007-cliff-smith

MEETING FAILURE HEAD ON AND COMING OUT THE WISER

A discussion with Clifford Smith

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cookieclubofamerica.com

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John Debevoise:Greetings everyone, and welcome to another serving of Business Soup Talk Radio. If its in business, it’s business soup. I’m your host John Debevoise. Today, we’re going to be talking with Cliff Smith, the founder and president of the Cookie Club of America. Cliff is going to talk about how his company had such great plans, but it failed to rise, literally, and how he overcame that loss and got his cookies to once again rise to the occasion. Pick yourself up, dust yourself off, and start all over again.

John Debevoise:Cliff, you have a company. It’s a startup and it’s known as Cookie Club of America. Now this was the second time you started it up. Just what is it?

Cliff Smith:John, good morning my friend, or good afternoon depending on where you are, I suppose, on the planet. But a pleasure talking to you again and nice to meet everybody. Cookie Club of America was originally formed as a California corporation back in 2003. We actually were called First Look Interactive and First Look Interacted was a spinoff of a technology company that I was a president of called 1st Net Technologies. And at the time, we were kind of dividing the company up in a couple of ways and I wanted to go into more of an interactive CD rom scenario where you basically would provide software samples and other samples on a CD rom, deliver those to households.

Cliff Smith:And we had Disney involved, we had the San Diego County Credit Union, we had EarthLink involved. And then 2001 September 11 happened. As we all know, everything changed on that horrible day. And so we basically had to shut that down because nobody knew which way things were going to go. And through some contacts I had at the postal service, strangely enough, was basically where the idea of Cookie Club of America came from. We knew that we were going to go to war somewhere, and we wanted to do something that was going to support those efforts. So I first became a licensee with the postal service, USPS, which is not an easy thing to do. There are a few hoops of fire to kind of jump through there. And the idea was to create a food-based product because that’s my background and to basically tag on to the USPS licensing group.

Cliff Smith:And then we took that license and we leveraged it with every branch of the United States military. So the Army, the Navy, the Air Force, the Marine Corps, the Coast Guard, Air and Army National Guards. Okay, all seven branches. We wrote to them, and within six weeks I had authorization to emboss their service emblems on cookies that were going to help raise money and awareness for the National Military Family Association, as well as pay tribute to those who serve in a very dignified way. We weren’t going to be making cookies that had boats and planes and things like that. Just really their service emblems that were going to be sold.

Cliff Smith:And that how Cookie Club of America was born. We had those cookies in 22 States through 12 retail chains. It was really a very interesting thing. And then as we got into like probably 2007, 2008 we ran into a couple of difficulties that were beyond our control, the economy contracted and we basically shut that entity down at the time. And I think it was 2007. At that point, I went back and finished a 27, 28 year career with Marriott Hotels. I’ve been a food and beverage guy with Marriott for all that time, and I dipped in and out of a number different properties.

Cliff Smith:I opened up five hotels actually from the construction stages or preconstruction trucks in stages, establishing menus and hiring staff and helping pick China silver patterns and so on. It was a very exciting time in my hotel career, and I’ve always been on the food and beverage side. So what we did is I finished that career, which was never have a bad word to say about it, and decided that … let’s see. This was this last year in May. A friend of mine came to me and she said, “Cliff, now that you’re pretty much done with the hotel stuff, what do you think about starting the cookie company again?”

Cliff Smith:So after a little bit of deliberation and some conversation, we did. So we reformed the company as a Nevada court in May of last year. And the intent was to really go after the same thing where if we were going to take the military cookies, we were going to separate them all by servicing, like just Army, just Navy and so on. But we ran into a bit of a buzzsaw. At the time, the original time that we did this, there was no licensing groups per se within the military complex. We went through different channels to get those authorizations, and now they have trademark and licensing department. The biggest problem we ran into because we just decided to say, “Okay, let’s see how we’re going to do this.” And they said, “Hey, you need to apply for a license if you’re going to use this.”

Cliff Smith:But the biggest obstacle was that they didn’t license edible or consumable items, which that’s what we do. So we went to Las Vegas recently, it’s just a couple of weeks ago now, at the International Licensing Expo, it’s been going on for years in Las Vegas. It’s a very, very large show and if anybody wants to look that up, I highly recommend it because every one of the major brands are really represented at that event. Well, our intent was to meet with the military trademark directors, of which they were all there except for the Coast Guard. And unfortunately, that didn’t work out. They just were not interested in licensing the food products. So that whole thing basically had to go away, which was rather sad, needless to say.

John Debevoise:You had this arrangement with them before, but-

Cliff Smith:We did.

John Debevoise:… for whatever reasons it expired. And then, at the big expo, which is a fabulous place, and we’re doing shows about that and licensing and branding on other servings of business soup. And everyone can pick up on that and how you go about getting a brand and your product license or licensing somebody else’s brand. But there you were in Las Vegas at this and they shot you down. Obviously, your first response was disbelief. And when you picked yourself up, what direction did you start moving at Las Vegas?

Cliff Smith:Well, it was really interesting, John, because I have known about show. And even though we thought we were going to be full speed ahead with the military side, I said, “We should probably go to the show this year,” because the idea of the company was always to get other brands, right? We were going to go after professional sports, as an example. And we figured, hey, what a better place to go then to that because the Major League Baseball was there, the National Football League Players Association was there and so on. So we had 22 meetings that were prearranged before we even stepped foot on site from people who had read our profile. And we weren’t even exhibiting, we were just attending.

Cliff Smith:And they say, “Hey, we want to meet with you to talk about cookies branded for our organization.” So all of that being said, it was very disappointing, but at the same time, extremely rewarding being approached by these large brands. So we took the conversations to heart. We had some great meetings, and right now we’re actually sorting through about four major brands of which I don’t really want to discuss those until they’re done. I don’t like to taint the conversation, but there are four major brands that have probably a footprint twice the size and a consumer base, three and four times the size, than the military cookies. So this ultimately could work out very well, but that remains to be seen.

John Debevoise:It’s another example of how one door closes and another window opens.

Cliff Smith:Absolutely.

John Debevoise:It must have been tough when the military said, “Yeah. We had you once before, but not this time. Thank you very much.”

Cliff Smith:Yeah. You could say it was a little disappointing, to say the least. Nevermind it was expensive. For anybody in the food space or anybody in the business world in general, I think everybody’s probably encountered some major disappointment. And with the major disappointment, usually comes a financial blow. And to spend a little over a year on redoing this and getting all the relationships together, the military brokers, the retailers, the big bakery, the whole bit, and obviously all the money that was put to that, everything basically went away. I still have the relationships with all of these people. However, the military cookies are not going to be part of the conversation moving forward. So we’re really trying to brush ourselves off a little bit after taking that blow and we’re full speed ahead on investigating some of these other opportunities, which are going to be fantastic.

John Debevoise:It happens in every business and everyone has had this misstep, whatever you want to call it, and then you move on. Let’s talk about the cookies themselves. Different type of [inaudible] concept and product. It’s just not something that you say, “You know what? I’m going to whip up a batch of cookies with the military logo on it.” This is a major effort. How many cookies do you have to produce, and how do you get it done?

Cliff Smith:Well, it’s a great question, John. Yeah. Anytime you deal with a large brand, and we’ll consider the military of very, very large brands, right? They’ve been around for a while. Everybody knows who they are. So there’s a lot of reputation at stake with them. There’s a quality issue. There’s a legibility because they want to make sure they can read the cookie. If you’re going to put words on it or their logo, right, it’s going to be something that’s legible. It’s got to taste good. It also can’t crumble, right, because the last thing the general wants when they opened the box of cookies is a bunch of broken cookies that have their emblem on them. So you can imagine that wouldn’t exactly go over well. But on top of that, you have to find a facility that can produce the product you need.

John Debevoise:We’re speaking with Cliff Smith from the Cookie Club of America here on Business Soup. If you’ve got a question about your product or service, you can check with us on our program at bizsoup.com, at B-I-Z-S-O-U-P. As you were saying about you just don’t whip up a batch, it takes a major facility that can comply with all the health and code regulations. Where do you find something like that?

Cliff Smith:Well, to give you an idea of the requirements, there are different sized commercial bakeries all over the country. A lot of the baking industry consolidated when all the whole gluten free thing started to hit the market, right? You had a lot of contraction in the industry, and a lot of people trying to reconfigure things and you got organic product needs and so on. But the facility that we were required to utilize was called an SQF level-two facility, which is the highest designation of commercial baking certification in the country. When we talk about something that’s certified at that level, that’s also available for contract baking, right … unless they’re owned by Nabisco, right, which is not really going to bake for us. You’re talking about 95% of the bakeries in the country do not have that type of capability. So it was a pretty extensive search to say the least.

Cliff Smith:Their capacity, to give you an idea, they have three major cookie lines in the plant, and the one line that we were going to utilize has the capacity of making 2 million branded cookies per day. That’s a lot of cookies because we had to be able to put cookies coast to coast into two national chains within 60 days, if so desired. So that search, as you can imagine, it took a while. We also had to pick one that was geographically centrally located in the United States to make sure that your distribution lines aren’t going to be too long because transporting product by truck or rail or anything has become a little bit more expensive as time goes on, right, with fuel prices and so on. So that was a very big challenge, needless to say.

John Debevoise:So you had to find this bakery, like a needle in a haystack, and they all have to comply with the federal, state, and local regulations and such. What about packaging and how does that work? Do they slipping into the package, and how do you select that? There’s a lot of steps and just-

Cliff Smith:There’s a lot of steps, and we expect those steps to be repeated basically with any of these national brands and international brands that we’re talking to now. It’s kind of a collaborative process, but also, it’s limited in terms of the type of packaging capabilities the plant actually has. Now, in our case, the plant that we have under contract was very, very robust. Okay? And they move a lot of product, but they did have a little bit of a packaging restriction. So some of the finer gift style packages really couldn’t be done at the plant. So let’s just say we wanted to put it into a tin and we wanted chocolate bottom cookies, just as an example. Well, chocolate and robbing is not a practice that they do.

Cliff Smith:So what they do for a number of other national brands they privately bake for is they cook off or they bake off the cookies in bulk, and those things are packed in bulk. And then they move to basically a finishing plant, which will chocolate and robe them, put them in special packaging, load them into shipper displays for the retail stores and so on. So it’s a multistep process. And if you’re not someone who can juggle a lot of little pieces, then this is probably not something you want to jump into. But there’s a lot of coordination, as you can imagine, that has to happen between the two big plants and, of course, ultimately the retailers, who are going, “Hey, when do we get these cookies into our distribution centers?” Right? So it is definitely a logistics challenge, but set up, that’s something that I welcome. That’s something that I welcome. I’ve done that before when we were opening our hotels, and that’s a skill I suppose that I possess.

John Debevoise:Well, that would be like managing chaos.

Cliff Smith:Yeah, hearding cats.

John Debevoise:And for some people, like you and myself, we find that a challenge and we say, “Bring it on.” What made you pick cookies of all things?

Cliff Smith:Well, I think we all like cookies, right? There isn’t many people on the planet that doesn’t like cookies. And as a kid, they used to call me the Cookie Monster. Granted I grew up with Sesame Street, came out I think when I was a kid. So I’ve been branded the Cookie Monster my whole life. And as a food guy, I said, “What is something that we can do, that has a long enough shelf life, that we can actually put images on?” And that’s really where it came to, and the whole idea came from me staring at an Oreo cookie. And if you’ve ever really looked at an Oreo cookie, it’s rather intricately designed with lots of little florals and little hooks and of course their name, Oreo, right in the middle of the cookie. And I said to myself, “Well, if they can do that, why couldn’t you brand it with another name?”

Cliff Smith:So private labeling of cookies, I can’t say that it’s my idea, but it’s never really been pursued at this kind of a level where you’re branding someone else, right? There’s the Hydrox cookies, which is almost a direct copy of the Oreo cookie, right? It’s the same shape. It’s the same size. It’s the same general thing. But no one’s ever taken it and said, “Hey, we’re going to put Biz Soup Talk Radio on it. Now, of course, you’ve got the small bakeries around the country that could do small things for you, but at a national scale, it’s never been done before. And that’s the part that excited me because I was going, “Hey, it’s food. It’s a branding piece. I get it.” And that’s really why we went into that space.

Cliff Smith:So for example, John, if Business Talk Soup Radio wanted to have its own cookie, you could find a small facility to do that at a local level. But what no one had done had taken the branding idea and made it national. So as an example, everybody’s favorite baseball team to either love or hate is the New York Yankees, right? You either love them or you hate them. That’s the way it is, and they’re quite okay with it. But as everybody can probably imagine, they have global fans, right? Same as the Boston Red Sox. So that’s the Yankees arch rival, right? And there’s Red Sox Nation, and they’re all over the country. They’re all over the world. So you would think, you know what, if we put together a New York Yankee or a Red Sox cookie, we could probably sell a few of those, right? Yeah, I’m sure you could.

Cliff Smith:And then the idea to make it even more attractive is what we did is we tie a nonprofit socially beneficial cause to that cookie. So we say, “Okay, New York Yankees, if you want to do a cookie, you’ve got to select a nonprofit charity of your choice, whatever it is, that’s up to you. And part of those proceeds are going to go towards helping that nonprofit.” So to us, we thought that was a great hook, not only to have the Yankees logo, as an example. Just to be clear, we’re not working with the Yankees at this particular time, but the idea was solid. So we started talking to people and other folks and they said, “Yeah. That’s really great.” That is kind of what we’re going to call our differentiator between us and unbranded products, is we were going to tie some kind of socially beneficial cause the actual organization could embrace.

John Debevoise:Let’s talk about your entrepreneurial spirit and how you got through all of this. And if you were to try and approach this business another time, say, after learning everything that you have learned from your experiences here, what would you do differently and how would you advise the audience that’s listening here on if you’ve got an idea, do these first five things?

Cliff Smith:Sure. Well, and I’ll keep this in regards to food, right, because that’s the place that I know best. And as far as food is concerned in the hotel space … and it doesn’t have to be a cookie, it could be any items. Well, let’s just say there’s somebody out there who has a great holiday sauce that they want to package and sell in bulk to food service or hotels or whatever it might be. Well, the first key thing you’ve got to take and keep in mind is patience. Okay? No matter what you think, it’s going to take twice as long. It’s going to cost twice as much. And that’s if you’re lucky, okay? You don’t just create a product and all of a sudden, boom, you’re successful. And I think that’s just that’s not the way to think. And although it does happen, it’s extremely, extremely rare.

Cliff Smith:Quality is another big thing. Otherwise, what are you doing? You’re putting quality against price. And for me, personally, I like to use the example of a Volkswagen versus a Mercedes Benz. Both are quality vehicles. The one in a certainly priced a lot lower than the other. When you go into certain economic times, whether it be a downturn or another, what you’ll find is that quality will always sell. Okay? Quality will always sell, and those on the lower end are going to find themselves fighting as a race to the bottom, where I can make it cheaper and they can get cheaper and so on and so forth. And the problem is, cheap doesn’t necessarily turn into good. And once you stop tasting good or it’s not as good of a quality product as you want to point out, well, you’re going to lose customers, right? You’re going to lose interest.

Cliff Smith:So I always tell people, if you’re going to make a product, you’re going to put your name or your reputation on it, try to stay above the fray. Otherwise, you’re fighting with too many different companies that are trying to supply very cheap product to the market. Although there is a market for those things, it really depends on where you want to lie. Right? And I prefer the quality over the quantity path. And I know that in my hotel career, I worked for Marriott Hotels for the majority of my career, and they believe in quality, consistency. That’s going to be a very, very important piece that people need to take away and have a lot of patience for sure. Have a lot of patience.

John Debevoise:Patience and make sure that you have financial resources within your grasp. What did you do to launch this business? How did you secure monies? Was it your personal investment? Was it the friends and family?

Cliff Smith:Well, John, I think most people understand that a lot of your own money is going to go into a project. How do you attract an investor if you’re not even invested yourself, right? Because that doesn’t give an outside person any confidence or it certainly reduces their level of confidence if you’re not putting your own money into it. So I had my own money into this twice now because it’s been through a second iteration. Had spread some friends and family money in a little bit. We didn’t take a lot of money because we really wanted to try to grow this properly. And then, of course, trying to attract outside capital, whether it be through investment or securing lines of credit or a factoring purchase orders, things of that nature.

Cliff Smith:Those are the kinds of things that you really have to have in mind because everything costs far more money than you expect. And it’s one of those lessons that if you don’t realize that before you start it or you don’t have, say, the wherewithal, let’s just say in terms of … I’ll give your audience a number. In terms of the cookie project, we had $100,000 starting line, okay, in cash that we put up, my money, other people’s money as well. And with that, we’re able to get it to the point where we had all of the relationships we needed. We had the bakery secured. We had clients secure. But that didn’t even include the tooling money.

Cliff Smith:So at that point, you have to consider this being done in stages because you can’t do everything right away because it costs a lot of money. Let’s say we were looking for $1 million for the cookie company, but without a $250,000 initial injection of cash, we would never have been able to produce the needed seven dyes for the military. Each die at this bakery that we utilize is $17,000 a piece. And then there’s the price of packaging that goes on top of that. There’s the price of the [inaudible] displays or shipper displays on top of that. And then there’s, of course, your first inventory runs. By the way, you’ve got to go to a couple of events where you can talk to people who might be interested in buying it. So you can see very quickly how the money adds up. And we’re talking about something simple like a cookie.

Cliff Smith:So it’s one of those things that most people go into a project and they’re woefully under capitalized, and that is the biggest death nail. 90%, 95% of most companies fail mostly because of the failure to properly capitalize. So that is one of those things that you want to try to make sure you have in line before you even attempt to go into business for yourself.

John Debevoise:We’re talking with Cliff Smith from the Cookie Club of America. And he just led into one of our other subjects that are coming up in another serving here, and that’s talking about finding an angel, how to meet an angel and live to tell about it, finding the sources of money. Oftentimes, the banks will not finance you when you have nothing for security. So after you go through friends and family, then there’s the person that steps in or individuals or companies that step, in fondly known as angel. That’s another serving.

John Debevoise:Cliff, thanks for joining us here on this serving of Business Soup. Cliff Smith from the Cookie Club of America. Be sure to tune in next time when we are joined again by Cliff to talk about distribution, getting your product into the hotel chains. This is the man who knows it all. Cliff Smith from the Cookie Club. This has been another serving of business soup where business comes for business. I’m John Debevoise, inviting you to visit the website for more servings of what is best in business.