Rags To Riches
You have to have a few screws loose to think you can compete against the multibillion-dollar food giants. What's more, it takes chutzpah to do it with little money.
But to the dismay of major food companies and naysayers alike, 32-year-old Chad Scales did it--all by himself. He jumped smack into the healthy eating craze by launching Boston Brands Inc., a Boston-based company that makes RealFruit, a dairy-, fat- and cholesterol-free frozen dessert.
By 1986, when Scales enrolled in the marketing M.B.A. program at Michigan State University in Lansing, he knew he wanted to start a food company. It didn't matter that he had no idea what kind or how to do it. He wasn't thinking about those minor details. All he knew was he needed to get some experience and learn the food business. What better way to do so than to work for a big food company?
"My philosophy was to learn on their time," says Scales. "I figured I'd spend a few years working for major food companies, learning the fine points of product management," he says, "then I'd go off and do my own thing."
His first job was assistant product manager for Pillsbury's Hungry Jack pancake brand. He stayed at Pillsbury for three years before going to Colombo Inc. in Andover, Massachusetts, in 1989, to build a line of frozen desserts. By then, Scales knew he wanted to own a company that made a dessert product. All he had to do was find the right one.
"It was an opportunity to build a brand and get my hands dirty," Scales says. "Colombo had a soft-serve ice cream company. Now they wanted a frozen grocery product and they hired me to help get them into the market."
Scales jumped at the opportunity to test his wings and execute all the critical steps of taking a product from drawing board to marketplace. He found manufacturing plants to lease and built a national infrastructure of distributors and salespeople.
"It was a priceless experience," Scales says. "You don't learn this stuff in school. By the time I left, I knew enough about the food industry, especially the product development end of it, to start my own company." Scales had also made friends at every critical level of the food production industry.
In 1992, having built a $27 million frozen yogurt line for Colombo, Scales left the company to launch Boston Brands. Having seen how successful Colombo's frozen yogurt was, he felt the market was ready for a new frozen yogurt-type product.
"I decided to develop a fruit sorbet," says Scales. But not just any sorbet. Scales' grand plan was to create a fat- and sugar-free sorbet, full of chunky pieces of fruit, for calorie- and fitness-conscious consumers. "By then, I thought I knew what consumers liked and wanted," he says. "I felt I could compete with the frozen yogurt category with a product that not only tasted good but was actually good for you."
In 1992, with $20,000 of savings, Scales launched Boston Brands out of his three-room apartment. He liked the name because he thought it sounded like a big company. He also cajoled a telephone company salesperson into giving him an impressive, corporate-sounding number that ended in two zeros. "Image is important," Scales says.
Big food companies invest millions of dollars in laboratory-like kitchens, staffed by squadrons of food scientists and brand managers who will spend years developing new lines of products. Scales developed his product in his kitchen. "My mission was to keep costs down," he explains.
Scales' neighbors, however, didn't know what to make of the 18-wheelers that delivered the 50-pound tubs of fresh fruit samples provided by Dole, Chiquita and Sunkist. Because they were too big to be stored in the refrigerator, Scales kept the tubs in a snowbank outside his apartment house.
"I don't know what I would have done if it wasn't winter," says Scales, who rented a batch ice cream freezer to store the finished sorbet.
Then, working practically around the clock, Scales experimented to find that winning combination of fruit flavors. Adding fruit juices to mixed whole fruit, he searched for that special taste. Every few nights, he recruited friends to stop over for sorbet parties.
"I needed guinea pigs to taste the formulas so I could get different reactions," Scales chuckles. "Every time I thought I had the formula, something wasn't right. It would come out frozen when it was supposed to be soft, or it was too sweet, too tart or too bland. One of my friends complained that the first batch tasted like Lemon Pledge."
Six months later, Scales had perfected five fat- and cholesterol-free sorbet flavors--lemon, strawberry, raspberry, wild berries and mandarin orange. Then the real work began. Scales was satisfied with his sorbet formula, but the ultimate test would be to have a batch mass-produced and packed in a commercial plant. He called in a favor from a contact he had made during his stint at Colombo. Since he parceled out plenty of work to the plant, he wasn't skittish about asking for a payback.
"I asked for 90-day payment terms," says Scales, "which would give me enough time to comfortably pay for the work."
Scales knew he had a hit when workers at the food plant were taking samples off the line and eating them. All he had to do next was find a home for the 48,000 pints he was turning out each day.
Once again, Scales tapped his network of industry contacts. He had samples of the sorbet packed in dry ice and mailed to half-a-dozen buyers. "I enclosed a short note to each distributor that said something like, `Here is the product. Will you carry it? I'll call you later.'" Luckily, distributors in Washington, DC and New England said they'd give it a try. One Boston distributor put $48,000 worth of sorbet into supermarket and specialty store freezers throughout the city.
By the beginning of 1993, Scales was moving his product, yet his balance sheet was nothing to rave about. He was $98,000 in debt from delaying payments on packaging, design and research bills, which he considered pretty good for a shoe-string start-up. But he needed cash to keep himself going until the orders started pouring in. Rather than take out a bank loan, he borrowed $30,000 from his parents.
"I wanted to avoid investors if I could, so I could keep control and not have to answer to anyone," says Scales. "I needed just enough money to get me into my second year."
By spring of 1993, RealFruit sales were picking up and consumers were coming back for more. Scales finished 1993 with sales of $600,000, motivation enough to expand. First, he took an office and hired his brother full-time to help build the business. Then, he booked flights to cities around the United States, in a campaign to entice distributors to take his product. Scales felt that reception in two major markets, Boston and Washington, DC, would pave an easy path to success. Once again, he was in for a rude awakening.
"Most people said, `Get the hell out of here,'" laughs Scales. "They just didn't get it. They thought sorbet was something served in fancy restaurants, between courses. They said `Regular folks don't eat sorbet.'"
Scales wouldn't give up. He knew he had a great product and that the resistance he was encountering was just part of the song-and-dance entrepreneurs have to endure to get their products on the shelves. A few weeks later, he again called on the same distributors. This time, to get Scales off their backs, they agreed to try the product.
Scales also hired a public relations person to help him promote RealFruit nationwide. Scales was unstoppable, promoting his product every chance he could. He passed out samples of his product to runners at the Boston Marathon and, through sheer persistence, got himself on "The Today Show." Host Bryant Gumbel kept shoveling spoonfuls of RealFruit into his mouth, and sales miraculously jumped.
Boston Brands finished 1994 with sales of $1.6 million. By then, RealFruit was also selling briskly in Philadelphia, Chicago, San Francisco, Seattle, Phoenix and Houston. Scales attributes immediate acceptance of his product to lack of competition.
When RealFruit was introduced into the market, there was only one similar product in circulation that Scales considered to be even remotely competitive with his own. Scales claims his product caused the other manufacturer's business to drop by 30 percent in one year.
At the end of 1994, Haägen Daaz launched its own sorbet line. But by the time they got their product to market, RealFruit was well entrenched. The tasty product now sells in 25 states.
Last year, Boston Brands made great inroads. Sales leapt to $7 million with RealFruit selling in 60 percent of the country. By spring of 1995, Scales had introduced fruit bars and iced tea bars, and he's in the process of introducing yet another dessert line. If all goes according to plan, sales could top $11 million in 1996, he says.
All the while, Scales has been having the time of his life. "I can't say it hasn't been interesting," he says. "This sure beats working for someone else."
Scales also concedes it's been a tough, nerve-racking battle. "The biggest obstacle preventing fast growth was a lack of cash," he says. "I was lucky; my product scored in a couple of good markets. If I had had more working capital, I could have extended my reach when I launched the product."
Although it has been a tough three years, Scales says he'd do it all over again. "It's a great feeling building something from nothing. You're constantly learning and it's never dull. Every day is different."
Scales has fulfilled his dream. "I've always wanted to run my own company that competes with household name companies," he says. "Now I'm doing it and it feels great."
What is Scales' secret to success? Undaunting persistence.
"Rely on yourself and your instincts," he advises. "No amount of market research or pointless pontification is going to help you determine whether or not people will buy the product. Produce a great product and then do everything humanly possible to get it into the consumers' hands."
Bob Weinstein is a frequent contributor to national magazines.
Boston Brands Inc.
Founder: Chad Scales
Type of Business:
Location: Boston, MA
Year Started: 1992
Start-Up Cost: $20,000
Source of Start-Up Capital: Personal Savings
Recent Sales: $7 Million Chad Scales turned his idea for a frozen confection into $7 million.