Thursday, November 27, 2003

An offer he could refuse To illustrate our principle that oligopolies buy up innovators or steal their ideas and put them out of business. we've written about Nestle's buy-out of PowerBar. PowerBar was the leading innovator in the emerging energy bar market, and it was almost inevitable that it would be bought up by the world's largest food producer. Its main rival, Balance Bar, was acquired by the #2 food company in the world, Kraft (Altria). In each case the distribution muscle, marketing money, and multinational reach of the big companies have made those already successful brands into a major new category. And the founders of the small companies have taken the money and run. But not all small entrepreneurs are eager or willing to sell out. At least that's what we learn on the Web site of Clif Bar, makers of the Clif and Luna brands, and a small company that is still doing pretty well competing against the giants. Like the PowerBar story, this was a typical Inc. magazine story of entrepreneurial grit, with the original recipe created in mom's kitchen by a dedicated cyclist. The company has cultivated an eco-friendly, sports-oriented little company. According to Clif founder Gary Erickson, who writes on the company's Web site, he has been sorely tempted by the example of his rivals and considered selling the company out in 2000. For two months Clif Bar Inc. was in the process of being sold. Several multimillion-dollar companies wanted to purchase Clif Bar, at the end one company rose to the top and made the final cut. In a matter of hours, my business partner and I would be out on the street with more money than "Carter has pills," as my dad always said. I'd never have to work another day in my life. As Erickson tells, it had an anxiety attack after coming to the brink of selling out, and sent the proposed buyer away. Today, selling the company is a distant thought. Some people thought I was crazy to pass up wealth beyond my wildest dreams. Investment bankers told me the company would go under within six months. Their logic, Nestle had recently purchased PowerBar while Kraft purchased Balance Bar, our two main rivals. "You'll be killed," they told me. As well, my business partner was convinced that Clif Bar could not compete against these big companies and asked that I buy her out. Clif and Luna are holding a steady share, over 10% of the US nutritional bar market. So far the decision to stay independent has been a smart one. And no doubt there are still big companies knocking at the door. But, as my friend, business consultant Steve Schaffran noted in this case, the exception proves the rule. Erickson's refusal of an offer that would make him a rich man was courageous, stubborn, maybe crazy. And it was rare. He bucked the trends and the principles, and so far, it's paying off. But for the handful of entrepreneurs who successfully hold on, there are hundreds that sell out and scores that hold on but get driven into bankruptcy. 10:29:20 AM

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