Clif Bar's Solo Climb
Gary Erickson walked away from millions to keep his successful energy-bar startup his own. It's no guarantee of success against rivals like Nestlé and Kraft, but for Erickson, going it alone is the only way.
By Melanie Warner

(Business 2.0) – As beats of electronica pulsate from the lobby of San Francisco's Hotel Triton, hundreds of stylish urbanites swarm the place, clutching glasses of wine. They're here celebrating the hotel's new celebrity "eco rooms" designed by Woody Harrelson, the Red Hot Chili Peppers, and Andy Dick. Part of a statewide effort to greenify hotels, the suites have been cleaned with nontoxic products and stocked with Fair Trade coffee and towels woven of organically grown cotton. Besides the free booze and Harrelson's interpretation of Zen style, the eco-revelers are treated to mounds of packaged munchies from Clif Bar, which months earlier jumped at the opportunity to sponsor the event.

For Clif's marketing staff, this was close to the perfect storm: a smallish gathering with lots of young, left-leaning trendsetters, a chance to associate Clif with a socially responsible message—and a surefire means of coaxing people to try the product. Best of all? It was dirt cheap. The total cost to Clif was $450 worth of bars.

Cheap counts for Bay Area-based Clif Bar. The 12-year-old energy-bar pioneer is a privately owned 140-employee operation, yet it's going up against some of the world's biggest food companies—including Kraft, which owns rival Balance Bar, and Nestlé, owner of PowerBar, which launched the category in the late 1980s. Clif products remain top sellers, but the company's $100 million in sales looks like granola crumbs next to Nestlé's overall $66 billion and Kraft's $31 billion.

Yet Clif remains the intriguing trailblazer of the market. That's because nearly five years ago, Clif founder Gary Erickson did the unthinkable: He turned down a generous buyout offer—from another corporate food giant, which Erickson declines to name—that would have made him seriously rich. Erickson walked away from millions not because he had dreams of taking Clif public, or because he thought he could command a higher price. Rather, he decided that a corporate parent would ultimately destroy the company.

Precious few innovators in the ultracompetitive food industry have dared to follow Clif's path. Unilever gobbled up the famously iconoclastic Ben & Jerry's. Coca-Cola owns juice purist Odwalla. Dean Foods runs soy-milk pioneer White Wave and dairy brand Horizon Organic. But Erickson aspires to be a market leader while remaining private and staying true to ideals of corporate social responsibility. That's a huge roll of the dice because, despite all the lip service paid to being a good corporate citizen, do-gooding is generally considered at odds with a healthy balance sheet.

So far, Erickson has proven the experts and his rivals wrong. Since early 2000, Clif has more than doubled its revenue, adding a total of $60 million in sales, which, according to Erickson, have grown more than 30 percent annually since 1998. It has stayed profitable (though Erickson won't say how profitable) and continues to churn out hit products, like the company's top-selling Luna bars for women.

By going it alone, though, Erickson has all but ensured that Clif Bar's altruistic solo act will be an uphill climb. The company is still paying out millions to co-founder and former co-CEO Lisa Thomas, who demanded a buyout and quit after Erickson killed the deal. Meanwhile, sales have flattened and growth must rely on shoestring marketing efforts at a time when it's only getting more difficult for Clif to hold on to its turf. In addition to the competition from Nestlé and Kraft, Clif has to fend off new diet bars from ZonePerfect (owned by $20 billion Abbott Laboratories) and Atkins (majority ownership stake held by Goldman Sachs and Parthenon Capital). Eventually, says Tom Vierhile, executive editor of Productscan Online, which tracks new food and beverage products, "Clif is going to get squeezed."

Erickson, though, likes the risk and likes his chances—in part because he's learned valuable survival skills in the past four years, and in part because he thinks corporate backing isn't what it's cracked up to be. "I would rather poke needles in my eyes than have someone calling me every day saying, 'I need this report' or 'I need to know how your numbers are,'" he says. "It would drive me nuts."

For weeks, Erickson hadn't felt right. He'd had trouble sleeping. He was anxious around the clock. It was April 2000, and the business he'd helped pioneer was booming. From humble beginnings in his mother's kitchen a decade earlier, Clif Bar (named after Erickson's father, Clif) had transformed energy bars from taffylike slabs that cyclists wrapped around their bikes' frames to tastier snacks more akin to cookies. A cycling addict, Erickson had his epiphany at the end of a 175-mile ride. Having downed five PowerBars—the original energy bar—he couldn't take another bite and figured there had to be a better-tasting alternative.

Now, eight years after starting Clif with $1,000 in savings, Erickson found himself running a $40 million company encircled by eager buyers. In January 2000, Kraft announced it would purchase Balance Bar for $268 million; a month later Nestlé bought PowerBar, reportedly for $375 million. And on the morning of April 17, Erickson and Thomas, his longtime business partner and co-CEO, were ready to cash in. According to Erickson, attorneys from a Midwestern food conglomerate had flown to San Francisco and were huddled with Clif's legal and banking team in a conference room in the Bank of America building. Erickson and Thomas sat in Clif's Berkeley office, connected to the meeting by conference call. On the table was the offer: $120 million.

Half an hour into the call, Erickson announced that he needed to go for a walk. He crossed the parking lot to the other side of the building, which overlooks an industrial swatch of Berkeley. Within minutes, he recalls, he realized he couldn't do it. He didn't want to uproot the company and move it to the Midwest, which would force him to part with most of his 65 employees. Mostly, he did not want to cede some of the unique qualities of Clif Bar he had worked so hard to establish—twice-a-month three-day weekends for the staff, the 20-foot climbing wall in the office, and his commitment to backing social causes big and small, from the Undo It global warming campaign to Harrelson's eco rooms. When Erickson returned, he recalls, Thomas could tell something had changed. "Send them home," he told her.

The bankers were stunned, Erickson says. "You won't make it," one investment banker from Salomon Smith Barney told him. "These companies will marginalize you." Erickson, though, had made up his mind.

Problem was, Thomas—who had an equal stake in Clif Bar—had made up hers too. As CEO, she had worked hard in the preceding months to prep the company for the sale, and according to Erickson, his sudden change of heart struck her as reckless. (Thomas, who still lives in the Bay Area, did not return phone calls seeking comment.) When Erickson walked away from the deal, Thomas, he says, walked away from the company, demanding to be bought out. That amounted to about $62 million—money that, despite double-digit sales growth and profits, wasn't just sitting in the company safe. According to Erickson, it took him seven months to negotiate a settlement with Thomas, and the resulting payments remain a serious drain on Clif's cash flow, amounting to an estimated $4 million a year. Erickson recalls that only one worker congratulated him after the news was broken to the staff—some of whom he didn't know, since Thomas had run the company on a day-to-day basis. "Coming back into the company was like coming back into a morgue," Erickson recalls. "And now I had to be sole CEO."

Payments to Thomas, coupled with a lack of access to public markets and fat corporate budgets, quickly defined what Clif Bar could and couldn't do to fend off rivals. While Erickson worked hard to win back his workers' faith—hosting weekly all-hands meetings and creating an employee suggestion box—marketing chief Sheryl O'Loughlin, now the company's CEO, had an equally daunting task: making do with a budget half the size of those for the Kraft and Nestlé products. In the late '90s, when few cared who won the Tour de France, Clif Bar had sponsored Lance Armstrong and two dozen other members of the U.S. Postal Service cycling team. But in 2001, when Armstrong came back from cancer to nail his third Tour win, PowerBar offered Armstrong $400,000 a year, 10 times what the team had been getting from Clif. Clif couldn't match it and lost the deal.

It was a defining moment, as Erickson and O'Loughlin realized that they couldn't win with conventional tactics. Instead of sponsoring Armstrong, O'Loughlin launched a program heralding the domestiques—support riders who help top cyclists win races. Fans could go to Clif's website and vote for the best of these total unknowns, with the winner getting $10,000. Armstrong's Tour heroics had vastly raised interest in cycling, and the marketing program, called "Beyond the Podium," drove "thousands of people to our website to vote," says O'Loughlin, a marketing manager at Quaker Oats and Kraft before joining Clif in 1998. "We created a dialogue with those consumers, which is different than just seeing an ad about Lance." The program cost less than $150,000.

Grassroots sponsorship deals became part of a concerted strategy to keep Clif Bar's marketing message distinctive. It dovetailed nicely with branding that Clif was already doing, such as using the backside of bar wrappers to tell the story of how Erickson started the company and to tout the causes that Clif supports. Erickson killed off any notions of TV advertising in favor of grassroots promotion. Chris DeJohn, sponsorship director for the Chicago Marathon, recalls being surprised by the reaction to his suggestion that the company do TV promotion. "They said, 'We're not into that. We'd rather be at the event and have people interact with the product,'" recalls DeJohn. Similarly, Clif prefers to set up sampling stations in grocery stores rather than pay slotting fees—pricey guarantees for better positioning.

PowerBar and Balance Bar also do some of this grassroots marketing to athletes, but Clif pulls it off more effectively. "They're in touch with their target market better than their competitors," says Bob Hilarides, a partner in Connecticut-based consulting firm Cannondale Associates. Indeed, Clif and Luna are the top two sellers in the natural-products supermarket category, with a combined 25 percent of the market. "Being a small company forces us to think hard about what we're doing and what our brand stands for," O'Loughlin says. "It makes us more creative."

Erickson's boldest move yet has been to convert his products to organic ingredients. About three years ago, he hired Elysa Hammond, an expert in agriculture, to look into replacing Clif's suppliers with vendors that sell organic products. By March 2003, Erickson had made the switch. His costs shot up 15 percent, but he had no leeway to raise retail prices. It's another risky step that corporate overseers would likely not approve, but Erickson says Clif can afford to take the short-term bite out of profits and wait for the move to pay off in increased sales. On paper, it makes sense: Sales of organic products are growing by 20 percent a year, one of just a few food segments growing at all. In the past year, Clif Bar sales are down 2.6 percent overall—but have jumped by more than 5.3 percent in natural-food stores.

The real challenge for Clif comes as energy bars go more mainstream. Analysts expect annual growth to slow from its current mid-teens rate but for the growth in dollar volume to stay the same. Next year, for instance, this would mean an additional $100 million in sales industrywide. Sensing that it will come from nonathletic types, PowerBar and Balance Bar are catering more to couch potatoes than marathoners. "We want to be more relevant for a broader group of customers," says Stephanie Brendel, PowerBar's brand manager. Brendel works with a staff of 70 that collaborates with Nestlé's national sales force, its R&D operations at headquarters in Switzerland, and production in Boise, Idaho. (Clif farms out production to a contractor within driving distance of its main office.) Yet, like trust fund kids ashamed of their money, PowerBar and Balance Bar don't mention Nestlé or Kraft on their packaging or websites.

Ultimately, because it's privately held, Clif Bar can afford a slowdown in sales, as long as it's still profitable (which it is) and retailers continue to have confidence in the company (which they do). "Whatever Clif Bar is doing, they're doing really well," says Pat St. John, vice president for marketing at supermarket chain Trader Joe's.

The scolding investment banker, of course, could turn out to be right. Conventional wisdom still holds that staying independent in a brutal market is a death wish. But not long after he sent the Midwesterners packing, Erickson met with Ben Cohen, co-founder of Ben & Jerry's. The Vermont ice cream company, which had gone public in 1985, had just been acquired by Unilever, and Cohen was full of misgivings. "Do whatever you can to keep the company private," he told Erickson.

After all, if Ben & Jerry's is any indication, being acquired by a giant multinational is no guarantee of success either. Since 2001, Ben & Jerry's sales have grown just 6.5 percent. And even if going solo is a tougher game, Erickson sees one advantage that trumps all else. "We'll live with the risk," he says, "because we're having a lot more fun."

HOW CLIF STACKS UP AGAINST THE MARKET'S BIG SPENDERS

Sources: TNS Media Intelligence/CMR; Information Resources; Clif Bar; Business 2.0 research