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SME
The Business Times | Tuesday, April 21, 2015
Brewing change in tea business
Teabox aims to be a changemaker in both its supply chain
and the way it engages customers. BY PRISCA ANG
T
“Right from day one since we opened shop, we’ve been
a global company. An online business model also
gives us the advantage of scaling up much faster
without having to worry about real estate costs.”
Mr Dugar
❚❚
O tea-lovers, the beverage is just a welcome refreshment, the simple
yet delightful product
of tea leaves soaked in a
hot cuppa. But Siliguri-born Kaushal Dugar
has a slightly different
story to tell. Growing up in the town in India’s
Darjeeling district of West Bengal province,
Mr Dugar is no stranger to tea plantations.
As a child, his holidays were peppered
with visits to the gardens, where his father
ran a business in tea garden supplies and
equipment. “I loved it,” says Mr Dugar. “For a
small child like me, it was magic – the way a
small green leaf is transformed into such a delicious drink.”
This passion was an ingredient encouraging the founder and chief executive officer of
online tea shop Teabox to view the tea industry in a new light.
Taking a twist on Indian tea, the
three-year-old e-commerce firm defies the
conventional notion that one needs to see,
smell and sip one’s tea to be truly won over.
A visit to its portal Teabox.com shows an
extensive selection of 150 single estate teas –
the largest, Mr Dugar claims, of single estate
teas online.
Drawn from over a hundred tea estates
across India and Nepal, they are derived from
gardens in Darjeeling, Assam, the Nilgiris in
south India and Kangra in the northern
Himachal Pradesh, as well as from estates in
Nepal.
Each product page also carries the date of
picking, along with a detailed description of
the tea: 2014 Masala Indian Chai, for instance,
is a full, rich, no holds-barred spicy mix of
green tea, holy basil, and lots of spices.
If numbers are anything to go by, Teabox’s
fresh approach to tea has paid off.
The company has delivered teas to 75
countries over the last two years. These include countries which “wouldn’t ordinarily figure in the list of tea-importing countries”,
such as the Micronesian islands, Chile, Argentina and Iraq.
It comes as little surprise, then, that Mr Dugar describes the reach of his online tea shop
as “limitless”.
“Right from day one since we opened shop,
we’ve been a global company. An online business model also gives us the advantage of scaling up much faster without having to worry
about real estate costs.”
In addition, its online model enables the
company to create a more “personalised experience” for customers. The website, which has
multiple language versions including Russian
and Chinese, offers customer support in the
local language.
Furthermore, tea discovery programmes
offer potential customers a chance to savour
new teas. The Teabox Fresh Beginnings, for
one, allows customers to enjoy five new
tastes monthly at US$10 for the first box and
US$25 for each subsequent box.
Curated by Teabox’s in-house tea experts,
the packs come in different themes every
month. March, for one, saw five different
breakfast teas in its subscription box.
However, despite its samples, Teabox may
need to address its lack of a physical presence. “E-commerce typically complements an
offline presence,” said Clive Tan, director of
8 Investment, a Singapore company that provides training for investors.
Mr Tan added that e-commerce is often
suitable for a manufactured product, but
could be trickier for a product like tea which is
more varied.
When it comes to food which come in
grades, such as tea leaves, they can probably
sell at a premium if they build up a good base,
he said. “There is no hard and fast rule. Nowadays, as our standard of living rises, people
want the experience, and not just the products.”
That may just fall into Teabox’s next line of
action.
Although it has no brick-and-mortar outlets, Teabox plans to set up two experiential
stores in New York and San Francisco that will
give customers a taste of its teas. However,
customers will still be directed to its online
portal should they wish to make purchases.
In addition to changing the way tea is sold,
the startup has also critically examined its
roots, striving to be a changemaker in the tea
supply chain.
This, in an Indian tea industry which “remains stuck in the past and is ready for a
shake-up”, says Mr Dugar. Despite being the
world’s second largest producer and fourth
largest exporter of tea, India’s tea industry
continues to follow practices set up during
the British Raj, he says.
Its entire value chain consists of middlemen, including brokers, importers, wholesalers and distributors. It may be little wonder,
then, that it usually takes three to six months
for teas to hit the shelves of retail stores after
production. By then, he says, they would have
lost their aroma, flavour and taste, and their
cost would have increased.
In an industry steeped in tradition, Teabox
drinks to a “farm to cup” model.
Working with estates across India and Nepal, the firm sources fresh tea leaves selected
by Teabox’s experienced tea tasters. This “direct, first access to teas almost as soon as they
are produced gives Teabox a unique advantage over any other tea retailer”, says Mr Dugar.
Collected hours after production, the
sourced leaves promptly undergo a rigorous
quality-control process, whereby only those
of the best quality are selected and stored in
temperature and humidity-controlled facilities.
Vacuum-packed in opaque packaging for
protection against environmental conditions,
the leaves are then shipped to customers within 24 hours of their order, and reaching them
in three to five working days.
Touching on the inspiration behind the
business, Mr Dugar recounts that he set up
shop upon returning home from Singapore,
where he studied at the Singapore Management University (SMU) before spending four
years as a KPMG analyst.
Wanting to explore his options in a “booming Indian economy”, he worked for his older
brother who runs a tea export business.
That experience drove home the reality
about the Indian tea industry. “I experienced
another side to the tea business, which I had
not seen as a child accompanying my father.”
Surprised by how outdated the industry
was, he perceived a great opportunity for
change.
Currently, Mr Dugar anticipates growing
demand for Teabox’s products.
“Over the last few years, we’ve witnessed
the emergence of a new kind of consumer,
one that isn’t just looking for high-quality tea
but also seeks discovery and adventure.”
From his time spent in Singapore, Mr Dugar observes that while Singaporeans “have traditionally been coffee drinkers”, tea is catching on. The beverage is gaining traction as a
“lifestyle trend” that helps consumers escape
the pressures of daily life.
Tea is also an agricultural product “much
like wine”, he explains, as the taste of tea derives from the terroir that surrounds it. Unlike
premium wines from Europe, however, there
isn’t an established narrative around Indian
tea. For Teabox, this is both a challenge and a
unique opportunity to “define the story for an
entire industry”, says Mr Dugar.
The firm’s vision has not gone unrewarded. Just this month, the company announced
that it secured US$6 million in Series A round
of funding led by Jafco Asia. Other participants include Accel Partners, which
seed-funded the company in early 2014, Keystone Group and Dragoneer Investment
Group.
With its recent funding, plans brewing in
Teabox’s pot include expansion in markets
such as China, Japan and Korea. The company
will also continue investing heavily in marketing, back-end processes and infrastructure, as
it has done throughout the last year.
That said, he has some advice for budding
entrepreneurs in fields dominated by large
firms. Firstly, they should innovate to deliver
quality products which offer genuine, and not
just cosmetic, benefits.
Secondly, “never underestimate your customers”, he says. “Believe in their desire, interest, intelligence, and capability in quest for
something better.”
Personally, Mr Dugar prefers Darjeeling
first flush white teas due to their exquisite
taste and character.
“I’d recommend a first timer to get started
with a subscription package. Tastes can be
very subjective and the journey to discovering your favourite tea is far more exciting
than just selecting one tea and trying it out.”
[email protected]
COMMENTARY
The importance of a good board of directors for SMEs
A good board can play a significant role in the governance,
growth and development of an SME. BY EUGENE WONG
F
OR many non-listed small and medium
enterprises (SMEs) in Singapore,
putting in place a board of directors is
often seen as a statutory requirement. Most
SMEs do not separate the board from owner-management, especially those that are majority-owned by their founders who operate
and manage the business.
Given that there is no separation between
the owner and management in these SMEs,
and the fact that many employ their own family members, some argue there is no need for
such firms to have independent or non-executive directors (NEDs) on their boards. Further,
these SMEs are not accountable to the public,
so the separation of roles between the owner-manager and the board is viewed as unimportant.
Understanding the board’s role
While these views are valid, they also stem
from a lack of understanding of the role of the
board in a company. More often than not, local SMEs see the board as a regulatory conformance and overlook the fact that the board
should play a key role in the firms’ performance.
To understand the value that a board member brings to an SME, we need to understand
that a board is appointed by shareholders to
act on their behalf in the affairs of the company, to manage the corporate sustainability of
the business and to ensure good returns to
shareholders. This is why the board, operating under good governance, is responsible for
the success of the business.
A firm’s success should not just lie on the
founder or the CEO alone. With the lack of resources being a common issue for SMEs, SMEs
are usually heavily dependent on the vision,
capabilities and network of their founders.
This dependence, if not managed properly,
can potentially limit the growth of a company.
At the same time, if the company wants to expand its business outside of Singapore, it will
have to manage a whole new set of challenges
that it may not be equipped to handle. In my
opinion, it is at this stage of growth where
SMEs can benefit from having a strong board.
As the business grows, an owner-manager
needs to be aware of the immense benefits
that an NED can bring to the company and consider bringing one or more NEDs on board to
take the business forward.
Value of a good board of directors
How can a good board of directors, with the
right NEDs, contribute to the growth and sustainability of a company?
First, a board of directors with diverse and
independent members tends to be more objective and less emotionally attached to the
business than the founders. Founders often
find it difficult to give up control and decision
making. They also tend to be less willing to replace existing staff for better-skilled hires, or
may hang on too long to a declining business
for sentimental reasons.
Without renewal of talent, some companies may inevitably be slower in adapting to
changing industry trends, investing in new
technology or adopting new business models.
In this respect, a good NED can play a critical
role in objectively evaluating the company’s
business and giving advice to ensure its
long-term sustainability. Sometimes this
means making tough decisions such as giving
up the business or setting it up for acquisition.
Secondly, SMEs are usually family-run businesses. With generational changes, some businesses suffer as a result of conflicts or poor
decisions which turn the companies into a
“milk cow” to feed the family members. In
these circumstances, the NEDs have the challenge of mediating between the family shareholders. The founders or owner-managers
will also need the right mindset to heed to the
advice of an objective board and act in the
best interest of the business, and not just for
the family members.
That said, it is not uncommon for SME
boards to be influenced by the founder
and/or majority shareholder. Once, I was on
the board of a SME evaluating a major acquisition. Even though the deal was not beneficial
to the company in most aspects, it went ahead
with the acquisition because the founder was
convinced to go ahead with the deal.
In another incident, although the board
had unanimously agreed to raise capital for
the firm’s survival, its members had differing
views on how it should be done. One member
agreed to put in money, understandably at a
low valuation as the firm was in bad shape,
but the executive directors who were concerned about their employees, customers and
suppliers, wanted the investors to continue
funding the business without diluting the existing shareholders. In the end, the negotiations came to a standstill and the firm went
bust. How could such an important decision
end up in a disaster? I believe this and many
other conflicting decisions cause boards a lot
of untold hardship. Thirdly, a good board
should include NEDs who are experienced in
managing and growing businesses, and typically possess at least one area of professional
expertise, such as in accountancy, human resource, and marketing. They should have
deep experience in their respective fields, so
that they can guide the SMEs in overcoming
challenges and driving growth. The NEDs also
need to understand the company’s business
model and industry well enough to contribute
effectively.
On the SME boards which I sit on, the board
members are able to advise on areas including legal, corporate finance and banking – expertise which the management teams do not
have. We have also been able to help our SMEs
recruit good financial controllers, supported
by a proper audit committee that is chaired by
a qualified chartered accountant. Firms with
reputable and professional board members
are seen to be more credible, better governed
and have higher growth potential. Through
the NEDs’ own networks, the companies can
also gain access to strong and reliable partners.
Having been a board director since 1998,
and serving on the boards of public companies listed on Singapore Exchange, the Hong
Kong Stock Exchange (HKSE) and UK AIM, as
well as private SMEs and startups, I have seen
many successful stories. A case in point is Ajisen China listed on HKSE. Armed with a right
mindset, the founder worked closely with the
board to chart the growth of her business
from a private company with 40 food and beverage outlets to become a public listed company with 700 outlets.
A noble responsibility
Given the authority that board directors have,
it is imperative that they have the integrity,
sense of righteousness and wisdom to make
the right decisions and recommendations, in
the best interest of all stakeholders. Besides
being humble to learn from others, they must
be objective and courageous in making sound
assessments, without fear of losing their
membership on the board.
There was one occasion when the CEO of a
board I was on wanted to issue share options
to all key staff and board directors. He sug-
gested an arrangement that would offer him
the largest allocation at a strike price that was
way below the last traded price, making the
options immediately in-the-money. Because
the CEO was also the founder, chairman and
director of the company, the arrangement
was harshly conflicted. As a board member, I
raised an objection on the basis that this action would not be in the interest of shareholders but, surprisingly, I had no support from
the rest of the board. Disillusioned, I decided
to resign after that board meeting.
A good board director, in my view, is one
who empathises with the management and
yet be bold enough to change course, or even
change the captain, if the ship is being steered
into the reefs amid shallow waters. Any board
would certainly not want the captain to sink
with the ship, but want the ship to reach its
destination. The job of directors is ultimately
to direct the firm, by making the right decision, which may not always appear to be the
best one.
I have had the privilege of undergoing directorship training in Singapore and overseas.
Through these sessions, it is noteworthy that
the SMEs in the United States, UK and Australia place a greater emphasis on recruiting good
board members and NEDs. Although Singapore SMEs are beginning to understand the
value and importance of a good board to the
long-term growth of their businesses, we still
have much to learn from others. It is my wish
to see more directors undergo training and
contribute to the boards of our local SMEs, to
help them grow in Singapore and beyond.
❚ The writer is the founder of Sirius Venture
Capital Pte Ltd. He is a leadership fellow of the
USA National Association of Corporate
Directors, a chartered director of the UK Royal
Institute of Directors and a fellow of the
Australian Institute of Company Directors. He
is also a fellow of the Hong Kong Institute of
Directors and a member of the Singapore
Institute of Directors