Oct. 30, 2014

This Week's SFR Picks

Newsletters

Choose your newsletter(s):
* indicates required

SFR Events

Special Issues

 

 
Home / Articles / News / Features /  I Speak for the Teas
07.11.12_COVER

I Speak for the Teas

One company is betting on an exotic tea leaf to empower farmers, sell energy drinks and make a killing. Will it work?

July 11, 2012, 12:00 am

 Wearing an oversized green wool toque, his Blackberry wedged between his ear and shoulder, Tyler Gage watches the factory staff load 9,000 empty glass bottles onto a cool, steel conveyor belt in a New Jersey bottling plant. His puffy eyes hide behind designer glasses, and his shoulders slump with every yawn. 


The last two weeks have been hectic: innumerable phone calls with potential suppliers, too many missed deliveries and countless meetings with his financial advisers. The schedule is to be expected given the task at hand: Gage has two weeks to launch a brand-new energy drink with his three-year-old tea company, Runa. 


Standing, feet tapping, eyes scanning, frequently checking his phone for updates, Gage watches the pressurized air push the 3,000-gallon mixture—water, liquid flavor, citric acid and Runa’s special ingredient, a rare Ecuadorean leaf called guayusa—out of the mixing vat, through the connecting tubes and into the revolving pneumatic udder. 


The clear bottles, now filled with boiling hot amber liquid, move steadily down the length of the factory wall and into the cooler. 


Since the company was founded in 2008, Runa’s only products have been artisanal teas, packaged in colorful boxes that are now featured on Whole Foods Market shelves. On the back, a short description told consumers that the central ingredient, guayusa, was imported from the remote villages of the Ecuadorean Amazon. Runa’s premium, high-caffeine leaf had generated a significant following among East Coast tea drinkers, but Gage knew it would be energy drinks that could make Runa an economic success. 


But Runa is more than a business. By building an expansive network of indigenous farmers harvesting guayusa, and promising to reinvest the company’s profits in the community, Gage and his business partner and former classmate, Dan MacCombie, marketed Runa as a means to an end, a tool for social and economic progress sensitive to the ignored and underserved Kichwa population—they could be the model in a growing movement of socially conscious entrepreneurs.


These self-proclaimed innovators constantly search for new solutions to rapidly changing global problems; their high-risk companies are ambitious, idealistic and committed to having a positive impact on the lives, communities and countries in which they work.  


But in the remote corner of Amazon where Runa operates, a battle is being waged over the very idea of social entrepreneurship. After all, Runa isn’t just about two Americans risking investors’ money to sell a product with an inspiring story. It’s also an experiment that places 1,500 farmers, their families and their entire livelihoods in the hands of two young entrepreneurs.


Like any entrepreneurial experiment, social entrepreneurship is not without risk. But with companies like Runa, there’s a tendency to ignore the risk imbalance for the actors involved.


If Runa collapsed, the 26-year-olds directing operations from their Brooklyn, NY offices might disappoint their financial backers, lose four years of their lives and have to start from scratch. But that pales in comparison to an Ecuadorean farmer who could lose the foundation of his new economy. 


“We have a globalized entrepreneurial class, and they come and go as they please, applying and removing things from the communities, often without regard to the communities and their interests,” says David Bornstein of organizations that use the label of the social entrepreneur without demonstrating the motivations or positive impacts that warrant the title. Bornstein, the author of How to Change the World: Social Entrepreneurs and the Power of New Ideas, believes that the social entrepreneur should not operate as a "lone ranger," but rather as "an individual that helps a group of people come together."


But Runa also occupies a unique middle ground between being a business and a social enterprise. For three years, Runa has created a network of organizations that work every facet of the business equation: a New York-based for-profit company that runs American operations; a for-profit entity registered in Ecuador; and a nonprofit foundation in Ecuador that works on farmers’ issues. Runa was never intended to be “just a business”—but by being something more, by preaching the value of creating positive impact, it has the potential to redefine social entrepreneurship. 


“There are probably people in bumblefuck Kansas who just want healthier energy, who probably couldn’t give a fuck about the indigenous people in the Amazon,” Gage says confidently. “But if they buy Runa, they’re contributing just the same.”


That is, if Runa’s experiment works.


Wearing a bright pink and white sweatshirt, gray pants and rubber boots, Rosa Antonia Grefa Aguinda collects her large wicker basket, leaving her small, one-room home farther behind with every stride. She walks down a narrow mud path, dodging the odd car that passes in the early morning. Within minutes, she veers right and enters the dense, dark expanse of the jungle.


Treading carefully over exposed roots and under low-hanging branches, she pushes into the tangled brush, using a machete to cut away the stubborn undergrowth. Without warning she stops and looks up at the deep emerald leaves. Like elongated spearheads, they hang spryly from the draped branches of the tree.


This is guayusa, she explains, her rapid Spanish heavily tinged by Kichwa—the dialect of her people. Descendants of the Incas, the Kichwa revere guayusa for its mythical powers. Laced with caffeine and antioxidants, guayusa is called “Night Watchman,” as consumption usually piques mental clarity and provides a needed boost of energy. 


Grefa Aguinda’s hands move quickly over the branches, plucking the greenest leaves and dropping them into her basket.


Three years ago, she would have been picking cacao at this hour. But today, she’ll pick guayusa until her basket is full, then walk back to the village to empty the leaves, still wet with the day’s rain, into the gray plastic fiber bags Runa provides.


She had never thought guayusa would make her any money. But now she harvests the ceremonial leaf for economic reasons, even when the jungle echoes loudly with the sound of raindrops, and her cacao sits overripe and waiting to be picked.



Gage and MacCombie started Runa in the fall of 2008 as students at Brown University. It was a complex and elegant plan: support an endangered indigenous culture by importing and selling a rare Ecuadorean tealeaf to the United States. All Gage and MacCombie needed to do was to create a company that would stimulate profits, and reinvest that money in the remote communities responsible for harvesting guayusa.


Since 2009, Runa’s artisanal teas have been featured in more than 1,700 stores, including major distributors like Whole Foods. This March, they announced the launch of a new energy drink: a bottled tea-based beverage that would move the young business into the frenetic world of energy drinks. To Gage and MacCombie, guayusa’s following owes much to the North American fascination with the exotic, a trend seen by the boon in interest in Amazonian products like the Açaí berry.  


But expanding Runa into the energy drink world may only increase the risks for its farmers. With growth comes increased demand, and Runa will require more of the Amazonian leaf over time. Farmers have already realized that the company will buy all the guayusa that can be harvested, and this knowledge has created an incentive to abandon traditional crops and old sources of income. Today, Kichwa farmers are devoting more time, energy and physical space to cultivating guayusa. 


At the same time, Runa’s bid to join the energy drink industry represents a traditional business risk. 


“The beverage graveyard is full of well-conceived, good-tasting products that couldn’t get to market and stay on shelves,” says John Sicher, editor of Beverage Digest.


But if Runa fails, the Kichwa will be left with fields full of a worthless leaf, without the traditional cash crops that once supported their families—leaving the community worse off than if Runa hadn’t shown up at all.


Tyler Gage doesn’t like to lose. A competitive soccer player in high school, with the opportunity to play professionally; a strong student; and the recipient of a Fulbright scholarship, Gage has competed his entire life. 


Standing over six feet tall, with an athletic build and shaggy, blond hair, he looks the part of California boy. Born in liberal-minded Berkeley, he eschewed a future in soccer and attended Brown, where he bounced among academic disciplines.


“For someone who grew up in the suburbs of middle-class California, the topic of spirituality was foreign to my upbringing,” Gage says, describing his final years at Brown studying indigenous culture and environmentalism. Compared to most of his classmates, he says he didn’t quite fit the mold, either: “I was the token hippie.”


Back in 2005, Gage—still trying to sort out a life path—had traveled to Costa Rica for five months, motivated by his growing interest in indigenous cultures and their relationships to the environment.


There, he served as an intern, of a kind, to an American-Ecuadorean ethno-botanist named Jonathon Weisberger. Weisberger owned and operated an eco-lodge and had spent decades cataloging notes on indigenous culture and customs in South and Central America. 


“Tyler didn’t understand what it was like to work,” Weisberger says—a claim Gage quickly dismisses, describing his time in Costa Rica as an attempt to travel, explore and “find himself.” But Weisberger remembers Gage as driven and passionate about the things that interested him, and more than a little stubborn when anyone disagreed.


Kichwa farmers of the Ecuadorean Amazon are harvesting guayusa, the main ingredient in Runa tea drinks, in greater amounts to support the company’s expansion efforts—a decision that could leave them without traditional cash crops.

 


While the relationship eventually frayed, Gage would come to thank Weisberger for at least one experience: a daily routine in which Weisberger served the lodge’s visitors a steaming green-tinged liquid. It was the first time that Gage drank guayusa.


By fall 2008, Gage was only one credit from graduation when he decided to take Professor Danny Warshay’s entrepreneurship course. 


Warshay had created a buzz on Brown’s campus. His class had spawned a number of startup companies, and Warshay himself was an entrepreneur. Gage thought that the program would appeal to his wide array of interests. 


He wasn’t alone.


Dan MacCombie, a friend since their first year, was also finishing his final semester at Brown that fall. The pair decided to tackle the course together.


“So many of the students approach the class as an academic experience, but the goal is to simulate the process of creating a business,” Warshay says. By all measures, Gage and MacCombie accepted the challenge.


After tossing around several startup ideas with MacCombie and three other students, and recalling conversations with Weisberger and some formative events with a Kichwa shaman who had visited his California home, Gage pitched the benefits of guayusa.


He explained that the leaf, with three times the caffeine of regular green tea, was popular throughout South America and that 98 percent of guayusa was grown in Ecuador. As a product, the leaf had never been commercially exported to the United States, and—with its high caffeine content and unique taste (smooth, without the bite of regular black or green teas)—Gage believed that guayusa would be a perfect product for a new startup. 


Importantly, Gage framed the idea in a wider discussion of indigenous traditions and a spiritual history of the area. He was sure that a successful business model could have a positive impact on the indigenous community as well as the environment.


Gage had never been to Ecuador. But no one seemed to care.


In the original business proposal, the group argued that guayusa could be an “intersection” product, positioned at just the right spot to glean profits from three different sectors: specialty teas; bottled, ready-to-drink tea; and energy drinks. In 2008, they projected that guayusa would gain access to a market valued at $10 billion. Today, that number is closer to $14 billion.  


Gage and MacCombie thought these markets were “growth friendly,” with the tea industry projected to grow by 15 percent, energy drinks by 25 percent and bottled teas by 6.7 percent through 2010. 


“Our beverages will offer the energy of Red Bull without the jitters or crash, and the clarity and simplicity of tea without the bitterness,” they wrote in their 2009 business plan. 


In the back of their minds, though, their company could also be a game changer. Considering that markets for coffee, cacao and even traditional tea had been built on systems of inequality and exploitation, the pair believed that their company could set the bar for guayusa: If they created a profitable and equitable market where farmers could sell their products at a fair price, they could define the rules of the game. 


Gage and MacCombie decided to call the company Runa—a Kichwa word meaning “fully human.” They pledged a long-term commitment to “satisfying consumers and developing Fair Trade partnerships with indigenous people in Ecuador.” 


Business models like Runa are called “hybrid nonprofit ventures,” according to experts John Elkington and Pamela Hartigan, authors of The Power of Unreasonable People, which looks at today’s social entrepreneurs. They argue that these businesses have the potential to reach new levels of social or environmental value, or “impact,” by cherry-picking the best of both the nonprofit and for-profit worlds. If harnessed appropriately, these companies get to create their own rules altogether.


Archidona is buried deep in the rolling hills of Ecuador’s Napo province, five hours from the capital city of Quito—depending on the number of livestock-induced traffic jams and bus breakdowns. Here, on the fringes of the Amazon rainforest, is the center of Runa’s operation.


Nick Olson, a 24-year-old from Colorado, and Cass Walker, a 22-year-old Briton, run daily operations at Runa. They oversee a group of interns who conduct interviews in the farming communities, help the company’s technicians tally the volume of guayusa collected and conduct surveys that allow Runa to respond to the farmers’ changing needs. 


Nearby, the world’s first guayusa factory looks like a modern barn. Inside its doublewide front doors, 50-kilogram bags of guayusa are piled high awaiting shipment by boat to the United States. 


The factory’s floor space features a custom-made dryer (imagine a 40-foot-long steel bathtub with an industrial-sized fan on one end) where the técnicos, Runa’s local employees, deposit the guayusa to dry for about 36 hours.


The guayusa is then “baked” in the factory ovens to eliminate humidity and bacteria before the fragile leaves are fed into a crude shredder built from the spare parts of other, now-obsolete machines. The leaves are mulched into six different cuts: The first two are coarser and are used in loose-leaf tea; cuts three, four and five are used in ready-to-use tea bags; and the sixth is a fine powder that’s an important part of Runa’s new line of bottled beverages.


When the factory opened in June 2011, it churned out 300 pounds of guayusa each week. With the introduction of the new driers and ovens this year, that figure has grown to 2,800. 


“For the first time ever, guayusa has become an economic opportunity for the Kichwa,” Walker says, noting that 9-14 million Kichwa are spread throughout Ecuador, Peru and Bolivia “But we still don’t know what this means over the long term.”


Three years ago, Edgar Grefa, the President of the Runa farmers’ cooperative, had only seven guayusa trees, which he kept for ceremonial purposes. He’s since planted 600 guayusa shoots, hoping that each one will grow into another tree.


Even though guayusa only fetches 35 cents per pound, 15 cents less than the same amount of cacao, guayusa can be harvested four times as often. 


For Grefa, with a wife and four children to support, guayusa production has paid for the food for his household, and medicine when one of his children fell ill earlier this year.


The Kichwa remain farmers by trade, cultivating plants like yucca and cocoa, and growing spices like cinnamon. But while the crops were once diverse, guayusa was never among them. Since 2009, however, the community in Archidona has been focused on little else.


But Runa’s rapid growth has also prompted scrutiny among the locals. Recently, community leaders have begun to worry about the company’s long-term effects on their livelihoods. In no place are tensions higher than in Rukullakta, a short walk from the factory gates.


This past February, MacCombie invited his family and a group of potential investors to tour Runa’s factory. They decided, at the last minute, to visit the nearby community of Rukullakta. Upon finding the family on his territory, Grefa became enraged.


He called a meeting with Runa’s local staff soon after MacCombie’s party left and threatened retaliation against anyone who trespassed on the community’s territory without identification. Parading guests throughout the community had become offensive, he said. 


Grefa also demanded that Runa hire residents of Rukullakta and earmark 40 percent of the company’s profits for the village. 


“Guys like this are just there to be dicks,” Gage says, when asked about the incident. “Edgar’s opposition doesn’t mean much when we know his community is benefiting immensely from the sale of guayusa.” 


But these tensions only demonstrate how essential the guayusa trade has become to many of Runa’s local farmers, who are quickly turning over their land to harvest the now-valuable leaf. 


Last July, two Runa employees were summoned to the village of Santa Rita, located 25 minutes outside Archidona. Santa Rita’s community leader was irate that the company had failed to collect the tea leaves harvested by the villagers that week. 


Months’ worth of profits were lost in 48 hours, as the harvested leaves sat on the rain-soaked ground. Unbeknownst to the community, a recent torrential rain had washed out the area’s only bridge, making the route impassable for Runa’s vehicles. But that excuse didn’t matter.


 When Runa’s staffers arrived in Santa Rita, the farmers confronted them, led them into the local schoolhouse, and locked the door behind them. 


On a large table at the front of the room were two items well-known to the Kichwa people. The first, aje, a type of chili powder, is often rubbed—painfully—in the eyes of anyone who offends members of the Kichwa community. The second was otega—a lush, green stinging nettle found in the forests in the area. Otega is scratched against exposed skin, where a painful rash serves as punishment for anyone who has wronged another individual or family in the village. The employees were let go with a warning, but the message was clear. 


The influx of foreigners wasn’t unprecedented; historically, the local community had tangled with American oil companies that had polluted the area, then refused to pay damages.


“The community didn’t trust Gage at first,” recalls Suverio Mamallacta, Runa’s first Ecuadorean employee who now organizes the técnicos in the region. “The locals thought he was a gringo who only wanted to steal guayusa.” 


Runa’s Archidona-based factory has begun to turn out 2,800 pounds of guayusa per week, up from 300 pounds when the facility opened in 2011.


This past March, after three years of steady growth, Runa was poised to launch its first-ever energy drink line. The company had won the Rhode Island Business Plan competition in 2009, valued at $125,000 in services, and had since been able to parlay those funds into a number of grants and donations, eventually closing 2011 with $270,000 in profit. 


More importantly, Runa’s teas have sold well in American markets, suggesting that its healthier energy drink alternative—a low-calorie, low-sugar drink that provides “natural energy”—will also be competitive. But while Runa may be an ambitious newcomer to the energy drink club, it faces an uphill battle against the industry’s established brands. 


To combat such powerful competitors, MacCombie has scheduled product demonstrations, trade shows and meetings with national suppliers. Runa has also completed its first official round of angel investing, bringing in $1.8 million in initial offerings. Gage even hosted a panel discussion at the World Tea Expo in Las Vegas this May. “We’re still faking it until we make it,” he says.


But Runa’s model is, of course, fundamentally different. 


“Our concern is how can we maintain the social and ecological integrity of the guayusa market as it grows to include other actors,” says Eliot Logan-Hines, the executive director of the nonprofit Fundación Runa, headquartered in Quito.


If interest in guayusa grows, Runa’s profit and nonprofit bodies may work at odds with each other, Eliot says. For example, the foundation’s mission is to support the guayusa farmers by advocating for the most beneficial harvesting arrangements. If a rival company were to enter the market and offer a higher price for guayusa, the nonprofit—in theory—would be left to advise Runa’s current farmers to sell to its competitor instead, effectively diverting revenue away from Runa. But Gage, unfazed, says that’s beside the point.
“For me, the most important impact that Runa can ever have—period—is proving to people that this kind of business can work. Forget about the Kichwa people, forget about guayusa, forget about tea, or government shares,” he says. “If this works in 5-10 years, and people can point to it and say that this business is creating good as a social business, that will inspire other people to attempt similar things in different spaces.”


Gage stands in a New Jersey bottling factory, staring intently at his laptop computer. Every few minutes, he looks up from the screen, leering nervously at the numbers he continues to crank through an obscure dataset. With a missing shipment from their California flavor lab, Gage has to decide quickly: 90,000 glass bottles are waiting on the conveyor belt.


“I look forward to when we have this down to a science, instead of an art,” he says to no one in particular without looking up from the screen. “I hoped this time would be a little smoother.”


Over the last two weeks, Runa’s energy drinks have been selling better than expected throughout the mid-Atlantic. Stock managers who had been hesitant to order the beverage were now requesting two cases a week. 


“It’s not selling as well as Honest Teas,” MacCombie cautions, aware that Runa hasn’t pulled even with its primary competitor. But the sales numbers are just the facts Gage and MacCombie need: The first official angel investors are due to arrive any moment, with more than $1 million to offer Runa. 


Set apart by the investors’ crisp suits and shined shoes, the young entrepreneurs favor the casual look: Gage wears a comfortable green plaid shirt, dark blue pants and desert boots; MacCombie has on gray jeans, a red sweater and a single silver earring looped through his left ear. Shaking hands with the suits, they look as much like students as they do owners of a million-dollar company.


Gage and MacCombie squire the group of six around the factory floor. Watching the workers fill the first of the bottles, the questions start.


“Are these workers legal?” one investor asks.


“I don’t know,” MacCombie says, hesitating before he continues. “I mean…they have to go through so many safety checks…I’m sure…”


“You should check,” the investor responds, glancing at the workers, most of whom are New Jersey-resident immigrants from South America. “You don’t want something like this coming back to bite you in the ass.”
Gage stands by, silent. 


As the investors finish their tour and pull free their hairnets, light chatter turns to handshakes and a round of goodbyes. 


“They made fun of my earring and our haircuts,” MacCombie says while sitting in the passenger seat of Gage’s borrowed van a few minutes later, turning Pearl Jam on and up. 


“Yeah,” Gage says, slowly backing out of the parking lot. “They thought we were wild children.” 

Editor's note: The original version of this story contained additional quoted material from Bornstein, but it was removed because it reflected an inaccurate understanding of his point.

 

comments powered by Disqus
 
Close
Close
Close