Friday, July 16, 2010

Honest Tea and Coca-Cola

The New York Times ran an intriguing article recently about Honest Tea's relationship with Coca-Cola. Coke purchased a 40% stake in the company two years ago, with an option to acquire the entire firm in 2011. The article describes the tensions and challenges that inevitably emerge when an entrepreneur sells a small, highly authentic, "natural" food/beverage brand to a large consumer products company. Not surprisingly, challenges center on the issue of how to capitalize on the scale and scope economies offered by the corporate parent while staying true to certain values and principles that made the small up-start quite distinct in the marketplace from its larger rivals. In this case, Honest Tea had explicitly marketed itself against some of the larger beverage giants, celebrating, for instance, the lack of high fructose corn syrup in its drinks. Coca-Cola managers apparently worried that Honest Tea was essentially condemning an ingredient that it had in many of its own Coke products.

The story illustrates an important lesson for entrepreneurs considering a sale to a larger player in their marketplace. To me, the days before an acquisition takes place serve as the critical time for important conversations about brand values and positioning. Entrepreneurs should not wait until after the deal to then learn about potential tensions around values and principles. Both target firm and acquirer need to have these conversations upfront, and to the extent that it is possible, some firm commitments need to be made by both sides about how they want to work together. Entrepreneur-founders have the most leverage BEFORE the sale. Once they have been acquired, their ability to stake out their ground on certain core values drops precipitously.

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