The Start-Up Diaries: Plan B-Minus
Application Technologies' founder Johann Verheem is staking his future on a plan that didn't quite make the grade in business school.
His business plan didn't make the grade, but Johann Verheem gets high marks for vision
On a warm evening last June, a couple walked the beach in the affluent San Diego suburb of Del Mar, finding their way by the soft light streaming from the seaside homes. Johann and Emmarance Verheem, both 33, conversed calmly in their native Afrikaans, deciding whether they should embark on a new adventure.
Married for eight years, the couple had left family and friends behind in South Africa to seek a new life in America. The Verheems had done well. Emmarance was a pharmacist now. Johann, director of product development for infomercial giant Guthy-Renker Inc., was earning an income in the low six figures. In a few months he would graduate from the M.B.A. program at San Diego State University (SDSU). And the couple were just about to have their first child. Now they were deciding whether Johann should leave his good job and start his own company.
The idea of risking his livelihood for a start-up play made Verheem quite apprehensive. His employers at Guthy-Renker were making it even tougher by sweetening his package to persuade him to stay. There was a new contract offer from them sitting on his desk as he and Emmarance talked. More money. A piece of the action, at long last. How could he leave?
On the other hand, if he didn't take the plunge now, when would he? Plenty of friends and colleagues had told Verheem he should do it. One of the most vocal was Alex De Noble, director of academic programs at SDSU's Entrepreneurial Management Center and Verheem's favorite management professor. Earlier that same day, De Noble, an enthusiastic personality with a directness in keeping with his New Jersey roots, had called and urged Verheem to make up his mind. The message was simple: For cryin' out loud, Johann! Let's go!
"I'll tell you what, Alex," Verheem answered. "I'll make a decision tonight." So husband and wife walked the sands, and the next morning Verheem gave De Noble the good news. He was going for it. De Noble was ecstatic. A pennant for his beloved Yankees couldn't have made him happier. "All right!" he cheered.
Soon afterward, De Noble took Verheem to an awards dinner for local entrepreneurs. As the winners stood up one by one and told war stories about their start-ups, De Noble could see the excitement build in Verheem's eyes. Inspired, student turned to professor and said, "You know what? I made the right decision."
Verheem's venture, called Application Technologies (AT), is a real "not-com" -- the company develops and licenses new packaging products. Or at least it will soon. Right now its focus is on a simple concept that Verheem hopes will be the biggest thing since the plastic pump bottle.
Called the Appli-K pouch, it is an easy-to-manufacture, one-application container. The pouch is a pillow-shaped sealed container formed from Mylar or foil or other materials, depending on the product it is intended to dispense. It can be made in different sizes to contain a fraction of an ounce to a quarter pound or more of liquid, gel, or cream. A consumer peels two sealed flaps back over the pouch to open it, then squeezes. The flaps protect his or her fingers, so skin medication or lotion can be applied without touching the product, bruise, or blemish.
Verheem's plan is to form strategic partnerships with manufacturers that have the capacity to develop tooling and make the pouch. The next step is to license the pouch and other products to the Procter & Gambles of the world.
Therein lies the key to his company's future. By licensing rather than selling products like the pouch, AT will have real assets and ongoing revenue streams. "We're looking for the pouch alone to take us to $20 million," he says. "The potential for the whole company is to be a $100-million-plus business."
The company's first partnership agreement, with global plastics manufacturer PTI Plastics Inc., is already in place. One more such deal and Verheem will be ready to launch a new round of fund-raising. "I would like to raise $2.5 million and develop tooling for four different models of pouches by the end of 2000," he says.
How can Verheem be so confident so soon? Because he was developing the model long before he actually decided to start the company. The concept itself dates back more than a year, to when Verheem was earning his M.B.A. at night while working days at Guthy-Renker. His job was to scout for products that would sell well on television. That meant meeting inventors with all kinds of crazy ideas.
One was Kurt Koptis, who already had scored a winning product on his own: a spackle in a squeeze applicator that was sold under the name Nail Hole Filler. Koptis brought Verheem some items that didn't seem right for Guthy-Renker, which wanted only the most obvious slam-dunk, turnkey products. But the two men got to talking and discovered they shared common interests and views about product development. "Unlike many others, Kurt knew he was in the packaging business," Verheem says.
In July 1998, Koptis called Verheem and said, "I have a really cool product."
"Kurt showed me the early form of the pouch and said, 'This is perfect for putting butter in," Verheem recalls. "He wanted to sell it to Wesson Oil, but I immediately saw the potential for medications." Verheem told Koptis he would develop the pouch concept as a project for a business-plan class he was taking in the fall -- a class taught by De Noble. That way, they could do some research on the market potential and get good advice from students and professors.
The grade for a class like that is based on teamwork, and Verheem already knew the person he wanted to work with. In an earlier class he'd been partners with a young woman named Natasha King, herself an ÉmigrÉ from the UK. King, a market-research specialist, had impressed him with her intellect and drive -- as well as her irreverent, firebrand personality.
Competitive with others, demanding of themselves, King and Verheem worked well together, speaking in the sort of shorthand that usually takes many years to develop. During the fall of 1998 they built a model for bringing the pouch to market. They discovered that packaging alone is an $80-billion industry. Through his Guthy-Renker experience and contacts, Verheem identified manufacturers that could be potential customers, and strategic partners that could help make the pouch. King did the early market research.
