Peter Thum is the founder of Ethos Water, a company that sells bottled water in the West in order to give proceeds of its sales to clean-water initiatives in developing countries such as Honduras and Kenya. You may have seen an Ethos water bottle at your last Starbucks visit, as Ethos Water was sold to Starbucks for $7.7 million in 2007 and is available in over 7,000 Starbucks. Ethos plans to give at least $10 million by 2010 to nonprofits that fund safe-water projects
What is Ethos Water’s mission?
Help children get clean water and raise awareness of the world water crisis.
What inspired you to create Ethos?
While working in South Africa in ‘00-’01 as a consultant with McKinsey, I spent time in the townships around Cape Town and into the countryside near Durban. I met people living in extreme poverty, for whom life was a daily struggle. While there for six months I absorbed the contrast to my own life as an American, and in London, where I lived at the time. Regularly, I saw women and girls in search of water.
One day in December ‘00, I encountered a woman who was walking along the side of a dry dirt road with a large water vessel on her head. I was driving in Eastern South Africa. We were out in the middle of nowhere. Where did she come from? Where was she going? Whatever the answer, I knew that her day was long and hard, and that probably for her every day of fetching water was like that.
I left Africa believing that something more and something different probably had to be done to address this problem. Through research, I was struck by the enormous scope of lack of clean water and sanitation, and the simultaneous lack of attention to the issue. My next consulting client was a soda and bottled water manufacturer back in England. The idea for Ethos came to me while working on this project.
It seemed like a great idea to turn bottled water consumption toward creating a brand that would become a communication platform for the water crisis. I hoped that in time, brand loyalists would become vested at varying levels in solving the problem through their use of the brand. Evian and Fiji had people paying up to twice as much to access affordable luxury and feel superior, why not tap into that demand for a positive social outcome. Giving someone water while you drink water seemed a much more valid emotional benefit to me. This idea led to an obsession for me, and that led to Ethos.
Ethos’ website touches on the United Nations Millennium Development Goals, created to improve the welfare of people around the world by 2015. Could you explain why access to clean water is so vital in achieving the Millennium Development Goals?
Reliable access to clean water and adequate sanitation (human waste is separated from this water to keep it clean) are fundamental elements in the foundation of the societal pyramid. Without safe water and sanitation, society rests on a foundation of sand.
Most of us take water, toilets, hygiene awareness, and their universal availability for granted. To understand the importance of water, you have to stop and consider. For example: you cannot treat Aids / HIV, or many other diseases without clean water; women cannot work a 40 to 50 hour week to contribute to the family economy, and raise children, and spend 40 hours per week fetching water; if a child dies before the age of five from diarrhea (~6,500 do die every day), they will not go on to become the engineers, doctors, teachers, and business people who will build a society. Would you send your children to a school where there was no water, where there were no toilets, where they could not wash their hands?
How has Ethos Water grown since its inception in 2001?
Ethos began as an idea written on a cocktail napkin on a British Rail train in ’01. Initially, I wrote a plan, came up with the name, and worked for a little more than a year from fall ‘01 to fall ‘02. When I realized I needed more connections and help with fundraising, I recruited my business school classmate Jonathan to help in late ‘02. He worked on Ethos when possible outside his full time job. After maybe 100 presentations and six months of rejections it was clear by spring ‘03 that no one was funding business plans, or Powerpoint decks after the .Com bust. It was necessary to start the company and demonstrate it would work.
So, I quickly had to figure out how to make bottled water and basically found suppliers through Googling and making some calls. A friend from the wine industry designed the label for us. It took about 10 weeks to get the rest of the product and supply chain put together and we had our first customer in August ‘03. Most of the deliveries were made from a Volvo station wagon borrowed from my mom’s friend. We set up a for-profit company and a not for profit organization and found some water projects in Honduras and Ethiopia to make donations to; writing personal checks directly to the NGO’s (non-governmental organizations) for safe water and sanitation programs in Honduras and Ethiopia. A couple of months later Jonathan joined the company full-time and by then Ethos had about 10 customers. We soon hired a young musician, who also owned a truck as a part-time, delivery man.
By the end of the ‘03, we had about 30 customers by the beach in LA. With this evidence of customer success and consumer sales my partner brought in two angel investors–Ari Engelberg and Steven Koltai.
In February ‘04 we bet most of our remaining cash on a sponsorship of the TED conference—an annual conference attended by leaders from many fields. There, we would either find a major investor, or Ethos would dry up. For three days straight, we broke TED’s cardinal ‘no fundraising’ rule and were fortunate to meet Pam and Pierre Omidyar, whose organization invested in Ethos about four months later. They subsequently helped us get a meeting with Howard Schultz, the Chairman of Starbucks.
Ethos started getting press coverage in newspapers, magazines and trade press when we had only about 20 places selling the brand. This was the intended consequence of a strategy was to target only a few elite, buzz-generating outlets on specific streets in specific zip codes. The aim was to get as much buzz as possible with as little working capital as necessary to get attention from a major distribution partner. The commoditized nature of the market, the newness and relative complexity of the Ethos consumer value proposition and the inability of distributors to build such complex brands, meant that a clever path to growth and scale was necessary; one that could reduce the cost of customer acquisition.
We’d begun courting Starbucks way in September ’03, when we had about 10 customers. By the time we met Howard, we had already met most of the groups within the company to whom we needed to sell the Ethos idea. With Howard’s support, the company began to negotiate seriously to take us on as a supplier. In the meantime, we had also begun to serve Whole Foods as a customer and our success with them helped prove to Starbucks that Ethos was a viable consumer proposition.
After the infusion of Omidyar capital in June ’04, we got a tiny, shared-services office space in Santa Monica and hired a few sales people. With more help, we grew the customer base about 20x, to include customers in different states across the US. That space lasted a few months and looked like a typical start-up office, jammed with computers, white boards, product, marketing materials and people.
Our investments in water programs expanded during this period as well with increased funding for the programs in Ethiopia and Honduras, and investments in two new programs in India and a program with UNICEF in Nairobi, Kenya. This was an important step for Ethos, because the UNICEF brand is well recognized and a good fit for the Ethos mission. But it took over two years from my first meeting with UNICEF to get this done, since UNICEF’s partnership stipulations are exacting and the funds required to work with them are not insignificant. Importantly, we did not want to have only one partner, because it was important for the Ethos brand to help build capacity in a diversity of organizations working in water and sanitation.
By the time we outgrew that first space and moved into a new office, Starbucks came back to us in one meeting in December ’04 and let us know that they wanted to acquire Ethos rather than take us on as a supplier. We were still a small unprofitable company making donations to the Ethos mission from the company’s cash pool. Starbucks could provide that non-traditional boost in distribution that Ethos needed to get scale and achieve its mission. We looked at the economics of the brand and agreed with Starbucks what was important to the Ethos brand and the economic commitment to the mission that had to be codified in the deal agreement for the good of the mission and the faith of the customer. Ethos would donate $0.05 cents for every bottle sold in Starbucks, or any other channel. As an independent company we’d have donated about 1.9 cents per bottle on average during 10 years of operations, so the Starbucks number was about 260% higher and began immediately. The mission was much better off in absolute terms within Starbucks.
So, Starbucks acquired the brand in April ’05. Ethos’ employees were hired by Starbucks to help integrate the brand and launch it in Starbucks stores. Jonathan and I joined the company as vice presidents and joined the Starbucks Foundation as Directors. Ethos began selling in about 5,500 Starbucks stores in the US in August ’05. That fall, Starbucks announced its aim to make grant commitment of $10 million by 2010 for the Ethos Water mission. And on World Water Day ‘05, Starbucks announced its first Ethos Water Fund grants of $1 million to a WaterAid safe water program in Ethiopia, and $1 million to a Mercy Corps school sanitation and hygiene education program in Indonesia. Collectively, these programs serve over 200,000 people.
I continued to work on Ethos for Starbucks, however the rest of our employees and my business partner had left the company by the end of Spring ‘06.
In March ‘07, we launched Ethos Water in to the Starbucks Stores in Canada and announced two $1 million grants for safe water and sanitation programs; one with International Medical Corps in Kenya, and one with WaterAid in India. These programs collectively serve about 150,000 beneficiaries.
In ‘08, the Ethos water fund announced two $1 million grants; one to Care International in Rwanda and one to Project Concern in Tanzania. These programs serve approximately 60,000 people. In June 2008, Starbucks began to launch Ethos water into other channels, including grocery, convenience and drug stores.
What is the company’s relationship with Starbucks? How does Starbucks contribute to Ethos?
Starbucks acquired Ethos Water in ‘05 and in six months took Ethos from operating as a regional, sub-scale brand with about 500 points of distribution to national distribution and roughly 7,000 distribution points today. This growth also enabled the brand to go from a ‘projected’ 1.9 cents per bottle in donations to 5 cents per bottle.
Starbucks set a goal of donating $10 million by 2010 through sales of Ethos water. Starbucks’ joint venture with Pepsi was the basis for a partnership for Ethos by which Pepsi manages production, and distributes and markets Ethos in channels outside Starbucks stores. To date the brand has generated over $6.2 million for water programs helping over 420,000 people around the world get water and sanitation access.
The funds that are generated by sales of Ethos are donated to the Starbucks Foundation, a registered not for profit. 100% of these funds are in turn invested in humanitarian water programs. The Board of Directors selects projects by applying a set of grant-making criteria and a process that we established during our tenure as members of the Board of Directors.
What are your hopes for the company – 5 years from now, and 10 years from now?
Ethos should continue to expand into other products and categories related to generating value for its water mission. Beyond this, I hope that as outlined in the business plan that I wrote back in ‘02, that the brand is strong enough to evolve and grow into different categories and becomes seen for what it is, a platform to help people do good things while making purchases they already intend to make. If Ethos can make superior, or competitive products that in part create incremental value by turning existing consumerism in those markets toward positive social outputs, that would be good.
Hopefully, Ethos will continue to inspire competitors and other companies and brands in different categories to tackle social issues by making them central to what they do. Such proliferation of similar thought and values would be a great outcome.
From an environmental perspective, bottled water creates a lot of waste. How do you respond to such complaints?
It’s true. And each of us has the power to choose what we buy and consume. In the US and most OECD countries, we pretty much have universal access to safe, clean tap water, so the bottled water industry doesn’t need to exist in these geographies. Therefore, if someone opts out of bottled water use, it’s an environmentally favorable decision. However, about 150 million Americans and far more Europeans, still choose to use bottled water regularly. So if you are a bottled water consumer, drink Ethos.
From its inception, Ethos has been an effort to take demand in an industry and point it toward addressing a massive social issue. Ethos has done very little to stimulate overall demand for bottled water. And while Ethos now has millions of customers, the great majority of market share was sourced from other existing premium-priced brand’s share. For those who chose to drink premium brands, a bottle of Ethos is worth about a month of water provision for someone in a developing country.
If someone chooses to not buy bottled water, they can now get refillable stainless steel, or plastic Ethos bottles and support the brand mission. $1 is donated for each bottle sold. Ethos, unlike its direct competitors, can promote these alternatives, because the brand is not tied to a story about the water source, or even to selling water in bottles. The important thing about the brand is its mission.
I think that the focus on bottled water should be a thin entering wedge to reconsider how we package things–not just food. This is really is broadly an issue of packaging of consumer goods. How do we change packaging of products? How do we balance the food safety regulations, shipping and handling issues and our natural desire for things that are attractive to the eye against the costs of these hurdles?
If we take an honest step back for a second: carbonated soft drinks are a much bigger market than bottled water, but use the same PET packaging and their use has serious health implications over time. By this, I’m saying lets get real about the problem if we are going to start by defining what it is.
State and local governments need to enact and support recycling programs for those who keep consuming bottled beverages. Today, about 10% of the packaging gets recycled and the majority of states and municipalities do not support recycling with laws to prod and enforce, or adequate economic incentives for the public to drive the programs that do exist.
What are some obstacles and successes that stand out for you in creating and running Ethos Water?
The greatest successes are the improved and saved lives of women and children in Kenya, Tanzania, Rwanda, Ethiopia, the DRC, India, Bangladesh, Indonesia, and Honduras and by relation the success of its loyal customers, who through simple individual decisions have changed the lives of over 420,000 people. That population is equal to a city larger than St. Louis and more than half the size of the population of the City of Seattle or San Francisco proper. Think about that for a minute.
Ethos has provided a transparent example for people who want to create for-profit social ventures. If you go to the website, and read it, you can see the results and the decisions that were made the development process, and it is pretty clear what works.
During the first year of working on the business, people said the following to me:
“Start a ‘real’ company, get rich and give your money away”
“If you want to dig wells, start a non-profit.”
“Do you realize that you are going to be competing with companies that are the best in the world at putting liquid in bottles and selling it?"
These illustrate the four big obstacles to Ethos: the nascent state of the social venture world, the relative obscurity of the world water crisis, the nature and structure of the ready to drink beverage industry that protects incumbents, and the separation of the consumer from the beneficiary populations.
Back in ‘01, very few for-profit social purpose ventures had been started and fewer had reached any meaningful scale. The cottage community of ‘social’ investors was a close knit and mercurial club. Social entrepreneurship had not yet crossed the chasm, so it wasn’t a term that many folks had heard and definitely wasn’t yet a cool thing to be. At the time there simply weren’t many examples of how to do this. The few people who had started for profit social ventures had left little evidence of their paths to success. I think Ethos has contributed to making that easier for folks who are trying to do it now.
What advice would you give someone hoping to start a company with a humanitarian mission like yours, but who has no investor money, and just an idea?
- Learn by doing. Start small, adjust and take the next step
- Be sure you are committed. Be honest with yourself and the customer, if humanitarianism is just a positioning approach, or a marketing ploy for your business, drop it
- You are starting a business. While your mission must be the core of your venture you must establish a viable value proposition and competitive position before your business can sustainably serve that mission
- Enjoy being transparent. Illustrate where you are and where you want to go. Open up and tell your customers about the problems you face. You can do this in a way that most can’t.
What can readers do to support the clean water mission, beyond choosing Ethos for their bottled water?
Learn about the issue on your own. Google world water crisis online and read the first 5 to 10 results Support an organization with a donation. Just $25 will provide someone safe water access, adequate sanitation, and hygiene education. Some organizations include:
- Giving Water (my own non-profit): www.givingwater.org
- WaterAid: www.wateraid.org
- Water Partners International: www.water.org
- A Child’s Right: www.achildsright.org
- Participate in World Water Day on March 22 every year: www.worldwaterday.org
By Emma Brownell for Intent.com
Read more blog posts in the Intent.com Sustainable Leadership Series here
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