With any new product, you look for repeat business, but suddenly here were new customers coming in and asking for it all the time. And it wasn't long before other companies started coming out with their own versions of cheddar-cheese popcorn. When you see something like that, you know they're rushing to fill a whole new niche. Why the sudden interest? I really don't know. People were obviously looking for a snack that wasn't pure junk food, and Smartfood fit the bill. Plus, of course, the packaging was unique. I think at least part of the response had to do with this small company, not one of the conglomerates, saying it wanted to do something different and doing it.'
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The Adviser
A battle-scarred veteran of the software industry, Tom Gregory stumbled upon cheese popcorn through his association with John Harrington, president of the Frontier Group, a Boston-based financial consulting firm that did private-placement stock offerings for small companies. Most of its clients, like Smartfoods and Tug-N-Tie, were high-risk ventures trying to raise capital in the $250,000 to $500,000 range: too little to interest venture capitalists, yet attractive to the "wealthy and sophisticated" private investors Harrington specialized in soliciting. After Frontier Group signed on in May 1985 to help recapitalize Smartfoods Inc., Gregory came in as an adviser, rewriting the business plan upon which two rounds of offerings were based, pulling in $200,000 and $225,000, respectively.
"At the time I got involved," recalls Gregory, "Smartfoods was at the edge of a financial precipice. It was a good example of a company that got as far as it could with its original capital base and then faltered. I really loved the product, but it was clear to everyone -- including Andrew and Ken, who were both very good marketers -- that we needed more marketing horsepower if we were going to do anything about increasing consumer awareness.'
Lacking money and expertise, Martin and Meyers were pretty much inventing their marketing strategy as they went along. The company spent nothing on traditional advertising. There wasn't even much nontraditional advertising. Instead, the snack food was handed out free at youth-oriented events like road races, beach parties, and ski meets. And it was not uncommon to ride the chairlift at a major ski resort like Killington, Vt., and see a six-foot bag of cheese popcorn schussing down the slopes.
Oddly enough, these techniques were beginning to work. At any rate, they got people talking, and Smartfood soon developed a word-of-mouth reputation that money couldn't buy. Sales for the fiscal year ended June 30, 1986, rose to $550,000 -- up from $35,000 in fiscal '85 -- as first one and then a whole string of New England supermarket chains fell in love with the shiny black bag. Distributors who'd spurned Smartfood only months before suddenly found they couldn't keep it in stock. The shortage, in turn, drove consumer mania higher, making Smartfood an object of cult worship.
Even Gregory concedes, moreover, that the initial success of Smartfoods owed much to the absence of "marketing horsepower" in the company. "We had both the opportunity and the need to be very unconventional. Our only hope was to go around the competition and approach the marketplace almost as an exercise in guerrilla warfare.
"What Smartfoods really did was innovate the obvious. It took an existing product and packaging and marketing concepts and improved on each of them. When people in the snack-food industry look at it today, they slap themselves on the forehead and say, 'Why didn't I think of that?' '
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Withey and Martin had married in the summer of 1984, with Meyers serving as an usher at the wedding. Soft-spoken and almost painfully shy, Withey played no role in the management of Smartfoods (``I don't really like business," she explains) other than serving as the company's largest single investor, holding approximately 35% of the equity in her own name. She was around, however, when the cheese began to hit the fan in early 1986.
"Annie and I decided to go to Hawaii and cool out for a while," recalls Martin, seated next to Withey in the living room of their Hampton, Conn., farmhouse. "We were gone for 10 days. The day we got back, there was a board meeting in Boston. It was funny, because I remember walking past a lobby newsstand and seeing a front-page headline in The Boston Globe about Marcos stepping down. We hadn't been reading any newspapers, so it was a complete surprise to us. I said something to Annie about it, and then we walked into the conference room. I picked up a copy of the agenda. The first order of business was a vote on Andrew Martin's resignation as president of Smartfoods. The second was a vote on Ken Meyer's nomination to replace me. My first reaction was, 'Well, I guess Ken's cast his lot with Gregory and Harrington.' My second was, 'Hmm, this is a pretty rotten way of finding out about it.' '
Meyers has a somewhat different recollection. He points out that Martin had already agreed to step aside as Smartfoods' president more than six months earlier to concentrate his energies on Tug-N-Tie. Indeed, Meyers had been acting as chief executive officer since the fall of '85. He also says he tried to contact Martin and Withey before the meeting, but they were unreachable -- and then they showed up at the meeting an hour late.
Whatever the circumstances, the meeting opened a breach that proceeded to grow wider and wider. Martin blames it on success. "Once success came to Smartfoods," he maintains today, "it only intensified the conflicts that were already there. Each side was claiming responsibility for the product's success, but it was really the product that was driving all of us along. People were at each others' throats. It was like, 'Whoa, what happened to all that love and respect we've been talking about?' "
These days, Martin and Withey talk a lot about love and respect, which does not stop them from making inflammatory comments about "Ken losing his soul." They are also prone to make inflammatory comments about other Smartfoods board members. Martin describes one as a controller at United Technologies Corp. (U.T.), a military contractor for which he had such antipathy that he fired off a letter asking U.T.'s chairman to intervene. Another, says Martin, runs a large real-estate development company and is a former CIA employee to boot. To hear Martin tell it, the presence of such people was a nightmare come true, as if William Casey and General Westmoreland had signed up to do Smartfood TV commercials.
