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FOOD AND BEVERAGE

Ownership Matters
 

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Yesterday we informed our shareholders that Coca-Cola intends to exercise its right to buy the remainder of Honest Tea. While that development on its own is not news, it is another step toward closing the transaction. But one new piece of information we disclosed is that Coke won't be the only owner. I will able to repurchase most of my personal equity in the company and Honest Tea will continue to be run out of Bethesda, Maryland. 

This is an unexpected, though positive, twist to the transaction.  There were no guarantees in the deal with Coke back in 2008, that I would have the right to keep any stock.  So why would Coke allow me to maintain a stake in the company, even though it might cost them more in the future?  Because ownership matters to entrepreneurs. When I say that I own my business plan, I really mean it. The business world is riddled with tales of entrepreneurial brands that lost their spark after they were acquired.  Once the founder loses ownership, his or her motivation to keep building, inspiring and sacrificing diminishes, and as a result, the rest of the team transforms into managers instead of entrepreneurs.  

The most successful post-transaction arrangement I've seen is at Stonyfield Farm, where my friend and Honest Tea board member, Gary Hirshberg, retained his ownership stake alongside parent company Danone. It was Muhtar Kent, Chairman & CEO of Coke, who recognized the value of having me continue to be an owner, and I appreciate his confidence in the future we can create for Honest Tea.  

So my name will still be on the bottle (as will Barry's, my co-founder who will continue as an advisor, along with Gary Hirshberg.) I will strive, as I always have, to build a brand that resonates with my concerns about our nation's health and our planet's future.  

And yet for the first time in thirteen years, I will be the only employee with ownership. Over the years our option plan enabled employees who worked with the company for more than a year to earn stock.  And many have done quite well.  We have always encouraged our employees to think of themselves as owners because it doesn't take a behavioral scientist to know people will think twice before wasting money if they are spending it out of their own wallet.  So a new challenge for us will be to find ways to continue to engender a sense of ownership as we grow. 

I initially debated whether I should tell our employees (or the public) about my continued ownership, but I chose to share this news for a few reasons. First, I've always tried to run the company transparently; second, it helps communicate that I'm committed to the enterprise; and finally, this is an exciting new approach to innovation for Coke, and I hope we will prove that it works. 

The usual course of events in beverage transactions is for the entrepreneur to stick around for a few months as a consultant and then leave to pursue travel and other interests.  As one entrepreneur put it, "For the first few weeks, they want to know your opinion, for the next few weeks they want to know your phone number, and after that, they don't want to know you." The fact that I'm not going anywhere, has helped us retain our wonderful team, and helped us continue to attract top talent. 

One other personal implication of retaining ownership is that most of my personal financial upside will stay inside the company. Some say you shouldn't keep all your eggs in one basket.  But I'm more in line with Mark Twain who wrote:  "Put all your eggs in the one basket and then watch that basket."  I'm staying put and so is Honest Tea's world headquarters. My family is happily settled in Bethesda, our boys can all bike to their different schools from where we live, and I'm fortunate to be able to do something I love.  I have always kept in mind the tale of my friend and former Honest Tea board member Mark Ordan, the CEO of Fresh Fields, a supermarket chain which received a buyout offer from Whole Foods back in 1996.  Rather than take the offer, Mark was eager to continue building the enterprise, but some of his investors were eager to cash out.  As one of them put it to him, "Look, we'll close this deal, you'll get a nice pay day, and then you can go do whatever you want to do."  But Mark responded, "I am doing what I want to do."

And so am I.  After struggling for more than a decade to cobble together distribution for Honest Tea, I can't imagine walking away from the business now that we finally have a national footprint in place and the chance to democratize organics in a way that's never been done.  This tea party is just getting started. 

Last updated: Feb 16, 2011

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.
@HonestTea




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