Dennis Wynant and Doyle Schaefers are familiar with the sleepless nights and draining duties that are typical of marines’ heroically- grueling deployments--and a decade later, the two veterans heard their calling again.
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Landing feet first in the world of entrepreneurship, the former U.S. Marines recently introduced a six-hour energy drink called OnPoint that one day could rival the likes of 5-hour ENERGY or Monster, although that’s not their goal just yet.
Using their experience in business and dedicated time in the military, the pair identified a niche market for their product: deployed troops and their families, veterans and supporters.
As Wynant and Schaefers work to ink deals with distributors to increase exposure and boost profits, the founders pledge they will not lose sight of their values and have promised to dedicate 20% of the company’s profits to the military and another 20% to entrepreneurial veterans.
“Donating a share of profits is a good gesture, but it isn’t enough to drive sales on its own,” said Tim Calkins, clinical marketing professor at Northwestern’s Kellogg School of Management. “Customers have to like the product and see it as a good value.”
While the generosity might be good in theory and a smart PR move, it is too soon to tell whether the company will be successful in an industry that is so hypercompetitive it recently forced Red Bull to dropout of the market.
But even a leader as powerful as 5-hour ENERGY that holds 78% of the energy drink market, according to Wynant, will eventually be forced to cede some ground to newcomers.
“Someone’s going to chew some of that market share away from them,” said Wynant, who also serves as OnPoint’s chief executive. However, “I don’t think you can compete against something like juggernaut 5-hour ENERGY now without doing something different.”
The call to duty: Oorah!
OnPoint’s name derives from the term “riding point,” which was cavalry terminology used a century ago to refer to the men scouting ahead. In modern lingo, it’s used to describe a person who takes charge of a project or situation, a leader with a confident swagger, which is typical of servicemen and athletes.
Ironically, the bottle’s camouflage label is key to its attempt to stand out from its competition. OnPoint hopes its mission and deep-rooted connection with its niche audience--the military--helps it stand out.
It is often difficult for the industry’s biggest players to cater to the needs and interests of specific groups, Calkins said, and a hyper focus usually provides a strong marketing edge.
“The military is a promising target for a niche launch; it is a cohesive group with shared interests,” Calkins said, adding that the USAA, which provides financial products to members of the military and their families, is a prime example of a company that has been highly successful doing just that.
OnPoint will dedicate 20% of its profits to servicemen and women overseas and their families through a variety of charitable organization such as Operation Homefront, which focuses on deployed military, and Troops Direct, which targets their families.
It’s the smallest things needed by troops overseas such as socks and boots that OnPoint will target, Wynant said. The company will also host events in partnership with charities, such as going away parties at the Marine Corps’ Camp Pendleton in Southern California, and donate cartons of its energy shots to deployed soldiers.
“We wanted a higher purpose for the company,” said Wynant. “My passion for the military, his passion for the military, everything fell into alignment.”
The other half of the donated proceeds will be dedicated to helping veterans, or companies with similar values, attain additional capital to support and build new businesses. OnPoint, which is parented by Veterans Global Ventures, has established an advisory board of experienced people that Wynant called “serial entrepreneurs” that will offer assistance. The company will start taking applications for that fund in February.
But don’t confuse OnPoint with charity, Wynant noted it would never be competitive without the capital of a for-profit business.
David vs. Goliath: power shots
In today’s economic environment, however, those nice gestures are not enough to propel a company in a competitive industry.
With $1 billion in sales in 2010 and year-over-year growth of 33.6%, energy shots have become one of the fastest-growing sectors of the beverage industry, according to data from SymphonyIRI.
While the lighting-speed growth offers immense opportunities for newcomers, the fact that so few hold a majority of the market poses a challenge to startups looking to crack the surface. To put things in perspective, 5-Hour ENERGY held $885 million in sales last year.
“It is exceptionally difficult to enter an established category by going directly up against the big existing players,” said Calkins. “Targeting a niche is much more likely to succeed, because you can find an unmet need.”
OnPoint isn’t looking to go head-to-head with the industry leaders; rather it is looking to scoop up a modest 5% to 7% of the market share in the next three years. That growth would put the company at about $9 to $10 million in annual profits by 2014, leaving it with more than $1 million in charitable contributions, according to Wynant.
“5-hour ENERGY does that in 10 days,” he said of the profit projection. “It may seem aggressive, but it’s realistic.”
For now, the company will focus on aggressively marketing its niche market. With its “energy to engage” motto and camouflaged packaging, OnPoint fits in well with not only the military, but outdoor adventurers like fisherman, said Wynant. Even the paintball market has voiced its interest.
Launching a product for a specific niche is a “very promising approach,” Calkins said. Take athletic apparel retailer Lululemon (NASDAQ:LULU) as an example, which has seen its market value climb more than 900% over the last two years with the help of its targeted focus on yoga.
While the military market may be niche, it has the potential to take a substantial bite.
The 65,000 servicemen stationed at Camp Pendleton quickly turns into a half a million people when taking in civilians that are directly tied to the base, Wynant said. With 1.7 million active duty members of the military, it’s easy to see how that could transform into millions of dollars in profit.