Mission-driven business might be trending right now, but George Siemon has been running one since before it was popular. He’s the longtime CEO of Organic Valley, the Wisconsin-based cooperative of organic farmers that sells dairy products, eggs, and produce at mainstream grocers nationwide. In 2015, Organic Valley became the first organic-only food company to pass $1 billion in revenue. We spoke with Siemon about Organic Valley’s secrets to success, and the unique challenges and opportunities that come with scaling a co-op model to that size.
What inspired you to start Organic Valley?
George Siemon: Organic Valley is a farmers’ co-op that came out of the farm crisis of the mid-80s. It was a terrible time, with a lot of foreclosures and suicides, and there was a tremendous amount of upheaval in the family farm movement. There was a lot of activity around the 1985 Farm Bill to get some solutions out of Washington, DC, and that was a complete disappointment. Out of that, the same farm movement groups started looking for other ways to help family farms.
I was a child of the ’60s, raised in the city, but I had family from the country and farms. I studied to be a forester, but I realized I wanted to be more outdoors and not work for the government. I moved into agriculture, became part of the back-to-the-land movement, and ended up buying a farm in the hills of Wisconsin in ’76 and went to organic farming.
In 1987, one of the board members of our home region here in Wisconsin had the idea to start an organic, value-added vegetable co-op. The idea was using organics as a vehicle to try to get sustainability and fair pricing into supporting family farms. Pretty exciting, really, and very idealistic — and it probably would have failed quickly, but fortunately we had a lot of good things go our way.
What have been the key components to your success?
GS: One of the surprising things that made us a success was that we immediately partnered with conventional agriculture, which is not what you would think of. We were able to get them to be our friend and partner, to do our manufacturing work on a co-pack basis. We got a dairy association here to sponsor our organic dairy program. They helped provide us with some of the initial funding and they gave us the ins to go to what you would call a conventional cheesemaker and make organic cheese.
“We don’t know what our company’s worth. There is no valuation number. We really don’t want to know. We just worry about ‘Are we fulfilling our mission?’”
What made the conventional producers willing to work with you? What incentive did they have to help you?
GS: Nobody was happy to see the failings of family farms. It was a terrible era. It’s still this way today. There are some people that don’t like organics, but the second you say, “Yes, but it’s a really great market to save family farms,” everybody says, “That’s great.” Even if they don’t really believe in organics, they know that family farms are challenged in the era of mega and super big. “How do we help family farms?” was always our key in the door.
What have been the largest challenges that you’ve faced scaling Organic Valley?
GS: Well, of course there’s financing. The big issue is how to grow a big company and not bring outside investors in. But there are two things that have really helped us along that path. One is, of course, that our farmers are our owners, and the number one expense we have is the price we pay them for their product. If we were ever in a crisis, we could lower that pay price and swim out of it because we were providing hope to farmers. Having a backup like that is very helpful.
The other thing that we did is instead of going to the investor-type world, we went to the community, before there was any crowdsourcing, and opened preferred stock. A preferred stock program is basically when outside people lend you money. They don’t own the company, but it comes on our books as equity because it’s a stock. It’s written to our favor, but we made the return desirable, which is 6 percent. We opened it up locally and then we slowly opened it up state by state where it was legal. Today, we have $50 million in preferred stock and those are mostly outside people, customers, neighbors — people who are thrilled to have their money in some place that they believe in, and they’re thrilled to get 6 percent annual return in today’s environment. In addition, we also make our farmers make an investment in the co-op, so they, too, have invested in a form of preferred stock.
We’ve made it this far, and now we have very little debt, really. We have the ability to borrow money, but we also have the ability to open up our preferred stock again if we wanted to, to raise money — but we probably wouldn’t do the 6 percent this time.
How intentional was that decision to not take on any outside capital? Would you recommend that values-based businesses do everything in their power to not take on outside capital, or do you think that that has changed with the landscape of impact investing and more mission-aligned investors?
GS: First off, we really had no idea we would succeed. We were a frustrated group that just wanted to do something different. That meant that we actually were willing to fail. We had a stubborn attitude. We were going to do it our way or we were not going to do it. We didn’t ever consider outside money.
We actually were offered to be bought many, many times, and there was a time or two when we were down on our knees that we had to at least talk to the people. But we wanted to do something that was farmer-oriented. We didn’t want to wander from that. Some could say we were naïve. Certainly, the primary leaders, of which I’m one, were a sacrificial group who were willing to work for a sub-par wage for a long, long time when they could have been glorious entrepreneurs who rode off on a sailboat with millions of dollars. That wasn’t us, and that wasn’t me. We never considered anything.
As far as outside money, I deeply appreciate the socially responsible money. Most of that money, though, still, at the end of the day, is looking for an exit strategy. An exit strategy, in the long run, means losing control or selling, so I’m not convinced that that’s a safe place. As long as you’re looking to sell and build on the valuation of the company, your company is going to change in its direction. It doesn’t have to be that way, but I’ve watched 30, 50 companies go through raising money thinking that they’d be able to keep their independence and, in the long run, have the pressure of those investors to get their big return on investment.
One of the things I challenge in the sustainable funding world is: What is a fair return? Is it never enough? What is the right amount? Because once you get involved in the valuation of a company, you see big dollar signs, and the driving factor is that exit strategy. I guess that’s the American way, to a certain degree.
A co-op is a different beast. You don’t deal with valuation. We don’t know what our company’s worth. There is no valuation number. We really don’t want to know. We just worry about “Are we fulfilling our mission?”
Have there been any particular challenges because you’ve been a co-op and had that unique vehicle or structure?
GS: Well, yeah. Instead of having outside investors to address, we have 1,800 member-owners to address. A co-op can be plagued from politics; can do things that are more satisfying in the moment versus the long-term. They have their own pitfalls, but at least they don’t have this valuation to serve. At least with a co-op, you’re saying, “Are you fulfilling your mission? Are you fulfilling your purpose here?”
And, of course, that means you have to have a viable business to do that. A co-op is a good business model, but you have to remember it’s a business and not a political vehicle. Business is still business, and in order to fulfill a mission, you have to run a good business. I once said that we’re a social experiment disguised as a business. Once you get the business going, then you can start turning to things like culture and to new ways of working together and new relationships. But you’ve got to have that sound business to build on.
What is your largest pain point, right now, as a company?
GS: We’ve been very fortunate to have a dedicated group of employees who have worked too hard to accomplish what we’ve accomplished, but that is not the way you go forward. Our pain point now is going from the era of what I call “heroic employees” to more of a widespread, empowered, and process-oriented structure. It’s great that you can have a few people that work too hard, but at the end of the day it’s frustrating to the people below them that they don’t get more empowerment. You’re much better off when there’s a wide group full of responsibility. Those same employees that have worked so hard now are five years from retiring. Have we really allowed the people underneath them to flourish? Have we built systems so we’re not dependent on the individuals? And how are we protecting the co-op’s mission long-term versus just serving it today?
“It was our collectiveness that made us strong.”
What’s the best piece of leadership advice you’ve ever received?
GS: Early on, we adopted the idea that you should build the business and then the building. We’re a relatively virtual company. We work with 90 to 100 processing plants in the US, but we only have two or three of our own. We hire our work down, and that enables us to have a clear focus on the word “organic” and organic farmers, the organic marketplace, and all that, and leave the actual brick-and-mortar investments of dairy plants to the people who, that’s their business, that’s what they do. That’s been a real key to our success, our virtual view that we took.
I find people all the time who get in over their heads building a building that they weren’t ready for, and it just doesn’t work. You can think you’ll sell 20,000 pounds of cheese a week, and you may do it in three years, but you thought you’d do it in three months. All of a sudden, you can’t keep up with cash flow, and what was a good idea failed when it could have worked, if you built the business some and then built the building. A good business idea can fail just as much from a lack of cash as it can from the wrong leadership.
You’ve been the CEO for the entire life of this business. What kind of leader would you describe yourself as, and why do you think you’ve been able to be successful leading this group for as long as you have?
GS: First off, I was raised in a business family, and there’s only one thing I knew when I was raised: I didn’t want to be a businessperson. I wanted to be outdoors. I didn’t want to be a CEO. For the first five years in the job, I spent all my time saying, “I’m just going to do this another week and then I’m quitting.”
I definitely promote the Japanese business idiom “None of us are as smart as all of us.” In the first 15, 20 years, it was our collectiveness that made us strong. Really, I was more the facilitator. I’m a calm enough guy that if we had trouble, I’d always say, “We can make it through this.” My job has been to verbalize things in a simple way that builds a group mind.
Now, 28 years later, I would have to admit I’ve become a CEO. There’s nothing like experience. I’ve learned a lot. Now I feel good about such meaningful work that’s had such an impact on so many families. We have 850 employees, 1,800 members, and a whole lot of other people that do our work for us, so it’s a pretty big responsibility to take care for that many families.
Speaking of learning a lot in this last 28 years as a reluctant CEO, what is the largest lesson you’ve learned so far?
GS: Oh, boy. I think it’s the value of values and the value of believing in your values and standing by them. It’s kind of like your pole that you hold onto during a storm, as you return to those. During the storm, you don’t leave your values, you stick by them. I’ve always been amazed by our devotion to our mission and how well it’s served us to have that devotion.
GEORGE SIEMON’S TOP 3 PIECES OF ADVICE FOR CO-OP FOUNDERS
1. GET BUY-IN. You have to make sure that the people you’re trying to serve are really into it —. that it’s their idea, they want to do it, they put the energy into it. When we started our co-op, the dairy part of it only had seven farmers, then eight, then ten. But those ten people, they met every week for several years. They wanted this to work. It wasn’t some outside group trying to push some idea on them. They owned the idea. They carried cheese. They did all they could do, with no wage or anything, to make this thing happen. You have to have ownership by the people you serve.
2. TEMPER THE IDEALS. You never want to think that because you’re right, you’re going to succeed. Being right does not make sure that you’ll succeed. A lot of people get idealistic — “We’re doing the right thing, we can’t go wrong” — but cash is oxygen. You can be right and still die of a lack of oxygen.
3. BUILD THE BUSINESS FIRST. In order to save the world, in order to have a mission-based business, you have to have a good business. A good business is really what matters most. It’s really easy when people start a new venture to get so excited, and, for example, build a cheese plant because you know you can sell all this cheese. Our strategy has always been to build the business, then build the building. We hired someone to make our cheese so we didn’t have the risk of that big, new building. Business plans rarely come true like you think they will, so don’t let that guide you into a dangerous position.