What to do when product is failing

One of the most painful moments a small-business owner can face is realizing it's just not working.

Maybe it's a product that's not succeeding. Or business taken away by a competitor. When something goes awry and sales take a hit, big changes are needed, sometimes quickly, to turn things around.

Socked by competition. Cabot Hosiery Mills had great success in its first 20 years, making private-label socks for retailers like JCPenney and Gap.

But in 2000, sales began falling as stores began buying cheaper socks from Chinese vendors, said Ric Cabot, co-owner and son of the company's founder.

"We weren't paying as close attention to our financial indicators as we should have," he said. By 2003, sales were down by more than half. Cabot cut his staff of 70 to 30.

"We needed to create a product that would basically save us," he said.

Cabot didn't have to look far to find a market niche his company could fill. An avid hiker active in several sports, he had a hard time finding high-quality socks for those activities.

So Cabot combined survival know-how and personal interest, and Darn Tough Vermont, a line of socks for outdoor activities and sports, was born.

It took about two years for the socks to hit the market. Now they can be found in many stores that sell outdoor gear. The brand has been successful enough that the company has grown to 150 workers, and annual sales have quadrupled from 2003's low. A small private-label operation continues.

"Almost going out of business, if you leverage it properly, is one of the best experiences to emerge from, because you see the mistakes, the warning signs, a lot sooner," Cabot said. "You try to take a longer-term view of the business - not just what I need to do today, but what will ensure the best tomorrow?"

Focused on product. Arnulfo Ventura and Jose Domene were getting MBAs at Stanford University when they began selling aguas frescas, beverages made from plants like tamarind and hibiscus that are popular in Mexico. They called their product Bonadea and ordered the first batch of 3,000 bottles by the time they graduated in June 2008.

Over the next year, they attracted enough money from investors to increase production, working up to a run of 15,000 bottles. They got a distribution company in the Los Angeles area. Bonadea was in hundreds of convenience and small grocery stores.

But priced between $2.49 and $2.69 a bottle, Bonadea didn't sell as well as they had hoped. Sales were up by hundreds of percentage points from the first batch, but Ventura expected an increase in the thousands by then.

"The brand wasn't moving off the shelf," he said.

In January 2010, Ventura and Domene showed Bonadea to focus groups. They realized they had to change the packaging (it looked like Snapple's) and the name (no one knew what it meant). Eventually, they called the drink Coba, after a Mayan city, and decorated the labels with images of flowers and fruit.

Coba is now sold at Whole Foods in Florida and the West, and at delis and restaurants. Now priced at $1.99 to $2.50, sales are up five times from Bonadea's peak.