February 25, 2016 Yscouts

Interview with Clayton Christopher, CAVU Ventures

Clayton Christopher

Clayton Christopher is an entrepreneur who has founded or has co-founded food and beverage brands like Sweet Leaf Tea, Deep Eddy Vodka and Rhythm Super Foods to name a few. Clayton is one of 3 principals of CAVU, which is a fund that invests in consumer products.

Clayton has a classic entrepreneurship story, and I promise we’ll dive into a few of those stories in this episode, but the big one that stands out to me is that Clayton started Sweet Leaf Tea on $12,000 and his grandmother’s recipe before selling the company to Nestle 13 years later for $183M. We’ll talk about that story in this interview.

Clayton is passionate about entrepreneurship, he loves helping small food and beverage companies scale, and he’s out in Austin, Texas – the epicenter of consumer innovation – let’s just dive right into it.

Please enjoy this interview with Clayton Christopher.

Here’s the transcribed version of the interview:

You’ve had some major successes over the last handful of years. What’s interesting, as I was doing my research, that’s some information available on you online, but what’s interesting is that given the big things that have happened over the last several years with the sale of Sweet Tea and Deep Eddy, and forgive me, I hope I’m saying it properly, CAVU?

Yeah, CAVU. (Ka-voo)

CAVU, Ceiling and Visibility Unlimited?

Exactly.

I love that aviation term. Let’s start there. Maybe you can share a little bit about what has driven has you, from your very humble beginnings and entrepreneurial roots to growing and selling a couple of different businesses, to now launching a fund with this aviation terminology underpinning, what I assume, is very much part of a philosophical view that you and your partners are going to bring.

Absolutely, and I’m glad that you like the name and appreciate that. I feel like the name, whether it’s a brand, product, a company or even an investment firm should be something that makes the team members aspire to what you stand for. CAVU is the perfect flying conditions. It’s what we aspire to help bring to these companies that we invest in and partner with. We certainly don’t consider ourselves passive investors. As my business partner Rohan likes to say, a lot of firms are good at picking winners. We help create winners. We certainly consider ourselves operators first, and investors second because we’ve spent most of our working lives in the trenches building brands and running companies.

What we aspire to is to be value-add to these entrepreneurs and CEOs. One of the inspirations behind starting this fund was that over the years, from having had venture capital and private equity firms on my own boards, having been recruited and even compensated by other venture capital and private equity firms to help them run companies that they had invested in – I recognized over the years a significant, what I’d call “gap,” in what the entrepreneurs definition in “value-add” and what these private equity firms defined “value-add.”

We aspire to be really helpful for that reason. We’re not going to make as many investments as the typical private equity or venture capital firm would. I spend anywhere from two to ten hours a week with a company. That’s the vast majority of my long work weeks, as well as with Rohan, are spent with companies, and in particular, companies we’ve invested in.

That’s what gets us out of bed in the morning and that’s what really gives us purpose in our lives and gets me excited. CAVU we felt like was a good term that would keep us excited, motivated, focused. Those values that you put on the wall that you gotta bring to life. It’s real easy for us to say, “are we helping create ceiling and visibility unlimited” – the perfect flying conditions for these entrepreneurs. Because a lot of them are doing it for the first time. What they need is a Sherpa to help guide them up the mountain. Because there’s lots of different paths to the top of the mountain. And having someone who has gone there a couple times typically improves your odds exponentially to get there again.

That’s the inspiration behind the name and what we aspire to help these companies do.

That’s awesome. Thank you for sharing that. That said, as you are in the market looking at opportunities, digging beneath the surface on some of these entrepreneurial ventures and where you can add the most value, how do you determine that philosophical alignment? Clearly you’ve planted a flag and have strong beliefs that you and your partners have. And much of that likely stems from the experiences you’ve had building cultures and focusing on some of the intangibles that as a line item, don’t show up on the P&L, but they clearly impact the P&L. I’d love for you to share with us how you identify how that philosophical alignment is there with some of the entrepreneurs that you meet with.

Sure. The biggest things we look for when we invest, in terms of the person side, there’s certainly things on the product side of the business like the particular category that these brands are in, but in terms of investing in people – because that’s the biggest bet that you make – and the biggest investment, is betting on the team. And betting on the entrepreneur often times.

I’d say the first thing we look for is integrity. And trust. It’s gotta be someone that we feel like has integrity and someone that we trust. I like to call it a learner, versus a knowers mindset. Knowers scare the hell out of me. Frankly. Because I used to be one in the early days of Sweet Leaf and it almost put us out of business. I had to beaten down pretty hard and hardened in the fire. Basically had to go through hell in the early days of a startup to be broken of that, and realize that the most successful companies had entrepreneurs that didn’t aspire to be the smartest person in the room. They surround themselves with people that they trust to have a high level of vulnerability in the team so that they can shoot holes in each others ideas to get the best possible strategy and make the best possible decision.

So, learner versus a knowers mindset. Knowers tend to get their heads knocked off because industries change so quickly. I say that you’ve got to constantly be hungry for knowledge and open to learn. God gave us two ears and one mouth for a reason.

Integrity. Trust. Learners versus knowers mindset. Passion. I want to see someone that is 100% focused and committed when they get out of bed everyday, and on the weekends. I can remember when I was running Sweet Leaf Tea and Deep Eddy Vodka. I would literally have dreams about the business and the decisions. I would often times wake up in the middle of the night and write down ideas that came to me.

That certainly can get to be a little too obsessive. You have to try to strike a little bit of a balance. But I want to see an entrepreneur who is incredibly passionate and willing to do whatever it takes to make this work. Kind of a can’t fail attitude. Certainly, and our investments reflect this, but there’s a belief that they have to be very passionate about the mission they’re on and the products they’re creating. Which are going to be “better for you” products. We’re huge believers that the vast majority of what we consume and what’s available for consumption in conventional grocery stores is not good for you. We can’t look towards the Cokes, the Pepsis, the Unilevers of the world to create “better for you” products. That innovation doesn’t happen near as quickly in the Fortune 500 companies.

I like to joke that the two most risk averse people on the planet are CEOs of Fortune 500 companies and publicly traded companies and first year MBAs. They’re so scared of failure. So to expect for those people in these huge companies to fix what’s wrong with our food and beverages and to innovate is just asking people to do something very unnatural to their basic nature.

You really have to look to the entrepreneurs to do that, who embrace risk with passion, who see the biggest risk as not embracing risk and taking it. You know they’ll regret it if they don’t put their heart and soul into trying to create change. And create these brands.

Whether it’s our investment Thrive Market, which was our very first investment that we made. Gunnar Lovelace and his crew there who have a ton of respect for the mission of that company. To Bai, which is a low calorie, high antioxidant all natural fruit based beverage that we recently made a sizable investment into.

One of my proudest moments when we were just about to make our investment in Bai, and this was just a few weeks ago, I was at a HEB – a very mainstream conventional grocery store here in Austin, Texas. I was just wandering the aisles as I often do. And there was a overweight, ethnic woman drinking a Bei. I would have absolutely expected her to be drinking a Coca-Cola or a Pepsi. It literally put a smile on my face because the whole mission of that company, and the purpose of the product, is that you should not have to compromise on taste and flavor with your beverage. You should be able to have something that is delicious with bold, full flavors. But, is good for you as well. We just loved the mission and purpose of that company. That was for me, really exciting to see someone in the grocery store. Before, they didn’t really have an option.

So the product certainly has to be there. But, with the entrepreneur, I always say that over 50% of the equation is the team. It’s more important than any product, because if the product is broken, or the supply chain is broken, or if something is fundamentally wrong with the business, the right team can fix it.

If we can for a moment, I want to chat about passion and purpose. Specifically, I want to tie it to the place you call home. I recall one of the grannyisms that labeled one of the Sweet Tea Leaf caps was, “Bloom where you’re planted.” Clearly you’ve chosen to bloom right where you’ve been planted in Austin, Texas. Can you talk about how important your surroundings have been to you, to help you bloom, and to help those you’re helping bloom?

That’s a great question and I think our surroundings are critical. Where we grow up, where we live day to day, where we work. It influences our thinking and it influences our outlook and the type of people we choose to surround ourselves with. Austin has been highly influential in my personal development. I feel incredibly committed and passionate about this city. It’s a wonderful community. I’d say it’s one of the only communities that I’ve been close to. Let’s say major cities that I’ve witnessed that has a culture that is excited to see other people win. It is a culture with a very approachable community of business people and entrepreneurs. It’s more easy than most cities to get in front of people who have achieved in the business world of high levels of success.

People tend to be very approachable. They tend to be committed. I’d say the community feels committed to give back. They want to help other entrepreneurs. I love that. I had a lot of help along the way. I try to do whatever I can to give back to the community and give back to other entrepreneurs whether it’s a coffee or phone call. There’s probably 6-7 of them a week. I can’t do all of them, but I certainly feel obligated to help other people on their journey because I certainly had a lot of help. I would say that has come largely from growing up, in my more formative years, in Austin, Texas.

Certainly with Whole Foods being headquartered here, there’s a lot of influence they’ve had over the city in terms of health and wellness. It’s a very interesting intersection here in Austin. We’re one of the only cities in the U.S. who is a top 10 party city, but also one of the top 10 healthiest cities. As you can imagine, it’s a great place to start a food or beverage brand.

A work hard, play hard – Austin certainly fits the bill.

I would say, just to add on and close it up, another reason why I love this city is, and you can see it in the conversations that are happening at coffee shops all over the city, and when people get together for lunch, people are more interested in what you do and the passion behind what you do than how much you make or what car you drive.

Austin has more people in flip flops and t-shirts that are millionaires per capita than any other city in the US.

That’s excellent. I want to touch on, for a moment, as you were sharing about Austin and the importance of giving back, the co-founder of Ben & Jerry’s, Jerry Greenfield, it sounds like he had quite an impact on you during some of your earlier years. And that obviously has helped shape some of your philosophy in how business can be a force for giving back. Can you share a little bit about Jerry’s impact on you and how your collaboration with him has led you in the direction that you’ve gone?

Absolutely. I’m in a transition office now, but I had a picture in my last office – and it will be up when I get into a more permanent office – but I have a picture of me and my best friend and co-founder of Sweet Leaf Tea, David Smith, and Jerry in front of one of our old Sweet Leaf Tea school buses.

But I didn’t spend a lot of time with Jerry. And shame on me because I haven’t kept up with him. But he came and spent some time with me, David and our whole team in Austin. And we’ve had a couple of calls. He was very influential. The Ben & Jerry guys were a leading company in Conscious Capitalism, and purpose, and having a mission that was much bigger than the company making ice cream and giving back to the community.

If it wasn’t for Ben & Jerry’s, I think it would have taken our country longer to evolve. And a lot of these companies longer to evolve. And the whole Conscious Capitalism movement. I call them the Godfathers. At Sweet Leaf we were organic. We were doing that for reasons that we felt like were the right reasons. Tea leaves don’t get washed until you put them in a hot cup of water, or a 10,000 gallon hot bath like we were doing at Sweet Leaf. For health reasons, we felt like that was very important.

The giving back to the community, I’d say that’s where Jerry really inspired us. We were outside of a “better for you” product and the working conditions were better for a lot of these workers. Outside of that, we really hadn’t gotten inspired to give back. After spending time with Jerry, immediately, David and I sat down and started to brainstorm on what we could to give back. We implemented an annual Habitat for Humanity and take a couple days off to go build these homes and paint the inside of the homes. That became a great team building activity. We started an annual budget and set money aside, 1% of our revenue, to allow our employees at the end of the year to decide where they wanted that money to go. We’d select a few nonprofits and let the employees vote.

I would like to have thought that the seed was in us, and someone would have come along and watered it, but Jerry was crucial in helping us think that way. The community is what keeps us in business. Oftentimes business owners forget what keeps them in business. There should be a deep appreciation for the community to support these products and these brands. I think that as business owners we should think about how we can give back to these communities who keep us in business.

And, let’s face it – we hit the jackpot. We live in America. We’re educated. Loving parents. To think that we actually deserve any of this? I feel like we’re obligated. It’s not a privilege. It’s an obligation.

That’s truthfully a very interesting mindset. And you talked about mindset, the learner versus knower and approaching the gifts we have been given being born in a country where freedom is a given. And that’s not the case in many parts of the world. I agree with you 100%. And along those lines in having those types of recognitions, you had mentioned earlier that, and it was also in one of the interviews I saw, there was a turning point for you when you recognized the value of winning as a team, and how it was far greater than being right. You talked about this learner versus knower that you look for now in some of the ventures and entrepreneurs, and you mentioned that you weren’t always that way. That you wanted to have all the answers. That it was important for you to be right. And that there was this turning point that winning as a team is far more meaningful than being right. Surrounding yourself with people who are phenomenal at what they do and building a cohesive team. I’m curious, was there a specific moment in time – a decision, an occurrence, something that led you to this minor or major revelation that it’s more important to win as a team than to be the guy with all the answers?

You know, there wasn’t that aha moment where the lightbulb went off. I would say it was a series of events. With Sweet Leaf Tea we certainly struggled in the early days. We were on the edge of going out of business numerous times.

I’m sure that could be a humbling experience all by itself.

Yeah. Very humbling experience. There was a mentor and one of board members early on who had the Snapple distributorship in Southern California. He was kind of the first interim CEO at Oregon Chai when they were first getting going. He was just a phenomenal mentor and wonderful business person. He was constantly pushing me to surround myself with smart people to learn. While I didn’t use the term, he was the first person to really encourage me to get out of that learners versus knowers mindset.

Early on I was really intimidated by smart people. I never graduated from college. There’s probably some hang up there that I had. I can recall him encouraging me to find a CFO. We had gotten to a level where we really needed to get someone in place that was detail oriented, organized, that had a good handle on finances and could help put that discipline in place. We weren’t looking for someone to just generate the reports. I was needed someone who could help us run the business and had a complimentary skill set that was very different than mine.

So we brought in a gentleman by the name of Brian Goldberg, who is now the CFO at Amplify Brands, which is SkinnyPop that recently went public. Brian was masters in taxation, MBA, he had worked for PriceWaterhouse, lived in Europe running their tax practice over there, worked in venture capital for a number of years – just a really sharp guy. We are about the same age. I was very intimidated by him.

When he first joined Sweet Leaf, he challenged me on a lot of my decisions. I was used to calling the shots and having people come to me to ask what they should do. That was my MO at the time and it really held us back in the early days of Sweet Leaf. Brian was the first person who really challenged me on a day to day basis. I thought he was out for my job in the first few months of the business. It was a painful transition. But after six or so months, I really began to admire him and to respect him. Since then we’ve had a wonderful working relationship and he’s a dear friend to this day.

I would say it was more of a transformation and we didn’t really start to grow at Sweet Leaf until we started to hire experienced sales people and folks like Brian Goldberg. True leaders that are experts in their particular field. I think it was Steve Jobs who said you don’t hire great people to tell them what to do. You hire great people to get out of their way and give them what they need to succeed.

I would say it was a year long, painful process of me moving to a place where I’d say I was much more focused on winning than being right. Everyone says they would rather win than be right, but it’s one thing to say and one thing to live it. I still have to look at myself in the mirror every day on lots of different topics and situations when I feel my emotions rise up from within on a particular situation where I question my ego. I always want to say, is my ego at play in this? Do I really want to win versus being right? Why am I feeling this way?

I think it’s an ongoing process. I don’t know if you’re ever completely free of ego that can be a negative influence on our outlook and decisions. I think it’s an ongoing process of self reflection. I try to very aware of it. One way is to make sure you surround yourself with people that are highly curious, that are opinionated. And that you make sure there’s enough communication there so that there’s trust in an environment where they are going to speak their mind. They’re going to call you into question. Shoot holes in your ideas, your thoughts for the sake of a better outcome. You got to be able to welcome that on a team. Those are the most highly functional teams.

That said, speaking to the comment you made earlier about many of the entrepreneurs CAVU has invested in are first time entrepreneurs, is it fairly easy for you and your team how those entrepreneurs are coming into these situations? Specifically around the desire to be right versus winning as a team? Can you detect that when you’re working with some of these first time entrepreneurs? And then able to leverage some of your journey and coach them appropriately from a place of love, care and concern in wanting to help them grow. Does that come up?

With some folks it’s easier. You can discover more quickly than with others. Sometimes it’s in a very short conversation you can discover if someone is a learner versus a knower. But, with others it takes longer. It’s definitely something that we’re focused on and that we look for. It’s also something that we’re absolutely committed in helping coach a lot of these entrepreneurs. Especially with the first time, early stage ones. We let them know from day one that one of the biggest risks is whether this company is going to outgrow you? The biggest insurance policy that any first time entrepreneur can create for themselves is to hire the best and the brightest around them. And to give those people the tools to lead to ask lots of questions.

We’ll have an entrepreneur come into a space where I’ve spent 20 years working in, and all they’ll want to tell me is how great their product is, and how great their business idea is, and they don’t ask any questions. Usually that’s a red flag. The best entrepreneurs are asking many questions. You’re asking while you’re pitching.

While we were raising our fund – and this was genuine, this wasn’t saying that we knew there was going to be plenty of interest to have people invest in our fund – but truly the more sophisticated investors out there, over half of the discussion in our meeting was taken up by me asking them questions about the most highly functioning venture capital and private equity teams that they’ve worked with. What separates good from great outside of their investments? Are there practices that firms are doing to create, over a long period of time, better returns, more successful environments, and ability to recruit top tier team members?

I was genuinely curious because we needed to bring people onto our team at CAVU that have gotten more than we know about the professional investment landscape about managing a fund. Who better to learn from than people who are the institutional investors that invest in these funds for a living?

That was very helpful. I learned a lot through that process. I think it obviously resonated with a lot of those folks because they ended up investing in the fund.

For a moment, talking about the fund and the private equity and the venture capital world, and having spent considerable time and continuing to do so in the Conscious Capitalism movement, through that exposure to some pretty new age, or certainly new thinking type of organizations like a Satori, and many of their funds having these extended life spans of decades. It gives them and their ventures opportunities to make really smart decisions that connects the near term and the far term as opposed to this Wall Street driven, quarterly financial return maximizing shareholder value only. As opposed to the stakeholder centric model, which I do believe, that you need to create more runway. You need to create more space for these entrepreneurs to make the right decisions to help them advance the organization for the long run. Have you seen other firms, like a Satori, that are doing super interesting things to really rewrite the rules of what private equity and venture capital can be about?

I would say it’s more the exception versus the rule. I do feel like it’s changing, which is great. I’m not real close with Satori, but I’ve certainly heard their name out there. I love that those types of firms are getting more visibility. As they have one financial success, as they get publicity, that can help create change within the investing community.

I think ultimately what it’s going to come down to is performance. When you do the right thing and approach the relationship you have with your investments, with the management teams, with the entrepreneurs is one of trust and high integrity, and not managed by legal documents and financially over engineered. When you look out and try to create a win-win situation, coming from my experiences first-hand, far too many times situations where the investors will jeopardize and hurt relationships and the trust with these CEOs and founders in order to make a few more points in return.

I’ve been on the receiving end of it. And it’s very unfortunate trying to bury sophisticated financial instruments in the legal docs and not explain them very clearly in the term sheets. That sort of stuff hurts trust. Over time, those firms build a reputation. I’m certainly not going to name any names, but there’s a number of firms in our industry, the consumer products industry, that are private equity firms focused on consumer products – that are not going to get the best deals. The best entrepreneurs with the best products that have the most successful up and comers – the hottest brands – they’re going to have their pick of who they go with. The smartest entrepreneurs are going to do their homework. A sharp entrepreneur should investigate and do their background checks on the private equity firms, and the investment firm that’s investing in them, as the investment firm should do on the company.

As these CEOs make calls to other CEOs of portfolio companies that are within these investment firms, and CEOs that have exited and had been in the portfolio – you learn a lot that way. I think that over time, I’m a big believer in the karma bank, if you do the right thing and treat the entrepreneur fairly and encourage perspective investments in the CEOs of those companies to do their homework and call around and to make the introductions to all the companies we’ve invested in – your reputation over time will win. At the end of the day, that’s all we have.

Long term, whether it’s the Satori Capitals of the world, or the CAVU’s of the world – as we certainly aspire to be – I think over time you’re going to get access to the best deals because the smartest entrepreneurs are going to know that it’s not about trying to squeeze every penny out of a term sheet. They’re looking for a long term partner they can trust that is going to totally shoot straight with them. That sort of healthy relationship is going to create a better company. It’s going to create a better environment on a board level.

I’m sure a lot of people have heard that when you do a MRI of the brain and look at the blood flow, when someone is in a fear mentality, and I’ve seen it too often in board settings, it completely stifles creativity. Versus, when you’re in a place of trust and a place of safety, the creative part of our brains are much more active. So when you’re in fear mode, and feel like you’ll have a board member that is going to jump all over you or don’t trust or you have to be careful what you say – we’ll operate in a fight or flight mode. I’ve had numerous conversations with CEOs of boards that I’m on having to work through a problem board member and they loose sleep over it. And the board meetings can be incredibly unproductive.

But if we can work to create that place where there’s trust and safety, those entrepreneurs of those companies are more likely to perform much better. And those investments should do better. I think over time, the private investment firms that take that approach are going to get the best deals and they’ll perform better when there’s a high level of trust.

Absolutely. I wind to wind things up and transition to a lighter note if you will. And this has been great. I can’t thank you enough for spending the time with us. Given that you created and sold an incredibly successful vodka company – because there’s a lot of folks out there who probably grew up not knowing what they are going to do with their life. The thought of working in the beverage industry probably sounds like an incredibly exciting place to spend time. I’m curious, as someone who has created and sold a very successful beverage company – multiple – but focusing on at least Deep Eddy for a moment – what’s the sexiest thing about working in the beverage industry, and what’s the least sexiest thing about working in it?

It doesn’t get much sexier than the liquor industry. The spirits industry is a fun place. It’s so marketing driven. Obviously we were able to set ourselves apart at Deep Eddy just because the quality of the ingredients using real juices instead of artificial flavors to flavor our product with. So we were able to set ourselves apart and I believe that’s ultimately why we succeeded and had phenomenal growth.

Let’s face it. You do your marketing in bars and at music festivals. The sexiest thing about being in the beverage industry is that most of our marketing was done at music festivals. Either demos or music festivals. We did a lot of music festivals around the country. It’s just a great place to create that love affair with consumers and your brand. We took a lot of those plays from our playbook and implemented them at Deep Eddy. That’s definitely the sexiest part is getting to hang out in really fun environments and bring that brand to life and to integrate that brand within those events so that it feels like your event. Consumers say that’s kind of where it’s the best place to discover your brand.

So that’s definitely the sexiest part outside of heavy taste testings in the afternoon on a Tuesday. That’s not uncommon at all.

I’d say the least sexy thing about beverages in particular…it’s tough because it’s such a wonderful industry. The spirits industry, the natural foods industry which is really where my heart is – the natural foods industry. I love the spirits industry, but the natural foods industry is where my heart is.

But there’s still people issues. You still running a business. You’re still negotiating compensation packages with folks, unfortunately every now and then have to let someone go that’s not performing. That’s tough. But if anyone says firing someone or letting someone go is not the worst part of business, I just can’t imagine. Luckily I haven’t had to do it too many times, but I’ve had to do it enough. I’m sure I’ll have to do it a few more times in my lifetime.

But having to let someone go is by far the toughest thing that has to be done. And it’s typically not done quickly enough. The messy people issues that inevitably come up because we’re human. We’re complex. Having to deal with that is probably the least sexy, but it’s definitely the most important part is dealing with your team members.

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