Summary Of Insights
- Solve a problem people care about with your product or service
- Find uncrowded places to market – adwords in the 2000’s
- Consider the long term payback of an investment in SEO
- Think about what current habits or processes your customers have – how will you have to disrupt or integrate into those processes for them to become a regular user?
- Set a hurdle rate for product market fit before investing too much time or money into a business
- Get a strong operator – to shield you from the stress of day to day
- Raise money as late as possible – map out the change in ownership via the capital waterfall and the implications of being able to skip just one series of fundraising on your balance sheet
- Setting strict receivables and payables terms early on can help push out fundraising requirements significantly
- Products with fast turns can help prevent working capital constraints that require fundraising that ends up sitting in inventory instead of being used for growth
- The best time to raise is when there is enough pent up demand that isn’t being served because of a shortage of supply.
Who is Mason Arnold and Why Should You Care?
Mason Arnold was born and raised in Austin, Texas (local). He has a degree in chemical engineering (nerd, the cool kind). He’s been a serial entrepreneur since college and his current venture is called Cece’s Veggie Co. They make spiralized past from vegetables.
Mason first started in business by building a candy empire in middle school. From there, he knew he was going to start a business, and only ended up with the engineering degree as a back up plan in case his business flopped (That’s a lot of foresight for a hormonal late teens, early twenties human).
He started working with an environmental consulting firm helping O&G companies get permits. He saw what was happening to the environment as a result and it created a strong desire for sustainability. He quickly weaponized his engineering mindset to understand environmental sustainability.
Mason On Learning New Topics Quickly
Mason: It has evolved. In college and shortly after, it was: get a bunch of books and eventually start speaking with people. Now it’s about finding people closer to the problem I’m looking at and start by having a conversation with that person. They tend to have a direct connection to someone who is significantly more expert at that topic, and I get the intro. And particularly with technical expertise, you don’t get a bunch of excited entrepreneurs asking to learn about what your doing, so it’s generally received with excitement. This process allows me to avoid information overload as Google has almost made information too available, even if it’s not super helpful or relevant.
Chris: What was the most interesting thing you learned while researching environmental sustainability?
Mason: A study came across my desk from a well-known university here in Texas that isn’t known for being super liberal. The study showed that organic fertilizers worked better than synthetic fertilizers in almost every measurable way. Since I had also learned that the number one source of pollution in Texas waterways was residential fertilizers, I was blown away. I started asking, why do people still use synthetic?
As a scientist, I decided to go to Home Depot and I find a major brand rep for synthetic fertilizer. I ask him about the organic stuff, and he tells me it just doesn’t work well. So it turns out it’s a marketing problem.
I set up a responsible landscaping company to change this image, called Earth Action Lawn and Landscape.
On Getting Your First Customers
Mason: My very first marketing campaign was printing up 300 postcards saying that my services were available. I mentioned that we use organic fertilizers. I drove around for a whole day in one neighborhood. I stuffed postcards in people’s mailboxes. At the end of my first day, I felt accomplished.
Next day, my phone rings, and it was a postman. He said, “If you ever put anything in a mailbox again, we’re going to prosecute you.”
So I quickly pivoted. I knew that I needed a new strategy and luckily I’ve always been a technophile. So I created a website and got started in Google Adwords. This was before many people even knew what Adwords were. No one in landscaping was advertising at all. I was number one for almost all search terms. It also created a lot of press because journalists would search for businesses to use as a source and we came up all the time.
Eventually, I got onto a TV show, and generated about 15 commercial requests for quotes. I had no idea how to price commercial jobs so I decided to sell the business with the existing residential revenue and a backlog of commercial jobs that we had won but didn’t know how to execute.
After Mason’s First Win:
Mason: I was like, “This business stuff is easy.” So I started a few more things. One ended up doing okay. It was a drop ship of plasma screen TVs. I never saw or touched a single one of them. Then my magic supplier went out of business or something.
I also tried to play arbitrage on those penny stock newsletter scams. I’d see what they put out and I’d short it as they pumped it up. We would make 20-50% over a few days per trade. That obviously didn’t work long term as these scams started getting shut down.
My biggest attempt was that I raised money to launch a chain of pizza restaurants in Spain. I saw they had a study abroad population of like 5%, so I was going to do American style pizza on the Mediterranean coast. I moved to Spain with my investor money ready to deploy. Several events out of my control (like the Madrid commuter train bombings) changed the landscape there and I tried to pivot multiple times. I ended up getting sick from some uncured meat and the project had to wrap up. I was back on mom’s couch broke, sick, and alone. At this point, I’m 25 years old.
How A Parasite Created A Business
Mason: I was an adventurous eater. I’d eat anything from Cow Brain to whatever. Put it on my plate. After I got this parasite, I got really sick. I kept going to the hospital, but no one could offer a solution other than some strong antibiotics. Eventually they started thinking I might have cancer. Desperate, I decided to go to this Eastern Medicine guy that my friend recommended.
I was skeptical when he hooked me up to some electrodes looking for resonant frequencies or something. He looked at me after a while and said, “You have an Amoeba.” I went back to my normal doctor and asked him to test me for amoebas. The test came back positive.
This opened my mind to the possibility that there was something to this alternative stuff. My intestines had been destroyed and my diet had come down to simple carbs and I started studying the chemicals in foods to see what I could and couldn’t eat. I started to learn about the issues with industrial food chains.
So, I got together with a couple of friends and decided to start my fifth business, Greenling (now Farmhouse Delivery). Greenling was about delivering to your home, organic and local food. I was a pioneer, but it didn’t take long for people to try and copy what I was doing. I think competition is good. It makes you work harder and find better solutions.
Chris: As small business consultants in Austin, we are lucky to have access to bootstrappers who have gotten really creative about getting their first customers. How did you get your first customers in Greenling?
Mason: We started by going to farmer’s markets and signing people up for our boxes and then we started doing online advertising as well. This was a cheap way for us to test initial product market fit. What we learned though is that the shopping habit is a part of someone’s weekly schedule. And to disrupt that is a big order. So you have to integrate into it.
I also applied for and won a number of awards. We got onto NPR and the Wall Street Journal, as well as Entrepreneur Magazine. Another investment we made was in SEO. It is a long term play but it pays big dividends if you’re patient.
How Mold Breeds Another Business Idea
Mason: While selling all this produce at Greenling, we had to throw away perfectly good vegetables that had mold or dark spots. We realized that was ridiculous and so we got a permit for creating a value add kitchen. We started chopping up our onions and peppers and putting those on our menu of offerings. They sold LIKE CRAZY. Side note: We were the first in Texas to do cold pressed juices. We also launched meal kits in 2020, two years before Blue Apron launched. They called us while researching the idea and we figured they were just a small shop in NYC since they hadn’t raised yet. We told them how we were doing pre-prepped meal kits and how they were selling like crazy. A few months later we learned they had raised 50MM.
During my health journey I had also made a bunch of veggie noodles during my cleanse. I felt like the texture was pretty close to pasta noodles and so much healthier. I wondered if they could be commercialized, but knew they had a short shelf life. This would make them hard to distribute.
I took a sabbatical from Greenling and started tinkering with creating veggie noodles. Ultimately, I was brought back to the company to help it through an acquisition. It was a great experience but I knew that I wanted to focus on veggie noodles.
Rocket Ship or Bust – Product Market Fit Via Sales Velocity
Mason: As soon as we sold Greenling, I created the entity for Cece’s Veggie Noodles. I knew I wanted to be a part of a product that had incredible product market fit, not something that was going to be a slough. So I ran an experiment.
I didn’t have a lot of money so I got the original packaging designer for some cash and some equity trade. I had connections at Whole Foods so I asked for a meeting.
I showed them the packaging and the product at a table over lunch and I had created everything from hand. She asked how quickly I could get her 10 cases. I told her I needed two weeks to figure out how to do it. So I raced to the kitchen, started making sleeves and packaging and making noodles!
It had cost me roughly $25,000 to get to this first run. I was ready to see if this thing worked or not. If it didn’t fly off the shelf, I was going to shut it down and try another product. Luckily, the stuff went so fast, it was a clear winner.
Chris: Would you recommend other people try to pitch buyers with an MVP, spend as little as possible, and potentially without even a plan for supplying the order?
Mason: Id say that if you don’t have a lot of other choices (read: money), then go for it. Get product market fit tested for as cheap and as quickly as possible.
Another issue I see around early CPG companies and money is that they raise money from some friends and family. They announce this brand and product to a bunch of people. So there is some Ego and self esteem caught up in it. And where this is dangerous is if the product does OK but not great. Then you end up with this founder who is stuck with this company, and doesn’t want to let it die. They rebrand and pivot to find a product market fit. Sometimes that works, but I didn’t want to waste three years finding Product Market fit. I wanted to find a rocket ship.
Mason’s Thoughts On The First Hire To Make At Your Company
Mason: In my Greenling days, for the first 4 or 5 years, if something broke down, which always happened at night, I’d get a call and have to drive down and deal with it. My phone also always rang when anything went wrong. It’s stressful. So my first hire was and will always be a strong operator.
The way I would address this in the interview was, “If a truck shows up at our facility at 2am, they’re calling you and you only call me if you show up and the facility is on fire. You have the authority to figure things out on your own and make it work. Then we can visit the next day and discuss how it went.”
I actually had a history of making poor hires in my previous ventures so I decided to fix that. I started studying HR. My favorite HR book is called Who by Geoff Smart. His thesis is simple: that past performance is the best indicator of future performance. So I started asking people what they did at their last job? What went right? What went wrong? Then I started using personality tests as well and my favorite ended up being the Birkman test. This test creates a great conversation and helps you get to know business compatibility with people. It will help you quickly see where you complement each other skills wise.
Going from One Whole Foods To Dozens Of Stores – The Art Of the In Store Demo
Mason: The key to getting into new stores is to show velocity where you’re already carried. The entire first year of marketing was with Demos. It was just handing product out to people in stores.
Chris: What does a good demo look like?
Mason: In a good demo, you hand your product out to as many people as possible. The goal is to sell through all the product that we have at the store. And at the end of it, we are either high fiving or trying to figure out what went wrong. I did our first 25 demo’s myself. I somehow talked them into letting me set up to where I was facing our product on the shelf, so I could watch people interact with the product, see my packaging, see where they looked.
I had heard that your product has 3 seconds to catch someone’s attention and convince them to pick up the package. And from there, you have to get them to turn it over and on the back you sell them on why they should put it into their cart.
One day I was doing a demo and I was counting and 95% of people that looked at my packaging picked it up. That was phenomenal. Of those 95%, 75% put the product into their cart. I was thinking, this is insane. So basically, a successful demo gives you a chance to see how people interact with your product in the wild.
When To Raise Money As A CPG Brand – According To Mason Arnold
Mason: “As late as possible.” I actually raised a little too late I think with Cece’s. I wanted to bootstrap it. We were doing well and wanted to figure out how to get to 10-15M in revenue without raising money. I learned all about the Capital Waterfall and what happens to your ownership through multiple fundraising rounds. If you can skip one of those rounds, you have so much more payout at the end during an exit.
Eventually you are going to lose control if you continue to raise and even if things go well, by your third round you lose control of the company.
Chris: As small business consultants, we hear a lot of business owners say that they need to raise money ASAP to grow in CPG. Why do so many CPG owners think they need to raise to get to $10M in revenue?
Mason: I think it depends on the category that you are in. I chose the produce department and the produce department has incredibly fast turns. This means that you have very little money tied up in inventory cycles so the money is very efficient in the business.
You also don’t have free fill’s and some of the other fee’s in produce that you get in other categories that are more competitive. And because it’s a perishable product, we tend to have a higher margin.
Most businesses with shelf stable products or that are in competitive categories have to raise money in order to grow. They need money that can be tied up in inventory and that can be given to retailers in free fill and that the business can support that really long cash conversion cycle. I wanted to design a company that didn’t have these issues and could operate at good margins. Because I was a small, bootstrapped busienss, I was able to convince my early customers to give me really short payment terms and then convinced my vendors to give me really long terms. This allowed me to have a negative cash conversion cycle. So every dollar of growth created 30-50 cents of working capital. This is how we bootstrapped for two and a half years.
Once we needed a 40k sq ft facility that was going to cost $6M, that’ when we decided to raise. We had only been in business a few years and our revenues were still relatively small, so we weren’t going to be able to get bank debt.
Ultimately, I was able to justify the facility because we had more demand that we had supply. We were losing sales due to lack of inventory. I also had Costco telling me they wanted our product in all of their stores. There was enough pent up demand to justify diluting ourselves for speeding up growth.
I’ll Only Do Something With A Good Direct To Consumer Channel In The Future
Mason: For future projects in the CPG or food and consumer products space, it will have to be stuff that fits well into a direct to consumer channel. Cece’s doesn’t do that well because you can’t ship the noodles in a sustainable way. Shipping costs too much so you’d have to sell a ton of noodles to make it worth it.
We got lucky in retail this time but I think having control of a direct to consumer channel gives you a nice sustainable layer of sales that you have more control over. For you to ever be a huge company, you are going to eventually need or want retail’s help. But I’ve met a ton of people are selling a niche like a certain type of bar or something and they’re doing $5M a year, profiting $1M, and they don’t have anything to do with retail. Way less headache, and it’s all 3PL.
To find a store that sell’s Cece’s Veggie Noodles: Where To Buy.