On this episode Josh speaks with Rich Razgaitis, CEO of FloWater. They talk about FLoWater and some of the successful models they are employing in the business.
Rich Razgaitis (known as Raz) is the CEO of FloWater and over the past 15 years, he’s successfully run thriving start-up companies, helping grow stagnant businesses with fresh and conceptual marketing strategies that led to multi-million dollar acquisitions.
Raz is on a mission to get big business to eliminate plastic water bottle waste and to show that any business can make a difference when it comes to changing habits in how all consumers reduce environmental waste.
In today’s episode you’ll learn:
- How to eliminate single use plastic water bottles from your business?
- How to create uniformity of product?
- How to make recurring revenue business?
- How do you go to market?
- How do you scale it?
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business podcast.
Today, my guest today is Rich Razgaitis. We’re going to call him Raz because I can’t pronounce his last name. He is the CEO of FloWater. It appears that their mission in life is to get rid of those stupid little water bottle. And if that actually is their mission, I’m 100% on board with that. My interest is to talk about his journey as an entrepreneur and what FloWater is about, how he got there and most importantly how it becomes a real business. Let’s bring Raz on and we’ll start the conversation.
Hey, Raz. How are you today?
Raz: I’m doing great. How are you?
Josh: I’m well. Thank you. I’m well.
Tell me a little bit about your company. What does FloWater actually do and we’ll start there.
Raz: Sounds great. Thanks again for me having me on your podcast and your Facebook Live show. I’m proud to be a guest today. So, once again, thank you.
Josh: My pleasure.
Raz: From a FloWater perspective, quite simply what we do is we make tap water turn into the world’s best-tasting water regardless of any tap water source, ultimately anywhere in the world, but any potable tap water source in the United States. And so, what that means is what we’ve done is effectively taking a lot of the technology that might exist in a bottled water plant. You know, a $50- to $100-million bottling plant, miniaturized it down to a very small 16 x 18 inch square. And in that device is a very sophisticated set of purification technology that extracts impurities, enhances the taste, finishes it up with a coconut carbon filter and out comes something that tastes better than bottled water – without the bottle. So the whole mission behind the company is to really redefine the way that consumers and, right now, Americans view water – the way they drink water. And in the process of that, to eliminate single use plastic water bottles because they’re terrible for a whole host of reasons.
Josh: So I had a unit like that and it was great until I couldn’t find the company I’m ordering to get filters for it. It cost me about $800. What does your unit cost?
Raz: Our customers are largely hotels, schools, corporations, fitness/gyms, and then retail locations. Within that, there are also many, many different small and medium-sized businesses that either fall in those buckets or a sixth category. Typically, what companies do is they lease a FloWater refill station for a period of five years. We do three- to five-year leases. So 80% of our customers do a five-year lease where we fully warranty everything. We, for a nominal fee, do filter changes every year. And that ends up costing roughly $4 a day or $125 a month.
Josh: How many of these units would, say, a company with 100 people usually put in?
Raz: Typically, it would be one for up to a couple hundred employees. At a certain point, one of the things that we did, in designing the refill station and FloWater is to ensure that— and it sounds like a really simple thing but having zero latency or not having a delay in filling up your bottle. So very conventionally, water fountains, 5-gallon jugs, water coolers, they run dry or they run slow. And that is actually one of the reasons why a lot of consumers just reach for bottled water. There’s a dozen different reasons. But one of them is just speed, immediacy, availability. They don’t want to wait.
So usually, latency is zero up to hundreds of employees. I mean, if you had a perpetual line, there’s a theoretical limit to a FloWater unit. But typically, at a certain point, it just comes down to how far do you want someone to be able to have to walk to reach their FloWater refill station. So, typically, in companies of a 150 to 200 people, we’ll have one FloWater unit that is in a break room, or in a cafeteria, or in a hallway. We can place these within hundreds of feet of any available water line. So that’s the typical ratio. If it’s a gym, for example, and there’s multiple floors in the gym, in those cases, even if there’s only 100 to 200 people in a gym at one given point in time, or an insurance company, or a doctor’s office and there’s multifloors, then at that point, we might typically put one in each floor.
Josh: Are you guys doing the lease or do you get paid and have a leasing company come in?
Raz: There’s a division that is set up through partnerships. And we’re partnering with a very large bank, one of the world’s largest banks, which effectively for our perspective is kind of the FloWater capital division. So what we will often do is take that paper, when we lease it with the company, and finance that for ourselves with FloWater capital and that serves as a form of growth capital for our business.
Josh: Do your customers make their lease payments to you or to your bank? And do you guys actually put an interest rate on top of that? Or does the bank put an interest rate on top of it?
Raz: Great question. We don’t put an interest rate on top of that. And sometimes it’s both. I mean, depending on the customer, we’ll finance it in-house. And when I say finance them in-house, we’ll sit on the paper and we will receive the monthly recurring revenue. And other times, we’ll use the capital division that sits on that paper. From a consumer or a customer perspective, it’s wide label. It looks identical. For the most part, nobody would ever be able to tell. I can’t even think of what might be the distinction on the customer side.
One of the important things about this business and what we’ve developed is trying to create as much consistent, uniformity. You know, for example, like them or not, one of the things that Starbucks has done really, really well is created uniformity of product. And, in fact, if you do enough reading about Starbucks, one of the things you will hear about is having a consistent product experience. Some people like the company, some people don’t. Some people like the coffee, some people don’t. But one of the things that you can’t fault them on is when you go into a Starbucks, it’s almost always is this kind of uniform, consistent experience. And so, having that and taking that over to bottled water. And one of the reasons why people don’t drink tap water – and this all ties back to your question, fundamentally. One of the reasons people don’t like tap water is that 84% of Americans don’t like it or don’t trust it. And we can talk a little bit more later as to why that is. Some of it is perceived, some of it is real.
Josh: All we have to do is say Flint, Michigan to understand why that’s true.
Raz: That’s true but then there’s other reasons beyond that I think it’ll be really interesting even if we end up having a spirited debate about it – a discussion about it. But one of the reasons that consumers don’t like tap water is that it’s not consistent. It doesn’t taste consistent. Different parts of the US use different levels of chlorine. Very significantly, many parts of the US have different TDF levels (total dissolved solids).
Fundamentally, a core principle of our company is to develop and create consistency and uniformity so that the customer experience is always the same. You know, I tie that back into our billing example, as you’re asking about how does our business work, and how is it structured, and how do we finance things. Ultimately, we want everything for the customer to be seamless, uniform, consistent. And that’s everything from, you know, how we process payments and how we use capital partners for the business to the actual water itself so that whether you’re in Flint, Michigan, or San Diego, or Florida -that has a higher sulfur content in its water, it always tastes the same. So uniformity is an important principle in our business.
Josh: Interesting. So going back to the piece on your cashflow because I find this interesting is that what it appears to me that when you keep the lease payments in-house, you’ve taken a one-time sale and made it into a recurring revenue business.
Josh: And when it comes time to building business value, without recurring revenue, it’s hard to have real business values. It’s actually Apple’s biggest problem in the stock market is they’re not seen as having recurring revenue so their P/E is a quarter of their peer group. And you have solved that problem. Apple, by the way, is now going down the same road you are by leasing their junk.
Raz: We would love to think that Apple is following FloWater’s suit – from a business perspective. And I know this podcast is a lot about just building a sustainable business and how do you do that and how do you grow companies. And I know we’ll talk a little bit about sustainability and environmental impact because I’m really passionate about it. I know you are as well. But also, on the fundamental part of how do we structure and build a business. Ultimately, a monthly recurring revenue model is an important component to increasing shareholder value. I mean, it’s not the only way of doing it.
Josh: No, but it’s a piece.
Raz: It is a piece of it.
And then, I think, one of the things that we’ve learned in the market is that simply, there’s a lot of companies on the buying end, they would rather not write a check for $7500 or $5000 one time. They typically use Opex budgets rather than CapEx budgets to lease equipment. And there’s a few exceptions to this. One exception might be a school system. So, very often, when we’re working with schools and there’s numerous that are deploying FloWater units and they’re doing it because they’d eliminate single-use plastic water bottles. Students drink 50% to 250% more water. They think it’s cool. They’ve got something to refill their bottle with. But the reason that schools sometimes will sell units rather than lease them is simply because they commonly will use CapEx budgets or bond funds to finance those. In which case, you know, it’s fine.
My goal, ultimately, is to work with customers the way that they want to work with us. You can’t always do that in all facets but we will sometimes sell units. But, you know, from a business perspective, I like a monthly recurring revenue model for a variety of reasons, both from a customer and a company perspective.
What it also enables us to do is that the maturation of a lease. So someone signs a lease with FloWater four or five years, they are going to get, for the next five years— and, you know, I don’t know how to say this without sounding too much of a sales pitch, I’m just really passionate about water and I have been for five and a half years so to me this is more about a business interests story than a sales pitch. But what they will have for five years is access to the world’s best-tasting water where we come in, we change the filters. It’s unlimited on tap. There’s almost zero marginal cost beyond what they’re paying for the lease. But at the end of the lease, what it enables us to do is sign them up with a new lease and get them the latest, greatest, freshest equipment. And so, what we’ll do is drop that in. And new technology does spring up. I mean, as the CEO of a company, what it enables me to do is to make sure that our customers, as we have technology leaps and product enhancements and improvements, be able to get that and deliver that to them in a cycle fashion.
Josh: That was actually going to be my next question. What happens at the end of the lease? And you answered it which actually makes a ton of sense for me because what you’re doing is you’re automatically setting up that next stage business engagement so your lifetime value of your customers from just five years, it could be 15, 20 to 25 years.
Raz: Exactly. Yes.
So when you look at it KPI (key performance index) that a lot of investors will look at. And sometimes it’s the fundamental KPI that investors will look at. Or people will look at that run and own their own businesses, the LTV (long-term value) analysis. In fact, you might just find interesting, a lot of times, companies come up with that KPI-LTV as an inverse number to churn, right? So you take your attrition rate and you do the inverse of that and that ends up being the LTV. Our churn or attrition rate is so incredibly low — it’s right around 2%.
A couple of stats that you just might find interesting in the interest of business and building a business. When people try the product, 90% of the time they turn into a contract. And after they turn into a contract, even after many years, less than 2% of the people exit that contract or terminate that contract. If I were to do an LTV on my business, the life of the product ends up factoring into something like 112 years which, of course, I don’t use and I can’t use because it’s durable and robust. The FloWater refill station is. It’s not going to last in the market for 112 years but it’s one of the interesting ways to be able to look at your business in terms of LTV and how you generate asset value for the company. And then, also, just how do you track how much people love the product.
Josh: Do you do your own manufacturing or do you outsource that?
Raz: We work with a partner overseas. When we started the company, there were really three anchors to building, developing, scaling and growing this product. One was our internal team ant the group of us that started the company fundamentally which is me and a business partner. And then, there were some additional people to come to the point now where we have almost 40 people across the United States, many of which are headquartered in Denver, Colorado who are all terrific and I’m proud to be working with every day of the week.
The second, when we were starting, was an industrial design firm, so I went out and sourced— what I was looking for was the world’s best industrial design firm. And when we started the company, really effectively really incubated it in Silicon Valley. There are some roots that pre-date Silicon Valley days. But there are a lot of industrial design firms that you get to choose from just in San Francisco and Los Angeles alone. I mean, up and down the coast of California, some of the world’s best industrial design firms are there. So we found an amazing industrial design firm that did all the design of the refill station.
And then we found a great manufacturer. And to find that manufacturer, I spent probably most of the month of June in 2013, throughout Asia. And so, Hong Kong, China, and Korea. Interestingly, Korea is to water what Silicon Valley was to the evolution and the development and, ultimately, the maturation of technology and technology innovation. And so, for whatever reason, and there’s a variety of reasons for it, all of these interesting dynamics around expertise and developing water purification systems and technology innovation and filtration, design, manufacturing, scaling – much of that thought leadership existed in Korea. And so, I found a terrific manufacturer in Korea. We’ve got an exclusive partnership with them to design FloWater refill stations.
One of the things that I did was we actually built all of our own tooling and molding in partnership with our manufacturer but independently. And what that means is, effectively, we paid for it. A lot of companies, when they’re building a technology product or a hardware product, they will take their tooling and they will amortize that and the manufacturer owns the tooling. In this case, I wanted to own all of the IP. I wanted to have exclusivity around it. I didn’t want to have any potential gray market runoff. And so, what we did is we bought the tooling and we owned that wholly outright and we worked with a partner manufacturer that has been doing nothing other than building water purification technology for 20 years. And that’s been our partner for the last five years. They’re terrific.
Josh: Can I ask you how many units you have out?
Raz: You may. We have over 2000 FloWater units all over the United States in almost all 50 States. Some of those companies include Electronic Arts, Dr. Bronner’s, Google, Hurley, Nixon, PlayStation, Stance, Prana, Hilton, Marriott, Discovery, Warner Bros., lots of gyms – Row house, Cyclebar, SPIN Movement. Largely, these fall within the verticals that I mentioned before – schools, hotels, corporations, retail and fitness. But then, of course, there are as many other as doctor’s offices, insurance companies. Yeah, there’s 10 million SMEs (small and medium-sized businesses) out there, so they also make up a group of this.
Josh: How do you sell it? Do you have a salesforce out in the world or do people find you?
Raz: We do get found and sometimes through venues like this and Google searches and experiences.
When you’re starting a company, you know, one of the most challenging things is “how do you go to market? How do you scale it? And how do you get in front of the right people at the right time and do it in a cycle time that’s quickly enough so that you have an opportunity to win their business and their passion for your product?
And so, fundamentally, there’s three strategies – three go-to market commercialization strategies that we employ. Two are on the sale side. One is more on the marketing side. The two on the sale side are going bottom-up and top-down is often how I describe it or refer to it. And one’s not better or more important than the other. They’re both equally important to us. But bottom up is effectively going market to market.
For example, when we started in San Francisco, we started with one sales rep, which became two sales reps, which became five. And a market, to us, looks like having three, four or five sales reps in a city with a technician and a truck. Maybe, a small, little warehouse or distribution center. We’ve got a primary one. But distribution centers and hubs. And in those markets, those sales reps call on local businesses. And that’s how we started. And that’s a really successful way of us penetrating the market. It’s also very linear though so you can’t just turn on 20 cities instantaneously because you’ve got to hire people, and buy trucks, and open up distribution centers.
We’re doing that right now. We’re in three major markets on that model. We’re in San Francisco, Los Angeles and greater surrounding area, Orange County, to some degree of San Diego. And then, also, Phoenix. I know I said three but I really lump it into NorCal, SoCal and Phoenix.
And then, the top-down approach is really working on national accounts. And so, there are numerous national accounts – national retailers that you would know by name and many I can’t mention. But we’ve signed deals with national retailers where we’re deploying, over the next couple of three years, anywhere from hundreds to thousands of FloWater units as part of the national program for national companies. And we’re doing that for employee hydration, or guest experience in hotels, or customer experience in retail environments. Those are the two ways that we go to market on the sale side. On the national accounts. I spend a good portion of my time talking to national accounts – hotels, corporations, retail, national, fitness about, ultimately, the impact that water can have on their business. And not just the impact but the outcomes in the ROI. I mean, at the end of the day, we’re on this to generate an ROI on our business. That might be for employees, or for guests, or experiences with customers. And I like spending a lot of my time talking about impact and outcomes.
The third one that I mentioned that’s really a marketing-driven initiative is we do a lot in the way of events. You know, for example, we’ll take FloWater in to Superbowl City, Magic Fashion Trade Show, Bryant – Movies in the Park. I don’t know if you’ve ever been to New York City, in Bryant Park, but every Monday night during the summer, they have movies in the park. We’re a proud participant of that. Pandora’s Music House in South by Southwest. Vans Triple Crown. And so, we’ll go to these events and we’ll provide water as a service. And, effectively, what we’re doing is we’re providing a platform for people to go to these events and have a radically new experience with water that they’ve never had before that it sounds really simple because water’s so ubiquitous and you typically often will think, “Oh, water is water” until they end up having an experience with a FloWater unit. And part of this is around advocacy of being a vision for change around eliminating or dramatically reducing single-use plastic water bottle waste.
So Raz, unfortunately, we are at the end of our time for the podcast. I do want to continue with you on Facebook Live because I have some more questions for you, an actually impossible idea. I’m fascinated by what you do and I hope our people listening are fascinated by what you do. By the way, the information you gave us is great. And if I was to say, “Here’s all the things you should be doing to build a great business.” You’re checking off an awful lot of those boxes. So how would people find you?
Raz: You could check us out online. It’s www.myFloWater.com – one W. And then, on Instagram, Twitter, Facebook, also just look for FloWater or @myFloWater is the Instagram handle.
I have an offer for you, too. In January, I published a book. It’s called Sustainable: A Fable About Creating a Personally and Economically Sustainable Business. It’s easy to get the book. You can get it on Amazon in Kindle or print version, but if you go to my book website which is www.sustainablethebook.com you can get the book there, same price as on Amazon but you also get a 20-minute strategy session with me where I’ll guaranty you’ll get at least one good idea you can use in your business. And I wrote a 37-page ebook about how-to use all the stuff that we talk about in Sustainable because it’s a fictional work and I think stories work better in this genre than how-to books.
I really appreciate you folks being with us today. This is Josh Patrick with Rich Razgaitis. We’ll just say Raz. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.