WorkWise: How young businesses compete in tough industries

culp@workwise.netNovember 6, 2011 

Surviving in a small business during and after The Great Recession didn’t depend upon luck, especially if you’re in a large industry, such as beverage. Joseph Simrany, president of The Tea Association of the USA Inc. in New York City, estimates that teas will exceed $8 billion this year. What are small, young businesses there doing to assure viability?

John-Paul Lee, founder and CEO of New York’s Tavalon Tea LLC and Bipin Patel, founder and president of Tipu’s Chai Inc. in Polson, Mont., compete with big players. Neither Lee nor Patel started flush. Six years ago, Lee sold his house and car, and liquidated his 401(k). Two years later Patel borrowed $25,000 from multiple sources, including relatives.

Today Tavalon has 1,500 wholesale accounts worldwide, a 5,000-sq. ft. facility in Wood-Ridge, N.J., a tea bar in Seoul and one under construction at Trump Place in New York City. Tipu’s Chai has approximately 230 cafe, restaurant and retail accounts throughout North America.

‘WAKE-UP CALL’

Lee and Patel didn’t do everything the correct way. As they look back, they recognize their myopia. At start-up six years ago Lee “thought everyone would be friendly – Zen, tea and health in a symbiotic industry where everyone is helping others out and no one is cut-throat.

Then a competitor approached a few of my wholesale accounts, bought out my tea stock and put his in at half-price. That was my wake-up call, my epiphany. I took it as a compliment that a larger company noticed we were there and then bought out our stock.”

At the 2008 World Tea Expo, one year into start-up, Patel’s chai won two firsts and attracted a tremendous amount of interest. The owner was pleased with the recognition of his product’s flavor and authenticity. “I told myself, ‘I can go somewhere with this,’” he says in retrospect. At that time, his customers included a restaurant and three cafes.

“Within two weeks,” he explains, “we had to have a recall. It nearly destroyed us. It cost us a lot of money and set us back at least two years.” He realized that the challenge before him was one of the most difficult of his life.

“I’m glad I remained committed rather than wave my white flag,” he says. About 18 months later, investors from western Montana who fund businesses in the state took on Tipu’s Chai. That funding supported new products and rebranding.

WHAT THEY LEARNED

To develop a secure niche, build a competitive foundation. Although Patel and Lee are in beverage, their lessons apply to other industries.

First, don’t give up, regardless. “Make sure your product is superior to what else is on the market,” Lee points out. Patel concurs. They also agree that good marketing is essential.

Patel emphasizes the importance of targeting: “I thought about some large café chains until I realized that because I have a quality product, I want to be in businesses that are quality-oriented. We’ve leaned toward pitching to higher-end cafes and retail outlets. Focus helped us get noticed more.”

Lee mentions that you need still more “differentiation factors, including competitive pricing, a good branding plan and money. In this economy, especially in a cut-throat industry like beverage, you need a strong budget. You really need to come in with a plan to better (a competitor’s) offering and a real reason for (a customer) to make a switch.”

Remaining competitive through tough times begins with a high-quality product, but it doesn’t end there. Develop a checklist of product excellence, money in reserve, competitive pricing and a branding plan. Go down that checklist with your business in mind.

Dr. Mildred L. Culp welcomes your questions at culp@workwise.net. © 2011 Passage Media.

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