In 2005, Sharelle Klaus was lamenting the lack of beverage choices for women who like upscale dining but can’t drink alcohol while they’re pregnant. A mother of four, she had experienced this frustration before. Klaus would frequently dine out with her husband and others, but felt left out when he and their dinner companions ordered wine to complement their meals. The restaurants had sodas, like Coke and Pepsi, available along with teas and mineral water. But the choices seemed like a poor substitute for wine and Klaus felt they often detracted rather than added to her dining experience.
Thinking about this problem caused Klaus to formulate a business idea. What if she were to create an elegant soda that was nonalcoholic and dry—meaning it wasn’t sweet—that could be paired with fine food? That would give anyone who didn’t drink alcohol a special beverage to drink with fine food. And what if it was a high-margin drink that came in different flavors with the flavors paired differently with different types of food?
That would be good for the waitstaff and the restaurant.
If someone ordered a Diet Coke or sweet tea, the waitstaff could suggest one of her drinks that would not only bring out the flavor in the food and make the guest feel more special, but make the waitstaff (via the size of their tip) and the restaurant more money.
This was the idea that became DRY Soda, a sophisticated nonalcoholic beverage company that launched in 2005. DRY Soda launched with four flavors—lavender, lemongrass, rhubarb, and kumquat—
and has since expanded to seven flavors. The firm experienced fast growth from the start; and, its products are now available throughout the United States, Canada, Europe, and parts of the Middle East. Some high-end restaurants are so taken with the concept that they have eliminated nonalcoholic alternatives such as soda, tea, fruit drinks, and mineral water, and now offer DRY Soda as their exclusive alternative to alcoholic beverages. DRY Soda is also available in a growing number of high-end grocery stores.

Prelaunch Advisers
One aspect of DRY Soda’s story that’s particularly interesting is the way the company came together, from a new-venture team perspective. Sharelle Klaus was one of the least likely people to have started DRY Soda.
Klaus launched an Internet company, named Planet Squid, shortly after the Internet came online. It was an early version of MySpace for 8- to 13-year-old children.
The company failed during the dot-com implosion, losing its investor’s money. She next became the president of the Forum for Women Entrepreneurs (FEW), an advocacy group for female business owners. It was an organization that she had relied on during her Planet Squid days.
Following that job, Klaus became a consultant for a company that helped airports privatize. The privatization of airports never caught on, and Klaus was between jobs when the DRY Soda idea occurred to her.
Klaus had no beverage industry experience—just a passion for food and wine and a lifelong interest in entrepreneurship. She did, however, quickly reach out to people who did have beverage experience to test whether DRY Soda was a viable concept. Her husband worked for DaVinci Gourmet, a food company, and she tapped several of his colleagues for advice—from the VP of sales to the woman who was in charge of customer education to a food chemist. The food chemist was particularly instrumental in helping her understand the process of developing and testing a new beverage product. He laid out the process and explained to Klaus that beverage products are tested a minimum of 1,000 times before they’re perfected.
Following the food chemist’s advice, Klaus bought the testing equipment she needed and started working on the DRY Soda concept in her kitchen. She was put in touch with a flavor company that provided flavors. She had everyone she knew test the four flavors that made it and some that didn’t, and tweaked the successful flavors as she went. Once she was satisfied with her initial four flavors, she took them to six influential people in the food business and asked for feedback. She also had a wellknown Seattle-area chef (Klaus lived in Seattle) visit her home and try the flavors. She contacted a bottle company that had just the right off-the-shelf bottle that could be used for her beverages.
Getting initial distribution was a major hurdle. Klaus approached two major beverage distributors, Columbia and Alaska, and they both told her to get traction and then come to see them again. A key advantage of working with large distributors is that they go beyond warehousing and delivering product and actually help win customers.
The second tier of distributors Klaus went to only warehoused and delivered product, so she became the sales force. She went from restaurant to restaurant in the Seattle area and had good luck explaining her concept and getting orders. Positive reviews in local press sources accelerated orders and she started gaining traction.
She went back to Alaska, one of the major distributors she had talked to earlier, and they took her on. With Alaska on board, DRY Soda started taking off. Klaus funded the initial inventory and operations of the company with an SBA loan.

Postlaunch Team
In 2006, once DRY Soda started gaining significant traction, Klaus raised $750,000 in investment capital to scale the company and hire a management team. She hired four key people: a marketing director with 12 years of food and beverage industry experience, a COO (chief operating officer) with 10 years of experience as a supply chain manager with HP and a stint at a beverage company as COO, a PR person with a public relations firm that was helping DRY Soda with its marketing, and a sales executive who had six years of feet-on-the-ground sales experience with a beverage company. The COO had also at one time been a partner at a venture capital firm. Interestingly, every member of the initial management team signed on without a steady paycheck.
Instead, they all agreed to start their careers with DRY Soda by receiving an equity stake in the business.

Subsequent Additions to the New-Venture Team
DRY Soda is now approximately six years old. The company remains private and by all outward appearances appears to be growing in a healthy, organic manner. In May 2007, during a period of particularly rapid growth, DRY Soda appointed Dan Ginsberg, the former CEO of Red Bull, to its board of directors. At that time, the board consisted of the following members:

In regard to its core management team, since its initial hires were put in place in 2006, the company has added a chief financial officer and a director of communications.

Future Growth
DRY Soda has remained true to its initial vision in that the firm is still a premium-priced sophisticated bottled beverage that’s sold primarily in high-end restaurants. It’s tinkered with its flavors some, and its seven flavors now include cucumber, vanilla bean, juniper berry, lavender, lemongrass, blood orange, and rhubarb. The only products it sells beyond its staple bottled drinks are pack and shipping boxes, T-shirts, beverage accessories, and gifts. It also has a company store in Seattle, where it has an upscale “tasting room” for its drinks, similar to a wine bar in a winery. The tasting room is staffed by hosts who can recommend what DRY flavors will pair best with your next evening of entertaining or local dining spots where you can find DRY Soda.

Discussion Questions
1. Sharelle Klaus created DRY Soda with no beverage industry experience. Make a list of the ways that she dealt with her lack of industry experience. On a scale of 1 to 10 (10 is highest), how successful do you think Klaus has been in overcoming her lack of industry experience?
2. Evaluate Klaus’s initial management team. Why do you think she selected the people that she did?
What are some common attributes the people she selected possess?
3. What do you think would have happened if Klaus had decided to “go it alone” and create DRY soda without reaching out to people with beverage industry experience?
Do you think it would have hurt her more in the prelaunch phase of the business, the postlaunch phase of the business, or equally in both phases?
4. Why do you think Klaus added Dan Ginsberg, the former CEO of Red Bull, to her board of directors in 2007? In your judgment, was Ginsberg a good choice? Evaluate Klaus’s 2007 board of directors. Do some Internet research on each member of the board, and speculate on why Klaus added each of them to her board.

Application Questions
1. If DRY Soda had put together a board of advisers when the company was founded, what type of people should it have asked to participate?
2. Look at the “You Be the VC” 9.2 feature. What type of new-venture team should Foodspotting assemble? Make up a simulated new-venture team for Foodspotting that would be capable of growing the company.

Transcribed Image Text:

DRY Soda Board During a Period of Rapid Growth in 2007 Founder/CEO Former CEO of Red Bull Redhook Ale Brewery Corus Estates and Vineyards Sharelle Klaus Dan Ginsberg Paul Shipman Stan Baty