Exclusive Q&A with Seth Goldman, Co-Founder, President and TeaEO of Honest Tea

Seth Goldman and Barry Nalebuff founded Honest Tea in 1998 after recognizing there was a place in the beverage market for all-natural bottled tea made using sustainable practices. Fifteen years later, Honest Tea has grown into a multi-million dollar company built upon a mission of honesty and transparency.

Here Seth discuss the start of Honest Tea, how the company built consumer trust and the importance of believing in your vision. Seth also shares his advice for small businesses in our exclusive Q&A.

What is the current size of the company, and how have you maintained company culture as you’ve grown?
We currently have 112 employees and our products are carried in more than 100,000 accounts around the country. We’ve always had an entrepreneurial, mission-driven culture to our organization, and part of that is created through the products we sell. The fact that it’s organic, fair trade and lower sugar certainly gives us a particular kind of presence in the marketplace. And we’ve attracted and certainly retained people who really come to us because they want to be part of a movement—to change the diet, to change the way agriculture works—so it’s become a culture that’s been self-perpetuating.

Consumer trust has to be very important for a brand like yours. How do you build trust with your customers? 
The name Honest Tea actually has some risk in it because inherently, it’s easy for people to be suspicious. So one of the keys for us is just to under promise. We’re not going to claim this is going to cure cancer or totally change your life, though it has had a big impact on people’s lives. But we really try to make sure that whatever we claim, we can back up though third parties. So when we say it’s organic, it’s monitored by the USDA. The fact that it’s lower calorie, that’s FDA regulation. And the fact that it’s fair trade is also third-party regulated—Fair Trade USA verifies the working conditions under which our tea is grown.

Also, every year, we put out our own mission report that looks at our impact and shows the numbers behind how many pounds of organic ingredients we’re buying or how much money we’re donating on behalf of fair trade. It looks at our total calories produced, but also looks at the carbon footprint of the way we produce and identifies where there are some opportunities and where we’ve fallen short.

How have you marketed your products and brand? What have you found has been most successful?
The product we sell is authentic and organic so the way we connect with consumers really tries to embody that spirit as well. So we’ll always look for opportunities to connect with consumers directly, face-to-face or person-to-person. We do tons of sampling. We do it in stores, we do it at road races, we do it at metro stops—just about anywhere.

Beyond that, we’ll do guerrilla marketing. We did a big national experiment this past summer called the Honesty Index. We set up free-standing racks of Honest Tea in different city areas or sports stadiums and then we said it’s a dollar a bottle on the honor system. And with no uniform personnel or cashiers, we stepped back just to see how many people would put a dollar in a Lucite box for a bottle of tea. And actually it was really interesting as a social experience. We saw that roughly 90% of people across the country were honest. There were some exceptions, but overall, it was 90%.

How did the relationship with Coca-Cola begin, and what opportunity did you see there? What have been the benefits of that relationship? 
For the first ten years of the company, we were independent and it was a struggle. We grew every year, but we were always struggling to get distribution. We could get great distribution in one or two cities, but then we’d go to a chain and they’d say, we need you to cover every store in the area, and we were lacking. We had a lot of distribution gaps. And so when Coca-Cola approached us in 2007 about possibly investing in the company, we were open to that, partially because they could help us reach new distribution opportunities, but also because they weren’t buying the company, they were investing. So for us, it was a great way to run the business the way we’ve always run it, with the same leadership team and the same spirit.

Then what happened is gradually Coca-Cola invested more money and we continued to grow and we both agreed the relationship was working. So we kept the same structure even as Coca-Cola acquired the company. We now work with distribution with all the different Coke facilities around the country, and we’re now in dramatically more stores than we ever were before. So for us, it’s exactly what we had hoped—that we could keep our mission and yet have the partnership that allows us to reach more customers.

If you were a small business and had $500 left in your monthly budget at the end of the month, how would you spend it? 
The first thing I would do is find a way to make it more than that. And to do that, I’d go to our key suppliers and say, “We need a bigger budget, can you work with us?” The beverage business is very seasonal, so during the warm summer months, we’re selling a lot of tea. January though May, we don’t sell as much. So early on, I would go to our bottle supplier in January and say, “This is time of year I need to change our payment terms from 30 days to 60 days or even to 90 days. Could you work with me on that?” And then sometimes, in fact, we’d be able to pay with credit card, which gave us another 30 days to pay. And that’s a way to basically have more money available to you even though your bank account hasn’t changed.

What’s the advantage that a small business has over a larger business?
The key for a small business is to be able to be opportunistic and to move quickly. So we see an opportunity, and we can still jump on it, whether it’s a product idea or a marketing idea. We hear there’s going to be an event, and we find a way for us to have our marketing team connected to it. Often, the large companies are very process-driven and much more bureaucratic, so the decision-making structure that they have just takes longer, and they may have committed their resources for the year. So when something comes up during the year, the small business can take advantage of that.

What have been your keys to success?
Admittedly, when we started our products were not selling as well as sweet drinks because that’s not where consumers’ tastes were. But fortunately for us, consumers’ tastes evolved, and people started seeking out drinks with less amounts of sugar in them. From our perspective, we really stuck to what we believed in, so having a set of beliefs gives your organization a lot more passion because you’re not just selling whatever you think will sell, you’re selling something you believe in. And then if you can convince people to give it a try and you’re unique and different, they’ll stick with you.