cared and simultaneously I wanted him to care about what we were doing,
too—and it worked.
OP: In your book you say, “An entrepreneur needs to learn to recognize that the red
flags, voices, twitches and butterflies that surface momentarily are gifts from your entrepreneurial angel and present opportunities to morph now to succeed later.” What were
some of the red flags you saw?
Ron: One red flag that we ignored early on was the importance of location.
Once we realized that Vermont didn’t have a 365-day-a-year growing season,
and that California had much more of an organic agriculture infrastructure in
“Entrepreneurs need to approach poten-
tial investors with the idea that they are estab-
lishing a relationship and make sure the investor
place, we had plenty of reasons to build Earth’s Best in California. But, we resisted because we wanted to stay in Vermont. We came up with a lot of seemingly
logical reasons of why it would work, but in hindsight, they were mostly wishful
thinking. The bottom line is that we avoided facing the real issues confronting
us in Vermont that we could have arguably met much earlier. In no time flat we
started paying the financial consequences for our aversion to that red flag. We
began shipping just about everything from California to Vermont.
”is the right match for them, too.”
Arnie: We did pay attention to other red flags, though. After working on building our business plan for two years, and trying to raise money to get started, we
finally had a gentleman who was willing to invest $1 million. It looked positive
but then unexpectedly he refused to invest unless we agreed to turn our back
on past-due debts totaling $20,000 that we owed to those who had been helping us develop the business. Ron and I walked away from the deal. We could
have said that $20,000 isn’t a reason to walk away from $1 million. We could
have rationalized that the people who were owed that $20,000 weren’t going to
Arnie: I would also add that whatever
scale you’re starting at, the first round
of financing is the most important. If
you are realistic about what you need
and raise enough money to break even
before you need more money, then
when you go out for more funding,
you’re going to have a much happier
story to tell to potential investors. In
the end, this means that you’re going
to be able to raise more money and
give away less of your company. In our
case, we burned through our initial
round of equity of $500,000 in a matter of months. We needed many times
more than that. We were on the verge
of collapse and bankruptcy almost
from the beginning, and so when we
went for new money, we were in a
weak position and the investors in turn
naturally saw that investing further was
more risky. If the risk is greater, then
you have to give more to entice people
to take that risk. Ron and I ultimately
ended up giving up most everything.
Whatever your circumstance, strive
to come to the table from a place of
strength. Do not acquiesce prematurely to venture capital. Be proactive,
and try to find investors that relate to
you and give you confidence that they
actually get, or grok, what it is you’re
up to. Entrepreneurs need to approach potential investors with the
idea that they are establishing a relationship and make sure the investor is
the right match for them, too. Easier
said than done when you’re in the
thick of it, but it’s worth the effort.
Ron: We also had almost $300,000 in seed money that had been invested into
research and development that we were putting at risk, but we felt that twitching. We knew it was wrong. We saw that red flag. If that guy was willing to screw
those people out of $20,000, what else was he going to do?
OP: Financing was one of your biggest challenges. Do you have any advice on this?
Ron: For one, I would recommend that people start out as compact and conservative as possible. We could not start an organic baby food company the way
that Ben & Jerry started—making 10 or 15 gallons of ice cream at a time. Even
if we could have, we wouldn’t have. We weren’t trying to buy 25 pounds of
plums and 100 pounds of apples. We wanted to buy millions of pounds because
we wanted to dramatically impact the organic food industry. But to people starting out today, I would say start small and local.
OP: Do you have any insight on working
with venture capitalists?
Ron: If your company is not in desperate straits, but actually gaining market
share and has gross margins that are
viable, the venture capital arena will be
a lot more friendly and acceptable. But
if you fall into a situation like ours,
where you need the money to survive,
then there’s a good chance that you’re
going to lose control of your company.
That’s why managing growth is so criti-