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From Frodo to FroYo
In the summer of 2007, only six weeks after earning his MBA from UC Davis, Otero opened a small frozen yogurt shop in midtown Sacramento called Mochii.
“I needed a brick-and-mortar business with consistent revenue streams to offset my living expenses,” he explains, sounding every bit like a recent MBA graduate.
After hearing about the hand-crafted, all-natural frozen yogurt craze started by Pinkberry in L.A., he saw an opportunity to capitalize on a hot trend, while continuing his business education in the real world and using one small business with smaller start-up costs to ultimately finance a bigger one.
“Mochii also afforded me the most valuable gift,” he says. “And that was the gift of time to think about what I wanted to do and to create the type of products I’ve always wanted to create. Most people spend most of their waking hours at work and they use their creative cycles to do that.” Otero knew that once he got Mochii up and running, that it was the kind of business that would allow him free time during the day to strategize.
But he also knew that Mochii couldn’t thrive without a strong business plan and without devoting every ounce of his attention to the company in the launch phase. So he characteristically threw himself into the subject matter headfirst, devouring every bit of knowledge he could gather about the frozen yogurt industry, and he tried to find a niche that didn’t already exist here.
Not knowing how long he’d need to get KlickNation off the ground, he even tried to anticipate his future competition. So he traveled to Los Angeles to taste the famed Pinkberry brand, knowing that he wanted something similar but also distinctive. He hired a food scientist in Arizona to help him design a flavor profile that was slightly more tart and less sweet than Pinkberry’s product. “That way, if Pinkberry ever entered Sacramento,” he explains, “I would have trained the people who have been to Mochii to like my flavor.”
He also used his training from his marketing degree. “The art of marketing is really about telling true stories that people already believe,” he says. “If you don’t tell stories that people believe, it’s very expensive to try to convince them.”
So when he tried to settle on the name, he knew it needed authenticity so it would resonate with people. So that the story would make sense. “I decided to call it Mochii because I’m an Asian guy,” he says. Mochi, normally spelled with one “i,” is an Asian rice-based, marshmallow-like food that is often used in desserts. His concept was to serve frozen yogurt not only with fruit (as many others were already doing), but also with tiny pieces of flavored mochi squares. It was another way to set his brand apart from the competition. “I came up with an Asian name so people can say it’s a true story, but it was also a cute name.”
In the months before he opened, with $75,000 in his bank account, he meticulously calculated that the business would cost him $50,000 to open. He used $13,500 of that to buy out the existing café and opened the shop in June on a shoestring budget. But his cost estimates were slightly off. It actually cost him $65,000 to open the doors, leaving him with only $10,000 in the bank.
Fortunately, the business was an instant hit. On its first day, more than 400 customers walked through his doors. Suddenly, he was making money. Lots of money. “It was incredibly profitable,” he says. “I had never seen money like that before.” That left Otero with a very real dilemma. He’d finally found success as an entrepreneur, and believed there was potential to expand the company to multiple locations and perhaps become a frozen yogurt magnate. Could he really walk away from this?
“I had to make a decision several months after opening,” he recalls. “Do I pursue Mochii or do I pursue the reason I started Mochii? “It was not an easy decision.” Ultimately, he decided to go with his gut. And the fact that the company was so profitable would help him launch KlickNation faster, while still continuing his education as a business owner.
Fittingly, for a shop based on a product using live bacterial cultures, Mochii served as a petri dish of sorts for Otero, who was learning on the job how to run a business, with real-world hiring, firing and negotiating.
But little did any of the customers, or even his family, know the extent to which Mochii was merely a stepping-stone for him. Within weeks of opening the shop’s doors, he began spending less time at the counter serving up tangy “Zang” yogurt and increasingly more time upstairs in a makeshift office above the shop (with a sofa that would often double as a bed), plotting his next company.
Once again, however, his plans shifted and video games would have to wait. In the same way that he jumped into the Internet in 1999 when that industry was exploding, by 2007, the world of “apps”—
applications for handheld devices like smartphones—was taking off.
And with every bit of energy and more that he devoted to learning about yogurt, he threw himself into learning about handheld applications. Even though he was a computer science major, that was long before the world of mobile phone apps was born, and so again, he was virtually starting from scratch, voraciously reading everything he could get his hands on. It was during this time, in Mochii’s first months, that he started brainstorming his very first apps.
He was also getting married. Otero had met Julie Ku at Empire Club on R Street three years earlier, and they wed in September 2007. Everything was seemingly on track.
By 2008, though, he knew he needed help with his fledgling app business, so he brought on a programmer. They started developing and releasing apps to an international audience. The apps included everything from Daily Babe and Daily Hunk to one called Spank Me, where the user could send a “virtual spank.” It was “silly stuff,” Otero says now. Out of the 30 apps they created, the biggest success was Kiss, which allowed users to send virtual smooches. At its peak, it had nearly 400,000 daily users worldwide. Otero was even invited to a Google conference in Beijing to give a presentation on his apps.
“We were the first- or second-largest social developer of apps in non-English speaking countries like Romania, Chile, Mexico and Thailand,” he says, but the nascent company couldn’t generate enough ad revenue off the apps to make the effort worthwhile. In all, KlickNation had produced 30 different apps, but Otero recognized that it wasn’t working. The money simply wasn’t coming in.
Despite their relative success with users, the apps were generating only a few hundred dollars per week, and Otero was losing a lot of money. He had been pouring all of the profits—and then some—from Mochii into developing the apps. As 2008 was coming to a close, despite literally sitting on top of a very profitable business, he was now drowning in debt, and sinking—fast.