Archive for April, 2010

Living With Less

April 1, 2010

In the Beverage Business – as in life – Money is over-rated

It’s Friday afternoon, I am tired from this week’s beverage wars and feeling a little worn-out.  A few years ago I started a consulting business to help emerging beverage companies with a former colleague from Coca-Cola, Gordon Hill.  We had just finished 25+ year careers with one of the major beverage companies and were looking for something different to do that would be fun and could leverage our knowledge of the beverage business.  “Why not help some of the countless new beverage companies out there?” we thought.  With all of our previous years in the beverage business we thought we could help someone trying to make a name for themselves, maybe offer some insight here or there that would help – after all we introduced Diet Coke back in 1983 didn’t we?  That must surely count for something. 

While much of our previous experience and work skills were helpful to these companies, we were surprised by how much we had to learn as we moved from a large company with immense resources to an entrepreneurial environment where everything had to be created from scratch.  We had no idea what being entrepreneurial really meant.

Over the past 5 years we have had the chance to write numerous business plans for these companies, and I have read or assessed countless more.  We have also had a chance to observe hundreds of companies in the marketplace – good and bad – and learn from their experience.  I can’t tell you how many CEO’s or plans I have read that have echoed the same thing – “If I had $5 million more in seed capital, venture capital, strategic investors, etc. – you name the source – I could really scale this business and create a $500 million revenue business faster than Vitamin Water.” 

After observing the industry for the past ten years, what has worked and what hasn’t, I can tell you, unequivocally, that money is overrated! 

I was at a conference a few years ago where Clayton Christopher spoke.  He is the founder and CEO of Sweet Leaf Tea.  They had just received $18 million in funding from Catterton Partners, a venture capital firm.  Clayton remarked to the conference audience that, if they had received this funding in their early days, they would surely have failed.  He felt that working without significant resources over the years helped them immeasurably in their development.  It forced them to spend wisely along the way and to learn to do more with less.  It helps foster a culture within a company to conserve – one that always pays off down the road.   

One of the common mistakes we see companies make today is that they expand too quickly.  Gain a little success and suddenly CEO’s want to scale the business as quickly as possible.  This is a mistake, from our perspective.  I guess it is human nature in this uber-competitive society to want to be the fastest to $1 billion in revenues.  Or maybe it is because many CEO’s have the feeling that some competitor is breathing down their backs, looking to overtake them as if there will only be one success in each category.  ‘First mover advantage’ is a term that is way overused.  I don’t see Monster complaining that Red Bull has built an impregnable fortress, or that Honest Tea couldn’t be successful where Lipton, Snapple and Arizona had carved significant market presence before them. 

There is an attitude among many startups that ‘unless I cover the US that I will lose the race’.  What most of these companies don’t understand is that they are in the business of creating daily drinkers.  As such, we believe that if a company wants to grow its business, it is much more efficient to find new consumers in existing markets rather than open up new markets.  It is easier to ‘mine’ new drinkers where the product is already available rather than have to create awareness and trial in new markets.  There is plenty of time to expand – but do it when the time is right.  If you are going to err, do it on the side of conservatism.  It didn’t hurt Coors all of those years to only be sold in the western part of the US. 

Here are some tips we give to our clients – consider it our 9 rules for beverage entrepreneurs: 

1)  Know your target consumer – it will help you focus your resources.  Most companies write their business plans telling themselves – and their investors – that everyone will drink my product!  8 years olds will love this drink because ___ (fill in the blank), women 34-60 will love it because _____, men 65-80 will love it because ____, the morbidly obese will love it because ____…I think you get my point.  Even the most broadly consumed brands target their consumers with laser-like precision.

2) Focus your efforts – we call it a ‘footprint’ market.  You are better off with 250 customers in one market than 5,000 nationally.  You can build scale in one market.  Too many beverage companies we know take every call from every distributor and retailer.  No offense to Akron, but not all markets are important.

3) Find the early adopters – and get them to buy your product – demos and sampling are a part of every plan – but they are misunderstood.  The best sampling is when people buy your product.

4) Get some metrics – know what you are looking for and track it.  If convenience stores are important – then track your per store volume by month.  It will be the best indicator – to you and distributors, retailers and investors – that your brand has traction.

5) Mine deeply – it is easier to find new daily drinkers in existing markets than to expand.  There will be plenty of time to introduce in Akron.

6) Expand carefully – almost as a last resort.  What’s the rush?  Do you think you won’t be a candidate for acquisition by Coke or Pepsi if you aren’t available in 100% of the US?  Relax,

7) Replicate your model – we call it ‘colonization’.  Take what you have learned and repeat, repeat, repeat. 

8) Don’t be afraid to get your hands dirty.  You have to get out there and lead the charge.  I have met too many founders who think they need to outsource the CEO’s job – believe it or not.  You are the best salesperson for your company.  Lead the charge with consumers, distributors and retailers.   

9) Last, but most importantly, enjoy the ride!  It’s not the destination that makes all of this worthwhile, it’s the journey.  Remember, we don’t have yesterday anymore, we don’t have tomorrow yet, but we do own today.  Carpe Diem!

We don’t mean to trivialize the importance of capital.  You do need to produce product, it is very expensive to launch and sustain new brands, no question.  We just believe that learning at an early stage of your development to ‘live without’ will build skills that will serve you better in the long run.  And in the end, didn’t the turtle win the race anyway? 

Note: The author is Managing Partner of GBS Growth Partners, a group specializing in helping emerging beverage companies.  He admits he has been to Akron many times and has nothing against the city.