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The Yale Alumni Magazine is owned and operated by Yale Alumni Publications, Inc., a nonprofit corporation independent of Yale University. The content of the magazine and its website is the responsibility of the editors and does not necessarily reflect the views of Yale or its officers. |
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Cruise through the supermarket or the menu of a favorite diner, and you’re confronted with an almost infinite number of beverage choices. There’s Coke and Pepsi, Snapple and Nestea, Starbucks and Green Mountain, Evian and Poland Spring, to name a few of the better known brands. There seems to be something out there to quench every thirst, and the possibility that an entrepreneur could invent a successful new product is akin, said an industry analyst, to climbing Mount Everest. Still, adventurers have reached that summit, and in 1998, Barry Nalebuff, the Milton Steinbach Professor of Economics and Management at the School of Management, and Seth Goldman '95MPPM, his former student, began their own uphill climb. The partners called their venture Honest Tea, and their hope was to capture a portion of the $13 billion tea business with their brand of bottled, barely sweetened beverages. “People told us the market was saturated, but we felt that something was missing,” said Goldman, who, after graduation, worked for the Calvert Group, a marketer of “socially responsible” mutual funds. At SOM, Goldman had taken a course with Nalebuff in which a case study of Coke versus Pepsi led to a discussion of potential niches for new products. Devotees of sweet, high-calorie drinks—“16-year-old boys with big bladders and infinite metabolism rates,” says Nalebuff—were already well served, as were people who desired no-calorie beverages. But if you wanted to avoid artificial sweeteners or you found the taste of water boring, “there was nothing out there for you,” says Goldman, who now calls himself the company’s “TEO.” In 1997 at a Manhattan café after a summertime jog, Goldman discovered that there was nothing out there for him, either. But then he remembered the class discussion and called his former professor, who, fortuitously, had just produced a case study of the tea industry in India. “We saw a huge opportunity,” said Goldman, and after the partners chipped in their own money and raised more than half a million dollars from friends and family, the company, which is based in Bethesda, Maryland, started bottling teas that run the gamut from a traditional Assam—a 17-calorie black tea sweetened with maple syrup—to an eclectic brew called Gold Rush, a cinnamon-rich, 9-calorie herbal blend in which the tiny amount of sugar doesn’t overwhelm the tea’s complex flavors. While some critics have complained that they miss the sweetness, others have praised the product line, which now includes eight varieties of bottled tea and a line of tea bags, as unusually tasty and refreshing, even addictive. There are certainly customers out there, for the company racked up more than $3 million in sales during the last fiscal year, and recently began to turn a profit. It is also turning heads with its socially responsible business practices. “Honest Tea is not an accidental name,” says Nalebuff. The partners have put a premium on recycled packaging and quality ingredients, and, in bringing a tea called “First Nation” to market, they demonstrated how a business can help alleviate poverty. “We buy our peppermint for the tea from a company run by Crow Indians,” says Goldman, who spent months on the reservation overcoming their fears of exploitation. In a modern business success story, the Crows make money, the company does well, and consumers can feel good about what they drink. “We’ve taken a theory and turned it into reality,” says Nalebuff, adding that even the University benefits. The partners have pledged one percent of their equity to the Annual Fund. |
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©1992–2012, Yale Alumni Publications, Inc. All rights reserved. Yale Alumni Magazine, P.O. Box 1905, New Haven, CT 06509-1905, USA. yam@yale.edu |
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