Wednesday, September 17, 2008

Struggles of entrepreneurs

Interesting read from Meg Cadoux Hirsberg, wife of Gary Hirshberg, the founder of Stonyfield Farms yogurt:

Gary often quotes Winston Churchill's famous remark that "success is the ability to go from one failure to another with no loss of enthusiasm." We certainly became practiced at ricocheting from failure to failure. It's hard to say when we had our darkest hour. There are so many that could qualify. Was it in 1987, when my desperate husband asked me to lend the business the only cash we had left? A year earlier, I had told Gary that we were going to pretend that the $30,000 my father had left me in his will didn't exist; it would be the down payment on our home, if we could ever afford one. But our new co-packer had suddenly gone belly-up, and we had to start making yogurt at the farm again. "I need the cash to buy fruit," he said simply. Numbly, I pulled out the checkbook.

Or perhaps the worst moment occurred the following spring. A large dairy had agreed to partner with us and retire our debt -- Gary had worked with the company for months on a detailed agreement. I was excited and relieved on that day in April when he and Samuel drove to Vermont to sign the deal; in our recently completed fiscal year, we had burned through $10,000 in cash each week and lost $500,000 on sales of about $2.3 million. ...

I shared Gary's vision, but not his method or his madness. I admired -- and still do -- his passion and determination. I wanted to believe that we could expand this business and make a difference in the world, but over time my confidence faded. The level of risk that Gary and I (along with our partners) had assumed was way beyond my comfort level. We had come perilously close to losing the business dozens of times. Frankly, there were many times I wanted to lose the business -- anything to be put out of our misery. ...

From 1983 to 1991, Gary raised more than $5 million for the business, all from individual investors, none from venture capitalists. He raised $1 million in 1989 alone to build the plant that he and Samuel had cost out on that car trip the previous spring. We eventually had 297 shareholders, even though we had never closed a quarter with a profit. We didn't see our first profits until 1992, when Stonyfield's revenue reached $10.2 million. You can do the math -- it took us nine years to break even. Gary and Samuel's gamble on the promised efficiency of the new facility, located in Londonderry, New Hampshire, was, in fact, the turning point.
Frankly, I was amazed that Gary was able to persuade so many investors to write a check, given the bleak history of our little company. I'm certainly grateful that none of them ever asked me about my own confidence level in our enterprise. My sense is that they were investing in Gary -- his smarts, his persistence, his commitment, and his confidence. They were also persuaded by the quality of our product (though my mother, Doris, the third-largest shareholder at the time, didn't even eat the stuff). ...


Just when I had begun to think that my husband was not so crazy, I found myself begging him not to do something that was patently insane. Gary and Samuel made several trips to St. Petersburg and set up a small facility there. Everything went wrong. Finally, after someone was shot and killed in Gary's hotel while he slept, and an American colleague was briefly held hostage, Gary called it quits. "I lost half a million dollars and my innocence," he says now.

At that point, even Gary started to wonder if it was time to bring in some bigger guns to move the company to the next level. In 1997, he began to hire professional managers in sales and marketing. Corporate people from Kraft (NYSE:KFT) and Harvard M.B.A.s now started to populate the company. By and large, these new hires did not work out, and Gary and I both learned important lessons about the company's culture. I had been vastly relieved to see the infusion of what I termed "grownups" into our company, but now we both came to realize that a mission-driven business requires employees with more than flashy resum├ęs; energy, spirit, and dedication to the work are essential.

Gary started looking for a way to get the shareholders an exit, to give them a well-deserved high return on their risky investment and allow him to focus on expanding the company. He often spoke with Ben Cohen of Ben & Jerry's during this period and eventually soured on the idea of going public after Ben was forced to sell his company. In 2001, when sales were $94 million, Gary sold 40 percent of Stonyfield to Groupe Danone (owners of Dannon yogurt); it bought an additional 40 percent in 2003. The deal, finalized in 2001 after a two-year negotiation, gave our shareholders a highly profitable exit, allowed Gary to retain control of Stonyfield, and provided us with financial security.

But I was mistaken in believing that the deal would bring with it some measure of calm. Gary doesn't reach a plateau and then stop. Financial security was never his ultimate goal. There's always that next venture, that new new thing, that (in Gary's case) will reach more people with important messages about organics or climate change.

After we got some cash, Gary created and invested heavily in what is possibly the only business riskier and more likely to fail than yogurt-making: restaurants. He conceived of and co-created O'Natural's as a healthful, organic, and natural fast-food alternative. The concept is excellent, as is the food, but its fate, like that of all restaurant start-ups, remains uncertain. Gary has poured a lot more money into it than I expected. Once again, I try not to ask. Gary also co-founded the nonprofit Climate Counts, which measures the climate change commitments of major companies. Recently, he has been busy promoting his new book documenting how businesses can make more money by going green. People say they don't know how he does it all, and the truth is, neither do I.

It's all exciting, but I'm a slower, more deliberate, and (as Gary would say) "evidence-based" person. Gary is a consummate multitasker, while if there are more than four things on my plate, the fifth slides off. The person who runs faster sets the pace; usually, I am the one who must adapt.

On a more personal note:

Our wood stove could not compete with the farmhouse's leaky windows -- my hair would ruffle in the winter wind, indoors. Unidentified furry creatures often skittered over my slippered feet as I loaded laundry in our dirt-floor basement. One winter, when my brother Bob was visiting, the Dumpster caught fire and nearly incinerated our barn, which contained all of our nonperishable inventory. After Gary dealt with the fire, Bob headed up to his freezing bedroom and deemed Stonyfield Farm "a hard place to crash." The moniker stuck.

Even the coming of spring heralded problems. The effluent from the yogurt plant was piped into the leach field adjacent to our bedroom. As soon as the weather warmed, the sickening odor of fermenting curds and whey wafted through our windows as we tried to sleep. When I was nine months pregnant with our first child, Gary and I laid polyethylene tubing through an overgrown field to direct the effluent away from our bedroom window so the stench would not be drawn in with our newborn's first breath. The field turned out to be overrun with poison ivy. I went into labor a couple of days later, my skin itchy and red.

This read made me think or formulate some hypotheses about the characteristics of successful entrepreneurs:
1. Risk takers
2. By all accounts, constrained by existing capital, until an infusion mainly by friends and family.
3. Desire to retain control
4. Visionary

Now the opposite side - "entrepreneurs" who ride on the coat tails of earlier successors (i.e. imitators). Here I am mostly thinking about the dot-com boom
1. Imitators which implies no vision
2. Small startup hoping to be bought up or taken public
3. Looking to cash out with no desire to retain control
4. By extension, imitators are more risk averse than the "real" entrepreneurs.

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