Most university students can’t wait for summer break to escape the inquiring glances and intense grilling from their professors. But one Yale University School of Management grad Seth Goldman didn’t run away from his professors; he started a business with one.
Goldman met economics and management professor Barry Nalebuff during his second year of business school. A case study of the beverage industry led to an intense discussion about the lack of variety in beverage sweetness levels. After graduating from Yale, Goldman couldn’t stop thinking about the beverage discussion in Nalebuff’s class. He contacted his former professor and asked him if he was interested in launching a beverage company that offered consumers great taste with reduced sweetness levels.
Nalebuff had returned from a trip to India and was fascinated by the quality of tea there. He wanted to do for tea what Starbucks did for coffee. The two recognized they had their product–iced tea made with premium tea leaves and a teaspoon or two of organic sweetener. They named the company Honest Tea.
While one would imagine the student-professor dynamic would create some challenges in the life of a business, Goldman says it actually paved the way for a more successful company. “When I told my classmates that I was going into business with Barry they were surprised because our personalities are quite different, but actually, we were really complementary,” says Goldman.
In their book, Mission in a Bottle: The Honest Guide to Doing Business Differently–and Successfully, Goldman and Nalebuff show how they make their partnership work.
Nalebuff and Goldman spent a day sitting across from each other at Nalebuff’s kitchen table and hashed out what their roles would be, what each hoped to get out of the business and its timeline. Goldman felt strongly about building an environmentally sustainable company.
“Barry hasn’t really been familiar with the notion of a socially responsible business,” says Goldman. “He came from a more traditional business [background] and I was coming from a nonprofit, public sector background.” Getting his business partner on board with the notion of sustainability was important to Goldman. “I didn’t want to have to say six months into the company, I’m going to go buy fair trade tea now,” he says with a laugh.
Having a clear understanding of each other’s goals for the business was vital to a strong beginning. So was the agreed upon mission for the company. Both wanted to build an enduring brand.
“This was in 1998 at a time when a lot of people were flipping dotcom companies,” says Goldman. “We weren’t looking to flip this in two or three years.” Only once they felt they were aligned on the big-picture items did they begin to put together a business plan.
While Nalebuff still continued his professor duties at Yale’s School of Business, Goldman had left his secure job at the Calvert Group in Bethesda, Maryland, to start Honest Tea. Goldman became CEO, and was in charge of the day-to-day operations of the business, while Nalebuff took on the role of chairman and strategic advisor.
Goldman and Nalebuff were both outsiders in the beverage industry, something Goldman credits with making their partnership successful.
“If you have one person who really knows the industry and the other who doesn’t, the one who knows the industry can become more of an expert,” says Goldman. Since both partners were new to the industry, they had to learn the ropes together, dissolving the professor-student dynamic which could have made the working relationship more tenuous.
Goldman and Nalebuff were equal equity partners in the business. “If Barry owned twice or three times as much as me, it would have been very easy for me to get resentful and feel I was working for him,” Goldman says.
The equal equity structure helped to downplay the student-professor power dynamic that could have negatively affected the company. “[Because of the equal equity arrangement] there was never a feeling that one of us had more say in how the company would be run,” says Goldman.
Goldman advises young entrepreneurs to find a partner who brings something different to the business. He argues working with Nalebuff, who was in a different life stage, had different access to capital and different experiences to bring to the table made for a more successful relationship.
The two partners also had different strengths. While Nalebuff was great at analyzing finances, Goldman was a better people person and was better able to make sales calls, manage employees, and speak with distributors. Respecting each other’s strengths and relying on them at key times is crucial to Honest Tea’s success.