As part of the "How I Made My Millions" series, CNBC.com asked the founders and CEOs of these companies to share their experience on a variety of topics. What follows is Honest Tea TeaEO Seth Goldman's hard-won experience earned in real-life business. As you'll see, it can differ greatly from what you learn in business school.
Contrary to my expectations growing up, I’ve become a big fan of business school. I always imagined I’d end up in law school and then go into politics (and I’m pretty sure my mother felt the same way). But I’ve found that business can be just as powerful a vehicle for changing our society, and perhaps a more creative way to do so, too. (Not to mention, thirst-quenching.)
I learned a great deal during my two years at the Yale School of Management that helped make me a more effective TeaEO. While I’d like to think I arrived in New Haven with some marketing savvy and awareness of how to manage teams, at SOM I gained fluency in financial statements and strategy that helped make me more credible to investors, who also gained confidence from seeing the degree. And, of course, Yale is where I met my co-founder Barry Nalebuff, who was my professor at the time and has been an invaluable partner ever since.
But there were four key lessons I wasn’t taught at business school that I learned the hard way as an entrepreneur:
Sales Are Job One
Sometimes business schools undervalue the importance of selling because it’s not perceived as an “MBA skill.” In fact, many of Honest Tea’s top salespeople don’t even have college degrees. While business schools spend hours on marketing-positioning charts and cash-flow spreadsheets, they often overlook the very basic but essential tools of how to close a sale. If Honest Tea were to design an MBA course in sales, it might include topics like:
- Getting the Appointment: The Fine Art of Stalking/Harassment/Persistence
- Are the Drinks Cold?: How to Make Sure Every Detail Is Covered
- Bonding With Your Client: Which Sport Does the Buyer’s Daughter Play?
- Green and Healthier Are Good: For Your Business and Your Wallet
People Will Steal
I guess I was naïve, but I thought it was safe to assume that when we sold tea to someone, they would pay us for it. In our early years, we were cheated by shadowy distributors who told us how excited they were to be our partners, then they took our cases and disappeared. We never lost enough money to make it worth suing someone, but we came close a few times, and when you’re just getting started every dollar counts.
By the way, we learned this summer that most American consumers are quite honest. It’s the rogue distributors we had problems with.
Lesson: Make sure new customers pay at least half of their order up front, or run a credit check. Ship smaller orders in the beginning, even if it makes your freight costs less efficient.
Well, they don’t actually lie, but business schools put so much emphasis on sales projections and assumptions that an MBA entrepreneur actually starts to believe them. Once you start selling (see: lesson one), you’ll realize that the numbers don’t usually grow in a rational sequence. It looks very enticing when you see sales growing 10 percent every month, but then you realize it takes someone’s sweat and effort to go out and sell each case. And if you’re spending too much time behind the laptop, that means you’re short one salesman!
Spreadsheets also fail to take into account all the unexpected and unpleasant surprises that inevitably happen, such as the customer who doesn’t pay (see: lesson two), the railroad car full of tea that gets frozen in North Dakota, the broken boiler at the bottling plant, the upside down labels…you get the idea.
Lesson: Once you’ve developed your annual projection, cut your sales by 40% and raise your expenses by 50%, and make sure you’ve got the cash to weather that scenario.
Business Can Be a Lot More Fun, Inspiring and Powerful Than Business School Suggests
There’s a tendency in the classroom to feel all analytical and conservative. You see people walking around in suits on interview days, and you might conclude that’s what your future looks like. But while we at Honest Tea certainly do our best to make smart decisions, we love creating new products that surprise and delight people (look for our new tulsi drink), we love spreading the word about our tea in new and novel ways (see: Honest Revolution link), and we are proud of the way we’ve been able to expand an idea that started at my kitchen counter to store shelves across the country.
Finally, we’re excited to help lead a new generation of mission-focused businesses that seek to address social and environmental issues as they grow. In fact, more than a thousand like-minded MBAs and others will be gathering Oct. 28-30 in Ann Arbor for the annual Net Impact conference. Come join the fun—there will be lots of MBAs there, but leave your suit at home.
(Editor's Note: Coca-Cola Co. exercised its option to buy the portion of Honest Tea that it didn't own, the drink companies announced March 3.)
Seth Goldman is president and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. Over the past 10 years the company has thrived as consumers have shifted toward healthier and more sustainable diets. In 2008, Coca-Cola purchased a minority interest in Honest Tea.