PET Food Processing - March 2019 - 54

BUSINESS STRATEGY

Left: Inside Factory, each
small room serves a specific
purpose, including a test
kitchen, a social media lab,
and even a mock grocery
store where brands can
compare the look of their
product on the shelf next
to their competitors.
Right: The test kitchen employs a crew of professional
chefs to help brands test
different products on-site.

take Freshpet public on NASDAQ in November 2014.
Thompson left Freshpet in 2016, raised money and
started Factory.

Making the short list

Thompson says there are several initial criteria the
Factory team considers when identifying prospective
partners. "We have a lot of things that we look at but we
first look at the entrepreneur because the entrepreneur
is 50% of the equation," Thompson says. "We can do a
lot with money and marketing and distribution, but we
can't change a person. Finding the right person, the right
entrepreneur, with the right attitude, work ethic, passion
and knowledge is really important."
The second most important criteria is the product must
taste good. "Whether it's for humans or pets, taste is really
important," Thompson says. "If it doesn't taste good, the
dogs or the cats are not going to eat it no matter how good
it is for them. It has to taste good." Additionally, the product needs a differentiating factor that will appeal to pet
owners, must be scalable and there must be some barrier
to entry. "If there's no barrier, everyone will be doing it."
Thompson explains. "If we spend time and money growing a business, a barrier to entry ensures we'll have a head
start. You have to have some barrier to entry."
The companies that Factory partners with also need
to be growing with a minimum of $2 million in annual sales. "We look for $2 million on the bottom end
because we want to work with entrepreneurs who have
gained valuable experience and gone through some
trials and tribulations," Thompson says. "We want them
to have some distribution in the marketplace so we can
talk to retailers and consumers." This helps the Factory
team understand how that product might scale up and
provides Factory with helpful insights.

Producing value

When Factory partners with a company, it either has a
defined path to control of that company through a series

PET FOOD PROCESSING | March 2019 | www.petfoodprocessing.net

of investments, or it buys a 51% share of the company.
"If a company joins us, their assurance of a level of
success has increased dramatically," Thompson explains.
"There's no guarantee for anybody of 100% success because of the way life works but, if they come here, the
guarantee of success has just increased by tenfold simply
because they have surrounded themselves in an entrepreneurial community with all the assets, and professionals, they need under one roof. We should be able to
double sales, not only per year but for many years."
Factory's business plan involves using the $250 million in investable capital to bring 15 to 20 companies to
Bethlehem at any one time, push innovation, rapidly
grow the companies and produce value until each company is the right size to be sold. "The idea is that we'll sell
each business in the time frame of 3 to 6 years and if we're
selling, it's because we're in a good position," Thompson
says. "Success is selling a company for multiple times
what we paid for it. When a company leaves Factory,
we've done our job and gotten them to that target number; and everyone's happy because everyone has made
some money." Thompson points out that the new buyer
is also happy because they've acquired an asset-light

"Finding the right
person, the right
entrepreneur, with
the right attitude,
work ethic, passion
and knowledge is
really important."
Rich Thompson, Factory

http://www.petfoodprocessing.net

PET Food Processing - March 2019

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