Global edition Entrepreneurship Starting and Operating A Small Business Fourth edition Steve Mariotti • Caroline Glackin This page is intentionally left blank ENTREPRENEURSHIP: STARTING & OPERATING A SMALL BUSINESS Global Edition # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM ENTREPRENEURSHIP: STARTING & OPERATING A SMALL BUSINESS Fourth Edition Global Edition Steve Mariotti • Caroline Glackin Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM Vice President, Business Publishing: Donna Battista Editor-in-Chief: Stephanie Wall Acquisitions Editor: Dan Tylman Program Manager Team Lead: Ashley Santora Program Manager: Claudia Fernandes Editorial Assistant: Linda Albelli Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Executive Product Marketing Manager: Anne Fahlgren Field Marketing Manager: Lenny Ann Raper Senior Strategic Marketing Manager: Erin Gardner Project Manager Team Lead: Judy Leale Project Manager: Ilene Kahn Operations Specialist: Diane Peirano Creative Director: Blair Brown Senior Manufacturing Controller, Global Edition: Trudy Kimber Manager, Media 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typographical errors Changes are periodically added to the information herein Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time Partial screen shots may be viewed in full within the software version specified Trademarks Microsoft® Windows®, and Microsoft Office® are registered trademarks of the Microsoft Corporation in the U.S.A and other countries This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2016 The rights of Steve Mariotti and Caroline Glackin to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Entrepreneurship: Starting and Operating A Small Business, 4/e, Global Edition, ISBN 9780-133-93445-8, by Steve Mariotti and Caroline Glackin, published by Pearson Education © 2016 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means, electronic, mechanical, photocopying, recording or otherwise, withouteither the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, LondonEC1N 8TS All trademarks used herein are the property of their respective owners.The use of any trademark in thistext does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-09741-8 ISBN 13: 9781-292-09741-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Typeset by S4Carlisle Publishing Services in New Aster Ltd, 10.5 pt Printed and Bound by CPI Inkjet # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM Special thanks to Shelby Cullom Davis Also thanks to Kathryn Davis, Shelby M C Davis, Kimberly La Manna, Abby Moffat, and Diana Davis Spencer —Steve Mariotti To my children, Elise and Spencer, whose support and love are essential parts of this book To my parents, Howard and Maria Wiedenman, who truly understood the importance of education My love and gratitude —Caroline Glackin # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM Brief Contents UNIT Entrepreneurial Pathways 25 Chapter Cash Flow and Taxes 310 Chapter Entrepreneurs Recognize Opportunities 26 Chapter 10 Financing Strategy & Tactics 340 Unit Show Me the Money: Finding, Securing, and Managing It— Lee’s Ice Cream 370 Chapter The Business Plan: Road Map to Success 58 Honest Tea Business Plan 89 Chapter Creating Business from Opportunity 116 Unit Entrepreneurial Pathways: SPANX—Idea to Entrepreneurial Opportunity 147 UNIT Integrated Marketing 151 Chapter Exploring Your Market 152 Chapter Developing the Right Marketing Mix and Plan 180 Chapter Smart Selling and Effective Customer Service 220 Unit Integrated Marketing: Kitchen Arts & Letters, Inc.—An Independent Bookstore Defies Industry Odds 243 UNIT Show Me the Money: Finding, Securing, and Managing It 247 Chapter Understanding and Managing Start-Up, Fixed, and Variable Costs 248 Chapter Using Financial Statements to Guide a Business 274 UNIT Operating a Small Business Effectively 375 Chapter 11 Addressing Legal Issues and Managing Risk 376 Chapter 12 Operating for Success 408 Chapter 13 Management, Leadership, & Ethical Practices 440 Unit Operating a Small Business Effectively: ONLC Training Centers—Virtual IT Training in a Classroom 477 UNIT Cashing in the Brand 481 Chapter 14 Franchising, Licensing, and Harvesting: Cashing in Your Brand 482 Unit Cashing in the Brand: Honest Tea— From Start-Up to Harvest 501 Appendix Appendix Appendix Appendix Sample Student Business Plan 507 BizBuilder Business Plan 535 Resources for Entrepreneurs 543 Useful Formulas and Equations 549 Glossary 551 Index 557 # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No Starting and Operating a Small Business, 4e A01_MARI7411_04_GE_FM.indd Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 5:47 PM www.freebookslides.com 84 UNIT 1: Entrepreneurial Pathways Exhibit 2-7 Business Plan and Venture Competitions for Undergraduate and Graduate Students (continued) Competition Host/Sponsor Web Site MIT Clean Energy MIT $100K Entrepreneurship Competition McGinnis Venture Competition MIT, U.S Department of Energy, NSTAR MIT http://cep.mit.edu http://wordpress.mit100k.org Carnegie Mellon University New Venture Championship NYC Next Idea Competition OFC Venture Challenge Oh-Penn for Business: College Business Plan Competition Rhode Island Business Plan Competition Rice Business Plan Competition Spirit of Enterprise MBA Business Plan Competition Student Venture Open TiE International Business Plan Competition Utah Entrepreneur Challenge Wake Forest Elevator Corp West Virginia Statewide Collegiate Business Plan Competition University of Oregon Columbia University Clark Atlanta University Grove City College http://www.mcginnisventurecompetition com http://www.oregonnvc.com http://www.nycedc.com http://www.ofcvc.org http://gccentrepreneurship.com University of Rhode Island Rice University University of Cincinnati http://ri-bizplan.com http://www.alliance.rice.edu http://www.uc.edu University of San Diego The Indus Entrepreneurs http://www.wbtshowcase.com https://www.tie.org University of Utah Wake Forest University West Virginia University http://www.uec.utah.edu http://www.mba.wfu.edu http://www.be.wvu.edu Chapter Summary Now that you have studied this chapter, you can the following: Describe what a feasibility analysis is and choose when to create one The feasibility analysis essentially tests a business concept for viability through: • product and/or service feasibility, • market and industry feasibility, and • financial feasibility Prepare a Business Model Canvas and make a visual representation of the nine facets: • Key partners • Key activities • Key resources • Value propositions • Customer relationships # 153756 Cust: Pearson Au: Mariotti Pg No 84 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 84 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com CHAPTER 2: The Business Plan: Road Map to Success 85 • Channels • Customer segments • Cost structure • Revenue streams Identify primary business plan contents • the story of what the business is and will be, • all costs and a marketing plan, • a description of how the business will be financed, and • an estimate of projected earnings Summarize the various purposes of a business plan and the audiences for one • A business plan is used by entrepreneurs to organize their thoughts before starting a business and to determine business viability • It can be used to raise money from investors and lenders Almost always, bankers and other potential investors will refuse to consider funding an entrepreneur who does not have a business plan • It can help guide the operation of the business Differentiate the components of a business plan The parts of a business plan include a cover page; table of contents; executive summary; mission, vision, and culture; company description; opportunity analysis; marketing strategy and plan; management and operations; financial analysis and projections; funding request; and exit strategy Recognize and demonstrate proper development and formatting of a business plan A solid, viable business plan that is sloppy and filled with errors may be rejected on that basis alone The business plan should be well organized, neatly presented, and written in correct English Key Terms advertising asset balance sheet breakeven point business model business plan cash flow statement competitive analysis culture direct marketing elevator pitch environmental analysis feasibility analysis income statement industry analysis initial public offering (IPO) liability marketing mix marketing plan mission mission statement net worth owner’s equity profit and loss statement (P&L) proof of market public relations publicity target market vision # 153756 Cust: Pearson Au: Mariotti Pg No 85 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 85 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com 86 UNIT 1: Entrepreneurial Pathways E n t r e p r e n e u r s h i p P o r t fo l i o Critical Thinking Exercises 2-1 Shawn is creating a business that provides advertising on public restroom stall doors He is funding the project from his personal savings of $5,000 and does not expect to use any outside financing Should he create a business plan? Why or why not? 2-2 Charity and Devon are planning to license technology from NASA that would make it impossible to accidentally lock a child in a car The technology is complex, and the market analysis and financial assumptions take up a lot of pages The two women have written a 63-page business plan Explain your concerns about the plan in light of the chapter text 2-3 What factors make the difference between a good business plan and an excellent one? 2-4 Visit an Internet shopping site, such as the Home Shopping Network (http://www.HSN.com) or QVC (http://www.QVC.com) Select five products for sale that you find interesting or unusual Make a list of the products and your explanation of the market opportunities they reflect 2-5 Explain how this statement applies to business plans: Errors of omission can sometimes be greater than errors of commission Key Concept Questions 2-6 Explain why a prospective business founder might want to create a feasibility study or Business Model Canvas before developing a complete business plan 2-7 How can spending time researching and writing a business plan save an entrepreneur time and money in the short and long term? 2-8 What are the parts of a Business Model Canvas? How can the entire canvas assist an entrepreneur? 2-9 Explain why the executive summary is the most important section of any business plan 2-10 One mistake entrepreneurs make in their business plans is that of only including an income statement What other financial statements should be incorporated and why? 2-11 Print an assignment, or any body of text, with 1-inch margins, double spaced, using 12-point Times New Roman Then, print the same document with 0.8-inch margins, single spaced, using a 10-point Arial typeface Which is easier to read? Why? How would this relate to a business plan? 2-12 Name three categories of investors/lenders that might have an interest in your business plan 2-13 Why is it important to identify a business’s culture from the beginning? # 153756 Cust: Pearson Au: Mariotti Pg No 86 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 86 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com CHAPTER 2: The Business Plan: Road Map to Success 87 Application Exercises 2-14 Prepare a Business Model Canvas for Honest Tea based on the business plan included at the end of this chapter 2-15 Call and visit an entrepreneur in your community to discuss business plans a Ask whether he or she wrote a business plan before starting the business Since then? b If the owner did write a plan, for what has it been used? c If the owner did not write a plan, why not? d Did the owner have any assistance in writing or reviewing the plan? e If so, what was the source of assistance? Exploring Online 2-16 Find a business plan on the Internet Examine it to see whether it follows the guidelines provided in this text Use a highlighter to mark the sections of the plan that are present Then, make a list of missing or incomplete sections Indicate how it does/does not follow the rules for formatting and content Is the plan viable? Why or why not? Would you invest in it? Why or why not? In Your Opinion 2-17 If an entrepreneur presents a business plan that an investor believes is deliberately vague and has provided inflated financial statements, what should that investor do? # 153756 Cust: Pearson Au: Mariotti Pg No 87 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 87 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No 88 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 88 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com Honest Tea Business Plan # 153756 Cust: Pearson Au: Mariotti Pg No 89 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 89 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No 90 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 90 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com Honest Tea Business Plan for 1999 December 1998 4905 Del Ray Avenue, Suite 304 Bethesda, Maryland 20814 Phone: 301-652-3556 Fax: 301-652-3557 E-mail: sethandbarry@honesttea.com # 153756 Cust: Pearson Au: Mariotti Pg No 91 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 91 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com This page is intentionally left blank # 153756 Cust: Pearson Au: Mariotti Pg No 92 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 92 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com Table of Contents Mission Statement 94 Executive Summary 95 Company Story 95 The Product 96 The Taste 96 Low in Calories 96 Health Benefits of Brewed Tea 97 Cultural Experience of Tea 97 Flagship Line of Flavors 98 Production and Manufacturing 98 Market Opportunity 99 Beyond Snapple—The Emerging Market for Quality Bottled Tea 99 Profile of Target Customer 100 Market Research 101 Market Response 101 Marketing and Distribution 103 National Natural/Specialty Foods Channels 104 Higher End Food Service 104 Promotion 104 Packaging and Pricing 104 International Markets 105 Product Development and Future Products 105 Management 105 President & TeaEO 105 Chairman of the Board 106 Brewmaster 106 National Sales Director 106 Retail Sales Manager 106 Consultants and Advisors 106 Statement and Aspirations for Social Responsibility 107 Financial Statements—Year-to-Date and Projections 107 The Investment Opportunity 114 The Offering 114 Financing History 114 Exit Strategies 114 Investment Risks 114 Competitive Advantage 114 A Parting Thought 115 # 153756 Cust: Pearson Au: Mariotti Pg No 93 and Operating a Small Business, 4e M02_MARI7411_04_GE_CH02.indd 93 Starting Title: Entrepreneurship: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4CARLISLE Publishing Services 06/04/15 10:54 AM www.freebookslides.com B u s i n e ss ss Plan 94 M02_MARI7411_04_GE_CH02.indd 94 Mission Statement Honest Tea seeks to provide bottled tea that tastes like tea—a world of flavor freshly brewed and barely sweetened We seek to provide better-tasting, healthier teas the way nature and their cultures of origin intended them to be We strive for relationships with our customers, employees, suppliers and stakeholders which are as healthy and honest as the tea we brew 06/04/15 10:54 AM www.freebookslides.com 95 Executive Summary Honest Tea, a bottled iced tea company, has completed a strong summer of sales in the midAtlantic region and is now raising capital to fund the brand’s expansion across the United States as well as overseas Since the all-natural tea first hit the mid-Atlantic market in June of 1998, Honest Tea has developed a loyal following of customers who have made the product the best-selling tea in its largest account, Fresh Fields/Whole Food Markets, significantly outselling Snapple and the Whole Foods 365 brand In addition to success in retail channels, Honest Tea has also been warmly received in food service channels Toward the end of the summer and through the fall the company continued to penetrate large supermarket chains and is in the process of finalizing a national network of brokers and distributors for 1999 In September 1998 the company hired two sales managers, each of whom brings more than 15 years of experience and contacts to the business Although there was an often painful and occasionally costly product development phase, the company has now perfected the brewing and production process to the point where it can produce several thousand cases in one shift with the desired consistency In early 1999 the company will add a West Coast site to its current East Coast production site In addition, the company will be implementing steps to consolidate its packaging operation which will widen the per case profit margin The company has demonstrated an ability to gain free media coverage, including stories in the Washington Post, the Wall Street Journal, and Fitness Magazine It has also cultivated a loyal customer base among some of the country’s most influential celebrities which it intends to publicize at the appropriate time It has just entered into a contract with a well-recognized public relations firm, which has demonstrated its success with several early-stage companies Finally, the company has finalized a partnership with a Native American tribe that will position Honest Tea to emerge as a leader in the socially responsible business movement Honest Tea is looking to raise up to $1.2 million in equity capital to finance the national distribution of the product as well as the introduction of two new flavors and international sales Company Story Honest Tea is a company brewed in the classic entrepreneurial tradition After a parching run through Central Park in 1997, Seth Goldman teamed up with his Yale School of Management professor, Barry Nalebuff, to reignite their three-year old conversation on the beverage industry While at Yale Goldman and Nalebuff had converged on the opportunity in the beverage market between the supersweet drinks and the flavorless waters The energy they share around the idea of a less-sweet beverage leads to several marathon tea-brewing sessions Their conversation is fueled in part by their extensive travels through tea-drinking cultures such as India, China and Russia As ideas and investors for the company gather critical mass, Seth takes the dive He leaves his marketing and sales post at Calvert Group, the nation’s largest family of socially and environmentally responsible mutual funds, and launches Honest Tea out of the guest room in his house Using five large thermoses and label mock-ups, he sells the product to the eighteen Fresh Fields stores of the Whole Foods Market chain Once the tea has been manufactured, the company moves into a small office and distributes tea out of U-Hauls until other distributors start carrying the product By the end of the summer, Honest Tea has become the best-selling tea throughout the Fresh Fields chain and has been accepted by several national supermarket chains and distributors M02_MARI7411_04_GE_CH02.indd 95 Business Plan Unlike the sweetened tea drinks made from concentrate or powder which currently dominate the $2 billion bottled tea market, Honest Tea is brewed with loose leaf tea and then barely sweetened with pure cane sugar or honey The product is poised to take advantage of the rapid growth in the bottled tea, bottled water, and natural food markets, as well as the developing “tea culture” in the United States It also has potential to tap into the large market of health-conscious diet soda drinkers The target audience is an emerging subset of the population, which seeks out authentic products and is attuned to global and environmental issues 06/04/15 10:54 AM www.freebookslides.com 96 The Product The Taste: Bottled tea that tastes like tea, freshly brewed and barely sweetened B u s i n e ss ss Plan Somewhere between the pumped-up, sugar-saturated drinks and the tasteless waters, there is a need for a healthier beverage which provides genuine natural taste without the artificially concocted sweeteners and preservatives designed to compensate for lack of taste Honest Tea allows people to enjoy the world’s second most popular drink the way hundreds of civilizations and nature intended it to be Tea that tastes like tea—A world of flavor freshly brewed and barely sweetened The concept of Honest Tea is as direct and clear as the tea we brew—we start with select tea leaves from around the world, then we brew the tea in spring water and add a hint of honey or pure cane sugar Finally, we filter the tea to produce a pure genuine taste that doesn’t need a disguise Unlike most of the bottled teas in the marketplace, Honest Tea is not made with bricks of tea dust, tea concentrate, or other artificial sweeteners or acids The tea has no bitter aftertaste or sugar kick, and does not leave a syrupy film on the drinker’s teeth To make a comparison with wine, today’s leading iced teas are like jug wine and Honest Tea is like Robert Mondavi Opus One But unlike fine wine, premium bottled tea is quite affordable, usually priced under $1.50 for 16 ounces Although taste is the primary benefit of drinking Honest Tea, the product has three other benefits which enhance its acceptance and marketability: Low in calories: A 12-ounce serving of Honest Tea has 17 calories, dramatically less than other bottled teas or comparable beverages We have found that the low-calorie profile of Honest Tea makes the drink attractive to three key audiences – 1) Disenchanted bottled tea drinkers who think the drinks are too sweet, 2) Bottled water drinkers who long for taste and variety and 3) diet soda drinkers who are interested in a low-calorie beverage that doesn’t contain artificial sweeteners such as Nutrasweet The following table illustrates the difference between Honest Tea and the rest of the beverage market: Calories per 8-ounce serving Ocean Spray CranGrape Starbucks Frappucino Nantuckt Nectrs Pnpple Orng Guva Fruitopia Fruit Passion Tropicana Pure Premium Snapple Lemon Coca-Cola AriZona SoBe Oolong Mistic Lipton Lemon Tradewinds Honey w / Ginseng Tazo Tazoberry Nestea Honest Tea M02_MARI7411_04_GE_CH02.indd 96 20 40 60 80 100 120 140 160 180 06/04/15 10:54 AM www.freebookslides.com 97 Malibu Teaz is a company focused on lightly sweetened herbal tea, 35 calories for an ounce serving The products seem to have limited distribution and the label, which features a topless mermaid, seems designed to cater to a different clientele than Honest Tea The Republic of Tea is a well-established producer of loose leaf teas which has recently begun selling unsweetened bottled tea exclusively through its catalogue and premium restaurants The cost of a four-pack in the catalogue is $15.00, or $3.75 for a 17 ounce bottle We believe that this price is not viable in retail channels and have spoken with several disillusioned distributors whose experience confirms that assumption Even if the Republic of Tea changed its sales strategy, we still see room for more than one player in the low-calorie tea market We also think the modest amount of natural sweetener in Honest Tea helps create a superior flavor One other brand that can be considered competition is Tazo, which presents itself as “The reincarnation of Tea." While Tazo is enjoying some success in natural foods channels, we feel that Honest Tea is different from Tazo in three important ways: first Honest Tea is genuine tea whereas Tazo is usually tea mixed with juice or other sweeteners, (usually 80 calories for an 8-ounce serving) Secondly, Tazo’s packaging, with its mysterious symbols and discussion of “the mumbled chantings of a certified tea shaman” is designed to reach a New Age audience In contrast, the colorful art on the Honest Tea labels are accessible to a wider audience, offering a more genuine tea experience Finally, Tazo’s price point is significantly higher than Honest Tea in supermarket channels, selling for $1.69 versus Honest Tea’s price of $1.19 Where the two brands have competed head-tohead, Honest Tea has significantly outsold, and in many cases, eliminated Tazo from the shelf Our response to Tazo’s “reincarnation of tea” is that tea doesn’t need to be reincarnated if it is made right the first time Health benefits of brewed tea: The curative properties of tea have been known for thousands of years Because Honest Tea is brewed from genuine tea leaves it imparts many health benefits not found in tea-flavored drinks In addition to serving as a digestive aid, tea has powerful antioxidants, which impair the development of free radicals which contribute to cancer and heart disease The antioxidants in green tea are believed to be at least 100 times more effective than Vitamin C and twenty-five times better than Vitamin E at protecting cells and DNA from damage believed to be linked to cancer, heart disease and other potentially life-threatening illnesses Business Plan There are three other players in the less-sweetened bottled tea market that can be considered among the competition for Honest Tea: TeJava, Malibu Teaz and The Republic of Tea All three brands are currently based and primarily focused on the West Coast We are heartened by their existence because it confirms our belief that there are untapped opportunities in the beverage market, particularly on the East Coast, where none of the new entrants has any significant presence TeJava, which is enjoying a warm reception in California, is a mild-tasting, zero-calorie unsweetened tea produced by Crystal Geyser that comes in only one flavor We believe this product, which has been described by a beverage consultant as “water with a tea aftertaste,” would be more flavorful if it were barely sweetened While TeJava clearly competes with our product, we believe there is room for more than one product in the low-calorie tea marketplace We also believe that Honest Tea has an edge over TeJava because our drinks are more flavorful and come in a wider variety of flavors Cultural experience of tea: Each Honest Tea flavor is brewed based on a recipe perfected over generations in a specific region of the world As a result, drinking Honest Tea becomes a cultural experience, from the genuine tastes to the distinctive international art and information on the label While some bottled teas seek to cloak themselves in a cosmopolitan mantle by including exoticlooking drawings on the label, the front of each Honest Tea label features authentic art from the culture of origin M02_MARI7411_04_GE_CH02.indd 97 06/04/15 10:54 AM www.freebookslides.com 98 Flagship line of flavors Our flagship line of teas come from four different continents: Kashmiri Chai – The people of Kashmir have mixed spices into their chai for generations Our recipe is made with spring water, premium tea leaves, crushed cardamom, cinnamon, orange peel, cloves, pepper, ginger, malic acid and a touch of sucanat evaporated sugar cane juice Approximately one third the caffeine of coffee B u s i n e ss ss Plan Black Forest Berry – Our Black Forest Berry tea is a fruit infusion made with spring water, hibiscus, currants, strawberries, raspberries, brambleberries, elderberries, and a touch of unrefined organic cane sugar Caffeine-free Moroccan Mint – Our Moroccan Mint is a tightly rolled green tea from China blended with a generous amount of peppermint, brewed in spring water with citric acid and a touch of white clover honey Approximately one fourth the caffeine of coffee Gold Rush – Our Gold Rush tea is an herbal infusion made with spring water, rooibush, rosehips, chamomile, cinnamon, peppermint, ginger, orange peel, malic acid, and a touch of raw cane sugar, and natural flavors Caffeine-free Assam – These golden-tipped flowery leaves from the Sonarie Estate gain their distinctive taste from being picked as tender leaf buds at the height of the season Brewed in spring water with Vitamin C, malic acid, unrefined organic cane sugar, and a hint of maple syrup Approximately one half the caffeine of coffee In early 1999 we will be introducing two new teas: Decaf Ceylon – In response to feedback from more than 500 sampling events where we continually heard requests for a decaffeinated black tea, we will be introducing a Decaf Ceylon with lemon grass The label for this tea features original art which captures the cultural and relaxing attributes of the tea First Nation’s Peppermint – After months of negotiation and a consultation with the tribal elders, we have developed an organic herbal tea in conjunction with a woman-owned company based on the Crow Reservation in Montana This tea is exciting not only for its flavor but also for the partnership we have developed with the tribe In addition to licensing the flavor and artwork from the tribe, we are also buying the tea from our partner on the reservation with the understanding that over time the community will develop the capacity to grow all the ingredients on the reservation This unprecedented relationship should prove to be a valuable public relations tool Production and Manufacturing Though we had our share of “learning experiences” along the way, we have developed several proprietary brewing tools and techniques which enable us to manufacture several thousand cases of tea a day on both coasts with the desired consistency In addition, since we have a full-time brewmaster on staff, the company retains the knowledge of manufacturing the product, instead of relying on a co-packer for that information The tea is brewed at a brewing and bottling facility located within driving range of the target market The site was selected based on numerous criteria including capacity, reputation, quality control, production efficiency and willingness to invest in a long-term partnership with Honest Tea All partners involved in the production process meet United States Department of Agriculture Hazard Analysis Critical Control Plant (HACCP) standards We are in the process of obtaining Kosher certification from the Orthodox Union (“Circle U”) In early 1999 we will be making a change in our manufacturing process that will not affect the quality of the product but will have important ramifications for our profitability Instead of a two-step packaging process, we will consolidate the brewing and labeling under one roof This consolidation will save Honest Tea more than two dollars a case M02_MARI7411_04_GE_CH02.indd 98 06/04/15 10:54 AM ... 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