Sparking up a smoking hot start-up idea
Friday, October 12, 2012/
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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