starting a subscription box business

Starting a Subscription Box Business – HOWLinfuse Kombucha

Erik Entrepreneurship, Thoughts of a Mastermind 17 Comments

2017 has been a year of learning, experimenting, and trying new things. In February, I connected with Jake, and ever since, he has been mentoring me and helping Henry and I grow The Mastermind Within. Jake is a serial entrepreneur – he has multiple projects in publishing, software development, and consulting small businesses. In April, Jake started chatting with me about starting a subscription box business. He had looked to start a subscription box business in 2016, but his business partner wasn’t pulling her weight and eventually the partnership crumbled.

In this post, I will give you the rundown on the past few weeks, what we are currently doing with a Kickstarter campaign, and what we will be doing going forward. To let you know, I sprinkled in links to various websites and social media accounts. Part of me is a little hesistant to show the inner details to our The Mastermind Within audience, but this blog is centered on transparency, self-development, and entrepreneurship. If you can take anything away from this post, I view that as a positive result. Enjoy!

The Backstory of HOWLinfuse Kombucha

starting a subscription box businessI will give a brief overview of the backstory of HOWLinfuse Kombucha but will not go into too many details because that wouldn’t do the story justice – in a future post, Jake will go into the details. First, what is kombucha tea?

Kombucha Tea

What is kombucha tea? Kombucha, or a kombucha mushroom, is a symbiotic culture of bacteria and yeast (SCOBY).  Kombucha tea is a lightly fermented fizzy, low-sugar drink full of probiotics, flavor, and history. The first kombucha Tea was brewed in China around 220 BC. Now, kombucha tea is an ancient longevity elixir consumed for thousands of years by people all over the planet.

Many people swear by kombucha tea as a healthy drink. While it does have many nutrients, vitamins, and probiotic, it’s not going to cure cancer, help with colds, or help you become superhuman. That being said, there are benefits for your gut and will help flush out some of those nasty toxins your body accumulates. In addition, it is pretty easy to home brew!

Now that you know what Kombucha is, onto the story of the business.

Creating a Kombucha Tea Subscription Box

About a year ago, Jake and his friend came up with an idea to start a subscription box business around home brewing kombucha tea. There are many starter kits for brewing kombucha, but there are no subscription boxes which will send you the ingredients each and every month.

With this unique selling point, HOWLinfuse Kombucha was born. Over the past year, Jake and his business partner set up a website, performed vendor and kombucha tea research, and built a small following and email list. In March, Jake’s business partner decided to split off and look to take it live on her own. As mentioned above, I won’t go into the details here because I won’t do the story justice, but long story short, since Jake and her hadn’t signed a partnership agreement, both could go their separate ways and grab whatever they personally owned and continue on with business.

The Offer

In late April, we spoke with an intellectual property lawyer and he said if the partnership agreement has been terminated, then whatever Jake had, he had the legal rights to. This included the website and leads list. At this point, Jake asked me to join him and take this business live. For a 50% stake in the company, he was looking for $6,000. This would include buying into another potential income stream (more on this in a future post), and included the website, vendor and kombucha tea research, and leads list.

Coming on Board

As many of you have read in my book reviews and previous posts, I want to explore the entrepreneurial world. Using the internet and technology, there is a lot of potential to make money these days. Up until this point, I hadn’t had any great ideas and was focused on building a following through The Mastermind Within.

I had a tough decision to make. I had just passed on continuing with the house offer and was sitting on some dormant cash. 2017 is about taking chances and gaining experience. I accepted the offer and now was running a kombucha tea business! Check the box for starting a business in 2017!

Time to hit the ground running!

Starting a Subscription Box Business

The past few weeks have been a wild ride. Starting May 2nd, we’ve had long nights, early mornings, and weekend days where we have been grinding it out. I’m still working a full time job, reading like a maniac, and continuing to build The Mastermind Within.

To get the ball rolling, we created and signed a partnership agreement, got tax information and a bank account. Then we started working with virtual assistants and finally got the website and our social media accounts going. Finally, we worked with vendors to set up relationships to source our products.

Setting up Partnership, Tax Information and Bank Account

When starting a business, it is very important to write up a partnership agreement. The point of a partnership agreement is to put the rules out there early and ensure all parties are on the same page. As noted above in the background story, a lack of partnership agreement can get ugly if the business does not come to fruition.

Jake and I signed a rough partnership agreement which outlined the following:

  • Name and formation of the partnership
  • Capital contributions
  • Requirements for business decisions – which partner can make decisions
  • Distribution of Profits and Losses
  • Term of contract
  • Title to partnership property and software licensure

Next, we wanted to set up a business bank account. To get a business bank account, I needed the signed partnership agreement and a business tax ID.

Getting a federal tax ID is simple. The federal tax ID is called an “Employee Identification Number” or an EIN. An EIN is similar to your social security number and helps the government collect tax on your profits.

After obtaining the EIN and signing the partnership agreement, I opened a bank account and deposited the cash to get the ball rolling. Jake went to work on hiring help to run our social media accounts and perform visual design for our brand.

Working with Virtual Assistants

Jake has extensive experience working with virtual assistants and contacted 2 of his best to join the team. For a few hundred bucks a month, we will have someone running our social media accounts and another person doing any visual design tasks we need. Running a business takes time – if we can outsource our time to virtual assistants, we can focus on more important tasks.

Setting up the Website and Social Media Accounts Running

With the HOWLinfuse team assembled, it was time to get the website up. HOWLinfuse.com had been in Jake’s possession since June 2016, and already had Google juice.

Many subscription box services leverage Cratejoy. For $40 a month, we are leveraging their software and features to have a high powered e-commerce website. Cratejoy provides everything you need to start a subscription service.

Cratejoy has a number of great features:

  • Accept Payments Securely
    • Sell monthly subscription products through their secure platform.
  • Marketing
    • Subscription boxes listed in the Marketplace will have the advantage of Cratejoy marketing efforts.
  • Shipping Logistics
    • View all your shipments and see who you have to ship to next. Our API also supports shipping integrations.
  • Subscription Analytics
    • Cratejoy reports the analytics that are important to your subscription business: average subscription length, customer lifetime value, and churn reports.
  • E-commerce Tools
    • Our platform supports coupons, customer accounts, taxes, and custom shipping rates. Easily integrate with third-party tools like MailChimp and ShipStation.

I’ve been very impressed with Cratejoy so far. I’m excited to keep diving in.

Social Media

The social media accounts we are using are Instagram and Twitter. Many people who like kombucha tea are artists and visual people, therefore, Instagram is a great platform to utilize. Twitter is a great platform since there are so many people already active on it.

kombucha tea house

Sourcing the Subscription Box Products

The hype around kombucha tea is the organic products used to make it. To ensure we would be delivering the best products, we have been working with wholesalers to identify Certified Organic products. We want to use products which are organic and from transitioning farms.

What’s inside the box?

  • One gallon FDA-certified glass open mouth fermentation container
  • 12″x12″ Fine Cotton Cloth and Band for Fermentation
  • Choice of Black and/or Green Tea Leaves as a Base
  • Imported Hawaiian Turbinado Sugar
  • Delicate Dried Fruits For Sweetening
  • Choices of Herbs and Flowers for Tastes
  • An Exclusive and New Recipe Each Month For Varying Flavours
  • Healthy SCOBY and Starter Liquid for Fermentation
  • Two mason jar and eco-friendly bottles for bottling

Sourcing these products was fun. I’d never dealt with wholesalers in the past, and researching and figuring out the best vendor was a good experience.

What’s Your Box Cost and How Much Money Are You Making?

A 1 month subscription for our Kombucha Tea Homebrew Kit is $47. If you want multiple months, the price per month goes down, with a minimum at $33 a month for 12 months. A similar starter kit is priced between $40 and $60.

To source all of the products above and ship it to our customers, it costs about $30. Given this cost, on a monthly basis, our gross margin is anywhere between $3 and $17.

Here is a breakdown of the expenses:

Item Cost
One gallon FDA-certified glass open mouth fermentation container $3.40
1 Healthy SCOBY and Starter Liquid for Fermentation $8.50
4 Oz Organic Green or Black Tea $1.90
Imported Hawaiian Turbinado Sugar $0.65
Delicate Dried Fruits For Sweetening $4.70
12″x12″ Fine Cotton Cloth and Band for Fermentation $0.80
Box to ship in $0.88
Tea Holder $0.77
Choices of Herbs and Flowers for Tastes $2.95
Shipping $5.00
Total ~$30

As we get grow our customer base, these costs should go down because we will be able to buy in bulk.

After getting the website and social media accounts running, and the ingredients and vendors set, the next step was to launch a Kickstarter campaign to take advantage of the Kickstarter platform and get pre-orders.

Launching a Kickstarter

To build our brand awareness and utilize an existing crowdfunding platform, we went to launch a Kickstarter. In the first 24 hours, we reached 50% of our funding goal of $2,500!

Tim Ferris’s Kickstarter Strategy

kombucha subscription kit kickstarterTo run a successful Kickstarter, we are utilizing Tim Ferris’s Kickstarter Strategy. One of the key points in the strategy is influencer outreach – step 3 of the strategy. To summarize from the article, we should use the 80/20 rule to maximize our media outreach by looking for the most relevant media sources (blogs, journals, YouTube channels, etc) and identify the ones with the most readership and with the most potential reach for your product.

By finding media sources and writing guest posts for them, we should be able to drive some nice traffic to our Kickstarter. Again, this is a new experience for me, and I’m learning a lot about content and influencer marketing!

Getting Hype through other Channels

The success of any internet endevour is predicated on getting hype, aka getting people excited about your brand. The HOWLinfuse team is going about this in a few ways: ThunderClap.It, social media outreach and word of mouth marketing.

ThunderClap.It

ThunderClap.It is a crowdspeaking platform to help people get hype for their projects and businesses. Many famous people have used it; past Thunderclap supporters or organizers include: President Barack Obama, Lady Gaga, Alicia Keys, Richard Branson, John Legend, Gisele Bündchen, Jamie Oliver, and organizations like The White House, U.S. Department of State, United Nations, UNICEF, MTV, The Royal British Legion, NBA, Sony Pictures, People Magazine, BBC, ONE Campaign, and Univision.

Please support our ThunderClap.It by going to this link and supporting with Facebook, Twitter, OR Tumblr. It’s free to share. We appreciate it!

Social Media Outreach

On our Twitter and Instagram accounts, we have been able to get over 500 followers through active liking and comments. To get hype, we have been direct messaging our followers to raise awareness for our brand and Kickstarter.

Using the following copy, we have been able to generate a few 100 views on the Kickstarter:

Yo hope you’re doing well, because I have 2 questions (well favors) to ask.

I’m running a Kickstarter to help people brew organic kombucha at home. I’ve hit my daily goal of raising $1000 within the first few hours of the launch, and I want to introduce my product to people outside my circle.

Can you share my kit with your friends who love good kombucha? I’ve sourced high-quality ingredients and made it easy for anyone to use. It’s a great way to get started brewing your own at home.

  • Share
  • The Following Text and Link
  • With your friends
  • Who like kombucha:

Hey! My friend from Mpls is making a DIY kombucha kit. He’s sourced really good ingredients and his Kickstarter is doing really well. If you like kombucha you should try making your own at home with this kit!

http://bit.ly/minneapolis-organic-subscription-kit-facebook

Like I said, this has generated a fair amount of traffic, but in the next week, we will need to go louder. Influencer marketing is the next step in the game. Tim Ferris’s kickstarter strategy is dependent on getting air time on blogs and other people’s channels to take advantage of bigger mailing lists in your niche.

Next Steps

As of today, we have the supplies and materials for the first 50 boxes. The Kickstarter is running for another 34 days left and as mentioned above, we are 50% of the way towards reaching our funding goal. To reach our funding goal, we are working to build hype through a combination of social media outreach, influencer marketing, and word of mouth marketing. Once the Kickstarter is done, we will continue to build hype through these channels and look to build this into a income stream.

Even if we don’t have a successful result through our kickstarter, I’m not too concerned. We can instead devote resources to another potential income stream which we will discuss at a later time. The website will be set up, social media channels running to gain a following, and the vendor and distribution processes in place for when the time comes and we get people in the door, we can capitalize.

Conclusion

organic kombucha kitWe are both excited to keep this train going. The last 3 weeks have been exhausting and exhilarating. This has been my first experience using virtual assistants and going through various registration processes, and I’ve been learning so much.

Check out our Kickstarter or kombucha kit website to learn more about the subscription box. Please share with your friends who enjoy kombucha and may be interested in home brewing it.

In the coming months, Jake and I will provide you detailed updates on our successes and failures to give you an up close look at what starting a business actually entails.

Erik (and Jake)

Readers: have you ever started a business? Did you ever have a business partner bail on you? What is the hardest thing about running your business?

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Comments 17

  1. Wow, how exciting. Good luck with this. It could be huge!!!

    You probably know this if you’re using a Tim Ferris method, but are you aware of the many tools for identifying influencers?

    1. Post
      Author

      Thanks Mrs. Groovy – I appreciate the comment and support 🙂

      Yes, we are using some a few tools and resources to help us on our influencer marketing journey. I’ll share that in next month’s episode!

  2. Congratulations on getting this far, and good luck with it guys!

    I’ve had a tea business, a tea store and cafe – served and sold over 150 types of loose leaf tea so this is very interesting to me!

    Will you be offering items separately as well as in the kit? For example, if someone gets’s on a monthly subscription they shouldn’t need the glass container every month. Perhaps not the tea holder or cloth either. Will the ongoing subscription be a bit different then?

    Are you going to offer an affiliate program?

    Perhaps we should chat!

    1. Post
      Author

      Hey Amy, I appreciate your support. Your experience with tea sounds fantastic and I’d be interested in hearing more. We should chat 🙂

      Yes, we are going to offer all items separate for purchase and mark them up a little bit. Yes, good point for the ongoing subscription – the second month, we will not send them a SCOBY, a glass container, or the tea holder and cloth. If someone needs one of those items, we will send it to them.

      I will reach out to you in a week to chat more as this week is filling up. Thanks Amy!

  3. Erik – very excited for you guys and thanks for sharing all of the details. I love startup stories and it’s even better when you’re hearing them real-time.

    It sounds like you’ve got a thorough partnership agreement – nice work. I’m wondering if you considered anything other than a 50-50 split to make it easier to resolve any impasses (hoping none arise!).

    Good luck, and hopefully the story’ll unfold here

    1. Post
      Author

      Thanks for the comment and the support Paul. I will provide monthly updates to the situation and our progress. It will be exciting!

      Originally, it was going to be about 60-40 Jake-Me, but then Jake had a personal emergency come up and wanted to be safe with his cash position. It’s actually 51-49 Me-Jake, but I didn’t necessary want to get into the details above.

      Thanks again for stopping by 🙂

  4. My wife has been brewing kombucha for several years now. It’s pretty good and we have a small glass every day.
    Congrats on the business, having launched our own online business a year ago I can relate to some of the joys & challenges in the early days. Having a great mentor helps tremendously.

    1. Post
      Author

      Hey Josh thank you for commenting.

      How did it turn out at the end of the day? Did you sell the business or do you still have it?

  5. I have ran a franchise windows cleaning company during my university days. It was a lot of work and very little pay. However, that experience gave me a sense of what it is like to own a business. One thing that I took away from that experience is that being your own boss means you will be working on long hours until your business is off the ground. This can be a couple of months or a couple of years.

    1. Post
      Author

      Hey Leo, thanks for providing some perspective on the situation. Your experience has seemed to pay off, so that’s great 🙂

      Thanks for stopping by and have a good one.

  6. 2017 is the year of hustle for you Erik!!! You are killing it on all fronts and I learn something everytime I stop by.

    BTW…I tried to click on the Thunderclap link but for whatever reason I received an error.

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      Author
  7. Anytime I need some motivation I can just stop by here and see what you have been up to. Starting a blog, trying to buy a house, starting a company. Crazy man.

    Keep it up. I look forward to hearing about the journey.

    1. Post
      Author

      Hey Grant, thanks for the comment. I’m happy to provide the updates and am loving life in 2017. I appreciate the comment on you needing motivation… I feel that when I go see what some other people are doing on their blogs… like your lifting!!

    1. P.S. I’ve stared my own photography business, a childbirth education business, and I’ve made a documentary film. The hardest part is marketing them, something that I don’t really enjoy, nor am I very good at.

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        Author

        Hey Penny, thanks for sharing about your businesses. I think it would be fantastic to hear about them on your blog! 🙂

        We will be sharing the steps along the way – I’m excited to tell you about our experience!

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