Brad Oberwager, Founder and Chairman of Sundia Corporation, shares his thoughts on growing multiple successful consumer packaged food companies and his recent sale of Bare Snacks.
RJ: Brad it’s great to connect with you today. If you wouldn’t mind, why don’t we start the conversation off with Bare Snacks given you recently sold the business resulting in a very successful outcome. Could you give us the overview of how you first started with the company, what you did to build value, and then how you ultimately managed an exit?
Brad: Absolutely. So here is the funny thing about Bare Snacks. I was originally introduced to Bare Snacks when I was CEO of Sundia Corporation and we bought the Sunkist fruit cup line from Old World Industries. Old World Industries is the largest supplier of antifreeze and de-icing chemicals in the United States, but the CEO wanted to get involved in the food industry because he had such great exposure to so many outlets so he started a fruit cup business which competed with Sundia. He also acquired a company called Bare Fruit from a guy named Eric Strandberg in Washington State. Then two things happened before I acquired Bare: the first thing that is important is that I got fired from Sundia. It was one of the great good news/bad news stories in my life, and one of the things that I’ve lived by in business is that you never know for years whether something is good news or bad news. So after that occurred, I continued as Chairman of Sundia and acquired the Sunkist product line from Old World. I also wanted to buy Bare but the Sundia board elected to pass on the Bare opportunity.
At that point I contacted Old World Industries and asked if they were still willing to sell Bare, and they were because when you look at these big companies, they have such massive infrastructure to manage a very small subsidiary, that it really becomes very inefficient to them to hold on to these smaller businesses. It was a win/win on both sides. They had this small company that they were struggling with a strategy for and I was unemployed at the time and looking for an opportunity.
So in December of 2010 I was able to close the acquisition of Bare Fruit, and at that time it was not a large business; it had some losses and was losing money. I spent the first year building out the infrastructure because I didn’t buy a lot of infrastructure since it came out of a big corporation. Then we rationalized the product line and worked hand-in-hand with the original founder getting rid of SKUs that made no sense and honing the offering. At that point we embarked on a repackaging and rebranding exercise for the majority of 2011. So the initial effort was really just getting the company to break-even and into a rational spot. I loved the product, and that was always my obsession. I also really like the name Bare and had a vision at that time that people were going to want more transparency to their products. People were going to want more simple ingredients in their products. People were going to want more trust, and trust was eroding in the large consumer package goods arena so smaller companies were able to build better relationships with their customers.
RJ: Could you shed some light on how you were able to quickly hone in on what needed to be done to reposition the company? Was it primarily from your experience with Sundia and just knowing the market, or did you bring folks in to help you effectively reposition the company?
Brad: In the beginning of my career my first business was consumer packaged goods, and though it was a company in the nutritional supplements arena, it utilized technology to market its products in the very early days. So when I started Acumens, which was the name of the company, CDNow was one of the darlings of the industry way back in 1996. So that company was acquired by a company that was eventually called MORE.com which is where I got my technology chops, but really I always came from the consumer packaged goods industry, even MORE.com was a CPG company that just depended on technology for its marketing. When I started Sundia, and Sundia was started literally in my garage, that’s where I started to learn about the CPG business, about what drives that business and what I’ve felt and still feel is important in that business. A lot of the success of Bare wasn’t a result of incredible CPG knowledge in terms of the due diligence process, it was more from that mindset of “let’s make things bigger, and better utilize technology” applied to the CPG side of the business. Both Bare and Sundia run very heavily on using technology, and a company like Sundia is highly efficient with 13 employees supporting its $45 million in sales. It’s very interesting how that kind of all comes together.
RJ: One of the things that we consistently talk about with successful investors is how you spot a winner. You’ve highlighted some of the things that appealed to you when growing Bare, but you’re also a serial entrepreneur. At a higher level it would be interesting to understand how you analyze businesses and how you determine the various things you get involved with.
Brad: So number one, I feel that there is one thing in particular that is just table stakes, and that’s the product itself. So when I look at any investment, company or product line, I believe that people underestimate the importance of product, even the people that say, “Product is the most important.” For example, if you go out and do product testing and you find out that 80% of the people love your product, I call that a failure. When you’re product testing, it’s got to be 100% love of your product because these markets are tough. Building businesses is hard, and those of us that have done it have a healthy respect for how hard it is. If you’ve got any chinks in that armor right from the beginning, that’s going to make it too hard to progress quickly so the number one thing I look at is the product.
When I also start to analyze what could go wrong, I break it down to four things. The first thing I mentioned is that your product isn’t good enough and someone else in the marketplace has a better product than you do. That’s a problem because you will eventually fail if you don’t successfully reinvent yourself. The second thing is you can actually have the best product but you can get out-marketed. And I mean marketing in the classic sense, the four P’s, with which you can get out-priced, you can get out-distributed, or you can get out-promoted. So there are a lot of things that can go wrong, even if you have the best product, if you don’t have the right marketing.
The third thing that can go wrong is you’re just going after the wrong group of people. I spend a lot of time focusing on a product’s category; you want to surf big waves in CPG and you want to be in a category that makes a lot of sense for the future because things take time. And then the last thing that can go wrong is your finances. You can have the right product, the right marketing, and the right strategy, but you just don’t have the right financial capability to accomplish your goals. So I assume that if the four things I mentioned are addressed, the other things you will be able to solve. Of course you look at Porter’s Five Forces, competition and barriers to entry and things like that, but you can get through a lot of that if you’ve got these four things figured out.
RJ: When you got started with Bare and did your full analysis and strategic assessment of where you needed to go next were you off in certain areas or surprised by certain things that really caught on?
Brad: Well I had a gut feeling that the product was incredible. Where I thought there was a real problem was on the marketing side. I loved the strategy and felt that I could figure out the finance, but I thought that they were getting out-marketed by their competition and got very focused on this point. The reason why I purchased the company and the reason why ultimately I think it was so successful is that we changed their marketing, we changed their pricing, we changed the product mix, we changed the distribution, and we changed the packaging. That was the reason that the company was less valuable when I got involved and more valuable when the next person got involved; it was because of that one sliver, and that’s all it takes. To buy something that has all four figured out, you’re going to have to pay too much. Big companies can do that, but for us smaller investors that try to buy these companies, what you’re looking for is something that’s actually missing one of those four things where you’re convinced you can fix it.
RJ: That’s very interesting. You mentioned the big CPG companies that have a lot of spend that can go into the various areas whether it’s R&D, focus groups, or quant testing with distribution built in. They can just flip the switch and it all works because everything’s so heavily tested. When you’re working with a younger company, you have to be very cognizant of your spending. Was this a case where you felt you had enough money and margin for error, or were you placing bets in certain areas?
Brad: We placed bets. So even though I had all of that analysis done, there is a certain amount of luck involved or at least there’s some chutzpah that has to come into this. There’s some gut feel in bringing the right people onboard, bringing the right partners, and management team. A lot of what has to happen when you’re a small company is you do have to place your bets. It doesn’t matter who you’re competing against. When you’re competing against Campbell’s, to you they have all the money in the world. When you’re competing against ConAgra, to you they have all the money in the world. You have to be much, much smarter. When I give presentations to large companies who bring me in because they want me to talk about acting more entrepreneurial, I get their marketing team together and I say, “Okay, everyone think about what you want to do next year. I’m going to hold you to 2X what you just put in your mind, only the difference is you have zero budget, now what do you do?” Now what do you do is the question that entrepreneurs and us smaller guys are asking every day because that’s all we have to do; we have no money. Our marketing teams internally are competing for dollars. And so darwinianly, the best ideas are coming to the top.
That’s why some of these small companies are so creative; it’s out of desperation, not out of intelligence. It’s out of being so afraid of failure that you’re willing to try new things. For example, at a company like Bare, when we tried to figure out how do we get our product out there, someone came up with the idea, “Well, let’s come up with an urban orchard and let’s tie our little apple chips to trees in Central Park and offer them for free so that people can come up and pick a bag of apple chips off of a tree.” That’s the kind of creativity that comes from no budget. That’s the beautiful part and it’s what I have become completely addicted to as an entrepreneur. I am obsessed with what to do with no budget, what to do when you’re trying to change the world and have them look at your product in a different way.
And above all If I had to pick one thing that we did at Bare that changed the game it’s the team we put together. Where we excelled was our total commitment from a personal basis to the product and to the concept, and an incredible bias towards action. That’s what set us apart. We started with the clay but it was the team that molded this business together. There were things that happened during the ownership of Bare that could only be described as personally disastrous. I was diagnosed with cancer in late 2013 and given a very bad prognosis so I had to slowly pull back from the day-to-day as I was getting chemo and radiation. That put a lot of pressure on the team, and they didn’t miss a beat. There was no concept of being unsure of themselves, and so not only did it teach me a lot about leadership, but that actually I’m a servant to the team. When you come to the team with a concept you’ve got a great concept. When your team comes to you, you get 10 great concepts. That’s the one thing that doesn’t show up in the four items I previously mentioned, but to me the most important thing is the team that you put together.
RJ: And was this a team that you had assembled or were they a legacy from what you bought?
Brad: It was one of everything. It was one person who was the original founder, Eric Strandberg, and it was one person that came on board very early on and was my true partner in the business, Matt Fuller. It was also one person that came to me through an investor and then it was one person who that person subsequently brought on to the marketing team. Then it was a person who I had worked with for years and years and has now worked at four companies with me. So when you looked at what we had, our team had worked together through various states for multiple years, and we had this bond and commitment that really got us through everything. Bare was a lifestyle. Bare was a commitment. We were extremely transparent, and that’s really what brought everything together.
RJ: That’s excellent. That’s something that we have found in speaking with both investors as well as CEOs that team is the one thing that always makes the difference and pushes the company into the success category. Could you share with us the general return you experienced through your exit and how you thought about the timing of the sale in the grand scheme of the business?
Brad: So I can’t give you specific numbers, but I’ve put that asset into the hands of a company that’s going to make it worth a lot, lot more. The investors that didn’t sell, the ones that helped me build Bare and that are still involved, I should think they’re going to make a multiple more amount of money than I am. I think Bare is exactly where you want to be in the marketplace right now in terms of its product vision, its marketing and its opportunity. So I’m actually quite jealous of the new owners. But that said, in life, like I said in the beginning, you never quite know whether something’s good news or bad news. I’ll do something else and we’ll see if I’ve sold early or not.
My father used to tell me something that’s always stuck with me, that for these businesses the main thing is always to keep the main thing the main thing. That’s what these little businesses are very good at doing, and that’s what allows you to sell the asset and move on and go do your next thing. My main thing is to be an entrepreneur and to take small brands and small ideas and get them to a point where someone else can take them to the next level. I’m very comfortable with that role and I like that role a lot. I don’t want to be CEO of a public company, so I have identified my main thing and as an investor and for your other investors I think that it’s important that they do that too.
RJ: To wrap up could you highlight the path you took in your career that led to these events on a high level? We see that in many cases entrepreneurs have had a lot of different experiences.
Brad: Yeah, I can go through it real quick. Upon graduating Georgetown University in 1992, I went to Wall Street and became a financial analyst at an investment bank, Bear Stearns. That’s what gave me that financial acumen, that ability to rip apart spreadsheets. It was the classic work 100 hours a week, but it really gave me a focus on the fact that there are big things out there. One of the great things about working for an investment bank when you’re young is that all of a sudden you see all these zeros attached to everything. It’s just as hard to have a vision to build a small company as to have a vision to build a big company. I like starting small, but I always had the vision of building the big company. After that I went to Wharton, while I was at Wharton my sister was diagnosed with cancer, she actually came up with my first idea. In fact, I have not come up with many of my ideas at all. I have just made other ideas better.
So I was an entrepreneur major and my entrepreneur professor gave me the final half credit I needed to graduate because he said, “If you can sell one box of this product before you graduate, we’ll call that a school project.” That was just amazing, that got me going. I didn’t even know what I was doing, but I built that business and sold it to a dot com during the dot com hype and ended up becoming president of that dot com. It raised a lot of money and was acquired during its IPO process, but then the company failed. I went deeper into technology for a little while with a company, and then learned that I didn’t want to be in the software business. So I exited out of that and started Sundia with an amazing partner, Dan Hoskins, who has taken over as CEO for the past few years and he’s done an amazing job. I was then able to do Bare and that’s now in the books so it’s onto the next chapter.
RJ: Brad, thank you for taking the time with us here. You shared some great insights with us, which our readers will get a lot out of.