01 Feb 2000
Jerry Shafir: A Simmering Success Story
In an age of overnight e-commerce millionaires, one HBS entrepreneur is savoring the satisfaction of building a business the hard way.by Deborah BlaggTopics:
In this business, you're only as good as the person peeling the potatoes," calls out Jerry Shafir (MBA '84) through a rising cloud of steam, as a hundred pounds of freshly chopped vegetables slide into a Jeep-sized cauldron of chicken stock. Clad in a starched white jacket and puffy gauze hair net, the six-foot six-inch former Yale basketball player is conducting a whirlwind tour of the facility that houses Kettle Cuisine, Inc., the soup-making company Shafir has painstakingly nurtured since cofounding it in the mid-1980s.
With workers hustling to prep and cook fresh fish, poultry, meats, and vegetables and to package, chill, and ship the finished product, there is constant motion in Kettle Cuisine's cramped but immaculate Somerville, Massachusetts, kitchen. The 11,000-square-foot facility supplies more than two thousand restaurants and grocery stores with over fifty varieties of ready-to-heat soups, shipping an average of thirty thousand gallons each week. Shafir - himself a study in constant motion - plans to move his operation to a roomier location in nearby Chelsea early this year. Despite adding a $2.5 million liability to the company's books, the new plant is cause for celebration, considering Kettle Cuisine's long and bumpy road to profitability.
The son of a Polish Jew who fought in the British army during World War II and who later became the owner of a scissors and shears distributorship in New York City, Shafir went against his father's advice and enrolled in law school fresh out of Yale. "I should have listened to my father," he admits with a wry smile. After four years of "just reading and writing" as an insurance company lawyer, Shafir, then newly wed to his wife, Lorna, entered HBS in 1982.
His first job after graduation was to work for the founder of Boston's Legal Sea Foods restaurant chain, where he met his future partner, Christopher Nessen. A production chef at the company, Nessen provided the culinary and technical expertise for Kettle Cuisine. He was well acquainted with the process of preparing foods, rapidly chilling them in plastic bags, and shipping them to restaurants. His idea was to use a similar procedure as the basis for a commercial ready-to-heat soup operation.
Eager for a new challenge and armed with both legal and business know-how, Shafir joined with Nessen to launch Kettle Cuisine in 1986. With just $30,000 in capital, the two set about the tasks of renting suitable manufacturing space, scrounging defunct factories for affordable machinery, developing recipes, and building a business from the ground up. It was a slow process, marked by sixteen-hour workdays that began on local fish piers and ended late at night worrying about cost overruns, loans called in early by nervous banks, and credit-card debt.
The company's woes strained the partnership, which ended in 1990, when Shafir took loans from his two Wall Street banker brothers to buy out Nessen's share. Over the next few years, with the family supported by his wife's salary as a sales representative at Wang, Shafir struggled to grow his business, barely keeping ahead of his creditors each month. Finally in 1993, new financing from another relative provided enough cushion to allow Shafir to turn up the heat on Kettle Cuisine's marketing effort. Sales climbed, survival was no longer a day-to-day proposition, and the company began a gradual ascent into profitability.
Fame and Fortune
If the story of Shafir's drawn-out battle to build a company sounds familiar, it may be because it was recounted last spring in a front-page Wall Street Journal article. "The paper was looking to do a story on a business that had really struggled," explains Shafir, now seated in a spacious meeting room at Kettle Cuisine's soon-to-be-finished new plant. "They came to the right place!" Shafir liked the article, which prompted letters and phone calls from long-lost friends and classmates and gave the company added credibility with existing customers. But Shafir notes, "It also put us on the screen for our competitors."
Kettle Cuisine's competitive advantage, says Shafir, comes from its ability to differentiate itself by focusing on the quality and freshness of its ingredients, on classic cooking methods, and on its niche in the prepared food business. "No one in America has the time to cook at home right now; that's a big factor in our favor," he states. To take advantage of the market for high-quality, heat-and-serve products - and to give the Kettle Cuisine brand more visibility - the company has begun selling soup in individual serving-sized portions, a move Shafir characterizes as "a really big step for us."
"Until now," he explains, "we've been mostly selling in bulk to grocery chains and commissaries that repack our soup and sell it under their own brand names. The retail business - selling individual servings from refrigerators with our logos in delis and grocery stores - is a totally new challenge."
Cooking up delicious recipes is only the first step on the road to retail success, says Shafir. "Our strength, really, is in our knowledge of how to get the product out there. Distributing refrigerated products is not an easy business. People could probably come pretty close to copying our re-cipes, but to actually do the marketing and distribution, manage shelf lives, get customers their products when they want them, and all the other unglamorous things we have to do just right every day, that's hard to duplicate."
After more than a decade of doing the right things every day, Shafir is still a very hands-on entrepreneur. With the company's core bulk shipment business going well, overseeing the completion of the new plant, managing a smooth launch of Kettle Cuisine's retail product, and cultivating brand identity are his immediate priorities. While Shafir no longer goes to the fish pier every morning, he is usually at work by seven and rarely makes it home for dinner. Still, he jealously guards the time he spends coaching his two daughters' soccer and basketball teams and usually finds time to go to a gym regularly. "When I'm not up physically, the whole company feels it," he says. "In fact, when things were really bad, one of the activities that kept me sane was playing rugby with guys from HBS."
When asked if the overnight successes of today's dot-com millionaires make him question his more methodical path to prosperity, Shafir answers, "Not really. They're making millions of dollars be-cause the market is crazy right now, but I'm not sure they're building anything sustainable. Value is created when you have a sustainable revenue stream and a sustainable business, and I think the jury's still out on a lot of those companies."
Would he do it all over again? "There is no way I would start another company unless I was extremely well funded," Shafir answers promptly. He admits to being tired but still very much engaged in his entrepreneurial adventure. "We're still small: around $13 million in sales," he observes. "But we're growing rapidly. I love product development, brainstorming new ideas, being in the plant, and knowing almost everyone's name. The people who work here tell me I'm a good boss, and that's very important to me."
Looking to the future, Shafir muses that when he turns fifty in a few years, it may be time to try something totally different, but for now he is content. "People have asked me about my exit strategy, and I really don't have one," he says. "The company is still very entrepreneurial, and I'm still learning something new every day."