To go beyond vision to the execution. And at the same time, there are some who can. And so it's great when you have that, but it is often in the world in which you, when we operate, there are a lot of founders who do reach a ceiling. And that's often when an experienced investor and board member will say, okay, now we need to bring in professional attitude.

36:51Yes, I think that's very true. And it definitely makes me look at myself and wonder if I would be able to learn that skill. I'm not sure because that's a very tough one. But yes, hopefully there is hope for people who haven't done it, but do want to. Well, and it's not just the CEO, by the way, I can tell you that with Honest T, even we had great founding sales leaders who weren't necessarily able to take the next step as we grew. And so it was a good test of my leadership was able to recognize it and then make a transition to someone who was going to be able to scale the business. So interesting.

37:23I don't think I have had enough experience in that realm. I always just probably naively assumed like, oh, no, like good people who are smart people can scale that way and you give them teams and they'll crush it with them. But yeah, they don't always want to do that. They don't always feel like it. Yeah. Well, and the capability differs, right? So in the early stage company, passion, hard work, Great personal relationships make a big difference in sales. As you scale, it becomes more data-driven. And so can you find and analyze the data and present the data in a way that a larger corporate buyer makes sense?

37:55And as I said, now that we're launching nationally in Kroger, Safeway, and Publix, it's because we had data that helped our sales, made our sales story compelling. Okay, just two last questions for you, Seth. The first is, let's flip this. If you are hoping to be a board member, which probably a lot of people after hearing this are like, yeah, I want to give this a shot. That sounds awesome. What are the ways you think that you could position yourself well to do that? Maybe it's an earlier stage company that might look at you for that or later. Right. So earlier stage definitely makes more sense.

38:25The first thing is, what have you accomplished? What have you done? What is the accomplishments you've made that someone would value having you on your board? So you don't have to have been a CEO, but if you were the key, just as I said, someone like Chuck Muth, if you drove the sales of a company from basically 13 million to over 100 million, wow, that's a sales leader I want to have in the room who can give you advice. Similarly with a marketing campaign or operations. So you've got to think about how you would package yourself to be valuable to a board. So first of all, make an impact with your career.

38:59And then the next step is how you present it. And so then one thing I would say could be very effective is think about like your profile on LinkedIn. What are you writing it on? What are you talking about? And what gets traction? And it's funny. I just wrote a blog two weeks ago on palette configuration. I like that. People really got into, but like, I don't have this ambition, but if I became the expert on like palette configurations and logistics and operations, and they got a lot of following for that, someone might look at me and say, boy, our company is trying to do that. scale. We need someone who's got that experience.

39:34Here's a guy who's writing about it in a very clear and compelling way. That's an example of you'd become an expert within a particular community and then that could be valuable to a CEO. The single biggest thing is making some accomplishments that someone would want to see replicated in their company. That advice also really resonates a lot with me because way back when I was just writing articles about a nerdy topic of pricing and trade promotions, which I just had a deep passion for. And it kept me engaged with one guy who was a big deal in the industry. And then when a friend of his came looking for a CEO for his business, he was like, actually, there's this one guy who's been on my mind lately.

40:11So it can be a great way just to be putting stuff out there, showing your interest, passion, expertise. So yeah, that is really cool advice. But what did you say about pallet? Now I'm curious. Oh, you're going to read it. What about pallet wraps? No, not power refs. Going back, I had a pallet configuration of 96 cases. So when we started up Just Ice Team, we went to 96 cases. And then it turns out we could have put 102 cases on the same pallet. Well, that's a 5.6 % more product on a pallet. That's a huge savings. And by doing this, we'll save hundreds of thousands of dollars a year, not to mention fewer trucks on the road, all the positive impact of that.

40:47And the irony is like Coca-Cola was doing a non-optimized pallet. And it's just an example of how you can overlook obvious opportunities in the business. Okay. Is it Rockefeller or who had that famous story or the number of screws that tighten an oil drum? And it was like, if we go from 48 to 47, that is millions of dollars a year. I remember reading about this. Yeah, a similar situation. Yeah. Well, that's great. And I mean, that is the kind of stuff that actually can really move the march on margins. Oh, and it's the kind of unsexy stuff, but so critical. And especially when you can make a change like that, that has no impact on the consumer experience, right?

41:26No one's going to say, oh, they cheat for their business because they got six extra pallets, cases on a pallet. They don't care. The consumer doesn't care. So those are the best savings to make happen. That is what the big CPGs should be the best at. They are logistic supply chain machines. They're the ones who know how to get product out there at a low price point with high margin. Right. All of us as CPG startups should be just as rigorous, if not more. We need the money more than the big companies. So you can get those kind of savings. Yeah. When your investors tell you you need better margin and you put together a plan for how you're going to get there, this would be one of those big pieces and you need to go and capture it.

41:59OK, so last one. I just want to summarize a little bit some of the learnings that you've given here today, because this is so good. There's so much in here. This is incredible. First time learning for me, really. So let's say as you then start thinking about doing real raises, not like, well, I mean, raising from family and friends and angels are real raises too. But when you go for, let's say, institutional money, there's a real round happening. There's a lead for that. Oh, yeah. And by the way, even before institutional, just call it the angel fundraise. Like when you're raising angel funds, you should have some, by that I mean, individual investors who want to put money in that aren't people you can consider friends and family.

42:37you should start putting a board together for that kind of raise. Even you're like taking 200K total from some angels. My cutoff would be a million. If you're raising a million dollars. Okay. And a lot of it is from people you don't know or don't know well, you should be starting to assemble a board. I've been an investor in both of those ways. And I think that you're right because the one that was a bigger raise, I look back, I'm like, there should have been a board for like, what happened even? So I like that. Okay, so then you're raising, you start to think about forming your board, you get it done, and then you're actually preparing for that first board meeting.

43:16So give me, just for the last question here, what is the way to pass the test in your first board meeting? What do you need to be showing them? What's the best way to get the most out of them? So first of all, before you get to that board meeting, they should be 100 % understanding of what your strategy is, what your approach is. Again, so there's no surprise. You don't get to the board meeting and they're like, well, what do you mean we're doing this and that? So what we always start our board meeting with is the five objectives and key results we have for the business for the year. And so the first board meeting of the year where we present those, we explain why we think these are the OKRs and most important objectives to the company.

43:51We actually have the board approve them because this is our operating plan as well as the financials that go with it. Then that's got to call it meeting number one of the year. The second board meeting is here's how we're doing with respect to these objectives and key results. And we remind them what they are. We filter down and say, here's how we're doing against them. And then we get even more granular. So obviously, there's always like a sales objective and then we'll get more specific. But you never want a board member to walk out of a meeting saying, I don't understand this company's objectives.

44:19I don't understand the strategy. The CEO's job to remind them and then to explain how we're doing toward that strategy. And then each board meeting, you can say, we're going to focus more on this or that. So one may get more granular on marketing strategy. One may get more granular on sales. That's usually for us at the beginning of the year. Towards the end of the year, we always have a review of compensation. Here's what our compensation is and our strategy. What's the bonus program? What are the incentives we've created? And so you want over the course of the year for the board to have full oversight of the business.

44:52We even do one on financial controls. It's not very exciting, but it's important, again, as a fiduciary of the shareholders. You want the board to make sure that the person who is setting up the checks isn't taking the money in, isn't the person who's running the checks also. You just need to make sure there's a good house in order. Okay. So I like, because I have one more question that just occurred to me, which is... That's fine. For me, I don't know, Seth. You always just make sense to me. I'm just like, yeah, everything you say makes sense. Seth, you're one of the most successful people in this industry.

45:22Everybody looks up to you. Jess Ice-T has done so incredibly well. Thank you. But like there have been some directions that you've changed in your life. Like if we look back at like, okay, ETH change started with the mushroom jerky, for example. But like, I'm just thinking if I were on your board and you were presenting all of that stuff, I would just probably be nodding along. Like, yes, that's very thoughtful. Everything you do is very thoughtful. Are there scenarios where like you look back and you're like, you know what, they maybe should have pushed harder on this plan or had some vision that I didn't have and given me perspective on that.

45:53or like, you know what I'm asking? Yeah. Well, I think part of it is I'm bringing the board along. So like I said, there's no surprises. Going back to the Honest Tea Days, one of the just brutal decisions we made, I know you talked about, was owning a bottling plant for six years. That was a disaster. It was, we lost money on it. It was draining for me. I was driving to Pittsburgh every few weeks when I should have been staying with as the selling tea. And it was a bad strategic choice. We all held hands as a board. It wasn't like someone on the board said, I don't think we should be doing this.

46:25It's just we couldn't get it to make financial sets. And so ultimately, we did transition out of it. But someone on the board should have pushed back on it. But ultimately, it could have put us out of business. It really could have. I think ultimately, eventually, we just said, this is making sense. We've got to find a way and exit with this. Yeah, we made that decision together. And you're not right 100 % of the time. Nobody is. Right. But that communication is important. So I've certainly had board members who will raise a concern and I'll circle back with them afterwards and just really get more granular with them to make sure.

46:59It's not about politics. It's because I respect my board members. I know they're smart people and I want to make sure I understand fully what they're saying, what they're saying. Okay, Seth, this has been very enlightening. Honestly, I hope that everybody listening takes away from this just how much thought you put into it and making sure you're getting the most out of it. And I think just also the pursuit of learning on your end where you're looking up classes on board management and board. Governance. Governance. Yeah, there we go. Thank you. Yeah. Yeah, I hope everyone really thinks about that because it seems like you know how to, I think, build a really great board that can support your business, help you and the company achieve your goals, but also on the other hand, know how to be a good board member and really also try to help, on the other hand, entrepreneurs and those companies achieve the most that they can.

47:53So thank you as always, Seth. This was another just gold episode. Thank you, Daniel. Thank you for all you're doing to serve the CPG community. It's so fun to see at trade shows and events, just how the community you built, the energy you bring together. I just love it. Thank you, Seth. Well, just, hey, a couple of Bethesda boys just trying to do the most for the CPG. For anyone who doesn't know, I'm also from the same area as Seth, Bethesda, Maryland. Shout out. Let's go. So, all right. Seth, thank you again. And we will hopefully get you back for another episode soon. Thanks. Take care. Bye-bye.

48:27Well, my friends, we've now arrived together at the end of another episode of the Startup CPG Podcast, the top globally ranked podcast in CPG. As you may know, we're not just a podcast. We're a community of brands and experts, and you should join. You can sign up at startupcpg.com. You'll then get an invite to our online Slack community. You're going to hear about amazing events near you, all of our special opportunities to get you in front of buyers, investors, brands, and more. It's a free community. So what are you waiting for? I will see you there or on our next episode. Bye-bye.

49:12Thank you.