Earlier this month we announced that Coca-Cola was making a 40% investment in Honest Tea. Though most of the feedback from consumers has been positive (”finally I won’t have to drive 2 hours to get your drinks!”), we have received heartfelt notes from loyal customers who are disappointed with our new investor. We take these concerns seriously. I am pasting below a recent exchange with a customer, Julie, who agreed to let me share her comments. As you will see, we end up agreeing to disagree, but at least we both understand where the other is coming from.

Hi Julie,
Thanks for your honest opinion, even if it’s not what I was hoping to hear. As someone who comes from an activist background, I certainly understand the nature of your concern. I don’t expect that I’ll convince you otherwise, but I do want to share a few thoughts on why this investment from Coke does make sense to me — I’ve tried to insert comments in green italics below. Please let me know what you think, honestly yours, seth

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From: Julie
Sent: Tuesday, February 19, 2008 4:12 PM
To: Seth Goldman
Subject: Honest Tea, Health, Environment, and Social Justice: Where Does Coca-Cola Fit In?
Dear Mr. Goldman,

I am writing to express my surprise and disappointment upon hearing the recent news that Coca-Cola will acquire a 40% stake in Honest Tea, making it the company’s largest stakeholder, and that it will have the option to purchase a majority stake after three years. As a business that has built its reputation over the past decade on a commitment to healthy organic products, environmental quality, and social justice for its producers, Honest Tea’s decision to partner with Coca-Cola–a multinational corporation that has consistently violated all three of these principles in their global business practices–confounds me.

I won’t try to defend Coca-Cola here – that’s not what this deal is about. However, based on your remarks I think it’s fair to say that you believe the world would be better if Coke sold products more like ours. So then the question is whether we believe that Honest Tea will be “corrupted” by Coke. I’m confident that Honest Tea will continue to sell the products it’s been selling – we painstakingly built our business over ten years in a very deliberate manner. We were constantly presented with the option of making the products cheaper (e.g. using high fructose corn syrup instead of organic cane sugar or honey or without Fair Trade certification) or with more calories but we consistently chose to keep the brand “Honest”. Coke found value in what we’ve created – if they wanted to change our company into one like theirs, they wouldn’t have invested in ours.

Coca-Cola’s extensive business network and far-reaching marketing capabilities have been built upon a foundation of worker and farmer exploitation and environmental degradation, particularly in developing countries. The idea that a partnership with Coca-Cola will help Honest Tea to expand its so-called health, environmental, and social mission seems naively optimistic, if not grossly misguided. For a company that was founded on a vision of long-term sustainability, I find your new business affiliation with Coca-Cola to be surprisingly short-sighted.

I believe that every time we sell a bottle of Honest Tea we are doing a positive thing for the people picking /processing the leaves, the ecosystem and the consumer. If you accept this first assumption, as I do, then I believe it is my responsibility to make Honest Tea as powerful as I can. The more we sell – provided it is the same product we have been selling for the past ten years – the more good we do. And the more we convince the larger beverage companies that there is a market for a product like ours.

By partnering with Coca-Cola, you may gain a net increase of customers at mainstream retail outlets, but you will alienate those who previously valued your commitment to social and environmental responsibility. Even if the end result for Honest Tea is increased consumption of a healthy, organic, Fair Trade certified beverage, loyal and “conscious” customers will find themselves confronted with the dilemma of supporting a multinational corporation that has a history of violating global social and environmental rights, and that already owns more than a fair share of the beverage market.

Here I think it is important to avoid creating a sense of economic exclusivity. Organics need to be democratized. I love Whole Foods and independent natural food stores – we wouldn’t be in business without them. But if we’re really serious about making an impact on the environment and on the American diet, we have to expand the reach of organics and healthier products to regions and populations where they are not widely available. I would understand if our core consumers were alienated because we changed our product but if they become alienated just because more people can buy our product, then that’s a trade-off I’m willing to make.

Optimists within your company have asserted that Honest Tea is not selling out. Rather, they say, Coca-Cola is “buying in.” Only time will reveal whether this is the case, or if this “buy in” is simply the corporation’s latest foray in corporate green-washing and beverage market monopolization.

I agree with you here, and I encourage you to keep a close eye on what we sell and how we sell it – if we change our fidelity to the “Honest” brand, please let me know and I’ll respect your right to take your business elsewhere. If we stay “Honest”, I believe we deserve your business.

After all, they’re the ones who now have two of five seats on the board of Honest Tea…not the other way around.

But we still maintain governance control – and last week when the President of Coke North America was receiving an award from the National Recycling Coalition, he said, “We want Coca-Cola to be more like Honest Tea than the other way round.”

Even if Honest Tea maintains its commitments, and even if Coca-Cola continues to honor the traditions of Honest Tea after three years, how can one overlook its simultaneous ventures in worker endangerment and exploitation, environmental degradation, water depletion, and high fructose corn syrup…ventures that blatantly contradict Honest Tea’s founding commitments?

I believe that by working with Coke to sell Honest Beverages, we are helping to make change happen.

I have no doubt that you have already asked yourself some of these very difficult questions. Unfortunately, it appears that we have come to different conclusions because Honest Tea has chosen to continue its growth with the monies and connections of a corporation that has done much to harm human health and the environment, at home and abroad. Like you, I want to see an increase in healthy, environmentally sound, and socially just products in the market. But in the end, even after considering the positive health, environmental, and social outcomes of mass-market distribution of your healthy, organic, Fair Trade certified product, I still can not condone your partnership with Coca-Cola as a means to this end. As a consequence, I will no longer consume or purchase Honest Tea products. I will also be informing my family and friends, who I originally introduced to your product, of this decision.

For the past ten years, we have built the Honest brand with passion, effort, and a great deal of sleepless nights. Whether it’s not knowing how we’ll pay bills or personally guaranteeing bank loans far in excess of my net worth, I have built this company with its mission ingrained in its product. If I am still running the business (which I am) and Honest Tea is still selling the same kind of products (which we are), I believe we have earned the opportunity to prove ourselves. We have the chance to make change happen in a powerful way – of course there’s the risk that we won’t succeed, but I’ve lived with risk for ten years and can live with the odds.

I hope that time will prove me wrong. For now, however, I feel personally obligated to part ways with Honest Tea.

Respectfully Yours,
Julie

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From: Julie
Sent: Thursday, February 21, 2008 10:26 AM
To: Seth Goldman
Subject: RE: Honest Tea, Health, Environment, and Social Justice: Where Does Coca-Cola Fit In?
Hi Seth,

I very much appreciate your articulate and personal response, and I have a lot of respect for the opinions and information that you’ve shared. The arguments that you make are thoughtful, compelling, and obviously genuine.

But in the end, I still feel that supporting Honest Tea now forces me to indirectly support Coca-Cola, which is something that I’ve made a conscious decision and effort not to do. That decision may change in time, but that will depend more on Coca-Cola than it does on Honest Tea.

I do not worry that Coca-Cola will adulterate your product, or that Honest Tea will change its practices–you’ve made it clear that Honest Tea is still in charge of Honest Tea. But at this point, I do not share the belief that by working with Honest Tea, Coca-Cola is changing its harmful business practices, particularly abroad. (When working in rural China, I was disturbed to find children drinking very old Coca-Cola out of very old cans that no longer meet U.S. safety standards due to choking hazard). Expanding their product line-up to include something healthy, organic, and socially just does not do anything to change the rest of their products, or to change the practices involved in making those products. Until I see those changes, I choose not to support Coca-Cola or any of their subsidiaries and associates.

I thought a lot about your argument that organic products need to be democratized, and that they should be available in regions of the country where organics are not widely available. I do share this vision, and while I agree that it’s important to avoid being “elitist” in how products are distributed, I also think that it’s my responsibility as a global citizen and consumer to be critical of the means that are used to accomplish that end. What I wonder is whether partnering Coca-Cola was the only means to achieve wider distribution of Honest Tea products?

As I said before, I know you’ve asked yourself these questions, and I have a lot of respect for the values and integrity you’ve demonstrated in building your company, advancing the availability of organic options in the market, and even taking the time to personally respond to disgruntled and demanding consumers. Therefore, I can respect your path, as I’m sure you respect mine. As their new business partner, I sincerely hope that your values and integrity will inspire some tangible changes in Coca-Cola’s practices.

Thank you again for your honest response,
Julie

Thanks Julie. I talked with my wife last night about your note and she said “The world needs more people like her — people who hold their convictions firmly and act on them.” And I think that’s true but we still hate to lose you as a customer!

Today Honest Tea and Coca-Cola announced that the world’s largest beverage company is buying a 40% stake in our much smaller enterprise [press release]. While Coke is now our largest shareholder, the agreement was negotiated to ensure that Honest Tea will not be managed or controlled by Coke. We will continue to operate as an independent business with the same leadership and mission. Here are some thoughts on the decision. Please excuse the length, but the deal took months to put together and even longer to think about:

When Barry and I launched Honest Tea in February 1998 the only assets we had were the name “Honest Tea”, a Snapple bottle with a label pasted on it, and five thermoses (and the thermoses were on loan!). Our beginnings were modest but our vision was bold – we wanted to create a delicious, healthier drink with a consciousness about the way the ingredients are grown. We always hoped that the “Honest” brand would stand for a different way of doing business – a product that is what it says it is, a company that strives for authenticity in the way it treats its customers and stakeholders.

Despite our 66% annual compound growth rate (70% in 2007), we still aren’t reaching all the people we want to reach. Our business has inspired many, (most recently we were delighted to see Kraft join our Terracycle Drink Pouch Brigade), but we also want to see Honest be a change agent through our own actions. When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesn’t rely on chemical pesticides and fertilizers. But when we buy ten times that amount, we help create a market that multiplies far beyond our own purchases. When we sell 32 million bottles and drink pouches with less than half the calories of mainstream alternatives, as we did in 2007, we help displace 2,400,000,000 empty calories. That’s important, but when we sell ten times that number, we help lead a national shift toward healthier diets.

So what does it take to get to the next level of impact – to see Honest products sold wherever beverages are sold?…. schools, colleges, restaurants, and all the other places Coke is found…? Certainly access to capital plays a role in making that happen, and we are fortunate that our 100+ private investors have never failed to support our ambitions and growth plans. But money on its own doesn’t make distribution happen – (I note with caution the story of my friends at Jones Soda, who last year saw their market value grow fivefold without a comparable rise in sales).

I have the same passion and drive for building Honest Tea that I had in1998 but I want to focus less on raising money, managing production and distribution challenges and more on building the brand and our mission. If we could find an investor who will help us build our business while still honoring our style of business, then that seems like an ideal scenario.

So how do we move from the ideal to the real without screwing up what we’ve created? The world of mission-driven business is littered with entrepreneurs whose companies lost their soul or at least lost their leadership. Whether you talk to Ben Cohen from Ben & Jerry’s or Steve Demos from Silk, they will tell you that if they could do it over again, they would have done it differently. I am determined to make sure that never happens with Honest Tea. Our challenge is to find a partner who wants to “buy in” to our mission, rather than one who wants us to “sell out”. Any partner that we consider must understand that the “Honest” brand stands for great-tasting, healthier beverages that are produced in a more sustainable manner. As long as that partner buys into our approach, we welcome the opportunity to expand the scale and reach of Honest Tea.

It can work – I’ve seen it firsthand with my board member, Gary Hirshberg at Stonyfield Farm yogurt. In 2001 Groupe Danone purchased 40% of the company and now owns 80%, with an option to buy the remainder in the future. Stonyfield continues to be on a growth tear (more than $300 million in sales 2007, limited more by capacity than demand) and Gary continues to lead the enterprise and the organic food movement with all the fire and wisdom he had when the deal was put together. They continue to innovate on packaging (they were the first to eliminate plastic lids) and just this year converted their entire line to organic. (read more in Gary’s new book Stirring It Up, How to Make Money and Save the World)

That’s one of the reasons we are glad Gary will continue to serve on Honest Tea’s board, along with Barry, me and two Coke representatives. Of course there are risks to this deal:

• Things may not work out with Coke’s investment
• Our customers may revolt against the notion of our brand being associated to a much larger company (though I hope they give us a chance)
• I may get hit by a bus…

In the course of negotiating this transaction, there were safer alternatives – an outright sale would have locked in the gains versus the continued risks that come with this kind of investment. I’m sure there will still be cause for cold sweats at 3 a.m. – I don’t know a beverage entrepreneur who doesn’t have them but I’ve lived with risk ever since Barry and I started brewing tea in my kitchen, and while there have clearly been moments I would love to forget, I wouldn’t trade this experience for all the tea in….well, for all the tea we will sell together with the Coca-Cola Company. As we see the U.S. shift toward healthier and greener living, it doesn’t seem like the right time to take our cards off the table.

Ten years after starting Honest Tea, we can be proud that:

• We were the first company to introduce a certified organic bottled tea
• We were the first company to introduce a certified Fair Trade bottled tea
• We have won awards and top rankings from national consumer publications and organizations for creating great-tasting, healthier products.
• We continue to be on the leading edge (sometimes bleeding edge) of innovation in terms of new ingredients, packaging and packaging re-use.
• We have assembled a team of 60+ wonderful people, winning awards for our employee-friendly practices, sharing stock options and bikes with them.
• We have become a leader in our local community, launching the Bethesda Green initiative to develop a model sustainable business community.

And yet the best reward has been the support and loyalty of customers who care as much about what we’re doing as we do. As we enter a new phase of our business, I hope you will help keep us Honest as we try to balance the challenge of building a sustainable enterprise in a consumer economy. Please don’t hesitate to contact us either by responding to this blog or emailing sethandbarry@honesttea.com (or both) with suggestions or feedback, especially if you see us backing away from our commitment to organics, healthier products and sustainability.

I can’t believe it’s been ten years – seems like it was just a few weeks ago that I was driving up to Buffalo for our first production run.  But the gray hairs and the 20+ employees here in Bethesda remind me that a lot of tea leaves have given their lives since Barry and I started brewing tea leaves in my kitchen.

When we launched Honest Tea on February 2, 1998 the only assets we had were five thermoses, an empty Snapple bottle with a label pasted on it, and the name “Honest Tea” (though actually the thermoses were on loan).  Our beginnings were modest but our vision was bold – we wanted to create a delicious, healthier drink with a consciousness about the way the ingredients are grown.  We always knew the enterprise would be about more than moving cases – we wanted “Honest” to stand for a different way of doing business – a brand that is what it says it is, that strives for authenticity in the way it treats its customers and stakeholders.

It’s a little overwhelming to write about the tenth anniversary of Honest Tea, (maybe there’s a book out there), but since it’s exactly ten years since I started working full-time for Honest Tea, here are a few observations:

• Running Honest Tea has been the first “job” that’s stuck.  I remember my old boss, Senator Lloyd Bentsen, used to joke, “Seth can’t hold down a job,” because until 1998 I’d never spent more than two and a half years working with any company or organization.  The opportunity to build Honest Tea has been self-actualizing – the work reinvents itself on a regular, and occasionally, even an hourly basis, and it allows me to connect with everything I care about.
• As I have watched fellow entrepreneurs sell off one company and start another, I have come to realize that I am probably less of a serial entrepreneur than I thought.  I guess I’m more of a one-trick pony and Honest Tea is my “trick” – and it’s a pony that still has a lot of miles to go.
• People sometime ask me what is the best part about building Honest Tea, and by far the most rewarding aspects of the enterprise are:
  
  
  • The connection we make with our customers. For some we’re meeting their need for a great-tasting drink with less sugar, for others it’s a great-tasting drink that’s produced with consciousness and for others it’s just the feeling that there is a company out there that does business differently, whether it’s giving bikes to our employees, turning drink pouches into pencil bags, or feeding spent tea leaves to cows.
  • The connections and economic opportunity we create in the communities that supply us with our tea.
  • The feeling that we’ve created and are able to support a team of wonderful employees who care about what they’re doing, who care about each other, and who care about what we’re building together.

• In terms of the lowlights – there have certainly been plenty of those too.  Fortunately, as I grow older, my amnesia for the bad improves, so I don’t get weighed down by the setbacks we’ve had along the way.  Among the lowlights:
  
  
  • Rolling my car off an icy highway on a 2 a.m. drive through a blizzard from Buffalo.
  • Our voluntary recall in 2003 when we were a few broken glass bottles away from losing our largest customer and distributors.
  • Owning a bottling plant – despite our aspirations of wanting to create manufacturing jobs in an economically-challenged region, the experience helped illustrate that the best way for us to create economic opportunity is by building our brand.

In terms of what the future holds for Honest Tea, I hope and believe that the Honest brand will come to stand for authentic, organic and healthier beverages.  I still wake up every morning (even if that means 3 a.m., which it frequently does) fired up about what I’m doing.  

Though I still wear shorts to the office, I know that as we grow, the decade ahead won’t be like the one just ended.  Looking ahead I believe that the right strategy for Honest Tea is to align itself with a strategic partner who can help add distribution and production expertise – two areas that have often limited our growth.  Though some of our longtime customers might worry that partnering with a much larger company might be considered “selling out”, we are only considering opportunities where the partner “buys in” to our mission of sustainability and healthier products.  I want our business to be more than a model of change, I want us to be an agent of change and growing our business allows us to impact more consumers, their communities, and the environment in a positive way.

I’m sure there will be plenty of thrills and chills ahead… and I’m ready for all of them, (though I probably could do without cars rolling off the road.)  Our tea party is just getting started, and I hope you will be with us for the next ten years.

Yesterday we kicked off Bethesda Green – a private-public initiative to help create a model of sustainable urban living in the Bethesda business district. When we sent out the invitations we had hoped for 50-75 people to attend, but to our surprise and delight more than 250 people showed up at the Bethesda Theatre yesterday. Here is a recap of my remarks, with accompanying images.

Welcome everyone. This is a wonderfully exciting turnout. You may have noticed that one of the songs playing earlier was John Mayer’s “Waiting for the World to Change.” It’s a nice melody but absolutely the wrong message for this audience. By coming here today, you are affirming that you’re not willing to wait for the world to change – you’re committed to changing it yourself. We know that the environmental challenges we face will not solve themselves on their own, and today is an important step for this community to take action. I want to start with two stories.

Ten years ago when we started Honest Tea I met with some fancy venture capital investors who looked at our business and gave me a lot of bad advice, most of which I didn’t follow. But two points in particular still stand out. They looked at our commitment to buying organic ingredients and they said, “To succeed in the beverage business you need to buy cheap and sell lots of volume, and you can’t do that with organics.” Obviously, we didn’t follow that advice. But there was an even worse piece of advice they gave us. They said, “You’ve got this crunchy organic tea company, you really should set up a P.O. box in Vermont or New Hampshire, instead of having a Bethesda mailing address on your label.” Well, aside from the fact that wouldn’t be “Honest,” I remember saying to myself, “Why can’t Bethesda be recognized as a green community?” And so ten years later, here we are taking steps to make Bethesda a model.

The second story relates to something I learned about sustainability and livability. My wife, who is notoriously hard to shop for, had her birthday this past August and as it approached I was relieved when she said “All I really want is a composter.” So I immediately got in touch with my friend who runs Terracycle, a company that makes things out of trash, and sure enough, he’s found a way to convert old wooden wine barrels into composters… but of course the wine barrels are all in California, and it’s hardly sustainable to bring a heavy wine barrel from California… so we worked to find a way for this empty wine barrel to piggyback on a delivery truck from California… and I’m feeling triumphant because I’ve found a sustainably-built composter that brings my wife closer to living in harmony with nature — …. .so on Julie’s birthday, I give her breakfast in bed, and show her a picture of this beautiful composter that’s somewhere in Iowa on its way here…. And around noon Julie comes downstairs, smiles and looks at me and says, “So I guess you really didn’t get me anything else?” And that incident helped illustrate for me that while we as a community need to focus on sustainability, we also have to think about livability too. And while sacrifice and changing behavior is an important part of creating a green community, we also have to remember that Bethesda is a wonderful place to live and work, and we need to keep it that way.

At Honest Tea we take bits of wisdom and put them underneath our bottlecaps. And I want to share a few with you today. The first is a Chinese proverb, “If we don’t change the direction we are headed, we will end up where we are going.” It’s important to recognize that as much as we might like living here, the trends are not encouraging. We don’t have to debate global warming to understand that we are spending more time in traffic, we are creating more waste than ever before, and as you will hear from the other speakers, with the continued growth coming to this area, those problems will only get worse. Bethesda could easily become a victim of its own success.

Here’s a picture of the Beltway not long after it was built in 1964. At the time it was built, people asked, “Why did they make it so big? They’ll never use all those lanes.” Back then there was an average of 74,000 riders per day. Here’s what it looks like today, with 240,000 riders per day. We hope that we’ll be able to take steps with Bethesda Green that have the same success… for example, we want to install enough bike racks that people at first scratch their heads and say, “Why did they put in so many bike racks?” and then later worry about needing to install more.

A fair question to ask is “Why Bethesda?” And our response is, “Why not?” Many of the worldwide environmental issues we face need to be addressed on a local basis, and this is where most of us live and work. In addition, Bethesda has some wonderful assets – a dense, growing population, high volume shops and restaurants, leading progressive companies like Calvert, the national leader in social and environmentally responsible mutual funds, Chevy Chase Bank, and a responsive chamber of commerce. Plus we are right on the Metro and Capital Crescent Trail bike path.There are four goals of Bethesda Green:

• Establish Bethesda as a model of an environmentally-friendly urban center
• Reduce environmental footprint of a heavily-trafficked area
• Attract environmentally-aware consumers to the area
• Showcase/share best sustainable practices

Let’s be clear about the model for our approach. This is a private-public partnership, so we’re not going to be proposing mandates or environmental taxes. Instead we are going to be working to identify and create positive models. This approach has been tremendously important to the success for Honest Tea, where all of our products qualify for the USDA Organic seal. This graph tells a great deal of the story. When we started the company our growth was progressing nicely, but look what happened in 2004 when we were able to start using a nationally-recognized symbol to brand our commitment to organics.
Consumers seek out and reward companies that make a commitment to the environment, and we believe that going green can help make the same kind of growth happen in Bethesda.

One of the reasons we’re here today is to get your ideas and start identifying what we can do I want to talk briefly about some of the early ideas we’ve identified for the initiative. Here is what the bike racks of Bethesda look like today – here are some bike racks from a city in Europe. Montgomery County has a strong residential recycling program, but there is no way for consumers to recycle as they walk up and down the street. We’d like to change that.

I’m particularly excited about this next initiative because it’s one where progress has already been made. When I started discussing the ideas for Bethesda Green back in July with our landlord, Federal Realty, we talked about finding a way for the restaurants of Bethesda to do something more productive with all the grease they were generating. Federal Realty stepped up and made some changes. Now instead of directing the grease to a company that converts it into dogfood, the grease is converted into biodiesel. And I was impressed to learn that every month the restaurants of Bethesda Row generate 2,500 gallons of biodiesel – enough to fuel the average car for eight years!


This initiative is just getting started and it’s wonderful to see so much enthusiasm and energy. But I also want people to appreciate that we’re still in what I call “the thermos stage.”When I started Honest Tea ten years ago, my only assets were an empty Snapple bottle and five thermoses, and the thermoses were actually loaned to me, so I guess all I had was that bottle. This phase is exciting, things are a bit disorganized and of course like any good entrepreneurs, we’re under-funded. So we need your help, we need a bit of your patience (but not too much), and most of all we need your ideas and energy to make this happen.

I started with a bottle cap quote, let me close with two. But first let me thank our partners, Austin Grill, Honest Tea and Snikiddy who have donated free food and Pepco who is giving away compact fluorescent light bulbs. The first quote is “The best time to plant a tree is twenty years ago. The second best time is now.” And sure it would have been nice if we had started this effort 20 years ago, but it’s great that we’re starting it today, and the second is another Chinese proverb, “Those who say it cannot be done should not interrupt the people doing it.” Of course there are going to be challenges with this effort, and infinite reasons why it can’t be done, but we’re delighted you’ve joined us here today to make it happen. Let’s get started.

As the year draws to an end, I face that question that annually lurks in the back of my mind, (and I suspect lurks in most entrepreneurs’ minds), “Do I have the energy and passion for another year?” Though someone from the outside might assume the answer is always “Yes”, people on the outside tend to glamorize the real work of leading a mission-driven company. I encounter so many job applicants drawn to Honest Tea because they want to change the way business is done – organics, Fair Trade, healthier products, bikes for employees…. but then when they find out the way to make that all real is by walking in the rain lugging 50 pounds of heavy bottles or standing in the hot sun giving out samples, they find out they aren’t quite as entrepreneurial as they thought they were. (Internally we say their “Kumbaya factor” isn’t as big as their “Get it Done” factor) And though I don’t personally lug as much tea around as I used to, there are still the thrills, chills and sleepless nights that come with trying to break through the many distribution-related, operational and financial walls we face.

One of the best ways for me to refuel my drive and passion is by learning from others in the mission-drive business movement. The single best place for me to do that is through Net Impact, a national network of MBA students and alums engaged in the mission-driven business effort. (I’ve been on and off the board ever since I helped launch the organization 15 years ago). In addition to meeting fellow MBAs excited about these ideas, through the annual Net Impact conference I have met three of my primary role models and sources of inspiration. Wayne Silby, co-founder of Calvert Group, Honest Tea board member, Jeff Swartz, the President & CEO of Timberland, and Honest Tea board member Gary Hirshberg, the co-founder and CE-Yo of Stonyfield Farm. (Look for Gary’s book Stirring It Up, scheduled to be published January 8, 2008.)

At the 2007 Net Impact conference in Nashville, I had the chance to meet and give the introduction for keynote speaker Yvon Chouinard, the founder of Patagonia. Here are some excerpts from my introduction:

When we look at how change happens in the business world, it usually comes from two different kinds of business:

• Those, usually smaller companies, that take big risks and when they succeed, inspire others to follow, and
• The larger companies that gain inspiration from the smaller pioneering ‘changemakers’ and though they may make more modest changes, through their scale make change happen.

Yvon Chouinard of Patagonia is the rare founder of a company that plays both roles at the same time—a model that inspires others and at the same time as head of a $275 million company is also a powerful agent of change.

When I was a student at the Yale School of Management, we were taught to focus on the consumer, that the consumer was always right. Chouinard points out that the definition of the consumer is ‘one who destroys or expends by use, devours, spends wastefully.’ In fact he looked at the whole world of business and said, as quoted in his book, Let My People Go Surfing ‘This sucks. I’m going to do my own thing.’

And that’s pretty much the story of Chouinard’s business career since he started his rock climbing equipment business, Chouinard Equipment for Alpinists in 1957. When he realized that his core product, the pitons, steel spikes used to secure rock climbing ropes, were disfiguring the rocks he loved to climb, he started to evolve, and the company that eventually became Patagonia has been evolving ever since. When he realized that 25% of the world’s use of insecticides is used to grow cotton, Patagonia became the first company to sell clothing made with organic cotton. Today major corporations such as Nike and Levis have followed his lead. And he has expanded beyond cotton to fabricate clothes from recycled Patagonia items as well as recycled soda bottles.

Chouinard starts his book, “No young kid growing up ever dreams of someday becoming a businessman.” And while that may be true, there are lots of business students, and probably a respectable number of rock climbers, who dream of becoming Yvon Chouinard…. an accomplished mountain climber, an accomplished businessman and a source of inspiration for many of us still scaling the cliffs.

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During his remarks Chouinard talked about the intentional choice he made to keep his company manageable (sometimes intentionally pulling back on growth) in order to make sure he kept the mission and quality of his business intact. But the highlight of his remarks for me was at the end when his Vanderbilt hosts presented him with a gift bag full of tokens of appreciation, and Yvon declined the offer, saying, “I have enough stuff.”

Chouinard’s model is an inspiring one but also an intimidating one. In an environment where investors and employees place a premium on growth, are we willing to give up growth for mission? So far we have managed to build Honest Tea with our commitment to organics and healthier products intact. And in many ways our mission has been the key to our growth – but what if that dynamic changed? What if a food scare causes people to seek out chemically protected foods ? And what about the way I live — as much as my family lives a relatively simple life, are we willing to live without “stuff”? For better or worse we haven’t been in the situation where we have excess money to spend on ourselves, but if we did, would we be able to turn away from the temptations of “stuff?”Best wishes for a holiday season and a new year where the stuff that brings you joy isn’t stuff.

I know Honest Tea does things differently than other beverage companies, but sometimes it takes a trade show to help you appreciate just how different we are. Our booth at the National Association of Convenience Stores trade show was decidedly less exciting, or at least less sexy, than all the other beverage companies at the show. Most of the beverages at the show were energy drinks, and the marketers of those drinks have clearly concluded that sex sells – Monster Energy Drink, whose parent company is ironically named “Hansen Naturals” featured many women with lots of unnatural features – and I’m not just talking about the Frankenstein boots. Rockstar Energy Drink had women strutting around in gold bras and tight black outfits… there was even a booth for an organic energy drink company that had women flaunting their wares…. Our booth featured a bunch of guys (Kassidy, our Colorado sales manager who usually joins us is still on maternity leave) standing in black shirts pouring samples of drinks. That doesn’t mean we didn’t sell a lot – we had a great response, especially to the Honest Kids line and our new tea formulations – but if we were selling based on sex appeal, (or rather the sex appeal of our sales team) we would have been out of business a long time ago.

See our unsexy pictures from the show at the link below (we’re the ones above the Hooters energy drink girls (no comment):

http://www.bevnet.com/photos/gallery.asp?action=browse&categoryid=25&whichpage=3

In 1998 when I started Honest Tea out of my house, my co-founder Barry and I would often hear from buyers and distributors that we were ahead of our time. Whether it was the concept of organic ingredients or the less-sweet taste profile, we encountered lots of negative responses from buyers and distributors. Explanations went something along the lines of, “I just don’t think our customers are ready for this kind of product.” As a company trying to survive, we faced an interesting strategic decision-did we redesign our product line to make it closer to where tastes and trends were in 1998, or stick to our mission of healthier, more environmentally sustainable products, and wait for the consumers to move in our direction?

We stuck to our core strategy, though we did tinker a bit with the sweetness level, making some of our drinks “just a tad sweet” (35 calories per 8-ounce serving compared with the original 17) and we expanded our packaging to include PET. And nearly 10 years later, it’s clear that our time is now-our annual growth rate is over 80 percent and shows no signs of slowing. Not only that, we see competitors and retailers all moving aggressively in our direction. So while the Honest Tea team deserves most of the credit, we’ve been fortunate to have had four important changes that helped generate winds at our backs:

1. Eco-Consciousness:
Environmental awareness among consumers has undergone a dramatic shift in the past few years. Whether it’s the impact of Hurricane Katrina, the increased availability of information on the Internet, or Al Gore’s documentary, An Inconvenient Truth, terms like “global warming” and “carbon footprint” are now part of our everyday language. Hybrid cars, energy-saver lightbulbs and organic foods are three of the most visible ways consumers can make lifestyle choices that allow them to show-off their eco-consciousness.

2. The USDA Organic Seal:
Though most companies don’t like government involvement in their business, the USDA seal has been a huge benefit to the organic food movement. Before the seal, there were dozens of different certifying marks, and as a result, the term “organic” had little value in the marketplace. Now that there is one federally enforced seal, consumers have a quick way to identify what is produced without chemical pesticides, fertilizers or artificial ingredients.

3. Increased Health Awareness:
Fed in part by low-fat and low-carb diets, , consumers started looking more closely at the kind of ingredients they are putting in their bodies. Whether it’s concern about Mad Cow Disease (which doesn’t occur on organic farms) or questions about the integrity of foods from Asia, it’s hard to imagine any scenario where consumers are going to be less interested in knowing about the origins and quality of their foods. For us at Honest Tea, the rationale for organic tea is simple-tea is one of the few agricultural ingredients that is never rinsed, so any chemicals sprayed on the tea leaves get rinsed into the drink. Since organically produced tea leaves aren’t sprayed with any synthetic pesticides or fertilizers, no chemicals end up in the drink.

4. Better Ingredients, Branding:
In the 1980s most organic products looked like cardboard and the product inside didn’t taste too much better. Now brands and products are more colorful, higher quality and simply taste better. There have been more creative ways to deliver many of the colors and tastes that had limited the attractiveness of organic foods.

Fast-growing chains like Whole Foods and Wegmans have raised the bar for the rest of the grocery industry in terms of the high-end shopping experience, not to mention profit margin. Now retailers like Safeway and Wal-Mart are getting into organics.

Unlike the low-carb craze, which went boom and bust in less than 18 months, organics are not a fad, they are a fundamental direction our society is moving toward. Based on what 1 see in other categories, such as yogurt, the organic share of the bottled tea industry should reach 10 percent within the next five years.

It’s exciting to (finally!) be in the right place at the right time.  Of course I’m excited for our business but also for what our growth says about the changing health and environmental trends in the U.S.  Not coincidentally, with our growth we have also seen an influx of new brands enter the organic marketplace.  I just wonder what took everyone else so long to get there.

When I think about how my life experiences helped prepare me for leading an organic beverage company, I normally think about how my time teaching in China connected me to the world of tea; or I recall how leading a team of 50 Americorps volunteers in Baltimore prepared me to create a dynamic, mission-drive organization. But this month as my three sons and I endure the peaks and strike outs of the Red Sox in a pennant race (and nary a reliever in sight), I have come to realize that my years as a Red Sox fan have shaped me as an entrepreneur.

Like any good Red Sox fan, I have my share of psychological scars. Most of mine come from 1975, when I was ten years old. Yaz and I share a birthday (August 22), so we were very close (in my mind) and I still recall vividly the line-ups (Denny Doyle at 2^nd), Joe Morgan’s pumping elbow, and of course the thrills and eventual disappointment. As I watch my ten year old endure some of the same experiences this October, I have come to appreciate that there are five pages out of the Red Sox playbook that have helped build Honest Tea over the past ten years.

1. There’s Always April — Stay Resilient

An entrepreneur has to continually overcome disappointments and setbacks – for our first five years we were turned down by stores, distributors, restaurants, investors… you name it. Most people would have given up after the first ten rejections, but as a Red Sox fan I have always understood that “No” really means “Not yet”. One distributor in the DC area, Canada Dry Potomac, rejected our distribution proposals on a monthly basis for the first four years. But like Fort Myers in March, I always found another reason to hope, and eventually convinced (OK, some might say “stalked”) them to start distributing Honest Tea. Today they’re one of our largest distributors.

By definition, entrepreneurs are optimists, and Sox fans quickly develop the ability to regenerate hope in the face of setbacks or in the face of Bucky Dent. I have to confess that I almost resented the fact that my sons were able to enjoy a World Series Championship in 2004 – they hadn’t suffered enough! Would this championship within their first 15 years of life spoil them with a sense of entitlement? Would they come to expect great things to happen to them?

2. Embrace the Underdog

One of the reasons Sox fans resent Yankees fans is because they think they are somehow entitled to first place. But Sox fans, and any self-respecting entrepreneur, have to be comfortable as the underdog. In the beverage world there are companies that are literally one thousand times our size. Coca-Cola probably sells more bottles in an hour than Honest Tea sells in a year. A Yankees fan may get intimidated by it, a Sox fan just believes.

3. Invest in the Right Team, Not the Most Expensive One

After SoBe sold to Pepsi in 2002 for $370 million, we considered the option of trying to hire some of their sales managers, some of whom would have demanded salaries equal to our existing payroll. But instead of going after the big-dollar franchise players, we focused on developing our farm system – hiring from within and developing our own talent. Yes, perhaps we grew a little more slowly than some other beverage start-ups, but we made sure we had people who understood and embraced our brand. And now that we’re growing over 70%, we know we’ve got the right team in place.

4. Manufacture Runs

In 2004 when the Red Sox were three outs from being eliminated, they found a way, not necessarily a pretty way (Big Papi’s single in the 14^th inning), to win. When Honest Tea started we couldn’t get beverage distributors to take an interest in us, we found other ways to get to market. Our first distributor was a cheese distributor who went to gourmet shops, then we found a guy who brought corned beef to delis, then a charcoal distributor who went to grocery stores, and eventually beverage distributors started paying attention. Once we got our first real distributor on board, our shot at the “show”, we made the most of it.

5. You Gotta Win in New York

It’s great to win in Kansas City but let’s face it, we all knew during those blissful weeks in May when the Sox had a 10 ½ game division lead, that it was going to come down to Boston and New York. For Honest Tea to become a national brand, we had to find a way to build a real presence in NYC. Ironically for me as a Wellesley native, we were able to gain beverage distribution in New York several years before we were able to get an opportunity in Boston. And it was our success in the Big Apple that convinced our Boston distributor that we could make it happen.

Finally, as the Red Sox chances at a championship start to evoke memories of …. well, there are too many years to recall each of them, I take on the kind of patience and pride that has helped me build Honest Tea. This may not be THE year where we claim the top spot, but the momentum is undeniable. And of course there’s always next April.

As environmental leaders seek models for how to make change happen quickly and powerfully, they may want to look into their refrigerator. There is a powerful transformation happening in our agricultural system and it’s taking place without mandates, quotas or a large bureaucracy.
When my co-founder Barry and I launched Honest Tea out of my house in 1998, we knew our enterprise would have a broader mission than just selling tea, but we weren’t exactly sure what form that would take. I made up a symbol of a tree in a circle with the words “Plant a Tree” and stuck it on the back of the bottle. I remember Barry asking me, “What’s that supposed to mean?” I replied, “I’m not sure yet.” But I knew it would serve as a placeholder for our company’s commitment to being mindful of our environmental footprint and doing things differently.
The most meaningful environmental commitment we’ve made has been converting our entire product line to USDA Organic certification. Since 1999 when Honest Tea launched the world’s first organic bottled tea, to 2002 when we converted the entire product line to organic, the USDA seal has been an important way to differentiate our brand in the marketplace and a key driver of our sales growth. (We’ve averaged better than 60% growth since we started, reaching $13.5 million in annual sales in 2006.)
Now that mainstream retailers, such as Wal-Mart, Target and Safeway are creating their own private label organic products, it is likely that within five years at least 10% of our nation’s food supply will be certified organic (Today at an estimated $20 billion the organic share of the food market is less than three percent.). As a result of this transition, the use of chemical pesticides, fertilizers and growth hormones will be reduced by millions of tons – benefiting our ecosystem and the people who produce our food, not to mention those who consume it.
In the case of organics, the market has been the most powerful driver of change. When we started Honest Tea in 1998, there were lots of different definitions of the term “organic”. Several dozen non-profits, for-profits and state agencies offered their own organic certification. As a result, the term was vague and had little meaning to consumers or retailers. The federal government played a critical role in clearly defining, identifying and enforcing the term “organic” with the federal “USDA Organic” seal, but then the best thing the government did was get out of the way and let the marketplace drive the change. Instead of creating mandates or a large federal bureaucracy, the USDA certifies an international network of independent self-sustaining certifiers, such as for-profit Quality Assurance International and non-profit Pennsylvania Certified Organic.
Numerous consumer surveys showed that ten years ago consumers were choosing organic because they wanted to help save the environment. Now the same surveys show that consumers are buying organic because they want to save themselves – they believe that the USDA Organic seal means the product is healthier.
There are some who will debate whether organics are indeed healthier, though it’s tough to make the case why our bodies would benefit from more synthetic chemicals and hormones. But from an environmental perspective, there’s no debate that the spread of organics is a positive step. Of course, we have to recognize the limitations – the boom in organics will erase the temporary advantage currently held by small organic farmers as more corporate farms get involved. And we still need to be aware of the “Food Miles” we consume – flying in organic asparagus from Argentina has a worse environmental impact than buying conventional produce from a local farmer. But there’s no debating that our ecosystems and agricultural workers are better off without exposure to synthetic pesticides, fertilizers and hormones. It may be as beneficial as planting trees…..

Although I like the melody of John Mayer’s song ”Waiting for the World to Change”, I have a major problem with the lyrics. Mayer gives people an excuse for not taking action to make change happen:

….we see everything that’s going wrong
with the world and those who lead it
we just feel like we don’t have the means
to rise above and beat it

so we keep waiting
waiting on the world to change
we keep on waiting
waiting on the world to change

….One day our generation
Is gonna rule the population
So we keep on waiting
Waiting on the world to change

I’ve never liked waiting. I suppose that may be a common trait among entrepreneurs – if we aren’t content with a situation, we usually try to do something about it. And a lack of mean has never been enough to stop an entrepreneur from trying to solve a problem? If lack of resources were an excuse for inaction, my co-founder Barry and I certainly would not have created Honest Tea, which was launched out of my house with five thermoses and an empty Snapple bottle.

There are too many things in the world that need to be changed, and we don’t have the luxury of waiting – whether it’s the lack of opportunity we see in our urban areas or the alarming environmental trends, we need to embrace what Martin Luther King Jr. described as “the fierce urgency of Now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism.”

And by the time, most of our generation rules the population, we will have become entrenched in the status quo – and rarely does any major change come from those who have a stake in the way things are.

Of course it’s hard to feel like any one of us is single-handedly solving the world’s problems, but we all can help change the world. Here are a few small ways:

- Help serve your local community…. Visit City Year at www.cityyear.org or a local volunteer organization and find out how you can participate in a local day of service.
- Help reduce the scale of synthetic chemicals going into the ecosystem and your body by supporting organic agriculture
- Help ensure that you are supporting fair wages and labor conditions by purchasing Fair Trade products
- Support clean energy and conservation efforts. Visit www.RENEWUS.org for more information

As the Chinese proverb underneath one of our bottlecaps says, “If we don’t change the direction we are headed, we will end up where we are going.” If we don’t change our direction, we are waiting for the world to change, and not changing it.