Seth Goldman
In 1998, Seth Goldman Co-Founded Honest Tea with Barry
Nalebuff, his professor at Yale University. They sold their company to Coca
Cola in 2011 for 43 million dollars. In 2013, both founders published Mission
in a Bottle, a comic book chronicling their founding story. An athletic, socially
minded entrepreneur, Seth Goldman aims to make an impact on peoples’ lives and
the environment.
1. After majoring in government at Harvard, you worked
for Lloyd Bentsen, then-Democratic-presidential nominee Michael Dukakis’s
running mate, suggesting you were initially interested in a career in
government. When and why did you make the switch to business?
That’s a good question. I’m not sure if I ever
consciously made a decision to switch. I can say that I may not have ruled out the
possibility of politics at some point. When I was actually working in the government
arena with Bentsen, although I found the work at his level was quite impactful,
he was someone who had served in public office for forty years in different
forms. I was interested in having a more direct impact, more immediately. Part
of that, just to follow this path, involved going to work in a program in
Baltimore that was the precursor to what is now known as AmeriCorps. I really
felt that work was impactful. I could see tangible results and an impact on the
people served. I also observed, however, that the field had a lot of emerging
leaders with abundant passion but did not have the requisite management skills.
That is where I decided that business school would be a useful direction for
me.
At business school, I realized that business could be
a path to have an impact, so I went in that direction. I guess I would have
returned to government had I felt that government was a way to have a more
direct effect. What I have found so far is that business can help me have an
impact in a self-sustaining way. When I was working in the non-profit sector, I
enjoyed it, but I was always somewhat frustrated by the fact that fund raising,
though required, was not necessarily linked directly to results. It was more
about the funder’s opinion, their whims, and the non-profit flavor of the day.
What I have come to appreciate about business is the high degree of
accountability for results that it provides. No one is going to keep you in
business out of the mercy of their heart. If your business is earning its keep,
the market will sustain it. If you are delivering value, the market will allow
you to grow and flourish. For me, that was an exciting realization.
Looking at business from the outside, I had always
assumed it was full of moral compromises while government was not. Yet if we
observe the way government currently operates, it seems to be riddled with
compromise. To accomplish what you believe in, you have to water your aims down
to an extent that they no longer resemble your original intent. What has been
most satisfying for me is realizing how little compromise has been involved in
building Honest Tea. It strongly delivers on the intent that is my aim. The day
Honest Tea feels less satisfying, less creative, less challenging and less
impactful, I might think about returning to the public sector. But here sixteen
years later, I am still comfortable that this is the best use of my talents,
the most effective way for me to have an impact on society.
2. How did you come to partner with Professor Barry
Nalebuff to start Honest Tea? How did he initially react when you introduced
your idea? How did you structure your business relationship? If you were equal
partners, how did you resolve differences or make decisions on matters about
which you disagreed?
I first met Barry as his student. The dynamics with
him were interesting because Barry’s personality is quite different from mine.
He is much more analytical, not necessarily the type you would consider a
people person, at least not at the time. He’s evolved, but at the time, my classmates had difficulty
believing that we were collaborating. Even after we had graduated, some
classmates were surprised that Barry and I were working together.
But I performed well in his class. I first took Barry’s
political and economic marketing course. Because I had worked in politics, I
shined as a student. Both my parents had been professors like Barry. For this
reason, I was not intimidated by a professor who might be a little aggressive
in his questioning; I was able to hold up under the stress. At the same time, I
was also working on a business plan that helped Barry appreciate that I
approached problems creatively, was hard working, and had an entrepreneurial
spark.
The idea for Honest Tea emerged in Barry’s competitive
strategy course. While we were discussing the beverage industry, he had asked
if anything was missing there. We both converged on the same need for a less
sweetened drink. At the time, he suggested that we make some samples, do some
focus groups, but I was too busy trying to find a job. So I said that I could
not do anything then to launch this business plan. Two years later, when I came
back in touch with Barry indicating my readiness to act on this idea, he was
ready, too. He had been studying the tea industry, so we came up with the idea
for Honest Tea, a key development.
Once we had decided we shared common interests, the
biggest problem in doing more than just discussing them was deciding the right
role for each of us. I went up to New Haven several times to have long talks
with Barry, not about the business, the price of the product or where we are
going to find a supplier, but about our working relationship and goals. Why was
he doing this? Why would he want to build a business like this? What would be a
successful outcome, and how would it fit into our life plans? These were the
biggest questions that we had to pin down. The answers to these questions were
actually critical to developing the path forward. In terms of our relationship,
he was going to be the chairman of the board, and I was going to be the
day-to-day executive. We called me the TeaEO, but I was, of course, the CEO.
All along the way, we encountered points of
difference, but never a point or issue where we were at loggerheads. We just
had to talk the issues through. We had already agreed on the major issues as a
result of our previous conversations. We both knew this was a long-term build:
We were not going to be able to establish the company in a few years, then flip
it (sell it off). The project was going to take at least ten years. The issues
we disagreed on were the little ones like labeling, what we should or should
not say on the label. These problems were easy to keep in perspective.
Differences in opinion about the label are not the same as questioning the
direction the enterprise should take: Should we be using organic ingredients?
Should we be making the products sweeter or not? We usually solved these petty
disagreements by having my wife intervene.
3. After acquiring your company Honest Tea, Coca Cola
retained you as the CEO. Can you describe some of the ethical dilemmas you have
faced as a champion of a healthy lifestyle working for the world’s leading
producer of sweetened beverages? How have you handled these dilemmas?
I always look at the impact of what I am doing. That
is how I measure results. Comparing where Honest Tea was prior to Coke’s
investment to where we are now, I know that the investment marked an inflection
point in our growth. During our first ten years in business, we sold 112
million bottles. In the six years since Coke’s acquisition, we have sold 888
million. We were handled by 15,000 stores, but now by about 100 thousand.
Though we used to purchase about 800,000 pounds of organic ingredients annually,
this year we will procure over 8 million. Clearly, we have magnified our impact
significantly. I am confident saying that our scale has dramatically increased.
I have also come to appreciate that Coca Cola, a
company that markets thousands of products, has some admirable, company-wide
practices. As a highly diversified business, Coca Cola, naturally, faces a
variety of challenges. In doing so, they have become involved in some amazing
water projects. Through them, they are helping to provide more drinking water
in developing nations. Coca Cola is also committed to becoming water neutral by
2020, returning as much potable water to the environment as they are using.
They are interested in becoming package neutral, as well. They aim to recapture
and reuse as many packaging materials as possible. A difficult step to take,
this aim is a Coca Cola aspiration. It’s a path they are on rather than a
destination.
4. How did you convince Coke to invest in Honest Tea,
a business so different from their own?
Coke actually reached out to us. A unit of the company
that had conducted an intensive study of over 3500 beverages realized our
beverages were part of a category ripe with opportunity. The team recognized we
were offering a beverage they did not market, ultimately concluding we were the
brand they wanted. Beginning with 3500 brands, they distilled the list to 100,
then to 12, from there to 5 and finally to a single brand— Honest Tea.
5. As I am sure
you know, Japan is a huge market for green tea? Do you have any relationships
with Japanese tea companies like the giant ITOEN? Do you plan to introduce
green tea to the US or Honest Tea in Japan? In the former case, do you think
Americans will accept green tea, which can be quite bitter and is consumed
without any sweeteners?
Our green tea is
much closer to the taste in Japan than other green teas in the United States.
Our brand is authentic, unsweetened green tea. It’s not matcha, but it is green tea. In fact, one of our best sellers is
called Just Green Tea, a green tea
with a strong taste. It is not something that has immediately succeeded, but
consumers’ appreciation of the product continues to grow.
We have an
unusual relationship with ITOEN that is outlined in Mission in a Bottle. Someone charged with launching ITOEN in the
United States came to us as an investor without disclosing his background.
Because he was an investor, he had access to our business plan and financials
before launching ITOEN here. When we spoke to him at the ITOEN booth at a trade
show, I thought to myself, “I know that name,” only to later realize that he
was our investor! He was now competing against us. This episode was one of our
most disappointing encounters with investors. Naturally, we had him sell his
shares, garnering a profit from our business in the process, I might add. That
was our first exposure to ITOEN, which continues to be one of our competitors.
Honest Tea does
not currently have any short-term plans to enter the Japanese market, but
future entry would be a longer-term plan through Coca Cola. One of the current
limitations is the need to produce the product there because the liquid is too
heavy to ship cost efficiently. Moreover, labeling laws in Japan are extremely
restrictive. We do sell our products in countries like Korea, where we are able
to make use of equivalency-labeling rules, but we cannot yet distribute our
products in Japan.
6. You have
already accomplished more than most at a relatively young age. What other
additional goals to you aspire to accomplish over the next twenty years in your
professional and personal life?
I cannot say
that I have a perfectly laid out plan outlining every next step, but I want to
have an impact in whatever I do. I want to be involved in issues I care about,
making an impact at the highest possible level and on the largest scale
possible. In addition, I will continue to pursue creative and professional
challenges. In this connection, I should share the fact that I am not a golfer,
neither in the literal nor figurative sense. I do not play the game of golf,
and I do not aspire to be one of those people who spend their time playing golf
and enjoying other pleasures that do not contribute to society. With all due
respect golfers, I myself do not currently aspire to spend my later years or
retirement on relaxing pastimes.
For now, I
believe that continuing to build and run Honest Tea continues to be the best
use of my time and talents. I can imagine that that may not be the case at some
future point, either because the brand is large enough to maintain its own
momentum, rendering my involvement less crucial, or because the organization
has become more corporatized, reducing the impact of my voice. That is not the
case now, but I am thinking this scenario could come to be. While I do not have
a next step in mind if this should happen, I am certainly not unwilling to step
away. Though I am not sure I have the appetite to start from scratch again,
establishing another venture would be another possible option. I would not rule
out any options at this point.
7. In a 2013
Washington Post article, you were described as a guru for socially-conscious
entrepreneurs aiming to change the way America eats. What other areas of
American society do you feel are in need of change? How would you change them?
How can entrepreneurs serve as change agents?
Clearly, the American political system is in gross
need of change. I’m absolutely nauseated as I listen to the dialogue, all the
grand standing and the lack of serious change. It’s an area where I do not yet
have a solution. If I did, I would be trying to implement it. Every few months,
I ask myself if I would be happier being part of such a divisive, toxic dialog.
I see the problem, but the prospect of trying to solve it does not attract me.
There are, of course, many other areas that offer both
business opportunity and the opportunity to make an impact. One is the American
diet. I have already mentioned to you my involvement with Beyond Meat. I think
such an enterprise is an exciting way to make more of an impact on the diet as
our company is focused on beverages. Another area of interest that has come to
my attention is one aspect of U.S. agriculture, though I do not have deep
exposure to the industry. One issue is big agriculture’s use of chemicals and
irrigation methods. But the greatest use of water and chemicals is actually not
related to big agriculture but to small agriculture, namely grass. People’s
front lawns are the most environmentally demanding crops in terms of water and
fertilizer use. This twist is interesting and unexpected. Looking at business
opportunities, we can ask how to change Americans’ desire to lay a green carpet
in front of their house. As mentioned, I myself do not know the area well, nor
do I have a plan for it. But an area like this where change is desperately
needed definitely represents a business opportunity.
8. Although logical,
linear career planning is entrenched in U.S. culture, Stanford Education
Professor Dr. John D. Krumboltz suggests that “Planned Happenstance Theory” describes
career development more accurately, noting “Luck is no accident! We do not always
need a plan to create a career. Instead, we need a plan to act on happenstance
to transform unplanned events into career opportunity.” To what extent do you
think Krumbolz’s theory applies to your career development, including the
decision to start Honest Tea?
I think
Professor Krumboltz’s theory is certainly relevant to me. When I graduated from
Harvard with a major in government 27 years ago, if you had told me I would
start a beverage company, I never would have foreseen that path. On the other
hand, if you had told me that I would be running an organization focused on
improving the American diet, aiming to spread more-sustainable agriculture, or
extending economic opportunity to communities that lack access to it, I would
have believed I might be doing anyone of these activities or all of them. I
followed my passion, not a set path. I think you need a sense of where you want
to go in terms of direction, but should remain open to the path, the concrete
steps forward.
9. Are you
interested in someday making a film on Mission in a Bottle?
Sure. We are
always interested in spreading the story. But we have not been contacted by
anyone in Hollywood or had active discussions with anyone about this option.
