Jeffrey Hollender's ouster at Seventh Generation serves as a cautionary tale for today's ambitious green entrepreneurs.
I was disappointed last fall to see my friend Jeffrey Hollender, one of the early leaders of the green business movement, fired from his role as Chief Protagonist at Seventh Generation, the company he founded in 1988 and ran for more than 21 years. When I was typing that last sentence, I was trying to think of a euphemism for "fired" but realized that while the word has a harsh sound, this is not a situation that calls for sugar-coating.
As a co-founder of my own green company, I realize I'm biased, but founding entrepreneurs bring something to their enterprise that cannot be replaced—their vision and passion help get the business off the ground and often see the long-term in a way that most employees rarely do.
I've known more than a few beverage entrepreneurs who were ungraciously asked to leave earlier than they would have liked. Usually the separation is due to (what is judged to be) poor performance or differences with the company's board. Given the nasty, brutish and short lifespan of most beverage companies, it's often the case that the founders are shown the exit before shareholders realize an exit for their investment.
Because there are some legal issues involved with Jeffrey's departure, neither he nor the Seventh Generation board are talking too much about the situation (though consumers certainly are.) My understanding is that Jeffrey came to have a difference of opinion with the board (which included some relatively new outside investors) and a new CEO that Jeffrey hired. And perhaps some day we'll learn the details, but from the outside there are at least two important lessons:
1. Staying private does not guarantee that the founding entrepreneur will always be in power. Jeffrey was one of the skeptics when Honest Tea made its deal with Coke—he worried that our brand would lose its way once we partnered with a big multinational. And while dilution of our brand continues to be a risk, it's also clear from Jeffrey's firing that the only way an entrepreneur can guarantee he won't be forced out is to create a business that's profitable and doesn't need outside investors. Since Seventh Generation is a private company, it's difficult to know how the company was doing, but it's safe to assume that Jeffrey's choice to bring in new investors (who ultimately turned out to be unfriendly) was driven by a desire to improve sales or profits, or both. I have dodged more than a few bullets myself from investors posing as "angels." One wealthy individual presented me with a term sheet that set aside hundreds of thousands of stock options to attract new management. When I told the investor that I didn't see a need for such a large option pool, he gave me a murky answer about various contingencies. I later found out that he intended to use the proposed option pool to hire his own CEO. Needless to say, I didn't sign that term sheet!
2. Succession selection is critical. The CEO Jeffrey hired to replace himself was a former Pepsi executive who had no background in the causes and mission-related work in which Jeffrey has immersed himself for more than three decades. Although there is an inspiring generation of new business leaders rising through the ranks of American business, thanks in part to Net Impact, there are still too few socially conscious executives prepared to lead a $100 million+ company. And just as it's unrealistic to expect someone five years out of business school to lead a $100 million+ company, it's equally unrealistic to expect someone who has worked in traditional companies and never been involved in green business or the non-profit sector to "get" how to lead a mission-driven enterprise. It takes a lot more than good marketing skills—it involves an understanding of the issues, the players, and the way non-profits think.
Jeffrey's firing is certainly a cautionary tale for me, and a reminder that there are no guarantees in business, even for founders. I'm pleased to report that Jeffrey has already immersed himself in a new cause-driven organization, American Sustainable Business Council, where he will continue to be a wise and effective voice for more progressive business. In the meantime, those of us still in the trenches need to make sure we perform, keep an eye on our competitors, and keep an even closer eye on potential investors who claim to be supporters.
The Chinese military strategist Sun Tzu said "Keep your friends close, and your enemies closer." But when it comes to investors, I find myself in disagreement with the General—if you believe you've got potential investors who are enemies, stay away from them.
SETH GOLDMAN is the President and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. He's preparing the September release of a graphic novel titled Mission in a Bottle. @HonestTea