HOW I DID IT

How I Did It: Stephen McDonnell of Applegate Farms

Stephen McDonnell took a tiny smokehouse and turned it into a $200 million meat company.
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Twenty-five years after Stephen McDonnell started Applegate Farms, the Bridgewater, New Jersey-based meat company is one of the largest natural and organic food brands in the U.S. With almost $200 million in revenue and 80 employees, the company sells its products in a variety of retail outlets, from small specialty food stores to Whole Foods to big chain supermarkets such as Stop & Shop and A&P. McDonnell made his products a household name not only by riding the trend toward healthy eating and organic food, but also by creating a lean company with minimal overhead (there's actually no farm at Applegate Farms), and by cultivating an unusual management style that puts him in the office just one day a week. He told his story to Donna Fenn.

I was born in 1955, so I ate a lot of meat and potatoes growing up. It wasn't until I went to Hampshire College that I experimented with the early vegetarian movement. But I was unsuccessful at being a vegetarian. Eventually, I came out and declared my love of meat.

After college, I was a financial analyst at Ford for three years before going back and getting a master's in organizational behavior from Harvard. I went to work for a small consulting firm, a spinoff of Arthur D. Little. It was an early pioneer in process consulting. That's where I got into the psychology of business. But the consulting thing was too theoretical and not hands on enough for me. I started working with my brother-in-law, Simon Pearce, at his glassware and pottery business in Quechee, Vermont. After I helped him accelerate his growth rate, I realized, Holy crap, being an entrepreneur is what I was meant to do.

In 1987, I came across this company, Jugtown Mountain Smokehouse, in Flemington, New Jersey, that was making nitrite-free bacon. That brought me back to the days when I was living in Boston and shopping at Bread & Circus, a natural-food store. I had come across nitrite-free bacon there and realized I could feel good about eating meat if it didn't contain any of the ingredients I knew were bad for me. Jugtown was for sale, so I bought it for $250,000. That's how I got into the meat business.

The place burned down in 1988. About 2,000 pounds of bacon caught on fire. I was like, I'm getting the hell out of this business. But I couldn't walk away. That's when I realized that I was committed to the business in a deeper way than I had thought. Eventually, I had an epiphany: The mission of this brand is to change the way America eats meat. Twenty-five years later, it's still what this company is about.

When we were rebuilding Jugtown, we started sending product to other plants to have it made. It came back better than what we had been producing. That's when I said, "I don't want to be a producer." I realized we didn't have to make anything.

Jugtown wasn't the right name. It sounded like we were distilling booze in western New Jersey. So we came up with Applegate. I started selling to Whole Foods right away. They get a lot of credit, because they led the charge on healthy meat--and healthy food in general. They pushed natural ingredients and asked for antibiotic-free products. So in the early '90s, we started to develop antibiotic-free meat. Organic came several years after that.

We used to sell 2,000 or 3,000 pounds a week; now, we sell 700,000 pounds a week. We work with 18 co-packing companies, 12 slaughterhouses, and 1,000 farms. We're not farmers or processors or cookers or retailers. What we do is create the recipes and manage the very complex variables to ensure that everything is done on time and with the highest quality.

Several years ago, healthy eating was becoming a significant trend. It's now the trend. Through all that, the Applegate brand has just been there, patiently waiting for shoppers to reach the inflection point and upgrade the meat they buy. If a mom is on a limited budget, you cannot force the reallocation of that budget. It's a consciousness that happens over time, and you have to patiently wait for it. You have to consistently be there.

Stores like us, because no other brand of meat can fit in more places in the store with different products. We have breakfast sausages and chicken nuggets in the frozen section, as well as hot dogs, dinner sausages, sliced deli meat, and bulk deli meat. When you don't own the manufacturing equipment, your only concern is what the customer wants. And because we source from multiple factories, we are able to create a much wider range of products. Moms want healthy solutions not just for bacon and hot dogs but in every category of meat. Now, instead of getting to know five to six different meat brands, customers can trust one brand.

We will do just shy of $200 million in sales this year. The amazing thing is that if we could ever get to $1 billion, we'd still be less than 1 percent of the market. Meat is frickin' huge! My advice to entrepreneurs is to find the biggest ocean you can get into, because the scaling doesn't stop.

For the past 25 years, I have physically gone to the office only about once a week. Through certain periods, it's been twice a week, but rarely more. I work largely out of my office at home. I think you can observe what's happening so much easier from the outside than when you're inside of it. Your whole outlook changes. You actually become kind of a therapist to your organization. When you're inside it, you're the patient.

I'm letting go of day-to-day management of the company. Going forward, I want my life to be a pie chart broken into three parts: one-third work, one-third pleasure, one-third giving back. I've now handed over finance, IT, sales, and marketing. The only thing I'm still hanging on to is the supply chain, which is a big one. I took a four-week vacation this summer. Before, I'd come back from vacation and no real decisions had been made. This time, it was like all the bills were paid. I have a senior leadership team that I trust.

Three years ago, we sold a minority stake in the business to a private equity group. My wife, Jill, was tired of having all the chips on the table. And I did sleep better after the sale. I'm beginning to take seriously the possibility of going public, especially after seeing Annie's go public in March. They raised $95 million. They're like us, but a little bit smaller. But even if we decide not to go public, I've told the leadership team to behave like we are on that path. When you are publicly traded, the analysts grill you to make sure you've thought of everything and that you're squeezing out every ounce of risk in the business. That's a smart thing for any business to figure out.

My time frame for going public? I said to the senior leadership team, "Let's hang on for as long as we can." We will know the moment. And that's partly why Jill is on my board now. I told her the one thing she needs to do is confirm the moment, because I'm going to be too emotionally in denial. It's like when your kids come to you--and you never know when that will be--and their wings are ready, and you just have to let them go. I'm hoping to make the decision about going public closer to 2020.

 

Last updated: Oct 30, 2012

DONNA FENN | Inc.com Contributing Editor

Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.




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