Welcome to The Month End CPG community chat, The Month End will provide emerging CPG brands real life knowledge into the accounting, finance and operational worlds. Our guests will be key stakeholders from those same brands as well as other key contributors to the industry.
Welcome to The Month End podcast episode 32. With Eran Mizrahi from the ingredient, brothers. How you doing today, Aaron?
Hey, Brad. Good. Thanks for having me on. How are you?
Doing great doing great Tuesday afternoon here in Charleston. Summer's here, it's probably 90 outside. So can't complain about the sunshine.
Yeah, I love the weather down there. And the food's been I've been once and had a really great time.
Awesome. Awesome. Glad to hear. So very excited to chat about the Ingredient Brothers the service, you guys provide folks in the CPG space, but also then just your role, your background and just, you know, learnings and experiences along the way that can help the listeners out. So why don't we just get started? What is ingredient brothers?
So Ingredient Brothers a pretty simple concept. Let's say it's, you know, about like an unsexy idea where, you know, we're, we're just traditional importers of ingredients, right? And so I think, you know, we, Aalap and myself, he's my, my co founder, we really saw an opportunity and just, you know, coming into an industry that, you know, let's say is not necessarily antiquated, but has hasn't seen as much innovation and, you know, try and do the same thing. But do it a little bit better, maybe adopt technology a little differently. And, you know, not necessarily reinvent the wheel, but just make it spin a little bit faster.
Gotcha. And then how long have you been in business?
So we've been, we've been around for about two years now.
Gotcha. Gotcha. Cool. And then. So there's like, what, 2021? So what was your prior experience? Before Ingredient Brothers? And then what made you decide to move forward with Ingredient Brothers?
Yeah, yeah. So, you know, Aalap and myself have very similar backgrounds, which is really interesting. I'd come here from South Africa, and then had joined a startup in the Meal Kit space first, and then a company called nuts.com, where I was the COO there. And I think at both of these experiences I got to see sourcing and planning from a variety of different angles. But the thing that always stood out to me was just how difficult sometimes it was to get information when procuring ingredients and knowing who to call what's the right questions to ask, How do you know you're getting the right prices? You know, how do you, you know, hold people accountable and service. And I think that just, you know, opened my eyes and made me you know, get excited, like, "oh, there could be something here where, you know, you could come in, and maybe just try and offer a little bit more transparency, try and, you know, give people a little bit more visibility into what you're doing". And there would be a lot of opportunity. So, you know, that was really the impetus for the for the business idea.
Gotcha. And you're purely like a service based company, right? You're not actually owning the inventory, you're basically making connections and then working with your clients to bring that product into the states.
Correct. Yeah, Our whole business is on service, you know, I always say, you know, I think a lot of people can source a great chia seed, if they, if they really spend the time, it's all the other things around it that really come into play. And I think that's where we, you know, have invested a lot in people and building a really great team and a really big team, you know, we try and have more people per dollar of revenue than our competition out there. And so it's really about, you know, being able to support people on the logistics side of things and the QA side of things on the inventory planning side. So, you know, really giving a robust service around, you know, let's say a commodity, like the chia seeds.
Gotcha. Yeah. You know, from my experience from seeing working with a lot of CPG brands, I feel like, you know, the the frustrations that can exists from sourcing ingredients, in relation to like, is there even a consistent supply? For me to go from here through the next several years, right? Is the pricing gonna fluctuate? Are we gonna get a consistent price? And are you guys going to follow through when I need the product? Is it going to land? All that aspect? Can you kind of touch on a couple of those just topics and just kind of, you know, the the experiences you've seen with, you know, folks in CPG space and those items?
Yeah, I think, I think we see that a lot, right? It's also people in CPG space. So usually, especially in the startup world, are using a lot of ingredients. Some of those ingredients, a lot of those are hard to find, and some things are sometimes a little bit niche. And so, you know, some of the challenges I see some people you know, that they have is that one may be selecting ingredients that like limit the amount of supply that they have. And so that can be challenging where they've got an ingredient that if they don't have supply for, or the supplier doesn't have it, like there's no secondary or it's very difficult to get access to a secondary. I think that suppliers, it's, you know, there is, it's a lot, it's a lot harder to really understand the position that the supplier is in from an inventory perspective and how they operate. And that information is not always easily available, even if you have a great relationship. And so you may place your first order and get a pallet in two days, and it's been amazing. And then suddenly, you place your second order, and you're like, "hey, I need another palette, can I pick it up in a week?" And they're like, "oh, no, it's on the water, we're not going to have something for another three months." And so I think, you know, those challenges I see all the time with, with with CPG brands. And so, you know, there's definitely things that you know, brands can do to try and at least reduce the risk and think about how they design their supply chain from day one to improve the let's call it supply and available, you know, the ability to deliver as well as, you know, trying to identify the right partner for them at the right stage, right, different partners, or the right partners at different stages, depending on on how big you are
Gotcha, you know, the timing of launching this business, you know, in 2021, you know, correlates with COVID, in 2020, and supply chain issues. Is that just pure coincidence? Or did that kind of help push you over the arm of, alright, let's become an entrepreneur and let's roll with Ingredion brothers?
Yeah, I mean, 2020, like, for a lot of people was a life changing experience. Being at nuts, we were faced with so many hurdles, but we're able to scale the company, quite significantly. It also, you know, just gave me a lot of a lot more insight into building and scaling teams at a really fast rate, and, you know, building supply at a really fast rate and trying to, you know, and you know, I guess coming out of that working, you know, tremendously hard in 2020, I felt like, oh, you know, 2021 has to be better. And I also just, it just gave me a lot of perspective internally. And I had just felt like, you know, I come to the USA side of business always felt like it was in my DNA. And so I just, we made the move. And the first few conversations I had with people who do importing, they were like, Why are you starting it? Now? This is the worst time to start. I was like, Okay, well, probably right, but we've done so we're starting and so we had to take the leap, and we definitely got hurt a little bit at the beginning with supply chain issues and the ports being congested. But at this, you know, with, you know, adversity, or you know, like this type of volatility in the market, there's always going to be a little bit more opportunity, people are more willing to open up and have a conversation because the current supplier wasn't working for them or wasn't communicating. And so, you know, it was a double edged sword. It worked in our favor, but also, you know, worked against us to some extent.
Gotcha. So then your current–your, the service you've arrived at relationship you've arrived your clients, it is a long term solution, right? Or is it can be project based, but also like the best solution is probably like long term. So you can kind of stay in some consistent approach with them?
Yeah, I think for us, you know, again, like earlier, we realized that the you know, we had come in assuming that would be working with a lot of smaller businesses. And what happened very quickly was we realized that larger companies actually needed our services maybe not for you know, their main ingredients but for a lot of the you know, secondary ingredients and what we've you know, come in as build you know, become a part of this supply chain team or their sourcing team and, and really, you know, latch on and understand their whole business their planning process their planning cycle, and build a supply chain around that. So we you know, we'll come in you know, we usually start with one ingredient, build out a supply chain for that, you know, have a lot of redundancy built in, then work with them on plan on you know, on planning on QA and making sure that we can support them and then over time as they start to learn how we operate usually, you know, allows us to then add and add and add more products and so that's been working really well for us but you know, long term that's not exactly where we want to go you know, we will you know, try and spread out and also take on you know, let's say smaller startup startups who have less volume but at the beginning that you know, was really helped us you know, learn our trade, we had a few really key we still have a few really key customers who have given us that ability to really, you know, finesse our processes, figure out what we need to do better and you know, that will allow us I think over time to scale and and take on a much larger set of customers.
Gotcha. What is one as I guess, as a business owner as well, just looking back in the last couple of years what is like one big maybe just like mistake or thing that happened that then helped you improve upon to become a businessman or business owner because you received feedback–you made a mistake and what did you do in that process?
Yeah, I think you know, I My mind goes to two things; like first being mistake that I made in terms of just getting too excited over certain customers that I didn't vet them properly and landed up losing a little bit of money because of the situation the market turning and suddenly you have an AR account that doesn't pay and so that I definitely think that like that, you know, rate you know being able to like, you know, take a step back and always evaluate every opportunity. That was a, you know, big lesson that we had to learn with with one or two customers. And then, you know, on the other side, just things are not gonna go right all the time with supply chain, I think that is managing problems. And I said over and over again, is really the key to building a great supply chain, because I think assuming that every delivery is going to arrive and is going to be perfect is, is a misnomer. And so that's a really big lesson that we learned at the beginning was, you know, really trying to like, you know, we obviously we do our best to be perfect, but building the process on the back end, so that if something goes wrong, what are the things that get initiated to rectify that straightaway? Right one, how do we solve the problem within 24 hours to make sure that the customer, you know, feels comfortable that we're taking action? And then two, what are the long term changes that we can make to improve this process going forward? And so I think those are the two things that, you know, were surprising, but you know, good lessons.
Yeah, I can definitely do both of those just in the world that I live in here, in terms of, let's say, somebody out there in the street that has no idea what how the import process works, how inventory management, buying, suppliers, international suppliers, what is just one surprising tidbit or, you know, or thing that is involved in that, that maybe may surprise the normal citizen or somebody who has no idea what's going on in this space?
Yeah, I think I think the thing that would be surprising, that maybe not that surprising, to me, was very surprised just how many people are involved in getting, you know, one coconuts, on the shelves, I think that is, you know, mind blowing in terms of how the, you know, the world is progressing globalization, but just, you know, you have an independent farmer, usually, it's not necessarily a big farm, who's then selling it to a broker who then sells it to the processor, who then processes it, and then it goes onto a truck that's run by someone else to the port that gets into a boat that comes to us, and then gets to the customer. They're just so many hands involved. And I think that, you know, every little reaction or, you know, action causes so many different reactions. And I think that that, you know, that is, it's pretty incredible when you think about it, and like the the impact people can have when, you know, not saying, you know, you should all buy, you know, it's not about buying, you know, local versus imported. I don't think that's a decision. But there is like, a really incredible story for some of these commodities where, you know, there's small farmers that are growing, and then you know, it's being used in processing these, these large quantities of some products. So that's been that's been really cool to see.
Yeah, that's one thing that kind of opened my eyes was just like, when you when you buy products that a Whole Foods or a big big box, or like all these must be all big, you know, ingredients and processors and farmers but no, a lot of them are just like Mom and Pop farmers that just have a small shop and operation that have grown it and they sell their ingredients to you know, different different products to make a really good end product. Do you guys then deal with sourcing for food as well as like drinks and liquids and everything?
Yeah, I'd say like anything that goes into a food item will, you know we'll source for so there's you know, we've definitely done some work in the beverage space in terms of flavorings and maybe some of the sweeteners and then in, you know, in food, you know, we that, you know, bread and butter and spices and seeds, grains, flours and the like.
Awesome. So as we discussed before the call here, or before we started recording that our fellow up Big Four alums, have the accounting background. So as a business owner here, what is like one thing that, you know, being an accountant, and having experience with accounting and finance really helped you, you know, as a business owner?
Yeah, I think the thing that I come back to all the time is it really helped me understand the variables that drive growth in a business, and linking that all back to our financials. Right. And I think that that has been really, really valuable in sizing opportunities quickly and understanding the impact of certain actions that, you know, that we take as a business. And I think that that sometimes is a struggle for people who don't necessarily have like a finance background, or, you know, that analytical background that relates back to the, you know, finance because, you know, we're able to, you know, really digest and do back of the envelope calculations to understand like, What could this impact be? And then what are the resources we need to allocate against and I think, you know, from a planning perspective, I'm a big planner, and so for me, having that toolkit has been really, really valuable in helping me plan and understand like how to allocate and allocate resources against different opportunities.
Yeah, now it's, it's definitely when you have that kind of background, it really helps out just making a decision. I think a big part of that if you don't have that background, is just you need to know where you're at currently, right? A lot of small business owners don't even know where they're at in terms of what is my profitability, what is my balance sheet like where am I at and receivables? payables A big aspect of just having a good aspect and a foundation of timely and accurate data to then build decisions and make assumptions.
I think it's, you know, that, to some extent can really hurt the growth of a company and what you know, something that, you know, is really on your side, what do you guys do, and it's, you know, being able to have accurate financial information is extremely important, but it also unlocks a tremendous amount of tools that you could use to, you know, accelerate growth, that it may not only be equity, right? And giving up equity to raise money, I think that that's something that if you're able to, you know, put in the discipline from day one, in terms of your financials and your and your, you know, financial performance, as well as your planning, you're able to then go out and potentially get debt at, you know, slow, expensive debt, because you're a startup but debt that doesn't let you know, liquidate some of your equity, and then and gives, you know, the chance to really take the money that you've raised a lot further. And I think that's something that I see a lot of people not necessarily being able to take advantage of, because of the state of their financials or the understanding of their financials.
How do you help your clients with their unit economics and just COGS and helping you know, them minimize, you know, COGS and inflate margins is as best as possible?
Yeah, I think for us, it's understanding their business and their usage and trying to think about how do we design a supply chain that works for them. And so, you know, some of the things that, you know, we try and, you know, for most of our customers offer, like inventory managed programs, where we're, you know, managing the inventory based on their forecasts, and then also based on the actual usage, to bring in inventory, hold it for them, so that they know that it's available, which then also gives them more comfort, and allows them to run a little bit leaner on inventory. And then the more data we get, the better we're able to play on and so we can run, not necessarily leaner, but at least, you know, be efficient in our inventory management. And so that, I think giving that extra level of visibility into, you know, what we have available, what we have on the water, what's coming in, and then show them our plan, I think that allows you know, them to operate with a lot more confidence and then as to it gives us negotiating power, like if we're able to do an inventory manage program, then we can contract things when they get harvested at the right time, we can work with them upfront, we know what they're using. And that, you know, gives us negotiating power, like in my, you know, we're not in this for the short term profit, like we're here to build long term relationships with customers. And the one thing I know, being on the other side of the table is that if you don't have good margins, you're not going to scale your business. And so it's great, like making good margins, but if you screw the brand, excuse my language, you screw the brand, in the short term, like they may not be able to raise that next round, they may not be able to go further. And so I think there is there's a real balance there that, you know, sometimes I think suppliers don't see.
Yeah, yeah. And I think, big, big decision, or a big, you know, learning topic that, uh, you know, brand owners need to understand is, is, you know, cash versus inventory, right? And what is the perfect level of inventory? When is the right time to bring in? What is the right order quantity? What is the lead time and, and understanding that, you know, the everybody assumes that, oh, if I order more, I'm going to be able to get a couple points down or cheaper, you know, raw materials and my product, but that isn't always a good thing. If it's sitting there too long and you spoil it, or you can't sell it, or you have all of your cash outlay to this inventory that's going to, you know, sit in your inventory or warehouse for six months versus reordering. So kind of walk them through that process and assuming like, you know, what, you're talking about planning and walking through the supply chain, and reordering and reorder points is a big, you know, consultancy, you provide your clients as well.
Yeah, I think you know, you know, coming to our story to cash is king, right? Our business requires, if you think about our suppliers want to get paid straightaway, and our customers want crazy terms. And so we and containers cost a lot of money. And so cash and cash cycles have become, you know, things that we think about 24 hours a day and in running our business and scaling our business. And I think that translates back to the customer. Right? And that's again, you know, the best, you know, the best customers are the ones who can give us really good forecasts and can plan with us, the ones, you know, people that struggle, I think that's when, you know, again, we sit down and have that conversation to try and think about based on the stage that you're at, what is it that we can do to support you, you know, how do we maximize deliveries without going overboard? Like, how do we, you know, you know, reduce the storage cost that you're gonna incur by bringing in too much to, you know, to, like, you know, so that we can do more frequent deliveries depending on what's happening in the market. So it is tough, right? I think that, you know, helping helping a company make those cash decisions without all the pieces can be really hard. But again, you know, cash in the bank is sometimes better, and you're able to use that to deploy to turn the inventory. And so that is, you know, something that, you know, I think about all the time and and how do we balance using cash to fund growth versus funding inventory, because if you just fund inventory, you never grow. And if you just find growth, that when the growth comes, you're not gonna have any money for inventory. That is a very scary balancing and modeling exercise that we do all the time at Ingredient Brothers.
You know, moving over to kind of your business just itself, but how many? How big are you guys now? Like number of people?
So we have 20 people currently, I think it's around 20 people now.
A good number of people?
And you're the CEO. So like, what responsibilities do you have?
So between Aalap and myself, he does most of the Ops stuff, so he does all the difficult work, he does the logistics, the sourcing, the some of the planning, and the QA side of the business, and then I am on the sales side, the accounts, the finance side, and the HR side, people side. So, you know, I do the fun stuff, I love hiring people, you know, enjoy the finance part of it. And sales, sales has been a lot of fun so far.
Yeah, what? Like, what specific just kind of, you know, measuring maybe like client success or customer success? Like, what are some KPIs that you guys look at internally for that?
Yes, I think, you know, we look at the funnel, like we're B2B business, or we're not CPG. And velocity is not like our biggest thing, I think the biggest thing is that deals take a significant amount of time to win. And so, you know, if you think about our funnel, it's a traditional B2B funnel, where, you know, you're doing outreach, you're going to shows, you're getting leads, you're, you know, getting those leads in, and you're creating basically a deal or a projects that you're working on to close and those projects can take months. And so a lot of the KPIs that we look at is just how much time we're spending to close a deal. And what does that revenue look like? And then once we're able to close a customer, then, you know, a lot of the KPIs is like, how much? You know, can we, you know, can the account manager actually drive more value with the customer, and increase that, you know, revenue per customer over like a 12 month period by adding more products by working with them to, you know, increase the amount of business we do on certain ingredients? And then, so those are, like some of the big financial indicators that we that we look at.
Gotcha. And then from the service you're offering, right, in the current state of what you guys are doing, is there anything new on the horizon for Ingredient, Brothers of services, products, you know, connections, just anything in terms of, you know, where you guys are heading?
Yeah, I think we continue to expand on our technology side, which I think over time, we'll start to expose more to our customers, right. And so the idea is to, you know, some of the deals we close take, like 150 emails, and it's not abnormal in the B2B space for that to happen. And so a lot of what we're working on is to try and develop a platform so that customers can self serve and get access to information. So those are some of the technology, some of the technology that we're trying to build out and implement over time. And then I think food safety is also really important to us. And so one of the big things push internally is we're going to be you know, we're going for a certification with the BRC, which is, you know, highly recognized food, you know, food certification organization that will at least give people the confidence that our handling of the product is within, you know, the correct food safety requirements. And so I think that's a big step for us as a small importer to to take on but something that we're committed to doing.
What's like the most interesting just off the top of your head like product or location that you guys sourced from or that you work with?
I think I think working with every, every, there's so many different countries that we work with in different processes and how they work I think, you know, chia is one that's super interesting. It's a crazy market. It's it just feels very disorganized, even though it's organized as a bunch of big players, but like right now, there's a harvest happening and so I think maybe that's top of mind for me. But you know, if you imagined like something like corn, it's traded on you know, there's like a market for it, there's information, you know, what's going on? And with chia, it's, there's just a lot of WhatsApp messages happening. Everyone's trying to get understanding of the market what's going on? There's like pictures of the fields and you know, everyone's trying to evaluate the weather and how's the harvest gonna happen? And I think it's, it's fun to see how, you know, almost old school it is in terms of and it's a lot you know, we're not talking small numbers of chia, but it's it's fun to see how everyone organizes themselves. And to be honest with you, it feels like everyone gets to parity really quickly. And you know, as much as like, you, you think you hold the secret to like this special pricing. You know, once you start to really work around with everyone you start to see wherever I was sitting in it's just natural market dynamics playing out in a very informal way, which is, which is super, super interesting.
Yeah, it's definitely a different world than what I do in day to day.
I can't imagine. Yeah.
But I'm sure super interesting. All right, we're really enjoyed chat. So far, we're kind of nearing the end here and wrapping up, wanted to kind of chat on a kind of a couple of main questions that we do, as we kind of go out of here. For you know, an emerging CPG brand, you know, owner listener out there, what is one recommendation or "do" that they should be, you know, handling or doing, you know, from from your background and experience?
Well, I think I'll take this one, as a founder, like, the biggest lesson in terms of do is just every day, you're gonna feel like there's like this mountain to climb. And the thing that like, really helped me was just realizing that, like, it's just a few small steps every day. And so, at the beginning, I got really bogged down by trying to achieve everything and like, really, you know, get, you know, get to the end straightaway. And I think the biggest do was just come in every day, make my list, understand the things that I need to push for as long as you're pushing forward and your prioritization is correct, or like, roughly correct, I think you will start to see results, right? I think as soon as you start to find yourself in a situation where you're constantly challenging the priorities of what you should be doing, instead of just doing, I think, then you're not learning and you're not moving forward. And that can that can, that can definitely hurt you as a founder.
Yeah, that rings true just says, As a founder of an accounting firm here, and then the next question, just what is one "don't" to the CBD owners out there?
Don't say yes to everything. I think, I think, before you say yes, do a quick analysis of what this could mean for your business and your resource allocation. I think resource allocation planning is no one does, it is a super simple spreadsheet, and be realistic. And I always see it, I see with myself, I see it with my, with Aalap my partner, and I just, we always try and say yes to more things than we can do. And that's great in theory, but it doesn't move things forward. And I think that if you if you take the time to really, you don't need to do a Six Sigma analysis on the on the thing taken as it's, a back of the napkin calculation, but constantly understanding the resources that you have available to you. Because it's it's so important to execute as a startup. And even when you try and execute, you don't execute well, a lot of the times and so if you take on way too much, then it can, it can really, really hurt you as a business.
Yeah, I feel like as once you start a business in the first, you know, as you're starting your like sure, "yes, yes, yes" And after a while, you're like, all right, on the brakes.
Yeah, there was so many deals that we tried to do at the beginning, because we just got so excited. And we spent so much time and we just should not have. And I still do I mean, my team, if you ask them now, they'll probably say like these five deals we should never be working on but Eran wants us to to try. And it's just I think it's just the nature of the game.
Yeah, and from a resource standpoint, like the way that I'm, you know, looking at it, and I want to get your input, I look at it from an aspect of, you know, money, time spent opportunity cost, people involved, you know, people cost clearly from the CPG space inventory, lost sales, you know, is there any other kind of topics within there that you look at it from from a resource standpoint?
No, I mean, I think that you hit you if you can, if you can get all of those and you're ready, like five steps ahead. I mean, for me, it really is just, it's, it's people and capital. And you know, really, those are the two things and then the return, right? Like, what do I end up with the probability of success, some like basic probability, those are the big things that I will look at and, and usually the people thing is the one that you know, straight away, you're like, Okay, well, it's very, if I have to do this, I have to say no to something that we're doing, and that makes it a lot easier to make the decision.
Yep, yep. Yep. Well, this was an awesome conversation, Eran, I'm really, really happy to be connected and had you on The Month End podcast here, as we kind of head out, where can people find you? Where can people find Ingredient Brothers? How can you get in touch?
Yeah, I mean, we're incredibly active on LinkedIn. So you can look us up there, we're obviously an Ingredient Brothers.com I love chatting to CPG founders or anyone in the CPG space. You know, love talking about supply chain and ingredient selection and how to how to structure how to structure your bill of materials. So you know, if you need help with that, you know, definitely reach out.
Awesome. Awesome. I'm sure people will reach out. So thanks again, Aaron, for having for being on the podcast here. Episode 32 of The Month End podcast. Aaron was Ronnie from ingredient brothers. Hope everyone out there was listening to enjoy. Take care.