Dr. John's Products (EF, Thursday, Week 13)
entrepreneurial-financeyear-two"I build two things: I build a product and I build a company-as-a-product." -- John Osher
On the opportunity:
Everyone needs toothbrushes, and big players (P&G, Braun) have been unable to build brand loyalty. Loyalty in toothpaste, loyalty in razors, no loyalty in toothbrushes.
Huge advantage:
John Osher had Chinese factories making 200M Spin Pops per year. Easy to build on that to make a small number of Spin Brushes; factory set-up looks similar (need sanitary manufacturing facilities).
Potentially disruptive technology, reframed so that it could be easily added to a big company as a sustaining innovation:
"Our competitors considered us a gimmick."
All competitors besides P&G had major plays in electric toothbrushes, which made it hard for them to sell a dirt-cheap semi-electric toothbrush. Concerns about cannibalization, etc.
Company started with an exit strategy: Sale to P&G
-- Knew earnings mattered, so focused on profit early
-- Build company so that it would be accretive to earnings for P&G
-- No brand loyalty = easy to sell to a strategic buyer
-- Factories contracted so that they would pass P&G standards
-- Didn't license internationally so that sale would be simpler
=> $480M exit in about 3 years. Highest volume toothbrush in the world.
Selling retail products can be done without much sales overhead; Dr John's had only 10 accounts with meaningful volume (Wal-Mart, Target, Walgreens, etc.).
John Osher on retirement:
"First of all, I got burnt on the beach and I'm bad on the golf course."