• Entrepreneur of the Month

Magic in a Bottle—Seth Goldman Takes Us Inside Honest Tea

ENTREPRENEUR OF THE MONTH: DECEMBER 2012

SETH GOLDMAN
TeaEO and Co-Founder

By Hope Katz Gibbs, Publisher
Be Inkandescent magazine

There’s a Chinese Proverb painted across the entry wall of Seth Goldman’s Bethesda, MD-based company, Honest Tea: “Those who say it cannot be done should not interrupt the people doing it.”

Indeed, that belief has been part of the mission of the beverage firm that Goldman started in his house in 1998, with his grad school professor, Barry Nalebuff of the Yale School of Management. It was slowgoing at first, but Honest Tea has thrived for the last decade, with a 66 percent annual compound growth rate—a statistic Goldman attributes to the fact that consumers increasingly prefer healthier food and drink options.

That fact helped Honest Tea land a cash infusion from The Coca-Cola Company in 2008. It owned a 40 percent interest in the company until March 2011, when it acquired the boutique brand for an undisclosed price, a month after its option to buy came due.

“This is a recognition that, especially with early-stage brands, the entrepreneurs continue to be relevant and important,” Goldman told The Washington Post. “We have an amazing opportunity to take our mission to a much broader level.”

Be Inkandescent magazine had the opportunity to sit down for an interview with the graduate of Harvard College (1987) and the Yale School of Management (1995), who also holds an honorary doctorate of laws from American University. Scroll down for our Q&A, and click here to hear our podcast interview with Seth Goldman.

Click here to see the results of Honest Tea’s social experiment in 30 cities: How honest are you?


KEEPING IT REAL AT HONEST TEA

Be Inkandescent: You have had a passion for business since you were a kid. In fact, your first business was a lemonade stand. Seems telling! After graduating from Yale, you nearly pursued a prize-winning biotechnology idea. Why did you give that up to get into the tea business?

Seth Goldman: I have always had a creative streak, and an entrepreneurial streak. But I think the third streak that I couldn’t deny was wanting to fuse those two things together. What we have created at Honest Tea enables me to focus on issues around health, the environment, and sustainability, as well as economic opportunities. We get to help support organic agriculture in many communities around the world that grow tea. It’s a real privilege to be able to do this.

Be Inkandescent: Did you know it would become a huge company, being that tea is the world’s second most popular beverage, second only to water.

Seth Goldman: We weren’t sure, but as you can see from our original business plan on our website, we had an inkling. Tea is also an incredibly healthy product, one that’s packed with antioxidants, which is associated with everything from fighting cancer to hydration. And, it can be enjoyed for about 30 calories a bottle. It’s also an affordable luxury—unlike wine, for example. When I got to talking about this with Barry Nalebuff, my professor at Yale, who is my business partner, we knew we could make our tea accessible to consumers at a price point they can afford.

Be Inkandescent: Tell us a little bit more about Nalebuff, and how you came together to start Honest Tea.

Seth Goldman: Barry was my professor at the Yale School of Management, and is still there, in fact. He’s a very creative guy, a very untraditional thinker, and very strategic. What has been really fun this past year is that Barry and I have been finishing up a book that will be released in 2013 about the story of Honest Tea. It’s a Random House Business book, but it will be told in a comic book form.

Be Inkandescent: That sounds fabulous! It reminds me of Dan Pinks’ Adventures of Johnny Bunko, but it also seems like a bit of a risk given that it’s a different approach to a business book. Are you a fan of testing the waters before you jump into a big project? Did you do a lot of market research before you started Honest Tea?

Seth Goldman: That’s a good question. We probably didn’t do enough research, in fact. It was more of an instinct, because both Barry and I felt there was something missing from the beverage options we had. We didn’t do any big focus groups, but we did do a few tastings. And what we heard was that people agreed with us. Obviously, the shelves were full of tea products, but nothing that tasted good enough. That’s when we knew there was an opportunity to provide something new.

Be Inkandescent: Was that enough to get you through the start-up years?

Seth Goldman: Well, it was a process. Our original production runs were very challenging, and we always had an inch of sediment on the bottom of the bottle. In the beginning, customers told us that our teas weren’t sweet enough. So, we made them slightly sweeter, finding that 30 calories per bottle hits the spot. Customers love it, and still it’s significantly less sweet than other teas on the market.

Be Inkandescent: I was offered a bottle today when I came in, and chose the zero calorie lemonade. Was it part of your plan to diversify into other beverages?

Seth Goldman: When we started, we always thought of ourselves as a tea company. As we grew, we realized that the most important brand connected to it was “honest.” That enabled us to create Honest Ade, and from there we developed Honest Kids, which offers our drinks in kid-friendly pouches.

Be Inkandescent: That’s a perfect segue into our theme of the month, honesty, which you have inspired. Tell us more about honesty and business. What does it mean to you? Do you think being honest in the corporate world is a trend? Or is it just a buzz word that gets bandied about?

Seth Goldman: First of all, we take the concept of honesty very seriously at our company. I think one of the ways you can really ensure what you are doing is honest is by under-promising. The challenge we saw as we got into the beverage business is we heard so much distrust of beverage companies. People thought they were always over-promising—like saying that drinking tea is going to cure cancer. But there is now a broader phenomenon going on in corporate America.

Be Inkandescent: Are you referring to the trend that companies are trying to be transparent and authentic?

Seth Goldman: Absolutely. At Honest Tea, we work hard to do what we say. We also under-promise so we can exceed expectations. We never say we’re a socially responsible company, but that we have a commitment to social responsibility.

Be Inkandescent: You recently released your 2011/2012 mission report of how Honest Tea is doing. It’s filled with information, but it isn’t a cheerleading document.

Seth Goldman: We do our best to not put ourselves on a pedestal—especially in our annual report. The point of that document is to explain what we haven’t quite achieved, and what we hope to achieve going forward. Even though we’ve made a lot of progress, and are probably further along than a lot of companies, we know we can do better.

Be Inkandescent: What haven’t you accomplished, and what do you hope to achieve in the future?

Seth Goldman: Certainly, the biggest environmental impact we have as a company is that we sell tons of single-serve containers. And, our goal as a business is to sell even more. Of course, we recognize that the more of those containers that we put out that are not recycled, the more we are contributing to the waste stream. It’s a conflict, and we have a few initiatives to address it.

Be Inkandescent: We know Honest Tea is trying to increase the national rates of recycling.

Seth Goldman: Yes. We have taken a lot of action both locally and nationally on that. The other one is to look at the actual bottle itself. We ask ourselves, what can we do to lightweight the bottle, to make it lighter so it is less waste? Then, what can we do to make the material in the bottle more sustainable? We can’t totally change consumer behavior. And if we said our goal is to sell no bottles, then we would be out of business. We try to think about how can we be a business committed to sustainability, but also to growth.

Be Inkandescent: What do you think consumers want when they talk about honesty in the companies they buy from?

Seth Goldman: I think they want to understand that corporations are willing to have a real discussion about what matters, and not a glossy discussion that is just lip service. They also look for transparency. If you have problems or you do things wrong and falter, you want to be honest about it.

Don’t stop now! Click here to find out how Goldman convinced Coca-Cola to buy a minority share, and be sure to check out his 8 Tips for Entrepreneurs.

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