What Every CPG Founder Should Know About Private Label

Empty shelves during the pandemic created a brutal test for every CPG operator: could you find capacity, move fast, and still deliver quality? We talk with Hima Pal, co-founder of American Food Solutions, about the moment a Sam’s Club buyer called in a panic and how that single demand for speed helped spark a private label business that now runs massive programs across salty snacks and more.

We dig into AFS’s “broker plus model” and why it works. Hima breaks down what it means to own innovation, packaging, specs, quality, and the customer relationship while coordinating a co-packer network and carrying the operational risk. Then we get specific about cash conversion cycles, retailer terms, and why thin margins force a different financing mindset. If you have ever wondered when factoring helps and when it quietly destroys profitability, this conversation gets honest fast.

The most powerful part is the human side: building a company with a deeply aligned partner, learning from the debt spiral of a first brand, and treating payroll and employee stability as a non-negotiable responsibility. We also cover the shift toward in-house manufacturing after acquiring a Texas facility, how private label is pushing premium quality at 25% to 40% below branded pricing, and how they manage inflation with constant re-quoting and transparency.

If you care about entrepreneurship, private label, manufacturing, and capital-efficient growth, subscribe, share this with a founder friend, and leave a review with your biggest takeaway.

Connect with Keith on LinkedIn - https://www.linkedin.com/in/keithkohler1/

Transcript

Welcome And The Financing Man Lens

Keith Kohler 0:03

Hi everyone, it's Keith Kohler here, your financing man with the latest episode of the How I Financed It podcast. And as you know, financing man is about helping founders get the right financing at the right time. That's Transaction Me. And it's also about making the numbers work for you and meeting you where you are and guiding you along your financing journey. That's Transformation Me. So transaction and transformation equals financing man. Today I'm really happy to have Hima Pal join us because she has an interesting combination of her work in branded consumer products and now her current role in manufacturing. So I can't wait to see what that combination has resulted in and this amount of time in business and the lessons that we'll be sharing today. So would you please help me welcome to the How I Finance It Stage, Hima Pal of American Food Solutions.

Hima Pal 1:10

Of course. Always good energy. Good energy. I'm so happy to be here.

Keith Kohler 1:15

I'm really thank you for saying yes, because as I mentioned before we got started, you've been on my mind for a quite a long time because when I think of all the founders I've gotten to speak with over time, you certainly have one of the more unique journeys. Right? From branded consumer products and manufacturing and pivots and changes and product launches and all those different things. There's so much that you've done um since you started your journey in this crazy space we call consumer packaged goods.

Hima Pal 1:49

Yeah. It's been a ride. That's for sure.

Keith Kohler 1:53

Yeah.

Pandemic Opportunity Sparks A New Company

Keith Kohler 1:54

So um we'll start with American Food Solutions, and I'd love to hear how it got started, what was the origin story, your inspiration, and a little bit about how you initially funded it and got it off the ground.

Hima Pal 2:06

Yeah, so we, you know, I'm so proud of how this company started. It was during the pandemic. Um, I at the time owned a food brand called Tin Star Foods, and we were making um ghee and better for you simmer sauces. Um, and we were doing really well. Uh, but I had just had a baby. She was six months old, and I um had been uh connect I connected with one of the buyers over at Sands Club, and she's just amazing. And she was in a panic because there were no suppliers that had any capacity, both on the manufacturing side and on the branded side during the pandemic, and her shelves were empty essentially, and they needed to fill them. Yeah. And so uh, you know, I connected with her and essentially she was like, Do you know of anybody that has chips? And I said, Right now, no, but if I can go find, if I can go find capacity, can I go do these chips for you under the 10 star brand? Can I do it myself? And she said, Yes, like we need to get product on the shelf, like go figure this out. And I went to my partner at the time and I said, We have this opportunity, we're not gonna be able to turn it down. I know that um this is a little bit outside of the normal brand progression, and this is probably gonna be frowned upon when we look back on this 15 years later about um how we babyset the brand, but we needed the cash, it was pandemic, like there's just so many things in play. Um, but we were all feeling the effects of the pandemic at that time. And so we went after it and we launched this very difficult three flavor multi-pack uh barbecue potato chip. So we did like a road trip through America, we had like the Santa Maria um tri-tip barbecue flavor, we had like a um like a North Carolina or South Carolina uh sweet barbecue flavor, and then one other, I can't remember anymore, it's in so long. Um, and on the heels of that, we launched this really delicious dill pickle chip. I think they did really well, but what we found out and what we understood after testing it was the items were being received very well. The flavor profiles were hitting all the panels were excellent, but people were very, very um dedicated to Frito Lay. And we were playing in a space that you know hard to crack into. And so um, you know, we walked away learning so much about that experience, and then on the heels of that, we thought, okay, well, this has been a great experience. Um she came back to us and said, We need private label products, and you guys went to market at such lightning speed with these potato chips. Can you help us get some private label items off the ground? And me and Jose said, Yes, we can, but we cannot do it under Tinstar. Like that, we had investors, it was a whole thing. At the time, we were still trying, we had so much energy that was going into Tinstore that we were trying to really build it as a business. And it it didn't make sense to have a brokerage under that brand. And so we kind of looked at each other and said, let's just let's do this on the side, let's start a new company, a new co called American Food Solutions, and let's see where this goes. And so at that time, we were putting 110% during the pandemic with small babies at home into both businesses, and um, you know, AFS kind of took off. It we ended up getting four SKUs with a large customer, very large customer, and then we brought on another pretty pretty sizable retailer, and then you know, they just it started to carry forward really quickly, and so as these buyers were leaving one retailer and going to another, they were taking us with them saying, Hey, these guys can go to market very, very fast, they're super well connected, they're doing supplements, they're doing sauces, they're doing salty snacks, they're doing confections because we've kind of done all these little projects across the board, and so now what it's essentially evolved into is we have some very, very large programs um for single item, you know, like PubMix or potato chips, where we're just doing like 30, 40 truckloads of that one thing, and then we have customers and we have clients where we're doing the entire salty snack set for them. So we're doing 30 to 40 SKUs across five or six different categories, but we own all of them. And when this had started, um, we didn't own any of our own manufacturing. We were contracting and kind of the the business platform for us was we call what we we called it what we consider the broker plus model. So we were handling everything from innovation, financing, packaging. We owned the relationship with the customer, all of the um nutritionals and everything that goes into actually putting it in a bag. The only thing that we didn't own was the equipment. So we were sending raw materials and we're shipping everything in, we're getting it assembled, shipping everything out, we were financing with the customer, we were financing with the suppliers, and we had no equipment. So that truly was the only thing that we didn't own. And then in this last year, we just acquired a facility here in San Antonio, Texas. Um, I'm in Dallas, but our facility is in San Antonio. So now for the first time, we have our own equipment and we're starting to do things in-house, and everything is starting to change very quickly for us. So the model's still evolving, but we're still we're still doing what we did before. But now I feel like we have even more leverage in being able to get the right prices and excellent quality to our customers in a way that they want.

Entering Salty Snacks With A Growth Mindset

Keith Kohler 8:07

Lots of things jump off the page in that story. And uh the first one I wanted to start with is it was really exciting to hear that you had that Sam's Club buyer say, You're the one. And especially in Salty Snack, she could have gone many, many, many places, and yet you were the one who knew you could execute it faster than anyone. And as you were saying, but you didn't have experience there per se, right? But you were determined you were gonna be the one.

Hima Pal 8:37

Yeah, I I I think that we had never had um direct experience in salty snacks, but you know, I was almost 40. I'd been in the industry for a long time leading up to this. My partner came from um managing a very, very large global supplement company. I had my brand, he and I knew manufacturing and we knew packaging and we knew innovation and we knew how to take care of our customers. And I think if you have a growth mindset and if you have kind of the technical acumen to pick up new skills and new technology quickly, then a situation like this is kind of it, it's not a hard transition. Making and finding and creating the product wasn't difficult. What was hard was understanding the market and where we fit into it. That that was the place that we were really like, okay, we're in an uncharted territory here. And we figured it out as we went. We had a lot of advisors that were along the ride with us and working with us shoulder to shoulder. I had reached out to so many other fellow brand owners that are very close friends of mine. We had a lot of mentorship along the way. Um, we stopped and asked for questions and we didn't pretend that we knew everything. We knew that we were um learning as we were going in a lot of ways. Um, but because we were able to perform and we were able to hit the targets and the metrics that our customers needed in the past, I think that they had faith in us that we'd be able to get it done. And I truly cannot say enough about um the buyer that I worked with. She she changed the trajectory of my life, my partner's life, um, in ways that I will never ever, I will never be able to put that into words. Like she she just had so much faith in us and so much faith in what we were doing that um I don't know, I'm just incredibly grateful for that experience. Like I will that it'll never happen again. It was lightning in a bottle when that when all that was happening.

Keith Kohler 10:45

I appreciate you honoring that moment, Hima. And I think you were ready for it, right? You manifested it, you you brought that in because of all that you had been and the way you've shown up in the world and all your accomplishments leading up to that point. I have no doubt that the energy was it was the comp the energies coming together.

Hima Pal 11:03

Yeah, and you know, it's funny because my partner try not to get emotional about it, but our motto and our our talking point between the two of us for almost a decade of working together, anytime things get choppy or hard or difficult, or just we're feeling a little unmoored in in the process of being entrepreneurs or partners together. We always tell each other physically, verbally, we always say, we will always figure it out. Like that is kind of our mantra of when I when I see him leaning one way, when he sees me leaning one way, at the end of the conversation, it's hey, we always figure it out, it's gonna be okay. And we do like we because I think the mindset's there and the desire to figure it out is there, it just it happens one way or the other. We we move forward, and even if it's not exactly how we expected it, or the process is a little surprising, or you know, we go down a path that we weren't necessarily expecting, we're still always moving forward, and that that is why I think it has led to the success that we've seen at the company.

Choosing The Right Partner And Rhythm

Keith Kohler 12:16

I really appreciate you introducing mindset early on in our conversation because it's an area that I've written about from the financing perspective. And I think, too, for a lot of our founders who have co-founders or who've worked with someone in partnership, collaboration, however those structures look, to be able to have that, may I say, mindset alignment between the two of you is such a gift. And probably it was who you were anyway, and yet you put it out there, you're overt about it, you talk about it, you keep it top of mind. I think that's so beautiful because a lot of our co-founders out there sometimes um someone goes this way and they don't go along, and this one goes here, or life changes, and yet you've been able to keep that alignment over this time frame.

Hima Pal 13:10

Well, I think we had the luxury of working together. We had been working together. He was actually a customer of mine. I was private labeling for him previously. Um, and then you know, I was really struggling at my brand. I had life was just hard, cost of goods went up, the pandemic, like there were so many things that we were just we were trapped in our circumstances, and we did every I did everything that I could, and I didn't have a partner at the time when I started Tinstar. For the first um seven years of running that company, I was by myself and I had no support. And I went to him as my customer and said, Listen, I don't know, I don't want to upset you, but I don't want to like offend you by asking. Um, and I don't want to jump in our relationship, but I can't I I don't want to move forward without at least asking if you're willing to come work with me and come over here. And it's funny, he tells me all the time, he's like, I've always known since the beginning of meeting you that we were going to work together in some capacity. That I was at in in one way or the other, he's like, I just had this deep sense that we were supposed to work together. Um, and so for him, it was a very fast yes. And it was so fast that I was like, What just happened here? Like you you just said yes to coming over. And at first he was an employee, right? He started out as director of operations, and then it was okay, you're way overqualified for a director of ops position. Now he's the VP of the company and he's just progressing quickly, quickly. And then, you know, I was able to watch him. I made some, I don't know if they were bad decisions. Um I I did the best that I could with the information that I had and with the skill set that I had at the time of running 10 star. Um, but it was clear that I needed someone that was far more detail-oriented and operations focused to help right some of the wrongs that had been done over the past few years, right? We were just so deeply in debt at the company, and I couldn't get out from underneath it. And we were not investable based on our our the framework of our finances. Like it was just it was a really, really dire situation and with a lot of discipline and with absolute faith in him, because he is the best at what he does, he pulled us fully out of debt in a matter of three years. And I was like, if this is gonna work, and he never asked me to do this, but I knew that if I would just take a step back and let him do what he does, we would be able to get out of it. And I had to have faith in the process and him. I had all of that experience with my partner Jose before we had started AFS. So I I had the luxury of knowing we can work together and I can trust that my finances, that my livelihood, that the success of this business that I'm building, my career, I can trust it blindly with this man because he has sacrificed everything for a business that he didn't own. So, what's he gonna do when he's a partner in a business and he owns 50% of it? Like, what is that gonna look like? And that was the horse that I that was the wagon that I wanted to hitch my horse to was I I wanted to be on on that ride with him. And so that's that's how this kind of evolved and we became partners. And it was the best outside of marrying my husband, um, it was probably the best decision that I've ever made my entire life was to to establish a professional partnership with this guy.

Keith Kohler 16:58

Such a blessing, Hima, because um, as I reflect upon that, I thank you for also saying you knew that it was a unique situation that you were going in fully knowing who this person who Jose is and what he could grow to be versus so many of our younger ones, founders out there will start with a co-founder, and they may not know each other, they may have never worked together, and they might not have any sense of how this person shows up and his or her mindset and her their real skill sets or any of those things.

Hima Pal 17:31

Yeah, yeah, and I think that's what young co-founders do, right? There's a lot of decisions that they make based on the feel goods, and they don't have they're dating their partners as they're launching their businesses, and that is a recipe for disaster if you don't have very frequently, yes, if you don't have any experience you know leading up to that, right? And if you don't know how to establish healthy boundaries and healthy communication between two individuals that are both leading a business, and I think both of those boundaries and communication are the crux of having a successful working partnership, yeah.

Keith Kohler 18:12

Yeah, I love it, I love it because um in my work and financing, I often see the other side, unfortunately. Like, hey, this isn't working out, and how do I deal with this? And um, particularly after the pandemic, I I had never heard the phrase partner buyout before. Yeah. Yet those things have come up because hey, you know, life change, this happened, she doesn't want to do this anymore, it's not working out with him. Those are those different things that I think are just part of the journey, particularly in the early stages with co-founders that can change the uh the trajectory of the business. And yet here you are having had you had that wonderful experience, you saw how you showed up for each other, and so you went in, I would say, with full knowledge, with full understanding of what you could grow to be as a business and as a partnership, and that's wonderful.

Hima Pal 19:04

Absolutely, yeah. I have a lot of faith in him. He's always made the right decision, it's never been the easy decision that he makes. He he has made a lot of very hard, difficult, hard decisions, but he's always made the right ones. He's always done, he's like a very um his North Star with his moral compass is like locked in. He I I I never have to question where he stands morally ever. And knowing that, knowing that my finances are safe with him, knowing that all the decisions of the business are safe with him, and him having the same respect and having the same trust in me, it's everything. It's a hundred percent, it's a hundred percent of what this business is.

Keith Kohler 19:57

Thank you, Hima, for allowing me to go down this path on partnership. Um it's an important, you know, when I go back to clip this and look at this, this is one I'll savor because it's so timely and it's a topic that I believe can be discussed a lot more in the entrepreneur world about working with the right people.

Hima Pal 20:21

Yeah, people talk all always. I'm always hearing people talk about do you have the right margins or do you have the right suppliers? Do you have the right innovation? Do you have the right finances? Nobody ever talks about do you have the right people? Do you have the right partners? Do you have the right leadership team? Right. People just assume because you hire someone that has had success with a brand in a previous lifetime, or someone that is a titan in the finance industry, um, that they're gonna be good at what they do, but you have to find the right people for your style of leadership, and you have to find the right people for your style of um of like project management and workflow, right? If you've got someone that is like out to lunch and is working crazy hours, and I'm kind of I fly by the seat of my pants and I'm working in the evenings and the weekends, and there's no not a whole whole lot of structure there, and that's what works for them. And then you've got someone that's a militant that's up at 6 a.m. and emails are firing off at 6 30.

Keith Kohler 21:25

Boom, boom, right?

Hima Pal 21:26

Right. That style of leadership and communication is going to be, I mean, it's gonna be professional suicide for you guys. You just it's a horrible situation to put yourselves in. Um, and I often hear about that, often hear about just there's um a a lack of uh alignment, a lack of alignment on how you're gonna run the business together, right? That's it.

Keith Kohler 21:52

And thank you for introducing that thing because I was more of that fly by the seat of the pants guy. So much about purpose and futuristic and ideal idealization and all those things. And my business got so much better, Huma, when I finally trusted myself enough to embrace structures. And I used to think of structure as putting handcuffs on myself. And what I realized, it's more freedom for me because committing to processes. And um now I'm not perfectly structured, I'll say that. And I still have a large pool in that high purpose-driven, spontaneous side of me. And yet now I'm better prepared to work in collaboration and to show up because I can feel comfortable in either one. And I can turn the volume up here and turn the volume down there. So happily I was able to evolve, but it's also because I became open and curious.

Hima Pal 22:56

Yeah, I think um there's so many factors that go into it. I was really similar, Keith. I have a very similar personality and 1000% ADHD. Like I cannot stay focused on any one project. I get so excited, and then I'm like, okay, I'm gonna Cecily do this thing. I'm the lady with the spoon cabinet with like a thousand different spoons, and then you know, like when it came to work, I had um so many projects, packaging, and I have this, and I have innovation, and I've got this marketing effort, and I've got all this stuff, and I was kind of all over the place, and then having a very structured partner that was like, let's stay, let's stay mission-driven, we gotta, we gotta focus on the thing in front of us. I was also maturing, I had kids, which forced me into having structure. Um, and me in my personality, I still have to have that valve release somewhere. And so I am notoriously in my friend circle, the lady with a million hobbies. I garden and I mahjong and I, you know, crochet and I bake and we sourdough, and we're doing crafts with the kids all the time, but that's not touching work. Work is work, work is structured, work is disciplined, work is focused. Everything outside of work is like I have a million hobbies, and I'm like, I have like a high level of interest in all of them. So I kind of go like I become kind of obsessive with the thing that I'm working on. Um, and now it's funny because like work has been so structured, I've essentially created so many hobbies outside of that to kind of compensate for that creative um release that I have too many hobbies that I've got like an insane repertoire of knowledge about. Um, and so I'm having to kind of rein it in a little bit, but work is safe and work is focused right now.

Keith Kohler 25:05

So yeah, but that's so great that here you are and here he is, and it's that complementary triangle because um Dr. Aaron Wilkerson, who I work with as a coach, there's something called the triad of change. And here's purpose or perception, here's structure, and then the last one is behavior. And so if if two sides of the triangle are really strong, which is what you have with Jose, then the last one works itself out. Yeah. So with your high purpose and motivation and enthusiasm and his structure, that means the behaviors have a super strong chance, or as we might say, the execution of being successful, and that's what you're achieving right now. So I'm not surprised you're getting the results that you're getting because though you have those strengths and you and you work with them and you honor them and you you acknowledge them successfully with each other.

Hima Pal 25:57

Yeah, I mean it's still it's still a working challenge. We're still there are days where he's like, hey now, go quick and distracted, you know. Um, but that's why you have partners. That's why you have he puts garbales up for me that I'm not able to see for myself, and and vice versa, right? If I see him getting like really focused on this one thing, it's a quick conversation of hey, like let's let's have a conversation of um let's do the 50-foot view right now, right? What what can we um what else is in front of us that we need to be focused on? Um, it's mostly him telling me to rein it in though.

Keith Kohler 26:39

Um, yes, you and our kindred spirits.

Hima Pal 26:41

Yeah.

Keith Kohler 26:42

Thank you. Um, it's causing a lot of self-reflection as you're saying this right now. And

The Broker Plus Model Explained

Keith Kohler 26:47

I'm sorry. Um I love the business model that you talked about. Can you go back and remind us again when you think of American Food Solutions? You talked about broker, what was that phrase you used? I couldn't remind her. A broker plus model. Broker Plus. Can you go a little bit more in depth than that? I'm excited to learn more.

Hima Pal 27:05

Yeah, so for us, broker plus means that we are not, we are not a traditional broker in the CPG or retail sense would mean we are bringing brands to the retailers, or we're bringing um private label manufacturers to the retailers. And what we're doing is saying we're gonna do all of it, and we are gonna be the vendor with those co-packers. So you retailer XYZ, you're not gonna manage the relationship with supplier one, two, three AFSs. So the retailer's gonna pay us, and we're gonna pay the um manufacturer. And a lot of people have been like, okay, so you're a distributor. I'm like, well, distributors don't own freight, they don't own innovation, they don't own like the actual manufacturing um risk, like we the insurance, they they're not carrying all of that stuff in the way that we are, right? Like the distributor is saying, okay, manufacturer, you're gonna make the product and you're gonna work with this retailer here, the specs, you go do this, and we're gonna use your innovation and your packaging, and it's gonna be turnkey. We're gonna pick it up, house it, and then get it to the retailer. We own all of it except for the manufacturing. Um, and that's why it it's yes, we're a broker, yes, we're a distributor, but it's it's more, right? We're we're truly creating um a deeply value-added service. And it's not the right mix for a lot of retailers. It's not. Um, but for some of them it is. Yeah. And for the ones that do need that service, man, do they need that service? They just don't have in-house innovation, they don't have in-house RD, they don't have quality, they have no way to manage that process. And so they truly need a third party to come in and do that for them. And in those situations, we work really well with them. And the question is, are your products more expensive? And the answer is no, because we take small margins. We don't take a standard. I think most co-packers take anywhere between 18 to 25%. We're often in single-digit margins with our items. So we're kind of splitting the difference with our co-packers. Um, and also because of the sheer volume that we're purchasing for raw ingredients, packaging, freight, all of that, we get a lot of cost reductions and there's a lot of efficiencies in our supply chain. And so we're not just buying a million impressions of film for this one supplier, we're buying a million for them, we're buying three million for this guy, we're buying four million for this guy. So when you're buying 10 million film impressions a year, we are gonna get way better prices than these co-packers are, right? And than these brands are. Right.

Keith Kohler 29:47

They're doing cutoffs at the slower volumes, and you're at that portfolio management.

Hima Pal 29:53

Yeah. And we're running all the packaging. I mean, we're doing stand-up pouches, we're doing film, we're doing plastic, we're doing corrugate, we're doing metallized fill, like all of this stuff, right? And so when we're buying in the sheer volume that we're buying across all these categories, there's going to be cost efficiency, and that's that's where we get our gains in the system, in the in the in the margins.

Terms Cash Flow And Short-Term Factoring

Keith Kohler 30:16

Brilliant. If it's okay to ask Kima, how do the cash conversion cycles work for you? For example, are are you putting a lot of money up out front with your vendors, or do you have terms? And how does kind of the terms and uh payments work with your customers?

Hima Pal 30:32

Yeah, so most of our customers, I mean, it's a standard um retailer relationship, so anywhere between 30 to 45 days, depending on the um the size of the programs, uh, depending on the size of the retailer, right? There are some that are locked in at 45 and they're like, it is what it is, but they're also cutting multi-million dollar checks a year, right? And so they have the ability to say that. There's some smaller retailers that are asking us to do a very, very heavy lift. Um, and we just can't ex we can't extend those terms to them, and they're not they're not moving the 30 to 40 truckloads of one single item that our other retailers are, right? They're moving maybe a truckload every six weeks. And so it is a very dynamic conversation that we're having. That I and I'm you know, I'm on the sales side, I'm not the finance person. I'm um innovation, product development, and sales through and through. And my partner is finance and operations. Where we intersect is I would consider myself a technical salesperson and he knows sales extremely well. He knows the sales cycle, that he is able to manage the operations workflow and his team, his operations team, because he understands the dynamics of the customer, right? And the customer needs. And so when we're talking to new co-packers, when we're putting programs together, we as partners are going into the customer, and as partners are going into the co-packers and our suppliers and saying, This is where we're at. Like, what's the situation that's gonna work for us? There are many times that we it is such a huge program, um, and and our suppliers have to have enough, um they have to have enough time to kind of ramp up that we need to pay for raw materials up front, right? So maybe there's that. Sometimes we cover that, sometimes the customer covers that, depending on what the situation is. Um very rarely do we finance for long-term programs. And so if we have to finance or if we have to factor, it's going to be a very short-term factoring relationship. And it is literally just to get us to the launch, and then and then the relationship's done. So a lot of financing people hate us because we use the services, we do use financing, yeah, but it is very short-term. Our business is cash flow positive, we are profitable, and we are debt-free. And that trifecta makes us kind of and I would love to be able to take credit for that. That is all Jose. He is, he is when I say he is amazing at his job, he is amazing at his job. And it has been hard because there are days that I'm like, let me go grow, let me go sell this thing, let me go build. I need marketing money. I need, and he is very militant about no, we can't. We're gonna, you're going to either outgrow our abilities or we don't have we don't have just free cash step into swag and all the things that you want, right? And so I have to swallow that heart pill and kind of look, take a step back and go, okay, where where can we align on this? Where can we um where can we compromise? And what are the things that I'm gonna have to give up? And that is a weekly and monthly conversation, right? We have a weekly touch point where we are discussing these things, we're discussing every single asset aspect of the business, forecasting, um, cash flow, uh, marketing initiatives, launches, product, um, pipeline innovation, customers and I'm on board and we talk about everything in the business once a week. We have to. Um, and it allows us to make some decisions both near-term, the 3060-90, and then you know, the six month, 12 month, 18 month projections. And so, you know, I think we tend to, if we're gonna borrow, it's gonna be around um equipment that we're purchasing in-house, and it's gonna be around product launches and you know, set launches for specific retailer of like, listen, we've just we've got we've got so much um money going into the RAM up to get this thing over the threshold, right? Or over over the um the delivery threshold. And we we just can't we can't sustain that kind of financial pressure. And so in those situations, um, we will borrow, but even then, you know, we're borrowing against what we already have in in collateral or equity or whatever it is. Like we're not, we're not just it's not baseless borrowing, there's there's something to borrow against. So I think that's why, you know.

Keith Kohler 35:28

Well, I think it's brilliant, Hima. And this was one of the main reasons I was excited to have you here, because as you led off with, your business model is quite unique in the scope and scale of services you offer. And as you said, to make that work, we you made the strategic decision that versus the broader, more generalized Copacker universe that's in that teens gross margin range, you said, okay, we're doing it this way, and you may be in high single digits or in low teens or something like that. And so you perfectly framed it for saying why, but holy cow, if we were reliant on financing, that would eat up all that margin, right?

Protecting Margins By Staying Debt-Free

Hima Pal 36:15

And so oh yeah, it's five percent. I mean, when I have if I'm making you know 10 and a half points on a program and my finance team is taking five, I mean, they're taking us out to lunch, it's it's not their fault, but like we we just can't withstand that kind of pressure. We we we can't afford to, and so we have no choice but to be cash flow positive, we have no choice but to be debt-free because we can't get we can't get in the bottom of that cycle, and that is what led to ultimately the downfall of my first brand and the failure is that I borrowed at the bottom of that cycle and I could not figure out a way to get outside of it and on top of it. And it wasn't until Jose said, no spending, we're firing people, unfortunately, we're shedding all the sex, like we were hemorrhaging, and I mean it was it was crazy how much we had to cut just to get like to take baby steps to get out of that cycle and and get out of that debt at 10 star. I've lived it before, he's lived it. I don't ever want to do that again. I'm not I'm not ever gonna put my livelihood, I'm not ever gonna put his family's livelihood, the business, all of the employees that we now have, they are our priority. I mean, product can be late, product can be wrong, we can have issues along the way. I have to make sure that these people that have enough faith in us to work for our company and make good product, we have to make sure that they are taken care of. When you have that kind of responsibility, debt becomes very, very, very scary and it becomes very um, I wouldn't say risky. It's just it's it's hard to it's hard to just get around like, oh, we're gonna take this huge investment or we're gonna take this gigantic line of credit. Like, if we don't need it, we're not gonna use it. But when we need it, we use it. And we we're just very strategic about when those opportunities arise, how how we're gonna handle it, and what debt vehicle we're gonna use to handle it, and then what the payoff is gonna be. We just don't want that, we don't want it, we don't want it floating out there forever.

Keith Kohler 38:33

Reflecting on what you said, I as you were sharing with me your um your depth of, dare I say, your solemn oath to yourself and to your employees about taking care of them, that really washed through me, Tima. And thank you for that because um, you know, I when I do financing, I'm not the one signing on the dotted line. Right. I'm arranging for it. And I'm not the one personally guaranteeing it when those apply. And yet I wish more of my founders would express themselves the way you did just now. Not just well, and and it's fine for someone to say to me, Keith, I just need to get my product produced. And yet, when they do open, I'll use all these metaphors, peek behind the curtain, open the kimono, you name it, right?

Hima Pal 39:27

And say to me things like, Oh, you know, I have 50 employees and I gotta get this right because payroll's coming up, and when they choose to, and oftentimes, sometimes when I feel invited, I get to maybe go there, it just really brings a lot more humanness to humanity when I have employees telling us as we walk through the door, hey, I just bought my first house. I'm so excited, I just signed on my first house. For they're just sharing their good news with us, right? They're just like so excited. I'm in my 20s, I have a baby, I just got married, I just bought my first house. They're telling us as colleagues and as friends because they want to celebrate. When that when I heard that for the first time, I came home, I looked at my husband, and I burst into tears. And he was like, What is going on? And I told him that these people, through their work with our company and what we're doing with them, we have essentially been able to give them the safety net and the financial security to go invest in themselves and to buy a home. I don't take that lightly. Like, I never want to be the employer that is like, sorry guys, this is a tough situation, but you gotta go. Like, I never ever want to be the person that has to let good help go. It is a fiduciary responsibility, it is a moral responsibility to take care of our employees and to make sure that they have the same financial security that we're experiencing, right? Even more so because we're taking the risk as the owners. We know we are signing on loans. Yeah, we're signing on loans, we are having to put our houses up, we're having to sign all this collateral. Like as the business owners, we know what we're signing up for. These employees, I don't ever want them, I don't need they don't need to know that piece of it. They just need to know that they're safe. And if we can do that for them, that makes me feel better about any product launch. Everything I'm telling you, like we were so focused on we we oh, we did this packaging, we did this product, and there's so many things to be proud of. And then when we got employees, like really got employees, not just like I mean, we had a staff at AFS, but when we inherited a team, a large team, when we did this acquisition, everything as an entrepreneurship, everything shifted immediately. It's like holding your baby for the first time and and and realizing the heaviness and the responsibility and the obligation that you have to this thing that like you have to take care of this, you have to take care of it, and you have to do a good job. And this now, this is what matters, not the product, not the potato chips burning, not your customer satisfaction, all of that matters. But this the these people, these human beings that are depending on you, that are sacrificing 40 to 50 hours of their week with their family to be at your business, these are the things that matter. So, so do it well and treat them right, you know, like it was just it was a life-changing experience.

Buying A Facility To Control Cost

Keith Kohler 42:55

Yeah, and and when you were doing that business acquisition, right? When you knew hey, that missing element was what you were talking about, right? You needed that facility and you needed equipment to round out your full value proposition because you felt called to it anyway, and you knew it was good, it was a good business opportunity.

Hima Pal 43:16

Yes, yeah. Yeah, I mean, we were losing customers, not losing customers, but we were we were losing bids with existing customers because there's certain items just have to be made in-house. There's a level of control that's needed, and certain programs just don't withstand. Um there are certain programs that are out there that they're trying private label right now is getting so aggressive financially in the market to be competitive with branded items, and they're not trying to match branded items, they are trying to increase quality and come in 25% below branded items.

Keith Kohler 43:55

Wow, 25%.

Hima Pal 43:56

So when you are knocking that much off. of the retail price point and I mean yes distributors go away and all that stuff I understand that but in some of these bigger items like if a if a distributor market is uh you know is eight points you're really not taking that much out by going direct so you you still have a delta of like 17 points that you got to make up somewhere and they're asking for the highest quality product on the market it's way more than a 25% reduction in cost from the branded item it's closer to like 30 to 40 percent you don't have the ability to have a second person in that mix you don't have the ability to have the layer of the broker plus which is AFS and a copacker. So some of these items that are just very very low margin items we're having to do in-house um and happily because we we love this has been a dream of ours to get into manufacturing and to have our own facility for a multitude of reasons. I think because we're both ops people we care about it it excites us and it's fun for us um but because it's a necessity and now you know I would say that our business is about 6040 40% of it is still using brokers in our or is still using Copackers in our network but 60% of it we're doing in-house.

Keith Kohler 45:18

Oh that's great.

Hima Pal 45:19

That's move back quickly to 60 oh yeah we've we installed a couple product lines and they're already at we haven't even turned on the equipment and I'm already at 80% capacity sold like the equipment's turning on in August we haven't made a single product that's come off the line and I'm at 80% for ship capacity. So yeah the business is there and it's moving and our customers are excited and so are we we're growing I can't wait yeah it's really it's really something um I was not aware of that margin difference between branded and private label. Yeah has that changed a lot during even in the short time you've been doing this of I think certain retailers some of them are hey we're looking for 10 to 15% some of them are looking aggressively at 25 30% lower than branded but what's not changing is the expectation that quality is premium every single private label program that's out there unless it is uh a value item which is we're just removing commodities and putting it in a cheat bag and getting it on the shelf um if it's not a value item it's a premium item there's no middle ground there anymore for private label there's their the flavor innovation and the product development is on par or better than the national brand and so when I'm spending four dollars a pound for a co-packing like for a custom for a brand that we're co-packing for I'm often spending six to six fifty a pound for seasonings for a private label customer like they're demanding and expecting higher quality across the board packaging they want thicker barrier film they want shortened lead times everything they're just pushing for more and better across the board every single thing that the customer is touching needs to taste or feel better than the national brand as you're telling me that I'm curious within say this last year or so with tariffs and supply chain and all the inflation what's that been like to manage through that with uncertainty of prices yeah art yeah I I um every single program that I have not closed yet that has begun at the beginning of the year so there's quite a few items that I'm I'm bidding on right now.

Inflation Requotes And Customer Trust

Hima Pal 48:02

And every program that's open has had a monthly update for fuel surcharge and packaging um and I am re-quoting all of the components every single month on every single program and they are all climbing there's not one that has stayed the same. They have all moved up and these suppliers are going well our our other brands aren't changing in price and the the brands that are on the shelf aren't changing in price I'm like well yeah because they're on the shelf right now they're not in development I'm not gonna give you a product that I quoted in January when the cost of fuel has gone up double right like we just can't do that. So we're gonna lock you in at a price when we when we um finalize this program but until then everything's fair game and I'm not I'm not gonna I'm not gonna work myself into like two percent margins like that's then you go find another go find another supplier to go do that for you. And they can't you know I think they think they're trying to push back and they're trying to do what's right for their customer and for their own profitability and I get that but we know we know when we're being pushed too hard and that's when we're like okay if you if you can find this product somewhere else for cheaper than us then God bless you in your journey and I have not had one walk away yet you know I think they're just that's brilliant. I'm really glad to hear that yeah we we know what our limitations are again we know our boundaries we know how to communicate um clear as kind and I think the other thing is that my customers that have been working with me for a long time that have done multiple product launches they trust me and they're not put those are the ones that are like okay all right if Ema is saying that there's a price increase then there's a price increase and I always followed up with data I'm always sharing you know supplier communication and very very transparent I think that that's you know that's what we do is we we communicate really clearly we build trust with our customers you have to in private label you have to yeah I really love that um clearly you've shown up in a way of high integrity and good business with these customers so that to earn that trust is quite something because I think as you're saying that in other other quote unquote competitors may not be as trustworthy or may try to put price increases down there for different I don't know but it it I think what what we've observed in the broader industry is a lot of branded consumer products and even retailers will will often say things well the branded consumer products will say I don't trust my copack or I don't know what they're thinking or I'm not sure what I'm gonna get yeah and you flip there's stories right now with the pandemic and you know on the heels of the pandemic and now with these fuel rates and everything happening and and the big push to private label there's a lot of brands that even when the price increase is not warranted they're still incurring a price increase because they are trying to make up for lost sales with dollar profit increases not percentage and so they are kind of arbitrarily marking up their products especially in salty snacks it's happening a lot right now um because they are losing the market share to private label brands popcorn tortilla chips potato chips this is happening across the board um and there are certain things that are not impacted like yeah the cost of farming the cost of of produce is going up but not as significantly as gas and certain other things right and so there's it's not um it's the math is a mapping and these retailers are privy to it and now they're like you know what we're gonna go private label and that's where we're waiting in the wing saying okay like we're ready to let's let's roll on this so private label this the shift towards private label has never been better for us like we're it's been a very very good um market shift for us for market conditions your value proposition and the fact that you can move you've always been someone able to move quickly and you can go this way and that way as as an adapt super quick right yeah as the company moves forward Hima what what most excites you what are what are some of the things that you're most excited to be doing working on well yeah now I mean now that we own our own equipment and we've got a full team um so we have acquired we're not ready to announce just yet but we have acquired a uh a breakfast brand and we are launching some really cool innovative items and uh we have a snack line that's going to be launching in the fall as

New Brands New Equipment And Bootstrapping

Hima Pal 52:49

well. So we are super excited to make those announcements here in the next couple months of the brands and all the packaging um but you know I think all of the mistakes and all the lessons that I've learned from my um last company I hate it when people like I have no regrets I've learned from everything and like yeah I have learned from everything but I also have regrets I shouldn't have done certain things as a founder I was really naive I did not I didn't dig deep enough or try hard enough in certain areas because I either I didn't have the faith in myself or I was exhausted in or I didn't ask for help when I should have I have regrets we have way more help we have way more experience behind us um and I think what we are emotionally and financially ready to invest in brands internally in our own brands that is the thing that I am the most excited about is building these brands and on on the heels of that um we are so excited to be bringing in all this new equipment and we've we've got some large renovations happening to the facility that we took over we're essentially getting the facility and and putting new equipment in we have a popcorn line going in we have a seasoning and tumbling and uh tubbing that tub line we've got um a snack ball line like the protein bite line we've got you know baggers fillers horizontal form and fill vertical form and fill we've got so much cool equipment coming in and we're just um this is this is a very fun phase that we're in right now yeah it really sounds like just a tremendous opportunity and you're on a great growth arc you have all the proof of concept you know your value proposition works you're proven successful you people trust you and I want to go back to the word you just said you're emotionally ready to do this too as well as physically ready yeah starting a brand is not for the weak of heart and it takes I mean the last time I started a brand I was 26 years old and was willing to be on Instagram and do all the things at like 10 o'clock at night and do all the demos and show up to all the things and like be in everyone's face about hey we have this brand and all the swag and all the marketing like I have not emotionally felt like I felt almost like I was licking my wounds a little bit after shutting down 10 star. Um it took a little bit to recover from that physically and emotionally um I think we're ready to start over again and we're gonna do it better this time we're not taking investors we're gonna we're gonna bootstrap this and and see where it goes and and try to make the best of it I think it's gonna be awesome.

Keith Kohler 55:39

Well I think we know it's gonna be awesome I think it will be I'm I'm betting on HEMA. I am too I am too I'm betting on myself this time thank you and I think that's brilliant um there there are not those voices of doubt or holding yourself back like you said you may have experienced in your in your first act right yeah yeah so really as we come to the end of our time together Iima thank you for sharing what you have and I have this tradition at how I financed it that I end with two questions and the first one is what are you most proud of I am proud that I have three children that deeply understand what it takes to sacrifice and they don't look at it with anger or resentment they ask questions and I think that they find it inspiring and I have three very confident um outspoken children that are willing to say no and are willing to they're not looking for an invitation to live their own life they are willing to do the things that make them happy and I think it's because they have witnessed me finding joy in work and unapologetically loving my job and also showing up on all the other places but they see the joy that this life has brought me and them and yeah like yeah I'm I'm proud of I'm proud of how I'm proud of how my children see me and how how I can see it's changing them and how it's I don't know my kids are just the really really cool kids they're really cool kids and they're really smart and they're really interesting and they are um yeah I'm proud of I'm proud of all of that they probably have the best stories when they talk about show and tell or what my mom does for work at school right yeah oh yeah they love to talk about all the trade shows and all of like the bacca the um the behind the scenes stuff like they're so proud they're so proud of all of this for sure that's beautiful Hima thank you for that and the last question is this what would Hima today tell Hima when she first started out such a loaded thing.

Rethinking The Exit-Only Narrative

Hima Pal 58:46

I think the thing I I could go if I could go back and change anything and do it all over again it would be to tell myself the path to exit is not the only path. You can build this business because you love this business and just focus on what's right in front of you and stop making decisions that are going to leave to that are going to lead to an exit. That I think that was the thing that um I just I wish I could have I I I I would have had the confidence back then to know that it's okay to build a humble small profitable business and um and enjoy it.

Keith Kohler 59:36

And that was a prevailing narrative though at that time wasn't it Kima that was kind of the expectation of the broader that was the only narrative that was the only narrative it was 2014.

Hima Pal 59:46

Yeah and everyone thought that they were going to be the unicorn you know um you had people like Epic and all these other brands that had sold and you had these these big investment firms and VCs coming in and putting gigantic checks into businesses I took a huge check and I shouldn't have I was not ready I was not ready I was not developed as an entrepreneur I was not financial I didn't have the financial acumen to do it I didn't have the discipline to manage that money I failed my investors I failed them so bad. I I feel horrible about how all that went down it was a tough it was a tough situation um they had a lot of faith in me and the company and I I did my best I thought I was making the right decisions um but I didn't know what I didn't know and if I could just go back and tell myself all over again like don't don't do this the time will come when it's when it's right take the money then but everyone was everyone was looking for investments and everyone was looking for the exit and so I was like well I need to look for an investment I need cash right and so I'm just dumb in my 20s no guidance well and I think thank you for that and I think what's beautiful about you having been here for now 12 years and you saw that and then the pandemic came and now you see the other side of this which is sustainable businesses more profitability uh capital efficiency as they say with both that exposure to the finance world and then the way you're showing up in your business in your operation now all the benefit of all that experience the roller coaster the ups and downs I think you are you are putting that to work and now the way you're showing up and the direction you want to take the business I'd say both for yourself and for Ose and you together and then you as an employer. Yeah and these are all decisions that we make together I would love to say that this is my vision it's not it's ours this is we have prayed over this we have I mean we have lost sleep over this we have sat over drinks and talked for hours over what we want for your our our own lives each other for our business this is this is the culmination of hundreds of hours of talking communicating about what that big picture looks like what the future of our business looks like and how we both fit into that together right and how how to support each other in making that happen. I think uh I I hope I did him justice in this interview because he truly is like he is he is the spine of the company I I just he's done so much for our our family financially he has done so much for the business I'm so proud to work with him um I you know like I said that I was proud of my kids and all of that's true but I'm also incredibly proud of the relationship that I've built with him like it is just um I'm proud to know him and proud I'm I'm proud to be part of this thing with him he's just he is the best business partner you could ever possibly ask for he's amazing he's wonderful Hima so much good stuff today and thank you for agreeing to be a part of this and for stopping by and joining us so um to all our viewers and our listeners this is Hima and Keith saying goodbye for this How I Finance It episode. Thank

Final Thanks And How To Connect

Hima Pal 1:03:14

you.

Keith Kohler 1:03:14

Thank you so much for joining me on this episode of How I Financed It. I encourage you to reach out to me on LinkedIn at Keith Kohler1 and I look forward to connecting there