Even after sale to Coca-Cola, Bethesda-based Honest Tea ‘work in progress’

Thomas Heath
Reporter June 29

Many of the successful people I come into contact with have sold their company, pocketed millions — or tens of millions, or even hundreds of millions — and moved on to their next thing.

A few golf. Some teach. Many work on philanthropy. Some start another company. Some go into government. A few run for office. All noble endeavors.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade. View Archive

Not beverage entrepreneur Seth Goldman. He is still running and growing Honest Tea, the company he built and sold to Coca-Cola in two installments over the past seven years.

“I am one of the very few entrepreneurs who launched the company, sold the company and still runs it,” Goldman said.

No surprise. Starting in 1998, the guy grinded it out for more than 10 years in one of the most competitive industries on the planet — that would be non-alcoholic beverages — before the start-up crossed into profitability.

Goldman kept at it, recruiting 100 investors to cover losses. He didn’t pocket a $100,000 salary for eight of those first 10 years, even with three sons and a wife.

“There were times I had to choose between paying baseball team or synagogue dues,” he said.

Coke called six years ago and bought 40 percent of the company for $43 million. In 2011, it bought most of the rest, leaving Goldman with approximately a 5 percent stake. His original investors walked away with 26 times their money. That means $50,000 got you $1.3 million.

Even after becoming a deca-millionaire, Goldman — a chatty and likable promoter of his product — still beavers away at Honest Tea headquarters on Bethesda Avenue, close enough to his Chevy Chase home.

The graduate of the Yale School of Management gave up 10 years of what could have been a seven-figure Wall Street salary to turn his idea of a less-sweetened, organic, good-for-you tea drink into a thriving business.

Goldman, 48, in May sold his 1 billionth beverage. Honest Tea sold $112 million worth of its product last year and is on track to exceed $130 million in 2014. It had 116 employees at the end of 2013. Honest Tea sales for May 2014 were 63 percent above the same period a year earlier.

I admire the fact that he is building such a lasting enterprise. And with Washington heading into iced tea season, what better time to revisit a company built on quenching thirst.

“I’m betting with my own money on my enterprise,” said Goldman, who still has most of his net worth tied up in Honest Tea. He is an instinctive marketer, never at a loss for sound bites.

His mission is to use business to help people live longer. His little corner of that effort: promoting consumption of an organic beverage that is a third of the calories of its competition but without artificial sweeteners.

You’d never peg him as a beverage entrepreneur from his background. He grew up in Wellesley, Mass., the son of Marshall I. Goldman, an expert on the former Soviet Union’s economy, and Merle, a China specialist. “I was always entrepreneurial,” he said.

He started a debate club in high school and a freshman singing group called the Harvard Yard Bards at Harvard University, where he majored in government.

He even evinced an early interest in beverages, offering a free lemonade if golfers bought four golf balls that he and his buddy had recovered from the club down the street.

After traveling and a stint working for former senator Lloyd Bentsen (D-Tex.) in 1993, he ran a program in Baltimore called Civic Works Summer of Service, a precursor to AmeriCorps, with former lieutenant governor Kathleen Kennedy Townsend.

He quickly realized that fellow social justice advocates had passion but lacked the training to execute their ideas. So he applied to Yale to learn management.

He and one of his Yale professors, Barry Nalebuff, began talking about forming a beverage business built around a less-sweet drink. The idea took off in September 1997 when Goldman, then employed by Bethesda-based Calvert Investments, saw the paucity of health drinks after finishing a run one day.

“I sent Barry an e-mail and asked him if we remembered our beverage chat. I said I think I’m going to do something about this now,” Goldman said.

They raised about $500,000 together from friends and family.

The company branded itself on three legs: less sweet, organic products and fair trade — reinvesting in the overseas communities it bought its ingredients from. They chose tea, in part, because it is the world’s second-most popular beverage (after water) and was highly affordable. Nalebuff, who is a competitive strategy expert, came up with the name Honest Tea.

While Nalebuff helped raise cash from his network, Goldman trolled tea fields in rural China and India, learning about ingredients, creating relationships with growers and discovering recipes. They found an apple-juice plant in Buffalo that could bottle its recipes.

Honest Tea wanted to stand out, so it started with 17 calories per serving, which was about one-sixth of the competition.

“We wanted to be meaningfully different.”

After mixing recipes in his kitchen, Goldman offered samples at Metro stops, road races and any place else he could corner a potential customer. Rejection was constant: investors, distributors, stores.

“Distributors rejected us because we weren’t sweet enough, too expensive or just didn’t taste like what they were used to,” he said.

When they needed money, they would both work their network.He got investments from such names as finance journalist Andrew Tobias and corporate-governance expert Nell Minow. Cartoonist Berkeley Breathed, best known for the “Bloom County” comic strip, asked about sediment in the tea. He ended up becoming an investor, bring some of his family with him.

They gradually made inroads, including a commitment from Fresh Fields, which was later bought by Whole Foods, to buy 15,000 bottles, based on samples cooked up in thermoses. By 2006, they were selling about 1.5 million cases a year, which brought in $13.5 million in revenue.

They lost a ton of money, not to mention time and energy, buying a share of a bottling plant for six years. They finally realized Honest Tea was a lifestyle brand, not a bottler.

“The main lesson was make sure you know what business you are in,” Goldman said.

Goldman said he will continue to evolve and steer the company into new expansion, including a new line of lemonades made exclusively for Whole Foods.

It’s all part of his plans to grow his brand, which is good for the company, his customers and the value of his Honest Tea shares.

“I feel very much this is a work in progress,” he said

SECTION: {section=business, subsection=economy}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=economy}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Most Read Business