Knowledge@Wharton: What inspired the idea behind Hydros?
Winston Ibrahim: The idea behind Hydros that my cofounders and I had was one about the ridiculousness of the consumption of bottled water. Over the past 30 years, it has become, effectively, a social stigma to drink water out of the tap. [As a result,] there’s been a multibillion-dollar [sales] growth in the bottled water industry. It is just astounding that anybody would buy so much of this inherently available product in a way that’s so wasteful from a monetary perspective and from an environmental perspective.
[We discovered] there was no viable filtering vessel [for people] on the go. [Meanwhile,] there was a huge demand for bottled water. At the same time, we observed the growth of home filtration systems like Brita. The idea struck us that if we could create a functional, easy to use and beautiful product that could be available at a comparable price, we might have a very good business.
Knowledge@Wharton: How big is this market?
Ibrahim: The bottled water market is easily in the $3 billion to $5 billion a year category, just in the U.S. And the market for home filtration is close to a billion dollars. Brita alone does $600 million in sales. Brita and its filters are the No. 1 selling products in the houseware section of Target, Costco and Amazon.com.
Knowledge@Wharton: If you have such a dominant player like Brita already as an incumbent in the market, what’s the opportunity for disruption that you saw in this space?
Ibrahim: Brita is not known for its design. The pricing is awkward. Our desire was to go deep with industry experts who understood consumer goods products and to try and create something very proprietary and very scalable. Our first products were actually developed out of Wharton and now we’re on the brink of taking it to the next level.
Knowledge@Wharton: Tell me a little bit about your journey so far and how you’re at the brink of the next level of take off.
Ibrahim: My cofounders and I created this business back in 2009. We were fortunate enough to get a spot in [a Wharton incubator]. We were actually sitting next to the cofounders of Warby Parker while we were developing this idea. It was a very raw idea. None of us had any real experience when it came to taking products to market. We had all anticipated working in finance. One of my cofounders was an engineer from the University of Pennsylvania and a Wharton graduate. So we had very disparate backgrounds with complementary skills. We were able to kind of bootstrap our way into creating our first product, which to our surprise did $500,000 in sales very quickly.
“It has become, effectively, a social stigma to drink water out of the tap.”
It was on the back of that that we started to get press and, accidentally, distribution. Almost without trying, we suddenly ended up in Whole Foods Market. When Whole Foods buyers approached us, we were able to get astoundingly talented people to join us on our broad of directors. We’re very fortunate to this day to have Shazi Visram, the founder and CEO of Happy Family, which is the largest organic baby-food company in America. She sold the company to Danone [in 2013] for $400 million and is still running the business.
We have Alan Sheriff who used to run investment banking for Credit Suisse First Boston, and now has an intellectual property advisory firm in the country. So we’ve really struck a nerve with some serious business professionals with our early products.
Now, as with a lot of startups, things can happen with people throughout the journey. Sometimes people lose interest and products have issues. Our second-generation product, while selling quite well, had a lot of development challenges and an inherently unsustainable cost structure. So my cofounders and I did a little bit of negotiation and I’ve bought them out. We have a brand new team of professional industry operators and have hired Nottingham Spirk Design, a consumer products development firm. Nottingham Spirk is responsible for creating over $50 billion worth of consumer products. They invented the Swiffer and the Dirt Devil. Their client companies have more than 1,000 patents.
We went to them after I did this buyout and presented them with our idea and some of our initial products. We’ve been working with them over the past two-and-a-half years. What’s unique about Nottingham Spirk is that they won’t just do a design, they will incorporate engineers, they’ll incorporate sourcing experts, and they’ll think about scalability of cost. We were making our initial products in eight different facilities around the northeast in the U.S. Now we’re going to be making our new product in one facility in China. The cost of our filters alone have gone down from $5.50 to 50 cents. So economies of scale are going to work very much in our favor here.
Knowledge@Wharton: When you have such a big incumbent dominating the market, your strategy is very crucial. What is going to be your strategy to build out the sales and marketing side of your product?
Ibrahim: Our hope to make a dent in the market is to target unique online sales initially and leverage an influencer market opportunity. So we’ve hired some of the top marketing experts. We’ve hired a very good professional PR firm and they’ve helped us develop a whole network of people who can really help to drive early consumer adoption of products like ours.
Knowledge@Wharton: And you have a patent on the technology?
Ibrahim: We have multiple patents on this technology. We have dozens of patents pending. We have been granted a few patents; several of those run back to our initial filings done at Wharton in 2009 and 2010.
“The bottled water market is easily in the $3 billion to $5 billion a year category, just in the U.S.”
Knowledge@Wharton: You mentioned you have a very strong board. That’s great. For any startup, funding is very crucial. How did you go about raising capital? And how much did you raise? And what were some of the challenges involved?
Ibrahim: It’s challenging early on when you’re a young and inexperienced team to raise money. I’d say it was just relentlessly pushing the idea. You know, there’s so many people who will tell you “no.” When you’re in that situation, you have to just keep on trying. Obviously, we were lucky to be able to leverage the credibility of an institution like Wharton, which had given us this prize and some money to start up.
All of our money has been angel money. And we’ve been very careful to only work with investors who are in line spiritually with our interests and our long-term plan. I think I’ve seen a lot of my entrepreneur friends take deals that they’ve later regretted. They seemed very good, but they were from people who were not really aligned with them. I think we’ve been astoundingly lucky to have access to really great people who’ve had the highest ethics and really believe in the long-term interests of this company.
Knowledge@Wharton: Are you able to say how much money you’ve raised?
Ibrahim: We’ve raised about $4 million to $5 million.
Knowledge@Wharton: Great. And like raising capital, the other very important consideration is your leadership team. How did you go about assembling your team? And what did you look for in that initial team?
Ibrahim: It was honestly complete chaos after this buy out, especially as I was only one of three people who had previously been running this company. Now I was suddenly inheriting all of those challenges onto my shoulders alone. And it was definitely a strong challenge.
A mitigating factor was the fact that I could rely on so many well-entrenched people as advisors and board members, and to access talent. I would say the real challenge in these types of situations is not necessarily even finding the right people, it’s being open to sharing authority with people like that. Entrepreneurs by their very instinct are doers who want to do everything according to their own wishes and whims. And it takes a lot of hard work to be able to step out of that, to really think strategically and globally about how you can offer the most value to your business.
It was clear to me that I needed the support of seasoned executives. I was very lucky to find people to help co-pilot this.
Knowledge@Wharton: Since you are getting ready for the next phase of your growth, what do you see as the biggest risks that you might face? And how would you think about overcoming them?
Ibrahim: The biggest risk we face is exactly what we were discussing a few moments ago — we’re going up against a well-entrenched, dominant incumbent. And that’s not something that can be taken lightly. Brita has been around for 30 years. They have a track record of hundreds of millions of dollars in sales and a penetration into millions of households in this country and around the world. So what we’re going to have to do is go over the top in terms of our marketing and really be able to offer the consumer more bang for their buck. What’s very lucky again is the fact that we can lean on such great and nimble manufacturing, on such great design and inherent technology, which has really been beneficial.
Knowledge@Wharton: The other big challenge, I would imagine, especially when you go up against such a dominant incumbent, is how do you build your brand. What are you thinking? What’s your idea on how you will build the Hydros brand?
Ibrahim: Branding and marketing is very important to us and we were able to engage a top tier firm in the space. We’ve spent hundreds of thousands of dollars on getting our packaging right, all of our materials right, everything on our font right, and that was all done with the mindset of how we can create something that resonates with the consumer.
Another very key attribute that we’re trying to display is our modernity as a brand, as a product. Brita may be established, but our argument is that very much like Gillette with Dollar Shave Club, it’s an old and somewhat tired product that doesn’t really excite the consumer, especially a millennial consumer who’s increasingly driving consumption of these products. We really want to appeal on the basis of our sexiness as a brand and we’ve put that thought endogenously into the design and shape of our products.
“Almost without trying, we suddenly ended up in Whole Foods Market.”
Knowledge@Wharton: What would you say have been your biggest successes so far?
Ibrahim: Our biggest success was in being very patient in putting together the right attributes of this product and waiting and biding our time. And you know, it’s very hard as an entrepreneur to sit back and let a development process take its full course. It’s gut-wrenchingly tough to have to sit there for years and years and go through engineering meetings and design meetings and sourcing meetings. We’ve had a lot of challenges in this business. We had a manufacturing partner last year who we were supposed to work with who ended up not being a viable partner. In fact, just two weeks ago we were in federal court with this former partner. That delayed us a year. So it’s really been hard to be that patient, but I think the end product has really been worth it. We’ve seen a few other entrants to this space who have attempted to come out with a substandard product faster and cover their tracks with good marketing, and it hasn’t worked.
Knowledge@Wharton: We talked about successes, what would you say have been your biggest mistakes so far and what did you learn from them?
Ibrahim: The biggest mistake that I’ve made is in not trusting my instincts about situations that seemed too good to be true. I would say rushing to do something and thinking that it will just work out, ignoring that voice inside of your head that has a few doubts is very much our biggest mistake. And I would caution any entrepreneur from ignoring them casually. It’s better to do something slowly and do it right.
Knowledge@Wharton: What’s the biggest lesson you have learned from those mistakes?
Ibrahim: The biggest lesson is to learn to be patient and do something right. To really, you know, surround yourself with a best-in-class team of people. But it’s doing that and being patient and thinking like a chef. You know, your job as an entrepreneur is not to do everything; it’s to set the stage, to assemble all the best ingredients and put them into the same environment where they can interact with each other and to harvest what comes from that. What we have now is so different from what we had before. I could never have done it on my own.
Knowledge@Wharton: If you were to look five years out, where would you like Hydros to be?
Ibrahim: In five years, I would like Hydros to be a household name and a product that everybody uses in one sense or another. We are very keen on creating an ecosystem of products that can fit every budget, every usage case. So we’re initially launching with these three vessels: a bottle, a pitcher and a carafe. They’re very price friendly. Next, we will be launching glass products because we know there’s so much demand in that category. We would like to continue to expand into different adjacencies in hydration, leveraging our dominant attributes in filtration, but also expanding on other elements in the marketplace.
This is a very creative category. We want to continue to focus relentlessly on quality as well as on price because what we’re trying to create is something that can be used by everyone.