David Noël: Welcome to the Manitoba Business Podcast, featuring interviews with business leaders and entrepreneurs based in this great province. I’m David Noël.
The interview you’re about to hear is with an entrepreneur that has defied all odds with his business. 17 years ago, he set out to sell a product that no one wanted, and which was barely legal to produce. Last year, he sold the company for $132 million dollars. My goal in the interview is to figure out what happened in those 17 intervening years.
I hope you enjoy this episode. If you do, please consider adding a review on iTunes. I would also encourage you to spread the word about this podcast—the website is www.manitobabusinesspodcast.com
Without further ado, here is Mike Fata:
[to Mike] All right, so Mike, thanks so much for taking the time.
Mike Fata: Yeah, you’re welcome. Glad to be here.
David: Can you start by telling me just a little bit about who you are and what you do?
Mike: Yeah, my name is Mike Fata. I’m the CEO and co-founder of Manitoba Harvest. We started the business back in 1998, and I’ve been running all aspects of the business ever since then.
David: Awesome. Okay. And what does Manitoba Harvest do?
Mike: Manitoba Harvest? We’re the largest vertically integrated hemp food manufacturer in the world, which means that we grow, make, and sell a line of hemp food products.
David: Right. Now, so being the largest vertically integrated hemp food manufacturer in the world, that was not an easy process. Can you get me started, or can you go back to when you got started, and tell me what things looked like at that point? When did you found the company, by the way?
Mike: We founded it in 1998, but there was a project that really started six or seven years before that to get hemp legal to grow in Canada, because it used to be illegal to grow. So two of the other co-founders of Manitoba Harvest had worked for years before that to lobby for hemp legalization, and they were successful in doing that, which was first research and development in 1994 and 1995 with the province of Manitoba, and then lobbying the Federal Government and then getting the hemp regulations put into effect, which made hemp production legal in 1998.
David: Okay, so it was illegal until 1998, and that’s when you started the company?
Mike: Yeah, it was legal to sell hemp products in Canada, but it was illegal to grow the crop.
David: That’s a bit of a catch-22.
David: Okay, so…and how did you get involved with that? You said your two partners were lobbying the government. Were you also part of that effort?
Mike: Right at the end. I came from a different path. I used to weigh 300 pounds, and when I was 18 years old I became sick and tired of being sick and tired and overweight, and decided to change my lifestyle and change my diet, and that led me to the no-fat diet, which was really popular in the mid-1990s. And I started cutting…eating no-fat foods, cutting fat out of my diet and working out, and I lost a bunch of weight.
But I learned the hard way about the essential fatty acids, Omega 3 and Omega 6, which hemp is a great source of. So when I learned about hemp and turned my diet around from a low-fat diet to the right-fat diet, rich in essential fatty acids, I became really passionate about hemp. So met Martin and Alex in the final stages when it was looking like we were going to get hemp legalized, and from there we put the business plan together and started Manitoba Harvest.
David: How old were you at that point, in 1998?
David: Twenty-one, okay. So you were…you know, your background was that you were overweight growing up, and then you got into exercise and you learned about diets, and that made you interested in hemp. What was…so you were interested in hemp, and then you kind of… what was the connection between going out, reaching out to…was it you that reached out to Martin and Alex, or did they reach out to you?
Mike: We were friends of friends, so I knew them. And I was always interested in hemp. I thought hemp was cool. I had a hemp bracelet. And, you know, there’s a fiber aspect of hemp, and then there’s the food aspect so I always thought that hemp as a product was cool.
Martin and Alex had a hemp store down in the Exchange district and so I knew them from there. But when we got the hemp legalized, it was me really that took the driving force of seeing the opportunity for hemp seed as a food in the marketplace and created a brand, the Manitoba Harvest brand, and started selling it to one health food store in the city here. And then when we got some investment from friends and family, we bought some manufacturing equipment, an oil press, and started making more hemp oil, which was our first product.
So we met through friends of friends but Martin and Alex were really passionate about getting hemp legalized. I was really passionate about hemp as a food, and what it could really do to peoples’ diets.
David: Interesting. And so Martin and Alex were already at that point selling hemp fiber products, is that right?
Mike: They were importing different hemp goods from around the world, mostly paper and books and different textiles, clothing and such, from Asia, from Europe, and then selling it in Canada. They had that business for several years before, and then when we got hemp legalized and we started Manitoba Harvest, shut down that business and then just put full focus and attention into Manitoba Harvest.
David: I see. So did you have any background in business before then?
Mike: No, I dropped out of school when I was 14, and started my real-world journey I’d call it. So working construction at that time, first in carpentry and then in asphalt and concrete, and when I was 18, 19, I was a foreman of a construction company and I had many people that were older than me reporting to me. So I had some business understanding from that, and some management experience, but starting a food manufacturing company and an agriculture-based food manufacturing company, everything was really, was learn as you go for me.
David: No kidding. Okay, so I’m putting myself in your shoes. You have no business experience, you met these guys who are, you know, just are at the final stages of the process of legalizing hemp in Canada, they’re legalizing the growth. And then you decide, okay, let’s start a business, and you start out with a bunch of problems because there’s not really a market. Nobody understands the value of hemp foods. You, at that point I’m pretty sure, could definitely not sell into the US because it was still illegal there, is that right?
Mike: Well, the US was in the same place as Canada was. It was legal to sell the products, even though there was some confusion there, and we ultimately did have some fights with regulators in the US later, but it was legal to sell the products. But you’re right. Our challenges were across the board, because not only had we started a new business, we started a new industry, and so we…and very much like today, there’s three aspects to our business.
There’s our farm operations. So back then we were convincing the first farmer why they wanted to grow hemp, and how to be successful with the crop. There’s the manufacturing component of our business, and so we bought some of the first equipment, being an oil press to press hemp seed oil. And we were fortunate to work out of the Food Development Centre in Portage la Prairie, Manitoba, which gave us the ability to access some expertise in food manufacturing, but also a number of other pieces of equipment that we would need, being bottling and labeling machines and so on for hemp oil when we first started.
And then there’s the front end of our business, which is our consumer packaged goods brand, which we’re really a market maker. So we had to go out, then, to the first health food store, and to the first several, and convince them why they wanted to sell our product in their stores, what customers were looking for in the products, and developing not only the product and the brand, but also some promotional material that would explain the benefits to consumers.
So it wasn’t just a business. It was really starting a new industry, which definitely had its challenges, because we were the only company at that time that was beating the drum of “why hemp foods?”
David: So what on earth possessed you to do that? Did you not understand how difficult it would be?
Mike: I get that question, and I think maybe that might be part of it. I think there was a lot of passion, and still is a lot of passion of why, what drives the business. Maybe at that point it was blind passion for me, and I always think back if I would have taken the formal education school route and I got really educated on business, would we have taken all those…would we…would I have done that if I knew that the chances of success were very, very slim. I don’t know.
But that wasn’t the path that we took. And so it was a lot of passion that was driving it forward. We thought that we can change the way people eat, and for me again it was going from no fat to the right type of fat. And I think, you know, 17, 18 years later here, we made that right decision, because the world is waking up and Omega essential fatty acids and plant-based protein are becoming more and more mainstream each day that goes on.
David: Yeah, okay. So that was really what was driving you, was you just had a passion for essentially educating people about this product, and since the product doesn’t exist you might as well work on making the product available as well. Was that kind of what was…
Mike: Yeah, and at the same time I was tired of working really hard in construction and working for someone else and making their business very successful, and they weren’t nice. My brother and I both worked for a construction company that helped to really build that business, and the owner of the company didn’t really appreciate that we helped to triple his business in the couple of years that we worked there. So we both decided to leave that business and we were going to start our own thing. And my brother started a successful construction company in the city here, and that was right when things started to click with Martin and Alex. So I was driven to do my own thing, but then also found my passion in health and focused on hemp food because of the nutritional profile.
David: Very cool. So your brother’s an entrepreneur then as well?
Mike: He is, yes.
David: And was that something that was in your family? Did your parents or anyone else in your family start businesses?
Mike: Yeah, my dad owned a construction company. But my mom and dad were separated. But he did start a construction company, and my mom, you know, just really was very hard-working raising two boys. So I think the work ethic was always there. Not a lot of exposure to my dad’s business, because he was in Hunter Bay and we were in Winnipeg, but I think there was a driving force of work hard and really work for what you’re earning.
David: Okay. So I’m going to come back to that beginning step, because I think the journey is the really interesting part here. But let’s jump forward a little bit to now. You started with basically impossible odds, and now you said you’re the largest vertically integrated hemp food producer in the world, and you were acquired this year, right, or in the past year?
David: So, can you tell me a little bit about, A, what your market position looks like right now, and, B, a little bit about the acquisition?
Mike: Yeah. So, you know, we’ve really just over the years grown all aspects of our business. And I guess, you know, being the first to start the business, we had a leadership position, and over the last 17 years we’ve just held that leadership position. And I go back to those three different aspects of our business. But nowadays, from a farm operation side, we grow about 65 percent of the hemp that’s grown in Canada, so we’re about two-thirds of the market share.
On a manufacturing standpoint, we have the largest manufacturing facility that can produce more hemp foods than any other business in the world. And then on the brand side, we sell to about 7,000 retailers, maybe 8,000 retailers, that in Canada we have about a 90 percent market share, and the US it’s about a 60 or 65 percent of the market share. So we’re in a dominant leadership position, and it’s because we’ve really executed a strategic plan since day one.
We’ve had some great partners that have invested in the business over the years, which has allowed us to build a good team, acquire the assets that we have in our manufacturing facility, and really to help build the expertise behind our consumer packaged goods brand. And so we were looking for a new partner this year to replace some of our existing investors that were at the end of their life-cycle of their investment venture capital that we had in the business, and we were acquired a majority ownership of the business by Compass Diversified Holdings, a private equity firm out of the US, for $132 million.
David: Wow, okay. So was that the kind of driver behind that acquisition, was that largely to get liquidity for those investors?
Mike: That was the driving force. So basically our partner, Avrio Ventures, a venture capital firm in Canada, had invested and had a life-cycle to their investment. So they were in the business invested for six years, and they were looking to exit. And at the same time we used that as an opportunity to create liquidity for a number of our other, smaller shareholders, including some of our friends and family that invested really in the first year, in the first two years of the business.
David: Right. Wow, that’s very cool. I mean, just jumping into kind of a personal aspect, that must have been really rewarding for you to be able to finally let all these people that had believed in you against impossible odds see the fruits of their labor in that sense.
Mike: Yeah, it was. It was very…it’s been very rewarding. A lot of happy people that made a small investment a long time ago, and some of them had 15, 20 times their investment returned to them. So it was good. It was also the first major liquidity event that we had as a business. And in Manitoba here, deals…there’s not that many deals that are over $100 million in the province, so it’s caught a lot of positive attention from the media, from the government, and so it’s really positioned the business well to continue our rapid growth, now with a partner that shares the same vision as us but has about a billion dollars in assets under their management.
David: Wow, very cool. Okay, jumping back into the operation side of things, so there’s three kind of main components. Let’s talk about the farming side of it. What does your arrangement look like with hemp farmers?
Mike: So we work with about 125 farmers, and we have an annual contract with them to buy hemp seed that they plant for us. We arrange a variety of hemp seed that we want them to grow, and we have an agronomist and a farm operations team that goes out to support the farmer with field selection and any other best agronomic practices to grow hemp, and help them really steward the growing right from the planting of the seed right through to harvest and conditioning and storage.
So a lot of work on…because hemp is still, you know, 17 years later, is relatively new for agriculture. Seventeen years is not a long time. So there’s a lot of information and educating that’s needed for farmers to be successful growing the crop.
David: Sure. How did you convince that first farmer to get on board?
Mike: The first farm…actually, it was…our first farmer was a…his son was a friend, so it was the younger generation really doing some internal lobbying at the household to say, “Hey, hemp’s new.” But also at the same time there was interest, and there is still a strong interest in Manitoba here from farmers on looking for specialty crops they can grow, so that…because it could be much more valuable to the farm and to their business than commodity type products to grow.
David: Where are most of your farms located?
Mike: Now we’re pretty well diversified. We started in Manitoba, that’s why Manitoba Harvest, but we grow in Alberta, Saskatchewan, and Manitoba, at about 55,000 acres in 2015.
David: Wow. So you buy seed, give it to the farmers. They grow a crop. You buy it back from them. Then it moves to the manufacturing chunk of things. Is that right?
Mike: Yeah. And there’s quality control along the process. So when the seed comes off the field it’s tested and then it goes through a grading and a cleaning operation. We have about six partners in the prairies that will bring the seed up to a standard that is ready for food manufacturing. Then we test it again. Most of that’s done in-house.
We have a quality control lab and 10 people on quality control. Make sure that that seed is really really fit for food, because if you don’t have the highest quality seed coming in, you’re not going to have the highest quality product going out, and quality really is our mandate. So from the…after the seed’s harvested and cleaned and graded, and tested and approved from a quality standpoint, then it’s ready to be delivered and to be used in manufacturing.
David: I see. What does the manufacturing process look like?
Mike: We run a number of different lines. So we de-hull the hemp seed, and we remove the hard outer shell and make what we brand as hemp hearts are just the soft inner kernel of the seed, which can be thought of as similar to hulling a sunflower seed. Different process, but similar concept, for listeners that are trying to envision that process.
And then we also cold-press the hemp seeds into hemp seed oil. We also generate a high-protein hemp meal from the oil pressing, and we use that meal to make a full line of hemp protein powders. And then from what we’d call out of the raw material processing, then we blend, here in the facility, blend protein with other ingredients and then we have a fully-automated packaging line for both seeds and powders.
And all of that, actually, if your listeners are interested, on our website at manitobaharvest.com, or on our YouTube channel, we have a behind-the-scenes tour of our facilities, so people can check it out.
Mike: Right, yeah, that’s a very cool video. What was the address for that again?
Mike: Our website is www.manitobaharvest.com, or you can search Manitoba Harvest in YouTube and we have a YouTube channel that has all of our latest and greatest videos on it.
David: Perfect. So, again, I can’t help but go back to 1998 when nobody was doing this, and now you’ve got to solve a bunch of manufacturing problems that…I mean, I guess there must have been some people manufacturing similar products in other parts of the world. Is that…
Mike: There was a little bit in Europe. They were making hemp foods there. Nothing on the scale or even the way we do things in Canada. But we tried to pull as much information as we could from others around the world, but the far majority of it was trial and error on our side. There was no defined process for the operation. There was no defined specifications for products from a quality standpoint, so we created those through research and development and experimentation.
David: How did you decide which products to create?
Mike: Well, hemp oil was the first product, and I guess that was…it was really from the passion about no fat to the right fat diet. And then from there it was just playing around with the seed and seeing…we were creating products that we wanted in our own households, in our own kitchens, and when we created one we thought, “Hey, there’s probably market opportunity to sell this to some of our consumers and fan base as well.”
David: Interesting. Now, I imagine a lot of those products, to scale them up to the scale that you have now in terms of manufacturing would be expensive. Was there…is there a testing process for new products? Is there a way that you do small batches of something crazy and…
Mike: Yeah, nowadays. I mean, in 1998 everything we were doing was small, because we were a very small business, so we were doing constantly small batches until we refined the process and then we grew the sales, grew more customers, more retail stores, and then also more consumers buying our products. Nowadays we have a product development team.
When we’re doing product development we look at market opportunity from a data standpoint, what products are doing well in the marketplace, what ingredients are key in the marketplace, what’s our core expertise that we can manufacture? And we compute that all together and think of a concept or idea that we then do a very small trial R&D runs. And then, if that’s successful, or when that’s successful, pilot scale runs, and then we get up to commercial runs.
David: I see. So, in 1998 you’re doing very small runs, just hemp oil to start. You have one farmer. You have one distributor? You said one store that was selling it?
Mike: It started with one store, but everything quickly grew. The business is, if you think about compounded annual growth rate for our business has been about 50 percent. So every two years we’ve doubled the business, and some when it compounds like that. So there hasn’t been any year that things have been slightly growing. It’s always been rapidly growing.
So we quickly went from 1 health food store to 5 to 10 to 20 to 50 and so on. And the same thing with the consumers that were buying our products from those stores rapidly increase. Hemp oil was our first product, but it was really only about a year or maybe 14 months before we had our second product, which was the shelled hemp seed or hemp hearts. And then from there it was a couple of years before we…and we were just focused on those products, and before we started to research and developed the world’s first hemp protein powder, shortly thereafter the world’s first organic hemp milk.
So it was step-by-step, but it was in a pretty rapid pace.
David: No kidding. That’s incredible growth. We’ll get back to that for a second, because I’m really curious about the interplay between the growth of the category and the growth of your company. But before we do that, can you walk me through a little bit what the numbers looked like in the beginning? If you’re talking about 50 percent year over year growth, I still imagine that the first year was pretty meager. Do you remember what your revenue looked like in that first year, or the first couple of years?
Mike: Yeah. In the first year we did 50 or $60,000 in sales, which, as you can imagine, for three people working in the business, myself and two co-founders, doing 50 or $60,000 in sales and the cost of goods and then our labor, there was a lot of volunteer work, and sweat equity at that time. But that rapidly increased. I think the first couple of years were more than 50 percent growth. Now it just compounds to that, but I think it was like $60,000 to $140,000 to $400,000 to $600,000 were sort of our first 4 years, and I think by our fifth year or sixth year we did $1 million in sales.
David: Very cool. So at that point, with $1 million in sales, do you remember how many employees you had roughly?
Mike: It was probably about 10.
David: Wow, very cool. So at that point already then it must have felt…you probably realized that you were onto something pretty interesting?
Mike: Yeah, we saw the opportunity, but, you know, the business took about a good 10 years before we were solidly profitable, because there’s a lot of investments to make a consumer packaged goods brand. Very costly to sell a brand in the marketplace.
David: I can imagine.
Mike: And also every business, as I’ve learned, has a different scale of operating. Some businesses can be very successful at operating at $1 million. Our business really became successful when we reached the scale of about $10 million and started operating there because, again, we’re dealing with farmers and farm operations, or facility and plant operations, and then that consumer packaged goods brand, so our business needed at least $10 million in annual revenue to hit what I’d call the turning point.
David: Interesting. I see. So basically, once you reached the scale of $10 million, then that made your vendor arrangements kind of more economical, and it made your distribution make sense?
Mike: Yeah, our percentage of cost of goods in all those areas made more sense for the size that we were at.
David: Okay. So let’s jump back to the crazy growth, because that’s…I mean 50 percent year over year is astronomical, especially considering that it’s been several years since then. How much of that was growth in the category, and how much of that was growth in your business specifically?
Mike: I mean that’s hard to say because hemp is a new category.
David: A different way of saying it maybe is how much did the category grow over the years compared to your business?
Mike: Well, our…it depends what you define the categories. As hemp as the category, we were it, and we still are it if you look at total Canada and the US combined, probably 70 percent market share. So we were the category. But we really…for us, we can…if we look at categories, we’re selling hemp hearts into an essential fatty acid category. We’re selling protein powders into a protein category. So we always…we don’t necessarily see our competitors as other hemp food companies. We see our competitors as companies that are selling other seeds, i.e. flax seed or chia seed in the essential fatty acid category, or other proteins like whey protein or soy protein or pea protein in the protein category.
So those categories have grown, but without a well-established base then like we do now, it’s less about category growth. It’s really about we were making the market for hemp food products, because there really was no market before. So even though the category was growing, the category of hemp was not well-known, so it wasn’t getting the upswing from category growth.
David: So how did it…if it was basically your company that was driving the growth of the category, how were you driving the growth?
Mike: Well, it’s a lot of education and a lot of sampling. So it started with doing product demonstrations in-store, so we’d go into the store and do a demo, handing out brochures and sampling little samples of our products to educate consumers on why they wanted to buy it, what it tasted like, and how to easily incorporate it into their diets. So it started at demos in-store, and we still do a lot of demos in-store.
But then I also realized that we could drive consumers into the store by going to health lifestyle events, so whether that was a health and wellness expo, or another healthy lifestyle event like a yoga expo, or a marathon, we would get out to these events and sample our products there, not only in Winnipeg but started in other cities across Canada, to really educate people what hemp was and that it was available, and educate them on our brand. So that was the majority of the focus. We were a really early adopter to technology and had a website in 1998, which was right around the time that the web started to take the form that it is now. So we were back then selling our products online on our website, using our website as an education tool.
But most of the market building was a grass roots campaign of education, sampling, in-store and at events.
David: Incredible. Do you think that that strategy is still viable today? I mean, there’s a lot of quote-unquote super foods that are hitting the market.
Mike: I think that strategy is the only strategy that’s viable today. I think that unless you are a multinational company, or you’re a start-up firm that has very, very deep pockets, it’s almost impossible to get a product launched, a consumer packaged goods product launch in-store if you do it the top-down way and pay a distributor to take your products, and pay a broker to take your products, and pay a retailer to take your products, and then hopefully you sell enough product to be profitable. It’s almost impossible to do that.
It’s much easier, especially as a small business, to control the market, which is going out there…because you also…it’s a two-way street, two-way information. You’re providing information to consumers when you’re doing demos and you’re turning on customers, but you also get a lot of information as well. You get to hear what people are saying on the other side of the demo table. Do they like the product? Do they think that it tastes nutty enough? Do they like the packaging? What else do they want, because people are very open to communicate in that kind of setting.
So I think it’s critical, and I talk to a lot of young entrepreneurs that, especially in the food space, as I’ve helped to coach over the years, and they always want to…they’re selling to a couple of stores, and then they want to go to sell at Whole Foods. They want to go down to the US. And literally they have, you know, $10,000 in their pocket. They don’t have $10 million in their pocket. And I say, “Well, you can’t control that. It’s not any easier to go and sell product in Toronto or Vancouver or Los Angeles than it is in your own back yard.”
In our case, Manitoba’s not the…the consumers in Manitoba aren’t, especially back in 1998, weren’t the healthiest-minded consumers compared to California as the example, but it’s a lot cheaper to do business here. You could walk to the store. You could check the shelf placement. You could talk to the store manager. You could set up a demo. You could demo to the consumers there. You can get feedback.
You can go back to the business, collect all that information, go back out again, at a very, very low cost. If you start trying to do that in other markets, in other geographical areas, it just adds cost and cost and cost.
David: No kidding.
Mike: The right approach is that grass roots marketing campaign. And I would say if we were starting the business today it would be no different than that, because we’re still doing those exact same things to grow the business. We now…you know, we’ll give 4 million samples out this year to the marketplace. We’ll do tens of thousands of product demonstrations are literally happening in stores across Canada and the US every single day.
The only difference nowadays is that the internet is a very, very powerful tool, and we now have brought our grass roots marketing campaign to social, and have a very strong social media platform and campaign. So if we were starting it all over again today, I would say we’d be doing the same things from a touch point with consumers in-store with education and demos, but we’d have the luxury, I guess, of being able to do very low-cost social media marketing by just getting into chat rooms and blogs and sharing our healthy information and healthy education.
David: Interesting. I think one of the things you touched on right in the middle there was the importance of talking to customers. Can you think of examples, things that you learned from the customers, in the early days of pounding the pavement and trying to get people to try the product.
Mike: Sure. I use a great example on hemp hearts. So we, before we formed our true marketing on hemp hearts, and back then, before we created the brand Hemp Hearts, we were marketing as shelled hemp seed, but when we were in the store sampling shelled hemp seed to people, we’d hear things like, “These would be great on salads. This nice nutty flavor would be great on salads.” So we literally, because were marketing it in a stand-up pouch bag, which was very unique back in 1999 when we launched the product. Now it’s…that product format…you know, everything’s sold in a stand-up pouch.
But we heard that people thought it was great on salads. But we already had printed tens of thousands of bags, because you have to print them on a production run, but we created stickers, and we’ve stickered the bags that say, “Great on salads.” So then we’re out at shows and people would say, “Oh, look, this is going to be great on salads,” because they were reading it on the products. So that’s one example of what we heard from consumers. Now if you fast-forward, now it’s all over the package. It’s all over our marketing material, because we know that one of the main uses of that product for our customer base is sprinkling it on top of salad and getting a nice nutty flavor and a nice body for a salad, but also a plant-based protein in the salad.
So that’s one example of putting your ear to the street, and listening to what your consumers have to say. Another example would be, and we’ve sort of created…we would take hemp hearts, and if you blend hemp hearts with water you make hemp milk, a nice, white, creamy, nutty-tasting hemp milk. We’d be out at shows and making fresh hemp milk to show people what they could do with the product, and everyone was like, “Well, why don’t you just put that in a package? You guys should package that and I’d just buy the package of milk instead of trying to make it at home ourselves.”
And, you know, after…it’s not one person or two people telling you that. If you’re sampling to tens of thousands of people, you start hearing it hundreds of times, and you say, okay, I think there’s something here. So when we eventually did launch hemp milk, the uptake of it was pretty strong because you had all these consumers that were already telling us, being very vocal with us, that’s what they want.
And similar to just now, in 2015, we launched several new snack food products, ready-to-eat snack food products made from hemp hearts. Our hemp heart bars and our hemp heart bites. That just comes from consumer research and listening to our customer telling us, “Hey, we love your protein. We love hemp hearts. What I’d really like is if I could just get the nutrition and the benefit of this in a bar or a healthy snack so I could take it on the run.” So we make that, and we listen to them, and we make the product and then it’s wildly successful when we launch it in the marketplace because we’re just doing what our customers are asking of us.
David: Very cool. That’s very interesting. That seems like a common theme for anyone who wants to start a business. It’s so important to be talking to your customers, and I think it’s something that, especially if you’re selling something that’s going to be packaged and sold through someone else’s store, people kind of want to skip that step.
Mike: Yeah, you can lose control pretty easily if you end up selling your products to a distributor, and you have a broker in the store making the sales presentation. You actually don’t hear any feedback, or if you do hear feedback, you hear it through a third party view, and, you know, it’s like that telephone. You may not get the right story that’s actually being relayed to you, or the feedback that’s being relayed to you. So I think it’s critical to listen to your customer. And that’s one of our philosophies when we go out and sell.
When you’re selling something, a good half the time should be listening. If you’re talking all the time when you’re a sales person, you may not be understanding what your customer really wants from you. So you should be listening first, confirming you understand what you heard, and then delivering that to…filling that need that the customer is starting to you.
David: Right. I’m not super familiar with the food space, so I apologize if this is a stupid question, but when you go to a store and there’s people offering samples, is it typically a representative of the company who creates those samples or is it someone else?
Mike: It depends on the store. We’re in the health food business, which there’s many different channels. The health food channel itself is health food stores, but now a number of health foods are being sold in grocery stores and club stores like Costco and drug stores. But in the health food channel, and in the city here, you know, Vita-Healths and some of the key retailers like that, it’s very easy to go in the store, with permission from the store owner, and set up a demo yourself. And so it would be one of our representatives.
And back in 1998 it was me going into the store and sampling. If you look in other channels, like grocery, in a Safeway or a Sobeys or a Superstore, there’s a third party independent demo company that’s approved by the store. The joke in the industry would be that’s the little gray-haired ladies that are doing those that aren’t always the most interactive with customers how we would want to interact with customers. So there’s difference depending on the store.
David: I see. Okay. So, do you…is it still a focus of yours to try to get your people in stores doing sampling as often as possible?
Mike: Yeah, it is, and we’ve built out…our growth campaign over the last two years has been to be local everywhere. You know, everyone knows local’s good. Well, we wanted to be local everywhere, and that was the mandate for the business. So we’ve hired a number of our full-time sales team members across Canada and the US, so we now have about over 20 people that are based in the major cities across Canada, and major cities in the US.
They live there. They’re there all the time, instead of…back in the day it used to be, again, me or one of our few sales team members at that time, fly to Los Angeles, spend three or four days going around visiting all the stores and training them, educating the people in the store, doing some demos in the store, just surveying the marketplace, and then you fly home. Well, that’s a big cost for flights, for hotels, for cars. When you get to a bigger scale like where we’re at now, now we have a full-time…we have two full-time people in LA, and they’re just visiting the stores all the time.
So when there’s an event happening for a store, we can react almost immediately because we’re local in that marketplace. That has been a…that’ll keep fuelling our growth for years to come, being…and a great example of that in food is the Poppin Chips guy. The thing about Poppin Chips in stores, and one day the Frito-Lay guy comes and he builds a big display in the store, and he owns that store so when people walk in they go, “Wow, look at that, Frito-Lay is on sale, or it’s a big display right in the front of the store.” And then the next week, or the week after that, the Hostess guy comes in and wants to try to push all the Frito-Lay stuff out of the way and build a big display.
You’ve got to be in-market to have that impact, and that’s how we out-compete some of our competitors now, because they’re trying to fly into a market and spend a couple of days there when we have someone that’s 365 days a year there.
David: How many employees do you have now?
Mike: About 130.
David: A hundred and thirty, wow. Okay. So you have 20 salespeople that are distributed. Are the rest of your employees here in Winnipeg?
Mike: Yeah. So there’s about 25 now actually that are in sales around North America, and then there’s just over 100 that are based in Winnipeg here, some of those in plant operations, some in farm operations, some in finance and administration, and then the rest in our marketing departments.
David: How do you…in terms of the distributor team, is that a different kind of challenge to manage a team of people that are spread all over the place? What is that like?
Mike: Yeah, it has its challenges. In business it’s all about creating culture, so we’ve really defined…so if you look at the fundamentals of that, we’ve really defined our vision for the company, our mission for the company, our core values for the company, and we want to hire people that’ll live up to those values and live that same lifestyle, especially when they’re not connected…when they’re working out of their home office instead of working out of the main headquarters. So I think the fundamental piece is having that right structure first.
From there, it’s our organizational charter or organizational structure to make sure that we have our brand ambassadors or sales reps that have a supervisor, or a regional sales manager, and then overall our vice-president of sales that manages everything. So everyone has clear direction. Here’s exactly what we want you to do. In our case, each one of those sales team members routes to about 150 stores, so they own 150 stores in their geographic region.
They have action items of what they do when they go into a store. What’s the call procedure? What’s our focus? Is our focus driving new distribution on a new product that we have? So they have clear directions. And then we have the reporting to measure what the success is, whether it’s a new distribution or whether it’s overall sales in their territory, so we can provide feedback to them on exactly what they’re doing well and where we need them to further focus.
We also get the whole team together about four times a year, so that they can learn from each other, they can bond. And so there’s…it is challenging. It is tricky. We put a lot of focus to be very good at that, and for a company our size now, we have one of the strongest teams in the natural products industry and it’s because of all those pieces. It’s finding the right people, putting the right process together, putting the right measurements and metrics together and creating strong culture throughout the team.
David: Cool. We’re getting close to time here, and I don’t want to take up more of your time than I said I would, but in wrapping up, one question that I’d like to ask you and that I…actually, two questions in one. Especially for someone from your background, you jumped into this, you didn’t really have any business experience per se besides your experience in managing with the construction company, I imagine there were a lot of times where you felt like you could really benefit to learn from someone else, or that there was information that you needed to get elsewhere. Who…what kind of mentors influenced you? What kind of people, maybe that you didn’t know but that you looked up to influenced the way you think about business, and were there any books that influenced your approach toward building the business?
Mike: So I’ll start with the books, because I always…I was always more interested in studying health, so the majority of books that I’ve read over the first sort of 10 years that we were in business, all those formative years, were mostly to do with health, less about business. But I’m from…as an entrepreneur, I’m really, I’m a sponge. I realize I soak up information. I’m a quick study, a quick learner, and then I put that to use and put it to good practice really quickly. So very much like someone going to school that has defined profs that teach you something, I knew that I needed to learn certain things that I didn’t know, and who was going to be that best professor to teach me, and I would go and seek them out.
So I early on befriended a lot of people in the industry, whether they were entrepreneurs that were similar to my age that were starting a business that was really small and in the same space that we were in, and also I’d call in the old boys in the industry that were veterans that had made the mistakes before and I could call and just ask for advice on certain topics. So that was really key for me to get at information to help to grow the business, because you don’t know what you don’t know and you need to get at that.
As we sort of…you know, after 10 years in business, when we took on some larger investment to continue to grow the business, then we formalized a board of directors, and, you know, those were my bosses but also a great resource, and I essentially structured a…on our board, an operations guy, a finance guy, a sales guy and a marketing guy, so that when I was needing expertise and assistance in any one of those key areas, I knew who to call on. And then in the latest stage, in the current stage of business, because it’s…you know, being the CEO, it’s like always looking into the abyss, and you’re trying to make something of…you’re looking years into the future and you’re kind of bringing it all together.
It’s been more and more challenging as we’ve been a $10 million business, a 20 million, 30, 40, 50, 60, for me to stay on top of the learning. So about four years ago I joined the Young Presidents Organization, YPO, where there’s a tremendous amount of like-minded people that are been successful in business or are currently in business with challenges, and been able to get into a forum setting where we can share best practices, and I can continue to learn and develop my skills as a CEO.
David: Very cool. All right, well, thanks so much for your time, Mike. It’s been a pleasure.
Mike: Yeah, you’re very welcome.