TO:                  Professor Clark Hansen, CEO, AMDP

FROM:            Jorge Adler

DATE:             October 22, 2013

SUBJECT:       Investing in Method Products

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Definitions 

The Triple Bottom Line

The Triple Bottom Line is an accounting framework that incorporates three dimensions: social, environmental, and financial. The variables that are included in each of these performance measures vary by industry. Examples of variables include revenues, average hours of training per employee, and greenhouse gas emissions. 

 

Corporate Social Responsibility

Corporate Social Responsibility is an initiative to analyze and take responsibility for a company’s effects on society and the environment. In many cases, these efforts go beyond what is required by the government and environmental groups. 

 

Social Enterprise

A social enterprise is a business whose primary goal is improving the lives of other people. According to the Social Enterprise Alliance, there are three characteristics that distinguish a social enterprise from a normal business or other entity. The first is that the business directly addresses a social need and works to serve the common good. The second is that the business’ commercial activity is the primary revenue driver. And the third is that the common good is the business’ primary purpose.   

 

Carbon Footprint

A carbon footprint is the total amount of greenhouse gases produced as a result of an activity during a given time frame. It is measured in kilograms of carbon dioxide and each activity varies in the amount of carbon dioxide it produces. It is important to measure the carbon footprint because it is the best way to understand the impact of an activity on global warming.

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Company Description 

Method is a company that focuses on creating cleaning products that are environmentally friendly. The company began in 2001 when college roommates Adam Lowry and Eric Ryan discovered the need for aesthetically pleasing cleaning supplies that were good for people as well as the planet. Its current line of products includes home cleaning, dish cleaners, hand and body wash, and laundry detergents. Its products are sold at Target, Safeway, BJ’s Wholesale Club, and other major retailers and grocery stores in the United States, Canada, United Kingdom, Australia, and France. 

 

In regards to the Triple Bottom Line and social responsibility, Method prides itself in what it does. Every product is made using 100% recycled plastic and natural ingredients that are never tested on animals. The company “constantly seeks to reduce carbon emitted by [its] business” and in the case that it can’t, it offsets the remainder (Method). Most of its facilities are LEED certified and over 50% of their energy comes from renewable resources. Method has over 60 products that are Cradle to Cradle certified; a framework that rates products based on their impact on renewable energy, clean water, material health, social responsibility, and material reutilization.  That number is among the highest of any company in the world. At the core, Method focuses on creating products that are “more good” than simply “less bad” (Certified B).  

 

Financially, Method has done an extraordinary job of increasing revenues while maintaining overhead costs low. In 2011, the company had $116,500,000 in revenue with only 96 employees. Method’s revenue growth rate over the past three years is 32.5% compared to just 12% for the industry average. In 2012, Method received an investment from Belgian company Ecover, allowing Method to increase its employee base to 300 people. With the new investment and revenues of over 200 million dollars in the past year, Method is poised for immense growth. 

 

From the Journal of Integrated Marketing Communications 

According to Sonja Gugajew of the Journal of Integrated Marketing Communications, Method is succeeding in a highly competitive market thanks to its truly unique product experience. Method is “winning consumers’ hearts and minds through innovative design, a genuine do good philosophy and an integrated marketing communications approach” (Gugajew). From the very start, Method has focused on building a brand consumers will care about. According to Gugajew, any company can copy good design or a nice fragrance, but few companies can copy Method’s philosophy. Through its “Humanifesto” and People Against Dirty booklet, Method is changing people’s beliefs about cleaning products and flipping the industry upside-down in the process. 

 

From Inc. Magazine 

Stephanie Clifford of Inc. Magazine argues that since it was founded, “Method has invigorated the consumer products world by exploding much of the industry’s conventional wisdom” (Clifford). In an industry that is so competitive and has been so antientrepreneurial for so long, Method is doing everything differently to compete. It puts the same name on all of its products, outsources almost the entire process of production and distribution, and takes months to take a product to market compared to years for some of its competitors. Method has based its entire business process around speed and innovation, allowing it to stay ahead as giant companies try to catch up. In the words of the founder, “When you run through the legs of Goliath, you need to spend a lot of time thinking about how to act so you don’t put yourself in a place you can be stepped on” (Clifford).   

 

Conclusion 

Generally, there are two key metrics that are used when valuing potential investments: growth and return on invested capital. Over the past three years, Method has outgrown its competitors and the market average by almost 300%. Revenue has grown at a pace near or above 20% for the past eight years while costs have only slowly increased.  Since its seed round of venture capital, Method has raised just $20 million and has reached total revenues of close to $800 million, making its return on invested capital extremely high. Most importantly, however, is that Method meets AMDP’s most significant metric: The Triple Bottom Line. Method generates a large profit, cares about its employees and consumers, and does everything in its power to have a positive impact on the environment. Not only is Method a sound financial investment, it is a company AMDP should be proud to own.                              

 

 

Sources 

"B Corporation." Method Products, Inc. Certified B Corporation. Web. 12 Oct. 2013.  

 

Clifford, Stephanie. "Running Through the Legs of Goliath." Inc.com. Inc. Magazine, 1 Feb.2006. Web. 22 Oct. 2013.  

 

"Corporate Social Responsibility." Investopedia. Web. 12 Oct. 2013.  

 

Gugajew, Sonja. "A Method to the Creative Madness: From Chore to Experience, a Cleaning Brand’s Meteoric Rise to Fame." Journal of Integrate Marketing Communications (2008): 12-18. Print. 

 

"Method Products, Inc." PrivCo. Private Company Financial Intelligence, 1 Mar. 2013. Web. 22 Oct. 2013.  

 

"Personal Products Industry Leaders & Laggards: Industry Center - Yahoo Finance." Yahoo Finance. Yahoo. Web. 12 Oct. 2013  

 

Slaper, Timothy F. "The Triple Bottom Line: What Is It and How Does It Work?" Indiana Business Review, May 2011. Web. 22 Oct. 2013.  

 

"The Case for Social Enterprise Alliance." What Is Social Enterprise? Social Enterprise Alliance. Web. 12 Oct. 2013.  

 

"We Are…." Method Home. Method Products, Inc. Web. 12 Oct. 2013.  

 

"What Is a Carbon Footprint." Time for Change. Web. 12 Oct. 2013.  

 

"What Is Cradle to Cradle?" Cradle to Cradle Products Innovation Institute.Web. 12 Oct. 2013.