David Segal

Decommoditize tea: make a stodgy grocery aisle product fun and young

In 2007, tea was either a faceless grocery commodity (10 brands of Earl Grey, picked by box picture and price) or an intimidating quiet specialty shop. Segal saw an opening to put tea on Main Street and make it young and fun.

“We had the idea because nobody's really doing tea in a fun way on the main streets of the country, and tea was— had this stodgy vibe to it. And really, there was an opportunity to make it a lot younger.”

Steal thisFind a boring, commoditized product category with no fun brand and reposition it as young and approachable.

He pitched a 90-year-old cousin on tea, built it to a $1B Nasdaq cap

David Segal, then 26, had the idea for a fun, youthful tea brand and pitched his much-older cousin who agreed to back him. David's Tea grew to a billion-dollar market cap on the Nasdaq with $200M in sales before he sold his stake in 2016.

“He said, you do it and I'll back you. And I was like, great. We got to work and built a brand, grew it. And anyway, at its height, it was a billion-dollar market cap on the Nasdaq, $200 million sales. I sold my stake in 2016.”

When the board and management fight, nobody serves the customer

Segal's first million came from a private equity deal with Tom Stemberg (Staples founder) at Highland Capital, but the partnership soured as his cousin wanted family members in while Segal wanted a meritocracy. The company went public partly so the PE group could exit and the warring parties could separate.

“And when your management team and your board are fighting with each other, you're not focused on creating value for your customers. And I just want to get out of there. There are too many bullets flying.”

Sold IPO shares at $14; the stock trades at $4 today

Despite making ~$30M EBITDA and not needing the cash, Segal and Highland sold shares in the IPO to make it big enough. He sold at an average of $14/share; the stock later fell to $4.

“I ended up selling it at average price of $14 a share, and, you know, the stock today trades at $4.”

Starbucks paid $600M for Teavana, then shut the stores

Starbucks acquired tea retailer Teavana for $600 million, later closing its stores. Segal argues the outcome was so-so because the tea simply wasn't good enough.

“$600 million.”

The wine-drinker spectrum: cheap-high, connoisseur, and the quality middle

Segal frames any taste-driven product (tea, wine) as three customer types: those who just want the cheap high, the connoisseurs who study terroir, and everyone in the middle who can taste quality but doesn't want a PhD. The biggest opportunity is curating for that middle group.

“If I was to summarize it, there's the customer that just wants to get drunk, wants the high, right? And doesn't care. They're picking it because it's cheap and because they like the picture on the bottle. Then there's the customer on the other end of the spectrum. That is the connoisseur. They want to become a tea hobbyist. They want to be able to tell you about the terroir. And then there's everybody else which frankly wants a really good wine or tea in this case. They want quality.”

Steal thisTarget the quality-seeking middle: curate down to 20 great picks so customers get connoisseur-grade product without having to learn the category.

A nice-to-have with a long sales cycle is a good idea but a bad business

Segal's earlier 'abandoned fitting room' analytics software for department stores kept getting the response 'interesting' but never closed. The lesson: a complex, long-sales-cycle nice-to-have (vs a need-to-have) is a good idea but not a good business.

“There's a big difference between a good idea and a good business. You know, I kept hearing the word interesting. It's very academic.”

Walk the big-box aisles and uncommoditize the products nobody cares about

Segal's go-to playbook: visit a Walmart or Home Depot, find the products a mid-level buyer grabbed haphazardly at a trade show (fire starters, fire pokers, shovels), and build a better, more thoughtful D2C version. He pitches a scented fire-starter that merges a candle with a coal-bed starter.

“That's the first place I would start is I would literally go down to one of these big box stores and walk the aisles and be like, what product do these guys clearly not care about but feel they have to have? There's where I would go direct to consumer and create something a little bit better.”

Steal thisWalk a big-box store, find the orphaned commodity products no buyer cares about, and build a thoughtful D2C brand around one of them.

Malls of the future will be about discovery, not distribution

Segal predicts brick-and-mortar will shift to a discovery role: physical stores become where you learn about cool online brands and products, then you replenish and reorder online. He had written a deck for a pop-up mall of online-only brands.

“Basically, brick and mortar becomes about discovery, not distribution. It's where you go to learn about cool brands and products, and then you replenish and order online. Could you create a mall experience around that?”

REITs are turning dead JCPenney pads into apartments at rock-bottom rates

Segal points to Canadian REIT SmartCentres, which owns Walmart-anchored real estate. As 1990s clothing brands die off, they replace a dead JCPenney-type pad with multi-unit residential or senior housing, extracting huge land value while interest rates are low and inflation looms.

“So they're taking this pad where they had some crappy JCPenney type brand, and they're building a multi-unit residential apartment building or a senior's home. They're getting enormous value out of the land and even bigger returns.”