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We go down to Mexico to do our first production run.And when we went to do that at scale, it just, it didn't work.The equipment was breaking.We were clogging it up with like the pulp, you know, from the fruit, and it was a disaster.
And that night we went back to our hotels and we got the email from BevMo.And it said they wanted all three SKUs in all 147 stores.
All three flavors in all stores, which is how many cases?
I think it was like 300 cases.
Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
I'm Guy Raz, and on the show today, how Kat Hontas turned a home hobby into 21 seeds and infused tequila that connected with moms and sold for $160 million just three years after launch.
Some of the most successful brands in recent years aren't necessarily new or even that different from products that have been around forever. Liquid Death is a great example.It's just spring water, no different from other good spring water brands.
But if you remember the episode we did with the brand's founder, Mike Cesario, he said something really important.
Basically, he said that when dealing with a competitor that makes a similar product, your branding will always be more important than any differences between the two products.
In other words, if your water tastes as good as another water brand, don't try and sell the quality of your water.Sell the story of your brand.
Which is how Mike Cesario succeeded in a crowded marketplace dominated by giant brands like Evian and Dasani. It's a somewhat similar story with today's founder, Kat Hontas.Kat spent most of her mid-30s and early 40s raising her kids.
She also had a pretty tight group of friends, women who would gather and hang out and usually crack open a few bottles of wine. But as Kat entered early middle age, those glasses of wine really started to hit her hard.
And strangely, or maybe not so strangely, her doctor suggested she switch to Blanco tequila.Now, I'm no doctor, and this is not a medical advice show, so I can't vouch for Kat's MD, but at least for her, it worked.
A little tequila and soda water didn't seem to give her headaches and sleepless nights. Eventually, Kat started throwing chunks of fruit and herbs into her tequila.And soon, her group of fellow moms was also enjoying Kat's home infusions.
After almost nine years of serving her homebrew cocktails at her house, Kat decided to make a business out of it.This was in 2018, and she called it 21 Seeds.Now, if you went to a liquor store that year, you would see a lot of tequila brands.
Like so many, it's almost impossible to know which one to pick.But Kat wasn't necessarily trying to get you or me or the frat boys looking for tequila slammers to buy her brand.
Just as Liquid Death was trying to appeal to teens and young people who would otherwise drink an energy drink, cat was targeting moms, especially wine-drinking moms looking for an alternative.
But as you will hear, the spirits business is really rough.50 states with 50 different regulations, challenges finding a distributor, and of course, tequila must be produced in one of five states in Mexico.And if it's not, you can't call it tequila.
so Cat had to find a distiller in Mexico that was willing to work with her.
But all of that work would pay off, because barely three years after she launched 21 Seats, Cat and her partners managed to sell it to the beverage giant Diageo for a whopping amount of money.
Now, as I mentioned, before she launched 21 Seeds, Kat had spent more than a decade raising her kids.At the time, she left a career as an independent film producer in LA.
She got into the industry right out of college, in part through a guy she dated at UCLA, and his name was Josh.
Yeah.So we dated in college, and that's where his father is still, even today, a very well-known screenwriter.
Eric Roth is his name.He wrote Forrest Gump.
That's right.He wrote Forrest Gump.Actually, funny story there.We were still dating at the time.And I remember sitting at dinner one night, and Eric asked all of us.We were like 10 people.
And he said, OK, how many different ways are there to make shrimp? And we all started chiming in with the different ways to make shrimp.And then we broke up and, you know, he gets nominated for the Oscar.
Obviously the movie comes out and there's the scene in the movie.It's like one of the iconic scenes of Forrest Gump, whether like shrimp scampi, fried shrimp.
So I was like, oh my God, we were there.I remember that conversation.So that was really funny.
And I think it was through your connection to Josh and his family that you decided to get into the film industry as well, initially as an agent.
And you wound up working for CAA, the talent agency, and started out, I guess, as most people do, in the mailroom, right?
Yep, and that's where everyone starts and it doesn't you know, you've got lawyers in there people have gone to Harvard and business school and everybody starts in the mailroom and The way that you get promoted out of the mailroom is based on the need like what whatever sort of desk opens up So in that way, you don't have as much say in what you end up doing So we're thinking I want to represent Clooney and and you know Brad Pitt, but that's not necessarily what's gonna happen.
Yeah, or at least I wanted to be on the film side.Like I don't watch television, but sure enough, as it would turn out, I got promoted onto a television desk.So now suddenly I was in TV and it's really, it's grueling.
I mean, you are living and breathing scripts and TV scripts and I just had no interest.
I wasn't part of the TV-going audience, so I didn't feel like my voice really mattered in that space or I could lend any sort of creative input that would make sense.
So that had run its course, and I had met a gal that I was sitting across from while at CAA, and she would talk to me about books that she was reading all the time.And so I thought that was amazing because I like to listen to stories.
And I thought, you know, let's go get a little more experience and then let's start a production company together.So she went off to Disney and worked on the development side.And I went to Three Arts, which was a management production company.
And you guys in 1998, I guess, form like your own production company.And tell me about the movies that you wanted to make.
We basically thought, okay, let's do music driven stuff and horror movies.Because with humor, it's harder, right?Because you go overseas or somewhere and the humor doesn't translate.But with horror, A, it works as long as it's a good concept.
And B, you don't have to worry so much about the A-list actors because anyway, you know, they all die.It's really the idea that sells it.
So as like young, new producers, we thought it would be much easier to get movies made based on a great concept versus based on A-list talent that we really wouldn't be able to get.
Yeah.And so I guess what the way it works is you've got to find somebody to finance a film and then you've got to find, you've got to bid for a script.
And I mean, it's, it's, you're on, you're up against huge production teams, like with, you know, Academy Awards and lots of money.And so that must just be a tough business for two people just starting out.
Yeah.99% of the time, the projects never see the light of day for a myriad of reasons.
Um, so overall, um, how many films did you guys end up making?
Well, we ended up making one film.We had many that we had set up and, you know, we're in different stages of development, but we ultimately made one film.
It just shows you how hard that business is because you guys started in 98 and I know you, you kind of wound it down in 2007, but that's right.I mean, that's, that's what, nine years?
And in nine years you make one film and that just shows you how hard that business is.
Oh, yeah.Anything can happen.You can have your project set up at a studio, the studio head leaves, the new guy just puts everything to turn around.
Hates it.Yeah.So you did eventually make a film called Taking Five, which it's about two high school girls that kidnap a boy band.So it's sort of a music slash kind of, not horror movie, but it's like a... Yeah, it's not horror at all.
It's totally, it's totally music driven.Okay.And we thought we totally nailed the timing because High School Musical had just come out and 8 Mile.And so we thought this is perfect.
It's gonna just hit, yeah.
Two high school girls who kidnap a boy band.The boy band was played by a real boy band.So we cast a real boy band in the film. The band in the movie was called Five Alive.The band in real life was called The Click Five.The Click Five, okay.
And The Click Five, they had just had a gold album.They were on Jingle Ball.
Wow, I've never heard of them.
Yes, Guy, because guess what happened?
The whole thing fell apart on the last day of our shooting.
Oh my God, the Click Five from Boston.They could have been like the new kids on the block, but no one ever heard.I haven't heard of them.Oh my God.
Yes.And I'll tell you why.There's a reason why you've never heard of them.Because we had lined it up beautifully. We had Craig Kalman and Atlantic Records.
They pre-bought the soundtrack, which is unheard of for an independent film with no distribution yet.But they believed in it, and they thought, they saw what we saw.We're like, yes, timing, perfect.Their second album will come out.
The headline song will be Kidnap My Heart that they wrote for the movie, and everybody's waiting for it.They were adorable.The lead singer was so handsome, so cute.They were great actors.They did a really good job in the film.On the last
They had legit musicians, too.I'm reading about them.Legit musicians.Berklee College of Music and stuff, yep.
They were amazing.So last day of shooting, I get a call from Craig Hellman, head of Atlantic Records, and he says, we have bad news.I was like, what's the bad news?
He said, well, the band, when they rap tonight, after we finish shooting, they are firing the lead singer, Eric from the band, and they don't want to be a boy band anymore.They want to be a rock band.
And I was like, is it, I'm like, is this, is there some sort of a hidden camera somewhere?Is this some sort of a joke?What are you talking about?And he said, and it's worse.
They're not going to promote the film because they don't want to be a boy band and they don't want anything to do with boy bands.And they're not going to let us release the song.You can't buy the music.
We could play the music in the song, in the movie, but we couldn't buy it on iTunes.So I, it was like, oh my God.
That was going to be a revenue stream.
it was going to promote the film, right?Like it was going to do all of the things.And in the end, all of that just disappeared.
So the big lesson was like, you can plan it all so perfectly in this industry, in the movie industry, and still, you know, opening weekend, you could have a tornado hit, you know what I mean?There's still like something that can completely derail it.
And so sure enough, that's what they did.They fired the lead singer.They brought in this new lead singer.They ended up being a rock band and they went nowhere. Their career was over.And then our movie went to television.
Wow.All right.So I guess this was the cue for you, I guess, also to exit Stage Right and kind of take some time off.I guess in the meantime around, you had gotten married.
Yes.And it's funny that you say cue because my husband is Quincy and we often call him Q. So the cue works on many levels, Guy.
Okay.Okay.So you and Quincy get married, I think around 2009, you guys moved from New York to San Francisco for his job.And then by the time you're out there, I think you guys have started a family as well, right?
Yes.We have Elias and I am pregnant with Abigail.Yeah.So she's born in San Francisco.
And I guess sort of around this time, I mean, not, you know, when you were serving your mid-30s, you started to get affected by alcohol, particularly by wine.Tell me what was happening.
Yeah.So I was 35 and what I was noticing was I would have a glass of wine while I was making dinner and usually a glass of wine with dinner.So I'd have like two glasses of wine and that night I wouldn't sleep well.
I'd wake up in the morning and have a headache sometimes, not having felt rested, and sometimes I'd sweat. So at first I thought, you know, hey, maybe this is early menopause.
So I went to my doctor and just said, hey, listen, this is what I'm feeling.And is this early menopause?And he said, let's do some blood work and tests and whatnot.And we did.And he said, no, everything looks fine.
Let's look at what you're eating and drinking.And I would say, you know, a couple glasses of wine. And he's like, ah, there's the culprit.Just stop drinking fermented spirits.And I said, OK, well, then, you know, what should I drink instead?
And he said, Blanco tequila.You should switch to Blanco tequila.
And I should mention, I mean, tequila is, I think, it's got to be one of the only spirits that is not distilled from a grain.Right.Right.Yeah.I think, I mean, there must be others that- As a category.
I mean, you can make vodka from potatoes and stuff like, and you can make, you know- I should say grain, but it's not from a starch or a grain.
It's like, it is literally from- It's an agave.
Yeah.It's an agave plant.It's a cactus.
So tequila, the way that you make tequila, right, is you first, you make an agave wine.So you cook the agave plant and then you squeeze it and you get all that juice and then you add the yeast and you take that wine and you boil it.
And then you condense it, you cool it, and it rains down tequila, basically.So basically, a distilled spirit, vodka, same thing, right?Gin, you just pass it through a flavored basket.But basically, there's nothing living in it anymore, right?
Distilled is just cleaner.
But he said try blanco tequila, but why not like vodka or whiskey?I mean, those are also not, right?They're also distilled.
Yeah, you could do those as well.He just didn't want me to drink an aged spirit because when you age it, you put it in barrels and yes, what leeches in to the liquid is some flavor, but also those things can react with your body.
So if you're trying to drink cleaner, just drink a white spirit.
I mean, what a doctor.I have never met a doctor who's like, hey, just do tequila shots.You're gonna be good.
And he didn't say shots. I mean, honestly, I didn't analyze it that much.I just kind of thought, I'll just try it.I'm just going to go home and try not drinking wine and see how I feel.
And substitute with white tequila.
At first, that was a hard pill to swallow, to be honest, because I was like, ugh, that sounds very harsh and aggressive for a Tuesday night.But I went home.I stopped drinking wine.I immediately felt better. So I thought, okay, that worked.
Now, what am I going to do to this Blanco?Because I was not just going to start drinking Blanco tequila the way that it existed.
You make ranch water, club soda and lime.That's what you do.Yeah.
Right, exactly.But then even that, to me, I could still taste the harshness of tequila.And I quite liked wine, so it needed to be as good or better than the glass of wine.
And I thought, I got to do something to this tequila to make it more drinkable and easy to use.So I started infusing it.
Infusing it, like with vanilla pods or chili peppers or what?
Yeah.So the very first infusion that I made was cucumber jalapeno.
You just took a bottle of tequila and dumped it in a pitcher with cut up cucumbers and chopped up jalapeno?
That's exactly what I did.Leave it in the fridge and I would stick my finger in the liquid and taste it, you know?Right.I'm like, okay, this needs to stay longer.And I would leave the cucumber in then longer.
And that would sort of even out, cool off the spice.
So once you had like that infusion, would you sip it or would you mix it with or, you know, pour in some soda water in a glass and some of that tequila?
Bingo.I would do what you just described.I would take a wine glass, because I also like the ritual of holding the wine glass.So I would take the wine glass, I would put in one ounce of this infused tequila, add club soda, and like a slice of orange.
And that would be my drink.
And I guess when you would have people over, you would offer them some of your infused tequila.
Exactly.Basically, I would infuse multiple types.I would do the cucumber jalapeno.I'd have strawberry pink peppercorn as an amazing infusion for tequila.There was a honeydew kiwi.
And I would just make bottles of infused tequila, different club sodas out, and then just a charcuterie board filled with garnishes. And that is how I entertain even today.
All right.So this is like your house drink and and this was this is just what you served for a bunch of years like you were And at what point during that time, because I'm sure now and again people would be like, Kat, this is great.
You should sell this at the farmer's market.You should bottle this up and sell it.And people were like, I'm sure people said that to you from time to time.
Definitely.But even with them asking for it, I would just make it for them and still was not thinking this is a business. was still just, you know, for nine years just making it for myself and for friends.
But I had always been sort of entrepreneurial minded, right?I knew I wasn't going to go work for someone.And what I started to observe, right, was a lot of my girlfriends in particular were switching from wine and champagne to tequila.
So just to time set this, this was like, you know, 2018, right?So George Clooney had come out with Casamigos and that really, I think, brought in like a whole slew of tequilas that had come on market.
People like wanting, you know, both celebrities and non-celebrities.
That just, there was like a celebrity explosion of tequilas.
Unbelievable amounts, exactly.And then guys were switching from beer to tequila, I think to drink, you know, fewer carbs and so on.So I noticed that, that was number one.
And number two, I noticed people were ordering, especially women, like tequila, soda, splash of juice, tequila, soda, an orange slice, right?And they weren't ordering shots.And so I thought, huh, that's interesting.
There are all these people drinking tequila for wellness reasons. And they're switching from wine and champagne over to tequila.And there's nobody, it's really being driven by women, and there's nobody really talking to women in the tequila space.
Because at that time, in the world of tequila, there were shots.So like, whoop, whoop.And then there was like sipping tequila, right?And the sipping tequila was really being marketed like scotches and whiskeys to a male consumer.
And there was nobody talking about, you know, spritzes and that wine occasion and to women.So that's when I was like, huh, there's something here that's not being addressed.
It's interesting because, I mean, as all this is happening, you could have taken a completely different perspective and thought, you know, George Clooney, all these celebrities getting into tequila, like this is just a mad dash right now.
It just seems. like, you know, a gold rush that's probably gonna be a bust.
I didn't think that, obviously.Because, again, the way I was looking at it was I wasn't just thinking about tequila as a category, like that's the category.
I was thinking more about the user, like who is the customer, and what is the occasion in which this consumer is actually going to drink this product.And that's where I found the white space.
I think you were in your mid-40s at this point, and I say that because I think a lot of people think, oh, you have to be 22 to be a founder of a company.
But actually, most companies are started by people, first-time founders are in their 40s and tend to be more successful because they have more experience.And so I think it's important to point that out because people think, oh, it's too late.
I'm in my 40s, 50s, 60s.We've had people on the show start a business in their 60s. So at this point, you're thinking, I think I want to do this.So what was your first series of steps?Like, did you start to reach out to someone?Did you?
So first thing I did was I got to find some partners.
You don't want to do this by yourself.
Heck no, heck no.I couldn't have done it by myself.And I thought it was really important, just having been around so many founders, it's incredibly lonely.
And your family very quickly tire of hearing about your woes and your friends follow pretty shortly thereafter.They don't want to hear about it.So you definitely need some people in the trenches with you.
And plus that there were things that I hate doing and don't know how to do and didn't want to learn in my 40s. Spreadsheets, Excel, I don't want to know about those things.I don't want to open bank accounts.
I don't want to deal with, like, I wanted to focus on storytelling, marketing, the brand, and sales.That's it.And the good thing was I didn't have to look very far for the finance piece because that was my sister, Nicole.
And she lived in the Bay Area?
Yes.And she had been the CFO of Refinery29.
Which is a hugely, you know, right, like a very influential website for fashion and food and trends and yeah.
Exactly.She was their CFO.Then she went on and was the CFO and the COO of Brit & Co, which was sort of a millennial Martha type of venture.And then she was, at the time, when I asked her to start this business with me, She was the CFO of AngelList.
Oh, wow, which is a way for people to do angel investing.So she had a lot of experience in the tech sector, working for media companies, and she was already in the Bay Area.
And so what did you say to her?Did you say, hey,
I said, hey, listen, you know that tequila you've been drinking at my house that you love?I said, I'm thinking that it's a business and here's why.Do you want to start this tequila company with me?
Like, I actually want you to be my partner, not just, you know, help me on the side.And she said, yes.
She said, yes, I will quit my job.
No, no, no.I won't quit my job."No.No.She's too smart for that.She's a CFO.There's no money in the beginning.
Yeah.Got nights and weekends basically on this.
Yeah.All night long.And she even had kids younger than my kids at the time.Her kids were still little.And she's the woman who has the baby and then is on the laptop in the room.
I'm just curious, during this time, were there people who said to you, Kat, you know, this is going to really not work because you're up against George Clooney types and celebrities and mass market brands and like you've never made a beverage before, let alone an alcoholic beverage.
Just the chances of this working are just really minuscule.Did anybody push back or give you any kind of feedback like that?
Because that would have been responsible, by the way.
Yeah, 100%.In fact, that's the only thing that most everyone said to us.
when we come back in just a moment, a lesson from Kat on how not to make a label for your brand new tequila.Stay with us.I'm Guy Raz, and you're listening to How I Built This.
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What's up, guys?It's your girl, Keke, and my podcast is back with a new season.And let me tell you, it's too good.And I'm diving into the brains of entertainment's best and brightest, OK?
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Hey, welcome back to How I Built This, I'm Guy Raz.
So it's 2018 and Kat, her sister Nicole, and a third partner are trying to ignore anyone who's telling them that infused tequila is a bad idea.And instead, they dig in and start doing a lot of research.
We had so many conversations with, we basically would talk to anybody who was in the business, touch the industry in any way, shape or form.
And what would you ask them?
And we would ask them, you know, like, do you drink tequila?You know, how does it sell in your bar and restaurant?Like, where does it land in terms of how it performs?
We would just, as much information just about the industry and how do you price it and who do you buy it from and like, do you know those people?Could you set us up with those people?
So I would say in almost all those cases, they would say to us, it's a really tough business.It's a very complicated business because, you know, selling booze in this country is very complicated.
Every state has different laws.
Exactly, exactly.And it's a three-tier system.Unlike wine and beer, you can't sell directly to your consumer as a hard alcohol brand, like as a spirits brand.
You have to go through a distributor.
You have to go through distributors.So your initial customer is not your ultimate customer, right?
We were selling tequila to women, but we didn't come from beverage and we certainly didn't come from alcohol.So they're like, well, you guys are insane for even thinking that you're going to get this done.
But, you know, listen, we were three smart girls and we just had, we had this belief that there was a white space that nobody was servicing.
So it would be you, your sister, Nicole, and your friend, Sarika Singh, who had worked with some food companies before.
Right.And she was a Stanford engineer that was a friend of mine as a mom friend, but she had worked in food innovation.
So she knew how to bring a product to market commercially, and she knew how to deal with the commercialization of something you're making at home.
What I'm curious about is if even in 2018, I mean, now it's even more so, but if you went to just even a Whole Foods in 2018 that sold liquor, you would see tons of tequila on their liquor shelves.You'd see tons of bottles.
It's like now it's even more, you know, just saturated, you know, like energy bars. Did you guys do that?Did you walk through stores and like look at the bottles and then at any point?Did you think oh, there's just so many brands here.
How are we gonna break through?Like I don't I'm just curious how about your thinking process?
Yeah.Basically, there were some flavored tequilas on the market.We tried those flavored tequilas, and it was exactly the problem that we had with flavored spirits in general as a category.The three of us as three women, we all felt the same way.
Our problem with flavored spirits is that they tend to be overly sweet, have a weird aftertaste like you're sucking on a nickel, and smell like a Jolly Rancher.
It's the way I would describe it is like it's like trying to spray perfume on someone with really bad body odor.Nothing improves.The body odor is still there, but you're just masking it with like the perfume.
And now the perfume doesn't smell as good and the person doesn't smell better.
Sorry.So you want to make a tequila that does not have those qualities, does not taste like a Jolly Rancher.And for the drinker, the consumer, You're thinking of a specific type of woman, right?Yes. Moms.Moms.
Yes.The three of us are moms.Yeah.So Nicole, Sarka, and I are all moms.And that is who I was observing.And moms have a lot of pain points, right?
Whether you're working at home or working outside the home and you're managing the household, raising the kids, you need to have energy.You have to have a good night's rest.You know, you have to be able to get up and do it all over again.Yeah.
And the way that we thought about it, right, was okay, who we're trying to get tequila into the house.Yep. for that wine occasion, to replace the wine, get rid of the wine and insert the tequila.That happens through retail purchase, right?
Through buying at the grocery store.Like in California, you can buy alcohol in a grocery store.So our whole idea was moms control the shopping.They make those decisions.So we're gonna put this product where she can find it. Right?
We're going to tell her how to use it, give her permission to bring a hard alcohol into the home, because prior to 21 Seeds, really women would bring wine and beer, buy that for the house, and they weren't in the business of really buying hard alcohol for the house.
And we really changed that behavior.
Alright, so now you've got your start, you're doing some research here, and you're talking to people, you're getting feedback.
And tell me how you, you know, is it like going to because you can go to like Sonoma County and, you know, find a winemaker to make you your own, you know, bespoke wine brand, like it's not that hard to do.How do you do that?
presumably getting over Mexico because it's like champagne, right?Tequila has to be made in a certain part of Mexico with certain, using certain methods.
That's right.So the first thing we did was we hired a lawyer.We hired a booze attorney.We thought we got to wrap our heads around, first of all, the legalities of how you sell tequila.
And then we also thought a booze attorney could point us in the direction of who are some of the distilleries down in Mexico that are making tequila for people?
Yeah.I wonder when you went down, it's in Oaxaca, right?No, Oaxaca's for Mezcal.Mezcal.Sorry.Sorry.It's in- That's okay.It's Jalisco.Jalisco.Jalisco.Forgive me.Jalisco.Yeah.So you're down in Jalisco.
And, you know, I'm imagining three American women going down to Mexico saying, hey, we want to make these infused tequilas with fruits.
Like you must have run into some people who were kind of like not cool with that because that, you know, I'm just imagining they're thinking, well, that's not what tequila is.
To be honest with you I would say they were sort of open to it But the the real issue for us was really in order to be able to infuse at scale We needed to make some modifications at the distillery and that's where the conversations became a little more complicated like you want to do what and you are don't come from beverage and you've never started a spirits brand and you know, you're three and
You know, girls, it is a very macho business still down there.So there was a bit of that.But really, it was about finding a partner who was willing to sort of innovate with us.
I mean, what was so complicated about the ask?Was it that because you're infusing fruits in the tequila, it has to sit there longer, presumably, so you'd have like, almost like vats, like how wine is made?
So it wasn't just the actual making of it, also the storage, like we needed to build refrigeration, being able to store the ingredients in refrigeration that didn't exist down there.So it was a real leap of faith.
that the distillery had to take, you know, to go on to actually make this product.So we found a distillery that was willing to do that.And it turned out it was owned by a woman.
A woman owned tequila distillery, which probably was rare and is still rare.And she was cool.She was like, I'm in.I can do this with you.
Yes, and she actually, you know, she, her mother, this was actually really rare, her mother owned a bottling facility in Veracruz.And she saw a lot of herself in us.
All right, but then you also have to start having conversations with distributors because this is a business that requires distribution.So even before you had a product, you had to get, you had to try and get meetings with distributors.
So what was your pitch to them?
Yeah, so we put together the pitch.We said, here's what we've observed.This is drinks as easy as a glass of wine, half the calories.
We're going after the mom consumer, and we're going to push easy at-home cocktail solutions for her to her through online, like through Pinterest and Instagram and Facebook and so on.And they were like, no thank you.
Wait, I'm curious why they would say that because that to me is a very good business argument.I'm thinking, wait a minute, this is interesting.So they're going to market to moms.That's interesting.No one said that?
Well, they just said it's a pass. Really, I'm surprised.Because at the time, tequila was being marketed to men and being sold like scotches and whiskeys.And that was what was what that that is how tequila was being marketed back then.
But it's not that long ago, we're talking 2018.And I'm thinking, I know, dollar signs here.But I again, I would, you needed these people, you could not enter this space without, without their support.
You can actually, and that's how we did it, because you can do it through... We launched with Park Street.Park Street is a distributor that checks the box on the three-tier system.
They are the ones who are delivering the booze to the customer, writing, doing all of that.They just don't have a sales force.So if you can sell it in yourself, you have to sell it in yourself.
This is this is key because the distributor also is the one who's positioning it in the store and having the conversation with the liquor store owner and the manager.And also, like, they're kind of right.They're also your sales force.
But but but basically, if they don't believe in your product, you're kind of out of luck.Totally.
This distributor, essentially, they're willing to just, you know, you can send them a check and they'll deliver your product, but they don't have the resources to actually position it on the shelves or to, you know, to make the pitch for it.
And so that was how we launched.
Okay.Just backing up for a sec, because we haven't... I know that the tequila is now being... You got this distillery in Jalisco, this woman-owned distillery, and they're working on the product.
Let's just go back to California for a second and talk about money.Because, you know, starting a beverage brand is not cheap. So, like, I'm thinking you go to a bunch of investment companies, VCs, and, you know, you've got a pretty solid team there.
Is that what you did to raise money?
So initially, the three of us each put in the money to just, and it was, I want to say, $100,000.Yeah.
We put in the $100,000 for the year of 2018 to just see if we could actually bring this, make this product, do the development of the actual product.
I got you.So you've secured a distributor.You've secured a distiller. Let's talk about the branding and the label and the name now because that's also important.
Absolutely.And so what we did was we took a walk to that tequila aisle and kind of looked at the aisle.And the first thing we noticed was that, first of all, there was no color, like color was missing from the aisle.
So we knew we wanted it to be bright and stand out, but not be like we wanted it to feel premium.We were thinking like we want it to almost be like a beautiful bottle of perfume that you would feel proud to give as a gift.
So a lot of, we needed the label in the bottle to do a lot of heavy lifting for us because that was where a lot of the marketing was going to happen.
And then what was interesting there was, you know, we actually hired a design agency that was very, very prominent in the space and it actually took up a big piece.That was one of our big mistakes that we made.
Because you hired this very expensive firm to put together ideas for a label.And this does not work out.You fired them?
Now it's important to note that every brand that they have brought to market, like so many of their brands are for men.I mean, but those were the big spirits brands.Like they had worked on many, many spirits brands.
All of them, I would say the majority of them, you know, are being marketed to men.And so they kept pushing our label and the design into a sort of very masculine, like mustache handlebar kind of vibe.And we were like, that's not what we want.
And so we'd give them notes and they would just ignore our notes. And it was actually very, a little bit scary, right?Because here we were, totally unknown.We were going with our gut.And we thought, we can't keep doing this.
We can't keep giving them these notes and them ignoring them.So we fired them.
How much do they cost a month?I'm curious.What was the retainer?Like 50 grand?
I mean, I think we had only put in at this point $100,000.So it was like almost, I would say almost half our budget was going to this.
And it ate up a lot of time for us, which was quite valuable because, you know, we needed, we had sort of, I can tell you about these sort of early meetings that we had in terms of The final piece, which is who are the retailers, right?
We want it to be where moms shop.So we had pitched a big retailer in California that had many locations, like 147 locations throughout California selling alcohol.
This was BevMo, I think, right?
And BevMo is going to be critical for you in California because if you were going to go to every mom and pop liquor store, that would just take forever.But BevMo Mission critical.Probably 150 or more stores in California alone, right?
Yes, exactly.And more importantly, going back to our consumer, she's not going to make a separate trip to that mom and pop store.She's buying her stuff where she buys her stuff.
Right, because that demographic is not going to the corner liquor store. Exactly.Yeah.
So we had, through like a friend of a friend of a friend, we were able to get to who at the time was the liquor buyer at BevMo and just pick their brain on this idea.
And actually, to your earlier question, Guy, he was the one who was like, actually, I think this is a good idea.
I'm not surprised because it's an innovative brand, BevMo, but yeah.
And he thought, you know, the kettle botanicals had come out and he was like, it's sort of like a similar proposition in that it's, you know, a little lower ABV and it's, you know, that's like lighter vodka with flavor and this is tequila with flavor.
I get it.Like he thought I could see that tequila is on fire as a category and this could be kind of like the kettle botanicals in the tequila aisle.
And the kettle botanicals, like Hendrix gin and all those spinoffs that came out of that world, right?Like all those kind of apothecary kind of brands of gin.
Exactly.And so he actually was one person that was very encouraging to us.And so he said, listen, once you get further along and you have a finished bottle, you know, they had these things called line reviews, which we hadn't heard of until
You know, we had this conversation, and what a line review is, is all the major retailers, which is where we wanted to be, right?Our strategy was like, we're going to go where moms shop.Moms shop in grocery store chains.They shop at Target.
They shop at Walmart.So we needed to get into those accounts.And those line reviews happen once a year in the spring. And you have to be ready with your product, everything done in like January.
And if you are lucky enough to be invited to present at a line review, you have an opportunity to pitch your product.And then if they decide to take you, then you go into their resets.
So they completely reset the stores, all the shelves in the spring.And then based on how those products perform, then they do plug and play in the fall, which is like a reshuffling.So basically you have like kind of like one chance to get in there.
Right. And the line review, this is BevMo's line review.
Where they basically, it's like a dog and pony show.Everybody comes there.Exactly.
So then at that point, we had been working with like a consultant, this guy that had been in the spirits industry, and he had worked with another design firm.
And so he said, listen, these three girls, they've already spent a fortune, you know, a big chunk of their budget.They don't have a ton of money.And they're really, they have some interest from BevMo, right, to show something.
Can you work on this very tight timeline and deliver at this amount of money?And they said yes.And they did an incredible job with our bottles.
So they came up with the label that I now know, which has the prominent fruit and the vegetables, almost like a photorealistic image on the bottle, 21 seeds with that like sort of sunburst design.
Yeah, it's actually from the top view, the top of an agave plant, but yes.
Okay, I got you right.So you get the first bottles out.I think what, or samples of this went by the end of 2018?
Yeah, so by the end of 2018, and we call up our friend at Bebmo, we say, OK, we have our bottles.Now, we were Frankensteining it, right, like pouring the liquid in.And we made our appointment with this guy.And we go down to Bebmo.
And on a Friday, we confirm the meeting.And we get there on Monday.And we pick up the phone.There's no receptionist at Bebmo.And we were 15 minutes early, because we were very excited.
We're talking, talking, and 15 minutes go by and nobody comes to get us.And so we're thinking, oh, maybe we should email.Send an email because maybe there's no receptionist, so they probably don't have assistance.So we send an email.
And then five minutes later, this lady comes out and she says, hey, you're here to see so-and-so.Yes.Well, so-and-so doesn't work here anymore.And we're like, well, we just talked to him on Friday.What do you mean?
Well, he didn't know he wasn't working here on Friday.
The guy, your contact, who's like, come see me.I like this.He's no longer working there.
Correct.And back to my movie days, I'm thinking when the studio head leaves, you're done.You don't want to be known as that person's tequila.
It could have been like a click five, right?Like.Totally.Like do everything right.And then you get to that moment and.
And they fire the lead singer and don't want to be a boy band anymore.
Yeah. when we come back in just a moment, how Kat manages to avoid a humiliating encore to the boy band debacle.Stay with us.I'm Guy Raz, and you're listening to How I Built This.
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Hey, welcome back to How I Built This, I'm Guy Raz.
So it's late 2018 and Kat and her partners are sitting in the headquarters of BevMo having a very awkward moment.A woman there has just told them that the buyer who liked their product and wanted to give them a chance doesn't work there anymore.
So we were sitting there, we're like, do we run?Should we just get out of here?Like, she doesn't know who we are.Like, this is our chance to go.We should go.
And as we're debating whether we should just get up and leave, this guy comes out and he says, hi, I'm Gary.I'm the new so-and-so.Um, I, my meeting just canceled.I'll take the meeting. And we were just like, oh, wow.
So we go in to the meeting, and we tell him our story.He tastes the product, and you could see his face lit up.He's like, wow.He was blown away.This is really good.And he said, OK.
If you get your product done and ready, then let's do the line review.
So cut to, we set the meeting with Gary and I email him just to find out how many people are going to be in a line review, just so I bring enough product for sampling and all of that.
And I don't hear back from him, but we'd already made the appointment and I thought, you know, he's really busy because he's in line reviews.So this is fine.Let's just bring more product than we need.
And so we say, okay, we're going to go into our meeting on Friday and our thinking for the, for the labels was like, okay, everyone's telling us at most we might get two SKUs approved.There's no way if you get one, you're lucky.
as a new brand, right?Because we're competing for shelf space against Diageo and Bacardi and Constellation and all their brands, right?
So that shelf space is very, very coveted.And by the way, in spirits, you don't have to pay slotting fees like you do in non-alcohol.
So it's a little more fair in that if you really do have that shining product, you can get through and it's not a matter of how much you can pay, right?With the slotting fees, you have to pay.
So we get there, same thing, we're waiting, we're waiting, we're waiting, and nobody comes.And we're like, where's Gary?So then we send another email, and again, this person comes out, and it's not him.And they're like, well, he's gone.
He's leaving BevMo.He's no longer the person that's in charge of spirits.And they're like, this woman Kim, the new buyer, she's doing the line reviews.We go in, We pitch her the product line and she tastes them all.
And she says to us, she's like, you know what?These are really good products.And I think we'll end up probably bringing in one or two of these.
And we said, great, you know, do the, you know, margarita two ways, spicy margarita with the cucumber jalapeno and a regular margarita with the Valencia orange.
But you knew then and there that they were going to make an initial order, which is encouraging.
Yes.We felt really good about that.But we still had to actually make it at scale.And that was a real problem.
Because we'd never tried it before.So when we took our, we go down to Mexico to do our first production run using the instructions that we have come up with.And when we went to do that at scale,
it just it didn't work and it was taking way way too much time and it was the equipment was breaking we were clogging it up with like the pulp you know from the fruit and it was a disaster and so that night we went home it was like day one and that night we went back to our hotels and we got the email from Bevmo that was the PO and that said and it said they wanted
All three SKUs in all 147 stores.
All three flavors in all stores, which is how many cases?
I think it was like 300 cases.
No, it was insane.So now we had to get it to work.
And you've got to get the money to finance this, right?Because a few hundred thousand dollars, you're going to need more than that.Yes.You've got to pay the distributor.You've got to make the tequila.I mean, this is now, you've got the bottles.
And by the way, what was the, just out of curiosity, what was the retail price going to be per bottle?
So based on their margins and stuff, the retail price was going to be anywhere from like $32 to $34.Okay.Yeah.
Now you need to raise some money.So did you think about going to professional investors, institutional investors or VCs?
Initially, we did not.Initially for the seed round, we were just going to focus on friends and family.We focused a lot on women because we wanted to be predominantly female owned.
So we went after a lot of female investors, which typically in the Bay Area, they get left out of stuff, right?
So you could go to these people and say, hey, we have this purchase order.We're raising money.And I think the first round, you raise a few million dollars.
Two million, yep, we raised $2.15 million.
But now you really have to build awareness.Now, how did you guys begin the process of building hype?I mean, because you're not going to go to bartenders, you're not going to be, and you have a very specific customer in mind.
Let's be honest, many of whom are not huge bar flies.Yeah.Like you don't see a lot of moms sitting at the bar pounding drinks.
Quite the opposite.You don't see them doing that really at all.
And, you know, a lot of the playbook, again, was like throwing these parties, getting these really like really attractive young people at a bar and get everybody hyped up.
And and it's like, you know, Red Bull and, you know, whatever night, you know, you weren't going to do that.And also that costs a lot of money.So what was the first step you're going to take to build awareness?
Because now this is going to go into BevMo. by the end of 2019?
It actually launched in BevMo April of 2019.
Oh, April of 2019.OK, wow.
Yeah.Now, the plan was, right, we're going to go where she is.So basically, we're going to go on Pinterest.We're going to go on Facebook.We're going to go on Instagram.
And then we did get a little lucky, right, in that we ended up on television right away because BevMo did a thing for Cinco de Mayo.
So basically like any touchpoint of press that we got, and obviously, you know, we did know a lot of people in publishing, so we were able to get some articles written about us.
Like we pitched PopSugar, for example, which is a very similar site to Refinery29. And we pitched the article to them about an easy three-step spicy margarita that you can make at home, and even if you don't know anything about how to make cocktails.
And we would take those pieces of content and amplify the heck out of them.And one of our investors was an esthetician for Jessica Alba.And Jessica Alba fell in love with it straight away.And she just posted, you know, my favorite new adult beverage.
um, on her Instagram.And then we were going out and doing giveaways, like tons of giveaways on social media.
How would you do giveaways?
So basically you can't give away alcohol.
And you can't give away like a gift card to a retailer.
All we would give you is the value of three bottles of tequila.So what you would ultimately win was, um, just a hundred bucks basically.
Oh, okay.Got it.Okay.And, and, and also, I curiously at this point, when you're doing all this stuff, are your co-founders still doing their full-time jobs?
Wow.Okay.Yeah.Okay.So, so you've got this going and, and by the end of this year, 2019, you guys sold and they ordered 300 cases.By the end of that year, you had sold 1,800 cases, but I have to imagine that was in other retailers, not just BevMo.
So where else were you selling these in mom and pop?
We got into Molly Stone's.
Oh, Molly Stone's.Okay, yeah.
We're still following the same playbook.
You want places where moms shop.
Places where moms shop.If she doesn't shop there, we don't want to be there.So we were very, very focused, which was what allowed us to really stretch our dollars, right?We were also
wanting to get a distributor, right, that actually had a sales force so we wouldn't have to go out and do all this ourselves.
So we were also marketing to those folks.And the thing about those folks is they pay attention to certain accounts.So we went out and got into those accounts.
Which are like High Times in Newport Beach.
Yeah, it's a liquor store that's independent because most spirits brands at launch are not at BevMo in 147 stores, right?So they're in a mom and pop shop.So there's certain mom and pop liquor stores that they pay attention to.
So we wanted to make sure we were in those stores so we could go on the radar of those folks.
the distributors who could then bring you out beyond California to make you a national brand.
But also to just be our distributor within the state of California.At this point, we're still doing everything ourselves.Another lucky thing happened to us at the end of the summer of 2019.Another one of our investors knew Katie Couric.
And so Katie Couric had tried 21 seeds at her house.And that summer, New York Magazine interviewed her and said, what was your favorite finding from the Hamptons that summer?And she said, it was 21 seeds.
And I think it's going to be the next Casamigos.So then, of course, we took that and marketed to our distributors and marketed to the buyer at Molly Stone's and marketed to BevMo and push that out.
And people don't, they think that it just happens and that's the end of it.You have to push all of that out to all of the people.
You would eventually get a distributor but I don't think that happened until COVID.So COVID was a – it turned out to be kind of a bonanza for booze because everyone started drinking more.I mean some of these companies couldn't make enough of it.
Yeah.My sister, she was an amazing forecaster.And during the pandemic, she knew stuff was going to really start to shut down.So she had the foresight to bring a lot of product in stateside.So we overbought so that we wouldn't run out of supply.
And part of that is because when you're in the chains, you can't run out of stock.Otherwise, they'll move someone else into your slot.They don't just run empty shelves. which then turned out to be great for us because we had product to sell.
But by that point, we were now in Total Wine & More, we were regionally in Whole Foods, so we had expanded to more stores in California.By the way, were you profitable?
Um, for 2020, we actually were profitable because it was, um, you know, you didn't have to spend as much money on things like flying to distributors and opening a market.
So like those kinds of expenses, um, you know, can really add up and we didn't have any of that stuff.We were able to open all of those markets over zoom, which it saved us a lot of money.
All right.So, so 2020 is. turning out to be a good year, a very good year.And you guys get a by I think by the by the middle of that year, you do secure the biggest distributor called Southern Glazers to agree to distribute your product.
And by the middle of 2020, are you still only in California?Or at this point, are you outside of California?
At that point, we're outside of California as well.We're in New Jersey and we're in New York.
And by the way, when Southern Glazers became a distributor, I mean, what did that mean?Because you're focusing on big retailers.So BevMo, Molly Stone's.What other big retailers did you start to get into?
Target, Walmart.We got in to Whole Foods nationally.
So what made that possible was having this national distribution deal with Southern because these big guys, when you're multiple states with Walmart, they don't want to deal with a bunch of different distributors.
They want to deal with one distributor in multiple states.
And I guess by early 2021, you start to get inquiries by Potentially acquire you you start getting like incoming from Brands that are interested in you unsolicited unsolicited.
Yes, because You know, we're now on Nielsen
Nielsen rates, I didn't know Nielsen does ratings for spirits too?I guess they rate everything.
Yeah, they rate everything.So there's Nielsen and IRI data.And we were now on the leaderboard.Like suddenly this little brand, 21 Seeds, is now suddenly the leader in flavored tequila. And it's actually growing serious share.
So we started to get inquiries.
And I mean, I imagine you when you started this, you had this idea of, you know, eventually, hopefully we can get acquired.But these conversations are happening fast.
And so one of the suitors that approaches you in 2021 happens to be Diageo, one of the biggest beverage companies in the world, alcoholic beverage companies.They also own, I think, Casamigos and Don Julio and probably other tequila brands.
And they wind up making you an offer.Tell me a little bit.I mean, I know that some people get uncomfortable talking about money and, you know, and that stuff, and I don't. I think it's amazing, just three years in, you get this offer.
It's a $160 million offer.
Yeah.So by every measure, we had accomplished everything we'd set out to do.And now it was like, how is this brand going to live on forever and get even bigger?We also knew that there would be quick copies, copycats, right?
And already there were already two brands that had totally copied us, you know, and that were being sold.And we knew there were more coming, so we knew there was like, we needed some air cover, right, if we were going to take this brand globally.
And when we looked at Diageo, we thought, hey, listen, they actually are the biggest in tequila, which we thought was a huge positive, right?Because they have Don Julio and Casamigos.So the on-premise already knows their brands really well.
So you can piggyback on that, you know, knowledge.Yeah.And they had nothing in flavors.So we were totally unique in their portfolio.
Like once Diageo is on your side, You know, you can go everywhere.
Yeah.And, you know, and then we thought, is this a good deal for our investors?You know, are investors making money?And so, like, by all accounts that our investors were like, are you kidding?
It was one of our best investments that we made of the year, you know, and we didn't even keep their money for very long because the four million dollars we raised, they really had that money for like a year and a half, you know?So it was like,
Everybody was happy, we were happy, and we felt like this brand now has a home and is gonna go and save everyone from drinking crappy margaritas.
So they acquire the company, 100% of the company, I think, right?Yes.And you and your partners become... Ambassadors.Brand ambassadors.And that's what you are still now, right?
Yes. No, totally.Like, if a truck gets stuck in customs, I'm not the call.
Not my problem in the middle of the night, you know?
You're just sipping tequila.Maybe not in the middle of the night, but... Drinking it in the spritz.Yeah. And now they obviously have a massive marketing budget and just the ability to just move product.
I think they sold in the first year of owning it, they sold like, I don't know, 70,000 cases, maybe more than that.I think you guys sold in your last full year independently, you sold 66,000 cases.
Yeah, exactly.So yeah, we still meet with customers like our big customers and get to pitch ideas that they either do or don't do.It's up to them.They get to do what they want.And that frees us up to go and be creative and do other things.
So I know that the journey, we've just talked about it, you know, for a long time, was was grueling and challenging.But when you look at it from 35,000 feet, it's like, whoa, that was like,
A total of four years from like, alas, from like launch to exit.
Yeah.Like three years from, from the day we ended up on shelves almost to the day, three years.Like we, we got on shelf in April of 2019 and we closed the deal with Diageo March of 2022.
I mean, when you think about this, right, the fact that you, you know, you took 10 years away and then you come back into this business and obviously you built a network and you had some advantages because of your place in life and, you know, the people you met and you were in San Francisco and there's a lot of, you know, tech people there and influential people there, but still, like, you still have to make a product that works, right?
How much of this story and what happened do you attribute to the work you put in?And how much do you think had to do with luck and timing and good fortune and, you know, being at the right place at the right time?
I like to say timing versus luck, because luck sort of feels like it's happening to you.But timing, with the movie, the timing was awful because they decided they didn't want to be a boy band anymore, and I couldn't have planned it.
And with this one, the timing was perfect.We hit every trend going on in spirits at the time, and the market was ready for this product. For sure, there were moments of luck, you know, that went our way.
And then the rest of it is just hustle, making yourself, you know, in every step of the way, kind of seem bigger than you are so that you can make the money go further, you know.
And that is so hugely important and I think played a huge role in why things happen so quickly for us.We connected those dots and did a really good job at it.
That's Kat Hontas, co-founder of 21 Seeds. What's your go-to food with tequila?Because I think a lot of people would say chips and salsa, right?Is that your go-to?
I love to make Greek food, so this drinks so light. You know, I don't think it like complements the way that you look to wine to like bring out certain flavors.But I think of it more like it's refreshing and it accompanies nicely.
You got to get Diageo to do like an ouzo inspired tequila, like an anise seed infused tequila.You're combining your two things.
Yeah, I'll bring it up in the next innovation meeting.
You can then start exporting tequila to Greece and maybe like, you know, like you did to wine with moms in America, you could do to ouzo.
Actually, ouzo, like a licorice-infused tequila would be delicious, actually.
You know what?I'm going to make it this weekend.I'm going to do it this weekend, guy.I'm doing it.
All right, send me the bottle.
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And if you're interested in insights, ideas and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at Guy Raz dot com. This episode was produced by Karla Estevez with music composed by Ramtin Ereblui.
It was edited by Neva Grant with research help from Olivia Rockman.Our audio engineers were Robert Rodriguez and Gilly Moon.
Our production staff also includes Carrie Thompson, Alex Chung, John Isabella, Chris Massini, Devin Schwartz, Katherine Seifer, Sam Paulson, JC Howard, and Elaine Coates.I'm Guy Raz, and you've been listening to How I Built This.
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