August 16 2013 by Russ Banham
Know Thy Market
Merisant also blundered into a market and learned to prosper from the experience. The Chicago-based manufacturer of the ubiquitous restaurant coffee sweetener Equal embarked on a new product in the sweetener category that came a cropper. “We decided to innovate and took Equal, which is aspartame, and mixed it with sugar, thinking this is a great idea,” says Paul Block, CEO of privately owned Merisant, with $300 million in annual revenue.
It turned out to be anything but. Not that the idea didn’t have some legs under it. “Our thinking was that it would taste more like sugar at half the calories,” Block explains. “We did beta quantitative research that indicated that it would most certainly find a market. It looked great—on paper. Well, it was a bomb. We spent $20 million to $30 million on launching Equal Light, as we called it, and it went nowhere.”
What went wrong? “There was no frame of reference for the category,” Block replies. “Your wife says pick up two percent milk and you get it—this is good old milk with less fat. Same thing when she says pick up Equal—a sweetener that is not a sugar. But, consumers couldn’t conceptualize putting together an artificial sweetener with a natural sweetener. It was ahead of its time.”
From Equal Light’s ashes, a Phoenix rose—PureVia. “What we did was take two natural sweeteners—raw sugar and stevia rebaudiana, which comes from the leaves of a South American shrub—and blended them into a whole new product category,” Block says. “This isn’t sugar with something synthetic. It’s a fully natural high-intensity sweetener at half the calories.” Stevia has 300 times the sweetness of sugar, but is very low in carbohydrates and has a negligible effect on blood glucose levels.
Rather than simply blending two ingredients as it did with Equal Light, Merisant coats each raw sugar crystal with stevia via a proprietary spray-drying process. “Three months ago, it hit store shelves in Wal-Mart and Kroger and is being distributed by food service channels to restaurants—to tremendous success,” Block says. “We knew we had a great idea with Equal Light; we just went about it the wrong way. If at first you don’t succeed, you try again.”
Even if you do succeed, you can’t rest on your laurels. That was the lesson learned at Cbeyond, a midsized, publicly traded provider of integrated local and long distance telephony services and high-speed Internet access. Founded in 2000, Cbeyond initially capitalized on VoIP (Voice over Internet Protocol) telephony technology to provide local phone and Internet services, as well as Internet-based applications, to small businesses. “From a small startup, we grew fast to $500 million in annual revenue,” says Jim Geiger, Cbeyond founder and CEO.
Then, business stalled. Although the company’s growth rate, revenues and customer retention metrics were healthy, it had become incrementally less profitable. “We had stopped innovating,” Geiger says. “We were focused on optimizing the existing business, but the returns were diminishing. That was my mistake. We were resting on our laurels, and atrophy set in.”
Cbeyond picked itself up, dusted itself off and started all over again. “We built a range of new products and capabilities last year,” Geiger points out. “For example, we now offer our services in the Cloud—using our own servers—at improved prices. The customers’ apps and data reside in our data centers on our dedicated network, a competency we had but didn’t fully invest in. It’s a new revenue stream for us, one that offers a 60 percent higher revenue-per-customer metric than the old strategy.”
The company’s reversal of fortune (both cash flow and EBIDTA rose in the months after the Cloud offering was made last year) illustrates the folly in the old adage, “Nothing succeeds like success.” As these personal admissions of failure reveal, mistakes not only go with the territory, they provide useful lessons. “Failure isn’t necessarily something bad,” says Lafley.
On that, Dale Carnegie would agree. “Two of the surest stepping stones to success,” he wrote, are “discouragement and failure.”
Russ Banham (www.russbanham.com) is a freelance writer and book author.