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Making It with Jon Davids
252 - This Homemade Tortilla Business Just Sold for $1.2B | Siete Foods (encore)
00:19:25
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This week, we're going back into the vault for another popular episode as John breaks down the story of Siete Foods.
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These two people figured out a new way to bake a tortilla and then they sold it for $1.2 billion, all in under a decade. I'm talking about Veronica and Miguel Garza, the co founders of Siete Foods. They put a new spin on a Mexican American classic, and now they're selling in 40,000 stores and growing fast. They're. I'm going to tell you exactly how they did it. How they took a kitchen table recipe to $1.2 billion. Exit and this company is just amazing. There's so much to learn from how they did it. That's coming up in just a sec. My name is John Davids. I am the host of this here podcast, Making it with John Davids. Thank you for sending us up the charts. Every single week, I check the charts. We are up in marketing, in entrepreneurship and business around the world. If you're a fan of the podcast, I all I ask is that you smash the subscribe button. Wherever you're listening, Apple, Spotify, YouTube, wherever. Leave a comment, leave a rating. I promise you, it does help. And hey, share the podcast with a friend. I think they will like it, too. All right, let's get to the show.
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You're listening to Making it with John Davidson.
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All right, let's go back to 2014. Veronica's got a problem. She can't eat grains, which is very tough when every meal is served with a tortilla. She's eating a Mexican American diet. She's having a lot of family dinners and she can't stomach the grains. She's got to fix this. So she hits the kitchen and she starts whipping up some new recipes. She's tinkering with almond flour, cassava flour, coconut flour, trying to find a replacement to the traditional flavor flour tortilla. She's tweaking and she's toning and she's changing things. She's trying to capture that classic tortilla taste without the bad stuff that's gonna hurt her stomach. Finally, she gets it. And it's really, really good. So good that her brother Miguel encourages her to sell it. Hey, don't just make it and hog this recipe and serve it to yourself and our family. Why don't you go ahead and sell this stuff? Because I think it's really good. And now she agrees. She says she will do it, but only if he does it with her. Miguel says yes, and Sieta Foods is Open for business. So fast forward, they hit the Austin farmers market scene and right away people are lining up for these tortillas. They're a hit because think about it, tortillas are something that a lot of people are eating. Hispanic food is very, very popular in the US Which I'll talk about more in, in just a moment. But there's a lot of people that are gluten free that maybe they're observing the paleo diet and they don't want to eat traditional tortillas. So they're lining up for these tortillas. So after they become a hit in the Austin farmer's market scene, she hits the local grocery store scene. A grocery store calls, they want to sell Sieta too. And again, they're flying off the shelves. They can't keep them stocked. Word keeps spreading. And within a year, these tortillas are selling at Whole Foods, then Sprouts, then Gelson's, and by 2017, they're selling at 1,000 stores. But we're still just warming up. So with the tortilla market locked in, the duo doubles down. They start developing new products and new things they can sell on that valuable shelf space. Don't forget, when you can get shelf space in a supermarket, there is a lot more you can do with it. If you can develop more products, complementary products, other things you can sell to those same buyers, they will take it. If it's any good, they'll take it and you can actually grow. The accounts land and expand. So they start developing new products. Chips, seasonings, hot sauces, all the good stuff. And again, no grains, no grains allowed in Sieta foods. And with each new product, they're seizing up more shelf space. Then the big retailers start paying attention. They're watching from the sidelines. I'm talking about Kroger, I'm talking about Target, Walmart. And they want in. Fast forward another few years to 2024. Sieta is in 40,000 stores. And just a few weeks ago, In October of 2024, PepsiCo scoops up the company for $1.2 billion.
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all right, I just packed the whole story there into a few minutes. Don't worry, I'm going to break it down. But I want to start with a couple big takeaways here that you can pull from this story just from what I've mentioned so far. So first of all, Veronica and Miguel are, are tapping into two mega movements. Not one, but two. And if you've read my book Marketing Superpowers, you know that latching onto a movement, either creating a movement yourself or latching onto one is super important if you want to build a brand that matters. So the first movement that they latched onto was the grain free trend. More people are embracing Paleo and gluten free diets they have for over a decade, but they don't want to sacrifice the flavor. These same people who are saying, I don't want to have gluten. Gluten, they're the same people who are snapping photos of their food and posting it on Instagram and taking videos and posting them on TikTok. So these people don't want to sacrifice flavor and sacrifice the experience and the social experience of food in favor of the gluten free diet. They want both. They want the best of both worlds. So if you can combine really good flavor and a brand that they can get behind with the gluten free and the dietary restrictions, and that's a brand that will take off. That's one movement they latched on to. But it's not just one, it's two. Mexican American food. It's the third most popular cuisine in the US Fueled by a growing Hispanic population. A whole lot of people who are Hispanic and want to eat the food they grew up with, and also a whole lot of non Hispanics that just like the food. So yet to put these two things together, serious trend stacking. And they backed it with a great product because a great trend and great marketing and great brand, all that kind of stuff, it's not gonna mean anything if you can't deliver with a great product. And that's how you turn a kitchen table recipe into a $1.2 billion payday. Just like Sieta foods. All right, so let's go a little deeper into the early days and the distribution and product strategy that that the Garzas used. So the first thing I figured out when I dug deeper into this story is that the Garzas actually owned a CrossFit gym in Laredo, Texas. G7 Athletics a CrossFit gym. It is a very tight knit community. I actually talked about another brand where the founders were CrossFit fans. That's RXBar. Go back to episode 121, you'll hear the RXBar story. And in the case of RXBar, we CrossFit was a very important product development and distribution channel in the early days, really for like the first couple years of our X bar. And I have a feeling, even though it's not well documented, I have a feeling the same was the case with Sieta Food. So family owns a CrossFit gym and they were able to understand the CrossFit culture and they had distribution in the early days because I would bet you they used the CrossFit gym to sell the early products. And if they didn't sell them there, at least they would have the audience, the population to say, hey guys, you guys want to eat grain free foods? Try these tortillas. What do you think? And they probably had a very active and very engaged test market to make sure the product was really good, get the word out about the early products and probably do distribution. Now in the case of our X Bar, this they used the CrossFit gyms as like their sole distribution channel. For years they were selling and shipping to CrossFit gyms across the country. And then finally, eventually they got into Trader Joe's after a few years. But really CrossFit was the only distribution channel for RXBAR early on. I can't find that to be the case with Sieta Foods. But again, I bet they use CrossFit as an early distribution channel and wow, if you can tap into a community like that, you super engaged. And they want products that fit their lifestyle. They're not getting it somewhere else. That is a great hack. Early on I always talk about, look at your unfair advantages. What do you know that others don't? What do you have access to that others don't have access to? And tap into those. It's not always money, it's not always cash. People think, oh, it's just about money. No, it's not. It's having a relationship with a CrossFit gym and being able to tap into that population. Huge advantage, Huge advantage. Next thing I want to talk about is the idea of manufactured demand. Manufactured demand. So if you go through the Sieta story from the early days, 2014, 2017, 2021 and 2024, what you'll notice is a common theme of every time they Put their product somewhere new. Whether it was the CrossFit gym or the farmer's market or the local grocery stores, the co ops, the, the local Whole Foods, the regional sprouts, all the distribution outlets they were in, they were always selling out. They were always selling out. Every single time they put their product on the shelf, they were selling out. And that's a very good position to be in because it shows that there's this scarcity. So it's good for the customer because the customer knows that if they see it on the shelf, they better get it fast. And then it's good for the retail channels because they're saying, hey, every time we get this product and it's selling out and, and it's good for the next retail customer because you can say to them, hey, we just put it in this grocery store. They can't even keep it stocked. They're ordering more and more. You've got all these great case studies and great testimonials, but here's the thing. I use the term manufacture demand. Now, I don't know for sure if this is what Sieta was doing, but here's how I would play this exact same game. I know that if I put my product in a farmer's market and it sells out, that's a great place to be. So what am I going to do? I'm going to make a small amount of product, I'm going to make sure that it sells out. So I'm going to go scope out that farmer's market. I'm going to say, okay, is this going to do well here? All right, how many do I think I can sell? I think I could sell 30 units in a day. All right, let's show up with 17 units. Let's show up with 15 units. Let's not produce 30 or 40 units. If we think we can sell 30, let's show up with half that so that we can say, hey, it's sold out. And they did that at the farmer's market, they did it at the co op, the regional grocery stores and so on. And this is a strategy that's employed by lots of companies, you know, big and small. Ferrari does this, Louis Vuitton does this. Apple does this, Rolex does this, Harvard does this. Every elite university does this. Right? There's only so many spots. And they always make sure that they take 3 or 4% of those who apply. Never a very high percentage. Now, here's where it becomes counterintuitive. If you're an entrepreneur and you're A business owner, one thing that you want to do, and I did this early on, I was so stupid, I made this dumb amateur mistake, is you try to be big chested and you try to have a big ego and you try to say, hey, we're already everywhere. Like, you know, someone says to maybe a potential investor or a potential customer says, hey, like, where do you guys sell today? Or who are you working with today? And. And you try to put on this big dog and pony show and say, oh, we're everywhere. We're working with the biggest clients, we're working with the biggest people in the industry, our products available in the biggest places. And then the next question is, okay, cool, so if you're already available everywhere and you're totally saturated, why have I never heard of you? Or if you're already available everywhere, I made this mistake with an investor early on. They said, where are you guys available? I said, oh, we're available everywhere. And they said, cool. So why are you only doing $300,000 a year in revenue? Like, where's all the money? You're telling me that you've already saturated the market and you're making $300,000 a year? Like, what? Why aren't you making $50 million a year? So it's actually a better idea to talk down your story, to think about the confines, the constraints of supply and the constraints of market distribution. Here's what I mean by that. If you think about your story, it's a much better story. You know, everybody wants to say, oh, my product's available at Walmart nationwide. Cool, that's a good story. But it's much better to say, hey, my product is in 10 different retailers and it sells out every single week. They can't keep it on the shelf. That's actually a better story. My product is selling out is a better story than my products available at Walmart. Who cares? If your product's available at Walmart, so are 300,000 other products. Like, who cares? But if your product is selling out, I don't even care what grocery stores it's available at. I don't even care what accounts you have. All I care about is those two magic words. Sold out. You are sold out.
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So think about manufactured demand and manufactured scarcity and think about how you can put your position, how you can put your product in a position where wherever it goes, there is more demand than supply. Right? That is so important to your story early on. And it never ends. Like I said, even in the case of Rolex, it's a $9 billion revenue company and they still make sure there's way more demand than supply. The last thing I want to talk about here is the financing strategy. You guys know, especially when I'm looking at high growth companies, I want to know where is the cash coming from? Where is the cash going? What are the unit economics? Show me the money. Show me the money. Okay, let's talk money. 2014, Sieta launches bootstrapped, no investors in 2014. They raised a million dollars from angel investors in 2015. Then in February 2019, four years later, they raised $90 million for a minority investment. Stripes Group invested. Stripes is a New York investment firm. They invested $90 million for a minority stake, let's call it 49%. And then finally in October 2024, PepsiCo acquires the company for $1.2 billion. Think about what has to happen for this financing strategy to take place. So for angel investors to invest $1 million in 2015, one year after founding, and they had to spend that first 12 months proving the hell out of demand. They had to be doing so much hustling, so much baking in the kitchen and selling at farmers markets and selling across the gyms. Improving demand, getting the product right without raising a dollar. I love that. Get your product right, get your distribution right, get your demand right, get your customer and your unit economics right, get that all right? Then go out and say to investors, hey, you, you give us a million bucks, we'll give you 10, 15% of the company. It's a great deal. And they probably used that money early on to get things like machinery so they could make the product at scale, equipment, that kind of stuff. A million dollars. And then they take the company to a 90, well, more than 90. They raised $90 million for minority stakes. Let's just say it was like 180 or $190 million. For simple math, let's just say it was a $200 million valuation. They raised $90 million because it was a minority stake. To take the company from a valuation of, let's say, $10 million to $200 million, which is pretty conservative numbers. That is unbelievable. On that small amount of capital, they had a million dollars to build a $200 million company. And this is not like virtual digital services like the world that I'm in, Right. This is like real world. We are making tortillas and we are selling them across the country. That is unbelievable. And then let's just say it was a $200 million valuation in 2019. It's a $1.2 billion valuation five years later. That's like a 5x or a 6x growth on the top line. And that's unbelievable because again, now you can assume that the Garza family, Veronica and Miguel and their angel investors held a 51% stake in the company. So they have at least 51% of $1.2 billion. Now, that is a smart financing strategy. Raise as little as you possibly can. Right? The Silicon Valley mantra, raise as much money as you can as soon as you can. Screw that. No, raise as little as you can or raise as little as you need to. I should say, to build as much as you need to to get to that next level. Right? Maybe they were able to raise more than a million dollars in 2015, but they didn't need it, so why should they dilute themselves, right? Raising money is not cash in your pocket unless there's a secondary round taking place at the same time, which there's not in an angel round. Unless there's a secondary. This is not cash in your pocket. You're not getting rich off a million bucks. It's debt. It's the same thing as taking a mortgage on your house. You do not want to take way more than you need. You want to take as little as you need to get as far as you can. I love the financing strategy, I love the community strategy, and I love the $1.2 billion exit. Congratulations to the Garza family.
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Wow.
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This is entrepreneurship at its best. Let me know what you guys think you can get me@johndavids.com get on the newsletter while you're there and I'll talk to you guys next time.
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