When Business Cultures Clash

Much like marriage, a business match made in heaven can turn into a nightmare if you and your partner do not share the same core values, or in this case, business philosophies. Those differences are often even more pronounced when entrepreneurs team up with very large businesses.

Take for example the story recently reported about Honest Tea and Coca-Cola. Honest Tea is the entrepreneurial Cinderella. The brain-child of Seth Goldman and Barry Nalebuff, their goal was to develop an alternative to sugary drinks.  Developing a product line was the relatively easy part. Getting the product on store shelves and into consumers’hands was much tougher. Limited shelf life and maintaining a steady inventory at retail proved to be an ever constant challenge and not an overnight success. Developing distribution scale took close to a decade.

Then along came Coca-Cola, the Prince Charming of distribution. It was the perfect glass slipper for Honest Tea, allowing it to step out and make their product available on more grocery store shelves and at college campuses. For Coca-Cola, Honest Tea provided diversification into lower calorie drinks. It appeared to be a good fit.

Until . . .

One day, a few months after the deal between Honest Tea and Coke had been inked; someone at Coke noticed that Honest Tea’s Honest Kids’ product line had conspicuous language on its packaging that said “no high-fructose corn syrup.” Senior management at Coca-Cola was not amused. According to the article, Honest Tea received a “strong request to change the wording.”

But, to what?

The Honest Kids’ product line represents a significant amount of Honest Tea’s $70 million annual revenue. Dropping the product line was not an option.  

Coke suggested “sweetened with organic cane sugar,” which Honest Tea rejected as inconsistent with the company’s belief that consumers don’t want highly processed ingredients. “No fake stuff” was also rejected as too subjective. Removing the “no high-fructose corn syrup” statement without replacing it with something was also rejected as signaling a formula change to consumers at a time when high-fructose corn syrup is being challenged as a contributor of childhood obesity.

What an interesting ethical dilemma! If you’re Honest Tea, how do you compromise without compromising, particularly since Coca-Cola has an option to buy out the entire company next year? How do you craft language without selling out the principles on which the company was founded? 

There is a lot at stake in how the wording ultimately gets resolved.

When entering into deals with other businesses it is useful to follow the example of Zappos when it was acquired by Amazon. As part of the deal they created a document that establishes healthy boundaries of their working relationship. It identifies areas of independent decision making and it acknowledges the significance of Zappos’ culture as well as the need to protect it. 

Achieving an Amazon/Zappos operating agreement up front will help avoid sticky situations down the road. It allows your businesses to focus on the complementary strengths that drew you together in the first place. Consider it the next time you enter into a significant deal.