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For the exclusive use of J. Sterns, 2017.

CASE: E-549
DATE: 12/01/16

RUNA: DRIVING SOCIAL CHANGE


THROUGH PASSION AND PROFIT
Tyler Gage and Dan MacCombie sat together in silence and darkness, their hearts racing.
Peering out the passenger window of their pickup truck, MacCombie knew they had dodged a
bullet. Under the moonlight, all he could see was a dense slope of jungle. They were deep in the
Amazon rainforest, and their truck had narrowly avoided skidding off the road as they rounded a
tight bend. They were on their way from Quito to a small community in the heart of Ecuador.
Typically, this drive would have taken them four hours. However, given the faulty brakes on
their truck, they had been on the road for more than 12 hours, with several more hours to go.

On the one hand, Gage and MacCombie were thrilled. Just a year earlier, they were sitting in a
classroom in Providence, Rhode Island, brainstorming ideas for a class project on
entrepreneurship. Now, in August 2009, they had turned that class project into Runa, a beverage
company that made drinks from a little-known leaf in the Amazon Basin called guayusa. They
had won multiple business plan competitions, raised more than $250,000, and started developing
the worlds first value chain for guayusa. At the same time, Gage and MacCombie were
fulfilling a mission that had deep meaning to each of themrespecting the cultural traditions of
Ecuadorian Kichwa communities,1 providing sustainable income streams to small farmers, and
helping the Amazon rainforest thrive.

On the other hand, Gage and MacCombie realized the venture might be more of a challenge than
they had originally anticipated. Building the guayusa supply chain from scratch was proving to
be a tremendous undertaking, especially given the resistance of local Ecuadorian communities to
foreign companies. They were running low on cash, yet they knew it would be many months

1
Kichwa is a term that refers to several indigenous ethnic groups in South America that speak a Quechua language.

Ryan Kissick (MBA 2014) and Laura Hattendorf, Lecturer in Strategic Management, prepared this case as the basis
for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

This case was made possible with the generous support of John Crean.

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before they sold their first product. And although they had experienced some success
fundraising in the United States, they knew it would be nearly impossible to raise more money
from the middle of the Amazon. On top of the professional challenges were the personal
challenges. Gage and MacCombie had been in Ecuador for more than six months, oftentimes in
extremely remote villages. Despite their passion for Runa and their familiarity with South
America, they found it hard not to think about the comforts they had foregone back home in the
United States.

After a few more moments in silence, Gage started up the engine to their truck. Despite their
exhaustion, both Gage and MacCombie were determined to share guayusa with the rest of the
world.

BACKGROUND

Tyler Gage

Raised in Orinda, California, Tyler Gage started at Brown University in 2004 with the intention
of studying political science and playing soccer. However, his plans changed drastically in the
summer after his freshman year, when he met an ethyl botanist named Jonathan Miller after
reading about him in a book titled Breaking Open the Head. Miller had studied Amazonian
plants for more than 20 years, and he invited Gage to join him in his research in Costa Rica.
Gage first drank guayusa with Miller, and over the course of the summer, Gage developed a
strong interest in Amazonian plants and indigenous cultures. Wanting to learn more, Gage
decided to postpone his studies at Brown to pursue this newfound passion.

In the fall of 2005, Gage took several classes at UC Santa Cruz, where he studied indigenous
cultures, indigenous languages, and shamanism. In December, he flew to South America to put
his learning into practice. For the next year, he lived in the Amazon studying indigenous
languages, learning about various Amazonian plants, and translating indigenous texts and myths.
Although he traveled across several countries and regions, he spent a significant portion of 2006
living with the Shipibo tribe in Peru. During this time, he had become engrained with the tribes
most important cultural practices, including the consumption of a wide array of medicinal plants.

While in the Amazon, he was also struck by the pervasive destruction of natural resources. He
recalled:

I frequently woke up to the sound of chainsaws cutting down trees. When I talked
to the people doing this, they explained that they didnt like cutting down trees.
However, the only way they could make money was through deforestation. If
cutting down trees meant feeding their kids, then thats the choice they would
make. This rubbed me the wrong way. I realized that while these people live in a
paradise of natural resources, their economic opportunities are extremely limited.2

2
Interviews conducted with Tyler Gage and Dan MacCombie on January 6 and January 16, 2015. All quotations
are from these interviews unless otherwise noted.

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With this realization, a seed was planted. Gage returned to Brown in January 2007 to earn a
degree, and a major in literary arts was the fastest way to get there. However, he knew that he
ultimately wanted to address the lack of economic opportunities afforded to indigenous
Amazonian communities, while at the same time taking active steps to help preserve their natural
environment.
During his final semester in fall 2008, an opportunity arose to tackle this challenge. Gages good
friend Dan MacCombie, whom he had met in his second week at Brown, encouraged Gage to
join a class called Entrepreneurship and New Ventures. The main focus of the class was to
create a business plan for a new company. Along with three other classmatesCharlie Harding,
Laura Thompson, and Aden Van Noppenthey envisioned creating a company that would
produce, process, and sell guayusa far beyond the Amazon.

Dan MacCombie

Dan MacCombie grew up in the suburbs of Cleveland, Ohio. In high school, MacCombie took
advantage of his schools outdoor projects program, which gave him the experience of
working on many forest conservation and ecosystem services projects throughout Ohio. These
projects helped MacCombie develop a strong affinity towards nature. He explained: It was
through these experiences that I was able to figure out my true passion and life mission, which is
to reformulate and re-envision the connection between humans and their ecosystems. Since high
school, Ive hoped that everything I do in my life furthers that goal.

After high school, MacCombie attended Brown University. While at Brown, he enrolled in a
wide array of classes, including Spanish. MacCombie had also wanted to travel abroad during
his college experience, and near the end of 2006 embarked on a two-month trip to South
America. One of his stops was in Ecuador, where he volunteered with a reforestation group deep
in the Amazon. While in Ecuador, MacCombie learned about several failed charity projects that
had attempted to develop sustainable farming solutions with local communities. MacCombie
recalled:

Time and time again these people had been promised the moon by foreign
companies, only to see the ventures fail. One example that stood out to me was a
group that helped start a shitake mushroom farm. They brought a bunch of
machinery and tools to help the locals produce the mushrooms. The issue was
they had nobody to sell to! The only economically viable products for these
people were those that destroyed the Amazonthings like corn, sugar, cattle, and
coffee.

MacCombie returned to Brown in 2007 determined to find a solution to this problem. He


focused his studies on business and sustainable development, and enrolled in the class on
Entrepreneurship and New Ventures with the intention of creating a business plan focused on a
social venture. This was where he teamed up with Gage, Harding, Thompson, and Van Noppen.
After brainstorming a few ideas, the team agreed to focus their business on guayusa. They
decided to name their venture Runa, a Kichwa term meaning fully alive.

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RUNA: AN ECONOMIC AND SOCIAL OPPORTUNITY

The Amazon Rainforest

The Amazon rainforest is a moist broadleaf forest covering more than 5.5 million square
kilometers across nine South American countries: Brazil, Bolivia, Peru, Ecuador, Colombia,
Venezuela, Guyana, Suriname, and French Guiana. It contains one in ten known species on
earth, half of the planets remaining tropical forests, and 6,600 kilometers of rivers. 3 More than
30 million people, including 350 indigenous and ethnic groups, live in the Amazon and depend
on the rainforest for food, medicine, and income. The Amazon also contains 90 to 140 billion
metric tons of carbon, which helps stabilize the local and global climate.4

In 2006, scientists estimated that more than 750,000 square kilometers of the Amazon had been
destroyed over the preceding 30 years.5 Leading causes of destruction included logging for
timber, as well as clearing the rainforest to raise livestock or establish monocrop plantations for
crops such as sugarcane or coffee.

Guayusa: The Amazonian Super-Leaf

Ilex Guayusa, commonly known as guayusa (pronounced gwhy-you-sa), is a holly tree native to
the Amazon (see Exhibit 1 for an overview on guayusa). It is grown primarily in Ecuadors
eastern provinces of Napo and Pastaza (see Exhibit 2 for a map of Ecuador), although the trees
are also found in parts of Peru and Colombia. Guayusa leaves, brewed like tea, contain as much
caffeine as coffee and twice the antioxidants of green tea (see Exhibit 3 for guayusas caffeine
content and Exhibit 4 for guayusas antioxidants).

For centuries, Amazonian communities have consumed guayusa as a source of natural


energywhat the Kichwa people call mental strength and courage. Revered by numerous
Amazonian communities, guayusa is consumed by hunters before venturing into the jungle, and
also by families who convene before dawn to share dreams, myths, and legends.6 While guayusa
is much celebrated by these communities, it had little commercial appeal prior to 2009.

Environmental and Cultural Preservation through an Alternate Income Stream

Guayusa is grown in biodiverse agroforestry plots, also known as chakras, which closely
resemble pristine natural rainforest. Guayusa is grown among other plants and trees because it
needs taller vegetation to provide it with shade. As such, guayusa grows well in biodiverse
settings, and farmers frequently plant guayusa seedlings interspersed with other cash crops,
subsistence crops, and native rainforest species. The chakras allow for the maintenance of
rainforest ecosystems; they provide buffer zones around and corridors between less-disturbed

3
Amazon Overview, World Wildlife Foundation, http://www.worldwildlife.org/places/amazon
(accessed March 4, 2015).
4
Ibid.
5
Butler, Rhett A., A Place Out of Time: Tropical Rainforests and the Perils They Face, Mongabay.com, January
9, 2006, http://rainforests.mongabay.com/amazon/amazon_destruction.html.
6
Runa internal company materials.

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areas, which are important for plant and animal dispersal. By paying farmers for guayusa, Runa
would create a financial incentive for farmers to develop chakras.

In addition to preserving the Amazon and its biodiversity, Runa would help provide an alternate
income stream for Kichwa farmers and their communities. Because guayusa grows well
interspersed with other crops, its cultivation does not preclude the growth and sale of other
plants. Kichwa farmers with multiple income streams would have a greater income buffer if one
source faltered. With this added income stability, Kichwa farmers would be less inclined to cut
down the rainforest and abandon their traditional way of life. The farmers would also be
practicing a much more sustainable form of agriculture, as guayusa leaves could be harvested
multiple times per year without damaging the trees. By spreading guayusa around the world,
Runa would benefit the natural environment while also helping to preserve and spread the
Kichwa cultural heritage.

The Market Opportunity for Guayusa

Although guayusa is technically not a tea, Gage and MacCombie believed it could compete
against bagged teas, ready-to-drink (RTD) teas, and energy drinks. In 2007, the U.S. specialty
tea market was $2.8 billion, while the U.S. energy drink market was $3.5 billion, and the U.S.
RTD tea market was $7.4 billion.7 Based on their research, Gage and MacCombie expected
these markets to grow at 15 percent, 25 percent, and 25 percent, respectively over the next five
years.8

In 2008, market research company NPD Group outlined four major trends in consumer demand:
healthier, greener, more exotic, and increased consumption levels.9 In addition, according to the
National Association for the Specialty Food Trade, tea consumers aged 18 to 34 were
increasingly attracted to new flavors, fair-trade products, and organic ingredients.

Gage and MacCombie believed that Runa and guayusa were well positioned to take advantage of
these trends in the industry.

FROM CLASS TO COMPANY

In September 2008, the Runa team refined their business plan and quickly attracted the attention
of their professor, Danny Warshay. Within the first month of the semester, Warshay told the
team that he loved their idea. Warshay had created many companies himself, and his course at
Brown University had also helped several companies launch. In addition, Warshay had started a
venture capital (VC) company focused on natural products, so his advice carried tremendous
weight for the Runa team. Given Warshays background and track record, the team was thrilled
when he asked if they had considered turning their idea into a company. Gage recalled: When
Danny asked us if we had thought about doing this full time, it hadnt really crossed our minds.
It was awesome that he was so excited about our idea. We had just never thought about this as
anything more than a class. His question was what got us thinking about it more seriously.

7
Runa internal materials.
8
Ibid.
9
Ibid.

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Warshay also connected the team with Natural Products Consultings Bob Burke, an expert in
bringing natural products like guayusa to the market. After hearing their pitch and sampling
some guayusa, Burke echoed Warshays sentiment and excitement: This is a great product that
has a lot of potential. You guys should definitely give this a go if thats what you want. Burke
connected the team to a few others in the natural food industry, most of whom were extremely
positive about their idea. Based on this feedback, Gage and MacCombie began a serious
consideration of whether Runa should be more than just a class project.

By October 2008, two members of the Runa team, Van Noppen and Thompson, had committed
to jobs after graduation. Although they enjoyed the Runa project, they did not see Runa as a full-
time endeavor. Harding still had a year left before graduation. While he was willing to help out,
it would not be in a full-time capacity. This left Gage and MacCombie contemplating if the two
of them should jump into Runa full time after graduating in December. MacCombie explained
their decision process:

Tyler and I were both looking at a variety of job opportunities, and on top of that
Tyler was applying for the Fulbright Program. We were spending a lot of time
recruiting. But we each had a moment where we thought, Why are we doing all
of this work to find another job? Were spending so much time working on this
business plan for Runa, all of these people are telling us we have a great idea that
we should pursue, and its something were both really passionate about.
Needless to say, we each had our separate light bulb moments where we said,
this is exactly what weve been looking for!

For Gage, this happened on Halloween 2008, when he spent several hours meditating about the
decision. After clearing his head, he was convinced he should pursue the Runa option. There
was no doubt in my mind, he recalled. This was a business inspired by passion, and it was
perfectly aligned with my personal passions. I could support native communities in the Amazon
by giving them a new source of income, and I could also nerd out on creating a new supply chain
from scratch. Not to mention I liked taking the extreme road.

MacCombies light bulb moment came a few weeks later when deciding whether to accept a job
offer from the consulting firm McKinsey & Company. As he weighed the pros and cons of the
offer, it became clear that Runa was better aligned with MacCombies personal and professional
aspirations. So he declined the job offer and committed to working at Runa full time.

After deciding to work on the venture in a full-time capacity, Gage and MacCombie were
confronted with the issue of their respective roles and titles. Gage recalled:

When we started Runa, we didnt know exactly what work needed to get done, let
alone how we would split responsibilities. We just knew that we were both
incredibly passionate about building the business, there was a ton to learn, and
that over time, there would likely be a natural delineation in our efforts. So we
agreed to be cofounders and co-CEOs, while also agreeing that we would
continue to define our individual roles as Runa grew.

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For-profit or Nonprofit?

One of the first decisions Gage and MacCombie needed to make as co-CEOs was whether to
structure Runa as a for-profit, a nonprofit, or a hybrid. Because they were more interested in
social impact than making money, their first thought was that Runa should be a nonprofit
venture. This would help them focus entirely on Runas missionrespecting cultural traditions,
supporting small farmers, and helping the Amazon rainforest thrivewithout focusing on
financial returns. As a nonprofit, all of their efforts, metrics, and resources could be channeled
towards maximizing social impact.
At the same time, they feared that a nonprofit structure might hinder the companys ability to
grow in the future. Nonprofits typically accessed capital through two primary channels: debt;
and donations from individuals, foundations, and corporations. Growth capital, however, tended
to be in the form of equity, which nonprofits were prohibited from selling. Gage and
MacCombie knew that within a few years, they would need to rapidly ramp up both production
and distribution in order to achieve their mission on a grander scale. As a nonprofit, they might
not be able to access the type of capital required to scale Runa as quickly as they hoped.

For-profit ventures, on the other hand, could raise money from investors, including angel
investors, venture capitalists, banks, and corporations, all of whom would expect some sort of
return on investment. Gage and MacCombie were confident that Runa could earn financial
returns. But did they want those returns going to shareholders instead of towards the
communities they were serving in Ecuador? Would local communities in Ecuador trust and be
willing to partner with an American for-profit venture? And if Runa did accept money from for-
profit investors, what was the exit plan for the initial investors?

The answers to these questions were not clear-cut, and Gage and MacCombie grappled with
Runas structure for a number of years. Ultimately, they settled on a hybrid approach. They
created two for-profit ventures: an Ecuadorian company focused on the production and export of
guayusa; and an American company focused on packaging, distribution, and sales. At the same
time, they created two nonprofits: Runa Foundation USA and Fundacin Runa. Together, these
nonprofits act as a watchdog to the company, conduct scientific and participatory research,
engage in community outreach, and promote cultural exchange.10 Gage and MacCombie
believed this hybrid structure would best enable them to grow the guayusa supply chain in a
socially and environmentally sustainable fashion..

A ONE-WAY FLIGHT TO QUITO

Soaking up Knowledge

After graduating in December 2008, Gage and MacCombie booked flights to Ecuador with the
intention of spending several months on the ground before making any major decisions about
the company. Their primary goals during this time were to learn as much as possible about a
variety of topicsEcuadorian culture, Ecuadorian politics, existing guayusa farmers, and the
mechanics of starting a business in Ecuador and setting up a supply chain for guayusawhile

10
Runa Foundation Mission, Runa Foundation, http://www.fundacionruna.org/ (accessed March 15, 2015).

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also broadening their network. With very few relevant connections in Ecuador, they knew it
would be a challenge to figure out the resources and tactics to build out their rolodex.

They did have one prominent contact in Ecuador, Yolanda Kakabadse, who was the minister of
environment. MacCombie described this connection as well as the gradual development of their
Ecuadorian network:

Funny enough, the mother of one of my teaching assistants at Brown served on


the board of the Ford Foundation with Yolanda. Thats how we got our first
major contact. Another group we met in the early days was a family in [the
province of] Pastaza, who really showed us the power of guayusa. Believe it or
not, we actually met them through the Internet. After that, it was just a lot of
hustling. We met with local organizations, explored a fair-trade cooperative
project focused on quinoa and another one focused on chocolate and cheese,
volunteered with a rainforest lodge to learn more about their agroforestry system,
hiked around the jungle, met with local leaders, asked for introductionsfinding
the right people felt a little like the Wild West. But people were excited to help,
especially if we came to them asking for specific and relevant guidance.

In their initial meetings, Gage and MacCombie found that the majority of Ecuadorians, although
friendly, were skeptical about Runas plans. When we said we wanted to sell guayusa in
America, most people just laughed at us, Gage explained. This seemed impossible to people
whose cash crops were corn, sugar, and coffee. Guayusa was their lifeblood, but not a way to
make a living. Nobody sold guayusa commercially. But when they realized we were serious,
they really warmed up to the idea of spreading guayusa to the rest of the world.

Over the course of six months, Gage and MacCombie met with dozens of individuals spanning a
wide range of professions: government officials, local leaders, farmers, distributors, business
owners, and volunteers. They visited multiple provinces, spent countless hours in the rainforest,
and learned as much as they could about guayusa. Through this experience, they came to a few
key conclusions. First, they realized that MacCombie should return to the United States to start
focusing on the U.S. portion of the businessbrand development, sales strategy, and
marketingwhile Gage remained in Ecuador to build the supply chain. MacCombie explained:
There were too many cooks in the kitchen focusing on the Ecuadorian side of the business.
Naturally, I found myself spending more time in Quito working on things like finances,
fundraising, and our U.S. sales strategy. And the main reason I was in Quito was high-quality
Internet. Near the end of 2009, it just made sense for me to transition back to the United States.

They also concluded that it would take significantly longer to build a guayusa supply chain than
they had originally anticipated. The infrastructure and basic knowledge required to produce,
process, transport, and export guayusa on a large scale did not exist. Gage explained:

When we arrived in Ecuador, there was no such thing as a guayusa supply chain,
so we had to create it. This meant finding the right communities to produce
guayusa, getting the proper machinery into remote communities, teaching people
how to use this machinery, setting up communication channels between rural
Ecuador and the United States, transporting guayusa across borders, ensuring

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there was demand for what we were producing, selling products in the United
Statesand doing all of this in an economically feasible manner.

At the same time, Gage and MacCombie observed a deep mistrust of foreign businesses among
most of the local communities. Many of them felt they had been taken advantage of in previous
partnerships, so they were reluctant to partner with an American company. The sentiment
varied from mistrust to hate, recalled MacCombie. Lots of organizations had come to Ecuador
with promises of helping local communities, but very few actually did. Most companies failed
or took the majority of profits for themselves. Either way, we had to overcome this hurdle.

Their final conclusion was that guayusa possessed an even greater status than Gage and
MacCombie originally believed. To many of the indigenous Kichwa people, guayusa was more
than a leaf; it was a way of life. It was an important part of their daily ritual, a cornerstone of
their culture, and something they wanted to share with the rest of the world. As such, Gage and
MacCombie knew that they were likely to find support among local communities despite the
mistrust of foreign companies. However, they knew they needed to be strategic in the selection
of their partner communities.

Problems in Pastaza

When Gage and MacCombie first flew to Ecuador, they had planned to partner with
communities in four different regions to develop guayusa. However, given the challenges
associated with developing the guayusa supply chain, they realized four community partners
would not be feasible until a later date. Instead, they narrowed their sites to two provinces:
Pastaza and Napo. They had located the first Pastaza community through the Internet and
conducted preliminary partnership meetings in January 2009. They learned about Napo shortly
after arriving in Ecuador and began a partnership in March.

For the first several months, both partnerships progressed much as Gage and MacCombie had
hoped. Each partner had begun planting trees, building guayusa nurseries, and hiring workers to
help Runa develop their initial product. Gage recalled: We felt good about the relationships.
The community in Pastaza was the first community we met in Ecuador, and they were so
welcoming. We felt the same way about the communities in Napo. And we also felt good about
having more than one partner. This gave us another option if one of the partnerships didnt work
out for whatever reason.

Unfortunately for Gage and MacCombie, the Pastaza partnership began to flounder in the second
half of 2009. One issue was purely environmental. Compared to Napo, the soil in Pastaza was
much less productive for growing guayusa. Another issue was the increasing conflict between
community leaders and the Runa team. Gage explained the souring dynamic. The managers we
hired started to scheme behind our backs. They pushed us into some very uncomfortable
political situations that we werent aware of until too late. And they started to become much
more aggressive in our interactions. It just felt like they were trying to take advantage of us.

Finally, Gage and MacCombie realized that Runa did not have the finances to effectively support
two community partners. Gage reflected on the experience: We definitely overextended
ourselves with two partners. We tried to scale too fast without having a clear plan in place and

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proving our model first. In hindsight, we probably should have spent more time focusing on a
single partnership instead of starting with two.

For all of these reasons, Gage and MacCombie decided to end the relationship with Pastaza in
September 2009. They knew that the Pastaza leaders would be upset with the decision.
However, given their lack of finances, Gage and MacCombie also needed to retrieve some
expensive drying and processing machinery that they had left in a warehouse in Pastaza.
Knowing that the Pastaza leaders were unlikely to voluntarily give back the machinery, Gage
sneaked into the warehouse late one night with a few coworkers. They were in the process of
loading the last piece of machinery when they heard several cars speeding towards the
warehouse.
A few seconds later, the Pastaza leaders barged into the warehouse and locked the door behind
them. They knew what Gage was doing, and they were not happy about it. Gage recalled the
event. These guys were really angry, and they werent the type of people who talked things out.
They shouted at us for at least five or six hours. There were a few moments where I wasnt sure
what was going to happen. Luckily for us, I think they tired themselves out shouting, and they
eventually let us go. Needless to say, we didnt want to be in that situation again.

RAISING MONEY

Among other concerns, the Pastaza incident highlighted Runas struggle for funds. Throughout
their time in Ecuador, Gage and MacCombie began to feel the company was starved for cash. In
one instance, the two had won a small grant from the Ecuadorian export ministry to help build a
guayusa test facility in the Amazon. The grant required them to call out each expense item
required to get the facility going. Although Gage and MacCombie were quite meticulous in their
work, they forgot to account for the cost to transport drying equipment from Quito to the
Amazon. Gage recalled: We flagged every other expense, including the purchase of the
equipment itself. The cost to transport the equipment was really small relative to everything
else. But since it wasnt in the grant, we had to find a way to make it happen. With limited
cash, they bought an inexpensive used truck to transport the equipment themselves; however, the
truck had faulty brakes. This was especially problematic given that Quito, at more than 2,800
meters in elevation, was more than 2,000 meters higher than their destination. This is how the
two found themselves skidding along on a rural road at night, their adrenaline pumping as hard
as the trucks brakes.

In addition to creating some memorable moments, Runas lack of funding created challenges for
the expansion of the business. As their Napo partnership continued to flourish, Gage and
MacCombie knew they needed funds for a variety of tasks, including hiring employees to
continue product and supply chain development in Ecuador, creating a go-to-market strategy in
the United States, and getting mass distribution set up in the United States.

Throughout 2008 and 2009, they had raised money through a variety of sources. They had won
several thousand dollars by winning business competitions (e.g., The Rhode Island Business Plan
Competition and Brown Universitys Business Plan Competition) and landing some government
grants. In addition, Gage and MacCombie raised money from family and friends. MacCombie
recalled: We used our personal networks to raise as much money as we could. We felt really

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lucky to have the networks we did. But it was a ton of work, and most of the checks were for
$5,000 or less.

Across all of these sources, they had raised $250,000 by the end of 2009. This had been enough
to get the company up and running in Ecuador, but they would need a lot more to scale their
production of guayusa while also launching their first product in the United States.

Late in 2009, they were approached by the Ecuadorian government with an interesting
investment opportunity. The government had developed an investment branch with the purpose
of supporting the Ecuadorian people. They were willing to offer Runa $500,000, which Gage
and MacCombie desperately needed to grow Runa in 2010. At the same time, the investment
came with strings attached. Gage explained:

If we took the investment, we were basically partnering with the government of


Ecuador, which could be great, but it could be risky, too. In theory, we could be
nationalized. Even if we werent nationalized, the government would have more
visibility into our business, and they could essentially tell us what to do. Not to
mention foreign investors would be really turned off by this relationship. Of
course the government said they wouldnt interfere with our business, but should
we believe them? And what if another political party took power?

While these investment conditions were not ideal, $500,000 would go a long way to fund Runas
operations. Gage and MacCombie knew they needed a framework to better evaluate this sizable
opportunity.

GETTING RUNA ON THE MARKET

Upon returning to the United States in late 2009, MacCombie focused his efforts on launching
Runas first product. This involved a variety of tasks, including development of a brand strategy,
building a distribution network, and creating a marketing plan. The company faced several key
questions related to its products.

Loose Leaf Tea vs. RTD?

Gage and MacCombie had to determine what product categories they would include in their
initial product launch. As guayusa was prepared much like tea, they looked at two main options.
The first option was to launch with two product categories: loose leaf tea and bagged tea. These
products both required steeping in hot water for four to six minutes prior to drinking and would
be sold in larger tins of 10 to 50 servings. Gage recalled: We really liked the idea of offering an
authentic hot tea experience out of the gate. Its how guayusa is traditionally consumed, and we
wanted that as part of our brand. Gage and MacCombie estimated that if they focused their
efforts, they could launch these products by late 2010.

The second option was to launch with a third product category as well, RTD teas (see Exhibit 5
for Runas primary competition in each product category). RTD teas would be served cold and
sold in a single bottle. At $7.4 billion, the RTD tea market was three times bigger than the
specialty tea market. MacCombie explained: We knew that RTD would eventually drive the

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 12

vast majority of our business, but we also knew it would take longer to develop a product. For
us, the question was how long could we wait?

Gage and MacCombie estimated that they could finalize a RTD offering by mid-to-late 2011.
Could they wait that long before their first sales? Alternatively, if they launched with loose leaf
tea and bagged tea only, were they diverting resources that could be used towards more quickly
developing their RTD product?

To Certify or Not to Certify

Another key question concerned certifications. Gage and MacCombie were confident they could
achieve USDA Organic certification at a relatively minor cost before product launch, regardless
of which product they selected. However, that was not the case for Fair Trade certification. This
certification is monitored by the global organization FLOCERT, and certification ensures that
relevant economic, social, and environmental standards are met during production. In addition,
certification ensures that producers receive a Fair Trade Minimum Price and Premium, which is
higher than comparable products without certification.11

For Runa, Fair Trade certification represented a reputable, third-party validation of their social
and environmental impact in Ecuador. Also, the majority of Runas competitors, including
Honest Tea and Guayaki, offered fair-trade products, and many natural product consumers had
come to expect Fair Trade Certified on product labels.

On the flip side, Gage and MacCombie knew the certification would be costly in terms of time
and financial resources. In 2009, none of Runas producers were Fair Trade certified. And,
given their remote location and unorganized nature, Gage and MacCombie knew it would be
quite an undertaking to achieve certification. Gage knew that FLOCERT did not have an
existing structure to work with Runas farmers. As such, Runa would have to work directly with
Fair Trade USA to pioneer a new standard specifically for guayusa. He estimated that this would
take at least nine months and cost an estimated $25,000.

By the end of 2009, Runa had $40,000 in the bank, and they were burning through
approximately $25,000 per month. Thus, the decision on which product to launch would be
crucial to the continued viability of the company.

EXPANSION INTO THE FUTURE

As Runa ramped up sales and distribution in the United States, they continued to expand
production in Ecuador. By the end of 2012, the company had grown to 24 employees, raised
over $5 million in equity, and was getting ready to raise a new round of growth capital. In
Ecuador, Runa had planted more than 200,000 trees, built a full-scale factory dedicated to
processing guayusa, and was working with more than 1,000 farming families across three
provinces. The company had built a good foundation and was poised for strong sales growth in
the years ahead.

11
Certifying Fairtrade, Fairtrade International, http://www.fairtrade.net/certifying-fairtrade.html (accessed
February 26, 2015).

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 13

Runas Social Impact

Meanwhile, the Runa Foundation had raised more than $500,000 in grant funds (see Exhibit 6
for a summary of Runas major grants through 2012). These grants were used to set up a robust
platform to monitor Runas social impact and establish programs across three focus areas: Fair
Markets, Knowledge Building, and Ecosystems (see Exhibit 7 for a summary of Runas social
impact across these three areas as of 2015).

Runas Fair Markets programs helped local Ecuadorian farming families earn a sustainable living
through the creation of permanent, international markets for guayusa and other local products.
Runa helped launch Fair Trade guayusa cooperatives and established a Social Premium Fund to
be used for community development projects.

Through government partnerships, community workshops, and research, Runas Knowledge


Building programs provided local communities the knowledge required to sustain their
livelihoods on a permanent basis. Specific topics included financial literacy, sustainable
agroforestry, and environmental education.

Runas Ecosystems programs also worked with local farmers to plant new trees and help manage
their land in an environmentally sustainable manner.

The Challenges Ahead

Expansion into Peru


Despite their success to date, Gage and MacCombie had to navigate several strategic and
operational hurdles in Runas road ahead. First, they considered expanding production to Peru.
This would allow Runa to increase its social impact, diversify political risk, and enhance guayusa
production. However, much like the experience in Ecuador, the company would have to
establish the guayusa supply chain from scratch.

Branding a Unique Product


Another challenge was how to brand and market Runas products in the United States (see
Exhibit 8 for a summary of Runas products in 2013). In 2013, Runa was poised to launch a
clean energy drink, which would be served in a can and compete with artificial energy
drinks such as Red Bull, Rockstar, and Monster Energy. MacCombie recalled, The concept was
for Runas energy drinks to compete with the existing offerings, with one single functional
ingredient [guayusa], much like coconut water became an unexpected competitor to Gatorade
and other artificial sports drinks. But could a clean energy drink compete with these
incumbents? What attributes should Runa highlighttaste, nutritional content, functional
benefits, the Amazon, social impact, or something else? And how would these be different from
Runas other products? Gage and MacCombie wanted a broad product set to capture various
customer segments, yet they wanted to do so under a single Runa brand while minimizing
cannibalization.

Selling Guayusa to Competitors


Finally, several of Runas competitors had expressed interest in purchasing guayusa from Runa.
Gage and MacCombie had mixed feelings about whether they should entertain these offers. If

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 14

they agreed to sell guayusa leaves to competitors, it would undoubtedly increase the global
supply of guayusa, which could advance Runas social mission. On the other hand, selling
guayusa to competitors might negatively impact Runas profitability, and the increased
competition would certainly make it more challenging for Runa to compete in the U.S. beverage
industry. To Gage and MacCombie, there was little doubt that this decision would have a large
impact on Runas business as well as the livelihood of thousands of Amazonian farmers.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 15

Exhibit 1
Guayusa Overview

Source: Runa company materials.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 16

Exhibit 2
Map of Ecuador

Source: Courtesy of the University of Texas Libraries, The University of Texas at Austin,
http://www.lib.utexas.edu/maps/americas/txu-pclmaps-oclc-754887586-ecuador_admin-2011.jpg. All rights
reserved. Reprinted by permission.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 17

Exhibit 3
Guayusas Caffeine Content
90 mg
80 mg
75 mg

48 mg

Runa Starbucks Red Bull Honest Tea


Bottles Espresso
Source: Runa company materials.

Exhibit 4
Guayusas Antioxidants

Source: Runa company materials.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 18

Exhibit 5
Runas Primary Competition in Specialty Tea and RTD Product Categories as of 2012

Source: Runa company materials.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 19

Exhibit 6
Summary of Runa Foundations Major Grants through 2012

Date Organization Amount Description


May 2011 CAF ~$100,000 Restricted grant used for research and
(Latin American development of the guayusa value chain
Development Bank) with a large focus on building capacity in
local governments to develop adequate
public policies for the expansion of a
sustainable value chain.
January 2012 Mulago Foundation ~$50,000 Unrestricted grant used for general
organizational development and creation
of monitoring and evaluation platform.
August 2012 IICA ~$250,000 Restricted grant used to reduce
(Interamerican bottlenecks in the guayusa value chain
Institute for the with a focus on research, community
Cooperation in participation, and public policy
Agriculture/Finnish development.
Foreign Ministry)

Source: Runa company materials.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 20

Exhibit 7
Runas Social Impact: Runa Foundations
Annual Monitoring and Evaluation Report as of 2015

ANNUAL MONITORING AND EVALUATION REPORT


PROGRAM INDICATOR 2011 2012 2015
Number of certified organic
680 1,352 3,200
farmers
Market Access Partners for non-
* 1 12
timber forest products (NTFPs)
FAIR Total average income per farming
* $1,174 $1,200
MARKETS family
Average income from guayusa per
$24 $55 $80
farming family
Fair Trade Social Premium Fund
* $11,500 $120,000
payment
Investment and business plans
written with associations and * 1 12
community enterprises
Amazonian community partners
* 1 25
KNOWLEDGE for research on NTFP
BUILDING Technical assistance partnerships
with associations and community * 1 30
enterprises
Womens participation in
* 11% 55%
decision-making
Guayusa and native timber trees
ECOSYSTEMS donated to producers for forest * 100,000 1,200,000
gardens

* Data not tracked until 2012

Source: Runa company materials.

This document is authorized for use only by James Sterns in 2017.


For the exclusive use of J. Sterns, 2017.
Runa: Driving Social Change through Passion and Profit E-549 p. 21

Exhibit 8
Summary of Runas Product Offerings in 2013

CLEAN ENERGY DRINKS


An entirely new take on energy drinks. One can of Runa
Clean Energy has 120 mg of caffeine, 650 mg of polyphenol
antioxidants, and a clean, smooth taste. The kicker? It all
comes naturally from a brewed leaf not a lab.

BOTTLES
Organic, Fair Trade, non-GMO certified guayusa brewed
and bottled in both sweetened and unsweetened flavors.
There are 90 mg of caffeine in each bottle for your clean
energy boost.

PREMIUM INFUSER TINS


Sixteen pyramid infusers in a premium tin. Take your
guayusa-brewing game to the next level.

LOOSE LEAF TINS


No tea bag between you and your guayusa. Six looseleaf
blends in premium tins.

BOXES
Four blends of guayusa to brew a hot cup. Sixteen
individually-wrapped infusers in each box.

Source: Runa website.

This document is authorized for use only by James Sterns in 2017.

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