Sparking up a smoking hot start-up idea
By Oliver Milman
If you heard that an Australian had created a cigarette company and sold it just three years later for $US135 million, you’d be forgiven for thinking you’d entered some sort of smoke-filled Mad Men-style alternate reality.
But that is exactly what Queensland entrepreneur Jason Healy has done, although, unsurprisingly given the government’s move towards plain packaging and a tobacco advertising blackout, he has had to do it in the US.
Healy’s blu eCigs, founded in 2008, operates from Charlotte, North Carolina. It is smoking with an electronic twist – the product is a battery-powered electronic device that mimics the look and feel of normal cigarettes, delivering vaporized nicotine to users. The eCigs can even transmit signals to other smokers.
Earlier this year, Healy sold up to US tobacco giant Lorillard for $135 million, but has remained at the helm of the business.
He has overcome several challenges to get this far, not least running an ethical gauntlet, with various health groups vehemently opposed to the industry, claiming that electronic cigarettes attract youngsters and are a gateway to getting people hooked on the real thing.
Healy admits his product is “polarizing” but rejects the arguments against eCigs, claiming that the devices can, on the contrary, lead to significant health benefits.
He tells StartupSmart how he ended up making millions from a controversial start-up so far from home. He also reveals his top tips for budding Aussie entrepreneurs.
Where are you originally from, Jason?
I was born in Mareeba, North Queensland and grew up in Brisbane. My father was the breakfast DJ on Triple M FM104 for 10 or so years and because of that I was exposed to the National Basketball League in Australia and grew up around the sport, players and administration.
As a kid I worked for the Brisbane Bullets on my school holidays and would later return as the marketing and public relations manager after I played basketball in high school in the US through grades 11 and 12.
After playing basketball, I began working for the now defunct Gold Coast Rollers and then the Brisbane Bullets.
After basketball, I started a sports marketing agency which I sold one year after starting it and then tried my hand at a few different roles around sports and marketing, both in sports and general consumer products.
I then moved to Sydney to take up a business development role as an owner in Funbox, which was a mobile marketing company specialising in premium SMS services.
Working on Funbox brought me back to the US regularly where I met my original business partners in blu, which I started after selling my interest in Funbox.
You were involved in basketball gear manufacturing in China before this venture. How was that experience?
After working in professional basketball for many years I took up a role as the CEO of a company who manufactured uniforms and equipment for various NBL teams, all of which were manufactured in China.
This is where I learnt the intricacies of not only dealing with China but also the ins and outs of manufacturing and the many pitfalls that most companies and products face being manufactured in China.
What first gave you the idea for blu eCigs?
At the time, I was spending time between Brisbane and Charlotte, North Carolina and while on a trip to Charlotte a local business owner was asking me to take a look at a new product hitting the market, eCigs.
Being a smoker and an avid marketer it immediately captured my mind and I was originally looking at purchasing the rights to an existing brand and marketing it in Australia.
Once I started to take a deeper look, I saw so many issues and opportunities that weren’t being addressed and basically came to the opinion that I needed to start a true brand of my own.
At the time no one had taken the steps to create a brand and were essentially taking a Chinese-made product and stamping a logo on it.
I knew there were great opportunities with the product but it needed development and branding to really reach its potential.
At that stage I took it to investors in Charlotte and asked for $50,000 and the rest is history as they say. Just under three years later we sold to Lorillard Inc. for $135 million.
How hard has it been for the public to catch on to this idea?
Blu is a very polarizing product, by design: while it mimics smoking and contains nicotine, that is where the similarities end.
With the blu light, nice packaging and innovation it quickly caught the attention of smokers.
To me, marketing is somewhat second nature; so while it hasn’t been easy it has been exciting and I think blu being built on solid principles and branding has allowed it to help accelerate what is already an interesting and very captivating product.
Why did you start and run the business in Charlotte?
The business partners I first approached were here and it made sense to establish the company close to their resources and help.
It also kind of felt right considering North Carolina is right in the heart of tobacco country.
What were the biggest hurdles you had to overcome in the start-up phase?
The first hurdle was to resist the urge to simply use what was being offered by the various electronic cigarette factories on the market and make a quick buck, rather than make wholesale changes to the product and create what was the beginning of the blu look, feel and innovation.
When I sat down and planned out what blu would be and look like, I saw great long term potential, while often there can be disjoint between long-term goals and short-term gain.
We also started blu with a very conservative budget, which meant investors had to be convinced that every dollar the company made went back into the product and marketing.
That was a key part of the success of blu and that direct buy-in by everyone into the long-term potential, played a key part in my success.
I was lucky that my investors and partners contributed and bought into the plan from day one.
There were other hurdles along the way but when you get everyone to buy it, hurdles seem to get smaller and you just do what you have to do. I also had amazing staff that lived and breathed the product.
How do Americans view Australian entrepreneurs?
I think in general Australians are viewed very positively by Americans. From a business point of view it all comes down to put up or shut up at the end of the day.
Many Americans don’t really know about Australian business achievements or personalities so I’m not sure they have an opinion either way. As far as it giving me an advantage, you’d have to ask a Yank that one!
Did you ever think twice about getting involved in an industry with as bad a public image as the tobacco industry?
I never thought twice about it. I’ve never really been one to give a crap about what others think; if something is a good idea then that’s all I really care about.
I have been amazed at the attitude towards tobacco, to be honest. As a smoking adult, I smoke because I choose to and I enjoy it.
No one made me do it and, if I really wanted, the resources are out there to quit.
I hate this general concept, which seems to be spreading, that nothing is the individual’s fault and someone else must be to blame.
I’m not willing to give up that sort of personal control to anyone so I never really understood that attitude and, in particular, that attitude towards cigarettes.
They are a legal product that adults choose to use and that was it for me. I think there is the very real possibility that, with more testing and research, products like blu have the opportunity to save more lives than vaccines.
While there is a long way to go, and we have to work with the various health agencies and government groups, I see this type of lofty goal as a real possibility.
I would love to look back at what we’ve created in 20 years and know that we achieved that goal.
It is the first alternative for smokers that answer all the questions and when non-smokers, government agencies and anti-smoking groups actually take the time to look at it they will also realise the huge potential this product offers.
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How have you countered the negative coverage surrounding smoking?
I think everyone has seen or had negative experiences when it comes to smoking traditional cigarettes.
Again, I don’t really care what others think but I think electronic cigarettes offer huge potential in the debate for all sides of the argument.
Smokers in general have been treated like lepers the last 10-15 years so everyone is aware of the stigmas and attitudes towards smoking and again for me this is a great opportunity for blu.
What has been your target market?
Definitely smokers, 20% of the world population are essentially smokers and that is a pretty good market!
The other great aspect of eCigs is that it really has no appeal for kids and non-smokers and really hits the core market at its heart.
Many will try and say the product is a gateway to tobacco cigarettes but they are just flat out wrong. Then, when you look within the smoking segment, the key market tends to be for ages 35-55 with a slight skew towards males.
What have been your sales figures since you started?
We have generally seen at least 100% growth year-to-year and I don’t expect that to change for at least the next five years.
What’s been your growth strategy?
Spread the word, there are no great mysteries or formulas when it comes to growth and a lot of business people want to throw fancy plans and buzz words around but it’s simple.
First and foremost, do something you are passionate about, work hard then identify a market, design a good brand and get the message out.
It comes down to how well you do those things, how you use the resources available, but this ain’t rocket science. I’m going to write a book one day and the title will be ‘The dumbest guy in the room’. Autobiographical of course!
The innovation around the business is interesting – what gave you the idea to incorporate a kind of signalled communication into the product?
Smoking is a social behaviour and being that electronic cigarettes use technology there is a huge opportunity if you are willing to embrace that; put resources into finding ways to incorporate technology.
The next phases of blu will even be more technologically advanced and as technology expands we will continue to embrace that and incorporate that into our products.
When you look at tobacco cigarettes they basically haven’t changed in 200 years. Then when you look at how far we have come in just over three years, the future opportunities are mind boggling.
Why sell the business?
It was time and made sense for me and my original business partners. In order to fulfil our destiny and achieve the vision we had for blu we needed an injection of resources and backing.
The great thing was that Lorillard really bought into the blu concept and philosophy. I really don’t think we will be able to achieve what we will in the near future without the foresight and flexibility Lorillard has given me and my staff.
What are your goals now?
I would love to launch blu in Australia; obviously I have a soft spot for home. How and when will really depend on the government and how they react.
In a country with universal health care it makes total sense when you look at the possibilities, and while we don’t know everything right now, with input and partnership with the Australian government we can discover the potential together as opposed to taking the knee-jerk reaction and simply banning the product.
Do you have any further start-ups in the pipeline?
I’m waiting for someone to invent the 34-hour day first and then I’ll take a look.
I’m still excited everyday about blu and have been completely reinvigorated by my new partners at Lorillard, so this is what I want to do and hopefully will continue to do for many years to come.
We have so many things that still need to be done at blu and realistically I think we are about 10% of the way there, so every day is still a challenge and exciting.
Come and talk to me in 10 years when I’m closer to 50 and we’ve taken the world by storm and maybe I’ll be onto something else, but right now this is what I love to do.
At some point down the line I’d like to help young entrepreneurs reach their goals like I have, but I have way too much to do right now to think about anything but blu.
Finally, what would be your top tips for Aussie start-ups?
I have learnt two valuable lessons so far: ‘You are your choices’ and that ‘you are happiest when you are being yourself’.
That may not sound like pieces of advice for start-ups but you have to start there because typically start-ups are driven by one person and their vision in the beginning.
From the business perspective you have to do something you are passionate about, never start a business by saying: How can I make a lot of money doing something?
If you stay true to those two phrases good things will happen. Sounds simplistic and everyone is looking for a magic bullet but there isn’t one.
Your attitude, passion and a little luck will dictate your future. Also most people think failure is not something successful people and start-ups deal with.
It’s actually the contrary; success is all about failure and what you do with it. I look back and realise that if I hadn’t been a failure at some point, how would I recognise or enjoy success?
While I’m on my soap box, start-ups need to look for passionate people to work for them. I’d take passion over experience most days and if I can teach someone experience then I’ll do that, because teaching heart and passion is much harder.