RXBAR took its category by storm with a clean label that brought a short list of ingredients to front-of-pack—a tactic some companies, like BluePrint, had successfully employed in the juice and cleanse market.
The declaration of ingredients in such a simple, primary expression of transparency is but one example of the trend manifesting itself in market, and it’s a winning one. BluePrint sold to HainCelestial back in 2012 for $26 million. RXBAR, less than five years after its founding, sold to The Kellogg Company in late 2017 for $600 million.
To hear Peter Rahal, CEO and co-founder at RXBAR, speak of it, transparency runs much deeper than packaging. There are no secrets in an investments of this size. All laundry, clean or dirty, is fully aired in the offing. “In a transaction like the Kellogg acquisition,” says Rahal, “you’re disclosing everything. Two months of diligence and auditing went into it.”
Transparency is a bold enough concept to impact both sides of the investment equation now. Transparency in a company’s operations can increase its attractiveness as an investment target, and the investment process itself is its own exercise in transparency. This begs the question: what is today’s investor looking for with respect to transparency, and how do they measure it?
At S2G Ventures, Chuck Templeton serves as managing director and carries plenty of portfolio brands that bring transparency to life in all its manifold iterations. There’s Kuli Kuli building an ethical, transparent supply chain in moringa. There’s Ataraxis developing rapid testing for the presence of antibiotics and adulterants in meat. There’s SafeTraces, Fishpeople, Shenandoah Growers, all squarely ahead of the trends with deep levels of transparency in their respective fields. “Many of our brands work in the supply chain; we don’t have that pure brand focus that some other firms do” says Templeton. “And I think surety of supply is only getting more important. Look at the lettuce recalls, the listeria outbreaks. Look at what happened to Chipotle or the hits that Fairlife is taking now.”
At White Road Investments, the venture arm of Clif, the portfolio runs just as transparent with Honest Kitchen in pet food, Guayakí in energy drinks, and Wild Planet in pole- and line-caught seafood, all textbook-worthy examples of transparent brands leading with purpose and passion. “We have absolutely passed on investments that fell short on transparency,” says Gregg Bagni, director at White Road. “Some people care and get it, some don’t, and we can tell pretty quick.”
Inside the investment community, transparency exists within mission and purpose. These are qualitative brand attributes that allow for some differentiation in market with social causes related to healthier people and a healthy planet. Brands that build themselves to serve their consumers with trust and transparency are meeting consumers where they now want to be. Accordingly, they also seem to be better at raising money. “It’s part of the DNA,” says Templeton. “It’s there or it isn’t. A startup can’t do everything, but it can develop that ethos of transparency internally, start somewhere with it, and improve year over year.”
There are no easy shortcuts or tempting loopholes to the transparency game. When pressed about how investors measure transparency, there’s a lot of gut and intuition involved. “We do not have a formula that measures this,” says Bagni. “There’s no ratio of blank to blank, or you’re at 8.9 versus these guys over here at 4.6. Clif and its five aspirations set the tone for us.” Transparency emerges from those attitudes organically, he explains.
Templeton would concur. “Transparency is hard to validate as a metric,” he says. “In fact, it’s hard to evaluate from a positive economic perspective. The negative perspective is what really matters. We want to limit the downside risk and avoid a blowup.”
B Corp surfaces on occasion as a clue to transparent behavior, but that platform tends to stay inside the company with little relevance to consumer packaging and messaging. “There’s really no shorthand for this,” says Templeton. “I haven’t seen any standard rise to the top as a good tool for transparency. It’s all about diligence, deep diligence, to make us feel comfortable with a particular claim.” While B Corp scores are showing up more often in board presentations by entrepreneurs to their investors, Templeton sees that simply as part of the business plan. The only true test of transparency remains a careful audit of the supply chain and pressure testing by savvy investors to validate a brand’s claims.
The lack of hard metrics around transparency does give rise to softer ones, however. “We do use some ‘intuitional metrics’ to evaluate an opportunity,” says Bagni. “You hear us use ‘goodness’ a lot as shorthand for all of the mission and purpose stuff, including transparency. We definitely look for businesses and people with a lot of goodness in them.”
The other side of the table
From the entrepreneur’s perspective, transparency can provide the direction and focus necessary for a brand to move forward. “I like to say that the truth is all that matters,” says Rahal. “Honesty, candidness, transparency, that’s everything. Don’t massage things, because it all comes out eventually.”
As an investor himself now, under Litani, his management company, Rahal knows what to ask. “One of the worst things an entrepreneur can tell me is that nothing’s wrong, everything’s all rosy,” he says. “Come to me with the truth. A business is nothing but solving problems. The reality is often chaos, so those problems will ultimately surface in the P&L or revenue story if you try to hide them.” This speaks to the importance of finding investment partners with operating experience, partners who want to stay involved after the check gets cashed. An operator will better empathize with that chaos and have some tricks at hand to tame it.
Brands that operate without secrets tend to rise to the top. One Degree Organics—another pioneer in transparency using QR codes on pack that link to full product profiles with source information for each ingredient, including its farm and farmer—is one such brand. “We get very granular with our transparency,” says Danny Houghton, one of the principals behind One Degree and its sister brands in Canada, Silver Hills Sprouted Bakery and Little Northern Bakehouse. “I think that’s why we are regularly approached by investors wanting to invest in our brand, even though we’re privately held and prefer to stay that way for now.”
For all its allure, transparency does carry its own unique set of risks. “I equate a transparent supply chain to stripping off your clothes and running out the door for everyone to see,” says Houghton. “The competition gets a peek too. I remember being at Expo West and hearing from one of our organic spelt farmers in Saskatchewan. He was getting all of these calls from competitors just clicking through our QR code. So that works to our detriment, but it’s really a benefit to the farmer, to tell their story along with our own.”
A transparent future
To speak of transparency’s impact on the industry moving forward is to speak of blockchain, seed-to-shelf messaging, and traceability programs that offer greater degrees and specificities of provenance. It’s also to speak of the increasingly vocal minority. “I see it as similar to Reddit,” says Templeton. “Ten or 15% of the population pays attention, but that’s the noisiest segment. The rest consume the products, but that vocal minority sets the tone and calls out the companies not doing things the right way.”
So, expect more fallout for conventional brands like Fairlife that have withered in the bright lights of transparency as well as their more nimble peers, and expect more brands to develop real transparency efforts for competitive advantage. “We’ll see more brands showing how the sausage is made,” says Rahal. “That’s a way to differentiate and set the tone for everyone else.”
There is also the problem of “transparency creep” to be managed industry-wide, as conventional brands look to co-opt more of the goodness halo afforded by real transparency. Think of that family farmer portrayed on a juice carton run nationally on three million cartons, when his farm might actually supply only a small fraction of that volume. “We did some focus group research where we ran into real jaundice and a lack of trust,” says Houghton. “The big brands have abused transparency by bluffing a bit, and the consumer knows it. We had to do some tweaking with our messaging to disconnect from that.”
Given the broad scope of transparency, and the increasing threat of abuse by wannabe contenders, should the market get more serious about definitions? “There’s just no consensus out there for transparency, what that actually means,” says Houghton. “We often see it get confused with local, which is great, but real transparency has a lot more depth to it.”
According to Houghton, more industry dialogue and consensus might be in order before “transparency” suffers the fate of “all-natural” and becomes just another empty word.