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Ben's Big Flop
Author: Welles, Edward O.
Issue: September, 1998, page 040
When Ben Cohen, cofounder of Ben & Jerry's, decided to start Community Products, a company that would donate most of its profits to worthy causes, few people predicted its stunning failure.
With great fanfare in 1989, Ben & Jerry's cofounder Ben Cohen created Community Products Inc., a company that was designed to help save the rain forest and to benefit other worthy causes. But it would all go very wrong
Irv Deutsch landed a production job at the Ben & Jerry's ice-cream factory in Waterbury, Vt., in September 1988 at $7.40 an hour. One of Deutsch's early memories was of a company wide meeting during which cofounder Ben Cohen exhorted his workers to embrace the company's social mission. Deutsch recalls that Cohen was running into "a lot of negative sentiment" on the subject from both his board and his employees. In their minds, making money and fomenting social change didn't always mix.
Deutsch scribbled a note in response to Cohen's speech and placed it in the company's suggestion box. He reminded Cohen of the work of legendary psychologist Abraham Maslow, best remembered for his theory of a "hierarchy of needs," which holds that people must first secure the basics of food, clothing, and shelter before they can grapple with the larger questions of life. It was nice to talk about solving the world's problems, but what about the everyday concerns facing many of Ben & Jerry's workers? After all, Cohen was a multimillionaire businessman and Vermont transplant with a lengthy social agenda. His workers dwelt in the other Vermont of low wages and long winters, hidden behind the state's pastoral facade of green hills and white clapboard. With that in mind, Deutsch added this postscript: "Charity begins at home, so leave it in my mailbox."
Cohen, in a sense, called Deutsch's bluff when he picked him to be the first employee at Community Products Inc. (CPI), which Cohen founded in the summer of 1989. CPI was Cohen's new creation, his effort to push the social-responsibility envelope in even more radical ways. It would be a force for progressive change--one of its paramount goals was helping to save the Amazon rain forest--but it would also be a for-profit business. Most startling of all, Cohen ordained that CPI would donate an astounding 60% of its profits to progressive causes, and another 10% would be shared by employees. CPI would import nuts harvested from the rain forest by native cooperatives in the Amazon basin. In so doing it would aid the cause of low-impact agriculture, sustain local economies, and ultimately help preserve the rain forest. From those nuts CPI would make a nut brittle candy. Some of its production would be sold in specialty stores, and some would be sold to Ben & Jerry's as an ingredient for a new flavor of ice cream, Rainforest Crunch.
The company and its daring philosophy gave CPI instant cachet--and headline writers ample license. "Going Nuts--Rich, Buttery Brazils and Cashews Bring Crunch to Delectable Foods--And Help Save Rain Forests," chimed a headline in the Seattle Times. "Rainforest Crunch: a Sweet Way to Help Environment," echoed the Orange County Register. And the lead-in to a Journal of Commerce story caught the prevailing excitement about Cohen's new venture: "In mixing Amazon philanthropy with capitalism, Ben & Jerry's Homemade Inc., of Waterbury, Vt., has, as the old expression goes, 'Gone to do good and done well.'" Not until years later would it become jarringly apparent that Ben Cohen's aspirations far exceeded his patience with, and sense of commitment to, CPI. His pledge, however noble it may have sounded, would carry a hollow ring.
By the time Ben Cohen tapped Irv Deutsch to get CPI up and running, Cohen was already an entrepreneurial legend. A 1960s-era college dropout, Cohen bummed around for years, holding an assortment of jobs from pottery teacher to security guard. Then, in 1978, at age 28, he found his calling. That year he and a boyhood friend, Jerry Greenfield, started Ben & Jerry's Homemade Inc. in a renovated gas station in Burlington, Vt. Funky and irreverent, Ben & Jerry's institutionalized the state of being different. While most CEOs worried about the bottom line, Cohen and Greenfield cared about causes like saving the family farm and keeping French nuclear testing out of the South Pacific. While most CEOs were intent on maximizing shareholder value, Cohen and Greenfield donated 7.5% of their pretax profits to a variety of progressive causes.
By dint of their maverick ways, the two hit a public-relations gusher, garnering a volume and intensity of adoring press that companies 10 times the size of Ben & Jerry's could only envy. The coverage elevated Cohen, in particular, to near-rock-star status. He played the role well, whether he was onstage at the Lollapalooza Festival throwing Peace Pops into the crowd or pressing the flesh with shareholders at the company's annual meetings, which ran for two or three days. Cohen, more than Greenfield, embodied the company's marketing flair. It was his genius for creating news that made Ben & Jerry's synonymous with everything green and clean, a corporate darling of the left.
And yet he and Greenfield also managed to take care of business, building a national franchise to $174 million in sales last year, spread across 15 countries. That earned them kudos from more mainstream quarters as well. In 1988, no less an ideological alter ego than Ronald Reagan awarded medals to Cohen and Greenfield, anointing them small-business men of the year at a White House ceremony. For that event, Cohen departed from his casual dress code and borrowed a jacket at the last minute from a waiter at his hotel.
The genesis of CPI was as serendipitous and inspired as that of Ben & Jerry's, occurring after Ben Cohen met Jason Clay in 1989 at a Greenpeace party (following a Grateful Dead concert), where Clay was promoting rain-forest preservation. The rain-forest cause was hot back then, attracting the star power of other rock notables such as Madonna and Sting. Clay, Cohen sensed, was a man in the right place at the right time. He could do business with him. As the director of Cultural Survival Enterprises, a nonprofit organization based in Cambridge, Mass., Clay worked with indigenous groups in Third World countries to establish markets for their products in the developed world.
Cohen formed CPI, with Cultural Survival as the company's agent and broker for Brazil nuts and cashews harvested by native cooperatives in the Amazon rain forest. Cohen was chairman and president of the new company, which he set up down the road from Ben & Jerry's, in nearby Montpelier, Vt.
Given that he was starting from scratch, Cohen was lucky to have a first employee as industrious as Irv Deutsch, whom he hired as CPI's production manager. Deutsch, stocky and intense, is literal in his outlook on life and dogged in his work. Flattered to be handpicked by Cohen, Deutsch tore into his new job. He cooked up test batches of Rainforest Crunch in his kitchen at home and got CPI's building operational in just six weeks. That was no mean feat, given that CPI was housed in an abandoned drive-in movie theater, a down-at-the-heels cinder-block building that ran hot in summer and cold in winter.
But the hard work yielded an upside, too. Within 12 months, the company was producing revenues at a $3-million annual clip. CPI, a hot little start-up, was attracting not just reams of favorable press but academic interest as well, with Harvard Business School making it the subject of a case study that gushed about the "company that Ben Cohen founded in order to push the limits of socially responsible business."
Despite the excitement it generated, CPI, like any new company, had start-up problems. Although they may have shared a similar agenda, CPI and Cultural Survival proved an ungainly fit. Cohen was looking, in some form, to run a business. Cultural Survival's core strengths lay twice removed from that, oriented toward nonprofit institutions and the developing world. In an August 1989 letter to Clay, just two months after the incorporation of CPI, Cohen wrote, "These [open market] prices were considerably lower than the prices that you charged us on our first shipment." CPI had already agreed to pay Cultural Survival a 5% "environmental premium" above market for sourcing the nuts, but Deutsch remembers that Cultural Survival routinely charged as much as 25% above spot market prices.
According to Dave Alexander, formerly of Cultural Survival, the world market for Brazil nuts had collapsed, rendering noncompetitive the fledgling, low-volume-producing, native cooperative from which CPI bought. "For the co-op to get off the ground it had to produce at a much higher price," Alexander recalls.
The high prices Cultural Survival charged bothered Deutsch, a tough negotiator always on the lookout for a better deal. But particularly galling was the quality of the nuts. Deutsch frequently received shipments of nuts with broken shells and laced with items like spent shell casings and cigarette butts. Many shipments were tainted by coliform bacteria, which forced Deutsch to reject them. He soon found himself in a bind: he had to reconcile Cohen's close ties to Cultural Survival and desire to make the cooperative work with his own resolve to run a tight ship at CPI.
To break the impasse, Cultural Survival lobbied to have the nuts used in a caramelized popcorn, because the candy industry, unlike the dairy industry, had no standards concerning coliform, simply because candy is not as hospitable a medium for bacterial growth as dairy products are. Deutsch resisted. As he wrote to Cohen in a memo, "We are knowingly providing a food product to the public that contains coliform."
Cohen scribbled back: "I believe that considerably higher coliform limits are acceptable and legal and healthy in nondairy products like popcorn... Therefore I believe we should use the (co-op) Brazil nuts in the popcorn."
In an interview in May at his South Burlington, Vt., office, Cohen defends his stance, saying that only two strains of coliform are actually dangerous--and that those pathogens are killed in the cooking process.
But Deutsch claims that one dangerous strain was detected in the nuts shipped to CPI via Cultural Survival. Moreover, the Brazil nuts were introduced at the tail end of the cooking process, after the flame was shut off, making it unclear if the microorganisms would actually be killed. "The source of the coliform was not really being cooked," says Deutsch. "I wanted to have a clean product at the source and not have to worry about decontaminating it."
Deutsch felt pressure from another quarter as well. Ben & Jerry's, owing to Cohen's influence, had been forced into a less-than-advantageous relationship with CPI. It bought half of CPI's Rainforest Crunch production at 20% above the prevailing wholesale price for nut brittle--and paid for it within 10 days. That roused resentment within Ben & Jerry's, already plagued by rancid nuts from CPI and inconvenienced by production snafus there. Jim Miller, Ben & Jerry's head of production, wrote to Deutsch in August 1990, "As you are aware, Ben and Jerry's has been receiving many foreign objects returned to us from customers of our Rainforest Crunch ice cream." Those included "small stones and downright rocks." Miller continued, "This time we got lucky. The person running the fruit feeder noticed the enclosed pieces of wood just as he was about to shovel them into the fruit feeder....The objects that we are both finding and having returned to us convince me that there is an extreme lack of quality within your process."
Ben & Jerry's started keeping a "Foreign Substances Complaint List" of items encountered by consumers in Rainforest Crunch ice cream. The list included glass, hair, rocks, and insects.
Although CPI bought a million pounds of nuts from Cultural Survival from 1991 to 1994, Cultural Survival couldn't hold its suppliers to a sufficiently high standard. Says Dave Alexander, "They never took seriously the idea that they had to deal with First World quality standards." As a result of quality problems with the nuts sourced through Cultural Survival, only 5% of the nuts CPI used from 1989 to 1994 came from native cooperatives. The rest came from commercial suppliers. That scuttled CPI's principal marketing claim--that it was buying nuts from local indigenous sources that helped preserve local economies and a traditional way of life.
Despite CPI's operating troubles, Ben Cohen had a business that was up and running. He had built a machine that would pump money into the causes he believed in. At Ben & Jerry's, Cohen had found himself hemmed in. He couldn't give away as much money as he wanted to without running afoul of shareholders and the board. Cohen had looked at some proposed changes to Ben & Jerry's social mission--such as giving away more money--that in all likelihood, he says, "would be illegal."
CPI operated free of such constraints. It did business with close friends, social activists who cooperated to benefit one another's causes. The company's close ties to Cohen's favorite causes led to a curious, even byzantine, financing scheme. CPI had just two shareholders, Cohen and Jeff Furman, a longtime friend of Cohen's who was also on the board of Cohen's foundation, 1% for Peace, an organization lobbying to use 1% of the Pentagon's budget to promote peace through understanding. But a shareholder agreement precluded Cohen and Furman from making any profit on their equity position. Cohen says CPI was so closely held because "we set up the company to give away most of the profits, and we didn't want people making claims on those profits."
And yet, even though Cohen and Furman were originally the sole shareholders, they paid just $100 for their equity stake in CPI. The company was, therefore, capitalized almost entirely with debt, initially by a $210,000 loan from Cohen. But after five months, that was repaid when CPI sold $390,000 worth of debentures to various investors. The debentures yielded 10% a year in interest and, at maturity in approximately five years, would return twice the principal. Annualized, that amounted to more than a 20% return, attractive to investors but hobbling to a cash-hungry start-up like CPI.
CPI's backers were well-heeled people who could have assumed more risk than they did. Cohen, whose Ben & Jerry's stock is worth $17 million, reduced his exposure to just $30,000 in the high-yielding debentures after retiring his loan. A major buyer of the debentures was Working Assets Funding Service (WAFS), a San Francisco-based long-distance telephone company, which also promotes social causes. Laura Scher, the cofounder and CEO of WAFS, had met Cohen through the Social Venture Network, a group of entrepreneurs interested in promoting the practice of socially responsible business. WAFS bought $115,000 worth of debentures and found a buyer for $165,000 more. Scher ended up with bond holdings in her name of just $10,000. (WAFS and the other major debenture holder redeemed their bonds a year later, while CPI was still profitable.) Scher defends her actions by saying she acted more as a broker than an investor in CPI. "Ben needed debt financing, and we knew how to do it," she says, adding that the yield paid by the bonds was not overly generous, but fair. "There was a great deal of risk in this."
If investing in the start-up seemed risky to Scher, it also promised her and other insiders an upside. Through her participation, Scher gained 10% of CPI's stock, a seat on the board along with Cohen and Furman, and, more important, a pipeline into CPI's revenue stream. Of the 60% of CPI's net profits to be given away, WAFS's nonprofit designee, the Tides Foundation, which helps nonprofit groups and foundations with administration and planning, received one third--or 20% of total profits. Cultural Survival also collected a third, as did 1% for Peace.
And to insiders, that was a recipe for success. "No one expected CPI to do as well as it did in the first two years," says Scher, "but this was a company that had a real mission."
Not only was CPI funding causes, it was creating jobs in an area of chronic underemployment. Linda Culpepper started at CPI in nut preparation in August 1990. She took the job because it paid well by Vermont standards and, unlike her previous job, offered health benefits. She was also single at the time and could work the second shift.
Culpepper, soft-spoken and mild-mannered, says that during the years she worked at CPI, "it was fast-paced and a lot of hard work. It was hard to keep people. It was not very automated." Many of those who came and went earned a few dollars above minimum wage and spent eight-hour days on their feet, toiling next to copper kettles that heated the candy to 300 degrees. But that didn't sap Culpepper's resolve. For her, Cohen's periodic visits eased the tedium, and her first profit-sharing check, for $1,125.59, based on four months' work in 1990, affirmed that working at CPI was not just another job. She couldn't believe her good fortune. "I just stood there in the middle of the plant staring at that check and crying," she says.
CPI's building seemed a nostalgic throwback to Ben & Jerry's early gas-station days. It lacked adequate air-conditioning, so that in the humid summer months the candy would clump together and be hard to work. The first winter a water pump to the bathroom broke and part of the plant flooded just as the Christmas rush was beginning. Former general manager Martha Broad recalls that the production-room floor was coated in a sheet of ice during the first winter. Sharlene Sazo-Strauss, CPI's national sales manager, remembers how she skidded on a trail of Rainforest Crunch, tracked onto the floor by production workers trooping between the kitchen and the rest room, and hurt her ankle.
Production required that workers knead, by hand, the Rainforest Crunch candy after it had been cooked and dumped on long cooling tables before them. The repetitive nature of the task led to a high incidence of carpal tunnel syndrome. One worker, Robin Griggs, labels it "extreme." "I worked three to four hours, and my hands would start to get numb. My hands would fall asleep on me all the time, and I didn't even work full-time on the production line."
Deutsch responded as best he could--by moving workers around, shortening the legs on the production tables, and proposing the use of more automated equipment. Deutsch says he felt constrained in dealing with the carpal tunnel syndrome because of Cohen's insistence that the candy be thin and have a homemade look. In a February 6, 1993, memo to Deutsch, Cohen wrote, "Re: Choc Covered RFC Samples...thickness is too thick--please make the pieces as thin as possible." In a memo nine days later Cohen wrote, "Can we get the toffee any thinner?...Toffee thickness was a lot thinner than [the previous sample]. This is proper thickness."
Deutsch confronted Cohen anyway. "I constantly told Ben about the carpal tunnel syndrome," but the response was noncommittal, he says. Cohen counters, "When I became aware of the carpal tunnel syndrome, I instructed Irv to find a way to make the candy without putting stress on the workers."
By mid-1992 carpal tunnel syndrome was affecting CPI's performance. In a September memo that year, general manager Broad noted, "Our production crew's efficiency has not been at its usual level due to carpal tunnel problems." In CPI's operating plan for 1993, Broad wrote of her hopes to lower costs "if improvement in labor problems caused by carpal tunnel problems can be resolved."
But operating problems seemed of lesser concern to Cohen than abstract issues such as the values, vision, and culture that he stressed in numerous memos to his managers. In one such message he wrote, "I want to be known as a company that uses business to meet human needs." In another, he saw CPI as part of a new world where what counted was "putting people ahead of profit and passing laws that end up getting more money into the hands of poorer people and less money into the hands of richer people."
And yet getting more money into the hands of its workers did not seem a high priority at CPI. In June 1992, CPI's board considered raising wages, according to meeting minutes. "Perhaps could increase wage scale by giving a little less to nonprofits," the minutes read. It was proposed that the starting wage be raised from $6 an hour to $7--nominal compared with the amounts CPI was giving away.
Linda Culpepper was a steady, uncomplaining worker. She ended up working at CPI for nearly eight years, mastering almost every job in the plant along the way. She never earned more than $10 an hour, and her profit-sharing payouts dwindled with CPI's fortunes. Culpepper received three profit-sharing checks for 1992, totaling about $1,200. She would particularly remember the disappointing size of the third and last installment: $162.53.
Martha Broad, hired by Ben Cohen as CPI's comanager in July 1989, had a different set of concerns. A graduate of the Yale School of Management and a former environmental lobbyist, Broad was an energetic believer in the ideal of socially responsible businesses. She had gotten Cohen's partner, Jerry Greenfield, to speak at Yale, and through that connection her rsum reached Ben & Jerry's. Her domain was CPI's front office, not its fevered production area. Still, her seat was plenty hot. Broad recalls the early days at CPI as chaotic: "We were so overloaded, but I didn't care."
Broad labored over spreadsheets and business plans just as doggedly as Deutsch patrolled the production floor. The two of them formed a counterweight to the brilliant yet mercurial Cohen. Although Cohen was nominally the president and chairman of CPI, he maintained his office at Ben & Jerry's and made increasingly infrequent visits to his fledgling company, according to several former CPI employees. By late 1991, Cohen was absent for long stretches; occasionally he'd swoop in with a host of ideas to be implemented.
The company's ability to generate cash helped ease the crunch. From 1990 to 1992, CPI reported $907,000 in taxable income--and gave away $531,000 of that to Cultural Survival and the two nonprofit organizations chosen by CPI's three board members. And yet those numbers reveal more than CPI's generosity. They show its deftness in dealing with tax law.
CPI said the money it gave away was "donations," as indicated by the message on its packaging and in numerous articles in the press. And yet CPI told the Internal Revenue Service a different story. On its tax returns for the years 1990 through 1992, those "donations" are labeled "marketing expenses paid to nonprofit entities." That is significant because although marketing expenses are fully deductible, the Internal Revenue Code limits charitable donations to 10% of taxable income--or a sum far lower than CPI was actually giving away.
Broad began prodding board members on the issue as soon as CPI became profitable. The board members, their nonprofits fueled by CPI's largesse, seemed less engaged by the matter. At a September 1990 CPI board meeting attended by Broad, Cohen, and Peter Barnes (standing in for Scher), "they were not sure that the IRS would allow CPI to take the expenses...unless they were more clearly tied to transactions that brought revenues into the company," according to minutes kept by Broad. The board then "brainstormed," wrote Broad, on making that link clearer. One proposal included having board members pay themselves directors' salaries and consulting fees, which could be expensed and then transferred as donations to the nonprofits.
Barnes then cautioned, Broad's notes continued, "that CPI could take an aggressive stand" on the issue "but better have a bunch of money in the bank to back us up with if the company is hit with interest and penalties later on."
By the spring of 1991 the board had not reached a resolution--even though Broad and Jeff Furman had begun seeking legal counsel on the matter six months earlier. Their tax lawyer had recommended that CPI draw up formal contracts with the nonprofits it was funding. In an agenda for an April board meeting, Broad wrote, "It is time for CPI to make a final decision about how to treat money that the company pays to our selected nonprofits....In this case CPI must write contracts outlining exactly how we can meet the IRS test that these services 'bear a direct relationship to the taxpayer's business.'" The board, according to the minutes of the meeting, responded by proposing that the contracts "outline the fact that we are paying a licensing fee for the use of their names, logos, etc."
And yet more than a year later the issue remained unresolved. In a June 1992 board meeting Broad noted that CPI was still "at risk of being audited and can be liable for back taxes of about $300,000 to $500,000." Two months later the board chose a different tack. Why not pay out a percentage of revenues, not profits? That, noted Broad, would be "cleaner in the eyes of the IRS and avoids the tax-liability issue."
Cohen liked the idea. He replied in a handwritten note, "It gets $150,000 less to the govt. Also I think we could call this a marketing initiative and not be liable to IRS for taxes."
The IRS never objected to CPI's accounting, but John Riley, who has provided accounting services to CPI since the fall of 1989, related that one option the company considered was to get an opinion from the IRS. That was never done, says Riley, "because one doesn't ask for an opinion from the IRS in a case like that because the chances would be that it would be negative."
Furman says that CPI's board sought legal advice on the matter. Though acknowledging that CPI did little advertising or marketing in the traditional sense, he notes that its donations policy raised the company's image. "Giving our profits back to environmental groups was an attempt to tell customers that by buying the product they would enjoy these good things the company stood for and they could get behind it," he explains.
Broad downplays the tax issue, noting that CPI sought legal advice. "We got ourselves the justification we needed," she says. But she does concede, "This was not the cleanest solution."
By mid-1992, a downward turn in the company's fortunes was rendering the tax issue academic and, ironically, distancing Cohen from CPI at a time when it needed him all the more. By then CPI had given away half a million dollars, and the company was losing money. As Broad had cautioned in a memo earlier that year, there was "an increasing need to spend money on selling and marketing (as we get older the torrent of press coverage/free publicity has subsided)." CPI, after all, was in the specialty-foods industry, which demanded novelty. Promoting new products and getting them accepted in the marketplace was expensive.
The company now had to survive on more than just PR. The rain forest was fading as a cause clbre. CPI's attempts at introducing new products independent of Ben & Jerry's were not panning out: Rainforest Crunch cookies kept breaking in transit. A product called the Rainforest Crunch Chew had a prohibitively high cost-of-goods-sold ratio of 90%. CPI's main customer, Ben & Jerry's, had negotiated a 12% price decrease because, Irv Deutsch says, "they felt they were paying too much."
Inside the company, the pace was hardly letting up. "Irv and I were down in the trenches. I was saying, 'We need some help,'" recalls Broad. She was asking Cohen for help--and getting the opposite response. "Ben said to our faces, 'I don't want to run the company. I've been there and done that.'"
In fact, to replace himself as president at CPI, Cohen hired Warren Bingham. Bingham had gone to the Wharton School and had earned executive experience during a 25-year career in business, including heading up a printing division at Sara Lee. But Bingham also had experience in the nonprofit world and shared Cohen's desire to push business in new, more socially responsible ways. He recalls his first meeting with Cohen: "Ben laid out the vision. He wanted to push the envelope on what they were doing at Ben & Jerry's. It was a very ambitious vision he was articulating." That energized Bingham. After all, his mandate was to grow the company--which, by the time he took over, was fast wilting.
Bingham began at CPI in July 1993 by taking a hard look at the business. He concluded that CPI had probably been unprofitable since at least the beginning of the year and had been making donations out of cash flow. "The capital structure and donations policy were not sustainable," he says, which saddled CPI with "the most enormously high cost of capital I'd ever seen."
Bingham's analysis looked prophetic when in 1993 CPI reported a loss of $153,000--a big swing from the net profit of $257,000 the previous year. He argued that the company should be recapitalized; investors should exchange their debentures for nonyielding equity, and the donations policy should be cut back dramatically. He also asked the board for the authority to sell equity in the closely held company to outsiders. Those proposals went nowhere, and the red ink kept flowing. In 1994, CPI lost $147,000.
Asked why he didn't recapitalize the business, Cohen replies, "It wasn't necessary." As for Bingham's proposal to convert CPI's debt to equity, Cohen says, "I don't remember the discussion."
As the company lay mired in the red, its bank, growing nervous, sought a personal guarantee from Cohen for the company's $250,000 line of credit. Cohen, unwilling to invest further in CPI, resisted. In one standoff, Bingham recalls, Cohen agreed to sign but then delayed. Bingham asked him, "Are you prepared to let the company go bankrupt?" Cohen replied that "he'd rather step up and pay off the loan out of the goodness of his heart than feel obligated to do it," according to Bingham. Cohen denies making the remark.
Cohen didn't pay off the loan, but he countered with another proposal, says Bingham: to guarantee the line of credit if CPI signed over the Rainforest Crunch trademark to him. As Bingham recounts the story, he turned Cohen down, since the trademark was the only thing of value that CPI owned. Cohen says that he has no recollection of making such an offer.
Whatever actually went on behind the scenes, Cohen finally relented and agreed to personally guarantee the line of credit. That, in effect, made him the banker to CPI, which gave him the advantage of being a secured creditor of the company in the event of bankruptcy. Nonetheless, Cohen invested no new funds in CPI. "I didn't want to put more money into the business," he says. "It wasn't necessary." He adds that he had already paid by his own sweat. "It should be noted that I wasn't compensated for the hundreds of hours of work I put into CPI."
The lack of money was limiting Bingham's options, and marketing issues compounded the challenge. In the early years, CPI had made a terrific product that was pulled into the marketplace by abundant and favorable publicity. But those days were over. Bingham was convinced that now CPI needed to spend money building a sales channel, not to mention upgrading the plant and the equipment. "This was a classic case of a small company underestimating the cost of getting the product to market," he says.
To survive, CPI needed to partner its modest manufacturing capability with larger companies that could wield market clout in the rough-and-tumble food industry. "I wrote memo after memo on various strategies," Bingham asserts. "We needed to piggyback on people who had distribution capability." He proposed that CPI become a division of Ben & Jerry's and use the company to manage relationships with Ben & Jerry's copackers. He proposed a line of candy bars based on various Ben & Jerry's flavors. He talked to the large candy makers about manufacturing Rainforest Crunch for candy bars they would create around the brand. He proposed developing other ingredients for Ben & Jerry's in concert with other producers.
But to get much of that done, Bingham needed the blessing and cooperation of Cohen and Ben & Jerry's. And his proposals were often met with indifference and inaction.
Exasperated by the nonresponse to his initiatives, Bingham decided to resign in September 1994, just 15 months after he had arrived at CPI. After several unsuccessful attempts to reach Cohen by phone, Bingham says he finally resorted to sending his letter of resignation via registered mail.
He wasn't the only one leaving. On November 29, 1994, Cohen visited the plant to introduce Bingham's successor, Mark Sherman, to the company. It was the first time Deutsch had seen Cohen at the company since July 1993. That day, Deutsch says, Cohen took him aside and told him what a great job he was doing. Recalls Deutsch, "He told me, 'Irv, we've got to spend some quality time together.'" Cohen denies having made the remark.
Four days later, Deutsch was fired. He has since sued CPI and Cohen for $266,000, claiming wrongful termination, breach of contract, and defamation.
Ben Cohen is still very much on the job at Ben & Jerry's corporate headquarters. During a recent interview, as sunshine poured through the window behind him, Cohen appeared relaxed in a T-shirt, canvas shorts, and Teva sandals. He seemed secure and content in his lofty perch at Ben & Jerry's, where business is in an upswing. At that time, he and Greenfield were about to head off to Paris to promote the company's recent entry into the French market.
In contrast, CPI fared poorly in 1995 and 1996 under new president Sherman. In those two years it ran a cumulative loss of $614,000, and the company filed for Chapter 11 bankruptcy on April 28, 1997.
Tilting back in his desk chair, Cohen said CPI's problems had nothing to do with its generous donations policy. Rather, he blamed "various management problems." He said that Deutsch and Broad never got along, which produced a conflict he could not reconcile. His solution was to back away and hire Bingham, who, in turn, was full of ambitious but hard-to-implement plans. "Warren's plans were on a grander scale than was warranted," he noted.
Cohen said he resisted putting more money into the company because he believed it would not have been wisely spent. Moreover, he claimed the company was profitable and, by his reckoning, "incredibly successful."
But one person's success is another's failure. CPI gave away more than half a million dollars and as a "cause marketer" was a brief, shining success. But then it imploded, dashing the hopes of others who served the company and came to rely on it. Linda Culpepper says the company had great potential. "This could have been a booming business," she says. "Imagine spending that kind of money and then just walking away. It's a case of total neglect. There's an awful lot of disappointment and resentment about this."
At its peak, CPI employed 60 people in Montpelier. What's left of the company was recently bought by the Rainforest Co., which has moved the assets to St. Louis. Of the 25 employees who remained when CPI's assets were sold at bankruptcy, only 2 chose to uproot themselves and work for the new owner in the Midwest.
In the last year of CPI's existence, its receivables ballooned from $200,000 to $500,000, which meant that the company effectively ran on the credit its vendors extended it. Dave Alexander, formerly of Cultural Survival and now of Global Organics, a supplier of nuts to CPI, is owed $81,000. "That's two years' worth of equity in my company that's gone," he says. "I was the victim of good PR. I believed Ben Cohen was a good guy, a socially and environmentally concerned capitalist. One reason I extended CPI credit was because I truly believed Ben would never let it go bankrupt."
But CPI has gone bankrupt, and court papers list just one secured creditor: Ben Cohen. His claim for $278,000 (excluding his $79,000 in unsecured claims) takes precedence over all others, and it should be satisfied in full, given the $465,000 that the Rainforest Co. paid for what was left of Community Products. Meanwhile, CPI has roughly 138 unsecured creditors who together are owed $476,000. Many of them, like Dave Alexander, were small vendors who believed in CPI's mission and stuck with the company to the bitter end. They'll be lucky to see 25ó on the dollar.
Edward O. Welles is a senior writer at Inc.
Stonyfield Farm makes and sells natural and organic yogurt, and that's what it's known for in the marketplace. But the company's president and CEO, Gary Hirshberg, has always viewed Stonyfield Farm's mission as something beyond selling yogurt or some other product for profit. In fact, the company--now a thriving enterprise with $43 million in annual revenues, whose yogurt is a nationally distributed brand--was an afterthought. It was founded in 1983 to support a nonprofit farm and school dedicated to organic agriculture. Promoting that cause is still the company's guiding light. "To be a successful business leader," Hirshberg says, "one doesn't have to concede one's passions."
He might have added that running a for-profit business as a vehicle for social activism may require extraordinary work and dedication, to say nothing of financial sacrifice. Hirshberg's own experience underscores the point: Stonyfield Farm didn't earn a penny of profit in its first seven years.
Hirshberg illustrates a theme that's easily obscured by failures like that of Community Products Inc.: some cause-driven entrepreneurs persevere for years against long odds, and those with enough grit can sometimes make it.
Sacred to Hirshberg is buying high-quality organic milk--untainted by pesticides, hormones, or other chemicals--for his products. Enforcing the mandate requires tough standards, vigilance, and money. He purchases only from small New England dairy farmers who claim to use no recombinant Bovine Growth Hormones. His suppliers must tender an inspection certificate or present a notarized affidavit swearing that they meet his specifications. Hirshberg has had to drop suppliers who haven't satisfied the company's rigorous quality standards. For organic milk he must pay as much as 35% over the market price, according to industry sources.
Hirshberg has deputized his sister, Nancy, as the company's full-time natural-resources director, charged with keeping Stonyfield Farm's effect on the environment as harmless as possible. For every ton of carbon dioxide the company releases, it counters by planting about 40 fast-growing trees on conservation land. "Of course, we could do less damage by not existing," says Nancy wryly.
--Emily Esterson
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