Food Fight
What's it like to be sued by the company you founded? Ask the man behind Wild Oats Markets.
By Brandon Copple

(FORTUNE Small Business) – Mike Gilliland started Wild Oats Markets as a single organic grocery store in Boulder in 1984 and turned it into a national chain with $1 billion in annual sales. He took the company public in 1997, and four years later, under pressure from the board, he quit. Last year Gilliland started over with Sunflower Natural Markets, a discount natural-food chain that today has seven stores in the Southwest. The new venture didn't sit well at Gilliland's old company: Wild Oats sued him in Colorado, saying he violated a noncompete agreement and stole trade secrets. The suit was settled this summer. Gilliland spoke to FSB about the ordeal.

Why did you leave Wild Oats?

I was in over my head, in a lot of ways. Whole Foods was eating our lunch everywhere they opened a store, even in Boulder, our headquarters. We had grown like crazy, and we were struggling with that. We had acquired a ton of stores and some other chains to keep our top line growing, but we hadn't done a very good job integrating them. The stock price was suffering, and I felt like a lot of that was on my doorstep. It was time to bring in a real business guy. I'm just a retail guy. So I went out and hired the new CEO, and then I got out of his way.

How did you go from CEO to defendant in less than two years?

I had a two-year noncompete. My partners, Randy Clapp and my brother Patrick, both also co-founders of Wild Oats, opened the first Sunflower store in late 2002, before my noncompete expired. Wild Oats contends I was involved in the ownership and management.

Sounds like a logical conclusion. Were you?

No. It was all Randy's money in that first store, and Randy and Patrick ran it. I own some other businesses with those guys—regional convenience stores—so we had a lot of contact, and for a while I owned a liquor store and café that were attached to the original Sunflower. A judge decided those were a little close for comfort, so I sold them to Randy. And then after the noncompete expired I jumped in and opened a second Sunflower store in Phoenix.

Was it tough to find yourself in a lawsuit with the company you spent 20 years building?

I wish it didn't happen that way, but when you become a public company it's really not your baby anymore—the company takes on a life of its own. So I don't have any emotional trauma over it. A lot of the original people had left, or have since left.

Is that another reason you quit? To go back to being an entrepreneur?

I'm definitely more comfortable in a smaller environment. People are more motivated, and when you answer to shareholders it can be hard to make the right decisions.

What do you mean?

I'm not sure that big companies are destined to be stupid, but it's tough to make commonsense decisions when all you care about is pandering to shareholders. At Wild Oats we were obsessed with meeting our growth projections. We did a lot of deals—more than half our stores came from acquisitions. It was the only way to grow fast enough to keep the Street happy.

It's an entrepreneur's dilemma—when you succeed on a big scale, the rules change and you lose control. Are you afraid that might happen again at Sunflower?

We've had a lot of discussions about it, because we want to be in this for the long term, but we can't stand the bureaucracy. What we've decided is that middle management is evil. At Wild Oats the store managers spent three-quarters of their time reacting to what came out of the corporate offices. At Sunflower we don't have corporate offices. We've got seven stores, all the partners work out of the stores, all the store managers are equity partners. By the end of the year we'll be at $150 million in sales, and our overhead will be less than 1% of that. At Wild Oats it was more like 7%.

In July, Wild Oats dropped its lawsuit against you. How was it resolved?

It dropped the case. We returned some files that came with people we hired away from it, which was fine—there was nothing in there we wanted. And both sides agreed not to violate any trade-secret laws. Now we can both get back to business.

Given what you've been through, do you advise against taking a company public?

Going public with Wild Oats was inevitable. We took our first outside funding in 1991; after that we were down a different path—at some point you have to get your VC investors out. My advice is to hold out as long as you can before you take venture money. Of course, I'm fortunate because I made a lot of money at Wild Oats, and that gives us a cushion we never had the first time. The choices get easier when you can use your own money.

And don't sign noncompetes, right?

As soon as you take the venture money, they make you sign it. That's another reason to hold out while you can.