A Crash Course in Social Entrepreneurship, Part 1

Every week, I talk with lots of entrepreneurs, aspiring entrepreneurs, or students of entrepreneurship. I recently had a lengthy correspondence with a group of California MBA students, which inspired me to pull together some of the more common questions and answers in this two part series. This first set of questions is focused on getting started in the social entrepreneurship world.

How did you start?
Step one to starting Honest Tea was a series of e-mails with my cofounder, Barry Nalebuff, about six months before we launched. He was a former professor of mine at the Yale School of Management, and we'd had some lively exchanges about the beverage industry when I was his student. Through e-mails and telephone conversations, we evolved the concept for Honest Tea. I also began talking to everyone I knew who had any connection to natural foods, food service, or the beverage industry. I gave them samples of the drinks we were brewing in my kitchen, and brainstormed ideas with anyone who would listen.

How did you raise capital?
We first raised $500,000 to get off the ground. That wasn't too difficult because we raised it from people who couldn't say no -- ourselves, our parents, relatives, and roommates. The hardest money to raise was the $1.2 million in 1999, when we took in money from people we didn't know.

How hard was it to sell the product?
We were very lucky because the buyer at Fresh Fields (later Whole Foods) got it. We clearly showed what we were selling was different from anything else he was selling, so he was willing to give us a try.

What can go wrong?
For us, production was a huge challenge. I hired a consultant who was a friend of a friend. He helped us figure out how and where to make our product. Once the product was made, the biggest challenge was distribution. At first, we did our own distribution, which was brutal, but helped me understand how it worked. Then we started to work with all kinds of distributors: cheese distributors, corned beef distributors, even charcoal distributors, until at last we developed relationships with natural food and beverage distributors. We struggled and learned through trial and error.

What makes a successful business model?
It helped Honest Tea that we had a strongly differentiated product and a very clear brand concept. So, we had a good start; after that it is all hard work.

Any do-overs?
We probably waited too long to hire professional operations staff. We could have saved ourselves lots of money and sleepless nights if we had gotten some knowledgeable folks in earlier. But, even the mistakes were part of the journey and we learned from them.

The dream?
We seek to have Honest Beverages be available wherever beverages are sold. We want to be the leading organic beverage brand.