Photographs by Alistair Guthrie
‘No.’ Most of the time, that's all 42 Below founder Geoff Ross ever heard. But he persevered, built his premium Kiwi vodka into a global brand and made millions selling it to Bacardi. In their new book Every Bastard Says No, Ross and wife Justine Troy share their adventure and lay down some honest smack on the self-appointed ‘experts’ who make it so hard for creative New Zealand businesses—and give thanks to the ordinary Kiwis who backed their dream
So every bastard said ‘no’ when you ran an ambitious startup. But now you’re an investor yourself. Have you learned to say ‘no’ yet?
Geoff Ross: I'm terrible at it. Often it’s not because I don't believe in someone or their idea, it’s just not right for us.
So when does saying no make you a bastard?
GR: When it’s uninformed.
Justine Troy: When it’s ignorant; when it’s the first thing out of your face. When it’s gratuitous and badly informed. When it’s within your power to actually be able to support the process. I'm actually thinking here of NZTE.
The Trade and Enterprise report you paid for in the early days, that said no one will buy New Zealand vodka?
JT: Not just that, but also at various junctions along the way. In London one of our people had a meeting with someone from that organisation. Our person said, “Here are some of the distributors that we know, would you like that information to pass to other Kiwis?” And he said they were deliberately discouraging New Zealand wine entrepreneurs breaking into London. “It’s just too hard here.” That is when ‘no’ not only makes you a bastard, but it makes you a traitor to your entire country.
I wonder how those people feel now.
JT: We’ll never know. The book was never an ‘I told you so’. There were so many people who slapped us down and made it tricky but at the end of the day they were not on our minds when we wrote the book; we wrote the book for entrepreneurs. On my mind was the sea of faces of New Zealanders at the AGMs—people with not a lot of money who flicked us a couple of grand. On my mind were those people, and their children who will be trying to start up businesses.
Geoff might be saying, “I can’t support your business right now,” and turning down the odd opportunity but what we can do, and what the book hopefully will do, is for anybody who dreams of a startup company, that it can fortify them in some way.
Despite the title, it’s a generous book. It reads like an adventure.
JT: The path of any growth business has many do-or-die moments in it, and although there’s a driver, and that was Geoff, and maybe a cheerleader, and that was me, there are critical people the whole way through and you stand on those shoulders. We wanted to acknowledge the generosity and commitment of people who said ‘Yes!’.
We had to prove ourselves time and time and time again. And Geoff’s resilience was extraordinary, and personally I wanted to recognise that.
There are many people of entrepreneurial spirit out there. We want to say there will be these horrendous moments where you want to give up—and hopefully our story and our honesty in relation to those moments can give them some encouragement to keep going.
Is it different today? Are people more encouraging?
GR: A bit. It’s a shame this economic crisis came along, because there was a sense of Kiwi can-do and, you know, just the overall awareness of new businesses making their way on this world stage from New Zealand. It’s just starting to be seen as a credible form of creating value in the New Zealand economy.
JT: But we’re way behind where we should be. And I think we need to toughen up—it’s all very well to be politically correct and say people are doing what they can out there. Well, they’re not doing enough! They need to be hungrier, they need bigger goals. And both the government and the investment banking community need to take another look at how they encourage growth businesses.
In other countries growth businesses are the lifeblood; they are encouraged in so many different ways, and here we just smack them around until we beat them into submission. And occasionally one survives the beating.
The three best-known startups of recent years are yourselves, Xero and Trade Me. All three were ignored, panned ... yet the Kiwi thing is supposed to be all about the underdog, right?
GR: It should be, shouldn't it?
JT: One of the comments [US angel investor] Bill Payne made in your last issue is that they look very carefully at the jockey, rather than the horse. I think our financial community just cannot look outside the box. And outside the box is the depth and breadth of the business, and its opportunity globally ... the jockey.
It’s astonishing that they don't even talk to the entrepreneur and find out how they manage growth businesses, what their path to success has been. That’s why in the book I thought it was really important to talk about where Geoff’s entrepreneurial spirit came from, both in terms of his upbringing on the farm and his time at Saatchis. Because I wanted to show that when someone had a look, they could pretty much pick that he wasn’t gonna fail.
Silicon Valley entrepreneur Eric Ries says Kiwis have a “pathological humility”. That goes both ways—it’s not just that we’re pathologically humble about ourselves, but about everyone else in the country.
GR:: That’s really accurate. Our friend calls it Crowded House Syndrome: we don't believe it’s good until the rest of the world says it is. There’s a lack of self-belief, and an engrained culture, especially in the bigger financial communities of, ‘Mate, if you can’t ship it by the container and it’s not meat, milk powder or whole logs, you're one of those risky weird creative people.’ It’s a cultural thing, lack of confidence, and then there’s no source of funding at the VC step.
Angel investing in New Zealand is mum and dad, or mates, so it’s typically small sums. In the US you can go angel, VC, private equity or public markets. We don't really have anything at the VC end, so that’s why 42 Below took that outrageous huge step—from mates, basically, to listing on the public market. Because if we wanted to grow that was our only option.
“We’re gutsy. We can walk into bars that are desperately intimidating in some extraordinary countries and say, ‘We’ve got basically nothing but this smile and a bottle but you’ll have a look at us won’t you?’ And people did, and loved that”
Xero’s the same—but the NZX can only handle so many new listings.
GR: It should handle a lot more though. The stock market was originally invented for growth capital, risk capital. But in New Zealand, particularly over the past 30 or 40 years, we’re only really allowing large, established companies, who are growing at five percent a year and returning a dividend, on to the exchange, which is not what it was invented for.
JT: The investment analysts are gatekeepers—like gargoyles, pretty ugly. New Zealanders would like great investment opportunities, but brokers are not even presenting them with the high-risk opportunities. In the States, the recommendation is that at least five to ten percent should go into high-growth stuff. Our analysts are trying to ‘protect’ the investing dollars of the New Zealand investing public. It’s time that we opened the gates and informed people clearly, and trusted that they can make a decision about what’s right for them.
GR: I see a zillion opportunities a week and they’re just all struggling for capital—even to find credible people to listen to for capital.
JT: These people are giving information on the basis of very little research in terms of, for example, the scale of the opportunity internationally. What’s happening, say, within that particular category overseas? Luxury brands is a perfect example—we felt like we got on the back end of the luxury curve. There are many, many trends that can be identified and analysed. And I think that New Zealanders are smart enough, if they’re presented with the whole scenario, to make some great decisions for themselves. There’s just conservatism and ignorance, and it’s stifling us.
The 42 Below videos were the first virals I ever saw—I’d never heard the term at the time.
GR: It was just a happy accident. It was probably the first viral I was aware of as well.
JT: It was about social networking. When you've got people posting photos of themselves having a blinder at the Venice Biennale with a beautiful cocktail in their hand, that’s going to travel.
How did you get creative people working for the company?
GR: If we smelled that they didn't believe in the dream, they didn't get too far. Justin Bade, who was a clothing wholesaler, he saw the vision and he wanted it bad, so righto, you'll head one of the most important markets in the world for us, London.
This is a Kiwi thing, that you could invest that much faith in somebody that quickly on a gut feeling. Not a lot of people that would do that.
GR: No, they'd do psychoanalysis and get their recruitment agency to plug them into a machine and come out with a report. We didn't always get it right, but we did get a fantastic group of people in the end.
A lot of those people started when we had nothing more than a dream, a few bottles and a business card, and saw it grow to be pride of place in The Ritz. We were doing high-fives when we would sell a few cases, and three years later we were barely batting an eyelid when we’d send ten containers off the wharf that day. So it’s very hard for those people to then go to another organisation and hear that next year they’re gonna do five percent more than they did this year.
The other thing we had was the right skill set. [Early investors] Grant Baker and Steve Sinclair were vital in a whole bunch of ways in that business. Entrepreneurs need to realise that there’s a whole bunch of skills, and you don't necessarily have all of them yourself.
JT: If anyone was saying to us now, we want to break into America or Australia or England, the first thing we would say is pick your people, train them here and put them into that market. It worked stunningly well for us.
GR: It’s so important when you're speaking to someone on the other side of the world on the telephone, that you actually know and trust them, and they trust you.
JT: So on the one hand when you get the right psychology, and the right Kiwi, at the right time out there, and you give them the opportunity to have some skin in the game, then yes they can take on the world.
But we’re like an enormous sieve. We’ve got all these holes in our culture everywhere that we need to be plugging up to keep big ones. So we create problems for ourselves, we’re not solution providers.
We are brave, courageous, and passionate. And we’re gutsy. We can walk into bars that are desperately intimidating in some extraordinary countries and say, “Oh yeah, you'll have a look at us won't you? We’ve got basically nothing but this smile and a bottle but you'll have a look at us.” And people did, and loved that. So there is a lot to celebrate, but there are some hard questions that need to be asked.
“People say, ‘Oh, you’ve got a great track record now,’ but we’re back in those same boardrooms we were in back in 2003, and people are still throwing up the same barriers. Despite the success of Xero, despite 42 Below, they’re still really cautious”
Are we doing enough to tell the New Zealand story?
GR: We could be doing a heap more. We’ve got this great jewel, and this great brand attribute if New Zealand was a company, which is how we should look at it. New Zealand’s competitive strength worldwide, our unique selling point, our brand proposition, whatever you call it, is our environmental credentials. We are perceived as this pristine country in the bottom of the world with likeable, fun people. But we don't seem to be able to tell the world—in fact, we want not to.
We shouldn't be saying to the world we’re going to be a follower in climate change. We’re actually the greenest farmers in the world, we’re just not telling people about it. Every other country spends truckloads on diesel and oil to get feed into a barn that’s heated by electricity, where the cows don't move. We send out cows out to the paddock to eat, and they come back to a non-heated barn. So our processes in producing food are the best in the world.
We don't need to change much in what we’re actually doing, we just need to tell people. And we don't need to be scared of things like organic, GE free, and that kind of stuff that conservative New Zealanders think is a real threat. We need to realise that those things actually underpin a brand like New Zealand.
JT: Here’s something we can do, and it’s not going to cost much. There are nearly four million foot soldiers, all passionate about their country. 42 Below had no money, but people got talking. They left the country and they told our story. At the moment New Zealanders are not being told how important it is for their jobs, and their reality in Te Awamutu in the factory, wherever.
Storytelling is the best thing we’ve got, but I’d like my government to tell me what story I should be telling to make my country better, stronger, more powerful, and understood.
GR: In other words, we should lose some of our humility.
In the early 2000s you sold ten percent of the businesss for $40,000, valuing your company at $400,000, which seems remarkably modest. Why didn't you say your company’s worth a million dollars, as everybody does?
GR: It was just plucked out of the sky really. I felt the business needed 40 grand at the time to get it through another few months of headaches, relieve a bit of pressure in the short-term. And I didn't want to lose more than ten percent at that early stage.
Entrepreneurs shouldn't be precious about ownership. I was like that at the start as well. As Grant Baker said to me, you're better off having a small slice of a big company, than a big slice of a small company.
But he meant that it was better for him to have one percent more than half of whatever size company it is.
GR: He did that—and we do it now. Not because we want a bigger slice, it’s for control reasons. And not because we want to control a person—we don't want to be in there 24 hours a day sweating like they’re sweating—but if it goes bad, you need to get in there and fix it up so you can look after your investment.
In retrospect, if the young Geoff Ross rocked up here today with your idea, what would your reaction be as an investor?
GR: I’d probably think he’s not prepared. I’d think he’s got a bloody good idea, because as a business model it still stacks up really well. It’s high margin, it’s something New Zealand’s got an intrinsic kind of value in, it’s simple to make, there’s no shelf life issues. You know it’s scaleable; you don't need to buy truckloads of vans and factories to start it up. So it ticks a lot of VC boxes I reckon. But if I look back at myself in those days, I was pretty naive and quite one-dimensional, probably a little bit too centred on brand and not about financial planning and other aspects of the business.
Can I ask how things have gone with the investments you've made recently?
GR: Really well, though they haven’t been without their headaches and challenges.
As you get older and spend more time in business you become more pragmatic. And startups are just an idea that other people come to you with. They have yet to kind of prove it themselves.
The reason Grant invested in me is that we’d been selling for two or three years. We knew how to make it, knew how to send an invoice, knew how to collect a cheque. So when people come to me and say, “I’ve got this idea, will you invest in it?” I say, “No, you invest in it. And when you're selling something and need growth capital, come back to me.”
So what is the standard of idea and person that’s been looking for investment?
GR: Relatively good, actually.
JT: It’s heartening.
GR: There are a lot of good ideas out there. People are still tentative and lacking confidence. A lot of people come to me and say, “I’ve got this great idea, what do you think?” And the truth is, I don't know. I can give you some feedback, but whether that’s going to be certainty of success or not, I don't know, and I don't think anyone else does. You've just got to get out there and start, and in time you will know. That is the risk that you have to take as an entrepreneur, and if you're a person who is uncomfortable living without a guarantee of a success, then stay in your nine-to-five job.
My wife was aghast as I read out some of your story, such as your first child arriving a week after the first bottle was sold. That’s just so far out of most people’s comfort level.
JT: Life doesn’t stop. You don't just stop everything and focus on your business. All the business does is intensify normal life. You've just got to keep stepping up.
I think Geoff and I were a product of our generation in that both of us felt business success defined us, and we were so hungry for that. I’m interested to see if the next generation feels the same.
I came away with the impression that you might think you sold too soon.
GR: Yeah, maybe.
Bacardi wanted all or nothing, and it was a good offer. It wasn’t a great offer—shareholders got about a 54 percent return, right?
GR: Seventy percent. It included the warrants. It’s not a Google, as a return on investment, but it’s a good return. Do we feel we sold too soon? Maybe. Given what’s happened in the category, you could say we sold bang on the right time.
JT: There were the interests of a huge number of investors to consider. And one of the things I really want to say in terms of Rod Drury and some of the amazing people that keep crossing our path, it’s that there really is a new breed of entrepreneurs coming through who actually genuinely do care about the money and the responsibilities that they have taken on. And I think New Zealanders need to know that, and believe that.
Rod is a serial entrepreneur, he’s got a track record here; it’s incredible to me that institutional investors would remain sceptical.
GR: That’s crazy, isn’t it? We’re going through something similar at the moment. People say, “Oh, you've got a great track record now,” but we're back in those same boardrooms [with the float of scented candle and body products company Ecoya], and people are still throwing up the same barriers. Despite the success of Xero, despite 42 Below, they’re still really cautious of these new things.
JT: Apart from saying a big thank you and hopefully providing a bit of a toolbox for budding entrepreneurs, it would be really, really good if the book could get the New Zealand investing public to pull out all the institutional investors, line them all up on Queen Street and just go “Right! What in your portfolio is a high-growth New Zealand business that’s going to add value?”
I think the whole nation would benefit from that exercise. And those suits love an excuse to get out of the office.