Where Did Chobani Go Wrong? Was it Avoidable?

Chobani

The Wall Street Journal (http://www.wsj.com/articles/at-chobani-rocky-road-from-startup-status-1431909152?KEYWORDS=chobani) cataloged the rise of Chobani from a start-up in 2007 to the $1Bn company that dominated the Greek yogurt market with 60% market share and its subsequent stumbles which led to a need for a $750MM investment from private equity firm, TPG and ceding the CEO position to a “professional manager”.

The Journal quotes Hamdi Ulukaya, the founder saying “the deal occurred because Chobani had grown beyond his ability to run it”, “…it was in over its head: losing money….Chobani’s operations were scattered, purchasing was inefficient and it lacked an adequate quality control team…” going on to say “The CEO’s story echoes that of other entrepreneurs who have struggled to develop their creations into mature corporations – and often has to cede control. A founder passionate about a product, but uninterested and inexperienced in the nuts and bolts of business, can find himself ill-equipped to ride the wave he helped create.”

As The Journal rightly states, this happens all too often. Companies don’t develop the systems, processes and tools to support sustainable growth and instead rely on things that worked in the early stages of the business. And in many cases sticking with the initial management team which may have been great for a smaller business but out of their depth at scale. Mr. Ulukaya acknowledges that he probably should’ve changed out the team 3-4 times on the way to a $1Bn business but “they are awesome people” so he didn’t.

The lesson here is that people, process and systems need to keep pace with growth, in fact they should probably be a step or 2 ahead. What’s also understandable is that founders don’t want to bring in “suits” or are so focused on the product, customer or growth that they lose sight of the “nuts and bolts”. To prevent situations like this, the obvious answer is to go out and hire professional staff that will pay attention to the “nuts and bolts”, but this isn’t as easy as it may seem. Ceding control is an issue but you also need to be sure that culturally you bring in the right person otherwise it will be a painful situation for all, and possibly costly in terms of lost time and energy.

So what should someone like Mr. Ulukaya do?

  1. Bring in an advisor, someone who has scaled organizations, perhaps a retired CEO who can be a sounding board or who can point out the things that need to be considered as the company grows;
  2. Conduct a periodic “audit” of processes, systems and tools to ensure that they continue to support business needs. Stay away from firms and consultants who are looking to sell solutions or technology. Instead bring in a consultant that will take an objective view and is not looking to sell a specific solution. There are many independent consultants available who can do this;
  3. Consider bringing in someone as an interim executive before committing to a permanent hire. This way both the company and the executive can test whether it’s a good fit for both parties and has the potential to avoid costly mistakes

And then there is always the option of cashing out and leaving someone else to deal with the “nuts and bolts”.

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