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STRATEGY

Running Through the Legs of Goliath

How upstart Method is taking on the giants of the household products industry.
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At the sparkling white offices of Method in San Francisco, sunlight is shafting through bottles of red, green, purple, and blue liquid, the cleaning products that Method sells. It should have a calming effect, but everyone at Method seems frenetic today. Eric Ryan, the 33-year-old co-founder, zooms past a glass-walled conference room on his cell phone, bright-eyed despite a weekend bachelor party in Mexico. On the other side of that glass wall, the other co-founder, Adam Lowry, 31, has improbably folded his six-foot-six frame into a small chair and is preparing for a fight.

Lowry is trying to explain the science behind Method's biggest launch ever--six air-freshening products in six scents for a total of 36 items--to Natalie Aronson, the brand manager for the air fresheners. One of Lowry's goals in starting Method was to bring environmentally friendly products to the mass market, so he's particularly psyched about a nonaerosol scented spray he's discussing now. But Aronson, who has been working on this launch since she joined Method 10 months ago, has concerns. In the next few minutes, she has to decide what text to put on the front of the spray bottle. If this thing is just a sprayable fragrance, she doesn't see how she can justify its $3.99 price.

"I'm gonna make a believer out of you! I'm gonna show you what this stuff does!" says Lowry. Gesturing to three jars of cat urine--or "L'Arome du Chat," as the formulation chief has scrawled on them--Lowry unfolds himself from his chair and bounds to the dry-erase board, where he begins a chemistry lesson on room spray technologies. Drawing squiggly figures on the board, he explains how the patented technology Method licensed sprays onto the odor, binds to the odor molecule, and changes its shape so it won't fit into the nose's receptors. It does this, Lowry says, without coating the nose in chemicals the way some spray fragrances do. When the cat-pee jars, each subjected to different room sprays, are passed around, Method's does smell fresher. "It's gonna be like the odor was never there and you lit a candle," Lowry says.

Aronson isn't sold. She suggests that the bottle note three attributes Lowry hasn't covered: nonaerosol technology, natural, concentrated.

Lowry pauses. "That's not gonna get across the performance of this in getting rid of odor."

What about saying it's a time-release fragrance? Aronson asks.

Right, Lowry says, it's a time-release fragrance with three fragrance blooms, and that's a big deal. But there's more going on. They continue to bat attributes back and forth. He emphasizes: no chlorofluorocarbons, low surfactants, no propellants. Aronson, twirling a four-color click pen in her mouth, offers long-lasting, odor-eliminating, and nonaerosol. "Consumers don't see the problem with room spray, and we don't have the money to teach a negative," she says. "We have to take a positive approach."

Lowry, getting a little exasperated, suggests noting that the technology is patented. Aronson ignores him, studying the prototype in front of her and muttering, "No harmful chemicals."

With time running out on this meeting, and a crowd of Method employees gathering outside the conference room for the next one, Lowry makes a final pitch. "The one thing we're missing is the aspect of safety," he says. "It's not gonna spot or stain, you're not breathing propellants."

"We don't want to mention anything about safety," Aronson objects. "It opens up a closet."

"Before you say that, remember our entire brand is about safety--if it's not on there, the question is why is it not safe."

"But the consumer doesn't see safety as an issue."

"I disagree with you."

Unfazed, Aronson removes the pen from her mouth and smiles. They settle on "nonaerosol," "no propellants," and "2x concentrated" with "odor eliminator" wedged under the product name. "I think this is quite a story," she says. "I'm really pleased."

It is quite a story. In the five years since it was founded, Method has invigorated the consumer products world by exploding much of the industry's conventional wisdom. The company is best known for its bottles, which look more like vases and sculptures than containers for cleaning products, but the story goes beyond that.

When Method started, cleaning products represented one of the most sluggish, antientrepreneurial categories around. Industry giants Procter & Gamble, the Clorox Co., Colgate-Palmolive, and SC Johnson had been founded as far back as 1806; each had massive infrastructures, thousands of employees, and billions in sales. Each also had jumbles of brands; P&G, for example, sold cleanup spray under Mr. Clean, dishwashing soap under Cascade, liquid dish soap under Dawn and Joy, hand soap under Ivory, and air freshener under Febreze. The brands focused on efficacy and price, the packaging was loaded with product claims--"Removes soap scum!"--and the products mostly looked pretty similar to their competitors and pretty similar to how they looked 50 years ago. "Up until [Method]," says Felicia McClain, senior editor at Mintel International, a Chicago market research firm, "we saw little to no innovation in that segment."

Method put one name on all of its products so they would reinforce each other.

So Method did everything differently. It put one name on all of its products so that they would reinforce each other. Where P&G owned factories, Method outsourced everything. Where P&G took years to get products to market, Method took months. Today, P&G has 140,000 employees, Method has 45. The upstart made its packaging recyclable and products biodegradable, avoiding bleach and chlorine. It designed dish soap and laundry detergent bottles to look like bowling pins and figure eights. It based its entire organization on speed and innovation, so that, even when the giant companies copied it--as they do regularly now--Method would be a step ahead. "When you run through the legs of Goliath," says Eric Ryan, "you need to spend a lot of time thinking about how to act so you don't put yourself in a place you can be stepped on."

At about $32 million in annual sales, according to Information Resources Inc., Method is still a rounding error to P&G. But Method's impact has been remarkable. It's pushed its way onto shelves everywhere from Target and Wal-Mart to grocery and drug chains and high-design retailers such as the Conran Shop (while keeping its prices competitive with P&G's). Of the 15 categories in which IRI tracks Method's efforts, the company had triple-digit growth for the most recent year available (ending October 30) in six; it had double-digit growth in another six. Its competitors, meanwhile, have had mostly tepid growth or even declines in those categories (albeit on much larger sales). "Method was way ahead of the game in romancing some of these products and making them fit into the décor of a house," says Tom Vierhile, director of Datamonitor's Productscan Online, which tracks new consumer products. "Everyone's paying a lot more attention to them."

That higher profile has put a lot of pressure on Method's latest launch. "Method has to enter a category with a huge disruption," says Alastair Dorward, the company's CEO. "The story cannot be copied overnight or eroded by existing [companies]. It has to have disruptive packaging, ingredients, and fragrance."

Not only is this Method's biggest launch, it's also the most complicated; materials are sourced from China, Portugal, and Mexico as well as the U.S. The six new products--the room spray, a battery-operated air freshener, a plug-in air freshener, and a soy candle, plus refills for both of the air fresheners--need to be on the shelves in 1,433 Target stores on February 12. Says Dorward, "We need to really pull something great out of the hat."

Then again, no one expects the launch to come off without mistakes. In fact, at Method, trial and error is part of the plan.

The Method story starts in a postcollege crash pad at the corner of Pine and Franklin in San Francisco. Ryan and Lowry had grown up together in Grosse Pointe, Mich., and had kept in touch while Ryan worked in advertising and brand consulting and Lowry, who'd studied chemistry at Stanford and has twice placed third at the Olympic sailing trials, wrote environmental position papers for Washington's Carnegie Institution. They'd reconnected on a Detroit-San Francisco flight after Christmas 1997. It turned out that Ryan needed a place to live and one of Lowry's frat brothers had just moved out.

Between drives up to the mountains and tossing back beers on the orange velour couch in their living room, the two started a series of conversations about what was cool and uncool in the world. Those conversations morphed into a discussion of what products had been reinvented with a design perspective--computers, for example--and what products hadn't. Perhaps because both Ryan and Lowry had come from entrepreneurial families--the Ryans and the Lowrys both ran auto-supply-related businesses in Detroit--this quickly turned into a discussion of what categories might be ripe for an update. Eventually, they settled upon...cleaning fluids.

Lowry still recalls the date and time of Method's first sale: February 28, 2001, around 6 in the morning. With about $300,000 culled from friends and family and their own savings, he and Ryan had lined up low-volume outsourcers around San Francisco to make their first products: four cleaning sprays for kitchen, shower, bath, and glass, all scented and packaged in clear bottles. They'd filled a few bottles with their formula and were stalking grocery-store managers at dawn. The stalking paid off at a Mollie Stone's in the suburb of Burlingame. "The manager of the store just liked the way the packaging looked and liked their attitude," says David Bennett, the co-owner of Mollie Stone's. "And it was a product that the big companies, the chains that we compete against, didn't have. We felt it looked like an upscale product that would meet our consumer demands, and we went ahead with it." On the spot. Which meant the grocer had placed an order for a product that technically didn't exist.

Lowry jumped in his '91 Explorer, raced back up to San Francisco, grabbed Ryan and pails and formula and bottles and labels, and they started filling the bottles by hand and stuffing them into cardboard wine boxes. They were en route back to the Mollie Stone's by the afternoon. "On the way we bought one of those little invoice books with the carbon copy, like when you go to the takeout food place," says Lowry. "And I literally wrote out the terms: net 30 days, each item, and the price, and had the store manager sign it and give us a copy--and that was our initial revenue."

The very next day, Ryan and Lowry took the first step to building the company's structure, hiring Alastair Dorward as CEO. Dorward, who had been consulting for Ryan and Lowry, had previously run Covent Garden soup company, a privately owned business worth about $40 million when he left--he had turned down Ryan for a job there, in fact. Now, he started to woo investors while "the boys," as they are still called within the company, worked on the products and sales--which continues to be how they divvy up their roles. Lowry, who runs the product side, can come across as very much the confident executive, but, as he tips his chair, taps his knuckles and toes, and runs his hands back and forth along the edges of tables, you get the sense that not far beneath that veneer is a kid who accidentally blew up his starter chem set. Ryan, meanwhile, with his pale skin, Nordic features, and blond hair pulled forward in a studiedly unkempt style, looks as if he should be fronting a skinny-tie band in London rather than heading up Method's marketing. And yet, he is totally obsessed with branding, and at every opportunity he will ask near strangers for their impressions of Method.

Fresh from their success at Mollie Stone's, Lowry and Ryan continued the ambush-the-manager approach with independent San Francisco stores; with that sales data in hand, they then went after bigger chains, getting meetings with regional buyers at Ralphs and Albertsons, both of which also took on the products. But the next rung Lowry and Ryan needed to climb, one that would turn Method into a stable, sustainable company, was the conquest of a mass market retail chain. Target was the target.

The boys sent an e-mail to Rashid: "Are you our design genius?"

At the time, in the summer of 2001, Ryan was working to make the design of Method's products more startling. Yes, they'd custom-made the spray-cleaner bottle, but it didn't look that different from what was already on the market. Researching industrial design, he'd become enthralled with the work of Karim Rashid, a New Yorker whose high-end chairs and housewares had made their way into the modern art collections of several museums. So Ryan and Lowry, like lovestruck tweens, spent days composing the perfect e-mail to Rashid: "The design goal is to reinvent the banal dish soap that looks like a relic of the 1950s and sits on every sink across the landscape of America. We want you to approach it not as a packaging assignment but from a product perspective to create an object for the kitchen that is as iconic as a salt and pepper shaker....We will bring fashion and function to a tired category that almost every American interacts with on a daily basis. Anybody can make perfume look good, but it takes a real design genius to find a way to reinvent soap. Are you our design genius?"

Rashid gets about 15 pitches a week, from start-ups and established companies alike, but this one intrigued him. He'd long been preaching the "democratization" of design--that even banal items should look good--and this was a chance to put that into practice. "At first," says Rashid, "I was a little skeptical, only because they would be competing against the P&Gs of the world. It doesn't matter if you have a brilliant idea if you can't build a market very quickly." But after he quizzed them on their strategies for manufacturing, quality standards, shipping, filling, chemical makeup, and several other matters, he decided to come onboard as chief creative officer.

His first assignment was to create a dish-soap bottle. He turned the existing bottles upside down, literally, so the liquid came out the bottom. He worked with Lowry to find colored liquids and put them into translucent bottles so they glowed purple, green, orange, or blue. He removed product claims and almost all text from the label. To hold dishwashing liquid, he created a shape dubbed the "bowling pin," with a bulbous head sitting on an inverted cone. "That one product, not only did it combine innovation with regard to packaging but also with the scent, and it was convenient because it had the inverted bottle," says Mintel's McClain. "Word got out."

This was about the time Target was launching mod advertising campaigns and signing on designers like Michael Graves to give the store verve and to differentiate it from Wal-Mart. Through a friend at an ad agency, Ryan got word to Target's marketing people in late fall '01 that Method had a deal with Karim Rashid. And so, flouting standard protocol and risking alienating the buyers, Method dangled Rashid in front of the marketers: You give us your buyers--who'd previously ignored Method's entreaties--and we'll bring Karim. And it worked.

The fabulous Rashid, standing six foot four and wearing an all-white suit, enchanted the Target team with his mockups of the products; Ryan, Lowry, and Dorward backed him up with sales figures, press clips, and a PowerPoint on Method's approach. "Everybody understood the vision and the product," Rashid says. After a few weeks of haggling over how many units, the pricing, and the merchandising, Target agreed to test-launch Method's dish soap and spray cleaners in 200 Bay Area and Chicago stores.

Getting into Target, of course, meant that their small-time ways of filling orders would have to change. Lowry went to Trifinity Partners, a filler in Lake Forest, Ill., gave it the bowling-pin bottle, and asked CEO Jim Merlo if he could fill it. Merlo, who had been in the business 20 years, had a policy against taking on start-ups. He made his first exception for Method, partly because Lowry reminded him of himself at a younger age but mostly because he liked the product. "We're a contract packager, and we see a lot of me-too products from several Fortune 500 companies we do business with, and his was truly, truly unique," he says. "It was one of the first arguments my partner and I ever had: 'What are we doing this for? Are we ever gonna get paid?' I said, 'You know, we're gonna take a flier on this kid."

But the same product that got Target and Merlo to sign on would have Lowry and Ryan freaking out in a matter of weeks. The bowling pin was on shelves at Target when Lowry, who'd taken to watching his products in the Target aisles, noticed a problem. Consumers were fiddling with the pin's unusual closure, leaving threads of soap on the shelves. The valves were leaking. While the Method employees assembled rags and sponges and drove around to Bay Area Targets to wipe up the soap, Lowry jumped on a redeye to Chicago, where Jim Merlo had, to his own bemusement, found himself doing the same. "My people were so excited about the product," he says, "we went to the stores and took the leakers off the shelves and merchandised on weekends at no charge." Realizing the closure was the problem, Lowry and Merlo added a secondary cap and a sticker. Watching Lowry fiddle with solutions, Merlo was impressed. "This product was gonna work no matter what," Merlo says.

In the end, the dramatic design was Method's first big win. "Clawing your way up into raw consumer awareness is an interesting thing," says Tim Koogle, the former Yahoo CEO who joined Method's board in 2002. "It takes something pretty radical to do that, and that package served them really well, leaks and all. Consumers, if they fall in love with you, will forgive you at an early stage in life as long as it's clear you're doing something about it."

And as long as you don't do it again. "There was a time when we could get away with a couple of leakers," says CEO Dorward. "That type of miss now is unacceptable." With that bottle, though, the boys figured out something else: If a design wasn't working, they could fix it quickly. Seven months after the Bay Area and Chicago trial, Target rolled out Method's products nationwide.

Method's system of trial and error would become a hallmark of how it did business--and a key way of defending itself against the giants. In 2004, for example, Lowry and Ryan launched a laundry line--and pushed the design a little too far. As with the dish soap, they were trying to be disruptive, this time with a triple-concentrated detergent Ryan had spotted in Japan. For Method's version, Rashid came up with a figure-eight bottle--small and tidy, with a nip at the waist. To amp that up, he added a self-dosing, squeeze-and-pour cap. The idea, says Sangita Forth, who heads the laundry line, "was you could have a child in one hand and do a load with another just by flipping the bottle and pouring it into the wash."

It made perfect sense--except that consumers didn't want the new cap. "The process of doing detergent is engrained in peoples' minds," says Forth. "They don't mind having to pick up a heavy 100-ounce bottle, and they're used to the leakage you get because they've been doing it for so long." Method also learned that consumers like controlling how much detergent they use, so they can add extra if clothes are particularly dirty or hold back if the load is light. "The mass market wasn't quite getting it," says Ryan. "It's hard to reeducate people." Ultimately, Method tossed its beloved cap, switching to a traditional one that hit stores in May 2005.

The triple-concentrated detergent itself, though, proved a success. According to IRI, it moved $4.7 million between October '04 and October '05. While the overall market share is tiny, the growth got noticed. Last summer, All launched its own triple-concentrate detergent; early this year, Tide and Gain are expected to do the same. "In a category like this," says Productscan's Vierhile, "there was no reason why a P&G couldn't have been the first one to do this....But sometimes it takes a competitor."

Since Method's arrival, Colgate's Palmolive and P&G's Joy have both launched scented dish-soap lines featuring scents like lavender-ylang-ylang and pink grapefruit. Rashid says he's had four companies approach him to do Method knockoffs, and Jim Merlo of Trifinity reports that seven or eight companies have asked him to knock off Method products.

One Method defense is its speed, its ability to change on the fly. Another is its quirky marketing ploys, which would be a little risky for a publicly owned company. Two years in a row, Method has run 20-page booklets in magazines such as Real Simple, Organic Style, and Lucky. The booklets explain Method's approach and offer a starter kit for sale. It's nothing too revolutionary--but for the naked man on the cover, clutching a strategically placed bucket. The campaign cost $2 million to print and run, which is perhaps more than Method can really afford. "Everyone told us we were crazy to dedicate a 20-page book to the subject of cleaning," says Ryan. "I came from advertising and kept warning the board, do not expect to see sales lift. But we saw an incredibly sizable [10% to 15%] sales lift instantly."

The innovation-versus-practicality question is one that arises constantly at Method, especially as it's grown to 45 people and 50 outsourcing firms. It's a constant balancing act, the founders hoping for designs that disrupt but fearing designs that confuse or annoy.

The company has put in structures such as litmus tests for new products; a product has to be feasible--made to Method environmental, efficacy, and quality standards--and it has to be worth it financially. Lowry, Ryan, Ritch Viola, the vice president of marketing, and Gerry Chesser, the VP of operations, review "charters," which lay out a plan for products they're considering: scents, packaging, the launch timeline. They'll recommend changes on product assortment or cost range before the project officially kicks off. From there, every department gets involved, from engineering to marketing, with the brand manager--Aronson, in the case of the air fresheners--at the helm.

Right now, back at Method headquarters, Ryan, Aronson, and whomever they can corral for a minute are crowding into a passageway by a designer's cubicle. They were supposed to send the design for the plug-ins box out the door five minutes ago, but they can't decide what color it should be. They're studying a proof page that displays the box in chartreuse, as well as Pantone chips in various shades of green, and, when Jennifer Drubner, Method's PR chief, squeezes by, the grass-green color of her shoes.

"Our approach was spa bathroom," says Aronson, frowning at the brightness of the proof's green. She's tempted to move to a muted avocado color, but Ryan disagrees. "I like bright green," he says, stepping back for a different view. "It says color in action."

"I'm only this picky because I think when we--" Aronson says.

"It needs at least a hint of freshness," Ryan interrupts, then dashes to retrieve the green box from an iPod Shuffle from his cube. He places it next to the proof, and the colors are similar. Another onlooker insists that in mass market, you need a color that sticks out in the aisle. "That color is not fresh," Ryan says, shaking his head at the avocado.

"Color is crucial," says Aronson, whose gaze hasn't wavered from the color chips in 10 minutes. "You pick the wrong color, you compromise sales." They go with the bright green.

By December, all of the last-minute decisions have turned into real products. They've chosen the names of their four products, which, per Method norms, are a tad inscrutable. The line will include the plug-in, or "aroma pill" ("we're continuing to be playful in the category," explains Viola, "so we're not just saying fragrance, fragrance, fragrance--so the aroma pill, what's an aroma pill? But it piques your interest"); the battery-operated diffuser, or "aroma capsule"; the "air enhancer" spray; and the candle.

The inventory strategy is difficult. Because Method had never made these products before, it hired outsourcers who had. The candles' porcelain molds and the aroma capsule come from China; the base unit of the plug-in is made in Portugal, then shipped to Mexico, where glass casing is added. "We've got some real strange dynamics," says Gerry Chesser.

He's basing initial orders on sales of other air-freshener lines. But, given the long lead times of some items, he's made contingency plans. He's ordered extra Portuguese plug-in bases to have ready in the Mexico factory and extra candle molds that are now in Minneapolis, where the candles are filled. His theory is that overordering on parts is cheaper than having finished goods on hand. If parts arrive late, he's planning to hire two drivers for each truck to avoid driver hours regulations--or, if necessary, to ship by air.

Come February 12, the Method employees know what their roles will be. Aronson will update her Excel spreadsheets daily based on Target sales figures--and jot down ideas for version 2.0 of air care. Viola will talk to Target to see how everything's going, making sure the product is merchandised correctly via a store-monitoring firm he's hired, and he'll start selling other retailers. Dorward will work on international sales, and Drubner will compile consumer e-mails for the company to review. It's not the most sophisticated consumer-response system, but it's cheap.

The Method team is already questioning one decision, letting the plug on the plug-in stick out of its box. "In air care," says Aronson, "certain forms do not have strong product recognition, and with a form such as a plug-in, we want it to be instant--we want them to pick it up, look at the prong sticking out, and they've got it: It's a plug-in." This means special packing so the plugs won't get bent in shipment. But it looks a little awkward. Method realizes that, and it's already mocked up a bigger box and alerted the packaging company so it can switch if the original doesn't work.

Ryan and Lowry, too, know what their tasks will be come February 12. They'll be caught up in a tornado of still more launches. "In general, we've got more ideas on the table than we can execute," says Lowry. There's a foaming hand-soap launch scheduled for March, a redesigned laundry line for April, and two huge launches that will push Method into new categories later this year.

Even so, they will surely find the time to skulk down the aisles of a nearby Target just to see how their new products are selling and if they can spot any problems. Target doesn't like them talking to customers, but it's a tough habit to break.

Stephanie Clifford (sclifford@inc.com) is a staff writer.




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