Something is happening on the shelves of your neighborhood grocery store. There’s a wider range of organic selections, more fresh local produce, and new ingredient-focused indie brands debuting every day.
Another dynamic — one that the agricultural cooperative Land O’Lakes has taken special note of — is shrinking space for dairy products, and more importantly, a growing number of plant-based milk options for consumers.
According to the market research company Mintel, sales of dairy milk is projected to drop 11 percent between 2015 and 2020. And in 2016, almost half of Americans said they were drinking at least some non-dairy milk.
“What we’re concerned about is that fact that customers are increasingly looking to those dairy alternatives as not just something extra, or something fun to spice up the day, but as complete alternatives,” says Raquel Melo, Vice President of Innovation & New Business Development for Land O’Lakes’ dairy foods division. But farmer-owned cooperative is not exactly in dire straits — it generated a record $13.7 billion in revenue last year.
One step the organization is taking to address changing consumer preferences, though, is its Dairy Accelerator. Now in its second iteration, the accelerator brings together dairy-focused entrepreneurs and startups for mentoring and support from Land O’Lakes employees. Chosen startups receive a $25,000 stipend and are required to attend several program sessions at the Land O’Lakes headquarters in Arden Hills, Minn. But in following the lead of similar accelerator and incubator programs at companies like Burt’s Bees and Chobani, Land O’Lakes does not take an equity stake in participating companies.
We spoke with Melo recently to discuss the purpose of the accelerator, what is changing in the program’s second year, and where acquisitions and spin-offs fit into the equation.
The Dairy Accelerator
We piloted a few concepts that were sort of accelerator-like three years ago, but technically this is our second year really running an accelerator.
The goal of the accelerator is, first and foremost, to learn, and to really understand the marketplace the way it’s radically evolving around us — particularly around food — and to provide support to emerging dairy entrepreneurs.
I go back to our mission and to what we are as a company. We’re a dairy cooperative. That’s kind of a big deal when it comes to how we think about the accelerator.
When you look at the dairy case, what’s growing are plant-based products. …If the only things that are getting onto the shelf — because they’re the only things that look exciting and sexy to the customer — are plant-based things, that doesn’t really [bode] well for the future of our industry.
We’re all about looking for that next great idea, that next great emerging entrepreneur in the dairy space, and providing them with support — mentoring support, skill-based support — to help them solidify their value proposition so that they can succeed in the dairy space. If they succeed, then we succeed. At the end of the day, we’re all about supporting dairy.
We launched the full-fledged [accelerator] program last fall with five wonderful companies. They came out [to our headquarters] in the Twin Cities once a month for a few months, which is the format for our program [in 2018] as well.
They went through intense immersion in everything you can imagine, from finance to supply chain, marketing, leadership development — almost a mini-MBA.
All of it is focused on helping them build and solidify their business case, so that they would each emerge from the program better able to hit the ground running and grow their businesses. It was an amazing experience for the entrepreneurs, but also for us. We learned a lot about where the dairy case is changing. [We learned] how entrepreneurs are thinking about their opportunities — how they go fast, which is a big deal for us as a big company.
Lessons Learned from Year One
1. Equity isn’t everything
The first thing we learned is that we’re on to something… It felt like such an experiment for us. As we’ve looked around at the accelerator landscape, we see that there are some models that are emerging.
One is, of course, that venture capital model, where the companies that host these accelerators or incubators take an equity stake in the companies in the program. That is not our approach at all. We first thought that our program might not attract sufficient interest because [of that.]
What we learned is that [not being equity-based] was really the strength of the program. We’re not expecting anything in return other than we want you to grow. We want to nurture you. We want the dairy case to be supported. I think it led to real transparency and authenticity…
At the end of the day, what we’re saying is we’re owned by dairy farmers. What we want is for the dairy category to be viable. We want to support you so that five years from now, we don’t wake up and look at the dairy case and it’s all plant-based.
That ended up being a powerful message. Our entrepreneurs, they really appreciated that we weren’t saying, “OK now, where’s our cut?” What we learned is, first of all…just keep it simple. Keep it authentic. Keep it transparent, because at the end of the day that is really what attracted these entrepreneurs in the first place.
2. Plan time for your company to learn from the entrepreneurs
The second thing that we learned — which will be a shift for us this year — is that we have perhaps as much to learn from the entrepreneurs as they have to learn from us.
We’re giving them a lot of intense information: how to run an efficient supply chain, how to do a really effective marketing campaign. The reality is that we didn’t give them as much exposure to our own team members. It was more, “Let’s tell you,” as opposed to them telling us. “Telling us” happened in the informal times together, over beers, over dinners together.
What we’ve realized is they have a lot to tell us. We’re formalizing that, so that our employee…can have more exposure to the entrepreneurs throughout the course of the program, as opposed to a formal presentation at the end…
3. Rely on yourselves as the experts
The third piece that we will change is that [in Year One, we] did bring in a lot of industry experts. We relied a little bit less on ourselves as the experts. At the end of the day, I think those industry experts were great, but the entrepreneurs were most excited when it was just us.
They don’t need a supply chain leader. They just want the head of our supply chain because [they’re interested to learn] how Land O’Lakes does it. We probably underestimated how valuable our own advice is as a large dairy organization.
Those are subtle shifts. We’re not overhauling the program by any means. We look at last fall and say, “Wow. That was really successful.” At the end of the program, we ask the entrepreneurs to rate the program. We got five out of five stars. All of them said, “This was terrific. This is exactly what we needed.”
They send us updates on a periodic basis, just on their own volition. We haven’t asked them to. It’s very, very cool to see how differently they’re approaching their growth dilemmas and the successes they are having in the marketplace. It’s personally rewarding, frankly.
4. Think critically about your revenue threshold for admission
We looked at other accelerators. In some cases, we noticed that there wasn’t a revenue [threshold required of the startups that applied.] In other cases, we felt that it was really quite high — $2 million or $5 million.
What [our] $200,000 [level] says is, you’ve started. You’ve started the journey. Last fall, we had five companies. The largest was at $5 million in revenue. The smallest hadn’t launched yet.
You teach content or you mentor very differently for companies already at $5 million in sales, versus those that haven’t actually begun the journey yet.
$200,000 felt like, “OK, it’s not big. It’s really small.” It suggests you may just be getting started, but it’s at least enough of a foot on the ground that you’ve had some basic experiences. You have sold product, you had to work with a distributor, possibly a customer.
We can start the conversation in a certain place, and start talking about customers, without having to fundamentally start at square one and describe how the food industry works.
The Potential for M&A
[Acquiring participating startups] is not an explicit intention. It is a lucky strike extra. Philia Foods was a company that participated in our [accelerator] pilot. They’re in the business of high-end spreadable premium cheese.
What we found over the course of the pilot program is there was a cultural synergy that was kind of interesting. We thought the entrepreneur was just a wonderful, sincere person. We could see him as part of the Land O’Lakes environment.
It was almost as if the entrepreneur came first. We were like, “Oh, the business would be an interesting adjacency for us, right?” We’re not in high-end premium specialty case spreadable cheeses. We were not at that time. Our portfolio has since evolved a little bit.
[Philia Foods was small at the time], and in that situation, it felt like, “Let’s just go for it.” [Land O’Lakes acquired Philia in December 2017.] I think today with the benefit of hindsight we would say, “Gosh, we might be more interested today in nurturing and seeing how we can support entrepreneurs to get to a viable size, a proof of concept…”
There are various ways to do that, whether it’s a partnership or it’s some sort of minority investment, etc. I think that not because Philia Foods was unsuccessful. In fact, we’re super excited by what we’re supporting it to do… It’s going to be in the Northeast starting this fall. We’re super excited about that. It really has been like starting a true startup…
At the end of the day, that’s not exactly what we’re trying to do. We’re trying to learn first and foremost. We’re trying to support the dairy industry. We’re really trying to support entrepreneurs to grow. If there is an opportunity for Land O’Lakes, we’re not going to shy away from it, but it’s not the explicit intention…
I’ll put it this way: we’d probably be more excited to learn that there is an opportunity for investment for us in one of these companies… than necessarily one of these companies is right for acquisition…
By their nature, they really are very small companies. We’re big. Sometimes it’s really hard for small to coexist within big. We’d rather help these companies get bigger. Then if they are successful, then open up those kinds of dialogues, but maybe at a little bit later point in their development.