Today, Honest Tea and Coca-Cola announced that the world's largest beverage company is buying a 40 percent stake in our much smaller enterprise. While Coke is now our largest shareholder, the agreement was negotiated to ensure that Honest Tea will not be managed or controlled by Coke. We will continue to operate as an independent business with the same leadership and mission. Here are some thoughts on the decision. Please excuse the length, but the deal took months to put together and even longer to think about:
When Barry and I launched Honest Tea in February 1998 the only assets we had were the name Honest Tea, a Snapple bottle with a label pasted on it, and five thermoses (and the thermoses were on loan!). Our beginnings were modest but our vision was bold -- we wanted to create a delicious, healthier drink with a consciousness about the way the ingredients are grown. We always hoped that the Honest brand would stand for a different way of doing business -- a product that is what it says it is, a company that strives for authenticity in the way it treats its customers and stakeholders.
Despite our 66 percent annual compound growth rate (70 percent in 2007), we still aren't reaching all the people we want to reach. Our business has inspired many, (most recently we were delighted to see Kraft join our Terracycle Drink Pouch Brigade), but we also want to see Honest be a change agent through our own actions. When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesn't rely on chemical pesticides and fertilizers. But when we buy ten times that amount, we help create a market that multiplies far beyond our own purchases. When we sell 32 million bottles and drink pouches with less than half the calories of mainstream alternatives, as we did in 2007, we help displace 2,400,000,000 empty calories. That's important, but when we sell ten times that number, we help lead a national shift toward healthier diets.
So what does it take to get to the next level of impact -- to see Honest products sold wherever beverages are sold, in schools, colleges, restaurants, and all the other places Coke is found? Certainly, access to capital plays a role in making that happen, and we are fortunate that our 100-plus private investors have never failed to support our ambitions and growth plans. But money on its own doesn't make distribution happen (I note with caution the story of my friends at Jones Soda, who last year saw their market value grow fivefold without a comparable rise in sales).
I have the same passion and drive for building Honest Tea that I had in1998, but I want to focus less on raising money, managing production and distribution challenges, and focus more on building the brand and our mission. If we could find an investor who will help us build our business while still honoring our style of business, then that seems like an ideal scenario.
So how do we move from the ideal to the real without screwing up what we've created? The world of mission-driven business is littered with entrepreneurs whose companies lost their soul or at least lost their leadership. Whether you talk to Ben Cohen from Ben & Jerry's or Steve Demos from Silk, they will tell you that if they could do it over again, they would have done it differently. I am determined to make sure that never happens with Honest Tea. Our challenge is to find a partner who wants to "buy in" to our mission rather than one who wants us to "sell out." Any partner that we consider must understand that the Honest brand stands for great-tasting, healthier beverages that are produced in a more sustainable manner. As long as that partner buys into our approach, we welcome the opportunity to expand the scale and reach of Honest Tea.
It can work — I've seen it firsthand with my board member, Gary Hirshberg at Stonyfield Farm yogurt. In 2001 Groupe Danone purchased 40 percent of the company and now owns 80 percent, with an option to buy the remainder in the future. Stonyfield continues to be on a growth tear (more than $300 million in sales 2007, limited more by capacity than demand) and Gary continues to lead the enterprise and the organic food movement with all the fire and wisdom he had when the deal was put together. Gary and Stonyfield continue to innovate on packaging (they were the first to eliminate plastic lids) and just this year converted their entire line to organic. (read more in Gary's new book Stirring It Up, How to Make Money and Save the World).
That's one of the reasons we are glad Gary will continue to serve on Honest Tea's board, along with Barry, me, and two Coke representatives. Of course there are risks to this deal:
'˘ Things may not work out with Coke's investment.
'˘ Our customers may revolt against the notion of our brand being associated with a much larger company (though I hope they give us a chance).
'˘ I may get hit by a bus.
In the course of negotiating this transaction, there were safer alternatives -- an outright sale would have locked in the gains versus the continued risks that come with this kind of investment. I'm sure there will still be cause for cold sweats at 3 a.m. I don't know a beverage entrepreneur who doesn't have them, but I've lived with risk ever since Barry and I started brewing tea in my kitchen, and while there have clearly been moments I would love to forget, I wouldn't trade this experience for all the tea in'¦.well, for all the tea we will sell together with the Coca-Cola Company. As we see the U.S. shift toward healthier and greener living, it doesn't seem like the right time to take our cards off the table.
Ten years after starting Honest Tea, we can be proud that:
'˘ We were the first company to introduce a certified organic bottled tea.
'˘ We were the first company to introduce a certified Fair Trade bottled tea.
'˘ We have won awards and top rankings from national consumer publications and organizations for creating great-tasting, healthier products.
'˘ We continue to be on the leading edge (sometimes bleeding edge) of innovation in terms of new ingredients, packaging and packaging re-use.
'˘ We have assembled a team of 60-plus wonderful people, winning awards for our employee-friendly practices, sharing stock options and bikes with them.
'˘ We have become a leader in our local community, launching the Bethesda Green initiative to develop a model sustainable business community.
And yet the best reward has been the support and loyalty of customers who care as much about what we're doing as we do. As we enter a new phase of our business, I hope you will help keep us Honest as we try to balance the challenge of building a sustainable enterprise in a consumer economy. Please don't hesitate to contact us by responding to this blog or by emailing firstname.lastname@example.org (or both) with suggestions or feedback, especially if you see us backing away from our commitment to organics, healthier products, and sustainability.
SETH GOLDMAN | Columnist | Co-founder of Honest Tea
Seth Goldman is the President and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. He's preparing the September release of a graphic novel titled Mission in a Bottle.