Bai: The Power of "Pure" Passion
Passion-market-fit, naturally sweetened, tastes amazing - what's not to love?
“I have in life all I want right here,” he says. “I love every day. I mean, I tap dance in here and work with nothing but people I like. I don’t have to work with people I don’t like.” Warren Buffett in Forbes, 1993
Yesterday’s episode of Invest Like the Best included Rohan Oza, a former beverage industry exec turned VC and an early investor in Bai, a “functional beverage” flavored water startup.
The story of Bai reminded me of a Naval post from his old venturehacks blog. It’s an example of a founder obsessed with his market who found a product that hit consumers’ sweet spot. Bai’s founder Ben Weiss created the product in 2009 and sold the company to Dr. Pepper Snapple in 2016 for $1.7 billion.
“So the only way you’re likely to find product-market fit is if you’re almost irrationally obsessed with the market and if you’ve been working on it for a long time. Where the journey is the reward. Then, you’re likely to have unique insights (in the details) and consistent execution, through thick and thin, to find fit.” Naval
Weiss graduated in 1992. His first job was at a bank. “I did it for a year, knowing it was not where my passion lay,” he said. “Then I started my love affair with coffee.”
Weiss backpacked through Italy, Switzerland, and France. He dreamed of bringing the coffee house experience back to the US.
"I thought wouldn't it be great to own a café and serve great coffee? So I lined up some financing, did a business plan, and after working a full year at that bank, backpacked through Europe and visited coffee houses. I came back prepared to open a coffee house and worked in several coffee houses to learn the business. I went to investors, but nobody wanted to do this. I was armed with all this coffee knowledge and could do nothing with it. And then I passed a multiplex cinema and came up with the idea of putting coffee into movie theatres."
When nobody was interested in backing his café he worked for Godiva, producing the Godiva Theater Cafe and later the Chocolixir product. Look at that rich and delicious cup of chocolate frozen coffee. He called it “Godiva ‘indulgence’ through a straw.”
Weiss then worked at a coffee roaster. He traveled the world to source product and got to understand the supply chain. He also noticed the rising popularity of energy drinks.
Because of his obsession with coffee and the beverage market, he was able to derive a unique insight. Coffee growers routinely threw away the coffee fruit which contains the coffee bean (technically a seed). This by-product of the coffee harvest was a potential gold mine.
“I had been in the coffee industry for many years. Energy drinks were popular, and I thought we could do better and create a health and wellness beverage that tastes great. Over the past two decades, I have cupped coffee from the hilltops of exotic regions across the globe in search of the best-quality green coffee available. When I learned that local farmers from these regions have always used the whole fruit of the coffee bush to make high energy foods and beverages, I knew that I had stumbled on coffee’s untold secret.”
“While the bean has always been harvested, the fruit was left to perish because it was simply too delicate to process. Yet, filled with phenolic components that are found widespread throughout the plant and concentrated in the coffee fruit, it is truly an extraordinary antioxidant-packed super fruit.”
“While coffee is being harvested in far-away places, the coffee fruit that protects the coffee typically gets thrown away. A harvested superfruit, rich in polyphenol antioxidants — it was literally used as compost,” he says.
Weiss learned that local farmers had long used the fruit for teas and other beverages. The fruit was also being used in anti-aging cosmetics and even sold as a nutritional supplement.
“As I saw it starting to be recognized in those mediums, I was going to use it in a functional beverage.”
In other words, he would develop it as a a natural, lightly-caffeinated alternative to the popular energy drinks.
“I looked at the market and asked myself what the most relevant category was, and that was energy drinks. What makes energy drinks vulnerable? Concerns about hyper-caffeinating. The brand was well-positioned and on trend.”
Weiss and his wife spent a year “in the basement,” developing the drink.
They called the product Bai, short for botanical antioxidant infusion. It’s also a pun: the “by”-product of the coffee harvest. And better yet, in Mandarin the word bai apparently can mean pure.
The pitch practically wrote itself:
“Pure ingredients, pure taste, and pure goodness. Just one bottle of bai contains the same antioxidant levels as a bowl of blueberries.”
In the beginning, Weiss and his father loaded cases of the drink into their car and pitched local Princeton, NJ merchants. With less caffeine, fewer calories, all those good antioxidants, and “natural” ingredients, the product quickly found fans.
“Local merchants embraced the brand because I was one of them; they gave me an opportunity in their coolers to fight it out alongside other brands,” Weiss says. “The success early on made me very confident this product had the potential to be a breakthrough brand.”
With its popularity soaring, Weiss entered a distribution partnership with Dr. Pepper Snapple Group which also invested in the company. As he developed new flavors and products, such as tea and sparkling water, he was able to roll them out in large chains such as Costco.
"The longer you're in the beverage industry, the more you realize you're really in the distribution industry."
The biggest change was the shift to a low calorie, Stevia-flavored version. This was initially called Bai5 (with 5 calories). Later it seems “normal” Bai became low calorie Bai5 and the Bai5 brand was dropped. Demand for the low calorie-version was that much stronger.
“In 2010, we noticed that customers were turning bottles to see how much sugar was inside of them. You'd win or lose on that basis, and I saw it coming--a growing unwillingness in customers to drink sugar. This is the issue that has fueled our growth.
Quite the contrast to Weiss’s work at Godiva.
“You need the right enemy and you need the right strategy" said Weiss. "We evolved as a brand by being the answer to big soda companies' dilemmas.”
Enter VC Rohan Oza who became an early investor and would find a key ingredient to turbo-charge growth: Justin Timberlake. He connected Weiss and Timberlake who invested and became “Chief Flavor Officer.”
“Five calories, naturally sweetened and tastes amazing — what’s not to love?” Timberlake said in an interview.
In 2016 Dr. Pepper Snapple Group acquired Bai for $1.4 billion.
I don’t think Weiss was necessarily “tap dancing to work” while he was putting his dream on hold and working for established companies. But his passion for coffee and beverage innovation remained and eventually this obsession led him to a unique product and marketing insight. This was followed by years of blocking and tackling, such as the Costco roadshows.
Passion didn’t guarantee success, but it ensured that he paid attention and realized the potential of the opportunity that presented itself. It allowed him to go all-in and let him create an authentic and valuable brand.
I hope you enjoyed this note. Until next time.
"When you love something it's a bottomless pool of energy. You can't force yourself to be what you make yourself into. Love is endless, will is finite." Jerry Seinfeld