Stonyfield Yogurt's Bumpy Start Up Story

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.

So I turned to him and I said, "What would it take to build a yogurt plant?" We pulled over the car, and two crazy guys in a blizzard started designing a yogurt plant. We got home at 2 a.m. The next morning, I woke up and went to Boston, and went to the Small Business Administration office and the bank and got shareholders agreeing that I could build this plant for $592,500 dollars. Everyone involved in the deal had made their investment conditional on everyone else: my plan was basically stone soup.

Six months later, we opened the first Stonyfield plant—and six months after that, we turned a profit. By 1990, we had grown to $10 million in revenue. Thankfully, this whole thing worked out, because no one else was going to offer us help. I think that's why there's a certain insanity to being an entrepreneur.

Since then, we've been successful because we've never compromised on the cost of the product. We've always paid a premium for organic milk. Normally big companies succeed by making their product as cheap as they possibly can, and they're left with a big margin to use to buy advertising. When you're in the organic business, you don't have that freedom. We've always been limited in terms of advertising, so we found a secret: when you make a better product and you're dedicated to causes people care about, all that stuff builds a lot of loyalty (which means you don't really have to rely on advertising.)

As you can imagine, after all those hard years, we wound up with a lot of shareholders; no institutional investor wanted anything to do with me back then. So by 1997, I had 297 shareholders and many of them had been invested in the company for 14 years. Their kids were going to college. They needed their cash, so I started feeling a moral obligation to liquidate their shares. I started thinking of taking the company public, but I had just seen what happened when Ben & Jerry's was sold to Unilever. I didn't want that to happen, so I started thinking. I wanted to find somebody larger who would buy out the shareholders but leave me completely in control. I went to this investment banker who told me the idea was impossible but that he'd help me try it.

That's exactly what happened. Danone, a French company, bought out 75 percent of the company—today, they own more like 84 percent—and left me one of the major remaining owners with 60 percent voting control: three of the five board seats. So far, they've been true to everything they said they were going to do, and we've grown tremendously with their help. We've launched in Europe and Canada, and I've become a senior player in sustainability for Danone in Europe.

Sometimes, middle managers from Danone mistakenly assume we're just some division, and then try to come in and tell us what to do. But we say we're not a subsidiary and they back off. Otherwise, they really keep out of my way. They've obviously helped improve our facility—our factory is much better as a result—and I get to stay independent. These days, being in business isn't easy. I won't pretend. But with Danone being in the picture, I've been able to focus on growing, selling, marketing, and talking to people about the issues I care about. This is the dividend for what my wife still calls "the bad old days."