Forbes India 15th Anniversary Special

Vegan veteran Follow Your Heart wakes up to VC-backed competitors

For more than 40 years Follow Your Heart has been quietly selling health-conscious foods. Now VCs are backing fast-growing competitors

Published: Oct 5, 2016 06:19:25 AM IST
Updated: Sep 30, 2016 04:56:14 PM IST
Vegan veteran Follow Your Heart wakes up to VC-backed competitors
Image: Robert Gallagher for Forbes
Founders Bob Goldberg (left) and Paul Lewin: “We get approached every day, mostly by venture capitalists.”

The founders of Follow Your Heart are now in their 70s. Their first product, in the 1970s, was Vegenaise, an eggless mayo. Since then, the company has survived a bitter partnership dispute and the loss of its biggest client, Trader Joe’s. The company owns a 104,000-square-feet, solar-powered headquarters and production facility in California and expects $50 million in revenue this year—but its world has changed.

Suddenly, vegan products are hot, and venture-backed competitors have surfaced. The largest, Hampton Creek, has raised $120 million and claims to have 500 products in its pipeline. Sir Kensington has raised $8.5 million and has its own eggless mayo. The competitors have increased awareness of the product category, but they also have the potential to leave Follow Your Heart in the dust. “Hampton Creek has been effective at promoting their products and they have put a lot of money into that,” says Bob Goldberg, co-founder and CEO of Follow Your Heart. “We wanted to grow in a way that we could handle.”

Goldberg was an Indiana University music major who had moved to California at the prompting of his Army buddies, fellow musicians with whom he’d played trumpet at officers’ clubs. Between West Coast gigs he started hanging out at a Canoga Park natural food store endorsed by Johnny Weissmuller, the Olympic-medal-winning swimmer and star of Tarzan movies. Goldberg was soon joined in California by Paul Lewin, a college buddy.

Goldberg became a vegetarian, and Lewin followed. When the health food store went up for sale in 1973, they pooled their money with Michael Besançon and Spencer Windbiel, who worked in the store’s cafe, and bought it for $15,000. Soon after, the four partners learned that the Food and Drug Administration (FDA) had shuttered the company that supplied the store’s eggless mayo, so Goldberg was sent to the kitchen to develop a replacement. It took until 1976 to find a suitable tofu-based concoction. And it took a few years to get the formulation good enough that they could partner with Nature’s Best, a southern US distributor, to sell it in supermarkets.

Along the way, the founders began to disagree about how quickly to expand. Besançon dreamed of building a national chain of health food stores. When a Santa Barbara store came up for sale, Goldberg agreed to buy it, hoping the second location would appease Besançon. Instead, Besançon filed a lawsuit seeking the involuntary dissolution of the corporation. “It’s almost like being in a marriage,” Goldberg says. “You’re fighting, but you don’t expect to get hit with an action for a divorce. You expect some warning.”

The legal battle involved bitter disputes over the valuation of the company. In 1985, a judge told the founders he could render a verdict that no one would like or they could compromise. The founders went to lunch and wrote valuations on a piece of paper, passing it back and forth until they agreed. Goldberg and Lewin ended up buying the company for more than $250,000.

For the next 15 years, the combatants hardly spoke. Besançon eventually fulfilled his dream of helping build a national chain­—Whole Foods, where he spent 18 years. “We’ve come to grips with it—that nobody was right and nobody was wrong,” he says. Today they are friends again, speaking often and even vacationing together. Besançon’s son manages the Follow Your Heart store where the partnership began.

During the litigation, Goldberg had come up with a Plan B. Sensing that competition would limit the potential of vegetarian and vegan stores, he concluded that the best way to deal with retail competitors was to supply them. Vegenaise became the company’s anchor product. In the mid-’90s Trader Joe’s started selling four of Follow Your Heart’s products, including eggless ‘egg salad’ and cottage tofu. Over the next two decades, the chain became the company’s biggest customer, accounting for 18 percent of its business. Then, late on a Friday in 2010, a supplier alerted Follow Your Heart to a salmonella outbreak linked to its products. Follow Your Heart informed the FDA that it was voluntarily recalling several of its dressings, including at least one carried by Trader Joe’s. (The chain declined to comment.)

When an FDA press release mentioned Trader Joe’s, the chain was angry, Goldberg says, because it hadn’t been informed early enough to try to keep its name out of the press. Trader Joe’s ultimately terminated all contracts with Follow Your Heart. “They went overboard,” Goldberg says. “I think we did the right thing, and I think we got punished for it. We had a 22-year relationship that was flawless.” The split forced Follow Your Heart to focus on its branded items, which left the company better able to respond to the changing tastes of American consumers.

Lewin and Goldberg have been watching the rise of companies like Hampton Creek, whose Just Mayo sales reportedly more than doubled to over $10 million in the past year, with keen interest. “Every time a competitor comes to market, they’re going to get some of the business that’s yours,” Goldberg says. “I think it’s a mistake to react to that and much more important to make the best products we can.” (Hampton Creek meanwhile has recently been accused in news reports of buying large amounts of Just Mayo back from supermarkets to inflate its sales figures. The company denies it.)

Follow Your Heart has captured some of the excitement with several new products, including algae-based VeganEgg, which was introduced last fall. “We had just set it up and started to scramble it when a food scientist took a snapshot and posted it to Twitter,” Goldberg says. “An hour later our site crashed.”

As the company has grown, Follow Your Heart has been getting calls from would-be investors. “We get approached every day, mostly by venture capitalists,” says Goldberg, who tells them he’s not interested. “I can see it making us a bigger company,” he says, “but not a better company.”

(This story appears in the 14 October, 2016 issue of Forbes India. To visit our Archives, click here.)