reveries.com - mike schott & john bello

FEBRUARY 1998

It's not unusual to find someone who holds the offices of both president and chief executive officer. What's unusual is to find one office that holds both the president and the chief executive officer.

That's exactly how it is at South Beach Beverages. You walk past the stuffed toy lizards, the shrink-wrapped cases of bottled whatever stacked in the hallways. You're ushered into a smallish, semi-cluttered office housing two modest desks, face-to-face. On one side is Mike Schott, president. Directly across the way is John Bello, CEO.

Right off you know there's something different happening here, and it's not just because of the way the furniture is arranged. The interview is supposed to be with Mike, but the dialogue soon turns into a triologue. It's not long -- thirty seconds tops -- before you realize that it just couldn't be any other way. Like Lennon-McCartney, Huntley-Brinkely and possibly Felix-Oscar, you can't focus the lens by training your sights on anything less than the duo.

Mike Schott is as buttoned down and serious as John Bello is not. Mike's the former president of Snapple and AriZona Beverages, who would have been a pro football player had he grown a little bigger, or an investment banker if he weren't so interested in running a business. John's the former president of NFL Properties, whose heroes are people like Davy Crocket ("that fat shit in a coonskin cap") and Ringo Starr ("hey, if he can do it, I can do it").

I grew up on the other side of the tracks. My father took the police exam at 21 and ultimately became the chief of police in Cincinnati. He was a real street person.

Together, they make marketing magic happen for one of the most intriguing new beverage brands to hit the marketplace in many years -- the SoBe brand. They also make each other laugh, because as John likes to say, "life's a giggle."

John also likes to say that SoBe is positioned more like a lifestyle (healthy hedonism) than a beverage. It's a line of what is known as "effect beverages" that are just as often categorized by attribute -- Power, Wisdom, Energy -- as flavors such as orange-carrot and cranberry-grapefruit. Much of SoBe's marketing communications builds off double entendre. The bottle has lizards on it and the call to action is "drain the lizard. " One SoBe slogan, for its Power brand, is "longer and stronger." Power is promoted as a pre-performance drink for pleasurable physical activity.

You can take that any way you want.

But the real alchemy of the SoBe brand resides within its nutritional additives. SoBe mixes in herbalisms -- things like ginseng, ginkgo, guarana, creatine, echinacea, yohimbe -- natural remedies that are getting a lot of attention these days.

Now, for Mike Schott at least, attentions suddenly have turned elsewhere. Shortly after this interview, he up and quit SoBe Beverages. Why? John Bello says, "We didn't need two roosters in one henhouse." The issues involved "where the financing is coming from and where the power is in the company," he explains (sort of).

Where is Mike now? He's president of Everfresh/LaCroix Beverages, the new age unit of National Beverage.

No matter. What follows remains a valuable glimpse of how entreprenuers launch an innovative brand, made all the more intriguing by Mike Schott's stunningly abrupt decision to ski other mountains.

How do you and John know each other and how did you end up here?

John and I go back twenty years. We worked at Pepsi Cola together. Our families have vacationed together over the last twenty years. We've been through a lot, seen a lot.

It just so happened John left NFL Properties when I was at AriZona. Basically, AriZona was flattening out and one of the partners felt an express need to go to the next level. That meant bringing on some marketing. Packaging, and the newness of the product --I don't want to say it soon wears off -- but it's not too exciting and new forever. It gets to the point where you need to start to do some of the things that the more traditional packaged goods marketers do.

So, in comes John, we're going to hire an agency, we're going to spend some money and go to the next level. The other partner decides about twenty-four hours later that we really don't want to do that. John ended up leaving about six months later to start his own company, this company, South Beach Beverages.

I got to where I just couldn't deal with the culture at AriZona. I went to Nantucket Nectars where the culture really fit my culture and it was run by a couple of guys that I thought a lot of.

What is that culture? How would you describe that?

That culture I would describe as win-win. It's that simple. I think if anything is going to sustain itself for any period of time, everybody's got to win. John talks about win-win-win, because oftentimes there's a scenario that involves, in this particular case, that all-important independent distributor.

My wife thinks I'd be great in politics. I think I'm pretty good with people. I cherish my relationships with people.

It is no secret that Snapple built this category, the New Age beverage category. Snapple is the King of this category. But through a lot of snafus created by Quaker Oats, the brand lost a little bit of its luster. They let the door open for some people. One of the people they let the door open for is John and his SoBe product. We've had some real success, I don't want to say penetrating Snapple's network, but basically making the case to the Snapple distributor, who's an independent business person, that two plus two in this case really does equal at least four, and oftentimes it really equals five. And that's a real win for them.

Oftentimes what happens is there's so many me-too products out there, the category's at the stage where we don't need another lemon tea, we don't need another juice drink. What John and his people here have created -- well before I got here -- is something that is very much in keeping with where people's heads are at in terms of effect beverages.

This company started out as South Beach beverages...

And South Beach was what I just described. It was another line of me-too juice drinks and teas. Fine product. Did all the right things, but it wasn't all that new, exciting or different.

The new age beverage category has this history of these brands that burst onto the scene -- maybe going back to Sundance Juice Sparklers -- that take off like a shot and then they just fizzle. How do you overcome that apparent inevitability of decline?

You've got to keep the product fresh and you've got to think about win-win, not only think about it, but do it. There are a lot of people in this category who say win-win, but their deeds don't match their words.

The other thing you've got to do, is put down an infrastructure and an organization, almost simultaneously, with what John is doing on the marketing side of the business. And that's why I'm here.

If Snapple hadn't been sold to Quaker...

What happened was that Snapple was already going down when Quaker bought it. Quaker didn't do the due diligence, or the due diligence that they did didn't really uncover that the brand was starting to lose its position.

Two or three days before the deal was to be announced, when Snapple told Quaker about the fact that the third quarter earnings were going to be down, nonetheless Quaker thought they knew how to fix the situation. They'd built this quarter of a million dollar brand, called Gatorade, and thought they were going to bring the same forces to bear for Snapple that were so successful for Gatorade.

My father had a great life and it ended at fifty-five. It just didn't seem fair. But I don't wake up every morning thinking what-if, what-if, what-if.

Quaker wasn't the right place, obviously, for Snapple. It also seems clear that the big beverage marketers -- Pepsi where you started, Coke -- really haven't had much success with new age, niche beverages. Why do you think that is?

I think the culture in these bigger corporations is that people would rather miss an opportunity than make a mistake. You're also dealing within the constraints of a traditional corporate culture and a bottler network. Coke and Pepsi have great networks. When John and I were at Pepsi together -- the diet Pepsi brand was a 300 million case brand. I used to fight constantly for distributor focus on a brand of that magnitude. Snapple, at its peak, was 70 million cases. That's less than one-fourth than the size of the Diet Pepsi brand 20 years ago. I don't know what size Diet Pepsi is today.

So there's a lot of things structurally -- and I would say culturally -- that may not forever keep them from being successful in this business, but there is clearly a growing, very big volume of what I'll call premium beverages, that still have real significance to the consumer. They've carved out significant part of this business that can be very meaningful to people like us on our scale.

John Bello: Mike and I came from Pepsi, where things get massaged into mediocrity. I don't think Coke or Pepsi would ever put out a bottle with lizard on it that has St. John's Wort in it. They just won't do it. Whereas I have nothing to lose by doing that. It's not in their best interest to do that because there's so much downside for them in that. I can run the risk, the entrepreneurial attitude can do that. That's where Snapple came from. Snapple just defied convention. But the big companies don't dare to be different because the downside's too great. They miss opportunities. We'd rather make a mistake than miss the opportunity.

We believe that health consciousness is not an emerging trend, it is a trend, and we're on the front end of that. One hundred million people are taking vitamins and minerals. Here's an article on Omega 3 Fatty Acids, another on St. John's Wort. Here's one on Horny Goat Weed, which is a sexual vitamin. Do you think Coke would ever use these as ingredients in their products? I don't think so! But there's a segment of people out there who want this.

Mike, you've been through some of the most stellar beverage companies -- between Pepsi, Poland Spring, and these others that have had meteoric rises -- Arizona, Nantucket Nectars, Snapple.What were the lessons you learned at each of these companies?

There is no morality in business (laughs). That's what Don Vultaggio, the AriZona founder, said in a national business magazine ("Just Call Us Cockroaches," Forbes, February 26, 1996).

I was offered a tryout in professional football. I was five-eleven, ran a four seven forty and weighed 185 pounds. I just looked at myself in the mirror and said, you know what, better find another way to make a living.

I think I learned a lot of things. I guess I'll go back to when I was at Pepsi. Pepsi was great for me. I came out of business school and initially went into a small company environment. I no doubt missed some things you learn when you work for big organizations -- certain learnings I missed. I went back to school, in a sense, when I went to Pepsi. I only spent a couple of years there, bumped into someone who introduced me to a fellow who owned Poland Spring Water. Poland Spring was very much trying to ride on the coattails of Perrier. This was 1979. Perrier had done a masterful job, especially through public relations.

I can remember having been in Europe on several occasions, even in those days, you know, of the Love Canals of the world. I just had this sense that there was this huge, huge future ahead of bottled water. Really all you had to do was look at the European experience. I can remember calling my mother and telling her I was leaving Pepsi Cola and getting myself into the bottled water business. She thought I was out of my mind.

I don't want to say I learned to always trust my gut. But my gut has caused me to take this opportunity with Poland Spring, and then later get myself into the microbrewery business. That led me into the the New Age beverage business because he whole notion of 100% natural, better for you -- and now this wave of wellness or effect beverages -- it seems and it feels right. The gut says its right.

I can't tell you what the next wave is gonna be after this wave, but there's gonna be another wave. I think it comes back to, do you have enough trust and confidence in yourself and the people you associate with to continue to be on that cutting edge? If you're not there, you'll shrivel up and you'll go away.

You also have to talk about people, and how you treat people. I talked before about win-win. One of the things I like to say is that there really aren't a lot of original ideas. It's all just a matter of how well you execute it. A lot of this stuff, literally, has been around for centuries -- St. John's Wart, ginseng, this is nothing new. But how do you package it? And then how you deal with it from the standpoint of production, shipping, billing, administration? That's what really makes the SoBe brand different. And what drives that is people.

I wouldn't want to name the company I worked at where they made the statement that the brand is more important than the people. But the people really are first. People drive the brand.

It's like this woman who called before and said she's ready to go, she wants SoBe. She's a big Snapple distributor, a big imported distributor. Some people internally here have said we'd never get her to say yes. We need those people to put those brands on the shelf because right now there's a huge gap in our distribution system, where this person distributes and where they're now going to distribute our product.

When I was at Quaker, I used to say this toSmithburg, I said, "Hey, Bill: we can have the best communication, we can have the best packaging, the best product, but if we don't have that distributor committed to putting that brand on the shelf, and merchandise it, you know what? Forget about it. It's all lost."
I don't want to say he never did get it, but I don't think he got it. You can have everything right, but if you don't have that distributor put it on the shelf and keep it there...it's a challenge for us here.

I don't have to think real hard about what I would do if I weren't in beverages. I would teach and coach. It's a no-brainer.

Something else I've learned it to not evaluate people on how they look and how they say things. I can tell you, some of these distributors may not be articulate. At Quaker, we had some real effective presenters, boy, they knew how to say it and put the right spin on it. But when it came down to dealing with the human element and understanding that distributor who maybe didn't come up with the right set of words, be careful not to make to quick a judgment or evaluation.

When you're that distributor and you see something that's new, exciting and different, and then you think about what happened with Snapple and what that created for you, and how that meant so much success. It very difficult to say, as a distributor, you know what, I'm going to pass that one by, when your gut tells you that this is like Snapple all over again. We not only have consumers calling in and saying that, we have distributors, who are Snapple distributors, saying that they haven't seen a product like SoBe since Snapple.

John: We're not selling artwork, which is where AriZona got to. We're selling a lifestyle, image, feel good. I won't say Nike is our image, but they took a basic commodity sneaker to a higher level. It means something more than that. We don't talk about it like a beverage. When you look at a beverage that delivers physiological, psychological and sociological benefits -- you just want to giggle when you deal with our product. Want to make a little money, have a little fun. Life's a giggle.

Mike, I read somewhere that you had a lemonade stand as a child, as many people did. But did this have an especially profound effect on you? Did you say, "yeah, bug juice, this is the life for me..."

No, actually. I don't know how this happened, but when I was about ten or eleven I bought my first stock. I was very financially-oriented through high school, junior high school. I read The Wall Street Journal starting in about the ninth grade. But I guess when I got into business school, came out of college, I don't want to say I lost interest in the financial side of the equation, but I knew I didn't want to just do pure finance. I wanted to do business, I wanted to do general management.

Hey, lots of kids had lemonade stands. John talks about physiologically, psychologically, sociologically -- that's why people drink beverages. This business is all about availability. We've got a brand where we really don't know how deep the water is yet. I don't want to say we purposely have pulled back on the reins here the last couple of months until we get things in a re-staging process, in terms of how we go forward in '98 from a consumer standpoint.

John: We're tidying up the beachhead so we can go forward in an orderly fashion. I won't say Mike's here to sweep up after me, but uh...we're kind of like the Odd Couple.

Is there, like, a Felix-Oscar thing going on here?

John: Well, you know, I don't like that. The Odd Couple -- one was so meticulous and the other's a disaster. I won't say that we're on that extreme.

Mike: You know, we've known each other for twenty years. I can't tell you how many times we been down route 128 and route 139, jogging and running, and, you know, you get to know a person. I don't want this to sound the wrong way, but John accepts me for what I am and I accept him for what he is. That's important. That's the strength of a good relationship.

I'm really a pretty simple guy. Maybe too simple.

John: The kick of doing this, versus other things in life, is what you create here, in three months you see it out there. And then you get people calling in. You're communicating. It bothers me to get one out of a hundred messages that's negative. I know it's (AriZona founder) Don Vultaggio calling up. I just know it is. Brand building is a kick. I went to Tuck at Dartmouth. Mike went to Harvard Business School. A lot of people we went to school with went off to join the investment banking community and made a ton of money. The beauty of the beverage business is that it's easy to get into. A lot of people do it because it's sexy and it's fun. But success is really a function of two or three things.

Mike: People, people, people. And the right product.

John: The brand and the execution. The execution is where you're talking to the people. The execution is 90% of it. Trying to be funky and fun. And relevant. Sundance? Carbonation went out of fashion. That's really what killed it. You've got to keep the basic character of the brand. What happened with Snapple? It got institutionalized. It's first ad campaign was "we're number three." Who gives a shit? Bigness doesn't make it better. They misunderstood the discovery nature of these products.

What is the big idea behind SoBe Beverages?

Mike: It's my partner, John Bello, sitting over there. He's got the ability to create magic. He understands how you execute all of these elements into something that doesn't look like big company stuff. This looks like something that the man or woman on the street can relate to.

Coming out of Snapple and assessing numerous opportunities, I said, you know what, I know this guy, John Bello, and I like this guy. We can have fun. He's got a product that's got a pulse and a real strong one. But there's also a need to do a lot of other things here, in terms of building an organization and distributor development, people development. Putting in systems. I've done a lot of that. This to me, is the old been-there-done-that.

As I've learned, and seen in my career, it's hardest when it doesn't sell. Most difficult piece we've got the answer to. Everything else after that, it's not that it's easy, it just takes a hell of a lot of work. John's the guy that's solved that part, is there a pulse, is there consumer acceptance?

John: Ya wanna know who my heroes are? Mickey Mantle, Davy Crockett, The Beatles, Elvis Presley... myself. I am a function of all the people everybody related to growing up. I got on all those trends, became every one of those guys. For whatever reason. That fat shit Davy Crockett walking around with a coonskin cap on his head. I ended up playing guitar and playing in a rock band because if Ringo Starr could do it, guess what? I could do it.

I have the ability to commercialize a stone because everything is a commodity in life. It's just how you package it, how you generate excitement for it. I think I have a good feel of what people will relate to. Sometimes I go overboard. Sometimes I'm hanging on the end of a branch. But I know because I know what I like. That's what turns me on, gets me to laugh, or gets me excited. There's so much mediocrity. The majority of people live lives of quiet desperation. If you can, just get out there and inject something exciting, different, new, fun.

Mike, is there anything else?

Life is good. Enjoy it. March to your own beat. Don't do what you think everybody else wants you to do. Just do what you want to do. That doesn't mean blowing up people and being bizarre. Be excited about whatever it is you do.