Seth Goldman was born to do this
As Co-Founder and CEO of Honest Tea, his picture is in the dictionary next to the word tenacity. With Co-Founder Barry Nalebuff, their brainchild just finished the year with $110 million in revenue as a wholly owned enterprise of the Coca-Cola Company.
Overnight success? Hardly.
Founded in 1999, Honest Tea has been over 15 years in the making. In fact, based on both my recent conversation with Goldman and reading their just released book ‘Mission In A Bottle: The Honest Guide To Doing Business Differently – And Succeeding’, I can barely fathom how they’re still around.
Most entrepreneurs I know would succumb if faced with the same trials and tribulations Goldman and his team went through. Tales of car wrecks, stolen money and an employee heart attack litter the 15 year journey.
But therein lies the core lesson of this story: when you combine an insatiable drive to make an impact in this world through social entrepreneurship (regardless of short-term profitability) with a refusal to throw in the towel, you give yourself the best chance to end up in victory lane.
I first met Goldman at Ernst & Young’s Strategic Growth Forum in Palm Springs, after which he subsequently sent me his book to read. Devoured in two nights — I would strongly encourage you to read it as well.
Chock full of lessons learned from the trenches of entrepreneurship, I will give you an inside view to just 3 of their key insights and how you can incorporate them into your own business:
Startup Stage: Radical Differentiation Plus Clarity Of Purpose
Two guys were thirsty. As most startup tales go, Goldman was simply trying to solve his own pain. Driven by thirst from a run, he and his friend couldn’t find a thing to drink on the grocery shelf with less than 12 spoonfuls of sugar.
It was 1999 and the only options were overly sweet sodas and juices, paired with artificially enhanced diet beverages. Enter Honest Tea. Freshly brewed with just a tad bit of sugar.
Launching a product with 70% less calories made with real tea leaves at the time was radically different and better.
But not just different in the sense of ingredients on the label. As Goldman tells it; “Great brands have to stand for something. What we sell is about authentic, organic, healthy products and lifestyle. We wanted to make sure from the start that every time we sold a product — whether we were profitable or not — we were having an impact. As it turns out, the most important word in our name is not ‘Tea’, it’s ‘Honest’.”
Take Action: Start with clarity on your bigger purpose and find a hole in the market where you can boldly proclaim radical differentiation.
Growing Pains Stage: Avoid Distraction
Goldman headed down the wrong path for 6 years. And although every startup in the world has it shares of trouble, he confesses to their biggest blunder by far:
“Surprisingly, our biggest overall mistake wasn’t forecasting, production or people. It was distraction.”
Dig deeper and you’ll find Honest Tea made the mistake of thinking they were in the ‘business of manufacturing tea’. But this was wrong, and it sent them down the path of making poor decisions in both product development and solutions for manufacturing.
For example, they ended up sinking precious resources into a bottling plant over a 6-year period. Why did they make this move? Because of the need for more control, and better access to the manufacturing of their product. Seems sound — as any entrepreneur could justify ownership of manufacturing to maintain quality of product, lower production costs and ability to scale output.
But again, this turned out to be wrong. As Goldman explained; “You have to think about what you’re really building in the very big picture. What are you building that’s ultimately going to be valuable? In our case, it was not helpful to get distracted by trying to bottle the product ourselves. The long-term value of Honest Tea was the brand we were building.”
In hindsight, Goldman told me they flat-out needed to focus on building their brand. Excellent product, well designed marketing with their core message, and the ability to grow sales and distribution channels. Instead, they were tied up dealing with broken manufacturing equipment, water supply issues and labor shift problems — all of which didn’t affect the value of the brand.
Take Action: Take a hard look at your business model. Grab Alex Osterwalder’s ‘Business Model Canvas’ and throw it on your wall. If you don’t clearly understand what to focus on in your business, take the time to figure it out. Honest Tea was able to overcome their distraction blunder here — but you may not be so lucky.
Scaling Stage: Lack Of Capital Kills
Look at the 3-stage growth curve (in gross revenue) of Honest Tea:
First 5 years — $16.3 million
Second 5 years — $90 million
Last 5 years — $392 million
The bottom line? No way possible to scale Honest Tea without access to capital. In the end, Coca-Cola ended up as full owner in 2011, after acquiring 40% of the company in March of 2008.
“When Coke first invested, we were in about 15,000 locations. Now, we’re in over 100,000. So certainly, the ability to reach people and the scale is different. But crafting the agreement with them was the most important negotiation we ever conducted. So I actively participated in almost all of the discussions because getting this wrong could have screwed up my family’s financial future.”
Take Action: If you plan to scale, your need for capital will come. My advice? Don’t wait until you need the check. Goldman worked the investor angle from the start. Lining up strategic partners like Gary Hirshberg, Founder of Stonyfield Farm, long before the deal with Coke. Get your reputation in alignment, make and nurture high-end relationships and watch for the doors of opportunity to open because your business stands for something.
So was Honest Tea just in the right place at the right time? I’ll let Goldman answer that; “I’ve come to realize that even if you’re building something you believe in, you still may not win. But if it’s something worth fighting for — win or lose — you are in the right place at the right time.”
NOTE: Goldman sent me 10 signed copies of his book to give to 10 worthy entrepreneurs. Connect with me here because I will be giving them away in a few days.
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