Thread by @FrederikNeckar

The story of Chobani is so wholesome and also a good example of how companies can get funded outside of VC.

Taking big risks, Chobani founder Hamdi Ulukaya went all-in betting on his heritage and a powerful emerging consumer trend.

Ulukaya grew up in a Kurdish dairy-farming family. After being questioned by police over his interest in the Kurdish-rights movement, he wanted to leave.

A fried recommended America. Ulukaya hesitated: “We thought capitalism was the reason for the suffering of poor people."

But in 1994, he made the move. First to Long Island, then upstate New York where he worked on a farm while studying.

With almost no English, he was "extremely scared. I was aware that this was going to be very, very difficult. But I was excited.

His visiting father said "they don't have very good cheese here. You should make cheese." I said, "What? I didn't come all the way here to make cheese!"

But with one of his brothers he started making feta cheese in 2002, "two years of the most challenging days of my life."

One day he found a flyer: FULLY EQUIPPED YOGURT PLANT FOR SALE

"It just was curiosity. If it was a year earlier, I would never pay attention."

It was an old Kraft Foods facility that used to make Philadelphia cream cheese: only $700,000. “I thought they left a zero off.”

His lawyer: "Hamdi, what are you talking about? Kraft is closing the plant? They’re looking for an idiot. You’re the idiot."

Ulukaya: “I go with my gut feelings a lot. That got into our culture. We just go boom, boom, boom: fast.”

He bought the plant with a loan from the Small Business Association and hired 5 of the 55 people laid off by Kraft. It took them a year to perfect their recipe of Greek-style strained yogurt that was becoming popular with niche brands like Fage.

"I go back to my childhood in Turkey. It didn’t matter if you were poor or rich, you couldn’t imagine a table without yogurt. It represents equality, nature, nutrition. I always missed it. In upstate New York, I thought, “Where is that yogurt? It can’t be so hard to make.”

They launched in 2007 and quickly went from local shops to big chains. "We didn't want to do high end. We went to the chains, we wanted to put it in the regular yogurt section."

“I knew it was never going to be about selling anymore. It was about making. Can I make enough?”

His staff pulled all-nighters to keep up with orders. “The next five years, I never left the plant. I don’t remember anything I did—day or night—that wasn’t related to yogurt.”

The NY plant grew from 30 people in 2008 to 600 by 2012 when the brand crossed $1bn in sales.

His next big step was a massive new facility in Twin Falls, ID to expand the product line and be closer to the West Coast. It cost $0.5 billion and was financed with a private loan from TPG.

“If we were wrong this was the end of the company.”
spokesman.com/stories/2017/n…

But his new product lines, like Chobani flip, took off.

In 2016, Ulukaya gave 10% of the equity to his 2,000 employees: “I’ve built something I never thought would be such a success, but I cannot think of Chobani being built without all these people,”
nytimes.com/2016/04/27/bus…

In 2016, the average equity grant per employee had been $150,000 at a valuation of $3bn.

The upcoming IPO targets a valuation of $10bn!
reuters.com/business/choba…

“We were so fast—so fast. When the large companies woke up, it was already too late.”

“I’m a shepherd and I’m a warrior. I come and go between those two. I’m a nomad, and nomads are the most real people. You can’t pretend.”

“There is not a day that goes by that I don’t travel back to my childhood. You see something and it reminds you of home. It could be a light, a taste, a song. It reminds me of my mother’s food or sitting around the fire, of us kids playing in the snow or watching the stars.”

More reading:
Long profile:
fastcompany.com/3068681/how-ch…

bloomberg.com/news/features/…

archive.fortune.com/2011/11/29/sma…

TED talk: 'the anti-CEO playbook.' Total Mensch.

"there are people and places all around the world left out and left behind. But their spirit is still strong. They just want another chance... not to just build it back, but build it better than before."

ted.com/talks/hamdi_ul…

"People don’t realize in food it’s not the product idea that’s important. It’s in the fundamentals of operation. At Chobani, we are all factory workers. Our plants are the core of what we do. The retailers are going to ask you, “Can you deliver?” We are an operations company."

H/T @Post_Market for pushing me to find a juicy bit that was not covered in the major profiles.

Chobani (and Greek yogurt generally) grew rapidly (faster than $FB and $GOOGL?). They expanded with the world's biggest yogurt facility in Twin Falls in 2012

prnewswire.com/news-releases/…

@Post_Market Then they got hit with the 'perfect storm':
-Incumbents Danone, Yoplait, Fage ramped up their marketing spend (7x 2013 vs 2011)
-Milk prices increased pressuring margins
-The new facility ran at low utilization

>EBITDA turned negative in 2013, debt started to run up quickly

@Post_Market In 2014, they took $750mm in rescue financing from TPG. Started as a minority preferred, morphed into a 2nd lien as Chobani faced a liquidity crunch. Deal closed with some 2 weeks left on the clock.

TPG called it a "structured creative deal with lots of iterations along the way"

@Post_Market TPG got a juicy piece of paper (low teens yield, though mostly PIK), board representation, and warrants for 20-30% ownership

wsj.com/articles/SB100…

@Post_Market TPG's rationale: fixable problems in operations and sales. Add to staff (including experienced 'fixers' from large incumbents like Walmart), fix inefficiencies and waste at the new plant. Good brand with significant margin upside in a great market plus downside protection.

@Post_Market Seems Ulukaya did not like a big minority shareholder telling him what to do.

He gave 10% of shares to employees - diluting TPG whose stake would be calculated from the remaining 90%.

nypost.com/2016/04/26/cho…

@Post_Market “This was a very clever power play, make no mistake. TPG may have been surprised that Hamdi was willing to give up 10% just to dilute them.”

@Post_Market In 2018, Healthcare of Ontario Pension bought out TPG at "a handsome profit"

“It’s about long-term thinking, having a long-term partner and getting more control back,” Chobani’s founder, Hamdi Ulukaya, said in a recent interview. “That’s the heart of it.”
nytimes.com/2018/06/28/bus…

@Post_Market Here's the kicker for the nerds among you: TPG's deal recap memo is on scribd:
scribd.com/document/35578…

@Post_Market "we worked hard to get the packaging right. This was a big expense. American yogurt has always been sold in containers with narrow openings. In Europe yogurt containers are wider and squatter. I wanted the package to signal that the product inside was very different."

@Post_Market No love for PE
"I took calls and meetings with PE firms. It was a learning process. They try to make you doubt yourself—it’s a standard part of their pitch.

I financed our growth through bank loans and reinvested profits. This is a crucial piece of the Chobani story."

@Post_Market "I had put aside $7 million for a big ad campaign when our larger rivals launched their Greek yogurts, but after I tasted their products, I canceled the ads. There was no need."

@Post_Market "Today we have a syndicate of banks and a credit line to meet our capital requirements. In December 2012 we opened a factory in Idaho, and altogether we’ve invested about $700 million in our plants and equipment."

Right before needing rescue financing
hbr.org/2013/10/choban…

@Post_Market Value investor
“The factory was a sad place, sort of like a cemetery, in a very small town. A lot of equipment was included, but it was old. The best thing about the place was the price: less than $1mm. Some of the individual machines would cost more than that if purchased new.”