Honest Tea's Harrowing Early Years

The fledgling company struggled to make payroll at first, despite $1 million in sales.

Mar 13, 2014 at 5:00PM

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 (NYSE:KO) .

Unlike many start-ups, Honest Tea didn't raise a lot of money initially. With only friends and family investing at the outset, Goldman says the business operated close to the edge in the early years, despite strong sales.

We hope you enjoy this refreshingly honest Motley Fool interview with Honest Tea CEO Seth Goldman.

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Tom Gardner: I want to go back to your story. Let's go a year in. You've got $1 million in sales -- exciting -- one year in, and you've burned through $300,000. You have $300,000 in losses and $1 million in sales. That's actually not unusual. That's a sign of success, in many ways, but how do you feel at that point?

Seth Goldman: It was so terrifying because, on the one hand it is thrilling; we're growing and exciting things are happening. At the same time, payroll. ... What a lot of start-ups do is they raise a lot of money and they spend a lot of money. We never raised a lot of money, so it was always a week or two -- well, a month or two -- out from going out of business.

A great example of how I felt in that first year; we were at a family picnic. I was having a piece of pizza and I felt something crunchy in my mouth. I thought, "There shouldn't be anything crunchy in pizza." It was that my tooth had cracked.

I went to the dentist and she said, "I can tell you've been grinding your teeth at night. Are you under any stress?"

I said, "Yes, I guess you could say that."

She said, "Well, you've got two options. You can try deep breathing and yoga before you go to bed, or I can get you a mouth guard and you can chomp away."

I said, "Give me the mouth guard."

Gardner: Who were some of the initial investors of Honest Tea?

Goldman: The only ones who came in at the beginning were the folks who we could lose their money and we'd still get invited to Thanksgiving, which were my parents, Barry's parents, me, Barry, my sister, Barry's college roommates. Those were the founders.

Once we started to get some traction, we brought in investment from people who liked the product and who didn't want to see us go out of business. And by the way, those founders made 26 times their investment.

Gardner: That's awesome. We know one of them and love one of them, because she's come to our office a number of times -- Nell Minow. And Andrew Tobias also. They were just one step removed from your friends and family?

Goldman: Exactly, yes; didn't know them when we started. We had Berkeley Breathed, the cartoonist, who found the product and liked it, from Bloom County; a really unusual mix of people.

Tom Gardner has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Coca-Cola and has the following options: long January 2016 $37 calls on Coca-Cola and long January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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