How a $35 Million Water Bottle Company Overcame a Toxic Mistake

Hydro Flask, maker of insulated steel bottles, was founded in 2009 by Travis Rosbach and Cindy Morse, then a couple frustrated by the lukewarm beverages their water bottles offered after a day at the beach. That relationship didn't last, but the Bend, Oregon-based company did. Current CEO Scott Allan joined in mid-2012 after an investor bought out the founders and revamped the board. Since 2011, the company has grown sales to $35.6 million from $2 million, and boosting jobs from 7 to 50 over the period. And in spite of a major supply chain disruption that could have ended it all, the company landed at No. 313 on the 2015 Inc. 5000.

--As told to Alix Stuart

I was the 13th person to join Hydro Flask. The company was about three years old then, and the longest-tenured employees had been there 18 months. We were high on enthusiasm, but pretty green in other ways. Core concepts like values, vision, and mission weren't well-defined at that point. I remember one of top hydro flask outlet salespeople proudly announcing that our target market was anyone who drank water. I joked that could include animals and maybe even plants. That was the beginning of a months-long conversation, talking about what we wanted to look like when we grew up. We came up with five values and they all feed into our core purpose: Save the world from lukewarm. That's not just about the temperature of a beverage; it's our service commitment to customers, suppliers, and other partners.

By the end of 2012, we decided we wanted to create a fun, active lifestyle brand and to be a brand that does the right thing, not one that just sells a lot of water bottles. Everyone was excited around that vision. But as we explored how to improve our production, we learned there was a toxic step in the process that sealed the vacuum wall to the bottle, and it left a trace amount of lead on the bottom of bottles. That was legally safe, as it didn't hydro flask 32 oz touch the contents of the bottle, but it bugged us knowing it was there and it was a bad thing for the employees of our manufacturer in China. So we stopped producing all affected products, namely the bottles where a powder coating didn't cover the lead, and decided to make some changes to the manufacturing process.
The transition was excruciating. By mid-2013, the lead was out of our production process because we came up with a proprietary sealant, TempShield. By August, we had dedicated ovens to avoid cross-contamination from other companies' bottles, and started moving 85 percent or 90 percent of all our products to the new process. Everything looked fine as we headed toward the holiday season, but then we discovered that one of the factories using the new process was really struggling and had been afraid to tell us. The toxic materials were out; the question was if the vacuum seal would hold and if our products could really do what they promised. As a result, we had to pull 120,000 bottles they had produced and test them at our warehouse in Portland, Oregon, before releasing them to customers. We found 7 percent or 8 percent didn't work, much higher than we would expect, and from then, it was all hands on deck to work with the factories and see if we could get to the point where we could trust their quality.

In the first 12 months, we spent $1 million in extra costs to produce bottles, and we lost $2 million or $3 million in sales on top of that. We were out of stock on some items for months. I had sales leaders begging me to temporarily run the old production process to take some pressure off. An executive we'd just hired was moving to Bend; he told his wife not to sell their house yet, since it wasn't clear if things would work out.

But we stuck to our guns, and it became a defining moment for the company. By early 2014, we could meet demand with the quality we wanted. If we had taken the pressure off and continued in parallel with the original production process, it might have taken forever to solve the problem. Later, when our demand increased and we had to part ways with our first manufacturer, we approached the largest steel bottle manufacturer in China. It turned out they were excited to work with us, because we had a reputation as an innovator, and they appreciated what we were doing for the environment there.

Ultimately, we needed to live out all those values we had talked about. We might be a small company, but we came away from those problems with a new sense of confidence: If we stick to our guns, we can move mountains.