Photographs by Nick Ruechel
The world’s biggest companies have a new strategy: outsourcing innovation. At the forefront of this new industry is the founder of New York-based Fahrenheit 212, Geoff Vuleta from Timaru
How does an Auckland Grammar C-student from Timaru end up as co-founder and CEO of one of the most innovative companies in New York? Recently profiled in Fortune, and with Esquire editor-in-chief David Granger touting him as one of the “best and brightest”, Geoff Vuleta is the sort of guy that’s always bouncing around a room like he’s jonesing for his next cigarette break. Which he usually is.
His Manhattan-based company Fahrenheit 212 (the boiling point of water in Americanese) is at the forefront of a new industry: the outsourcing of innovation. It’s an industry less than ten years old, but Fahrenheit’s client base—three quarters of which are each bigger than New Zealand’s entire GDP—is made up almost exclusively of Fortune 100 companies.
Vuleta was born in Timaru on November 21, 1961, before his family moved on to Dunedin, then Wellington. He landed in Auckland at age ten. Vuleta enjoyed Auckland Grammar enormously, even though he “was Mr Average at everything”. He loved playing rugby but wasn’t a standout; did Latin, but was in the fifth of 12 classes. When he left school he didn’t really know what he was going to do, although he had long harboured ambitions of being a chef.
“Everybody said, ‘You’ll hate it,’ and I wanted to prove them wrong. There was one course you could do and you had to have a job. In the end, friends of friends of my parents got me into some terrible restaurant somewhere—and they were right, I lasted one night. I remember catching the last bus home and thinking, ‘Fuck it, I’m never, ever going to go back to this.’”
Instead he did an advertising and marketing course. He scored a job at Ogilvy & Mather a year into it and that was the end of study. From there he went to a startup, then agency Mackay King (which was later sold to Saatchi & Saatchi). Boss Terry King sent Vuleta to the UK “for good behaviour” for five months, and he ended up working for three years at WCRS, now Aegis Group, “one of the best agencies in London”. He returned to set up an Australian agency in New Zealand called Campaign Palace, and is still proud of his 12-year tenure there.
No doubt being immersed in advertising culture has had an effect on his personal tastes. Vuleta has drunk a bottle of champagne (invariably Ruinart Blanc de Blanc or Laurent Perrier Grand Siècle) every Friday for about 25 years. “I’m a big foodie, y’know, but I’m a foodie with two extremes,” he says. “I love the very best of something, or the complete opposite: absolute shit food. I would eat caviar every day if I could afford to, but God I miss my pies. And a sausage roll.”
At the same time as he was running Campaign Palace, a friend started the TV show TAB Sports Cafe. Vuleta got involved, helping to raise money. They decided to build a big bar around the show, creating the Leftfield bar and club on Auckland’s Princess Wharf, the largest licensed premises in New Zealand at the time. “I still believe today that there has never been a better venue for watching live sport on TV. That experience with the grandstand coming down, it was just amazing ... and it was a lot of fun, but came to a disastrous ending,” says Vuleta of the business’s eventual receivership.
He also met a guy who became a shareholder in the pub: Kevin Roberts. Roberts had just stood down as chief executive of Lion Breweries, and his next job was the global head of Saatchi & Saatchi. Roberts insisted that Vuleta come work for him because he wanted to build an ideas company and saw Vuleta as an ideas man. It took Vuleta about a year to figure out what the hell an ‘ideas company’ could be before he and Mark Payne established Fahrenheit 212 at Saatchis in 2002.
During this time Vuleta toyed with the idea that he could run the nascent business from New Zealand and commute. He tried for two years, spending alternate fortnights in New Zealand and New York. He grimaces at the memory. “It was as mental as it sounds in every way, and you could not grow a business like that. Nothing’s worse than living out of a hotel room.”
He ended up moving the entire team to New York, and three years ago they negotiated with Roberts to effect a management buyout of Fahrenheit 212 to become a standalone company.
So what does an ideas company actually do? Typically hired to rethink a brand or category for about US$1.5 million apiece, Fahrenheit doesn’t just come up with five or six big ideas for a client—it actually creates the finished products and services that are complete and ready to take to market.
From receiving the go-ahead for a job to getting the product in a client’s hands typically takes around five months, and Fahrenheit will usually work on five or six projects at a time, about 18–20 a year. Last year one such project was for Samsung, the globe’s leading manufacturer of LCD panels. Samsung’s pricing has been shrinking like so much arctic ice as commoditisation set in, so Samsung set a goal to generate US$2 billion in new revenues through new applications and markets for LCD panels.
Cue Fahrenheit 212. Its task was to generate sales of 600,000 large LCD panels a year, for which it came up with two unique proposals. After initial research suggested the vending machine market was stagnant, it developed an internet-connected ten-inch flat-screen for vending machines, which doubled as a ‘live’ marketing channel and supply-chain inventory management system. Both Coca-Cola and Kraft Foods were quick to adopt and roll it out. Fahrenheit’s second proposal was for an interlocking digital display wall for trade shows that connected LCD screens together like Lego blocks. Both products scooped awards en route to market.
The outsourcing of innovation is a budding industry. Ten years ago it was solely the domain of the R&D function inside an organisation. But in 2002 former head of Procter & Gamble Alan Laffley proclaimed that 30 percent of P&G’s growth was going to come from outside the company; at the time it was less than ten percent. By 2009 it was over 55 percent. R&D has now largely disappeared from the vernacular to be replaced by ‘innovation’, and has gone from a departmental responsibility to a companywide mandate to grow. Now there are companies that facilitate idea generation, management consulting companies, trend companies, branding companies and industrial design companies all playing in the field of innovation.
“I was scared. If Lehman Brothers falling off a cliff wasn’t enough, AIG needed $80 billion, Madoff had stolen $65 billion, the government owned Detroit and the home of capitalism was swamped by talk of socialism. In the end, I did what I had to do: doubled down and bet it all”
“And then you’ve got companies like Fahrenheit that are totally innovation-centric,” says Vuleta. “Innovation is the product. We can do products, services and even full businesses—building a new business for a company, in terms of, ‘I make the chocolate and I’m the best chocolate maker in the world, and that category will never grow. So what else can I do beyond making chocolate?’ That sort of stuff ... But the industry, the group that Fahrenheit competes directly against, has probably trebled in number in the past four years.”
Fahrenheit’s competition is in the broad ‘growth strategy’ space; most frequently consisting of either management consultancy firms (usually McKinsey & Company, Bain & Company, BCG and so on) or firms who specialise in growth through innovation such as IDEO, Gravity Tank and Jump. But Fahrenheit’s key competitive asset is its unique revenue model—typically around two-thirds of its compensation derives from the success of its products in the market. “In the innovation world at large, [where] more than 80 percent of the products that actually make it to market fail to hit their objectives, this is exactly the kind of buffer that risk-wary CEOs can use,” remarked Fortune. It’s no doubt partly this chutzpah that sees Fahrenheit’s client list include the likes of Gucci, NBC, Samsung, Coca-Cola, Warner Music, Hershey’s, adidas, Starbucks, Fonterra and McKinsey.
Fahrenheit grew 70 percent a year during its first two years as an independent company—then the recession hit. While it still earned between US$12 million and US$14 million in revenue, made a (marginal) buck and retained all its employees, Fahrenheit suffered in 2009.
“It was a tough year, bloody tough for us. I was scared for the first time in my life,” says Vuleta. “When the recession hit in September 2008, in a two-week period we lost $2 million of booked revenue for that last quarter. It disappeared before our eyes.”
Living in New York, says Vuleta, was to live in the eye of the storm. “Nowhere in the world can I imagine felt it more than in NYC, the global financial hub, the root cause of it all. Day after day, week after week, the headlines got more shocking. If Lehman Brothers falling off a cliff over a weekend wasn’t enough, AIG needed $80 billion to stay in business, Madoff had stolen $65 billion, the government now owned Detroit, and the home of capitalism was being swamped by talk of socialism. You had to have your head deep under the duvet to not be overwhelmed by it all.
“For the first time, the core concern of every CEO in the country was not growth, where Fahrenheit earns its revenue. For months CEOs just flatlined. In the end, I did what I had to do: doubled down and bet it all.”
In crisis mode, Fahrenheit decided to reinvent with a new programme called 35/35. Where once Vuleta had been the sole person responsible for generating leads, the new programme called for 35 percent of everybody’s time to go into the pursuit of new revenue, meaning Vuleta’s resource grew 900 percent overnight. “And then I got the partners to agree that we would invest 35 percent of all our free cash in that: double down and take some bets. In hindsight it’s so obvious: it’s a big country with literally thousands of prospects. I was used to sourcing and approaching five to eight companies at a time. What if we approached 500 to 800? What if we played the numbers game? It was a fantastic time to recruit great people so we brought in the resources and skill sets to do that.”
The company ended up generating five initiatives that succeeded so well that by mid-February it had booked more work for the quarter than all of 2009.
His biggest problem now? How to manage staggering growth for the company over the next year and, in the process, not lose what makes Fahrenheit unique. Today Fahrenheit is dealing with 65 new prospects. To take them all on board, the company would need to hire more people than are currently employed, so “that won’t work”, says Vuleta. They expect a 300 percent increase in topline revenue this year; growing more “could kill us”.
The goal over the next year is changing Fahrenheit’s business model towards intellectual property licensing, rather than ‘just’ ideas for companies—and ultimately licensing IP to a marketplace. It’s also changing the venture side of Fahrenheit from playing exclusively with Fortune 100 companies to include small businesses worth between US$5 million and US$20 million, looking for companies they identify as being at an inflection point, says Vuleta, so they can “steepen that curve” from an equity-based position.
He’s enjoying the ride. “What I’m doing right now is always the most exciting thing. I’ve always thought the only way to know that you are still truly a student of your career, that you’re still restless, is to look back over any-six month period, at any time of your life, and go, ‘What I was doing back then … it’s belittled by what I’m doing now.’ I’ve always thought that’s the curve. If I can do that, I must be still going forward.”