The Startup CPG Podcast

Seth Goldman
It's important to remember the board's most important responsibility is to hire and select, in some cases, fire the CEO. The board isn't the one that say, oh, let's create a marketing jingle or something. It's their primary duty is hiring and managing the CEO because otherwise no one else is. And then, of course, helping the CEO find the right incentives and strategy to grow. But on the one hand, they do need to look out for my wellness, but it's not at the expense of the business. If they come to the conclusion that I'm not the right person to run the business, it's their job to fire me and find somebody else. So I won't say it's a tension, but there should be support until there's tension.

00:47
Seth Goldman
So one of the great phrases that I've heard to describe boards is your nose is in the tent, but your hands are outside the tent, meaning you're looking in and you're seeing it all and you're speaking when asked or when you feel the need to, but you're not going in there and tinkering with the business on a regular basis. That doesn't help the CEO.

01:07
Daniel Scharff
Welcome to the Startup CPG Podcast. If you're like me, you've read the news of CPG companies adding new board members or you hear about VCs asking for seats on boards, but nobody's ever explained it to you. When do you need a board? Who do you need to put on it? How should you manage your board? All of these pretty basic questions I just don't know the answer to. So I am so excited that today we have the perfect guest to explain it. It's Seth Goldman. Seth is a wildly successful serial entrepreneur, having founded Honest Tea, and he's now on a rocket ship growth trajectory with JUST ICE Tea . He's also been on numerous boards, including having served as chairman of the board for Beyond Meat.

01:46
Daniel Scharff
So he can explain it from both the entrepreneur's lens as well as the board member lens, and then how to balance those two perspectives. I am so glad we had Seth here today. You are going to love this. Let's go. All right, Seth, my friend, thank you so much for coming back on the podcast. Your episodes are truly some of my favorites.

02:08
Seth Goldman
It's always fun to be with you, Daniel.

02:10
Daniel Scharff
I love it. Honestly, the last one that we did, I think about all the time. The last one was about managing people at work and I think about a lot with a growing team that we have here and especially I think your points around really trying to embrace people's whole selves and learn how to really embrace that and work with them in the best way. So I love it and I know that this is going to be another banger today. I'm really pumped about this topic because it's always something that I still don't understand it. And I think that today I'm going to.

02:36
Seth Goldman
I hope so. I love a banger podcast. That's the one. Those two words often don't get put together. So let's do it.

02:42
Daniel Scharff
From the music industry. When I was laying down tracks, none of them were actually bangers, but the producer would try to jazz me up and be like, that's another banger. All right. Okay, so just kicking off for anybody that hasn't actually heard all of the past episodes, could you give us the quick intro again? Yes, the. Just the Seth Goldman 101.

03:02
Seth Goldman
Sure. So I'm Seth Goldman, I'm co founder of Honest Tea and sold at Coca Cola, co founder of Justice Team. We're still building it. And in this context it's appropriate to note I was also a early board member for Happy Baby, the organic baby food company, and then also chair of the board for Beyond Meat and then chair of the board of Plant Burger, which is a plant based restaurant chain. And finally chair of the Mission Guardians of Tony's Chocolone. So lots of different governance roles along the way.

03:30
Daniel Scharff
I love it. Okay, a lot of stuff there. And it's going to be great that you have so many different sides of it as we get into this discussion about forming a board and what do you do with it today. And just because every time I talk to you, it's like a whole new chapter for Justice Tea. I like to say that I at least knew that it was going this way in the early days of it. Like, oh, I see what's going on these days. But can you just remind everybody the scale of the business these days?

03:55
Seth Goldman
Sure. Yeah. It's fun. So we are just entering our fourth year in business. We kind of got this opportunity dropped in our lap gift wrapped, which was that Honest Tea got discontinued by Coca Cola. And so we jumped in and within 90 days hit the market. And today are the top selling bottle tea of the Natural channel. And this year really marks our big expansion into mainstream channels. So we're launching in the next few weeks nationally with Safeway Albertsons and then with Kroger and with Publix. And so you're going to see us expand quite a bit. We did about $28 million in sales last year and looking to get closer to 40 this year. Things work out the right way.

04:33
Daniel Scharff
All right. And I know you talk a lot about goals and trying to achieve a goal every year is that your 2026 goal is really that conventional channel expansion.

04:41
Seth Goldman
That's the growth revenue goal. I mean, I think other goals we have this year to actually cut the rivet on a health clinic in Mozambique that we've been raising money for. We've raised over a hundred thousand dollars and look to open that. This is in the tea garden where we source most of our tea. We also are launching as a charter member of the Purpose Pledge, and so we're excited to be part of that. So when we look at our goals, yes, revenue is certainly the important one, but it's not the only.

05:07
Daniel Scharff
All right, so really delivering on the just part of justice tea. I love it. Okay, so just to get right into this, can you take me back to when did you actually form your first board? And why did you or where were you that you needed to do that?

05:24
Seth Goldman
Yeah. So we launched Honesty in 1998 without a board. It was just my co founder, Barry Nailbuff and I in terms of governance and the primary owners. But by about 2000, we started to take in money, investment funds from people who were not our family and friends. So in the startup phase, when you're just trying to figure out the business, does it stand, does it exist? And you are genuinely raising money from what's called friends and family, there's so many things going on. You probably, I think, don't need a board as much because it's just like you don't even know if the business is going to work out. And what I say is, I still have Thanksgiving friends and family. You're taking in money from people who, if you lost their money, you would still be invited back for Thanksgiving.

06:08
Seth Goldman
And so that's, for me, that's the measure of are they really friends and family? And fortunately, I haven't lost any of those folks money at that period of time. I don't think you need a board because you're just trying to get figure stuff out. Once you start taking in money from people who aren't friends and family and who you don't know and who are putting in the money not just because they know you, but because they think there's an investment opportunity, you have a fiduciary duty to really try to be good stewards of their money. Obviously, I certainly think I do with friends and family as well. But I just know that those Folks trust me enough to handle it the right way. That's obviously why they're writing the check.

06:45
Seth Goldman
Once you get to people you don't know, obviously you want some level of oversight of how the business is run. And ideally, not just oversight, but guidance. You want to bring in people who can help steward and mentor and direct, who have seen these businesses grow before. And so they can provide the kind of guidance that should give investors some measure of assurance that there's some quality control going on here. So that feels like the right time to build a board. And so to me, at least for Honest T, that meant were doing over a million dollars in sales, that we had some line of sight to further growth. And so for me, that was the way to think about it. I always talk about trying to get proof of concept for the business.

07:28
Seth Goldman
For retailers, right, we want to say, hey, this business works. But for investors, there has to be some proof of concept, too, to understand if there really is a business worth investing in. And so by about 1999, we had demonstrated that Honest Tea could sell well in the natural channel. We were the top selling tea in just the 17 whole food stores where we launched. But that was enough to sort of say, hey, there's something here. And so we could go to investors and say, this could be much bigger. And to board members, too. It's hard to recruit a board member for a business that's not doing any sales, that doesn't have any real estate, or at this point, it was just two guys and some thermostat. So that's a tough concept to try to attract good board members for.

08:09
Seth Goldman
You could find a board member. But my point of view is you want to hire board members who are bigger than the company is, who are a reflection or an indication of what the company could be.

08:19
Daniel Scharff
Okay, so I think there are a couple things to unpack here. For me who doesn't know a lot about this stuff, as probably don't a lot of our listeners, the first one is, would be my very naive understanding of it is when I go and raise money, like the brands who come to our founders and funders event are out there trying to raise early rounds of capital. I think a lot of our assumptions would be, oh, when you raise, they are going to ask for a seat on the board, and maybe that triggers me having to build a board. But you're also talking about it probably a little bit more strategically of like, here's how you go out and get good board members who can help guide your company. And so what's the difference there?

08:55
Seth Goldman
Yeah, that's a good point. So, yes, it's true that someone who's becoming a major investor would likely want to have a seat on the board. They want to be able to shepherd their own investment and look out for it. And ideally they have some value to add, but not always. But often these investors come from the industry, so they actually do have useful experiences. If you look at a lot of these funds that are out there, CPG funds, they some of the principals or the managers are folks who have built brands. And so they could be valuable on the board, but it's not by no means a guarantee.

09:25
Seth Goldman
So one of the things we did early on with honesty when we talked to investors who wanted a board seat was I said, okay, well, I'd love to interview someone who you were on the board of before. How were they to basically get a reference on a board member? Right. In some cases, their reputation proceedings. So I have a lot of wonderful board members over the journey with honestiva. Two of my amazing board members. One was Gary Hirshberg, CEO of Stonyfield Farm. And I knew him and then seen him operate enough to know I didn't need a reference. I knew what he stood for. I knew how he acted and the interactions. And another was Jeff Swartz, the CEO of Timberland, the footwear and apparel company.

10:02
Seth Goldman
And I saw that brand and what it stood for, and I got to talk to him to appreciate his point of view of what he was doing. And again there I'm like, wow, that would be amazing to get somebody, both of those people on our board. And we did. But there was another investor who came in who I didn't know who wanted to invest and join the board. And I checked references and found was really impressed by this person and said, that's a great person to add to the board. So you, as a board member or as a CEO, do want to do your own due diligence, just like they're doing it on you?

10:35
Daniel Scharff
I love that answer. That's so smart. And when you're doing those interviews, is it because they've expressed an interest, like, hey, we want to invest in you. We are going to ask for a board seat. So that's the point where you would be like, okay, let me just check if that would actually work out.

10:48
Seth Goldman
Oh, yeah. And just to flesh it out even more, I had an investor who we did not take in, and I'll tell you what, who wanted to invest. And as part of their investment, they kept saying, oh, well, we want to really get a whole bunch of options for management, which. And I'm like, well, we've got a pretty good management team. What's that about? And then I spoke to someone on the side. So this investor can bring in their own CEO.

11:08
Daniel Scharff
Oh my gosh.

11:09
Seth Goldman
That kind of takes them out of consideration.

11:11
Daniel Scharff
What a Trojan horse if I've ever heard one.

11:14
Seth Goldman
Yeah, exactly. Investors can be incredibly bad as board members too. But you've got to watch your back and you got to do your due diligence on it.

11:21
Daniel Scharff
Gosh, that's so interesting. Okay, so in your experience, because you have fundraised a couple times, how often is it that they are going to ask, right, for like a seat, what kind of investors are most likely to ask for it? Is it because they really want to guide the business? Or sometimes is it like a prestige thing?

11:40
Seth Goldman
So if they're a lead investor in a raise, they're the ones who are going to be driving the terms of the valuation. And so it's totally reasonable to say we'd like to get a board seat as the leaders of this financing. But what you could also say is, well, I'm willing to get a seat to your group, but I'd love to be able to pick within among that. So as an example, we have S2G ventures in our fund and I love the S2G team, but in particular, Walter Robb, former co CEO of Whole Foods, has been tremendously value added board member. And so it just made sense that if S2G was going to be on an investor and to be in our boardroom and that I wanted to get Walter to be the one to represent that.

12:23
Daniel Scharff
Seth, this is so good, by the way. I feel like I've already learned enough for the whole episode, but I have a million other questions, so let's keep going anyways.

12:30
Seth Goldman
Sure.

12:30
Daniel Scharff
Okay, so I guess the next question is, how are you getting these legends to be on your board? Is it because you just have these epically interesting, beautiful business models? I mean, maybe it goes back to did you go out and actually then hire the Timberland founder, for example, or because it sounds like those didn't come through in a vc, it was you actually seeking great people to get onto your board.

12:54
Seth Goldman
Yeah. So that goes back to try to build a board that's bigger than your business. I mean, but Jeff Swartz and Gary Hirschberg joined our board back when Honest T was doing, I don't know, a few million dollars in sales. But they saw what it could be. They bought into the vision of and they Saw not just the financial part of the business, but the mission part of the business could be so much larger. They bought into the ambitions I had, and they shared them. And so I used to say, we're doing less than $10 million in sales as a business at the time. We've got a board that, you know, a $500 million company would be proud to have. And so, yeah, and that was them recognizing the opportunity. And obviously, my pitch to them, I don't say they bought. They believed it.

13:36
Daniel Scharff
And so are you looking at that as the same way you would pitch a celebrity ambassador to work on the brand? Like, are you, like, going to pitch them to come and join your board?

13:46
Seth Goldman
Yeah, I would think about pitching a retailer the same way, which is. This can be a bigger thing. Yes. Okay, I want to be in your tea set, but I want to help expand what your teeth that can be about. Right. Not just selling liquid. It can be about selling this mission. And so definitely, it is a sales pitch, just like it is with investors, but at the same time, it's a negotiation. So I always say you first, you sell the idea to them, then they sell themselves to you, and then you guys negotiate to figure out, but work.

14:13
Daniel Scharff
Okay. And a couple tactical questions. One, how do you find those people? Is it just you and your network or just dreaming who you would love to have ideally? Or is there a service or a matchmaker?

14:24
Seth Goldman
No, in this case, it really did start with a product that in both cases, they found the product and really enjoyed it. I got to meet Gary first because he ran something at the time. What's now the Hirschberg Institute was called Stonyfield Institute, which was just a kind of bootcamp for entrepreneurs. And I got to meet him. There's. And then I had the tea at the event. And then he, at the time, actually owned some restaurants, and he saw how well our tea was selling there, and so he kind of got excited about that. And then Jeff, we've kind of, again, a little bit of serendipity, but I. I think when you put out the right intentions, they come back to you in some way. And so were doing a tea we developed with City Year, the national service program.

15:05
Seth Goldman
We actually had a tea called Community Green, where we had the City Year messes on the back of the label. And Jeff loved that. Jeff was chair of the board of City Year, and so he's like, this looks like an interesting business doing things differently, and so got involved that way. So it just different. I definitely am a believer, used the word karma before but when you put out the right ideas and the right intentions, something's going to come back to you. You don't know what form they'll take. But I look at my board, those board members is great examples of that.

15:35
Daniel Scharff
Yeah. Karma, serendipity is something that I think about a lot.

15:39
Seth Goldman
Serendipity, but help. You always say you have to make your roadblock. So if you put out enough positive things come back to you in ways you can't always predict.

15:47
Daniel Scharff
That's beautiful. So, okay, and then the other tactical question I have is, okay, you have people who invest in the business, institutional vc, they're going to lead around whether it's an early round or later round. They may ask for rights to be on the board. And then there are these other people that you would be paying in some one way or another to be on the board. Right. If you're recruiting someone like that to be on the board there you said there's a negotiation, there's some kind of compensation. How does that go? Like, is this like cash equity mix? Like, how does that work?

16:16
Seth Goldman
No cash. For companies that are cash star, like any other group of the community, folks you connect with, it's about options. It has to be about a belief in what this can be. And so if someone's looking for cash, they're just the wrong. They don't understand the business. So the first step is they have to understand what situation we're in, which is every dollar accounts. We've got to do everything we can to keep the lights on here. If we're writing checks to board members, something's wrong with our priorities. So giving them options is important. And ideally they're investors themselves. Right. They're the main reason they want to be on your board is because they want to steward their investment. That's the best way to make sure they're literally invested in the business.

16:56
Seth Goldman
Giving someone options for free usually isn't a good way to get someone really excited about what you're doing.

17:03
Daniel Scharff
Okay. And then obviously my next question is, how many options do you give somebody like that at an early stage, late stage, like the valuation of it?

17:10
Seth Goldman
Yeah. And this moves around, but for me here, just as an example, so we had a board member who joined Honesty early on, and when we did our transaction, she made over $150,000. And she was very happy with that. And I felt like, okay, that feels like fair compensation for the insights and expertise that you contributed. That's separate from the return on the investment, just the options themselves. So part of that is based on where you expect the business to go. What's fair valuation on that? Another way to think about it could be if your board has collectively 1% of the company, sort of at the time you do the raise. That's not a crazy idea. Of course, that's separate from their investments, but just thinking about them having an important stake in growing the business.

17:56
Daniel Scharff
Okay. And you would typically vest those over a certain period.

17:59
Seth Goldman
Yeah, they vest over time, vest over the term of their service. But you should always have terms. Right. It's not just perpetual board members. Right. And then those options would refresh if the term doubt. You might want to refresh that option pool if there's new board members coming in.

18:12
Daniel Scharff
Okay. And what's a common length for a contract?

18:16
Seth Goldman
Could be three or four years. Usually I think we're at three.

18:19
Daniel Scharff
Okay, cool. I know these are very tactical questions, but honestly, this is the great unknown for early brands. So I want to get all of your knowledge from this since you've done it. A bunch. Okay. And then just talking a little bit more about the actual composition because you can have some A players there out there, but then you also have to think about all of the skill sets that you have on the board in totality. Right. So how do you think about that total composition?

18:43
Seth Goldman
Yeah. So first of all, I want A players, I don't want any B players on my board. That said, I always think it's helpful to have at least a few CEOs on the board, people who have been CEOs because they understand the pressures, the loneliness, the challenges that a CEO goes through in a way that others don't. So I definitely want some CEOs on the board. Then beyond that I go and say, okay, who's got expertise? And I think about the different buckets and I'll go back to the honest team situation. So obviously I needed with someone in the natural foods world, and that was Gary was played an amazing job of having that role.

19:22
Seth Goldman
And actually before Gary joined the board of Honest Tea, we had a guy named Mark Ardan who was the founder of Fresh Fields, which ended up selling to Whole Foods. But he sort of understood that world. And then I thought, okay, we're also trying to build a brand. So I want someone who's got brand building experience. It doesn't have to be from the natural foods world. And that was where Jeff was such a great. Jeff Source from Timberland, because Timberland is a mission driven brand. It's one that is scaled very well. And so having his expertise was great. And then I thought, well, I really also need someone who just understands the beverage industry. And so we had Robin Prever, who had been the CEO of Saratoga Water.

19:56
Seth Goldman
And so she had really exposed to the beverage industry, knew how distributors work and all of that. So having her at the table is great. And then, of course, we had my co founder, Barry Nailbuff, professor, Yale School of Management, professor of economics and competitive strategy. So having someone with a creative thinking, strategic thinking at the table was also great.

20:16
Daniel Scharff
Okay, so I wonder, could you maybe tell me about a time that a board member gave you a perspective that you never would have thought of that was just so helpful because you're talking about, like, great, I want a beverage person. I want somebody who does all these other things. Like, what was a time where they actually just shine the light on something you wouldn't have seen otherwise that really helped the course of your business?

20:39
Seth Goldman
Well, one of the big moments for honesty was were trying to get our financing going. It was hard, and were running through money. And there was a board debate about, well, what should we do? Should I try to get a line of credit? And I went and talked to the banks. The best offer I could get on line of credit basically meant I had to put up my own collab. I had to guarantee everything. And this was the time when I didn't have much to do. And so I was looking at a line of credit where I was going to be underwater, like if the business went out my house, all the others. And so it was an interesting debate on the board. And one board member said, I don't want our CEO feeling this pressure, losing this sleep about the business.

21:19
Seth Goldman
And another board member said, that's exactly what we want our CEO doing. We want him feeling the pressure, knowing it's all the line and with no fallback. And so I ended up actually doing, taking that strategy. By the way, I can't say I'm recommending this for your listeners, but this point of view was like, you've got to stop raising money. You've got to be able to take. Put your money where your mouth is and really put it on the line. And I did, and obviously it worked out, but that was kind of like, whoa, all right, this is what we're doing.

21:49
Daniel Scharff
So let's dig into that a little bit more, because I think also there's a little bit of a dynamic here of board members also looking out for your best interest, but maybe also theirs, because they're investors, they don't want to get Diluted more. They want you to go and make them a bunch of money.

22:02
Seth Goldman
Yeah.

22:03
Daniel Scharff
So you must have experienced that balance or conflict, whatever it is.

22:08
Seth Goldman
Oh, yeah.

22:08
Daniel Scharff
Any comments on that?

22:09
Seth Goldman
Well, first of all, it's important to remember the board's most important responsibility is to hire and select, in some cases, fire the CEO. The board isn't the one that say, oh, let's create a marketing jingle or something. It's their primary duty is hiring and managing the CEO, because otherwise no one else is. And then, of course, helping the CEO find the right incentives and strategy to grow. But on the one hand, they do need to look out for my wellness, but it's not at the expense of the business. If they come to the conclusion that I'm not the right person to run the business, it's their job to fire me and find somebody else. So I won't say it's a tension, but there should be support until there's tension. Right.

22:48
Seth Goldman
So one of the great phrases that I've heard to describe boards is your nose is in the tent, but your hands are outside the tent, meaning you're looking in and you're seeing it all and you're speaking when asked or when you feel the need to, but you're not going in there and tinkering with the business on a regular basis. That doesn't help the CEO.

23:07
Daniel Scharff
Okay. That's also really interesting because I've heard about very different scenarios. Yeah. Which I don't know, Seth. I think, like, you run such a good business in such an ethical way that, like, maybe these things don't even happen to you because you just are above the board about everything that you do.

23:22
Seth Goldman
But you hear some nightmare scenarios. Right. And I have been in a few businesses where the CEO wasn't performing. And then it is sticky because it is the board's job to recognize it and take action. And the CEO is just going to have inclined to say, well, you don't understand, or so. And I've certainly been part as a board member of some CEO exits. And those are inevitably tough, especially when their founder CEO isn't up to the task.

23:50
Daniel Scharff
And sometimes the business has their name on it, also on the brand, and that's even worse.

23:55
Seth Goldman
Yeah. No, those are tough situations. I know. Funny to store this year. So we had a longtime friend of mine, Chuck Muth, who was my head of sales at Honesty, and then we brought him over to Beyond Me, where we had a much more formal board. And he said that to me one day. He said, I can't wait till I'm going to be a board member someday and tell people what to do. And then he got on some boards and he got in that situation you described. Whereas somebody, they had to make a transition with the CEO, and he says, this is such a pain. I can't believe this. I said, that's what you were asking for. So you don't just get the smile and wave as a board member.

24:28
Seth Goldman
The board members earn their keep, especially if they have to navigate through a CEO transition.

24:32
Daniel Scharff
That's really interesting. And I actually did meet Chuck at a expo.

24:36
Seth Goldman
Yeah, he's a legend.

24:37
Daniel Scharff
Yeah, like, it was super nice also.

24:39
Seth Goldman
Yeah.

24:39
Daniel Scharff
Okay. So I also do hear about some horror stories where there are people on the board who they may block a transaction. I don't think they say it in the meeting, but it's because they're not going to get what they want them personally out of the situation. So there must be that some kind of an element where it's not totally altruistic. Looking out for the company first.

24:57
Seth Goldman
I am a student of board governance. There are courses you can take. I've taken them. National association, nacd, national association for Corporate Directors. And there are legal rules of care that. And duty. That board members do have to put the best interests of the company and the best interests of shareholders above all else. So a board member at least exposes themselves legally if they start putting their personal interests above that of the corporation or of that of shareholders. So that may happen, but I can't think of a situation where it's happened on boards I've been in, because I would call them out on it right away. That is you, as a board member, you have the duty of care. You have the duty to not try to extract from the company special favors or not put the company's best interest first.

25:41
Daniel Scharff
Okay. That's very good for people to know and just be armed with that knowledge in case they do encounter those kind of difficult board members. Although, just like with any performance in jobs, it can get complicated where like, okay, the CEO is not performing well and then they're going to assume it's for some other reason that they're getting kicked out. Whereas that's complicated. Okay. But the next thing I want to ask you about, what's a good and bad way to deal with your board if you're talking to a CEO who's it's their first time really managing a board? Good ways, bad ways.

26:07
Seth Goldman
Thank you. There's a lot. So, number one, obviously we talked about the due diligence on the way in so you know who you're dealing with and you know how to interact with them. Number two, really solid communications. So we just had a board meeting a few weeks ago, and I spoke to each board member before the board meeting. I won't say a difficult meeting, but there were some key decisions that people may not have been aligned on. What you'd never want to do is surprise your board in a meeting with new information that they don't have any context for. And you're doing everyone a disservice. No surprises for your board. So communication about what's going on, certainly with respect to meetings, but all along the way. And by the way, this of course applies to investors, too.

26:48
Seth Goldman
I make a point of trying to reach out to our investors at least once a month, just with any kind of update. Sometimes it's an article. I would never want my board or my investors to read an article about our business before I share it with them. Right. They're going to come across it. Let me help convey it to them, number one, so they know I'm thinking of them. But number two, often it's good news, but even if it's bad news, I want to present it to them and give. Help them understand the context of it. So frequent communication. And then when you're in the board meeting, and this is partially who you hire as a board member, you don't want people who are going to go out and just give a monologue.

27:23
Seth Goldman
They've got to be people who can listen and who can listen to others. And it's also your duty as a CEO to make sure everyone's voice is heard. I go to the Beyond Meat board. I have some amazing board members there. Some of them are much more vocal than others, but they're all amazing board members. And so I never want to have us talk through an issue without having heard from every board member. And it's often the case, as one particular board member, I'll sort of, if she hasn't spoken, I'll kind of give her the last word. And she inevitably just nails it. And it's like, okay. But it would be a disservice to the board to not make sure her views are solicited. And then finally, and this is a business strategy, too, making sure your board has a diversity of hoops. Right?

28:05
Seth Goldman
You don't want a bunch of cheerleaders. It was very funny when we had, just after we had raised the money for Justice T, we had our first board meeting and one of the major investors spoke to me afterwards. Said, wow, I was really surprised by the rigor of the conversation, like it was grilling you. I said, he wasn't grilling me. He was asking me the kind of questions that a board member should ask. I don't need a cheering squad. I need people asking tough questions.

28:27
Daniel Scharff
Yeah, it sounds like he's really trying to understand the business and be helpful in that kind of a scenario. Not try to get you on something.

28:33
Seth Goldman
Absolutely. And just because Barry and I have such a history, I was going back to when I was a student and he would cold call on people and so I don't have a problem. No, it's like this part of what I look at as a CEO. I look at board meetings as a bit of like going back to this classroom model. It's like a final exam. Like, do you have grasp of the information? Can you defend what's going on and present it? So look at these as tests that you want to pass and if you don't pass, what do you need to work on?

29:03
Daniel Scharff
Honestly, this will tell you a lot about me. When you talk about all this stuff, it like stresses me out to imagine myself in this kind of a situation where I'm like, no, I need to run the business. I don't need to spend time like making phone calls for the pre meeting and doing all this stuff. But I guess like when you're at your level, that is a lot of the job though, right?

29:20
Seth Goldman
So what you don't want to do is distract your whole team instead of running the business, put a ton of time into doing a board deck. Like, no, but I want to make sure to kick the tires. Is this business defensible? Have we looked at this and does it make sense? And so it's funny as we just, as you know, we just raised money for our series B and when we sent out one of the part of the due diligence the new investor asked for was, can we look at some of your board materials? And they saw the rigor we put into understanding the information, the presenting it, and they said, that's best in class. That's good for a public company, you're doing it for a small private company and really just shows you're on top of the business.

29:55
Seth Goldman
When the board meeting is over, I do take a nice sigh of relief, like, oh, okay, we passed the test. But I also look at it as, it's a great way to just make sure we're accountable. And of course it also makes it easier. Once we've done that, inevitably the materials we prepare For a board meeting, we'll use in a retailer presentation or a shareholder meeting. So we're not just doing these. We are much more focused on the results than on the presentation. And I certainly encourage people that to keep the presentations succinct. You don't need to present every piece of data. Find the most important ones.

30:28
Daniel Scharff
These are great tips. Seth. This is really awesome. Okay, let me ask you a little bit about almost like advice for earlier stage founders around the topic of control of the board. Especially when you mentioned like, oh, they can fire you as soon as you fire, like, oh, geez, what's going to happen? So what does that typically look like in the early stages? How much control are you giving up? How much should you be willing to. How should you try to manage so you have control so that doesn't happen to you?

30:52
Seth Goldman
It's super important. And people always say, oh, this company got put out of business because their competitors rarely is not the case. Usually they get business goes under because investors get control of the business taken in the wrong direction. And the only reason they would get control is if you have to raise so much money that founders get diluted and aren't able to have that input. So it is important. And again, maybe I'm fortunate because I've done this enough. But even when I raised our first large raise for Justice Tea, we split the lead investment between two different entities. And part of that was because I wanted two great partners in, but also to be able to split the equity. Right. I didn't want one shareholder having that much control of the business.

31:36
Seth Goldman
So strategically for me, if you've got folks who want to be in, if I get to have their wisdom and insight, maybe it's even better if I can get two folks in who have great wisdom and insight.

31:46
Daniel Scharff
That's pretty interesting because I almost would be like, oh, there's like twice as much work also in year or two.

31:51
Seth Goldman
But the alternative might be giving one investor too much. Say we're fortunate because I say this to their face. I'd say this privately. We have just great supportive investors who are on board for what we're doing. And but in the beginning you never know. And so it is risky. That's just like you don't want to put all your eggs in one basket. It's very dangerous to raise all your money from one or two investors because not only are you giving them control, but if they get investor fatigue or they have a change in their leadership and they change their minds, all of a sudden you don't have A wide base. So even as we've raised money subsequently, I've made a point of making pro rata participation available to existing investors.

32:32
Seth Goldman
Just to let them, number one, make them feel like they have the chance to not be diluted, but also to let them know I appreciate them. And if we do need to raise more money from in the future, they'll know they were given that chance.

32:43
Daniel Scharff
Okay, so what about when you disagree with them? It's like you think you have a course, they are giving you some other advice. You're pretty confident in what you want to do. How have you resolved that in the past? Has it been pretty friendly, amicable, because you seem to have a really good way with people? Or have you gotten into situations where it can be pretty tense?

33:04
Seth Goldman
In the companies that I run, I have not had that situation. I have been on boards where we have had to remove a CEO. Those are challenging for sure. And again, duty of care, you got to make sure, okay, we need to move this person out, but we've got to make sure the business can still function in a healthy way. But those are tough conversations. But in the cases where that has happened, the board has been aligned that this is the right step.

33:31
Daniel Scharff
What do you feel like it was that happened that really made that person no longer the best person to run the company? Were they disengaged? Did they just make bad decisions? Were they, was it a personality issue?

33:43
Seth Goldman
Yeah. So often, attention, you'll see someone could be a great startup CEO, right? They can get it up and running, they can sort of prove the concept, but they're not necessarily a good manager, not good with people, or they just can't sort of take that next step of scale. And so they're very personal driven. In another case, we had a situation where just the conduct of the CEO just was not something we could support. And so we had to make a change there. And that was a little more clear cut just because we said, look, we can't have this.

34:16
Daniel Scharff
Yeah, I gotcha. I actually was listening to another podcast this morning. They had Bill Gurley on there who did these epic famous investments into Uber and all these other places. And he was talking about that same journey of early stage founders then not always being the same skill set as the person who can then lead a thousand person organization, something like that. So yourself have been on that journey and you also have coached people on that journey. Do you feel like you can learn that skill set even if you don't have it? What are the keys?

34:48
Seth Goldman
Some people can learn it, but there's also a phrase I once heard I love, which is sometimes you can't teach tall. Right? You need a basketball player to be tall and you can't teach them that, like if they're not tall.

34:58
Daniel Scharff
I think you're just saying that because you're tall, Seth.

35:01
Seth Goldman
Well, no, but I mean in this case, that if someone could be incredibly effective, I mean, to see movies about NBC founder CEOs who have this vision, they can spread, they're so passionate, there's no one more effective than them as the presenter of the idea. So the right messenger, but they're not necessarily the right manager, right. To go beyond vision to the execution. And at the same time, there are some who can. And so it's great when you have that, but it is often in the world in which you. When we operate, there are a lot of founders who do reach a ceiling. And that's often when an experienced investor and board member will say, okay, now we need to bring in professional management.

35:39
Daniel Scharff
Yes, I think that's very true. And it definitely makes me look at myself and wonder if I would be able to learn that skill. I'm not sure because that's a very tough one. But yes, hopefully there is hope for people who haven't done it but do want to.

35:51
Seth Goldman
Well, and it's not just the CEO, by the way. I can tell you that with honesty, even we had great founding sales leaders who weren't necessarily able to take the next step as we grew. And so it was a good test of my leadership, was able to recognize it and then make a transition to someone who was going to be able to scale the business.

36:11
Daniel Scharff
So interesting. I don't think I have had enough experience in that realm. I always just probably naively assumed, like, oh no, like good people who are smart people can scale that way and you give them teams and they'll crush it with them. But yeah, they don't always want to do that. They always feel like it.

36:26
Seth Goldman
Yeah, well, and the capability differs. Right? So in the early stage, company passion, hard work, great personal relationships make a big difference in sales. As you scale, it becomes more data driven. And so can you find and analyze the data and present the data in a way that a larger corporate buyer makes sense. And as I said, now that we're launching nationally in Kroger, Safeway and Publix, it's because we had data that helped our sales, made our sales story compelling.

36:52
Daniel Scharff
Okay, just two last questions for you, Seth. The first is let's flip this. If you are hoping to be a Board member, which probably a lot of people after hearing this are like, yeah, I want to give this a shot. That sounds awesome. What are the ways you think that you could position yourself? Well, to do that? Maybe it's an earlier stage company that might look at you for that or later.

37:11
Seth Goldman
Right. So earlier stage definitely makes more sense, though. The first thing is, what have you accomplished? What have you done? What is the accomplishments you've made that someone would value having you on your board. Right. So you don't have to have been a CEO, but if you were the key, just as I said, someone like Chuck Muth, if you drove the sales of a company from basically 13 million to over a hundred million, wow, That's a sales leader I want to have in the role who can give me advice, similarly with a marketing campaign or operations. So you got to think about how you would package yourself to be valuable to a board. So first of all, make an impact with your career, and then the next step is how you present it.

37:50
Seth Goldman
And so then one thing I would say could be very effective is think about, like, your profile on LinkedIn. What are you writing about, what are you talking about, and what gets traction. And it's funny, I just wrote a blog two weeks ago on pallet configuration. I like that people really got into, but, like, I don't have this ambition, but if I became the expert on, like, pallet configurations and logistics and operations and they got a lot of following for that, someone might look at me and say, boy, our company's trying to scale. We need someone who's got that experience. Here's a guy who's writing about it in a very clear and compelling way. That's an example of you become an expert within a particular community, and then that could be valuable to a CEO.

38:33
Seth Goldman
The single biggest thing is making some accomplishments that someone would want to see replicated in their company.

38:38
Daniel Scharff
That advice also really resonates a lot with me because way back when I was just writing articles about a nerdy topic of pricing and trade promotions, which I just had a deep passion for, and it kept me engaged with one guy who was a big deal in the industry. And then when a friend of his came looking for a CEO or his business, he was like, actually, there's this one guy who's been on my mind lately. So it can be a great way just to be putting stuff out there, showing your interest, passion, expertise. So, yeah, that is really cool advice, but what did you say about palette? Now I'm curious.

39:10
Seth Goldman
Oh, you're gonna read it?

39:11
Daniel Scharff
What about pallet raps.

39:12
Seth Goldman
No, not palette wraps. Going back had a pallet configuration of 96 cases. So when we started up Justice Tea, went to 96 cases. And then it turns out we could have put 102 cases on the same pallet. Well, that's a 5.6% more product on a pallet. That's a huge savings. And by doing this, we'll save hundreds of thousands of dollars a year. Not to mention fewer trucks on the road. All the positive impact of that and the irony is like Coca Cola was doing a non optimized pallet. And it's just an example of how you can overlook obvious opportunities in the business.

39:45
Daniel Scharff
Okay, is it Rockefeller or who had that famous story or the number of screws that tighten an oil drum? And it was like if we go from 48 to 47, that is millions of dollars a year. This is, I remember reading about this.

39:58
Seth Goldman
Yeah. A similar situation.

40:00
Daniel Scharff
Yeah. Well that's great. And I mean that is the kind of stuff that actually can really move the march on margins.

40:06
Seth Goldman
Oh. And it's the kind of unsexy stuff, but so critical. And especially when you can make a change like that has no impact on the consumer experience. Right. No one's going to say, oh, they cheapened their business because they got six extra pallets cases on collet. They don't care. The consumer doesn't care. So those are the best savings to make happen.

40:23
Daniel Scharff
That is what the big CPG should be the best at. They are logistics, supply chain machines. They're the ones who know how to get product out there at a low price point with high margin.

40:32
Seth Goldman
Right. All of us. And CPG startups should be just as rigorous, if not more. We need the money more than the big companies. So you can get those kind of savings.

40:40
Daniel Scharff
Yeah. When your investors tell you need better margin and you put together a plan for how you're going to get there, this would be one of those big pieces and you need to go and capture it. Okay, so last one, I just want to summarize a little bit some of the learnings that you've given here today. Because this is so good. There's so much in here. This is incredible. First time learning for me, really. So let's say as you then start thinking about doing real raises, not like, well, I mean raising from family and friends and angels are real raises too. But when you go for, let's say institutional money, there's a real round happening. There's a lead for that.

41:12
Seth Goldman
Oh yeah. And by the Way even before institutional. Just call it the angel fundraise. Like when you're raising angel funds, you should have some. By that I mean individual investors who want to put money in, but aren't people you can consider friends and family. You should start putting a board together for that kind of raise even.

41:30
Daniel Scharff
You're like taking 200k total from some angels.

41:34
Seth Goldman
My cutoff would be a million. If you're raising a million dollars, okay. And a lot of it is from people you don't know or don't know well, you should be starting to assemble a board.

41:43
Daniel Scharff
I've been an investor in both of those ways, and I think that you're right because the one that was a bigger raise, I look back, I'm like, there should have been a board for like, what happened. Even. So I like that. Okay, so then you're raising, you start to think about forming your board, you get it done, and then you're actually preparing for that first board meeting. So give me just for the last question here. What is the way to pass the test in your first board meeting? What do you need to be showing them? What's the best way to get the most out of them?

42:14
Seth Goldman
So first of all, before you get to that board meeting, they should be 100% understanding of what your strategy is, what your approach is. Again, so there's no surprise you don't get to the board meeting and they're like, well, what do you mean? We're doing this and that. So what we always start our board meeting with is the five objectives and key results we have for the business for the year. And so the first board meeting of the year where we present those, we explain why we think these are the, okay, the OKRs, the most important objectives for the company. We actually have the board approve them because this is our operating plan as well as the financials that go with it. Then that's got to call it meeting number one of the year.

42:48
Seth Goldman
The second board meeting is, here's how we're doing with respect to these. Ok, with these objectives and key results, let me remind them what they are. We filter down and say, here's how we're doing against them. And then we get even more granular. So obviously there's always like a sales objective and then we'll get more specific. But you never want a board member to walk out of a meeting saying, I don't understand this company's objectives. I don't understand the strategy. Right. The CEO's job to remind them and then to explain how we're doing toward that strategy. And then each board meeting, you can say, we're going to focus more on this or that, you know, so one may get more granular on marketing strategy. One may get more granular on sales. That's usually for us at the beginning of the year.

43:27
Seth Goldman
Towards the end of the year, we always have a review of compensation. Here's what our compensation is and our strategy. What's the bonus program? What are the incentives we've created? And so you want, over the course of the year, for the board to have full oversight of the business. We even do one on financial controls. It's not very exciting, but it's important. Again, as a fiduciary of the shareholders, you want the board to make sure that the person who is setting up the checks isn't taking the money in isn't the person who's running the checks. Also, you just need to make sure there's a good house in order.

43:58
Daniel Scharff
Okay, So I like. Because I have one more question that just occurred to me, which is, that's fine for me. I don't know, Seth. You always just make sense to me. I'm just like, yeah, everything you say makes sense. Seth, you're one of the most successful people in this industry. Everybody looks up to you. Jessice T. Has done so incredibly well.

44:14
Seth Goldman
Thank you.

44:14
Daniel Scharff
But, like, there have been some directions that you've changed in your life. Like, if we look back at, like, okay, eat the change started with the mushroom jerky, for example. But, like, I'm just thinking if I were on your board and you were presenting all of that stuff, I would just probably be nodding along like, yes, that's very thoughtful. Everything you do is very thoughtful. Are there scenarios where, like, you look back and you're like, you know what? They maybe should have pushed harder on this plan or had some vision that I didn't have and given me perspective on that, or, like, you know what I'm asking?

44:44
Seth Goldman
Yeah. Well, I think part of it is I'm bringing the board along. So, like I said, there's no surprises. Going back to the Honest Tea days. One of the just brutal decisions we made, I know you talked about, was owning a bottling plant for six years. That was a disaster. It was. We lost money on it. It was draining for me. I was driving to Pittsburgh every few weeks when I should have been staying Bethesda, selling tea, and it was a bad strategic choice. We all held hands as a board. It wasn't like someone on the board said, I don't think we should be doing this. It just. We couldn't get it to make financial sense. And so ultimately we did transition out of it, but someone on the board should have pushed back on it.

45:23
Seth Goldman
But ultimately it could have put us out of business. It really could have. I think ultimately, eventually we just said this. This isn't making sense. We gotta find a way, an exit for this.

45:33
Daniel Scharff
Yeah, we made that decision together. And you're not right 100% of the time. Nobody is right.

45:37
Seth Goldman
But that communication is important. So that I've certainly had board members who will raise a concern and I'll circle back with them afterwards and just really get more granular with them to make sure it's not about politics. It's because I respect my board members. I know they're smart people, and I want to make sure I understand fully what they're saying.

45:56
Daniel Scharff
Okay, Seth, this has been very enlightening. Honestly, I hope that everybody listening takes away from this just how much thought you put into it and making sure you're getting the most out of it. And I think just also the pursuit of learning on your end, where you're looking up, classes on board management and board governance. Governance, yeah. There we go. Thank you.

46:19
Seth Goldman
Yeah.

46:19
Daniel Scharff
Yeah. I hope everyone really thinks about that because it seems like you know how to, I think, build a really great board that can support your business, help you and the company achieve your goals, but also, on the other hand, know how to be a good board member and really also try to help, on the other hand, entrepreneurs and those companies achieve the most that they can. So thank you as always, Seth. This is another just gold episode.

46:45
Seth Goldman
Thank you, Daniel. Thank you for all you're doing to serve the CPG community. It's so fun to see at trade shows and events just how the community you built, the energy you bring together, I just love it.

46:57
Daniel Scharff
Thank you, Seth. We'll just. Hey, a couple of Bethesda boys just trying to do the most of the cpg. For anyone who doesn't know, I'm also from the same area as Seth, Bethesda, Maryland, shout out. Let's go. So, all right, Seth, thank you again and we will hopefully get you back for another episode soon.

47:11
Seth Goldman
Thanks. Take care. Bye. Bye.

47:16
Daniel Scharff
Well, my friends, we've now arrived together at the end of another episode of the Startup CPG podcast, the top globally ranked podcast in cpg. As you may know, we're not just a podcast. We're a community of brands and experts in. And you should join. You can sign up @startupcpg.com. You'll then get an invite to our online Slack community. You're going to hear about amazing events near you, all of our special opportunities to get you in front of buyers, investors, brands and more. It's a free community. So what are you waiting for? I will see you there or on our next episode. Bye Bye.