Stripped-Down Entrepreneurship

As a music lover with a longstanding fidelity to jazz, my work following early-stage beverage companies occasionally puts me in mind of the period after Prohibition when the swing era of big bands began to give way to the small combos associated with bebop and other progressive genres. (No, I wasn’t around then, but I’ve read about it.) As music venues shifted from big dance palaces to former speakeasies in cramped townhouses in places like New York’s West 52 Street, bulky and expensive big bands found themselves replaced by stripped-down combos; the big bands’ reed sections might be replaced by a single saxophone, the brass by a single trumpet, the two instruments riding a rhythm section of piano, bass and drums. Though the new format took a while to find its musical footing, it made for an uncommon degree of fleetness and agility that was able to support bebop and many subsequent innovations in a way that never would have been open to big bands.

So what does this Ken Burns-ian turn have to do with beverages? Simple: companies comprised of just one or two entrepreneurs relying on today’s robust network of outsourced capabilities often are able to create innovations of a kind that so far have proved elusive to bigger companies – the big bands of this analogy. Within this world of small startups, my ideal is the two-person shop, where you get the healthy push and pull of competing viewpoints but still keep the overhead miniscule.

If you look out on the field of entrepreneurial brands, two-person partnerships are legion. You have husband-and-wife teams behind brands like Grown Up Soda, Fizzy Lizzy, Cell-Nique and Joe Tea, sibling operations like Maine Root and Greater Than, and partnerships (sometimes between former colleagues at a bigger company) like Balance Water, Inko’s Tea, Hi-Ball, Hydrive, Joia Soda, Zenify and Rooibee teas. Though more developed now, Hint Water started as a husband-and-wife collaboration, Vita Coco was founded by two childhood friends, Icelandic Glacial was a father-and-son duo, Honest Tea a student/teacher gig. There are lots of others I’ve omitted from these lists, and I’m sure I’ll be hearing from them soon enough!

Among now-established brands, perhaps the most prominent example is AriZona Iced Tea, launched by two guys who sat facing each other every day at battered second-hand desks in a cramped office in the Gravesend section of Brooklyn. (OK, these days, the two aren’t talking to each other except through their lawyers.) And Nantucket Nectars famously was launched by two guys, Tom and Tom, who were hanging around a New England harbor together.

I realize there are folks in the distribution and retail channels who’re apt to look upon companies like these with a small dose of suspicion: here’s yet another undercapitalized enterprise, a hobby rather than a “real” company. But there are reasons to regard that model as quite compelling. It bespeaks a company that makes decisions quickly, is not encumbered with massive overhead, and can reinvent itself as needed in response to its market learning. Instead of relying on elaborate charts, big-band-style (that would be PowerPoint-driven strategies at the big beverage companies), they improvise freely on their core premise, and sometimes end up a considerable distance from where they started. By having two involved partners, rather than a single entrepreneur flying solo, you get the internal scrutiny and debate of key issues that can yield creative solutions to difficult problems. And it’s more likely that each will be able to cover for the blind spots of the other.

I’m certainly not the only proponent of this approach. When I broached it with Silverwood Capital Partners’ Mike Burgmaier and Nick McCoy a few months ago, they said it fits right in with their sympathies for brands that take the slower approach of first proving out the concept in a narrow channel or geography and only then go out for a significant capital raise. And having seen the tradeoffs in lost credibility and control of the expensive landgrab approach he took at Steaz, natural-foods entrepreneur Eric Schnell – teamed with a single other partner, Andy Jacobson, on the I Am shot line – sings the praises of the outsourced life. In fact, he’s building a separate business precisely to support small firms looking to follow this approach.

These days the depth of outside support available to entrepreneurs makes this idea of a “virtual” one- or two-person shop way more feasible. Delve into Makers: The New Industrial Revolution by Chris Anderson (the Wired editor who previously wrote the best-selling The Long Tail), and you’ll get a fascinating account of how even most sophisticated durable goods like rockets and cars are relying on crowd-sourced innovation to break through, without the once insuperable barrier of having to tool up their own plant to bring the idea to fruition. The model is to open-source all aspects of the project while owning only the trademarks, so you can draw upon the best ideas and expertise of the crowd while still being able to operate a profitable company. Though we’re lately seeing even Coke and Pepsi drawing upon consumers to select new flavors and create TV commercials, lean, early-stage companies likely can take this a whole lot further, since they don’t have much installed capital or intellectual property to protect in the first place.

So that’s my message in this column: Don’t be automatically put off by the scrappy two-person team that comes pitching their new brand to you. Recognize, instead, that they may represent the best-adapted model to survive the severe trials of launching a new beverage brand these days. That’s not to say the odds against their success aren’t still pretty stiff, but there’s nothing fundamentally wrong with that model, and it may be a core advantage.

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