Entrepreneurs

How Honest Tea survived accidentally producing drinks with glass shards inside

Seth Goldman, Co-Founder of Honest Tea.
Photo by The Washington Post
Seth Goldman, Co-Founder of Honest Tea.

Honest Tea was born out of co-founder Seth Goldman's suburban Maryland kitchen in 1998. It took eight years of long days, persistence and resilience to make the beverage start-up profitable. And there were plenty of setbacks along the way.

One of the lowest points came in 2003, five years into the beverage company's life but still three years out from the point at which it would become profitable. Thanks to a production fluke, bottles of Honest Tea appeared on the shelves of Whole Foods with glass shards inside.

"There were a lot of blisters in the glass. Literally, you could look at it and see little bubbles. And so we ran it on the production line and the way the line works is that if sees a defect in the bottle it is supposed to kick it out, reject the bottle," says Goldman, in an interview on the startup podcast, "How I Built This."

"But the line didn't do that."

Instead, defective bottles of Honest Tea arrived at Whole Foods ready for sale, says Goldman.

No customers got hurt. But the crisis threatened the still young company's relationship with its largest customer.

Whole Foods has a policy with regards to its suppliers: If a company has three slip ups, it is banned from selling to the grocery store chain, says Goldman.

"We knew we couldn't afford as a business to lose our largest customer. So we voluntarily withdrew all product from the market."

At the time, Honest Tea was doing between $3 million and $4 million in sales annually. Pulling their product resulted in the loss of several hundred thousand dollars of sales. It was "a huge momentum stopper," Goldman says.

But, because executives acted decisively, they didn't jeopardize their relationship with Whole Foods. And the mistake didn't doom the young company.

In 2011, Honest Tea was acquired by Coca-Cola. The beverage company does about $170 million in annual revenue and Honest Tea is now sold in more than 100,000 stores.