The 1 Piece of Advice That Turned This Small Family Business Into a $500 Million Company
Amy’s Kitchen, the organic frozen food company, started off small in 1987–and it would have stayed that way if its old-school CFO hadn’t threatened to quit.
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In 1987, just five months after Rachel and Andy Berliner launched their small frozen organic food business out of their Petaluma, California ranch, they had to fire their entire staff--all five of them.
After initial excitement, order volume petered.
"We didn't realize how seasonal the frozen food business was back then, and once summer hit, the orders stopped coming," Andy said over the phone from the family ranch.
A Problem No One Had Anticipated
Orders began pouring in three weeks after the layoffs, and the bootstrapped company hired everyone back. The Berliners bought a used nine-plate pie machine from a wholesale bakery near Oakland to help scale up production.
To make the monthly payments, Andy had to read the check number to his accountant, Don Watts, over the phone. After a few months of timely payments, Andy and Watts, developed a kinship. Amy's Kitchen was making money, but the books were a mess, says Andy, and they had no systems in place. One day, Andy asked Watts if he would look over the books.
Along Came Don Watts
Watts, a 70-year-old who stood 6-foot-2, came by the Berliner's farm to study the company's finances. "You don't need a little help, you need a lot of help," Andy recalls Watts saying. Andy says many different employees were writing checks, and the company was not keeping good track of its payments and expenses.
"Don laughed when we told him how we paid our bills," says Andy. "But when he joined us full-time, he said he would help us become a $100 million company. Of course, we'd grow much bigger."
How Old-School Values Helped Preserve a Family Legacy
Watts joined Amy's as the chief financial officer in 1988--but under one condition: If the Berliners ever sold the company or went public, he would quit. Watts advocated for Amy's to stay private so that the Berliners could maintain their vision of organic and high-quality food.
Before arriving at Amy's Kitchen, Watts opened the West Coast office of British conglomerate Jardine Matheson and was the president of ocean tanker company Pacific Coast Transport Co. He would then go on to work for Amy's until a year before his death in 2010, at the age of 93.
Careful Growth Through 'Financial Conservatism'
"Without Don, we wouldn't be here today. There's no question," says Andy. "He guided our profitability, our relationships with the banks, and he instilled financial conservatism into the company." For the first 15 years, Watts hand-signed every check the company wrote to ensure every dollar was properly spent.
In May 1988, Watts helped Andy and Rachel negotiate with their local bank to get their first line of credit--$20,000. Andy says he was nervous as he was selling the company's vision to the banker while Watts, who was dressed in a button-up shirt and sweater, was sitting back in his chair with an air of confidence. Watts asked tough questions and probed the banker to explain why Amy's should take a loan from the bank.
Five months later, after Amy's careful growth, the company had brought in $240,000 in revenue. They went back to the bank and got a $100,000 line of credit.
The Lessons of Watts Lives On
"At every stage, he preached how we shouldn't build up too much inventory and taught us how to study your margins and expand profits. He taught us how to not build up overhead and operate lean," says Andy. "He helped us stay grounded and helped us transition from making potpies in our kitchen to making 14,000 a day."
Amy's Kitchen pioneered the market for organic vegetarian frozen meals and today brings in an annual revenue of $500 million. The company is planning to open its second drive-thru restaurant and expansion into Asia and Australia.
Rachel and Andy didn't start Amy's Kitchen to get rich. They had set out to build a business that would sustain their life and be passed on to their children. But within a year, Amy's Kitchen started getting offers from the big food companies and big investors wanting to buy the company or take it public. By 1989, revenue hit $888,000. Within a couple more years, the company's revenue surpassed a couple million dollars. Eventually, they'd get multiple offers in a single week.
The most valuable advice, Andy says, was how Watts told them to never, ever sell.
"Watts would remind us: 'The day you decide to sell or go public is the day I walk out the door,' Andy remembers, adding that although Watts is no longer alive, Amy's still heeds the CFO's advice and is committed to staying private.