Honest Tea's Seth Goldman Addresses Congress
Last week I put on a tie for the first time in a very long time. The occasion was the opportunity to testify on Entrepreneurship and Job Growth before the House Small Business Committee. As you can imagine, this is a topic I’m quite passionate about.Here are a few highlights from my remarks:
Good Afternoon. Whenever there’s a discussion of fast-growth businesses, the focus is usually on the internet, computer and biotech businesses.So I’m happy to represent a fast-growing part of our economy that is a little more traditional, by which I mean everyone can understand what we do.My company Honest Tea, makes and markets lower-sugar, organic beverages.Our fourteen years of continuous double-digit growth have helped create 112 jobs in 22 states–jobs that create and support manufacturing jobs across the United States, and just as important, jobs that cannot be outsourced overseas.
When I was launching the company out of my house in 1998, we needed to raise money to fund our first production run. My co-founder Barry and I each put our own money in and then asked for investments from the only people who couldn’t say no–our parents, my sister, Barry’s roommates from college.They all wrote us checks as angel investors.
Over the next ten years we raised approximately $10 million in equity capital from angel investors. When they were tapped out, we took in investments from people who liked the product and wanted to see us stay in business.So how did Honest Tea manage to stay in business while dozens of other beverage companies launched and closed up shop during those 14 years?
- We offered something that was clearly different from everything else on the market
- We kept innovating
- We were careful with our cash
- We learned from our mistakes
Because we were careful, in Honest Tea’s first ten years we 1) managed to stay in business, and equally important, 2) we managed to keep control of the business. As a result by the time we grew to a scale where we were of interest to large food and beverage corporations, we could negotiate from a position of strength. We weren’t desperate to sell, but we did need to expand our distribution, and we also felt obliged to deliver a return to our investors, whose money we had held for ten years.
Our arrangement with Coca-Cola is unusual because unlike most acquisitions, which involve relocations and layoffs, Honest Tea continues to be based up the road in Bethesda, Maryland. Our headcount has doubled since Coke invested, and our expansion has also spurred additional job growth around the country.Last October I was delighted to cut the ribbon on a new Coca-Cola owned bottling line that created 100 new manufacturing jobs in Massachusetts, and this month we are launching a new production line that is creating jobs in California.
So how did the Federal government help Honest Tea? The best thing I can say about the government is that it didn’t get in the way of our business.Of course, we had to make sure that all of our bottling plants and suppliers were licensed to produce our product and followed FDA and USDA regulations.We filed the stock offerings we presented to accredited investors with the relevant state entities, and complied with all the relevant payroll taxes through ADP.But other than that, we were left to build our business.
One way that the government did support our growth is through the creation of the USDA Organic standards. As I mentioned earlier, having a differentiated product was a key to Honest Tea’s survival, and the USDA Organic seal, which appears on all of our products, helps consumers seek out products grown without chemical pesticides or fertilizers.It is a great example of a government program that helps establish a quality standard without any mandates or large bureaucracy.
At the same time that we’ve been growing Honest Tea in Bethesda, we helped set up a green business incubator at Bethesda Green, a local non-profit we helped launch five years ago. The incubator is now home to 14 entrepreneurs who are launching their own businesses, each with its own environmental point of difference.The incubator allows these entrepreneurs to confer, collaborate and occasionally commiserate as they seek to build their own enterprises.It’s worth noting that Bethesda Green’s incubator is a private institution, located over a branch office of Capital One, which rents the space to us for $1 per year.Eight percent of Bethesda Green’s budget comes from Montgomery County, the rest is privately funded.
My experience building Honest Tea represents all that is great about the American economic system–a group of passionate entrepreneurs and patient investors combining their dreams, their investment capital and their energy to create something out of nothing, delivering jobs, strong investment returns and healthier beverages along the way. In terms of supporting the development of more companies like ours, I would say the best policy is to let entrepreneurs and investors continue to take well-informed risks.
By definition the work we do is challenging–if it were easy or obvious, the big companies would have already done it.But at Honest Tea, we take two Chinese proverbs to heart. The first is, “If we don’t change the direction we are headed, we will end up where we are going.”I believe entrepreneurs are our nation’s best hope for bringing innovations to life that can affect the social, health and environmental problems our society faces.Is that easy work?Of course not, and that’s why the second Chinese proverb appears on the front wall of our office, “Those who say it cannot be done should not interrupt the people doing it.” Thank you very much.
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.