Case in point: Dazzled by a growth opportunity? Think twice.
By Marian Moore and Brooke Correll,
The big idea: Some growth opportunities shine so brightly it is tempting to change even a well-considered strategy. Don’t be blinded by the light.
The scenario: In 2005, after a successful 15-year sales and marketing career, W.L. Lyons Brown III departed the family business, Brown-Forman Corp., owner of Jack Daniel’s and many other wine and spirits brands, to launch his own distilled spirits sales and marketing company: Altamar Brands.
Altamar was funded by family, friends and influential distributors who strongly supported Brown’s strategy of developing unique, ultra-premium brands of handcrafted spirits through methodical, market-by-market expansion rather than the unsual broad-based national rollout. Altamar built “pockets of strength” in five trend-setting cities: Los Angeles, San Francisco, Chicago, New York and Las Vegas. By 2007, Altamar had bought, built and sold its first brand, Tequila Corralejo, for a tidy profit. The launch of its second brand, Right Gin, was almost complete, and the third, Tequila Ocho, was waiting in the wings. The future was bright.
Then, in 2007, only months after the United States repealed a 92-year ban on absinthe, Brown secured the exclusive rights to represent Kübler Absinthe Superieure in the United States. Kübler fit Altamar’s strategy perfectly: The absinthe had been produced in its original formulation since 1863 in Val de Travers, Switzerland, by four generations of the Kübler family.
When the United States lifted the ban, Kübler and three other brands emerged to meet what was sure to be a voracious U.S. appetite for what had been a much maligned, mythical spirit.
The industry had never witnessed a product introduction of this magnitude. Kübler sales skyrocketed. Orders were depleted in weeks. Calls for Kübler came from distributors in all 50 states, well outside Altamar’s “pockets of strength.”
Brown believed that he had a brief window to capitalize on the craze. Kübler Absinthe was the real deal — in an industry that cared about heritage and authenticity. By abandoning his methodical growth strategy and expanding aggressively, he would secure a “first-mover advantage.” No other players were as well funded as Altamar, and none had Brown’s solid trade relationships. He could appease clamoring distributors. He could reward his backers with early returns on their investments. Expansion would put Altamar on the map.
The resolution: In spite of uncertainty regarding market size, Brown expanded into 30 states, racking up sales and marketing expenses. In late 2008, U.S. financial markets bottomed out and so did demand. Sales, initially dazzling because of absinthe’s mystique, suddenly dimmed. Turns out folks didn’t hallucinate, and they didn’t particularly like anise (it tastes like black licorice). Dark days followed. By 2010, Brown had let go of 19 employees and closed the office.
Brown returned to Altamar’s original, methodical growth strategy, and it worked. Altamar’s brands now number six; all are flourishing. Brown explains: “We do our thing the way our distillers do theirs: slowly, patiently and with great care.”
The lesson: Blindingly bright business opportunities will inevitably appear. If responding means changing a carefully considered strategy, be sure to be wary of the light.
— Marian Moore and Brooke Correll
Moore is a business professor, and Correll an executive lecturer, at the University of Virginia Darden School of Business.