Seth Goldman sold Honest Tea to Coca-Cola in 2011, only to have the line discontinued this year.
Sourcing is another major area where a large new owner can have a big impact. When Seth Goldman sold Honest Tea, his line of organic teas and other beverages, to Coca-Cola in 2011, it led to a benefit for Honest Kids, a line of juice beverages for children: no more added sugar.
“When we first created Honest Kids, it was sweetened with sugar,” Goldman says. “And then with Coca-Cola, we were able to develop a supply chain so that we sweetened it only with fruit juice, which was a real enhancement to the product.” Coca-Cola was able to do this because it could source enough fruit juice concentrate to replace the sugar. Similarly, Coca-Cola was better able to procure the single-serve PET bottles that Honest Tea had had a hard time getting.
Cultural issues
The changes that an acquisition usually brings go beyond operational matters. They extend to the essence of a company: the culture, attitude and approach that both leaders and workers bring to their tasks.
Integrating corporate culture is one of the biggest challenges in any acquisition, especially when a small company gets absorbed by a larger one.
“An acquisition of any size or scale involves the ‘marriage’ of two different cultures,” says Trip Tripathy, a principal in business consulting services for Kaufman Rossin. “In fact, culture is one of the biggest reasons acquisitions/mergers fail. All the more important for the larger company to understand that it would be easy to impose its dominant culture on the smaller company without thinking about the impact on the small company, which could lead to significant issues.”
One of the biggest issues in merging corporate culture is simply deciding how much, and what kind, of help the acquiring company will bring to the new one. In some cases, there is so much potential for help that it can be overwhelming.
Chuck Davis, an operating partner at Arbor Investmentsand a former Kraft Heinz executive, says that in the wage of a new acquisition, it’s common for representatives of the new company to come in trying to help, asking a lot of questions, making requests for data, offering suggestions and basically offering help with everything. “It overwhelms the entrepreneur, and culturally, the entrepreneur is not ready for that,” Davis says.
The best approach is to concentrate on specific needs. “So instead of the big company telling the small guy they just purchased all the stuff they’re going to do and what they need, let the entrepreneur work with you and determine ‘These are the three or four areas we’re going to focus on for your help.’ ”
One of the biggest potential areas of conflict has to do with specialization of tasks – or the lack thereof. A nearly universal feature of startup companies of all kinds is that most of the employees, from the founder down, have to wear multiple hats. The production chief might also be in charge of logistics; a salesperson might also have a hand in procurement. It’s all part of the flexibility required of a new business.
“The entrepreneur is required to find a solution to every impossible problem just to live another day to compete and she/he might be awake all night trying to figure it out,” Bastian says. “There is no passing it on to the next team or someone more senior. You and your ragtag team figure it out, and in that process innovation happens.”
But large corporations usually don’t roll that way. They are more likely to have experts in specific business functions and to segregate those functions more rigidly. That approach is usually more efficient over the long term, but it runs the risk of robbing the acquired company of some of its character or personal touch.
“What you end up finding out is that some of the magic that smaller entrepreneurial company had, with a few people who are very talented and skilled at doing certain things – they kind of get pulled off of doing those things or become more of an advisor, and slowly over time, it doesn’t seem to work the same way,” Hill says. “The magic or the special sauce that they brought to the equation starts to get lost.”
Fight over values
Other areas of conflict can come up between an acquired company and a parent, even long after the acquisition. One of the highest-profile ones came just months back when the board of directors at Ben & Jerry’s filed a lawsuit against Unilever, its parent company since 2000. The issue was the sale of Ben & Jerry’s ice cream in the Israeli-occupied territories.
Ben & Jerry’s announced in 2021 that it would no longer allow its products to be sold there, in protest of the Israeli occupation. Unilever responded by selling the Israel franchise for Ben & Jerry’s to a distributor who vowed to keep selling it in the occupied territories (and who had previously sued both Ben & Jerry’s and Unilever over the issue). Ben & Jerry’s board voted 5 to 2 to sue Unilever, which it did in June; the two dissenting votes came from Unilever’s representatives on the board.
“If left unaddressed, Unilever’s actions will undermine our social mission and the essential integrity of the brand, which threatens our reputation, and ultimately, our business as a whole,” Anuradha Mittal, chair of the Ben & Jerry’s Board, said in a statement.
Hill says that these kinds of conflicts can be expected, especially when the acquired company was founded with specific social-justice principles in mind: “A lot of these smaller entrepreneurial companies are cause-based companies, meaning that they have a pretty strong purpose statement of why they exist.”
Sometimes a disconnect between a parent and an acquired company happens for more prosaic reasons: it’s no longer a fit. That’s what Goldman found this year when, 11 years after the acquisition, Coca-Cola informed him that it was discontinuing Honest Tea. With Gold Peak and other tea brands, Coca-Cola’s tea portfolio was getting crowded, and single-serve bottles were becoming hard even for Coca-Cola to source. But Goldman says he has no regrets.
“If I were to do this all over again, given everything that happened, I feel that Honest Tea was too small at the time of the purchase, meaning it didn’t have enough of its own critical mass—there was no question that it needed to grow,” he says. “And so I think that obviously became an issue when co*ke had to make some hard decisions. But I don’t regret the decision to partner with Coca-Cola, and I’m still proud that Honest Kids is out, growing, and doing what it’s intended to do.”
Goldman went on to co-found Eat the Change, a vegan snacks company.
What next?
Stories like Goldman’s point to an interesting, and often vexing, situation when entrepreneurial companies are acquired: What happens to the entrepreneur?
Goldman’s responsibilities as head of Honest Tea stayed the same for about three years after the 2011 acquisition. In 2015, he shifted to a part-time role, stepping away fully at the end of 2019. Bastian, after the 2017 sale to Conagra, became a brand ambassador for Boomchickapop for two years, and has now retired from active participation with the brand, except for weighing in when Conagra sends her the occasional update.
There are several options for entrepreneurs once an acquisition is complete: staying on as an employee of the parent company, serving as a consultant, or immediately withdrawing. Various factors on both sides – the entrepreneur and the new owner – come into play.
Advisors who specialize in integrating acquisitions say that it’s best to have some kind of roadmap in place to eventually disconnect the entrepreneur from the acquired company. The first step is realizing that no one is irreplaceable – not even a company founder.
“Sometimes you think, ‘Oh, the business will die without this person after a year,’” says Nathan Gampel, founder and CEO of Simpel and Associates LLC. “But I would say back to the investor, ‘If you’re buying a business that is so entangled with one single person, should you really be buying that business?’ ”
Gampel says that when deciding how long to keep an entrepreneur around, the acquiring company needs to balance the necessity for retaining her expertise against what he calls “the jerk factor” – an entrepreneur’s inability to adjust to the new ownership situation.
“Is this person going to be a jerk? Is this person going to create friction?” Gampel says. “Is this person going to create problems for leadership because she might feel that she would do something one way, only now it’s owned by someone else, and they’re taking her baby and changing it?”
Tripathy of Kaufman Rossin says that it’s common for entrepreneurs to have a tough time letting go. “If unique expertise is not a consideration, I would opt for a consulting role for the founder for say 12 months - perhaps tied to holding back 10% to 20% of the purchase price, which would be paid out at the end - with a full departure at the end of that period.”
Acquiring innovative companies is a great way for big corporations to refresh their product portfolio, but integration of the new company is often fraught with challenges. Handling them properly ensures that the acquisition fulfills the potential that inspired the purchase in the first place.
