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Growing success of Vegware despite economic meltdown

Reflecting on the challenges Edinburgh-based Vegware faced raising funding amid a global economic meltdown, its founder Joe Frankel offers a sober assessment of how bad things got for a firm that can claim to be one of Scotland's most successful green businesses.

REFLECTING: Academic turned entrepreneur Joe Frankel took a huge risk when he sunk £3,000 into Vegware the Edinburgh-based company that sells spoons and packaging that can be recycled.

"We had been growing to October 2009 and then it just dropped away. For six months it was really flat. That January we were losing £1,000 a day. Nothing was happening, no one would return calls," he says.

"Had we gone down the bank route we would not be here today, we would have had the plug pulled."

The academic turned entrepreneur's words reflect his belief that banks were so concerned about protecting themselves amid hard times that they failed to recognise the potential businesses like Vegware had to achieve great things with the right support.

By contrast he is full of praise for the Bradenham Partners private equity operation, which agreed to back his ambitious plan to grow Vegware into a global force in the green food service business.

The company supplies products like spoons and packaging made of renewable materials such as corn starch and sugar cane. Its products can be put into recycling facilities with the food they have been used for.

Mr Frankel, 38, says this means they provide major benefits compared with alternatives that require food and packaging to be separated before they can be recycled and can avoid loads of waste going to landfill.

Noting that Bradenham Partners provided a six figure investment in 2009 followed by two other rounds, Mr Frankel says:

"We put in a programme that would ensure we lost a quarter of a million in two years, but they were up for it. It was spent on building infrastructure and on people. It comes out as a loss in the p and l account but that's not the right word, it's investment. The money was spent wisely."

Whatever reservations Mr Frankel may have about conventional accounting measures like profit and loss, some provide evidence Bradenham's investment is paying off.

Vegware had turnover of £6.9m in the year to January and traded profitably. It had sales of £415,000 in 2008.

Mr Frankel, a dad of three, expects Vegware to break the £10m level in the current year.

There is a buzz about Vegware's canalside head office in Edinburgh, from which it runs operations across the world.

The firm now employs 40 people.

The company's success provides a textbook example of how hopefuls can harness the internet to dramatic effect.

"The web is a wonderful thing," says Mr Frankel. " None of the company could have happened without the web."

Founded in 2006, Vegware was always conceived as an ebusiness by Mr Frankel. He saw scope to use the world wide web to build a global sales presence and to allow a young business to find partners with skills in areas like manufacturing whose success it could piggy back on.

Vegware has out-sourced functions like production and fulfilment to minimise icost base.

The company has used the money saved to invest heavily in product development and in acquiring expertise in recycling that Mr Frankel believes sets it apart.

The Cambridge-born Mr Frankel says his background in research has helped him in business.

The son of a medical anthropologist and a classically-trained ballerina, Mr Frankel spent years working out how mathematical techniques could be applied in speech recognition and has a PhD in the field.

" I had no idea how I would turn this into a business but I had spent seven years working as a researcher and in research by definition you don't know the answer before you start.

"It's the school of hard knocks."

Mr Frankel was lucky to get the chance to do a PhD at Edinburgh University.

"I was pretty close to being kicked out at the end of third (undergraduate) year because I wasn't there very much. Lectures were not the way I like to learn I was better at learning from books in my own time."

Mr Frankel knuckled down in time to get a first, which he describes as a "great piece of good fortune".

There was also a big element of chance in the process leading up to the birth of Vegware.

Mr Frankel came across the kind of product Vegware sells at Easter 2006, when he was tasting yoghurt at a farmers market in San Francisco with a novel spoon. He was on secondment at the International Computer Science Institute in Berkeley, California, at the time.

"It reminded me of a bone spoon. They said it was made of potato and corn and I thought that was amazing."

He was quick to see the potential.

"I just got excited about it very quickly. I thought if I think this is fantastic surely other people will too."

Thanks to the web he found a supplier of the resin the spoon was made from and bought £3,000 worth to get turned into cutlery .

As Mr Frankel and wife Synnove had two children at the time his decision to sink his savings into so much stock with no buyers in sight was to say the least a bold move.

But he relished the can-do vibe that pervaded the groves of academe on the west coast.

"I got excited about the whole thing. I had friends with start ups, proper California stuff, scruffy guys with computers. I knew people working at Google, Facebook."

Using his web skills, Mr Frankel started alerting people to what Vegware was planning before any products had been shipped to the UK. The company triggered interest in the blogosphere before the formal launch of its ecommerce site in July 2006.

The first sale, to the Rude Health food business, came two months later.

"By December sales were £100 per day and I was thinking this is amazing there's a future here"

For all the technical sophistication, Mr Frankel spent months flying by the seat of his pants.

He recalls traipsing the streets of Glasgow with friend Dominic, a clinical neuroscientist, who joined the business in 2007.

"We both did everything: pricing, taking orders, talking to customers, finding new customers, dealing with issues as they came up."

There were hard lessons to learn.

"In the early days we had many days when you would get an email and the colour would drain from your face and you would want to be sick but my role and function is to break down a problem and make a plan.

"That's what I bring to it is that 'ok, on the face of it that doesn't look very good. What can we do here?'"

Mr Frankel says Vegware did not get close enough to its customers in the early days because it felt, mistakenly, that as an ecommerce firm it didn't need to.

While the sales grew steadily, Mr Frankel only gave up work at Edinburgh University in 2008.

But the music lover seems to be getting the hang of business.

"There's been a lot of stress in a way but I've got used to that background level of stress. I aspire in a work context to be steely, that's my goal... I won't claim I am it, but that's my goal."

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