“One question I like to ask an entrepreneur – usually when they’re really tired after presenting for an hour and a half, is ‘what keeps you awake at night?’ A good entrepreneur has to be a paranoid entrepreneur.”
This is Eric Melloul, executive investor of giant European investment fund, Verlinvest - formerly VP of strategy overseeing M&A and global brands at Inbev, and later the brewer's head of marketing and commercial operations in China - speaking on whether now is a good time to start a beverage business at Zenith International’s recent Innobev Global Soft Drinks Congress in Lisbon, Portugal.
In a linked article we cover the section of Melloul’s address to delegates where he argued that 2014 is a great year to quit your day job and take the plunge , while this article points out some of the potential pitfalls.
Turning to headwinds for the would-be entrepreneur, Melloul (pictured) cited health claims legislation (for instance, the EU regulation No.1924/2006 on nutrition and health claims) an entry barrier for small companies, given the cost of running clinical trials and hiring lawyers.
Ideas today...a bit of a commodity
“Finding the right idea is also very tough – I have to say that ideas today are bit of a commodity. Someone comes to me with an idea, I’ll say, ‘so what – what’s the value of this idea?” Melloul said.
“Anyone can copy it today. What matters is ‘do you have the right team, the right plan, the money lined up to deliver your plan?’” he added.
“It is harder to launch a new product in Europe,” Melloul said. “In America, we launched Glaceau Vitamin Water and Vita Coco, two, three, four hundred million dollars of revenues going through the so-called ‘halo accounts’ – retailers believe in companies and take the risk to push young brands.”
But Melloul said that in Europe a lot of the buyers he knows are more conservative. “They know what works today, and are not necessarily prepared to give space to smaller brands,” he said.
“Finally, launching a brand takes time and capital. Ballpark figure, I’d say launching a brand in the US takes about $15-20m, probably a little less in Europe but it’s more difficult because you have to go through so many different countries.”
So what does Verlinvest look for in entrepreneurs? “Paranoid over achievers,” Melloul said.
“One question I like to ask an entrepreneur – usually when they’re really tired after presenting for an hour and a half, is ‘what keeps you awake at night?’
“The wrong answer is ‘I’ve got everything under control. The regulations are fine, packaging is ready to go, retailers are ready to launch. Bad answer!
“What I’m for is someone who comes to me and says ‘You know Eric, I can’t sleep at night, because there are two competitors about to launch, the FDA could get on my case because of ‘all natural claims’, etc.”
“This is where as investors, we can say ‘don’t worry – we know you have these challenges, but we can work through it together. A good entrepreneur for me had to be a paranoid entrepreneur’
“And of course, they have to be an over-achiever – outsiders and insiders.”
Melloul said that when he first started working at Verlinvest he believed in backing seasoned beverage industry veterans over outsiders. “You know what? It didn’t work,” he said.
People with power and vision to reinvent the industry...
“What did work was to get people who had nothing to do with the industry, but had power and vision to reinvent the industry,” Melloul added.
“A great example was Glaceau Vitamin Water – Two guys who knew nothing about the industry, but trust me they how to sell, distribute and brand.
"The same thing with Vita Coco, the guy came from the software industry, but surrounded himself with powerful industry insiders,” the Verlinvest executive said.
Rounding-up his insights, Melloul said he believed in “big dreams and small plans” and has no patience with 3-4 year plans since no-one can project what the world will look like at the end of that time.
“What I do believe in is the big dream – entrepreneurs who believe they can reinvent the world and build global brands,” he added.
“Secondly, a lot of small planning. What am I going to do tomorrow, who am I going to sell to, what will I say to retailer X or retailer Y? The intricacies of execution, this is what I’m looking for.”
Melloul insists that it is hard to be truly innovative in the beverage world, and said Verlinvest gets about 100 investment files everymonth, with a lot of copycats aping brands that already exist.
“You need first mover advantage, speed to market, branding. Vita Coco is a great example. We built a supply chain ahead of Coke and Pepsi, going out to The Philippines, Indonesia, Brazil and building facilities,” he said.
“So barriers to entry are possible. They take time, they take money, but I believe that’s the way to go.”
Disruptive marketing - The new normal?
Melloul said Verlinvest also looking for disruptive marketing: “I don’t believe in traditional marketing anymore, the consumer is changing. We’re looking for word of mouth, sampling, celebrity, when it is well managed.”
“You need to find entrepreneurs who believe in disruptive marketing, and are capable of doing it quickly and at low cost,” he added.
“Quality is also key – even if you are to move fast. We expect the best quality product at the right price, with no shortcuts or compromises on quality – especially when you launch a premium brand,” Melloul said.
“Lastly…we need to hear about a path towards making money, and ultimately creating value for us.”
(Vitamin Water photo credit: Norio Nakayama/Flickr)