Unistraw’s gizmo a unique success

Aggressive protection of a great idea, collaboration and a commitment to building a global business have been key to Unistraw’s success. By EMILY ROSS

By Emily Ross

Aggressive protection of a great idea, collaboration and a commitment to building a global business have been key to Unistraw’s success.

The Unistraw fairytale began in 1997 with industrial and graphic designer Peter Baron (right) devising a unique drinking straw. With the help of pantyhose, old-fashioned straws and flavour pellets, a new flavoured drinking straw called the Sipahh was born.

This innovation gave the world flavour-packed milk with less sugar. The Sipahh became an award-winning success, finding its way into McDonald’s Happy Meals and US fast-food chain Denny’s.

Backed by blue-chip investors connected with ventures such as Seek, Unistraw now manufactures 45 million straws per month from factories in China and the US and is on target for revenue of $30 million in 2008.

A major break came in 2002 when US-based Denny’s ordered 60,000 Sipahhs. “When the report came back that sales of milk increased over 600%, we knew we had done something right,” says Baron.

With business partner John Rainbow, Baron spent seven years developing the product, setting up manufacturing and patenting the device. The start-up period included fall-outs with early collaborators, intellectual property fights, a High Court battle with Nestle and six-figure legal bills.

In 2004, South African serial entrepreneur Martin Chimes (from CK Group and former Corporate Express chief executive, and pictured at right) started discussions with Baron about joining the business as chief executive.

Chimes and Baron had been friends and on-and-off business partners for more than two decades. Baron knew that to take the business to the next stage he needed someone with Chimes’s experience.

The small start-up had to decide how and where it was going to go. Drinking straws are a high volume, low-cost manufacture product. Just marketing the product locally would never make a significant business. To achieve volume, Unistraw needed to expand and it needed a big cash injection.

Chimes and Baron created a business model that would allow Unistraw to grow internationally. The model covered:

1. IP protection.
2. Low-cost manufacturing.
3. Building the Sipahh brand.
4. Licensing distribution rights in each country.
5. Continuous new product development.

Chimes raised $24 million from passive investors, with Baron and Chimes retaining 30% equity. They raised the money, says Chimes, because investors “backed the management team to deliver a high-risk opportunity”.

The first day of 2005 was a new beginning for Unistraw, with Chimes in charge and a business plan to execute. The year saw distribution in major supermarkets domestically, awards from major food trade shows and exposure through the media on programs such as ABC’s The New Inventors. Revenue for the year reached $8.6 million.

A licensing model was set up so that other companies would invest their funds and resources into the growth of the Sipahh straw. Exposure came through international food fairs, innovation and design awards. From there, potential licensees approached Unistraw.

Once shortlists were established, Chimes sent out a team to select partners that matched Unistraw’s criteria. There are now 44 territory partners covering 112 territories around the world. Licensees buy product from the China factory and pay royalties on all sales.

Unistraw has its own partner-only secure website for licensees so they can access company, product, legal and technical information, marketing and sales tools.

Chimes insists that he prefers not to play a day-to-day role in the business, leaving that to Unistraw’s managing director Tim York and 40 staff. “I see the clear picture of what the business can be and find the team to make it happen,” says Chimes.

One thing that still keeps Chimes awake at night is the fear of copycats. The fear that one of the major companies will “infringe our IP and copy the product. With their power they could make us irrelevant,” he says.

This justifies the company’s aggression in protecting IP and continuous investment in legal services, despite the drain on funds.

Initially the Sipahh straws were manufactured in Sydney, before costs pushed operations to China and subsequently 35% of manufacturing to the US. Going offshore has meant funding Unistraw’s own engineering and logistics people to oversee operations.

Chimes and Baron have great plans for Unistraw. If Unistraw’s new products take off, including flavoured water and iced coffee straws as well as neutraceuticals (drinks enhanced with vitamins, minerals, probiotics or herbal supplements), Chimes is confident the company “will be a target for one of the very large food companies”.

There is also potential for the straws to be used for dispensing medicine.

After 23 years as mates, their partnership is still going strong, however Chimes has one gripe: “A true partner would allow the other partner an opportunity to win at golf in 25 years. It’s the only thing I detest him for.”

Perhaps that’s the secret of a winning business partnership. Don’t let them win at golf. Ever.

Emily Ross is the co-author of 50 Great e-Businesses and the Minds Behind Them (Random House 2007).