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Grab Your Atlas

With all the opportunity in the world awaiting, why would you start a local business?
March 1, 2001
URL: http://www.entrepreneur.com/article/37914

In 1998,the two owners and sole employees of Mindless Reaction decided it was time to think big. Bigger, at least, than the 12 T-shirts they'd designed in their garage over the past two years and sold to family, friends and local Huntington Beach, California, surf shops. As the company's booth became a popular stop at trade shows and stores nationwide began clamoring for more of their products, high school pals Marcus Avritt, Rudy Senteno and Keith Mallos realized their passion for riding the waves and looking good doing it had the potential to turn terrific profits-not just at home, but in international markets thirsty for products with American cachet.

"There was never a doubt," says company president Avritt about whether Mindless Reaction would be a global success. "We were living in Huntington Beach where a lot of successful clothing companies came from, and we knew everybody in the industry. Maybe it was just inexperience or youth. We just kind of dove in headfirst and never looked back."

Almost immediately after Mindless Reaction began its big domestic push, international distributors came knocking on the door of the company's tiny 2,000-square-foot office. But the young entrepreneurs knew if Mindless Reaction was to reach its multimillion-dollar international potential, they had to first firmly establish their brand throughout the Unites States, and second create a careful global business plan. "We didn't want to move into [international markets] too fast," says Mallos, executive vice president. "We wanted to get more established domestically before we went overseas. Our domestic business really drives the rest of our business. The brand needs to be popular here or it won't be popular there." Perhaps, but would the international marketplace be willing to wait?


Catherine Roberts is a freelance writer in Ocala, Florida.

Getting Started

Establishing the Mindless Reaction brand in the United States took big money, smart marketing strategies and lots of late nights at the office. Expanding the brand was the company's first step. Creating surfwear alone would not take Mindless Reaction to the top, the owners decided-the market was saturated with surfwear companies that were already household names and had millions to spend. After reconfiguring the clothing line to what Senteno calls "Grand Lifestyle" (higher-scale clothing that reaches beyond the surf category) and changing the logo to make it more globally recognizable, Senteno felt the brand was ready. "We definitely have more freedom in design and more freedom in marketing [with the expanded line]," says Senteno, the company's sole designer.

Mindless Reaction began to advertise heavily in top magazines catering to men in general and surfers in particular, such as Detour and TransWorld Surf. Then they took to the road, hitting any and every trade show within a reasonable distance. "We wanted to show people by our marketing, our advertising and our product who we were," Mallos says. "Big trade show booths, solid advertising across the board for an entire year-people just saw us come out as a major player."

Indeed, image can be everything when trying to attract both domestic and international attention, says Frank Penski, a partner at New York City law firm Nixon Peabody LLP. which specializes in international dispute resolution. "Why is somebody from Europe going to look at this product and say, 'That's the one I want to sell'?" asks Penski, who assists business owners with international law and overseas deals. "It's the different way the thing is being marketed, the packaging it's in, the image it creates to this person coming [from overseas]."

The success of the trade shows and abundant advertising sent domestic business booming nationwide as the company landed such high-profile clients as Fred Segal, Limbo Lounge and Ron Jon Surf Shops. Mindless Reaction was finally ready to open the door and step onto the international fashion scene.

Lawyers And Trademarks
Don't leave the States without 'em.

When the time's right to head overseas, don't just think profits-think protection. Trademark protection, that is. "The first thing to do before you go international is get lawyers who understand your market, have dealt with other companies and can hold your hand," Mindless Reaction president Keith Mallos instructs.

Mindless Reaction learned this important lesson the hard way. Last year when the owners decided to expand into surf-crazy Australia, they were shocked to find their product was already being sold there. At one of the U.S. trade shows, Mallos explains, a thief liked what he saw in Mindless Reaction so much that he took the product and its logo into Australia as his own. "We had to buy it back," laments Mallos.

It was an expensive lesson for the eager young entrepreneurs steering Mindless Reaction. According to Frank Penski, a partner at New York City law firm Nixon Peabody LLP who specializes in international dispute resolution, the mistake was in not getting the trademark registrations completed for each country they were interested in selling to as the brand became popular.

"The price of getting [a trademark] back can be high," says Penski. "People make a living off it-not just stealing the trademark but also stealing people's ideas." In some countries, he adds, you can never get a stolen trademark back.

"Trademarking is the key," echoes Mindless Reaction designer Rudy Senteno. "Protect your brand, and don't let it out. Protect it as if it was your child."

Finding Capital

Now came the hard part: finding the financial backing to make their international quest as successful as their domestic one had become. "There's not much room for a small company with limited finances," Mallos says, adding that the big powerhouses in any industry can move anyone out of the market who lacks the monetary support.

For the three owners of Mindless Reaction, it proved helpful to have friends in high places. All they had to do was look in their high school yearbook or drive past their favorite teenage surfing spot. Former school chums and surfing buddies were then $6-million-per-year Atlanta Braves left fielder/first baseman Ryan Klesko (now on the San Diego Padres) and his business partner, Richard Spear. Klesko and Spear joined the company as co-owners in 1999 when their holdings company purchased a share of Mindless Reaction.

But financing isn't the only thing the new partners brought to Mindless Reaction. "We use [Klesko's] status to help promote the brand," says Mallos. Who says Klesko talks up the brand to fellow players. "His exposure is incredible."

Making Connections

Flush with expansion capital, and with international distributors begging for a chance to sell Mindless Reaction, the owners decided which country to hit first: Japan. "It wasn't that we said, 'We've got to get to Japan first.' [It was] the way they supported and pushed the brand. We found a distributor who would control our distribution properly, work well with us and put a good deal together."

Finding the right company to sell their product was a long process, but the parners finally signed an exclusive three-year deal with World Style in Osaka after nearly a year of interviews with potential distributors. "You can't just sign a deal with them, send a product and then never hear from them again-because your product [could end up] in Kmart in Japan, and that's not where we want to be. It'll ruin your brand," Mallos says. "If you ruin your brand internationally, you'll ruin your brand domestically.

"You've got to train [distributors] and teach them and learn about their markets," Mallos says. "We need to make sure they're an extension of Mindless Reaction because the brand needs to be portrayed the same through everyone's eyes."

Penski agrees that a distributor can make or break your chances of success overseas. He advises answering the following questions before signing on with international distributors:

1. Are they going to put up the money, or are you?
2. How big a staff do they have?
3. How good are their contacts?
4. What kind of stores will they put your product in?
5. Will they buy your products, or will the product be on consignment?
6. Who will be responsible for shipping, transportation and orders?

And that's is just the beginning, Penski stresses.

Business owners should be aware of different traditions outside the U.S. and understand that a distributor may not be able to follow your instructions to the letter. "You have to be careful with trying to get people in foreign countries to do things your way unless you know it's an acceptable way to do them," he says. "A lot of times what works here may not work there. In the U.S. sometimes you see banners and lights and flashy displays all around stores; in Europe, that could be a sign of cheap goods. You have to be attuned to what the situation is."

You can never control everything that happens to a product overseas, which is why Avritt says he visits Japan two to three times a year. World Style returns the favor with visits to California four to six times a year. "Get your passport, and try the sushi," Mallos laughs, adding: "You have to be over there. [Avritt] deals with the Japanese, goes to every store, sees where they're selling [the product], sees what kind of clients they have, what other brands are around, and makes sure it's merchandised right in the stores."


Spread It Around
Top 5 qualities to look for in an international distributor

Finding the right person to handle your product overseas is a bit like finding the right baby-sitter. If a company's management forgoes their homework and trusts the first distributor who seems interested, it can ruin the product both internationally and domestically. Frank Penski, a partner at the New York City-based law firm Nixon Peabody LLP specializing in international dispute resolution, offers these five tips for choosing the right international distributor:

1. Make sure the distributor is on solid financial ground. "That's where the biggest problems come in," says Penski.

2. Choose a distributor who is honest and respected. If you've got a guy who has bee convicted of crimes, you are bound to have problems. Ask contacts for resumes and references.

3. Visit the company in person. "I have a client who hired a guy to do something for him in Australia and come to find out, he gave him an address that didn't exist," says Penski. "He had business cards printed and everything. The guy was a complete fraud, and he was an American. Go over and see who you're doing business with."

4. Find out the company's track record. Says Penski, "Has he distributed other products like this, and how did they turn out? Look at other products he has put on displays for other vendors." And check with the vendors to see if they're happy with the arrangement.

5. Look for a company that has similar values to yours. "Where Americans sometimes gets in trouble is hiring guys that discriminate against women or minorities, or have some cultural biases against some of the things you want," says Penski. "You need to get somebody who is acquainted with the culture but does it your way and is willing to work with you as your helper."

What Lies Ahead?

With the World Style deal in Japan already a year old, Mindless Reaction is now in negotiations with distributors in Europe, Canada and Australia. Though Mallos and his four co-owners prefer not to divulge sales numbers for their privately held company, they reveal the company is a multimillion dollar venture and that the coming year will be a busy one both domestically and internationally. In October 2000, Mindless Reaction moved into a 5,000-square-foot warehouse to help prepare for the expansion of its line to inlcude a women's sector. "That's just a natural growth progression," Senteno says. "We're not looking to be a mom and pop surf company," Mallos concludes. "I think for anybody in business, their mindset has to be growth. If it's not, then what are you doing?"

If the five young owners continue to show the business sense and patience they've used to bring Mindless Reaction so far in only two years, this small but rapidly growing company may be the one to watch as its brand continues to take more rack space away from the top household names in the industry in stores throughout America and overseas.