Case 21 Teaching Note Namasté Solar
Case 21 Teaching Note
Namasté Solar Overview Should a fast-growing, employee-owned solar electric company accept a buyout offer from a private euity investor! Could it do so without sacrificing its distinctive, high-involvement culture! Namasté Solar, a ""-person firm based in #oulder, Colorado, designed and installed solar electric systems for residential, commercial, nonprofit, and government customers$ %n 2&&', the company had been growing at brea(nec( speed for the past four years, since government incentives for the purchase of renewable energy energy had created a mar(et for solar solar electric systems in Colorado$ Colorado$ %n mid-2&&', two investors approached Namasté Solar with serious buyout offers$ ) buyout would bring a new infusion of capital to the firm, enabling it to e*pand more uic(ly and install more solar systems, and employees with vested shares would benefit from an attractive sales price$ +et, Namasté Solar had from the outset been committed to building a democratic, high involvement culture$ wnership was widely shared, and all employees, whether or not they held euity, were encouraged to participate in strategic decisions facing the firm$ any were concerned that selling the company would mean sacrificing the firm.s carefully crafted culture$ %n addition, various conflicting interests and perspectives were in play$ ) series of half-day retreats over the previous month had narrowed the choice to three possible options$ Nerves were high among all as the company.s founders founders tried to reach a consensus on how to move forward$
Suggestions for Using the Case This case is ideal for your module on strategy implementation because of the e*tensive information provided about the company.ss approach to operating$ %n addition, the tight decision focus of the case should allow students to evaluate various company. strategic options available to the company.s management and ma(e strategy recommendations for the company$ The case has ample information to illustrate mission, vision, and core values concepts discussed in Chapter 2, ethics and corporate social responsibility presented in Chapter /, and implementation topics scattered across Chapters 1& 0 12$ The case will provide students with the opportunity to better understand the distinctive characterist characteristics ics of decision-ma decision-ma(ing (ing in an employee-owned employee -owned firm, evaluate options in response to a private euity buyout offer, and evaluate options for maintaining a high-involvement, high-involve ment, ownership culture while achieving revenue and profitability growth$ The Student dition of the nline earning Center 3C4 provides students with copies of the assignment uestions contained in this note$ The list of assignment uestions leads students through a thorough analysis of the company.s approach to strategy implementation and the three alternatives under consideration by the company.s founders$ )t the conclusion of the analysis of the case information, students should be prepared to ma(e a strategy recommendation concerning how to best move forward and choose among the three options under consideration$ 5e suggest that you always Crafting ing & Exec Executing uting C and instruct them to use the direct students to the assignment uestions posted on the Craft assignment uestions to prepare for the class discussion of the case$ 5e always instruct our students to read the case once to gain a general understanding of the issues presented in the case and then return to the case to prepare written responses to each of the assignment cases$ 5e.ve found that our students who follow this approach are well-prepared to ma(e a meaningful contribution contribution to the class discussion$ There are two videos accompanying the Namasté Solar case, either of which can be shown at the beginning of class$ #oth videos are available on +ouTube$ +ouTube$ The first video is a 267' minute interview with C #la(e 8ones and C9 Stephen %rvin of Namasté Solar$ The second video is "62/ interview with #la(e 8ones and a tour of Namasté Solar.s office building$ The case can be used effectively for a written assignment$ 5e recommend the following uestion for written assignments6
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Case 21 Teaching Note Namasté Solar
#la(e 8ones, co-founder of Namasté Solar, has employed you as a consultant to evaluate the company.s approach to strategy e*ecution and recommend a course of action concerning its future direction$ :lease prepare a "-; page report that assesses the company.s approach to e*ecuting its strategy and lists the pros and cons of the three options available to the company$ +ou should use Chapters 1&-12 of your te*t as a guide for assessing the company.s strategy implementation effort$ +our report should also recommend a course of action from the :ath ), :ath #, and :ath C alternatives that is supported by your analysis$
Assignment Questions 1$ 5hat is the mission of Namaste Solar! ation and building organi>ational capabilities support its strategy! =oes its approach to decision ma(ing support good strategy e*ecution! 5hy or why not! ?$
5hat are the (ey features of Namaste Solar.s organi>ational culture! =oes the company.s culture support good strategy e*ecution! *plain$
;$ 5hat are the three strategic options concerning the company.s future! 5hat impact will a choice among the three options have on the company.s values and culture and employees and other sta(eholders! @$ ist the pros and cons of :aths )-C$ 5hat recommendation would you ma(e to #la(e 8ones concerning the choice of a path for Nemaste Solar.s future!
Teaching Outline and Analysis 1. What is the mission of Namaste Solar? How does the mission reect the company’s values? Eplain. Namasté Solar.s mission is Ato propagate the responsible use of solar energy, pioneer conscientious business practices and create holistic wealth for our community$B )ccording to the company.s brochure, holistic wealth is wealth that Abenefits all sta(eholders euallycustomers, employees, investors, communities and the environmentas opposed to ineuitably benefiting any sta(eholders at the e*pense of any othersB 3see case *hibit 1, partially reproduced below4$ This mission is consistent with company values$ That is, Namasté Solar appears to Awal( the tal($B Namasté Solar: Our Values
1$ Care for the arth6 eave the environment a better place than we found it$ 2$
Care for our customers6 :rovide the best products, services, and overall customer e*perience$
7$ Care for our community6 #e a good neighbor and actively engage with our community$ ?$ Care for our company6 Cultivate a collaborative, euitable, and fun company culture$ "$ Care for ourselves6 Strive to live balanced, healthy, and fulfilling lives$ %n addition to the values e*plicitly stated in case *hibit 1, the company was deliberately founded with a vision of becoming a democratically controlled, employee-owned firm$ The models used by the founders were companies li(e Clif#ar, New #elgium #rewery, and other Asmall but greatB companies$ 21-2
Case 21 Teaching Note Namasté Solar
Namasté Solar.s founding vision was to be a 1&& percent employee-owned company, with no e*ternal investors$ %n 2&&', 7@ employees 3about two-thirds of the total4 held euity in the firm$ No single shareholder owned more than "& percent, not even the two remaining founders combined$ ost of the co-owners owned between 1 and 7 percent of the company, depending on when they Doined the company and how many shares they decided to purchase$
!. "oes it seem that Namaste Solar has made a commitment to operatin# in socially responsi$le manner? %s the company’s strate#y ethical and does it address the needs of all of its sta&eholders? Eplain. Students should be able to ma(e the following points6
Namasté Solar annually donated 1 percent of its revenues in the form of solar system installations to community nonprofits$
%t also employed one person whose sole Dob was to perform educational outreach in the community about solar energy$
8ones and other employee-owners were actively involved in policy discussions at the local and state levels, particularly regarding energy legislation$
Namasté Solar was committed to creating a collaborative and euitable culture$
%t supported open-boo( management, democratic decision-ma(ing, and a meritocratic system in which employees assumed responsibility based on demonstrated competence$
5hile Namasté Solar has commitments to the community and employees, superior students may wish to uestion the nature of the firm.s commitment to its shareholders and investors6
ver time, everyone.s ownership percentage, including the founders., was declining through dilution, due to new stoc( issues$
5hile the dilution of ownership was the part of the vision of the founders, strategically this action of diluting ownership may not meet the needs of traditional investors and shareholders$
'. %s the company’s approach to strate#y eecution shaped su(ciently $y its mission and values? How does the company’s approach to sta(n# the or#ani)ation and $uildin# or#ani)ational capa$ilities support its strate#y? "oes its approach to decision ma&in# support #ood strate#y eecution? Why or why not? This analysis should enable students to develop a common understanding on why Agood management E good strategy F good e*ecution$B %nstructors should point students to 9igure 1&$1 in Chapter 1&, detailing the 1& basic tas(s of the strategy e*ecution process$ Students may compare Namasté Solar.s e*ecution of strategy along the following dimensions6 build or preserve leadership, people, systems, culture, rewards, practices and processes, financial metrics, capabilities, procedures and policies$
Namasté Solar.s mission and values reinforce the organi>ational culture, which enables the democratic decisionma(ing$
The company was e*plicitly founded with a vision of becoming a democratically controlled, employee-owned firm$
Namasté Solar.s organi>ational culture emphasi>ed employee involvement, democratic or Aconsent-styleB decision 21-7
Case 21 Teaching Note Namasté Solar
ma(ing, concern for the well being of the individual, and a sharing of progress both ris( and reward$
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Case 21 Teaching Note Namasté Solar
5hile its socially responsible strategy based on inclusion of employee involvement propelled the company to their current state, there were growing concerns if the culture and values would remain tenable as the company grew$ Nangle, Namasté Solar.s =irector of ar(eting, states in the case6 % was a strong voice for wanting to (eep the family uality that we have$ % want to be able to sit in a big picture meeting and (now every single person there$ % don.t need to (now every detail, but % want to be able to sit ne*t to someone and say, how.s your child, how.s this or that$ %f %.m sitting in a room with "&& people, there.s no way you.re going to (now me, or %.m going to (now you$ The family element would be lost$
*. How does Namasté Solar lin& rewards and incentives to strate#ically+important employee $ehaviors and the company’s tar#eted outcomes? Namasté Solar.s organi>ational culture emphasi>ed employee involvement in ownership and thus a sharing of both ris( and reward$ This involvement meant both participation in the A#ig :icture eeting 3#:4B decision-ma(ing process and employee stoc( ownership of the company6
very employee, whatever their roleand whether or not they owned stoc(was e*pected to attend the #: and encouraged to participate$
Through group discussions, Namasté discovered ama>ing new ideas$
A)t Namasté Solar, employees could purchase stoc( on their first day at the company, and thereby enDoy the benefits of ownership, including dividends once those were declared and paid$ %ts stoc( price had been growing rapidly, representing a potential windfall for employee owners should the company go public or be sold to another firm$ Namasté Solar used stoc( ownership as a means of binding its employees to the company for the long run$ #y allowing the participation of employees in strategic decision-ma(ing and ownership, employees were engaged in the company.s target outcomes and shared in the rewards of reaching those outcomes$
,. What are the &ey features of Namaste Solar’s or#ani)ational culture? "oes the company’s culture support #ood strate#y eecution? Eplain. 5e would give a grade of A)B to #la(e 8ones for building a culture at Namasté Solar that emphasi>ed employee involvement, democratic decision-ma(ing, concern for the wellbeing of the individual, and a sharing of both ris( and reward$ %nstructors should remind students that the strategic decision-ma(ing process itself should reinforce, rather than undermine, an organi>ation.s culture$ The company has a carefully crafted culture that emphasi>es broad-based consensual decision-ma(ingG fran(, open and honest communicationG and strong employee involvement$ 9or e*ample, any decision to sell the company would need to be ratified by a supermaDority of ;& percent vote of the shareholders$ )t the time the financing decision was on the table, about two-thirds of employees held some stoc(, and the two remaining co-founders owned less than "& percent combined$ Thus, any decision to sell would need widespread support among employee-ownersG the support of the founders only would be insufficient$ 5hile this culture of consensual decision-ma(ing wor(ed well for Namasté Solar in its infancy, as the company grew in numbers and its mar(etplace prospects began to mature, this process would, in reality, become increasingly difficult$
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Case 21 Teaching Note Namasté Solar
-. What are the three strate#ic options concernin# the company’s future? What impact will a choice amon# the three options have on the company’s values and culture and employees and other sta&eholders? The decision or issue facing #la(e 8ones and the entire Namasté staff is whether or not to accept a buyout offer for the company, in whole or in part, from a private euity investor$ ) response to the two offers on the table must made uic(ly, in the conte*t of a highly participatory culture in which ownership is widely shared, and all employees 3whether or not they hold euity4 are deeply involved in important decisions facing the company$ wnership of the company by a private euity firm would very li(ely undermine, or destroy, this culture$ %n a buyout, the founders and employee-owners would, of course, lose their ownership sta(e in the company$ )lthough this would result in an immediate capital gain, it would also eliminate the potential for even greater long-term appreciation if the company were to continue to grow and to become even more successful$ %n a buyout, the management 3and employees, through the #ig :icture eetings and other governance mechanisms4 would lose managerial control over the firm and the right to ma(e (ey strategic decisions$
. /ist the pros and cons of 0aths +2. What recommendation would you ma&e to 3la&e 4ones concernin# the choice of a path for Nemaste Solar’s future? Path A is defined in the case as “selling the whole kit and caboodle,” that is, selling 100 percent of the copan! to a pri"ate e#uit! in"estor$
The advantages of :ath ) are6 1$
C):%T) %N9HS%N6 :ath ) would bring a fresh infusion of capital into the firm$ Some shareholders felt that the company would not be able to generate enough cash through its own operations to fund its growth, and management had found it difficult to obtain non-recourse ban( loans$ The company had, to date, relied entirely on founders. investments, founders. personal loans, income generated through operations, and employee investments through stoc( purchases$ 8ones states in the case, A5e were growing so fast, we (ept needing more money$ 5here.s the money going to come from! %nvestors could supply that$B
2$
N)# IJ5T<6 :ath ) would enable the company to grow, both geographically and in terms of the range of services offered$ #oth the company and the industry in which it was situated were growing e*tremely rapidly and had attracted investment from maDor firms and investors$ The case mentions several related areas, including solar water heating and concentrating solar power$ %n a dynamic industry, many shareholders felt, firms must grow at least as fast as the industry as a whole Dust to survive$
7$ :J:)I)T S)J NJI+6 The Namasté Solar mission was, first and foremost, Ato propagate the responsible use of solar energy$B ) maDor investment in the company would enable it to greatly e*pand its capacity to install solar electric systems$ Some people wor(ed at Namasté Solar because they wanted to propagate solar energy solutions in the mar(etplace as much as possible and therefore have a greater global effect$ ?$ %NKSTNT JTHJN 9J :+S6 ) buyout would provide a significant return on investment for employees who owned vested, or partially vested, shares$ The case reports that in 2&&', 7@ employees, or about two-thirds of the total, owned shares$ The investor.s offer was appro*imately five times the price per share of the company.s internal evaluation$ Thus, an employee who owned shares valued internally at L1&,&&&, for e*ample, would receive L"&,&&& in a buyout$ #ecause shares were vested over five years, and the company was only four years old at the time of the case, presumably no employees were fully vested 3although some may have been close to fully vested4$ 3%t should be noted that in some cases, employee shares are fully vested in the event of a sale, regardless of when they were acuired$4 8ones states in the case, AMTo some people, the offers were tempting$ )s much as we li(e to say Oit.s not about the money,. when you get a stac( of hundreds slapped in your face, you.re (ind of li(e, hmm, yeah, that.s a lot of money$B
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Case 21 Teaching Note Namasté Solar
"$ :TNT%) 9J <%I< K)H)T%N 3J5)J=4$ Namasté.s e*ecutives were unwilling to reveal to the case authors the company.s internal valuation as of 8uly 2&&'$ y$ :eople felt really burned out, against the ropes$ Their idea seemed to be that if we sold the company, we wouldn.t have everybody.s life savings on the line$ 5e could ta(e our chips off the table, and we wouldn.t have to be on the hoo( anymore$B The disadvantages of :ath ) are6 1$
Tational culture emphasi>ed employee involvement, democratic decision-ma(ing, concern for the wellbeing of the individual, and a sharing of both ris( and reward$ wnership of the company by a private euity firm would very li(ely undermine, or destroy, this culture$ 8ones states in the case6 There was the problem of complete loss of control$ Culture was Dust out the window with :ath ), unless we felt we could really trust Mthe acuiring company$ 5hat do we thin( it.s going to be li(e to wor( for this company! )re they going to respect our culture! No one has the same values as we do$ % was a strong voice for wanting to (eep the family uality that we have$ % want to be able to s it in a big picture meeting and (now every single person there$ % don.t need to (now every detail, but % want to be able to sit ne*t to someone and say, how.s your child, how.s this or that$ %f %.m sitting in a room with "&& people, there.s no way you.re going to (now me, or %.m going to (now you$ The family element would be lost$
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7$ SS 9 QH%T+ CNTJ$ %n a buyout, the founders and employee-owners would, of course, lose their ownership sta(e in the company$ )lthough this would result in an immediate capital gain, it would also eliminate the potential for even greater long-term appreciation if the company were to continue to grow and to become even more successful$ ?$ SS 9 )N)INT CNTJ$ %n a buyout, the management 3and employees, through the #ig :icture eetings and other governance mechanisms4 would lose managerial control over the firm and the right to ma(e (ey strategic decisions$ any of the employees, all of whom went through an e*tensive interview process, were presumably attracted to the firm by its emphasis on shared responsibility$ "$ :+ THJNKJ$ ) significant change in the culture might lead to a loss of (ey employees, many of whom had been attracted to the company by its distinctive culture and commitment to the environment and to the community$ 21-@
Case 21 Teaching Note Namasté Solar
Path C is defined in the case as “recoitting to %aast's original "ision of a pri"atel!(held, 100 percent eplo!ee( owned fir, with or without soe changes in strateg!$”
The advantages of advantages and disadvantages of :ath C are essentially the converse of those of :ath )$ Students will point to these advantages6 1$ CNS%STNT 5%T< C:)N+ K)HS$ The company was e*plicitly founded with a vision of becoming a democratically controlled, employee-owned firm$ The models used by the founders were companies li(e Clif#ar, New #elgium #rewery, and other Asmall but greatB companies$ 2$ JTNT%N 9 :+ QH%T+ )N= ::JTHN%T+ 9J )TJ H:S%= %NKSTNT JTHJN$ 7$ JTNT%N 9 :+ CNTJ )N= =C%S%N-)R%NI :JCSSS$ Students will point to these disadvantages6 1$
%NSH99%C%NT C):%T) T 9HN= IJ5T< )N= 5%=J :J:)I)T%N 9 S)J NJI+$
2$ )CR 9 %=%)T %QH%=%T+ )N= 9P%#%%T+ 9J :+S 5< 5%S< T S ) J S 9 T<%J ST)R %N T< C:)N+$ 7$ )CR 9 )N P%T STJ)TI+ 9J #HJN=- HT :+S$ Path ) is defined in the case as “a h!brid, in"ol"ing the sale of a portion of the copan!, with eplo!ees retaining partial ownership$”
Students promoting the choice of :ath # will point out that its appeal is mainly its potential for capturing the benefits of C, without the costs of )$ That is, it offered the promise of bringing e*ternal funds into the firm, without a complete loss of the company.s values and culture$ The counter argument is that this hope is unrealistic, because no euity investor would be willing to cede control to the employees$ )s stated in the case6 Some people passionately advocated for :ath #$ They thought we could bring a private euity investor on board, and still be in complete control and stay true to our values$ #ecause they Meuity investors don.t have maDority ownership, we.re still in control$ ther people said, no, they.ll want warrants for eventually purchasing the maDority of the company$ )t the conclusion of this discussion, students may press for a vote to settle the matter$
Students may suggest6
Sufficient capital to achieve growth$
iuidity for employees who wish to cash out their investment$
:reservation of the company.s culture and values$
)n important ta(e-away for students is that Namasté placed as great emphasis on preservation of its culture and values as it did on meeting financial obDectives$ *%+-.C/- P-/P %s there any solutionperhaps one not fully captured by :ath ), #, and C, which would meet these interests! 21-'
Case 21 Teaching Note Namasté Solar
)t this point, students may be as(ed to brainstorm for ways that the company could meet these core interests simultaneously$ The epilogue provides information on how the company tried to do so$ Students should reali>e that the answer lies not in pic(ing :ath ) or :ath Cor even a hybrid AcompromiseB between the two, but rather in a creative solution that attempts to address all of the core interests underlying the decision$
Eilogue )t the meeting in 8uly 2&&', described in the case, 8ones made a strong plea for :ath C, with the ualification that the company needed to address some of the concerns that had been raised in the broader discussion of the buyout option$ ventually, his position prevailed in the meeting$ The predominant sentiment was a strong desire to preserve the company.s culture and values$ Hltimately, the group decided that a buyouteven a partial buyoutposed too great a ris($
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%n 2&1&, 8ones reflected6 5ith 2&-2& hindsight, the economy crashed right after our mini-retreats and ultimate decision, so even if we had wanted to ta(e :ath ) or :ath # % thin( it would have been very, very difficult$ 5e even (now of a few companies that went that route and they didn.t have good e*periencesthe deal fell through because the investor.s funding dried up, or the valuation plummeted and they got substantially less than they had hoped for, etc$ %n the end, we are all very than(ful for the entire e*perience because it was very healthy for us to as( ourselves these uestions, challenge our previous mindset, re-evaluate what we were doing, and then in the end recommit ourselves anew to our original vision$
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