2011 INC. 5000 RANK: 1336
HEADQUARTERS: Bethesda, MD
YEAR FOUNDED: 1998
2010 REVENUE: $71.7 million
How do you make the right decision when your new business idea doesn't align perfectly with your current mission? A recent experience at Honest Tea helped me realize there are two questions you have to ask yourself.
At Honest Tea we were faced with these questions with our newest product, Honest Fizz (a line of naturally-sweetened zero-calorie sodas). It came from the realization that for the first time since 2004, we would be launching a product that would not carry the USDA Organic seal.
Before we made the decision to jump back into the non-organic beverage waters, we asked ourselves two questions that are valuable for every entrepreneur exploring divergent growth opportunities:
1) Is this step away from our traditional offerings consistent with our mission and business goals?
We found the answer in the core part of our mission to democratize lower sugar, organic beverages.
Carbonated soft drinks are the largest beverage category in the United States, roughly 6 times the size of the read-to-drink tea category. Americans drink approximately 14 8-fluid ounce servings of sodas per week, according to Beverage Digest. This represented a tremendous opportunity and challenge to create a naturally sweetened, lower-calorie alternative.
We started with two zero-calorie natural sweeteners, stevia leaf extract and erythritol. Stevia is a plant originally from South America that has been used as a sugar substitute for hundreds of years, but was approved as an ingredient in the U.S. by the FDA in 2008. Erythritol is a sugar alcohol that occurs naturally in some fruits and fermented foods, though ours is fermented in a commercial facility.Both stevia and erythritol have virtually no calories and do not affect blood glucose or insulin levels so they were the perfect sweeteners for our new soda line.
We managed to find suppliers who could deliver organic versions of each sweetener.But after finding the perfect taste balance and identifying viable suppliers, we ran into a cost issue.
Organic stevia leaf extract is 175 percent more expensive than conventional (non-organic) stevia. Organic erythritol is 270 percent more expensive than conventional. As a result of these differentials, we would have to charge over $8 for a six-pack of organic Honest Fizz, more than twice the price of its non-organic competition.
To put this into perspective, organic fair trade certified tea leaves and organic sugar are at least 25 to 30 percent more expensive than non-organic.Over the years we have managed to find a way to absorb those costs and offer our bottled teas and fruit drinks at accessible prices--averaging about 10 percent more than non-organic bottled tea. But the 100 percent premium on Honest Fizz would prevent us from putting organic within reach of a wider audience and instead make the drinks available only to the economic elite. So we were meeting part of our mission--the lower sugar part, but weren't going to be able to make the entire line organic.Thus, the next important question:
2) If we stray from our original path--in our case organic ingredients--would this new direction enable us to someday reconnect with it?
The debate reminded me of our decision to launch the world's first fair trade bottled tea back in 2003.When we realized we could launch Peach Oo-La-Long using fair trade tea, we explored whether we could make our entire line with Fair Trade Certified tea leaves. I recall our marketing manager pushing hard to make everything fair trade, saying, "We need to do the right thing."But back in 2003 doing the "right thing" would have required one of two choices:
- If we wanted to keep our prices the same, we would have had to collapse our margins to the point where we would have run out of cash--when our business was already quite shaky.
- If we wanted to keep our margins the same, we would have had to raise our prices 20 to 30 percent, essentially putting our drinks out of reach of the daily drinker.
Instead, we opted to make only Peach Oo-La-Long Fair Trade Certified and committed to a path toward a full line using Fair Trade tea.It took about eight years for us to work with our suppliers to grow the supply chain and accommodate the increasing demand, but in April of 2011, we were able to make our entire tea line Fair Trade Certified.
Those two key questions led us to make Honest Fizz naturally sweetened and naturally flavored, with no ingredients containing GMOs.We managed to make one variety, Root Beer, certified organic. (And I won't be surprised if Root Beer becomes our best seller.) As Honest Fizz grows, we hope we will be able to make the line fully organic and fully affordable.
In the long run, we always choose organic, but in the short run, we realize it may take several years to get there.