Honest Tea: Organizational Structure

Summary: Honest Tea (U.S.) is a bottled organic tea company based in Bethesda, Maryland. The company is a wholly owned subsidiary of the CocaCola Company. Honest Tea is known for its organic and fair trade products and is one of the fastest growing private companies. Honest Tea started off with a handful of employees bringing out five products, three of which are still in the market. Today the company has over 35 package varieties of not only tea but other beverages as well. Honest Tea caters to a group of customers that prefer organic or low-calorie beverages over other types of beverages. Honest Tea finds that it must continually adapt to changing circumstances and environments. Initially organic or low-calorie tea was the only product, but the firm has expanded to various other beverages. Honest Tea believes that growth is continuous; the firm should never consider that they have finished achieving what they set out to accomplish.

Task: Read the "Honest Tea: Organizational Structure" case below and then consider the following questions.

>> The ideas for Honest Tea started back in 1995 when I was the Yale School of Management. And my professor Barry Nalebuff was doing the case study of the beverage industry. And we talked about what was missing and where the opportunities were. And I certainly knew I was missing a drink that had a mid to low calorie profile. At the time all the bottled teas had sort of 100, 120 calories per serving or zero calories and artificial ingredients. And I knew that I was thirsty for that. I'm Seth Goldman. I'm the Co-Founder and TEO of Honest Tea. It wasn't until a few years later after I had graduated from the School of Management, had moved down to Bethesda, Maryland that I came back to the idea, had enough experience working in the private sector and maybe a little more confidence in my own abilities to say I think I am ready to do something about this. And, of course, Barry was the first person I reached out to. It was, for both of us, our first, you know, entrepreneurial undertaking. And at the same time, it was a really good combination because he kept his day job. He's still a professor. But he was the Chairman of the company, and I was the TEO, the person, you know, getting everything done. And it was great to be able to turn to him for advice, to get his input, and yet he also had enough distance from the business, he wasn't involved in every day to day decision. He wasn't feeling the same pressures around cash flow that I was feeling. And so all throughout we continued to grow the business and had a really symbiotic relationship. This company actually is really based on economic theory. We basically came to this whole category as a challenger. There was a missing opportunity, a point of difference, and we really were able to capture it. There were a lot of points where the strategy and the alternative thinking really

were put to work. We were doing things differently in almost everyway. We were, you know, making a tea with a lot less sweetener. We were sourcing ingredients differently, purchasing different ingredients, making the product differently. It was a little bit like, "Who wants this drink?" And it was a little like crickets out there. Not many people had that appetite for that. And we kind of learned that, you know, we were on the bleeding edge. We, it was challenging to grow. We have our original business plan posted on our website at HonestTea.com, and what's striking about it is what we describe there in terms of the brand vision is really brought to life. I think what we aspire to is really what we're building. What's notable in terms of what's missing in that business plan is any discussion of distribution and production, which turns out in the beverage industry is pretty important. When we got started, it was really hard to find bottling plants willing to produce our product. And so we owned a third of a bottling plant outside of Pittsburg. And it was just a huge drain of money, of attention, of energy, and it was barely staying in business. And it wasn't making great product for us either. And so I think about how much time I put into keeping that plant afloat. If I could have been putting that into building the brand, it would have been a great, a much better use of my time and building something, you know, building a bottling plant was not building the value of this brand of this enterprise. And so it was really after we were able to sell off our interest in the bottling plant that we were able to, that I was able to really accelerate the growth of this business.

When we started it was really me working out of my house. We brought on some interns. And then we had three employees in our first year. We brought five products to market. Three of those products are still on the market. Today though we have over 35 different package varieties. Of course in the beginning it was all tea. Now we have juice drinks. We have a wine called Honest Fizz. We now sell tea that can be brewed in restaurants. So, in terms of scale it was grown dramatically. I've always been responsible for making sure this organization has the resources it needs to grow. The advantage I have is that because in the beginning I really did everything, I'm able to jump into a room into a conversation on any topic whether it's the accounting system, production, tea filtration, sales, marketing, and understand, you know, sort of what the landscape is. Know the issues. Know the ramifications of it. I mean the strongest asset we have as a company, as an enterprise, is our culture. And it's a transparent one. You can see it's very, literally, you know, there's not privacy here. And our leadership gets what we do, and they pass that on. If someone comes in who has a different mindset, they usually don't last long. You know, this is very entrepreneurial. And if you are sort of looking for your closed office and your spending account, you're in the wrong place.

We attract a certain kind of person, and we probably repel a certain kind of person as well. And that's a good thing. But all along the way, we've been innovating. And for us it's what we call mission driven innovation. So, we always try to find ways to advance our mission, in this case, you know, offering healthy, low-calorie

products, supporting a more sustainable, agricultural system and creating economic opportunity. And every time we can find an innovation that takes us further on that mission, we'll bring it to market, really a continual process. We're never, it's not a destination. It's not an end point. We're never going to, we never should be satisfied that we've achieved what we've set out to accomplish because if we have we're not, you know, being ambitious enough.

Questions:

(a) Does Honest Tea have more of an organic or mechanistic structure?

(b) How can you tell (Justify)?