458: Break One Rule and Break It Hard: David Lester of OLIPOP PBC

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2:42Hey Founder fam, welcome back to another episode of The Founder Podcast. Today, we're chatting with David Lester, co-founder of Olipop, the soda that's actually good for and is now stocked in over 7 ,000 grocers around the US. Now, we're going to be covering all things product R &D, marketing in a highly competitive industry, and really how to differentiate your product from the competition. Please welcome to the Founder Podcast, David Lester. Well, the first question that I ask everyone that comes on is, how did you get your job? AKA, how did you find yourself doing the work you're doing today?

3:20I started my career in the corporate realm. So I came straight out of college and went to work for Diageo, which is a spirits company that owns Johnny Walker and Guinness and Smirnoff and those sorts of brands. So I did that for about a decade. I started in London, then went to Sydney for about four years and then Brazil for two years. And after 10 years, my learning curve had kind of tapped out. And I really wanted to go and do something by myself. And it was at that point I was moving back to the States. My wife and I decided to move to San Francisco. I told my boss I was leaving and she said, you know, if your mind's made up, you might want to speak to this guy.

4:04He's looking for a business partner. That turned out to be Ben, who I work with now. And it's really how we met 10 years ago and started out on the journey together. So very kind of naive route in, but with some twists and turns worked out in the end. Yeah, that's crazy. So Olipop's your first business? It's actually our second. Yeah, so we had a prior venture called Ovi. It was in a very similar space. And yeah, very much a version 1.0. I think, you know, we did that together for about three years or so. And then we had two years in between Ovi and Olipop, you know, kind of reformulating. But yeah, OB was a classic first venture, lots of learning, made a ton of mistakes and had to do a lot of self-reflection on the back of it as well.

4:52So, you know, we really look at Olipop as kind of a 10-year-old business, even though we're technically only in our fifth year in the market. So tell me about OB. I'd love to hear the backstory. You said there was a lot of self-reflection. So tell me, can we delve a bit deeper? What happened? So how did you start that business? Did you raise any money? Like, talk us through. Yeah, so I remember, you know, when I first met Ben, my co-founder, we met at a coffee shop in Palo Alto. He had a bag of sodas that he had, you know, hand decanted into glass bottles and capped himself. And I tasted them and they tasted amazing.

5:35and um the which was kind of interesting because they were so low in sugar and he just spoke to me for a couple of hours about the gut microbiome and probiotics and i really knew nothing about this area before meeting ben i struggled to read a nutritional label but ben's background is he grew up eating standard american diet um he was overweight and in his teenage years he made a decision to change his diet and he lost weight but he also his his mental clarity improved and he became really interested in the gut brain connection so much so that he dropped out of college to teach himself microbiology and he'd been on a kind of five year journey or so getting to this point of you know having a formulation for obi and needed a business partner to help launch it.

6:31And so, you know, I got back from this meeting with Ben, my wife was at home. And I think I actually had an offer at the time from a consulting firm in San Francisco, paid pretty well, it was downtown. My wife was excited that we both be earning for the first time and we can be for lunch. And I got back from this meeting, she looked at me and she said, I know you're going to do this thing with this guy on you. And I said, Yeah, I think this is really interesting. So So, yeah, we had no, you know, I just moved to the States. I didn't know anything about the retailers here and the environment. I knew a bit about concept development and new product launches through my work for Diageo.

7:14But I didn't know anything about capital raising, neither did Ben. And so we really had to learn all of that. We made a lot of mistakes in how we structured things and also had to go through a lot of personal growth as well. I think, you know, being an entrepreneur, you require discipline in your decision making. It's hard to have that first time around. There's just a lot to learn as well. You know, it's drinking from a fire hose and I really just couldn't learn it quick enough. And so, you know, I find that once you've in startup, I think mistakes as well as your decisions more accurately compounds.

7:55So you make good decisions and those compound into great outcomes. And, you know, you make a few wrong turns and those compound over time as well to the point where you can find yourself totally boxed in. And that's really where we found ourselves. And, you know, we got a modest exit and left OB and then kind of rethought through the concept and also thought better ways that we could launch a new product as well in a similar space. So before we dive into OB, I'd love to dive a bit deeper. You said you made a lot of mistakes. What were some of those mistakes? Some of the partners that we brought in.

8:30I think you can undervalue what you've got. you know i think we had a great product a great idea and there's lots of people around you saying hey you can't do this without us um this is really difficult you need my expertise and it's kind of true um well it's true that it's difficult and it's true that you know you're going to struggle to do it by yourself but equally you know my experience is that anybody who's telling you that they have the fix for that is probably, you know, inaccurate in their assessment. And, you know, we just, yeah, we relied too much on others. And there was stuff that we just had to learn ourselves.

9:15So, you know, I went into the second venture with a lot, ironically, a lot more humility and a lot more self-confidence. I think those things are linked, to be honest. and believing in what we had built together and the concept that we had and what we were capable of doing. And so when we came to tough decisions or turns in the road, I think often, you know, startup really, you know, the thing that's most important is what you say no to rather than what you say yes. There can be a lot of decisions that can intuitively seem like the right thing to do but you know on reflection are actually going to lead you down a bad path and it's those ones that are the hardest to say no to um to uh you know know know those moments when you don't do the obvious thing or the thing that everybody's telling you to do and you take the the contrarian position so we did less of that first time around and And we picked the right moments, I think, second time around to do that.

10:20Can you give me an example? Yeah, I think in terms of our expansion, you know, we launched in conventional retail first time around. And we had an opportunity to go with a major retailer. And, you know, it seemed like a great thing to do because, you know, we needed distribution at the time. So, but actually we were a lot more disciplined second time around about the phasing of how we rolled out. So we decided, look, we're going to launch on the West Coast first. It's going to be in the natural channel to begin with. If we can't prove that this thing works there, then it makes no sense to go to conventional because that's a harder class of trade to make your product work in.

11:06um so we really should have said no to that distribution and and worked harder to uh find a natural retailer to partner with as an entry point into the category and um but instead we were just kind of grasping at you know whatever we could get our hands on at that point and it's it's difficult you know it's um it's difficult to believe that you can find the right path um You know, you lack self-confidence. You take the thing that comes to you first, even if it's suboptimal. And, you know, if you don't have the battle wounds, I think sometimes it's difficult to say no as well. Because I think, well, everybody's saying this is a great retailer and we probably should do it.

11:49And, you know, second time around, we learn to say no and have, you know, confidence in the conviction of our gut instinct. and I think our gut instinct also got honed over time because we'd seen the outcome of some of those decisions as well. So how did you end up selling Obi? What happened? Yeah, it was a modest exit in the end and there was an incubation partner that we were working with that took over the brand and we parted ways on that and decided that we wanted to start over and really own the thing ourselves. We felt like there was better ways to do this as well. Differences from Obi to Olipop were with Olipop, we launched in a can rather than a bottle because it was a more cost-effective format.

12:48It was more convenient, could scale better. We actually went into prebiotics instead of probiotics, which was the focus of our first venture, which was interesting at the time because nobody had really heard of prebiotics. But we were speaking to the leading nutritionists, microbiologists in the space. And what they were telling us is that, you know, where the science was going is it should really focus on the bacteria already in your gut and feeding them rather than putting foreign bacteria into your system. And that's really the difference between a prebiotic and a probiotic. probiotics are food with a good bacteria already in your gut and probiotics are additional good bacteria so you know we we launched with that concept um because we saw that's where the science was going and and we wanted to create a product that really helped people and we thought that was the best way to do it but investors really rejected that that thesis because it wasn't trending in the market at the time and you know there was only two or three investors that were really winning to back us at that point.

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14:35Just head to omnisend.com forward slash founder without the E to get started. All right, now let's jump back into the show. Interesting. So you end up selling Obi you mentioned a couple of times modest exit and then you took a couple years off and you spent time in reflection so when did you start Olipop and when did you and Ben decide oh yep we're going to go again did you bring some of the old team together get the gang together what did that look like yeah I mean the first thing for me after Obi was rest to be honest I was exhausted as I think a lot of first-time founders or entrepreneurs in general are.

15:21The things that have helped me be less exhausted this time, and I said the second time around, I've really enjoyed the experience. The first time I really did not. It was awful, to be honest. It was very tiring, super stressful. I realized that there's things I can't control. So that's a major thing, kind of giving up control.

15:46and understanding that you can work through most things with a growth mindset. And so, yeah, the first was rest, just kind of recuperating from that stressful experience. The second was reflection. um you know i'd come straight out of a corporate career and there's elements of that corporate training that were very helpful but a lot of it was not i mean the startup world is very very different um there's a range of paths open to you that is not the case in a corporate environment um you know it's yeah i was working for a company that operates in 180 markets around the world huge organization, biggest spirits company globally, down to starting something myself.

16:39And, you know, I learned a lot from Ben. He had never worked for a large company before and is very entrepreneurial. And I think in some ways there was aspects of what I brought to the table that he learned as well. And we talked about it together. We didn't work very well together on Ovi and we had to work that through and chat about it. So that was an element of, you know, introspection for us and some humility there as well. I think my ego really got hammered into shape. You know, I went in in my early 30s, extremely self-confident into the startup space. I thought I knew a lot of stuff and I there was a lot of stuff that I didn't realize that I didn't know.

17:20And I know he really taught me those lessons. so I came with a lot more humility second time around which helps with your growth mindset as well and then you know we also looked at the concept and Ben went to Japan for a bit and continued studying the gut microbiome and you know this is where we we landed on the formula you know Ben worked on that and I worked on the positioning and packaging and it was a you know a relatively long process, a couple of years. We really wanted to get it right. And we said, look, if we're going to do this again, it has to be better than the first time. And we definitely must do this better.

18:00And so we didn't go to market until we were confident that was the case. So tell me about those iterations with Olipop. Like how long did it take to get the formula right? Talk us through that. Yeah, that was really Ben's area. And, you know, Ben reads very widely. um you know he reads academic papers he reads eastern and western um you know nutritional science and medicine um so you know what we eventually landed on and then you know you have to look at sourcing and those ingredients and stuff too so the final formulation has eight different plant-based ingredients in that for digestive health uh we ultimately ended up doing research with Baylor and Purdue Medical Colleges last year to look at the efficacy of those of those ingredients.

18:52And, you know, it's academic standard research. It's, you know, you can't pay these people to invent the results. And the response that came back was fantastic, showing that Olipop is improving, is increasing the diversity of the bacteria in the gut, increasing the production of bifbacterium which is the main human uh probiotic present in breast milk and also increasing the production of short-chain fatty acids so that was really Ben's area spent a lot of time on that um and I spent a lot of time on the concept and you know we spent all of our money on a design agency and working through a packaging design that took about a year to develop.

19:39And then I ran, I think about 10 research groups myself across Northern and Southern California, just reaching out to friends and saying, Hey, can you get a group of five to 10 people together? We'll buy you dinner at your house if we can come and ask you some questions. And we tested everything from the name to the packaging to the liquid. And we saw that the packaging concept we developed really did not work. But it told us what we needed to do, which was really get back to what the soda category is all about. And that's fun, refreshment, color, which indicates flavor and vibrancy. And so we redesigned two, three months before launch after we'd raised our seed round.

20:27So we were working on things right up to the wire for launch. Yeah, wow. Wow. So had you placed an order and what is an MOQ when it comes to kind of beverages? Like how does that all work? And yeah, talk to us about that, man, because it sounds like it'd be cost intensive. You got to keep your stuff refrigerated. Yeah, it's not like tech. Yeah, manufacturing is it's slow, it's expensive. um you know it's where we had to raise the initial seed round even to get started because you have to buy materials and line time and packaging so um we'd certainly done we'd been approved of our cans um i'm not sure we printed them at that stage um but the proofing process is quite a long one for cans um you know you have to go and look at you know a sign off on on how the the printed can is coming out so by the time we changed packaging we didn't have time to do that process again so we had to kind of plastic shrink wrap our uh our cans for launch um which is quite expensive so um yeah you know the you're talking about tens if not hundreds of thousands of dollars at times just get started in the feed and beverage industry depending on you know beverage is very difficult to produce a small scale sometimes if you're in food and you're making a bar or something like that you can you know start off making it yourself in your kitchen or whatever and ship them out but beverage is very difficult you need to rent line time at a manufacturer and that that's expensive so uh it took you about a year to work on the concept all the way to launch you did sounds like pretty extensive testing not only on the just the actual product itself but the packaging and branding and marketing and the appeal um what was like how many like what what You went to an outside manufacturer, right, to produce the product.

22:42What was the minimum order quantity for someone just thinking of starting a beverage company? Like kind of what? Like is it 10 ,000 drinks? Is it 20? Is it 100 ,000? How does it work? Yeah, what you'll find is there's different scale of co-manufacturer And, you know, the manufacturing partners available to you at small scale are very limited. And they tend to not be as technically skilled because, you know, the big guys don't want to produce small volume. It doesn't make any sense for them. And what's difficult in the food and beverage industry is that, you know, nine times out of ten, a company will do a first run and then never return.

23:32So these co-manufacturers are not very interested in your first run. Sometimes they're not paying much attention to the quality. They almost don't expect you to come back because it's often the case. So if you find the right partner, you can produce a relatively low minimum water quantity. I mean, you'd still be in the thousands of cases. Um, but you know, you could produce say 5 ,000 cases maybe, which is relatively low order in our space. Um, but you know, it's, it's challenging to work at that scale. Um, beverage is not designed to be produced at such small scale. Um, you know, you look at the most effective manufacturers, Coke, Pepsi, you know, they're churning out literally hundreds of cans of bottles a minute on their lines.

24:24That's when they're operating most efficiently. So that'll also impact things like your cost of goods. So, you know, you're looking, you'll struggle to make money until you're over at least$30 million in revenue, I would say, because it's just very difficult to produce, you know, cost effectively at that scale. Yeah. So talk to me about launch. You said with OB, you guys launched into retail from the research they've done. You guys are now in like 7 ,000 different grocers now, but did you launch into retail this time around or you did direct-to-consumer? Talk us through that. Yeah, we're now in over 20 ,000 doors nationally.

25:10We're nationally in Target and Walmart and Whole Foods and Kroger. We started in 24 stores, independent stores in Northern California. And, you know, there's one piece of advice I would have is that scale is definitely your friend when you're starting out a business because the thing that's really going to eat cash is scale. And it's also very difficult to pivot when you're at scale as well. So if you're in a sophisticated retailer or a large scale retailer, Walmart, for example, there is no wiggle room around missing an order or not delivering something the way they want it delivered. Independent retailers will give you a lot more wiggle room.

25:52You can be out of stock for a week and then go back in stock. You can have a lot more control over that distribution base. And as I say, you're just eating through less cash because you're at lower volume. As soon as you start, once you're in 20 ,000 doors, we need a much bigger manufacturing team. We need a bigger sales team. Our cost of inventory is huge now to keep pace with that. So we started in 24 stores. That expanded to Erewhon in LA and then to Whole Foods and then to other retailers on the West Coast. And then from there, we started to go national, but we only went to the next stage once we were confident that it was working at the level we were at.

26:40And by working, I mean, you're seeing good rate of sales. So often I hear entrepreneurs saying, well, our rate of sales is bad, but it's because we couldn't get a sample in those stores or whatever else it may be. Your product needs to be visible on shelf. But if that's the case, then there should be natural turn and demand. The product consumers should be finding it, finding a use for it, filling a need state, and then them coming back to repeat purchase. And that was what was happening with Olipop. So with ours really sampling the product, which we couldn't because we launched through COVID, you know, we're getting very high, healthy rate of sale initially.

27:25And we saw that in the independent trade, then we saw it in Whole Foods. And then we tested conventional and we saw it there. And we started to expand into other regions. And we saw it there as well. So we just kept on going. As we've seen, you know, as we've developed confidence that, you know, it's working at each level. Because if you end up in a position where you have multiple regions or retailers that aren't working, that's when you end up hitting the panic button as an entrepreneur because those stores will delist you and you might not get back in. And or investors will look at your performance and say, this is a brand that does not have legs to it.

28:07And so you'll struggle to get investment as well. It's always a through line that people project off. So it's much better to be in 24 stores selling amazingly than 100 stores doing the same volume, not selling that well, because people will just project that through line as you scale and say, well, what's the potential of this brand? And it doesn't look as good at that point. Hey guys, I hope you're enjoying this episode and learning a ton. As you know, in this series, we interview some of the greatest founders of our generation to find out how they did it. However, if you're thinking of starting your own business and you want to hear from some incredible stories from everyday people like you or I who are actually in the trenches, only been building their business for maybe one year or two years, like they're building right now and they're really in the early stages, but they're getting success, you should come and check out our new podcast from Zero to Founder, hosted by our community manager, Molly Flynn.

29:06These are in the trenches stories from our very own successful students that have gone through some of our programs. People just like you who are deep within the process of building their very own successful business. These are the founders of tomorrow. You can find the From Zero to Founder podcast on all platforms. And remember, it's founder without the E. All right, now let's jump in the show. So can you tell us about your philosophy around break one rule and break it hard? Yeah. So I did a lot of innovation in my time at the RGO, which meant launching new products. And so that was bringing some new to world products.

29:49It was line extending off established brands like Smonoff and Johnny Walker. And I launched tens of different products. And we went through a gated process at Diageo, which involved you taking the product at each stage to the executive team and they would interrogate it and you launch strategy in P &L. And that was extremely useful, as you can imagine, because you've got experienced executives who are pulling apart your business plan. And I would say of the stuff that I launched, 90 % of it did not work either. So, you know, I got the opportunity to see how things were not working, things that you were really excited about and thought would work.

30:35And you're like, oh, I see why that didn't work out. And there's only so many different ways that a consumer goods product can go wrong. So if you've seen 10, 20, 30 examples, you start to see patterns in what's going wrong and which things are likely to work and which things aren't. One of the big ones, and this came from Sil Sala, who was the global innovation director at the time, she really encouraged this idea of break one rule really hard and keep everything else the same. Consumers, where you've got heavy disruption, consumers really struggle to, it can get overwhelming. So they don't know where to place you.

31:20They don't know what your product is or what it does. There's odd examples. I mean, maybe you take the iPhone or something might fall into this category where you deliver real disruptive innovation. But in the majority of cases, it's quite incremental. You're improving one thing and then keeping everything else consistent so the consumer can understand and interpret the benefit of your products. So if you take Olipop, for example, you know, and really what's important is to look at the consumer dissatisfaction that you're solving for the consumer need. Consumers really don't have a problem with soda.