High-Hanging Fruit

by Mark Rampolla

  “Guys, look, I want to cut to the chase,” I told them after we got seated. “We are not in a good situation, and I need to take some drastic measures to keep the company afloat through the winter. I need to cancel our contract and move out of the office. I’m also going to let go of everyone but Chris. I’ll respect the thirty-day clause in our contract and pay you rent for that period and you’ll still have the equity you earned in Zico, but believe me, I’m doing this so it’s worth something someday. I don’t blame you. I was not realistic about what it would take to get this business off the ground and how much I didn’t know about this industry.”

  “Look, Mark,” Roberto said with a sigh, “we had a feeling this was coming and have already talked about it. We totally understand and feel terrible ourselves that we were not able to generate the level of sales we hoped. Don’t worry about the last month. We’ll figure it out. Keep every penny in Zico and keep at it. Continue to use the office as long as you need to get settled somewhere else. We want you to win! By the way, can you really find something cheaper than this?”

  “Yup,” I said. “It’s at 435 Grant Avenue, Suite A, otherwise known as my garage. I’m going to redo the loft space above and that will be the new world headquarters for Zico.”

  “We love Zico and you and Maura so we will do anything we can to help,” Jose said. “Just let us know. And if you have to pull some stuff off the shelves that doesn’t make its sell-by date, drop it by the office. I’m now so addicted to Zico, I’m afraid to live without it!”

  “Unfortunately, but fortunately for you, we are swimming in product so you can drink and share what you want. Please get more people addicted. That’s what we need.”

  That same day I gathered Juan, James, and Jhonnie together. I explained what was happening and about my conversation with Roberto and Jose. I said I needed to let them all go. Again I told them that it was nothing they did and that the blame was squarely on me. I told them I’d pay them the two-week severance that was in their contract, plus an extra month so they could transition while looking for other jobs, and that I would be happy to give them all strong references.

  Maura was sick about this. Somehow the excitement of a year ago and the expanding of staff were so short-lived. It physically pained Maura and she felt we had let our team down. I wasn’t just having to cut jobs at a company. I was having to live with decisions I made for our company, having to change course, and letting go of individuals who were not only employees and contractors, but friends.

  In general, our team took the setback better than I did. The economy was still strong (actually radically overheated as we would soon learn) and they all had new jobs within weeks. They were on to new challenges while I was left with the sense that I had failed them, Maura, and myself.

  The Zico team now consisted of two, Chris and me, working at our “global headquarters.” Chris was the only one I had hired who had any real beverage experience prior to Zico as a salesman for New York’s largest beer distributor. He had taught me a lot and could handle himself at Geyser, which was what I really needed.

  We now had a rent-free garage office and total expenses of less than $25,000 per month. At a minimum we needed an additional investment infusion of $300,000 to get through the next year. After placing some orders for more Zico to get us ready for the spring, we were down to $50,000 cash and some accounts receivable but were owed more than that to vendors. Technically bankrupt yet again.

  I had warned our investors in December of 2005 that things didn’t look good, so in January 2006 I arranged a conference call with all of them to explain what needed to happen. I told them the whole story—the good, the bad, and the ugly—and took responsibility for not achieving what I had planned. Within a few days, the core group of investors came through for the third time with $300,000 at only a slight increase in valuation from the initial financing round. With this infusion our ownership stake fell yet again, to below 40 percent.

  I still believed in coconut water and in Zico and knew that we really needed $1 to $2 million to even begin to capitalize on the opportunity just in New York alone, but $300,000 would have to do. And being lean and mean allowed me to breathe a little on the home front. Now that we had some money in the bank, I could draw a modest salary, though a fraction of what I made before. We were still very tight. Living in New Jersey was a fortune relative to El Salvador. Looked like it was Target pajamas and candy for Christmas again this year; no big presents were in our budget.

  THE GARAGE

  Imagine a cold New Jersey night in late March 2006. I’m in the garage of our family home packing up cases of Zico for shipment to Bikram and other hot yoga studios in cities I’m hoping to expand into—eventually. I personally built out the loft area of this 1920s two-car detached garage to become the global corporate headquarters for Zico, running wiring, insulating the rafters, laying the floor, hanging drywall, building desks, painting, etc. The lower part, where we used to park our cars and store bikes and camping gear, is now packed to the rafters with pallets of Zico, boxes of T-shirts, banners, beach balls, posters, an easy-up promotional tent, and all the pieces of our trade show booth.

  Of course, working a start-up business out of a garage has some cultural credibility in America. The garages where Apple and Hewlett-Packard were founded have both been named historic landmarks. But as you grow, you’re supposed to move out of the garage. Zico and I seemed to be going in reverse.

  Dressed in an old winter coat, gloves, and a hat (did I mention that there was no heat in the bottom of Suite A?), I grab another generic brown box and expertly open and fold the seams and flip the box top down. Taping the bottom and flipping the box upright, I pack it with four cases of Zico. I add a hand-signed note card, one Zico T-shirt, a few sales brochures, and tape the top. I’ve often avoided bigger problems looming in the near future by simply putting my head down and just plowing forward. Tonight, I’m an automaton. No thinking. Just doing. I have this process so down I could do it in my sleep. Which is very near what I’m doing.

  One problem in the beverage industry is that, no matter how economical the packaging, the product is never lightweight. Why didn’t I launch dried coconut chips? It might be killing my back but in some weird way this manual labor is the best part of my day. I know exactly what to do, I can do it efficiently, and I can see tangible results. Each four-case box also represents a real sale, money that will be coming into the Zico bank account—a small countercurrent to the flood of money pouring out.

  Maura comes in from the side door and calls out loud enough to be heard over the Led Zeppelin echoing around the garage. “Mark, it’s nine thirty. You’ve been out here for hours and it’s freezing. Come inside and let’s sit down for a few minutes before you miss your window.” Her voice sounds upbeat, or rather it is meant to sound upbeat. After ten years together I know the difference. She knows how I need to be in bed by ten p.m. so I’m up by four or four thirty. “I’m almost done,” I say. “I had no idea it was so late.” I look back at the stack of blue Zico cases on a wooden pallet that used to be almost shoulder high and now has only sixteen cases on it. I then look at the stack of labeled brown boxes, each packed with four cases of Zico ready to ship out tomorrow via UPS to yoga studios across the country. What was an empty pallet just a few hours ago is now almost full.

  I ask Maura to give me ten minutes. I wanted to get through the rest of the pallet. “Okay,” she says, “ten minutes.” She knows me and knows when I get in this sort of zone I can go for hours, all night, even if it practically kills me. She first saw this side of me in grad school when I could work on watershed hydrology spreadsheets all night until I looked like a zombie. She knew I was working hard, but I’m sure she wondered if I was doing the right things. So did I. After all, was the best use of my MBA and experience from running a business with three hundred people to now be packing boxes in a garage at ten p.m.?

  I plow through the remaining cas
es. I want to end the day with the satisfaction of packing up a whole pallet of Zico: 250 cases. That would be my personal evening record.

  I finish up a half hour later—overly optimistic yet again. I turn off the music and flip off the buzzing fluorescent light. I get into the house and strip out of the dirty winter gear. The girls are long asleep and I join Maura on the living room couch in front of the fireplace. I ask her if she wants me to start a fire but she tells me not to worry about it, seeing how exhausted I am. I pour myself an Irish whiskey and we sit for a few minutes and catch up.

  One of the things I loved about Maura when we met, and for the ten years we had been together since, is she is one of the most positive, happy people I’ve ever met. She’d even laugh at her own jokes regardless of anyone else’s reaction saying, “My grandfather always said why wait to be tickled?” She isn’t laughing tonight and not very often these days. I know she’s depressed. She has reason to be. Heck, I probably am, too, but try not to even entertain that possibility.

  Coming out of the trance of work I had put myself in, the reality of our situation begins to come back into view. Just a couple of months ago I fired all but one of the Zico staff, canceled my contract with Jose and Roberto, and moved out of the nice office we had in Englewood Cliffs, New Jersey. Despite all these cuts we are still touch and go financially, both in the business and in our personal lives. Just as I can read Maura’s mood without any information being exchanged, she can read mine. “Mark,” she says, “do we need to sell the house?”

  Though our existing investors had contributed $300,000 at the beginning of the year, I know that is not going to last long, especially (back to the cash flow crunch) if we want to really grow. This year is going to be very tough and though Zico is gaining traction, if we have one misstep it could all fall apart. I don’t want to hide this from Maura. I couldn’t even if I tried.

  “We might,” I lament as tears stream down her face. “But we’re not there yet.”

  STREET FIGHT

  As if I didn’t have enough to worry about going into the summer of 2006, the competition with Vita Coco, the coconut water brand that had appeared almost simultaneously with Zico, was getting ever more intense. Talking to store owners and others in the industry, I began to piece together exactly who I was up against.

  From what I was able to gather, these guys were also outsiders to the beverage industry and, like myself, they were committed, passionate, and unconventional. I was told one of the founders, Mike Kirban, had founded a software company he still owned and could be seen most days gliding on inline skates from bodega to bodega with a backpack of Vita Coco pitching store owners. Hard not to like that sort of free-spirited dedication.

  Like me, they were relatively young, ambitious, and hungry as hell. In fact, they were younger, were not married, and had no kids. I’m not sure my MBA and corporate experience gave me any advantage, and perhaps it worked against me: these guys were scrappy, and in a street fight that’s sometimes all that counts. And they were clearly watching my every move. When I put up on our website the fact that each bottle of Zico contained “more potassium than a banana,” Vita Coco began claiming that their drink had more potassium than two bananas. Our claim was factual. Their claim was also true, if you happened to have two very small bananas. On one hand, the imitation and emulation was flattering; on the other, it was a pain in the ass.

  The guys behind Vita Coco seemed to have a different standard than I did when it came to being honest with consumers. In some of their early promotional materials, they suggested that coconut water could regulate intestinal function, detoxify your body, and boost your immune system and circulation. They hadn’t completely pulled these supposed properties out of the air—coconut water was touted as a folk remedy in these ways in Brazil, Thailand, and Indonesia. But American consumers (and the FDA) expected such claims to be backed up with science.

  These guys did have me worried. But I also felt that there were advantages to this rivalry. In fighting for publicity, retail space, and partnerships within the beverage industry, together we were raising the general awareness about coconut water. If a retailer was being pitched by two new coconut water brands, they were more likely to think that the product was worth paying attention to. The same dynamic would likely be true for investors, distributors, customers, and the behemoths of the beverage industry (like Coke and Pepsi) who might someday be looking to buy in as strategic partners or outright owners.

  Of course, retailers soon figured out that they could play us against each other. “Maybe we’ll put you on the shelves,” I was often told by store owners, “if you can give me more free cases than that roller-skating Vita Coco guy.” This was our new reality when negotiating with corner stores and major retailers alike. Buyers were pushing us to make increasingly absurd deals. If we offered a “buy ten, get two free” deal, Vita Coco would come back with “buy twenty, get five free,” which would then be countered with a “buy thirty, get ten free.” At this rate, we’d be giving our entire production away in a year. Zico and Vita Coco were playing a dangerous game of who could let the most blood.

  FLIRTING WITH ANOTHER

  In late 2006, I faced another challenge. My bestselling route owner, Steve Gross, who covered the Lower East Side of Manhattan and had shown me the ropes early on, was leaving Big Geyser to start his own independent distributorship. Knowing that few name-brand beverages would leave Big Geyser, he had to place his bets on some upstart brands he hoped to make into big sellers. He wanted Zico to be one of those brands and I was impressed by his enthusiasm and liked the idea of being a lead brand in his new business.

  The problem was my ironclad contract with Big Geyser. To go with Steve, I’d have to leave Big Geyser entirely and it promised to be a bad breakup.

  Steve’s offer wasn’t the only reason I was reconsidering leaving Big Geyser. The Whole Foods Markets in the New York area had recently begun to sell Zico, which Big Geyser was delivering. The brand was doing well enough in those area stores that the buyers at Whole Foods wanted to carry it in stores over the entire northeast region. But we faced one problem: Big Geyser didn’t cover the whole northeast, so Whole Foods wanted us to use UNFI, a leading national distributor of natural, organic, and specialty foods. And that would mean any retailer could order Zico through them—including New York retailers who also had accounts with Big Geyser. Per my Big Geyser contract, if they did that, I’d start racking up $10 or $20 per case in “invasion fee” charges. I could potentially expand to test new markets, but the cost of doing so might put me out of business.

  Given Big Geyser’s reputation and my personal experience “negotiating” a contract with them, I didn’t think there was a chance in hell they would work with me to find a solution. Figuring that I’d have to get out of my contract with Big Geyser regardless, I needed to know that I had a plan B before I told them the news.

  Steve and his new distributorship, Exclusive Beverages, was my plan B. The contract he offered me was much less restrictive than the one I had with Big Geyser. For Steve, I’d be a bigger fish (at least relative to the size of the pond). Steve and I kept our negotiations secret. I wasn’t going to sit down with Big Geyser unless I knew exactly where I stood.

  Finally, I met with Big Geyser to tell them I was leaving. In the meeting with Lewis, I explained that Whole Foods was a critical place to grow the Zico brand—the exact audience to become brand ambassadors to help spread to other markets. I wanted to keep building the brand in New York but the restrictions on my Big Geyser contract were making regional growth impossible.

  “So here’s the deal,” I said as confidently as I could manage, “I’m going to have to get out of the contract I’ve signed with you.” I told him I understood that I’d have to buy my way out—I calculated the figure at around $75,000 given our recent sales. “I’m not happy about this and you are not going to be happy when I tell you I don’t have the money to pay you now. B
ut I’ll respect the contract and we’ll just have to work out some sort of terms on payment. I will pay you eventually.”

  I paused as Lewis thought over what I had said. I don’t think he noticed that I was holding my breath. Everything I knew about these guys suggested that walking away from the contract and telling them that you’d pay them the money you owed them someday in the future wasn’t going to go over well at all.

  “Let’s not go ballistic here,” Lewis said finally. “I understand what you’re saying. What if we give you a waiver for UNFI? If you can commit that they aren’t going to undercut us in price, then we can live with it.”

  I was speechless for a moment. Here was the man who, a year before, wouldn’t let me change a single comma in their ironclad contract. Now he was telling me that I could sign with another distributor who might sell into their territory? I guess the goodwill I had built up was worth something after all. It took only a single day to have a one-page revision signed by both parties.

  When I told Steve that Big Geyser had given me an out and that I wasn’t going to jump ship and sign with him, he took it very personally and felt that I had lied to him. The phrase, “it’s just business,” is often the excuse for bad behavior. But in this case, I hoped that Steve might see that I was honestly—and without malice—choosing between two competing options. Nothing I could say to him seemed to matter; for Steve, my decision was a betrayal that would, he promised, be paid back in kind. About a week later, I saw the first case of Vita Coco come off one of Steve’s trucks on the Lower East Side.

  I realize now I should have been much more up front with Steve and set his expectations appropriately. I should have been clearer that I could not commit until after the Big Geyser meeting. Truth was, I had just not seen the possibility that Big Geyser would be flexible. As Warren Buffett once wrote to his top managers, “We can afford to lose money—even a lot of money. But we cannot afford to lose reputation—even a shred of reputation.” I had lost some of mine, and was about to pay a very heavy price when Exclusive and Vita Coco joined forces to make a fantastic team of scrappy, small companies fighting the mighty Big Geyser together.