The Next Startup Fraud? Jessica Alba's $1.7 Billion "Honest Company"

Back in the summer of 2014, roughly a year and a half before the second bubble of profitless, "story", aka "tech", companies had burst, we wrote in dismay, that "the true indicator of just how bubbly the second coming of the dot com era has become comes courtesy of none other than Jessica Alba's, yes the actress, own startup: a company launched in 2012 and which makes "non-toxic" diapers (as opposed to toxic diapers?), called the Honest Co., has raised $70 million at a valuation just shy of $1 billion in preparation for an IPO."

What was the company's business model? Simple: one part Amazon monthly subscription purchase, and one part promise that its products are clean and don’t contain what it says are harsh chemicals found in many mainstream products; apparently that is a critical deciding factor for today's largely unemployed Millennial generation:

"since launching in 2012 with its non-toxic diapers and other natural baby products, the California-based startup has grown quickly by blending its environmentally sensitive products with a social mission. Annual revenue is tracking to hit north of $150 million in 2014, or three times the revenue of 2013. Roughly 80% of Honest revenue is from customers who subscribe to a monthly service delivering diapers and other consumable products on a recurring basis."

All this happened at a time when frauds such as Theranos were being valued in the billions, so in retrospect the "Honest Company's" idiotic valuation may be explainable.

What isn't as easily explained is that since we profiled Alba's "Honest Company", its valuation has grown by another 70%, and according to the WSJ it is now $1.7 billion with total funding raised more than $200 million "thanks to its marketing of cleaning supplies, diapers and other consumer products that it says are safer and more ecologically friendly than other brands."

But what Alba herself will have a very difficult time explaining is why, just like in the case of Theranos, her company it not only grossly misnamed, but may also be another fraud, because according to a just released WSJ expose, "one of the primary ingredients Honest tells consumers to avoid is a cleaning agent called sodium lauryl sulfate, or SLS, which can be found in everyday household items from Colgate toothpaste to Tide detergent and Honest says can irritate skin. The company lists SLS first in the “Honestly free of” label of verboten ingredients it puts on bottles of its laundry detergent, one of Honest’s first and most popular products. But two independent lab tests commissioned by The Wall Street Journal determined Honest’s liquid laundry detergent contains SLS."

“Our findings support that there is a significant amount of sodium lauryl sulfate” in Honest’s detergent, said Barbara Pavan, a chemist at one of the labs, Impact Analytical. Another lab, Chemir, a division of EAG Inc., said its test for SLS found about the same concentration as Tide, which is made by P&G. “It was not a trace amount,” said Matthew Hynes, a chemist at Chemir who conducted the test.

In Alba’s 2013 book, "The Honest Life" she lists SLS as a "toxin" that consumers should avoid. She started Santa Monica, Calif.-based Honest in 2011 after she said she had an allergic reaction to a popular brand of laundry detergent. According to the WSJ, she has no problem actually including it in her product, comparble to the Theranos' bezzle, in which its blood test was not only inaccurate, but had been superceded by products by its biggest competitors.

And just like Theranos, "Honest" disputes the labs’ findings and says its own testing found no SLS in its products.

“We do not make our products with sodium lauryl sulfate,” said Kevin Ewell, the company’s research and development manager.

And just as the WSJ exposed Theranos, now it has set its sight on the one company that years ago couldn't pass the smell test, and now stinks like a rotting venture capital corpse.

The blame game begins:

Honest said its manufacturing partners and suppliers have provided assurances that its products don’t contain SLS beyond possible trace amounts. Honest provided the Journal with a document it said was from its detergent manufacturer, Earth Friendly Products LLC, that stated there was zero “SLS content” in the product. Earth Friendly in turn said the document came from its own chemical supplier, a company called Trichromatic West Inc., which it relied on to test and certify that there was no SLS.

 

Trichromatic told the Journal the certificate wasn’t based on any testing and there was a “misunderstanding” with the detergent maker. It said the “SLS content” was listed as zero because it didn’t add any SLS to the material it provided to Earth Friendly and “there would be no reason to test specifically for SLS.” It said the product in question “was fairly and honestly represented” to its customer.

 

Honest said it didn’t deal directly with Trichromatic and declined to comment further on the certificate. Earth Friendly reiterated that it relied on Trichromatic to test the ingredient.

 

Honest also disagreed with the methods used by the Journal’s labs, and said the labs tested against a sample of SLS that isn’t the type used in consumer products. Both Chemir and Impact Analytical said they stand by their test results, used the most precise method for quantifying SLS in a consumer laundry detergent and followed standard scientific guidelines.

Then there is the question of what "Honest" uses instead of SLS: the WSJ reports that Honest supposedly prefers an alternative called sodium coco sulfate, or SCS, which the company says is less irritating and a different compound from SLS. “We have evidence that our laundry detergent contains SCS, not SLS, and any contention to the contrary is wrong." The problem is that SCS contains SLS, which means fundamentally the fraud at the Honest company, one which it uses to pray on naive and impressionable young moths, is one of cheap marketing alternatives.

Rival Seventh Generation lists SLS as an ingredient in its laundry detergent, including a variety made for sensitive skin, and lists sodium coco sulfate as an ingredient in its hand wash. It says both cleaning agents have the potential to irritate skin but are safe when products are formulated properly. “In all practicality they act and behave as the same chemical in consumer products,” said Tim Fowler, Seventh Generation’s senior vice president of research and development.

Not for Alba, who preys on the wallets of the uninformed with false advertising.

Then there is the real-time alteration of the company's public materials during the WSJ's investigation into the company:

During the Journal’s reporting, Honest made changes to wording on its website, including revising the description of its “Honestly Free Guarantee.” It used to say its products are “Honestly free of” dozens of ingredients, including SLS. Now it says the products are “Honestly made without” those ingredients. Honest also removed claims that other companies use “risky” or “toxic” ingredients that it doesn’t use.

 

When asked about the website changes, Honest co-founder and Chief Product Officer Christopher Gavigan said they were to help clarify, educate and accurately represent the company’s position. He said in a December meeting that Honest was also changing its product labels to match its website and had no plans to reformulate its detergent.

 

Alba, who is Honest’s chief creative officer in addition to co-founder, declined to be interviewed for the WSJ article. Just like Elizabeth Holmes, when the WSJ demolished the skyhigh valuation of Theranos. Her attorney Bert Fields said, "Jessica Alba and the folks at Honest truly believe that their detergent is free of non-trace SLS and have been assured of that by their suppliers."

Sadly that too is a lie.

As is the gratuitous false marketing of this post with photos of the "Honest" CEO. Spoiler alert: they too are not genuine and contain an abnormal dose of Photoshop.