High-Hanging Fruit

by Mark Rampolla

  To help address this challenge, Coke established a small internal team in 2007 charged with researching and investing in small brands with big potential. “The Venturing and Emerging Brands group was established to try to identify the next big thing,” Deryck van Rensburg, the South African–born president and general manager of the group, told an industry reporter. “We see ourselves as intrapreneurs, bridging the gap between big companies and entrepreneurs. Our stated mission is ultimately to develop the next series of brands with billion-dollar potential.” And, it went unsaid but understood by all, to buy into those brands long before they had reached the stratospheric valuation of Glacéau.

  The Venturing and Emerging Brands team (VEB for short) wasn’t placing large numbers of bets on new brands. They considered $10 million in annual revenue to be the “proof of concept” point for the emerging brands they would consider partnering with. That limited their choices greatly, given that only 3 percent of new beverages ever made that cut. Even so, van Rensburg estimated that the VEB team evaluated somewhere between 150 to 200 brands each year. They then eliminated the ones that were too risky or didn’t match Coke’s long-term consumer vision. With the two dozen or so remaining brands they would then launch a type of soft diplomacy—a series of informal meetings to get to know the entrepreneurs and to “assess the brand’s potential and evaluate partnership opportunities.” With that information in hand, VEB might offer Coke’s investment money and resources for a select two or three brands per year. Despite the word “venturing” in their name, no one in the industry had any illusions that VEB was a venture capital firm that just wanted to make a big return on their investment. They wanted to partner with young brands to help them grow but only if, at the end of the day, Coke could own them outright.

  In February of 2008, Coke announced an investment in Honest Tea. The deal came with an option to buy a majority stake in the future, which Coke would follow through on within three years. From what I could gather, it looked like a smart investment made at the perfect Goldilocks period when Honest Tea was not too big and not too small.

  I wasn’t the only one impressed by this unusually savvy move on Coke’s part. “Coke is working very hard to build up its portfolio of non-carbonated brands,” John Sicher, editor of Beverage Digest, told USA Today in early 2008. “Going back some years, that area of the beverage business was not its strength. Coke is showing that it knows what it needs to do and is doing it.”

  That VEB also had their eye on Zico was an open secret. They were often visiting the offices of Big Geyser to keep their finger on the pulse of the entrepreneurial beverage community. At the time Big Geyser still distributed Vitaminwater and Smartwater, which were now Coke brands, so the VEB team had a reason to visit. At a Big Geyser monthly sales meeting early in 2008, one of the senior executives at VEB excitedly pulled me aside.

  “Mark, you’re not going to believe this and I probably shouldn’t be telling you this,” he said, “but Coke recently spent a ton of money to determine what were the hot trend-setting products. We weren’t just looking at beverages. This was food, beverages, and all kinds of lifestyle products. Guess what showed up on the map?”

  I pretty much knew where he was going but I didn’t want to come off too cocky. “Coconut water?” I offered.

  “Not just coconut water,” he said excitedly. “Zico, by name! This was a comprehensive study supposed to represent up-and-coming trends across the whole country and little ole Zico made the list. Can you believe it?”

  “Actually, I can,” I said. “Let me guess: You were focusing on the northeast and particularly on New York because you know that’s where a lot of trends are born and influential consumers live. You were also looking for twenty-five- to thirty-five-year-olds, mainly female, who are embracing new cultural trends like yoga or outdoor sports. Basically, you were looking at the very influential audience that we’ve been targeting and partnering with for the last four years. So yes, I can believe our name made your radar. That was our plan!”

  “I can tell you it got people’s attention, but as you know Zico is just too small for us to really discuss anything now. Keep doing what you’re doing and let’s stay in touch.”

  Coke’s interest in Zico formalized a bit when van Rensburg invited me, along with half a dozen beverage entrepreneurs, to a breakfast meeting at Expo West in 2009, an annual food show held in Anaheim, California. VEB had rented a meeting room at the Anaheim Hilton, right across the street from the convention center where the expo was held, and served an elegant and healthy catered breakfast. Included were the founders of Steaz tea, Hint water, Bawls Guarana, and others. Van Rensburg cut the figure of a high-profile executive. With his native South African accent, he was always impeccably dressed and gave off an air of reserve and control. “We think all of you have potential,” he told us. “Somewhere in this room is the billion-dollar brand of the future, and Coke would like to help you get there.”

  At the mention of the word “billion,” I could sense the pulse rate of my fellow entrepreneurs go up a bit, but I tried to keep the pitch in perspective. This was little more than an expression of interest and would likely turn into nothing for most or all of the companies in the room. Still, I was pleased that no other coconut water company had been invited to the breakfast. But, for all I knew, the guys from Vita Coco had already heard the same pitch at an earlier time slot.

  Given that my offer from the VC firm in New York required that I bring a partner like Coke to the table, I figured it was time to push the question and approach van Rensburg.

  I needed to know whether Coke was in or out and I didn’t want to burn a year or two waiting to find out. But if I was going to reach out to van Rensburg, I needed to find some way that he could make a personal connection with the Zico brand and ideally me. Everything I knew about him indicated this would be a challenge. He appeared reserved, very professional, polished, and rational, and unlikely swayed emotionally. But I knew one powerful motivator was already at work in the Coke system, and I’ve found it at work in many of the major consumer products companies these days: fear.

  Coke was losing market share and simply couldn’t be left out of the next big trend. If Coca-Cola continued to shell out billions of dollars to buy upstart brands, they would likely take a hit on Wall Street for not being a leader in their own industry. What was personal to van Rensburg I’m sure was making this VEB experiment a success, and fear of missing out (FOMO) can be a powerful motivator for anyone in business.

  One call is all it took to set up a phone meeting with van Rensburg after the trade show. I had hoped it would just be the two of us on the phone, but when the call went through Deryck put me on speaker with Mike Ohmstede and Matthew Mitchell, two VEB executives I had gotten to know rather well.

  I got straight to the point. I told him that I knew Zico was smaller than the companies VEB wanted to partner with but that because coconut water was developing so fast, they should reconsider that position. I said that we had the next round of investment all lined up and that now was the time for Coke to enter into the picture. I wasn’t giving them the hard sell—these were just the facts as I knew them—but I did try to hint at a future that I knew they’d loathe.

  “If I do this deal without you,” I said, “you won’t get another look at Zico for three or four years. By then we’ll be twenty times the size and valuation and you won’t be dealing with just me. I’ll have a tough, pain-in-the-ass VC or private equity partner at my side setting the terms and conditions. Let’s just sit down and see if there’s anything here.”

  “Can you just hold on the line for a minute?” I heard Deryck say.

  “Here is what we’re going to do on our end,” Deryck said when he came back on the line. “We’re going to take a close look at Zico and try to get you a definitive answer about our interest soon. But in doing that we’re going to research the whole category including your competitors. No promises about w
here we’re going to come down.”

  “Fair enough,” I said. “I’m confident that you are going to like what you see in Zico. The last thing I’d say to you is don’t take too long. We’re going to have to make a move with someone soon.”

  A few weeks later, I flew to Atlanta to give a full presentation to both the complete VEB staff and a few other Coke executives. Jim and I prepared hard for the meeting. The possibility existed that Coke was planning on launching their own brand or were already leaning toward partnering with a competing brand. In that case, all I was doing was giving them information that they would use to compete against me. I figured it was a risk that I’d have to take.

  This was perhaps one of the most important presentations of my life, and though I’m often my own toughest critic, I nailed it. The mark of a great salesman is to be able to sell anything to anyone. I’ve never had that skill. However, when most people really believe in something, the way I believed in Zico, they can be very convincing. What made my pitch even more compelling was that I wasn’t asking Coke to put a great deal at risk. We’d sign a contract that would give them a path to ownership and I’d use that relationship to bring in other financing for the company’s near-term needs.

  At dinner that night, Jim and I knew that we had nailed it. Our belief was confirmed a few weeks later when I got a call from Mike Ohmstede at VEB.

  “Here’s where we are,” Mike said. “We looked at many options in the coconut water category and Zico is our leading contender. There are only two other options on the table. One is an internal play and the other is a real wild card option that has been brought to us by, well, let me just say, a friend of Coke’s.”

  I told him that I was pretty sure I knew the options he was hinting at. The first, I said, was the possibility of launching a Jugos del Valle coconut water product since Coke had recently acquired that Mexican brand.

  “Well,” he said, “I can’t confirm that.”

  “You and I know that’s not going to work in this market, Mike. It’s a Hispanic brand and not going to go mainstream. That’s not a real option.

  “That second option,” I went on, “I’m going to guess is that the friend of Coke is someone who flies a lot of celebrities around in private jets. Jesse Itzler has come to you, hasn’t he?”

  “How do you know all this?” he said, now sounding a little paranoid.

  “I do my homework, too, Mike,” I told him. “I know this business and I’ve heard Jesse is a big fan of coconut water and looking to get in.”

  A few weeks later, I got another call from Mike confirming that Coke had picked Zico as the brand to partner with but they would only do it as the lead investor. There were a lot of details to be worked out, he told me. The executives above him were still concerned that Zico was small and that it needed some celebrity endorsers. Of course, Zico didn’t have the money at that time to contract A-list celebrities or athletes, but with a major investment and Coke as a partner, I was confident we could figure it out. In pitching to Coke, Mike told me, Jesse had brought along a funny little home movie about a dad having to harvest coconuts from his backyard when his kids wanted a drink. The dad in his little home movie: Matt Damon. That got the attention of Coke executives and frankly mine, too.

  “Are you telling me there’s no deal if Jesse isn’t involved?” I asked.

  “No,” he clarified. “I’m just telling you it’s going to be easier to get it done with him involved, so you need to decide if you want to do that.”

  SKY-HIGH RAPPER

  I knew Jesse’s story. Among businesspeople in New York and beyond he was something of a legend. Though a serial entrepreneur he was most known for co-founding a private airline company, Marquis Jet, without bothering to own any planes or hire any pilots. He and his partner had the audacity to go to NetJets, a wholly owned subsidiary of Warren Buffett’s Berkshire Hathaway group, and tell them they were missing a big opportunity. The bold, young entrepreneurs suggested using NetJets’s planes, pilots, and infrastructure but selling the service under another name. The idea was so outrageously audacious as to be almost beyond belief. Imagine going to Ferrari and saying, “I’d like to sell your cars but I’ve got a different idea how to brand and market them.”

  NetJets was already doing great business selling shares in private jets. When once you had to come up with $40 million to own a private jet and millions per year to operate it, they made this luxury available “down market” to those who could afford only a fractional share in a jet. Jesse and his partner suggested to NetJets that they could bring in an even less rich crowd (say, a star athlete who had just signed a big contract or a B-list actor who was “only” making $2 million a year) by selling twenty-five-hour cards and marketing it under the name Marquis Jet so as not to dilute the rarefied NetJets brand.

  Somehow they wrangled a meeting with Rich Santulli, the founder and CEO of NetJets. Santulli took a look at these twenty-something New Yorkers, the story goes, and escorted them to the door in under eight minutes. Remarkably, Itzler and his partner were undeterred and kept pressing the idea.

  They did have something to bring to the table. Jesse had started out as a rapper and a music producer, and so he had access to up-and-coming celebrities in the New York scene. (If you want to transport yourself back to early 1990s pop-culture, check out his song “Shake It Like a White Girl” on YouTube.) To prove that, when he got another meeting with Santulli, he brought along members of Run-D.M.C. and former New York Giants star Carl Banks. Again Santulli passed but this time less forcefully. A half-dozen meetings later, Santulli consented to the partnership.

  If Itzler wasn’t already a hub of the New York in-crowd, his role in Marquis Jet made him into a celebrity among celebrities. Developing a marketing plan for the business was the first project on the nascent reality TV show The Apprentice, featuring none other than Donald Trump. The black Marquis Jet card became the status symbol among those with more status than they knew what to do with. He hung out with Gisele Bündchen, LeBron James, and the Knicks. LeBron spent time with Itzler at his lake house and Matt Damon flew with him to celebrity poker tournaments in Vegas. The mantra of Marquis was “Get in their lives.” Jesse and the staff of Marquis made it their business to know the birthdays, anniversaries, preferences, and food allergies of all Marquis clients. As if that weren’t enough to make Jesse the center of gravity among celebrity elite, he soon fell in love with and married Sara Blakely, founder of Spanx and hero to millions of women who didn’t want panty lines to show through their pants. Jesse’s Rolodex was legendary and, I was learning, something to be both respected and feared.

  Celebrities—who have always held a spell over the American public—were growing in their power and influence. Big-name actors, musicians, and athletes have often been paid well but until rather recently, those making the real money off movies, concerts, and sporting events were the owners and businesses behind the scenes. That was changing. Celebrities were becoming increasingly savvy as businesspeople, and they were beginning to expect ownership stakes in both the public spectacles they starred in as well as in the products they endorsed.

  More and more celebrities wanted in on the beverage action and their handlers, agents, and business managers were all looking to make deals. I met many of these supposed connectors. Vita Coco had retained one themselves, Guy Oseary. I knew we could do the same but perhaps Jesse could figure out how to do it more organically. After all, he was basically one of them now.

  Jesse, I learned, was also an avid athlete and a serious distance runner, which was where his interest in the hydrating quality of coconut water was first sparked. The year before he had run a 100-mile road race with 135 other runners, using the event to raise money for charities. After a full twenty-four hours of running, fueled in part by Zico, Jesse placed in the top twenty-five, had run 100.8 miles, and had raised over a million dollars for charity. Recounting the achievement, Newsday called him a
“marketing genius with a heart of gold.”

  He sounded like a guy to have on your side, so I called Mike from Coke back and said sure, let’s give this a shot.

  THREE-WAY DEAL

  Not long after, we arranged a meeting in New York with Jesse, his key adviser, and Coke’s VEB group’s Matthew Mitchell and Mike Ohmstede. From the start, I could see Jesse’s appeal. Tall, with curly blond hair and a big smile, he wore jeans, an old T-shirt, New Balance running shoes, and a headband—the same outfit I would see him in nearly every time. He had a style and coolness that seemed utterly his own.

  The meeting was informal and Jesse impressed me with his genuine love of Zico and how much he knew about how we were building our business. According to Jesse, our efforts had netted dozens of celebrities and athletes as devoted customers.

  “If we bring these names in as investors and figure out how to leverage them,” Jesse told me, “I think we can use their affiliation to take Zico mainstream. I think it would be a blast to work with you and if we can be of help, I’m game for whatever works.”

  Matthew Mitchell commented, “Three-way deals are tough. We just need to be clear on a couple principles from Coke’s side. First, you know we’re not typical VC investors. We need to have some sort of path to ownership. Second, we’re not going to pay twice: meaning we’re not going to invest a huge amount, help build the brand, and then be expected to pay some exorbitant multiple at the end.”

  I interjected, “I get it, you don’t want to repeat Vitaminwater. We’ll figure out a way you can buy Zico someday for three billion dollars, not four.” Everyone laughed.