When Small Brands Get Greedy and Do a Deal with the Devil to Grow

by Matt Weik

Not too long ago I watched a smaller start-up nutritional company sell their brand to a larger company with the thought that the larger company will help them scale quickly and make their business explode. The start-up company was very lean, they had around a handful of employees which included the owners themselves and had a sales team made up of brokers who were great in their individual markets. Their product was a “fresh” product in the sense that it was perishable and needed to be refrigerated. The life of the product even when stored in the refrigerator was only a little over a month.

The start-up company literally had the best product on the market – hands down, and I’m being dead serious. It filled a void in the market and was exactly the product consumers were asking for. Their account list grew very quickly, picking up huge retailers like Whole Foods all the way down to the mom and pop natural food stores. Everyone loved the product, then one day, the wheels fell off.

The beginning of the end?

This start-up nutritional company decided to do a deal with a large supplement manufacturer, which came with its own set of challenges, yet they tried to push through them in order to make the deal work and land themselves a nice payday. If you remember, I mentioned the product was a “fresh” product at the time of the acquisition. Once sold, the product changed completely, and not for the better.

What was once the best product in the category, has now turned into just another mediocre tasting product like everything else on the store shelves. In fact, consumers actually stopped purchasing the product after it changed from a “fresh” product to a shelf-stable product that could sit on a retail shelf for over 12 months. The flavor profile changed. The texture of the product changed. It completely turned off many of the customers they once had.

This start-up company who just sold their business completely lost their market advantage. They did a deal with the devil in order to make money from the sale of the business as well as the thought process that this large supplement manufacturer would be able to blow up the brand and get it into all of the doors they were unsuccessful with when they personally owned the business.

The list of accounts that the brand had early on in their business are now long gone due to the change in the quality of the product. I completely understand why the supplement manufacturer made the changes, and it has every bit to do with money. The original fresh product while having great margins, was fairly difficult to scale due to the product being produced fresh before being shipped out to fill orders. The fact that the product went to a shelf-stable version allows the supplement manufacturer to mass produce the product and store them in a warehouse somewhere as well as set up distribution for the product. The ability to mass produce allowed them to lower the cost of their raw materials, increase their margins, and not have to worry about sitting on some product until it sells.

A change in company culture

Consumers aren’t dumb. We have some of the brightest consumers when it comes to supplement and nutritional products today than we did in years past. People are slowly starting to care about what they are putting in their body and want to know exactly what is in the products they consume. But, they also want to feel the same sense of appreciation for being a loyal consumer.

This is where a major shift happened. When the start-up company ran the business themselves, they were very hands-on with every single account from the big box locations all the way down to the tiny corner shops. Regardless of how big or small the retailer, everyone was treated equally. After the acquisition, retailers became a number. The product then started having inventory issues. Customer service became lax and complacent and was in no rush to help customers get their receipts or answer questions. What once was quick shipping now takes upwards of two weeks to get to a retailer’s door. Orders are going out the door without contact names on them which is causing deliveries to be refused because the account doesn’t know where the product is supposed to go.

Everything has changed, and not for the better. It’s frustrating when greed takes over a brand and what was once an amazing product is turned into a product that will now be lost on the shelf because it lost its differentiation. Not only that, but the sales team at the supplement manufacturer isn’t focused on growing this new brand they just acquired. They are all too busy pushing all of their other brands they are told to go out and sell like little toy soldiers.

It’s interesting to watch brands grow and in what way they do it. With examples like this, it’s no wonder why brands boom and then disappear. You take a perfectly good business model and a book of business and toss it down the drain to line your pockets. It makes you wonder why they got into the business in the first place. They sold the story because it was to fill a void in the market that they themselves wanted to see fixed. But then everything changed when offered money as an exit strategy.

While I wish the best to the brand, it should remind us all that greed can ruin a perfectly good business. I know both brands. And I know the owners of what was the start-up brand. What was once a quick text reply or an answered phone call now goes unanswered. It’s funny how things change. All we can do is learn from them and hope for the best. I’m sure if they were to do things over again, they either would have held out for a different partner or they would have kept running the brand on their own. They are quickly finding out that the supplement manufacturer who purchased them has no idea what they are doing, and that’s probably why their other sports nutrition brands are failing too.

 

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