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How Method's Eric Ryan is disrupting the vitamin market one gummy at a time

To hear Eric Ryan tell it, fear was the fuel for his two-year-old company, Olly, a line of gummy vitamins and supplements that is reshaping the wellness aisle in major retailers such as Target, CVS and GNC.

After co-founding Method, his wildly successful brand of eco-friendly household and personal-care products, and then selling it to Ecover in 2012, Ryan says he reached a turning point in his life. "I just wasn't scared to go to work anymore," he said. "As an entrepreneur, that fear is what drives me, and I really wanted to start something from scratch again."

Ryan seems to have found his adrenaline rush with Olly. In the process, the serial entrepreneur is proving that with the right shift and focus, even big consumer-product categories like soap and vitamins can be reinvigorated and made relevant again for new audiences. The Olly brand is geared to millennials and has about 35 products that address the health-and-wellness issues they care most about — sleep, stress, good skin and energy. And because the products come in a sweet-tasting gummy form, Ryan figures that consumers are more likely to remember to take them.

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Paul Morigi | CNBC
"For years brands have focused on the ingredients of their products. With Olly we sell the benefit. To me it was such an obvious thing to do that I couldn't understand why no one had done it before." -Eric Ryan, founder of Olly

One of the things that sets Olly apart from other brands trying to disrupt a legacy category is that Ryan has enthusiastically embraced brick-and-mortar retailers as its main selling channel. In fact, he says, less than 10 percent of the company's sales come from online purchases. "If we had focused on Olly.com, the customer acquisition costs, infrastructure and things like free shipping would have required a lot more capital," Ryan said. "Focusing on our retail partners allowed us to reach profitability much faster."

The company broke even in its first year and is now turning a profit. For 2017, Olly is on track to ring up roughly $80 million in retail sales.

Building an iconic brand

The vitamin and supplement market in the United States had sales of nearly $30 billion last year, according to research firm Euromonitor International. And though it's typically among the top three categories in most major drugstores, consumer awareness of specific vitamin and supplement brands is pretty weak.

Ryan, who spent his pre-entrepreneur days in marketing and advertising, attributes that largely to the way these products have traditionally been positioned. "For years brands have focused on the ingredients of their products," he said. "With Olly we sell the benefit. So instead of selling biotin, we sell beauty. Instead of selling melatonin, we sell sleep. To me it was such an obvious thing to do that I can't understand why no one had done it before."

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Though Ryan makes it sound like nothing more than commonsense, the true beginning of Olly was actually quite happenstance. In 2014, while working with Target on its Made to Matter program — a collection of eco-friendly products of which Ryan's Method brand was included — he was having trouble selecting the appropriate brand for the health-and-wellness category. He decided to spend some time in the vitamin aisle at Target. There he witnessed firsthand how confused folks were about what they should be taking and how much. "I guess I looked like I knew what I was doing, because customers kept coming up to me with questions," Ryan recalled. "In the Boulder, Colorado, Target a guy stopped to ask me how much magnesium he should be taking. I figured there might be an opportunity here."

Olly

Ryan started sketching out his idea of what a new kind of vitamin and supplement brand could be. The product name would spell out the benefit it was delivering (the simply named "Sleep," for instance, is Olly's best-selling product). Rather than typical round jars, Ryan's would be square. As for the name, he wanted something friendly. "Everything in this category is either very pharma-sounding or very folksy," he said. Olly sounded like neither of those things, and Ryan says the name "just looked so good on the bottle."

Perhaps most importantly, he wanted the experience of taking a vitamin to be really pleasant for the consumer, so he chose chewable gummies rather than pills.

With his roughed-out idea on 10 PowerPoint slides, Ryan met with Target executives in early 2014. "I was very casual with them, just asking if they thought there was something in the idea," he said. "But on the inside I was hoping they loved it, because I was really excited by what we had."

Target's response: How fast can you get these products on the shelf?

Over the next 14 months, Ryan and his co-founder, Brad Harrington, a former marketing executive at Shaklee — a franchise sales business model for nutritional product sales — put together their team. They hired a chief medical officer to make sure the efficacy of the gummies were on track and began to develop the first 20 products that would debut in Target in April 2015. Ryan found manufacturers in Indiana and Florida.

"There are only a handful of companies in the United States that can do what we wanted to do inside a gummy rather than a pill," he said. Ryan funded the seed round to get the company started. To date, it's raised $11.5 million from a handful of investors, including Obvious Ventures and Base Ventures.

The deal with Target gave the retailer a one-year exclusive to sell the Olly brand. That made working out the kinks a less painful process. For instance, soon after the launch, it became clear to Ryan that two products — one for heart health and another for joint health — were just not resonating with young millennial customers, and they were discontinued. "One of my mottoes in business has always been fail fast and fail cheap," he said. "We were testing products and learning quickly what was working and what wasn't."

Target seems to be happy with that strategy. Christina Hennington, senior vice president of beauty and essentials for the retailer says it has been "very pleased with the [customer] response to Olly."

In addition to Target, GNC and CVS, the Olly brand is now sold in national supermarkets, such as Kroger, Safeway, Albertsons and Stop & Shop. International expansion is up next, though the timing for when that will happen is still uncertain. "Right now we're exactly where we want to be," he said. "Our sales performance has been strong, so we're being careful not to grow too fast."

By Susan Caminiti, special to CNBC.com