Play It Cool
Testing, planning, and patience put our fruit bars on the right path.
By Michel Algazi

(FORTUNE Small Business) – As natives of Mexico City, we have always been very proud of the food and spices of our country. Mexico has some of the best cuisine in the world, although many dishes are little known in the U.S. In the decade we've been friends, we've often talked about starting a company to introduce Americans to traditional Mexican products. After careers spent at Black & Decker, Disney, Hewlett-Packard, and United Distillers (now part of Diageo), as well as several Internet startups, we took the leap in 2002.

Mexican-style frozen desserts seemed like a natural place to start. We spent close to 18 months preparing for the launch of our first product, frozen-fruit bars inspired by the paletas of our youth. A year and a half may seem a long time to go without an income--believe us, it was--but we've seen many brands launched to the public only to change course several times as market realities take the company by surprise. Change, of course, is expensive. Two years after our launch, the company is right where we hoped it would be, and we owe a great part of our success to the rigorous process of product development, branding, and market testing that we learned working for the big guys. It's an approach we recommend to anyone launching a new business or product.

During the first three months of our company's life, we did nothing but plot our strategy. We wanted to introduce a Mexican-inspired product for the American mainstream, not just for a Hispanic audience. Traditionally, Mexican food sold in the U.S. has been inexpensive and low-quality compared with other ethnic foods in this country. Its packaging is often covered with stereotypical images like donkeys and sombreros. By contrast, we wanted to create a high-quality, authentic product.

We found signs that the mass market is receptive to better Mexican food: Dulce de leche is a top-selling flavor for Häagen-Dazs, for example, and two rapidly expanding restaurant chains--Baja Fresh (acquired by Wendy's) and Chipotle (90% owned by McDonald's)--are doing well with higher-quality Mexican food. In those early days we developed our brand's positioning and boiled it down to one paragraph that defines our target customer and the benefits and features of our products. That's been particularly important to share with the sales, promotion, and distribution partners who represent us in the marketplace.

Tired of calling ourselves Brand X, we brainstormed a list of 100 names, among them Botana, Hamaca, and La Playa. At some of our former employers, you did little more than wave your hand and a focus group and extensive market research would materialize. In this case we had to do it all ourselves: Clipboards and surveys in hand, we headed out to the busy streets of Los Angeles. It was a humbling experience.

For every five people we approached, one might stop and speak with us. Without telling people what our product was, we asked them, among other things, to position brand names on a spectrum from cheap to expensive. We also asked them to free-associate about what each brand name evoked for them. After a few days we had more than 200 people's opinions, and we whittled 100 names down to 11, and then just three: "Palapa" (a palm umbrella found on Mexican beaches) alone made people--even those who didn't know what a palapa was--think of coconuts and the beach, but the word was associated with only moderate quality. "Blue" was associated with liquor, fragrances, or cosmetics. But together "Palapa Azul"--azul is Spanish for blue--elicited the associations we wanted to hear: fruit, Mexico, food, high quality.

Switching gears to work on the product, we developed 30 flavors, from prickly pear to watermelon. We made the bars ourselves in those early days by heading out to the wholesale fruit market at 4 A.M., washing, puréeing, and freezing.

Los Angeles is a great test market because it has every ethnic group, every income level. We brought our bars to seven farmers' markets with different demographics. The market in the La Cienega neighborhood, for example, draws an African-American and Hispanic crowd, while the one in Torrance is heavily Asian American. The market near UCLA gets a student crowd, while Hollywood draws people from all races, all walks of life.

We assumed we'd have to give out samples free, but to our shock, people at the farmers' markets took out their wallets and handed us money! We never turned a profit from our cart operation, but it did allow us to break even on our product testing. We also used that opportunity to try different pricing strategies.

As the weeks went by, we noticed patterns. Asian palates seemed to prefer tart flavors such as plum and kiwi, while pineapple sold particularly well in African-American areas. More interesting, we noticed a gender difference: We could offer two dozen flavors, and still most men would want strawberry. Women, however, were much more adventurous and willing to try new flavors. Women would say, "You have mango-chile? Interesting! I'd like to try that." Men would say, "You have mango-chile. Interesting! I'd like strawberry." So we targeted our brand strategy to better address women's needs.

In the end, 30 flavors became nine. Not all nine were the most popular; some flavors we kept based not on sales numbers but on the way a person's eyes would light up when he tried them. We don't expect cucumber-chile to be our top seller, but it has created a cult following for our brand, and as an authentic Mexican flavor, it differentiates us from other companies that might also sell strawberry and pineapple bars.

We launched at the Fancy Food show in January 2004. After the show, Whole Foods, Costco, and several other high-end specialty retailers picked up the line. One year later we introduced ice creams and sorbets and are expanding rapidly.

Large companies often hire external agencies to do their research, and what they get in the end is a very filtered report. By doing everything ourselves, we got a richness of information we'd never seen before. It was hard to spend the better part of two years living off our personal savings, but now that our strategy and expansion plans are on schedule, it's clear that the planning and thinking time was invaluable.