Case 21 Teaching Note Namast Solar

Case 21 Teaching Note

Namast Solar
Overview
Should a fast-growing, employee-owned solar electric company accept a buyout offer from a private equity investor? Could
it do so without sacrificing its distinctive, high-involvement culture? Namast Solar, a 55-person firm based in Boulder,
Colorado, designed and installed solar electric systems for residential, commercial, nonprofit, and government customers.
In 2008, the company had been growing at breakneck speed for the past four years, since government incentives for the
purchase of renewable energy had created a market for solar electric systems in Colorado.
In mid-2008, two investors approached Namast Solar with serious buyout offers. A buyout would bring a new infusion of
capital to the firm, enabling it to expand more quickly and install more solar systems, and employees with vested shares
would benefit from an attractive sales price. Yet, Namast Solar had from the outset been committed to building a
democratic, high involvement culture. Ownership was widely shared, and all employees, whether or not they held equity,
were encouraged to participate in strategic decisions facing the firm. Many were concerned that selling the company would
mean sacrificing the firms carefully crafted culture. In addition, various conflicting interests and perspectives were in play.
A series of half-day retreats over the previous month had narrowed the choice to three possible options. Nerves were high
among all as the companys 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 extensive information provided about the
companys approach to operating. In addition, the tight decision focus of the case should allow students to evaluate various
strategic options available to the companys management and make 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 9, and implementation topics scattered across Chapters 10 12. The case will
provide students with the opportunity to better understand the distinctive characteristics of decision-making in an
employee-owned firm, evaluate options in response to a private equity buyout offer, and evaluate options for maintaining a
high-involvement, ownership culture while achieving revenue and profitability growth.
The Student Edition of the Online Learning Center (OLC) provides students with copies of the assignment questions
contained in this note. The list of assignment questions leads students through a thorough analysis of the companys
approach to strategy implementation and the three alternatives under consideration by the companys founders. At the
conclusion of the analysis of the case information, students should be prepared to make a strategy recommendation
concerning how to best move forward and choose among the three options under consideration. We suggest that you always
direct students to the assignment questions posted on the Crafting & Executing OLC and instruct them to use the
assignment questions to prepare for the class discussion of the case. We 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. Weve found that our students who follow this approach are well-prepared to make a
meaningful contribution to the class discussion.
There are two videos accompanying the Namast Solar case, either of which can be shown at the beginning of class. Both
videos are available on YouTube. The first video is a 2:38 minute interview with CEO Blake Jones and CFO Stephen Irvin
of Namast Solar. The second video is 5:29 interview with Blake Jones and a tour of Namast Solars office building.
The case can be used effectively for a written assignment. We recommend the following question for written assignments:

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Blake Jones, co-founder of Namast Solar, has employed you as a consultant to evaluate the companys
approach to strategy execution and recommend a course of action concerning its future direction. Please
prepare a 5-6 page report that assesses the companys approach to executing its strategy and lists the pros
and cons of the three options available to the company. You should use Chapters 10-12 of your text as a
guide for assessing the companys strategy implementation effort. Your report should also recommend a
course of action from the Path A, Path B, and Path C alternatives that is supported by your analysis.

Assignment Questions
1. What is the mission of Namaste Solar? How does the mission reflect the companys values? Explain.
2. Does it seem that Namaste Solar has made a commitment to operating in socially responsible manner? Is the
companys strategy ethical and does it address the needs of all of its stakeholders? Explain.
3. Is the companys approach to strategy execution shaped sufficiently by its mission and values? How does the
companys approach to staffing the organization and building organizational capabilities support its strategy? Does its
approach to decision making support good strategy execution? Why or why not?
4. How does Namast Solar link rewards and incentives to strategically-important employee behaviors and the companys
targeted outcomes?
5. What are the key features of Namaste Solars organizational culture? Does the companys culture support good strategy
execution? Explain.
6. What are the three strategic options concerning the companys future? What impact will a choice among the three
options have on the companys values and culture and employees and other stakeholders?
7. List the pros and cons of Paths A-C. What recommendation would you make to Blake Jones concerning the choice of a
path for Nemaste Solars future?

Teaching Outline and Analysis

1. What is the mission of Namaste Solar? How does the mission reflect the
companys values? Explain.
Namast Solars mission is to propagate the responsible use of solar energy, pioneer conscientious business practices
and create holistic wealth for our community. According to the companys brochure, holistic wealth is wealth that
benefits all stakeholders equallycustomers, employees, investors, communities and the environmentas opposed to
inequitably benefiting any stakeholders at the expense of any others (see case Exhibit 1, partially reproduced below).
This mission is consistent with company values. That is, Namast Solar appears to walk the talk.
Namast Solar: Our Values
1. Care for the Earth: Leave the environment a better place than we found it.
2. Care for our customers: Provide the best products, services, and overall customer experience.
3. Care for our community: Be a good neighbor and actively engage with our community.
4. Care for our company: Cultivate a collaborative, equitable, and fun company culture.
5. Care for ourselves: Strive to live balanced, healthy, and fulfilling lives.
In addition to the values explicitly stated in case Exhibit 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 like
ClifBar, New Belgium Brewery, and other small but great companies.
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Namast Solars founding vision was to be a 100 percent employee-owned company, with no external investors.
In 2008, 37 employees (about two-thirds of the total) held equity in the firm.
No single shareholder owned more than 50 percent, not even the two remaining founders combined.
Most of the co-owners owned between 1 and 3 percent of the company, depending on when they joined the
company and how many shares they decided to purchase.

2. Does it seem that Namaste Solar has made a commitment to operating in

socially responsible manner? Is the companys strategy ethical and does it
address the needs of all of its stakeholders? Explain.
Students should be able to make the following points:
Namast Solar annually donated 1 percent of its revenues in the form of solar system installations to community
nonprofits.
It also employed one person whose sole job was to perform educational outreach in the community about solar
energy.
Jones and other employee-owners were actively involved in policy discussions at the local and state levels,
particularly regarding energy legislation.
Namast Solar was committed to creating a collaborative and equitable culture.
It supported open-book management, democratic decision-making, and a meritocratic system in which employees
assumed responsibility based on demonstrated competence.
While Namast Solar has commitments to the community and employees, superior students may wish to question the
nature of the firms commitment to its shareholders and investors:
Over time, everyones ownership percentage, including the founders, was declining through dilution, due to new
stock issues.
While 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.

3. Is the companys approach to strategy execution shaped sufficiently by its

mission and values? How does the companys approach to staffing the
organization and building organizational capabilities support its strategy? Does
its approach to decision making support good strategy execution? Why or why
not?
This analysis should enable students to develop a common understanding on why good management = good strategy +
good execution. Instructors should point students to Figure 10.1 in Chapter 10, detailing the 10 basic tasks of the
strategy execution process. Students may compare Namast Solars execution of strategy along the following
dimensions: build or preserve leadership, people, systems, culture, rewards, practices and processes, financial metrics,
capabilities, procedures and policies.
Namast Solars mission and values reinforce the organizational culture, which enables the democratic decisionmaking.
The company was explicitly founded with a vision of becoming a democratically controlled, employee-owned
firm.
Namast Solars organizational culture emphasized employee involvement, democratic or consent-style decision
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making, concern for the well being of the individual, and a sharing of progress both risk and reward.

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While 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, Namast Solars Director of Marketing, states in the case:
I was a strong voice for wanting to keep the family quality that we have. I want to be able to sit in a big
picture meeting and know every single person there. I dont need to know every detail, but I want to be
able to sit next to someone and say, hows your child, hows this or that. If Im sitting in a room with 500
people, theres no way youre going to know me, or Im going to know you. The family element would be
lost.

4. How does Namast Solar link rewards and incentives to strategically-important

employee behaviors and the companys targeted outcomes?
Namast Solars organizational culture emphasized employee involvement in ownership and thus a sharing of both risk
and reward. This involvement meant both participation in the Big Picture Meeting (BPM) decision-making process
and employee stock ownership of the company:
Every employee, whatever their roleand whether or not they owned stockwas expected to attend the BPM and
encouraged to participate.
Through group discussions, Namast discovered amazing new ideas.
At Namast Solar, employees could purchase stock on their first day at the company, and thereby enjoy the
benefits of ownership, including dividends once those were declared and paid.
Its stock price had been growing rapidly, representing a potential windfall for employee owners should the
company go public or be sold to another firm.
Namast Solar used stock ownership as a means of binding its employees to the company for the long run.
By allowing the participation of employees in strategic decision-making and ownership, employees were engaged
in the companys target outcomes and shared in the rewards of reaching those outcomes.

5. What are the key features of Namaste Solars organizational culture? Does the
companys culture support good strategy execution? Explain.
We would give a grade of A to Blake Jones for building a culture at Namast Solar that emphasized employee
involvement, democratic decision-making, concern for the wellbeing of the individual, and a sharing of both risk and
reward. Instructors should remind students that the strategic decision-making process itself should reinforce, rather than
undermine, an organizations culture. The company has a carefully crafted culture that emphasizes broad-based
consensual decision-making; frank, open and honest communication; and strong employee involvement. For example,
any decision to sell the company would need to be ratified by a supermajority of 60 percent vote of the shareholders.
At the time the financing decision was on the table, about two-thirds of employees held some stock, and the two
remaining co-founders owned less than 50 percent combined. Thus, any decision to sell would need widespread
support among employee-owners; the support of the founders only would be insufficient.
While this culture of consensual decision-making worked well for Namast Solar in its infancy, as the company grew
in numbers and its marketplace prospects began to mature, this process would, in reality, become increasingly difficult.

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6. What are the three strategic options concerning the companys future? What
impact will a choice among the three options have on the companys values and
culture and employees and other stakeholders?
The decision or issue facing Blake Jones and the entire Namast staff is whether or not to accept a buyout offer for the
company, in whole or in part, from a private equity investor. A response to the two offers on the table must made
quickly, in the context of a highly participatory culture in which ownership is widely shared, and all employees
(whether or not they hold equity) are deeply involved in important decisions facing the company.
Ownership of the company by a private equity firm would very likely undermine, or destroy, this culture. In a buyout,
the founders and employee-owners would, of course, lose their ownership stake in the company. Although 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. In a buyout, the management (and employees,
through the Big Picture Meetings and other governance mechanisms) would lose managerial control over the firm and
the right to make key strategic decisions.

7. List the pros and cons of Paths A-C. What recommendation would you make to
Blake Jones concerning the choice of a path for Nemaste Solars future?
Path A is defined in the case as selling the whole kit and caboodle, that is, selling 100 percent of the company to a
private equity investor.
The advantages of Path A are:
1. CAPITAL INFUSION: Path A 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 bank loans. The company had, to date, relied entirely on
founders investments, founders personal loans, income generated through operations, and employee investments
through stock purchases. Jones states in the case, We were growing so fast, we kept needing more money.
Wheres the money going to come from? Investors could supply that.
2. ENABLE GROWTH: Path A would enable the company to grow, both geographically and in terms of the range of
services offered. Both the company and the industry in which it was situated were growing extremely rapidly and
had attracted investment from major firms and investors. The case mentions several related areas, including solar
water heating and concentrating solar power. In a dynamic industry, many shareholders felt, firms must grow at
least as fast as the industry as a whole just to survive.
3. PROPAGATE SOLAR ENERGY: The Namast Solar mission was, first and foremost, to propagate the
responsible use of solar energy. A major investment in the company would enable it to greatly expand its capacity
to install solar electric systems. Some people worked at Namast Solar because they wanted to propagate solar
energy solutions in the marketplace as much as possible and therefore have a greater global effect.
4. INVESTMENT RETURN FOR EMPLOYEES: A buyout would provide a significant return on investment for
employees who owned vested, or partially vested, shares. The case reports that in 2008, 37 employees, or about
two-thirds of the total, owned shares. The investors offer was approximately five times the price per share of the
companys internal evaluation. Thus, an employee who owned shares valued internally at $10,000, for example,
would receive $50,000 in a buyout. Because 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 (although some may have been close
to fully vested). (It should be noted that in some cases, employee shares are fully vested in the event of a sale,
regardless of when they were acquired.) Jones states in the case, [To some people], the offers were tempting. As
much as we like to say its not about the money, when you get a stack of hundreds slapped in your face, youre
kind of like, hmm, yeah, thats a lot of money.

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5. POTENTIAL FOR HIGH VALUATION (REWARD). Namasts executives were unwilling to reveal to the case
authors the companys internal valuation as of July 2008. However, as an exercise, students may be asked to
calculate the investment return to employee-owners, using a hypothetical valuation, if the company accepted one
of the offers. For example, students may be instructed to assume that the internal valuation of the company, in July
2008, is $5 million. If so, what would be the return to an employee who owns a one percent stake? Or, a five
percent stake? What would be the return to a founder with a twenty percent stake? One percent of $5 million is
$50,000. Five times this (the multiple offered by the prospective buyer) is $250,000. Five percent of $5 million is
$250,000; five times this is $1.25 million. Twenty percent of $5 million is $1 million; fives time this is $5 million.
Students may be asked to repeat this exercise with various hypothetical valuations. They will probably conclude
that for most Namast employeesmost of whom were relatively young and without significant personal assets
the buyout offer would be very attractive from a financial standpoint.
6. EXIT STRATEGY. The case reports that in 2008, many employees were feeling burned out by the rapid pace of
growth and the disruption caused by the headquarters renovation and the opening of a new office. Some employees
wanted to leave the company, and a buyout would provide some with the financial means to exit. As Jones states in
the case, That summer was really hard. We had had triple-digit growth for several years in a row. We had just
opened a new office in Denver, the building here was being renovated, and we were all spread out. It was crazy.
People felt really burned out, against the ropes. Their idea seemed to be that if we sold the company, we wouldnt
have everybodys life savings on the line. We could take our chips off the table, and we wouldnt have to be on the
hook anymore.
The disadvantages of Path A are:
1. THREAT TO THE CULTURE. Namasts organizational culture emphasized employee involvement, democratic
decision-making, concern for the wellbeing of the individual, and a sharing of both risk and reward. Ownership of
the company by a private equity firm would very likely undermine, or destroy, this culture. Jones states in the case:
There was the problem of complete loss of control. Culture was just out the window with Path A,
unless we felt we could really trust [the acquiring company]. What do we think its going to be like to
work for this company? Are they going to respect our culture? No one has the same values as we do. I
was a strong voice for wanting to keep the family quality that we have. I want to be able to sit in a big
picture meeting and know every single person there. I dont need to know every detail, but I want to
be able to sit next to someone and say, hows your child, hows this or that. If Im sitting in a room
with 500 people, theres no way youre going to know me, or Im going to know you. The family
element would be lost.
2. THREAT TO COMMUNITY AND OTHER COMMITMENTS. Private equity investors might decide to terminate
Namasts commitment to philanthropic giving and community education efforts. As Jones says,
We have an incredible grant program where we give one percent of revenue, regardless of our profit,
to the community. To me, that makes us one of the coolest companies on the planet, let alone in
Colorado. I felt a private investor would say, What the heck are you doing that for? Stop that. Dont
give your money away.
3. LOSS OF EQUITY CONTROL. In a buyout, the founders and employee-owners would, of course, lose their
ownership stake in the company. Although 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.
4. LOSS OF MANAGEMENT CONTROL. In a buyout, the management (and employees, through the Big Picture
Meetings and other governance mechanisms) would lose managerial control over the firm and the right to make
key strategic decisions. Many of the employees, all of whom went through an extensive interview process, were
presumably attracted to the firm by its emphasis on shared responsibility.
5. EMPLOYEE TURNOVER. A significant change in the culture might lead to a loss of key employees, many of
whom had been attracted to the company by its distinctive culture and commitment to the environment and to the
community.
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Path C is defined in the case as recommitting to Namasts original vision of a privately-held, 100 percent employeeowned firm, with or without some changes in strategy.
The advantages of advantages and disadvantages of Path C are essentially the converse of those of Path A.
Students will point to these advantages:
1. CONSISTENT WITH COMPANY VALUES. The company was explicitly founded with a vision of becoming a
democratically controlled, employee-owned firm. The models used by the founders were companies like ClifBar,
New Belgium Brewery, and other small but great companies.
2. RETENTION OF EMPLOYEE EQUITY AND OPPORTUNITY FOR LATER UPSIDE INVESTMENT
RETURN.
3. RETENTION OF EMPLOYEE CONTROL AND DECISION-MAKING PROCESSES.
Students will point to these disadvantages:
1. INSUFFICIENT CAPITAL TO FUND GROWTH AND WIDER PROPAGATION OF SOLAR ENERGY.
2. LACK OF IMMEDIATE LIQUIDITY AND FLEXIBILITY FOR EMPLOYEES WHO WISH TO SELL ALL OR
SOME OF THEIR STAKE IN THE COMPANY.
3. LACK OF AN EXIT STRATEGY FOR BURNED- OUT EMPLOYEES.
Path B is defined in the case as a hybrid, involving the sale of a portion of the company, with employees retaining
partial ownership.
Students promoting the choice of Path B will point out that its appeal is mainly its potential for capturing the benefits
of C, without the costs of A. That is, it offered the promise of bringing external funds into the firm, without a complete
loss of the companys values and culture. The counter argument is that this hope is unrealistic, because no equity
investor would be willing to cede control to the employees. As stated in the case:
Some people passionately advocated for Path B. They thought we could bring a private equity investor on
board, and still be in complete control and stay true to our values. Because they [equity investors] dont
have majority ownership, were still in control. Other people said, no, theyll want warrants for eventually
purchasing the majority of the company.
At the conclusion of this discussion, students may press for a vote to settle the matter. However, the instructor should
challenge the class to make a decision as Namast did, using a consensus based decision process. The instructor should
assume the role of facilitator, and try to push the class to reach a common understanding of the right decision. At the
end of the discussion, students may be asked if they experienced buy in to the decision reached. It is likely that they
will have. This was an explicit goal of Namasts decision making process.
INSTRUCTOR PROMPT: What are the core interests that need to be met in any resolution?
Students may suggest:
Sufficient capital to achieve growth.
Liquidity for employees who wish to cash out their investment.
Preservation of the companys culture and values.
An important take-away for students is that Namast placed as great emphasis on preservation of its culture and values
as it did on meeting financial objectives.
INSTRUCTOR PROMPT: Is there any solutionperhaps one not fully captured by Path A, B, and C, which would
meet these interests?
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At this point, students may be asked 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 realize that the answer lies not in picking Path A or Path Cor even a hybrid compromise between
the two, but rather in a creative solution that attempts to address all of the core interests underlying the decision.

Epilogue
At the meeting in July 2008, described in the case, Jones made a strong plea for Path C, with the qualification that the
company needed to address some of the concerns that had been raised in the broader discussion of the buyout option.
Eventually, his position prevailed in the meeting. The predominant sentiment was a strong desire to preserve the companys
culture and values. Ultimately, the group decided that a buyouteven a partial buyoutposed too great a risk. However,
the group wanted to make progress on two serious problems that a buyout would have addresseda lack of sufficient
capital, and some employees desire to cash out their investment.
Shortly after the decision, the company took several steps to address these concerns. These included:
1. The company established an internal, online trading board so that employee-owned shares would be marketable,
without an employee having to leave the company. Shareowners were able to make anonymous seller offers and
buyer bids on an eBay-style internal Web site. The board itself was made visible to all employees. Jones later
explained the system:
You have to say 100 shares available at X dollars and someone else can say, Ill take that offer or Im
willing to buy a lot of shares at Z dollars. Once theyve agreed on the board, then their identities are
revealed, and they consummate the transaction with a form that they have to fill out and turn in to the
company. There are no restrictions on how much stock you can buy.
2. The company became much more proactive and creative about financing its growth. It sought, and obtained, its
first non-recourse bank loan in late 2008, based on its successful four-year track record. It changed payment
schedules for customers, to speed up collections. It became more aggressive in seeking larger credit lines from its
vendors. It established just-in-time deliveries of solar panels so that they carried less inventory. It arranged to have
rebate checks from the utility company (normally issued to the customer who had installed a solar system) sent
directly to the company in partial payment of the customers bill.
The year 2009 was Namasts best year to date financially.
In a later anonymous, internal survey, management asked employees: At this very moment, whats your general feeling
about us having chosen Path C last summer? The distribution of responses was as follows:
Thank God!!!
Feeling pretty good about it
Somewhere in the middle.
Feeling a bit concerned about it
Ive started to regret it.
Total number of responses

53%
37%
3%
7%
0%
N=30

In 2010, Jones reflected:

With 20-20 hindsight, the economy crashed right after our mini-retreats and ultimate decision, so even if we had
wanted to take Path A or Path B I think it would have been very, very difficult. We even know of a few companies that
went that route and they didnt have good experiencesthe deal fell through because the investors funding dried up,
or the valuation plummeted and they got substantially less than they had hoped for, etc. In the end, we are all very
thankful for the entire experience because it was very healthy for us to ask ourselves these questions, 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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