The Joys of Starting a Business in an Unregulated Industry
I can’t tell you the number of times I’ve heard someone say, “oh you own a juice company, you must be rolling in it” or something to that effect. They must picture me sitting at home on my gold plated couch, sipping gold plated champagne or something like that. As much as I wish that were true (sort of), it’s not an accurate reflection of the reality of being a start up in an unregulated industry, and it certainly doesn’t capture my experience.
Moshi is a successful company, don’t get me wrong. By all standard measures, our performance over our first year and a bit of existence would exceed even the staunchest “Shark Tank” criteria. But it’s also a far cry from the way we thought it would be. In this brief post I’ll cover off a few of the headaches that we’ve experienced and hopefully pass on some insight on what we’ve learned growing an e-liquid company into an international brand.
There are pros and cons to entering an unregulated space, and one of the biggest cons is that there is quite literally no barrier to entry. There are presently no government manufacturing or safety standards, so just about anybody can start a company tomorrow in their living room and chip away at your business. You also can’t spend money on traditional advertising as the media companies view the product as tobacco, which eliminates the ability to use your size to your advantage and communicate what makes you different. All in all, it makes for the environment you see at every vape show in North America now – about 200-400 e-liquid companies with almost nothing to tell them apart. I firmly believe that competition is a good thing and it serves to make all companies more efficient and better, but its not so good when one company has manufacturing and safety standards and another doesn’t and the consumer can’t tell which is which. I suspect that regulation and consolidation will sort this out to some degree, but getting there is going to take time and in the meantime the market will continue to get more and more saturated and tougher to navigate.
One of the big projects we had this year was automating our facility and building out a very large ISO clean room. We’ve always had strong manufacturing practices but we felt the investment was necessary to stay ahead of the above-mentioned regulation. So we did what any normal business would do. We issued RFP’s, selected vendors, and then went to sort out how to pay for this massive investment. In a traditional business, this wouldn’t be much of an issue. Show the banks your financials and obtain a capital equipment loan or negotiate terms with your vendors. Not so with an unregulated business. Arranging this type of financing without having to pay through the nose is very difficult because banks are wary of an industry that still doesn’t have a permanent home. The moral is that if you want to make big investments, be prepared to work for no pay and self-finance them. Then there’s the merchant account issue. Want to take credit cards? You’ll need one of these and they aren’t easy to obtain and you’ll almost never pay what you thought you were. I remember our first US merchant account provider told us that we were on the hook for 2.5% and it ended up being closer to 10% after they took all their fees. These kinds of shenanigans happen everywhere largely because you can’t deal with the banks directly and the next tier of guys make their living off of misleading you about what you’re actually going to pay. I can’t give you an exact number, but I can tell you that being unregulated creates a “tax” of sorts where you do end up paying a pretty hefty premium just for being in business.
Government regulation is both a great thing and a terrible thing. It’s great if they get it right, which is almost certainly not how it’s going to go. Ideally, regulations would provide standards and restrictions proportional to the product’s benefits and risks and we’d be on our merry way. In reality, governments seem to react out of fear and uncertainty and, whether intentional or not, end up further confusing the market as to the potential benefits of the product. The real mess here is as big as we grow our business, as many jobs as we create, as many smokers that we win over, we’re really only one flawed government decision away from being shut down.
Having said all of this, I still find this to be one of the most rewarding experiences of my life. It’s an incredible challenge and just when you think you’ve got a handle on things the industry changes and you have to adapt. I honestly wouldn’t have it any other way.
- Beju Lakhani