Honest Tea CEO: Small Isn't Beautiful

Seth Goldman, the president and Tea-E-O of Honest Tea, made it official this week: The Coca-Cola Co. will exercise its option to buy all of Honest Tea, the Bethesda, Md., maker of organic, healthy beverages.

Coke bought 40 percent of the firm for a reported $43 million in 2008, a controversial move at the time for the upstart company that positioned itself as a challenger to the conventional way of doing business in the beverage industry.

Seth broke the news in a letter to his shareholders, in a blog post on Wednesday and in an interview with me at the State of Green Business Forum 2011 in Washington, arguing that his mission to "democratize organics" will be supported by Coke..

In an unusual twist to the deal -- one that amounts to a vote of confidence in Seth's leadership -- Coca-Cola will allow him to repurchase most of his own equity stake in the company. His name will remain on the bottle, along with that of his co-founder, Yale prof Barry Nalebuff, and the company will continue to operate out of its offices in downtown Bethesda, a short bike ride away from Seth's home. [Disclosure: I've known Seth for years and we attend synagogue together.]

"This is absolutely still my baby," he said.

Honest Tea didn't say how much Coke will pay for the remaining 60 percent, which was tied to the company's sales. Those sales have just about tripled in the last three years -- they're still shy of $100 million -- in part because Honest Tea has been able to ride on Coca-Cola's powerful national distribution network. The brand can now be found not just in natural food outlets like Whole Foods but in supermarkets and drugstores like CVS and Rite Aid. Honest Tea is now sold in about 75,000 outlets, up from 15,000 before the Coke deal, and the company grown from 38 to 125 employees. Green jobs!

Of course, we've seen this story before, as one "green" or natural foods company after another is swallowed up by global giants. Sometimes it ends well -- Gary Hirshberg, an Honest Tea board member, has been thrilled since his Stonyfield Farm became part of the much-bigger Group Danone. But the acquisitions of White Wave (Silk Soymilk) by Dean Foods or Ben & Jerry's by Unilever did not bring happiness to the founders. Seth quoted one entrepreneur who told him: "For the first few weeks, they want to know your opinion, for the next few weeks they want to know your phone number, and after that, they don't want to know you."