Honest Co., a highly-valued consumer products startup co-founded by actress Jessica Alba, recently announced that it would replace its chief executive with a veteran from Clorox, after failing to sell the company for anything close to its last reported private valuation of $1.7 billion.
After making a name for itself on the basis of non-toxic, eco-friendly products that are guaranteed not to include a laundry list of “health-compromising chemicals or compounds,” those claims have been discredited by a scathing Wall Street Journal report, a major product recall and a troubling number of consumer lawsuits.
The question is, can the L.A.-based business recover from the tarnishing of its “Honest” brand?
Just over a year ago, the company’s laundry detergent was found to contain SLS, a foaming agent used in all sorts of household goods made by Colgate-Palmolive, Procter & Gamble and Seventh Generation, but included on Honest’s forbidden list. The company vehemently denied the accusation, claiming it used SCS, not SLS. But chemists say that SCS “includes a large amount of SLS,” according to the Journal.
Honest stuck by its story, issuing one denial after another while calling the Journal’s investigative reporting “false,” “reckless” and “junk science.” If that sounds familiar, you’re probably remembering that Theranos CEO Elizabeth Holmes reacted more or less the same way when the same publication cast doubt on its breakthrough lab testing technology. Theranos’ labs have since been shuttered and its disgraced founder barred from the industry by federal regulators.
Meanwhile, Honest quietly reformulated its laundry detergent, and changed its label and website. The company has continued to staunchly defend its natural products, even in the face of several civil lawsuits over deceptive product labeling and false advertising. Just two months ago, it recalled organic baby powder it’s been selling for nearly three years over concerns that it might cause infections.
The controversy seems to have affected the company’s ability to raise more capital and scale on its own. A 2016 IPO plan evaporated, and reported acquisition talks with Unilever, Clorox and other consumer giants apparently fell apart. To date, the company has raised more than $200 million in venture funding but has never made a profit.
Here’s the problem. It’s one thing to misstate what’s in your laundry detergent, how well your sun screen actually screens the sun, or whether your organic baby formula is organic or not. I know that sounds bad, and it is bad. But far worse is naming your company “The Honest Company,” making integrity and wholesomeness your core brand proposition, then failing miserably to deliver on that promise.
That’s a show stopper and, based on my experience, a sign of bigger problems to come.Most venture capitalists and consumer giants are savvy enough to head for the hills when they see that sort of trouble on the horizon. That could be why Unilever broke off talks with Honest and decided to acquire rival Seventh Generation instead.
Look, I’m not saying that all is lost here. Maybe Nick Vlahos, the former Clorox exec who is replacing co-founder Brian Lee as CEO, can make Honest a more honest company. Maybe he can cut costs and make it a more attractive investment or acquisition target. But if the company doesn’t fix its core problem and repair its damaged reputation, that will just delay the inevitable.
A consumer goods company named Honest can’t get away with selling products like diapers and baby food that aren’t what they say they are for very long. Sooner or later, consumers get wise. Then retailers get wise. Then sales hit a wall, losses pile up and the result is never pretty. A recent announcement of layoffs amidst a “corporate-wide reorganization and restructuring” is perhaps a harbinger of things to come.
The star power of a cofounder like Alba and a CEO who has made a name for himself by partnering with famous people like Kim Kardashian (Shoedazzle) and attorney Robert Shapiro (Legalzoom) will only take a startup so far. It also has to deliver the goods. It has to live up to its name, its brand, its reputation. If not, sooner or later, it will unravel.
In a competitive market, customers have lots of choices. That’s especially true of commodity products like consumer goods. But it really doesn’t matter whether you develop websites, make computers or sell gourmet dog food. Whatever you tell your customers you’re going to do for them, you’d damn well better do it. Your brand is your promise. And it’s the one promise you can’t afford to break.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.