Seth Goldman and Barry Nalebuff on Makin nike air max 1 g Honest Tea
When Seth Goldman and Barry Nalebuff, co founders of Honest Tea, set out to make a tea that they would want to drink, they knew they wanted to create a product that wasn too sweet and build a brand that was socially responsible and environmentally friendly. But they had no idea what it would take to get the tea to market. Their new book, Mission in a Bottle: The Honest Guide to Doing Business Differently and Succeeding, tells the story of their start up in a graphic novel format. Nalebuff is a professor at the Yale School of Management; Goldman, a graduate of the school, is one of his former students. You talk in the book about how you wanted to create a beverage for people like you, who thought most of what was already on the market was too sweet. But what was it about tea that really captured your imaginations, that told you this was the venture you wanted to pursue as entrepreneurs?
Barry Nalebuff: Tea is really one of the world healthiest foods. It full of antioxidants, flavonoids. It interesting; it culturally authentic. There are lots of different varieties. It a truly gourmet experience, and great tea only costs a nickel a cup. So the question is, could we do for tea what Starbucks had done for coffee?
Seth Goldman: On top of that, tea is produced in some of the poorest countries in the world and consumed and enjoyed by some of the wealthiest. That means you have an opportunity to create wealth at the community level, in communities that really need that opportunity. You can do it in a way that isn charity, but that is driven by the market. That means it sustainable. On the one hand, you want to be a socially responsible and environmentally friendly company. But on the other hand, you dealing with customers and their tastes and also a complex distribution network. What did you learn from trying to both serve the mission that you wanted to pursue, but also be a financially sustainable company?
Nalebuff: It would certainly be a whole lot easier if there weren any customers or distributors you had to worry about. We had a lot of foresi nike air max 1 ght, in terms of what we wanted to create [with] the brand. What we had almost no sightline to was what it would take in terms of distribution. We learned very quickly that the beverage business is very dependent on distributors because the product is heavy. You can ship it through the mail, and you certainly can ship it through the Internet. So, we needed feet on the street, and trucks and warehouses, and bottles in warehouses, for them to get off the shelf and in front of consumers. There was a lot of work, and there were a lot of pain points along the way. You couldn get beverage distributors because they had, in some cases, exclusive contracts with other brands.
Goldman: Right. It was just however we could get to the shelf. The traditional beverage distributors really did not give us full consideration because our product wasn as sweet as what they were carrying, and it was a little more expensive. They didn think it was going to work. But when it your company, and you founded it, you feel really personally connected to everything. How do you figure out which is which? Can you give an example from the Honest Tea story that shows that?
Nalebuff: Here a case where we compromised on a little thing. We liked the idea of having labels that were front and back, like you would see on a wine bottle or on high end vinegar. You can easily mark the product. It absolutely beautiful. But the problem is that the machines that put on front and back labels are rarer. They use more time, go slower. Sometimes people put on the wrong back label or front label. Labels can be put on upside down. They slip off in coolers. Even if we might like to have separate front and back labels, it really wasn worth it. So, we went to a wrap around label. Not quite as elegant, but a whole lot simpler and less expensive. There was tremendous pressure in the marketplace to have a sweeter drink. The beverage distributors and even some stores said, take this product if you make it sweeter. We just don think the market ready for that. The short term opportunity would have been to make it sweeter. But we knew in the long term, in order to create something meaningful, we really needed to stick to that less sweet taste profile. First of all, in terms of the R tea is the world second most popular beverage. It really is en nike air max 1 joyed by almost every culture, so there was no shortage of tea varieties. Our challenge was to, number one, make the tea in a way that could taste good cold. And could we make a formulation that would be accessible to a large part of the population? Then, could we make the packaging and the flavor profile something that would attract people? We had a [tea called] Peach Oo la long, which [is] an oolong tea. Then we got an image of Opus the Penguin from County from one of our investors, Berkeley Breathed, the comic book designer. That one really worked.
Then, we had a product using a honeybush tea from South Africa. We named it after the community that sourced it, Harlem Honeybush, and we made it unsweetened. That one didn work. People didn know what honeybush was. They didn know anything about this community. The normal association with Harlem is Harlem, New York, and that not a place that evokes images of tea gardens. I would say we got a better feel for the market. But it was a process.
is produced in some of the poorest countries in the world and consumed and enjoyed by some of the wealthiest. That means you have an opportunity to create wealth at the community level, in communities that really need that opportunity. Did finding ingredients and materials that allow you to do that get easier along the way, as those things became more popular and more of a trend among food and beverages in general?
Nalebuff: Exactly. As we started out, there wasn enough organic tea produced in the world to supply what we doing today. The good news is that the world has caught up, in terms of consumers and producers, to what consumers are demanding. Barry, I also enjoyed the story when you took your daughter on a college tour, and you kept stopping at Whole Foods to check on the tea displays.
Nalebuff: Sure enough, there was that one person who was interviewing her for college who was drinking [Honest Tea] at the same time, which still is remarkable. It a lesson that some entrepreneur nike air max 1 s don really get. They should have their product with them at every possible moment, because you just never know who you going to run into. If the right opportunity is there, and you don have your product, you not going to get a second chance.
Goldman: It is one thing when you opportunistic, but I had entrepreneurs come and talk to me about a food business they trying to launch. The first question I going to ask them is, does it taste, or what does it look like? They say, don have any samples with me. The nice thing about the food and beverage business is it not theoretical. It is tangible. You selling a real product. You have always got to be able to have that tangible product to show people. In our case, we really weren great at running a bottling plant. Although we had lots of good reasons to own one, at the end of the day, it was a distraction. It took away our time and our money In the end, when we sold it, we continued producing at the same bottling plant. It just wasn our headache, and it wasn our ownership, and it wasn our losses.
Goldman: Well, it was really important the way we structured the deal. When Coke first invested, they were a minority investor. That meant they had a seat at the table, but we were still running the company. They certainly helped us grow. But they also got to see, number one, how we worked together, and number two, how we continued to build a brand. When Coke had the chance to buy the company, they chose to exercise that option. But they also chose to keep the structure in place because it was working. That same structure has stayed in place through today.
Nalebuff: I don think we did that with an intention in mind. We were having so much fun, and we wanted to continue being in charge, growing the brand and bringing it closer to a hundred million [in sales]. But the fact that we had control for three years really allowed [Coke] to get comfortable with our style and how we were doing things. As opposed to them coming in and being able to say, we going to change everything today, because this is how it done. They got to appreciate that, no, the way it was was just great.