GARY HIRSHBERG: On many occasions, I would tiptoe over to the office to call my mother-in-law to have a chat to see if I could borrow another $3,500 or $2,500 to make ends meet. And one night, I heard the click click of call waiting on my mother-in-law's phone, and Meg was calling from the house to say, mom, don't do this.
GUY RAZ, HOST:
Wait, your wife was telling her mom not to lend you money for the business.
RAZ: Because it sounds like she - maybe she didn't believe in it.
HIRSHBERG: Well, she had no reason to believe in it. It was insane.
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RAZ: From NPR, it's HOW I BUILT THIS, a show about innovators, entrepreneurs, idealists and the stories behind the movements they built. I'm Guy Raz. And on today's show, how two hippie farmers and a cow named Lilybelle (ph) started a side business in a drafty barn and grew it into Stonyfield, one of the biggest yogurt brands in America.
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RAZ: So of all the stories that we've told on this show so far, I think it's fairly safe to say that Stonyfield yogurt has had more ups and downs, and really more downs, than just about any other. And it's a pretty unlikely tale to begin with. Two eco-hippie farmers with no real desire to build a company wind up building a company. They start small, milking their own cows, making their own yogurt, selling locally to nuns, and then eventually spreading themselves way too thin and sliding into deep debt.
Now, over the years, Stonyfield has had a whole slew of near-death experiences, but it never quite died. In fact, it grew. It grew into one of the most popular yogurt brands in the United States. And one thing about Stonyfield's co-founder Gary Hirshberg is that even though he didn't really set out to build a company, he knew what it took to run one because when he was growing up in Manchester, N.H., his dad owned and ran a pretty big shoe company.
HIRSHBERG: You know, it was - in those days, there were probably 50 shoe manufacturers in New Hampshire alone and probably 150 in New Hampshire, Maine and Vermont and...
RAZ: So how many people did your dad's company employ?
HIRSHBERG: Several thousand. I think at their peak, they were at 2,800.
HIRSHBERG: These were true company towns. Of course, in those days, manufacturing was - you know, the state was built, and the region and the country were built on things that we made. And the dark side of that is that when they - essentially, because of cheaper labor from abroad - when the domestic shoe industry collapsed, all these communities did as well.
RAZ: And what happened to your family?
HIRSHBERG: Well, it was really a three-fer (ph). The family's business went bankrupt, my parents got divorced, and my sort of childhood role model died suddenly of spinal meningitis. So it was a wake-up here. Yeah.
RAZ: I mean, did your lifestyle change overnight? Because I have to imagine, as a kid, you were probably a pretty prosperous family, affluent family.
HIRSHBERG: Yeah, there - we were certainly comfortable. I was a ski racer. I, you know, wasn't ever worrying, certainly, about the next meal or - and, you know, we traveled up north on weekends for skiing. We had a home on a lake. But yeah, it - you know, the world - I mean, I think everybody at 14, any conscious being starts to - that your life's - undergoes changes, but in my case, they were kind of expedited. I - my father got - began drinking. And so I had to sort of confront all of that and - you know, watched sort of all the rocks just suddenly turn to mush. You know, my mom became a single mom with five kids. I was the oldest.
RAZ: And how does she support you? What does she do?
HIRSHBERG: Well, yes, so - course, again, because my dad's business was gone now so, you know, there was a huge amount of tension. There was lots of battling over alimony, which - for money that didn't exist. So she wound up becoming a buyer for a local family-owned hotel chain - actually, close friends of ours - which eventually sold to Sheraton. And gradually, she parried that into becoming, ultimately, the senior buyer for Sheraton worldwide.
And then from there, she became the senior buyer for Disney for the Epcot Center when they built that. So yeah, she was, like, literally, you know, a mom with five kids running a little general store part time as kind of a hobby to becoming a - you know, a global executive.
RAZ: So this, like, major change in your life happens at the age of 14, which, of course, is going to have an impact and influence on you. Did you start to think about business, about being a businessman that early? I mean, you saw your parents who were both entrepreneurial.
HIRSHBERG: No, I started to think about running as far as I possibly could away from it. You know, I - obviously, the bankruptcy didn't happen overnight. It was this result of a steady decline. And my grandfather, my father and my uncle were all in the business, and I used to sit or work it - there, and I would listen to them screaming at each other. You know, they were arguing, you know, passionately about what to do about this downturn.
And so to me, business was this thing where people got - people yelled at each other, people hung up phones on each other, people were stressed, employees lost their jobs, and it - and on top of that, serious pollution. So it led to my deciding that business was the worst thing on the planet, the last thing I wanted to do, and led me to really pursue a career in the sciences - environmental sciences.
RAZ: So what'd you do after high school?
HIRSHBERG: I went off, you know, to a college that was just an overtly liberal arts sort of nonbusiness environment. It was Hampshire College.
RAZ: Oh, yes, right.
HIRSHBERG: Which, you know - which, of course, Ken Burns and...
RAZ: If you want to get business knocked out of you, that's where you would've gone, right?
HIRSHBERG: Yeah, yeah, but stick with it because it turns out that it was probably the best training for an entrepreneur that there is because this is a school that has no credits, no requirements, no grades. You only pass - matriculate through by contracting and making progress with individual professors who take you on as their, essentially, apprentice. And in many cases, the funding of work - I mean, I wound up diving deep into ecology and environmental sciences. And turns out, I was - though hating business still and thinking - you know, again, now I thought - getting educated, I realized, my God, we're warming the planet, we're toxifying, we're depleting water, we're disturbing, you know, biodiversity everywhere. It's all because of industry. So I was sort of radicalizing in my environmental beliefs but actually getting business skills all the while.
RAZ: So I guess it was after college that you went and worked on an organic farm.
HIRSHBERG: Yeah. At the time, there was a little ecological research institute on Cape Cod called the New Alchemy Institute, and they were advancing the idea of using wind and solar power, building really sustainable food systems long before those words were in our vernacular. And I went from a windmill apprentice to windmill technician to executive director, and I saw them on the cutting edge of how we were going to need to grow food in the future.
RAZ: And around this time, you also meet Sam Kaymen, right?
RAZ: And he is the guy who's going to become your business partner, who's - and he's also running his own organic farm.
HIRSHBERG: Right. So he was mostly teaching organic farming methods - raised beds, biological pest controls, greenhouse season-extending - basically kind of back-to-the-land type stuff but with an organic focus.
RAZ: Basically running this is a nonprofit and just...
HIRSHBERG: Oh, yes, it was a nonprofit. So we were both - we were each running nonprofits. But I got really excited by his work, and of course, he was back here in my native New Hampshire, which I loved.
RAZ: And he's older than you.
HIRSHBERG: Oh, yes. He's about 16 years older. Samuel, at that time, had six kids.
HIRSHBERG: And I was a single guy. But, you know, we became fast friends. And he asked me if I would join the board of the Rural Education Center to help him with his money raising.
RAZ: And did he have a hard time raising money in the first place?
HIRSHBERG: Well, right about that time, Ronald Reagan came into office and essentially cut off the lifeline for sustainable energy research, sustainable ag. So essentially, money dried up for these nonprofits. And so we would sit at Samuel's board meetings at the - up at the Rural Education Center.
And by the way, critical to this whole story - he had one cow named Lilybelle. And Samuel was experimenting with yogurt, and he was a fermentation nut case. I mean, he made sauerkraut, beer, wine, kimchi. If it fermented, he made it. And when I say he made it, he made incredible foods. And he made this wonderful yogurt.
RAZ: ...From his cow.
HIRSHBERG: ...From his one cow. And we would sit at these board meetings eating bowls of this absolutely incredible plain, cream-on-top whole-milk yogurt. And just to back up one step, Samuel is originally from Brooklyn - grew up very poor in Flatbush. But he got to know a lot of these old Jewish yogurt-makers down there, and they taught him yogurt-making. And what they explained to him is, it's very simple. It's all about that the veatha (ph), meaning times and temperatures. It's about the weather, the humidity, the temperatures.
And he - and so Samuel, for his family and for the school, experimented with yogurt for many years. And one day - and unfortunately, none of us can remember who - but one of us, said, gee, why don't we start selling this stuff to, you know, make up for the lack of grant money? Because it was nigh impossible to raise money during that period. And, you know - seemed like a pretty good idea. So Samuel was able to get some Catholic nuns to provide a $25,000 grant.
RAZ: Wait, nuns?
HIRSHBERG: Yeah, the Sisters of Mercy, which was, you'll hear in a moment, the appropriate name. They were taking mercy on these two crazy entrepreneurs. They were selling their monastery, and they were - wanted to turn their principal into local community action. And Samuel used that money to build the first yogurt works.
And about the time that the money came in, which was April of '83, when we opened, I decided that I was pretty interested in joining him full time, not so much to run the yogurt, but I thought that I could help him run his farming school while he did this little fun yogurt venture. So I said, look, I'll - I'm going to join you in September.
RAZ: So the summer of '83, you moved to New Hampshire to start doing this full time.
HIRSHBERG: Right. I moved into a three-story wood-heated log cabin with no plumbing, and I put solar cells on it. And the Kaymen family is - lives there, and our interns are there. It's one big kind of happy, crazy, cow-milking, yogurt-making operation.
RAZ: So I mean, how did the yogurt system start? I mean, it was being sort of put into jars. And how did you - how did you get it to customers? How'd you sell it? Did you put a shingle out and say yogurt for sale?
HIRSHBERG: Well, we started with one cow. Samuel used the money to buy six more cows. So now he's milking seven. He finances this little, tiny factory in a tiny, little room that you could only really describe as a closet in a 1792 barn with a wood-fired boiler. And the way it worked was he put in a 50-gallon, stainless-steel tank. We bought plastic cups. And Samuel was a very charming and persuasive guy. And after paying for his first shipment of cups, he managed to somehow get - continue to get shipments for five months without paying for any more.
So he started producing April 9, 1983 and took his first six packs of yogurt and drove down to the local supermarket, to Harwood's (ph) and said, would you guys sell this stuff? Well, they didn't know what the heck this was. And they said, what price should we sell it? Sammy said, I don't know. Whatever price you think. I mean, we were not business people. So we started selling at $1.49 a quart, which is the same price Dannon was selling for. By the way, he was only making quarts - six packs of plain, cream-on-top yogurt. It was like ambrosia, Guy. It was the most incredibly perfect product - still the best thing we make.
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RAZ: So you guys just start to, you know, basically sell it locally. And...
HIRSHBERG: And, eventually, the Harwood's people called, said, gosh, you know, this is good. It's selling - by the way, way below the price that we could afford. So Samuel said, great. So we eventually hired a young, local guy to drive a van. We couldn't afford a refrigerator van, so we just told him to drive fast. But yeah. So by the time I got there five months into this thing, Samuel had probably about $50,000 of sales.
HIRSHBERG: And my gosh the product was selling through. But he couldn't keep up, and he was out of cash. And, of course, he wasn't paying bills.
RAZ: He was out of cash because the lag time between when he was getting paid and...
HIRSHBERG: Well, he had to pay for grain to feed the cows.
HIRSHBERG: He had to pay this guy to drive and bring the yogurt. As I told you before, he wasn't paying for his cups. But he had to pay, you know, people to help him. And, you know, the $35,000 had sort of disappeared overnight. Honestly, I don't know how he got through five months because when I arrived on September 15 of '83, he - Samuel had these old army surplus desks in this farmhouse - the three desks were piled high with envelopes - unopened mail. I said, OK, I'm now the executive director of the Rural Education Center and the vice president of Stonyfield Farm. And I'm going to spend my first...
RAZ: That was the name of the farm - Stonyfield Farm.
HIRSHBERG: Oh yes, the farm. Sorry. Yes, of course. And it's still there. So I spent the morning separating, I thought, the checks from the bills. The only problem was there were no checks. Samuel - any money that had come in he had used it to buy feed or, you know, lubrication, equipment, fuel, wood, whatever. And by 11 a.m. that morning my first day, I calculated that we were $75,000 in the red.
RAZ: So what did you do?
HIRSHBERG: Well, I did what any self-respecting entrepreneur does. I called my mother. And I borrowed $30,000 from her, which she could ill afford. As I told you before, she was, you know, her own businesswoman with four - you know, family. But, you know, I had good fundraising skills. So I went to many of my former funders and many of his. And I said, look, can we borrow?
RAZ: These were the funders for the farm that you had run back in Massachusetts?
HIRSHBERG: Right. Well, Samuel had a handful of folks who had been his funders. Like I said, he raised $125,000 a year. So there were probably 20 or 30 wealthy individuals. And then I had raised a million dollars a year. So I had, you know, high net-worth individuals out there. And I - look, what I told them was very simple. I said, you know, the first 10 years of our work was all about proving that you can grow food organically. But if we're going to be successful with this revolution, I said to the funders who had gotten us there, then we're going to have to prove that you can actually make money doing it.
And we're going to have to build a model enterprise that will show that you can avoid the use of pesticides, avoid the use of hormones with cows, support family farmers, not depend on fossil fuels, et cetera, et cetera - all the things that we were doing in the nonprofit context. I said, you know, this is - I'd like to ask you to join us in the next phase, which is helping us to build a successful business. And instead of asking for a grant, I'm asking you for a loan. And I wound up borrowing $125,000.
RAZ: OK. So you go out, and you start raising money. And did you and Samuel sit down and say, OK, how are we going to structure this business? Like, we are co-owners. Is this a joint venture? Like, how did you - did you ever do that?
HIRSHBERG: Well, we did because one of the things I did was I hired a lawyer because I knew we didn't know what we're doing. And the first thing this lawyer said to me was - he said, Gary, what percentage of the Rural Education Center's revenue is coming from the yogurt? Well, at that point, it was getting close to 75 percent. And he said, well, guess what? You've got to spin it off because under IRS rules, that makes you a business, not a nonprofit. So Samuel and I realized, we're going to have to buy this from the Rural Education Center. So we agreed to a split in the company - essentially 50/50. And then I went out to our lenders of the 125K. And I said, look, will you take stock in this company. And we did our first private placement, you know, threw a dart at the wall, figured out the value of the business.
RAZ: What did you value it at the time?
HIRSHBERG: (Laughter) Well, we thought we were going to value it at a million dollars. By then, in 1984, our sales were up to around 250,000 a year.
RAZ: And this is just in New Hampshire or all over New England?
HIRSHBERG: Well, by '84, we were starting to push the boundaries. We're selling to about 20 stores. And, eventually, we started selling to an independent grocer who had seven stores called Alexander Supermarkets, now part of Hannaford in the Northeast. And this will give you the real flavor for this - what was going on here. So one Sunday night, we were having dinner at the Caymans after milking. And the phone rings. And Jack DeMoulas, the nephew of the owner of the DeMoulas Market Basket chain calls and says, Samuel, why are you selling to my competitor, this little seven-store chain of Alexander's, and not to me? Now, he had 34 stores at the time. And Samuel said, well, to be honest, Mr. DeMoulas, we don't have enough cows. He said, well, get some more goddamn cows. And he slammed the phone down. And we took that as very good business advice. So we went out and grew our herd even further.
HIRSHBERG: And then - so we now realized we needed to, you know, get serious about this. And so we managed to lease a small refrigerator truck and started delivering, actually, to the Market Basket warehouse.
RAZ: How much yogurt were you making at that point?
HIRSHBERG: We were producing now about 360 cases a week of yogurt.
RAZ: And a case is, like, 24 cups.
HIRSHBERG: Six packs.
RAZ: Six packs.
HIRSHBERG: Six packs of quarts. So by the end of '84, we were - our run rate was headed in the sort of half a million dollar range.
RAZ: But you were probably spending more money than you were bringing in, right?
HIRSHBERG: Oh, my God. You have no idea. Yeah, we were burning - I mean, I kept not weekly cash flows, not daily cash flows. I kept hourly cash flows.
HIRSHBERG: I knew on a Wednesday morning how much money had to come in that afternoon in order for us - because by then, the cup guy had figured out, you know, Samuel wasn't paying them. So now we were on very short terms with everybody. I mean, my fundraising skills turned out to be - you know, we would be nowhere without Samuel's yogurt-making skills and his family's unbelievable attention to detail. They were perfectionists, all. But we would also we would also be nowhere without my ability to keep getting credit and cash because it was burning. I mean, we were on fumes.
RAZ: When we come back in just a moment, how Gary and Samuel begged and borrowed to keep Stonyfield going and how they almost lost it anyway again and again and again. I'm Guy Raz, and you're listening to HOW I BUILT THIS from NPR.
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RAZ: Hey. Welcome back to HOW I BUILT THIS from NPR. I'm Guy Raz. So in the summer of 1984, Gary and Samuel and Stonyfield are almost broke. They're basically running on fumes. And they're trying to bring in more money by just finding a few more stores to sell their yogurt.
HIRSHBERG: In those days, Whole Foods didn't exist yet. But the holy grail for natural products was a little three-star chain called Bread & Circus, which eventually became part of Whole Foods. And they had one store in Cambridge on Prospect Street. And, you know, we were selling now to DeMoulas Market Baskets. This is now - I'm talking July of '84. And we were desperately trying to get down there because we knew that if we could crack Bread & Circus, every other little natural foods co-op in New England would then take us in. And we kept going down there. And they said, no, no, no. We've already got, you know, hippie yogurt made by somebody in Vermont in their tepee with their wet goat. You know, they didn't need another, you know, organic yogurt from some crazy people in New Hampshire.
RAZ: So what would you guys do?
HIRSHBERG: So on July of '84, I had my 30th birthday at the farm. And I had my old ultimate frisbee team come up to visit me, most of whom lived in Cambridge, as you might imagine. And I said, look, it's wonderful you've all come. If you want to give me a really good birthday present, go down to Bread & Circus on Prospect Street in Cambridge and ask for my yogurt. That was on a Sunday. On Wednesday, Mary Carol Skinner, the buyer of Bread and Circus, called and said Gary, I don't know what's going on, but demand has suddenly gone through the roof. We're getting all kinds of requests for your yogurt. Get it - when can you get it in there? Well, I got in my car and I made the first delivery that afternoon.
About a month later, we were her No. 1 selling yogurt. She took us in the other two Bread and Circuses, and off we went. But it was my frisbee team. I mean, you know, that's what it takes. You know, I always say we can ship the yogurt 3,000 miles, it's the last 18 inches that makes all the difference. You get in people's mouths and then they're going to ask for it.
RAZ: But it was the best-selling yogurt at Bread and Circus and people loved it. But you were not making a profit.
HIRSHBERG: No, that's absolutely right.
RAZ: Wasn't that stressful?
HIRSHBERG: Utterly. It was impossible. Look, this was crazy, right? We're growing, we're booming, and we're burning cash. So...
RAZ: And probably working like crazy.
HIRSHBERG: Yeah, we're 24/7.
RAZ: And Samuel had six kids.
HIRSHBERG: Yes. Well, actually, by the way, the six kids were the secret weapon because it was sort of indentured servitude. I mean, you know, it was hard - if they were going to have dinner that night it was hard for them to say no to, you know, milking or making. And by the way, several of his kids are just absolutely astonishingly good yogurt makers. They had their father and mother's sense of pride in the product.
RAZ: And this is right around the time you meet Meg, who would become your wife, right?
HIRSHBERG: Yeah. So a month after that fateful meeting with Bread and Circus, we had our summer NOFA conference - Northeast Organic Farming Association conference. And I - as it turned out, I was the keynote speaker. And so I started talking about this enterprise, this business, that was now a year old. And you know, all of the dreams of organic farmers, we were sort of, like, I didn't talk about our financial problems. I just showed that this is possible, that if you build it, they will come. And right after I finished my speech, this very adorable organic farmer from New Jersey, who was running her own nonprofit farm down there, waited patiently to ask me a question. Well, that turned out to be what is now my 31-year wife, Meg. And we began courting. And at Thanksgiving that year, in '84, Meg introduced me to her family. And her mom had been the deputy commissioner of agriculture for New York state. So she had a kind of an AG orientation. And at one point, she kind of whispered to me that she'd be OK with - if I needed some money - with lending me some. Well, of course I needed money. So she loaned us $50,000. And now we're heading into 1985. We've now launched small cups of flavored yogurt. I now needed to raise about $500,000 because we needed to buy more cups, more fruit, you know, people expected us to pay. So Doris had loaned us the 50 towards the $500,000.
RAZ: Doris is your mother-in-law?
HIRSHBERG: My mother-in-law, excuse me. And I started raising. And I got to about $275,000, $300,000. This is sort of a month or so later, she said, well, I think we can increase. And so she increased to $100,000. And eventually I got across the finish line, got the $500,000.
RAZ: Why did you need so much money?
HIRSHBERG: Well, the factory itself was probably $300,000.
RAZ: The factory on Stonyfield Farm?
HIRSHBERG: Yeah, the little - we called it the yogurt works. The little shop, you know, was a drafty old barn. It was - we needed to switch over from wood to oil. We needed to just get more modern. We needed to get the warehouse, the barn, you know, made sanitary. We had to get real floor drains. We had to stop being a kind of a kitchen operation.
RAZ: And what about cows? How many cows did you have at that point?
HIRSHBERG: Well, at that point, we were up to 19. But one night in this same era, Samuel was out milking. He had milked the first of the 19 cows and the power went out. Samuel came in and said you know, I need help because he has these electric milkers. So Louise and I went out and started milking. Well, you know, it was freezing. The cows hated it. If you haven't hand milked, let me tell you, they didn't - it was - it was a nightmare. The cows were kicking over the buckets. We had these kerosene lanterns in this fire trap barn. You know, every once a while, the cow would kick one over and the milk would spill on the lanterns. And we finished milking the last cow at about 3 a.m. in time to start milking the first one. And that was the night when we realized, you know what, we got to sell the cows.
RAZ: You had to sell the cows because you guys could not milk them all by yourselves?
HIRSHBERG: Right. And so the next morning, we reached out to a local Jersey farmer - because we were using all Jersey cow milk at that point - and said look, will you buy our cows and start selling us milk? Well, he said I'm not going to have anything to do with that organic stuff. And he was fine with hormone free, antibiotic free, but he didn't want to feed his cows herbs and buy organic feed.
RAZ: But that was your condition.
HIRSHBERG: Well, honestly, we had no conditions. We were beggars, not choosers. So we briefly - at this moment in Stonyfield's life - we briefly departed from organic.
RAZ: You had no choice.
HIRSHBERG: We had no choice.
RAZ: Did you - did that disturb you?
HIRSHBERG: Oh, yeah.
RAZ: Or did you feel like you were betraying your values at that - I mean, I guess, because you were hemorrhaging - you didn't have any money, but you had this demand and you had to make - and you didn't have enough cows, right?
HIRSHBERG: Yeah. And I not only had all these problems, but I had my mother and worst, my mother-in-law's money. And so, you know what? That makes a guy pretty practical. You know, venture capitalists, the reason they want what they call F and F money first, friends and family money, is because they know that you might - as an entrepreneur, if things get rough - you might just get up and walk away if it's, you know, some Harvard MBA, you know, with a tie. But if it's your mother's money, uh-huh. And so no, we worked for our moms.
RAZ: Which must have been pretty stressful.
HIRSHBERG: Oh, yeah. You know, what happened, in this farmhouse, I always had payroll on Thursday mornings. And by this point, I was a half-a-million-dollar business. And I never had cash in the bank that night before payroll - never. This became our way of life. And so thinking Meg was asleep in our bedroom, which was about 50 feet from my office, I would, on many occasions, tiptoe over to the office to call my mother-in-law to have a chat, to see if I could borrow another $3,500 or $2,500 to make ends meet. And eventually Meg got on to this. And one night I heard the click click of call waiting on my mother-in-law's phone. And Meg was calling from the house to say Mom, don't do this.
RAZ: Wait, your wife was telling her mom not to lend you money for the business?
RAZ: Because she didn't have confidence in this?
HIRSHBERG: Well, look, she's living in a nightmare. I mean, she saw how crazy it was. I mean, we had chimney fires. We had - the well pump would go out. The power - I mean, we're on this hilltop farm a long way from anywhere.
RAZ: So was Meg saying to you let's just ditch this thing, let's bag it? I mean, or did she - because it sounds like maybe she didn't believe in it.
HIRSHBERG: Well, she had no reason to believe in it. It was insane.
RAZ: But why did you believe in it? I mean, did you think it was - I mean, you are - what? - two, three years into this thing and not only are you not making money, you are in debt, big debt big time.
HIRSHBERG: Yeah. Well, I'll say this. Meg, you know, fortunately, loved me, even more fortunately, probably, loved the yogurt. And we had nowhere else to go. You know, she had given up her job down on her farm in New Jersey and signed on to this crazy damn enterprise. But here's where the story - I know that you think it couldn't get worse, but as Lily Tomlin says, it got a lot worse before it got worse.
RAZ: OK. What happened?
HIRSHBERG: Well, so now I'm going to jump a year and a half. We've now expanded the plant. We're buying milk from 10 or 12 farms. I'm going to guess - let me just tell you the number - we are at about a $1.3 million a year run rate. And we have maxed out this little farm. There is no - you cannot squeeze another drop of yogurt out of this place.
RAZ: So presumably, you are looking to work with another factory.
HIRSHBERG: Right. So it's spring of '86. We are out of capacity. We contracted with a little dairy in western Massachusetts, Greenfield, Mass. We were desperate. We did not do any of the financial due diligence one would normally do. We just got our way in there and we started making yogurt. And boy, it was great. I mean, all of a sudden, paved roads, you know, regular power, dairy. And we thought we were coming out of the woods.
RAZ: Yeah. The yogurt's being made somewhere else. But you can oversee it.
HIRSHBERG: Yeah, yeah. But now we round the bend into the fall of '87 - October of '87 - a fateful weekend, the weekend of the crash of '87 in Wall Street. But what happened for us was on the Thursday night of that weekend, Becky Capeless (ph), the banker for his - our manufacturer's bank - called me up at the farm and said Gary, would you like to buy this dairy?
RAZ: The dairy that was producing your yogurt?
HIRSHBERG: Producing our yogurt. And I said no, we don't have the cash to buy their dairy. And I said why are you asking? She said well, they're in their third year of their small business administration loan guarantee and the SBA has announced they're not going to renew it, and therefore, our bank, my boss, is going to have to pull our loan to him. And that means that he's probably not going to make it. The next morning at 7 a.m., their bank went in and put them into Chapter 7, padlocked the place, locked it up. My cups, my lids, my fruit, my yogurt was in there. But suddenly, this thing is in receivership.
RAZ: Wait a minute, your production comes to a halt? I mean, this is a outsourced (unintelligible) production facility. It just stops?
HIRSHBERG: So it came to a screaming halt. Worse than that, I had to come up with $100,000 to take my in - get my inventory out of the building because, again, we owed them co-packing fees. Now the bank's the owner. And so I had to call my shareholders and find $100,000 within hours. And so I did. We got our inventory out. But now we have no factory.
RAZ: Yeah, you're making no yogurt.
HIRSHBERG: We have no yogurt. We have what was in the factory. So what can we do? We took a look at the old yogurt works up on the hilltop farm where the roosters were now living. I said son of a gun, we got to come back here. Now by then, our volume had grown to 100 percent more, you know, when it had been exceeded.
RAZ: You could not make enough yogurt at Stonyfield Farm where you were living?
HIRSHBERG: Right. Right. But that didn't daunt us. That weekend, Samuel and I put on our carpenters aprons, went out and kicked the roosters out and restarted the old yogurt factory. Fortunately, the equipment was still there. And by Monday morning - so it was $100,000 that we had to borrow to pay off the dairy, and then we had to put about $100,000 into getting this place up and running again. You know, we borrowed and borrowed and borrowed. And you know, I went to all the shareholders, and, you know, of course, they had no choice but to lend because everything they had ever put in was at risk. So Monday morning, we begin production again at Stonyfield Farm. Now the problem is in order to keep up, we have to produce 24 hours a day, seven days a week. Samuel or I had to make yogurt every other night. And, Guy, this began and continued for 20 months. And we started burning - and brace yourself for this - we started burning $25,000 a week on top of the $200,000 that we had borrowed. So now I am in deep you know what. And...
RAZ: How much money do you think you were in debt at that point? - like you're talking a million or more.
HIRSHBERG: Well, by the - by Christmas of '87, you know, running this factory for two months, I can tell you we were already $600,000 in debt. By Christmas of '88, we were $1.9 million in debt. By Christmas of the next year, we were $2.7....
HIRSHBERG: ...Million in debt.
RAZ: Did any of your shareholders say, I'm getting nervous here. Like, you are - this has been a while here. And I - you know, it's just, like, a lot of money for me.
HIRSHBERG: Every one of them - and, you know, what you have to know at the punchline of this story is that I wound up by the end of this period with 297 individual investors. There was no way to find common ground with an institutional investor, right?
HIRSHBERG: A venture capitalist - believe me, I knocked on every door.
RAZ: And they were like, take a hike.
RAZ: But what about your shareholders? I mean, how did you end up dealing with them?
HIRSHBERG: I stayed in constant touch with every single shareholder. I was in constant contact with my creditors. I couldn't pay fruit suppliers. I couldn't pay - you know, our fruit supplier had lost $75,000 when that dairy went Chapter 7. And somehow they had not been paying attention, and they continued to ship us fruit back up at the farm. So they figured it out, you know, three months later that they were now into us for $125,00. And I said, look. I can't pay it, but can I come out and talk to you? And I borrowed a credit card from a friend and flew out because we certainly had no credit - flew out to Cleveland and met with the fruit people. And I said, look. Here's the bad news. We owe you 125,000, but here's the good news. They said at our current growth rate, if we can meet orders, we will be a $250,000 a year customer for you within six months.
So here's what I'm prepared to do. I would like to see if you would advance us another $125,000 of fruit. I will pay you back, starting in six months, at your interest rate, whatever you want to charge, which is a joke because nobody - no commercial bank would even lend to us. I said, I will pledge my stock as collateral, which was a joke because it was a liability, not an asset. And finally I said, and I will pledge that I will buy exclusively from you, not from anyone else. Well, that was a joke because no one else would ever sell to us. And they said, well, Gary, that's an interesting. And they said could you mind if we go off and talk? And they went into the back room - and son of a gun. Half an hour later, they came out and said, you know what? We believe in you. We're going to do it.
HIRSHBERG: And my summary of that story and so many others of this period is simply, if you don't ask, you don't get. And desperation, you know, breeds this thing where you just have no shame anymore. You have to ask. And now I'll just tell you the punchline of that story is those guys have sold us - in the 30 years since - they've sold us probably $250 or $300 million worth of fruit.
RAZ: That's amazing. You know, Gary, it's sounds kind of crazy because at this point in all of my interviews, normally, it's where we're talking about how the entrepreneur, like, made it through the troughs and crucibles and just - you know, just started making money hand-over-fist. But you are still in crisis. I mean, your company is still not doing well. I mean, you didn't even have a factory to make yogurt at this point. You needed a new one.
HIRSHBERG: Yeah. And we ultimately found one. It was a dairy in northern Vermont. And we negotiated for three months with this dairy in northern Vermont to become the answer to this whole thing. Namely, they would produce our yogurt. Samuel and I would focus on sales and marketing. And we would become partners. And they would get paid a price for every cup of yogurt and just like the other dairy. But this was a much larger, $70 million company. So the d-day comes in April of '88 to go up and get this deal signed. And we had negotiated a deal that was about 2 inches thick. And I went up. Samuel and I left the farm. Now at this point, Meg is pregnant with son number one. And of course, I've got now - I now have over a million dollars of her mother's money, OK?
HIRSHBERG: Like money she could never afford to lose, everything they had - and Meg comes to me at the door. And as we're leaving she says, you promise this is done, right? We're going to - because I've been milking every other night, right?
HIRSHBERG: No vacations, no breaks, no nothing - so we're - I'm leaving now to go sign this deal. And Meg said, you promise me that all the details are worked out - that when you come back tonight, we're - the beginning of this relief is going to happen. I said, absolutely. We have nailed down every last detail - drove up to Vermont. When I got there, Samuel went into the restroom at the lawyer's office. And I looked at my seat. Instead of the 2-inch thick agreement that we were going to go over, it was a letter to me. And it said, dear Gary. And bottom line is, dear Gary and Samuel. Basically, they decided to trade - to steal the company from us there. They said we've decided that you guys need us more than we need you. We're going to take over. What we're going to do is have all of your shareholders convert their stock into debt. And you are welcome to work down their debt with a credit of one penny per cup for every yogurt, every cup made. We figure it will take two years. And at the end of the two years, we'll negotiate your future employment. So it wasn't a deal. It was a steal.
RAZ: Wow. Wait. This was just sitting on the table? - this letter that said...
HIRSHBERG: On the table.
RAZ: Yeah. Our offer is, we...
HIRSHBERG: We're stealing you.
RAZ: We want the company.
HIRSHBERG: And all the while, they're looking at me. And one guy is winking at me like, you know, do the deal, son. It's in your best interest. Or you know, your wife's back there desperate for you to solve this. Just be smart. Samuel had not even come into the room. I got up, uttered some things I can't say on public radio and grabbed Samuel...
HIRSHBERG: ...And got in the car. And we started driving. Now, of course, as luck would have it, don't you know? - an April blizzard has started. So no cars are on the road. We've now got a two-hour drive back. And worse than that, one of us is going to have to make yogurt that night. And worse than that, I have to face my wife. And so we start driving. I turned to him. I said, what will you do now? - because I knew we were going to have to sign the deal. I knew it was over.
HIRSHBERG: And I said - and he said, well, I guess I'll do something in sales. And you know, my heart sunk, right? This is a guy who'd created this incredible yogurt. I mean, he was a genius who was making the most perfect product. And now he's going to sell widgets.
RAZ: So you basically thought, or at least Sam thought, that this was it. I mean, you guys were...
HIRSHBERG: I mean, look. This is the darkest of the dark of hours. We're burning $25,000 a week. We're taking money we cannot ever pay back. We have to go back to this farm. We have no solution. And so I turn to Samuel and I said, listen, Samuel. Just for the fun of it, what would be the cheapest yogurt plant we could build, somewhere that would actually cover our capacity? And he said, you know, I was thinking the same thing. So he flicked on the dome light in the car, pulls out his pad. And we start designing a yogurt plant.
RAZ: In the car.
HIRSHBERG: In the car - we're driving in this - I'm driving. He's designing. We got back to the house at about 10:30 - 11 at night. He goes in to make yogurt. I go in to see Meg. She wakes up, and she says, so is the deal signed? Is it done? I said, no, no, no, no. That deal's not going to happen. But we've got a much better idea. I slept alone that night over in my office. And the next morning at 7 a.m., I was up at the SBA office in Concord, N.H., the Small Business Administration. Remember, they will guarantee loans to businesses. So they make it possible for banks to lend to high risk, which we certainly were.
RAZ: And you were. I mean, you guys were in debt. You had no plant. You couldn't fulfill your orders. How were you going to talk them into into giving you a loan?
HIRSHBERG: Well, we had figured out that we could build this factory for $597,000. So I drove up to the SBA, and I sat down with them. And they never - normally you don't go to the SB. You go to the bank. Who goes to the SB? But I sat down. You know, Stonyfield's a pretty popular brand. We're well known in the state. So I meet Bill Phillips, the head of the New Hampshire SBA office, when he walked in at 7:30. And I said, Bill, here's the deal. We can build this factory for 597,000. We need an 85 percent loan guarantee. And guess what? We've got a bank. The Bank of New England's willing to lend us. That was a little bit of an exaggeration. They - this is "Stone Soup." You know the story.
HIRSHBERG: I said - and I knew that I had to come up with - 20 percent of it with shareholder equity. So - and I said, I've got the 100,00 - 125,00 from the shareholders - also not quite true. Bill said, well, listen, Gary. If you've got the bank and you've got this plan and you've got the shareholders, then we'll happily do it. I drove from there to the Bank of New England, sat down. I said, look, guys. The SBA is going to provide the loan guarantee, and I got the shareholders. Will you do this loan? And they said, well, if the SBA will do it, of course, we'll do it and if you guarantee the equity will do that. Call the shareholders to a meeting in Boston the next night, got together with as many of them as I could, had my mother in law on speakerphone - I said, here we are guys. We've got the bank. We've got the SBA. All we need is your 125,000. And to make a long story short, we got their money.
RAZ: Wow. How much money did you raise?
HIRSHBERG: All told including paying off the debts - $2.5 million - and opened our new factory nine months later in Londonderry where we are today.
RAZ: And did you - both you and Samuel have to give up big chunks of your ownership?
HIRSHBERG: Oh, yeah. By then Samuel and I were down to 10 percent each in the company. Now, we also had stock options. Like, we had in earn-back. The end of '89, we began manufacturing in this facility. The business is now doing $3.4 billion in sales, but we lost $1.4 million that year. The next year, we did 6.5 million in sales, and we lost 900,000. The following year, the second full year in the new factory, we did 10.1 million, and we made $125,000.
RAZ: This is 1992?
HIRSHBERG: March of '92.
HIRSHBERG: So that was our first year of making money. Yeah.
RAZ: So the '90s are - this is just a growth period. You guys are are on this trajectory. And when do you know that you are now sustainable and that things are looking up?
HIRSHBERG: We hit forty $44 million in - around '95. Now we've got stability and cash flow. And this gave us the courage to go back to our roots. Initially with one farmer and eventually now with 1,750 farmers - begin buying organic milk again. And of course, organic has evolved at this point. Whole Foods has become a reality. I mean, the organic sector is real.
HIRSHBERG: So in '95, we converted back to our plain whole milk quarts to organic. '96, we converted our small cups. '97, we launched drinks. '98, we're at $78 million in sales. '99, we're at $100 million in sales. And thats when I began negotiating with Danone to have them come in.
RAZ: Yeah, I mean, at this point, it's been a long road - right? - '83, you start the company. And you get a $100 million in sales by '99. Why - what was the reason why you decided to sell, you know, huge stake to Danone - to the French multinational - I guess much of what they do is yogurt and dairy products.
HIRSHBERG: So the answer is the 297 shareholders. I mean, some of these folks came in in 1984 without children. Now, they have kids going to college, right? I mean, they do need a return on investment. I had no legal obligation. But I felt a moral obligation to, you know, pay them back. And Samuel also was ready to retire.
So my idea was I'll sell my company to you. You buy out all these shareholders and my partner. But you leave me in control. By then I was up to about 20 percent ownership - I had - through the earn out. And I said, you know, I have this commitment. I'll stay on for a really long time. But you got to let me keep running the shop.
So I talked to 21 companies. Twenty of them laughed at me. Actually, even Danone laughed at me. The original head of M&A who came to see me said, (imitating French accent) Gary, do you mean to tell me we are going to buy 80 percent of your company and you'll still be in control?
And I said yes. And the banker and the lawyers and everyone laughed. And, you know, two years later, that's the deal we signed. I spent two years negotiating with them.
RAZ: So you remained the CEO of the company. And I mean, in the 2000s, if I'm - I get - I have my sort of dates right. And I think I do because I remember this. Like, all of a sudden, Greek yogurt just exploded. And you guys were not a Greek yogurt company. What did that do to your sales?
HIRSHBERG: Well, Greek is now 50 percent of the yogurt category. The thick, unusual, creamy taste of Greek just - you know, just caught on. It just simply caught on. I mean, we have a wonderful, incredible Greek line. But it's only for us about 15 percent of our sales. And, you know, while we're not the leader in Greek, we are the leader in organic. I mean, I think we're something like 80 percent of organic yogurt in the U.S. So...
RAZ: How much of what happened to you and your success is because of luck and how much because of skill?
HIRSHBERG: Oh, luck counts for a lot. I mean, I was lucky to meet my incredible wife and her amazing mother. I was lucky to meet Samuel. I was - we were lucky to find people who'd lend us money despite how silly this was. Skill helps. You know, what made this possible was Samuel and his genius and his incredible skills, OK?
Without that superior recipe, none of this could have happened. We - you and I wouldn't be talking today. So, of course, skill counts. But, you know, skill - there's plenty of fantastic entrepreneurs who've, you know, failed who had wonderful skills but just didn't have good luck.
RAZ: This small, little, hippy-like yogurt thing that you started in 1983 has made you very wealthy. It's - I mean, first of all, was that ever important to you? Did you always wanted to become rich out of this?
HIRSHBERG: All I wanted was my mother and my mother-in-law to get their money back.
HIRSHBERG: (Laughter) I kid you not. Now, look, you know, we began this interview by talking about my father and his failed business and all the tragedy that came of that with all the people in my communities. And, you know, I was never a believer that making money was the Holy Grail.
You know, I sit on many boards now. I work with Wall Streeters (ph). And look, I know the best way to convince these guys to invest in organic and renewables is to show you can make a lot of money. So...
RAZ: And that's basically what you did, I mean, despite all these obstacles that you guys faced.
HIRSHBERG: Yeah, I often joke that we had a wonderful company, just no supply and no demand.
HIRSHBERG: I mean, no one knew that there was such a thing as better yogurt. And certainly, no one knew what organic was. And yet it's interesting that my dad - and my mom, by the way - in both cases, what I now realize I got from them was this belief in myself that it didn't matter what was going to happen. If yogurt cups were leaking, if stores weren't accepting us, if competition was coming on, if I couldn't meet payroll, you know, there was always going to be a way. And I learned that from both of them.
RAZ: And your mother-in-law, is she still around?
HIRSHBERG: Sadly, she just passed a couple of months ago.
RAZ: Oh, I'm sorry to hear. I'm assuming that her million dollars was, in the end, a very good investment.
HIRSHBERG: She did extremely well. She and I still kept secrets. I was - she passed at nearly 97. And I can tell you that the risk she took with Stonyfield was probably one of her greatest points of pride. You know, she and Meg used to always have this conversation and Meg begging and pleading her mother not to invest. And Doris (ph) always had this one line, which she had for decades, which was, Megy (ph), I'm a big girl. I know what I'm doing. It's going to work out.
HIRSHBERG: And she was right.
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RAZ: Gary Hirshberg, co-founder of Stonyfield yogurt. By the way, earlier this year, Danone sold Stonyfield to another company called Lactalis, one of the biggest dairy companies in the world. And the amount Lactalis paid for Stonyfield - $875 million, which is not bad for a yogurt business that began with just one cow.
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RAZ: And please stick around because in just a moment, we're going to hear from you about the things you're building.
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RAZ: Hey, thanks for sticking around because it's time now for How You Built That. And this week, our story starts at the movies.
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RAZ: So there's a scene in "Indiana Jones And The Last Crusade" - and you may have seen it - where Harrison Ford is stuck in a room that has burst into flames. So he starts to scoot his chair to the only place that is not on fire, which is the stone fireplace.
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HARRISON FORD: (As Indiana Jones) Whoops.
RAZ: And then - I think you know where I'm going with this - the fireplace suddenly spins. And Indiana is a whole new room. And this room is full of Nazis.
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UNIDENTIFIED ACTRESS: (Speaking German).
RAZ: So this movie, it was kind of formative for Steve Humble. Steve is a mechanical engineer. And a few years ago, he was living in Salt Lake City, renting a big house with some friends.
STEVE HUMBLE: And there was a spot in the house that was a big stone hearth. And I have always been kind of fascinated with secret passageways. And I thought, I could totally make a secret passageway like what I've seen in the "Last Crusade."
RAZ: Because, let's face it, how awesome would it be to have a secret passageway in your house? And the more Steve mulled it over, the more he thought, you know, I bet other people would want one, too. So the first thing he did was to Google secret passageway building companies.
HUMBLE: And there was nobody, absolutely nobody anywhere that could make these secret doors like were in the movies, you know, motorized and maybe high-security stuff.
RAZ: Now, at the time, Steve was pretty bored at his day job. So he started to dream of creating a business that would build secret passageways. And he called up some contractor friends. And he asked, would your clients possibly be interested in something like this?
HUMBLE: And I got overwhelmingly positive feedback. So eventually, you know, I decided I'm going to do this thing. I quit my job. I had to move in with my parents.
RAZ: Steve moved to his parent's place in Mesa, Ariz. And he started to tinker in his dad's garage. And it just so happened that an old high school buddy was building a house nearby. So Steve said, hey, why don't I build you a secret hiding place?
HUMBLE: He had a niche in the wall, like a recess. And he kept a vase in there. And I made it so that when you twist the vase, a painting on the wall opens. And it exposed a fingerprint scanner. And then we scan your print, then the niche itself would slide upwards towards the ceiling. And it was replaced from below by a gun safe.
RAZ: A hidden gun safe. So at this point, Steve started to market his idea. He got a story in the local paper. And within a year, people started to find him.
HUMBLE: Like big people, like people you would have heard of. And they are building multimillion-dollar houses.
RAZ: And, of course, we asked him for the salacious details but well...
HUMBLE: I wish I could name drop for you, but I am sworn to secrecy.
RAZ: So anyway, Steve is suddenly in his dream job. He's flying around the world. He's working on palatial homes, putting in vaults and fingerprint scanners and secret doors for people whose names he cannot reveal.
HUMBLE: I felt a little bit like an impostor. You know, I show up at this house where there's this incredible team of talent. But I kept reminding myself that nobody knows how to make secret passageways any better than I do. Certainly, no one's built any more than I have. So I guess I am the expert at this.
RAZ: A custom-made secret door starts at around $9,000. But Steve's recently introduced its cheaper line of his secret doors, just 1,500 bucks. And they're made to look like anything other than a door.
HUMBLE: One is a full-length mirror. One's a bookcase. One is a wardrobe. And another one...
RAZ: And you can install one of these secret doors in front of your spare bedroom or a closet. You hide what you want. And then, you trigger the door by remote control. And Steve says he's barely advertised, and he's already selling about one of these a day.
HUMBLE: I mean, it's on a clear trajectory to surpass our core business.
RAZ: And then his more middle-class ones? Steve expects to make $1.5 million just this year. His company is called Creative Home Engineering. And you can read more about it on our Facebook page. Just search HOW I BUILT THIS on Facebook. And, of course, if you want to tell us your story, go to build.npr.org. We love hearing what you're up to. And thanks for listening to the show this week. If you want to find out more or hear previous episodes, you can go to howibuiltthis.npr.org.
Please also subscribe to our podcast if you haven't already. You can do that at Apple Podcasts or however you get your podcasts. You can write to us at each firstname.lastname@example.org. And if you want to send a tweet, it's @howibuiltthis. Our show is produced this week by Jed Anderson with original music composed by Ramtin Arablouei. Thanks also to Neva Grant, Sanaz Meshkinpour, Claire Breen, Lawrence Wu and Jeff Rogers. Our intern is Diana Mustack (ph). I'm Guy Raz. And you've been listening to HOW I BUILT THIS from NPR.
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