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How a multimillion-dollar ice cream startup melted down (and bounced back)

A Brooklyn-based ice cream shop was getting buzz, and Disney was pitching a brand partnership. So how did the business wind up filing for bankruptcy? A case study by Thomas Eisenmann and Lindsay N. Hyde examines the rise and fall—and recent rebound—of Ample Hills Creamery

Published: Jul 12, 2022 10:45:30 AM IST
Updated: Jul 12, 2022 10:54:20 AM IST

How a multimillion-dollar ice cream startup melted down (and bounced back)The startup, like many others, was a victim of its own success Image: Shutterstock 

Ice cream making started as a quirky hobby for Brian Smith, whose zeitgeisty flavors and fresh ingredients would become his trademark. For example, his “God Save the Cream,” inspired by the 2018 Royal Wedding of Prince Harry and Meghan Markle, combined elderflower wedding cake, buttercream frosting, and lemon-ginger ice cream.

When the Brooklyn-based screenwriter first met his future wife and business partner, he wooed her by hosting ice cream socials with homemade concoctions that guests raved about.

Flying high on these enthusiastic reviews, Smith and wife Jackie Cuscuna opened Ample Hills Creamery in 2010, a Brooklyn ice cream parlor that would grow to 16 stores in four states by 2020. Smith’s clever flavors—mixing pecan pie and Sufganiyah jelly donuts in “Thanksgivukkah,” for example—were so enticing that Walt Disney pitched a brand partnership and Oprah Winfrey touted the ice cream as one of her “favorite things.” The Food Network named Smith’s salted chocolate and brownie-flavored ice cream, “It Came From Gowanus,” as the No. 1 ice cream in the country.

So how did Ample Hills Creamery, with its celebrity buzz, $10 million of annual revenue, and $40 million valuation, end up filing for bankruptcy? And more importantly, how did Smith and Cuscuna rebound from their first failed venture to open another successful ice cream shop?

The startup, like many others, was a victim of its own success, says Harvard Business School Professor Thomas Eisenmann and senior lecturer Lindsay N. Hyde. Eisenmann and Hyde wrote two case studies with HBS case researcher Tom Quinn that analyze the smart moves and simple errors at Ample Hills Creamery, as well as the launch of the company’s new shop afterward. The cases illustrate the challenges of turning a passion project into a viable business.

“You don't raise $19 million and launch 16 stores and have $10 million in revenue and get on The Oprah Winfrey Show without doing a lot of things incredibly well,” says Eisenmann, who teaches an MBA course called “Entrepreneurial Failure” with Hyde. “But they tried to grow too fast.”

A dream flourishes in Brooklyn

In summer 2010, Smith and Cuscuna got serious about selling their homemade ice cream. They opened a pushcart during a neighborhood arts festival, where they could test flavors with the public—a smart move, says Hyde.

“Brian had his whole period of doing it as a cart and really understanding demand and understanding what flavors were working; it was rigorous upfront testing to see if there was really a business there,” says Hyde. “This is one of the key lessons for people who are trying to understand bridging a passion project into a business.”

They saw that people were enthralled by their inventive “mix-ins” of fruit, candy, and even maple-candied bacon into traditional ice cream flavors. Moreover, they felt they had a story to tell about childhood and dreams, and their backgrounds—Cuscuna, as a teacher, and Smith, a screenwriter—positioned them to tell it.

They fell in love with a Brooklyn storefront and bargained down its rent. But on the day they were to sign a lease and open their scoop shop, Smith was offered a sought-after executive position at an audiobook company. His two children weighed heavily on his mind as he debated the tradeoff between financial security and pursuing a dream, according to podcast interviews cited in the first case.

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Cuscuna insisted on moving forward, saying in interviews that she “didn’t want her kids to have a miserable father.” She reflected later that: “And at that fork in the road—or spoon in the road—I said, ‘No way. We’ve got to do this.’”

They invested their entire life savings—$225,000—into opening the store.

The store sold all of its products within four days of opening, forcing it to temporarily close. Earning $1 million in total sales, the store did so well that after three years, the couple expanded to a second location in Gowanus. That location was a huge success, too, with total sales of $1.4 million.

The Disney partnership

The couple dared to dream that they could one day develop into a household name like Ben & Jerry’s, which had similar homegrown roots and a storytelling ethos.

“You start to fantasize about big ideas,” Smith recalled. “After our first four days, and after we saw such great press and reviews, those dreams started to shape how we thought about the future.”

At that juncture, Smith and Cuscuna made a critical mistake that would set their relatively small but thriving business on a new and unsustainable path.

One day, while hand-packing an ice cream order, the couple noticed that Robert Iger, CEO of Disney at the time, was the customer who would receive it. They added a cookbook and a personal note in the package to Iger, who later contacted them about a partnership that would make Ample Hills the official ice cream of the Star Wars franchise and harness its unique flavors to celebrate Mickey Mouse’s 90th birthday. There were marshmallow “Light Side” and chocolate “Dark Side” flavors; Iger’s influential friends followed.

It was the opportunity of a lifetime. An Ample Hills Creamery store in Disney World would be part of the deal, necessitating, Smith thought, a new factory. He set out to build it in high-cost Brooklyn—the Red Hook neighborhood—to show the company’s commitment to its community.

A case of wrong investors, mismatched personnel

The outsized branding partnership would set off a wave of questionable decisions.

“It set them on a cycle of, for the first time, raising outside capital, borrowing money from a bank, but also taking equity from venture capitalists,” Eisenmann says. “And that's where the story becomes catch a tiger by the tail. They just can't keep up with it.”

The couple turned to venture capitalists with little experience in food and beverage businesses, and with the addition of bank loans, backed by a personal guarantee, were able to raise $20 million. To keep up with the pace of their rapid expansion, they hired people who were not well-matched to their roles.

“They really struggled to find the right financial folks to come in, the right operational folks, and even at the level of the stores as they continued to expand, they really had a hard time finding the right match with people who could run those more distant stores and train people,” says Hyde.

Despite these issues, Ample Hills expanded from the East Coast to the West, opening a store in the trendy Los Feliz neighborhood of Los Angeles. The location wasn’t ideal, but the founders had fallen in love with a Craftsman-style house and decided to build its store inside. The company also experienced a string of production setbacks.

“It's a tricky thing given Brian's commitment to handmade fresh ice cream with these mix-ins and so forth,” says Eisenmann. “But all the big players in grocery and in retail chains with lots and lots of stores, they use what are called co-packers, third-party factories, that will make ice cream to your specifications. That was always an option for Ample Hills.”

Hiring a co-packer would have helped Ample Hills scale production in line with store expansion. Instead, the company fell far short of the 400,000 gallons of ice cream it needed to sell annually just to break even on its Red Hook factory, selling about 250,000 to 280,000 gallons per year.

‘Taking away part of my family’

When the company’s finance director told the couple in 2019 that Ample Hills was running out of money and may not make it through the lean winter months, Smith and Cuscuna were surprised. Sales had been brisk.

“They built a giant factory costing almost $7 million that required sales that were beyond their reach,” says Eisenmann. “And in the process of all that, didn't pay enough attention to financial discipline and keeping track of cash in and cash out, [which] can get an entrepreneur into trouble.”

Even with an average store profitability of 15 percent, and the fact that it was shipping its product to 800 grocery stores, the company simply did not have the sales it needed, given the scale of the new factory. If it wanted more sales, it would have to open new stores, but it lacked capital.

The couple appealed to their largest investor for support. They appointed one of the investor’s friends as co-president and ultimately CEO to win over the investor. Even so, the investor wouldn’t commit the capital to bail them out, according to the cases. In 2020, when no investor stepped in to save the company, Ample Hills filed for bankruptcy.

“You could draw a straight line from those dizzying heights of dealing with Disney, to all the troubles that befell us years later, and ultimately to the bankruptcy. It comes from chasing that star and flying too close to the sun,” recalled Smith.

A machine parts company from Oregon purchased the company’s assets for $1 million. Smith and Cuscuna approached the new owners, hoping to stay involved, but were rebuffed.

“It hurt, trying to defend my worth to a new owner who was taking away part of my family—I mean, honestly, that’s the way it felt, like our third child. It’s business ultimately, but for me it was deeply personal,” Cuscuna remembered.

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No more ‘going with the flow’

Smith and Cuscuna licked their wounds, took time off to reflect, and decided to open a new Brooklyn ice cream shop called the Social in 2021 that mirrored the values of Ample Hills—that is, fresh, homemade ingredients and a store serving as a community connection point. They planned flavors like “Oh Captain, My Captain,” a reference to a Walt Whitman poem; another Whitman poem had originally inspired the Ample Hills name.

This time, however, they resolved to avoid the pitfalls of their last venture. “They undertook a very structured reflection process,” says Hyde. “They really took understanding what went wrong very seriously.”

Smith remembered: “We had what I would call a ‘go-with-the-flow’ vibe at Ample Hills. It seems strange and counterintuitive, but that ‘go-with-the-flow’ vibe, when stretched as far as we stretched it, can result in lots of miscommunication, lack of accountability, and unclear roles.”

Smith and Cuscuna decided to eschew branded partnerships and venture capital. They professionalized their business with better budgeting and record-keeping. They even drew up a mission statement, which they didn’t do the first time around. They took an online business course in how to pivot after a failed venture and through its teacher met an investor experienced with rebounds willing to provide the capital they needed—enough money to open one shop with possible expansion to three shops, but only if the first shop met its performance targets. That shop is currently thriving.

Lessons for those on the rebound

About half of failed founders relaunch a new business within five years of a business closing, says Hyde. They often jump right back into the same industry and repeat the same mistakes. Instead, Eisenmann and Hyde say that entrepreneurs should follow the lead of the Ample Hills founders and:

Take time off. “The entrepreneur really needs just to get some distance and to grieve the business,” says Hyde. The mourning process might also involve taking time to build new skills, save money, or even just rest. Often entrepreneurs experience life changes that also change the direction of their interests.

Learn from mistakes. It’s not enough to grieve and reflect. Pivoting entrepreneurs need to apply the lessons they learned to their next business.

Exit gracefully from the first venture. “Pay your taxes, pay your employees, actually offer the employees a couple of weeks of severance and help finding jobs and references to future employers,” says Eisenmann. Failed founders also owe investors an explanation of what went wrong.

“This can be hard for a founder who's going through this brutal process to fire up the email or pick up the phone and talk everybody through what happened,” says Eisenmann. “But a founder who does all those things—gives a good accounting to investors and treats employees and customers well—will preserve relationships and reputation. That is super important the next time they come back to it.”

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[This article was provided with permission from Harvard Business School Working Knowledge.]

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