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Calling Bullshit

Vital Farms: Raising the standard with Pasture-Raised

Calling Bullsh!t March 2, 2022 592


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Our guest

1517738303988
Russell Diez-Canseco

@russellcanseco

President & CEO of Vital Farms

Which came first?

Stated purpose: Improve the lives of people, animals, and the planet through food

For Vital Farms, it was the egg. In 2009, they set out to rethink how our food is produced by defining a new standard: Pasture-Raised. Now, they’re the largest producer of pasture-raised eggs in the world, and their sights are set on so much more. Where did this mission come from, and how have they successfully taken on industrial egg giants?

Today’s episode is a 1-on-1 with Vital Farms CEO Russell Diez-Canseco. Russell speaks about how the company’s purpose has guided every decision made over the last 13 years — from the barn to the boardroom, and every other moment on the journey of making their purpose real in the world.

You’ve got to start with the purpose and let the business model come from that as opposed to trying to stick a purpose on top of a business model that you already think is the right one..

– Russell Diez-Canseco

Vital Farms’ BS score is

Show notes

Episode Transcript

THEME MUSIC: “IN PASSAGE” by BLUE DOT SESSIONS

TY MONTAGUE INTRO (VO)  

Welcome to Calling Bullshit, the podcast about purpose-washing…the gap between what companies say they stand for and what they actually do — and what they would need to change to practice what they preach. 

I’m your host, Ty Montague and I’ve spent over a decade helping companies define what they stand for —  their purpose — and then helped them to use that purpose to drive transformation throughout their business.

In this special episode we’re sharing a positive case study – a deep dive with the CEO of a purpose-led company who we think is getting it right. 

[THEME SONG fades out]

TY MONTAGUE (VO)

Today we’re gonna talk about Vital Farms. A publicly traded food company based in Austin, Texas with the purpose of improving the lives of people, animals, and the planet through food.

I had a great conversation with their CEO, Russel Diez-Canseco, about how their mission drives decisions at every level of the company.  

But before we get to Russel, let’s do some background.

MUSIC: “Capering” by Calument via Blue Dot Sessions  

TY MONTAGUE (VO) 

Vital Farms started in 2007 on a 27 acre plot in Southwest Austin, with only one farmer:  Matt O’Hayer. 

Matt saw an opportunity to change the way food is produced in America – to reduce the environmental impacts of the industrial approach to farming, and give the power of food production back to small family farms, all while producing a high quality product at large scale – starting with eggs.  

MATT O’HAYER: A pasture raised egg gets a third or more of it’s diet, the chicken does, from grass. So they’re eating salad. As a result, the quality and the taste of the egg is dramatically different from anything you’ve eaten before. 

TY MONTAGUE (VO)

That’s Matt back in 2009, at the original Vital Farms location. Now most eggs look pretty much the same on the outside, no matter how they’re produced. But the hens at Vital Farms eat grass, which creates a beautiful golden yolk, more beta carotene, less cholesterol, and more vitamin A than conventional eggs.

But here’s the thing, Vital Farms was never JUST about eggs. That humble beginning was powered by an ambitious and inspiring purpose:  To improve the lives of people, animals, and the planet through food.

And to do this, Matt O’Hayer considered all the stakeholders.

He designed his business for the welfare of the chickens, of course. But he also considered all of the people involved; investors, small family farmers, employees, and customers. 

And last but not least, the planet. The industrial food system that’s made food so cheap in this country comes at a huge cost to the earth and Matt wanted to provide the country with a real alternative. 

Matt’s concept got the attention of another Austin Based company, Whole Foods, which loaned him $100,000 for equipment to scale his idea and then became his first customer.  

MATT O’HAYER:

Up until now the only way you could really get a pasture raised egg was to drive to the farm, buy a dozen eggs and drive home. That’s a fairly large carbon footprint for a dozen eggs. And we think getting them into the Whole Foods store and getting them to the customer is a more efficient way of doing that.

MUSIC: “Sunrise” BY Northside via Epidemic Sound

TY MONTAGUE (VO) 

And this is when things really took off. Vital Farms started contracting with other pasture raised egg farmers, which allowed them to scale up distribution and by 2011, Vital Farms was doing 4.9 million dollars in revenue. 

Four years later, Vital Farms became a certified B Corp. This certification measures a company’s entire social and environmental impact. 

TY MONTAGUE (VO) 

In 2019, Matt handed the CEO job to Russel Diez-Canseco, who had joined the company in 2014 as an egg warehouse manager. 

With Russel at the helm and Matt still involved as executive chairman, on July 31st, 2020 Vital Farms went public on the Nasdaq with the ticker “VITL.” 

CNBC 

[SOT Host 1] One of those of course today. Vital Farms up 68% on the first day of trading. 

[SOT Host 2] Quite amazing… 

TY MONTAGUE (VO) 

And in 2021, Vital Farms hit 600 million in revenue and is now the largest producer of pasture raised eggs in the universe.

And, something that really caught my attention, because an industrial farm would never ever do this – in 2021 Vital Farms created a label that allows you to actually log in and see the farms and hens where the eggs come from.  

Vital Farms Promo:

[SOT] At Vital Farms we want everyone to see where their eggs come from. Without any bullsh*t. [cluck] 

TY MONTAGUE (VO)  

After logging in to see the hens involved in my breakfast, I knew I wanted to learn more about this company. So the question we’re here to answer today is, how do we make more stories like this one happen?  

I asked Vital Farms CEO Russel Diez-Canseco to sit down with us to share what he’s learned about the challenges and the rewards of keeping Vital Farm’s ambitious purpose front and center. 

TY MONTAGUE

Folks, I’m very excited to introduce today’s guest, Russel Diez-Conseco, the CEO of Vital Farms. Russell, thanks for joining us.

RUSSELL DIEZ-CONSECO 

Thanks so much for having me. 

TY MONTAGUE

So let’s jump right into it. I’d love to just  have you tell our listeners a little bit about yourself and your background.

RUSSELL DIEZ-CONSECO

Thanks, Ty. So I was born on the East Coast. I’m a product of parents on both coasts, very blue state upbringing. For the last 21 years, I’ve lived in Austin, Texas. I moved here to pursue a really exciting opportunity with a grocery chain down here called H-E-B, which is the biggest little grocery chain you never heard of, but does billions and billions of dollars in business. And that was the place that I was told was the best in the business to learn grocery, and I was really excited about doing that. And my latest gig here at Vital Farms. I’ve been here for eight years, which is by far the longest company I’ve ever been with and having the most fun by far.

TY MONTAGUE

That’s great. And so when did you join the company? 

RUSSELL DIEZ-CONSECO

I joined at the beginning of 2014.

TY MONTAGUE

And you took over as CEO from the founder, Matt O’Hayer. Is that right?

RUSSELL DIEZ-CONSECO

Yes, in 2019.

TY MONTAGUE

In 2019. And how has that transition been? You know, in some places, it’s difficult for a founder to step back and hand a new CEO the reins.

 RUSSELL DIEZ-CONSECO

You’re right, that transition is fraught with peril, and I think there are more stories of it not working well than stories of it working well. I think a couple of things worked to help make sure that this relationship would work, and ultimately this transition would work.

RUSSELL DIEZ-CONSECO

One is, I think, a lot of mutual respect, right? Matt isn’t just a sort of head in the clouds creative guy who sees an opportunity around every corner. He’s also one of the hardest working people I’ve ever met. And so, Matt will pursue his ideas with vigor and, frankly, there’s no kind of work that he won’t do in pursuit of his goals. I have a lot of respect for that. We actually share that in common. I think he came to respect me pretty early on as somebody who he could trust to be transparent, to do what I say, say what I do, which is consistent with the culture of the place he was building. But more than that, I think it’s not that common to find people who you employ, as the entrepreneur, who can show as much passion for your thing as they do. And when I’m passionate about something, I’m all in and so I can start to show up, in a little bit, with the kind of energy and the kind of ownership that I think entrepreneurs don’t often see in the people they hire. 

TY MONTAGUE

Right.

And is this your first experience at a, [there are] different names for them, but a purpose-led company: a company that pursues “conscious capitalism?”

RUSSELL DIEZ-CONSECO

It is. I definitely have worked for some high quality companies that had some pretty strong cultures and some pretty strong values. But the extent to which our purpose is something that people throughout the organization understand, no. And the extent to which our culture and our stakeholder model is built into kind of the daily conversation and how we make decisions, I’ve never seen it anywhere but here.

TY MONTAGUE

So, let’s pivot to that. How do you articulate the Vital Farm’s purpose?

RUSSELL DIEZ-CONSECO

Our purpose is to improve the lives of people, animals, and the planet through food. And we do that through our mission, which is to bring ethically-produced food to the table.

TY MONTAGUE

Yeah, I love that. How would you characterize or talk about the dominant system that Vital Farms is trying to improve upon by, you know, making that purpose real in the world?

RUSSELL DIEZ-CONSECO

Well, you know, the dominant system is the U.S. food system.

TY MONTAGUE

Yeah.

RUSSELL DIEZ-CONSECO

And, you know, I think the U.S. food system is, you know, characterized by, you know, a very steady March post-World-War-II toward very high productivity through very high concentration of animals in the way that they’re reared and food is produced. Very high concentration of players. There’s been a lot of press lately about the big four meatpackers in the United States controlling the vast majority of just about any animal protein [that] you could name. A real concentration in terms of, I think, the productive benefits of that system to a limited set of stakeholders. And, a lot of negative externalities that I think understate the cost of the food produced in that system, whether it’s environmental externalities, whether it’s the increased risk from lack of resilience because it’s so concentrated, to all the people who died in meatpacking plants over the last year and a half a COVID. 

RUSSELL DIEZ-CONSECO

That’s what I would describe as a system we’re working to disrupt.

TY MONTAGUE

Right. And, you know, Vital Farms started in the egg business and so, obviously, chickens are a huge part of your supply chain and “Pasture-Raised” chickens are a big part of your consumer proposition. Can you explain to our listeners what that means?

RUSSELL DIEZ-CONSECO

At its core, “Pasture-Raised” means a system of rearing the chickens that is based in the outdoors and in allowing birds to exhibit their natural behaviors. Now what I’ve learned, in the eight years I’ve been in this business and in the 20-plus years I’ve been in the food business, is [that] a term doesn’t have much meaning unless it’s documented as a standard and then enforced with inspection. And so, one of the first things that our founder Matt O’Hayer did was, when he decided to pursue and try to scale up what he thought was a very superior way to raise hens to lay eggs that was much better for them and for their welfare and their health and, frankly, would produce better eggs as well, he went to a third party certifier Certified Humane and collaborated with them to create a standard for “Pasture-Raised” egg production in the United States that would be well documented and verified by them. So, he realized early on [that] lots of companies claim lots of things, but you’re only as good as your ability to to convey and, frankly, have transparency and trust that you’re really doing what you’re saying you’re doing.

RUSSELL DIEZ-CONSECO

So the “Pasture-Raised” standard, has specifications for everything from the amount of outdoor space that the birds will have. In our case, it’s a thousand birds per hectare, which works out to just under 109 square feet per bird if you do the math. It has specifications for how much space inside their barn, where they go to sleep at night and be safe from predators. It has specifications for all kinds of things around access to feed and water, and how often you provide those things to them and and what you’re going to do to protect them from predators and what you’re going to do to rotate those birds around the pasture so it doesn’t get too eaten down in any one area. So it’s a very comprehensive standard. And so, for us, that all adds up to this thing we call “Pasture-Raised.”

TY MONTAGUE

It sounds great. How does that compare to the experience of an average laying hen?

RUSSELL DIEZ-CONSECO

So, in the United States, there are several different housing standards – I guess they might refer to it as – ranging from no claim, which means the birds are being raised in cages, battery cages, all the way through to “Pasture-Raised,” which is what we do. The majority, so it’s still more than half of the laying hens, I believe it’s about 60 percent of the laying hens in the United States are still being raised in cages today. When I joined Vital Farms in 2014, it was 95 percent.

TY MONTAGUE

Wow.

RUSSELL DIEZ-CONSECO

So we’re really moving the needle, but there’s still a long way to go. And much of the progress has been made in the conversion of birds out of cages simply to them not being in cages. And that’s the next lowest level we believe of animal welfare called “Cage-Free”. “Cage-Free” doesn’t mean the birds go outside. “Cage-Free” means they’re still inside a house, a barn, a big warehouse, but they’re no longer in cages. And, in fact, the irony of the movement toward “Cage-Free”, we believe, is that many of the largest producers are taking the opportunity to raise their old caged houses and build even bigger and more efficient “Cage-Free” houses so you get rid of the cages. But now, instead of having 100,000 birds in one building, you might have 500,000 birds in one building or more.

TY MONTAGUE

So the experience for the birds gets worse in a way.

Before I ever even contemplated doing a podcast, I was a customer of yours. I love the design of the packaging, first of all, but I was reading it, just nerding out on what you had to say. And, I noticed, I think it’s called “Hens Behind the Lens,” where you can actually go and look at one of your farms. I loved that because it hits on such an important part of, I believe, being purpose-led, which is transparency. Has that been, you know, a hit with other customers? 

RUSSELL DIEZ-CONSECO

It’s definitely hit a note. look, I believe that what we figured out how to do is not just doing the right thing every day, but it’s doing the right thing every day and communicating in a way to all of your stakeholders that engenders their trust. Trust is easy to lose, hard to gain. We kind of all know that. I think that this campaign is just one of many touch points over a long period of time that we used to just be radically transparent and really engage our stakeholders in what we’re doing, because that’s the only reason they have to pay more for what we do than what somebody else does.

TY MONTAGUE

Right. And so, just in terms of comparing Vital Farms to industry standard, are there other industry practices that you’d like to improve on in the future? Do you have, like, any kind of a sort of innovation roadmap?

RUSSELL DIEZ-CONSECO

You know, when I think about what makes this place the kind of place for me to work at for eight years, and the, you know, the things that kind of get me out of bed in the morning, animal welfare improvement were the table stakes. That’s what got me in the door. But what really excites me beyond that is that we are an alternative for so many of our stakeholders to a more traditional corporate system, not just [a] food system. I think about the people who join our company who are so engaged and so just frankly smart and capable and driven and have such extreme ownership. 

RUSSELL DIEZ-CONSECO

So I like the fact that we’re creating alternatives not just for the birds, but we’re creating alternatives for consumers to actually get what they’re paying for. You know, for retailers to have transparency because we’re not perfect every day. And so, we are the ones that tell them well in advance of the new things coming along and maybe the challenges as well, saying a supply chain issue. We’re the alternative for the communities in which we operate, et cetera. And so, I mean, I come home proud every day of the work we do and sometimes what I’m thinking about might not have anything to do with the chickens.

TY MONTAGUE

Well, there are animal welfare advocates who have argued that an “ethically-produced” egg is impossible because of the nature of the process. And, given your purpose, how do you think about resolving that tension at Vital Farms?

RUSSELL DIEZ-CONSECO

I think I’d say a couple of things to that. One is, look, the reality is, if you eat food produced by animals, whether it’s the animal itself or something that comes from the animal, you have to be OK with animals dying to make that happen. That’s number one. So if that’s a non-starter, then you shouldn’t eat eggs. 

TY MONTAGUE

Right. 

RUSSELL DIEZ-CONSECO

look, I know fundamentally, I believe with all my heart that the birds laying eggs in our system enjoy a much better quality of life, much better health and welfare, and are much better able to exhibit their natural behaviors than the vast majority of birds in any other system, in any other company.

RUSSELL DIEZ-CONSECO

I also believe that my people have a better experience in my company than in the vast majority of other companies, and I could go around my stakeholder groups and point out the ways in which working with us makes them better off than just about any other company they could work with doing what we do. I read once that a thought exercise about your unique right to exist as a company is to imagine a world without you and say what would be different if your company shut down tomorrow? And the first thing that would happen is the eggs that are produced by my millions of birds would now shift to being produced by another company. 

TY MONTAGUE

Right. 

RUSSELL DIEZ-CONSECO

And if I think I’ve got the best animal welfare in the business, then we’re going to shift animal welfare down. So is that better for the birds? Now, look, I get it. And there are some people, and I have a lot of respect for people who make food choices based on their beliefs, that’s what our customers do too. But the reality is we can’t let their sense of perfection get in the way of fundamentally better than what we started with.

TY MONTAGUE

Yeah. One of the things that I really do believe is that no company is perfect, that being truly purpose led is a journey. Would you agree with that?

RUSSELL DIEZ-CONSECO

Oh, absolutely. We’re learning every day.

TY MONTAGUE

Yeah, and so I’d love to hear I want to talk a little bit more about the Vital Farm’s journey and also your journey as a leader 

First, do you think that, you know, being a purpose-led business leader is harder? For instance, because you have so many more stakeholders to think about as the CEO of Vital Farms than does the CEO of a traditional company.

RUSSELL DIEZ-CONSECO

It’s interesting it’s a different set of challenges, I don’t know that I’d call it harder or easier,

RUSSELL DIEZ-CONSECO

You know, the reality is every company has stakeholders. The question is, do you realize it, do you acknowledge them, and do you treat them that way, right?

TY MONTAGUE

Great point. Great point.

RUSSELL DIEZ-CONSECO

The challenge that comes in when you’re trying to manage or even work with multiple stakeholders isn’t so much that you’ve always got misaligned interests. I do think that the challenges tend to come up when we’re looking at different time horizons. So I believe, fundamentally,that our business can only be sustainable if it’s sustainable over the long haul for all of our stakeholders. 

So, for example, if farmers go bankrupt at the end of our movie as so often happens in corporate agriculture, then we don’t have a sustainable supply chain, let’s say. Or if our people can’t afford health care or daycare for their kids, then we don’t have a sustainable workforce. So it has to be sustainable over the long haul for all of our stakeholders. But, on any given day, what they might want, may or may not be something I can agree to. And, in that moment, there can be tension. What keeps us sustainable is the track record that over time it’s all going to work out. Everybody wants more. Farmers would love to be paid more, and I’d love to pay him more for their products. The consumer would love to pay less for the eggs? Of course, I want to pay less. The retailer wants more trade dollars so they can have better profits, et cetera, et cetera. You can’t be everything to everyone, but if you have the courage of your convictions that what you’re doing will be sustainable for all of them over the long haul, then it tends to work out in my experience, especially when you have values alignment.

TY MONTAGUE

Yeah. This question is just occurring to me, but can you think of an example of a time when you had to keep your commitment to a set of stakeholders in a way that…I guess, what is the toughest decision you’ve had to make? 

 RUSSELL DIEZ-CONSECO

And then, I’ll offer one that was a pretty transformational decision for us as a company. So, when I joined in 2014, there was a terrible outbreak of avian influenza in, I believe it was 2015 that resulted in the destruction of more than 10 percent of all the birds in America.

RUSSELL DIEZ-CONSECO

Forty four million birds were depopulated.

TY MONTAGUE

Wow.

RUSSELL DIEZ-CONSECO

That’s a story for another time. All of the avian influenza was spread inside those factory farms.

TY MONTAGUE

Right. 

RUSSELL DIEZ-CONSECO

Even though the industry thought that the risk was going to be birds like ours that went outdoors and none of ours were affected. But there was a typical boom and bust cycle where the shortage of eggs raised prices for eggs and then the whole industry ramped up production. And then there was a bust where the price of eggs really tanked about a year later, and we were left with way too many eggs. And our contracts with our farmers have us buying their eggs whether we need them or not. When we write a contract with you, we say we’re going to buy all your eggs for a certain period of time and we’ll figure out what to do with them. But this was sort of an unprecedented shock to the system. And many companies left in that situation were simply telling farmers that they couldn’t buy any more eggs for a while and they’d call them back when they were ready to buy some more. And we certainly had the right within our contracts to do the same thing. We went to our board and we said, “Hey, if we walk away from these farmers for a period of time, we’ll likely bankrupt them. And, I don’t think that means long term sustainability for the farmers, which is part of our values.

TY MONTAGUE

And these aren’t giant corporations either. These are family farmers, right?

RUSSELL DIEZ-CONSECO

These are individual family farmers who have put in not an insignificant amount of money to build out a farm to our specifications. They have a sole source contract with us. They may have other income streams, but this would be a big hit to their financial well-being. And, we also said, if we walk away from them now, then, when we need eggs again, are they going to be trusting? Are they going to trust us not to do that to them again? And so will we even be able to get back in the business when we need them again? The board didn’t take too long to debate the idea that it would be better for them to do another fund raise, this is when we’re a private company, take dilution and use that money to pay the farmers not to produce eggs until we were ready. In essence, we paid them 100 percent profit replacement. We made them whole for as long as we had too many eggs. That, and it was a lot, I mean, that was a year when we might have been budgeted to make a million dollars in EBITDA, and that cost us $6 million. We spent $6 million paying farmers not to produce eggs. So think about private equity venture capitalists making that decision! Holy smokes!

TY MONTAGUE

Yeah. How did that go over with the board? That must not have been a board meeting you were looking forward to.

RUSSELL DIEZ-CONSECO

Well, I got to tell you. They stepped up because one of the things that our founder, Matt O’Hayer had done so thoughtfully was he curated who he took money from. And so we had this amazing board of impact investors who were pretty aligned with the idea that we shouldn’t bankrupt the farmers.

TY MONTAGUE

Right. Yeah.  

RUSSELL DIEZ-CONSECO

Who were pretty aligned with the idea that the time horizon for this business to to show its potential was over a little bit of a longer term horizon. And the payoff was, that single act created a reputation in the industry that has led us to never market to attract new farmers, never advertise to attract new farmers. We have a list of 100 plus farmers waiting to get into this system because we’re the rare guys, apparently, that do what they say and say what they do and, you know, we stand behind our contracts. 

TY MONTAGUE

Right. Do the right thing. That’s great. I love that story. 

What are the standards that you use to decide who gets into the family as it were?

RUSSELL DIEZ-CONSECO

That’s a great question. And we actually have a team of well over 20. I want to say we’re probably hitting about 30 people that both support our farms and help vet new ones and onboard new ones, which is like a really big investment. Somebody said once that I think it might have been, Peter Drucker said, If you want to know a company’s strategy, look at their budget.

TY MONTAGUE

Mm-hmm.

RUSSELL DIEZ-CONSECO

And, if you look at our budget, what you’ll find is that we spend an awful lot of money in service of helping our farmers be really successful, and that starts with choosing the best ones. Not unlike the focus we put in hiring. So some things we go through. Typically, we’re looking for someone to be a referral from a trusted and high performing farmer who’s already in our network. And most of them are. Next, we might go to their neighborhood and talk to some references. It’s always a good idea to go to the feed mill and ask if that person pays their bills on time. Then, we go look at their land. They may already have land or they may be looking to buy some land. The land is really important for success. The right land is going to be in a part of the country that we call the pasture belt. The pasture belt is this Goldilocks part of the country that’s warm enough to have meaningful outdoor access year-round instead of having feet and feet of snow in the Northeast, for example, and wet enough to have meaningful vegetative cover instead of, you know, the Southwest, for example.

RUSSELL DIEZ-CONSECO

We might also want to look for things like standing water, open bodies of water on their land because those can attract wild waterfowl that can introduce disease on a farm. So there are lots of factors that go into the right kind of land in the right area. 

The other thing that we’ve discovered over the years that’s really important is tree cover. We used to think of pasture as a manicured golf course, but the reality is these laying hens are descended from jungle fowl. And so what they want is varied terrain under a canopy of tree cover. And so we increasingly are shifting our farm model to more of that. The really cool thing that that that allows for our farmers is if what we want for the birds is not a manicured lawn, but instead, varied, you know, sort of varied topography under a tree cover, now we’re helping a farmer make use of land that he probably didn’t have another use for. In essence, this is forest edge land that wasn’t going to be good for a crop and might not even be good for grazing cattle.

TY MONTAGUE

So just another area of inquiry, at some level, proclaiming yourself to be purpose-led in business makes a company a target, even if by comparison, you’re a beacon of hope in your industry. Have you ever felt that pressure at Vital Farms?

RUSSELL DIEZ-CONSECO

It’s interesting. I think we saw that with, if I’m not mistaken, the CEO of Danone.

TY MONTAGUE

Yes.

RUSSELL DIEZ-CONSECO

Who, during a time when the stock wasn’t performing as well as investors had expected, accused him of being overly focused on the purpose and not on the profits.

TY MONTAGUE

That’s right.

RUSSELL DIEZ-CONSECO

There are certainly skeptics, and, I’ve got to tell you, 25 years ago in business school, I was one of them. I was, you know, firmly in the Milton Friedman camp of, you know, your job as management is to maximize shareholder value. And anything you do with the profits other than give it to the shareholder is socialism.

TY MONTAGUE

Yes, that is exactly what he said. He comes up a lot on this show actually.

RUSSELL DIEZ-CONSECO

I mean, and I believed it. Like, hey, if the company believes you should give money to a charity, give it to the shareholder, let the shareholder choose the charity. I mean, that’s where I was in 2000, you know?

TY MONTAGUE: Yeah.

RUSSELL DIEZ-CONSECO: But there’s a falsehood in that whole chain of logic, which is, I don’t think about purpose and profits as two separate obligations on my balanced scorecard. I actually think that the way we operate and our purpose are the things that give us the right to win in the marketplace and over time will produce outsized returns.

TY MONTAGUE: Right.

TY MONTAGUE: Right. Again, going back to that thought starter about, hey, what does the world look like if your company ceases to exist? Well, in essence, what that’s asking is what makes you different. 

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: And what impact are you having that’s different than everybody else. And the impact we’re having that’s different is about animal welfare, and it’s about improving the lives of people, animals, and the plant through food. It’s our crew members, it’s our farmers, it’s our consumers and retail partners, right? It’s the chickens. It’s less risk of, you know, environmental destruction. If there’s a flood, I mean better resilience for our factory workers, et cetera, et cetera. And so, those things cost money. Right. Those things aren’t all cheaper to do than a factory farm approach. Therefore, we have to have a way to get credit for them and have that resonate with consumers in order to exist because otherwise we’re just the most expensive egg producer in America.

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: So it’s not a trade off. Like it’s not, well, we’re going to have a certain amount of purpose, but we’ve got to balance that with how much we drop to the bottom line. It’s actually a whole reason to exist and our strategy for success in the marketplace.

TY MONTAGUE: Are there any other leaders you mentioned, the CEO of Danone? Are there other leaders of purpose-led businesses that have come to inspire you as you have, kind of, entered that or made the transition from the Friedman model to the purpose-led model?

RUSSELL DIEZ-CONSECO: Well, certainly, you know, Whole Foods and John Mackey loom large for us at Vital Farms.

TY MONTAGUE: Yeah. 

RUSSELL DIEZ-CONSECO: They do an incredible amount of work verifying their vendors. So when they set out their own standards for egg production, they visited every one of our farms and they do every year to 18 months. Nobody else that we supply to does anything close to that. So I have a ton of appreciation for Whole Foods because they kind of do what they say and they say what they do. In fact, they probably do more than they get credit for in some regards. 

In terms of other leaders, one that has always been an influence for me as Paul Polman, certainly when he was at Unilever the work he’d been doing since then. Yeah. And then, you know, one of the kind of holy grail companies that we always look at is Patagonia. There’s always a little bit of what-would-Patagonia-do question in our discussions.

TY MONTAGUE (VO)

To learn more about how Vital Farm’s mission drives their company culture, and for some great advice for anyone trying to lead a purpose led organization, stay with us.

 ————————————————-   AD BREAK ————————————————

TY MONTAGUE (VO)

Back with Vital Farm’s CEO RUSSELL DIEZ-CONSECO talking about how they do their best to truly live their mission. 

TY MONTAGUE: So, I guess, in the realm of advice to other leaders, now that you have made this transition. You know, Vital Farms began as a purpose-led business.

RUSSELL DIEZ-CONSECO: Yup.

TY MONTAGUE: But there are now a lot of companies that didn’t begin as purpose-led businesses who are really trying to make that transition. So what advice would you have for other CEOs who are beginning that journey?

RUSSELL DIEZ-CONSECO: Great question. I had the luxury of coming into it sort of already rooted in this place. I do get calls occasionally from CEOs who ask, How do I do that? And it’s often in service of a financial goal. “Hey, I’m thinking about having an IPO. What do you think the impact to my valuation would be if we had a purpose?”

TY MONTAGUE: Hmm.

RUSSELL DIEZ-CONSECO: “Hey, I’m thinking about doing a fund raise. What would it mean if I were a B Corp? If I were a B Corp, how much is that worth?” And it’s almost like a checklist item. And I got to tell you, I think you don’t get the value of it if you think about it that way. The example I would give is our crew members. I believe, that we have some of the best people working at Vital Farms that you’ll find anywhere. 

RUSSELL DIEZ-CONSECO: But one of the things that all those people have in common and it shows up in our engagement surveys, it shows up in our town halls is, their role as stakeholders and their expectations of us in terms of the transparency, the way we treat them, the way we behave, their expectations are perhaps higher than any other stakeholder group. They are in a position to know exactly what’s going on in the business and they have zero tolerance for any BS.

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: So, if you have a purpose, but it’s just on the wall and you’re not really living it or if you have a purpose, but it actually isn’t the thing that the people you’ve hired are wired to be excited about. It’s not going to inspire them, and it’s not going to be a reason for them to come or to stay. And so you’ve got to do it for real. And you’ve got to start with the purpose and let the business model come from that as opposed to trying to stick a purpose on top of a business model that you already think is the right one.

TY MONTAGUE: Right. Back to that. I thought, you know, your insight about thinking about being purpose-led through the lens of how is this going to add to our valuation is the wrong way to think about it. But it leads to another question that I wanted to touch on, which is, does being purpose-led mean being less competitive?

RUSSELL DIEZ-CONSECO: Oh god no. So let me talk a little bit more about what a purpose does for me, and I totally did not get this 20 years ago, right? I want to be very humble about the fact that I’m a work in progress, the company’s work in progress, and we’re still figuring this out. There’s a lot of talk about strategy and about the CEO being the chief strategy officer or the chief vision officer, and they got to set the direction and set the guardrails and then unleash the potential of the organization. I would argue that nothing is a better north star than a purpose that you’re all aligned around. And that’s not just for you and your employees, that’s for your shareholders. That’s for your customers, right? That’s for your board. The purpose and alignment about the purpose and progress toward your purpose is the thing that galvanizes us all. It guides people in the moment when nobody else is watching about maybe what the right decision is. It can guide us in our strategic conversations. How does this help us achieve our purpose? It can embolden you to take risks and do things that might not pay off in the short run, but pay off in the long run.

RUSSELL DIEZ-CONSECO: And, you know, the example that I like to use and it may or may not seem relevant to a little food company like Vital Farms, is Tesla.

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: I mean, look, a lot of people have strong opinions about Elon Musk and about Tesla, But, regardless of where you sit in all that debate, I think it’s fair to say, Elon Musk said many, many years ago, I want to move this planet to less dependence on oil, and I’m going to do that through a bunch of things but the first one is going to be electric cars. And look what he’s done.

TY MONTAGUE: Yeah.

RUSSELL DIEZ-CONSECO: He’s not. I mean, so many companies are tripping over themselves, making announcements about their electric cars that are coming out after years of ignoring it. He lit the flame. We’re all so many cars are going to be electric by 2030. Maybe a fraction of them will be Teslas. He didn’t start Tesla to make money. He started Tesla to electrify the auto industry.

TY MONTAGUE: No, that’s right. And, one of the proof points along the way that some people may have forgotten, is that he actually opened up their patent portfolio to competitors in order to actually make that happen. He was like, the more electric cars there are in the world, the better off the world is going to be and the better off we will be as a company. 

RUSSELL DIEZ-CONSECO: Great proof point.

TY MONTAGUE: Yeah, exactly. So yeah, we would call that an iconic action at our company. Like there are things that purpose-led companies ought to do just because they will make people sit up and go, “Wow, they really mean it.” So, pivoting back to entrepreneurs because there’s a whole generation of purpose-led businesses being born. You know, what advice would you give to the purpose-led entrepreneurs of tomorrow, who are the next generation of Matt O’Hayers?

RUSSELL DIEZ-CONSECO: I think two things stand out as advice that I would give to an entrepreneur who’s kind of thinking about this as a topic. One is, even in those early days when you’re stressed and bootstrapping and don’t know about making payroll and all the things that a startup founder is facing. Even then, you still have to be choosy about who you partner with and where you get your money from. Because, if you’re misaligned with your early investors on your purpose and your commitment to it, it’s going to be really hard to stick to it. That’s number one. And there were times in our growth when I watched us not take the money we really thought we needed because we couldn’t get it from the right place and we knew that that would be disruptive. The second thing I would say is, you’ve got to live it. you have to live it even in your darkest moment. You can’t cut a corner because you feel like you have no other choice. Because, as soon as you do that, then it’s a little bit of a take away from the purpose you’ve articulated and from the trust your stakeholders have in you that you really mean what you’re saying. So two really hard things to do in those early days: Choose your partners wisely and don’t stray.

TY MONTAGUE: Let’s pivot to the company culture because it’s such an important part of the equation How would you describe your company culture at Vital Farms?

RUSSELL DIEZ-CONSECO: Well, that’s a great question. First of all, it’s absolutely rooted in the tenets of conscious capitalism. It’s something we sort of select for. It’s something we manage against. It’s something we talk about in our day-to-day work. The way that we bring those to life in terms of company values, again, so that they can be more tangible and so that we can recognize when people are doing them and aren’t doing them. We’ve articulated five values that we believe are important ingredients to being a part of a conscious company. The first is humility. So we think humility is really important, because if you’re going to have truly collaborative relationships with your stakeholders, you have to be open to potentially them having some new information or a different idea that you need to be open to accepting and working with. You have to have the humility to admit when you’ve got something wrong in order for people to trust you with their feedback. 

Ownership. Again, in the spirit of collaborative problem solving across stakeholders, we want our people to have extreme ownership over their goal or the project they’re managing or the result they’re going after. But that doesn’t mean doing all the work yourself. So ownership for the goal, but not necessarily working in a vacuum to get it done. 

RUSSELL DIEZ-CONSECO: We want you to have a growth mindset. This sense of we reserve the right to get smarter over time. That, in order to disrupt the dominant paradigm of food production, you have to be open to the possibility that some of the things you have to do look impossible. And you have to be open to the possibility that with enough human ingenuity, you could make them possible. And, you need to have empathy. It’s very hard to really work in a true sort of peer-to-peer relationship with a stakeholder, if you can’t walk in their shoes. And the last one is a competitive spirit. For this to be sustainable, for the long haul, for all of our stakeholders, we have to win. We’ve got to win. And we are passionate about winning on behalf of our stakeholders and that is part of the true north or that you know that purpose that helps get us out of bed every morning to go back to battle with whichever competitor we’re focused on. Whether it’s competing for the best farmers, competing for the best space on the shelf, competing for scarce consumer attention, competing for the best crew members. So those are the ways in which I would describe our culture and, certainly, at least the things that we focus on reinforcing in our culture.

TY MONTAGUE: Are there problems or opportunities in your industry that you would like to see the company take on in the future? And, I mean that broadly, the food industry. Are there opportunities that or problems that you’d like to take on in the future, really use your purpose to kind of take on or solve?

RUSSELL DIEZ-CONSECO: You know, there’s seemingly limitless opportunity to disrupt both factory food in the way that we discussed earlier and frankly, sort of factory management, factory corporate management. And so, for me, it’s not so much that I would point to a specific animal husbandry practice that we want to change. I would talk more broadly about the opportunity to really bring a whole new way of doing business. The whole new way of thinking about building trust and transparency, getting credit for what you’re doing. I mean, again, the biggest hindrance, in my estimation, to people being willing to pay more for food like ours that costs more to produce but is meaningfully different, is them trusting that it’s meaningfully different. 

A lot of consumers say I’d be willing to pay more, but I just don’t believe what I’m getting. Small example, years ago I got to meet with a buyer at a grocery chain who we hadn’t met with before to talk about our eggs. And we have our standard presentation and we talk about what we’re doing. And then, at the end, he kind of rolls his eyes and he said, “How do I know you’re doing any of that stuff? The eggs all look the same. In fact, at least when I buy eggs from birds that are in cages, I know what I’m getting.”

TY MONTAGUE: Huh.

RUSSELL DIEZ-CONSECO: Right. So people say, well, “Gosh, are there really a lot of people in America that could pay six bucks for a dozen eggs?” And I would push back and say, “First of all, that’s not a whole lot. And actually, six dollars for a dozen eggs is 50 cents an egg.” You can have breakfast for a buck. Is that really a lot? The hold back is not people who have six bucks. The whole back is people who trust that it’s worth more than a buck for that thing we’re producing.

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: So that’s what I want to disrupt. I want transparency.

TY MONTAGUE: Right.

RUSSELL DIEZ-CONSECO: I want to create more and more jobs that are meaningful in a purpose-driven company and I want more stakeholder alignment. I think it’s good for the world. That’s what I want for the industry.

TY MONTAGUE: I love that. I love that. 

BS RATING THEME MUSIC

TY MONTAGUE: Ok, last question. So we define B.S., on this show, as the gap between word and deed. And so we have a tool that we call the BS scale, where we rate organizations and ask them to rate themselves on that gap. On that scale, zero being the best, Zero gap between word and deed, and 100 being the worst, total B.S, taking into consideration that you are on your purpose-led journey, where would you rate Vital Farms on that scale today?

RUSSELL DIEZ-CONSECO: Ooh. So, you know, I’d love to say zero. And the truth is, as I think about it, I can’t think of a material way in which we should deserve something less than a zero.

TY MONTAGUE: Right. 

RUSSELL DIEZ-CONSECO: But, at the same time, I’ve been here an awful lot of years and there is a difference between your good intentions and your actions. And I couldn’t tell you that on every day, every one of our over two hundred people and all of their partners are doing everything exactly the way we would in the boardroom. And so I’m going to say 10. Give us a little room for the humanity of what we’re doing and the fact that we do get better every day.

TY MONTAGUE: Yeah, I love that answer because nobody’s perfect, right? And, also, We really believe that your purpose should transcend your current state. In other words, it should be ambitious. It should be driving change. It should be something that you have to grow into over time. So, Russell, thank you so much for the time today and for your wisdom. We really appreciate it. This was absolutely great.

RUSSELL DIEZ-CONSECO: Thank you. I enjoyed it very much.

MUSIC: “IN PASSAGE” by Migration via Blue Dot Sessions

TY MONTAGUE (VO) 

I’d like to end the show by giving Vital Farms an official BS score.  As you know, the scale goes from zero to a hundred. Zero means there’s zero gap between word and deed, and 100 means complete BS.  

Russel gave himself a 10. But based on what I have heard today, I’m going to actually give him a slightly better score.  

I’m going to give Vital Farms an 8.  By the way, that’s the lowest score of our season so far. 

So why an 8?  Because one of the key aspects of being purpose-led is transparency. It would have been super easy for Russel to give himself and the company a zero. But by acknowledging that Vital Farms is on a journey, and that there is always more work to be done, he builds trust.  And trust is the most important form of capital in business today. 

And look, of course no company is perfect.  But I really believe that Vital Farms’ heart is in the right place. They’re trying to live their purpose with transparency and integrity and backing up their words with actions that build trust with all of their stakeholders. 

So, if you’re starting a purpose-led business, or you’re thinking of beginning the journey of transformation to become one, here are three things Russel said to take away from this episode:  

1) If you’re a purpose-led entrepreneur, who you take money from matters a lot. In the early days, you’re bootstrapping and (you’re) worried about making payroll, so there’s a lot of pressure to take any money that’s offered.  But it’ll pay off in the long run to be choosy. Investors who align with your purpose and understand all of the stakeholders you serve are vital (for the long haul). 

2) Your purpose drives your business model, not the other way around. If you’re the CEO of an established company starting the journey to become purpose-led, a purpose isn’t something you slap on as an afterthought. It needs to sit at the core of your business, and it needs to be operationalized throughout. This takes time and real work.   

3) Purpose drives culture. Any conscious enterprise needs to define it’s values. At Vital Farms there are 5:  Humility, Extreme ownership of goals, Getting smarter over time, Empathy, and a competitive spirit.  Now, your values may be different.  But they have to be explicit and they have to be driven by your purpose.  

Outro

MUSIC: “SunRise” by Northside via Epidemic Sound

TY MONTAGUE (VO)

To weigh in with your thoughts on this episode visit our website, callingbullshitpodcast.com. You’ll be able to see where Vital Farms ranks on BS compared to the other companies and organizations we feature on this show.

And thank you for joining us today, Russel Diez-Canseco. And thanks to the whole Vital Farms team for helping to make this episode happen. You can find Vital Farms’ social media handles on our site — callingbullshitpodcast.com.

Have an idea for a company or organization that we should consider for the show? You can submit that on the site too. 

And if you thought this episode was cluckin’ great, subscribe to the Calling Bullshit podcast on the IHeartradio app, Apple Podcasts, or wherever you get your podcasts.

And thanks to our production team: Hannah Beal, Jess Fenton, Amanda Ginzburg, Andy Kim, Haley Paskalides, Mikaela Reid, D.S.Moss, Basil Soper and Mijon Zulu. Calling Bullshit was created by co:collective and is hosted by me, TY MONTAGUE. Thanks for listening.

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