Holding Out for Compatible Investor Pays Off

At first, Paul Hawken said he couldn’t explain why he sold 23% of his upscale mail-order gardening supply business to a big household products corporation like Shaklee Corp. Then the father of five children came up with an answer.

“We are growing just like a teen-ager--every three months our pants don’t fit,” said Hawken, founder and chairman of Smith & Hawken in Mill Valley, Calif. “We needed cash to grow,” he said. “We liked the people and felt they weren’t going to gobble us up.”

If Hawken’s name sounds vaguely familiar, that’s because he is the host and creator of a public television show with the same name as his book, “Growing a Business,” published by Simon & Schuster. The show airs on Saturdays at noon on KCET, Channel 28.

In seeking the money he needed to expand, 42-year-old Hawken said he experienced one of the toughest challenges facing small businesses: the search for compatible cash.

The company has had many suitors through the years, and he carefully considered a variety of ways to raise money ranging from a private stock offering to an employee stock ownership plan. But in the end, Hawken said, he was particularly attracted by Shaklee’s ownership of Bear Creek’s “Harry & David” upscale mail-order fruit company.

“Harry & David is the best mail-order company,” Hawken said. Shaklee also owns Jackson & Perkins, the country’s largest rose plant grower. Hawken has already toured the grower’s 6,000 acres of rose fields in Wasco, near Bakersfield, and said he is thinking about adding roses to his catalogue.

In addition to sharing Shaklee’s mailing lists, Smith & Hawken plans to use its new cash infusion to build a larger distribution center in Santa Rosa and expand its eclectic mix of plants, imported guaranteed-a-lifetime tools, bluebird houses and teak garden benches, according to William Scranton, the president of Smith & Hawken.

The courtship between San Francisco-based Shaklee, with its 4,700 employees, and Smith & Hawken with its 150, began about a year ago, said Scranton. “Shaklee really endured, and we liked how they were going to treat us.”

David Chamberlain, Shaklee’s president and chief executive, said he is delighted with the investment because “Smith & Hawken is an absolutely first-class operation.”

Chamberlain said Shaklee was seeking a compatible acquisition because it had built up a considerable amount of cash, including $70 million from selling part of its Japanese subsidiary. With its recent purchase of Jackson & Perkins and Bear Creek, Shaklee found itself with a growing position in the horticultural market. So, Chamberlain said, moving into the sale of gardening tools and supplies made sense.

He also liked that he and Hawken “have similar values and approaches to business . . . . Paul is an interesting and stimulating person to be around.”

By mutual agreement, neither company will say just how much money Shaklee has invested in Smith & Hawken, but Chamberlain described it as “very substantial.” Smith & Hawken’s sales have doubled every year for the past eight--topping $30 million this year.

Making an alliance with a big company--Shaklee reported $572 million in sales last year--was a significant step for Hawken, who describes himself as “just a nebbish” when he went into business 20 years ago.

Plagued with asthma and tired of searching Boston for healthy foods to alleviate his condition, Hawken opened one of the country’s first health food stores, the Erewhon Trading Co., with a $500 investment.

After seven years, he sold the business. Inspired by the high-quality English gardening tools he saw on a visit abroad, he approached several companies with the idea of importing the tools. No one was interested. Instead, he turned back to his writing career and soon after joined the board of an ecology action group that was operating a test garden in Palo Alto.

Still eager to get those English tools, he finally decided to import them himself. In 1979, Smith & Hawken (named for two original employees) was born with a $25,000 shipment of tools. The venture illustrates Hawken’s belief that “small businesses are formed to solve problems that money alone cannot solve.”

Throughout his book Hawken contends that more businesses fail because of a lack of imagination rather than a lack of money.

“With low overhead, frugal means and fragile budgets, you can’t buy your way out of problems,” he writes. But, when you need money, he recommends, borrow it before you need it because “desperation repels” potential lenders.

Hawken’s catalogue is filled with his personal passions. In the winter issue he explains that Smith & Hawken donated $100,000 to Conservation International to help preserve a tropical rain forest in Costa Rica. Readers can purchase a $25 membership in the group through the catalogue.

That’s not the only offbeat item for sale. The Smith & Hawken catalogue, featuring crisp, detailed photographs and ample white space, offers a professional flower press, honey and flower scented water from Italy, and cans of native wildflowers tailored to specific regions of the country. There is also a Japanese hatchet, a balsam wreath straight from the Adirondack Mountains and plastic washable garden clogs, a perennial best seller.

Sorting Out Tax Laws

The Institute for Tax Administration is offering low-cost “Think Smart” seminars designed to help small-business owners better understand current tax laws and reporting requirements.

“Quite often, a small business owner passes the responsibility for his taxes on to his accountant or bookkeeper when the final responsibility rests with him,” said James Hom, director of the institute.

Hom said the nonprofit educational institute was established in 1971 to acquaint tax and customs agents from developing countries with the American way of taxation. It was originally affiliated with the University of Southern California School of Public Administration but this year became an independent organization.

“We have recently turned our attention to serving the general public as the tax laws have become more complex and changes in them have been more frequent,” Hom said.

With the support of the Internal Revenue Service, the institute is organizing a series of classes to begin in January. If 10 to 15 business owners agree to gather in one place, the institute will conduct a three-hour class in any part of the city, Hom said. Classes can also be taught in Korean, Spanish, Thai or Chinese. The fee for the course and materials is about $20. For information contact Hom at (213) 623-7012.

Mentor Program

The Women’s Network for Entrepreneurial Training is seeking women business owners to participate in a yearlong mentoring program with 12 successful women executives.

To qualify, a woman must have owned her business for one year and have gross receipts of at least $50,000, according to Marie Teeple, the U.S. Small Business Administration’s women’s business ownership representative in Los Angeles.

The executives, including five Southern Californians, have agreed to meet weekly with participants to share their business knowledge.

The mentors include Patty De Dominic, president of PDQ Personnel Services in Los Angeles; Sandy Steers, president of Lorien Systems, a Long Beach computer consulting firm; Masako Tani Boissonnault, a principal in the commercial design firm of ARCH-I-FORM in Los Angeles; Nina Tate, chief executive of Nationwide Construction in Downey, and Lynne Choy Uyeda, president of a local public relations firm bearing her name.

Applicants and their resumes will be reviewed in the next few weeks, Teeple said. Women interested in the mentor program can call Teeple for an application form at (213) 894-7900.