Milking an Organic Idea

Gary Hirshberg is an unlikely entrepreneur. He studied climate change at Hampshire College and worked at an ecological research center for half a decade after graduation. By 1983 he'd left the job to work at Stonyfield, a struggling organic farm and education center in Wilton, N.H., that was on the brink of bankruptcy. Still new to the facility, Hirshberg sat around a table with the farm's founder,Samuel Kaymen, and a handful of other workers to come up with moneymaking ideas to save Stonyfield. At some point during that meeting, somebody dished up some yogurt made from the farm's seven cows. Someone said, "This is incredible." (Article continued below...)

That's essentially how Stonyfield Yogurt was born, but its tale of survival is a bit more complicated. In those early years, Hirshberg's ambition and business skills didn't always run on parallel tracks. Stonyfield was growing, but it was undercapitalized. When the economy slumped in 1987, the young company and new CEO found themselves short on cash and credit. He borrowed money from anyone he could, including his wife, his wife's parents, and even $25,000 from the Sisters of Mercy, a local order of nuns. It took a few years, but Hirshberg managed to right the company's balance sheet and helped hook Americans on organic foods. Here, Hirshberg explains, in his own words, how he got the company profitable, why he sold much of the enterprise to multinational food conglomerate Danone, and how he structured a deal that leaves him in full control of the business he built. —Kurt Soller

 

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We started selling yogurt in 1983. By 1986, we had outgrown what was then Stonyfield Farm. To expand, we leased space at a neighboring dairy. Unfortunately, we didn't look at their finances. While things were fine for the first three months, the dairy's banker called me at home one morning and said they had no money and that they were going to go under if we didn't buy them out. We really had no cash. By 7 a.m., the dairy had shut down. They had padlocked all our cups and yogurt and fruit and milk. We had to come up with $200,000 to rescue our own inventory.

The enterprise was now twice as large, which was too big for our old farm. We had to borrow more money just to restart and retool. In the ensuing 10 months, we began to lose barrels of money—on the range of $25,000 dollars every week. All I did was raise money, and borrowing from anybody was fair game. My wife's father died and in straightening out the estate, she was getting $35,000. I was burning money like there was no tomorrow, but she said I couldn't touch her money (that was the nest egg we were going to use when we got out of this nightmare). Eventually, though, I had to use it to buy fruit! That was only the beginning. There were times I would have to call her mother, asking to borrow another $5,000 to meet payroll. I would creep to the telephone, and by the time I picked up the receiver, my wife would be on the phone: "Don't do it, mom," she'd say.

All the borrowing was supposed to end in 1987 when we tried teaming up with a large dairy in northern Vermont that was going to start manufacturing our yogurt, then we would market and sell it. We were still so broke that I had to borrow money to buy a fax machine to help negotiate the deal, but we thought it was going to save us. I told my wife: "There's nothing that can go wrong, this thing is finally solved, and we can celebrate the end of this nightmare." We arrived up in Vermont to sign the deal, and my partner, Samuel, and I walked in there, and sitting on my place at the table was a one-page letter to me. I thought it was an agenda. Instead, they had decided to retread the deal. They were essentially offering to steal the company, converting our shareholders' equity into debt. It wasn't a deal; it was a steal.

I walked out. Samuel never even made it to the table. We got in my car and we started driving down the highway. It was really blizzarding, and Samuel and I were discussing our Plan B: maybe he would do something in sales, he said. I looked at him and thought, "This guy created the Stonyfield recipe and now he was going to sell widgets?" I was clueless what I would do, other than thinking that my wife might divorce me.