It all began with a conversation among friends at a teahouse during a semester in Europe.
It could have ended there, like so many college daydreams do, the wistful chatter that populates so much of undergraduate life. But Patrick Tannous and Daniel Klein made their dream come true.
The exact date of that conversation remains etched in Tannous’ mind. He rattles it off like his Social Security number or some other vital bit of information: Feb. 24, 2009.
On that day, in a traditional Czech teahouse in Prague, lifelong friends Tannous and Klein, who were University of Illinois students at the time, marveled at the flavor of the tea they were sipping.
“It was bursting with real fruits, real herbs, real berries, real cranberries, elderberries, and rose hips,” recalls Tannous. The name of the tea was Grannie’s Garden, and it changed the course of Tannous’ and Klein’s lives.
They left Europe with a mission to bring high-quality loose-leaf tea to the United States, a niche they felt was unfilled.
In March 2010, Tiesta Tea was born. Its products are now sold in about 7,000 stores, including Safeway, Winn Dixie, Albertsons, Sprouts Farmers Market, Hannaford, Price Chopper, Target, Bed, Bath & Beyond, and The Vitamin Shoppe. With revenue in the millions, the company employs nine people, all of whom are vested owners and make good salaries, says Tannous.
Their product line has grown to include a variety of carefully thought out, functional tea categories such as Energizer, Slenderizer, Relaxer, Immunity, and Eternity. Within each category are various flavors of tea with whimsical and fun names, such as Blueberry Wild Child, Fruity Pebbles, and Chai Love.
Getting to this point hasn’t been easy. A rollercoaster ride? Yes indeed. A near failure? That, too. Humbling and full of rejection on some days? Check and check.
The initial years of starting a business for Tannous and Klein involved completely refocusing their idea, spending weeks driving around the country making cold sales calls, knocking on doors to sell their product, and in the end learning many valuable lessons they will never forget.
“You have to believe in yourself more than anyone else believes in you,” says Tannous. “We knew we had a good product.”
Tannous and Klein started their business venture by taking advantage of all the resources the University of Illinois offered. That involved everything from simply asking professors for advice to being connected through the school with potential investors, and applying for a competitive entrepreneurial program run by the university that provided seed funding, free office space, and guidance.
One of the most critical aspects of Tiesta Tea’s success and something that is often overlooked by young, aspiring entrepreneurs, says Tannous, is the myriad resources available at colleges and universities.
“Students have a competitive advantage because of all those resources at their schools and they don’t realize it,” Tannous says. “I was asking every faculty member how they could help me with my business, and they want to help.”
Another crucial step in their journey involved working with a valuable mentor. Several mentors, in fact, but one in particular made dramatic changes early on in how the duo set about establishing Tiesta Tea. That mentor? Jimmy John Liautaud of none other than Jimmy John’s Gourmet Sandwiches (the franchised, nationwide chain with 2,000 locations in 43 states).
A faculty member at the University of Illinois put Tannous and Klein in touch with Liautaud. They presented their idea to him, but he didn’t go easy on the two twentysomethings. If this is starting to sound like Donald Trump’s TV show “The Apprentice,” you’re not far off.
“We were pitching to him, asking for $250,000 to open a café. And he basically said no,” says Tannous. “He brings us into his office, and I don’t want to say he was screaming, but he was tearing us apart, saying, ‘Your logo is awful. Your packaging sucks.’ But he was also picking out the good things, and he helped us brand our company and formulate our vision.”
As a result of that meeting, initial visions of being the Starbucks of the tea world were scrapped in favor of selling tea to established businesses and letting those businesses pay the pricey overhead that comes with operating a café or store.
Sometime after that, Tannous and Klein set about trying to sell their tea. But with all the help the pair had received, by late 2011 Tiesta Tea didn’t have the customers or revenue to continue. They were on the verge of shutting down. But one of their investors came up with an idea that ultimately saved the fledgling business.
That investor suggested trying to sell the tea to stores beyond Illinois and Wisconsin, where the company had been focusing. So Klein and Tannous hit the road. They visited about 500 shops in five cities — stretching from New York to Vancouver, British Columbia — and signed on 50 customers.
The following month, Tiesta Tea’s sales doubled. The next month, they quadrupled.
The rest, as the saying goes, is history. But it’s a bit of history that Tannous and Klein look back on with well-deserved pride for two entrepreneurs who are still in their 20s.
“Two years ago, if I wanted to get loose-leaf tea, I would have to get in my car, go to the mall and spend $50 at Teavana to buy it,” says Tannous. “Today I can go two blocks and I can get loose-leaf tea at the supermarket. That’s my tea. It’s cool to identify a problem in the marketplace, identify a solution, execute the solution, and expand it.”
Here’s some advice Tannous gleaned from his Tiesta Tea journey.
Sourcing and Developing Tea to Sell
As a small startup, it can be difficult to find tea importers willing to work with you.
Tannous and Klein were lucky on this front. Early on, an acquaintance connected them with the founder of the World Tea Expo. Having that connection gave large import companies the confidence to work with Tiesta Tea, Tannous says.
Tannous is regularly asked: What if you don’t have a similar insider connection in the industry? He admits it can be a challenge.
“My best advice is to go to tea trade shows,” he says. “They are like the encyclopedia of the tea industry, where literally everything is sold, every kind of tea, teabag producers, teacup producers – everyone associated with tea, even water companies go.”
Tiesta Tea initially worked with U.S. companies that would import teas, which would then be blended in this country. Now they work with companies in Germany, for a very specific reason.
“Germany is known for quality control,” Tannous says. “We are getting the cleanest, best ingredients and everything goes through their quality control.”
In addition, in order to develop the unique variety of tea they sell, Tannous and Klein worked with microbiologists and chemists, and went through a rigorous taste-testing process to finalize a line of 60 flavored teas, each fitting into one of their five categories, each specifically formulated for a different health benefit.
The Importance of Incubator Programs
Tannous and Klein spent an entire summer working with Illinois Launch, a prestigious program through the Academy for Entrepreneurial Leadership designed to launch university startups.
While involved in the program, the pair worked all day every day researching their idea and developing their business plan.
The incubator program, meanwhile, gave them $20,000, mentors, and office space. The pair took the opportunity and ran with it.
“We were the best company to come out of the program, and because [of that] they accepted us into the program a second time. So we got a little more money and got to use their office for a little longer,” says Tannous.
Find an incubator program in your area. They are all over the country, he says.
Selling Tea in Stores Versus Starting a Café
It costs far less to sell tea to a store or café and let someone else pay expensive real estate costs – at least in the beginning. Tannous and Klein wanted to be the Starbucks of the tea industry. But that wasn’t feasible for a variety of reasons.
“In terms of real estate, if you don’t have a good spot, you’re not going to do much business. To get a good spot costs a lot of money. We estimated to build out a store would cost a couple hundred thousand dollars,” he says.
Those are just a few of the financial and business considerations, he says.
Selling a product to existing stores and cafés is also much easier than trying to convince people to give an unknown business hundreds of thousands of dollars to start a café. This approach also made growth and long-term success less challenging.
“It’s a lot more sustainable as far as growth goes. The risk is much less,” says Tannous. “We buy as much tea as we sell to our clients. There are probably at least 150,000 places in the United States that could be potential clients of ours. That appealed to us because it was an easier startup.”
Mentors, Mentors, Mentors
Looking back, Tannous says one of the primary things he and Klein did right was securing mentors. As many as possible.
“We have a mentor for sales, a mentor for marketing, a mentor for finance, and so on,” he says. “This is important because we started the business with no experience. We learned from all our mentors and advisors to make sure we were making the correct business decisions and growing the business the way it should be grown.”
Securing Investors: It’s How You Ask
Yet another piece of valuable feedback Tannous and Klein received involved a critique of the way they were pitching to potential investors. It may sound like a minor detail, but it made a dramatic difference.
A mentor sat the two down and told them not to be afraid to boldly tell people about what they were doing and invite people to take part.
“I went into it as if I was asking people for money. That automatically puts you at a disadvantage, because asking people for money is never good. Tell people you have an opportunity for them to make some money, and say, ‘Do you want to a chance to be part of this opportunity?'”
Tannous says they suddenly had investors eager to take part.
It Takes Time for Tea Business to Steep
Prepare to spend anywhere from eight to 12 months getting your business off the ground, says Tannous.
That includes time for product and market discovery, which takes three to six months. Once that research is behind you, develop an understanding of the supply chain, logistics, and operations of your business. After you’ve done that, it’s time to start selling your product, he says.
During that time, Tannous and Klein spent about $90,000. About $20,000 of that came from the incubator program and was used to pay for just the packaging of Tiesta Tea.
The remaining $70,000 was provided by Tannous’ and Klein’s parents and a handful of investors.
Banks, says Tannous, are not eager to give startup businesses money.
Is Your Concept a Good One?
Find a problem and solve it. It’s that simple, says Tannous.
“The problem we were solving is that loose-leaf tea was way too confusing and way too hard to find. You could only find it at a store like Teavana, where it was intimidating and way overpriced,” he says. “Our solution was to make loose-leaf tea understandable, affordable, accessible to America.”