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Drink makers share Loko past

JOE PODELCO / Photo editor

Future Ohio State entrepreneurs learned the pitfalls and returns of starting a business from Jaisen Freeman and Jeff Wright, OSU alumni and managing partners of Phusion Projects, the distributor for Four Loko.

The Phusion Projects partners were the keynote speakers at the Business Builders Club Entrepreneurship Spectacular Friday afternoon in the Performance Hall of the Ohio Union. Chris Hunter, the third partner in Phusion Projects, was unable to make the event, due to flight delays.

Wright and Freeman spoke to an audience of about 100, telling the story of Phusion Projects, from their parents investing retirement funds into the newly formed company, to the Food and Drug Administration-instated Four Loko ban in November that garnered nightly news coverage.

They laughed over an unexpected “Saturday Night Live” skit that mocked the number of servings in a can of Four Loko and ingredients used, and their business partner, Chris Hunter.

“When you’re on ‘Saturday Night Live,’ I guess you have to laugh,” Freeman said.

Wright and Freeman explained their system of outsourcing the production of their beverage to existing breweries.

Wright showed the audience a picture of a Scion modified with a Four Loko can on top, calling it the biggest waste of money.

“I think I took that can off six or seven times, because I would drive into parking garages and they were too low,” Wright said, “I would look in my rearview mirror and it was smashed like a tuna can.”

Wright called Phusion Projects a “virtual brewery.” All their production is contracted out, and the product is shipped directly to distributors. Phusion doesn’t actually handle the product at all. Wright said overhead costs are very low for their company, partly because their home office in Chicago is a P.O. Box at the UPS Inc. Store.

Wright said Four Loko evolved in flavors, names, sales and alcohol content. Starting at 12 proof, the product eventually doubled that.

“The growth was phenomenal and very difficult to manage,” Wright said. “We ran into numerous stock outs, our canning company couldn’t supply us with enough cans, distributors were out of inventory. No one was prepared for that type of growth.”

When the FDA announced the combination of alcohol and caffeine was dangerous in November, Phusion had 2 million cases in the warehouse of their brewery that could not be sold. This un-sellable product was valued at $30 million.

The Washington Post reported on Jan. 7 a Virginia recycler was distilling the unusable product into ethanol.

“We decided our only bet was to move through this, the three business partners put more money back into the company and kept all our employees; no one was laid off,” Wright said. “In two weeks, we were producing the non-caffeinated version and were back into many states that had previously banned us.”

For Business Builders Club president Nils Root, a fourth-year in finance, the visit demonstrated the application of real business lessons.

“To end with Four Loko was pretty incredible,” Root said. “Ohio State alumni, guys that are putting these academic theories into practice; they had such great success; it’s inspiring, its entertaining, it was great. We’ll chalk today up as a success.”

Root emphasized the true-to-life business lessons being demonstrated behind a product shrouded in controversy.

“Behind this crazy product and crazy media hoopla, that there’s a real business being run, there are real strategies being put in place, and that a lot of what happened wasn’t luck and wasn’t on accident,” Root said.

Matt Hill, financial director of the Neuro-Anesthesiology Research Department at OSU Medical Center and a 2010 OSU business graduate, liked hearing the story of the rise, ban and what the company is doing to bounce back.

“I remember when they launched at Ohio State, and they had that goofy car driving around. The stuff tasted awful,” Hill said. “Meeting them in person just reinforces that they’re good guys trying to build a business and they weren’t trying to make kids get inebriated and do dangerous things.”

Mike Hughes contributed to this story.

 

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