KIND’s Daniel Lubetzky

DANIEL LUBETZKY:
I remember really well putting on a Walkman, listening to ABBA songs and daydreaming that I was going to use my magic powers to have actual real magic powers to force the Arabs and Israelis to make peace. I'm not making this up, Reid. Most people are never going to want to buy a KIND bar after they hear this story.

But I would imagine that I would have powers to fly and I would throw fire, had a little bit of messianic thing going on here that God had sent me and I would tell them, "Behave or else." And then they would start getting along. And you fast forward years later, I started a company called PeaceWorks that used a different type of magic of making food products made through cooperative ventures between Arabs and Israelis.

REID HOFFMAN:
That was Daniel Lubetzy, founder of the snack food company KIND. And what you're about to hear is our complete, original interview so you can experience it in full.

I’m Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. In each episode of the classic Masters of Scale, I prove a theory about scaling a company – through the story of our guest.

I originally talked with [guest first name] for our episode called "Building Bridges to Scale."

Many of you told us that you’d love to hear the full interview. And now — as a Masters of Scale Member — you can.

Be sure to listen to the end of the interview to hear the Lightning Round — with the rapid-fire questions I ask every guest.

So here's my full interview with guest Daniel. I hope you enjoy it.

[THEME MUSIC]

HOFFMAN:
So as the year of 2020 is this KIND of totally crazy year, I am delighted that we finally managed to make the pandemic logistics work. And through Zoom I am here for the Masters of Scale interview with Daniel Lubetzky and we're talking on two sides of the continent. Welcome Daniel.

LUBETZKY:
Reid, thank you so much. I love being here with you.

HOFFMAN:
So one of my delights in these interviews is discovering things that I didn't know about my friends, because you and I have known each other a while. We worked on a number of different projects together. And I now feel like I'm missing out because I didn't know you were a magician, right. So tell me a little bit about how you became a magician and the fact that it isn't just a childhood thing, but something that goes into your practicing, like how you live and work as an adult.

LUBETZKY:
Yeah. So magic is very near and dear to me. I started when I was eight years old, first by watching my dad do a few magic tricks. And so it was one very strong bonding occasion for my dad and I. And first he taught me a bunch of tricks and I started practicing then I started doing magic shows for birthday parties and for weddings and bar mitzvahs and any person that would have us.

And eventually, when I was in college and I was studying abroad, I traveled through Europe and paid for my travels by doing magic shows in the streets of Paris and in Romania and getting in trouble with the Roma as I was competing in their territory. And, up until today, I love doing magic. And I don't know if this is something you know or you were alluding to, but once a year I do a magic show for all of my team and for my community and the natural products community. And it's a very special, very crazy evening that our team looks forward to – or so they tell me.

HOFFMAN:
Well, post COVID I will see if I can wrangle an invitation to you. Is there any particular parts of the magic that... Because magicians sometimes have specialties. They can be card tricks, they can be illusionists, they could be a mentalist. Any particular specialties?

LUBETZKY:
The last five, 10 years I've really gotten into mentalism. It is so much fun. It's really, really fun. My team freaks out and they're like, "Oh, no wonder you're able to negotiate so hard with us." In fact one day when we closed the transaction and I did a magic show for the people that we had closed a transaction with at our banking team, the guy literally believed that I was getting in his head. And he was so troubled by the fact that I had one upped him on the negotiations in our transaction, because he thought that I had these powers. But since this is a podcast I can show you Reid on your Zoom some magic. But you can describe it with more delight to the users and tell them what just happened.

HOFFMAN:
No, it's awesome. It's the how do you misdirect in palm for what looks like a transfer, but actually isn't. But then Oh my God, where did the coin disappear to?

LUBETZKY:
In terms of magic and daily life and work, I was 12 years old when I ended up participating in Acapulco, Mexico at a convention of magicians. By the way did you see the "40 Year Old Virgin"?

HOFFMAN:
No, I haven't seen the film. But I'm sure many of our listeners have.

LUBETZKY:
There's a scene where Steve Carell pulls out a gigantic ear out of a kid's face. And she says, "That means you've been carrying a gigantic ear in your pocket all day long." And like it's just an embarrassing moment of recognizing that we magicians have a nerdy aspect to ourselves. And I don't know if this is a PG rated or R rated podcast, but there's an Amy Schumer skit about – just look up Amy Schumer and magician. And then imagine that my wife laughs so hard every time she sees that skit and says, "That's what you have." And it's like a total nerd doing magic on a date.

HOFFMAN:
I will look it up.

LUBETZKY:
In real life magic does give you because when I was in this convention in Mexico and for the first time I participated in front of an audience of 300, 400 people. And I can assure you it was a terrible magic show and I was the worst of the worst. But it was probably the first time I remember being in front of a large audience and just magic teaches you so much. Like you said Reid, not just the power of misdirection, but the power of direction. I don't know if you've ever practiced Reid, because it sounds like you have also some familiarity with magic.

But if you're in a meeting and a team member of yours is not getting attention and they're presenting and you want people to present, to test, you start focusing your attention on them. You start looking at them and everybody starts looking at them. So where you look people start looking and that's one of the most fundamental tenets of magic. So there's a lot of psychology and a lot of things about reading cues in people and being able to understand the psychology of people that helps you in life. So I strongly recommend magic for everybody.

HOFFMAN:
And did you pick it up from your dad or what was that initial impetus?

LUBETZKY:
I don't want to get emotional so early in the podcast, so I will resist it. But far and away my biggest connection to magic is thinking of my dad. And untill today two or three of my best magic performances are connected to things that my dad taught me. But then I read a lot of books and I practiced a lot on my own and just practiced, practiced, practiced and went to a magic camp once. And then just read and buy a couple of things here and there.

HOFFMAN:
You probably were tempted to be a professional magician, what made you decide not to do that and then actually in fact to go into business?

LUBETZKY:
Well, when I was 12, 13, 14 years old I remember really well putting on a Walkman, listening to ABBA songs and daydreaming that I was going to use my magic powers to have actual real magic powers to force the Arabs and Israelis to make peace. I'm not making this up. Most people are never going to want to buy a KIND Bar after they hear this story. But I would imagine that I would have powers to fly and I would throw fire, had a little bit of messianic thing going on here that God had sent me and I would tell them behave or else. And then they would start getting along. And you fast forward years later, I started a company called PeaceWorks that used a different type of magic of making food products made through cooperative ventures between Arabs and Israelis.

And I came up with this story of Moshe Pupik and Ali Mishmuken that was the first brand that we created. It was very succinct, a very, very like KIND. It was very succinct, it was called Moshe Pupik and Ali Mishmuken World Famous Grown by Foods. And these brand, the story of Moshe and Ali was that there was this grand chef Moshe Pupik and this great magician Ali Mishmuken and the rival alarm is we're fast approaching in the Middle East and the battle of Tutankhamun and Moshe and Ali quickly concocted the sun dried tomato spread whose aroma was so powerful and hypnotic that hypnotized the rival armies. They threw their weapons, melted them into spoons and used the spoons to partake the Moshe and Ali's sun dried tomato spread.

One constant in my journey has been trying to bridge relations between people. Very much because my dad he went through the Holocaust and I want to prevent what happened to him from happening to others. So all of the ventures I've done in business and in nonprofit have that common thread of trying to build bridges between people.

HOFFMAN:
And we're going to actually go through that, because the piece works and KIND and the bridge building I think are some of the really important parts of the KIND story and the Daniel story. Let's stay at the moment on magic and then we'll go into PeaceWorks. Do you find magic is also a useful way of building bridges?

LUBETZKY:
Yes. Now that you ask it yes, but I hadn't thought about it in a while. But when I used to do PeaceWorks and do my ventures wherever I go and do magic shows for the kids in the community, wherever I am and connect. There's pictures of me when we were starting a venture in the Middle East, in the middle of Ramallah, doing a magic show for the kids there. And it was in a very, very tough time where there was a lot of tension and a lot of bombings. And I'm a Jewish-Mexican with some Israelis by my side, surrounded by scores of Palestinian kids whose eyes are bedazzled and full of delight and wonder.

And magic does have the ability to help us overcome all of our differences and help us discover that we all have this sense of wonder and this delight in being entertained like this way. I did it in Guatemala. I did it in Chiapas, Mexico. I do it all the time. Wherever I meet people I like doing magic tricks there. So my children don't let me into their play dates and they kick me out.

HOFFMAN:
Yes, of course. Well, I'm looking forward to post COVID isolation to attending one of your magic things. I'm going to make a priority of it now. So PeaceWorks. When was the aha moment? When was the wait, I can do something here? Like this would be an important thing to do.

LUBETZKY:
Yeah. And you asked earlier whether magic was something that I considered doing professionally and I never was good enough to do that. I never took seriously that I would become a foremost magician because I didn't think I was good enough. Ironically I never prepare for anything. I wing everything. My team is always very concerned that I just jump into stuff. The only thing that I prepare for in the year is that magic show that I do in Anaheim for my team once a year. And I get very nervous because it takes a lot of work for me. But I think I'm now good enough that I could have maybe done that for a living. And I certainly did it for nine, 12 months when I was traveling through Europe and the Middle East doing magic shows.

But my passion, since I remember, besides magic and my family and traveling, has been building bridges and specifically ever since I was like 11, 12 years old, I've wanted to solve the Arab Israeli conflict to help Israel and its neighbors overcome the conflict and build peace. And when I was in college, I wrote my thesis on the influence of economics in resolving the Israeli conflict. And then when I was in law school, I tried to translate that theory into a legislative proposal for how businesses could invest in joint ventures. Americans could be catalysts to build bridges between Israelis, Turks, Egyptians, Jordanians, Palestinians, et cetera. And as I was doing that research Reid, and I was thinking that I was going to go back to my law firm to become an attorney, I had this idea – if you want that specific story, I was in Tel Aviv doing this research.

And I went in to a store and I bought this jar of an obscure looking sun dried tomato spread. And back then in '93 I didn't know what sun dried tomatoes were. Today everybody knows sun dried tomatoes. But back then they weren't that common and I had never tried one. And I floored that jar in one sitting with some pita bread. It was delicious. And I went back for more and there was no more in the store. And so I started asking the manager where I could get some and they told me the company had gone out of business. Long story short, I asked them, persisted in them getting me the name of the original manufacturer. And they connected me to a friend of a friend of a friend. And eventually got to Yoel Benesh is a friend of mine still today, is a very dear friend of mine. But he was the founder of this company that had just gone bankrupt.

And the problem was that they were buying their glass jars from Portugal and they were buying their sun dried tomatoes from Italy. And all their raw materials were coming from far away lands. And I happened to be doing research and I knew that you could buy glass jars from Egypt or Turkey less expensively. And you could buy sun dried tomatoes from Turkey. And olives and olive oil they were already buying from Palestinian farmers. But I went to Yoel and I told him about my idea. And he looked at me and said, okay, here's this confused Mexican-Jewish lawyer that has no experience in the food industry and wants me to build a venture base that has Arabs and Israelis together. And like let's go, because he had no other options, he had gone bankrupt. So he believed in me and actually – I'm just joking about it, but he believed in the mission just as much as I did. His family really cared about building bridges.

And so Yoel and I became good friends and we partnered with Abdallah Ganim and a family in Turkey. But we started the venture from scratch. And I did not know anything about food manufacturing. And if you had asked me Reid, forget about when I was a kid, if you had asked me six months before, three months before can you see yourself starting a food company? I would have said no. And if you said, "Well, list me this hundred jobs you want to do or things you dream of doing." Starting a food company would have not even made those 100. But food for me was a vehicle to use to turn the theory into practice and bring Arabs and Israelis together. And was many, many mistakes. For everything we got right we got 10 wrong. The Israelites were in the desert of Egypt for 40 years, I had 10 years of that experience trying to learn the food space before I came up with KIND.

HOFFMAN:
Bridge-building is, I think, one of the overall themes. And the thing that's interesting about food is food is one of the ultimate bridge buildings in humanity. Because like breaking your fast together.

LUBETZKY:
Breaking bread.

HOFFMAN:
Yes, exactly.

LUBETZKY:
You're totally right and it is very important, but it's not like I knew when this venture started. It sounds very romantic and it makes a lot of sense, but that's not how it happened. It was just that I liked the damn spread so much. And I started thinking, "Wow! This is an industry where there is cooperation." Because the theory of economic operation Reid is that for you to develop positive relationships, you'd need to have complimentary comparative advantages and symmetrical relationships.

If you have the Israeli the boss and the Palestinian farmer works for him, it doesn't necessarily achieve improved relationships. It could, but it could do the opposite. It could deteriorate. So for PeaceWorks the concept was you needed to have equals partnering. So either they all needed to be the co-owners or they needed to trade with one another as equals. And so that was the premise of PeaceWorks.

HOFFMAN:
And what were some of the key learnings from PeaceWorks?

LUBETZKY:
How long is your podcast?

HOFFMAN:
I understand.

LUBETZKY:
Everything that I got right at KIND came from PeaceWorks. So that's number one. I'm on the Shark Tank now and when we talk to entrepreneurs invariably I go back to those 10 years. There were such formative years. But I'll start with, or maybe just answer your question by sticking to the PeaceWorks stuff. Which is that at a micro level it worked really well. Relationships that we helped kindle 26 years ago were maintained for decades. And to some degree are still alive today, even though PeaceWorks is run down.

But they were really, really, really, really integral because when people have an economic incentive, a vested interest in preserving the relationships, then they work harder at doing it. And when they not just break bread, but shatter cultural stereotypes by interacting as equals with respect towards one another, they discover each other's humanity. And it's much harder to hate someone that you've gotten to meet. And to your point earlier, it's much harder to hate somebody that you've had dinner with.

HOFFMAN:
Yes. What would be like two or three of the things that you learned at PeaceWorks that have now informed what you do at KIND, key things in either supply chain or marketing or entrepreneurship?

LUBETZKY:
Endless number, but the most obvious one which obviously every entrepreneur learns the hard way and no matter what you and I share with fellow entrepreneurs that are in the beginning of their journey, they're not going to listen to us. But the most obvious one is focus. Focus. Focus. Focus. Because when I was doing PeaceWorks I was so enamored with the concept of PeaceWorks, because it was my college thesis after all. That I was studying ventures in Sri Lanka, in Indonesia, in South Africa, in the Middle East. And none of them were being given enough time, attention or focus. And consequently they all failed. The only one that survived was the one in the Middle East, because it was the first one and I gave it enough time.

But by the time I started like trying to duplicate this ventures everywhere, I wasn't giving each of them enough time. So focus in that way focusing your customer acquisition strategy. Again, I was full of grit but not enough wit, not enough thinking. And so I would wake up in the morning at 7:00 AM in the morning and walk down the street at the very top of 122nd and Broadway all the way door by door, store by store. And I would finish at seven or 8:00 PM in Wall Street. Or I would maybe get to make my way back up, cross the street and then go on the other side of Broadway. And I would not leave a store till I got a purchase order. If they had any food product I would go in and whether it was a Zabar's specialty store or a Korean grocery, a Korean deli. Because in New York they call them Korean delis because they're primarily and overwhelmingly owned by the Korean community.

But I was so proud of myself once when I went into this Korean shop owner's convenience store and I walked in and said, "Oh, let me tell you about PeaceWorks and the sun dried tomato spread." Cracked it open and forced some down his mouth and say, "No, no, try it." And then he wanted me to leave. So he went downstairs in his basement and I followed him. I'm 27 years old, 26 years old and right out of law school full of energy, but no strategy. I come down into his basement and he's like, tell me why he can't carry a specialty product that's $4.99 that's a sun dried tomato spread because he carries toilet paper conveniences and people come in for milk, they don't come in for sun. I'm like, "No, but you don't understand. This is made through cooperation between Arabs and Israelis and all that."

And after literally two hours he relented and he gave me an order for one case for $24. And I walked out of that store and I'm like, "Yes, this is why I'm going to win in life because I do not give up." And then I walked back to the store a week later and not one of those jars had sold. And then I walked one month later and not one of those jars had sold. And then I walked six months later and not one of those jars had sold. And I started thinking, "Wow! Maybe in addition to grit, I need to have a little bit of strategy in here."

I didn't do this man a service. I didn't mean it. I thought that the product was going to sell. It was just a lack of sophistication or knowledge. But one of the things that we talk a lot to entrepreneurs is you need to have grit. You need to have grit, but you also need to have wit. There's grit and there's wit. And if you're saying I'm going to go pound through that wall, no matter what, okay, that's pretty good. But what if there's a door next door and you just need to move the knob? What if there's a window that you need to open and jump through? What if you can just walk around? And so it's really important for entrepreneurs to not be so in love with the grit and not put enough strategy, discipline, and creative thinking, resourcefulness to see if you can do it. It's almost like we are... I get confused in English if it's the masochists or the sadists. Who are the ones that want to suffer?

HOFFMAN:
Who suffer themselves? Are sadists.

LUBETZKY:
Yeah. No, I think it might be the other way. Anyway-

HOFFMAN:
Oh, maybe the other way. Yes. It probably speaks well of us that we don't actually track these words that well.

LUBETZKY:
I know you're making it up, Reid. I know you're an expert in that. But I think it's important to not feel so in love with the grit and then feel like we should be rewarding ourselves because we're relentless. Relentlessness is good when it's strategically sound, but I spent so much of my time at PeaceWorks hitting walls and just breaking through those walls and I broke through them, but it took me 10 years. You need to have not just that conviction of purpose, but also creativity, resourcefulness, and look back and analyze and think through this issue.

HOFFMAN:
Yeah. Completely agree. Part of the thing that I emphasize in that is also learning, because part of getting that wit is learn and adjust and learn and adjust, and having a fast learning curve is one of the most essential things for entrepreneurs.

LUBETZKY:
I'm still very, very long on not being afraid of failure. As long as you then take the time to incorporate the lessons to analyze - why did it not work and what can I do about it? Failure in and of itself is not good enough, but if it's going to help you plant the seeds of knowledge, then you will build some really nice trees.

HOFFMAN:
Exactly. So how did the idea of KIND come about? And as I recall the history, you almost didn't start it.

LUBETZKY:
Yeah. So the history of KIND is that through PeaceWorks we have identified a product that we liked. I was 10 years into selling food. I became pretty good in the food industry and people liked me because I was very authentic about trying to bring Arabs and Israelis together. So everyone wanted to give me a hand, even though my products were very specialty and specialized, but I had good relationships in the community. And what I was looking for was something that I could feel good about eating, Reid, because I kept crisscrossing the nation, going door by door now in Akron, Ohio and in Cleveland, Ohio, and traveling all over the country trying to sell our products. And when I needed a snack, it was all overly indulgent and sugary stuff or it was all extraordinarily artificial or it tasted like cardboard, or a combination of all of those three.

And I wanted something that tasted good, but that was healthful, and it was very hard. It's fascinating, when you think about the mid-90s and early 2000s, how different our industry has gone, how much it has changed. And so as I was searching for products, I came up with a prototype. We had a product that we're importing from Australia, but the manufacturer started adding artificial ingredients to it, and we lost all of our business overnight because we were selling into the natural store, so we couldn't sell it to them anymore. And they didn't care, because in Australia they were selling it to convenience stores.

The point that you're alluding to, Reid, is when we had the idea for KIND, which was going to be a product whose ingredients you can see and pronounce, that's nutritionally rich, that's delicious, but also healthful. And the concept of KIND is to do the KIND thing for your body, for your taste buds, and for your world. So it has to be healthful, tasty, and socially impactful, particularly by building bridges between people, fostering kindness and empathy.

And the time that we were gearing up to launch KIND, we were struggling a lot. Personally, I had a very tough time because my dad passed away that year, in 2003, and he was my best friend and my mentor and so much to me. And so I had a very difficult time with that. I was trying to launch the OneVoice Movement, this nonprofit organization to bring Israelis and Palestinian moderates together, and that was taking a toll on me. It was very hard getting it off and running. And our business was struggling. It was barely eking by, and I had months where I couldn't pay myself a salary. I barely could pay my team members salaries and it was exhausting.

And I remember sitting down around the table at 55 West 21st Street, which was a place that... You don't want to know about that place. But I remember sitting down with my six team members and saying, "Guys, do we do this or should we just throw in the towel?" And we went around the table and I remember so well each team member getting to vote on whether each of us goes back to look for jobs elsewhere or whether we give this one last shot.

It is fascinating to me, Reid. It is fascinating to me. There was this close to just calling it in. Nobody, if you were my friend back then, you would have not blamed me. You would have said, "Daniel, you fought the good fight. It's fine. Go on." And I was going to go try to get a job from one of my friends or something.

And nobody would have blamed me because I had 10 years of a lot of trials and tribulations, but we said, "All right, let's try this one last time." And out of that darkness, one of the toughest years of my life, came this incredible brand that if you had asked me, "Okay, if you succeed, what's the maximum you can imagine?" I did not have the vision for what KIND has become. I didn't. I would have never imagined that we would have achieved what we've achieved.

And it's fascinating to me that out of this incredibly low moment, KIND took off and just all of a sudden things started coming together. And all the things that we had done wrong with PeaceWorks, we applied discipline, focus, obsession with quality, obsession with brand. Your brand has to be true. You cannot try to be everything to everybody or else you'll be nothing to nobody. Very, very strong focus on defining what the KIND promise is, what it means. Literally having in each of our desks a description of what that KIND promise is and keeping that KIND promise, not deviating from it. Not trying to go down some other green pasture because there's something sexy going on in this industry and that industry. Just staying focused, focused, focused.

HOFFMAN:
And just because I'm curious, was the vote a mixed vote or was it unanimous?

LUBETZKY:
I wish I could tell you, Reid. I actually do not remember because even the people that I was closest to, so Rami, Sasha, Doris, who were the people that were my three most serious people, I don't remember how each of them voted. I suppose that it was a conversation and in each of us there were some yeses and some nos. The world is so much more nuanced than we give it credit.

You and I have this conversation a lot. In the world that we live in with social media just sending you what you want to hear and believe in, it affirms rather than informs your beliefs, all of us tend to think that we know all the answers. And the truth is that it's not black and white in almost anything. There needs to be more critical thinking and nuanced thinking in our lives. And my guess is as we were going around the table, everybody had their reasons yes and their reasons no, and then we all needed to go to pursue it, but all of us had our doubts and all of us had our hopes.

HOFFMAN:
Yep. No, I think that's very well said. And when did you know, "Oh, we're onto something"?

LUBETZKY:
It was not overnight, but it was soon after. It was once we put it in consumers' hands. But the two challenges getting to consumers' hands were, first, the manufacturing, and second, getting the product approved. So the manufacturing, making a KIND Bar is far harder than making what in our industry is called a slab bar. The reason they call it slab bars is because they're slabs. And so 90% of the products in the bar space are emulsions or pastes where you put a bunch of ingredients, macerate them into a homogeneous paste, and then that paste flows through the line very easily. KIND is completely different. It's sacrilegious for us to destroy these beautiful nuts that humanity, nature, or God gave us. They oxidize, the nutrient quality and textural quality goes down because they all their oils get exposed to the oxygen and stuff. This stuff that nature gave us over thousands of years, we're just destroying.

KIND is about crafting, minimally processing, honoring those ingredients and keeping them whole. Whole nuts, whole ingredients, whole pieces of fruit. And it's very hard to run through the manufacturing line because they get stuck. In an efficient line, it just flows, flows, flows. In a KIND line, you have like five to 10% of the product that you have to either try to rework or you have to lose, or you're giving the consumer a lot more product. Because a bar, it says 40 grams, but you can't get it exact. Sometimes you give them 40.5 or 41 grams or 42 grams, which is our maximum that we do. And if they go below, we can't sell them, because if it's less than 39.5 grams, we have to give that product away for free. Because under the law, we can't give less than, I think, 39.5 grams. So we're giving a lot of product for free.

And so it's much harder to make the manufacturing work. And so when I was knocking on doors of prospective partners to make the product for us, it was not easy convincing people to make the product, and we had to teach them because they didn't know how to make the product. It took a lot. And then getting into the stores was also hard, because even though I had deep relationships in the natural food space, I would bring our KIND bars with the transparent wrapper and show it to them, and they're like, "This is beautiful. but I don't know where to put it." I'm like, "Well, put it in the nutrition bar set." And like, "But this is not what a nutrition bar looks like. Let me show you what a nutrition bar looks like." And they'd come up with astronaut food, and I'm like, "Yeah, but that's the point. It's a natural food store. We should give them real food."

And in the year 2003, 2004 when we launched KIND, it wasn't a foregone conclusion. It would take me one hour each time talking to my friends that cared about me, and it was a puzzle where to put the product because a healthy snack bar segment didn't exist. So they gave us a shot, and then the minute it was in the stores, the minute it was on the shelves, it just flew off the shelves. 2005, I felt good that we had something really good in our hands. But even then, 2006, 2007, 2008. Only 2008 did I realize, "Oh wow, this is bigger than I imagined and it's a platform. KIND is a powerful brand that's resonating." And do you want me to tell you what was it that brought that realization?

HOFFMAN:
Yeah, please.

LUBETZKY:
It was a gigantic company that sought to buy us out. It was one of the largest companies in the space and they reached out to us and they told us. And back then, the prior year, we had done $8 million and we were heading to do $13 to $15 million in sales. And they were interested in acquiring us. And when I had conversations with them, they were very respectful. In the end, the deal didn't work out. I wish I could tell you that it was because I was smart, but it's because they were scared because we were so early and they were like, "We'll buy only a minority position from you guys." And my attorney said, "If they buy a minority, it's as if they would have bought a majority because everybody's going to stay away from you."

So thanks to my friend, who was my law school roommate and attorney, I didn't do that deal. And they could have bought the company for $20 to $40 million, which for me also would have been a transformative event. And that year, Michelle and I had gotten married and we had our first baby on the way, and so it mattered a lot. I didn't have a big nest egg. I had a very, very tiny nest egg. And this would have changed my life, but it wasn't meant to be. But that set of meetings that I had with them helped me realize that KIND could be much bigger than I had even appreciated.

HOFFMAN:
Because it was thinking about, you started saying as opposed to the classic, entrepreneurs to succeed, as you say, do need absolute focus. Part of that focus is what are we doing this month, what are we doing next month. But you've KIND of lifted your head up and said, "This is what could be created. This is KIND as a platform. This is KIND as a movement." And it's not just these amazing variety of this new category of healthy snack bar, but also many other things as well. Presumably that dialogue brought that out.

LUBETZKY:
You're probably smarter than me and you probably have more vision in business than me. In my case, I do have the ability to dream big when it's about social causes. I come up with ideas for creating the OneVoice Movement. Here comes this Mexican Jewish guy out of New York that's going to get Palestinians and Israelis to build the largest civic movement, and we pulled it off. But I have the temerity to dream big when it's about changing the world. But when it was about business, the way it works for me, it's a little bit more like when you're climbing a mountain or when you go and you get to this particular spot, and then from there you can visualize the next peak, and then from there you can see higher. But from the very bottom, you can't really see as high.

So for me with KIND, I wanted to get a business that would be over $2 million in sales. That for me was success. And when we got there, I wanted to be able to continue growing the bar business and was extraordinarily happy about becoming a leader in the healthy snack bar segment and building a $10 to $20 million business. But then once we got there, by that time, I appreciated that KIND could become a platform. Now we make cereal. We make KIND frozen bars. We make oatmeal. We make a lot of products that back then I had no idea that we would do, and now we're over a billion dollars in revenues and we're in 32 countries, thanks to our partnership with Mars, which is responsible for the international sales. And I would have never visualized that in my early years. It just came a little bit at a time.

And by the way, when I was doing PeaceWorks, my first company, we were moving, and I found this chart, Reid, that was eight pages long, taped. And it had the vision for PeaceWorks cafes and PeaceWorks consulting and PeaceWorks this. So in my earlier years, I had this big dream for PeaceWorks, maybe because it was social-oriented, but it was not focused. And with KIND, it was the opposite. I learned the hard lesson to stay very, very focused. So even once we launched our bar business and we had eight flavors, very soon our brokers, our sales representatives said, "We need more. This is doing well. Design more bars for me." And I drew a lesson from PeaceWorks, because in my early years with PeaceWorks, Reid, we had the sun-dried tomato spread, olive spread, and basil pesto. And they were great items, very high quality. And they were Mediterranean items. It made sense that they came from the Middle East, from Israel.

And then we got the product in the stores, so we wanted more. So people told me, "Oh, the rule of thumb is just getting more shelf space. It's about shelf space." And it's not, by the way. It's not about shelf space. It's about turns. The turns are far, far, far more important than the shelf space. Now, if you can get the turns and the shelf space, that's good, but the turns is what matters. Because if you get the shelf space, but you don't get the turns. What I mean by turns for those that don't understand this, the retailer, you're in their shelf space and your product has to be bought and sold enough times to justify retaining its spot on those shelves. If your product only sells one bar a month, but your competitor sells 10 bars a month, they're going to get you out of there. And what a lot of people do is expand too fast and they have too many products, and so their velocities go down and then they get discontinued.

And that's what happened at PeaceWorks, but also we were not obsessive with quality. We went from three flavors at PeaceWorks to seven flavors. And then eventually, because we were just dumb, we went from seven to 15 flavors, which included the bane of my existence. It was a sweet and spicy teriyaki pepper spread. So why Arabs and Israelis would be making a teriyaki sauce, it makes no sense. And if you opened it, it was like a glob of stuff. It had xanthan gum, which is natural, but it was just very gelatinous. It was just nothing like the original flavors.

But the mistake I made back then is that I said, "You know what, it's one more flavor. For some people, they might like it." I just rationalized myself with this stupid short-term greed. And what happened, Reid, is when people tried that product, because they had trusted my brand because I had delivered them a delicious sun-dried tomato spread and a delicious basil pesto, and then I betrayed their trust. I destroyed something beautiful that I built with them. A brand is a promise, and a great brand is a promise well kept. But I was not keeping my promise.

So what did they do? They didn't just stop buying the sweet and spicy teriyaki pepper spread, they stopped buying everything. Sales tanked after I launched those lower quality SKUs, and it taught me to be obsessive about quality. So when KIND's turn came and they were asking me to expand into more flavors, we said, "No, we're going to stick to these eight flavors. We need to really get it out." The rule of thumb is that almost every product in consumer product goods can benefit from more support and more patience. But we as marketers are so in love with new products and new ideas that we try to launch too many things and don't invest to provide enough attention to our existing products.

HOFFMAN:
Yep. It's a really good lesson and applies especially in all of the world of physical things. There's slightly different rules in consumer software because you can experiment and revise and so forth, as long as you don't destroy trust. Keeping the trust is essential. You can go, "Eh, this is all right," and you can ignore it, and that'll work fine in software. But in the physical world, much more challenging.

LUBETZKY:
And in particular in the food world, and I find a lot of tech friends start investing in the food world and trying to apply the tech rules, and they just lose their shirts. Because like you said, in the tech world, you can innovate and you're giving them free gadget and the free thing, and you're learning and there's that expectation that they're learning. And like you said, as long as you don't betray their trust, people are more forgiving of getting the product quicker, faster.

But in the consumer goods, people will give you a shot and they will try it once. And if they don't like it, they will not buy your brand ever again. So you have to be much more obsessive. Also in the tech world, the next digital product you sell has a marginal increased cost for you, close to zero. But in the physical world, you can't play the tech rules. A lot of my friends in the physical world, follow the tech rules and say, "I'm just going to grow into profitability." I'm like, "That doesn't work in our industry." If your gross margins are wrong, you still are going to be spending that dollar, making that same gadget. Maybe the cost will go down a little bit or somewhat or significantly, but not to the point where if your gross margin structure is wrong, you can't grow your way out of a bad business model. You have to be very careful.

HOFFMAN:
No, exactly. It's very well said. And it's part of the reason why it's funny. People sometimes take things I say about the consumer internet world and apply them all over. I'm like, "Don't do that. This is a consumer internet lesson." For example, if you're not embarrassed by your first product release, you released too late. True in consumer internet, not true in food.

Let's talk about a couple of the KIND of high learning moments in KIND. One of them was Walmart. So you got this huge deal, but then weren't quite ready for it. Describe the first Walmart experience, obviously everything's working great now.

LUBETZKY:
It's the Korean shop all over again, but a variation of that. It's wanting to grow fast and being very excited and not having the patience to take it easy. The buyer, Walmart is the one that reached out to us. There was a really kind woman that loved KIND Bars, she was obsessed about them. And she said, "I want to try your product out." And I'm grateful to her, but we were not prepared. This was, I think 2007 or something like that. We went into Walmart stores, but we didn't know how to do the supply chain logistics. And you better know supply chain logistics when you're doing Walmart. We didn't have a team member that had that knowledge about how to manage the backend of Walmart, how to make sure.

And so we would go into stores and the product wasn't on the shelves and Walmart wasn't actually managing it. They had a sub distributor for that particular segment. And the product was often in the warehouse and it was in the wrong set with the wrong type of products. And it was only two SKUs so it would get lost in the shelves. So for a variety of reasons, it didn't last.

And then I hired John Leahy as our president and a very good friend and partner who basically helped us grow KIND. He had come from a billion dollar company when he joined us and he had had a couple of tough years. He had had an incredible career, but then had had a couple of years where things are not worked out. And I'm very lucky that that happened because he had something to prove. And he gave me a shot because otherwise someone of his caliber would have not joined me.

So sometimes if somebody has a great trajectory and then they have a tough moment, it's a very smart thing to invest in that person because they have something to prove and they have an incredible track record overall. And John proved to be one of my best mentors and friends and partners.

And John said, "We need to be patient." I said, "John, we need to get into Walmart." He's like, "Daniel. We're not ready, we're not ready, we're not ready." And he built the different pieces that he needed to build in terms of improving awareness, in terms of improving our supply chain and logistics. And then when we got in, it became a very strong partnership until today. I am very, very blessed with all of our retail partners that we've grown tremendously with all of them, because we think long term, we really tried to make sure that we're thinking ahead and we're thinking on their behalf.

HOFFMAN:
Walmart's one thing, because this whole path to scale, it's much rarer in the food space to get it all right, because there's all these mechanics and logistics and you have to get the product just right. You have to be exactly as obsessive and focused as you are, as KIND is. Another one that was when I was KIND of reading about the history of KIND that struck me as useful for our audience is to talk about the speed bump with the FDA and being labeled as healthy. So describe what happened, the challenge, and then how you navigated the challenge over time.

LUBETZKY:
Yeah. That was fascinating. It's really fun to talk about now, because we ended up turning a crisis into an incredible opportunity, but it was not fun when he was happening. Because I truly pride myself in being sincere in my purpose. And every single product we make leads with nutrient dense ingredients like almonds, which are recommended by the FDA for daily consumption. The dietary guidelines encourage you to eat more almonds. And the New England Journal of Medicine did a study where people that eat tree nuts on average live three years longer than people that don't.

So there's enormous benefits from almonds and they contain polyunsaturated and monounsaturated fats that are essential for your brain's function for your heart's function. They're very good for you. But back then, there was not enough knowledge about the difference of the different types of fats. And there was an obscure, to me, because I had never heard of it, a provision in the FDA that apparently treated all types of fats – even the ones that are healthy fats from almonds or avocados or olive oil or olives or salmon as fat. And the FDA sent us a letter, which we don't know how that happened because you're making a KIND Bar and other people are making things that are really not helpful.

And why did we get the letter? So most likely a competitor had a connection and egged them on, but back then we're growing like a juggernaut. And they sent us a letter saying, you can't label these four products as healthy because they contain all these ingredients like almonds and coconut that have too much fat.

It was a very tough day for me, Reid. I don't want to over dramatize it, but he was really a tough, tough day. Because it went to the essence of who we are. And we immediately complied with their request. Even though our attorneys told us they're actually technically wrong because it was in the back of a wrapper saying our philosophy is to be the and philosophy to think with and rather than with or. To try to make something both healthy and tasty. Social impactful and economically sustainable. Convenient and wholesome. And it was not a nutrient content claim, which is the only thing that the FDA can actually study. So we could have fought them on that and probably won on those narrow claims.

But what we chose to do instead is to study why were they saying that our products had this problem? And while we complied immediately in the short term, we then went back and we filed the citizen's petition telling the FDA that their regulation was broken, that it made no sense. Because you could literally have a bowl of sugar children's cereal, where the first ingredient is sugar or a children's sport drink, where the first thing we want is sugar, or a beverage where the first ingredient is sugar, and all of those could call themselves healthy. But then you could have, on the other side, half an avocado or piece of salmon steak, or a bunch of almonds, and none of them could call themselves healthy because that healthy regulation didn't talk about sugar. But talked about fats as if all fats were created equal, which they're not.

So we filed this citizens' petition. And we got an enormous amount of support from consumers, from scientists, from doctors, and even the FDA eventually reversed itself and said on the narrow and the broad grounds. First, they passed one thing. It was like the gift that kept on giving. Whoever was our competitor that tried to be so mean and do this, it ended up hurting them. Because first, when they came out with this, the consumer community was like, "What, why are you doing this to KIND?" People understood that it made no sense.

Second, the FDA announced that they were reversing themselves on the narrow grounds. That was another huge victory. We got hundreds of millions of impressions. And then it was the big announcement where they said, "KIND was right. This definition is not current with science." And they reversed themselves and suspended it. They haven't put out the new regulation, we're still waiting for it. But each of those times was a reformation. But if you go back to the day when it happened and our consultations, we were talking to our board and to people far smarter than me. And they're like, "Daniel, just lick your wounds and move on. You will not get any good out of rehashing this thing out."

And the conventional wisdom is: don't bring stuff up that's not pleasant, because you're just going to let it be aired again. And they're like, "The FDA's never going to reverse itself. That doesn't happen in government. They're never going to listen to you." But we had a lot of conviction and a lot of sense of purpose here. And that drove us to do what we felt is right. And it's paid for me really well in life to do what I believe in and stand by it, because when you do that, you tend to eventually get it right.

And it was a very, very interesting lesson. It also changed us. It changed us as a company completely because it forced us to grow up. Because to be fair, we should have understood that regulation. We just were too small back then to even have a regulatory practices team that knew about all those things and that. We should have understood that and maybe make more proactive steps to try to get that thing reversed.

But I literally had never heard of that regulation until they sent us that letter. But after that happened with develop relationships that were cordial with the FDA. To their credit, the FDA was very responsive and respectful, and we developed a very good, cordial relationship with them. Until this date now, we actively consult with them on stuff and when we think they're wrong, we'll let them know and when we have a question, we ask them. And we now have that relationship, which we didn't even have then. I didn't even know that companies did that stuff.

And we developed a policy team that has done so much good for KIND, but also so much good for society because now obviously we now have the scale, we can do it. But we have a set of team members where they've come up with many, many cool policies, including the one we just announced last week. We're the first company to announce that we're going to exclusively source almonds from bee friendly farms.

HOFFMAN:
Oh, that's very cool. I actually hadn't tracked that yet. That's typical, but I think one of the lessons there is anyone who knows you, anyone who knows KIND, knows that the principles of the mission and the ethics go all the way down to bedrock. And when those are there, adhered to, that creates natural bridges to, "Actually, FDA, we should collaborate. We should make sure this is the right thing for society." Creates the right KIND of trust and responsibility with consumers, with suppliers. Tell me a little about KIND of how you think about building bridges with and through the KIND platform?

LUBETZKY:
How much time do you have? It's been a very interesting journey. I don't know if you or any of our listeners have read my book, it's called Do The KIND Thing. And chapter eight goes in depth, it's both an audio book and on regular. But in Do The KIND Thing, I work through it because the most interesting thing about your question, and then I can go more deeply into all the many ways in which we tried to do the kind thing. But the most interesting thing for me is that when we came up from the very beginning, we came up the concept that KIND was going to be about doing the kind thing for your body, taste buds, and your world, and kind to your world was about building bridges and helping foster kindness and empathy in our communities. But the way we used to do it, I am embarrassed to confess, was very tactical and transactional.

So if there was a trade show, we would rent a little car that would give people rides. Or if you were at Whole Foods, we would carry people's groceries. We would do small KIND acts to our community. And at one point I was on the plane, I remember the moment I was thinking and thinking and thinking through it. And had this idea that instead of us doing kind things for our consumers who, our consumers tend to be better off than most of society. I think we appealed to maybe 50 or 60% of the population, but it's a product that should be accessible for everybody, but most of our consumers would prefer to help others than be helped and would prefer to be empowered to be part of a movement, we found out. And imagine the power, instead of us back then we have 10, 15, 20 people, and each of us carry somebody else's groceries.

It's got a limit. What about when you're reaching millions of consumers and you invite them to join you in building a movement for kindness, and they're part of the solution? And you make it real where there's consequences, where if they do small kind acts, they trigger big kind acts from you? And you make it real where you're celebrating kind people and you come up with scalable ways for your community to be part of the change.

And now we've created millions of kind acts that have only been made possible through our community being together with us, a participant. Kindness is magical because it's one of those few forces in nature that I call a net happiness aggregator. When I do a kind act to somebody, they feel better, but I feel better too. And I actually think in my many years of thinking about this, that the person doing the kind act actually gets the more positive feeling than the person receiving it.

If you're in a subway and you're carrying somebody else's stroller up the stairs, the person that you helped out, they feel really nice. But you feel so good about having done that. And the more stairs that you're carrying and the chunkier that kid is, the more you're sweating, the more that you feel that you did something nice and that you feel good about it. And so that insight helped us unlock the possibility of helping our community be part of that journey of making this a kinder world. So now what do we do with that? We've tried so many things.

We had something called KIND Causes, where people could do one small kind act and then report that act. And they could then turn that into a vote for a cause that they could direct money to. And then every month we gave $5,000, $10,000, $25,000, depending on the stage of that program, to the causes that we cared about. Then we created a program called KIND People, where we invited the community to nominate people that had done something kind in their community that were really exemplary kind people.

And we ended up awarding $1.1 million to, I think it was 11 people that exemplified that kindness. A mark of us having chosen right, is that almost every one of them used the money – that it was designed for them to take for themselves to reward them – but almost all of them just use it to advance their KIND Causes. There was a woman that was helping people that were incarcerated, tried to improve their lives. There's a woman that was helping the homeless with shower stalls that they created. A bunch of really nice programs that I really admire. One of my favorite causes that we adopted that still makes me choke up when I think about it was this young guy who had a cousin that had to go into a foster home. And when they came to pack the kids' stuff, they just brought these black trash bags and took all the kids stuff.

And this guy said, "My cousin's going through such a traumatic moment being taken to another foster home, why are they taking their possessions and putting them into a trash bag?" And he just came up with a very simple concept, where they would come up with care packages with tote bags that the kids could put their possessions in, but also a couple of little things. And it was a really nice program that we supported and there's many others that we do. And then the most important thing we do with KIND today, and there's many things I'm proud of, but the most important we created the KIND Foundation, which has incubated, what we created, which is called Empatico, which is a program to try to enable classrooms, to teach their children empathy and kindness by connecting them to other classrooms.

So using the power of the internet for good and enabling kids in Northwest Arkansas, who have never met a kid in New York or kids in Memphis, Tennessee, that are all black kids connect with kids in Southern New Jersey that are all white and develop friendships through those interactions. Kind of like a very modern version of pen pals, but where the classrooms are the hubs to connect the children. And there's a classroom in Delaware, they're connected to teachers in Nigeria and it's a really cool program.

HOFFMAN:
Well, one of the things that the Kindness platform with causes and people in the analysis is reminding me of, is something that I did know, but I think probably is good to cover here. Which is this probably goes back all the way to you growing up with your father because of a particular incident that he ascribes to surviving. Would you feel up to sharing?

LUBETZKY:
Yeah, Reid, I normally get emotional when I share the story, but I've never had the interviewer get emotional so I wanted to –

HOFFMAN:
It's great. I know it, so I'm already there with you.

LUBETZKY:
Yeah. So my dad was nine years old when the war started and around 11 and a half or 12, when he was sent to the Dachau concentration camp. And he tells a story, he passed away, but I just recently found his DVD of his interview and I digitized it and put it on my YouTube site. And my kids tease me that their YouTube channels have more subscribers than I do. But you should visit that interview of my father because it's very powerful and you can look "Daniel Lubetsky's father Holocaust" or something like that and find it on YouTube. It's a one or two hour interview with him. It's very powerful. And I believe he may share this story, but he may share many others, but he used to talk to us about how, when he was in Dachau and he was barely surviving when nobody was looking a German soldier, took a potato and threw it by his feet.

And the way he told the story, what I understood from it, it was not just the sustenance of the potato, but also... because you have to understand that in those times, they didn't have any food, and the way he describes it was a rotten potato, but it was like gold to them. My dad used to tell me that when they would find insects, like cockroaches, they would eat them because they were starving. They had nothing. They were in these barracks. I'm sure you've seen some of the pictures. It was very sub-human, and then this man risks his life, or certainly his well-being, because he could have been punished, to throw his potato by my dad's feet. And mind you, my father at that point is already looking very sub-human. He's six feet tall and weighing something like 70 or 80 pounds.

I don't remember exactly the numbers, but he looks sub-human, and the fact that this man looked into his eyes and recognized his humanity at that time, it probably gave my dad the ability, not just to put calories in his body, but to put purpose in his decision and determination to not die. Less than 1% of kids my dad's age survived the Holocaust, and I have documents that somebody found recently where they lied about my dad's age when he... the Germans kept very good records of this stuff, and he was, according to the records, born three years earlier than he actually was, because I guess my grandfather, when they said, "When was this guy born?" He said, "He's 15 years old," not 12, so that they would let him go into the labor camps and keep him as a worker rather than have him exterminated.

What I love about that story is that it reminds me of how my dad chose to see the world, because you could have lived his own life and not dwelt on that or used that as your archetype for how you live your life, and you would have not blamed the other Holocaust survivors that were consumed with sadness and sorrow and hated the enemy. And you cannot blame people that went through that for hating all the Germans, but my dad didn't hate all the Germans.

My dad taught us to make sure that we remember that in the darkest of moments, there are people that rise up from that darkness, and in my office in New York, which I used to have, there's a quote that says, "In a place where there's no humanity, strive thou to be human." And Reid, if there is a moment when you and I and every person listening to this needs to do that, it's today. Because the amount of division, the amount of polarization, dehumanization going on in our own country and across the world, it's very scary.

It is terrifying for me to think that I feel the need to preserve these values that I came to America. When I came as a Mexican immigrant and as a son of a Holocaust survivor to the United States of America, I thought I was going to transport American values. I took them for granted. I never imagined that they would be under threat, and we need to really work to respect each other, to not allow anybody to terrify fellow human beings for parties and political purposes, to divide us, and to so fear, whatever the party may be one of the greatest things about America is not just the rule of law, that nobody should be above the law, that nobody should think that we're here to serve them, but they're here to serve us. It's not just freedom. It's not just justice. It's not just democracy, which are all things we need to cherish, but an essential ingredient for them to all work is respecting one another. It's recognizing that even if we have differences, we need to try to learn from each other and listen to one another, and it is damn hard, right?

HOFFMAN:
I completely agree.

I’m Reid Hoffman, thank you for listening. And thank you for being a Masters of Scale member.