Archive for January, 2014

Good Advice – 2014

January 5, 2014

If you are starting a new company in the food/beverage space, here is some good advice from our friend Gerry Khermouch, Editor of Beverage Business Insights. While Gerry has nailed it, from our perspective, I would add one more – make sure you enjoy what you do…..if you don’t have passion, it is almost impossible.

As we usually do with first issue of new year, Beverage Business Insights offers some hopefully helpful resolutions for entrepreneurs trying to navigate around shoals of increasingly perilous bev biz. Once contrarian, these rules now seem well on way to becoming accepted wisdom, judging by similar advice proffered by experts at industry pow-wows like BevNet Live lately. As always we credit the insights to you, our readers, who’ve been so good about communicating your hard-won knowledge to us at BBI.

Better to be slightly starved of capital than over-endowed. Having not-quite-enough capital forces you to focus on key priorities and let distractions go. By contrast, too much capital almost inevitably fosters waste. Besides, once retailers, distributors and prospective new hires know you have the dough, their hands come out. So try to keep the round modest. Don’t let the institutional guys talk you up by too many millions.

Make your mistakes off-Broadway. There’s much to be said for foregoing the national landgrab and its concomitant capital raise in favor of starting small, in a market or two, preferably your backyard. Until the big Bev Bust of 08, not many paid it any mind, tho. By staying contained to a single region or channel, you can figure out what makes your brand tick, while staying out of the spotlight and not getting tarred as a failure while you work out the inevitable kinks. You’ll burn through less capital and less credibility if you make your mistakes locally, not nationally.

Learn to say no. “Getting to Yes” may be the name of an evergreen negotiation handbook, but “getting to no” is a better ambition for bev entrepreneurs to harbor. Learn to say no to big distributors you won’t be able to adequately support, and to retail chains (especially Walmart) where you’ll get lost on a bottom shelf and endlessly chiseled for pricing concessions. Tho audacious moves into the likes of Walmart seem to have worked out well for some intrepid bevcos, such as Vita Coco, the recent annals of troubled bevcos are filled with those who outran their coverage. If you stay contained within your chosen channel or geography and still manage to show accelerating off-the-shelf velocity, those other distributors and retailers (and capital providers and strategics) will only want you more, on your timetable.

Don’t be overawed by the big systems. The Coke, Pepsi, Dr Pepper Snapple and beer systems are finely tuned machines for moving high-volume, high-velocity products at affordable price points through the chains. That doesn’t mean they’re right for you. Big systems seem to work best for big brands. For smaller, premium brands, their default reflex, at the least sign of resistance, is to hit the 10-for-$10 button (or worse). Even if you do partner with one, maintain flexibility over what distribution option you employ in a given market until you’re further along. As a corollary: don’t be so dazzled by the resumes of big-company vets. Their credentials may be only remotely relevant to your own needs – unless your overarching strategic aim is to cook up those 10-for-$10 deals with large-format retailers.

It’s better to underplay than overplay your nutritional claims. We’re in an era of heightened regulatory scrutiny and class-action litigation and, given the excesses of the recent past, can’t really claim it’s undeserved. So you’re better off underplaying your nutritional and functional claims than overplaying them – that can only increase the likelihood of unwanted attention from regulators and sleazy lawyers, and won’t do as much as you think to impress jaundiced consumers.

Think strategically about the strategics. If your main game plan is to launch your product, fake it for a year or two, and get taken out by Coke, Pepsi or DPS at a nice premium, then you shouldn’t be in this biz. Figure you’re going to be in the game for a while, and think of strategics as cos that offer real help in staying in the game. That might mean less easily defined partners, from overseas firms like Tata to family funds like Verlinvest and Emil Capital to well-connected incubators like LA Libations and MetaBrand, not just KO, PEP and DPS.

Stop pounding on the DSD guys already. True, some DSD distributors are grasping, whining, endlessly finagling operatives. (That’s what makes them so much fun to have a beer with!) Maybe they really aren’t right for your brand, at least at the earliest stage of development or in the channels you’re targeting. Fine. It’s worth keeping in mind, tho, that there haven’t been any shelf-stable brands that have achieved megasuccess without going through the DSD network during their prime growth phase. So pick a limited # of DSD partners – maybe just one – make sure you’re on the same page, and see if it can work for you. Like democracy or America’s Got Talent, it’s sloppy and occasionally unsightly, but nobody’s found a better way.

Stand for something, from the start. We don’t buy that old saw that certain categories – tea, coconut water, energy – are tapped out, with no room for new entrants. Nor does innovation have to mean employing some earth-shattering new ingredient that sounds like a by-product from an oil refinery. As existing brands move through their life cycle, there’s room for reasonably straightforward brands to emerge, even without a lot of bells and whistles. But that only works if your brand stands for something, right from the outset. Trying to add on values or personality down the line is way harder, and less likely to be convincing to consumers.