Honest Tea

Case Study : Honest Tea

Seth Goldman likes to say that his business got started because he was thirsty. A natural-born athlete, Seth was always searching for a satisfying drink to quench his thirst after a tough workout. While there were plenty of sports drinks and sodas he could buy, not to mention water, none of these options ever appealed to him. So he started to experiment.

After he graduated with his MBA from Yale, Seth began concocting fruity beverages in his kitchen as a hobby. But he still was not satisfied. One day he decided to call his old business school professors to discuss the problem. Seth’s professor, Barry Nalebuff, had just returned from India where he had been studying the country’s tea industry. Barry explained that beverage companies who purchased their raw materials from Indian tea plantations did not use whole tea leaves in their manufacturing. Instead they took whatever tea leaves were left over after the quality leaves had been packaged and used for other products, such as tea bags. Seth and Barry had a hunch that they were circling in on an opportunity. Even better, Barry had already come up with a name for a company that would make beverages using top of the line tea leaves. The company would be called Honest Tea- a name that fit well with Barry’s personal interests in social causes. When Seth heard the name, the simmering idea began to boil--it was the perfect name for an all-natural brand that would strive to create healthy and honest relationships with its customers, suppliers and the environment.

Seth took a deep breath, quit his job at Calvert mutual funds, and started brewing batches of tea in his kitchen. Barry kept his teaching job but contributed $200,000 in investment capital and used his contacts to find additional funds. Five weeks after taking the plunge, Seth brought thermoses of tea and a recycled bottle with a mock-up label to Fresh Fields (Whole Foods Markets), a food chain in the Washington, D. C.,...