At the end of 2016, Toby Strong says his coffee capsule making business Podpac was in the “best place” it had ever been.
Sales were strong, and just months earlier, the business had made it onto the Smart50 Awards for the first time, securing 18th position thanks to a three-year revenue growth rate of 186%.
But in a matter of only weeks, Strong was staring down the prospect of losing his business completely.
Strong had only just returned to work after the Christmas and New Year break when he received a phone call from his largest customer, who informed him there were serious problems with their business.
“They were basically going insolvent and they owed us $500,000,” he tells SmartCompany.
When Strong founded Podpac in 2012, the business became the first Nespresso-compatible coffee pod producer in the Australian market. And until that fateful phone call in early 2017, he says 75% of the business involved packing coffee pods for other brands.
It meant Podpac relied on client contracts, just like the one that was about to disappear.
“It was devastating, I went numb,” Strong recalls.
“I just went white [in the face] and couldn’t function. I couldn’t really talk to anyone. My staff told me to go home and try to get some rest.”
Strong followed their advice but when he came back into work the next morning, he knew he had to act swifty.
“I realised in order to survive, we had to act. We reduced our staff from 20 to 12 and reacted within 24 hours very quickly. If we didn’t, I knew it was going to kill us as our expenses were too high.”
The fallout from losing that client extended to Podpac’s entire operations: as Strong explains, “manufacturing is sort of like a freight train”, with long lead times for raw materials. Not only would the company be losing a large chunk of revenue, its future revenue prospects were also in trouble.
And then there’s the personal effects on the founder, who had a young family at home to think about too.
“I felt like a complete loser. You always think you could have done more; as the owner it’s your responsibility to see things like that.”
When describing those few weeks after the devastating news, Strong once again uses the word “numb”. It was simply a case of “trying to stop the wheels falling off completely,” he says.
But the support he received from his staff, even the ones who were losing their jobs, helped.
“The first thing that made me feel better about the situation was how much our staff appreciated that we were being completely honest with them and letting them know so quickly,” he says.
The process could have dragged on for months, says Strong, but he wanted to be “completely honest” with the people who worked for him and they, in turn, appreciated the frankness.
Strong also credits his ability to keep the company going to a change in his own mindset, which he says happened several weeks after the initial shock.
It was a conscious effort to make the change and “think about things to get excited about,” he says.
This meant exploring how Podpac could develop different products and different channels to market, and turning to a trusted tool that Strong has long used at Podpac: he always has a list of ideas for the business that is “pages and pages” long.
“Even if we’re not planning to launch anything new soon, I put lots of ideas in there,” he explains.
“I’ve learnt that good ideas come from lots of ideas”.
One of those ideas was to change Podpac’s business model towards a licensing model. The company had previously had trouble competing against large multinationals when it came to making its own branded products and so “needed a multinational brand ourselves to compete in Coles and Woolies”.
Strong and his core team put together a shortlist of 100 brands globally, some coffee and some not, that they could approach with the licensing idea.
At the top of that shortlist was alcohol brand Baileys. Podpac approached the brand’s owner Diageo and as of this month, the very first Nespresso compatible Baileys coffee pod will be available in Australia and New Zealand from the big supermarkets and a range of other stores.
It’s taken over a year to get to this point and Strong explains there’s plenty of work that goes into getting such a collaboration off the ground. There’s the research and development process to develop a way to produce the pods, which involved experimenting with “hundreds” of different liquid and powder variations. And then there’s the testing process, which involved focus group after focus group to make sure the flavour was spot on.
“It’s such a trusted brand, we want to live up to it,” Strong says of the Baileys brand.
In fact, Strong says the team decided to launch the new range of pods online first, via its own website, Expresspods. “You never get true, honest feedback until it’s with paid products,” he says.
It’s part of a broader move for Podpac to play in the online space, which Strong says is in part inspired by fellow South Australian business, Vinomofo.
“I’m really inspired by the guys from Vinomofo, who are originally from Adelaide as well, and what they’ve done in the online space,” he says.
As well as Expresspods, Strong and his team have also launched a range of eco-friendly, biodegradable coffee pods online under the name Urban Brew.
The idea is to cater for consumers who want to buy ethically sourced coffee and who are conscious of the waste their coffee pods produce. Consumers will also be able to go ‘behind the scenes’ of what goes into making coffee pods, and building a business, via a series of online videos.
“We are brutally honest in those episodes about all the shit we go through,” Strong says.
“When I was younger, I would look at good entrepreneurs and I would always feel like I was doing something wrong. I would think, ‘why have I got so many challenges when these guys have it so good’. But even more established entrepreneurs go through all the same problems, it just doesn’t always appear in articles.”
When Podpac made it onto the Smart50 back in 2016, the business had annual turnover of approximately $4.8 million. Today, the business has recovered to the same level, thanks to its new online ventures and its move to licensing.
The business also now employs 23 people — more than it did before it was forced to let staff go in early 2017 — and many of its former employees have come back into the fold.
“We approached almost every single one to work with us again — some people had moved on so we didn’t get 100%,” explains Strong.
He says he doesn’t think about it too much, but being able to offer people back their jobs, and even create new ones, feels “brilliant”, he says.
“A lot of people are surprised about how quickly we turned things around,” says Strong.
“We have an amazing core team who really appreciated keeping their jobs, and who were personally working 80 hours a week.”
So what has Strong learnt from the past 18 months?
“We should have changed our primary business model long before we were forced to,” he says.
“With wholesale and contract packing, big chunks of your business can be lost overnight, based completely on someone else’s decisions.
“Direct to consumer is a much more stable business model long term, but it takes a huge amount of effort and self-development to get all the elements right.”
And he now has a deeper understanding of why getting into the right mindset is so critical.
“You always have to have something you’re excited about,” Strong says.
Throughout last year, Strong also discovered audiobooks and podcasts and says he spent up to three hours a day listening to them, which helped build that excitement.
“I believe more in action than inspiration, but you need to be excited to take action.”
Editor
Eloise is an experienced business journalist and editor, who has held senior editorial roles at SmartCompany since 2014. Prior to joining SmartCompany, Eloise was news editor at Books+Publishing, the trade press for the Australian book industry. Eloise has degrees in media and communications, marketing and business management, and political science. You can follow her on LinkedIn, and Twitter at @ellykeating.
