sfgate_get_fprefs(); Tom's of Maine has been one of the pioneers of "green" business, manufacturing toothpaste and other personal care items from natural ingredients since 1970. The company's products are biodegradable, packaged in recycled paper board with soy-based inks, and don't involve animal testing. Tom's uses wind power to run its manufacturing plant in Kennebunk, Maine, and donates 10 percent of its profits to charitable organizations.
In 2006, in a move that stunned some longtime customers, founders Tom and Kate Chappell sold a majority of the company to Colgate-Palmolive, which had $12 billion in revenue in 2006. Tom's of Maine's revenues shortly before the sale were about $45 million.
The Chappells -- who still run the company and own 14 percent of it -- visited San Francisco on Oct. 2 to announce a $1 million grant over five years to two non-profit river conservation groups, American Rivers and River Network.
They spoke with Chronicle small business reporter Ilana DeBare.
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Q: Tom's is one of several progressive, value-focused companies that have been bought by big corporations in recent years. Others include Ben & Jerry's, which was bought by Unilever, and The Body Shop, which was bought by L'Oreal. Why did you do this?
Tom: We were becoming aware that remaining an independent company was going to be very high-risk.... We needed to bring the business to scale, and we just weren't doing it at a pace that was fast enough to catch up with the phenomenal growth going on in natural products.
Q: Is it harder to be an independent now than it was 20 years ago?
Tom: Yes, because of consolidation of the retail industry. A company like Tom's can do very well region by region - for instance, our market share for toothpaste at a place like Longs Drug is about 5 percent, or at Fred Meyer is 8 percent. But with a national chain like CVS, it's 1.6 percent.
The U.S. is the biggest market in the world, and our competitors are the most sophisticated and largest marketers in the world. So you have to look at that David & Goliath relationship and ask yourself, 'What is your strategy to be number one 20 years from now?' We're the pioneers, and we're number one (in natural toothpaste) right now, but we don't want to lose that leadership.
So you make an assessment of whether a strategic alliance is better than passing the business on to the children. We discussed this with the children at great length, and all decided it was best to seek a strategic partner that, number one, shared the same values, and number two, was essentially in the same business we were in - oral care, deodorants, and so on.
We went out with Goldman Sachs as our adviser and researched the likely candidates. I went and talked CEO to CEO with three companies.
Q: Who were the other two?
Tom: We don't say. But we didn't expect Colgate would be as attractive to us as they turned out to be.
Kate: What we happily discovered with Colgate is that they are wonderful people, and a company with very deeply-held values themselves of caring and teamwork. Many employees who have great longevity with the company, which is a good sign., and a lot of respect for some of the other companies they have acquired over the years and allowed to remain somewhat autonomous under their umbrella.
Part of our goal in seeking out a partner was that - if we were going to give up something - they would agree to uphold our natural standards, continue to manufacture in Maine, and keep our employees who have been wonderful.
They didn't want to come in and change us. They want us to be who we are, and do the things that make us unique and a values-driven company. An example is our continued 10 percent charitable giving, and the 5 percent of their work time that employees are allowed to contribute to the community.
Q: Did Colgate have to sign off on the $ 1 million rivers initiative?
Tom: No.
Q: Do they demand a certain return from you guys?
Kate: We have an advisory board and we talk about things of course, but it's not that kind of relationship.
Tom: We're not just people they expect a report from every 90 days. We are working very closely together. The strength we're getting - that I expected us to get - is there. We are not insignificant to them at all.
Q: You talked about wanting to scale up faster. Specifically, what weren't you able to do on your own?
Tom: It's marketing and distribution. It's all connected - marketing, sales and finance. The U.S. is just a bugger for a family-controlled organization. If a company decides to start up early on with public funds or private equity funds, it can keep going back to the well. But when a family is committed to controlling the ownership of the company, your only resource to fund higher growth is your profits.
We needed to be at $100 million sales to be operating at scale.... When it takes $100 million of size to be at scale, and you're only at $40 million, you realize it's going to take another lifetime to get there or you better come up with a Plan B.
Kate: We've been doing this 1970, and there is a limit to our lifetimes, a point where your own mortality is a consideration. You want to see what you built and the values you hold dear continue, but you don't necessarily want to saddle your kids with carrying that on.
Q: Are your kids in the business?
Kate: Over the years, they've all been in the business. At the moment, we have two in the business.
Tom: Our oldest son runs our research and product development, and our youngest son is at Colgate in sales.
Kate: Our daughters have both been involved in communications and sales and product development. Our other son Matt was involved for many years, and he's since gone out on his own and started a building company, and our daughter Sarah started a therapeutic riding center. So they've all had this entrepreneurial bent that they've taken away from the experience of growing up in our family.
Q: Did you consider private equity or a public stock offering?
Tom: Private equity was not attractive to us because their goal is to own a company for four or five years, inject capital, and then put in on the market. We wanted to find what we called a strategic home for the brand - we wanted to know who was going to be running Tom's of Maine 20 years from now.
What's exciting is that we've found a strategic home. The mutual trust and respect at the top across both companies is extraordinary, and quite frankly, what it takes in any endeavor is to have people at the top not only agree but have deep respect for each other.
We didn't go public because we were not large enough. There are ways of going public at our size, but I didn't really want another five years as CEO. And we still wouldn't have had what we needed, which was strategic leverage. We would only have had the capital, which was not enough.
Q: What do you mean by strategic leverage?
Tom: Strategic leverage means that when you're talking to CVS or Safeway or Wal-Mart, you're more than Tom's of Maine with a fat wallet. You need to know how to do business with these national chains. You can work the regional networks, but when you get to the national chains, they're in a league of their own. Although we do business with all the national chains, we were not growing our business the way we needed to. And we didn't know how to grow the business any differently.
Q: It's almost like you needed to be a different animal to talk to those national chains.
Tom: Wal-Mart came to me the day after the acquisition and said, 'Now that you're in partnership with Colgate, we're going to work very closely with you.'
Q: Had you been in Wal-Mart before?
Tom: We had a test going.
Q: And are you in Wal-Mart now?
Tom: Big time.
Q: Wal-Mart has received so much criticism over how they treat their workers and how they source their products. But you feel comfortable working with them?
Tom: Before this took place, I asked our people to do a social audit on Wal-Mart, and it was very interesting what came up. The more we learned about Wal-Mart, the more we found we had in common with them. For instance, we are both founder-driven or founder-inspired. Which means that when they think about something, they do it. They execute with incredible capacity and ability.
Then we found them to be very much turning the tide on sustainability. There had been a complete change in their thinking. They had figured out the planet was not big enough to provide what they needed as a brand discounter. What they needed was to be part of the solution in order to have sustainability as a growth company - part of the solution with organic farming, organic growing, sustainable living, sustainable packaging. And they demand it of all their suppliers today.
On the issues that would normally rub us about health insurance and so forth, they are going to have to join the human race eventually. They'll just have to.
Kate: We can become a model to companies like them on how to do it.
Q: What's changed at Tom's of Maine since your acquisition by Colgate?
Tom: Getting things done. Tom's of Maine is a very professionally run company, with a very smart and capable young leadership team. But a global company acts more quickly. They are very strongly goal-oriented. We are too, but the Chappells are going to be more forgiving about how much time it takes to get something done than a bigger enterprise. I think it's been healthy for us to improve our planning and our ability to execute the plan.
The second thing I like is I have a group of colleagues. I haven't had colleagues in 40 years. I'm a colleague, I'm a partner, and we're working together to make this brand a big brand. And that's exciting.
Q: When Ben & Jerry's was bought by Unilever, its founders talked about changing the corporate culture at Unilever. I don't think they feel they succeeded at that. Do you have any aspirations to change Colgate?
Tom: My only aspiration is that Tom's of Maine live its values in everything it does. And in living our values, we will be a power of example to everyone around us....
Q: Given that you feel so good about the partnership, why is Colgate not mentioned on your labeling? Are you worried that consumers will be scared off?
Tom: They're two different customers. I don't see why our customer would be interested in seeing a Colgate reference. Branding is really about values, and the Tom's of Maine values are intact. We are living those values, and that is what we need to reinforce among our consumers by investing in the Tom's of Maine logo, not confusing them with another logo.
Kate: It clarifies that we are still in Maine. It's important, a sense of place.
Q: Won't some customers feel deceived?
Tom: It's honest, in that it's public knowledge that the Chappell family is in business with Colgate as a partnership, and the charter is for the Chappells and the leadership to carry on with the original vision and values. So there's no change.
When you're talking to dentists and dental hygienists, they're very aware of our alliance with Colgate and that's good news as far as they're concerned. If you're talking to these national chains, it's good news as far as they're concerned. So all the areas where we were weak and the challenges seemed insurmountable - that has changed overnight because of this partnership.
Q: You have been in this arena for long enough that you've seen public and media interest in environmental products come and go. Right now there's a lot of interest in green business. Is this a fad?
Kate: I sure hope not. I feel the urgency is even greater than before, partly because the science is there and global warming is an issue that's not going away. There's been a sea change and all sorts of people are interested in what can be done.
A good example is that we got a ride around town here in San Francisco, and we asked for a hybrid vehicle. We got one, and we asked the fellow if he had many hybrids. He said he had 160 cars in the fleet and only four were hybrids, but the owner of the company wants to change the whole thing over to hybrids because of global warming.
That's an example. People are looking for ways that they can change their habits, buying patterns, and lifestyles so they can respond in some positive way to what is truly a crisis than affects all of us.
Q: Did you find that your sales suffered when society hit one of those periodic lulls in environmental interest?
Kate: No, we've had steady growth. Our customer is in it for the long haul. We have many, many customers who have been with us for 15 or 20 years.
Tom: The current consciousness for environmental sustainability is different from anything I've ever seen before. It's coming from industry, from companies, for the first time. You've had small companies doing a grassroots effort for decades, along with consumers and nonprofit groups, but now you've got large companies with senior leadership saying we've got to take this seriously. That's terrific. We know that green solutions are possible. We just need to have green solutions become more available and affordable.
We've got to stop thinking green is elite. The companies that take it to the mass market are going to be successful. You don't have to be a pioneer to be a leader in this five or ten years from now. You just need to have a leadership team that decides it's going to be a major player as a sustainable company.
That's because it takes strategic thinking and strategic sourcing and innovation. You put that together, and suddenly a (company like) Tom's of Maine is never heard of again because it's overcome by some other brand. We've guarded against that by forming a partnership with Colgate. That won't happen to Tom's of Maine. But that can happen to a lot of brands that have been pioneers - to be eclipsed overnight by strategic thinking, lots of resources and the ability to execute really well.
Q: The downside of the interest in sustainability is that everyone is making environmental claims. From a consumer point of view, it can be overwhelming. What advice do you have for consumers trying to weed out the genuine claims from the hype?
Tom: You need to ask, 'What do these brands stand for? What are their values?'
When you go to their Web site, you get a sense whether they have any values and whether these are the values you believe in..... Certainly the packaging has to be scrutinized., The savvy consumer can look at a package and right away tell if it has been thoughtfully packaged.
Then there is networking, and collecting information. That means the Internet. It means your friends. We need to share stories and share information. More than ever, this needs to be an interconnected lifestyle. The only defense you have against institutional strengths is to connect with your network and ask questions. Be a seeker of information.
Kate: We do something on our packaging that we pioneered, called "ingredient, purpose, source" and we have been doing it for over 25 years. We list each ingredient, why we put it in there, and where it came from. That's the kind of disclosure that consumers like to know about....
The other part is responsiveness to a consumer's questions. We have something at Tom's called Consumer Dialogue, where we encourage people to write us. People generally write to say how much they like something. But if they have a question or complaint, it's constructive and we learn from that. We're not in a bubble.
Q: Okay, it's time to ask about rivers. This is the second five-year funding commitment you've made to river conservation. Why?
Tom: It's who we are, to connect with the non-profit world on values we hold common. We do the same thing with dental clinics all around the country.
Kate: Rivers are a symbol of life. They could be a metaphor for how we are connected. They are the reason this country was built - it was the way people got around, commerce was done on rivers, cities grew up along rivers. Rivers are a source of great natural beauty, which is something we value very much coming from Maine, a state with many, many rivers running down to the sea. It's awesome, and something we feel is symbolic of life itself.
We are made of water, and our products like toothpaste and deodorants have water in them. The quality of water is really important. Helping people engage with a river near them is very important, because that's how the quality of the water will be protected - through local grassroots efforts.
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Green Investing
October 2007 
Jeff
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