#230 - From Self-Distribution to Full-Service Distributor: Scaling Ops with Smidge Beverage and Cin7

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0:53Pretty much most people, when they taste it, they're surprised there's alcohol in it. Because we're using a super premium vodka. I know everyone says that. But a lot of producers use G &S, which is essentially Everclear. we're using an 80 per vodka so it's like this is vodka that you could essentially drink with a mixer so again the number one thing people say is this is so refreshing it all starts with the purchasing like once you can better understand what kind of investment you need to make in your inventory and what you need on the shelves for the next quarter or for the next six months that's step number one right and then the growth the actual sales and the building relationships of the buyers, it seems to me like that's the second stage of growth.

1:41Everybody, ops, ops, ops, ops, ops, ops. What's up, everyone? Welcome to today's podcast. I am Daniel. As you can tell, I'm very excited because today's episode is all about ops. Here at Startup CBG, we love these kind of topics because we think it's so important for early stage founders to understand what systems could really help them as they scale. Now, in the future, just get the understanding. It's really low-hanging fruit and can just help all of your operations work the right way. Today, we've got Adam O 'Connor. He's the founder of Smidge Beverage. It's a lightly boozy 2.5 % ABV vodka soda that is just cruising in Arizona.

2:17But he started doing self-distribution. So because of his finance background, he wanted to make sure that he had inventory management taken care of. He would have a system in place so that as he scaled, that's not what he had to worry about. He could worry about growing the business. So he implemented SIN7 actually pre-revenue. So this is a full inventory and operation system that he got in place to help him as he would scale. We're also joined today by Josh, who is the VP of product at SIN7. And both of them are going to talk a lot about what does that really mean to actually try to implement the system?

2:49And what does it actually take? What are the benefits for doing it? How does it help your brand? And what are a bunch of tips for actually doing it and things that both of them think that all brands out there should know? So a big thank you to SIN7. They have been an incredible partner for us in the community. It is a hugely recommended inventory management system, and they actually offer a special discount off your first three months for this community. So check the show notes if you want to take advantage of that. And all right, everyone, let's get into it. Ops, ops, ops, ops, ops, ops. All right, here we go.

3:26All right, Adam, Josh, welcome to the podcast. I'm very excited to have you guys here today. Before we rip into it, could we just start out with some quick intros, please? Adam, starting with you. Hello, I'm Adam O 'Connor, founder of Smidge Beverage Co. It's a low alcohol vodka soda, and we are Arizona-based. All right. Josh, do you mind introducing yourself? Yeah. So I'm Josh Fisher. I'm the VP of product at Send7. Excited about this conversation today. All right. Me too. Ops is just really one of my favorite topics, especially how do your ops grow as your brand grows? Because I really want people to worry about that at the beginning so they can address it before everything just breaks when hopefully they grow the way that they want to.

4:08So, Adam, I'd love to just start with you. Could you tell me more about Smidge Beverage? Like, take us all the way back to the beginning and tell us a story. Yeah. So, again, huge fan of Startup CPG. I started listening to this podcast when I started to kind of dip my toe into starting a consumer goods brand. Huge fan, listened to a dozen or more episodes, and it's really informational. And so any founders out there who are thinking of starting something, take a listen, dig through. There's some really good topics. So that's honestly where I really just started. Books, podcasts, and I was working in Wine and Spirits for a big wine producer previously before that distribution, WineSphere's distributor.

4:49So I kind of saw this gap in the marketplace with the rise of NA category, mocktails. I was kind of looking, why is no one really going after ultra low that's sessionable? And I'm talking sub 4%. So there's a couple things out there, but no one's really marketing towards it. And really like that's their one identity. You've got some brands that are doing lower stuff, but that's not their true bread and butter. That's not what their identity is. So yeah, I just saw a gap and I was always looking for the lowest stuff, low calorie, I'm into fitness and I just, no one's doing it. I want this. Turns out it got laid off from my full-time job.

5:28And so I took it as a sign, let's do this thing. And yeah, I haven't looked back. So it's been quite a wild ride. Alk for me is more complicated than non-alk, especially because there are a lot of rules about it that also, when I think complicated, I also think expensive. and how do you actually then get the nerve to just go ahead and do it especially having been laid off and just go for it and get the branding and get the product and really make a run for it in this kind of an environment yeah i mean that's the one thing because it's three tier so you have to have a distributor supplier or brand distributor retailer customer you can't typically just go straight to the retailer although there's a loophole we kind of talk about that later like what I did, but it's very, very time consuming.

6:15The laws are really different in each state. So that makes it pretty convoluted. Fortunately, I was experienced in Arizona where we launched and where we're in market now. So I kind of knew tricks of the trade a little bit, but a lot of tripping forward and figuring out as you go. But I got laid off, I liquidated my 401k and life savings and just started the business. And from there, it's just kind of been a constant grind and just takes time to build something. I think a lot of folks that are in CPG, if you're not celebrity backed or a celebrity for that matter, it takes a long time. It's a long game.

6:51It's like the 10 year overnight success. So you've got to really stick it out and believe in the process and just know that good things take time and a lot of the brands we know and love today didn't happen overnight. Okay, and so before we talk more about supply chain and how you set that up initially in your own distribution, can you just describe for anyone out there who has not had a smidge could you just tell them about the product what does it look like what does it taste like what's the brand all about so we are all about low out so we're two and a half percent 50 calories per can it's essentially we just cut five and a half five percent avv in half right so your typical seltzer white claw truly those were 5%.

7:34Your high noons, your Coors Light is in between 4 and 4.5%. So I thought, I want something lower that's just going to take the edge off. And you can drink a few, or what they're doing now is called zebra striping, where you're drinking an IPA or a cocktail and then switching to something lower. So I thought, this is great because no matter what the setting is, there's an option for everyone. If you want to have non-alc, great. If you want something light, great. If you want the heavy thing, heavy 7 % IPA, great. It's just an incremental option for people. And I think that's what a lot of beverage is.

8:09It's just what's the option? What's the trade-off? And yeah, we're vodka-based, so we're not hard seltzer. And we've got three flavors, orange blossom, strawberry, pineapple, papaya, and blackberry, cucumber. Okay. And I know on your website, it says lightly boozy vodka soda. and i'm very happy to admit i like the whole white claw wave that happened i actually don't like stuff that's too sweet if i'm at a bar i typically don't actually order the specialty cocktails for me often they can just be too complicated too sweet i'll go for kind of a one-on-one they call it right like sort of a gin and tonic especially if i don't know the bar that well i actually have a rule if i'm in a bar that has tvs i won't order a cocktail because i feel like if they have tvs they don't know how to make them good because they're too high volume and it's going to be some pre-mix BS that I don't want.

8:59So I'll just, yeah, like, but, oh, I mean, if they have a good gin or vodka or something, I'll get something like that. But when it comes to the canned cocktails, I like the White Claw type approach. Let's say that probably they really pioneered in a lot of people's minds, including mine, where it's, okay, it's a simpler drink. It really, it's not so flavorful, I would say, like lightly flavored, but just kind of a one-on-one type approach to it. but after i initially was kind of excited about those things i found myself shying away from them a little bit because then you look at the label for i don't even remember specifically white claw but a lot of those kind of products and you're like what's in this because it just first of all it just says alcohol like the has an ingredient like i don't really know what kind of alcohol which okay i don't know i was in a frat we had like a bunch of very low quality alcohol that we would serve the people because we were on a tight budget so like i don't really know what's in this and then natty ice house if you're just trying to be effective with your money your app so i like that approach but ultimately like yeah i don't know i just found also like a lot of times the flavors weren't exactly what i wanted i just wanted that nice kind of clean crisp taste that would feel refreshing so i feel like your product is a really interesting proposition like slightly boozy vodka, the branding on it for me feels that way.

10:18Also, it's just like, okay, this looks like a little higher quality and it's lower alcohol. This is the kind of thing I could see myself drinking a few of. Is that the kind of thing you're going for? Is that the experience you want people to imagine when they look at it? Yeah, I mean, pretty much most people when they taste it, they're surprised there's alcohol in it. Because we're using a super premium vodka. I know Everyone says that. But a lot of producers use GNS, which is essentially Everclear. We're using an 80-proof vodka. So it's like this is vodka that you could essentially drink with a mixer.

10:51So again, the number one thing people say is this is so refreshing. And working in Wine and Spirits for so long, I was pretty picky on things that I drank. And so I wanted it to taste really good. And again, taste is subjective, right? But I mean, it's akin to a sparkling water with a little bit of booze. So some people actually use it as a mixer, then they do a little vodka topper. But yeah, it's meant to be refreshing. It's meant to kind of wet your whistle, so to speak. And yeah, the number one question too that I get is, is it made with malt? So it's actually pretty cool that the consumer is starting to learn the difference between the malt versus spirit based.

11:27Yeah, I think you're right on. And I don't only ever want a refreshing beverage. I'll go for a dirty martini sometimes. And I like that. But when I reach for a can like this, I do typically hope that it will taste refreshing. So congrats to you for achieving that. Okay, so I do want to focus on a lot of the distribution and supply side part of this business because, yeah, it is complex. And I know you have that background. So can you just tell me a little bit, okay, like as you start growing and you're getting these accounts, you start with self-distribution. Can you tell me what was that like?

11:58How did you imagine that as somebody who does know a little bit about this world? How did it work? Highlights, lowlights, all the good stuff. Yeah, absolutely. So getting a distributor is very hard, especially in alcohol. Four or five years ago, distributors were looking to add brands to their portfolio. Now they're trying to get rid of brands because they're just getting so bloated. Their portfolio is getting bloated. And it's kind of chicken or the egg. You've got to have distribution before you can get a distributor. So you've got to go out there, get placements, get a retailer. And so I didn't really have any other option.

12:31Like I didn't have any distributor that I could go to. I mean, I could have tried my previous work that I worked at distributor, but they would say the same thing that every other distributor say, you don't have enough distribution. Some of them require a large amount of pods, points of distribution in order to bring you on. Some of them are 200 plus. And so that gets that's pretty tough starting out. So I just figured, I'm going to get my wholesale license. And I'm going to sell straight to the customer. So because I'm not actually producing it per se, I have a co-manufacturer. I don't own an interest in production company that is actually producing products, so on and so forth.

13:14There's so many different license types in Arizona, but that was kind of the angle that my alcohol specific lawyer recommended. But yeah, I also knew that if I'm going to build this from the ground, you've got to learn every step along the way. And so that's where self-distribution was so valuable because you're the one picking up the product from the warehouse. You're delivering it to the store. You're calling on the account. You're building a relationship with the buyer. You're making sure they have enough inventory. You're filling the shelf. You've got to build that respect to keep your brand on the shelf and get the buyer essentially to trust you and know that you're in it for the long haul because they see stuff come and go all the time.

13:52And they're like, oh, great, another new product that I don't have room for. And so you've really kind of got to get their buy-in by putting in the time. Okay, so you knew this at the beginning because you know what the distributor world is like, that to distribute, they need places to distribute to. And I don't have all those yet because I also don't have a distributor. So it's a little circuitous. But you knowing that are planning to do your own self-distribution. You get the specific wholesaler's license that will allow you to do it. Probably a lot of people know about this three-tier system that exists in alcohol, But it basically, as you mentioned, says like you can't be the one who produces the alcohol and then also goes and sells the alcohol.

14:31There are some rules out there. Some people might call them arcane. I don't know. But it's very regulated about like who can sell what in alcohol, which protects the role of the brand, the distributor, the retailer. So you with the wholesaler, then you're OK, I can do some of my own self-distribution here. So you must have really thought carefully about how to set that up so that it could be efficient, scalable for you. What were your plans at that point? Well, so and that's kind of I don't want to jump ahead, but that's kind of where SYN7 came in. I needed an end to end system because not only was I doing the production run in SYN7 terms, the assembly.

15:10Josh knows that one. but it's got to be able to do every single thing like all the way to invoicing the end customer generating the invoice so i can then upload it to my portal so i can get paid right and so without having a system that can do that it's really complicated i mean there's no way and not only that but you've got to keep an eye on your inventory qbo quickbooks online you can't keep track of like lot codes serial expiration so any of the like first expiring first out first in first out, you can't do that. So it really calls for a more robust system. And I'm a finance guy by trade, like, I never held a sales role in any of my previous jobs, supply chain finance, that's my bread and butter.

15:52And so I was always working on pretty antiquated systems at previous jobs. And I kind of said, Alright, I want something that's good. And I want something that I can use without ever having to change it. Because integrating to a new system, transition is very complicated, especially when you get bigger. And so we looked at several options and we just landed on SIN7. And so, yeah, if you don't know your numbers, you don't know your business. Marcus Limones said that. I mean, I'm a numbers guy, so that's the number one most important thing for me, feeling confident in the numbers. And you've got to have a good ERP system that flows through to your accounting.

16:27Okay. So that's pretty interesting because inventory management system, it's not the kind of thing that most people, when they dream up their product in their kitchen or watching Shark Tank or wherever it occurs to them, they're like, yes, now I need a system right away to do all this stuff, right? You're like dreaming of the branding and going out and selling it or doing e-com or demoing it, whatever you think of first, but then it is a really important infrastructure that lets you do all of those things. So I think the tendency probably for a lot of founders, and Josh, you can correct me if I'm off on this, is like they get excited.

17:02They just kind of go ahead and start stuff and maybe they're ordering ingredients. And then at some point they realize, whoa, this is very time intensive when I need to check how much I have of something or where it all is and tie up all the numbers. And every time I ask that kind of a question, everybody has to run around for a long time to answer kind of simple questions. And then at some point then, then they would know to implement an inventory management system. But Adam, because you are a finance guy, you just kind of you've seen this before, right? So then you decide, actually, I'm just going to go ahead and implement the inventory management system using SIN7, like from the start, right?

17:41Basically, you're like, let me just do this the right way. Do you feel like that is actually the right approach for everybody? Or like, because, okay, wow, like you've got a lot of confidence, then it is going to grow and you're going to be successful and you're going to do it on your terms the way you want to. but you know they're also like okay you did it kind of before you even were assured that you would have the kind of scale and growth that would require it which it ended up but do you feel like that is the right approach for a lot of people how do you think about yeah i mean i think look people are going to disagree with me but i think it's critical i mean if you don't feel confident in your numbers and be able to quickly grab them and know like what's on the balance sheet and what your cogs are like you're going to be digging through spreadsheets and i love excel but i don't want to use it for everything.

18:23And just having at your fingertips and just I think the confidence like set it and forget it. Like I don't have to worry about it. I feel like it's almost like I have just everything I need. And I mean, we implemented since seven before I even did my first production run. We were that far ahead because we just felt like we want to be confident. We spent a lot of time setting up the SKUs. I mean, we probably got more detail than we needed to be and we kind of dial it back a bit or a smidge, I should say. But we wanted it to be a little bit overkill at the start because you can always dial it back.

18:56It's harder to ramp it up. That makes sense. So yeah, I'd encourage founders get it right first because once you start selling, you're not going to have time to be digging into spreadsheets. You're going to be out in the market, especially if you're self distributed. But the star, you're wearing a lot of hats and I don't have time to be fumbling through 70 tabs or whatever work wires in order to figure out how much citric acid we use it on that first production round okay so josh from your seat at sin seven you see a lot of companies when they come to you guys maybe they're already a mess or maybe they're like adam and they started clean with you guys what do you think is typical what are pros and the cons just what's common what do you see yeah so i'm listening to adam tell his story and he's clearly unique.

19:41I mean, you have a finance background and that puts you in a really strong position. Like the years that I've been doing this, what I've seen is the trend is around finance. When entrepreneurs really get serious about the numbers, that's when the business really starts to take off and you started with that attitude. A lot of entrepreneurs, they focus on the branding and building the community, getting the product right. Those are all very important things. but if you don't make that transformation from focusing on the brand to focusing on the operations and getting the numbers right the growth will never come and it sounds to me like you knew that from the beginning so your strategy was like let's get the foundation in place before I even start like you said before you even start selling the product and that obviously that's worked out well for you so I would love it if everybody did that but it's not common.

20:35it's kind of funny because i feel if you come from a finance background you're just like i'm just not gonna do it that way like that's not how i am like i wouldn't do the business if it was just gonna be a messy hodgepodge of manual excel checks all the time and running around like it's just not how you would do it there are other founders who would start other ways with their other core skill sets and just kind of like you got to be scrappy when you're an entrepreneur me me personally i will say honestly like if i ran a brand again this is how i would start it i would start with like the proper systems in place because if i'm gonna do it then i believe in it and i don't want to spend my time on manual ingredient tracking and all the messy stuff and like if you have a ops person you just have to ask them these questions and it takes them a day to come back and give you the answer like i like systems where it makes sense so regardless you use SIN7, which is very highly recommended to the community or anything else.

21:28I like a good system, especially like this is going to be your focus growing the brand this way. So I like to hear it, but yeah, definitely. So Adam, let me come back to you just on some of the self-distribution topic, because, you know, I've talked to brands who have done it successfully and I think they did it because yeah, they didn't have a distributor who would work with them. And they're like, yeah, we did it. It was really hard. And then we got to this point. I'm like, would you do it that way again? They're like, no, I wish I like, I wanted to have a distributor. I wish we had had one that would work with us.

21:59And we had all the PODs. So just can you tell me a little bit more about, okay, what was that like early stages as you started growing? What was all of the, it's intensive to do it, right? It's you're like running a distribution business. Just take us through it. Yeah, it was pretty much the same thing every day of the week, going to pick products, drop it off, deliver, merchandise it. Because again, you're in control of your own destiny. And people always told me this when I started, no one's going to care as much as you do. And so it's kind of up to you. And especially when you're just starting out, it's like, I wasn't going to hire someone right away.

22:34The distributor wasn't going to take me. So it was kind of, it was all on me to do it, which I think it was just, you build a lot of respect for everyone along the supply chain of what it is that they do. It's not easy. I pretty much got to the point where I said, okay, I cannot grow my business unless I get this off of my plate. And that's kind of just scaling, right? I mean, every step along the way, you've got to basically, what are the things that only I can do? So, you know, I didn't have time to go pitch new business and get new accounts because I'm trying to manage the existing. And so it ultimately just became, hey, this was a great way to start out, but I need to kind of offload this.

23:12Granted, I think I jumped a little bit too quickly because I was still, even with our most recent distributor, I was still in the stores, still calling on the account. I mean, and that's kind of the smoke and mirrors. Even though you've got a distributor, it still falls onto the brand. The brand, the supplier, whatever terminology you want to use, it's up to you to kind of manage those things. But distributor, you're supposed to work synergistically with them. But yeah, ultimately, at the start, you can't build a better relationship with the buyer unless you're doing it yourself. I built some really, and still today, strong relationships with these store managers, the buyers at the individual stores.

23:50And they have respect because most brands and suppliers aren't in the stores. They see their distributor rep, and that's about it. So I think it's just valuable to get that experience and kind of get your hands dirty, so to speak. Yeah, I feel like it almost can give you a pretty good running start. If you're in there, you're in all the accounts that you're in, you're talking to them, you're trying to get advantageous shelf space, you're really learning the mechanics of it, you have a very good eye to if there are stock outs, how the product is doing on shelf, being able to form those relationships that hopefully help it turn a little bit better, which also helps you get additional accounts.

24:24but yeah you're running a distribution business at that point so it's very hard to work on the business when you're that's like the definition of being in the business right so getting new accounts but do you think looking back i mean it seems like that was a great way for you to start though even though it was very time intensive to do it that way it really did give you those pods that you would need then to move into the next phase of the business what do you think was it definitely the right way to do it for you yeah 100 and this this may or may not be alarming. But my relative to how many retail stores we were in and accounts, my sales were actually better when I was self distributed, because I was in stores so much more frequently.

25:04And like, it was me, I'm squeezing out those few more cases from the buyer, because it's me and I'm pushing, right. So it's been interesting to see. And it's not like what people think, oh, you're with a big distributor, you're probably selling way more. And it's like, well, no, not really, because it's not their baby. They're not trying to build this brand and all that. So yes, I would do it the same way again. And also, like I said, I'm a finance guy, I needed to kind of get my feet wet in the sales and in that side of things to kind of learn that. So again, 10 out of 10 would recommend it. But it was a little bit of a wake up call when you're it's windshield time, Monday through Friday, you're hitting accounts, and then you're doing demos in stores.

25:44So you're essentially working every day of the week. And then you kind of realize this is not sustainable for one person and I can't cover a giant territory. It's actually not surprising to me at all that you'd be in the stores having a big impact on it because you're there, you can do demos, support the business. And also because the store owners and store employees, they get attached to you and they like you. And they're when somebody asks what's cool, they're like, well, this guy, yeah, this is cool. And I also feel like, I mean, I know a lot of people choose to drink less, which works in your favor or not at all these days.

26:13But like, I feel like having an ALK brand is like pretty cool. It's like having a band like people like to know people who have ALK brands like it's a cool thing. And so I guess one question that I have for you is here's a stereotype finance guys typically I wouldn't be like, hey, let's go run demos. Okay, get the finance guy to go. But you know, obviously you've done and you're successful at it. Was that natural to you? Or do you feel like you had to move out of your comfort zone? Yeah, so funny thing. I actually I did have someone I was working for me at early on and salesperson the whole life.