The first Founders Project mentor-mentee pairing you'll meet this year--Gary Hirshberg and Emily Darchuk--speak the common tongue of dairy. Hirshberg co-founded Stonyfield Farm, the pioneering organics company. Darchuk, a food scientist and freshly minted MBA who also helped develop soup for NASA's astronauts, is launching Wheyward Spirit, which ferments discarded byproducts of cheesemaking to create distinctive alcoholic beverages. The following is an edited excerpt from the first conversation of their yearlong mentoring relationship.
Hirshberg: You're applying for grants. Which ones? Also, what are you living on now?
Darchuk: Hopes and dreams and laughter and, sometimes, fumes. I've been conditionally awarded one grant by my accelerator. I wrote a USDA SBIR grant application last fall. I am looking at Women in Agriculture and other grants. I am wrapping up student business competitions. I want to look at funding--but I want to personally remove as much risk as possible.
Hirshberg: Good for you. I wish even just 10 percent of the companies I work with thought like this. Do you have a budget for your next six months?
Darchuk: Yes. I know the cost of a case of bottles. The cost of production trials. I am working out the cheapest way to transport the product. I might need a few thousand more for equipment to run a large volume. Say, around 10 grand for my first run.
Hirshberg: What price point do you need to get to?
Darchuk: That $40 range is a good place to begin. When you were starting Stonyfield, were you pricing your product so consumers would purchase it, or were you pricing it so you could pocket a little bit of margin from day one?
Hirshberg: We priced to the consumer. However, we made a fundamental error. We were doing direct distribution into the retailer--selling to a dozen stores in southern New Hampshire and delivering it ourselves. We factored that delivery cost as overhead. But once we expanded, all of a sudden there were distributor margins that we optimistically and conveniently underestimated. That left us reeling. This is a critical piece, especially nowadays with retailers. They are under such pressure because of e-commerce that they find tons of ways to charge you.
What do you know about your consumer?
Darchuk: My frame of reference is natural foods. I want to take that kind of purpose-driven philosophy and apply it to this new category. So, sustainability-minded older Millennials to Baby Boomers who want something cool, something sippable. Something they can share with their friends.
Hirshberg: We need to get you in the hands of distributors. They will know which store, which neighborhood, which community. And we've got to go down the road of e-commerce. That educated consumer tends to be not that interested in going to retail. They expect they can get anything they want at their fingertips and are willing to pay for it.
Darchuk: That kicks out a lot of the hurdles of having a 50-state plan of distribution. One reason I want to start in Oregon is liquor is state-controlled there--that removes one barrier to market.
Hirshberg: It's a great market. People there choose value and are environmentally aware. Don't be intimidated by the fact that you are going to be a drop in the bucket of a national and global problem. You are making a valiant effort to do something that, in the long run, could be very important.
I want to talk about margins. Often, entrepreneurs overestimate the price we will get and underestimate the cost to get there.
Darchuk: I've heard from a lot of people that food is a supply-chain industry. Locking that down is a priority. I have access to whey. I have a partner distillery. I've had an industrial trial.
Hirshberg: How far do you have to go to find a decent source of whey?
Darchuk: Everything is within the Pacific Northwest.
Hirshberg: The number-one lurking variable to dairy margins is transportation. Anything you can do to shorten your distance is critical, particularly at the beginning, when you will be inefficient and therefore fragile.
Darchuk: I would like to make this as operationally efficient as possible, and focus on telling a story and growing the brand.
More on the Founders Project
Activision, the first third-party creator of video games, was launched in 1979 by disgruntled Atari employees. In its first decade, it grappled with a patent-infringement suit, the collapse of the console game market, a failed merger, an ill-starred CEO, and the founders' departure. It survived to become Activision Blizzard, the fifth-largest video game company, with revenue topping $6 billion and monster hits like Call of Duty.
Visitors to the Love Money website can search for "the most famous company founded the year you were born." Inc. was also born in 1979, and, for us, Activision is it. Cool. Conceived in dissatisfaction with the status quo, resilient and adaptable in the face of turmoil, endlessly innovative, ultimately triumphant--Activision exemplifies the entrepreneur's journey.
We at Inc. may have become experts in that journey, but everything we know we've learned from our subjects: founders, who are often the smartest--and always the most fascinating--people in business. Our readers have learned from them through our magazine, our digital presence, and our events. In 2019, things will be getting more intimate.
To celebrate our 40th, we're launching the Founders Project, in which 40 of America's most accomplished entrepreneurs (and experts in related fields) will mentor 40 promising upstarts. Their interactions will play out in our magazine, on our website, in videos, and at events. You'll see it all in real time: the blocking and tackling, the strategizing and hedging, and the occasional tear or fist bump.
Iconic entrepreneurs like Daymond John, Alli Webb, and Ben Chestnut will talk novices around daunting obstacles and through make-or-break decisions. Imagine navigating the Autobahn in a dual-control car with Mario Andretti at the other wheel. Make that the Autobahn at night, with your headlights failing, because such uncertainty is endemic to Startup Land.
While in some ways it's easier than ever to launch a business, it's also more confusing. Forty years ago, there were basically two types of labor: full-time and part-time. Today, the menu is much longer: Remote? Contractor? Outsourced? Robot? DIY, because, increasingly, you can? Offshore? Reshore? 3-D-print it? Should you sell through Amazon? Can you afford not to?
The veteran entrepreneurs in the Founders Project don't know all the answers. But they understand how to approach the questions. Research from the University of Virginia's Darden School concludes that founders with years of experience building substantial businesses--both successes and failures--are masters of a kind of problem-solving uniquely suited to the provisional world of startups. Those are the people we've recruited to lead this real-world master class.
We need them now. Startups as a percentage of all companies have been on the decline. New companies are our economy's greatest source of dynamism, jobs, and innovation. We all need to poke the tinder and make those flames shoot higher.
Which is exactly what the Founders Project is all about.