Gerry’s Insights: It’s Not You, and Other Emotional Advice for Beverage Entrepreneurs

It’s been a difficult time on the innovation side of beverages, with many companies struggling to raise capital from investors who seem frozen by uncertainty. That has coerced some founders into shotgun marriages with other brands or into rollup plays that may or may not yield their anticipated synergies. For entrepreneurs who’ve spent years dealing with the stress, long hours and uncertainties of this gig, it can be a sobering denouement. After all, their brand has made it this far, continually adapting to market and investor feedback, and maybe deserves a bit more consideration than a brand-new entry making its pitch at the BevNET Live New Beverage Showdown. Feelings of frustration and inadequacy are only compounded by headlines about companies like Liquid Death or Ripple Food endlessly pulling in new capital rounds in the tens of millions of dollars. I’m well aware that journalists like me, excitedly heralding these rounds, do our share to contribute to this missing-the-party feeling. Indeed, a loyal subscriber to my newsletter Beverage Business Insights explained he’d stopped renewing a few years ago entirely because he couldn’t bear to keep reading about people bringing in all these big raises. (True, it’s possible he found the newsletter worthless and was just being polite. But he’s always been straightforward with me.)

So in this column I’ll offer a bit of perspective – solace, even – to founders who’re feeling bothered, bewitched and bewildered by the down rounds and staff cutbacks and retail retreats they’re being forced to endure as they hang in there awaiting better times. My core message is that it’s not only about you: there are forces out there that may be beyond your control, and even the most conspicuous successes often benefited from some element of serendipity, though you might not ever hear about it.

For starters, it helps to remember that beverages have always comprised a difficult segment. In even the best financial or economic climate the overwhelming share of new entries fail, some quickly and some after years of revamps, pivots and recapitalizations. That’s true in any CPG segment but beverages seem to bring their own particular challenges beyond those of adjacencies like food or personal care. After all, their basic arithmetic isn’t conducive to strong margins and financially sustainable businesses on account of the expense of distribution, particularly DSD, and the sheer clutter to be cut through. At the recent Beverage Forum in Manhattan Beach, Calif., I encountered the cofounder of a recently established fund and asked him whether he’s found ways to deploy the money yet. I got a good-news/bad-news answer: Yes, he’s made a half dozen or so investments so far, but none in beverages on account of these challenges. So even informed investors who’re assertively in the hunt have reason to shy away from this category. In other words, it’s not necessarily you keeping investors away, it’s the category.

Beyond that, there’s the matter of exit envy. What do those successfully exited founders have that the rest of us don’t? It may be comforting to realize that the answer is “not as much as you assume.” There’s more than sheer brilliance at work in the outsize exits that attract so many entrepreneurs to the beverage business in the first place. History, as Winston Churchill may or may not have said, is written by the victors, and in beverages those histories often obscure the sizable elements of timing and luck that may have been crucial to the founders’ ultimate success. That’s not to quibble at the brilliance most of them do exhibit – after all, it takes insight and agility to respond well to the random opportunities that fortune throws your way. But absent those flukes of timing or good fortune, that blazing exit might not have ever occurred.

That realization came to me years back while covering the launch and subsequent struggles of South Beach Beverages – rebranded as SoBe during one key pivot. Even in its home market around New York, the brand couldn’t quite break out. But it got a break in Southern California when AriZona, one of the brands it was challenging, terminated its network of Anheuser-Busch distributors. Furious at the indignity (after all, it’s much harder for a beer brand to terminate its wholesaler) the Bud guys picked up SoBe with retribution on their minds, and they did a great job. That became the market where SoBe ignited, and eventually momentum built enough for the brand to win a lucrative exit to PepsiCo. That turning point never seems to come up when members of the founding team recount their story, and why would it? After all, almost by definition, founders are in the business of mythmaking. In fairness, it took skill and fortitude to pounce on the opportunity. Still, had that random event not happened, it’s unclear that the brand would have been able to hang in there much longer.

Timing matters too. Vitaminwater marketer Glaceau benefited, in my view, by the ascent at Coca-Cola of Muhtar Kent, who wanted to make a statement on his rise to the CEO job about KO not being complacent about attacking white space in beverages. So the company won an outsized $4 billion exit that arguably paid off for Coke just in the enhanced respect it garnered for years on Wall Street. Absent that timing, that exit might not have occurred. That’s not to say founder Darius Bikoff and his right-hand man Mike Repole weren’t at the top of their game. Then there’s the flip side: beverages that don’t break out because they’re too far ahead their time. Though nominally failures, those founders in some ways deserve more credit than those who prosper by riding the subsequent wave. During a recent shared drive, this magazine’s publisher Barry Nathanson and I were sharing affectionate reminiscences of Ed Slade, a former Fiji Water executive whose roles at entrepreneurial ventures included a brand called Twelve that as early as 2008 anticipated the subtly crafted alcohol-alternatives that are flooding the market these days. Created with the chef David Burke, it was positioned as being versatile enough for many occasions spanning the 12 hours from morning to midnight (M2M, it styled it), with a subtle recipe that melded juice, herbs and tea to create subtle and complex flavor notes worthy of a premium imbibing occasion. That sounds like a description of dozens of brands that have hit the market the past five years, right? Poor Ed never had a chance to see how far he could take Twelve because he succumbed to cancer at an early age in 2011. In truth, he was nearly a decade away from the sober-curious movement of today, swimming against the tide.

As it happened, I recently learned that I myself – unwittingly – was part of a serendipitous turn of events that led to a milestone for a beverage brand. Over beers during Expo West, the founder of a familiar brand told me an anecdote dating back 25 years earlier in our history together in beverages. Back in the brand’s early days in the 1990s, he and his partner got an approach from private-equity titan Nelson Peltz. They had no serious interest in a partnership but politely met with him to hear him out. Since they were certain nothing was going to come of it, they didn’t think it warranted mentioning to their employees or investors. That’s where I come in: an item I dropped in my magazine, Brandweek, about the meeting caused considerable consternation within the company: employees freaked out at the thought that the company was entertaining buyers behind their back (though that wasn’t actually the case) and investors were miffed that they wouldn’t be informed. Of course, the founders weren’t too happy with me for running that item. But guess what happened? As I just learned over those beers, the article resulted in overtures from several key strategic players, one of them actually a good fit, and it emerged as a minority investor and strategic partner. That’s how business works sometimes, and founders might ease some of their mental burdens if they park in a corner of their mind the notion that their own future success rides as much on the whims of the gods as on their own tenacity and skill.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.