Andrew Krause, founder and president of LXR Biotech, talks with Opportunist’s Managing Editor Leslie Stone about his company’s 10-hour energy shot and why he believes its scientifically proven, time-release delivery system will change the industry.
The market for energy shots—not to be confused with energy drinks—is over a billion-dollar market in its own right. It is also an industry segment in which the leading brand has commanded more than 80 percent of the market share, making it difficult for other players to catch up. LXR Biotech, based in the Detroit suburb of Auburn Hills, Mich., has introduced a new kind of energy shot that it believes will be a game changer. The liquid shot, called 10, uses a patented time-release formula that provides up to10 hours of energy. “This technology is amazing,” says Andrew Krause, founder and president of the company. “What we have is the ability to deliver time-released caffeine in the liquid energy shot format. Under normal circumstance the caffeine will be processed out of your body in a five-hour half-life, meaning five hours after taking it you will have half as much in your system. Our formulation lets the caffeine dribble into your system. We’ve got the best product out there and we are marketing and advertising and getting into retailers. The game is afoot and we are well into it.”
Opportunist: Andrew, can you tell us a little about your background?
Andrew Krause: I grew up in the manufacturing industry. My dad had his own company where he manufactured industrial building components for Tier 1 suppliers and the Big Three Automotive Companies during the heyday of the ‘70s. So I was exposed to a lot of different manufacturing processes from an early age. Also, computer-controlled technology and the early stages of personal computing came of age during my coming of age.
I worked for my dad for many years and ended up starting my own manufacturing business and ran that for about 15 to17 years. It was a great time and I enjoyed the manufacturing aspect as well as creating and building. What I didn’t like, however, was the fact that it was so dependent upon the economy and, subsequently, the automotive cycle. The problem back in the ‘80s and ‘90s is that the industry was either on or off. There was no in between—it was either oops, everybody has Big Three building projects or nobody does. It was sort of a feast or famine marketplace and it didn’t matter how good you were. That is when I became interested in getting into consumer products that had the benefit of being standardized. Everybody has to eat. Everybody has to cut their hair. It’s not a boom or bust market. And, more importantly, the element of how good you are established how far you could go—you weren’t limited by the economy.
Then, about 10 or 11 years ago, I was diagnosed with cancer in my shoulder and decided to shut my business down for a while. It was one of those situations where you assess your life and go ‘OK, I’ve got a second chance at this … I want to do it differently.’ So I started looking into the consumer products market.
Opportunist: What happened next?
Andrew Krause: At that time 5-Hour Energy had just started to take off at an incredible growth rate. But they didn’t really have anybody familiar with manufacturing and quality control or high volume production, which had been my life for 30 years. They hired me on as, technically, the production manager, but if it was tangible I was in charge as far as ordering and scheduling and manufacturing and quality control. I was showing everybody involved at 5-Hour Energy how to resolve standard problems that come across. I also designed and built equipment based on a relatively new platform that allowed high production of custom packaging. We got a patent on a closure system that solved all their early leaking problems and identified counterfeit products. I think I basically held their hand during their learning phase in manufacturing, which grew the company from 2 million units a month to 21 million units a month during my time there. I also helped them acquire their own manufacturing facilities in Indiana and taught them how to do the manufacturing there.
After 5-Hour Energy was up and running, they didn’t need me anymore. So I waited a couple years for the non-compete to pass, knowing how litigious they were, and started up the Eternal Energy brand.
Opportunist: How were you able to enter a market that was basically dominated by an established brand?
Andrew Krause: At that point in the market it was obvious that you couldn’t compete against 5-Hour Energy at the premium price point they commanded. Everybody else was greedy and wanted that high-dollar margin. There were about 400 to 500 different failed attempts by others. Either their product wasn’t effective, which is the first sin, or they allowed greed to get them and tried to compete head-to-head with a similar product at the same price point. 5-Hour Energy was the only one that commanded that price point, and we saw a gaping hole in the market at the value price point. We felt there was nothing in the 5-Hour Energy formula that deserved a $3 price tag. Eternal Energy, at just $1 per single-dose bottle, was technically 11 percent better than the 5-Hour Energy that costs $3 a bottle. We found an alignment of strategy with Walmart, which wanted the best product at the lowest price for their customers, and we launched the product in Walmart and it just grew and grew and grew because it really appealed to Walmart consumers. We didn’t cannibalize 5-Hour Energy’s sales because people weren’t going to pay $3 for an energy shot at Walmart, but they would buy a $1 energy shot—and a lot of it.
Opportunist: What was involved in developing your revolutionary 10-hour energy shot?
Andrew Krause: About three years’ worth of research, testing a bunch of dead ends and working on some really far-out methodologies—only to find out that somebody else already got the patent on it. But, like any smart businessman, I went and licensed it.
Opportunist: Getting a product on the shelves of Walmart is something many entrepreneurs can only dream of achieving. How were you able to do that?
Andrew Krause: Fortunately, I was too dumb to know what a feat it was. [Laughs] I kept working at it and just pushed and pushed and pushed with the expectation that I would get it done. I also had regional managers working with me to prove the model.
We have maintained a fantastic growth period with Walmart over the past four years and have taken our product from a small regional product to nationwide in 90 percent of their stores. The fact that we had Walmart as our first customer enabled us to fight the battle against 5-Hour Energy when they threw a lawsuit against us just like they had done with other competitors. Unlike the rest, however, were able to fight it and prove it to be unbiased and merely another attempt to crush the competition.
The value price point proved successful. It’s a great volume product. Besides Walmart, it’s appealing to the rest of the market because the shine is off 5-Hour Energy. There is no magic and no innovation. The whole time we were manufacturing our value price point shot we wanted to come up with an absolute better technology than 5-Hour Energy. We started in 2013, and now we have it.
Opportunist: When did you change the company’s name to LXR Biotech?
Andrew Krause: Eternal Energy was what the company was called initially. However, we didn’t want to be pigeonholed or limit ourselves to just energy shots. So we created LXR Biotech in January 2011. The lowest hanging fruit is the energy shot market and we have been maintaining a concentration on that as far as sales and marketing efforts go. We are also doing research and development to create other products. We also sell pain relief shots, vitamin supplements, sleep shots and so forth.
Opportunist: How does LXR Biotech stack up against other contenders in the energy shot space?
Andrew Krause: We are nimble and can make changes quickly and deliver on new technology and innovation where others really can’t. We combine the best of a think tank and unlimited production capacity because our expertise is in all these methodologies and building equipment to produce in short order. And we can literally do it all in-house. We are building pilot plants for extraction processes in the herbal market and we can build one in two weeks. It would take six months for our competitors to figure out what they need and then order it from someone else who would build it for them.
Opportunist: Are there any recent developments you can share with us today?
Andrew Krause: Our time-release product is the single biggest story and we are exploring all opportunities with it. Energy is kind of the humdrum everyday stuff. Weight loss is another great market to be able to utilize the time release technology in. We went from 900 stores to 14,000 in the last month and a half, so as you can imagine our hands are pretty full right now. There isn’t a ton of new development besides the fact that we are dealing with that kind of growth right now. We have already established manufacturing and sourcing capacity for large runs and we have that under control. We have a state-of-the-art facility in Auburn Hills and we recently signed a lease to expand to another warehouse facility for distribution. We have two production lines and we are building two more. We are very good at making energy shots or anything that goes into a bottle. Our revenue has grown from $2.5 million last year and we are forecasting $40 million for 2016.
Opportunist: Can you tell us about some of your other products? We understand you also have a product that helps to promote a good night’s sleep. How does it differ from other sleep aids?
Andrew Krause: Yes, it’s called Tranquility and it’s also formulated using time release. Melatonin is very effective as a sleep aid but it has a short half-life; it’s eliminated from the body relatively quickly. Take too much melatonin and you’ll have Technicolor nightmares. Take too little and it’s ineffective. Our technology is great for administering the correct dosage for six to seven hours. We haven’t pursued it quite as much because, again, the lowest hanging fruit is the energy shot. Also, we are going to go after the weight loss market in 2016. We don’t think the volume for a sleep shot is going to be anywhere near energy or weight loss.
We are doing a little bit of research and development in cosmeceuticals, and although we believe we can do all types of fantastic high-tech products, at the end of the day the biggest bang for the buck is in the mundane items like energy shots and weight loss. The energy shot market is a $2 billion market and weight loss is a $75 billion market.
Our Perfectly Petite weight loss shot sells for about $1.50 per bottle and has two different formulations. It’s not groundbreaking—it’s just the perfect usage of existing science—but it will allow you to burn up to 100 calories just from taking the product and it kicks your metabolism up to burn fat. That was great, but once we utilized our time-release technology we discovered that the science would allow users to burn up to 360 calories. So we are going to launch that as our next retail push in 2016. We expect quite a bit of interest in that from and health and beauty departments in big box stores as well as chain pharmacies like CVS and Walgreens.
Opportunist: What do you consider LXR Biotech’s greatest accomplishment so far?
Andrew Krause: A huge milestone for us was when Walgreens accepted 10 and took it national. I really think that in the shot market the time-release technology is the Holy Grail. That is what is going to differentiate us between 5-Hour Energy and other competitors—and exactly how huge of a discovery that is will become apparent in the next year or two. In our industry it’s a game changer and it will really transform the way everything is done.
Interestingly enough, our position is not about trying to replace 5-Hour Energy. You can have a superior product like our 10-hour product or you can have our value price point that performs better and can pick up a 12-pack for $18 at Walgreens. Walgreens took both our premium product and our value product and launched us nationally to 7,800 stores at the end of October 2015, and we are seeing 25 percent growth from week to week at Walgreens.
Opportunist: What do you enjoy most about your work?
Andrew Krause: I love the technical aspects involved in creating new and exciting products and the manufacturing innovation required to produce high volumes quickly, efficiently and effectively. That’s what I enjoy the most, although it may sound boring.
Opportunist: What are some of your goals for LXR Biotech in 2016?
Andrew Krause: Landing all the retailers. By the end of the year we are likely to get 75 percent market distribution, meaning we will be in CVS, Albertsons and other drugstore and supermarket chains across the country. It’s not simple. Their time frame has to match ours.
The weight loss market is $75 billion and, interestingly enough, the market is always looking for the newest and greatest technology. We have already shown Perfectly Petite to a lot of the retailers and they are very open minded and looking to meet with us again later this month to set rollout dates. We are expecting a pretty big growth with the product in 2016.
Getting exposure to buyers and educating them on our innovative technology is going to be the single largest goal. We bootstrapped the company together by raising some capital to get where we are right now. From a financing perspective the company is heading in the right direction. We are making money and will repay the funds to family and friends who helped us get off the ground and we will establish bank lines. We joke that our biggest single accomplishment to date is surviving everything to get to this point. [Laughs] It was a hard fought battle.
Opportunist: Where do you see LXR Biotech five to 10 years in the future?
Andrew Krause: Our growth is exponential right now. If what we have built with our time-release technology takes just 10- to 20 percent of 5-Hour Energy’s market share, we are talking about several hundred million dollars in revenue on the energy shot alone. We will hopefully have built this operation into a billion-dollar business and created some good opportunities for everyone involved.
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.
Follow LXR Biotech on Twitter: @LXRBiotech