Going through the cycle of establishing, building, growing and then selling a business multiple times, often across very different industries, provides a wealth of experience and insight – experience which can be highly lucrative for anyone operating a business of his own.
Speaking from the context of his current business, the innovative sunscreen maker of Solar D Sunscreen shares his experiences in whether patents and trademarks are worthy of investment or not, the best and worst times to undertake a capital raising, why regulation is ultimately good for businesses, and his tips for finding the right distributor. All this and much, much more.
Enjoy the show!
Adam Zuchetti: Welcome to My Business Podcast everyone. I'm Adam Zuchetti. We've got an interesting guest in the studio today. I think we've had quite a lot of services-based businesses in recent months, so it's nice to mix it up and get some product-based ones as well. We've got Mat or Mathew. Which do you prefer?
Mat Collett: Mat's fine.
Adam Zuchetti: Mat Collett from Solar D next generation sunscreen. How are you going Mat?
Mat Collett: Yeah, good. Thanks for having me on the show.
Adam Zuchetti: It's good for you to be here. Give us a bit of a background on the business. Obviously it's sunscreen. Talk us into how it came about and your area or specialisation.
Mat Collett: Our sunscreen is a point of difference to what's out there in the market at the moment. Sunscreens were designed to protect our skins from the harsh UVA and UVB rays, but by doing that, we've gone into a society of caring too much about what that sunlight's doing to us and protecting against sunburn. We've developed an issue of vitamin D deficiency across not only Australia, but the globe.
The stats show that roughly thirty, thirty-five percent of Australians are now vitamin D deficient. It's not just because of the sunscreen, it's our lifestyle. We work all day in the office. A hundred years ago, we were all outdoors working in the fields. Our lifestyles changed. When we go out in the sun, we're taught to slip-slop-slap and cover up. When we do see the sun, we cover up and for good reason too because the sun can be dangerous.
There's a catch-22 like everything. Some things are good for you and the sun's got the goodness in it from the UVB light. What we've done is develop a sunscreen that permits some of that sunlight to get through so we can produce vitamin D but still protect us from the sunburn.
Adam Zuchetti: What kind of development goes into something like that?
Mat Collett: Lots of hours and money. We tested over a thousand different formulas to come up what we've...
Adam Zuchetti: A thousand? Wow.
Mat Collett: Yeah. It was, I guess, a long process over probably eighteen months to years. We've actually changed it a few times as well from when we started. It's a long development. There's lots of testing to be done. Each time you come up with a formula, you've got to test it, which can take months, weeks to months. What we try to do is do exactly that. Just get some of that UVB light to shine through the sunscreen and so we can produce vitamin D.
Adam Zuchetti: How did you actually come up with this idea?
Mat Collett: The inventor resides out of California. He's a business partner and still in the business. He's a chemist by trade. He recognised that vitamin D deficiency was a growing issue. My business partner and I, we bought into the technology and own the global rights to the business basically. We actually met him purely by chance. We were looking for an opportunity and he was looking for a partner. That's how we came about.
Adam Zuchetti: Your background isn't into sunscreen and chemicals itself?
Mat Collett: No. I guess my background is entrepreneurial. I've started a couple of businesses and taken them to market. I'm probably a serial entrepreneur. Every now and then you see something that you really want to put your teeth into and this is one of them. We knew that sunscreen hadn't really changed since it first came on the market in the fifties. The only real big change in sunscreen was water-resistance in the seventies. There hasn't been much to it. We recognised that it was an opportunity... it's a ten billion dollar global industry and we've got a game-changer in it. That was what really got me involved.
Adam Zuchetti: You said that your business partner is based in California. What about the manufacturing? Is that done over there?
Mat Collett: It is. For Australia, New Zealand, we manufacture in Melbourne. Then for the US, we manufacture out of California. We've got two centres.
Adam Zuchetti: Are they the only markets that you guys sell to? Or does the US market cover Europe and South America and others?
Mat Collett: Yeah. Last October, I've been working on a deal in the offshore markets to expand the development and the process. We signed a deal with a group called KW International. They're based in the US. The agreement is for six countries, for them for distribution. They've got the sell rights to US, Canada, Mexico, Taiwan, Japan and South Korea. We'll be entering those markets this year. We're just working on that at the moment.
Adam Zuchetti: That's actually something that a lot of businesses struggle with. They want to expand overseas, and it comes to distributors and they go, "I don't know where to find a good distributor. What defines a good distributor?" All those kind of things. You've been through this process yourself. What kind of things did you go through and take from the process?
Mat Collett: You're right. You go through so many different partners, and concepts, and people, and ideas and groups. As your business grows, my business there's three people involved in the business. The inventor and another partner here. We've got probably quite a bit of experience in business in various forms and shapes. We had a lot of introductions various groups that we could partner with.
Then it's just a process of elimination, which guys can really help, they all promise but once it comes to delivery, you've got to go over there and meet them. You got to see the whites of their eyes and make sure that they are who they say they are. Make sure they're telling the right story. Make sure they've got the distribution. That takes years.
I've worked on this for two years to get the offshore partnership and met probably five to ten groups we could've gone with. These guys had the distribution and the offices in the right places at the right time. Also, distribution, it's easy to come from the sales side and find a distributor, because they all want to help.
You need to find someone that is just as willing. They want to put pressure on you to succeed. That's the partner you want to find. Like I said, it takes years to find that type of partner. Otherwise, you're just a one-trick pony. You're dealing with one group and they've got thousands of other products. It just becomes part of the train.
Adam Zuchetti: Is it difficult to negotiate those contracts with suppliers and distributors?
Mat Collett: Yeah, again another lengthy process. Lots of legal involved. It's a costly process. Again, for the right partner and the right reason, you're going to end up with the right result. It's like anything, if you cut corners and try to cheapen it, it never works in the long run. It's better off doing it the hard way, doing it the proper way, and usually, a more costly way.
Adam Zuchetti: When was the business actually started?
Mat Collett: We set up the actual name of the business in the next year as proprietary limited. We set that up in 2014. We went to market with the product '14, '15 summer.
Adam Zuchetti: You guys are quite new on the block?
Mat Collett: Yeah.
Adam Zuchetti: How's it going so far?
Mat Collett: It's good. Sales are increasing. They're going in the right direction. We've done just over a million bucks of sales here. We launched, this is our second summer really. The first summer was very much a trial. It was quite successful and it's a growing market for us. We're still only a small percentage of the market. We're still unknown.
The word of mouth is really helping us. It's one of those things. The majority of buyers for sunscreen are moms. That's the target market for most sunscreens. They want the best for their kids, so when they're buying milk or cheese, or beef, or whatever it is, they're always looking for the best product for their family or for their kids. We know that once they learn or get educated about what we're doing, we know that in the long-term, we're going to end up as a preferred option.
Adam Zuchetti: When it comes to things like sunscreen, I suppose, does that come under the, what is it? The Therapeutic Goods Administration.
Mat Collett: TGA. That's right.
Adam Zuchetti: What are they like to deal with in terms of the regulation and framework to get your product tested and approved to their standards to be sold?
Mat Collett: Yeah. Thorough. Very, very thorough. Again, it's lengthy and costly to go through the process, but again, if you try and short change, it'll cut corners. You're going to get caught in the long run. One thing you don't want to do in our space is have the TGA on your back. Because literally, if you have a wrong claim or you do something wrong, they'll pull you off the shelf. It's no different to anywhere else in the world we've gone. The US has the FDA. Europe has Colipa.
Every destination we go to, we've got to adhere to their rules. They're all pretty similar, but they do vary from region to region, but they're very similar. TGA is probably the strictest out of anywhere in the world, which is bad to the point ... I shouldn't say it's bad. It makes it very tough, because you're heavily regulated. On the flip side, when you're exporting, especially in Asia, they really respect anything that's made in Australia because of the stringent TGA.
We're can't cut corners. We're not allowed to. Even if we wanted to, we just couldn't because the regulators would be down on you like a tonne of bricks. When you're selling into Asia, they respect that. They know that what they're buying is the best because you've got to go through the hoops. Again, in the long run, it's good for us.
Adam Zuchetti: It sounds like you've got quite a broad spread in terms of sales, but where is the biggest proportion of your sales actually coming from?
Mat Collett: At the moment, it's all been Australia. Very much so. We haven't actually launched officially in the other markets. We've launched in New Zealand so I'd put them in there as well. Believe it or not, New Zealand is quite a big user of sunscreen for the number of heads. It's interesting. I think I'd blame that on the ozone layer over there. Australia and New Zealand. Australia is our biggest sale. Woolworths is our biggest buyer.
Adam Zuchetti: In terms of volumes, how many units would they take?
Mat Collett: I'm trying to think. I'd say roughly 70 to 80,000 they've taken, units.
Adam Zuchetti: That's quite good numbers.
Mat Collett: Yeah. That's over two and a bit years, but yeah, it's a comparative to the Banana Boat and the bigger players, we're still a minor player. Second year into the market, we're moving in the right direction.
Adam Zuchetti: How do you go from a brand perspective, particularly as a new brand, comparing to things like moisturisers and cosmetics and things like that? Now, often talk about vitamin D and this and that in them, anti-ageing, stuff like that, scientifically proven. There's a lot of gimmicks out there. How do you actually, or are you affected by that marketplace questioning, and how do you combat against that?
Mat Collett: I mean, it's the old snake oil question. We do get it. Again,
Adam Zuchetti: Again, speaking about the branding aspect, there are quite a few high-profile cases over the summer from a couple of major lines, Banana Boat and Cancer Council, I think that were about people claiming that the creams were burning them. Is that something that really affected your business either positively or negatively?
Mat Collett: First instinct is, a competitor getting, I guess, pushed through the media and in that fashion is, you sit back and go, "Well, how can it happen firstly?" Then secondly, it does. It puts us in the same bucket. We're a sunscreen. Having big brands like that getting damaged does affect the industry like any industries or the banking industry if a big bank goes under. Although their competitors are probably going, "Great!" they're also probably going, "Well, that's probably not good for everyone's thought pattern" on the bank.
We're similar. If Banana Boat, who apparently and Cancer Council who have great names, very well-respected, they fall under the guidelines of the TGA and suddenly, they're having complaints about sunburn. It puts everyone's mind in doubt that, "Will these sunscreens work?" It does really affect, I think the whole industry.
Adam Zuchetti: How do you actually combat that? If all boats rise and fall with the tide, you've got to have some protection elements around your business?
Mat Collett: Yeah. Although again, based on our numbers of sales and track record, we, touch wood, we haven't had one complaint ever of burning. We get contacted if anyone has a complaint, if the tube's broken or all sorts of complaints come back to you, but we've never had a complaint on burning. Touch wood, that's one good thing we can hang our hat on and we stand by.
As far as combating it, I think you've just got to, like I said, we've got a point of difference. We concentrate on our claim and our statement that we let in the sunlight that allows your body to produce vitamin D. If we stick to that message, then we believe that we'll get over any issues like that, that come into the future. We know every summer, there's always going to be an article or a release on someone, some bigger company getting hammered by the sunburn issue.
Adam Zuchetti: There's something else I wanted to touch on is, obviously, innovation is a big thing at the moment and taking a new concept to market is, as you say, costly, timely, difficult, stressful. All of those things, but trademarking the intellectual property. Have you actually tried marketing your property and your formula against competitors coming in and larger ones offering the same kind of products and effectively trying to do you out of business?
Mat Collett: Yeah, it's a very good question. I'd say most of our money, outside of manufacturing, has been in legal cost for patents basically. Having such a different product out there, we had to patent it. Because that we knew for our survival that we needed to patent this and protect it. Look, no one else can come to market copying our product, and they can't claim it either. It's a very broad patent. Patent protection is key. We've got patents approved in Australia, New Zealand and Japan. We've got pending the rest of the world, which are all coming this year and in trademarks as well. Trademarks is more about the name, the Solar D name. That's the other IP protection.
We've spoken to some of the bigger cosmetic players in the world. I won't mention them but they're big household names and they're talking about licencing our technology to them. Mainly our long-term goal is anything with an SPF in it, and that goes from skincare to sunscreen is eventually going to have our technology in it, and we'll be licencing it to them. That's the long-term game.
Adam Zuchetti: It's a bit of a catch-22 in terms of going down the patenting route, because you want to protect the property but at the same time, you want to try and get the product to market and beat off potential competitors if they've got development in the same space. How do you go with the decision one way or the other and go, "Okay, this is the route we're taking."? How do you actually come to that decision?
Mat Collett: Actually, funnily enough, I get phone calls every now and then from people I know who are starting up a similar business and they want to know the process and what's the best step, which way to go. Because there's the argument of, "Well, just go to market first. Get it out there as quickly as you can and then in that same process patent it, or patent it down the track."
Again, my maybe conservative theory is, you've got to protect it first. We were lucky we had a concept and idea that no one knew about, that no one even thought of. We believed we had that control, so we definitely put the patent protection in first before we even thought about going to market. Once you put that patent application in, you protect it. You don't have to wait for the approval, just as long as its pending or being put in, you have the right of anyone coming from behind you. That's costly.
Again, you got to have some deep pockets to fund that patent process. Then, that's look to me, you do that before you go to market because again, if we go to market, someone sees it. They think it's a good idea, they'll just copy us and we're gone. I think it's just worth the time and money to protect it. Whatever it is.
Adam Zuchetti: It was interesting what you were saying before about licencing to some of the cosmetic companies because I think it was Coca Cola is looking at that and stopping manufacturing themselves and licencing their rights to other companies to franchise and things like that. Is that the direction that you see your business going? That you potentially don't end up manufacturing yourself but you licence to a whole range of other companies using your core design?
Mat Collett: Yeah, definitely. We've got three business models. One is getting our product on the shelf. The second one is private labelling. We manufacture on behalf of X and put their label on it and give it to them. The third part is licencing. Basically, we just have an agreement with whoever it is, call it L'Oreal, and say, "You can use our technology and every time you sell a tube with our technology and then we'll take five cent or ten," whatever that agreement is.
It alleviates a lot of things when you're talking about licencing because you don't have to worry about manufacturing. You don't have to worry about sales. You don't have to worry about marketing. Theoretically, you can go live on a boat in the Bahamas. They're three very different models, but we're working on all three of them.
Adam Zuchetti: Is it more a case of seeing which one sticks best and then you follow that?
Mat Collett: Possibly, it might be a war of attrition and eventually that will be the case. At the moment, we're definitely pushing all three quite heavily until the point where one outweighs the other. We're not counting on it and leaning one way or the other at the moment.
Adam Zuchetti: How many people are based in the company there?
Mat Collett: Very small. There's basically two directors and we have another team of four that work with us. That's been another, I guess, important key model of the business that I run is keep it very, very lean and outsource as much as possible. We outsource everything from manufacturing to sales, to marketing, to PR, to distribution. In that way, sure, you're cutting your profits but you're only paying as you grow. There will be a point where we'll start to bring I guess, people onboard as we grow, but at the moment in our space, the outsourcing especially in the sales and marketing, you can get some brilliant teams out there which you don't have to pay for unless there's success.
Adam Zuchetti: That's a really interesting angle because a lot of businesses do struggle with that. I think, do I cut, as you say, cut my profits, but also cut the direct control that I suppose you have or people think they have by having everything in-house versus the option that you're saying and outsource as much as you can to keep the business itself really lean. Why did you take the path that you have?
Mat Collett: I think mainly because like I said, the outsourcing in our space and I can't talk for many other industries but in our space, there are some amazing groups that specialise in just sales or specialise in just marketing or just PR. All the distribution, warehousing, there are so many groups you can actually pick to fill those gaps. I guess, that made it easier for me to make that decision to say, "Why bring someone in-house when we can actually use experts in the field to fill those gaps?"
I don't think we lose control, because you still have to control those groups to make sure they're delivering and getting the right message across, depending on what they're doing. My thought is, you don't lose control. You can still hire and fire a group. Their performance is based on success. No different if you employ someone. I think employing people these days is more difficult because the rules that govern what you're allowed to do with employees whether they perform or not perform. Outsourcing, it's easy as far as I'm concerned and I think it's a good model.
Adam Zuchetti: I suppose you don't have the problem people management?
Mat Collett: Exactly. Like I said, we've got a great little team. We're spread out. We've got our head of sales in Melbourne. Another sales guy up central coast. My head of marketing sits with me here in Paddington and Sydney. The inventor and head of product development is based in LA. We're all spread out, but it works. It works really well. Everyone's got the same mission.
Adam Zuchetti: It'd be interesting to see how you go. You'll have to come back in two years or something and we'll track your progress over the time and see how you go.
Mat Collett: Yeah, definitely. We're in the process of building a business and hopefully by the end of this year, we'll kick some major goals. Which, like I said, we've got the big contracts offshore coming in now. That's a huge added benefit.
Adam Zuchetti: What are the longer-term plans? You're looking at an IPO further down the track or something?
Mat Collett: Yeah. Actually, we're doing an early-stage capital raise right now of a couple of million. We're doing that. Then the short-term goal is IPO in the next twelve months. We discussed doing an IPO early like now, but I wanted to kick some goals and get the business a lot more secure. All the projections that we've got in place, I wanted some of them to be delivered before we went to an IPO. The only reason is, a small cap raise now and that's mainly for some manufacturing and marketing for the Aussie summer coming. Then we'll do the IPO later this year or early next year. That's the goal. I guess the long-term goal is a buy-out opportunity. We start taking up enough in the market, then the big guys start looking at you and want to take you out. We look at ourselves as being quite disruptive.
Adam Zuchetti: Capital raising is something that a lot of businesses consider, but not a lot, I think, go through. Can you give us some insight into your experience in terms of why you chose that option and just how you've actually progressed and the success of that?
Mat Collett: Again, it's a long process, capital raising. It's not a matter of just going to market with what you've got. You've got to go through so many different stages of your business to get where you need to get before you even think about a capital raise. Unfortunately, that's a little bit to do with the Aussie market. People have so many opportunities in the stock market, where it's considered a safer bet by a listed company on the ASX.
Getting money into a small private company is a tough thing to do. You must hear it all the time. I think there's money for that really early stage concept, the angel investors. There's good money out for that, and there's good money if you're turning over five million, but above that, you've got the small private equity groups and venture capital groups. Anything in between there is a tough sell. I feel just turning over a million bucks, you've proven but you haven't really proven.
It's a tough market. You've just got to stay strong. If you've got support from family and friends, then that's what we did in the early days is, not only the director's money and what we put into it. We did raise some money from family and friends. That keeps the wheel turning. We've got to the stage where we've got an amazing asset. We've got it protected. We've got a proven track record. We've got probably thirty million bucks worth of orders coming out of the US and Asia. It's a pretty good story. We're finding it a lot easier to raise the capital. We're using a group at the moment out of Perth called View Street Partners to do that and they've been pretty amazing.
Adam Zuchetti: Is there any risk in trying to do a cap raising too early? Or it's simply just basically a waste of your time?
Mat Collett: The biggest risk you do having it too early is you're giving up too much of your company. I'm not sure if you're putting it in the risk basket but it's definitely not a plus. The earlier you're doing the cap raise, the more you're going to give up in your company. You're under a bit more scrutiny. That's why companies these days, I look at them and say they're too early for an IPO, but they still do it. Often not to great success.
That's why we want to look at doing an IPO down the track when we've got great income, we've got stability. We've got orders offshore. You can go to market and argue your point. Otherwise, you're still telling a bit of a story.
Adam Zuchetti: All right, cool. Thanks very much for coming in mate.
Mat Collett: Yeah, not a problem.
Adam Zuchetti: Where can people find you if they want to find out?
Mat Collett: Web address: www.solar-d.com. That gets you everything you need to know.
Adam Zuchetti: That's a global site obviously.
Mat Collett: It is, yeah. Anywhere in the world will get there. We're on Facebook and Instagram quite heavily, so we do that daily.
Adam Zuchetti: Fantastic. You said [Woolworths] are major stockists.
Mat Collett: Correct yeah. Amcal is the other one.
Adam Zuchetti: Amcal, okay yeah, I was going to say chemists are another big one. Well, thanks Mat. As I said, it'd be good to have you back in the future and see how things progress.
Mat Collett: Yeah. Welcome. That'd be great.