5 Success Lessons Entrepreneurs Can Learn From Chobani
Entrepreneurs must have passion and courage to start a new business - leaving the safe way and doing what it takes to make something new is not easy. But as companies grow, the needs of the business change and when it comes to the top spot, even the best founders must often be replaced. We are seeing this now with yogurt tycoon Hamdi Ulukaya at Chobani Inc., who in just 5 years made Chobani the most popular brand of Greek yogurt in the United States, growing revenue to over $1 billion by 2012. Then in April 2014, Chobani made a $750 million loan deal with private-equity firm TPG that required Mr. Ulukaya to replace himself as CEO. Mr. Ulukaya’s success made him one of the wealthiest people in the world, and his experience is instructive for entrepreneurs that build successful companies.
Successful Entrepreneurs Talk to Professional InvestorsWhile Mr. Ulukaya brushed off investors during the years when Chobani was crushing the market, he says now that the biggest lesson he learned since making the deal with TPG, is to talk to investors sooner rather than later, “before you need them, so you can get to know them,” according to the Wall Street Journal. Professional investors like TPG have specific skill sets, especially in risk management, and can tell you what you need to know before you show up asking for money, information that might help you avoid mistakes. Mr. Ulukaya is stepping aside as CEO, but will remain as Chobani’s chairman and so far has avoided the biggest risk of mismanagement, which is losing majority ownership. TPG’s warrants only allow it to obtain an equity stake of 30-40% in Chobani, leaving Mr. Ulukaya with the remainder, estimated at $3-$4 billion on a valuation of $5 billion.
Successful Entrepreneurs Hire Management Geeks“We didn’t have any corporate executive types,” Mr. Ulukaya told the WSJ, “I didn’t want to hear all that marketing, supply chain, logistics stuff - most of it is BS.” In what might be viewed as an act of defiance against BS, Chobani built the world’s largest yogurt factory in Twin Falls, Idaho, a factory more than twice the size of the largest owned by market leader Dannon, owned by Danone S.A of France. Difficulties in managing production at the facility led to failures in quality control, which drew scrutiny from the Food and Drug Administration, and eventually a massive recall on September 5, 2013.
Geeks to the rescueAs part of the TPG deal, the private-equity firm installed 9 operational consultants and made TPG-partner Kevin Burns head of Chobani’s global operations. Led by Mr. Burns, who received a BS in Mechanical and Metallurgical Engineering from The University of Connecticut and an MBA from the Wharton School of Business, the TPG team identified $10 million in procurement savings and $76 million in waste, mostly bad yogurt. The team also introduced new technology to improve the viscosity of the yogurt and opened new distribution centers to improve logistics and customer service. As a result of the changes made by TPG, Chobani’s operating results recovered from a $115 million EBITDA loss in the second half of 2013, back to a profit by the second half of 2014.
Successful Entrepreneurs Respect the CompetitionFrom its beginning in 2007, Chobani grew sales so fast, that the company controlled almost 60% of the US market for Greek yogurt at its peak in early 2012. Chobani handily beat market leaders like Dannon, and Yoplait, owned by General Mills. But when Dannon and Yoplait started to fight back, Chobani was not prepared and by the end of 2012, the upstart’s market share was down to less than 50%.
Goliath starts winningTo beat Chobani, Dannon launched three separate lines of Greek yogurt - Oikos, Light & Fit, and Active Greek - and Yoplait introduced a low calorie version called Greek 100. While Choabani was having a hard time meeting orders, its big new plant was not well located and its distribution network was spotty, the big brands used superior logistics and market muscle to gain shelf space. Then they ran Super Bowl ads to say, our yogurt tastes better. Another blow came in December 2013, when Whole Foods announced it would stop carrying Chobani, choosing instead to favor other brands, only a few months after the recall.
Successful Entrepreneurs DelegateFor most of the company’s short history, Chobani retained its earliest hires in top positions, including Mr. Ulukaya, and eschewed professionals with more experience. Declining market share beginning in early 2012 did not cause changes at the top, but after the recall in late 2013, Mr. Ulukaya took action. By the end of 2013, Chobani had food and consumer company professionals running finance, safety, quality control, supply chain, and operations.
“I should have change those positions three or four times in the time we went from $0 to $1 billion. But I didn’t change anything, because they are awesome people,” Mr. Ulukaya told the WSJ.