High-Hanging Fruit
Page 15
GETTING OUR MOJO BACK
We ended 2006 with $440,000 in sales and a loss of $200,000, which was a far cry from the $1 million in sales I thought we could hit. But this was double from the previous year, and Big Geyser was now distributing an average of 2,000 cases per month, double as well from the previous summer. I had again failed to attract any new investors and for the fourth time my existing investors came through, though this time with only $134,000 and a sharp message: The well was dry. Any additional investment would have to come from others. But we were building strong momentum and I was determined that in 2007 we’d finally crack the elusive $1 million revenue hurdle.
Two events brought new attention to Zico in early 2007, and neither had anything to do with the brand or me. On the first of February, Coke announced that it had signed a deal to purchase Fuze Beverage, maker of enhanced waters and teas, for a rumored $250 million. Fuze wasn’t in the coconut water business, but they were definitely in the New Age beverage category and the deal proved that the big beverage companies were seriously worried about all the upstart brands that were chipping away at their soda sales. A few months later, Coke struck again with their purchase of Glacéau, the maker of Vitaminwater, this time for over $4 billion. The remarkable price tag was not based strictly on earnings but more for the company’s perceived potential. The price-to-sales ratio was astounding unless you were assuming that Vitaminwater’s upward trajectory would continue basically forever.
After the sale was announced, the New York Times ran a major business article with this lead: “If you set up a lemonade stand this weekend, you might consider stirring in something a little different . . . As American consumers shift away from soda, there is a growing demand for innovative beverages, particularly if they offer health benefits.” The Coke purchase of Glacéau, the article went on, “offered the most compelling evidence yet that coming up with a new beverage, or putting a new twist on an old one, can be lucrative.”
That deal definitely got people’s attention and sent the unmistakable message that there was gold in them there hills—new beverage brands could be worth fortunes. Who would be next? A few months later Vita Coco announced it had sold 20 percent of its company to a prominent, deep-pocketed venture firm out of Europe called Verlinvest for $2 million.
If I was going to catch this wave of interest, now was time to step it up. With the amount of money perceived to be available, opportunities opened up. I was able to recruit some very respected players in the industry to form a board of advisors for Zico, including Jim Tonkin, who had literally grown up in the beverage industry as the son of a bottler (sometimes affectionately called SOBs) and was a consultant for numerous beverage start-ups; and Jack Belsito, the former president of Snapple I had met through some industry connections.
The summer of 2007 brought strong gains on all fronts, and it was just in time. Vita Coco was making great strides with its new partnership with Exclusive and spending that money they raised on getting more and better distribution in New York. Just weeks after Maura and I had seeded numerous key Hamptons accounts, Vita Coco followed on our heels offering outlandish giveaway deals to try to muscle us out of our precious yoga studios and new retailers. Every beverage shelf I turned to seemed to be sporting containers of Vita Coco. The battle was definitely on.
BIG GEYSER MEETING
Despite the excited industry buzz over which new beverages might follow in Vitaminwater’s wake and the strong traction we had developed over the summer, I was still struggling to get the full attention of Big Geyser and their route owners. In October of 2007, I couldn’t even get a five-minute speaking slot at their monthly sales meeting. I asked Jerry Reda, the Big Geyser COO at the time who coordinated the meetings, and all I got was, “Mark, not this month but definitely in the spring.” I’d been getting this sort of brush-off for two years and counting.
I attended the meeting anyway, just to show my face and hopefully get a chance to talk to some of the guys informally and of course to give away some more free cases. On my way out of the building I ran into Lewis Hershkowitz. He said, “Mark, good to see you. I like what I’m seeing from Zico. I’d like to sit down with you, Jerry, and Dan, so please come to my office in about forty-five minutes.” Lewis was in the process of taking over the operation from his dad and if he wanted to meet, I was going to be there. An hour later, I was ushered into Lewis’s office by his assistant. In the room, I saw Jerry Reda, Dan Reade, who reported to Jerry and ran the five boroughs and was a big Zico fan, and Steven, Lewis’s brother who ran customer service and also believed in Zico.
“Mark, great to see you,” said Lewis, looking up from a spreadsheet. “Take a seat, we’re just trying to figure out what the hell is going on with Zico.”
He looked back down at the documents on his desk and paused. “So,” he said, “who the hell is buying all this crap?”
I opened my mouth to speak but when Lewis looked up, he was directing the question to Jerry.
“Well, we’re doing decent volume each month with a positive upward trend,” he began, looking at his own copy of the spreadsheet. “Some drivers are killing it, but others haven’t sold a single case. It’s doing well in Fairway and numbers are up at Whole Foods. It did well in the Hamptons this summer, too.”
“I can see that,” Lewis interrupted. “What I want to know is who is buying this shit and why? We’re selling over four thousand cases per month versus two thousand last summer and one thousand the summer before. Zico is our fastest-growing brand. Who the fuck is drinking all that coconut water? Plus, from what I hear, Vita Coco is doing almost as well. If we can keep it growing at this rate, that’s a real business and could even become a whole new category, but we have to know what’s working and why.”
They went back and forth for a few minutes between Jerry, Lewis, Dan, and Steven, but no one had a complete picture.
“Excuse me, gentlemen,” I finally interrupted. “Would you like me to tell you who’s buying all this ‘shit’ and why?” I said, holding up a Zico carton.
They all looked up at me as though they’d forgotten I was in the room. “Okay, Mark,” Lewis said, “we’re all ears.”
“Lewis,” I began, “you told me we needed to build this brand ourselves for a while. Jerry, you said to pick a couple route owners and win with them. Dan, you told me which accounts really mattered, and Steven, you always said we needed to find the right consumer base. Guys, I followed the playbook you outlined!”
I then went on a ten-minute explanation about what strategy we followed. I told them about starting with the Bikram yoga studios. I told them how we worked with the route owners who serviced those studios and helped them expand to stores in the surrounding neighborhood and how we would execute street sampling, in-store demos, point-of-sale displays, public relations, events, social media, and other strategies to educate the right consumers. I explained how the yoga students were drinking Zico as a post-workout recovery drink and loved the fact that it was all natural and high in electrolytes. They were our core audience and the type of customer who loved to tell people about new products they believed in. They were becoming ambassadors for the Zico brand. “Okay,” said Lewis, “that’s great, but how many yoga studios are there?”
I said New York had about a dozen Bikram studios, maybe fifty including other types of hot yoga. But yoga was more than the people who practiced it every day. It was now a lifestyle. Lululemon was building a billion-dollar brand riding this cultural trend. Yoga was also just the tip of the iceberg. This past summer, I told them, we began to expand distribution to gyms, dance studios, bike shops, as well as natural and gourmet stores. I explained that we had reached out to nutritionists, high-end personal trainers, yoga instructors, and spinning instructors, and they were talking about Zico to their audiences. That we were expanding our marketing to endurance athletes and reaching them at running, cycling, and triathlon events.
“For once, someo
ne listened to me! That’s impressive. I like it,” said Lewis.
“Consumers aren’t just more knowledgeable about ingredients, they are increasingly becoming attuned to the information that their bodies are sending them,” I said. “Exercise these days isn’t just about making your body look better; it’s about feeling better both in your body and mind. That’s what’s drawing people to yoga and it’s also why people are moving toward natural, no-sugar-added, and lower-calorie drinks like Zico. People aren’t just drinking Zico; they are experiencing the impact on their bodies and they are getting pretty excited about the results. This goes way beyond yoga. There is a much broader audience that is ready for this trend.”
“So where do you go from here?” Lewis asked. “Who’s funding this operation anyway and how big is your team?”
“Our full-time team is three,” I said, “which includes me. We have six demo people we bring on occasionally, nine if you include Maura and our girls, who do events regularly. We’re on pace to hit a million dollars in sales this year and we’re ready to step on the gas but need to raise more money.”
“You’re definitely going to need a lot more money and a real team. And you better move fast, those Vita Coco guys are really aggressive. Why haven’t you come to us for help sooner?” Before I could answer, Lewis continued, “Come back to us in a couple weeks with a plan for 2008. No pie-in-the-sky bullshit about cultural trends. Spell out how much money you’ll need, who you’ll hire, what accounts we should go after, what marketing support you’ll give us, and all that crap. Work with Dan first and then Jerry and then bring it to me. If it looks right, Big Geyser might invest and I’d highly recommend you give a chance for some of our senior team to do so personally as well. No one wants to miss the boat on the next Vitaminwater, but you’ve got to convince us you are in that league.”
CHAPTER 8
RUNNING THROUGH WALLS
Over the holidays in 2007, I was putting the finishing touches on a plan to take us from $1 million in sales that year to $4 million in 2008. Given Big Geyser’s renewed interest in the brand, I believed most of that growth could come from New York itself and that we could take our monthly case volume from four thousand to twelve thousand in that city alone. To do so I believed we’d need a team of at least four: a manager and two area sales managers (ASMs) in addition to Chris plus a field marketing manager to run events, demos, and guerrilla marketing. We would hire a crew of interns to ramp up our coverage during the summer, rehire a public relations firm, and buy or lease a couple of vehicles for street demos and events. We’d hire one more person to help Ross, a young United States Naval Academy grad I had hired to handle all the back office operations.
The plan for 2008 was not only about New York. It included continuing to expand into Whole Foods and other natural food stores, online through Amazon, direct to yoga studios across the country, and to launch in a few to-be-determined markets later in the year. But most of the resources would be focused on New York. To fund all of those expenses and meet that goal, I estimated we’d need to raise $1.5 million.
I walked through the plan with Dan Reade from Big Geyser, who helped me refine it, and then I brought it to Jerry Reda. Jerry listened, asked some questions, and finished by saying, “You need more people. Three ASMs is just not enough.” I responded, “I think this is the right number to start with and we’ll build from there. Don’t forget we’ve included at least six summer interns and we may be able to flex that up.” Lewis echoed Jerry’s concern that we needed more people, but in the end agreed we had a working plan.
Big Geyser as a company, plus Lewis, Jerry, Dan, Steven, and a few other executives individually, committed to invest in the new round if we were able to raise the full $1.5 million. Smart investors know their money may be worthless if the company is not fully capitalized, so they often make their commitments contingent on you hitting the entire amount you want to raise. My advisers Jim Tonkin and Jack Belsito both committed to invest and agreed to serve on our board of advisers (which would later morph into a board of directors), along with Lewis from Big Geyser and friend and investor Peter Brodsky. Those investments also signaled a huge vote of confidence that industry insiders thought Zico was going to break through. Better yet, I didn’t even have to brag about the investments because in the incestuous beverage industry, word traveled fast.
By mid-January I had commitments for $1.8 million from a total of thirty new investors and for the first time was in the fortunate position of deciding to take more money than planned or turn people away. We took more because I believed it was smart to raise money when I could, even if it meant taking slightly more dilution to our ownership stake. A little extra cash when used well (or conserved) can go a long way to ensuring you stay in business and deliver growth. And I had been through almost running out of money enough times now to know you always need more. Investors came in between $25,000 and $250,000, with an average of about $50,000. Typically, taking anything less than $25,000 is more hassle than it’s worth and I suggest entrepreneurs set a minimum of $50,000 or even $100,000 from any investor and make exceptions only rarely for highly value-added individuals. Among the new investors were industry vets: Tom Scott and Tom First, founders of Nantucket Nectars; Seth Goldman, founder of Honest Tea; and a number of current or past executives from Vitaminwater, Fuze, and Muscle Milk, all of whom had seen the growth of Zico at Big Geyser firsthand. The owners of Bikram Yoga NYC studios in New York and Funky Door Yoga in Berkeley, California, knew how well Zico sold in their studios and excitedly invested as well.
What made this run of good luck more remarkable was that it was happening in the early months of 2008, the same time period that the world economy had basically gone off a cliff. Although financial markets were in terrible shape and liquidity had completely dried up for many businesses, I was able to raise $1.8 million in sixty days when I had spent the last three years raising less than $500,000. What changed?
First of all, I now had a real story to tell investors. Zico wasn’t just a pipe dream anymore. We had data, information, and a track record we could point to as evidence of traction. Second, I was targeting industry insiders for funding: people who knew the business and could see what was happening and understand the potential of Zico. Third, we had momentum on our side. With commitments from Big Geyser and a few other early investors to get the ball rolling, I was able to speak to people and not hard sell: I shared the facts and was giving them an opportunity to invest alongside other knowledgeable investors. Finally, I had regained my own confidence. I had been humbled and a little beaten down by the business over the previous years, but now my demeanor showed I was going to do what it took to get through any challenges we would face. I found that smart investors appreciated that I was battle worn and realistic about the likely risks.
TEAM CAPTAIN
At the same time invested capital started coming into the business, I was figuring out how to build out our team. I knew the next hire was critical and I wanted to make sure it was someone who could lead our efforts in New York. With Coke’s purchase of Vitaminwater, I assumed some of their employees would be looking to leave. Most of the ones I knew did not strike me as the Coke corporate types, so I figured they’d be looking for their next adventure. I had my eye on one guy in particular: Andrew Griffiths. At the time, Andrew, or Andy as he went by, was responsible for all of Vitaminwater and Smartwater’s sales in Manhattan and a few boroughs. He managed a team of at least ten, almost triple that including summer interns and blitz events. He was a strapping, good-looking guy in his early thirties, a constant jokester. When he walked through Big Geyser’s warehouse it was fist bumps, high fives, and verbal sparring all around. Zico definitely needed some of his streetwise mojo. Well if you can’t beat ’em, I thought, you can hire ’em. Jerry Reda had hinted to me that Andy was looking around and I better move fast. I called him and asked him if we could meet the next afternoon near his home in Hoboken, New Jersey.
We both ordered a beer (local craft IPAs of course). We didn’t talk about the job at first but had a more general conversation about our lives. I told him about my family and he talked about his girlfriend, Dana, and his passion for the outdoors, particularly kayaking and snowboarding.
“What’s your dream?” I asked. “Where do you want to end up?”
He told me that in the short run he wanted to work for a brand he could be excited about, help scale, and have some fun with. He expected a decent salary with a piece of the upside if things really took off. He didn’t want to be VP of sales—too much stress and pressure.
“And in five years,” he said, “honestly I want to be where the snow is softer, the rivers are faster, and the waves are bigger.”