'Zentrepreneur' Ron Rubin won't sell his Republic of Tea

Image: Jason Myers for Forbes

Eschewing debt, Ron Rubin says, allowed him to grow during recession

Sitting amid a slew of colourful tea canisters, Ron Rubin, executive chairman of The Republic of Tea, hits the delete button on his computer. Then Rubin hits it again and again, going through his regular ritual of dismissing the many emails he receives from private equity firms and investment banks, most expressing interest in acquiring his specialty tea company. “My answer is no answer,” he says.

It’s easy to see why many find the company alluring. American tea consumption is taking off, with domestic sales jumping from $2 billion in 1990 to nearly $11 billion in 2014, according to the Tea Association of the USA. In 2012, Starbucks acquired Teavana, which had revenues of $168.1 million and 300-plus salons, for $620 million. “We believe the tea category is ripe for reinvention and rapid growth,” said Starbucks CEO Howard Schultz at the time. And last summer, Montreal-based DavidsTea went public with revenues of $142 million. On its first day of trading, the stock rose 42 percent above its offering price, giving the company a valuation of $634 million.

Rubin has been told other specialty tea companies are selling for more than five times revenue, so The Republic of Tea, which topped $25 million in revenue in 2015, could be worth as much as $125 million. But he says he’s not interested in selling. An effusive 66-year-old, he recently doubled down on keeping his company independent, executing a plan to turn over the reins to his son Todd, 35. “I wanted this not only to remain a family business but also a generational business,” says Ron, who has started a new venture, a Sonoma winery, and adds that he considers himself a “zentrepreneur”, explaining, “An entrepreneur creates a business; a zentrepreneur creates a business and a life.”

Rubin purchased The Republic of Tea in 1994, when it was just two years old, from a group of owners, including Mel and Patricia Ziegler, who had also founded (and sold) Banana Republic. Under Rubin, Republic promoted the complex and artisanal characteristics of tea as if it were wine. Combing the tea-growing regions of the world for high-quality leaves, the company helped create a designer niche, introducing more than 300 then-exotic brews like Ginger Peach, Milk Oolong and Double Green Matcha. He also imbued the company with his idiosyncratic corporate sensibility. Both the corporate headquarters in Novato, California, and its warehouse, packing and distribution facility in a nondescript industrial stretch of Nashville, Illinois, were designed by a feng shui master and filled with soothing colours, curved walls, fountains and meditative spaces. Within those curved walls, employees are known as ministers, retail partners as embassies and consumers as citizens.

When Rubin acquired The Republic of Tea, his biggest customer was the Nature Company, a national retailer that represented more than 30 percent of his business. Less than a year later, the retailer dropped the account. After that he sought to diversify clients, and he has refrained from building The Republic of Tea salons and from going after mass supermarkets like Walmart or Kroger or offering private-label sales. And he has no interest in expanding internationally. “I imagine there is millions of dollars of revenue in all that,” he says. Instead, he has stayed in the specialty universe and focussed on the company’s customer base of 10,000 domestic channels, including Whole Foods. “We want to do more business with the customers we have versus going out and getting more customers,” he says.

Rubin’s scepticism of growth is rooted in his aversion to debt, a lesson he took from working in his father’s wine and liquor distribution business in Mount Vernon, Illinois. When Rubin bought The Republic of Tea 22 years ago, he borrowed seven figures—he won’t disclose the exact amount—but he proudly recites that it took him “six years, three months and 15 days” to pay off the loan: “I decided then that I wanted to remain debt-free and expand within the resources that come in from our sales.”

Not taking on debt, Rubin says, has allowed him to sleep better. And during the Great Recession, when other firms laid off workers and froze product development, he hired additional regional managers, increased warehouse space and continued to develop new offerings. As a result, he says, “we maintained our growth”.

Rubin has always hoped his company would remain family-owned and private. While Todd grew up in the business, he initially chose to pursue architecture. Then, nine years ago, when the job as East Coast regional sales manager opened up, he emailed his father about the position. “I was sitting in my chair,” says Ron, “and it just about knocked me off.”

Ron insisted that Todd interview, take aptitude tests and start in sales. “My dad told me I had to learn the business first,” says Todd, “and to do that I had to learn sales and listen to our customers.” Early on, Todd had some misgivings. He was landing in a company without any business experience, in some cases leading employees who were twice his age and whom he had known since childhood. But his concerns eased over time as he managed two of the firm’s biggest clients: Panera Bread and Whole Foods. He also brought in new clients such as Williams-Sonoma before moving into marketing and management at the firm’s California headquarters, where he began to assist with strategic planning.

Last May, the Rubins concluded the time had come. With the help of Robert Lefton, a St Louis-based consultant, they completed a 36-month succession plan ten months early. “What I see a lot of times is that a business elevates the son or daughter too fast,” says Lefton. “Oftentimes they feel it’s demeaning for a child to sell, so they make them a VP and put them in the area they like the most. Ron doesn’t think that way.”

While Todd is eager to make his own mark, he says he has no interest in upending his ­father’s vision, which means remaining debt-free and continuing to hit delete when those acquisition inquiries arrive.