fstrak/sfvbj/35″/mike1st/mark2nd By BOB HOWARD Contributing Reporter Elliott Balbert says he’s living proof that you can do everything wrong in business and still succeed. Balbert is the founder, president and chief executive of Natrol Inc., a Chatsworth-based company that manufactures natural vitamins and dietary supplements sold under the Natrol brand name in drug store chains and health food stores. By all accounts, Natrol is in great shape. Sales have more than doubled to $40 million in the past year, the company is putting the finishing touches on a new $4 million headquarters and manufacturing plant, a venture capital firm has taken a minority stake and an investment banker is tracking the company with hopes of taking it public some day. But Natrol’s success hasn’t come easy. It has had to cope with a series of setbacks, ranging from Balbert’s ill-planned launch of the company to an explosion that destroyed the factory where 95 percent of Natrol’s products were manufactured. Along the way, it watched sales nearly grind to a halt on one occasion and plummet 90 percent within 90 days on another. Natrol was hanging by such a thin financial thread at one point that Balbert took on a part-time job as a bartender to pay the bills. But Balbert says those setbacks have all taught him lessons. Both he and the business are stronger for having weathered hard times, and because of them, Natrol is prepared to continue its rapid growth in a mushrooming but fiercely competitive industry, he says. After a career in the cosmetics industry in the 1970s, Balbert launched Natrol in 1981 as a cosmetics firm marketing shampoo, conditioner, facial cleanser and facial moisturizer. Recalled Balbert: “I was under-capitalized, had no distribution network, had an ill-designed package, was selling the product at the wrong price and had no marketing plan to speak of. It was a formula for disaster.” After a year of nearly no sales but plenty of sleepless nights, Balbert said, “it was a real struggle just to keep going and pay the rent. I started bartending on the weekends to make ends meet and tried to sell during the week.” Natrol was still going nowhere when Balbert agreed, with little enthusiasm, to help his father market a then-new dietary supplement called a starch blocker. “I agreed to slap a label on it for him and put it under our corporate name,” said Balbert, who was still thinking more about cosmetics. Sales of starch blockers rocketed, and it looked like Natrol would go along for the ride. But about five weeks after Natrol introduced its starch blockers, the U.S. Food and Drug Administration banned all sales of the new dietary supplement. Sales ground to a near standstill again, and Natrol limped along for another year and a half. “We still had no focus,” Balbert said. But then, in early 1984, came a series of successes and setbacks that finally set Natrol on its course. Following a consulting stint with a company marketing an energy supplement, Balbert introduced his own energy formula called Natrol High. It was an instant success. “It was the right product at the right time with the right packaging and the right price,” Balbert said. He followed it with a grapefruit diet supplement in August 1984, and that took off too as did everything else Natrol introduced. “There was a period of about 18 months when we could do no wrong. Every product we introduced became an instant hit,” Balbert said. Then in 1985 came another setback that Balbert says was “probably the biggest single event that set the stage for our success.” At the height of the herbal diet craze, just as Natrol’s sales were booming, the U.S. Senate launched an investigation of herbal weight loss programs. “Our sales melted down in 90 days,” Balbert recalled. “In May of 1985, we hit a new monthly high of $250,000 in sales. Ninety days later, sales were down to $25,000.” Natrol had shipped hundreds of thousands of dollars worth of herbal diet products that distributors and retailers couldn’t sell. It stood to suffer huge losses if it took them back. The company told all of its distributors and customers that, if they couldn’t sell the product or didn’t want it, they could return it and get repaid. That experience taught Balbert two of the most important business lessons he has learned at Natrol. First, repaying the distributors bought him immense loyalty that remains to this day. “I can call any of the distributors we do business with and they will take a product from Natrol, sight unseen, because they know we guarantee it and support it,” he said. Second, he realized that depending so heavily on one product was far too risky. “I look at it now like a funnel with sand going in the top and coming out the bottom. You’ve got to keep pouring more sand in the top than is coming out of the bottom,” he said. The sand in this case is new products. The Natrol line now includes 300 products vitamins, minerals, herbs, hormones and other diet aids and supplements. Balbert said this wide array of products, and Natrol’s strong distribution channels, have kept it on a smooth path for about the past 10 years except for the explosion. A New York contract manufacturer was making 95 percent of Natrol’s products until an explosion destroyed the manufacturer’s factory about five years ago. “Suddenly we found ourselves scrambling around the country to find other manufacturers,” Balbert said. “We couldn’t come up with a company that could provide the quality we wanted and the timeliness we needed, at prices that were competitive. So we decided to do our own manufacturing.” Natrol now makes its products at its Chatsworth headquarters. The company’s solid position in the industry has attracted the interest of the financial community, even though Natrol remains privately owned. Andy McLane, managing director of TA Associates Inc. in Boston, said his company bought a minority stake in Natrol in the fall of 1996 because it sees big potential for growth. “Natrol is one of the leading branded suppliers and has had particularly good success in selling through the mass market and national chain drug stores,” McLane said. He explained that dietary supplements for years were sold primarily through specialty outlets, such as General Nutrition Centers, but supplements have become more of a mainstream product in recent years and are now being sold through national drug chains and mass merchandisers. Russ Landon, senior vice president at the investment banking firm of Adams, Harkness & Hill, said Natrol is a good candidate to go public in the next few years. Landon, who says dietary supplements are a $6 billion industry and growing quickly, says Natrol sells its products under the same brand name in health food specialty stores and mass merchandisers without alienating either. “Normally, companies have a hard time doing that without getting the specialty stores ticked off at them for moving into the mass channels,” Landon said. Landon, McLane and Marie Griffin, editor-in-chief of New York City-based Drug Store News, all see a big future for the dietary supplement industry. “It’s just beginning,” said Griffin, who added that supplements are becoming more and more of a mainstream product because of an aging population that is concerned with health, along with a younger generation of consumers who are interested in a healthy lifestyle. Balbert is betting on the industry’s growth by investing in the new manufacturing plant, where a grand opening is scheduled for June 20.