General Mills, Dupont Market Soy

The result of nine months of talks between General Mills and DuPont surprised even those involved. The two industry giants, with almost three centuries of business traditions behind them, last September created 8th Continent, a joint venture designed to speed new soy-based products to market while remaining nimble enough to respond to an exploding demand for health foods.

What was unexpected to those involved in the talks is what didn’t 93happen: a straightforward purchase or licensing pact, or a deal under which General Mills could buy and use DuPont’s soy isolates. General Mills, for one, had swung plenty of such agreements, and one of them (an international cereal strategic alliance with NestlŽ) is hugely successful. From the start, though, the vision for 8th Continent was different. This would be a lasting relationship, with both sides contributing people and resources to their corporate child?$40 million for the first two-and-a-half years. And yet the child, quite on purpose, would be markedly different from its parents. 8th Continent would remain small. It would avoid the stodgy, bureaucratic levels of decision making familiar to General Mills and DuPont. It would move quickly, with an emphasis on creativity.

The managers of 8th Continent would act like upstarts, says its 42-year-old president and CEO, Scott Lutz. “I have to get these big companies to allow us to be daring and to respond to market conditions and changes quickly and flexibly,” says Lutz. “I’m supposed to act as a corporate revolutionary and push both sides hard.” Some companies wouldn’t allow this, Lutz adds. “They’d get scared and veto our ideas and bog us down, but both General Mills and DuPont have been quite tolerant. Even so, I have to be careful and pick my battles. If I push too hard and too fast, people will entrench and I won’t get anywhere. I sometimes have to walk the fine line between being courageous and being stupid.”

No one would think of calling Lutz stupid. High-energy, yes?both in his career and in his intense manner of speaking, the way he launches words and ideas at you. Innovative, you bet. Before joining General Mills 10 years ago, Lutz dreamed up the Tide Racing Team for Procter & Gamble in the mid-1980s. Later, he led the General Mills creative team that in 1995 developed eat-on-the-fly GoGurt. Eighteen months ago, his group launched Milk ’n Cereal bars, a product that has grown into a $100 million business. This latest project, 8th Continent soy milk, was due to hit grocery shelves this July. The result of an innovative partnership, 8th Continent impressed judges to make it a CIO-100 honoree.

Forget the Plastic Cereal Jokes

While 8th Continent represents a new kind of culture, it doesn’t signify a departure from its corporate parents’ due diligence practices. (Recall those nine months of meetings.) Minneapolis-based General Mills, known for Wheaties and other long-established breakfast cereals along with Betty Crocker cake mixes and Yoplait and Columbo yogurts, also uses its R&D wing to explore new products and markets.

Jim Lawrence, CFO at General Mills, recalls sitting in on several meetings in mid-1999 when a ventures group suggested the company explore the idea of entering the soy beverage market. The impetus was clear: While the food industry overall grows about 2 percent or 3 percent per year, wellness foods, such as soy products, showed the potential to grow 10 percent or 20 percent annually, according to the Hartman Group, a Bellevue, Wash.-based market research company. More research showed that many consumers were interested in the idea of soy milk but were far from loyal to any brands that were currently on the market. If a new, better tasting soy milk came along it could gain wide acceptance. That was a key condition, Lawrence says. “In new ventures like this you want to offer a better, differentiated product that has a good chance to be a category leader. It isn’t very attractive to be number four or number five in a new market. You get into it to be one of the top two products.”

The call then went out from Minneapolis to Wilmington, Del.-based chemical maker DuPont, says Danny Strickland, senior vice president of innovation technology and quality at General Mills. The talks that led to 8th Continent’s founding began, with both sides recognizing the other’s strength. J. Erik Fyrwald, DuPont’s nutrition and health vice president and general manager, says his company needed expertise in connecting with consumers entering a market with tremendous growth potential. Strickland adds that the parties saw they would be stronger together in what was for them new turf. “Sometimes you go into an opportunity knowing it’s an opportunity, but you can’t predict every twist and turn in the market in advance, so you make sure you have a solid base of competence,” he says.

Soy Cultures

The deal set up 8th Continent as a 50-50 partnership. DuPont and General Mills would each provide half the new company’s staff of about 20 and half the startup seed money. The partners would halve the profits. “If they’re set up the right way, joint ventures have the advantage of being more nimble than their parents. We hope that’s the case here,” says General Mills’ Strickland. “This one has the resources and the strengths of its parents with the ability to be quick and adaptive in the marketplace.”

That’s the theory behind the organizational model, certainly. Carrying it out, creating the work environment necessary to make 8th Continent a success will be the big challenge, says Richard Leider, founder of The Inventure Group, a Minneapolis-based corporate leadership consultancy. Leider has worked with 8th Continent’s Lutz on management practices. “This is less about soy and more about culture,” Leider says. “It’s an experiment in reinvention. How does a corporation reinvent itself and its talent to be more competitive in a new economy? That’s what’s happening here.”

Finding those answers takes a clear-eyed view of 8th Continent’s situation, Lutz says. As he sees it, mapping out sales and marketing plans and leading his group are easy compared with his overarching mission to push back against two enormous and established bureaucracies and teach them both about entrepreneurial philosophy. And while 8th Continent gains management experience from its DuPont- and General Mills-appointed board of directors, neither company is widely seen as having entrepreneurial incubation experience. “A lot of the great General Mills [sales and marketing] fundamentals apply very well to what we’re trying to do, but because we’re developing new plans for markets with low [consumer] penetration, some of the traditional approaches don’t work as well,” Lutz says. (One notable victory: The company’s name, 8th Continent, refers to a new-age concept describing one’s physical health and well-being. The name stuck in spite of early protests from the corporate parents, Lutz says.)

Two entrenched bureaucratic organizations gave 8th Continent its mandate to create “an entrepreneurial team out of people who have been very good at working within their bureaucracies,” says Leider. In addition, Leider says, Lutz and his team are “supposed to lead in an entrepreneurial environment, one that requires imagination and speed, which is completely counterintuitive to both mother ships. Historically, bureaucracies don’t foster entrepreneurs, they kill them.” What Lutz has going for him, says Leider, is that “he isn’t a prototypic management type. He moves fast and is willing to make as many mistakes as he needs to in order to learn and find business patterns that will work.”

The corporate parents say they understand the job of Lutz and his team is to make waves, to get things moving. “In these big companies we have a lot of things to work on every day,” says DuPont’s Fyrwald. “Cutting through that clutter and getting our attention and getting us to feel the excitement is something Scott [Lutz] does particularly well.”

In trying to do something new, 8th Continent faces a familiar swim-against-the-current challenge, says George Abide, president of The Abide Idea Co. in Minneapolis. Abide assisted 8th Continent with its launch. Innovators “are constantly being told, ’That’s wrong’ or ’That’s not how we do things’ or ’That’s not protocol.’ But discomfort is the sign of innovation,” he adds.

One other important 8th Continent quality is that it will keep its mother ship ties. General Mills’ Lawrence says 8th Continent must provide repatriation for its employees who went to the startup and gave up a clear shot at management. These workers need to return to their careers at General Mills and DuPont, something Lawrence says the companies are working on.

Lutz says time will sort out issues like that one, but he doesn’t expect every question will have a clear resolution. “I can really never imagine a day when the two companies, General Mills and DuPont, will be harmoniously aligned on everything. That would be naive, and frankly it might not be healthy.”

And healthy is where this all began.