Thursday, May 28, 2009

How We Started a Liquor Brand

Link of the day - Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else

The Entrepreneurs: Courtney Reum, 29, and Carter Reum, 28

Background: Six years ago, Courtney and his brother, Carter, then both Goldman Sachs (GS) investment bankers, took a surfing trip to Brazil. While there the Chicago natives drank smoothies made with the açaí berry, known locally as "purple gold" because of its health properties. Four years later, Reum, who was working in Goldman's consumer-products division, decided it was time to stop observing businesses from the outside and start his own liquor company.

The Company: In May 2007, Reum launched VeeV, an açaí-infused wheat based grain alcohol liquor, positioning it as an alternative to vodka. Initially sold in high-end bars and clubs in Los Angeles, VeeV is now available in cities across the country—as well as on Virgin America flights.

Revenues: Estimated $5 million since 2007.

Their Story: During the five years I worked at Goldman Sachs, I participated in deals involving large multinationals such as Procter & Gamble (PG), but I also cut my teeth on much smaller deals—at least by Goldman's standards—working with the likes of Vitaminwater and Under Armour (UA). While there, I met people who didn't seem that much older than I was who had good ideas and had just decided to take the leap. I decided if they can do it—I don't know if I can—but I'm sure going to give it a try.

Having worked on one large alcohol merger in the spring of 2005 between Allied Domecq (ALYZF.PK) and Pernod Ricard, I was really struck by the lack of innovation in the alcohol space. When you really get down to it, there aren't many industries that have evolved less in the last 100 years than alcohol.

On the flip side, I considered myself a pretty normal consumer and was bored with my normal drink, Grey Goose and soda—or more often Grey Goose and Redbull because I was exhausted from my 100-hour workweeks. I felt like there had to be others like me who were looking for a unique drink that could serve as a badge of who they were and what they stood for.

That was the starting point for VeeV. We came up with its name because it sounds like the word for life in many of the Romance languages and we wanted the brand to signify "life/vitality/natural." We began the business the way every business book tells you not to: by using a tagline, essentially 'back-solving' our way into creating a product. We came up with the line: "A Better Way to Drink" because that was the goal, both in terms of the product and the company as a whole. We wanted to produce a beverage that had an interesting taste and was better quality than existing alternatives.
The Google School of Business

To that end we thought back to our surf trip and realized we could be out in front of the açaí trend. Açaí is often promoted as the healthiest food on the planet, since it has 57% more antioxidants than pomegranate, as well as plenty of protein, fiber, and essential fatty acids. Aware of the success of POM Wonderful with the pomegranate, we hoped we could turn the Brazilian berry into a similar story.

I put up the initial $250,000 in seed capital to get the first bottle on the shelf. I was confident I had a good idea and plenty of business experience. But I soon found that my time at Goldman was little help when it came to starting a brand from scratch. At a loss and in a bit of panic because I quickly realized I had no real beverage experience in what was going to be my new job, I just started doing what seemed logical at the time: I googled for answers. I found out the who, what, when, where, and why of how I might go about sourcing açaí. My online searches ultimately led me to brothers Ryan and Jeremy Black, from a company called Sambazon, who were the açaí pioneers in the U.S. Eventually they became VeeV's trusted advisers on all matters relating to açaí. (We also became friends.) Thanks to them, we found a way to harvest the berries and turn them into an extract that was shelf-stable for alcohol.

I also googled to find a domestic distillery that was capable of producing a product like VeeV, with an ingredient that had never been infused in alcohol. After numerous cold calls, I finally found a distillery in Rigby, Idaho, that had actually heard of açaí and had done some pretty innovative work, including putting caffeine into vodka.

Despite the distillery's experience with boutique brands, we still went through more than 100 iterations of the formula before settling on one. It's tricky to gauge consumers' reactions to alcohol because you'll never be all things to all people. We experimented on trusted friends who were in our target demographic as well as mixologists and food and spirit critics before ultimately settling on our current VeeV formula.

We came up with our unique bottle (frosted glass with a squared off shape) after noticing a small, similarly shaped bottle at the Fancy Food Show in New York. I furiously snapped pictures and sent them off to our consultants on a Friday. By Monday we decided to go with it. It has since made our brand stand out from others on store shelves.
a dollar per bottle supports rainforest protection

There were plenty more ups and downs. We learned that it's tough to be first to market with something unique. When we launched we were lucky if one out of 10 people was familiar with açaí, even in cosmopolitan, health-conscious cities. To get the word out, we drove around Los Angeles hot spots with a picture of açaí berries and the phonetic spelling (ah-sigh-EE) on our Prius.

We also wanted our business to be green. I was sick of greenwashing and false cause marketing, which usually consisted of companies making vague claims about donating "a portion of the proceeds" to charity. From the beginning we made a commitment to donate $1 from every bottle sold back to help fund Sambazon's nonprofit sustainable-farming project meant to protect the Brazilian rainforest. We did this despite the fact we weren't going to see any profits for a while. This was a first for an alcohol company. A dollar might not sounds like a lot until you realize how many bottles we could potentially sell—$1 per bottle is over 10% of our profits per bottle.

My biggest takeaway from all this: Don't try to do everything at once. It's admirable but often not feasible. After initially being overwhelmed by everything we wanted to be as a brand, we took a step back and realized that you don't have to be everything from Day One. Consumers tend to give you credit for "progress" as long as your efforts are genuine. So will investors—we've now raised a total of more than $5 million from angels.

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