Pastry chef and Milk Bar founder Christina Tosi may have started her business out of a love of baking, but her personal business savvy and grit are far more responsible for her position today than the quality of her cookies and cakes. Today, on the premiere episode of Eater’s new podcast Start to Sale, Tosi tells hosts Erin Patinkin (CEO, Ovenly) and Natasha Case (CEO, Coolhaus) about her strategies for growing her company, her approach to Milk Bar’s Series A funding round, how she approaches management, and what it felt like to finally take off her apron to focus on the health of the business.
On remembering who has the power in fundraising: “It makes you question: ‘If I need money and this person has money, this person then somehow has power.’ I know what this person thinks of my business or I know what this person thinks that my business should be. Somehow it is very easy to then forget that you’re the founder or you’re the one running it. It’s what you say it is and it’s what you want it to become...the thing to remember is, I’m offering you this opportunity that nobody else gets. And that’s the part, I think, of raising that is, it’s such a vulnerable place, that you forget that your need doesn’t eliminate the fact that you’re in a position of power.”
On the very beginning of Milk Bar: “I learned how to do everything. I learned very quickly that no one was going to help me. I didn’t have money. I didn’t have the financial resource to find the human capital resource. Milk Bar was seven days a week, from 8 o’clock in the morning until 2 o’clock in the morning.”
On her ultimate plan for Milk Bar: “We’re a very non-traditional food business. For us, scale is not king at Milk Bar. Milk Bar’s spirit is in this discoverable quirk. We don’t want to be Starbucks, we don’t want a Milk Bar in every block. That’s the antithesis of the spirit that you should feel when you eat a compost cookie. Thinking about our growth strategy was different than that because Milk Bar has many arms in its business. It has its storefronts, it has e-comm, it has weddings, it has classes, and then beyond that, all of our other lofty exciting goals.
...There is the question of what is the end game. Is the end game to own it outright? Is the end game to sell it to a great food company like Mondalez, or Mars, or Hershey’s, or what have you? They would take the Milk Bar business and make it into something incredible that would inspire the me 25 years ago in the grocery store in Virginia in incredible amazing ways. Do we take it public? That’s also a real thing. They all come with different strategies, and different drivers, and different forces but I think you need to have at least a sense of what you might want to do in order to start to work backwards.
It would be so cool to sell to a big food company. I don’t think we’re gonna sell to McDonald’s. I don’t think there’s gonna be a Milk Bar café next to the McCafé at McDonald’s.”
On her actual arrangement with Momofuku and Dave Chang: “Milk Bar is owned in part by me and owned in part by Momofuku because they were my original partner. Dave gave me the seed money 10 years ago to open the first Milk Bar. Milk Bar’s business and operations is run independent of Momofuku for the last nine years. Dave always offered his organization and team, and I realized really quickly into it that running a bakery is wholly different than running a restaurant empire and that his people would always prioritize him first because of course they should, and that I would need something different and I would need to be my own priority...
I think we had a lot of people not fooled, but it was very strategic. That was very helpful for me in growing the business. Also, just having the Momofuku name means like every real estate developer is like ‘Sure little girl. We’ll give you this piece of real estate. Do I ever get to meet David Chang?’.”
On the hardest part of fundraising: “Everyone’s advocating for themselves. Though everyone has the same goal, it is such an emotional part of “I don’t think you should have this much. I think I should have this much.” Learning how to not shy away from those conversations ‘cause they’re real, if you’re gonna do it, those are real conversations, and you have to be able to advocate for yourself. I guess that’s probably my biggest takeaway. Of course it’s hard when you have Dave Chang as a partner. It’s also harder when you have all male partners and you’re a female. All those things are realities.”
Listen to the show in full in the audio player or read the full transcript of the interview below. And please subscribe to hear entrepreneurs from various sectors tell Case and Patinkin about their struggles and victories of business-building in the weeks to come.
Christina Tosi: I’m Christina Tosi, and I am 10 years in to building Milk Bar in to this quirky, American-style bakery business. I’m still figuring out what I’m making it as the world continues to change which is my favorite part of the job.
Natasha Case: That’s cool. It’s an ever evolving process. It’s not a stagnant thing.
CT: You know what its like, right? What it was and what it meant when you first founded and started your business is different than what it is today. Well, one, it’s different every day, but the vision, and the mission, and the drivers, and the successes and the failures are different because I think if you build a business right in all of the authentic ways it’s going to evolve as you as a person evolve, as the people around, as the people in your organization that are helping you build it evolve and I think that’s the one thing when you try and hold on to what it should be too hard oftentimes, at least for me over the past 10 years when I’ve tried to do that, I miss the parts of what it needs to be and what it should be.
NC: Totally, I think it almost feels like a big weight off the shoulders when you realize it can grow and evolve and change with you. Like, it’s okay, it does that.
Erin Patinkin: And I think that we oftentimes are told not to change what we want because investors and people want to know what the end game is, but everyday you’re different and you might have a big grand vision for what the very end point is which is usually some sort of exit but how you can get there is going to be an adventure. And there are opportunities that present themselves at any point and I think the best part about being an entrepreneur and the most fun part is being able to pivot to take the right opportunities and to experiment and to take those risks.
CT: Totally. I think that that whole if you go to raise, when you go to raise, do you go to raise is such an interesting intersection of the identity of the business because if you decide you need to take money from an outside resource to grow your business then it’s like make the sale at any cost. Or it’s are you such a good salesperson that you’re telling that financial resource whatever that financial resource wants to hear or whatever that financial resource needs to hear.
I think that’s actually what I have found is when the identity crisis of your business is probably at its most vulnerable state because it makes you question if I need money and this person has money, this person then somehow has power. I know what this person thinks of my business or I know what this person thinks that my business should be. Somehow it is very easy to then forget that you’re the founder or you’re the one running it. It’s what you say it is and it’s what you want it to become. The identity crisis of any business from start up to sale is a really interesting topic.
NC: Entrepreneurship, is that something that was kind of always inside of you or do you think that it’s an actual change that came from circumstances and opportunity and a switch went off? If you look back do you see signs of things that you can recognize differently now?
CT: I remember I begged my mom to buy me a toy cash register because I’m a crazy math dork that sometimes Erin and I joke about because she is as well. I love math. I love numbers. This concept of being a cashier was something I was always in love with.
EP: I have a quick question, when you, I have read that you love baking cookies. Love cooking. You went to culinary school, you started working in Bouley and for a Wiley Dufresne and then for David Chang. In that time frame while you were working your way up through these kitchens and into operations roles, did you start to think I really wanna do something on my own? When did that moment happen?
CT: It wasn’t until I was trying to fast forward through the formal education of going to college where I felt in me, I remember going online and being like this is called entrepreneurship, I read about it, how can I get classes on it? But then it was like ‘find entrepreneurship classes near Harrisonburg, Virginia.’ It was like return results zero.
I just I had a sense. It grew in to me where in understood that my hunger was ... I know that it was called entrepreneurship but I didn’t actually understand what it actually meant.
EP: You had this desire. You knew you wanted your own bakery but nonetheless you started with culinary school and being a chef. That is very different. Being an artisan is very different than running a business and being a CEO. How did you figure it out or how are you figuring it out? How are you learning to run a business and how are you learning to lead?
CT: It’s never ending pursuit. I was raised by a mother who is an accountant but is like, “I’m gonna be the best accountant. I wanna make me people happy and make them feel protected through their finances. On top of that I’m the only female in this accounting firm of good old boys. I’m gonna go in an also show them what a woman in charge looks like despite the fact that they don’t see me being this person and I’m gonna win them over and them I’m gonna take over the business and I’m gonna help grown it. And then, we’re gonna merge.” Basically, I learned a lot of that drive, and that determination, and that pursuit through example. Learning through day in and day -
NC: Did your mom talk about that to you at the dinner table? Do you feel like you got some of that...
CT: It was definitely in the same way that entrepreneurship is now a thing people talk about. No, but when I look back I have those moments of childhood memory. It all makes sense because it was all in the little stuff. It was never in the big conversations and it was all in the little momentary things of, “We’re gonna run in to the office and do this and you’re gonna play in the parking lot for 10 minutes while I go do that.”
I think when I was old enough to have conversations with her and ask her, she would be more honest of like, “what are you doing today? Why are you wearing a dress to work?” She’s like, “‘Cause I’m not wearing big shoulder pad coats and oversize pants anymore. That’s not my thing anymore. I’m gonna do this now.” It was through all the little stuff.
I chose to go to culinary school in New York ‘cause I knew myself enough to know that I’m a lifetime learner but I like the formality of education and that’s part of what drives me to learn. I knew that it was gonna take a lot of confidence to do what i wanted to do. That confidence for me started first and foremost in how do I go from home baker to pastry chef? The patience of pursuit is an important one I learned from my mom. I applied over 10 years of working for other people. I worked for David Bouley. I worked for Thomas Keller in the front of the house at Per Se for over a year. I learned as much from as many people as possible. From that you learn what works, you learn what doesn’t work.
At a Bed, Bath & Beyond in Charlottesville, Virginia, I learned so much. That was my very first job. I learned exactly what kind of manager I didn’t want to be on day two.
EP: Yeah, learning what you don’t wanna be is so important. [crosstalk]. It’s almost bigger.
CT: Being told how to be a great manager is 5% of it and learning how not to be a bad manager is, I would argue, 95%. On a day to basis it’s being in love with the pursuit of try something different every day, read the emotion of your team, know how to measure what you did yesterday and whether it worked, and what you want to try a little different today and did it work. It’s a lot of honest conversations with yourself. There’s a lot of inner dialogue.
CT: Or talking out loud when no one is around which is also.
NC: No, totally. I think that sounds very healthy. When you’re the head honcho and that’s a whole different, you’re leading and learning at once. I know a lot of people have conflicted feelings about having formal mentors. Was it people who came in with money that kind of changed some of your ways of doing things?
CT: I’d say for the first three, four years of Milk Bar I learned how to do everything. I learned very quickly that no one was gonna help me. I didn’t have money. I didn’t have the financial resource to find the human capital resource. Milk Bar was seven days a week from 8 in the morning until 2 in the morning. I also didn’t have the time to think about mentorship beyond the people already in my network who were mostly chefs because that was the original path that I put myself on.
I realized really quickly as a lover of understanding how things work that it was like you can’t for a plumber today so you’re gonna figure out how this works. You’re gonna watch a general contractor and figure out how he changes a light switch because it can’t be that hard because he’s doing it in 15 minutes. Raising a community of, interestingly enough, pastry cooks that also needed to become jack of all trades. What I found in that in looking through my own team, that was-
I found in that, in looking through my own team, that was magnetized to this tiny little bakery for, I don’t know, some beautifully magnificent reason that I could not tell you, not self-deprecating at all. But, I found a pastry cook who one day was like, “Ooh, I don’t know about this place that serves warm cookies in a pizza box. They say their numbers are bigger than ours, and I just don’t believe it.” She was a pastry cook that came out of pastry school that was at Kraft, and she just started to want to have conversations, more business and operational-focused. So, I was like, “Okay, come over here.”
CT: You’re actually not gonna bake cookies today. You and I are going to look at the P&L together, or you and I are going to do payroll together. So, I started figuring out, within my pastry cook team, who had trade skills that maybe for them were even undiscovered, and started developing that in them.
Part of it was just forces of nature, how do I leverage them, because they’re still willing to make the same amount of money I make, which is very little money. It wasn’t until raising money that I actually had the financial resource to bring in people that had a skill set that I will still challenge and develop under the walls of Milk Bar, but where they were actually ... When they come in, in their day-to-day at Milk Bar where they’re pulling from experience for other organizations.
But it wasn’t, it’s not...
NC: Which can be, there’s some thing to undo sometimes, is the thing.
CT: It’s not the best, and sometimes it is the best. But sometimes it is great, but Milk Bar is different.
CT: What we do is-
NC: We don’t spend money like that, but we don’t ... It’s true. It’s the difference between the homegrown and-
CT: Just ‘cause this works ... Just because this worked for this brand, doesn’t mean that it is who we are and how we wanna do it.
But it wasn’t until that financial resource, and having a partner with finances, like pennypinch. But don’t pennypinch so hard, like girlfriend, you need to change your mentality because you now have a financial resource and you need to leverage it. You can’t be so used to working with so little. Now you need to start trading on the fact that spending 20% more could bring you 80% more reward...
EP: This is an exact conversation-
CT: That is a pivot.
EP: I’ve had the exact same conversation. You can become so caught up in saving every penny that you can’t see the forest for the trees. We had the same issue, where we’ve had some of our partners say, “You need to start taking some risks because you can now.”
Bigger risk, bigger reward. Be planful, be strategic about it, but people that maybe are outside of business don’t see that as part of it, and it’s very scary.
NC: Like when you get comfortable and then the money’s all gone.
EP: But being told to spend money, after you’ve spent years and years and years not spending money, is such an enormous shift.
That magical moment, that magic that you created with the first store. Something that was a very hard transition for us was, Ag and I were in the kitchen for three, four years? And there was a magic around it, and we built a team that stayed with us for a very long time. But there had to become a point where we had to leave. Otherwise the company was gonna just be this smaller entity and we wanted to grow it.
So, I’m wondering, before even this transition to having raised money, was there a transition between you being in the kitchen, and you being out of the kitchen and being the leader? And was it difficult? Because that was something in our life cycle that was very hard.
CT: Yeah. So many things happen, right? Like you self-identify when your apron is around you. That’s like your coat of armor, it’s your super-woman cape, it’s all of those things. And if you’re doing it well, the most difficult thing to wrap your head around the fact, that doing it well actually means that one day, you’re not going to be doing it at all. And all of a sudden, the thing that you identify with, your comfort zone, where you believe you can impact the most change and where you’re capturing that lightening in a bottle when you first start. All of a sudden, if you’re doing it well, it all has to basically change.
I think you go through a wave of emotions. I think, the first emotion I remember going through was, but I know my day’s worth and I know my own worth in pushing a day through a prep list. Like on kitchen terms, you have a prep list. So, you’re like I’m gonna make the most impossible long prep list, I’m gonna crush it. This is, as a team, as an entire battalion, this is the measure of our success today. We’re going into it. This is what we’re gonna get done. This is how we’re gonna do it.
It’s also so much easier to lead and manage when you’re there with people every single day. Training isn’t even a concept because they are standing right next to you. There’s no onboarding. Onboarding isn’t a word when you’re an entrepreneur, right? Like, everyone is doing it together. You’re in the trenches together. Then all of a sudden, it gets so much more complicated.
If you do all of that well, what no one tells you is it gets 50 times more complicated. So, that transition is real. How do you prepare for that transition? I think just knowing that it’s gonna happen is important.
I remember when that happened for me, I tried to then, I would do the, “I’m gonna start and end every day in the kitchen.” I know I can’t be there in the middle of that day, so how do I start and end, so that people ... Part of it is in the weird, emotional ego thing of like, “But I’m used to being the first one at work and the last one at work.” So, there were those intangible, leadership moments, teachable moments that don’t ever have to go with words. But how do you make sure that your people feel like you’re the one that is always the one that is the backbone and that is the foundation, if and when everything else falls apart? So, that was a thing that I’d do.
Even on the weekends, I would come by to say hi to everyone, ‘cause I was like, “Sometimes the smallest moments of rally make a big difference and if you see something that’s not right, how do you do that?” And you have to figure out, with the people that you’re trusting to lead the parts of your company that you can’t have that daily moment touchpoint with, and make sure that they can be the truest extension of you as possible. While also, at least for me, because this is how I build my team. While also allowing them to be who they are, and how do you-
EP: And to bring their talents to the table.
CT: Yeah, ‘cause that’s why you hired them, right? Like, you don’t want a cut out of you, you want someone that is going to honor you and drive your standards, while also making it better.
NC: The end goal, is that you said, do something great. It means it’s gonna be kind of shaken up and get harder, but obviously you’re working toward making it even greater, right?
NC: So, that is, and it obviously can happen, you know?
NC: If you kind of play it out right.
CT: It 100% can happen. It comes with patience. It comes with understanding. It becomes, I think, with the humor of every day is gonna be a roller coaster. It comes with the fact that mistakes will be made. It comes with the fact that no one is, guess what? No one’s gonna make your cookie as great as you. No one’s gonna make that batch of ice cream as great as you.
But man, if someone can get that close, you’re not making concessions, you’re starting to understand the world in actually a more business woman-minded sense, because all of a sudden, you realize that what is magical about where you got your start and what you first started, really only matters in terms of what you do next and how you choose to do it.
EP: Right. That’s so true. It’s working on it, not just in it.
CT: And that’s a humbling, terrifying, will keep you up at night feeling, but it’s real and it’s like the dirty part of entrepreneurship that those glossy magazines and TV shows don’t often talk about.
EP: That’s so true.
EP: Because we started talking about the hiring of people, and how you didn’t have the capital to hire the higher level folks until you raised this last round, I wanna hear about that last round.
I think that raising money is one of the most opaque parts of being an entrepreneur. We, Natasha and I, have talked about how a lot of people come to us and they say, “How did you do it?” Christina, you and I have talked about it. So, how did you learn the language of investors? I’m curious, what was the most surprising part?
CT: Okay, so first thing about myself, in the context of this is, I’m very stubborn and I like to learn things for myself. That’s also the kind of learner that I am, so how I filled the shoes that I did for the first eight years, was learning how to do every job. How am I the CFO? How am I the CMO? I learned everything.
It was perfect, ‘cause it’s right when the world was changing. I’m never the quickest learner or the smartest person in the room, but man, over time I will crush. That was always the kind of student I was. So, I learned that over eight years.
So, how did I learn the language of how to raise? I Figured it out. I approached it the way I did everything else, which was like, “Okay, this is what’s in front of me.” I sometimes think, I wonder whether I took too long to raise because with more financial resource, you can get more done. Did I play is safe for eight years is a question that I ask myself, in all honesty.
Guess what? I can’t change that.
NC: In theory, you’re always gonna give up more, if you do it sooner. So.
CT: Well yeah, it all comes with good and bad, to both sides of it.
I started reading as much as possible, doing as much research as possible, talking to as many humans as possible. In terms of, what did you do? How did you raise? What was your approach? What’s the good? What’s the bad? Asking the questions, getting my hands on as many things as possible.
I made a list of like, I could take money from family, I go to a bank, I could go to a weird Silicone Valley Bank. You know what I mean? I could go to a soft bank. There are so many different ways that you can raise money. Do I take money from a family fund? Do I take money from a wealthy individual?
EP: A VC, a private equity firm...
CT: So many different things, and what’s the good and the bad of that baseline? Plenty of people have plenty of opinions, and I thought about it as, I’m gonna gather as much information, take as many meetings and formulate my own opinion because I’m opinionated and that’s what I do.
NC: Yeah, girl.
CT: I try to let ... I think it’s important to get people’s opinions, but someone else’s opinion is not your opinion. That is a tricky thing to remember in the raise process, because it’s a very vulnerable place.
EP: Absolutely. You’re asking people to give you lots of money. It’s such a strange start to the process. Investors wanna invest, but it’s a funny thing to be like, “Will you just give me some money? Like a lot of it?”
CT: But, the thing to remember is, I’m offering you this opportunity that nobody else gets. And that’s the part, I think, of raising that is, it’s such a vulnerable place, that you forget that your need doesn’t eliminate the fact that you’re in a position of power.
EP: Absolutely. And investors, in my experience, often try to make you feel like you’re not in a position of power.
CT: Of course they do. It is now a power play. So, it’s not just about money, it’s about power. And this isn’t a dirty thing. It’s not because one person’s good and the other person is bad. It’s not good versus evil at all. This is just the dynamic of this part of business, right?
So, go into it. Remember that.
NC: You have, ultimately, the most valuable thing, because someone ... Most often, investors coming with money, what they’re really understanding is money. You’re understanding the business and the brand of the how to do and how to make it great.
EP: Especially in businesses like ours, where we’re really authentic brands that we built on our own, and frankly, cool brands that actually have potential. It’s a little bit unicorn-y.
CT: It is. There’s so many intangibles. I think when you go to raise, there’s all these questions of like, how do people measure ... All of a sudden, then your business gets measured, right? And how do people measure your business? Well, typically, they start with your finances, whether it’s your top line, whether it’s your EBITDA, but there are also so many intangible parts of your business that are also important.
How do you remain humble while also be aggressive? In terms of how you think about you business and how you value it?
Don’t ever take a meeting ... I don’t care if it’s with your local Wells Fargo or Chase Bank or Citibank or whatever it is, without knowing who you are, what your business is, what your vision for your business is. Even if that, when someone asks, I think this is the hardest part as an entrepreneur, what’s your five year plan? You probably have never had to think about what your five year plan is, ‘cause you are just busy. You’ve been, your only plan is to hustle and hustle hard ‘cause that’s how you got there.
EP: Sell more cookies.
CT: Right? And so you have to know what you want out of it, besides money. What are you gonna do with the money? Everyone’s gonna ask that.
NC: And also, by the way, everything you’re gonna give them, projections and those ideas, they’re made up.
CT: And they know they’re made up.
EP: It’s such a part of the game.
NC: Make it as real as you wanna believe, but beyond that, it’s the future.
EP: The five year plan, I think, is the most laughable part of the race. Because again, any real investor knows that businesses change, year by year. Even if you have a plan, the plan will change. It really ends up being like, “Well, this is where I hope I’ll be.”
CT: But you can’t say it like that because ...
EP No, of course. But it’s like this unspoken part of these conversations. Everyone knows that this will change.
CT: Confidence is key. There is a game. It is a game. It’s real, but it is a game. In the context of this, the most interesting thing that I was met with is, I was told in some of these conversations ... I wasn’t told in the moment, I was told after the fact, that I was difficult. That made me laugh because I typically take any conversation with a smile and I like human interaction, I like to connect. I just thought that was the funniest comment that anyone would have because I was like, “I think that’s so interesting that you find it difficult that just because I believe my business is worth this much and you might believe my business is worth something else, that the intersection of that is difficult. I’m easy to reach. I’m super communicative. I’m open.”
So, I give that as an example because it’s a grueling process and it’s stressful, but it’s important to also let as much of it slide off your shoulders as possible ‘cause it can be all consuming. It can make you question everything about your business and your identity and where you wanna go, and where people think you should be and what you should be and what you shouldn’t be.
NC: It’s a huge distraction.
EP: It’s also a second full-time job, when you’re already working 12 hours a day.
CT: Yeah. And you gotta get it, and you gotta be real about it and you gotta remember to have that confidence, but you also need the soundboard or the after effect. I would just go on really long runs and be like, “We’re good. Do you know who you are girl? Okay. You’re good. Let it all go, and laugh that you’re difficult.
Where it’s like, “I am difficult. You’re right. I am not gonna give away a slice of this, without a scoop of this, without me making sure that we’re on the same page,” ‘cause you should hold that control.
EP: And you and your vision are protected. That’s perfect. That’s great. I think it’s a compliment.
NC: So, no investment banker, right? This is something that you kind of did-
CT: No investment banker.
EP: You’re the direct line of communication, in this case?
CT: Yeah. There’s some lovely investment bankers out there, but no. There are some lovely investment bankers out there, but no. I also, because I’m stubborn, I wanted to run and manage the whole thing myself. I was our first delivery driver, I was our first porter and dishwasher.
That’s a little bit of a badge of pride, which is obviously not reasonable as we scale, but I just thought if my job is to lead, I want to be hands-on in this process. This is the first round. If we need to raise again or again, or whatever happened in this future, I want to know how to lead someone else that might be managing the process in the future. I don’t have that experience, and the only way for me to get that experience is to do it myself. I just believed in the series A, like you want the inroads with the founder, you want the inroads with the person whose vision it is. I really believed that direct relationship and outlet was a really big part of the story and a really big part of your investing.
If you’re investing in Milk Bar, you’re investing in me as a human. If I’m not present across the table from you, then that’s not who and what you’re putting money into.
EP: Tell us a little bit about how you structured the raise. Did you raise it as Milk Bar? Did you raise it under a parent company? Tell us a little bit about what you did.
CT: Milk Bar is owned in part by me and owned in part by Momofuku because they were my original partner. Dave gave me the seed money 10 years ago to open the first Milk Bar. Milk Bar’s business and operations is run independent of Momofuku for the last nine years. Dave always offered his organization and team, and I realized really quickly into it that running a bakery is wholly different than running a restaurant empire and that his people would always prioritize him first because of course they should, and that I would need something different and I would need to be my own priority.
Then, in the raise process, I was grateful enough as well though to have Momofuku always as a thought partner. If something happened, if a van broke down, let’s use the same insurance policy cap because we should be smart about the value of our spend, or we should do deals that would leverage real estate or leverage raw ingredients because we’re all under the same “family umbrella,” which is great and I think had a lot of people not fooled, but it was very strategic. That was very helpful for me in growing the business. Also, just having the Momofuku name means like every real estate developer is like “Sure little girl. We’ll give you this piece of real estate. Do I ever get to meet David Chang?”, and I’m like “Ha, ha, ha, ha.” No, I’m just joking. Maybe he comes in for ice cream.
From a raise process, yeah, I have Momofuku as this partner, I went out and did all of my research and decided what I wanted to do, but I did need to make sure that Momofuku, that my partner in it was okay with it. I am very fortunate that Dave and the team that he’s put together at Momofuku are like “We believe in you. What do you want to do with this? If you can get that valuation, girl go out and get it.” I would say more than anything, they are what they’ve always been, which is strong supporters but mostly just kind of step to the side and let me do what I’m gonna do.
EP: Was your investment only into Milk Bar?
CT: The investment was only into Milk Bar. Milk Bar has a parent company Momomilk, and then each of the stores has their own entity because basic business structure is such where you wouldn’t sign 10 leases under one LLC. God forbid, who know what could happen? Use your wildest imagination. I do every day. I brought the money in through Milk Bar’s parent company which is Momomilk, and Milk Bar’s parent company is owned by me, it’s owned by Momofuku, and now it’s owned in part by RSE, which is Steve Ross’ private equity group who I raised the majority of that money from.
Then, I got everyone to agree to carve out a little bit of a bucket for people for me that have been so incredibly helpful in the process of being our supporters with no strings attached over time. You get comfortable in raising and you’re like “I want you to get to have a piece of this.”
NC: The ownership stake. Absolutely. Very cool.
CT: Yeah. If I’m gonna make money for other people, you should definitely get a little piece of that.
NC: Maybe they’re strategic too in their own way and they’re only continuing to add value.
CT: For sure. I think when you are raising in that capacity, you do have to think about what’s the structure, how much money am I gonna raise, at how much value and how does that pie chart brake out from there. Then, you do have to do the research of what rights are reasonable to give away, what rights do I not want to give away. I chose to form a board because I knew that for myself and for my team that having the governance, having to provide that quarterly report card and that quarterly pause for me was gonna be really important in making sure that everyone was being measured properly and that we were never so into something that we weren’t forced to stop every quarter, and then within that board you get a bunch of great thought partners of “hey, I’m thinking about doing this. We’re thinking about doing that.”
You want to find as many people who will give you as many different and honest opinions as possible because as you grow, you and your brand are in so many more places than you can see, and check, and understand. That diversity of opinion, and personality, and vision is important.
NC: After doing the deal, are you still the majority stakeholder?
CT: Yeah, I am. I’m running the business every day.
NC: Would you say the structure was investor-friendly because the partners and the structure made that possible, that it’s not only about the structure...
CT: It is. I will say that in the process it doesn’t feel friendly just to be super clear.
NC: Yeah, no. Let’s talk about it, yeah.
CT: It doesn’t feel friendly because no one’s grabbing for the biggest piece, but at the same time, everyone’s advocating for themselves. Though everyone has the same goal, it is such an emotional part of “I don’t think you should have this much. I think I should have this much. I don’t think you should have this much. I should have this much.” Learning how to not shy away from those conversations ‘cause they’re real, if you’re gonna do it, those are real conversations, and you have to be able to advocate for yourself. I guess that’s probably my biggest takeaway. Of course it’s hard when you have Dave Chang as a partner. It’s also harder when you have all male partners and you’re a female. All those things are realities.
I think the thing that I just always remind myself is I’m a female, I’m friendly, I like to be friendly. That is a choice that I make. It’s an important choice that I make every day, but I also have to remember the moment that it’s time to stop smiling and to start meeting intensity and dominance, is when you stop smiling and when you start doing that because you’ll get steamrolls anywhere. I don’t care where it is, man or woman. I would say I could feel more of the gendered female come out of me if I didn’t know what I wanted to say over, and over, and over again. I would go into every single meeting and be like “Pff.” I am sitting in the shortest chair. I would rather wear my Canadian tuxedo. You know what I mean?
There’s the like I’m gonna play to that, I’m gonna play the fact that I’m a female, I’m gonna play to the fact that you want to be the financiers behind behind this crazy amazing company with a strong confident female behind it. I would say that I talk myself out of where I would otherwise be gendered in the conversation, and pivoted it and used it as much as possible because it is a strength. Part of these conversations is power and dominance. That’s a reality. That does not mean as a woman that you’re not.
EP: It’s half, at least half. It’s half you have real numbers, and half it’s “Can you convince me?”
CT: What do you need to do to convey that power? Maybe it’s like go around the room and ask everyone else about their kids and be like “How dare you to ask me?” Whatever it is, do what you need to do, whatever it is. That’s just part of preparation for any kind of meeting, and be prepared. Just having your notes is important, know who you want to be in it. If it’s your money, who would you give the money to? Maybe it’s the other best takeaway tactic. I know who I am. I want to give my money to the person that is out after it.
CT: And be that person. If they don’t invest in you, they are not the right people.
NC: Speaking of out and after it, was a lot of the dialogue around the end goal, the exit? How much of a play is that conversation or not?
CT: Every business is different. In series A, from a food business standpoint depending on who you’re taking money from, typically there’s tiers. Most food businesses don’t exit after series A. You’re typically finding an investor that’s helping you get to some medium-level scale, so that they can perhaps sell their equity to the next round of typical food investors that will take you from B to C, or B to sale.
EP: One thing I think a lot of food entrepreneurs don’t know is that most people make their money as exits happen from other investors. That’s something that I was really surprised to learn, is that in the food world, you build a business for a certain amount of time, you take it to a series A, build it again, you take it to a series B where the series B people buy out the series A people every time you go until maybe a big company buys you.
NC: It’s more about the big transaction.
CT: We’re a very non-traditional food business. For us, scale is not king at Milk Bar. Milk Bar spirit is in this discoverable quirk. We don’t want to be Starbucks, we don’t want a Milk Bar in every block. That’s the antithesis of the spirit that you should feel when you eat a compost cookie. Thinking about our growth strategy was different than that because Milk Bar has many arms in its business. It has its storefronts, it has e-comm, it has weddings, it has classes, and then beyond that, all of our other lofty exciting goals.
In my five year plan and in my 10 year plan, what was important to me was to not find an investor in series A that just wanted to make it to series B and then exit. My goal is not to just take it to series B and then exit, or to take it to series B and then sell it to a bigger investor who might pour a big glass of water over it, is the way that I would describe. There’s nothing wrong with that whatsoever. That’s how I was inspired by food as a kid, by big food brands, but in thinking through what my options were, I chose RSE because they’re not looking for the immediate exit. They’re looking for a long game, they’re looking to create something special, they’re open-minded about bringing other investors in that can bring value-add through that process.
There is the question of what is the end game. Is the end game to own it outright? Is the end game to sell it to a great food company like Mondalez, or Mars, or Hershey’s, or what have you? They would take the Milk Bar business and make it into something incredible that would inspire the me 25 years ago in the grocery store in Virginia in incredible amazing ways. Do we take it public? That’s also a real thing. They all come with different strategies, and different drivers, and different forces but I think you need to have at least a sense of what you might want to do in order to start to work backwards.
It would be so cool to sell to a big food company. I don’t think we’re gonna sell to McDonald’s. I don’t think there’s gonna be a Milk Bar café next to the McCafé at McDonald’s. Once you start to really play the game of where you could see your brand going, then all of a sudden you start to go if it were McDonald’s, you’d be like “Okay, what would McDonald’s value in this?” They don’t need real estate for anyone that hasn’t seen Founder. Their business is real estate, so what would they want out of it? Are they trying to own food more, they’re trying to own dessert more. Maybe they’re trying to own ice cream more. It seems like they’re trying to own this sort of like all-day dining café. They’re trying to take some market share away from Starbucks.
When you start to play that game, it can be really fun of is that really what I want. If that is what I want, then maybe I stop opening up more stores. Even in the conversation in context of raise, there are so many different ways to be creative about how you’re raising, where you’re raising, where that money goes to, who you’re raising from, and not just who you’re raising from now, but who you might want to raise from in the future or who you might want to sell to in the future. That’s when your creative juices flow. It is a thrilling thing for the entrepreneur, and you’re in control so you can figure it out.
EP: What would you say is the most important skill that you’ve learned as you’ve grown from a chef to a CEO? If you could break down that skill in detail. If a listener wanted to learn it, how would you break that down for us?
CT: I’d say the most important skill I’ve learned is that though there is pride in learning and knowing how to do everything yourself, the reality is being a great business person means that you’re doing nothing yourself. You’re doing nothing yourself. All you’re doing is learning how to spot great talent and inspire them, and give them a mission, and support them. It is the weirdest strangest vacuum to be in, and the one you have to learn to be so great at in order to be successful.
EP: Thank you. It’s been amazing to chat with you. You’ve just gone into so much of the nitty-gritty.
CT: Okay. Congratulations to you too. I’m very honored to be one of many to come, I’m sure. Both of you as individuals, and as business women, and as entrepreneurs, and as food and taste makers, inspire me and inspire my entire team. They are freaking out that I’m sitting in the same room as you two today.
EP: Oh my God. That makes me feel really wonderful. Thank you so much for coming on. We learned so much and we’ll have you back.