On this week’s episode I sit down with Mike Tarullo, COO of Banza. Banza makes pasta, pizza, and macaroni and cheese from chickpeas. You’ve probably seen their products at your local grocery store with their signature orange packaging. They’ve raised about $30 million and have products in 18,000 stores nationally. 

Before Banza, Mike helped run Venture for America, the non-profit company Andrew Yang started.

As you will hear during the chat, Mike is clearly an expert on food start-ups and we dive deep into some of the intricacies of what it takes to build them. We get into the nitty-gritty of how the food industry operates, useful strategies that young companies might want to keep in mind, why raising mega rounds might not always be the best strategy, and the importance of conducting research (and actually following what the data tells you!). Enjoy.
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Show Links

• Follow us on Twitter: @tarullo / @eatbanza / @mpd
• Guest Links: Banza, Venture for America, Oath Pizza‍
• Food Documentaries: What the Health, Fed Up

Transcript

MPD: Cool. Let's jump in. So just to baseline for everybody, I always like to start with what you're doing currently. You mind telling us a little bit about that. 

Mike Tarullo: Sure. Banza is a food company. Our mission is to inspire people, eat more chickpeas and other beans. And that's because of their impact on human health and the.

Chickpeas are one of the most efficient sources of protein by greenhouse gas, emissions and water usage. They're also super good for you. It's not just the old rhyme, but they're high in protein and fiber lower in carbs. Low-glycemic wonderful food. And so what we do is we turn chippies into foods that people already love.

Pizza, pasta, Mac, and cheese, right? We've been at it for about six years. And in that time we've been the fastest growing pasta company in the country. And you know, in our view really healthy everyday stables to tensegrity, and you know, again we think we're just getting started.

There's a long way to go, not just with us, but with all kinds of food companies that are trying to make healthy products what we go to and select in the grocery store every day. 

MPD: How did you guys decide to do chickpeas and pasta? How did that combination become the natural. Starting point for you guys.

Yeah. So 

Mike Tarullo: you would highlight it. I've been at venture for America before. One of the fellows in the program and his first in our very first class was in Detroit, working at a startup that I had helped him get a job at. And in, in on nights and weekends messing around with nutrition and making food and things like that.

 he had long held that tech was a way to reach a lot of people, but, I think the more he thought about it, and as we find a hundred over time, food is something that everybody can see every single day. And it's a wonderful way to have a large impact on a lot of people. And so he nutrition jockey figured if he could make a better pasta at home in his hand, with his hand, current out of chickpeas, then the stuff that he could find in the store that was made out of, all kinds of other, flowers.

 then there might be something there. And so it was really just a happy accident where he wanted a better process for himself. We all kind started trying it in the office and you know, friends and family and some retailer in this case, Meyer I in the mid west, decided to take a chance on us.

Okay. So 

MPD: do you, so you were helping him at venture for America then jumped on as this thing got real? 

Mike Tarullo: Yes. I'd like to say that I moved out of the house and into the garage, so 

MPD: yes. I love that. Okay. I get the pain is the mother of all invention, right? For figuring out a food you need, why chickpeas though, if all the vegetables out there, why did the, your co-founder, why did he decide to jump in.

Use chickpeas versus broccoli or something else, but it's the kind of characteristics or properties that make that relevant. 

Mike Tarullo: The number one thing in food is always taste. If you're starting a food company and you can't win on taste and experience, you're not going to have a very successful company and you're not gonna be able to make the change you want to make.

And I think we can see that with the way that look beyond an impossible. You know, making meat or that as opposed to making milk is you have to win on taste first. And so chickpeas are pleasingly starchy, and actually quite neutral in flavor. And, and, and really versatile. So, you know, they're high in protein and fiber and, vitamins and minerals and stuff like that.

But they also can be tasty and neutral. Lentils are a little bit peppery sometimes. You know, other vegetables want to, it holds together. If you try to turn them into pasta, if someone tells you they're serving you cauliflower pasta, it's either emotional ally. There's, you there's this there's only certain foods that are worked for certain applications.

So for us chickpeas was just the best choice and that's why we stuck with it in addition to those, health and environmental reasons. 

MPD: And is it tastes like. Or does it taste more like a different thing that's of chickpeas for people listening when they buy it? Is it just get rid of the pasta and use this and it's healthier or is it at another product?

You 

Mike Tarullo: know our, our goal, what we tend to find is if you don't tell someone what it is they're quite likely not to notice. Now some people have discerning palates or they don't serve their pasta with sauce. And then there's a higher chance that they would notice. We have generally found that the majority of people, It said people say, oh, I tricked my spouse or I tricked my kids and we don't necessarily recommend that it can be a little bit cruelty to trick someone into eating something they didn't expect to.

But we do think that, when we create alternatives, we want them to replace the thing that you're eating. We want to beat your Tuesday night pasta, your Thursday night pizza night. Like we want to fill that role for you. That said, I want to take nothing away from the wonderful pasta and pizza restaurants around this country.

You know, make stuff in house and stuff like that. No, no problem with them doing that, nothing wrong with pasta and pizza. We just think we can make it a little bit more 

MPD: nutritious. And you guys are currently selling it through a retail channels. It's not mainly an online distribution. We 

Mike Tarullo: are vast majority of retail.

MPD: Okay. And have you guys looked into going to the quick service restaurants, their chains, and saying, Hey, swap out your pasta for us. 

Mike Tarullo: No, we actually just launched our pizza crust in a a small chain called oath pizza, which is our first foot into that world. It's something we had been intending to do a while ago, but of course the pandemic put a serious delay on extension and change in the food world.

We do think that restaurants, colleges, and universities, corporate cafeteria is K through 12, hopefully someday. If we can get the legislation those are all places where we can introduce a healthier great tasting alternative. And it's, it's, it's, it's allergen friendly also, which is increasingly consideration.

So 

MPD: I know you guys have recently expanded the products. Did you mention earlier you've got pizza, Mac and cheese and rice. Yes, which was interesting to see what's the bigger thinking here about where the product and business goes from this point. 

Mike Tarullo: We, we have a bunch of ideas. I think, you what we've started with is mealtime comfort foods.

 we find that dinner is like one of the hardest meals for people to figure out what to do with every day. And you need an answer. And it's healthy and it's tasty and that everyone in your family will eat. And that's a very difficult combination. You as a father, I'm sure notice that it can be a wrestling match.

And so we're, yeah we're focused on those like realtime staples comfort foods, foods that people already love, and we want to make them out of chickpeas. And if there was a more suitable bean or like we would use that. That said from there, there are a lot of different places we can go. You know, we've been one of the things that we believe is that the principles of the Mediterranean diet or good tenants to live by, we think there are a lot of other foods you can continue to make out of beans and chickpeas.

We've got some interested in stuff in the pipeline and of course, where we're moving into different channels as well. Like we were just talking about food service. So getting outside the grocery store and you know, other ways where you could get you know, the basis, in EGR 

MPD: now that you guys have a few skews, have you figured out what products sell best?

Is there, do they all work or is there some lesson you've learned around where people buy replacement foods? I have this theory that some people just want comfort food to be comfort food at some point. So where does it. 

Mike Tarullo: And I think that's, to me, that's like the Tuesday night dinner thing like people are gonna are going to eat like indulgent foods the stuff they love.

And, and I think, what you find is most people are seeking some sort of balance, but balance is actually really hard. Balance means like a constant state of time. And when you talk about balance, like it's a good thing, but imagine holding balance and then that just being like your permanent state of living.

And that's what most of our relationship with food is like, I know I'm like constantly making trade-offs and like counting things and I've been doing this for like longer than I can remember. And I think a lot of people, or at least people who are intentional about how they eat, think that way also.

So for us, We say, Hey, we want to be an easy sell for that, but we're not trying to be the only food you eat, like we're not failing out here. We're not saying replace all your meals with this one thing. We just want to be kind of part of the fabric and a go-to and a reliable staple in your pantry or your freezer, or you say, Hey, here's dinner.

We were surprised to find that we sell. I'm sure we sound great in the whole foods of the world. And they've been a terrific partner for us, but there's a wide range of different stores and places where we can do great. You know, we have a great business and target and Proger and Walmart as well as, like strong regional grocery store.

So it's really. Eating healthy and solving beginner problem is like a national thing. It's not just a thing that, people in certain areas for a long time, we were surprised that we didn't have as much of a concentration, on the west coast, as you might've expected that it was like, Hey, the Midwest was really strong.

Texas was really strong. And so it's been fun to see this be a distributed national shift in how we eat. And we think a lot of that is generational.

We are 50 on the corporate side. And about 90 on the factory side, we own our own me. 

MPD: Okay. I'm going to get into all that. One of the reasons I asked that is, I think about know 50 plus person company on the corporate side, getting distribution to 18,000 stores for the would be food entrepreneurs listening.

How do you do that? How do you start get from a product? To getting onto a shelf to getting on to many shelves. What's the method. Are there brokers? What's the brass tax house. 

Mike Tarullo: Yeah, that's a great question. There's probably no single right answer, but our answer is a team of people. None of whom had worked in food before.

You know, our first 15 or 20 employees, nobody had done this and we wore that as a badge of pride. If that like classic entrepreneurial outsider, I'm going to do something a way that no one else would've thought to. And sometimes that made it much, much harder on us, but I think on balance, it made it easier.

We assumed like the traditional broker and sales structure and, just like in any company, your early team should go do a lot of the direct selling themselves and you're going to do a lot of it through hustle. So we found we would just go out to trade shows and we would just bring.

There would be like our entire team, which at the time would have been five or 10 or 15 people just like bouncing up and down, running through the aisles of these trade shows. You know, yelling at buyers for these grocery stores, when we would see their name badges in Iowa, running samples up to them and that sort of thing, scrappy energy will go a really long way.

Most people are still afraid to like, make the call, do the thing. And the other thing we did is just network our way to people. Not even through professional networks, often through cold calls. And you know, you can literally sometimes this call or retailer and ask for somebody's contact information, get it.

Or you can send them a message on LinkedIn, or you can ask a friend of a friend and over time, I think we started to shift to getting warm intros instead of just blowing people's socks up wherever they were. But certainly at the very beginning, do not be afraid to dislike, get your product in our people and telling your story and safety.

MPD: Is there a trade show in particular you recommend for folks to get to get. 

Mike Tarullo: Yeah. Natural products expo west and east are the best shows or new innovation. There are many others, but those are the ones where we'd met a lot of people. 

MPD: Okay. And when you blow someone up, whether you're going through LinkedIn or you're scouting through their receptionist or whatever's going on do you follow up?

What does it move? Do you send a product? Do you call them? You get from cold to, yes. 

Mike Tarullo: You have to have a chance to both get them, to try the product and to tell the story of why you're doing it. And in food, those two things are so linked. You know, it's not just a transaction. They need to understand because the consumer is going to make an emotional decision in the store about why they're buying the thing.

They want to see so much more like retailers want to see like the details of your marketing plan. If the craziest thing I'm like, yeah. If people are buying this, why do you need to know that? But it's because they're thinking about your future too. And I've been pretty pleasantly surprised by like how seriously buyers take their jobs, buyers and the people at the grocery stores who choose what products go on your shelf.

How seriously they take their jobs in terms of understanding the brands and the why behind them. And you know, I think there's also credit due to people for trying to make purchase decisions that way. So you have to get them to taste it and you have to get a chance to tell them their story.

And that just means for that. 

MPD: And so how do you get them to taste it? You just ship them a product just sits in the mail. 

Mike Tarullo: Yeah. If you're in a trade show, you can crop it to them. And if I hand it to them you know, we did that with regular people too. I can't tell you the number of Saturdays that we sent at, like ShopRites in New Jersey, just like serving samples.

You know, like that kind of thing is how you get feedback from people, hear what they like and what they don't like, what pitch works best. And then, you can, you if you got a chance with a retailer, you do everything you can to make it successful, including getting out.

Feet on the 

MPD: street. When you're at a ShopRite in New Jersey, giving out samples, did you guys just show up or do you get permission from the gentleman? How does that work? Permission? You're already on the shelf at that point, already gotten the buyer to say yes. And then you called the buyer and said, Hey, we want to demo some product.

Mike Tarullo: Yeah. Or there's somebody at the organization, it depends on on the chain as to how it works. Another thing you can do just to build a little bit of customer love early, back when we had an office in Detroit our team, you go to Eastern market, which is you know, this like big farmer's market and, and set up there and serve all day and, build some awareness and validation and make enough sales to try to help you.

MPD: Okay, great. You mentioned there was a traditional way to do the distribution, right? And you guys didn't know it. And that was an advantage because you went direct. Can you explain the traditional method for, so people are aware of that. What are the channels? What do they cost? Do they work? 

Mike Tarullo: How does that work?

So traditionally in food. So it depends on who's doing it. If it's a big company or a small. If it's a big company, they go to the retailers that they already have the relationships with. And when I say a big company, the big food companies in America, general mills, Hormel, Nestle you know, that Unilever on and on, they can all basically go to a retailer and say, Hey, we'd like you to take this.

And I don't really know what happens in those rooms because I don't get anybody into those conversations, but I assume there's a back and forth and somebody changes hands and you know, things just magically appear on shelf for us. It's not quite you have to prove that you deserve a spot.

One of the ways that people talk about building distribution around is that they they bring on a broker as an intermediary who has a relationship with those retailers and can go right into their offices and talk with them. And those folks can be super helpful for understanding the specific dynamics of those retailers for understanding what kind of sales pitch is going to work for helping you get access to data.

Things like that, but when you're really early, They don't have enough time to pay attention to your tiny little brand, but still in a few hundred thousand dollars in revenue, they need to focus on bigger brands that are doing more. And it's just generally speaking. They can be helpful. As you grow, we work with folks who are terrific now, but in our earliest days, we need to do this.

It's just you know, you can't outsource that selling when you're a CEO or an early executive or an early team member of a small company. You can't just say we're going to hire a vet and they're going to do it for us over time. As you have to build better programs and practices. You know, invest a certain amount in trade fend, and there are things like that.

You need veterans who understand how retail works, but early on, you're better off not thinking about things like slotting fees, which is the amount that you pay to get on shelf. You say, look, if we do that, we're not going to get paid well. And that works for a while. And then eventually it passed that.

W what's the inflection point in the company where it makes sense to bring on the broker. 

Boy. It probably varies depending on, where you want to get distribution, we found a lot of value in working with big strategic accounts and having brokers on those accounts because they were just so complex.

The, some of the largest accounts in the country, those are the ones where there was so much, we did it now and we could do enough business through them to make it worthwhile. There are some folks who say it's really great to get a broker force out there, to work with mom and pops. We still haven't done that much independent grocery work because even though 50 people sounds like a lot of that growth Russ was in the last couple of years.

And, when you have a 15 person team, you just really can't spend the time running down all those small individual accounts. You know, you look at it either way. I think opinions vary. I think our opinion is we try to take on anything you can take on yourself and you find strategic voices and advisors where you can get them.

And sometimes those are brokers and sometimes those are investors and sometimes those are just like friendly people in the food industry. Yeah the voltage Avani, we went to the incubator program two years ago and they have just been like terrific at helping us understand how the industry works and helping us see around corners and not, walk into Walmart and say something really dumb.

MPD: Got it. It sounds like it's a very delicate process. 

Mike Tarullo: Yeah, it is, but you can mess up a lot and there's still other retailers will talk to you and, ultimately it comes down to do people understand and do they buy it and into they keep buying it. You know, and I think, we've, we've made mistakes and gotten chances and it's taken us six years to build to this point, which, which feels like a lifetime, but, it's, it's, it's yeah, it can be delicate.

But I think at of, I would err on the side of doing stuff rather than overthink. 

MPD: What mistakes have you made? You have some examples, things you learned for future food entrepreneurs so they can avoid them. 

Mike Tarullo: Yeah. We launched Mac and cheese because we were like pasta. We have a great pasta. Know what else is awesome.

Mac and cheese. But we had, we did no consider research. We had no understanding of what people needed in the category. We launched it with rainbow colored boxes that totally lost this like signature bombs, orange that we had. That is. And so for a year, it just sat there and nobody knew what it was.

We had no money to put marketing behind it. It was in very little distribution. So even if we could have spent money against it you know, what were we going to do? Do like billboards, do digital ads like that. Isn't really, necessarily how people do most of their grocery shopping when you're really little.

That's not how you find out about new products. So we let it sit for a year. And then we said, we need to go back better, understand the customer. You know, strengthen the product and fix the packaging and kind of say, Hey, what is it? What problem are we solving for people? And so you can't let, Hey, we can make a good version of this.

Be how you innovate. You need to think about what problem are we solving for people and make sure that you're positioning it that way accordingly, all the way to the packaging and the retailer and the marketing, every 

MPD: piece, it sounds like the customer development side of the world applies to food.

It does. It does 

Mike Tarullo: honestly, the amount of research that we do I think has been the more research we do, the better we feel about what we're doing. We did research for a new category last summer and we were all so convinced it was where we were going to go next. And then the research came back and the answer was well, everybody's pretty satisfied with what they're buying they're now in that aisle.

And we said, okay I guess we ship it. And, Thinking about that because I'm like a tech product. You can just ship it and then be like, and let's see if it works and then we'll pull it off the production server as soon as it's not a good feature, right? If you can't like AB test quite as cleanly you have to go in, when you do stuff, you have to commit and put your energy and your passion behind launching the right product.

And so I think that's been an adjustment for me coming from slightly more of a tech background. We can't just try a bunch of stuff. Like you have to say, Hey, let's make sure that people are excited about this. So we do a lot of sending products to people in their homes and getting home usage tasks and finding out how long they cook it and what they thought of it and what worked and what didn't and, adapted.

Can 

MPD: we drill down to that a little bit? So if I was to start a new food product, and you said the word research could mean a lot of things, and it's probably different for tech companies and for food companies and for everything else. What would you actually do brass tacks? What is it? You're mailing the food out.

You're standing on a corner. What is the research method for you guys? You hire a firm. 

Mike Tarullo: Yeah, the first thing you're going to do is start with your product and make sure that people like it and that they understand it. And you're going to figure out how you're talking about it too. So that could be literally getting out you at a.

Some sort of place where you can get a booth now, maybe your local grocery store and you're demoing in that store. And you're seeing if the words you say lead somebody to walk away from your thing with it, you're seeing, who's willing to buy it and people's kids are willing to eat it. You know, like that kind of stuff.

And you just always have to start with the food. And how does it taste in this. we graduated to a lot of surveys, a lot of those just simple online surveys too at first kind of friends and family folks. But then we would ask everybody who signed up on our website to buy a box.

We sent an email around saying, Hey, do you want to join our little squad and participate in the occasional research thing that we said. That helped us get insider feedback. And then of course you can use those platforms to reach different, demographic groups or behavioral groups, or what have you to just understand if what you're doing is fascinating at all.

You're never really gonna know until you figure out how you're going to execute it and retail, but that can help you a little. And I would caution against using e-commerce, which is the traditional validation platform for people like all these clothing companies that pop up in your Instagram feeds and all these different products for your home and whatever, like all that stuff, they can do it that way and it can work well.

That way, grocery is still primarily the in person transaction. You go into the store and you look around and you buy stuff and you can't draw too many conclusions from what sells well online and vs versus what sells well. 

MPD: One of the things I've always found as an entrepreneurs. If you walked down the street or maybe through your school, or, at a family get together and you tell them about your new business idea, everyone says, it's awesome.

Even if they're thinking that's fricking terrible, right? How do you get real candid truth from the customers when you're doing these feedback cycles? So let's say you've got a hundred thousand customers, 10,000 sign up to be Guinea pigs. You send them your new Mac and cheese. Do you call everybody? Do you give them an an online form?

How long has the farm, but have you learned about ensuring kind of truth and real signal comes out of the data? 

Mike Tarullo: So everything has to be blind to the best of your ability. And it's hard if you're making something brand new that nobody's ever seen before. We actually used university research partners to do blinded studies for us early on.

They have been really like, pretty great about it. And you can also do that. Get different universities around the country can do this kind of thing. And they're also different firms that can do it. The end, all of them will help you design it in an intelligent way. But even before we did that, honestly, in the aisles of a grocery store People actually will just tell you what they think.

Usually very rudely if they're having a bad day, so you have to have thick skin, especially if it's your babies, you gotta say, Hey, it's chill, a hundred people like it. And then I'll just put that in. That's fine. You know, we found though over time you always have to have a benchmark.

What are you compared to? It's not, do you like this? It's which of these do you like better and which attributes, texture and flavor, and you know, cooking experience and whatever. And what did you think of that? And if you can blind your respondents to what they're testing, then you're going to be able to get interesting results.

That'll at least tell you something. 

MPD: Okay. But at the end of the day, you're gonna have to make a judgment. Yeah, you get some data and you're going to have to say good enough. And this is one of the areas where I think a lot of entrepreneurs make a big mistake, right? They get data back that says, man, not that great on whatever they're working on.

And a lot of people just they're so vested. They put so much energy. It's their baby to use your language. They're so committed to it that even though the data's saying run they keep going forward and jump in. How do you stay disciplined? About really hearing the day. 

Mike Tarullo: No, I think that's a great question.

I think one of the things that we've done right, and that I really, I ascribed to you know, Scott, one of our founders is he always wanted to reign in new distribution. And I think this is a really healthy way to build a business is to say, go everywhere and take every sale that you can take. There are certain retailers at certain times, you might not be able to support.

Or you might, you might not be able to manage effectively or that you might not have the resources to invest in, or that might not, you might not be able to build the awareness to drive the velocity that you want in Publix in the Southeast, across 1100 stores when you've only been in existence for a year and a half.

So we said no to as much or more distribution than we said yes to you in our early days. And we tried to make sure that we could fully support whatever we went into. What you have to try to do is say, okay, let's imagine we get this. How is it going to actually sell? How is it going to actually work?

And it's the same thing. Again, it's true with software where some customers require too much custom work. They're too difficult. There are too many. You're going to have to change your whole, your whole like product development pipeline, just to suit them. You can't do that. You have to try that early.

And I think we just got into habit early of saying no. And so I think we still have recognized, Hey, every single product launch risks are good name. Not just with, retailers, of course with retailers, but really with people. Yeah. If they try bonds and stuff, and we don't like how it tastes or you know, it just doesn't work for them.

Then we have lost something. And so early on, we could take more risks at times. We've improved our hostage three or four times since we launched it. Like we keep you know, subtly improving what we're doing or, our process of making it. And then what have you. And I. we have the guts to launch something that wasn't perfect at the beginning.

And that was important for just getting out there. But over time you have to be more in, more and more disciplined about what you do. And again, continue to say no to more things than you say yes to. 

MPD: It goes against a little bit of conventional startup wisdom. Candidly, the phrase we all use is fuck it, ship it right.

You get it out there to get feedback. You start learning. What's different here, right? Because you're building a product there's a J curve, right? There's cost time and effort. Why not just get a first product out and find everyone hates it. There was a direct to consumer food company. We looked at invest again, and they took very much a fucking ship at mentality.

They had a very bad product. The beginning, they got it out. They learned that X percent, a small percentage of people liked it. They sent the next one. They were happy to see that. And they were just following the data and accepting failure as part of the process. This feels different when you're recommending it feels like you're saying it doesn't have to be perfect, but it's gotta be pretty damn good before you hit the channel.

Is it just that they were online and they didn't have a channel risk? Or is there something, some other insight here? 

Mike Tarullo: Yeah, it's possible that, that's what it was. I think You know, for us yeah, that might be an appropriate approach. You might be able to say we only reached a thousand people and if 700 of them hated it, it doesn't really matter because that's the only 700 people that can work the differences.

And the thing that they might not thought of is how much time do you waste of lead times? Physical products and tech products. They're just so deep. The packaging development, the product development, the findings co-manufacturer to scale up your initial production, to dial in the settings, to get that initial run, to be as close to good as you can.

I get it. Every one of those things has time to it and going from thinking of a new product idea to launching it in the middle. The other thing is retailers only take new products, on average, in a category about once a year for super fast meeting snack categories or beverages, they're like every six months, but that means that you only have so many shots and typically seeking from thinking of a product to getting it on shelf is going to be about a year.

Now you can do it a little bit faster, especially if you're not trying to get it on shelf early, but investing all that time and energy would give you just sign a little bit more time. Just say it a little bit more time in the kitchen, don't give people food that they don't think tastes good because that just isn't going to work.

And if you think you can do it, it's just now what I will say. You don't need to please everybody right off the bat, our product was better suited for people who already had to be gluten free. So we focused on that audience cause we knew less, the honest, the standards pretty positive, where I'm a little bit lower than your standard to regular pasta.

So we targeted that group when we knew our product still had some growing to do over time as we've improved yet, we don't really focus. We know lots of people who. eat our pasta, but we're able to focus on a larger, broader market because we've continued making significant improvements.

MPD: You said something really interesting before you said you were saying no to distribution offers. If you didn't have the resources to give them sufficient support, what's the playbook for a food founder for giving sufficient support? What is it? 

Mike Tarullo: So the first thing you have to think about is working capital and that is not if I'm podcast topics, that we're not going to go deep on it, but can you afford the supply chain impact of sourcing a bunch?

So when you first get an order from a retailer, there's an initial fill that fill might be very large and they might get it for free. If you're, paying slotting or something like that, so maybe you get paid, but in order to do that, you have to invest a bunch of resources in, in, the raw materials and the production, and then getting it to stores.

And then you get paid whatever, 30, 60 days later right. That takes a long time. And when you're small, that ties up a lot of them. And you may not have enough money to do that. Now. That's not a great reason not to say yes to something. If you think it's going to be good. But let's think about that. When you think about how much stuff you're launching it for.

So you need to think about that when you fundraise all stuff, the other is marketing support. They expect you to invest in a certain amount of trade funds, which is like discounting or adhese he's or things like that to help people find the product in store. If you can't do that, if you're not going to ever be able to get sale tags up on your product and deal with the complicated setup.

Accounting issues that come with that in the food world, it's very manual and there's a lot of issues. Charge backs is the phrase that we use. There's a lot of places where you can lose money, but you didn't expect you. You need to make sure your unit economics are good when you do that. And then lastly, if that sort of and the most important piece here is the the, the shopper the person at home, the consumer, are you going be able to reach them and convince them to come into a dress restore that has 40 to 60,000 products on its shelves and pick yours off the shelf.

When there are so many brands competing for their time. And investing money in social and in shopper marketing applications and stuff like that. So all those things it's just to say, make sure that you're going to be able to invest in the in-store marketing. You need to do in the outer store, social media brand, building that you're going to need to do.

And in working with, the retailer and your own supply. 

MPD: What's the budget to launch something. Is there a rule of thumb, like X dollars per store, X dollars per box? Like what, how do you, how does a new entrepreneur figure out what is sufficient? You 

Mike Tarullo: figured out your payback. The industry standard is six months, but we would prefer for it to be much faster than that.

Where you say, okay, you know where it's going to take us in that six months to break even on this thing. Sometimes big food companies say more like a year or longer. We prefer to be quicker because again, we don't have the resources so that we prefer to pay back in three months. If you're in the three to six month range and you're actually.

About it. Because early on you're going to be wrong. You're going to see a lot more sales than you get. If you're actually right about that number. Once you learn the pattern through trial and error, learning a little bit of extra capital, then you'll figure it out and you'll understand your kids again.

That opportunity. Yeah. That's the working capital side, 

MPD: the marketing. What do you need? What's the budget for marketing? How much money do you need to support a launch? How do you think about it? What's the, what's a metric. X dollars per location is what is, how do you think about it? 

Mike Tarullo: You could say, you could give a number and say, look, our retailer would want you to send about 15% of your sales on trade spend, and you could call that the number.

But early on, we certainly couldn't do that. We didn't have the money and most of our marketing's social media and it was directly targeting specific consumers who, and, you know, leveraging influencers and user generated content. You know, I call them influencers, somebody, these people, we would have, people had 500 or a thousand followers and they're like, Hey, you make good stuff.

Why don't you make some stuff for their pasta? And that was a way for us to really build you know, trial and loyalty and logs for what we were doing without having to spend hundreds of thousands of dollars. So stuff like that works too, you can call it 15% in trade spend is what you would expect to spend.

And, you probably wouldn't be terribly far off. 

MPD: So you've been in the startup game for as long as I've known you one form or another we're shifting gears here a little bit. And the, the whole world, is at least in the states has re-imagining food right now. There's is a big macro trend.

You guys are an important part. They're traditional tech VCs out there. And that's a lot of where, you have tech and life science risk capital deployed into the system have been really have been focusing a little bit on the space, but it's a tweener in terms of fit for the firm's strategies.

How do you raise money as a food entrepreneur today? Because it seems to me there's not a ton, at least that I'm aware of infrastructure and capital sources and you guys have been successful. You've raised a ton of dough. As we said earlier in the show about close to 30 million, how do people navigate this?

Where do you go? Where do you look? How do you find it? 

Mike Tarullo: Yeah. You know, I think we've actually I think we've started the seafood companies raising a lot more. And treating themselves as if they are tech companies. And I think there's some danger in that, because if you can't provide just to what you were saying, if you can't provide the returns that eventually are investors looking for, and they're waiting into an unfamiliar space, they're going to push you into things.

Aren't necessarily the right thing for your business. We've focused on having investors who understand food and consumer packaged goods, fashion and beauty and things like that as well. And they, we do have sector specific CPG investors. And so they understand here's how much money we're putting in here's our expected return.

And they're willing to get in for the long haul and say, let's build this thing and see how far it can go. There are plenty of people who would have given us much more money and even a much higher valuation. But if you do that, you're going to mess up your incentive structure and everything. Yeah. A startup is incentives.

It's not about maximizing, it's about managing the right alignment because you're building. We're six years in. We have years and years to go. We we're going to keep growing 50% plus year over year for years to come. So we need to be building for the long-term. We can't have somebody who says, but you did it grow a hundred X.

Because that's not how absolute companies work. They don't grow a hundred X, certainly not in, in, in a couple year timeline, the way that software can. So if you have people, giving you outsized valuations, who don't understand the way that you're going to build your business, who push you into doing this things, you could end up with several hundred million dollars in capital and not the sales to back it up.

We think that there are some food companies that can build that way. And there are a few that sort of prominently have, but there are a whole lot more that are raising mega rounds right now. And we've been waiting until we had the sales to say, now's the right time to raise money because we are confident that we've, de-risked the next three years, four years of our plan.

And that's the plan that we take to investors. And we say, here, we're going to build up. And this is probably a little bit more of what you wanted me to say as the actual answer. Look at your unit pursued per store per week. So how many boxes of penny pasta am I selling per store per week? Figure out how much growth I need and the number of points of distribution.

And in that base philosophy, in order to reach my sales targets, figure out if that's reasonable, based on the universe of potential retail partners on my product development pipeline on trends that I've seen when I added new skews and make sure that you can build bottoms up to your revenue. And if you can do that, and then you have your story and then you have your consumer love, then you've got a pretty strong case.

Or, Hey, we're going to grow 50 to a hundred percent every year. 

MPD: I'm hearing from you is that the normal laws of startup physics apply in this sector. There are two ways of doing that. One of raising one is raising and valuations that you can grow into and the fundamentals match the game. And then there's hype game.

For companies, it gets super, a lot of attention, a lot of excitement from the investor community. They get valuations that are unreasonable to use a subtle word for how I feel about it. And they get totally crazy and you can win in both games. I used to think low poorly of the hype game, but if you can keep playing that game as a founder, you can do very well.

I'm sure there's other founders out there that know they're not going to grow into these, but as long as they can trade again or do a secondary. Yeah, they went into the game of hot potato, 

Mike Tarullo: but the thing is like the goal is to accomplish your mission, right? Like the goal is to build a company that lasts and food companies are around for decades.

If you do this thing you've got decades, you can keep innovating. You can keep making stuff that people love that their kids will eat. You know, they'll then feed their kids. And the successes in this space, some of them went a really long time you know, or were around for 15 or 20 years before they really heavily capitalized or exited or whatever.

And I think that, and then that patience has paid off because those companies who have you know, revenue and And I think that those two are very different. There are different examples of something similar, but you don't meet squander the opportunity to go big and tell a crazy big story.

At any point, you just have more of a track record to do it. It's just about whether you're trying to do this to, plant like a tech company or play it with that sort of hype cycle game. And whether you want to be in this whole longterm. And I think for us, if we felt like there was. A super scintillating story that would promise a hundred X returns to investors.

We would be out there telling that. Yeah, we're so more aggressive than a lot of companies in the space. We're not talking about a couple of X, multiple of our revenue or something like that. There are plenty of companies that work in more commoditized spaces like that, but there's definitely a middle ground of really great high growth brands that are, fulfilling their mission and making their investors happy.

And I think investors should look for those. They don't need to invest in something that's telling you that it's a billion when it's got $20 million in 

MPD: sales. Maybe tip your hand here a little bit and tell the world. How VCs investors and entrepreneurs should be thinking about the future of food.

How has this whole space going to evolve? Where do you think opportunities exist for folks? 

Mike Tarullo: Yeah, so I think, the thing that has been most interesting and promising is, over the last. 20 years we've seen about, something approaching 1% a year, really over the last 10 years, accelerating something approaching 1%, a year of market share, shifting from big food companies to emerging brands.

And that suggests that there is a consumer shift that's happening. That's driving that. And we think we've seen that Now there can be a hype cycle and I'll get to some of the watch outs in a second. But if you really pay attention to what, particularly not people, we focused heavily on millennials and gen Z at bonds.

And not just because we are these things, but that's really the consumers of the future are, which was his vein, making the choices. Do they, do they want for their children? Those are the consumers of the future. The amount of dollars that they're going to be sending in food is going to increase dramatically.

So what are their values? Can you create something that's values aligned with what their actual problems are, what their actual needs are? So we think the reason that what we're doing works and the companies that we really admire, what they're doing works, the reason is they're thinking about what products will create value for people.

The history of the industry is what products. So the problem that you see in food is there, there are basically at any given time, there are two divergent ways of thinking about it, which is to that point about balance and what we struggle with. Everybody struggles to make the right choices. They want to believe they're doing something healthy, but they want something tasty.

If we can deliver something that actually is healthy over the term, we're going to win. That's where the real opportunity is. If you see a trend and you just launch a fast follower product you know, suddenly there's a dozen companies in the category of these trying to gravity. Sometimes big food companies innovate this way also.

You're just, it's just going to be a mess and there's not long-term value creation opportunity there. So we say focus on the younger considers focus on what their values are, which is going to be, sustainability and health alongside taste. And, don't be afraid to build slightly slower, but just to say, a hundred percent a year, instead of trying to build 500 or a thousand percent a year, 

MPD: so you've, you've got market segments to target. What, what do as an entrepreneur, what tools are you wishing existed services existed at? You hope someone listening to this will go and build. 

Mike Tarullo: You know, there's been a proliferation of technology companies that are providing services to food and CPG companies.

I just think we need more talent to keep coming into this space. You know, the key to building any company is talent. You know, I, I. People who want to create real change in the world should recognize that there's an opportunity to have a huge impact on the environment where, you know, one third of greenhouse gas emissions are tied to the food industry.

 think, um, there's a huge opportunity to make an impact on human health and healthcare because food is the most important component to that. We want people to keep coming in and doing this, that other joining companies are starting to come. The industry is expanding. And that's my point about all of the market share being stolen, right?

The industry is expanding. There are more companies that are there are more small companies than ever. You know, don't just go join the big ones. But do this as an opportunity to really change things and make sure that you're finding those companies. That again, are trying to actually create value for people, as opposed to just saying, boy, I bet I can sell a lot of beets.

And I think that's, that's, that's the thing that we help people do. 

MPD: It seems to me that there's a need for impact in the food world beyond the commercial side. I remember, I don't know if I got this right, but I'm pretty sure I do that. The government has designated pizza as a vegetable. Crazy things, have gotten through legislation. What would w what is, what needs to change, if anything, if you were king, how would you rewrite law? To help the, the public get healthy, good food options. 

I 

Mike Tarullo: mean, that's a very complicated question. But you're absolutely right. That attach it.

When other fun ended though, for people in order for a product to be considered a protein in schools, you have to literally put another animal protein. So if we want it to serve bonds as a protein pasta for maybe in order to replace an animal-based protein, they would have to put a meat sauce or cheese on it in K through 12 that's.

That's just like an impossible disaster for us to try that. Change the way that people eat. So that's how strong your lobbies are in meat and in sugar and in dairy. I think, you there are documentaries that have covered this ground very well. Sometimes they can do recommend Siri. I'm gonna, they're going to slip my mind now that we're alive on this thing.

MPD: What the health, those other ones. Cooling to him in the show notes for folks. Yeah. 

Mike Tarullo: I need to go back and I can't remember the name of right now. That was the one that just got me. And I was like, oh man you know, soda companies are to stop there and making sure that they've got fountains in schools and stuff like that.

And if they're taking out cooking equipment and potatoes and vegetables, All this sort of stuff. There's definitely a huge policy component to it, but really there's an innovation component to it too, because you can't just, I just think your way out of problems, you have to make sure that there are, well-built solutions that will make people happy to eat healthier products.

If you don't do that, like you're not going to, you can't solve structural problems purely with logic. You really need. And I think we've seen this in tech and in medicine over the last year, you need the private sector to step up and have people innovate in ways that are values aligned. And, I think that's the future of the industry.

MPD: It seems like they're stifling some innovation with some of these requirements, right? Like having a post meat on a vegetable protein to call it a program. 

Mike Tarullo: Yeah and their companies are working on this. But you know, yeah. It's, it's crazy. And you know, same on the agriculture and sustainability side and there's, there's just, there's a loss.

MPD: Is there a coalition for the smaller group of companies out there to do lobbying, have you guys tried to counteract some of the corruption. 

Mike Tarullo: This will be the first conversation I've had, where the concept of lobbying even entered the equation. I think, uh, for us, we still viewed ourselves as too small.

But it's a good idea and I'm sure some of the plant-based meat companies are out there doing it because it's very important for what they want. 

MPD: And if you're right, that they're taking 1% market share a year, eventually they're gonna have spending power and aggregate, even if it's fragmented.

Mike Tarullo: I think we may already I think, I think you're right, that working together is part of a future. 

MPD: Cool. I wanna switch gears to one more topic before we before we cut for today. So I know you landed in bonds via your, your experience at venture for America. For those listening, you were in the senior management of venture for America.

Can you tell us a little bit about the 

Mike Tarullo: program? So venture for America has, has grown and changed a little bit. What we've been trying to do is send young people to careers in startups and entrepreneurship in cities that have relatively fewer startups and entrepreneurs rather than just sending people to you know, New York, Silicon valley.

Into tech companies or consulting firms or law firms or banks, or, other other sort of fortune 500 companies we're saying, Hey, go smaller, go earlier. Go to cities like Detroit, new Orleans, Providence, Cincinnati. Those are some of our first things. And, and that's a great proving ground for a young person to learn how to operate a company, potentially become an entrepreneur themselves.

So far visa VFA is up to about 200 kids per class comparable with the size of the business school. And since inception in 2012, there have been about 200 companies started by VFA alumni including, the likes of bonds and. It's so really it's been really fun and exciting to see that network and community build you know, and being an alternative professional path.

That's a little bit work lately and lately. I really admired how the organization has, um, taken more of a focus on underrepresented groups getting into entrepreneurship. And they've been more successful there. In, in recent years. 

MPD: How has the group performed? An and I'll, I'll say I used to be on one of the litany of boards for venture for America, the entrepreneur board.

How has, how has the organization performed in achieving the mission? 

Mike Tarullo: No, I think what we've been able to do is to create. You can say the equivalent of a Harvard business school for, except we did it without charging you hundreds of thousands of dollars. You don't have to pay to do this program. You actually get paid by a company.

We've been able to help you know, hundreds of startups around the country build and grow by getting access to that. You know, if it really wants to work hard and is willing to move there and it wasn't going to move to Detroit or new Orleans otherwise, and again, don't want to start a couple of hundred companies that have collectively raised hundreds of millions of dollars is, some of them have exited at all.

We're very early in the lifecycle of that, but most of these businesses, like. You we, we think it's off to a boring start and we think that there can't be too many programs that contribute to building a stronger innovation ecosystem in this country. And that take all kinds of different approaches to do it.

And I think, VFA has definitely found its place as one of those programs. That's 

MPD: awesome. Yeah. You guys were there, there was an another dimension in terms of mission, which was to help reinvigorate those cities. What did you guys learn through the process about what it takes to breathe life?

Into communities surrounded with regard to innovation. 

Mike Tarullo: Yeah. I think, um, one thing use the country is probably in a better position economically than it was in 2011 when we started this and we were recovering from a really brutal recession. So, um, the macro economic trends have favored that.

I also think that innovation and startups are just way more in Vogue than they were at some level back then. I think that this last year has proven that you can have a distributed team, you can build a great company from anywhere. We're having this conversation virtually that's the new normal for how you can build companies.

And these are like really super cool, but lower cost of living cities where all of a sudden you're seeing more investment dollars going in those directions. You're seeing good companies come out of different places. You know, and I think. There are still just a couple of really credible startup, super hubs in the country, but there are a lot of smaller communities that have grown over the last eight or 10 years.

MPD: Awesome. Thank you for all of that last question for you. What's the most important thing you've learned as an entrepreneur? A little bit of wisdom you could leave for the audience? 

Mike Tarullo: I think, um, I guess for me the most important thing I've learned building companies. Cause I don't know if I'd call myself an entrepreneur building companies, is it's all about the people in the team.

And then there's a couple of good reasons for that. I have a rule that I call the first 10 rule, which is whenever I make a hire. I want to make sure that it's someone that I would have hired in the first 10 people at the company. And that's because. So many things will change over the course of your time, but you need people who are adaptable and who are, who have that fear mindset.

Also, those are the people who are motivated and non-linear aspirational thinkers, and they're going to continue to be that as a grow. And you know that the company more able to take on new challenges and grow, succeed when you change what you're doing. And if you surround yourself with those people, like the key to continue to work on startups and growth stage business.

I used to be hyper motivated every day. And you're going to be the most motivated when you're working with a group of people who impress you. And I think, my happiness at GFA and that bonds has been driven by bowling an organization. That's just like chock full of people who we would have loved to have had in our first 10.

And I think if you can build your team that way for as long as humanly possible, you will end up with a really exciting organization. That'll always nice to meet the chops. 

MPD: This has been super insightful. Thank you. 

Mike Tarullo: Thanks so much, mark.

MPD: That was super informative. Mike really knows his game separately. I can't wait to try the chickpea pizza. If you liked what you heard, please hook us up with a like or a five-star review and feel free to share with a friend. You can find me on Twitter at MPD to hear more of my conversations with innovators, subscribe on YouTube, Facebook, or any major podcast platform.

Just search for innovation with Mark Peter Davis.

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