Honest Beginnings: The Early Days of Honest Tea

Seth Goldman and Barry Nalebuff founded Honest Tea in 1998. In the recently released Mission in a Bottle, the co-founders tell -- in comic book form -- the story of building a successful mission-driven business. Goldman, now president and "TeaEO" of Honest Tea, joins Motley Fool CEO Tom Gardner to discuss sustainability, entrepreneurship, and what it means for a socially responsible, health-oriented business to be bought by Coca-Cola (KO 0.68%).

Promoting health, organic agriculture, and economic opportunity has been at the core of Honest Tea from the very beginning. In this video segment, Goldman recalls the company's origins, and how he came to partner with Yale professor Barry Nalebuff.

Tom Gardner: This is a pretty exciting evening, because we're fans at The Motley Fool of great businesses, and Honest Tea is great in every way as an organization. It's just great to be here with you, Seth.

I will say -- I'm putting a plug out there -- this is an absolutely fantastic book on entrepreneurship; 50% of it is about all the excitement of starting something you really believe in and care about, and 50% of it is about all the hell you face because you decided to go for what you believe in and build a business!

We're going to talk a lot about both of those, but I want to talk first, Seth, about the founding of the company. Feb. 22, 1998, you can't find anything to drink. ... Talk a little bit about the origins and the founding, and your partner, Barry Nalebuff.

Seth Goldman: It started with the fact that I was thirsty! There were a lot of drinks out there. There just weren't any drinks that were what I was looking for. I saw tons of sweet drinks with 100 calories per serving, and tons of zero-calorie drinks. I felt like, "Why wouldn't a drink have a teaspoon or two of sugar, instead of 10?"

In particular, I went for a run in Central Park and saw this problem, and I reached out to Barry; I said, "This is an issue." When I was a student, we had studied the beverage industry, and we had recognized that something was missing. At the time, I was trying to find a job, I couldn't do anything about it, but about two and a half years later I was ready to do something about it.

Barry not only agreed, but he had just come back from India, where he'd been studying the tea industry and he had a few insights. One was that most of the tea used to make bottled tea was really very poor quality. Instead of spending half a penny per bottle, if you spent four times that or five times that or eight times that, you'd still only be spending four cents a bottle. But he also came up with the name "Honest Tea." For me, that was like the clouds parting. It connected my interest in what we'll call a mission-driven business, and health.

Gardner: I'd just like to hear a couple of the jobs that you had, or experiences you had, that led up to Honest Tea, and then a couple of the jobs you had after the company started.

Goldman: I had absolutely no experience in the beverage industry. I think the closest was when I was 7 years old. I used to find golf balls in the woods -- I lived near a golf course -- and I would sell the used golf balls, along with lemonade, to the golfers. That was my beverage industry experience!

Other than that, I had worked on Capitol Hill; I worked for Lloyd Bentsen for two and a half years as a press secretary. I ran a precursor to AmeriCorps. I taught in China. I taught in Russia ... so I had absolutely a curvy path that led me to beverage entrepreneurship.

Gardner: And Barry's background -- your co-founder and partner -- maybe mention his interview at Harvard.

Goldman: Barry is very much an academic, and he's very much an out-of-the-box thinker. Sometimes I tell Barry, "Ideas are in the box for a reason."

When he was interviewing for Harvard Business School, they asked him, "Have you ever thought about going into business?" He talked about how he had this idea to sell fortune cookies to China. I think they felt like that's not a serious business idea.

Gardner: So, he didn't get a job at Harvard, but he taught at Yale, and you met him by being a student of his.

Goldman: Yes, I was his student at Yale, and we hit it off right away -- partially because my parents were both academics, so I was used to rigorous academic discourse. I didn't back down from it. Barry had a reputation of being a bit of a cold caller, a little tough on students. I would challenge him right back, and I think he appreciated somebody who wasn't afraid to argue about ideas.

Gardner: There was a little bit of an eye-opening experience for you -- the idea that you could start a business to change the world -- when you thought that wasn't the path that somebody who was really passionate about their beliefs and values would take.

Goldman: Yes. All my background had been in the public sector -- in government and nonprofit -- and I went to Yale thinking I would come back out and work in what was to become AmeriCorps, in the national service movement.

The first case study I picked up was the Rainforest Crunch case. It was a story about a Ben & Jerry's venture, a spinoff that didn't work out. But for me, I was just so struck that this was a for-profit -- or trying to be a for-profit enterprise -- addressing social and environmental issues. It really changed my whole mindset about the role of business

Gardner: What are some of the core values at Honest Tea that have been persistent since the beginning?

Goldman: It's interesting. Even if you were to go back 16 years before I launched Honest Tea and said, "You're going to be running an enterprise that's trying to remove billions of calories from the American diet, trying to spread organic agriculture, and trying to spread (audio drops) that don't have access to it ..."

I would have said, "That sounds like a great nonprofit, or a great government entity. What's the name of it?" I would have never guessed it was a beverage company -- and we joke that for the first 10 years we were a nonprofit, but not by design!

But we absolutely had that mentality. And we also operated on extremely modest resources. It's always been mission-driven along those three -- health, organic, and economic opportunity.