When Jim Picariello started Wise Acre Frozen Treats, no other company was making organic popsicles from unrefined

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When Jim Picariello started Wise Acre Frozen Treats, no other company was making organic popsicles from unrefined sweeteners. Working out of a makeshift kitchen in 2006, Picariello developed his recipes using maple syrup and honey. He worked alone for a year and a half before hiring his first employee. About that time, his frozen popsicles really took off; by 2008, Wise Acre Frozen Treats had 15 employees, a 3,000-square-foot manufacturing facility, and was distributing its product to natural food stores and supermarkets across the East Coast. The company was awarded a contract to distribute to the West Coast. Then, abruptly, Wise Acre Frozen Treats failed. What went wrong?
Here’s what happened. In its first year, Wise Acre Frozen Treats grew at a measured pace. It was filling orders for eight stores for a few hundred dollars each, nothing Picariello couldn’t handle. Early in its second year, it won the “Most Innovative Product” award out of more than 2,000 products at a large food show called Expo East. That award increased Wise Acre Frozen Treats’ profile, and it landed a contract with United National Foods, a huge national distributor, for freezer space in premier stores like Whole Foods and Wegmans. At that time, it seemed that things couldn’t have worked out better.
Picariello knew he’d need to raise capital to cover the increased pace of activity. Operating expenses including labor, equipment, ingredients, packaging material, insurance, and design and marketing would all increase. Picariello obtained $300,000 from a local bank and $200,000 from an investment firm. But because Wise Acre Frozen Treats had so many orders to fill, it needed about $1 million to make things work. Picariello approached a local high net worth individual who agreed to invest $1 million, and assured Picariello that he could put together the money quickly. Based on that promise, Picariello placed orders for the additional material and equipment Wise Acre Frozen Treats needed.
The timing of the investor’s promise couldn’t have been worse. In short order, the economy tanked and the investor reneged on his promise. At that point, Picariello characterized his life as a mad dash between running the company and meeting with potential investors. In regard to potential investors, Wise Acre Frozen Treats found itself in somewhat of a no man’s land. Although its future was bright, the entrepreneurial venture wasn’t big enough yet for investors to take notice. As time went on, serious cash flow difficulties kicked in. According to a blog post that Picariello wrote about Wise Acre Frozen Treats’ failure, the company was burning through about $30,000 a month at its peak but didn’t have the capital to back it up.
In retrospect, many things lined up well for Wise Acre Frozen Treats. It had a product that sold well, it had national distribution, and it had a business plan that indicated that it would take about two years for the company to break even. Its fatal flaw was that it didn’t raise the money it needed before it hit major milestones, like getting the big orders. It literally went from eight stores to dozens to hundreds in a matter of months. From a cash standpoint, the firm lacked what it needed to keep up with its growth. 

Questions for Critical Thinking
1. What lessons can be learned from Jim Picariello’s agreement with the high net worth individual, who agreed to invest $1 million in Wise Acre Frozen Treats and then reneged on the agreement when the economy turned sour?
2. Why is it that a company can grow too fast? If Wise Acre Frozen Treats significantly increased its sales, why wouldn’t its increased income provide more than enough cash to even out its cash flow?
3. Besides cash flow difficulties, what other problems can a firm experience by growing too quickly?
4. If Jim Picariello starts another company, make a list of the things you think he’ll do differently as a result of his Wise Acre Frozen Treats experience.

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Entrepreneurship Successfully Launching New Ventures

ISBN: 9780132555524

4th Edition

Authors: Bruce R. Barringer, R. Duane Ireland

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