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SMALL BUSINESS
12 CRAIN’S CLEVELAND BUSINESS
JANUARY 13 - 19, 2014
Leap: Finding ‘patient investors’ can be a recipe for success continued from PAGE 11
Operating in a national retail arena was never a question for Messrs. Ghannoum or Sokol, the latter who had 30 years of consumer products experience that included Loctite, Blue Coral, Quaker State and Pennzoil. The same sentiment was expressed by Winston Breeden, CEO of Winston Products LLC. The Glenwillow company has launched several products including SmartStraps, SmartShingles, TowSmart and CargoSmart. “Big box is my playground,” Mr. Breeden said. “I’ve been playing in that space for 20 years. Why not go that way if you have the wherewithal to do it? We’re not modeled for small orders and small shipments.”
Going bananas
Vendors will need money for raw materials and to expedite goods when a big box account accelerates an order and when it delays an order; but with delays, it expects the vendor to “float along” already-manufacturing goods, said Ms. Gress, who is adjunct faculty with Cleveland State University’s Monte Ahuja College of Business, teaching operations and supply chain management. And beware: “Some big boxes can have financial penalties if you don’t deliver.”
A lot of work
SHARON SCHNALL
Co-founders Brian Sokol, left, and Afif Ghannoum were confident they could get their Oasis Consumer Healthcare products to be a player in large retail.
In 2010, Mr. Breeden co-founded Healthy Foods LLC with Eileen McHale and Brian Machovina. Together, they and the Winston Products personnel launched Yonanas — a kitchen appliance that transforms frozen fruit, notably bananas, into a soft-serve creation resembling ice cream in consistency, but without the associated sugar, fat or dairy content. Ms. McHale and Mr. Machovina, a married couple, had collective skills amassed from entrepreneurship, culinary training, private catering and academic pursuits in biology, research and agriculture. Mr. Breeden’s strengths, they said, were with launching innovative consumer products, drawing on in-house sales and engineering expertise and connecting with established retail relationships. The Yonanas appliance and name were conceived by Ms. McHale and Mr. Machovina, longtime friends of
Mr. Breeden and former Northeast Ohio residents, now residing in Miami, Fla. The machine was refined and prototyped by engineers at Winston Products. To date, more than 2 million Yonanas units have sold in 35 different countries; 2013 gross sales were estimated at $40 million, Mr. Breeden said. The product is sold at Bed, Bath and Beyond, Best Buy, Kohl’s, Target, Walmart and other retailers. In summer 2013, Healthy Foods launched Frinkles, freeze-dried fruit sprinkles — a topping companion to the soft-serve creation made by the Yonanas appliance.
A worthy investment Pursuing a big-box connection? Consider investors. “You need the right investors; you need patient investment capital,” Mr. Sokol said. “The patient investors are the investors who
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understand innovation.” Oasis Consumer Healthcare’s co-founders were selective about investors, seeking individuals, not massive institutions or venture capital firms. They wanted people possessing realistic expectations about company milestones. “They had to be comfortable; they couldn’t expect an immediate ROI,” Mr. Sokol said. Fifty angel investors were identified — half from Northeast Ohio — while the remainder were national and international. Participation collectively was between $6 and $8 million, said Mr. Ghannoum, a 2005 graduate of Case Western Reserve University’s School of Law and formerly an attorney with Squire Sanders and BakerHostetler of Cleveland. The Yonanas investor connection started with an inquiry from Mr. Machovina to Mr. Breeden and ultimately was backed by about one
The Yonanas appliance transforms frozen fruit into a soft-serve substance that resembles ice cream. dozen investors, mostly from Northeast Ohio, who collectively contributed a seven-figure investment, Mr. Breeden said. The first significant distribution to investors was made in December 2012, he added. “When you’re looking at risk, you’re looking at operational risk, financial risk and reputational risk. You need to be able to mitigate those three,” said Amy Gress, president of the Purchasing Management Association of Cleveland. PMAC, in its 100th year and an affiliate of the Institute for Supply Management, is a 270-member organization devoted to the advancement and education of supply chain management and strategic sourcing professionals. “Once you’ve made that commitment to delivery, you’ve always got to maintain it,” she said. “(Big boxes) can change their orders and plans, which is why (addressing) the financial risk is important.”
In 2007, Paula Hershman established Storehouse Tea Company. The loose leaf tea company gained initial visibility through home tea parties. By 2011, tea products were sold at selected Whole Foods Market sites, Earth Fare supermarkets and Giant Eagle Market District locations in Ohio and Pennsylvania. Company gross sales were $5,000 in 2007; expected gross sales for 2014 are around $100,000, Ms. Hershman said. The Whole Foods connection was established through an encounter at an agricultural growers’ conference: Ms. Hershman approached a Whole Foods representative, who was a conference speaker; she shared about her Storehouse Tea and was encouraged to follow up with Whole Foods. Having products carried at Whole Foods and elsewhere is an “honor,” she said, but requires a lot of work. When the Whole Foods account was landed, she recalls a company rep saying, “You do not want to be national right away. You want to be consistent — stay small and grow slowly. We will keep you in Ohio until we see we can move you into other states.” ■
Ways to make it work with big retail
S
eeking to establish and maintain a relationship with big-box and other large retail accounts? Here is some advice: ■ Be open to partnerships. Let go of sole ownership to reach the greater goal of the big-box connection. The investor network, investor capital and what investors’ ideas, resources and connections lead to — staff, sales force, marketing, production facilities — present a solid front to the big-box buyers. “If you don’t have the money, you have to give something up. Money makes things happen; ego can hold you back,” said Brian Machovina, Yonanas co-inventor and Healthy Foods LLC co-founder. ■ Regional activity serves as a test market. “The retailers want to see proof of feasibility: Will anyone buy it?” said Brian Sokol, president of Oasis Consumer Healthcare, regarding how one company product was launched regionally with Discount Drug Mart. “We had nice results, and we took these results to Walgreens. (The representative) saw that a competitor had success with a product (Walgreens) didn’t have … Discount Drug Mart allowed for a conservative test,” Mr. Sokol said. ■ Offer a unique product. Identify a need on big box’s shelves, but don’t offer similar versions of
existing products. “Retailers will tell you that they don’t ever want to change vendors,” Mr. Sokol said. “Retailers will say, ‘I’m already selling enough of the market leader. I don’t want to bring your product in as a fighting brand.’” “Retailers want to see that you’re adding to the category not cannibalizing it,” added Afif Ghannoum, Oasis Consumer Healthcare’s vice president. ■ Avoid being a one-hit wonder. “It’s hard to be a guy with a garage and an idea, and launch a product to the big guys,” said Winston Breeden, CEO of Winston Products LLC and Healthy Foods. “(A big box is) going to want to see a strategy of a bigger idea behind it … (a big box) wants to invest in companies, not one-hit wonders. If you don’t have a strategy that says you’re here to stay, big box is going to pass on you.” According to Mr. Breeden, bigbox retailers, since 2008, have reduced relationships with oneproduct vendors to increase efficiencies. Advantages to consolidating those particular vendor relationships include: reducing the number of purchase orders issued, maximizing vendor relationships and reducing overhead costs,” said Marlene Strande, vice president of the Purchasing Management Association of Cleveland (PMAC). ■ Respond to feedback. Make the easy changes. A Target repre-
sentative suggested a white box for the Yonanas appliance. Although later package generations feature tropical colors, the box that originally appeared on Target’s shelves was white. “That was a quick lesson,” said Eileen McHale, Yonanas co-inventor and Healthy Foods cofounder. “We have to navigate; we don’t want to work in a vacuum … That’s life; you’re going to know when you can concede and when you can’t.” ■ Large-scale fulfillment depends on supply chain quality. Develop a sturdy supply chain — for raw materials — to support production and fulfillment; make sure the suppliers are as strong as your company to guarantee manufacturing quality and timely shipping. “Your supply chain has to be as nimble and flexible as you are,” said Amy Gress, PMAC president. “… If (the supply chain) cannot respond to … (changes in demand), you’re really going to struggle with a big-box commitment.” ■ Promote, promote, promote. Getting on big box’s shelves is the beginning; staying is the challenge. Conduct in-store demonstrations, hold special event appearances and leverage social media to create a customer following. Don’t rely on big box’s retail circulars; you — the vendor — are responsible for product promotion. — Sharon Schnall