RICH PICKINGS: The start-up star who kept it simple
US entrepreneur Hamdi Ulukaya has been making headlines recently as the world's newest billionaire. But how did he grow so rich, so fast? And how'd he do it with yoghurt?
No, the answer is not social media.
Nope, it’s not software.
No, he’s not a miner.
Answer: Ulukaya’s empire is built on decidedly low-tech product: Greek yoghurt.
New York based Ulukaya hit the headlines last week after Bloomberg named him as the world’s newest billionaire. He is the 40-year-old founder of Chobani, the biggest-selling yoghurt company in the United States, which began producing just five years ago.
While Ulukaya has regularly been in the media telling his story, he has taken a decidedly low key approach to his crowning by Bloomberg.
"The real story here is the collective success of Chobani and how we as a company, through our fans and community, have left an indelible mark on the yoghurt industry,” Ulukaya said in a statement.
According to Bloomberg, Chobani’s revenue more than doubled to $US745.6 million in the year ending May 13. Bloomberg says its $1.1 billion valuation is based on the average enterprise value-to-sales and enterprise value-to-EBITDA multiples of two publicly-traded dairy companies, Danone and Saputo.
Australia is a contributor to that growth. Last July, Chobani bought a Victorian company called Bead Foods for an undisclosed sum and renamed it Chobani Australia. Australian yoghurt sales are expected to rise from $65 million in 2011 to $75 million in 2012.
It remains to be seen whether Chobani can conquer Australia in the same way it has stormed the US. But in the meantime, let’s take a look at the extraordinary story of Hamdi Ulukaya and Chobani by extracting 10 lessons from his career.
1. Listen to your father
Ulukaya arrived in America in 1995 to study, learn English and go into business. A few years later his father – part of a long line of cheese and yoghurt makers from Turkey – came to visit and complained bitterly about how poor American cheese was. He also told his son Hamdi that there was money to be made from making cheese.
Ulukaya dismissed the idea initially but by 2002 he had come around and he started making feta.
2. Don’t dismiss an opportunity
One day in 2005, Ulukaya stumbled across an advertisement for a 100-year-old yoghurt factory formerly owned by food giant Kraft. He initially discarded the ad, but then he took another look.
"I was always so surprised that there was no quality yoghurt in the US. I thought, I can do something here, without even knowing how,” he told the Wall Street Journal in July.
"Everybody around me thought I was nuts. Here was this huge company, Kraft, getting out of this plant. If there was value in it, why would they close it? But you just have a gut feeling you can do something.”
3. Get money from whoever will lend it to you
It took Ulukaya five months to put together the finance together to buy the old Kraft plant. One of the loans he secured was backed by the US Government’s Small Business Administration, a brilliant program that has helped keep credit flowing to entrepreneurs despite the obvious difficulties in the US economy. It’s part of what makes this a great American story.
4. Don’t ignore the past
When Ulukaya got hold of the Kraft plant, his first move was to signal a new era.
"[The] first thing I said was that we were going to paint the walls, because the paint was horrible and I had no other ideas,” he told the WSJ. "And I said turn the lights off because I had looked at the electricity bill. Then I started doing some homework on specialty yoghurts.”
Ulukaya might have wanted a fresh start, but he didn’t forget the past either. His first five employees were workers who had been at the factory under Kraft’s ownership and his sixth employee was a yoghurt maker, a family friend from Turkey.
5. Take your time to get it right
It was two years between when Ulukaya purchased the former Kraft yoghurt factory and when the tubs of Chobani started rolling onto shelves in 2007. This two years was spent getting the product right.
"I wanted to make sure the product was perfect because I only had one shot and it had to work,” he told the WSJ.
Ulukaya says it was a difficult time, but he survived by staying focused.
"You go from some days when you’re smiling and you’re thinking you’re going to make this thing rock – to the next day when a pipe breaks, the yoghurt doesn’t taste right and your costs look too high,” he told Forbes last year.
"As a founder, you have to learn to keep your eyes on an ultimate goal. If you lose sight of that goal, you have to get out. I always saw the goal. It was always there in my head.”
6. Market within your means
Chobani’s impressive market share has been built without the mass marketing that is a hallmark of most consumer brands. Ulukaya simply didn’t have the budget to go big, so he built slowly, getting his yoghurt into New York stores, then into regional stores, then into more stores on America’s east coast. When big retailers such as Costco decided to stock the products, Chobani was away.
Ulukaya’s marketing was low key and cheap.
"I used to answer the phones and I would hear people say 'I love this yoghurt. I'm going to tell my friends and family about it'. That gave me the idea to reach out to bloggers, and to use Facebook and Twitter to have direct communication with consumers. We also had our own sampling truck that went all over the country to festivals and parades,” he told the WSJ.
7. And be aware of the power of your marketing
Chobani’s first television advertising campaign was a little too successful – the ads had to be pulled when demand rose so high that Ulukaya and his team couldn’t meet it. The silver lining was that Ulukaya was given the confidence to pump more into his capacity, spending $US100 million to upgrade his original plant and $US300 million on a new plant in Idaho.
8. The back-end is not the ugly part of your business
For many consumer businesses, brand is everything. Ulukaya takes a different view. One of his tips offered to Forbes was to invest in the core of the business – in Chobani’s case, that’s the yoghurt plant.
"We have the biggest best plant in the US, maybe in the world. We’ve invested $220 million in taking that plant from a capacity of 50,000 cases to 1.4 million. It’s the backbone of what we do and we treat it that way.”
9. Be prepared to make sacrifices
Like most entrepreneurs, Ulukaya says sacrifices such as missing family life and virtually living at his yoghurt plant are part of what has been necessary to drive his business forward.
But I loved the simple philosophy behind this tip given for Forbes: muck in.
"If you make yoghurt, go to the plant. Work with your people; if you want people to work on Sunday, be there next to them.”
10. Remember, divorce can be a wealth killer
Ulukaya’s one looming problem comes in the shape of his ex-wife, Ayse Giray, who is suing him demanding a 53 per cent stake in Chobani and a staggering $1.5 billion in damages.
While the pair divorced in 1999, Bloomberg says Giray is claiming that she gave Ulukaya $US500,000 between 1997 and 2003 to help establish his original feta cheese business in return for a majority stake in the company.
But Giray claims Ulukaya spent some of the money to acquire the Kraft factory and start Chobani. Bloomberg says Giray’s complaint claims she confronted Ulukaya, who agreed that her interest in the feta business also applied to Chobani, but he has refused to pay her any share of the profits or hand over her stake.
Ulukaya has said the claims are without merit.
James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.