Kind Snacks’ Daniel Lubetzky
Humor works in tough times
“You want to be differentiated in the right way. People connect to stuff that’s authentic.” —DANIEL LUBETZKY
It started with a cookbook. When pastry chef Fany Gerson couldn’t find a book on treats from her native Mexico, she decided to write one herself.
“Most of the sweets in Mexico are part of an oral culture passed down from generation to generation,” Gerson says. “There’s not a lot of documentation about it.”
Published in 2010, the same year Gerson founded her New York City-based frozen-treat company, La Newyorkina, My Sweet Mexico was nominated for a James Beard Award. Two cookbooks and one retail store later, Gerson is running a small business that pulled in $1.4 million in 2019. Her hugely popular paletas—ice pops made with Mexican flavors—inspired a miniature version called paletitas, which recently landed in Whole Foods.
Though Gerson’s paletitas are helping La Newyorkina reach new heights, the company has endured plenty of challenges. Hurricane Sandy destroyed Gerson’s production facility in 2012, and New York State’s stay-at-home restrictions have forced her to close her store during the coronavirus pandemic.
Enter Kind founder Daniel Lubetzky. Born and raised in Mexico City—one of many things he and Gerson have in common—Lubetzky knows what it’s like to create a product out of personal need. In 2004, after struggling for years to find a healthy snack he could grab on the go, he launched New York City-based Kind, which makes all-natural, minimally processed snack bars.
Last September, Lubetzky transitioned from CEO of the multibillion-dollar company to executive chairman. The new role gives him more time to back other entrepreneurs, which has included stints as a guest judge and investor on Shark Tank.
Lubetzky has a deep appreciation for Gerson’s unique formulas and aesthetic. “Fany is magical,” he says. “She is creative like very few others and authentic in a deep way.” Still, Lubetzky is not one to shy away from dishing out healthy portions of tough love when Gerson mentions expanding without key personnel in place.
Gerson When the coronavirus crisis hit, our biggest concern was our employees, obviously. We’re a seasonal business, and we were just about to hire for the upcoming season. Instead, we had to say, “Look, you’ll all have jobs when we come back.” We have every intention to reopen, but in the meantime, what happens to them? Lubetzky I’m optimistic that we will all eventually land on our feet after Covid-19, because of the resilience of entrepreneurs like you. Maybe your dreams are postponed, but they’re not shot.
First of all, your paletitas—they’re genius. Kind launched minis, and they’re the fastest-growing part of our business. The most magical thing you bring is your really different formulas with the Mexican heritage, but I think the size of them is no less important.
Gerson One of the things we identified is that everybody does more or less the same packaging for popsicles. It’s the popsicle with the fruit coming out. We really wanted to stand out, so our packaging, unlike that of most other brands, is square rather than rectangular. Instead of an image of a pop with fruits, it has very colorful lines representing the flavors, and it’s a modern design—which is true to our brand and my heritage.
Lubetzky I agree. You want to be differentiated on the shelf, but like you said, you want to be differentiated in the right way. I think being authentic is the most important thing. You should just own those powerful colors if they belong to you. People connect to stuff that’s authentic.
Gerson So how would you go about choosing a co-packer? I’ve never wanted to go the co-packing route, because I like having control of the product. I like knowing whom I source from, that we buy the dairy from farmers in upstate New York. But, two years ago, this company that does frozen desserts approached us about being a co-packer. They’re also interested in pursuing a whole line of frozen desserts, not just paletas, under La Newyorkina.
Lubetzky Once you’ve found five or 10 potential co-packing partners, then you need to qualify them. Do a questionnaire that asks the five or 10 most important questions. I can help you think through these. Then talk to the people they manufacture for and ask questions. Beyond the referrals they give you, try to find somebody else who can tell you if these people are good to work with. And then you need to visit the facility and inspect it.
Gerson Right now, we’re in the middle of writing a pitch deck to raise capital.
We’ve identified what we think we should focus on to have longevity and really stand out, which is the packaged paletitas. We tried to get into Whole Foods for years, and it’s very competitive. So I took the mochi model—the branded freezers—and we were able to get in. We were in 10 stores, and they wanted five more. Now Whole Foods is interested in doing it nationwide, and they have talked to us about doing their 365 line.
Lubetzky There are so many businesses in what you’re doing. There’s the store. There are the pastries you make. There are the paletas you sell in your store. There are the paletas you sell to other stores, and there’s the idea of selling them under a different brand. Have you defined what it is you want to focus on?
Gerson I was hoping it would be the store, because I really love it and I love the contact with the customer. But I don’t know if we’ll be able to keep it open.
Lubetzky Why?
Gerson Well, even before Covid-19, the store was bleeding money from the company.
Lubetzky The store is being subsidized by other parts of the business?
Gerson Yes.
Lubetzky The best way for you to finance your growth is through partnerships with your co-packers. Tell the farmers you work with, “In exchange for my loyalty to you, can you give me better paying terms?” And instead of your having to pay them in 10 days or 30 days, they give you 60 or even 90. Then you develop a strategic partnership with them. They’re going to give you the best quality of what they make, and you don’t dilute yourself with equity. How much does each of your branded freezers cost you?
Gerson Around $1,500 per freezer.
Lubetzky How many paletitas do you sell out of that freezer in one month?
Gerson I don’t know in one month, because the distributor buys in bulk and warehouses it before he goes out and sells it.
Lubetzky Who does your books and your finances?
Gerson We have a bookkeeper, but we need a business manager.
Lubetzky You can’t raise money until you know that the per-unit economics make sense. Then, you can go to your investors and say, “Let me show you. For each of these freezers I put in, it’s like a gold mine.” I don’t think you should be preparing a deck and raising funds until you are 100 percent certain your finances are tight, and you know everything and understand everything. You really need to get your finance person right.
Gerson That’s exactly the missing person, but I feel like we don’t have the funds to pay for someone like that. Lubetzky You do. If you’re running a million-dollar business—we’re talking $10,000 to $20,000—you do. The biggest challenge an entrepreneur has in the early phases is attracting complementary talent. As entrepreneurs, we tend to be attracted to the people who are most like us. And that’s exactly what you don’t need. Fortunately, there are a lot of people with those financial skill sets. It doesn’t need to be a full-time thing. It can be someone you outsource at the beginning and use as a consultant.
The one thing you don’t have is the operational, financial expertise. So the thing you most need to do right now is not raise money. It’s to find that outside or inside partner, especially as you come out of the downturn from Covid-19. When you find that person, you’ll blossom.