July 11th, 2013 Common Bond with Honest Tea
Having co-founder Barry Nalebuff of Honest Tea at Projective Space on July 11 is nothing like what tech startups do, but when the venue opened its doors to a consumer product owner, it tapped into what makes them click together anyway—in other words, you think you can do something you have no experience in doing and become successful at it.
Nalebuff likes to tell his story as a professor at the Yale School of Management who didn’t have any beverage manufacturing experience. What he had in theory was how he shared a passion for the idea of a less sweet, but flavorful beverage with co-founder Seth Goldman. They agreed that there were tons of sugary sweet options and lots of watery drinks, but in 1994, there was nothing in between to fill the void.
Here’s a professor and student with no experience in beverages. It’s a recipe for disaster, but speaking for himself, he thinks he succeeded based on three things—“(my) passion, luck and a degree in economics.”
In February of 1998, Nalebuff and Goldman launched Honest Tea, hitting grocery shelves four months later with its freshly brewed and barely sweetened tea. They landed their first account with Fresh Fields using batches of tea made in Goldman's kitchen. Eventually, tea production was moved to Buffalo, NY. Year One sales: $250,000.
What was almost unheard of is how they made their first sale in 25 days.
A year later, they added more varieties. They launched the First Nation Peppermint, the world’s first organic tea, and Decaf Ceylon, a naturally decaffeinated black tea. They landed new accounts from Whole Foods Markets, Wild Oats, Giant, Harries Teeter and Food Emporium. Year Two sales: $1.1 million. Not bad.
Nalebuff tells the story of how he pitched to Whole Foods. “We had a fake bottle when we pitched it. It wasn’t the real bottle.” What turned out to be most important is how they pitched Honest Tea and how they showed a chart of calories per 8-ounce drink to Whole Foods and Honest Tea’s had fewer calories.”
Presiding over the meetup as if he were in class, Nalebuff asked the audience questions about sugar where a right or wrong answer would allow him to make his point. Nalebuff said a popular tea brand carries 20 teaspoons of sugar, equivalent to the two days’ worth of sugar we all need.
The Eureka moment for him in making the tea drink is the one American beverage manufacturers ignored or took too long to figure out. “Each additional tablespoon of sugar contributes less and less to taste,” he said.
A blind taste later would confirm their confidence for the tea drink.
What Nalebuff may have lacked in terms of running a business, he shows in his knowledge of tea, as evidenced by his visit to India where a slightly paunchier version of himself is shown harvesting tea many years ago. “I could tell high quality tea. It only costs 5 cents a cup. People don’t know good tea is out there. It’s the world’s cheapest luxury good—and the healthiest (to drink).”
For those who want to take a leap in consumer products, Nalebuff suggests having “seasoned management,” those knowing how production and distribution work.
In March 2011, The Coca-Cola Company purchased Honest Tea after an initial 40% investment in 2008, which helped expand the distribution of HONEST® beverages. Today, Honest Tea is run as an independent business unit and our HONEST TEA®, HONEST ADE®, HONEST KIDS®, HONEST SPLASH™, and HONEST Fizz beverages can be found in more than 100,000 stores across United States.
In a profit-driven world, Nalebuff likes to think that they are in a mission-driven business, having created partnerships with like-minded organizations to support various causes:
• In 2003, they launched the first Fair Trade Certified™ bottled tea, and increased its fair trade offerings each year. In 2011, it converted all remaining teas to Fair Trade Certified™, helping to ensure workers on tea gardens receive a fair share of profits, and that tea gardens comply with workplace criteria for equality and fairness.
• In 2012 they split their donation between Susan G. Komen For the Cure® as well as the National Breast Cancer Foundation®.
• Since 2005, Honest Tea has provided financial and in-kind donations to annual Green Festivals.
• When they launched Honest Kids in 2007, they partnered with TerraCycle to launch the Honest Kids Drink Pouch Brigade as a way to divert drink pouches from landfills. Since then, the program has expanded to include pouches, containers, and packaging from other companies as well. For each pouch collected, TerraCycle donates up to $0.03 per pouch to a school or organization, and since 2007 has collected more than 155 million used drink pouches.
Honest Tea’s story is coming out in a graphic book titled “Mission in a Bottle” this September.
The meetup was organized by CommonBond, a student lending community that connects student borrowers and alumni investors to lower the cost of education for students and improve financial returns for investors.