The Emerging New Economy

Hands down, we live in a world of wine.

The 2018 Sonoma County Crop Report tells us that 2018 was a record-setting year with wine grape production of almost 276,000 tons, valued at close to $778 million. Throw in the value of the wine those grapes produced and you have a multibillion dollar industry. Only cannabis comes close and, even with legalization, accurate revenue estimates are elusive.

The downside of the wine industry is that the fortunes of the county and our Valley are dangerously dependent on the uncertain future of a single product. Climate change, increased competition for water, and the uncertain preferences of a new generation of adult beverage consumers leave clouds on the vineyard horizon.

Some economic analysts have opined how healthy it would be if the economy of the county (and this Valley) were more diversified. Light, clean, nonpolluting, high profit-margin kinds of businesses would be ideal, so the conversation goes.

Which brings us to the doors of two Sonoma Valley businesses that fit the description to a T.

Jon Sebastiani’s Sonoma Brands, which in less than three years has grown from zero to 87 employees and a $7 million payroll, is plowing new ground in the space of Consumer Packaged Goods with a wide range of “better for you” consumables.

And Sal Chavez’s Puente International, in concert with two Picazo restaurants, is giving power and presence to the Latino business community, producing and distributing world class Mexcal, tequila, and rum without setting a foot in a vineyard.

This may well be the new economy of Sonoma.

 

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The Brand Builder

With 10 brands and counting, Jon Sebastiani is building a new Sonoma economy.

Story David Bolling
Photos Steven Krause

Jon Sebastiani is sitting in his glass-walled office in the corporate headquarters of Sonoma Brands, half a block from the Sonoma Plaza on West Napa Street and a floor above a teeming work space, with computers on every surface and white boards on every wall, where what feels like an infinitely expanding entrepreneurial enterprise is busily disrupting a growing number of traditional product categories with a host of new “better-for-you” brands in what is known in business circles as the “snack space.”

We’re talking blended veggie drinks, re-invented eggs, a marshmallow makeover, healthy chocolate, coconut chips, home-delivered kids meals, and a whole lot more, all of it organic and delicious.

To do that, in Sonoma he has assembled a team of 87 mostly young, hungry, passionate, and very bright professionals with expertise in brand development, marketing, venture capital, investment strategies, market research, industry relationships, and consumer trends.

He has, in effect, created a new workforce (with a $7 million payroll) for an emerging industry within the food and wine-centric folds of Sonoma Valley that holds great promise for enriching and diversifying the local economy. In the midst of an evolving community conversation about Sonoma’s future and its near total dependence on wine and tourism, this is important stuff. A year and a half ago Sebastiani was on the cover of this magazine precisely because of the promise Sonoma Brands held for a new job market and a fresh halo product base. Back then it was a very strong promise. Today it’s an exploding reality.

The company focus is clearly centered on, but not limited to, products people can eat and drink and that are also, in the parlance of the Sonoma Brands vocabulary, “better for you.” They all occupy market space ripe for “disrupting,” a term that has become a business school cliché, infecting the vocabulary of almost every MBA graduate, while holding the implicit promise that great fortunes can be made by anyone smart (or lucky) enough to identify a product or enterprise that hasn’t changed in forever and blow it up by creating something better.

Henry Ford comes to mind, along with Elon Musk, Steve Jobs, Howard Schultz, and Milton S. Hershey.

Sebastiani, of course, disrupted the jerky business with Krave, a succulent, flavored, easy-to-chew reinvention of dried meat that had been pretty much stuck in Paleolithic time. With his subsequent business partner, Jens Hoj, Sebastiani blew up the jerky paradigm, making Krave a sensational, nationwide success, now copied widely and used as lesson material in numerous MBA programs.

He then sold the company to Hershey for close to a quarter-billion dollars and, instead of retiring to an island somewhere, he took a deep breath, ran a marathon or two, and started Sonoma Brands as a means for replicating, expanding, and anchoring the Krave experience in Sonoma. The new company’s purpose was two-fold: first, to replicate the formula and success of Krave by creating other healthy snack products no one had yet imagined; and second, to invest in existing products with visionary founders and early-stage growth potential.

Tasty is not enough for Jon Sebastiani, who is currently hoping to qualify for the Boston Marathon as he gets incrementally closer to his 50th birthday. Sonoma Brands products have to be, at the very least, better for you than whatever else you are consuming at the moment, and many of them are compliant with the Whole30 program for resetting your diet.

That means organic is a given, sugar (with one prominent exception) is a no-no, and earth-friendly is an underlying ethic. And the company’s investment net is likely to be cast even wider into beauty products, personal care, maybe even apparel.

But there’s another ethic woven into the company’s fabric, and that is community, reflected at two levels simultaneously. Sebastiani could have easily set up Sonoma Brands anywhere—San Francisco, L.A., New York—all places closer to and embedded in the start-up culture and capital. You don’t have to be here to market the name Sonoma, which has been appropriated by a prominent kitchenware company, a General Motors pickup truck, and even a brand of cigarettes. But Sebastiani was born here, raised here, is raising his daughter here, is of here. And, oh yes, there’s the winery connection, more about which later on. For Jon, Sonoma is far more than a marketing tool. The name is saturated with authenticity, and encompasses a place, a lifestyle, a set of values and valuable qualities that inform and define the companies he creates and invests in.

The other level of community embedded in Sonoma Brands is the community of the company itself which, in an exhaustive series of interviews with members of the management team, emerged over and over again as one of the key reasons for coming here.

Shahir Amin is vice president and chief compliance officer for the company, a native of West Virginia, whose parents are from Bangladesh. He has a business degree from the University of North Carolina, where he also worked on the private investments team for the university’s management company. He came to Sonoma in 2017. He’s 29 years old.

“I knew early in my career that the most important thing was to align myself with truly great people, people I could look at and say to myself, I want to be like them in the next 10, 20 years,” he says. “That’s something I saw in Jon, and since partnering with Jon and joining his team, he’s bestowed upon me an incredible level of trust, and just empowered me, where I’m getting exposed to responsibilities that someone my age and with my experience often wouldn’t get that opportunity.”

Josh Rombach, who is 28, has had a similar experience. He came to Sonoma Brands from BlackRock Capital, the largest asset manager in the world, with assets under management ($6.8 trillion) worth more than the GDP of Japan. He spent three years there, after graduating from Middlebury College in Vermont with a degree in environmental science, and gradually realized he’d be happier taking the skill set developed at BlackRock “and develop that in a more entrepreneurial environment.”

Fortuitously, Sebastiani paid a fundraising visit to BlackRock, where by chance he met Rombach. They had a lengthy conversation, Rombach saw a perfect fit, asked about a job, and in late 2017 he joined Sonoma Brands.

“I think the team culture, from day one, has always been number one on the list for me,” he says. “That’s something that Jon has emphasized from the start. If we don’t like being around each other, then nothing else that we do here is going to work. So, Jon has been super thoughtful about building up the team in a way where the skill sets are complementary, and making sure that people who are added to the team are additive in some way, and in some capability to what it is that we are then able to do.”

To fuel the incubation of new products, and to invest in other existing startups, Sonoma Brands has structured a series of funds to attract private equity investors, now totaling more than $200 million. That means the company is now playing in a very big sandbox and getting attention from, and partnerships with, some major players, including Danone (aka Dannon), the global food products company, and Mondelêz International, the snack food giant with annual revenues of some $26 billion.

The portfolio of products under the Sonoma Brands umbrella is a little dizzying and surprisingly diverse. Three original brands are currently being incubated in the marketplace, growing, maturing, and more than likely waiting for a bigger company to buy them. First out of the corporate womb in 2016 was the blended whole-vegetable drink, called Medlie (originally marketed as Zupa Noma, a name that confused too many consumers). It is, according to celebrity spokeswoman Ayesha Curry, “My favorite way to jump-start the day. They’re made from whole, organic veggies, so each bottle is fiber-packed and low-sugar.” The 12-ounce bottles come in six flavors, and two spin-off products include a two-ounce mini version called “Veggie Shots” and a snack-sized tub of Vegetable Mash.

Jen Berliner, president of Medlie, graduated from Vanderbilt, went to work for a D.C. communications and advertising firm focused on issues like health care reform and clean energy, then decided to get an MBA at Yale. That led to a job at Pepsi in New York, where she “learned a ton and got exposed to a lot of different things. Pepsi’s the best in the business at building brands. I thought if I can learn everything I can, and then take this experience and go use my powers for good, I’m going to be much more effective in whatever I do next.”

Her husband is from Marin and wanted to move back, so she returned to the Bay Area with him, intent on “a slightly irrational product focus on my job search. Coming from Pepsi, I was very, very sure that I only wanted to build a brand and work on products that I wanted to consume every day, and that I could feel very good telling everyone around me that they should consume every day too.” And then she found Jon.

“I absolutely fell in love with the broader vision of Sonoma Brands, and with Medlie. It’s just the cleanest, most pure product out there, and that really checked the box I was looking for from the product integrity standpoint.”

While Medlie has had slow and steady growth, with a focus on online sales, the second Sonoma Brands launch, SmashMallow—now commonly referred to as simply SMASH—was a Krave-like home run. A re-imagining of the lowly marshmallow updated with flavors (including dark-chocolate-dipped raspberry), the product boasts all-organic, Kosher ingredients with no corn syrup, artificial anything, or preservatives.

The SmashMallows are touted as “better for you,” and are now companioned with Smash Crispy treats, the same things your mom made and you ate as a kid, only, of course, these are better for you, and way tastier.

“We call it permissible indulgence,” explains David Lacy, SmashMallow’s CEO since January 2018, when the product was spun off from Sonoma Brands as a separate business. “We took a very holistic and authentic approach and said, OK, we’re going to do it in a way that has organic sugar, nothing artificial, is authentic and clean and you can feel good about having it as a treat. We believe we’re building an iconic confection.’”

Lacy, who has an MBA from Northwestern University, is not a stranger to Sonoma because he served for two years as CFO and then COO of Krave, up to and through its sale to Hershey’s.

He came back because of Sebastiani. “He is incredibly brilliant, and truly an entrepreneur at heart. I’ve really enjoyed working with him; it’s why I came back. He challenges me, and he challenges the team in different ways, but he’s also been there, so what he says is credible.”

Which leads us to the lowly hard-boiled egg.

The sandbox Sonoma Brands plays in is called CPG—Consumer Packaged Goods. So, if you wanted to disrupt the hard-boiled egg market, how would you package it? And how would you differentiate it? How would you market it? And what the hell would you call it?

Those questions are worth asking because, according to Lauren Egan, an Australian immigrant who made it into the country before Trump began trying to close the door, and is now vice president of brand for the egg product, “Our research showed that hard-boiled eggs were growing 30 percent year-on-year, over the last 30 years.”

Now that’s a market ripe for disrupting.

What they came up with is a kind of protein pack, like a mini bento box, with two perfectly hard-boiled eggs in it and a crunchy flavoring packet to dip them in. Each egg is separately enclosed in it’s own little plastic pouch with a 30-day refrigerated shelf life once they get to the store. A proprietary boiling technique is used to make the eggs uniform and the yolks soft and creamy but not runny. Sometimes at a marketing demonstration, says Egan, “People will see the beautiful, rich, orange yolk, and they’re like, ‘Is that candy?’ because it looks so good, it’s like they’re skeptical it’s an actual, real egg.”

The marketing pitch is all about convenience, a variety of dipping flavors, and a quick protein fix without the cholesterol fears that have largely been debunked. “They’re free-range organic, they’re fresh. It’s essentially nature’s perfect food,” says Egan, who likes the fact her name has egg in it.

It’s been just seven months since launch, and the eggs are now in Southern California Whole Foods stores, as well as in other markets, and the reception has been strong, says Egan. The brand name? “Peckish.”

As Sonoma Brands grows, product-by-product, investment fund-by-investment fund, an interesting question arises. You would normally expect to find a company like this positioned in a major market, close to media and capital and lots of entrepreneurial energy. But this is Sonoma, still a somewhat sleepy town, albeit 45 minutes from the Golden Gate Bridge. Is this isolation a liability? Or an asset? How well does it work to do high-level investment and marketing business in the boonies?

Kevin Murphy has known Jon Sebastiani for about a dozen years, since before Krave took off. Both men have MBAs from the Haas School of Business at UC Berkeley, and when Murphy, went into private equity investing, they met, hit it off, and became friends. After Jon sold Krave and started Sonoma Brands, he knew he needed someone with the private equity skills Murphy had developed, and Murphy was happy to join him, which he did in 2018, and now serves as a managing director. Murphy, who still lives in San Francisco and reverse-commutes to Sonoma, has a good perspective on that question.

“None of the reasons Sonoma Brands is here has anything to do with a marketing angle,” says Murphy. “But it happens to make it more effective, largely because it’s just authentic. I’m just seeing that again and again, more and more and more. There’s absolutely no pretense. We’re not here because we’re trying to [make an] impression. We’re here because that’s where the story started and that’s the culture and the feel that, as a firm, we want to perpetuate. None of it’s contrived. It just all happens to emanate from a kid who grew up here. There’s an authenticity when people walk in here.”

Brian Nicholson, another managing director, who also joined Sonoma Brands in 2018 and now lives here, has his own take on Sonoma.

“I probably tell the team here on a monthly basis that this is the best environment I’ve ever been in professionally. I did investment banking in San Francisco before I moved to New York. I also had a stint as an entrepreneur launching a direct-to-consumer brand. I have lived many lives career-wise, mainly in finance on the West Coast and on the East Coast, and this is the best environment in terms of the quality of the people, the temperament, the drive that people have here, the creativity of the people, and just generally people that I want to be around. I can’t say that about several of the environments I was in where there were high politics, and stabbings in the back pretty frequently. This is just different. This is a collection of really genuine, wonderful people who happen to be really smart. I’m 37 years old and I’m at a point where this is everything that I’ve been looking for, so I feel really fortunate.”

Nicholson has a more personal reason to love Sonoma. In May he married his wife Brooke at Viansa Sonoma Winery in an elegant, intimate ceremony, and among the 120 wedding guests was author Salman Rushdie, a longtime friend of Brooke’s. It was an added bonus to have access to an entire winery for such a special event, especially a winery that is now part of the Sonoma Brand portfolio.

Meanwhile, that portfolio has grown to include a host of other brands, including Dang coconut chips, Guayaki Yerba Mate, True Botanicals, Hum Nutrition, Hu Chocolate, Yumble—a digital kids food delivery company—and Viansa Sonoma Winery (see sidebar).

For his part, Sebastiani expresses a certain awe, if not disbelief at what he’s created.

“This is kind of incredible, I have to say. I don’t want to sound corny, but it’s about community. Obviously, I’ve been a member of this community my entire life, but I’m also a beneficiary of this community. While Sonoma Brands is creating our own new generational version of it, we’re building off a sense of community that’s been here a long time. So, whatever I’m doing, I hope, it is a benefit to the community. I personally seek to add diversity here, to bring in minds from other parts of the country that bring a sense of culture and perspective that is a creed of our experience here. Sonoma is, first and foremost, this wonderful place that gives what we’re doing in food and beverage real authenticity.”

So, is Jon Sebastiani building a new Sonoma economy? He is profoundly uncomfortable with anyone overstating what he has done, is now doing. “I’ve been raised humble. I want to stay humble,” he says, pointing to a neon sign in the office that reminds everyone, “Stay Hungry, Stay Humble.”

Kevin Murphy looks at Sebastiani this way. “He somehow combines real experience and real capability with even more extreme humility. It’s an interesting combination of confidence and humility, which I find to be very endearing. He’s got reason to be confident, but he is so far from what one might expect — given the success he had with Krave, as a person of means —he’s much more driven, much more humble and much more accountable than I think many people would expect or realize. And it serves him very well, because he’s not the type to sit in front of business owners and sort of wax on about how to do things. He uses the experience from his success more in the vein of being a strategic thinker and being a partner, as opposed to trying to convince other people how he’s going to sprinkle the magic dust on them and replicate his success. He approaches things in a refreshingly different way, without any of the arrogance that very successful people sometimes bring to the party.”

 

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Making Mezcal in Michoacan

Sal Chavez rediscovers his roots.

Story David Bolling
Photos Steven Krause

 

Among the things Sal Chavez has learned, wandering through the entrepreneurial landscape of a somewhat precocious life, is that you really can go home again. At least if you know where home is.

This is important to know because, during the span of a very full decade, as one door after another opened before him, almost like Aladdin with a magic lamp, the recurring message is that you can’t get where you want to go, you can’t achieve what you want to achieve, you can’t find your way home … alone.

The journey—that would eventually take him deep into his familial roots in Mexico, into the mystique of artisan mescal and the complicated community relationships that build layers of unexpected trust and fellowship—began before he had finished his senior year at Sonoma State University. There was a for-lease sign on a funky little building at the corner of Arnold Drive and Grove Street, just across the driveway from Juanita Juanita, a popular Mexican restaurant.

“My mom was really ready to jump into something. So I was tasked with figuring out what the deal was. The landlord asked me to write a business plan. I wasn’t really sure what my next steps were going to be, so I did the business plan—I was competing against two other applicants—and then they approved us.”

Shazaam! Just like that the magic Genie opened a door. Or, probably a lot more accurately, Chavez wrote a credible plan, he was a compellingly appealing and outgoing young man, who happened to be at the right place at the right time.

“At that point my parents said, ‘Why don’t you join us as a partner instead of going to get a job after college?’ And at the time I was kind of like, ‘Yeah, sure. I’ll do it. And I didn’t know what I was getting myself into.”

What he was getting himself into was a simple café with a limited menu, good hot coffee and a very visible corner, but with all the standard bureaucratic requirements imposed on every small business.

“Sales tax, alcohol permits, food licensing, all this stuff, I was tasked with those things, which is really what held it together. And then the day-to-day was split between me and my mom, really. My dad would eventually make his way into being the fulltime baker.”

Eventually Chavez’s mother exited the café they had named Picazo—Sal’s middle name—and a half interest was sold to a new partner and responsibilities multiplied, as they bought a food truck. After an ADA lawsuit was filed by a predatory law firm, and a partnership that didn’t work out flipped, life got complicated. Chavez decided he was carrying too much of a load and needed another partner, all of which is prelude to the big turn-around and more shazaam moments.

“There was no way I could really manage the café and the food truck, and not have someone else involved on a day-to-day level. And then my wife, who had been working shifts at the café and the food truck, came to me and said, ‘Don’t do another partner. I’ll help you run these things.’ And I said Okay, because it was a perfect time to be able to work with my wife. And I think that’s a very challenging thing to do, to run a restaurant with a spouse.”

Meanwhile—a very significant meanwhile, because many of the elements of this story overlap—Sal had been groomed to apply for a mid-term opening on the Sonoma Valley Unified School Board, representing the largely Latino El Verano district. He was all of 26 and his first reaction was, “Me? Why me?”

Instead of an expensive election, the School Board would make an appointment after an extensive interview, and there was another candidate, a much older professional man. The Board chose Sal, unanimously.

“ I walked away thinking, like, ‘Holy Shit,’ they picked me over a guy who had a career in banking longer than I’ve been alive. I was kind of shocked, but I took the seat that day, and just never looked back.”

Then, during a brief partnership with restaurateur Ed Metcalf, founder of the popular Shiso Japanese restaurant, Chavez finally learned how to actually cook.

“I learned how to cook at Shiso, from a sous chef named Ryan McDonald. I’ll never forget him, the guy was so freaking talented. So, I went back to the café, I put on an apron and on the little camping stove we had, with the butane burners, I started making soups every day. We didn’t even have a kitchen yet. Just a prep area. And I started making these salad dressings, and that’s when things really changed, that’s when we really took off.”

Chavez convinced his parents they needed to take out a loan to build a real kitchen, they did, he began making hamburgers—everything homemade—and again, “things just took off,” and Picazo had lines out the door, every restaurant’s dream.

Then he saw an article explaining how mescal was growing as a spirits category in the U.S. “The light just kind of turned on , because in my head I was like, shoot, that’s what my family drinks. That’s for me, Michoacan.”

In fact 98 percent of all mezcal is made in Oaxaca, but a small amount, two percent, is made in the home state of Chavez’s father, Michoacan.

“I was like, ‘I’m going to go back to Michoacan and I’m going to find a mezcal to bring to market and really represent my dad’s home state, my home state—I’ve always felt very tied to Michoacan.”

And that is, in fact, exactly what he did. “How it’s evolved, I don’t think anyone could ever have really scripted it.”

Along the way he discovered that Michoacan also makes a distinctive rum, called “charanda.”

By then, it had begun to become clear to Chavez that he was not going to behind the restaurant counter forever. There was going to be a next step, another open door.

In ways that couldn’t have been clear to him when they happened, events in his life were preparing him for the next move. Serving on the school board, partnering with his wife in the restaurant gave Chavez a prematurely mature understanding about how to negotiate, compromise and seek solutions. And working behind that counter taught him a critically important lesson about business.

“I remember people would tell me, ‘Oh, you’re the boss.’ And I’m like, ‘I’m not the boss.’ They’re like, ‘What are you talking about? I would say, ‘Well look, the person who walks through that door is the boss, because if they stopped coming, then we don’t have a place. And we don’t have revenue. We can’t pay you. We can’t pay our bills. We don’t have a business.’ I said, they’re the boss, because we’re in the customer service industry. So we’re here for service and not for ourselves.”

The message resonated with employees, some of whom were not used to owners pitching in, doing the dirty work, the front work, representing.

He took that message with him through the Michoacan mezcal portal, all the way down to Cotija, where the cheese comes from, near where his father is from, where he found willing partners to not only sell him artisanal mezcal for his La Luna label, but to partner in producing it.”

“So, we sort of formed a company, and I became a Mexican partner, and it really all happened due to a lot of this stuff that’s true today, which is, I really enjoy working. And they enjoyed how I worked, and they saw a lot of progress.”

They also saw how Chavez was able to negotiate and navigate and deal with a lot of people with little business aptitude. They were apparently so impressed that just recently the Union De Mezcaleros De Michoacan, officially named him the international ambassador on behalf of the state of Michoacan for Mezcal. What does it mean? The Consejo Regulador del Mezcal, the government entity that Manages Mezcal will soon officially recognize Chavez’s business office in Sonoma, as their office, presumably representing their interests in Sonoma. “We’re going to do a ribbon cutting, and like an official naming of our office as their office, so we’ll have an official of a Mexican entity in Sonoma now.”

Sal Chavez is now building block-on-block an expanding business of artisan mezcal, premium tequila and Mexican rum, while managing the original Picazo, and now the second Picazo, in Maxwell Village, after picking up the pieces of the failed Mint & Liberty that succeeded the Break Away Café.

His wife Kina is largely handling the restaurants, while he managers his investors and distributors and expands his presence in the little Michoacan town, Cotija, where his father called home and where he now has both U.S. and Mexican citizenship.

His first backer and ongoing mentor once explained to Sal that investing is primarily about people not programs. “He said to me, ‘I wrote you a check because I wrote a check in you. That’s how I invest. I’ve never been invested in the actual project. I invest in who’s running the project.’”

The entrepreneurial journey of Sal Chavez is now 10 years old, he has two restaurants, an international spirits company, he is on the board of the La Luz Center, and he models the values he lives and works by for the greater Latino Community. He is also one of the faces of Sonoma’s future.  

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