People First is the Hyde Park Angels podcast dedicated to deconstructing entrepreneurial success into actionable takeaways you can use today. Hyde Park Angels is the most active early-stage investor in Chicago with a commitment to taking a “people-first approach” to investing. By matching our members’ expertise with entrepreneurs’ needs, we help develop top-performing companies that are delivering extraordinary results. Our latest episode features Andy Friedman, founder of SkinnyPop Popcorn and most recently Amplify Snack Brands.
After building a business in gas stations, Andy made a career pivot that paid off: popcorn. From hand-bagging popcorn and physically loading it into trucks to IPO, he was there the whole way. Andy’s story of determination, curiosity, grit and being in tune with the market is an inspiration to entrepreneurs everywhere.
He is now a member of Hyde Park Angels. In this podcast he talks candidly about the entrepreneur’s journey and how “no one will tell you even for 20 seconds what your next move should be.” Tune in to learn more about:
- Committing to your trade and looking for new opportunities
- How to find your own way in a completely new industry
- How to continue to evolve as the market changes
- How to get the right team members around you
- How to create a CPG product that sells
[PODCAST TRANSCRIPT] “How SkinnyPop Led the Better-for-You Trend” – Andy Friedman
Pete: Good afternoon it’s Pete Wilkins today on Hyde Park Angels’ People First Podcast. I’m with Andy Friedman. Hi Andy, how you doing today?
Andy: I’m great. Thanks for having me.
P: You know what would be helpful for our listeners Andy? And if I did it I’m sure I would butcher it but maybe give a little bit about your background and your story so they get a sense of who you are.
A: So I grew up in the Detroit area and I went to the University of Michigan. First job out of college I was an analyst at Morgan Stanley in New York. I did that for 2 years. It was one of those crazy 80-100 hour a week jobs. I didn’t love it –it was a rough existence — but it was a means to an end. That was the way I viewed it. I knew that I wanted to go to business school, which I did and then went to Wharton after 2 years at Morgan Stanley and then after 2 years in Pennsylvania I moved to Chicago. So I’ve been here for 22 years or so. So, I moved to Chicago and it was funny because my business school colleagues everyone was very focused on the function in terms of driving their next move, their career choice. I was more geographic focused. I knew I wanted to go to Chicago. So I had all kinds of great opportunities in New York and I had every reason in the world to go back to New York City and I just did not want to lay the roots there. I thought since I’m from the Midwest already Chicago was a better, smaller version of New York that had most of the good and not nearly as much of the bad. So that’s how I viewed Chicago and that’s when I made my move so I came here in 1995. I was an investment banker in the real estate sector for a little over 5 years and then in 2000 that’s really when I pursued the big move out of corporate America and I was obsessed with the car wash industry.
P: Well that is an interesting I like where you’re going with this. So at first you’re like every really smart college grad. You just pick the destination — it’s almost like picking a place where your girlfriend or boyfriend lives and following them but you were married to the Midwest. And then you were thinking hey this investment banking job — I definitely got to get is the car wash industry.
A: Yeah, listen it was a seamless transition. I spent nights and weekends looking into this industry and it got to the point where it was either “do it and let’s move on” or “don’t do it and continue down another path”. So, I left my job. My car wash deals ended up not panning out. I ended up officing with my father-in-law and brother-in-law who were in the gasoline station business and after a little time we ended up doing a deal together where we bought a gas station and we renovated it. And eventually sold it and turned that into a travel center or a truck stop and I spent about 7 years in the travel center business. We were operating out of Chicago but mostly in Indiana. The attraction of the popcorn business versus the travel center – it was almost the opposite kind of business. In the travel center business you could do millions of dollars of revenue going through the cash register on a monthly basis. And the margins were so razor-thin that at the end of the day if there is anything left to split up, you were super happy. So super tight margins whereas the popcorn business is just the opposite– super wide margins if you will. Maybe the sales weren’t going to be there but over time you could figure out you didn’t have to do everything perfectly like you did in the travel center business. It needed to be perfect in the travel center business. In the popcorn business I figured there was enough margin there that if you made a couple mistakes you could survive to fight another day.
P: You just decided, “I need something that’s different than what I’m doing now”. You didn’t necessarily have the perfect thing the first time you took your step into being a true entrepreneur. Is that accurate?
A: Yes, that’s accurate.
P: And then it sounds like you started to learn on the margin analysis that you’re thinking if I’m going to go do this again how do I put myself in the best position to have wind at my back so you’re kind of looking at it from a banker perspective a little bit. So you started looking at margins and you’re like “oh here is something that could be good margins” and that kind of got your thinking flowing and you came up with popcorn?
A: Yes. So, it wasn’t his as unsophisticated as a leap as it sounds but still it was a big leap.
P: Right, but I think for the entrepreneurs who are listening it shows that it’s pretty hard to have a prescription exactly how to be successful. There’s a lot of different steps and sometimes successful and sometimes they’re not. But clearly you made I heard this popcorn thing kind of worked out well for you is not right?
A: It worked out okay. So we actually started a retail popcorn business similar to Garrett’s. They sold to some private equity guys. They moved it right out to New York City and then they made some substantial bets that to me didn’t make any sense from a real estate perspective and a cost analysis. Ultimately, it didn’t work out for them, but they’ve come back and they’ve done a fantastic job since then.
P: You saw an established player that didn’t have a lot of competition that you thought that you could innovate in the market and coincidentally they did exactly what a big player often does is it that they were looking at how do you really move the needle big time and took the missteps right when you’re entering the market.
A: So, here we were and the business is called Wells Street Popcorn. It was a profitable business but we were pouring every penny of profit back into the business to build it. And literally over the three years that we ran this business, it was 2008, 2009 and 2010, it only paid for my cell phone bill and that was it. No other compensation.
P: Oh that’s fun in the family isn’t it?
A: Yeah, that was rough.
P: What was the light at the end of the tunnel? Because it wasn’t at that time what turned out to be, right?
A: The light was awfully dim. We were pursuing this dream and I think we were a bit off. But we knew, that a couple things number one that we liked working with each other, (Pan and I) and that we are really good team and we knew that we’re going to figure something out. Now we ended up making this great pivot in 2010, which was, and the reason why we needed to make this we’re really forced to make a pivot was we didn’t know that it was going to turn out the way that it did. But at Wells Street Popcorn we were selling a very decadent product and the way that consumer trends were moving was towards health and wellness and better-for-you and here we were trying to sell this decadent product into this marketplace. And it just didn’t make a whole lot of sense. Multiple things going on simultaneously. One was we started to sell the Wells Street Popcorn into local grocery stores. So, we got a taste for the distributor model of wholesaling. We also landed a significant account with a major theater operator in Chicago they were then selling Wells Street Popcorn. And a light bulb went off with that regarding “they’re putting these orders for hundreds of bags of Wells Street Popcorn and we thought ourselves it’s a lot easier to get 100 people. It’s a lot easier to get one person to buy a hundred bags then it is to get a hundred people to walk into your store and buy one bag.
P: Look at what that business goal paid off.
A: Right, I mean these were pretty obvious things but here we were we’re in the trenches trying to you know sell these bags of caramel corn and cheese corn and so that happened. And the other thing that happened and it happened pretty often. People would come into our store and they would say “best popcorn I’ve ever had. Better than Garrett’s — see you next month”. So that was kind of a pat on the back and a kick in the rear end. So Pam and I were left with this—we’d look at each other and we think how we’re going to get them to come to the store more frequently? And so that was the puzzle that we were trying to solve. And we had looked at all kinds of different avenues to get to increase foot traffic in our stores. But ultimately we decided on creating Wells Street Popcorn “lite”. So we started experimenting with different kernels, better-for-you seasonings, and better-for-you oils. There’s a store in Lincoln Park close to a gym close to a large gym. And we thought that was going to be a home relocation. Lot of young people, lot of millennials walking by and the store has done okay and it was because these young people that were going to and from the gym were not interested in a very decadent bag of caramel corn. So, you know we needed to solve for what were they looking for what is it that they wanted? We thought you know maybe they would want a healthier popcorn treat. So, we sold our first bag in August of 2010. We literally hand packed it, hand sealed it with one popper and one sealer for the first three and a half months and we were butting up against some constraints in terms of we had a bunch of bottlenecks in terms of we are making it in the back of one of our stores we only had the space to keep all we could really fit was about50 cases. So we could make about 600 bags in a day so 12 bags in a case, 50 cases, 600 bags. But we found on an open buying call at a local independent grocery store someone that we thought could help us in this endeavor and it turned out to be our first distributor. And this guy had a little basket that had some other snack foods in it and he signed in before us and I looked at Pam and I said that’s going to be our guy. And she’s like what are you talking about? So we signed in behind him, jotted down his name, Googled him and his company, called him later that day and met with him and it turned out he was a food distributor. And he dealt in the salty snack category. To us, his sales pitch was he thought he could deliver all 17 of the Whole Foods in the Chicagoland area –there were 17 in the area. This is going back to 2010. We thought if we could hit all 17 Whole Foods we would be you know we would be way better off at that point. And we so what we did was we literally popped him up some fresh SkinnyPop. We showed him poster board in our office of what the back was going to look like.
P: Did you come up with the SkinnyPop name then was it always SkinnyPop since day one because that’s critical everybody knows SkinnyPop.
A: So the minute that we cracked the code on what is now SkinnyPop we looked at each other and we said boy this is not going to be the better for you Wells Street Popcorn better for you version like in our retail stores. Let’s figure out a way to get these into a bag onto a grocery store shelf. So that was the plan. We sat in the office. We came up with the name in about 5 minutes or less. There were a few other names out there that we liked, but SkinnyPop was the one that we stuck with.
P: That’s great so all you entrepreneurs and listeners out there thinking about this I mean this is just the story of commitment to your trade and looking for opportunities. You can really get a sense of the opportunity – the name SkinnyPop, a lot of people would have taken forever to come up with that. And you guys did it in less than 5 minutes?
P: But, it worked out for sure.
A: It worked out great, this is August of 2010. We didn’t have a big distribution plan and I should probably underscore this: Pam and I came to this with zero food and zero CPG experience. So, we
had one distributor and what was great about them is that they were willing to come to our store and pick up 5 days a week. So, we couldn’t pop you know on Friday, Saturday, Sunday because there was nowhere to put the 50 cases. But it was a unique situation because we knew that it every case that we could make they were going to buy from us and they knew because they were getting pulled retailers that every case they were getting from us they were going to sell. It was a win because the consumers were demanding it of the retailers.
P: That is clearly something that we would look at look at it as Hyde Park Angels and Andy is a member of Hyde Park angels as well but we would call that product market fit. I would think that when you have demand where consumers are pulling it off the shelves and you’re starting to expand. So clearly it continued to grow right? And when did you go from giving it to people out of my back door to having a loading dock. How did that transform?
A: So we were nose to the grindstone – popping, sealing, packing, delivering and we found out again since we had no food experience and no CPG experience that there was a whole category of business out there called a co-packer and we found out what they did it was huge for us and what they did was they could pop it on our behalf so all of the manual labor of actually creating the product of popping the SkinnyPop we found someone to do it on our behalf. And it was huge because the one differentiator for SkinnyPop is it is allergen-free so to find a co-packer so once we found out about this category it was very difficult to find someone that actually did what we wanted them to do. So, there are popcorn co-packers out there but we haven’t to have found someone that was I would call them a value-added manual labor business. They had no other food in their facility but they had this one piece of equipment that we really wanted to eventually use and it’s called a vertical form-fill-seal machine. And it was basically an automated way to pop and bag the SkinnyPop.
P: So, for those folks that I know we have some people that would be listening today… this co-packer solution is really something that you need to understand if you’re looking at putting a product on the shelf because it really the overall cost are significantly reduced, would you agree, Andy?
A: Well, the upfront cost. Because some people might argue, the big CPG companies probably would argue that you’re better off manufacturing it in house overtime.
P: Over time though, right? But this is the entrepreneur story right so you’re not —
A: Right, so it would have cost millions and millions of dollars if not tens of millions of dollars to build the facility like this. On January 1st 2011, that’s when Pam and I separated ourselves from Wells Street Popcorn and focused ourselves 100% on SkinnyPop.
P: When you started to build this out when did you start thinking okay we can do this nationally? How did you approach that?
A: So, we were so hyper focused on building the brand and first making sure that we saturated the Chicago market and we had our first big break out of the Chicagoland area which was it was at a store called Schnucks based in St Louis. So not so far from a national perspective but it was outside of the Illinois border. Because we didn’t know if this was a Chicago phenomenon or if this really had legs and we could go nationally. That was our first full truck order at Schnucks and I remember the day like it was yesterday because there was an issue with the delivery and eventually the popcorn got there and it was a tremendous success. A couple things happen when we got the check for that order that was really what put us over the edge, in terms of from a cash flow positive stand point. And number two when it was successful we knew that we had a brand that could travel. And so, from that moment on it was a race to try to get SkinnyPop as quickly as possible across the nation.
P: What were some of the core milestones that you saw come together from there?
A: So, we sold our first bag in August of 2010 and we hired our first employee in September of 2012. So we went over two years, just Pam and me, doing 100% of everything but for the actual popping once we found that co-packer. So, there’s no roadmap there’s no one, for even 20 seconds, that gave us a hint as to what we should as next steps. I would say true coast to coast was probably early 2012. It probably took us a year to go coast to coast. So, by the way at the end in July 2014 when we ended up selling the majority of the business just to put things into perspective we were working with approximately 60 distributors.
P: How many employees at that time?
A: Well, it was Pam and me and we had 4 administrative staff in our office and we have 5 sales people.
P: Really? So you could outsource all that? With being able to pack it up and clearly you got a lot of volume involved. Ok.
A: I would argue that Pam and I probably did the job of maybe six or eight people each.
P: Let’s just say 10 each. So 20 people. So you had a staff of including you two –40.
A: Yeah, right exactly. But there was just 11 people, but we were super focused. It was a lot of fun.
P: Wow. So, you’re coast to coast. How did the whole investment process come into place?
A: So, we actually this was earlier in 2012 when this started to happen. I refer to it as the year of the private-equity guys. We were on the radar of most significant from a size standpoint private equity firms that would invest in brands. And so we spent a good portion of 2012 while building the business also fielding inbounds from these private equity firms and meeting with them and they would come to our office and they would look around and keep in mind we didn’t hire our first employee until September of that year so half of the time they would look around and say where is everybody? And we would say well it’s just the two of us and they would look at our financials and they would say I don’t get it. Or later in that year they would see one person on the floor and have the same reaction. But so I kept saying to them … because by the way were profitable, cash flow positive, very profitable and we just didn’t know what to do with this capital that there are waving in front of us. And so I kept saying to them what is it that you would make us do with this capital if you were to invest. They would say, well you have no sales team and no infrastructure. So we need to build up this business and so Pam and I would kinda look at each other and say yeah, okay but there’s too much opportunity right now will go back to work and continue to build the business because it was on fire. And then in early 2013 we took on a minority investor and the reason why we did it– it was not about the capital but it was very strategic. It was because to respond to all these private equity firms that kept telling us we needed some sales force and infrastructure we took on an investor who had a lot of experience in the salty snack business. He founded a company called Sensible Portions and their hero brand was Veggie Straws. It wasn’t about him it was about the fact that he had a sales team of five people and those are the five people that became our sales team. So, we took on a little investment and then we all of a sudden had an instant sales team of buttoned-up professionals that really ended up doing a great job for us.
P: And the impact of that was? Enormous? Multiple of 2? 15? 30? 7?
A: You know it’s hard to measure the impact of it because we took on in this investment in May of 2013. They weren’t really speaking the SkinnyPop language for 4 or 5 months from there. And 6 or 8 months later we ended up selling the majority of the business. So we had the roadmap mapped out and they did block and tackle and they did a great job. We continued to build the business profitably, we still had a small overhead and then one day an investment banker who has really is a premier guy in the middle market salty snack business. He made it his business to become very close with us over the years. He said it’s time. It’s time to sell your business. We were not thinking in those terms at this point, but he said it’s time. So ultimately we hired him, we had a very small process, we only talk to a handful of strategics and then I would say out of left field came TA Associates which is the firm that we ended up selling a majority of the business to. That was in July of 2014. That was an amazing transaction for us. But the plan was and we really like the guys at TA and the plan was to make SkinnyPop the base for a better-for-you snack platform, which is what we’ve ultimately done.
P: That’s awesome. Then you guys went public?
A: Yes. Yes.
P: Andy this is a great example of having an idea what the market could bare. Being able to see consumer behavior and pivot into it. Creating a unique way to actually distribute the product, which I think is really starting to take off in today’s consumer household. So SkinnyPop is now being distributed in a bag that was your core bag and you were able to really look at how to manage cash efficiently. You finally got to a point where capital was priced right for you to expand which you did which created new opportunities from a strategic investor which ultimately you partnered with. And then you took SkinnyPop and built a platform that you would have a complimentary of products that we’re in this SkinnyPop vein of really hitting that consumer’s palette as well as their psyche of how they can eat healthy and at the same time enjoy the food. In the simple foods category, what do you think are some of the key trends that are emerging?
A: I think I’m going to cut to the conclusion right off the bat. The product needs to taste outstanding. Period. End of story. So, I think the trends are towards, cleaner labels, ingredients that you can pronounce all of the names, simple ingredients. But everything in the better-for-you category is on trend right now, but ultimately if it doesn’t taste great you can fool the consumers with an interesting name or a differentiated packaging. At SkinnyPop we viewed the success really in three different categories. One was the name. Kind of an entrusting and differentiated name. Second thing was the packaging it was differentiated; it doesn’t look like anything else is on the shelf and then at the end of the day you need to deliver on the product. It needs to be outstanding. When I say outstanding I’m not just referring to fresh and delicious which it needs to be. You can’t feel like you’re sacrificing when you’re eating the product if you think you want it to have long-term legs. So when you’re eating SkinnyPop it just tastes like fresh popcorn. There are other products that may taste okay but it’s a sacrifice. It’s not as good as the real version of that product and that’s really what I’m saying it needs to taste great. I think from a mental standpoint you need to not be making a sacrifice.
P: I mean you guys did something different that nobody was doing. So why don’t as soon as General Mills sees Simple Mills or Quest Bar sees RX bar why don’t they just automatically steal the idea and start doing it themselves?
A: You know the big CPG companies are not built to innovate. Because they’re so big that in order to move the needle these little, small they don’t want to put forth the time or effort to incubate new brands, new concepts or new ideas. So it’s easier for them to go out and buy brands once they have established themselves in the market.
P: Because they have like you were talking about the cold packing facilities. So they’ve made the investment to produce foods just like this so they get economies of scale, correct? And they have a thousand people that are establishing their brand they can’t innovate on a brand that day. And so I think that many people think well technologists have all this all you have to do is start but website. I think that the person that is thinking how do they allow people to live a better life by eating better food it’s kind of there day, right? If that person that is thinking you know what I’ve been inspired by Andy. I’m going to start delivering stuff and baking this. You’ve inspired some people. What advice would you give them that if you would have known when you first started SkinnyPop — that if somebody would have told you then and you would have it would have saved you a lot of time or a lot of money time or stress. Is there one thing that you’d want to share or a couple things?
A: Well I got to tell you I knew then what I know now I probably would not have done this. Because it is so cut-throat competitive out there but I’m beyond thrilled that I did do it. Fortunately, we just didn’t know what we didn’t know. But I think a well-thought-out plan needs to be established. We had a pretty good idea and a great product. We put forth a lot of time and effort in order to build this product but I think a good plan with a great product will always win the day. I think that without passion about the product you don’t have a chance.
P: Yeah I think that’s the one thing that I think is universal is you have to be passionate about what you’re doing and everybody’s heard that to every entrepreneur that they’ve talked about. But diving into your story from gas to popcorn to healthy foods you’ve made a huge commitment of the Midwest seriously we really appreciate that. I know you’re an advisor too many people that are looking at this so we thank you. I know that as a Hyde Park Angel member you’re always willing to provide some advice. Andy, I really appreciate the time that we had together. Hopefully we did a nice job for all of our listeners today talking about what it’s like to build a company like SkinnyPop and how you might be able to do it too. Thanks a lot everyone!