Selling the Business with Social Mission Attached

Entrepreneur: Judy Wicks, 62

Background: In 1970, Wicks co-founded the Free People's Store, which is now Urban Outfitters (URBN). She founded the White Dog Café as a take-out coffee shop on the first floor of her house in Philadelphia in 1983. It evolved into a popular restaurant and hub of progressive activism. Wicks sold it in 2009 to devote her time to helping run the Business Alliance for Local Living Economies, a nonprofit network she co-founded in 2001.

Company: At its peak in 2006, the 200-seat restaurant employed about 100 employees, occupied four row houses (including one house for its gift shop, the Black Cat), and had around $5 million in revenue. Profits funded Wicks' nonprofit White Dog Community Enterprises.

Her journal: The global financial crisis awakened people to the importance of investing locally, in businesses where they know what their money is doing. I believe in decentralizing business ownership and therefore economic and political power. When we localize our economy, we have more control over our basic needs. The more business owners there are, the more freedom we have.

This philosophy has become my life's work. It grew out of the White Dog. And having more time to spread this worldview is really one of the reasons I sold the White Dog. When I first started the restaurant, I had never heard of socially responsible business, or fair trade, or environmental sustainability, or "green" business practices. Like most people then, I separated my social concerns from my business, thinking that I would tend to them in my off hours. But in the restaurant industry, there was no time for volunteer activities, so I began to incorporate my progressive take on social issues into the business itself.

It was always very important for me to be a model of a business, to show that the purpose of business should be to serve, and that money should be a tool that we use but not the ultimate goal. This is often called social entrepreneurship, or a triple-bottom-line business of people, planet, and profit. I was always proud to be good at handling money and running a profitable business, making enough money to be able to give some away, but more important, conducting my business in ways that did good through the economic transactions. I was proving something by being a for-profit that expressed my deepest values while also supporting my nonprofit work. Politically, I also got the attention and respect of a wider and more diverse group of people, including Republicans and conservatives because I was a business person; I wasn't just a flaky liberal.

The Pressure to Grow Big

As I became more successful, I was often asked how many restaurants I had, how many units. Because in the business world we are judged by how big we grow, I questioned whether I should try to expand. But I realized that if I were to have multiple restaurants, I would lose what was most valuable to me—the authentic relationships I had with my customers, suppliers, and employees.

After more than 25 years marrying business with activism, I realized that my attention and energy had started shifting away from my own business. I got to the point where I was delegating so much to various people that when it came time to make important decisions, I didn't feel I had the information I needed. You ask one employee what's going on, and they'll tell you one thing; someone else will tell you another thing. I no longer had my own opinion from actually being there and knowing what was going on.

That was a wake-up call to me. I've always believed strongly in having ownership be present and engaged in the work, having a short distance between the business decision-maker and those affected by the decisions. It has to be very short in order to make good decisions.

Advantages of Retirement

I'm also in my sixties. A friend of mine asked, "Well, are you going to die in the saddle? Or are you going to retire?" I thought, you know, I don't want to die in the saddle. I want to have a life after the restaurant. You see these old codgers hobbling around restaurants they started 30, 40 years before. I admire that—and I once thought that's how I want to grow old—but I decided to spend my elder years more effectively.

Most important, I knew that having one business with good values and a good model was important, but I wanted to do more than that. I wanted to work cooperatively to build a local food system and spread the model of local living economies nationally. Retiring from business freed more time to do this work.

I wanted to sell the White Dog in a model way because I tried to run my business in a way that serves as a model for social responsibility. At first, I thought it would be best if I sold it to my employees. I tried to determine the best way to do that. I started going to programs on ESOPs and cooperatives and what-not. I went to a conference on ownership structures and tried to understand the differences among the different models. I took a few employees with me—my recently hired general manager and my controller. I hired an ESOP lawyer and had the restaurant appraised. Then I realized that answered the ownership question but it didn't answer the leadership question.

Finding the Right Buyer

Even though I told my employees I wanted to start an ESOP so they could all be owners, I didn't see the leadership emerging that would really be needed when it got down to taking my place. There wasn't adequate leadership to run the restaurant without me being there. I think it's often true in restaurants that waiters just want to be waiters. They don't want to be dining-room managers.

So I realized I needed to sell to another entrepreneur—someone who had leadership abilities and entrepreneurial vision. I started putting out the word to a friend of mine who does restaurant appraisals and restaurant consulting. I ended up with two people who were interested. I interviewed them extensively, went to their restaurants, brought my daughter with me.

I finally decided on Martin Grims. He was a lifelong restaurateur, and his intention was to be in the restaurant business long-term. He talked about his daughter eventually running it. He had an ownership model in several of his restaurants in which the chef and general manager were owners. He also had a good reputation as a restaurateur; he was running fine places with good food and service. So I sold it to him, but I wanted to maintain the values and the practices I had developed over the years. I felt responsible to my customers who respected and trusted the brand.

I had trademarked the name White Dog Café a while ago. When it came up for renewal, I put it into my own name rather than in the corporation. It occurred to me I could keep the name, and that would be a way of keeping control.

Requirement: A Social Contract

So that's what I did. I licensed the name on condition that the new owner sign a social contract spelling out the business practices he needed to adhere to.

My social contract calls for local ownership (at least 51% of the stock must be held by those living within 50 miles of the business location); purchasing policies that give priority to locally owned farms and other local businesses; maintaining "green" practices that minimize negative environmental impact; offering programs that build positive relationships in the local community; and fostering an equitable workplace community (including ensuring that the highest-paid employee does not make more than seven times the lowest-paid employee).

There was nothing to model this after. I didn't even know that it was called a licensing agreement when I was first explaining what I wanted to do to retired businessman Jerry Gorde, who is a friend of mine through the Social Venture Network. I said I would "lease the name" to them as if I were leasing the property. He said, "No—that's called licensing. You need a licensing lawyer."

Jerry offered to help me with the sale. There were three pieces to it: the lease, because I owned the real estate; the sale of the corporate assets; and the licensing agreement. Jerry did the financial part of it. He knew a licensing lawyer, Lara Pearson, who was also a member of the Social Venture Network. She did the licensing document. And I wrote the social contract myself, since that was the heart and soul of my work. It took about two months to get it all done. Jerry contributed his work as my financial consultant, and I made a $5,000 contribution to a charity of his choice. The fee for the licensing lawyer was $8,245. There were also fees for the lawyer who dealt with the asset sale agreement and lease, but they would be similar for any type of sale. The work that Jerry did as my friend was partly on licensing and partly on the other two agreements. He was my advocate. I'm not sure what it would have cost for a paid adviser, but perhaps that's not what everyone would need if they had a good lawyer and accountant and better dealmaking skills than I have.

The Problem With Just Getting Bigger

Another thing that motivated me to have a social contract was the sale of many responsible companies to multinationals. Unilever's (UN) acquisition of Ben & Jerry's in 2000 was very traumatic for me, because I looked up to that company as the leader in the responsible business movement. I knew that the founders, Jerry and Ben, did not want to sell it—it was a forced takeover. They were very concerned about maintaining their values. But it's not just Ben & Jerry's. I could see that the businesses in our movement—evidenced by Stonyfield's Danone (DANOY) partnership in 2003, Odwalla's acquisition by Coca-Cola (KO) in 2001, The Body Shop's acquisition by L'Oreal (LRLCY) in 2006—the leading companies in the socially responsible movement were continuing to use the old paradigm of success—which is continual growth. You just keep growing bigger and bigger and bigger, and then you sell to someone bigger. So rather than creating a more equitable economy, our movement was concentrating wealth and power—just like the traditional economy. So when Ben & Jerry's was sold, that was my wake-up call about what was wrong with our movement: We just keep growing bigger, and then we're sold.

At the same time, I was becoming aware of the finite planet, our environmental crisis; that businesses growing bigger and bigger was literally killing the earth, and eventually the economy and civilization, if we didn't do something about it. That sale became a big turning point in my life. It was a motivator to start BALLE and start changing the paradigm about growing bigger and instead spread the small-is-beautiful world view.

I know that it was a heartbreak for Ben to lose control of his company and Anita to lose control of hers. People who really use their companies as vehicles for social change, such as Ben and Anita—it didn't end the way they wanted it to end because they lost control of their companies. When I lost control of my company by selling it, I wanted to figure out a way I could maintain the values.

But when it comes down to it, there's no way to completely do that. The White Dog will never be the same as it was when I was running it, because it was so much me. So there's only so far you can go. I think I've done as good a job as I can to maintain the values, but I'm not pretending that everything I was able to do there is going to be able to stay in place.

—as told to Nick Leiber

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