Advice Line with Jim Koch of Boston Beer Company

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Guy Raz: My guest today is Jim Cook, founder of the Boston beer company. All right, Jim, let's bring in our next caller. Tell us your name, where you're calling from, and just a quick line about your business.

[25:27 - 25:47] LLance Kezner: Hi, my name is LLance Kezner, and I'm from Bellevue, Washington, near Seattle. My wife Lori and I created Millie's sipping broth. And Millie's is actually the first ever soup broth in a teabag. It's gluten free, keto, vegan, and kosher.

[25:48 - 25:57] Guy Raz: Wow. Okay. And so this is a broth, like vegetable broth or chicken broth, but it's in a teabag.

[25:57 - 26:04] LLance Kezner: It's all vegetable. You make it in a tea bag, you steep it like tea, and it makes a fresh cup of broth.

[26:04 - 26:10] Guy Raz: I love it. This is a super innovative idea. And what, what's your question for us today?

[26:10 - 26:38] LLance Kezner: My question is, this coming fall, we're rolling out our product nationally at Walmart, and we're really excited about this and are financially prepared. However, what keeps me up at night is thinking about how we'll be able to fund our continued growth beyond that. So what are some of your ideas about raising capital to support a new brand that is getting national traction in retail?

[26:38 - 26:46] Guy Raz: Okay, we'll get your question in a moment. I've got just a couple quick questions about Millie. So tell me a little bit about how this started.

[26:47 - 27:42] LLance Kezner: So my wife, Lori, she used to be a teacher. She was a lifelong Weight watchers member. And the break room was always filled with all kinds of cakes and cookies that were left over from the weekend. And she wanted something healthier. So she used to take a bullion cube with her to school because she wanted a savory, something savory and hot. There was nothing out there. And I said to her, let me make something that is healthier for you. And so I formulated something that didn't have all the preservatives and everything like that. And she said, put it in a tea bag so I can make it really quick because I only have a couple of minutes. So I ripped open lipped in teabags in our kitchen, put the ingredients in. I made ten of them. She took them to school and had one, and by the time she came back, they were all gone because all the other teachers had taken them.

[27:42 - 27:47] Guy Raz: Wow. Okay. So right now you are in how many stores?

[27:48 - 27:51] LLance Kezner: We're roughly about 700 stores.

[27:52 - 27:55] Guy Raz: And how many people do you have working?

[27:55 - 28:07] LLance Kezner: So the founding team is just my wife and myself. And then we have a partner company that does the operations and sales, so we work together with them.

[28:08 - 28:17] Guy Raz: And so how. Tell me a little bit about how you're doing so far. I mean, are you. Have you broken half a million dollars in sales yet or not quite yet?

[28:18 - 28:20] LLance Kezner: We're, you know, under 2 million.

[28:20 - 28:42] Guy Raz: Oh, wow. Okay. So you guys are well on your way. So with just such a small team. Yes. And so now that you're going into Walmart. Your question is, do you, should you approach, potentially approach investors? Jim, let me pass this over to you. Maybe you've got some questions for LLance before you kind of launch into his question or answering his question.

[28:42 - 28:48] Jim Koch: Yeah, what are you going to use the capital for? What do you need money for?

[28:49 - 29:08] LLance Kezner: Well, basically I think the most important thing is having inventory and having the capacity for inventory. Now, we would never make inventory ahead of having commitments or purchase orders from a customer, but to be able to tap into it when it's needed is critical.

[29:08 - 29:11] Jim Koch: Yep. And when do you get paid?

[29:11 - 29:21] LLance Kezner: Well, usually with Walmart, 560 days, something like that. So, so that's typical retailer payment schedules.

[29:21 - 29:24] Jim Koch: And you sell directly to Walmart?

[29:24 - 29:26] LLance Kezner: Yeah, it's a direct sale.

[29:26 - 29:45] Jim Koch: Okay. I mean, one question to ask Walmart, and, you know, Walmart wants you to succeed. You know, sometimes they have this reputation of being like really cutthroat and predatory and so forth, but they're nice to little guys know. So a question I would ask is, can you guys pay me in 15 days?

[29:46 - 29:47] LLance Kezner: Good question.

[29:47 - 31:39] Jim Koch: And if they can, that solves a lot of your problem because you probably don't have to pay your producer suppliers in 15 days. So now you've got a positive float. And the issue that you face, know, trying to raise capital at what is still a fairly early stage is people want a lot. If they give you a half a million dollars, they may want half of your company. I mean, really think through your cash flow and hoard cash to the extent that you can delay your payables and accelerate your receivables. That's as good as investments. I mean, I think back on when I started my company and I don't have. A lot of regrets, but I realized I started my company with $240,000, 100,000 doors of it was mine. And then I raised another 140,000 dollars, and that represented like 35% of the company. I never needed it because I, like you, was producing through a contract producer and I was selling to a distributor and I thought I needed to give them 30 day terms, and I didn't. They liked me. They wanted to see me succeed. If I'd gone to him and said, you want me to succeed? I'm struggling. Can you pay me cash two days after delivery? I mean, I'm not asking you to finance me. You've got the product in your warehouse, but you're a successful big distributor with lots of money. I got nothing. Why do I need to be your bank? You don't need to finance Walmart's business. They've got the product. You know, can they eft you the money five days after they've signed a bill of lading and the invoice? So that's where I would start.

[31:40 - 31:51] Guy Raz: I think that's great advice, Jim. I mean, essentially what you're saying is at this point, LLance needs to be cautious about approaching investors.

[31:51 - 32:13] Jim Koch: Yeah. Don't take anything more than what you really need. Early stage investor money is the most expensive money out there. So you hoard your cash and then also look at any money that you're spending that is not directly related to making the product or selling the product.

[32:13 - 32:49] LLance Kezner: Well, you know, we started this business in 2012 with those fundamentals in place, you know, working out of our house, not spending on and things that weren't necessary. And so I think that everything you said just really rings true. And I really like your idea of, you know, widening that gap when cash is available to be able to do that. I think at the end of the day, we just really will be careful about taking on anything bigger than what we can actually support.

[32:49 - 33:46] Jim Koch: Yeah. Don't grow beyond the consumer demand. I mean, you should probably be thankful that Walmart's not putting you in 5000 stores you'd rather be in 500 stores and be successful than be in 5000 stores and not, you know, you can go from 500 to 5000 do over time. I mean, we started with Walmart maybe ten years in and they put me in 200 stores and I was very excited by that. And if they said, I want to put you in 1000, I would have said, I don't think so, because if 600 of those fail, you're going to take me out everywhere. But if I'm in 200 and it succeeds, I'll be in 500 next year. So don't try to go faster than the consumer pull will allow you.

[33:46 - 34:45] Guy Raz: I also think, LLance, you are operating in a really interesting space because you're really not competing against anybody. You've got the bone broth companies and the bouillon companies, but I think that you're, you can operate under the radar and grow really steadily for a long time before the sort of the players, the big players notice you, which I think is an advantage. I think about an episode we did a couple months ago on nut pods. You know, the creamer, the non dairy creamer that had an amazing exit and, you know, a who built that brand. I mean, she really operated under the radar for a long time, even though there were other companies that were making nut milks and things like that. Nobody was really thinking about coffee creamers in the way that she was. And so to me, there's, there's a parallel with this brand which allows you to, to sort of grow more slowly and focus on brand building more slowly.

[34:45 - 35:04] LLance Kezner: Yeah. We were very fortunate to have Weight watchers discover us during COVID and they put us on their website to their four and a half million subscriber. Talk about you re 1% who really looking for you. So those types of opportunities have always been our first priority.

[35:04 - 35:50] Jim Koch: Yeah. And I would a couple other things that occur to me as we're talking guy, emphasize you're creating a category, you're different, and you're creating it as kind of, as a wellness category, and it's in the mental health kind of space. And I would not be bashful about pricing with Walmart. You've got to deal with them and so forth. But then you're gonna sell it in outside of Walmart. You can get more money for it than you're asking right now. You're selling it for basically the price of a K cup, but you're much more valuable than that.

[35:50 - 35:53] Guy Raz: It's a premium product. Yeah, yeah.

[35:53 - 35:59] LLance Kezner: We believe we want people to drink it every day and think of it that way. And so, yeah, I agree with you.

[35:59 - 36:17] Jim Koch: I mean, at 30% more, people can still drink it every day. You're appealing to the early adapters to whom this is meaningful, instead of whatever it is now, a dollar, it can be $1.30. I mean, people can afford that. And that extra price probably doubles your margin.

[36:18 - 36:32] Guy Raz: Yeah. And LLance, one question for you. I mean, obviously, Walmart is a huge coup. Much more sort of significant than Whole Foods or Trader Joe's, simpbly, because of volume. But are you looking at Whole Foods? Are you talking to buyers from Whole Foods?

[36:33 - 37:10] LLance Kezner: Yeah. So it's all happening simultaneously. So we got the Walmart opportunity because we won golden tickets at their open call for american made products. And in parallel, we had been having these conversations with the other large, notable organizations, and all of a sudden, everyone wants to talk to us at the same time. And so that's why that question, it's like, how do we support outside of, of Walmart without drowning ourselves, really, and.

[37:10 - 37:33] Jim Koch: Be cautious if you don't think your product is going to pull through and generate the sales, that meets their hurdles. You don't want to be in that store. It's tempting, but you only wantna be in the stores where you have an 80% confidence level that you're gonna meet their hurdles. To stay on that shelf next year.

[37:33 - 37:42] LLance Kezner: I always tell people that, you know, getting on the shelf is one thing, but getting people to come back over and over again is the hardest part.

[37:42 - 37:42] Jim Koch: Exactly.

[37:42 - 37:43] Guy Raz: Of.

[37:43 - 37:46] LLance Kezner: And, you know, a lot of people don't realize that, but you do. Yeah. Obviously.

[37:47 - 37:54] Guy Raz: The brand is called Millie's sipping broth. LLance Kesner. Good luck. I'm excited to see this out in the world.

[37:54 - 37:57] LLance Kezner: Thank you. It's been a pleasure talking to both of you. Thank you very much.

[37:57 - 37:58] Guy Raz: Thanks for calling.

[37:58 - 37:58] Jim Koch: Thanks.

[37:58 - 38] Guy Raz: La sounds delicious, actually.

[38 - 38:05] Jim Koch: Yeah, yeah. I think it's a great idea. They literally are creating a category.

[38:05 - 38:31] Guy Raz: You know, I keep thinking you mentioned something interesting because you said wellness, and I thought, wow, that's right. I mean, you said mental wellness and I thought, that's interesting because that's right. It's not just a sort of a physical health kind of lifestyle brand, but it's about, you know, just taking the time to sit down and to kind of meditate about the day or whatever and, you know, or read a book and you're sipping, you're sipping the broth, you know, you'd have some tea.

[38:31 - 40:10] Jim Koch: Yeah. And sometimes that reframing can make all the difference. I never forget a story that a guy told me. It was the billion dollar cup of coffee. So this guy was the first importer into the US for Red Bull. And Red Bull came out of Austria. This was 25, almost 30 years ago. And they're coming to the US and Red Bull wanted to price that seven and a half ounce can at $1.49 cent. And he, having all this great experience in the soft drink industry, said, no, there's nothing in that door that cost more than ninety nine cents. And he was driving up to meet with the Austrians in Chicago and he was getting a little tired and he went up and they had a Starbucks up there and he bought a cup of coffee and it was $1.99. And he got back in his car and drove the meeting. Then he realized, wait a minute, I just paid $1.99 for the exact same thing that Red Bull is selling. I'm not buying a cup of coffee, I'm buying energy to get me through. And I just paid $1.99 cent. Of course I'd pay $1.49 cent for that experience. And that $0.49 difference per serving in the first two years was a billion dollars in revenue. So that's the billion dollar cup of coffee.

[40:10 - 40:11] Guy Raz: It's amazing.

[40:11 - 40:20] Jim Koch: It reframed what people were buying. You're not selling them a soft drink, you're selling them energy. So think big.

[40:21 - 43:02] Guy Raz: No question about it. All right, Jim, we're going to take another quick break.