The Pomp Podcast - #1249 Kat Cole on How AG1 Made Hundreds of Millions of Dollars

Episode Date: September 27, 2023

Kat Cole is the President & COO of AG1, they have built a business that does hundreds of millions of dollars in revenue off of a single product. This conversation with recorded from the BUILD Summit in New York, many attendees claimed it was one of the best conversations they have ever seen at a conference. Topics include the power of focus, long-term thinking, solutions for unhappy customers, building trust, company culture, balancing incentives, and advice for young founders. ======================= Get Better Crypto Data: Do you want faster, easier crypto data? Sign up for Velo Data, a new product that we have been working on to solve this problem: ⁠⁠⁠⁠⁠⁠⁠⁠velowaitlist.com⁠⁠⁠⁠⁠⁠⁠⁠ ======================= Auradine, a leader in web infrastructure solutions including blockchain, AI, and privacy, has unveiled the world's first 4nm Bitcoin mining systems, featuring breakthrough EnergyTune™ technology, setting new standards in performance and energy efficiency. The Teraflux™ product line from Auradine offers best-in-class performance, efficiency, and total cost of ownership (TCO), positioning it as the optimal choice for Bitcoin mining needs. With EnergyTune™, a patent-pending technology, Auradine's Teraflux™ systems enable rapid demand response and optimal energy usage, fostering a symbiotic relationship with electrical grids, and contributing to sustainable energy practices. Designed and manufactured in the US, Auradine's Teraflux™ product line not only ensures cutting-edge technology but also mitigates supply chain risks and provides increased supply chain resiliency. Visit ⁠⁠⁠⁠⁠⁠www.auradine.com⁠⁠⁠⁠⁠⁠ for more information the Teraflux bitcoin mining systems. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's conversation is with Kat Cole, the president and CEO of AG1. They've built a business that does hundreds of millions of dollars in revenue off of a single product. This conversation was recorded during the Build

Summit, which I hosted in New York City for 700 different founders who flew in from all around the world. The conversation is super specific, and many attendees told me it was one of the best conversations they've ever seen at a conference that they've attended. Kat Cole is one of those leaders that once you listen to her, you want to consume all of the information that she has in her head. And this conversation did not disappoint. Here is my conversation from the Build Summit with Kat Cole. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion.

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I'm super excited about this. We have Kat Cole. Kat is the president and COO of Athletic Greens or AG1. um probably one of the fastest growing cpg slash uh kind of food slash health uh businesses it's probably one of the fastest growing companies in the world um and you previously were the president of Cinnabon and then also of Focus Brands if I remember Focus Brands a five billion dollar revenue business small brain good memory um but I thought a great place for us to start this conversation was the power of focus. And the reason why that's so important is AG1 is doing

a lot, nine figures in revenue. I think it's the last public number, but there's only one product. It's not like you guys expanded into a bunch of different product lines. So like talk a little bit, how do you stay disciplined to focus on just one product, even with all the success? Yeah, we are an extreme case of focus, maybe even to a fault in some areas. But we have one product sold in only one channel. We're not even on Amazon. And if AG1 is sold on Amazon, it ain't us and it's probably not new product. So I would not buy it there. And so it's a bit of an extreme. And part of that came from the founder. He saw a really big problem in the market, which was what we had learned about health and nutrition was mostly wrong. And that many people were waking up to

learning more and being on a health journey. This was pre-COVID. The business is 12 years old, fully remote, global, never had a headquarters, always had one product. We do also have omegas and D3K2 and some ancillary things for our members, but the core business is AG1. And so the solution to the problem was taking what is a complex web of nutritional supplements and solutions and putting them together so that they're more effective together. And so it's simpler for people to stick with the routine. I mean, it's not a complicated theory, but it's very hard to make. Very hard to make. 75 ingredients, no sweeteners, no stabilizers, no artificial ingredients, whole foods. Seasons change as we grow and scale. We have to get

product from different crops in different countries, and we still make it taste fairly similar over many, many years. That is hard. It's partly our moat, is that it's really tough to do this at this quality, at this scale. And that almost forces focus. When you're doing something so complicated, the distraction, the cost of the distraction feels obvious. And so I think that helped him in the early days. And then he was rewarded for that focus. And certainly we have been rewarded for that focus. Could we sell more things? Sure. We get asked all the time. People want us to put protein in it, or they want us to make another individual supplement and sell it. And we've decided that one, the science, which is supported by nature, is that food exists in a food

matrix. Nutrients exist in a food matrix. You don't eat vitamin C off a tree. You eat a fruit that has a whole complex organization of supplements or of vitamins and minerals. And so that is the way our bodies process this best. And so we made the decision based on science to make a product that exists in a food matrix, which means selling individual supplements unless they are so clearly a part of what we call foundational nutrition, which is the category AG1 created and that we're staying in, is just not our business. We'll leave it to other people. Because when you see people start adding SKUs, what happens is they inevitably become a commoditized marketplace, right? You just add on a bunch of products and you expand AOV and you add

CART, but then you lose differentiation. AG1 is still radically differentiated from the market. So there's value in differentiation. Differentiation doesn't come from spreading far. It comes from going deep. And we've maintained that ethos. It is tempting, I will tell you. Not so much because of greed or growth or market, because our customers are asking us to do and make other things. And eventually we will do a few other things, but it will be so thoughtful and so clearly connected to the quality our customers have come to know. So by focus, you're also basically making short-term versus long-term decisions. And the product line is one thing, but how you sell that product, I think is fascinating people

to hear. You're selling something on the internet. Of course you have a website and of course you're on amazon you're not on amazon so talk about the long-term thinking that goes into i don't know could you double maybe 25 to 50 maybe 100 increased sales by going on amazon but what do you give up over the long term and how you guys kind of make that decision yeah and it's a decision that we make over and over we have conversations is this still right for us is it still right for our customers. The reality is selling somewhere other than drinkag1.com would provide some benefits to our customers. Convenience and speed, certainly retail, brick and mortar, obvious opportunities. We have customers who run out, they give away product, their mom steals some and they're like,

shit, I ran out. Oh, I got to, you know, go to drinkag1.com and then we can get it overnighted and there's a shipping expense there. So we talk about this all the time. Is the juice worth the squeeze? Is the decision still right for our customers over time? Is it right for the business? And we have a three-question filter to make decisions that seem counterintuitive or a bit counter-narrative to our previous assumptions. And it's, is it good for the business? Is it good for the customer? Is it good for our employees, our team? And if the answer is yes to all three, you break your previous rule. If it is not yes to all three, then there's not an immediate justification to break your previous rule. And in that case, let's just call it any other channel,

not just Amazon, but retail. Our business is a subscription business. Most, it's a daily product. And since it's actually daily, not just like we're trying to get you to subscribe. So there's recurring revenue. You drink it every day, you get more compounding benefits. People feel it. That's the truth. And so since it is every day and you don't want to run out, it lends itself actually to a subscription model. It's better for us as a business because we get a direct relationship with our customer. I'm not wondering who you are, what you want, where your product gets sent to, where you came from. We know all that and we can leverage that to add value, surprise and delight, retain customers over time and provide benefits. So as we think about any

other channel, so retail or other marketplaces, we have a few considerations. One, resellers, right that is an issue and this is a all-natural product quality matters and so if someone's buying stuff and reselling it that's an old food it's not good for brand reputation it's not good for safety and we are freakishly obsessed with quality no compromises so there's also this control element to only like if it's real you get it at drinkag1.com if it's anywhere else i can't i can't speak to it. There's a power in that right now, where we are in the journey 12 years in. However, there's also a massive market of people that either won't buy online still or won't subscribe. There's just a barrier. And many of those are customers we want. So at some point, we will

experiment with other channels. But when and how is going to require continued pretty deep debate and thinking. The resellers have Gucci bags and AG1. That's right. You know, you've made it when there's a gray market for your product in your previous role at focus brands focus owns jamba juice auntie and cinnabon a bunch of uh brands that i think people would know um and my understanding of that role was very much like operationally focused right it was just operational excellence there was things that you could do around innovation of how you could deliver the product or things you would do inside um but you weren't creating a new category when you were running that business. It was a big business, but it wasn't a new category. AG1 really is building

a brand new category. And so with that comes a lot of opportunity, but also a lot of risk because you have to convince people. Talk a little bit how you think of the product and the obsession with quality, but also the branding works and the marketing works. And it's like, what is the balance there? And how do you all almost think of like every net new dollar that you invest somewhere? Does it go to the product or does it go to branded marketing? I saw a tweet recently, someone was highlighting the fact that the pioneers and the category creators so often get disrupted by those who benefit from the training and the education they provide for the market, right? New product, you train people, have a behavior, then you usually get complicated. And then some new upstart comes in with a simple, more modern solution and starts kind of eating away at your market. It is the nature of innovation cycles in almost all industries.

And so for us, most of the dollars in the early days just went into disrupting ourselves. So AG1 has been iterated 52 times. It's one product, but it is meaningfully different this year than it was four years ago. An example is in the early days when Chris Ashenden, the founder and CEO, found some research with his scientific counsel that said insoluble fiber like flaxseed, which is very good for you, when taken with direct vitamins and minerals can reduce absorption. Of course, its job is to carry things out of the body. So if you're taking things, you're buying something, putting in your body, hoping it'll be absorbed, but simultaneously taking it with something that

is minimizing absorption, not the highest return on combination of ingredients. Flaxseed was in AG1 at that time. He took it out and told customers the story, like flaxseed was always good for you. It was never bad for you. But there are enough studies now that say this could reduce the absorption of all the other things in it. We're going to take it out. Oh, by the way, take your insoluble fiber at a different time than you drink your AG1. When there's a new quality of mineral available at scale, a new blend or strain of probiotic with more research, we just keep plowing it into AG1 and have not increased the price for 10 years. So just keep adding value, disrupting ourselves. That's one. The other then is this idea that if innovation gets the investment first,

quality, scale, manufacturing, innovation, then growth. And then every dollar is going into growth. And so it's been very interesting because we are so big in audio and podcasts, because we are big on the influencer marketing side although it is not the majority of our inbound that people would think that it is we have quite a balanced portfolio of demand generation but we are a top three advertiser in audio so you're not wrong we're on a lot of podcasts we love podcasts um but what is interesting about that is it's it does two things at least podcasts and the ones we choose to support and be involved in. Of course, Huberman, Tim Ferriss, and not just health podcasts. It could be others around science or lifestyle. There are some categories that don't work for us that we've

learned in our insights. But as we invest in that channel in particular, that's a trusted relationship with an audience. And it does help accelerate the trust journey in some cases. If you trust the person you're listening to and they trust AG1, that moves the cycle a bit faster. But we only work with people who are authentic customers. Tim Ferriss was like customer number, I don't know, 20, 12 years ago. And then he published the four-hour body and he put AG1, well, it was then called Athletic Greens Ultimate Daily because he was a customer. And Dr. Peter Attia was a customer long before he became Oprah's book club, like everything on longevity and health span.

Same thing, Huberman's been drinking AG1. I think he smashes like three or four a day. He's a beast of a human for eight years. Of course he does. And then he became a creator in addition to being an academic and a professor and a scientist and then created a platform. And of course we support that platform,

but he was a customer first and people can feel it. It's not just this podcast is brought to you by athletic greens and ag1 he's like let me tell you why this makes sense and let me tell you what this does and even though he can afford and certainly has the science to have customized supplementation ag1 is his foundational stack he starts there and then supplements and customizes on top a challenge of that marketing strategy so we're doubling down on it we believe in it we're a big player in this space we continue to look for up and coming who's the next huberman who's the next Exitia, et cetera. But a challenge, this is true with any influencer, affiliate, or creator

marketing, is when you go big in that space, some people say, well, if you have to try that hard or market that hard, is it really legit? There is a dark side to the coin, which is, oh man, you guys can remember two or three years ago, there was this big pro creator movement. The creators are getting taken advantage of. They're not getting equity. They're not getting their slice of the pie. Brands are building their companies on their backs. The tide has turned to a lot of people are sellouts. They're selling their soul. They're just getting paid to market to you. How do you know what they're saying is legit? It's all dangerous and dark, driven by a lot of dramatic media headlines. And so we do our best to shine a light in that space and say we only

work with people who are authentic. But yeah, of course we pay them. They're bringing huge value to our business. It would be taking advantage of them if we didn't. The challenge with our space is supplements have a well-earned skepticism and a lot of hype and a lot of BS in that space. So we are in a low trust world, in a low trust category, with some questions around trust of marketing in general, but with some of the creators. And so trust and truth is a bit of our North Star as a brand filter. So we focus our dollars on things that, yes, drive growth, but they must build and protect trust. And if they don't, it gets a really tight lens. But something like those trusted creator relationships are both growth, performance marketing, and brand. Because you may hear about

us four times and never buy. And then one of your friends comes by and pulls out a, you know, i think i have one i usually have one in my pocket wow uh pulls out an ag1 travel pack mixes it up with a liquid death great partnership we should like talk about this this would be amazing peter where are you um and and then you go oh i've heard about that but i don't know it you know they're on all the podcasts i'm like over it they're chasing me on instagram i see they're like i can't avoid athletic greens and ag1 but your friend comes and it's like, actually, it's legit. And you're like, all right, I'll try.

And then you look, it's a multi-touch journey and getting very clear on those touches, the value of those touches. And we run our business still like a bootstrap business. Chris, and this is part of our publicly shared numbers, Chris bootstrapped the business to 160 million in annual revenue, not a dollar of outside capital.

That is very hard to do in any business. It is almost impossible to do in an inventory-heavy consumer products business with 75 ingredients that you're buying in advance and then blending very carefully and then shipping as quickly as you can to your high growth business customers. But he did it.

And so that ethos runs through our veins. We aren't profitability and cash obsessed because it's now finally cool to be profitable. We've always been that way. And so for us, quality, innovation, growth, must protect trust, and then at all times, focusing on cash inventory and customers. It's just the engine that runs the underlying operations of the business.

So people who look from the outside, they're like, this is amazing. I want a business like that. Let's talk about the shitty stuff. Conflict is a theme throughout every business. You all are unique in that obviously there's internal conflict. But I first want to talk about conflict with customers, meaning unhappy customers. If somebody ships software and it doesn't work, people are annoyed. If you give someone a product and they feel like it didn't fulfill the promise, doesn't taste good, they don't like it, it goes bad, go through the whole list of things, it's a different experience.

How do you guys deal with the unhappy customers? I'll give you a very specific example from when I joined the company. That wasn't a handful of people. It was a ton of people. So I joined the company in late 2021, Q4 2021. I'd been advising Chris, the founder, since March of 21. And in that time, we were working on new branding, a massive change in brand.

It used to be called Athletic Greens Ultimate Daily. And there was like a nondescript shape of a human running on the package. There used to be a smiley face on the back, 100% focused on happiness. And- Like if the founder was the designer. Yeah.

It was amazing. It's just it's further like the product, the powder in that pouch is that good that it could transcend shitty branding. Truly, a business was growing like this and you look at the packaging and the branding and you're like, oh, so that got leveled up meaningfully. We had a very tiny marketing and branding team in 2021, but we worked with an agency, did research, leveled it up. That led to the renaming of the product from Athletic Greens Ultimate Daily to AG1. and truly modernized the packaging. And you can go online and look at the difference. It's frightening and inspiring at all the same time.

So we put a lot of money into that work. And then a massive marketing campaign in major cities, billboards, buses. I mean, it was just a big, big effort. The other thing going on at that time in late 2021, one. So think we're still navigating COVID supply chain challenges. We were leveling up our packaging. We created a welcome kit, a proper unboxing. There was never an unboxing. It was just like a pouch in a bag. And so we put it in a box and made it lovely and put a message on the

inside of the box and updated it to a shaker, like a clear shaker bottle instead of the old school 1990s smoothie thing with the metal ball. I mean, this is how dated this was. So I noticed this as I'd been a customer for two years prior to ever meeting Chris. And so I was a part of this, you know, evolution as a customer. And then I'm a part of this new welcome kit. And very quickly, I noticed both our customer complaints and my own experience that the shaker bottle, which is what we send you to shake the product in, you can stir it, you can shake it in whatever you have, but we send it. And we, as humans, it's funny. We have some customers that are like, I can't drink my AG1 because I lost my shaker bottle. I'm like, you can't stir it in a glass. But it speaks to

the power of the branding of the experience. And the shaker bottles were leaking. If you have ever gotten AG1 on your clothes, it's green. It's whole foods with natural pigments. You will end up changing. There is no wiping it off unless you're wearing dark clothes. And so imagine pissing off many, many people first thing in the morning at scale as you are in hyper growth mode. And the complaints were like undeniable. So I joined the company. I'm like, shaker bottle's a problem, friends. And talk to the customer happiness team. We call them customer happiness, not customer service. How many complaints do we have? The numbers would violate your mind. How many replacement bottles are we sending out? Just curious. It was something

like thousands a week. And yet we were growing so fast. And what I came to find out is that during the supply chain crisis, we were growing so quickly, we had to add a couple manufacturers. And one of them did not have the same quality standards of the gasket, a little plastic ring inside of the lid. And so one third of our customers at our highest growth customer acquisition time, we're getting faulty lids within days, weeks, especially with an aggressive dishwashing, we're having these problems. And so it took way longer than it should have to realize this. And it's a premium price product. You're paying a premium for it. And we only sell one thing. Like everything should be quite perfect. And so we had to navigate unhappy customers,

people canceling, people feeling, well, if you're taking a shortcut here, it was not a shortcut. It was what I just described. But still, if you're taking a shortcut here, what else are you taking a shortcut on? I'll try. It was just a bad experience at a hyper growth time. So we went into major solution mode one. We were just sending people replacements with lids that didn't leak, but they were still the same crappy plastic lid and we went into major solution mode identified a very thick metal lid that would fit on the existing bottle so we didn't have to change the whole unboxing and that was a v1 solution we're in the middle of v2 right now of upgrading the whole unboxing but it was like house on fire must fix bleeding reputational risk and people were

losing their mind absolutely losing their mind and we should have been all over it like we should have noticed it. We should have seen it sooner. We should have had stronger QA. We should have caught it before, you know, all the things we should have done, but we didn't. And then we did. And we just focused on doing the right thing, apologizing to the customer, overnighting them a replacement, giving them a refund on their next pack, whatever it took to have people realize it was as serious to us as it was to them. And that it was not up to our standards. How do you deal internally with that? So you're facing with the customer,

you're giving them replacements, you're basically like, please don't hate us, you know, give us a second chance. Everything that you're trying to do there, are heads rolling internally? Is there like a team that you go to? Like, how do you deal with almost kind of the second order effect,

which is actually the root cause? Is someone somewhere missed something? Yeah, it's very interesting because we, you know, we're in hyper growth mode. you can just imagine the new employee growth that was happening so there's a handful of people who were there all along and involved in whatever led to this situation and then there's a ton of people who just got there like they don't know much they're doing their best they're bar raisers they're incredible and so managing a nuanced population of some people who may have directly

caused or enabled what happened. Some who should have known but didn't know, but maybe the structure wasn't right. And so they can kind of, you know, put their hands up and I would have done something about it if I had known. And then new folks in particular in the supply chain organization who were like, this is unacceptable. And so one, no heads don't roll. Because what matters is operating quickly for the solution first. So we just focused on the solution. What is the fastest path to replacing the lid as a V1? I need everyone focused on the solution.

I don't need one person in CYA cover my ass mode. And if I start bringing the shame and the reign of terror and whatever, like how did this happen? And this is unacceptable. And it will take energy from the solution. So first is the solution. Then parallel path, once that's underway,

is there anything that is in place now that if I don't address it is gonna create a continuation or a similar problem? So was there a lack of QA? What was happening in the supply chain at the time? Is that still happening? Are we still working with this manufacturer? So then you get a little bit of a triage group

that is not necessarily the solution group. looking at the systems and any variables that contributed to it. And those things kind of parallel path. And then you do a bit of a postmortem. Once the solution's in process, new thing identified, properly tested, we know it's going to work, get it underway, get it manufactured. Now let's get together and say, how does this happen? What can we do to make sure it doesn't happen again? New systems, new definition of role. And the reality was there were a few people on the team that as we evolved and grew beyond that to other challenges it was clear that we didn't have some of the right talent in the seat but right around the like the the most

intense part of the issue was not the time to be like you know you're out of here company culture plays into this but there's things you do beforehand there's things you can do after a situation like this. Talk more broadly, just how do you set a company culture, especially when so many employees are remote and you can't do team building things in person every day? Yeah, everyone's remote. And I think our team lives across 30 countries. So we're not just remote. We're global and we're on many different time zones. So we've picked about the hardest model you can have, but we're native to it. We don't know anything else. So we're much better at it than most. There are different ways to build culture, and some of it is determined by

size, numbers of employees. You've got 10 people, even if you're across different time zones, it's just easier to coalesce around, how do we respond in a moment? What are our ways of working? What happens when two of us aren't in the room? Probably the same thing as if a different two were in the room. When you're in the hundreds and you're spread across a lot of time zones, then it's a different, it's a different approach. So one, it requires far more intentionality. You need to put culture into words and not just words. So some people say high performance or flexibility or whatever your cultural values and norms are, less than 10, more than one, right? There's some list. One of the best practices I've used is creating an is, is not

list. So pick a word, let's say high performance. List some examples of what that is in terms of behaviors and what it is not. Because based on where all of us have worked, high performance would be defined differently. Different things would be allowed or encouraged. In some companies, high performance means you're literally disrespecting everyone, sharp elbows, like accomplishments and get the work done at all costs. And that might not be what I want in my company. That cost for that performance may not be acceptable in my company. So listing behaviors is, is not, is not only important at scale as you grow, but certainly if you have a global workforce, because culturally you have people come from very different environments

and what those words mean. So is, is not, and then still getting together. Our leadership team gets together every four to eight weeks. So we are together a lot. We have sprint teams and cross-functional work they get together in person in different people's cities around the world to drive work but if you do that too much you're now removing the benefits of work from home work from anywhere because you're requiring people to be on a plane away from home and somewhere so it's a very interesting balance of flexibility work from anywhere virtual culture building and enough in-person gathering that you build the relationships that become a big ingredient in the culture so there's a quote that you've talked about a lot you got to remember where you come from but

don't let it solely define you what does that mean in terms of work so the origin is um from my childhood my mom came to me when i was nine and said that's it i'm done we're leaving and what she meant was we were leaving my father he was an alcoholic and a terrible husband and father sweet guy, terrible husband and father. And I had two younger sisters. So my mom was raising three girls on her own. She was very, very poor. All sides of our family were very poor. And we left. And she fed us on a food budget of $10 a week for three years. She worked three jobs. I started working at the age of 15. Many people know I started after those early jobs working at Hooters as a hostess. I became a waitress at 18, started opening franchises

at 19, became an executive of that company at 26. And yet at the same time, even though it's Hooters and there were feelings about that brand, I was leading the largest nonprofit organization for the development and education of women with the Women's Food Service Forum. And then I became president of Cinnabon at 31, but yet I'm investing in all these health companies. And to some people that feels like a hypocrite or being in conflict, but you know, the sayings are, we all contain multitudes we're all on a journey and some people hear the headlines of like I used to run Cinnabon and now I run Athletic Greens and how does the same person we're we're all on a journey one they're both consumer businesses and so there's just an intellectual commonality but also health

and wellness has become critical and central to me over time I had kids late in life my first at 39 my second at 41 well now more common ages but later than they used to be had multiple miscarriages in between there lots of health stuff and so it is critical to me to extend the quality of my life and health span so health became incredibly important if you think about that journey what is the thread through it is just constant evolution and reinvention and the don't forget where you came from but don't let it solely define you was a version of a quote my mom used to write on my birthday cards once i was you know became an executive and then the media picked up my story and she's like, all right, bougie, like fancy,

don't forget where you came from, but keep going. Don't let it hold you back. Don't let it define you. And so this idea of don't forget where you came from means our truth is in our roots. I tell the story about my dad and my mom all the time. It's still my truth. It's still my roots,

but I did not let it become an anchor or a filter for me that made me feel like I didn't deserve more or I couldn't have something different or better. and that filter has been exactly the same for the brands that I run. So I took over Cinnabon at the heart of the recession. The brand was beloved. The business was in the effing tank.

It was in malls and airports at a time when no one was shopping and traveling. That is like bad counter-trend. It was also at the height of the Adkins craze, which was an Adkins crisis for Cinnabon. Anyone who doesn't know what Adkins is, it's like the predecessor of keto and paleo. It basically said, don't eat carbs and sugar.

And I was running a business that was the poster child for carbs and sugar. So we had counter-consumer trends, macroeconomic environment that was horrendous for not just the model and the location type, but we had small mom and pop franchisees. There was also a lending crisis. The last person a bank was going to give money to in 2009 and 2010 is a first-time franchisee, former corporate employee who's operating a Cinnabon at the height of the Adkins crisis in a mall at the height of the great recession no monies available it was a mess but there and and the industry had moved on people you know baked by melissa and all these small treats and

we were known for cinnamon roll the size of your face and so this idea of like where do we need to mine our history and protect it our roots and where must we change and evolve in order to thrive The same as my mom, the same as me. That brand went through its own journey. We'd launch smaller portions. Thank you, Minibon, for saving the brand. We then went into grocery, which was heresy in a franchise business. But it fundamentally transformed the business and set a precedent for what restaurant brands could then go do in other channels.

So this, don't forget where you came from. The truth is in our roots, but our past should not be our anchor, is about constant evolution, like evolve or die. I'm going to cheat because I know some of these stories and I want you to kind of pull the lessons out. When you stepped into Cinnabon, for those that don't understand how the franchise business works, you show up, they literally look at you and they're like, we've been here. Who are you? You're the boss, but they're the franchisee. And they're like, we've been here. Who are you? How do you build trust with a group? So founders in the audience, if they take over another team, if they acquire a company, if, you know, just there's a group of new people who we've been here, who are you? How did you build the trust with what was a national brand? And frankly, there's a lot of reasons why they might not listen to you. Not to least to which I never run the snack business.

I was 31 years old, was a first time president. They're in an existential crisis. But to the private equity firm's credit, Rourke, they saw something in me that was certainly the antidote for what ailed the business. And it was someone with more drive and more innovation and more creativity versus someone who was an industry incumbent. So there's something you said that in part is the answer.

They say, we've been here, who are you? So the answer is, go be there. I did nothing but work in the bakeries for 60 days. And this is not just true for employees or an acquisition, also customers and clients. I remember when I was running Focus Brands, so I became the president of the parent company, managing all nine presidents, all $5 billion in sales, 80 countries, quite complex. And we grew by acquisition, so we acquired three businesses in my last five years there

and integrated them, which is quite a clip of acquisition and integration. And it is so interesting, this idea of being there with them in the trenches. But as I led Focus, especially in those last few years, there was a major digital transformation happening in the industry, third-party delivery, fully integrating technology. So you can imagine the sales calls that I got nonstop. We want to be your third-party provider. We want to be your integrator. We want to be your data analytics tool, et cetera, et cetera. The ones that cut through the noise were the ones who got their asses in our restaurants.

They were there. They had talked to managers. None of this is rocket science. It's just some people kind of forget it as they grow or they have some early success without it and don't build the muscle to be in the trenches. Then as a result of being in the trenches, I, as a president, I had the language.

I had the stories. Hey, Greg, like you and I, Greg was the co-founder son of a father-son duo. And so he's coming to mind and he was the most difficult to impress given he created the brand and had been through four owners in eight years. So he was front of the line of like, give me a break.

I was here before you, I'll be here after you. This is cute. Yeah, you're gonna have a unique idea like add coffee to Cinnabon, great idea. Not gonna happen with Starbucks in the mall. Move along little girl, like that, totally. But he became my biggest partner and my biggest champion because I was in his locations, in airports, in malls,

working with employees, driving with vendors. And I asked everyone the same three questions, everyone. Tell me one thing we should stop doing. Tell me one thing we should start doing. And tell me one thing you'd do differently if you were me to make the business better. I asked hourly employees, customers, franchise. And what I was looking for is not crazy harebrained,

like give me a million dollars, patterns, themes. And there are always themes if you're paying attention. And what I was doing was accelerating the time between the two dots of them knowing and me knowing. when my mom came to me at the age of nine and said that's it i'm done we're leaving i was nine and i did not cry i looked at her and said what took you so long at the age of nine because i had known it was bad for a long time and she was so nervous about taking us away from my dad but the reality is i didn't have a dad and just that conversation

helped her with that final little push she knew what the right thing was she had her own reasons and her own path to navigate it. And there was something about that, that as I reflected on my life, it became so clear to me, you have to always stay close to the action. I mean, you have to stay close to the transaction and that's the customer.

And so still today, I talk to customers constantly on the phone, on Zoom, whoever thinks I'm not a crazy lady in their emails asking to get on a video with me. So does Chris, our founder, our whole company does. This idea of just staying close to the action, that is how you build trust and and it is increasingly difficult to do it any other way in an environment and in a world where for the first time ever global trust indexes have dipped

to the net negative a default to the net negative for lots of reasons you know that we all know so you just have to lead differently in assuming you're actually in a deficit of trust as opposed to everybody trusts you, it's mine to lose. I assume you have a million reasons not to trust me. And so that means more one-on-one, more connection, or at least more stories of being in person with people like you that then clearly cut through the noise. There's one more story I want to talk about before I let you go. At Cinnabon, you guys were selling in the stores. People would walk in, they would buy. You had the grand idea that you were also going to sell in other people's stores. You're going to take the product, put it in a package,

and put it somewhere else. That sounds awesome if you own the business. If you're the franchisee, you're now like, hey, you're competing with me. If somebody wants a Cinnabon, they don't have to come to me. They can go to- Costco.

Costco, which is where she put the Cinnabons. And they were mad. Talk a little bit about balancing, whether it's customers, whether it's even employees, right? Who may have certain incentives, doing what's best for the business, but also understanding the various stakeholders

and how you kind of balance, I got to do what's right for the business, but I got to get these people to buy in and understand why it's good for the business, even if it's not obvious in the short term. And this example that he's giving, I did not do it right the first time. I wasn't going to say that. Yeah. So I had been with the business less than six months. I'd done everything I just described. I was in the bakeries. I was building trust. We launched the mini bond because I got the insights. Every time I asked people, what's one thing we should do differently?

What do people ask for? When do we say no? Smaller portion, smaller portion, smaller portion. So I'm like, well, let's launch smaller portions. And it worked. So the franchisees were loving it. Plus, there was a natural tailwind at the beginning of 2011 coming out of the recession. So we did some smart things.

The business was prepared to capture demand. Demand came. They were just so relieved to not be in trouble anymore and to be on an up and to the right trajectory. So all was good. Until I get an email from Greg. Ironically, I use Greg. And the email was just three letters and font size 90.

W-T-F. Question mark, question mark, question mark. And then it was like he leaned on the exclamation point for like lines. And Greg Komen is this, he's quite a large man. But so calm and so gentle normally. So this was out of character. I pick up the phone. I call Greg.

hey greg which just real quick like just that alone i think there's a lot of people they get the they get the hate mail and they're like oh shit you get into cya mode yeah so just picking up the phone i think that's right time is never your friend it's never your friend rarely i should say you pick up the phone if you truly have no idea what's going on pick up the phone so i picked up the phone. Hey, Greg, WTF, haha. And there was no, you know, there was no haha. I was completely shocked. And he said, you're a liar. You are a corporate hack like everyone else who has owned this brand. I thought you were different. You can speak to our lawyers. And I'm sure many of you have had these moments in life where there's just this massive wallop of anxiety. You don't know

what it is. You're in trouble. It's just like that, you know, your whole body is physically reacting. And I had that moment where I'm like, what is going on? And I said, Greg, I don't know what you're talking about. I would like to ask you to give me a little more information. And my voice was very shaky because I was so taken aback. Remember, I've only been there six months. And he said, I'm going to send you a picture over email. He sends me an email. I opened the picture. Now, set this moment aside. What you need to know about what led up to this moment related to Costco is we were pushing very hard into alternate channels, grocery and other businesses that had bakeries. I had hired salespeople. We had company incentives, to your

point. We had a whole mission. We're going multi-channel. This business is only in malls and airports. It took us 26 years to get 800 locations. We are not waiting 26 more years. There are hundreds of thousands of points of retail distribution where people would want a taste of Cinnabon. Something slightly different, but to keep them connected to the brand, to cement us as a leader to out position defensively competition that might come into the market because competition can start in any channel and then shockingly they end up in your channel so you need to pay attention the motor around and and so this was the plan and we already had Pillsbury cinnamon rolls and grocery stores there's a little bit of a business there and we

were going to blow it out but with some of the fresh baked product actually better for the brand equity better for the franchisees so I tell the franchisees this is a few weeks prior we are pushing into grocery. We are pushing into bakery. And in particular, we have an opportunity in Costco and I gave them all the data on how Costco has the top bakers in the country. They are phenomenal bakers. And what I was attempting to do is to illustrate quality, a protection of the brand, that we're not going to hurt the brand that has been built on your backs as mom and pop operators. And I said, I know you're worried about competition. You're worried about price variance, devaluing the brand. So you're worried about quality and the impact on the brand. You're

worried about competition. So I brought all the data. Here's the data that says the impulse purchase that is the purchase in a mall or an airport is never going to be impacted by the grocery purpose. But to further ensure that this is true, we are going to make sure the product is different. It is going to be in a round pan of tiny, about just bigger than a quarter size cinnamon rolls with the frosting drizzled, not spread. These may seem like tiny details, but they all matter because they visually differentiate the product

from the core product and the core channel. They also change a little bit of the pricing equation of price per ounce because you go to Costco, they're looking for value. And I had to sort of creatively get around that with a different form factor and have something that Costco wanted that was big enough for Costco.

Let's not forget they're a stakeholder in this. And so the franchisees, the Franchise Advisory Council led by Greg Komen, the founder and president of the Franchise Advisory Council said, we don't love it, but we trust you because of everything you've done since you've got here. Again, we don't love it, but we trust you. That was just a little bit before this phone call.

Greg sends me the email, back to the email, and the picture is of a bakery in Costco in Bellevue, Washington, where Cinnabon was born, where he lives, and in the bakery is not a round pan with 18 tiny, cute cinnamon rolls with frosting drizzled, not spread. It is a rectangular box of six giant cinnamon rolls the size of your face, exactly the same shape

as what is in the franchise business with the frosting fully covering, not drizzled, sold for half the price. See, you're not even in the business, you know it's bad. It was bad. And I, that feeling of despair, of just ickiness of doing something wrong, went to new whatever heights, depths, whatever it was. And I said, Greg, one, I need you to give me 24 hours so I can figure out what happened. And I promise you,

I will call you back in less than 24 hours. This is when we were in physical offices. I walked down the hall to the person who was the salesperson, trying to stay very calm. Because right now I've got not just a potential legal problem, it's a crisis of confidence. And outside of losing life and losing love, there's nothing worse than losing trust. And it was gone. I could feel it. It was, I mean, you hear the words, he called me a liar. And I was just blown away. So I went to the salesperson's office, showed him the picture. And he goes, yeah. That's Cinnabon, duh. And I said, what is this?

And he said, it's the Costco product. And I said, no, it isn't. We communicated to the franchisees and I went into the detail of what we communicated. He goes, oh, that changed. Obviously. Why? How?

And he said, they said they didn't want anything other than the real product, that Costco is not in the business of alternate products, but the treasure hunt of the actual product. So I sent them the recipe. I'm getting angry again but what I recognized in that moment is the reality is I had failed I was the president I was the person in charge it happened on my watch I should have known that that change happened and it was such a new channel and we were moving so quickly it's not

like CPG where you've got to go through a two-year manufacturing cycle. These are from scratch bakers. We sent them the ingredients and a recipe, which is just like how to make little ones. So all he had to do was send a different recipe of how to make big ones. And in that, I just remember so much flooded my mind in that moment. We had just had the celebration of this team landing that account. We hired two people just to manage it. We let everyone know that bonuses were going to be paid because of that, just the week prior. So you talk about incentives, structures, innovation, legacy channels versus new channels. I should have known that it could move faster. I should have had more meetings and more check-ins for reporting to catch

it and then navigate Costco's feedback as a leader. But I did not. I abdicated that leadership to the salesperson. So many people ask, did I fire him? Not that time. Because it was on me that time. So I called Greg back within 45 minutes and said, all right, here's the deal. I failed in my role as a president to know how this relationship was evolving. and obviously what we what I told you we were going to sell was the intent they didn't like it we approved an alternate recipe that's what I know right now I'm going to have a meeting with the team and understand what our options are please get the franchise advisory council together preferably without lawyers and we'll have a call tomorrow the CEO of the company who I then marched

into his office to tell him, who then brought in the CFO and the general counsel and got the private equity firm on the phone, speakerphone, said, please tell everyone what happened. And he was not doing it to shame me or rub my nose in the, it was like people needed to know and another leadership lesson, do not hide and do not cower. Open it up so more people can help with a solution. It didn't matter if I, who was right or wrong. Um, it was, this happened on our watch. Now the lawyer said, but we didn't break any contractual agreements. We have the legal right to do whatever we want. And at first those focused on the money side were like, great, just tell them, sorry. Um, and we won't do it again. And the reality is in franchising,

you're managing a 20-year marriage and the annuity that comes along with it. And so my push was, if you want me to lead and transform this brand with what is going to be our core legacy revenue stream for quite some time, even though this innovation channel appears to be on a rocket ship. Oh, by the way, we were selling 70,000 units a week at Costco. It was a banger. um if you want me to steer the ship of this legacy business i cannot just flip them the bird and say sorry i didn't handle it correctly we had the legal right to do it but we didn't do it right i want to pull the costco product and there was a collective there are lots of moments of silence in this week. And for the next few days, I navigated what those options were, pulling the contract,

buying out of the inventory liability. I was in tears every night. I wasn't like sobbing, rocking in a corner, but I was so overwhelmed with the feeling of responsibility that there were just tears. They would just drop occasionally because I felt the weight of the responsibility. I felt the weight of the violation of trust. And I do believe the franchisees could feel that. And so I went to them and said, we're going to pull the Costco product. It can't happen right away. There's a lot of work and product in process.

But we are going to pull it. But I want you to know three things. One, this happened because of a failure of my leadership and my oversight. And I will put systems in place as we innovate so it doesn't happen again. to that point, number two, we will continue to do more of this. I am not pulling it because you complaint. I am pulling it because we didn't handle it the right way. And I need to show you your relationship matters most. Three, about two or three months later, we had the opportunity to put the Cinnabon mini bond. Remember the tiny product that was the solution to our problems

in 7,000 Burger Kings, which was far more competitive than being in a Costco. But as a result of how we handled Costco, the franchisees said, we trust you. That Burger King opportunity tripled the EBITDA of that business in one year. And we were able to funnel a big chunk, about a third of the proceeds back into the franchisees brick and mortar to help them upgrade their technology, help them innovate. So they literally shared in the financial success. And that both mistake that I made and the courage to keep going even bigger but with better systems flipped the entire franchise culture to believing multi-channel is good for our brand and for our business and we built a machine of a multi-channel brand flipped it to I mean very quickly jumped

from 600 650 million to over a billion in annual revenue and it just kept going and then I became group president of the parent company to bring that exact model to all the brands that we acquired to the degree that the brands were extendable. So the thing that I appreciate about you is I think it's really easy to be excited, motivated when you're starting. This is the nasty shit, right? Like when you've got the franchisees screaming and yelling at you and you've got to go and have hard conversations. The last thing, I'm only got about 30 seconds, but what would be kind of the way if you could go and talk to an early stage founder how to always keep a north star of how to navigate this stuff and like what figure out what's the right

thing to do in these tough situations i'd say ask yourself give yourself a little pause because when you're in a moment of like hyped growth moment opportunity or a crisis you are not of right mind. You're not. And so giving yourself a little bit of oxygen, just a little perspective is so helpful. And by perspective, I mean asking in this moment, what do I really want to happen? What do I really want to come out of this? Whether bad or good. And using that to then guide. So I'm not going to give you the exact steps. It's a question for you to ask and answer because every moment is going to require something very, very different. But I remember when I was a Hooters girl, I had a customer, rocking the orange shorts,

chicken wings and beer. I had a customer who would came in a couple Fridays in a row and he was very difficult. And by difficult, I mean he ordered a 50 piece and then would bring me over when he and his friends were done eating and point at a plate of bones and told me there were only 40. And I'm like, uh, okay. Customer used to say, customer's always right. Customer's not always right, but the customer's always the customer. So I said, okay, I'm so sorry about that. Let me get you another 10 wings, ring it up on my dime, my employee discount, ask the kitchen to fast track it, throw the ticket in, get the 10 wings, bring it over. They say, thank you. Give me a normal tip. All good. The next Friday he came in and ordered a 50 piece and then called me over

to see the plate of bones and was like, there's only 40. I'm like, there's no way, dude. But I didn't say that. That was my voice in my head. I am so sorry. Right, this happened two Fridays in a row. And then the third Friday when it happened, he shows up with the same friends.

And before they could finish that 50 piece, I brought over a plate of 10 wings. He never, never did it again. And his friends laughed and thought it was hilarious. What do I really, do I want to kick the guy out? he comes every Friday. It's a big check and tips me. Well, do you want him to leave? Well, kind of I did. But from a business perspective, no. What do I really want to happen? I want them to have an amazing experience and I want them to not take advantage of me and the business. There was a

different way. There was a better way. So just ask, watch out for the things in the moment, like the CYA tendency. You get scared, you get nervous. It's human to try to protect one of your team members or yourself or your business, breathe and get a little, what do I really want to happen here? In the Costco situation, I don't want to protect, I really need the CFO and the CEO to help me do the right thing here. That's what I need. So what's going to help them do, help me do the right thing? Reminding them that my job and what they hired me to do, and if they still want me to do it, is to manage the business for the long term. And if we're going to do that together, this has to be handled with not a but we have the right to do it lens which is the way many

franchisors will normally handle a situation and so I would just encourage you to give yourself breathing room give yourself a little perspective what do I really want to happen and by really want to happen not just the moment but the moment after the moment what is the taste you want to leave in people's mouths the client the customer the employee how will people feel about how you handled that because that is your relationship currency that's trust over time and that's you know that's saying people will always forget what you say but never how you made them feel that breathe that moment that you give yourself helps you optimize how people feel about your behavior which creates trust and loyalty and builds a business over time there's a lot of

ag1 out there please try it drinkag1.com drinkag1.com first thing in the morning shake it in water. Give us feedback. Cat Cole, ladies and gentlemen.