For 10 years I underwent a process of losing my hair whilst I sought finance for the (then) loss-making social business that I co-own with my brother. Between 1999 and 2009 we raised £3.5m of equity and £3m of debt to fund the growth of COOK.
The reason that it was a stressful process was that the business needed venture capital but our broader, or ‘heart’ goals didn’t. Despite many discussions with VC funds, we could never align our respective objectives. We learned that their fund mandates required them to exit the businesses that they invested in, and this meant that by taking their capital we would put our company on a transaction journey that we didn’t want to go on. The company would be bought and sold – probably many times – and the only consideration in each transaction was the ‘x’ – the multiple of value achieved by the venture fund (3x is considered good, 5x is considered a home run). We would be rich, but left with nothing else.
We figured our financing out our own way and got to profitability, but we were only able to do this because we had a number of unique advantages; another company that we were able to grow and sell to fund our expansion, two very unusual angel investors, and a credit environment in the mid-2000s that effectively offered us risk capital whilst only taking the rights and returns of relatively benign debt.
Why did we have to go on this crazy journey just to keep the heart in our business?
The Body Shop was a business whose social mission was at the core of its DNA, but which ended up getting bought by dis-aligned investors who did not share its social purpose – instead using it as a vehicle for shareholder enrichment. The story of The Body Shop is in some ways a tragedy. The inspiring social DNA that mobilised an entire country, created a great business, and had a profound effect on global practices such as the testing of cosmetics on animals was eroded through a series of moves which saw it taken over by conventional business.
I was fortunate enough to meet Dame Anita in 2003 in Chichester. We had a shop there and she was a customer, and she was gracious enough to give us some time. She told us her story and, to me, the nub of it was that people thought that she’d ‘sold out’ when the business became successful, a journey that ended with L’Oreal buying The Body Shop a few years later. In fact, she had inadvertently sealed the eventual fate of the business when it was tiny (from memory, when she had 3 shops), when she had sold a substantial stake in the business to a local garage owner in Chichester to get the modest amount of capital she needed for the next phase of growth. She subsequently realised that this investor did not share any of her objectives. He was driving her mad, she had to get him out, and the only way she could see to do it at the time was to float the business. In her words: big mistake. She exchanged a pain in the backside for something – for her and her objectives – considerably worse.
Heart in Business is a critically important intervention because it raises these questions up. It does so at a delicate time for our society. I am a business person, I love business and I love doing business. Yet the legitimacy of the thing I love is being questioned, for good reasons. And how can a business – which has so much potential to do social good – follow this higher purpose when investment capital has largely become mono-cultured into pursuing exclusively financial return over the short or medium term?
The system needs to evolve. And it will only evolve when business people stand up and take leadership. Heart in Business is giving business leaders a platform and opportunity to do exactly this. I will remain forever grateful to Anita Roddick for her advice. Heart in Business is taking this work on, and it is therefore profoundly important.
If anyone is interested in finding out about the UK launch of B Corporations, please email James.
Chairman of COOK and Co-ordinator of B Corporations in the UK