Sell-out! When entrepreneurs give up control – for a price - Business Analysis & Features - Business - The Independent

Sell-out! When entrepreneurs give up control – for a price

Facebook's Mark Zuckerberg joins the ranks of innovative business people willing to entrust their brands to faceless multinational corporations

In seeking billions of pounds in a stock market flotation announced last week, Facebook's founder, Mark Zuckerberg, is following in a long line of entrepreneurs who have found they need outside money to develop their businesses – and have sold out.

The majority of the 845 million users of the site will have no problem with this on an intellectual level. But, like most consumers, they have an intimate relationship with the things they consume: their favourite drink, food or brand. This is particularly true for social networking, where users share highly personal details and pictures through a medium they think of as being mostly benign. An increasing number are likely to feel bruised as they are confronted with the bitter truth that they are mere fodder for a machine that means business.

Zuckerberg, who founded Facebook in his Harvard dorm eight years ago and whose confidence quotient matches his IQ, believes the injection of new funds will ensure Facebook becomes an ever more comprehensive online archive of our lives, outperforming rivals such as Google, which launched Google+ last year. He also intends to stay firmly in charge of the business.

Will he succeed? It's not just a matter of how consumers feel: some founders regret trading ownership of their businesses to private equity houses, conglomerates or the market. When the Vermont hippies Ben Cohen and Jerry Greenfield floated a majority of their ice-cream business in 1985, they wanted to keep control, but that dream ended when the Anglo-Dutch household goods giant Unilever bought the shares in a £203m raid in 2000. Unilever promised to keep to the brand's homespun philosophy, the funkily designed cartons, political slogans and charitable donations – but Ben and Jerry no longer run the firm that bears their names. "We didn't want to be acquired by anyone," Jerry Greenfield said later, adding that Unilever had done a good job in preserving Ben & Jerry's appeal.

Often, though, founders remain relaxed about handing over ownership and control to others because they feel they have taken their enterprise as far as they can and want others to grow it more quickly; global corporations have the cash, marketing expertise and distribution networks. When Richard Reed and his two fellow directors sold a stake (now 58 per cent) in Innocent smoothies to the sugary drinks giant Coca-Cola three years ago, they wanted Coke's help to expand across Europe more quickly. Innocent still makes healthy fruit drinks; it just sells more of them.

Likewise, some entrepreneurs believe that their ethical way of doing business will alter the multinational parent company – a kind of reverse ethical takeover. The late Anita Roddick used this six years ago as the justification for the controversial sale of the anti-animal-testing Body Shop chain to the animal testing L'Oréal group for £652.3m. Did she succeed? The Body Shop has kept the BUAV's leaping bunny accreditation logo for being "cruelty free" and its more conventional French parent still does not have one, but L'Oréal is pumping money into finding alternatives for animal tests, particularly for allergies, according to the Humane Society International. Troy Seidle, director of research and toxicology at HSI, said: "Purchasing a company that had a very strong anti-animal-testing policy has had an effect."

Most customers tend to be more concerned with whether a brand stays true to its original appeal – whether user-friendliness, trendiness or ethics – than ownership. Ethical Consumer magazine, by contrast, believes ownership is important, marking down the score it gives to brands whose profits flow into less ethical parents.

Might the partial acquisition by global financial institutions of a company that sold itself on making social rather than financial connections between people dull Facebook's appeal? Ruth Mortimer, an associate editor of Marketing Week, believes not. "I don't think the average Facebook user will care about the IPO as long as they continue to have a good experience using the site," she said.

"Most people understand these days that in order for sites like Facebook to remain free to use, they have to accept that they will share their personal data with the site and there will be advertising and brands. Some people even welcome seeing their favourite brands there. What Facebook must ensure is that it maintains the balance of connecting people with their interests alongside making enough money to survive and develop. It is possible to be both corporate and innovative; it just takes clever leadership and in-depth understanding of where you can introduce business elements without destroying your value for users."

Will Zuckerberg succeed? He is intensely smart and driven. He appears to have learnt the lesson that if you want to stay in charge you can't sell most of the shares. He has 28 per cent of Facebook, but through agreements with other shareholders will control 56.9 per cent of the listed company. His shares are worth about $28bn, so this is not about personal wealth; about selling out. It's about world domination. And, with imminent control of the personal thoughts, friends and photographs of one billion people, that is arguably a more concerning prospect.

Pret a Manger

Pret opened to offer the type of sandwiches its founders craved, but couldn't find elsewhere. College friends Sinclair Beecham, founder of the Hoxton Hotel, and Julian Metcalfe, who later founded sushi chain Itsu, opened the first outlet in 1986. In 2001, McDonald's bought a 33 per cent share for £50m. In 2008, private equity firm Bridgepoint Capital and Goldman Sachs bought Pret in a £350m deal, earning its founders £50m each. Last year, the chain was attacked for the salt content in its soups.

The Body Shop

Founded by the late Dame Anita Roddick and her husband Gordon in Brighton in 1976, the cosmetics chain of choice for teenage girls was taken over by L'Oréal in 2006 in a deal worth £652m. The Roddicks made £130m. Within a month, campaigners against animal testing and Nestlé, which has a 26 per cent share in L'Oréal, were calling for a boycott. The company lifted profits by one-third in 2010. And with lip gloss at £10, it's now out of the price range of most teenage girls.

Tyrrells

William Chase went bankrupt growing potatoes before turning his crop into upmarket crisps, Tyrrells, in 2002. He threatened to sue Tesco for sourcing the crisps from a third party after he refused to supply them. Then private equity firm Langholm Capital bought the firm for £40m in 2008. The commercial director is a former boss of Kettle Chips Australia; overseas sales grew by 70 per cent last year and the company's sales reached £75m. Chase has now found a new use for his potatoes by making vodka at his Chase Distillery.

Ben & Jerry's

The ice-cream brand was bought by Unilever in 2000 for £206m. As it was a public company, the board had little choice but to agree the takeover, though founders Ben Cohen and Jerry Greenfield were not in favour. Greenfield has said that protection of the brand "is a constant struggle, as they have a very different set of values". Unilever has adopted Ben & Jerry's phrase "doing well by doing good", and those working for the brand believe the corporation has been positively influenced by it.

Innocent

With its cutesy writing, Innocent drinks does not advertise that it is majority owned by Coca-Cola. Graduates Adam Balon, Richard Reed and Jon Wright founded the firm in 1998, buying £500 of fruit and selling smoothies at a music festival in London. Coke bought an 18 per cent stake in 2009 for £30m, upping it to 58 per cent the following year. Last year the company's fluffy image was threatened when it was revealed that it held on to £520,000 pledged to its charitable foundation in 2007. The company said that it will make a voluntary contribution.

Maison Blanc

Founded by Raymond Blanc in Oxford in 1981, the French patisserie chain has gone full circle, with the chef now working as a consultant. It was owned by bakery group Lyndale, before being bought by Kuwait-based KFG in 2007 for $7m – which called Blanc on board a year later to help it find its way. Virgin bought a majority stake in Le Manoir aux Quat'Saisons in 1992, which it sold a decade later, along with its holding in Le Petit Blanc, to Orient-Express Hotels for £27.5m. Many foodies are unaware that Blanc's restaurant and hotel are not owned by the chef himself.

MySpace

In 2003, a group of eUniverse employees decided to launch a social networking site of their own. MySpace was born, and in its heyday (one moment in June 2006) it surpassed Google as America's most visited website. In 2005, it was bought by News Corp for $580m, but Rupert Murdoch's company thoroughly messed it up. By May 2009, it was superseded by Facebook, and now ranks 138th for total web traffic. Last year, it was bought by Specific Media and pop star Justin Timberlake for $35m, one-third of the price that News Corp hoped for.

Google

Project "BackRub" was started by two Stanford students, Larry Page and Sergey Brin, in a friend's garage in California in 1998. With $100,000 funding from co-founder of Sun Microsystems Andy Bechtolsheim, Google grew to have an index of 60 million pages in its first year, and by 2000 was selling adverts. In 2004, Google floated for $2,718,281,828, and many employees became instant paper millionaires. The company founded on the motto "Don't Be Evil" is renewing its push to expand in China (not known for its un-evil human rights policies), two years after a clash with authorities over censorship.

Jimmy Choo

The shoe designer whose creations had been worn by Diana, Princess of Wales, co-founded Jimmy Choo with the Vogue magazine accessories editor Tamara Mellon. Choo sold his 50 per stake for £10m in 2001. He would be forgiven for wincing when Mellon made £85m from the £525.5m sale of the business to Labelux, which also owns Bally, last year. Mellon, who sued her mother for £5m in a dispute over Jimmy Choo shares after her father Tom's death in 2004, left the label abruptly in November last year. The brand now has stores in 32 countries.

Green & Black's

The chocolate firm was founded by magazine editor Craig Sams and his wife Josephine Fairley, based on the principle of green, representing their environmental concerns, and black, symbolic of the high cocoa solids in the chocolate. It claimed to be the world's first organic chocolate. In 1999, a group of investors bought an 80 per cent stake in the company, which became the nation's fastest growing confectionery brand. It was bought by Cadbury's, now owned by Kraft Foods, in 2005.

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