The Difference Between Operating and Operations (With Banza's Mike Tarullo)

Sean: Hey everyone, Sean here. Before we kick off the show, a quick special announcement for listeners to the Operations podcast. Hypergrowth London for 2020 is already around the corner, believe it or not. We are super excited to be returning to London for the second year in a row, there'll be an amazing lineup. May 6th in London will be the kickoff to Hypergrowth of 2020. And, of course, I wanted to put something special together for the people who listen to the Operations podcasts. So if you listen to this show and you want to go to Hypergrowth London on May 6th, you can use the promo code ops, O- P- S to get a discounted ticket. The discount ticket is only £ 59. I don't know what the translation of that is for dollar. Just bear with me, £ 59. The general admission normally is £ 499. So use the promo code ops, O- P- S to get your tickets, enjoy Hypergrowth. Now, on with the show. When you host the podcast called Operations and you're emailing back and forth with a COO who is a potential guest. This is not the email you want to receive." To be fair. I do not actually do operations." But this in fact was the email I received from today's guest, and this is Operations. The show where we look under the hood of companies in Hypergrowth so onward we go. For most of the show's history with one or two exceptions, we've looked under the hood of software companies, but today we're going to do something a little different. We're going inside of Banza, the makers of chickpea pasta. That also happens to be the fastest selling pasta brand at Whole Foods and Target, and my guest today is Banza's COO Mike Tarullo. In our conversation, Mike explains the important difference for early stage startups between operating and operations. We talk about his approach to de bottle- necking his business. We talk about Banza's guiding principles for hiring and why industry expertise just wasn't a top priority for their team. Mike has also been a mentor and a role model of mine throughout my career. Prior to joining Banza, he was the senior vice president of corporate development at Venture for America, where along with helping me land my first job out of college, he advised dozens of startups and their founders. So while the operations of getting pasta boxes onto the shelf of your local Whole Foods might not apply to your day to day, the operating of a growth stage startup, whether you work in spaghetti or SAS may turn out to be more similar than you think. So let's start there and go back to the motivation behind that email that Mike sent me.

Mike Tarullo: The first question that you had sort of sent over to me was," Hey, what are you responsible for within operations at Banza?" And I said," None of it, actually." And what I said is the thing about the role of a COO at an early stage company is it's more operating rather than operations. And if you think about operations as all of the internal processes that a company needs to succeed, then it is that. But if you think about it as the logistics of supply chain manufacturing and warehousing and fulfillment, then it's a little bit less that. Although, I am aware that we have those things and what makes them different than what tech companies do as well. But to me, the responsibility of an early stage COO is kind of complimenting the CEO or the founders more than anything. And it's the bottle- necking the business, which is basically to say you do something manually until you reach a scale where you can either hire someone better at it, or bringing in software or consultants, or what have you inaudible scales a little bit better. And it's just the sort of brick by brick of doing that as you go from one to 10 to a 100.

Sean: So I want to talk about some of those bottlenecks, but I want people to also understand the context of what Banza was when you first got there, versus what it looks like today. Can you just give us a small progression of there, of how that has changed?

Mike Tarullo: So when I got to Banza, we were in less than 500 stores and doing sub$ 1 million in revenue. We were in our first year in retail and we were really just figuring things out. And while we're still figuring things out, we are now in over 12,000 stores and are the fastest selling pasta brand in Whole Foods and Target and a number of other places as well. So we've had to build a lot of infrastructure.

Sean: Don't let Mike's laid back style, hide the numbers. He just described. Banza went from being sold in less than 500 stores to over 12,000 in just four and a half years. And in case you don't have a calculator with you while you're on your commute or doing the dishes right now as you're listening to this, that's 24 times as many stores. They were named to Times list of 25 best inventions. They raised$ 28 million in funding over the course of the company's history with$ 20 million of that coming just recently in November 2019. So when Mike talks about his role of de-bottlenecking the business, I was certain that there must have been a few of those bottlenecks along the way from 500 stores at 12, 000. And I wanted to understand how he finds them.

Mike Tarullo: So every day you come in and you say," Hey, what's the thing that is stopping us from achieving our goals this year?" So every year, we actually have been pretty good about writing out goals, each department lead does that, and then the organization as a whole does it. And for a few years in there, we didn't have any departments. So it was just the organization as a whole. So you look at those and you say," Okay, one of those goals is X million dollars in net rev. Another one of those is a certain gross margin profile. Another one of those is a product performance benchmark. Another one of those is something to do with brand awareness, brand love and loyalty. So there's a bunch of different things you can do, and you just have to come in everyday and say," Hey, what is the thing that is most inhibiting our ability to get to that group of goals?" And that might be a product issue. And then when you dig into the product issue, it might be a sourcing issue, or it might be a manufacturing issue, or it might be a QA issue. And then, you either want to figure out who can band- aid that, or bring in someone external to do so. And so, honestly, mostly what you're doing is just like problem identification and bringing resources to bear.

Sean: And I have to say, hearing the way you're describing this and your goal setting and even the categories of the problems and challenges that you're facing, thinking about it from the way I look at our business at Drift or the way that previous guests have talked about their software businesses. I don't hear a ton of differences there between the way you're looking at your pasta business and the way some of these software businesses work. As someone who has also advised software tech companies prior to Banza, when you were working with Venture for America, do you approach it in a similar way? What is the same and what is different for you? Am I missing something there?

Mike Tarullo: Yeah. Well, the biggest difference is we have a hell of a lot more money tied up in working capital. When you have to hold a few million dollars of inventory and that's considered normal. And when your gross margins are not over 90% at all. So that's the biggest difference. I think the similarity that we see, actually, for our part in building CPG, consumer packaged goods company, we've been intentional about bringing in people who do not necessarily come from a CPG background. Because if you look at just from a market share perspective, big CPG has faced such precipitous decline in percent ownership of various markets in the food world, in the beauty world and a few other places as well. And a lot of that is because of new ways of thinking and just much more aggressive thinking in terms of how long should it take to do something. And so, I think that is something that's really similar to a tech company is what's the MVP of how we can do a process? And what is the fastest way to get something to market and to get feedback on it? And in part, we can do that because not as many people are watching. So if we want to test a product online, we can do that very quickly and with limited resources, and it's very hard for general mills to do the same thing.

Sean: I have to admit. I thought more of my conversation with Mike was going to be about how shelves get stocked or pasta inventory challenges, more of the operations and less the operating. But what became evident and more interesting was how Banza that is intentional about bringing in people who don't necessarily come from a consumer packaged goods or CPG background. Mike and the team are looking for innovative people versus industry vets. This begs the question though, does the company miss out or fall behind by not having a lot of that industry expertise?

Mike Tarullo: Yes, of course. We constructed a talent philosophy early on at the organization and we've stuck by it. We started it when we had fewer than 10 people and there are two guiding principles for it. The first is everybody needs to bring something to the organization that we don't have yet. And the second is everybody has to be somebody that we would have hired in the first 10. So inherently, you're not going to be able to just choose a specialist because they would only fulfill the first role there. But you also can't just go out and just draft athletes, unless there's something unique about them in terms of what they can bring or their mindset or the types of work they've done, or the contexts they've been in. And we can kind of create a team that is more diverse in terms of its perspectives that is richer for having a bunch of different backgrounds. And we sometimes have to shuffle people out of the process who we think very well of, because we say," Well, they don't really think any differently than us." Or we say," Well, they're not a hyper specialist, but I would never hire them to do anything but trade spend planning. So that's not a good fit for us. I do think that every company could function that way and it would be pretty successful. And in fact, I think that a lot of really successful large corporations do function that way, that talent philosophy is not totally dissimilar from the way that investment banks, consulting firms and big four tech firms hire, they will hire and develop, and they look for a lot of versatility. So our context is different, but I think it hasn't really been an inhibitor for us so far, and it certainly doesn't rule out people who have a specialized background. It's just, most of those people wait for you to be a little bit more established, especially the really talented ones before they start knocking your door down. And I think, hopefully, we're getting to that point.

Sean: Yeah. Your last piece there is super interesting to me, because that was going to be my question, which was okay if one of our guiding principles is that if we would only hire this person, if we would have hired them in the first 10. Does that immediately disqualify people who have a very deep specialization or a deep knowledge of a specific topic? But I think it sounds like what those first 10 people's approach to the role would have been as opposed to someone who has to and wants to wear all a lot of hats.

Mike Tarullo: Yeah. I mean, anybody who works in operations knows that there's going to be a different fire depending on the scale of your company every day, week or month. And you need to be able to adapt to that. And so, your hiring philosophy has to screen for that. It has to screen for people who are different and bring a different perspective to the team, who could succeed in a variety of contexts. And you believe they could do a different job in a year than they're than they're doing today. And I mean, I think any of the folks you've talked to their organizations have gone through, at least one period of change in the time that they've been there. And the person who can change their job and change what they do every day proactively, rather than being square peg in a round hold, that person is going to be more valuable to you. And hopefully, can allow you to have a team that looks the same over time where we try to pride ourselves on people changing and growing who they are and what they do over the years. Instead of just having to hire new and different specialists because no one wants to do the same thing for more than a couple of years.

Sean: I'm going to repeat Banza's two guiding principles because whether you sell chickpea pasta or machine learning algorithms, they might work for you and your business, especially in those early stages of hypergrowth. Okay. Number one, everyone you hire needs to bring something to the organization that you don't already have at the company. And number two, everyone needs to be someone you would have hired in the first 10 employees. And what Mike is screening for here in both operations and across the company at Banza are the people who expect there to be fires and are able to react to them and put them out. This concept was no surprise to me because there's a term for this, that Mike taught me a long time ago and I use it in my own hiring here at Drift. The term is adaptive excellence. Adaptive excellence basically means that a person can be thrown into any situation. And that person can have the wherewithal to look around, learn, gather as much context as they can, and then take action and thrive in that environment. And if you can fill your operations team or any team at a Hypergrowth company for that matter with adaptively, excellent people, you're going to be in good shape. Mike even said that when it comes to the bottlenecks he's working on or the fires the team is putting out. If you can't find the right person to own that project or that problem, all of that deep bottle- necking could go to waste.

Mike Tarullo: I think two steps forward, three steps back is definitely possible if you don't put something in place after you attempt to address a problem. I think typically that happens in an organization because you don't create a single point of accountability. That's one of the biggest mistakes that people make as they're building organizations or processes is they have a diffuse set of people who are accountable for one thing. And they say," Hey, we put a process in place. We put a system in place." This information is good, but then there's not one person responsible for making sure it happens. So for us, it's like," Hey, do we have the right amount of inventory of unit cartons of chickpea the flour of our other ingredients of master cases, all those sorts of things." And you might have someone who's responsible for part of that, but then there's multiple people who are responsible for the other part of it. And that's a big mistake and you will make that mistake every time you add a person and you sort of half- heartedly shovel something onto them, or every time someone gets too busy and they take their eye off the ball. And so, I think that making sure that when you delegate or assign a responsibility, that it goes to a single person and that that person is empowered to do what it takes to see that thing through is probably the best control. And until you have a person who you can delegate something to, you can't walk away from a problem, unless you've decided that it doesn't generate any revenue for you. And you should just abandon an entire channel, which is definitely a thing we have done.

Sean: We had a previous guest, this guy named J Zac Stein. He's the COO of a company called Lattice, and he basically described a very similar process that you described where he said his main job is to work himself out of a job. And he just basically does that over and over and over again, as he moves on to each of those different fires that you're talking about within the company.

Mike Tarullo: Yes, 2020 is the year of me having no more jobs. So we're almost to the promised land.

Sean: The thing that I think is super interesting about your journey and you're working yourself out of these jobs, and that's the fact that you are working in an industry and working on a product that you yourself had no experience in prior to this. And so, you're working yourself out of these jobs, but you had to figure out what the hell these jobs were and how they worked in the first place. And just looking at it from the outside, looking in from a software perspective and thinking about how pasta boxes end up on shelves. How did you learn this industry and figure out what those jobs were that you needed to do and ultimately work yourself out of? How did you learn that in the first place?

Mike Tarullo: One thing that our two co- founders are really brilliant at, and that I learned from them very early on at Banza is just go around asking people, ask people everything, find experts in the field, cold email people, make friends with them at conferences, send them LinkedIn messages saying," Hey, you've accomplished a ton and would love to talk to you." Or," Hey, my company looks up to you and yours and would love to just get your coffee and learn something from you." If the thing that most people aren't very comfortable doing, and I myself, I'm the same way where I'm much more comfortable with my head down, you know, working with my organization and my team on our problems. And that doesn't mean that the advice you get is going to be right, but you go out and you sit down with people and they present ideas and they say," Well, here's what I did. Or fitness gets you thinking about things in a different way, and we did that over and over and over again. And there were a few Chobani, a yogurt company executives in particular who were incredibly useful in our formative days. And now, it's at the point where we have an investor network, that'll help us find people to talk things through. And our operations team actually started an operations meetup in New York. And there were all these people who worked in ops in different companies who would get together and basically complained about how brutal everything was. But that sharing was really valuable and it created a little bit of community and connection, and I think that's how you learn. And now, it's at the point where I'm super surprised when some brilliant person who's starting a company sits down and talks with me for 30 minutes and I actually know more about the industry than they did. And I think that's true for so many other people on our team who didn't work in it before is we learn from other people. It's not like we sit around having brilliant ideas all day, we have very few brilliant ideas. Most of it is assimilating what other people have done and figuring and out what's going to work in our particular category.

Sean: We have a common saying at Drift, innovate, don't invent. And that's exactly what Mike and the team at Banza I have been doing as they've navigated this industry. Put simply, they just ask people who know better. It sounds silly, but chances are, if you're coming across a problem, another business has already faced that problem and solved it. And this approach, when you think about it seems to align really well with bonds as talent strategy. And it kind of gives them the best of both worlds. They're able to both gather industry expertise through this very specific outreach. And at the same time, they're bringing in non- industry talent that is innovative and has more of that growth mindset and Mike seems to be okay with that trade off. Even though there have been some bumps along the way.

Mike Tarullo: I think we would rather be bad at the industry than bad at what we want to do best, which is making the best product we can. And having the mission and values that we have and having a group of people that really likes working together and get smarter every day, we focused on optimizing for that. And we think that's the right way to build our company in any company, regardless of industry. Some of the things that we've been bad at, we had to figure out how to manufacture ourselves and build our own facility. But before that, we had to figure out how to do co- packing, which is basically having somebody else manufacture and package your product for you. And we had to figure how to manage a co- packer. And that's something that if you haven't done it before, even if you haven't done it before, it's a total nightmare where you're basically outsourcing, what should sort of be a core competency. And that's actually what most food companies do. And wrestling with that, and then wrestling with the transition to self manufacturing was a really significant, a huge investment, took a ton of time and took years. We're lucky to have a phenomenal head of manufacturing who had done it before and is extremely entrepreneurial himself, and he was able to give us a significant leg up in doing that. But he had to build a small facility from scratch. Then we had to realize at a certain point that we were about to run out of capacity, moving to a much larger facility and all the while, figure out how to finance the business and continue producing. So I think there are hiccups there, another one with retail, I talked about it. We always get the result we want from retailers, but often we don't know how to speak their language because we don't really come from the industry. And sometimes that's been really good because we've walked into rooms with retailers. And we've asked for things that someone who had spent a lot of time at the game industry wouldn't have asked for, or famously Brian, our co- founder at one point sent a retailer, a Pringles can full of spaghetti because we didn't have any packaging. So there's been a lot of plastic bags and post it notes and," Hey, what do you think of this?" And I think that approach, especially in the early days was sort of disarming. Now, we can't do that stuff. Now, we need to have our ducks in a row, but at least we've had a little bit of time to learn it. And we'll still sometimes ask for something from a retailer that someone who knew better wouldn't. Now, again, that means we might miss an opportunity because we might not understand how a retailer specifically likes to work, and they're all a little bit different. Or we might not understand some of the best practices, ways to go about creating a manufacturing facility. But as a result, we were able to do it faster and for less money. And certainly, with more nights being awake past midnight.

Sean: So I want to go back and unpack that a little bit. No pun intended, the manufacturing decision. You mentioned that you are previously working through a co- packer, which the way I understand it from your description is just basically you're paying somebody else to... Is it both to make the pasta and to pack it? Or is it two separate processes?

Mike Tarullo: In our case, yes. And you can actually have different people doing different things, which is just absolutely wonderful for your supply chain.

Sean: So you've got this system as you're growing up as a company, and I know there's also a whole bunch of history of just getting the product right itself before you even get to this phase, which we won't go into. But how do you make it from...? What's the threshold? How do you as a business decide," Okay, we've got this thing going, yes, we're having ups and downs and managing relationships or having these additional logistics." But I would also imagine that in making the decision to manufacture any package on your own, you are taking on considerable capital investment and risk.

Mike Tarullo: Yes. Honestly, it was opportunistic. We were looking at a situation where we wanted to improve both our ability to scale and the quality of our core product. And we knew that the equipment that we were producing on and the facility we were producing in, wouldn't be able to do either of those things. We were fortunate enough to have a connection to someone who had the know- how to improve the quality. And we said," Okay, let's do this together and try to figure it out, how to scale it up." And so, we invested money in building a pilot plant, which is our version of an MVP in a tiny little 5, 000 square foot facility. And that gave us the proof that allowed us to go out and raise more money and invest that in building a much larger facility over the past couple of years. So it's just like any other process is you have to have an understanding of what your goals are. And one of our goals was scale and the other was product quality and how people felt about it when they tried it. And then we had to explore a bunch of different options for how we were going to do that, and the route we chose was not the only one we explored. And we looked at a million different places we could locate the facility. We talked to a million different co- packers as we were going through that process to see if anybody else could do it for us. And you just have to get as many options on the table as possible, and still understand that you're going to regret the decision you make a bunch of times.

Sean: Just to give us some sense of scale, how much pasta, how many boxes or whatever the right terminology is here is this new space that you guys have invested in? How much is that producing on a daily, weekly, monthly basis?

Mike Tarullo: So the capacity of the new facility is £ 50 million, five, zero, and the previous facility had a capacity of three, maybe four. So it was a big order of magnitude leap. And it's not that much more labor intensive, it's in fact, not more labor intensive to run a much larger line than a smaller line. Now, obviously there's a bunch of other things that you have to do in a facility, but it's one of those things where once you build the infrastructure, you have the infrastructure and it just scales a lot better, but you just have to invest in doing it and then doing it right. So it was really a big leap forward for us.

Sean: Before we go, at the end of each show, we're going to ask each guest the same lightning round of questions. Ready? Here we go. Best book you've read in the last six months?

Mike Tarullo: Okay. I'm going pretty far back here, but I read Sapiens in the last six months. It's not a perfect book, but it'll change how you think about why people do what they do.

Sean: Love it. Favorite part about working in ops.

Mike Tarullo: One thing that people have said about careers is find whatever the most important and valuable thing that's going on in the businesses. The thing that just is absolutely essential to what the business does, because that's the place where you're most needed and where you'll feel the best. And I think operations is just that for any CPG company, it's absolutely essential to everything that happens every day. And again, I don't actually do that much of it, but I see it happening and it's pretty cool.

Sean: I love that. That that's a good answer. Okay. Flip side, least favorite part about working in ops.

Mike Tarullo: Data integrity is just the most annoying thing to have to deal with of all time. There being one source of truth for numbers and integrating a bunch of different systems that do not have the technological capability to be integrated is no fun. So I think that's probably my least favorite thing. Data integrity and data integrity related problems, inventory management, stuff like that. That is just the worst.

Sean: Inventory management. I don't even want to learn a single more thing about that.

Mike Tarullo: Yeah. Well, we have 23 skews and that means that we have materials that produce them, we have the stuff that they get packaged in. We have third party warehousing. We have first party warehousing. We have 12,000 retailers across the country who have their own distribution centers. Managing where all that stuff goes is an incredibly cool puzzle, but it's not my bag.

Sean: All right. Well, we might have to do a whole separate episode about the logistics of how all that works. Someone who impacted you getting the job you have today?

Mike Tarullo: Yeah. Someone who started as my mentee of sorts, Brian Rudolf, our co- founder CEO. I helped him get his first job out of college, listening to a lot of the crummy ideas that he had at the time for startups, as he kind of got his shots up, got his inaudible. He's a mutual friend of both of ours. And he's the reason that I'm working at odds of today. So shout out to Brian.

Sean: Shout out to Brian indeed. All right. Last one, one piece of advice for people who want to have your job someday.

Mike Tarullo: I think you need to figure it out if you want this title and the organization, why that is? There's a pretty funny Harvard business review article about COOs and why it's such a weird role. And it posits that there are seven different kinds of them. And I think you need to figure out which kind you are or which kind or kinds you are or want to be. And I think that would be my advice, if you know which one of those things you are, then you can find an organization where you can do that. But realistically speaking, if you want to do the kind of stuff that we all get to do at Banza, the key is to find and joining the organization as early as possible, without much regard for externalities, how much you get paid or whether your friends have heard of it, or whether your parents think it's a good idea. You kind of need to do it based on yourself and your own sense of it. And in my case, my then girlfriend now wife sensed that the product was really good. And I was like," Hey, yeah. inaudible." So if you want to do something where you, where you get to do something different every day and where you get to try to scale yourself out of different problems, the best way to do that is to get there early and just start doing it.

Sean: Thank you again to Mike Tarullo for joining us on this week's episode of Operations. If you want to learn more about Banza or find some for yourself, you can go to eatbanza. com or to your local Target, Whole Foods. Look for those orange boxes, it is delicious. And thank you to Banza's co- founders, Brian and Scott Rudolph for making such an amazing product. If you like this show, you don't have to go to Target or Whole Foods. All you have to do is subscribe right there in your feed, wherever you get your podcasts. Also, if you enjoy the show, please leave us a six star review on Apple podcasts, six star reviews only. That's going to do it for me. Thanks very much for listening. We'll see you next time.