So, in 1998, Goldman and Nalebuff decided to create a nonalcoholic beverage business—making and selling low-sugar alternative drinks for people like them, using real ingredients. They had evidently hit on an unmet need because soon after Goldman created a prototype of his organic, low-sugar tea, the duo had their first order: for 15,000 bottles.
Yikes. Sometimes good news is too good. They quickly had to figure out not only how to make organic, low-sugar bottled tea in large quantities (discovering problems like the tea becoming cloudy in the bottle), but they also had to think through the issues of starting a rapidly growing business.
What did they do? Goldman got serious. He deleted the solitaire program from his computer—so he wouldn’t get distracted—and started developing a business plan for their fledgling company. You can see and download their original business plan on their website at www.honesttea.com/about-us/our-story.
The original Honest Tea business plan covers everything—the product, the target market, marketing and distribution, management, financials and investment opportunity (not shown online), and more. The concrete details show that Goldman and Nalebuff did their homework and asked themselves some tough questions.
They paid a lot of attention to their target market, and in researching their plan, Goldman and Nalebuff found that the market for soda alternatives—ready-to-drink tea and bottled water—was undergoing explosive growth. They also profiled their target customer: 60 percent female, with a median age of 42, college educated, active, middle-class, and living in an urban area. Details like these help a company create its core marketing message, narrow down which retail stores to pursue, and determine the size of the opportunity—something investors want to know.
Somewhat unusual at that time, Honest Tea’s original business plan also included a “Statement and aspirations for social responsibility.” By working with its suppliers, the young company vowed to improve the environmental and labor conditions of the tea estates from which it sourced its ingredients. After two decades in business, the company’s teas are now all Fair Trade Certified, helping to ensure that workers on tea gardens receive a fair share of profits and have decent workplace standards. And, by buying huge quantities of organic ingredients—nearly 7 million pounds in 2014—the company believes they’ve helped change an industry while improving the environment.
How big did the opportunity turn out to be? In 2015, sales reached a record $178 million. One of their customers was President Barack Obama, who stocked Honest Tea as his favorite drink while in the White House.
In 2008, Coca-Cola invested a 40 percent stake in the company, and bought it three years later, with Goldman at the helm as CEO. Today, Honest Tea is run as an independent unit of the bottling giant yet benefits from Coca-Cola’s distribution power.
As with any business, there were bumps along that road to success. But bumps are easier to deal with when you have a business plan to guide you through them.
Could the company that Goldman and Nalebuff launched with humble beginnings like these have reached such impressive success without having developed a business plan? To be honest, it’s doubtful. Yes, it takes a good idea, a great team, timing, and more, to launch a successful business. But without a roadmap, how do you know where you’re going?
These two men already knew a lot about business, of course. Nalebuff was a Yale Management professor, after all, and Golden had earned a Yale MBA and had worked in finance. For less-seasoned entrepreneurs, business planning becomes even more important. Yet the process doesn’t have to be a daunting one. The planning helps an entrepreneur work through the many facets of their business and create a roadmap to their goals—and to success. ■
1. “Honest Tea Founders Tell Their Story of Not-Too-Sweet Success.” NPR.org. Aug 30, 2013.
questions
1. How does developing a business plan help an entrepreneur when starting a business?
2. When do you think business planning is most crucial? Do you think it’s necessary only when starting a business?
3. What sections of a business plan do you think are the most important? Why?
4. What risks or rewards (if any) did Honest Tea face by including social responsibility in its business plan?
EXERCISE: critical thinking
HOW TO SPEND $25,000
Goal:
Learn to plan where you’ll spend your resources.
What to do:
You run a small café next to your community’s performing arts center. You sell coffee and make your own delicious baked goods: cookies, cupcakes, cake, and pastries. You’re very busy in evenings before and after performances. But business is pretty slow during the day and on nonperformance evenings.
To make more money, you want to attract more of the residents and tourists who frequent in the area during the day. You decide to invest $25,000 to increase sales.
You’ve identified a number of ways you could spend that money and increase revenues:
■ Launch a marketing campaign.
■ Add catering services.
■ Get a food truck.
■ Partner with another local business to supply it (such as a local bookstore).
■ Hire a part-time marketing or sales person.
■ Advertise on social media.
1. How would you divide up the $25,000 and spend it? Go through your list and allot dollar amounts from $0 to $25,000 for each idea. Don’t go over your total $25,000 budget!
2. Explain why you think your decisions are the best choice for your company.
CHAPTER
5
Your Customers and Target Market
Are customers really out there?
A target is something you aim at