In a year full of high-profile equity investments and acquisitions — whether it’s Nestle buying Blue Bottle or TSG taking a minority stake in Nuun — many entrepreneurs may be looking at the raw dollar value that a strategic partner can bring to the table and dreaming about the possibilities it could offer for growth. All it costs is a part of the company.
But for as many advantages taking the money has, there are negatives as well.
There’s no one right answer for every company to know whether to sell or not; instead, founders need to weigh both sides and consider what’s best for them. At BevNET Live Winter 2017 in Santa Monica, several entrepreneurs, some who took the money and some who passed, offered up their personal experiences dealing with the independence question.
Kara Goldin, founder and CEO of Hint Inc., has attained business celebrity status with the success of her 12-year old flavored water brand, which is now a $100 million lifestyle company. Goldin used inspiration from the tech sector to stay independent, she said. Although Hint has received venture capital funding from Verlinvest, the company has not sold. Instead, it has received funds from more than 100 angel investors.
“I think there’s great advantages, frankly, of being able to call your own shots and not have to worry when things are not going perfectly that you’re going to have your team taken away from you,” Goldin said. “Not just in the food and beverage industry, but in tech. Where I live [near Silicon Valley] many companies are taken away because they have a bad quarter.”
Goldin has approached these crossroads many times in her career with Hint. When the brand first entered the e-commerce market through Amazon, she said, she was invited by Amazon to view consumer data that showed the brand’s fans were also buying a myriad of medical products, showing the drink resonated with consumers seeking healthy beverage options. But when she asked for a full copy of the data, Amazon shot her down.
With Amazon only offering slivers of information, Goldin opted to launch her own direct-to-consumer online business. Today, it accounts for nearly 40 percent of all sales and the company has seen its offline business grow by more than 50 percent.
Another advantage of independence is being able to control the company culture for the better. At Hint, inclusivity and transparency are vital to the culture.
“I think [the culture] is very open,” Goldin said. “We have a lot of people who work for us now who have told us horror stories of not really understanding exactly where they were working before. They didn’t understand the financial situations of the company. […] Their bosses have been fired by a board or a private equity firm.”
Company culture can offer brands a vital competitive edge, which was the message of Nuun CEO Kevin Rutherford’s presentation. Nuun features an enthusiastic, physically active culture that creates an effective work-life integration by encouraging its employees to adopt a go-getter attitude on and off the clock.
Speaking only a month after Nuun sold a minority stake to TSG Consumer Partners, Rutherford said ensuring that TSG understood the importance of the company’s optimistic culture was vital to ensuring the partnership worked. Sometimes, the brand can change the firm, he said.
“What we’re trying to do is make [TSG] a part of the mission,” Rutherford said. “I said my goal is to make you guys the healthiest private equity firm on the planet. I don’t know if they liked that, but they definitely have embraced it already. So integrate them within it, make them a part of the team. Don’t make it us vs. them.”
While independence has its perks, partnering with firms should be a mutually beneficial relationship and there are cons to forgoing that route. In her presentation, Goldin admitted the company may again be unprofitable during attempts to grow, particularly as Hint builds out its healthy living lifestyle portfolio with a new line of sunscreens.
According to Matt Thomas, CEO and founder of Brew Dr. Kombucha maker Townshend’s Tea, scaling independently as a startup brings immense challenges, particularly when it comes to maintaining a positive culture.
“We’ve had a lot of people who have been with us for a very long time, but that effort to professionalize the organization means you’re going to bring in people who are going to end up being the boss of somebody who you’ve been the boss of for a long time,” Thomas told the audience. “But that’s something that we’ve been very good about, is fostering a very positive atmosphere and leading into those new steps by showing people it is something that is going to help.”
As a startup entrepreneur, Thomas sold equity in Townshend’s Tea to friends and family, but would later opt to take on $7 million in bank debt in order to continue scaling. Eventually, Thomas said, he reached a point where turning to private equity became a necessity.
Rather than sell to the highest bidder, Thomas connected with a local, Oregon-based private equity firm that could provide him the money he needed to scale while only taking a small minority in the company.
“I knew that I was starting to make decisions that had more zeroes behind them,” he said. “And I was smart enough to know that I was doing it all for the first time and I didn’t really know what I was doing. I was making it up as I went along.”
Private equity, Thomas said, helped to professionalize the company, build a board of directors, and had a local Oregon mindset that wanted to see the company grow and succeed on its own terms. With that change, Townshend’s Tea has continued to grow without compromising its vision.
“Private equity certainly forces you to professionalize,” Thomas said.