For Wunderkeks, It Really Is Go Big or Go Home
Introduction:
This week, Hans Schrei explains why he’s pursuing a deal with Costco and why his vision is to get Wunderkeks cookies into every supermarket in the country. When Jay Goltz counters that instead of thinking big, or thinking small, maybe Hans should think medium, Hans says that may no longer be possible with consumer packaged goods: “The little brand that grows and thrives by growing little by little doesn’t really exist any more in this space,” he says. Underlying the discussion of how fast Hans wants Wunderkeks to grow and how quickly he wants to exit are the stress-related mental health issues that he’s discussed previously on the podcast and the fact that his partner, Luis, is in the U.S. on an entrepreneurial visa, which means that if the business were to fail, they might have to leave the country.
— Loren Feldman
Guests:
Hans Schrei is co-founder of Wunderkeks.
Jay Goltz is CEO of The Goltz Group.
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Full Episode Transcript:
Loren Feldman:
Welcome, Jay and Hans. It’s great to have you here. Hans, we haven’t spoken in a while, but I’ve been following you on Twitter where you’re quite active. It sounds like you have a lot going on, including something with Costco. Can you tell us about that?
Hans Schrei:
When we first got approached by Costco last year, we were definitely not ready. We were very excited, but I think it was very smart that we said no. Because at first, we were scrambling, like, “We’re gonna get this together. We’re gonna put it together right now, and I don’t care what we need to do.” And I was like, “You know what? Costco is gonna be there in a year. We’re gonna figure out what’s the right way to do it.” Because it’s the type of thing that if you don’t do it properly, it won’t succeed, one. And it will really eat you alive, two.
So we slowed down, and then we kept building. We kept working on figuring out what the right approach was. And we actually heard from them again a couple of weeks ago. Okay, now we are getting there. We’re not there yet, but we have a clear action plan of how we are approaching this. And they were like, “You know what? We really love what you’re doing. We really want your brand. So what we can offer you is that we can go at your pace. Let’s try some roadshows in the summer, see where it goes. We can then do it in stores and a few more things.” Because the worry is, “Oh my God, what if then they say they want to do it in 500 stores? We cannot support that.” And they said, “Yes, we don’t want to do that. Because we know how it is for companies.” So we’re being very mindful of that, but we’re working toward being in 10 Costco stores in the summer in California. Hopefully.
Loren Feldman:
Even 10 stores, that must be a significant ramp-up for you, I would think.
Hans Schrei:
Yeah, it’s super exciting. And it’s a great opportunity, on a small scale, to test out what works, what doesn’t, and then say, “Okay, so this worked very well. So now, let’s do 20. Let’s do 50.” But at a pace that we can support. I think that the worst mistake that you can do as an entrepreneur is—and I think we all do it sometimes—that you run before you walk. So thankfully, we have learned that lesson.
Jay Goltz:
If you’re selling it to somebody for 20 bucks, how much are you charging them?
Hans Schrei:
We are still in the process there, but the margins are quite slim. Particularly because they carry similar margins to other retailers, but they demand lower prices. What Costco wants is for them to have the lowest price in the market. So you can do it in different ways, but the margins are very slim. I think one of the mistakes is that, particularly in food, the margins are nothing. You’re going to be making pennies on every box of cookies. The thing is, the price is in volume.
Jay Goltz:
But it seems that your business is not a volume business. I mean, how does that work that you’re gonna go on this treadmill cranking stuff out? It’s not like you’re Nabisco, and you’ve got some big machine you turn it on, and it just spits the cookies out all day long. It just doesn’t seem to fit your business model.
Hans Schrei:
Actually, no. That has been what we have been working towards. That’s where the real potential is. Obviously, we won’t be making the cookies ourselves. We’re actually working on finding a co-manufacturing partner that actually can do that. Like, literally, they—I cannot, but they can turn on a button.
So it’s a long process. It’s something that you want to be very mindful of and really get to know them and feel comfortable, but it’s doable. In the current environment, it doesn’t make sense, I don’t think, for any company—any startup, at least—to say, “Oh, we’re gonna sink $5 or 10 million in a production facility.” So co-manufacturing is a way easier way around that.
Jay Goltz:
Okay, that makes sense. You’re gonna go to somebody who does mass manufacturing. And then the second question I have is—because I did a little research on it—Costco, according to what I read, they don’t want to be more than 20 percent of your business. Did they bring that up to you? Is that true?
Hans Schrei:
Yes, they’re very clear about that. I mean, there’s always the horror stories that you hear about this company that put all their eggs in the Costco basket. And that is a mistake, because what they want is for people to get excited that, “Oh, I can get the bigger pack of this brand that I love at Costco.” That’s part of it. And the other is that it is a risky business. Putting every single thing you have in a retailer is very risky. And I think one of the mistakes that founders make is that they really get excited about this deal.
And, yeah, I mean, we have all done it, where we fantasize in a spreadsheet. And then the reality is the product is not moving at the speed that they wanted. So the last thing that Costco wants, at the end of the day, is that the story is, “Oh, Costco basically chewed us up and spit us out,” which is the way a frustrated founder will frame it. So they’re very mindful about that. And I frankly find that very healthy. I wouldn’t want it myself, either. I want to be very careful about how I approach that, because you don’t want to become them. At the end of the day, Costco is a discount retailer. And you don’t want to be a discount brand, either.
Jay Goltz:
Well, as a faithful Costco shopper, I have to say, they have good stuff there. They can call themselves discount all they want, but they have solid stuff there. So as someone who shops here, I don’t see a product there and think, “Oh, they’re in here.” Now, if I saw it in Walmart, that’s another story. But they’re not Walmart. In my mind, at least, they’re not Walmart.
Hans Schrei:
No, but what I mean is this: You go to Costco for the deals. And the only way you have a deal is if you have a comparison. So if the product that you find at Whole Foods or at H-E-B or whatever your supermarket is cheaper at Costco, the only way that you will perceive those couple dollars less is if you actually know what the price is outside. So if you’re just a Costco brand, then there’s no point of reference.
Jay Goltz:
Yeah.
Loren Feldman:
Let’s take a step back and talk about the conversation with Costco. I’m curious, you make a number of products, and we’ve talked mostly about your cookies. Is this a cookie deal? Or are there other products involved?
Hans Schrei:
This is for the cookies. We’ve gone back and forth about that. And what makes sense is to get our foot in the door for retail with the cookies, which is the product that we are known for. So our best option for Wunderkeks is, there is a gigantic opportunity in desserts in general, particularly frozen desserts, which incidentally, I think Costco would be the right partner for that. But we are known for cookies, so it’s gonna be a way easier conversation to have, “Oh, these amazing cookies!”
Loren Feldman:
And so far, you’ve been making all this yourself, right? You haven’t used a co-manufacturer to this point, correct?
Hans Schrei:
Yeah, we’re going to start working with a co-manufacturer very soon, but for another project.
Loren Feldman:
And what’s that like? Are you concerned about the quality of the product? How do you monitor that?
Hans Schrei:
At the end of the day, it’s a reputational thing. One of the things that I have been doing—actually, we’re going to Sku, which is the top CPG accelerator. We’re starting next month. It’s a reputational thing. As with everything, you can have the best advertising everywhere, but it’s a reputational thing. And you want to talk to people, and we have talked to a bunch of people who have done that. And so we had a few recommendations, because there’s this list that everyone has that’s going around. People are trying to be helpful, and they will forward you a list of 500 co-packers, and it’s absolutely worthless. So I might as well just Google it. So it’s really like, “Hey, you person who successfully grew your brand to a million dollars, can you share with me what co-manufacturers are good? Who do you know in the industry that’s good?”
So you have to hunt them down. And if you expect that is gonna be a short and easy process, and it’s just gonna be like a mail-order thing, that’s definitely not going to happen. So it’s about, first you want to see if you’re comfortable with these people. Then you want to know what their expertise is. And then you want to really see that you’re on the same page about what you expect from products, because it’s not the same thing to make a premium cookie like ours and to make Oreos. Those are two different sets of capabilities. So that’s very important. And that is just, samples come and go, and you have to go and see the facility and understand the process and be very specific.
We have made our cookies ourselves. We have baked about 5 million cookies so far. Like, we know our product inside and out. So for us, it’s very easy to speak the language of the co-manufacturer. We know exactly what we want. We know how to ask for it. We know when it’s not. I can tell just by looking at a cookie that it’s not the cookie I need. So I can say, “Okay, this sample is going back.”
Jay Goltz:
So why did they come to you in the first place? Did they like your advertising? Did they like your social message? Did they just like the cookie? I mean, how did they find you?
Hans Schrei:
They found us because there was this piece on the local Fox affiliate—somebody nominated the piece for an Emmy—about us. They came to our house and baked cookies with us. And it was about the message that we’re doing, about how it has evolved. And I don’t want to praise myself or anything, but we are kind of the American dream, in a way. We came, we’re immigrants, we built this out of nothing, we willed this into existence. And that is a story that really resonates, in general, for different reasons in different parts of the country.
So the story was about that and about our idea of, “How do we use that?” Because what we say—and this is a very, very seminal part of our company—we left our country and came to Austin looking for our own safe space, and we found it. And we’re very thankful for that. So that is a message that people want to hear. And they saw that, and they reached out. They got really excited. And then it turns out that they did try the cookies. They ordered cookies. They tried them. They tried a lot of flavors. We didn’t know—they just ordered them on the website.
And they got excited. There was a match between the quality of the product and the excitement that we’re building. Because this is how I see it: People will tell you, “Oh, but cookies is a super-crowded category.” That is true of every single category, at least in food. Because frankly, Americans don’t need any more foods. We have enough beers, seltzer, sauces, meats, you name it. So the way you engage and the way you break through the noise is: How do you get people to care? And I think we really honed that formula very well.
Loren Feldman:
Did Costco tell you that? Did they tell you that the social message was important to them?
Hans Schrei:
Oh, yeah. They were super excited about it.
Jay Goltz:
No, that’s why I asked, because I thought that might be it. I doubted it was just: Oh, they happened to eat your cookies, and they thought there were great cookies. I’m sure they did. But I figured there must have been more to it. So that makes sense.
Hans Schrei:
The cookies are fine. The cookies are great. I love them. But I’m pretty sure that the guy next door can make cookies just as good. That’s something that, as a founder, you need to put yourself in that mindset, because it’s very easy to be so enamored with your product and say, “Oh, my cookies are the best, and my cookies are gonna change the world!” They are not. The way we see it, the cookies are the vehicle that you use to tell the story, not the other way around. If you want to talk about how amazing your cookies are, you’re dead in the water because, frankly, no one cares.
Loren Feldman:
Hans, did they put you through any kind of test? Did they make you jump through any hoops? Did they vet you?
Hans Schrei:
They requested an insane amount of documentation.
Loren Feldman:
Financials?
Hans Schrei:
No. At some point, that’s going to be part of the conversation. But I don’t think right now it is. Mostly, their concern is about quality assurance. But so that is something that you need to get from the co-manufacturer.
Jay Goltz:
So I have to assume that, beyond the cookies, they’re going to want some kind of signage, or packaging, or something to get the story out there a little bit. Because without that, you know, you’re cookies on an aisle. Did they talk to you about that?
Hans Schrei:
They leave that up to you. But that is what we do. That is what we’re good at. So, of course they want it. But at the end of the day—and I really like this about their approach—”We can give you the space, and we’re not going to tell you what to do. Obviously, we have some guidelines. Then you will get a sandbox you get to play in. But it’s up to you how you want to present your product. We trust that you are the expert.” So that is one of the toughest parts, the toughest decisions to make: How do we convey this?
Because the mistake a lot of brands make—and I’m no expert, and I haven’t been there—but a lot of brands tend to stop selling once you get the box through the checkout. And they stop selling. And there’s nothing more disappointing than when you open these boxes, and they’re kind of depressing on the inside. Particularly with treats. I think sweets is a category that really lends itself to packaging and the excitement, because it’s always a treat. No one is eating candy for nutrition. But brands stop selling at the checkout, and I think that’s a mistake.
The way we see it and the opportunity for us is we have an ecommerce business. And what we want is for the people on the ecommerce side to get excited about, “Wow, these cookies that used to take a couple of days to arrive and that I had to order especially for special occasions, now we’re going to be able to find them at my local Costco. It’s amazing.” And you want the people who are finding them at Costco to say, “Oh my god, this is amazing. I want to engage with their socials. I want to learn about their story. I want to learn about their foundation. I want to be involved. I want to share this with my mom, who lives on the other end of the country.”
So those two things need to be related. And I don’t know if it’s because we’re very well-positioned for that, because ecommerce has been our thing. But if you get people to get excited to move from one side of the equation over to the other, and think of your customer not as the commerce customer and the Costco customer and the Whole Foods customer as different people. But you think of them as the same person, the same persona, if you will, wearing different hats. That is where you can really make magic happen.
Loren Feldman:
So Hans, if you’re responsible for your own marketing—and it sounds like you primarily will be—what does it mean to you to take on a 10-store responsibility in California? How big of a geographic area is that, and how much awareness do you think there is, at this point, of your brand?
Hans Schrei:
There’s awareness, I guess. It’s very little. You need to be realistic. We’re tiny, and we’re going to be sitting next to Oreos, or whatever. So the plan is to start doing what is called a roadshow. So they give you space, and you get your own little station, so you can sample. That’s super important, sampling. That is the delivery method at Costco: sampling, sampling, sampling, sampling. And you can get people excited by properly training the people who are going to do the sampling.
But that’s super interesting about Costco. Costco is a place where you go to discover things. You’re always looking at the new thing. It’s very different to find something new at your regular supermarket, which is super crowded. Costco has three cookies, three types of pie, three types of cake, whatever. And people go there with that discovery idea in mind.
So for many people, it’s exciting to go to Costco. Have you noticed that they move stuff around a lot? That’s because people feel like, “Oh, my God, there’s this thing. And if I don’t get it right now, it may not be here next week.” And people do that. So it’s not really about just putting the product in front of the person. It’s about putting the product in front of these people at the right time. And if you’re at Costco, most likely, you’re wearing your brand discovery hat, if you will, in a different way than you will go in a convenience store, for instance.
Jay Goltz:
Are they going to allow you to put something in the package that basically says, “If you want to order these for friends or for gifts, you can go to our website”? Or are they going to try to stop you from doing that?
Hans Schrei:
No, they don’t. They have no say. I mean, they will reject something that is out of guidelines. That’s perfectly fine. But at the end of the day, that’s what they want.
Loren Feldman:
They want that?
Hans Schrei:
You know what? The Costco business model is, they have super, super low margins. And but—
Jay Goltz:
I think it’s 17 percent, I read.
Hans Schrei:
Yeah, but their money is made on memberships. That’s the moneymaker there. So what they want is for you to get excited about going to Costco and to get excited about paying for your membership. Of course, they want the volume. They want to move product. That is important. But the thing is, realistically, Wunderkeks—I love my company, but it’s not gonna move the needle for Costco. It’s gonna move the needle for me, but not for them.
What they want is, they want you to keep coming back. They want you to keep getting excited. They don’t really care if you are buying cookies, or Coca Cola, or whatever. They want you to be excited. And frankly, when I go to Costco, I am excited. Like, “Oh, there’s gonna be some fun thing that I may discover here.” That is the mindset. And that’s what they want. So the opportunity for me is a gigantic opportunity to put stuff in there. For them, it is more about the variety that they can offer to people who are willing to discover brands with you. So of course they want it. They want you to feel excited. And they want people to tell their friends: “Oh, I discovered this amazing brand at Costco.” That is in their DNA.
Jay Goltz:
It makes sense. The fact is, 95 percent of what they sell is just, you know, Charmin toilet paper and Bounty towels and Heinz ketchup. It makes sense that they want, whatever, 5 percent of what they sell, 2 percent of what they sell, to be a new, exciting gourmet-ish kind of product.
Loren Feldman:
So Hans, obviously, this is a big opportunity. Are you prepared to seize it? Or do you need financing to do this?
Hans Schrei:
[Laughter] Yeah, we need money to make this happen. This has been kind of an interesting time because, I mean, I think we’ve been raising money ever since we met. And it has been a fantastic opportunity to really understand the role of financing and capital and debt and you name it—frankly, how money works, and in what contexts. I’m really happy that it has been this super long-winded process, because I don’t think, up until very recently, we had our finger on the pulse of what we needed to do, and what we’re doing.
Jay Goltz:
So the question I have, totally on the entrepreneur side: Do you have a goal, like, “I want to sell in five years”? At some point, I believe you said that you want to build a billion-dollar company. Okay, they have medication for that. And now, it’s about social. What is your goal?
Hans Schrei:
Actually, that’s part of the fascinating conversations that we’ve been having in the past few months. And this is the thing, this was the tricky part. And I really appreciate that you’re bringing it up, because that confusion was really permeating. And isn’t that we were confused. It’s that we’re not really conveying what we’re doing. And what was happening was this: We got investors saying, “I love what you’re doing—your values, your mission, your brand. This is amazing. But how does this make me money?” Which is a fair question.
And then we got people who were more on the impact side: “I love what you’re doing. It’s amazing. I love the mission. I love the values. But how do I know that you’re not just doing this for the money?” Which was really a valid question. So we sought to figure that out because it was really hindering our efforts on both sides of the thing. And I think a lot of founders—particularly in CPG. I don’t think anyone in CPG gets in it for the money. We all get into this because we’re excited about—
Jay Goltz:
Wait. Explain to people, including me, what is CPG?
Hans Schrei:
Oh, sorry. Consumer packaged goods.
Jay Goltz:
Okay.
Hans Schrei:
Yeah, sorry. But anyone who gets into food, food is a very rough business. And a lot of us get into it, because we’re excited about what we’re doing, in many ways. In our case, it’s about the specific values that we’re trying to convey to the world. It doesn’t have to be that, but there’s something. There’s passion there somewhere. And what we found is, at some point, they will collide with each other. The mission and the business are always gonna be in opposition to each other. That’s their nature.
So what we figured out is: How do we do this? And what do we want? Because the work that we’re doing, Luis and I, about building safe spaces, about inclusivity, about intersectionality is amazing. I’m very excited about it. It’s what I want to leave the world. I really believe that you need to leave the place better than you found it. Which is amazing, it’s lovely, but why the hell would an investor care? Which is absolutely fair.
Jay Goltz:
Okay, correct me if I’m wrong, it seems to me you’ve got three goals. One is, you’d be naive and crazy to not want to make money, because you do need to make money to live. So you want to make money. You’ve got a strong social thing. You want to do something that will leave the world a better place. Okay, great. And the third one, which also is from listening to you, is—correct me if I’m wrong—you’d like to not be stressed out. Isn’t that true? Wouldn’t you like to not be stressed out?
Hans Schrei:
Yeah, that’s where the money comes in.
Jay Goltz:
Okay, well, so those three things do dictate a certain strategy here. And I don’t know that chasing investors all the time is going to take care of the stress. Yeah, I don’t need to think that big, so my phrase is, “I want to think medium.” I don’t want to think small. I don’t think big. I want to think medium. And I would suggest to you: Thinking medium is a good place to be. It doesn’t have to have the stress, and you still can make enough money and make an impact. And the question is: How do you do that? And so my next question would be: Have you drawn a line in the sand and said, “Okay, I will take in investor money, but I will never give up more than X percent”?
Hans Schrei:
Nope. Actually, it’s the other way around. What we figured out is that we want to continue our work long-term for the next 30-40 years, on safe spaces. And in order to make that happen, yes, I want financial security, if you will. I don’t think that stress is going to go away, but definitely the financial security I do want. I do believe that the way we position this, and the way we launch this into the world, is with the cookies.
And I think that it’s very valid to say, “I’m gonna think medium-size.” I really am excited about this being big. I want this in every single supermarket in America, because that is what I want for myself. That is the satisfaction that I’m looking for, but that is a very personal thing. But yeah, I haven’t been chasing investors all this time, because I have really found myself like, “Hmm, this is not working. We’re going to refine it.” And we’re going to refine it not just for the benefit of the investors. We’re going to refine it, because we have limited hours in the day. So we need to really focus and really know what we’re doing.
So what we did was, we decided to split it. So we have our company, Wunderkeks, and we launched the Sunday Afternoon Foundation. Because what we realized was that the problem was in trying to use resources for impact that were meant for business. And that is a mistake— and the other way around as well. You cannot use your mission as a lever to make money, because then it’s not a mission. Then it’s just a tool.
So what we did is we launched the foundation. And what we found is—and this was very serendipitous—the right crowd, where we started understanding, “There’s a whole world out there of resources available for us to accomplish this thing.” And the cookies are gonna help us, because the cookie company gives us credibility. It puts us on the stage.
I cannot tell you how much we realize how big this can be—not in the sense of how many million dollars it’s gonna sell for, when it sells, and definitely our goal is to exit the company. We want to exit the company in the next five years. That is what we’re building towards. I don’t see myself making cookies for the rest of my life. But I want to keep going with the foundation. And what we’re thinking is, there’s a whole world of resources out there that we can find and that we can use to build what we’re doing.
For instance, we had a meeting with a very, very, very big company about the foundation. We got a verbal commitment for support. They’re gonna give us a nice chunk of money. They don’t care about my cookie company, frankly. They are very excited about these guys in Austin who are really doing this thing, and they are everywhere. People are talking about them. But in that same meeting, there was a global food program manager, and he got very excited, too. I would have never been able to get that meeting as a cookie company. They really don’t care. So we’re moving in that direction, and the opportunities are there because the world is just so much bigger.
Loren Feldman:
Let’s come back to the opportunity at hand for a moment. You told us that you’ve learned a lot about investors, and you’ve taken a lot of time to talk to people and figure out what makes sense for you. Can you tell us more specifically how much money you need to raise for this Costco opportunity, and where you hope to get it?
Hans Schrei:
It’s a tricky conversation, because what we decided was: We don’t know what we don’t know. So that’s why we’re going to the accelerator. We need to figure out exactly that. And while we think it is not fair to go to an investor and ask them, “Hey, I’m gonna need a couple million dollars but that may not be enough, and I may be able to pull this off.” So we’re not there yet. We don’t have certainty. And of course, there’s never going to be 100-percent certainty, but I can tell you that there are many variables that I don’t even know about yet. I’m building my team so that we can really work around those and really be very mindful about the next step.
So the answer to that is: We don’t know. It’s probably going to look like a lot of money. But it’s a very different proposition if I have the team who is going to execute the branding plan, the co-manufacturer with the products already done, I have figured out my packaging, I figured out my logistics. Logistics, for instance, is something I really know nothing about. And I’m at the point where, in order for the company to grow, it’s not up to me to learn. It’s up to me to find the right person to do that for us.
So that’s what we’re doing. So yeah, we’re raising money in a kind of passive way, because we’re going to need a lot of it later. But we are not at the point where we can say, “Oh, this is what you can expect in black and white.” And until we get there, it’s really not fair to ask an investor for money. So what we’re doing is like, “Okay, we’re gonna take our time.” Because that’s the thing: Costco is gonna be there later. So is Walmart. So is anyone.
Loren Feldman:
I thought you said that the goal was to try to do the Costco thing this summer?
Hans Schrei:
Yeah. Yeah.
Loren Feldman:
Well, that’s pretty close.
Hans Schrei:
The summer after the accelerator is done, and after we have an absolutely clear vision of how we are going to execute it. Right now—and this is the tricky part—it is very exciting that Costco is reaching out. And if you’re not prepared, it’s going to kill you. So that’s why we said in December. We didn’t say, “Oh, we can do it tomorrow.” And I’m thinking late summer. Probably it’s going to be August or September.
Loren Feldman:
Tell us about the accelerator then. What does that involve?
Hans Schrei:
It’s called Sku. There’s a lot of CPG companies in Austin, so it’s run by very top people who really build big brands—people who really know what they’re doing. The accelerator becomes like, “Yeah, we’re gonna run you through the program. We’re gonna help you find the mentors that we need. We’re gonna help you find the capital that you’re looking for, but in a rigorous, controlled way.”
So it’s four months of work, very rigorous work. It’s not just, “Oh, we’re gonna tell you how amazing you are, and we’re gonna make introductions to people who can fund this company.” It’s: How do you build a plan? How do you really account for all the variables? Which still allows you to make mistakes, but it’s a very different mistake if you thought that the margin is going to be one percent higher, versus, “Oh, I didn’t account for my distributor margin,” for instance, which is something that I’ve heard happen.
Loren Feldman:
How much does it cost to go to the accelerator?
Hans Schrei:
They get a small liquidity grant. It doesn’t have a cost per se. I mean, a cost monetarily.
Jay Goltz:
I am not a cynical person. But after 45 years—
Loren Feldman:
You’re not? Are you sure?
Jay Goltz:
No, I’m not. I’m absolutely positive I’m not. I am skeptical after 45 years of being sold to and giving money to all kinds of people from PR, advertising, to management consulting. And I’m just a little concerned that you give them 50 grand, and I’m afraid you could go there with anything, and they’re gonna take the 50 grand. And I don’t know that they’re going to necessarily say, “I think your business plan is all over the place. I don’t know that you’re ready to come.” I think they’re going to take the 50 grand.
So I don’t know that this is the panacea of: You go there, and they get you all straightened out and set you on the right course. Franchising, the same thing. You can go give money to franchising. “Oh, yeah. Oh, we’re gonna get you all over the country.” We already heard that one. And then you’re kind of all over the place. You just mentioned Walmart. That is so opposite of everything—from what I understand—that is so opposite of your entire brand to go into Walmart. It’s all about price. That’s all they’re about.
Hans Schrei:
I’m sorry, I’m not going into Walmart.
Jay Goltz:
You mentioned Walmart.
Hans Schrei:
I know. I mean, Walmart is a significant part of the industry. It would be a mistake not to consider it. I’m not going to Walmart, because right now, I don’t see that as the path, but I’m not gonna blind myself to an opportunity that can be really big. I don’t like Walmart. I have serious reservations about Walmart. But I’m not gonna dismiss it just because I don’t like it.
Jay Goltz:
So, when you said you want to be out in five years, how big of a company would you have to have in order to get enough money out of it that you could afford to do that?
Hans Schrei:
That’s a complicated question. I don’t know. I cannot tell you that I would put a figure on that. That’s gonna evolve. If I can say right now, “I want to exit when I can exit for a billion dollars,” that would be kind of silly. I don’t know. In five years, we’re going to have to make a call, and hopefully, it’s going to be, “Wow, this is life-changing. We’re gonna get $100 million out of it.” I’m very aware that that may not be the case. Maybe it will be like, “Okay, I’m gonna sell it. I’m gonna get a little chunk of money. And then I’m going to have to figure out what the next thing is.” So that uncertainty is kind of part of the game and part of the excitement.
Loren Feldman:
Obviously, there are different paths, different ways to do things. Jay, your instincts are very different. You always wanted to build your company without taking in outside capital that would give you someone that you had to—
Jay Goltz:
No, for sure.
Loren Feldman:
Let me finish. But here’s what I’d like to hear from you, Jay. Could you paint the picture for us: What’s the alternative path that you could imagine? And where would it get Hans and Luis if they followed it?
Jay Goltz:
Given where he’s at and where he wants to go, I certainly understand he’s taking a different path than I took. We’re in a very different place. But I can appreciate what he’s saying and what he wants to pull off. As someone who’s been in business a long time, though, I would say I’d want to understand the math of, for instance: If the company is profitable, how fast could you grow without having to take in more investor money?
Because you’re not in the retail business where you’re opening stores all around the country or something. I’m not sure that I understand why you couldn’t grow it 30 percent a year, 40 percent a year, even—which is tremendous growth—and not have to have it suck up a lot of money. Because there’s not real estate, there’s not inventory. So I’d want to get the metrics down for that. What is the need for this capital?
And I’d also want to know: What’s the most you want to give up? And then, lastly, you said something a little while ago about you’re not going to get rid of stress. Stress is a big bandwidth. And I would put that gauge on your dashboard, because there are ways of minimizing stress. And there’s ways of putting on yourself jumping-out-the-window stress.
In my case, I never wanted to have to answer to anybody. So that was easy for me. I just didn’t, and I got where I wanted to get without it. My big phrase now is, “It’s not balance, it’s alignment.” If you don’t want to have the maximum amount of stress, that does change the way one thinks and some decisions are made. And maybe you’re still figuring that out. I would just say, it’s the three things: It’s the social good. It’s the profit. And lastly, it’s the amount of stress you want to put on yourself. And I’d make sure you put that gauge on your dashboard, because otherwise, you can wake up in a very bad place, like lots of people do.
Hans Schrei:
I definitely get that. And I think that in this industry, particularly, this is the thing: The little brand that grows and thrives by growing little by little doesn’t really exist anymore in this space. Because at the end of the day, I’m competing with Oreos. I’m competing with the big players, and I’m competing with very well-funded brands. So, it is not realistic.
Jay Goltz:
No, no, that makes sense.
Hans Schrei:
That is the competitive environment. The goal here, and the game that I’m playing—
Loren Feldman:
Let me stop you there for a second, though, Hans, because you have done that initially. I mean, you grew to $5 million in revenue with remarkable speed. Could you not maintain that trajectory without taking investment dollars?
Hans Schrei:
The thing is, that is like—I really don’t like the term—but what I call a “lifestyle business.”
Jay Goltz:
Ugh, I was waiting for that.
Hans Schrei:
Yeah, I hate that term. I really hate it. I think it’s super sick. It’s sick, and that was clearly invented by a VC, because it’s very dismissive. And again, this is about what you want. And what I want out of this is, I want to see my company really try to be a brand and build the brand. That is what I want. The opportunity is for me to do it by myself—for myself, for my own brand.
But I’m in a competitive environment where there’s super well-funded brands. They’re going to Target, they are going to Costco, and they are eating up the space. And that is the reality. And you see these companies, like Clif Bar was an example. They just exited for like $2.5 billion. Snyder’s, which was, I think, a $6-billion acquisition.
Jay Goltz:
Wait, wait. Let’s stop. How long has Clif Bar been around?
Hans Schrei:
Exactly.
Jay Goltz:
A long time.
Hans Schrei:
Same with Snyder’s. It’s a 40-year-old company with a gigantic footprint. That model doesn’t really exist anymore. Because those are companies that built their own facilities, that started slow where there was an opportunity, there was not an ecommerce component. So the velocity of the thing was a lot smaller. Now the expectation for a brand to succeed is that it’s gonna have a national footprint in three years. And if it doesn’t, it is not successful. And it’s very hard for, say, Target to support it. And for Walmart, for Costco, for whoever it is, it’s very hard to support it.
So, in many regards, it’s about the competitive environment. And I really have a very clear understanding that, what I do want is, I want to exit this. I don’t want to keep doing it forever because what now is the thrill of seeing it grow, it’s gonna grow fast. And as I grow older, it’s gonna get harder, and I’m not gonna have the energy for that. I don’t want to keep this pace forever. I’m willing to do it now. But at some point, I won’t. And the reality is that this consolidation that we see in food, where everything is like seven or eight companies that own everything, that is just a reality of the business. And you can dislike it as much as you want, but it is what it is.
So in order for me to have a successful CPG brand, I need to have an exit, because otherwise I’m going to need to sink $50 million into a facility that can build this for me. And I can’t. Again, it’s not financially viable. So it’s a very different game that those 25-year-old companies don’t exist anymore. Like, they are not being built at all.
Jay Goltz:
You know what, I buy what you’re saying. That all makes sense, actually. So the only thing I would say is, what you said makes sense. The other alternative, which maybe isn’t appealing to you is, if you grew it at 20-30 percent a year, you’d get up in five years, whatever, maybe you’d get up to $20 million, $30 million, $40 million in sales, and sell it for decent money and have enough to retire. But maybe that’s not appealing to you. It doesn’t sound like it is.
Hans Schrei:
Again, it is very hard to do in this environment, which I understand where you’re coming from, because—
Jay Goltz:
Wait. You can’t do it online?
Loren Feldman:
It seems like you’re already doing it.
Hans Schrei:
No, actually, it’s become very hard. The reason we’re going into retail is because ecommerce has become very treacherous. Ever since the privacy wars between Facebook and Apple, advertising on ecommerce has been more and more difficult. There are so many options, so many competitors, so many people claiming the same space because, frankly, I get why a lot of people say, “Oh, this is gonna be easy. We’re gonna make a killing in ecommerce.” It’s very hard. It’s super hard.
So what I need to do, in order to give myself what I want out of this, is I need to build a company that is going to be palatable to the Mondelez or the Kellogg’s or Nestles of the world. That is the new reality, if you will. It would be a way different thing if I was saying, “Okay, I’m gonna set up a bakery, and I’m going to sell cookies, and I’m gonna make a living out of it, and I’m gonna be very happy doing that. But that’s not—
Jay Goltz:
Wait, I need to stop you there, because now that’s the second swipe. The first one was the lifestyle business, make a living. Okay, doing $30 million a year is not a lifestyle business and it’s not making a living. It’s making a fortune and being extremely successful. So I just want to say, stop with the, “Oh, you’re either big, or you’re just a little…” Bullshit. That’s just bullshit. And you know it, because you said you don’t like the word lifestyle business.
So don’t brainwash yourself or try to tell me or anyone else, “Oh, it’s either go big, or just sit home with your apron on and make some cookies,” because that’s simply not the case. You could build it to a $30 or $40 million business, make a fortune, and sell it for a lot of money. That is an option, which maybe you don’t want to do. But that is an option.
Hans Schrei:
Oh, of course. No, definitely a $30- or $40-million business, that is a very respectable exit. And that is the thing: That requires an insane amount of capital. You can say it is a very low-margin business. It requires a ton of capital. There’s not much leftover. Like, yes, at $30 million in revenue, I assume you mean—
Jay Goltz:
Yes.
Hans Schrei:
A $30-million company in consumer goods is probably doing half a million dollars.
Jay Goltz:
Maybe—and you might have the answer to this—you’re suggesting you can’t do it the way you’ve been doing it just online. You can’t get to that size online? Too competitive?
Hans Schrei:
I guess you could. But you’re competing against very well-funded companies. So it is a competitive environment. That’s why you’re seeing a ton of companies fold right now, particularly ecommerce companies. I was not immune to it, by any means. You can purchase revenue. “Oh, you have VC money, you raised $40 million.” It sucks because these companies that raise $40 million are running me out of business, because they’re running ads at a pace where they don’t care if they lose money.
Jay Goltz:
No, you’re absolutely right. I’ve seen it, and even in my industry. You’re absolutely right. There are companies out there throwing money around, and it’s just a matter of time before someone wakes up and goes, “Wait, why are we losing money on this business? Pull the plug on it.” For sure.
Hans Schrei:
Of course. And in the meantime, before that happens—and it’s already happening that that free-money mentality is going away—it screws over everyone else. So I definitely see what you’re saying. And I really wish that the world was different. But this is what I’m dealing with. It is a very tough competitive environment. And I can have this thing where we’re gonna run small, definitely. A $40-million business is a very, very successful business. I mean, I’m not trying to say it’s a billion dollars or bust, but that middle ground is very hard to find now.
Loren Feldman:
All right, my thanks to Jay Goltz and Hans Schrei—and of course to our sponsor, the Great Game of Business, which helps businesses implement open-book management and employee ownership. You can learn more at Greatgame.com. Hans and Jay, thank you very much. Great conversation.
