High-Hanging Fruit

by Mark Rampolla

  “All right, just so everyone knows up front,” Matthew continued. “Don’t assume you get much from us early on. Distribution, marketing support, etc. All of that is really hard if not impossible when we’re only minority investors.”

  I said, “Well, since you all laid out what you want, here’s what I want. I want to see coconut water go mainstream across the world. I want to see Zico become one of the leading brands and stand for something good in the world. I want to see a major sustainable positive impact on the countries that grow coconuts. I want to give my investors, team, and my family a chance to benefit from all of this. And I’d love nothing more than to see Matt Damon drinking Zico in his next movie and see Coke make billions selling something healthy.”

  We all sat there for a few minutes trying to decide how to proceed. Finally David Moore, Jesse’s adviser, said, “I think what we’re all saying is it’s your ball, your bat, your field, Mark; we just want to play ball. How can we be on the team?”

  I took out a marker and started writing on a whiteboard.

  “Let’s sketch out what everyone wants and what each party can bring to the table. I need to raise $15 million to stay competitive and keep Zico front and center in this quickly growing category. Jesse, I know you’re going to want something for joining and some upside. So we need to figure that out. You’ll facilitate the opportunity for your celebrity friends to invest, but like you said earlier we need to reserve some equity for formal or informal endorsements.

  “I think Coke should be in for half of the capital but no more at this point. Some of my investors are going to want to contribute more, and I’d like to give them a chance to do so.

  “Coke is going to want some future rights to own it all so you’ll have your path to ownership. But we need runway, autonomy, and the ability to make decisions on our own. I know you agree that if Coke tried to take over distributing and making deals for Zico, we’re going to get lost in the machine. Within a few years, yes, but we agree you’ll stay on the sideline at first.”

  The deal that eventually came together ended up looking very much like what we brainstormed together that day. Coke ended up investing the majority of the $15 million we raised, with Jesse, his friends and celebrities, and my existing investors contributing the difference.

  The stakes were high. I knew that accepting Coke’s help would eliminate a variety of other options. I knew that they would have the contractual right to buy us, when we hit certain sales figures, and that meant that there would be no IPO in my future and I wouldn’t be handing the company down to my girls to run. There was the possibility that I might still run Zico under the auspices of Coke, but I would eventually be giving up ownership of the business I had spent the previous five years building.

  In June of 2009 we signed a letter of intent with Coke that laid the groundwork for a three-way investment deal that would put $15 million behind Zico. The signing of that letter of agreement started a forty-five-day quiet period where all parties could evaluate the plan but no one could actively pursue other deals. For me, that meant not courting other investors or strategics, and for Coke it meant that they couldn’t actively negotiate with Vita Coco or one of my other competitors.

  In August of 2009, Jim Tonkin and I flew to Atlanta to work out the final details of the deal and structure. With so many players involved, we agreed to go on a communication lockdown to finish the deal. No cell phones or consulting with outside parties other than lawyers. We wanted to keep this as quiet as possible until we closed and could make an official announcement since rumors were already flying around about the pending deal.

  On the second day we were making good progress and were about to break for lunch, when Mike Ohmstede of VEB came into the room.

  “Have you seen the news?” he said. We looked up and shrugged. “This just came across the wire,” he said as he handed around copies of a press release. I looked at the headline: “PepsiCo Agrees to Acquire Amacoco, Brazil’s Largest Coconut Water Company.” We all read in silence. Nowhere did the article mention that Amacoco was Zico’s supplier. Indeed, if you couldn’t read between the lines, you’d think that Pepsi was just getting into the coconut water business for the sole reason that it was profitable in South America. Already highlighted and circled was this statement: “PepsiCo will build on the existing network and will utilize the strength of its local distribution system to expand sales across Brazil, as well as to other markets worldwide.”

  Instead of buying into an existing brand, PepsiCo had taken another strategy. Apparently, they wanted to first lock down a key supplier. With that leverage, they could launch their own brand or buy into an existing one with greater control. Indeed it was only a few weeks later that they announced their investment in ONE coconut water. I had to admit, it was a pretty smart move, but it assumed supply was the critical element to success and I wasn’t sure that was the case.

  “Now what’s going to happen?” one of the Coke lawyers asked. “Mark, you have a two-year contract with Amacoco, right? That gives you plenty of time to figure it out.”

  “Realistically,” I told them, “they’ll come through on the orders in the pipeline and that means we’re good through the first quarter of 2010. After that they’ll turn us off like a garden hose.”

  “So you’ll have to sue them to keep to their contract?” suggested one of the lawyers.

  “The chances of a good outcome suing a company for breach of contract in Brazil is next to zero,” I told them. I had enough experience with business deals in Central and South America to know that was a dead end. “It will take too long and there is a good possibility that we’ll lose. Either way, it’s just not worth the effort.”

  There were some nervous glances around the room. With the contract with Coke just hours from being signed, I wasn’t going to allow this news to ruin the deal.

  “I’ve been clear from the start that this was always a possibility,” I said. “Coconuts are grown and processed all around the world. I’ve visited and kept up discussions with dozens of other suppliers in Thailand, Indonesia, and the Philippines. With the operational resources of Coke, getting a quality, secure, cost-effective supply of young coconut water will not be a problem.”

  When the Coke team left the room for a break, Jim and I were silent for a moment.

  “So Pepsi buying Amacoco was no big deal?” he asked, smiling. “You really that calm and confident?”

  “Hell no,” I said, picking up the press release and reading it again. “It’s true that we did see this coming, but I didn’t think it would happen so soon. We’re not ready to find a new supply in the next few months. Not without Coke behind us. If they walk at this point, we’ll figure it out but it’s not going to be easy.”

  With the final contract ironed out, I had a few weeks to hold my breath to see if the Coke board would approve it. I put the odds in my favor but I knew that Pepsi’s purchase of Amacoco would weigh heavily on their minds. I also knew from friendly insiders at Coke that Vita Coco was basically calling every number in the Coke phone directory to see if they could get in front of the deal. “Those guys are persistent,” I had been told. “They are calling all over the building. They’re all freaking out.” I had to assume Coke had been in discussions with them for some time while they were exploring all the brands in the category.

  I definitely wanted to nail down a partnership with Coke and beat out Vita Coco for that spot. While I worried that partnering with a large bureaucracy might be an encumbrance, the advantages of having one of the largest organizations on earth as your partner were huge, I hoped. Distribution was of course one of the biggest challenges any consumer product has and Coke, I had to assume, would eventually help with that. So, too, with food science, product development, building a global supply chain, and of course marketing. Getting my phone calls returned would no longer be an issue.

  But the Amacoco purchase or some other internal
issue could still come up to sabotage the plan potentially, and Coke could deep-six the deal. During those weeks I talked with Maura about our options. If Coke passed, I’d still be in the fight. In fact, the potential long-term upside for our personal wealth would be substantially higher. We’d keep a larger ownership share, go back to the venture capital world, and have the potential to lead Zico toward a possible IPO or billion-dollar sale. With every month, more investment capital was looking for a home, and our alliance with Coke would attract plenty of interest even if the relationship was never consummated. In fact, both Jim and I had been contacted by one of the firms that earlier turned us down. Neither of us spoke with them, respecting our agreement with Coke, but the voice mail was clear: “We may have missed our chance but we’d really love to back Zico any way we can.”

  The Coke partnership was the safer bet, albeit the one that limited the high-end payoffs. My tolerance for risk remained pretty robust, but this was no longer just about me. I thought back on all the difficulties and near disasters I had asked Maura and my family (not to mention my early investors and employees) to weather over the last five years, and I knew it was time to take the safer route. The deal with Coke would bring a measure of stability to our lives and those of the Zico team. Roller coasters are a thrill until you’ve been riding one for a number of years.

  Zico was heading down the route of many of the entrepreneurial brands I respected most. Burt’s Bees sold to Clorox. Ben & Jerry’s sold to Unilever. Tom’s of Maine sold to Colgate. Honest Tea was on a similar path with Coke. In all these cases, loyal consumers feared this meant the death of these innovative brands. These entrepreneurs weren’t just selling, many would assume, they were “selling out.” I knew some Zico fans would have the same concerns. But what is poorly understood by the average consumer is that these huge companies aren’t simply buying what is sometimes called “the face of the brand.” The value of entrepreneurial brands doesn’t exist in the name or the founder alone but in the product itself and all the ways the smaller company has acted in the world. The large companies that buy these eccentric brands know that for their purchase to retain its value, they have to uphold and manifest the virtues that brought the company into prominence. Upstart brands can change capitalism not only by competing with the old guard but also by joining forces with them. At the end of the day, my goal was not simply to have Zico in the hands of yoga moms and Whole Foods shoppers. I wanted it available at Target, Walmart, and in truck stops and school soda machines. I wanted it available every place you could buy a Coke. And who better to help us do that than Coke itself?

  When the news came that Coke had approved the deal, everyone in the industry heard about it within the day. The general consensus was that Zico had won the coconut water wars and all that was left were the details. How could we lose with such a major player backing us?

  I definitely appreciated the congratulations rolling in from every quarter, but I knew for certain that the story was far from over. Coke’s full buyout of Zico wasn’t certain, only a contractual option. In fact, to make that buyout attractive to Maura, me, and all our early investors, Zico would have to hit some ambitious sales targets over the next few years. Whether the $15 million would give us the ammunition to make those targets was far from guaranteed. Vita Coco certainly wasn’t waiting around to see what happened. CEO Mike Kirban released a statement later that week saying he turned down Coke’s offer to invest millions and said, “Am I worried? Not really.” Within a few months he also announced a distribution agreement with Dr Pepper Snapple Group. They were smaller than Coke or Pepsi, but had a reputation of being more flexible and scrappy, sort of like Exclusive in New York. Now the coconut water wars were moving to a new level. They were now becoming proxy wars between beverage superpowers.

  By September 2009, we had finalized our deal with Coke, Jesse Itzler, and other investors, and we had $15 million in our company bank account. After running a company whose account was often near zero for almost five years, the investment seemed like a fortune. For most companies (at least those not in the overheated tech economy), it is a fortune. Better still, unlike previous financing rounds, this one came in immediately, not in dribs and drabs over months. We received big, fat wire transfers all on the same day. It was easy and fun to fantasize about how we might spend that on building the Zico brand.

  But I reminded myself that I had seen beverage companies burn through that amount of cash and more in just a few years. My friends Eric and Steve at Steaz tea had raised $11 million from a prominent VC firm in 2008. They were passionate founders, had a great brand with strong products, and solid initial distribution. They invested heavily in field sales and marketing teams and branded vehicles up and down the East Coast to launch a series of major distributors. But the volume just did not come as quickly as they expected, and within two years they were nearly broke. They survived thanks to some quick cost cutting and by refocusing on natural foods, but the founders lost control of their company in the process.

  Similarly, Purple Beverage Company came out of nowhere in 2007, trying to become the next POM Wonderful by selling a blend of juices supposed to be high in antioxidants. They took an unconventional public market angle to raise $10 million or more and at one point in 2008 were valued at $180 million. They invested hard and fast, including launching Big Geyser with a sales blitz team of more than twenty. The move looked promising. They sold ten thousand cases to retailers during their launch week in New York, which led me to ask, “Am I doing the right thing with this disciplined and methodical approach?” I got my answer within a few weeks when I learned that seven thousand of those cases were returned because they didn’t sell. By the end of 2009, the company was effectively shut down and investors were left holding an empty bag.

  Around the same time, Adina beverages, which had been a small regional beverage company in San Francisco, came under the wing of the legendary founder of Odwalla, Greg Steltenpohl. They subsequently raised $14 million from a who’s who list of investors and VC firms and installed none other than John Bello as CEO, the founder and former CEO for SoBe Beverages. Bello had all but created the enhanced beverage category in the 1990s. Within two years they’d burned through all their cash and shut their doors.

  If that could happen to these entrepreneurs, all of whom were more experienced than me, I had to be cautious. Everyone, including Zico, was hoping to be the next Vitaminwater, and being an entrepreneur requires a certain amount of risk taking, but it’s also dangerous to believe your own hype.

  So we would be aggressive strategically and cautious financially, but at least we would be doing it all from sunny California. Earlier that spring, after years of considering options all over the country, Maura and I settled on Los Angeles as the place to open a real non-garage office. We found and leased a converted warehouse space in Hermosa Beach. I felt I knew New York well enough to manage it from afar, and strategically I was certain that California was fertile ground to grow the Zico brand. When the Big Geyser team got wind of the decision they were not thrilled. They worried we would lose our focus on New York. Leaving Buck Willams behind, who knew New York best of all, calmed their nerves somewhat.

  But the reality was, this move was personal. I had given Maura my commitment that within five years we’d move to somewhere she wanted to live. This adventure was far from over, and I needed to know she and the girls were happy and grounded to do what I needed to do. By the time our deal with Coke closed, we had moved ourselves and settled in Redondo Beach, just a bike ride away from the office. It was time to move into the sunshine.

  CHAPTER 10

  YOU CAN’T LOSE WHEN YOU’VE ALREADY WON

  After the 2009 announcement of Coke’s investment, some of my friends and relatives assumed that we’d simply start loading blue cases onto those ubiquitous red trucks and suddenly Zico would appear in every cooler and the beverage aisle in every store in the country and beyond. Both the VEB team and I believe
d that Zico was still much too small to survive in the Coke distribution system, let alone thrive. We agreed on a revenue target, assuming it was good-quality revenue (focused on limited markets and channels) that would be the right point to begin to integrate Zico into the Coke system.

  Until then our team would be completely in the driver’s seat, which was a good thing. We were in a street fight with our coconut water competitors—an all-out battle for the hearts and minds of retailers and customers alike. Vita Coco was already leveraging their relationship with Dr Pepper Snapple Group (DPSG) to begin to scale nationwide. Coke’s conventional weapons, including their infrastructure, traditional advertising, and distribution system, were more cumbersome than DPSG’s and even the largest of battleships. It could not be turned on a dime to focus on little Zico. Our objective became clear: to grow the brand mostly through non-Coke channels over the next three to four years as we learned how Zico might plug into the Coke system when the time was right.

  Jesse and his team soon began to kick into gear. Kelly Ripa showed up in gossip pages with a Zico in hand. Amare Stoudemire was drinking Zico at a press conference to announce he was signing a hundred-million-dollar deal to play for the Knicks. Then Lauren Conrad was at an outdoor café in L.A., Courteney Cox on a movie set, Ellen Pompeo getting into an SUV after a workout—all holding Zicos. Boston Celtic Kevin Garnett was quoted saying how critical Zico was to his performance. I never exactly knew whether Jesse was responsible for these seemingly unintentional celebrity endorsements, but I was always happy with the buzz and excitement they brought. My favorite photo of the bunch may have been Gisele Bündchen valiantly fending off the intrusion of a paparazzi’s camera by shielding her face with a bottle of Zico in hand—label facing the camera of course.