Sean Campbell - Scaling Ops from $5M to $150M

On this episode, we’re joined by Sean Campbell, COO at Semifreddi’s - the Bay Area-based beloved artisan bakery known for its sourdough.

Before Semifreddi’s, Sean led operations at Kiva Confections, helping scale one of the nation’s top cannabis edibles brands from ~$20M to ~$150M in revenue, and held ops roles at Double Rainbow Ice Cream and San Francisco Salt Company. 

He’s a rare operator who’s scaled ops in traditional food, frozen, ambient, and regulated cannabis, bringing a cross-category playbook for formulation, production lines, co-manufacturing, and NPD.

Sean lays out the margin levers that actually move the P&L, how to build supply-chain redundancy, and the tradeoffs between in-house manufacturing vs. co-packing. We dig into the ops leader’s evolving role from $20M to $150M+, and the nitty-gritty of forecasting COGS and margins.

—---------------

Episode Highlights:

🥖 Semifreddi’s origin story and what makes a 40-year bakery scalable today
🍫 Scaling operations at Kiva from ~$20M to ~$150M
📉 The 5 levers
👤 The ops leader’s role from startup to scale
🌿 Making the pivot from traditional CPG to cannabis (and back again)
📊 Forecasting COGS & margins
🛡️ Supplier redundancy, tariffs, and de-risking your BOM
🏭 In-house manufacturing vs. co-manufacturing
🗺️ Expanding geographically
🧪 NPD best practices: stage-gates
🧠 Hard-won lessons: what Sean would have done differently

—---------------

Table of Contents:

00:49:09 - Semifreddi’s origin story
02:52:03 - Scaling ops at cannabis edibles company: $20M - $150M
11:32:08 - Key margin levers
17:40:08 - COVID supply chain disruptions
18:50:27 - An ops leader’s role as a company scales
23:14:07 - Making the pivot from traditional CPG to cannabis
27:38:16 - Forecasting COGS and margins, where things go wrong
31:30:22 - Supply chain redundancy, tariffs
34:11:25 - In-house manufacturing vs co-manufacturing
40:02:00 - Ops and expanding geographically
44:48:01 - NPD (new product development)
49:07:11 - Learning lessons

—---------------

Links:

Semifreddi’s - https://www.semifreddis.com
Follow Sean on LinkedIn - https://www.linkedin.com/in/sean-campbell-87393021/
Follow Adam on LinkedIn - https://www.linkedin.com/in/adam-martin-steinberg/ 

For help with CPG production design - packaging and label design, product renders, POS assets, retail media assets, quick-turn sales and marketing assets and all the other work that bogs down creative teams - check out KitPrint.

Transcript

0:02

today we're speaking with Sean Campbell who is the CEO of Semi Freddy's Artisan Bakery that serves all the wider SF Bay Area which is my hometown so definitely excited to dive into it prior to um Semi Freddy's Sean ran ops for what I believe is still the No. 1 cannabis edible edibles company in the US as well as other companies like San Francisco salt company Double Rainbow Ice Cream which is another favorite of mine from the area so yeah excited to get into it so yeah Sean made just for first off for the the listeners that aren't that familiar with Semi Freddy's just give us a quick lay of the land in terms of origin story why behind the brand core products you guys offer maybe just a few places people can get their hands on them and then we'll go from there sure yeah Semi Freddy's is a Bay Area staple since 1984 it was founded in a 400 square foot kitchen over in Kensington which is around Berkeley area and it's just it is like it's kind of part of the fabric of the San Francisco Bay Area so Tom Mike and then Mike's uh uh wife Barbara who is actually Tom's sister founded Sammy Freddy's in 1984 uh kind of the part of the Alice Waters kind of gourmet ghetto scene and that's kind of where it started Acme Baking is another big staple here in the area and so they launched it about the same time it's grown to the point that today it's about 20 million in revenue roughly we currently occupy a 30,000 square foot bakery over in Alameda which if you know your Bay Area is sort of just down the street from uh Berkeley and the core tenants are really it's just it's rooted in the community the business historically has given back about $1 million a year to over 200 community organizations that address food insecurity education and life transitions and it's just part and parcel of who Semi Freddy's is so that it's sort of two core tenets community first but also taste first is kind of the way we think about it fresh baked daily delivery all around to about 400 different accounts in the San Francisco Bay Area uh 70+ products all fresh baked artisan breads baguettes deck breads rolls pastries cookies etcetera in terms of where you can find them if you're if you're lucky enough to be in the bay they're all over so Costco is a big one we're actually doing a series of road shows right now at a bunch of area Costcos you can find it at Safeway Lucky Whole Foods and tons of independence and some good news for us we're sort of making a push into broader distribution outside the Bay Area um we just got our first repeat purchase order for a distributor out in Ohio so you can actually find Semi Freddy's Crostini out in the Midwest which is great so yeah so that is sort of where we're at and where you can find us yeah you LED ops as I think the company scaled from something like 20 million in revenue to 150 plus so yeah it's safe to assume the supply chain evolves quite a bit and all the stuff that you own so I'm just kind of curious what did that supply chain look like at you know 20 million versus 150 million I'm talking about both you know on the plant touching side you know as well as the non plant touching side and maybe as you went from 20 to one 50 what were some of the biggest supply chain unlocks along the way yeah so I mean I think first for your listeners that aren't in cannabis and you and I are both from cannabis let's paint a little picture cannabis became legal in California in 2018 and it was kind of like the Gold Rush meets the dot com bubble and it was you know it was strap it in and do more than you've ever done with less than you've ever had to work with and so it was pretty nuts I'm sure you remember there were CEOs not of Kiva or of your company CEOs running meetings super tripped out on ayahuasca I heard stories of barefoot there were and it was kind of this weird mixture where you had a ton of people that came from other industries you had a ton of vcs getting into the space a ton of really smart people mbas and they're all kind of mixing together at the same time with these folks who were kind of coming out of the shadows and I sure you know so cannabis was illegal in 2018 you passed the point where it became legal and there was this weird mixture of all of these people sort of at one time and it kind of made for some strange bedfellows is what I said yeah totally so we were the leader in the space Kibo was the leader in the space but just to give you a matter of you know kind of a perspective we were making about 40,000 units a month now kind of my background and experience I've seen plants that do 40,000 units an hour right and so it seems like a big number but it's not a super massive number we were out of a 10,000 square foot warehouse over in Oakland and so not the best part of Oakland I'll add and sort of the the yeah so most of my team it was it was kind of funny most of the team that I inherited they're in the business because they love the product we were paid in cash every two weeks which I'm sure you were familiar with because banking was illegal at this point and you kind of had to watch your back pretty frequently because in Oakland we often had people tailing our trucks back to the plant and sort of you know looking for with you know cause the trucks had cash in them they're tailing the trucks back to the plant and so you you you kind of had to look over your shoulder every time the door opened to make sure somebody wasn't coming in the front door so nutty days in terms of the supply chain so we made 14 skews at that point we made two pan M&M products eight chocolate bars and two types of mints and we also co packed a beverage for I'm sure you remember what's the beverage company out of Colorado do you remember the name of that yeah it was like the main one back in the day and yeah I can't remember the name but I know you're talking about yeah anyways so 14 skews that was I can't remember but anyways whatever yeah um so revenue was about 90% of our revenue was from California and then I'd say 10% was from what we call partner states which were Michigan Hawaii Illinois Nevada and Arizona so on that side of things when you look at the partner states they kind of ran the gamut from people who had a ton of experience like true operators all the way down to people who had no idea what they were doing like complete novices and so on top of that we did distribution out of the same 10,000 square foot warehouse if you can imagine so we had two pallet racks in the back and a fleet of Priuses which was pretty awesome Kiva used to rock the prius so the Priuses would go all the way up to humble and then all the way down to do a transfer where a lot of product was then taken to Southern California and so this was kind of what I inherited when I walked into this company um and there was a huge appetite for growth as you described essentially we went from maybe 15 million to 150 million in about five and a half years which is pretty nuts um a lot of innovation in the next three years we launched about 70 different skews our part count went from probably 150 mom maybe that's a little low the 200 by the end of that time it was up to 15 Discreet parts which is pretty nuts and so by the end of it we have two distinct line of gummies Camino and Los Farm we've got a starburst type of chew and tons of limited time offers seasonal initiatives and we were kind of at the forefront as you know of every sort of trend live resin we did it live rosin we did it beverage we did it gummies we did it we did everything we did it super fast and so one one kind of anecdote that I'll share one of my favorites was Scott who is the CEO of Kiva in 2019 came up with the idea of edible gold on the Terra product which is a pan product so you could actually you could buy edible gold and as as a Saint Patrick's Day kind of initiative he decided he wanted to do a limited time offer where if you found the Terra that was coated in edible gold you would be you know as part of a marketing thing so we went from that product being an idea to it actually being in market in six weeks which was something I've never seen and you probably coming from traditional food or in your background just that pace of innovation is absolutely nuts so because on the plant touching side really what it was and I'm sure you experienced this it kind of happens in every state cannabis is not legal in every in every state it's not legally federally and so at the inception what ends up happening is there's no there's no plant touch there's no plant right and so there's nothing to be had and it's scarce we were looking at about back in the early days we were probably paying about $10 a gram for actives and by the end of my time there it was a commodity it was 50 cents and so on the plant touching side it's sort of you early days we had somebody whose job it was to go out and find that material and find clean material and by the end they were knocking on our door trying to get us to buy it and so that that pattern kind of repeated in every state so every state that came online early days there would be no capacity and then sort of as you move forward there would be just a surplus of supply and so that was on the the plant touching side the other thing that was funny about the packaging side was um the same rules kind of applied like you couldn't necessarily get a economy of scale because the regulations were different per state as you all know so you're running a business right now that that turns around packaging requests I think you said 50% of your business is cannabis related every state has its own unique set of regulations for packaging at the least what you ended up running into was the fact that the artwork and the call outs and all the verbiage have to be different by state and then on the other hand you might run into a situation early days especially where the form factor itself didn't meet the requirements and so you might have if you're in 25 states you might have 25 different packaging designs both on the artwork side and the actual form factor itself and so fast forward to today early days it was like that right and so early days it was a little crazy we ended up partnering with a few different companies that really helped us 14th round was one and then the big one the big unlock trying to remember the name these guys are gonna kill me because they're like good friends I remember but anyways I'll be sure to give him a shout out in a minute but um yeah so yeah the unlock for us was once we got economy of scale we could buy in bulk and once sort of the system normalized we were able to you know we weren't locked into trying to buy one unique item for each state we could actually buy you know a pallets of items containers of items and so that's where the it kind of lives today but but you had to surf that wave right and see good partners who work with you along the way 14th round was really good we couldn't buy 1 million parts in order to get the best price per unit but they would sort of flex on pricing in order to get us to a place where we could launch a product on time hit the price point that we need to get the margin that we needed with a line of sight to the business down the road and so that was sort of I think it really comes down to partnering with companies that will help you grow and with you know the sort of think at the big picture so that's that's key what I think the one is that I think traditional food and beverage traditional CPG is you know as you grow economy of scale there's opportunities to improve margins but in in cannabis there's kind of the market dynamics that seem to overpower that in a sense where most markets scenes where there's inevitably at some point whether it's just a matter of how quickly it happens there's margin compression basically you know price compression in every state so I'm curious as you guys grew but at the same time California markets an example other markets you're in the longer you're in them yeah you know margins started getting tighter and tighter I'm kind of curious what were some like the key levers that you had to play around with or you remember focusing on as margins got tighter across the board yeah it's funny what you're describing is sort of the existential crisis of cannabis today especially in California which is that the illicit market has thrived and Kiva as you know is a branded product that you know carries all this cachet and it's a premium product but it is competing with not just other brands that might be a few bucks less which in this day and age of inflation and price sensitivity is meaningful right so that's happening to Kiva but in addition they're competing with the illicit market and so that's sort of California especially you're just seeing margins compress you know like massively and I'm sure you live through that back when you're in Flocana and so it's really tough so in terms of the levers you know Kiva chief is interesting because there's a lot of really savvy marketing folks and sales folks but in a lot of ways they're sort of locked into this system that they can't escape which is that everyone is doing buy one get one everyone is doing free fill and they're sort of at the mercy of this what I would think sadly is kind of a race to the bottom right which is that if you keep competing on price for products eventually everyone's gonna lose there are some people that have a lot of room for margin to do that kind of stuff but for us being a premium products we needed to command a premium price point and so they're they're busy working on that and you know kind of the biggest part of that is what you alluded to which is cost takeout right so if you're going to have to move on price downward how do you make the product more efficient more efficiently I should say how do you do cost takeout so for us it was really a couple of different things manufacturing that many skews in that small of a space you had to be super efficient and capital was not exactly there wasn't a ton of it around and so you have to make super targeted investments right and what I mean by that is when you look at your line first you have to understand what what is your heaviest hitter right and so for us it was Camino Camino is a product that we needed to be able to make the most efficient way we could in order to generate the most gross profit and so if you're going to look at which product and which place to invest you have to think about what is going to drive the most gross profit with that investment the other thing to think about is and this is something that kind of gets into lean manufacturing and it's a little technical so um a lot of folks when you look at your line and this is manufacturing specific the the pieces flow through and inevitably there's a bottleneck so everybody understands that concept right I'm working I can see where the bottleneck is cause the inventory piles up at that point right so I'm going to relieve the bottleneck by spending call it a million bucks right a big key for us in terms of investment was that the ROI had to be less than a year right cause capital was that scarce you can't be looking at a five year project like you could in traditional industry it has to return on that investment in less than a year and so you're looking at your line kind of a classic mistake that people make is I found the bottleneck I'm gonna upgrade the crap out of it right I'm gonna spend it does 100 units per minute and the rest of the line is doing 200 units per minute I am going to spend a bunch of money and upgrade it to 500 units per minute well the problem with that is you just move the bottleneck right so now the bottleneck moves upstream and so the strategy has to be I have $1 million excuse me how do I spread it across the line in a meaningful fashion where every part of the line moves at the same speed and that kind of creates the best throughput so so that is kind of very specific to manufacturing which was a big part of what I did yeah but then in terms of compressed margins obviously you have to look everywhere and so the benefit of of a kind of capex investment is that you might save on the labor side right when you're looking at a manufacturing PNL your biggest components are labor and then raw materials right overhead is there but that's kind of a separate bucket so you start with the manufacturing piece which is improving the throughput with investment hopefully you take out cost in the form of labor right and then from there you scrub the raw materials you shop it around you're looking for the best price and you have to be aggressive with that you can't sit on your laurels and wait and hope that the vendors gonna come to you and say hey you know what went down two bucks we'd like to give it to you no that doesn't happen and then on the overhead side you have to be super aggressive and all of this stuff takes people it takes headcount but you know kind of startup life you know startup life you're doing a lot of those things yourself but as you grow and progress like Kiva did you hire really smart people to be able to do those things for you and so that is kind of when I think of margin compression you have to take out cost I mean obviously it's best if you grow revenue that's that's the easiest way to solve the problem but you kind of have to be doing both at the same time yeah and so and keeping the ship tight and so that when something happens as you and I both know in business things that are unexpected are gonna come your way right so I remember a big one for us was um during Covid this is a hilarious story during Covid supply chain just stopped I don't know if you remember you couldn't get anything out of China right yep many of our many of our packaging components were were made in China and a big component of what we used to make the gummies was tapioca syrup and tapioca syrup comes from Thailand if if you buy tapioca syrup and every container in the world of tapioca syrup was stuck in Thailand and so we were looking at we were looking dead in the eye of air freighting pallets of tapioca out of Thailand to get it to Oakland so they wouldn't we wouldn't have a disruption in supply which as you remember cannabis at that time took off like a rocket cause people were stuck at home essential service and everyone was essential service yes we went from oh crap are we gonna lose our jobs to holy crap we're doing 2 x two and a/2 x volume right so but yeah so stuff like that is gonna happen so as an operator it's incumbent upon you not just when the market starts to change and margins starts to come down you need to be on top of your stuff every single day every single month and make sure that your margins are optimized in an ongoing fashion yeah yeah how do you feel like a head of ops skill set really needs to evolve as it as a brand or a company goes from that example 15 million to hundred yeah yeah I mean early days so what I described you in that 10,000 square foot warehouse the org was super flat I was driving a forklift I was doing the supply and demand planning I was doing the production planning and essentially you're the hub right so at 15 million it's you in my case it was me some shift managers and then the line workers right and so you're a key contributor and you do everything right as it grows you very you have to be really smart about hiring the right people right and so cannabis especially was super capital constrained as you know most people were taking investment in order to continue to grow because the tax in cannabis was so onerous with Prop TWO EIGHTYE that essentially everybody was losing money and they're funding those losses by taking investment um as it goes from 15 to 150 unlike other businesses where you might be able to do something like you know a you're profitable so you might be sitting on a pile of cash that you can leverage or b you can go to the bank and say hey we're doing really well you know here's our PNL for last five years we like to borrow $1 million and you know pay whatever 5% on it and make some key hires in cannabis you're literally selling part of your future in order to fund the growth of the present and so you better be selective about what you're hiring and so your mindset really has to be sharp right I sort of alluded to it in the way that we talk about managing a PNL and so early days you're the hub you're the person that everything is flowing through as it starts to grow you really need to think about what's happening now and what's going to happen in the next six to 12 months and who do I have to add to support the plan that's coming my way cannabis super aggressive I think I mentioned 70 innovations in five years so today I'm driving the forklift I'm doing the production planning when I talk to the CEO he says hey you know we're not getting this out on time the marketing guy is in my ear saying we've got 40+ innovations we wanna do next year me being the production planner and the forklift driver is not gonna work and so it's all about targeted sort of hiring for that three to six to 12 month window and that's the way I thought about it was get me out of the key contributor role and my job now is to be a team builder so and that's something I think I definitely want to share with your audience is all of us probably you included when we start doing our jobs early in our careers we get recognized for what we do obviously as individual contributors right and we're good at it and so in my case I was a production manager I worked on the floor I made product etcetera I ran shifts and I was really good at it and so but when you move up you have to make this transition from from contributor to team builder and the credit goes essentially stops being about what you're doing and goes into what your team is doing and so your mindset as the company grows has to be how do I find the most incredible people to put into these roles that I know are headed my way to facilitate the growth or in some cases you know might be something else we're looking to cut we're looking to to shrink but essentially how do I add the right people in the right places that create value and my job goes from being individual contributor to being the the best team builder that anyone's ever seen and in my experience and I'm sure you've experienced this too like just that moment when you get the right kind of person the right in the right spot all of the sudden they unlock things that you didn't even know were possible right and your limitation is you've done everything the way you've ever done it hiring somebody who's dynamite essentially they do things in a way and they create value and they direct process upward to you and the rest of the organization in a way that you never could on your own and so your job goes from being individual contributor superstar to down the line your job is hiring the best people and then celebrating the heck out of them in front of everyone letting everybody know what a kick ass person what a kick ass contributor they are so yep where you went from traditional CBG let's call it the cannabis back to just traditional CBG again for someone that's uh similar place before before Kiva they're considering making a pivot from traditional CPG to to cannabis ops what's the biggest surprise that and then second question is how can they set themselves up for success in the first few weeks and months yeah I mean I think you know the pace the pace is incredible it's like being uh strapped to a rocket and so I think it slowed down to in some ways it slowed down to a degree and Kiva was very unique because it's so product and innovation focused but probably not like a company like wild they don't have a ton of products but their pace of innovation is just off the charts right I'm sorry not pace their growth is off the charts their expansion into different states and so the pace is something coming from traditional CPG that was shocking in terms of how fast things move how fast things get have to get done and I think on top of that the constraints so like I mentioned capital is hard to come by and if you're gonna spend it you're literally selling part of your company right and that's the most expensive form of capital that you can you to fund a hire and so that hire whatever it is or that what that piece of equipment really better be worth it and so it's just kind of fundamentally different they look the same in terms of oh we're making products but they're fundamentally different so I think how do you set yourself up for success if you're going to make the leap talk to people in the industry you obviously have been in it get the real skinny in terms of what you're dropping into and in the same vein talk to people in the specific company that you're looking to get into right so the culture of the company I just listed for you all of the nutty constraints that are cannabis and the pace and all that jazz if you step on top of it into a company where the culture is suspect it's almost impossible to get anything done so yeah and so those are the two things really that that I would do in terms of the first months you can imagine I just described the pace and sort of the expectation you have to deliver and so as an operator I think first set yourself up with a 30 60 90 that's super aggressive don't wait to be asked or told what you should be working on you have to be super self starting you have to be super aggressive about it and so first 30 days you're looking what I would think of and what I did identify the biggest problem that's currently on fire that's impacting the team do we have a fulfillment problem do we have a you know getting it to market problem whatever it is and so first 30 days you're assessing what you have which is your team the equipment etcetera and you're building a plan right and so by the end of the 30 days you should have a formulated plan as an operator and again I'm speaking like a director of ops level here's what our biggest problem is rest of the team here's what I intend to do about it you might be low on or sales you guys might be low on units for a little while finance guy here's what it's gonna cost you but here's what it's gonna unlock for the business and I'm shopping that around 30 to 60 days I'm shopping and I'm executing and then 60 to 90 I'm delivering right and delivering means reporting out delivering means letting people know the progress that we made on this key initiative and by the end of those 90 days again if you're at the director of Ops level you have done a bunch of things you've solidified relationships with your immediate team right you've essentially my group has been through an initiative and a project that has made things better right and so you've solidified that you've delivered something that's gonna impact either innovation margin or revenue right and those are the three components in any business that you have to hit in addition to cash and essentially by the end of those 90 days you've accomplished something it doesn't have to be the biggest thing but it's an impactful thing and that's what I'd say yep reflecting on your role Semi Freddy's as well as those pass FFS Salt Company Double Rainbow etcetera yeah cogs and and margins for a second where where do most brains really go wrong when it comes to forecasting cogs and margins from your ops perspective yeah as the Ops person I think it comes down but I two things I call it magical thinking that's one of them which is unicorns and rainbows and then Adam Graeberlik who is a great partner over at Kiva he is a marketing chief marketing officer he used that phrase a lot and always made me laugh but essentially if I think two things like I said one would be magical thinking and the second is sort of creating a margin expectation that is a top down one versus a bottom up right you gotta do your homework so unicorns and rainbows what I mean by that is we're going to have so we're looking at the PNL for the next year and we're thinking about what our margin is going to be and we're going we're looking at it we say oh well we're going to add this piece of equipment that we're going to install in six months and it's going to deliver five margin points um and so we should book that into the the PNL right and so what ends up happening is of course as you go through that the mistake you make is six months and five margin points so the rule of thumb is cut the margin gain in half and double the time right and I'm not saying the sandbag I'm saying if you're gonna put it into the PNL forward looking that obviously has components of cash flow right what we're gonna generate it has to be discounted for risk right and beyond that the unknown it has to be discounted because human beings you're taking something and you're putting it in a system that is comprised of human beings they need time to be able to adapt right and so kind of the rule of thumb is don't think magically right nope it's not all gonna be ponies and unicorns and and rainbows we're gonna hit some headwinds so what we're gonna do is discount what we're gonna put in the PNL so that we don't have to go to the board of directors we don't have to go to the investors the stockholders and say oops we missed our target right and I don't mean to sandbag you don't sandbag internally what you do instead is you keep the internal target whatever it is six months five margin points but the external target what goes into the PNL is discounted for risk and that is a key component that I Learned the hard way that's so um and then beyond that so top down versus bottom up and what I mean by that uh I worked with a gentleman who came into a company uh that I was at and he came in at a senior level and um I was earlier in my career he came in and he kind of looked at the PNL and he held it up and he said and and you know he had been he looked at a ton of PNL's he'd been in a ton of companies and he said you know what he's like I think we're gonna be able to take out $2 million of cost in the first six months you know and I said how and he said well he said you know I just know he said I've done this enough I've seen enough peanuts blah blah blah well six months later he missed his target and he was shown the door right and so if you as an operator and as a business like essentially you're owning part of the business build your PNL from the bottom up and if you have a margin expectation about what something is going to cost my when I was in charge of building the PNL at different companies I would have tabs for every expense line sometimes 300 different tabs and essentially what I would do is build up the cost with risk sort of factored in so that when it fed up into the PNL and the margin expectation for the year I knew what was gonna happen within a reasonable degree of certainty with with a risk calculation built in and that's probably you know when you're that is where people go wrong is a they're kind of guessing from the top down or b they're hoping and you know as you know hope is not a strategy no sure isn't in terms of suppliers and partners is redundancy and and supplier diversity let's say especially maybe I'm not sure how much the tariff stuff is impacting Semi Freddy's right now but maybe reflecting on that if that's a factor too yeah so redundancy is always important because of what we talked about before which is if I'm doing a good job managing my part of the business I am constantly thinking about cost and optimizing cost so supplier redundancy obviously is fairly basic if I have two suppliers and they're competing for my business I'm going to get the best price right so that's kind of the basic tenant is that I am constantly making them compete I'm constantly shopping my business in terms of making sure that I don't run out of things it kind of depends on your size right that's that would be my answer Sammy Freddy's as you mentioned we're at 20 million we're not buying a ton of stuff direct outside of flour right and so flour we buy a ton of flour we go straight over to the uh to the mill over there in Oakland and we buy from them we get a really great price um we don't necessarily shop that business because we know a we've been working with that company for like 30 years and b we we keep an eye on sort of where the market is at the commodity level to make sure we're getting the best price but as you grow you can really leverage your buying power to be able to get to really extract a lot out of people so I think early days you're kind of limited to distributors you're buying a lot of stuff from somebody that warehouses who buys it from somebody else still a really good idea to shop that business constantly not every distributor is you know is is necessarily giving you the best deal um in terms of tariffs tariffs are tricky because you know if you look at what's happening larger firms many firms even smaller ones I imagine what they're doing is they're buying forward to protect against what's gonna happen which is the it's gonna go up 50% or whatever the number is right and so the problem is you're taking cash out of your business that you could be using to market to grow to sell to innovate and you're plowing it into a bunch of tapioca or cardboard and it's sitting in a warehouse which isn't the best use of your capital so it's tough I mean I think people are in a really tough spot right now especially if you're small or you're cash constrained you're taking money that you could be using and should be using to grow and you're putting it into inventory so that your margin doesn't compress to the point where you're looking at going out of business right so yeah so yeah I think it's always a good idea to be shopping when you're small you're somewhat limited and as you grow you definitely can do more but yeah it's definitely best practice yeah thinking about the trade offs between in house manufacturing like Sammy Freddy's is doing versus working with co packers I know there's a lot of different variables that come into play here but maybe what are some of the the less obvious pros and cons of of in house manufacturing versus working with co packers yeah I did consulting for a while for smaller food companies my kind of my wheelhouse is anywhere from you know like 15 up to 100 and so I would talk to a lot of folks who were getting off the ground and their biggest question to me was always how do I find a copacker right and the problem was they're small and so when you think about what a copacker wants a copacker operates on a pretty small margin per unit and so they make their money by running a bazillion units right and so understanding fundamentally that you have to be big enough from where you are today which a lot of people are producing out of a commercial kitchen or out of their home you have to be attractive to them which is a lot of units at an attractive price minimal changeovers right co packers don't want changeovers another big one and kind of the hidden ones like you're alluding to is co packers in general do not like innovation right they don't like change what they want to do is make they're manufacturers they want to make this they're kind of like the the most stodgy subset of operations is the people in the plant and they're like if it weren't for these damn people that that you know if it weren't for these people buying our products we could just make the same thing for you know 24 hours a day and never have to do line changeovers and so as a operator and a small operator if you understand how they work and what they want you will be able to position yourself to be attractive and so in terms of the watch outs that I've seen so like I said in general copackers don't love innovation right and so you have to find somebody and generally the bigger you get the better that gets of course right if I can sort of dangle a carrot out there as a copacker to you and say hey I'm gonna ask you to do all these line trials and do all this behind the scenes work to scale up this product but it's gonna make you $15 million next year in projected revenue they're like OK we'll play right so that's um that's one of the things that you wanna get is somebody that is amenable to innovation I would say another big component that kind of hides in the weeds is quality control which is you may think you're handing something off and they're gonna treat it the way you treat it which is your baby right you've invested your life savings into this thing you've been doing it out of your kitchen and it's grandma's recipe and all that kind of stuff and then you hand it off to the co packer and they think about it very differently which is your product is one of 50 that they make one of 250 that they make and so quality control and that expectation has to be hammered out ahead of time yeah so invariably the best contracts and the best agreements uh between the operator or the business owner and the copacker define all of those things ahead of time it's clear what the expectation is all the way down to the line level here's what I expect in terms of quality etcetera and there's penalties if the copacker doesn't meet what is required and so any good copacker that's worth its salt is going to they they know all these things and they're not going to incur penalties because they know what the heck they're doing right but for you some of your folks are probably early stage some of your folks are mid stage if you're going to hand over your business I would strongly advise that they speak to somebody that understands co packing understands those levers understands how to create an agreement that protects you and your brand and so and then the last two are inventory accuracy and control I was once at a business that farmed out something to a co packer and the co packer was great on paper they knew what they were doing but they were just starting and so it was like oh well we're gonna we're gonna take our business we're gonna put it out there they're gonna give us a great price per unit they're just spooling up but we're gonna you know we know what we're doing we're gonna enter an agreement with them and we're gonna kind of navigate this together and what ended up happening was you know essentially with no experience doing what we were asking them to do but all the greatest intentions in the world um inventory accuracy went out the window right and many millions of dollars were left unaccounted for and so and on top of that you can your you know some agreements you own the inventory and you ship it to them some agreements they buy their own inventory that's definitely what I recommend because they're more incentivized to improve margin when they're on the hook for the cash right for the outlay good point but you may say hey you know we would like to and this happened to me a few times we were working with a co packer in the Midwest I would have an inventory sheet that they would send to me which based on that inventory sheet I could run you know this number of units I would reach out to them and I'd say okay I wanna run this number of units they go to check the inventory and it wasn't there right and so we would be out of market in a key market because the inventory control at the co packer wasn't even close to what it should be so yep and then the last one would be planning and schedule flexibility which you know like I mentioned co packers are incentivized to have long runs with minimal changeovers and so often times they will schedule out an entire quarter right and you'll say I'd like to get in and and make a change based on what's happening in sales and they'll say kick rocks go pound sand right and so having all of those trade offs defined ahead of time in a contractual agreement is absolutely key yeah man these are all really helpful one question I had for you I think Semi Freddy's is probably a good example really concentrated on the West Coast specifically the Bay Area you said you're starting to you're just starting to uh start shipping over to Ohio yeah whether a brand is is in house manufacturing or they work with a co packer let's just say Sam and Freddy's was the same setup still just focus on the area but you were just working with a co packer and let's just say we'll use the semi phrase as an example you start selling in Ohio or maybe it's even further let's just say it was New York to maybe go even further east at what point we let's just say that market on the East Coast really started to take off start to become really successful volumes continue to grow yep like at what point what does like the math equation look like where at some point at some point probably those logistics cost shipping cost are get to the point where okay we it's getting to the point where we got to open our own facility on the east coast so the shipping is much less or how do you think about that at what point where where the trigger needs to be pulled yeah that one's funny because in a lot of ways it's not up to you right and so I just mentioned sort of how copackers work you have to hit a volume target that's attractive to them and I've been in many situations where the math for me made sense hey I could save 20 cents a unit right by making it with the co packer in New York and I go to the co packer in New York and at best or I kind of at worst they they don't talk to you cause they're like now you're not big enough at best then this is not necessarily best at all they give you what I call the go away pricing which is like oh yeah we'll make it for you but it's gonna cost you five times what you and you sort of said what the you know and you sit there scratching your head like wait a minute and then you kind of get it you're like they don't really want to do this right and so it's kind of this tricky equation like you're talking about where um and it's semi Freddy's it's interesting because we have a price that we can't exceed at the retail level right for a 5 ounce bag of crostini once you get past six bucks in some of the places we're selling you're really not gonna be attractive and so we're selling this product as you mentioned this made in California that has to get palletized and shipped across the United States the cost per unit is probably like 30 cents maybe 45 cents and uh it's it's stretching the unit economics pretty significant significant and so the kind of answer your question long long way around to get to it is that unfortunately there isn't a math equation you have to have sufficient volume and you have to have a product that will give you enough room to grow it to that point to where you can make the leap and be attracted to a co packer there are people that do small runs right there are in the stratosphere of co packers there are people down here who are flexible and do smaller runs there was a group up in the Pacific Northwest I can't remember their name now but they were really great and really kind of service oriented but they're rare is what I'd say people that want to take your nascent sort of fledgling brand and help you grow it and help you on unit economics at the expense of their PNL and their bottom line there's not many right and staying in house I imagine in the semi Freddy's case if you wanted to continue to do anything house and you say okay volumes are getting high enough in New York open our own facility where those copacker m 0 Q's aren't as much of a factor but there's obviously the capex factor so I'm sure it's it's a similar challenge you have to work against yeah no I mean you're you're sort of you're you're sort of transporting yourself into our internal discussions which is how do we grow this to the point that it necessitates a co packer and what does that look like yeah the good thing about bread cannabis was interesting and you know you know this finding a co packer in cannabis is nearly impossible because there is no ecosystem and so you may you may jump into a state where there's nothing and so you sort of feel somebody out and then you know you create a co packing arrangement or a joint venture or whatever and you build it from the ground up um and cannabis was super spotty state by state because some people were pros like some people were kick ass they were pros because they came from other industries whether it's CPG or something else and they would dominate other people were like cool this looks fun I've got $25 million I wanna make a lot of money um and sort of the sort of like when you're talking to a co packer like the five worst words that you can hear is how hard could this be essentially so yeah you don't wanna hear that from the co packer so um right totally yeah but thinking about new product development Dutch Crunch hoagies earlier this year as an example yeah yeah you can use that one as an example if you want or use something else but I'm curious what is a really just from an ops perspective oh yeah what is a good new product development process look like you know what are the keys to a successful new product launch in terms of hitting your budget launch timeline goals and like obviously adding a new product to the to the production cadence how do you integrate that within the existing needs yeah the best thing that I've used in my life having been from a company that innovated like crazy the funny thing was Kiva was really known for and is known for its innovations in the market but I think behind the scenes we weren't the best at process of innovation right and so we did a lot of work internally to become world class at that and the best system that I ever used was stage gate and so stage gate for your listeners if they're not familiar stage gate is essentially breaking down the process of innovation from inception and ideation all the way through to fulfillment in market and there's steps along the way and what you do is you have a discipline set of rules that sort of keep things from progressing to the next step before they're ready or if they're not viable so the worst case sort of scenario is we have our friends in sales and marketing I have a ton of great ideas and they're all good and they're all amazing and they're all on trend and they're all this stuff and they're sort of going straight to the operation side the manufacturing side and they are pushing stuff into the manufacturing environment and it is again it's sort of impacting margin right because we're not efficient we're being disrupted etcetera and so stage gate the idea is up at the top at the headwaters all those great ideas get to have their moment in the sun but they get evaluated what's the likelihood this is gonna be a winner what's it gonna net us in terms of revenue are we competing against other people where actually there's probably not a great chance right and so back to that hiring piece I hired a dynamite project manager who was a process engineer and so kind of put her in the middle of this internal process which I just described and she was able to line it out as stage gate and stage gate doesn't have to be onerous it can be light it can be flexible but what it does is essentially you slow down you go slow to go fast and our friends in sales and marketing god bless them are always you know everything is immediate everything is now we're gonna miss this we want it all now not understanding like we do as operators that essentially if you want to get something from point a to point B it's got to go through the process and if we define the process you're gonna get a better result Joanna who is my project manager we went from when she started we were I think we were launching 50% of our products on time and full and within 12 months she had it to 95% across 60 initiatives and so if you're going to do innovation and you're going to launch new things I highly recommend a stage gate process which you know sort of balances the needs of the organization the organization needs revenue it needs margin it needs cash and it needs innovation but if any one of those four things becomes predominant or out of whack you're gonna impact the others which if you think about it as a CEO or kind of a you know like the big picture you're gonna put your business at risk and so you have to balance those things that's not to say they don't flex right early days at Kiva sales and marketing focused operations flex tremendously to be able to accommodate the growth in market which then allowed us to invest in operations but you know that's the balancing act and I highly recommend Stage Gate to accomplish that yeah Sean clearly you've got a lot of really great experience a lot of wins under your belt obviously some of the best learning experiences come from times where necessarily go your way I'm curious what's like one big strategy initiative something along those lines that you worked on that didn't necessarily go as planned the one that let's just say jumps out the most and yeah looking back anything you you kind of would have done differently let's say I'm thinking so I had an answer in mind I'm thinking if there's anything else that would be particularly entertaining cause I feel like a lot of times and instructive a lot of times when things don't go wrong that's when you build character and that's where you build capability that maybe you didn't have I've had a few trying to think yeah I mean I think uh there was a time again back to the Kiva days where we launched the product kind of you know this is kind of part of the answer that I just gave where as the operator I allowed our group to be pushed too hard by the needs of getting something out quickly and what ended up happening was we launched the product and everything was fine but it wasn't quite right right and so I had to have a meeting with my other my other colleagues at at the exact level and we had what they had asked for but again it wasn't quite right the quality wasn't where it needed to be we had to do this last minute work around for packaging and we hit market but we didn't hit market in time and so what I realized in that moment was essentially um as the head of operations your job is to be flexible right so you have to you have to you have to make sure that you can deliver the revenue and the innovation but you also have to be very aggressive about protecting your part of the business not in a way to you know at the detriment of the other folks around the table who are your colleagues but essentially in your trust is something that delivers margin and keeps the business afloat and also delivers a product that's gonna sustain the ongoing sort of you know the brand is built on the quality of the product and if you if you flex so far that essentially you've allowed margin to be compressed or the product isn't exactly the way it needs to be you're sort of putting the core business at risk and so that was a key learning moment for me which is like I said we were super flexible we were super scrappy we did so much with so little you can push it too far sort of at that point where I said nope we're gonna take we're gonna take the innovation function and we're gonna we're gonna define it and and that's you know that was that was a failure it wasn't a catastrophic failure it was a painful one I can tell you that but it LED me to to take matters into my own hands and essentially create a process it was hard because you have to go to the marketing folks and say you know what I'm gonna ask you to slow down a little bit so that we can do this right yeah and those are tough conversations sales never wants to hear that they're not going to have a billion products in any given time but you have to do a lot of selling and sort of advocating to make sure that you know they see that whole picture those four things I've described revenue innovation cash and margin and that they buy into the fact that we are all trying to do take care of all those things so the business can be the best it can be yeah yeah I think that that healthy healthy push and pull when it when it's healthy the push and pull between sales and ops is a good thing you know yeah hundred percent yep well yeah Sean this has been awesome really appreciate the time shared some really really loudly insights here what's the best place for people to follow along with you and then what's the best place for people to follow along with Sammy Freddy's yeah Semi Freddy's you can find us on Instagram you can find us at WWW dot semi Freddy's dot com LinkedIn I don't have a huge presence I do post occasionally but you can find me perfect and yeah happy to I love sharing knowledge so I really appreciate this opportunity it's been it's been awesome yeah it's been great really great yeah awesome from appreciate the time think that's the pod alright bud the one thing unique thing about cannabis I think you briefly touched on it as someone that's leading ops at a company for somewhere with a similar background to yours they were in traditional CPG what was the biggest surprise after making that shift that that you remember and kind of what should they expect hey marketing guy I think those are all really on point yeah for brands or operators what is that math equation look like yeah it's funny