Seventh Generation: Alan Newman and Jeffrey Hollender. A Partnership that Flourished—until it Failed. (2021)

27:17And I knew that running the business day-to-day and raising money, which was never my strength, by the way, would never get me over the hurdle. If I was going to continue in this business, I needed capital and I needed a lot of it. And since I did not have the ability, Jeffrey was my best option. And you needed capital because the demand was increasing, which means that you needed more inventory and also you need to expand. To grow the business, you need more money. It's growing a business. Yeah. Exactly. I mean, my recollection was we spent way more money acquiring customers than they generated in revenue.

27:57So every time we acquired a new customer, we lost money. And the hope was that over time, over years, they would repeat their purchases and they would become profitable. But they weren't profitable at first. And so how would you acquire customers? I'm assuming you just mail them a catalog and hope that people order. Is that right? Yeah, but 99 out of 100 people didn't buy. So you had the cost of printing and mailing the catalog. and it's the lifetime value of those customers that you hope will turn the business around at some point but that point was very very very far in the future all right so so the two of you start to work together on the seventh generation thing and um and you had to raise money and jeffrey was going to be the key to raising that money um so jeffrey where did you start The key to raising money for Seventh Generation was the people who had invested with me in my prior business made a lot of money.

29:00For every dollar they put into the company, they got$10 back. They were happy. So they're like, Jeffrey, what's the next thing you're doing? Because we're on this. We're going to join that ride. Right. The vast majority of the investors were those investors from the prior business. Right. And they put up$850 ,000 in 1989 as the first of an endless series of fundraising cycles. Right. I was always amazed at Jeffrey's ability to raise money. I understood he had previous relationships, but we would go to meetings and do pitches. And we'd walk out, and Jeffrey would turn to me, and he would either say, we're not getting anything or he put a number out and said this is the number we're going to get because i never had a clue i we'd walk out and i don't have a clue whether they're going to invest or not um and he would hit the number right on the nose every time and and let me ask you this jeffrey try to go back to that place in 1989 i have to imagine that having alan by your side this guy with a kind of scraggly beard or whatever whatever you look like but this clearly this guy from Vermont who was sort of a hippie, but running an environmentally friendly catalog gave you even more authenticity.

30:18Absolutely. I mean, not only authenticity, but Alan actually knew what he was doing. He knew the catalog business. He understood how it worked. He understood the marketing and the operations of it. And I couldn't have done it on my own. There was just no way that was going to happen. All right. So you've raised the money and And Jeffrey, you become the CEO and chairman, but you stayed in New York. You did not move to Vermont. Initially, the idea was you're going to commute back and forth. And Alan, you were kind of running the operation in Vermont, right? Correct. Yep. Okay. So from what I understand, you moved into a new space in a place called Colchester in Vermont.

30:58And it was like, from what I understand, it was like this really kind of, it was described as a hippie den. It was like a ping pong table. There's free Ben and Jerry's. There were chalkboards in the bathroom. Like people could write things on the chalkboard about the company that they didn't feel comfortable saying in public. In the main conference room, there was no table or chairs, just pillows. It was, Alan, is that right? Am I describing this correctly? You left out the nap room. Oh, there was a nap room. Okay, yeah, right. There's a nap room. And so this was kind of a, this was, and was this your vision of what you wanted a work environment to be like?

31:33Which, by the way, sounds awesome. I would totally work there. So, again, what I learned at Garden of Supply, you know, we were on a fairly rapid growth path there also. And what I learned was that the greatest obstacle to success was fear. Fear of people that they didn't know what they were doing and somebody was going to find out. And so what I discovered was that if I could get people to share their fears and realize that we're all in this together and that it's better to ask for help, that that created a much more productive and successful business. And by the way, were you still focused on selling the same stuff?

32:18Jeffrey, what do you remember about the catalog? What were the products you were selling? Well, I think part of the breakthrough was, you know, if you sell someone a low-flow showerhead, they only need one of them. And I think the breakthrough was getting into the household product category with paper products and cleaning products because those were multiple frequent purchases. People were going to buy those over and over and over again. And, you know, we got to the point where about 25 % of our sales were made up of these household products like bathroom tissue, paper towels, and laundry detergent.

33:00And were you manufacturing them yourselves or were you working with a white labeling them and putting the seventh generation on it? Yeah, we were working with a co-packer who would help us design the product and do all the manufacturing. So we had one co-packer that made all the cleaning products down in New Jersey and a tissue paper manufacturer out in Wisconsin that made all the paper products. And it was all labeled 7th Generation. Yes, and they thought we were crazy, by the way, because, you know, we were selling unbleached, 100 % recycled fiber bathroom tissue, which was the scratchy stuff that you found in a gas station.

33:42It was rough. It was like prison toilet paper. Yes, but people couldn't get enough of it. They loved it. So you had these like co-packing plants just kind of laughing. Oh, those crazy weirdos in Burlington, Vermont want this like brown rough toilet paper. We'll make as much as they want. The first load we had to guarantee a full trailer load because we insisted that it said made with 100 % recycled paper. It had always been made with 100 % recycled, but they hid that in all the material. Oh, because consumers didn't want that? No. Why do consumers want toilet paper made of recycled paper? I had to convince them to use our labeling on it that said 100 % recycled paper, and they thought we were absolutely out of our mind.

34:30Although I think the best product we had in those days was the string shopping bag. The string shop, like just a net? Yeah, it was like a big hair net. You seem in France, right? Exactly. Yes, that's where they came from. Oh, the French farmer's market bag. Okay. We had so many orders for this string bag. People were waiting, and this is no joke, they were waiting over a year to get their string bag. And I remember Alan and I took a wonderful trip to France to visit the factory to try to figure out how to get them to make more of these things. And they couldn't believe we were selling them. Why is that?

35:10Well, in those days, it was sort of elderly French ladies who used them to go shopping with. They were not in vogue. They weren't cool. But we sold so many of them, it was just incredible. Let me define this a little bit, because I lived the nightmare in Burlington on this one. The software we're using was back in the day of COBOL. COBOL was a very rigid programming system. And when they designed the backorder file for a mail order company, they just assumed that you would never need more than five digits. That would mean you would have 99 ,999 items on backorder. And they said, well, no company in their right mind would ever do this.

35:52So we don't have to add another digit. Right. Well, we broke through that and took the entire system down when we went over 100 ,000 backorders. And every time the little French company tells us they're going to deliver it and they don't deliver it, we have to send notices to, and this is back in mail. This is not email messages. This is 21 cents an envelope mail. We have to send everybody that has been further delayed. And then the punchline was, finally, they got a big shipment ready to ship us. And they did something on the label. And it got held up at customs. Oh, yeah, yeah, yeah. And we got a bill in the mail for, I don't remember, something like$120 ,000 for penalties.

36:41I mean, it was a nightmare. The whole thing was a nightmare, but we finally got it straightened out. And that's how many we sold, though. We sold over 100 ,000 of these stupid things. Meantime, Jeffrey, you are working out of an office in New York. You got a couple people there. Yep. The main headquarters is in Vermont. Correct. And I guess eventually you did move there. And from what I understand for a time, like you and Alan lived together or lived next door to each other. What do you remember? Boy, we didn't live together. At least if we did, I blocked that out of my mind. But we were joined at the hip for a lot of this.

37:20You guys hung out. You were inseparable. Yeah, we were. I mean, I considered Alan as close a friend as I had. You know, what I've learned over the years is that if you bond over common goals, you develop friendships. And we had this tiger and we're holding on to the tail of this tiger. And every day we're on the phone trying to figure out how to solve different problems. And to some degree, we brought different skill sets to the partnership. You know, I agree with Jeffrey. I mean, you know, I consider Jeffrey one of my good friends at the time. And we didn't make a decision. without talking to each other.

37:59Jeffrey, how did you feel about that, the culture at the office, that kind of hippie culture and the beanbags and the pillows and stuff? Did you think that actually that's a kind of a good look for a company like 7th Generation? Were you okay with it? I had a multiplicity of feelings. I mean, in some respects, I loved what Alan was doing, and I learned a tremendous amount from him about how to build the culture that was aligned with the values of the business. And that was really cool. And yet at the same time, I took a lot of shit for the nap room from investors. It was like, you really need a nap room.

38:39Is that a good use of our capital? But I, you know, Alan was a great teacher and I came to really appreciate the culture. He was talking before about what people don't know. I mean, one of my fondest memories is that in our staff meetings, we would actually give a prize out to the person who made the biggest mistake that week. And they would get a coupon to go out to dinner with their friend or their wife. You had this thing where the person who made the biggest mistake that week actually got rewarded? Yep. Absolutely. Because we had a culture where we didn't want people to feel like they couldn't be open and share the mistakes they made.

39:18And if they made a mistake and covered it up, the only thing that happened is someone else would make that same mistake. Right. So that was part of the genius of the culture that Alan began to build at the company. It was all about the speed that we were growing. People had to make decisions every day. They couldn't keep coming to a boss to make a decision because something new was happening. They had to be empowered to make decisions. and they had to be empowered when they made a bad decision to bring it up and not hide it in the back of their desk. And it's something that I learned at Garden Supply and I've done it at every business since then.

39:56It's amazing because now this is commonly practiced in big companies. Like Google celebrates failure and it's become almost a fetish. No, we were way ahead of our time in more ways than one. Yeah. It's amazing. I read that. There was an article that came out in 1989 in the New York Times and mentioned Seventh Generation, which was a huge publicity coup for you at the time. And I think your catalog sales in 1989, I read, were a million dollars. In 1990, seven million dollars. You went from a million to seven million in a year. With the help of the 20th anniversary of Earth Day, the amazing thing was that the media wanted to find stories about the environment and we were a great story we got a huge amount of publicity we had maybe it was a year or two later but i remember we had a four-page story in people magazine that was unheard of for this tiny little vermont company so so you're looking at this explosive growth and you're thinking all right 1989, bam, 1990, 7 million, 1991, and then there's a recession.

41:06The recession hits. Well, we planned, my recollection is that for 91, we expected about 20 to 21 million in sales. Boy, were we wrong. And that was because of the recession? Well, I think it was the combination of the recession and the fact, the excitement that people had about the environment during the 20th anniversary of Earth Day did not carry through. So many, many people who bought something and we expected that they would buy something else didn't. Also the war, because in the world of catalog marketing, anything that distracts people works against catalog sales because so much of it is impulse.

41:52the other things you're talking about are all true by the way i'm not negating any of that but when the gulf war started everybody turned on their television and was glued to the television and our we went from i seem to remember 12 to 1500 orders a day down to less than 100 and it was a disaster there's no other word for it it was like jumping out a window and not knowing how far you're going to fall because every week we missed our numbers and every week we missed our numbers again. And it was incredibly scary and disconcerting. Wow. I mean, at the end of 1990, you're doing 7 million. By the middle of 1991, you start to have to lay people off.

42:37Oh, it was, we, my recollection is we had about 120 people and we had to lay off half of them, almost 60 people, 50%. Wow. My worst recollection, I had a good buddy who was running the warehouse who was a great chef and he was having a party on a Saturday night and Jeffrey and I had just made the decision on who we were going to cut. And we decided, let's not tell him on Friday, let's let him have the weekend, we'll tell him on Monday. And so I had to go to this party Saturday night knowing that on Monday I was going to be firing 60 % of the people who were at that party. It was probably one of the most difficult things I ever had to do.

43:20So you, this is clearly going to take its toll on both of you emotionally because you're, it sucks to have to do that. Alan, at this point, I guess the toll of just watching this thing kind of crater and it affected you and you decided that you needed some time off. Is that your recollection? I would phrase it a little bit differently. Please. By this time, I had gone through the buildup at Gardner Supply Company where I was working 80, 90 hours a week, then started niche marketing services where I had been working. I was down to 65, 70 hours a week. And then the startup of 7th Generation was 120 hours a week.

44:11I may be exaggerating, but you got the idea. Sure, it's a grind. I remember I was tired. When I saw the numbers, I was aware that we needed to really rethink what we were doing. This was not a temporary setback that we really needed to figure out how to generate some business. And I remember having talked to Jeffrey before it tanked, talking about I'd love to get a sabbatical before we have to go balls to the wall on the new holiday catalog, which was always our biggest catalog. And give me a couple months to get my head together and come back with what can we do here to help regrow this business.

44:52And so when I left, that was my thinking. Jeffrey, you remember this differently. What do you remember about Alan's decision to take a sabbatical? How did you respond to it? Yeah, I mean, you know, it's hard to separate what I felt at the time with my memory of what I felt. Sure. I mean, I felt abandoned. I felt angry. I felt like I was on a ship that was sinking, and my partner, who was supposed to be steering the ship with me, just stepped off and left me alone with a boat that was really sinking. I mean, I didn't know whether the thing would survive. So, and, you know, when things don't work out, both parties have some responsibility.

45:35So there's no question that I probably didn't behave the way I should have. I might have felt like, you know, if you leave now, don't come back. But I might not have said that. Are you that kind of, do you tend to be conflict averse? No, but I tend to hold a grudge. So I did feel sort of abandoned with a mess that I was not thrilled about having to sort out. And Alan, do you – I mean January 1992, you take a six-month sabbatical. Yeah. Do you remember Jeffrey saying, hey, what the hell are you doing? Why are you leaving? Or do you remember him just sort of saying, okay, fine. See you later. Yep.

46:16I had really no clue how annoyed Jeffrey was. I had no idea how angry he was. and I didn't know until I sent an email or a letter or however we communicated in those days saying, okay, getting ready to come back, why don't we get together and let me talk about some of the ideas that I have put together that I'd love to start implementing. And I got the Dear John letter. You got a letter that basically said your time at the company is over. Correct. It's so hard because we didn't talk during his sabbatical. At least I don't think we were talking during your sabbatical. And for two people who were so close to all of a sudden be that separate, you know, left a lot of room for each one of us to be having our own thoughts in totally different directions.

47:08When you look back at the way it was handled, do you think that you had no choice, that you had no other way of handling it? Or do you think you might have done it differently? You know, when I reflect on this, you know, anytime you have a close relationship that falls apart and anytime you hurt someone, there's nothing to feel good about. I mean, that's a bad situation and that's a personal failing on my part. But my reflection is that one of the things we could have done that we didn't do is put things in writing when Alan left. So a written document that says Alan's taking six months off and he will return at the end of six months and fulfill the position he had before.

47:55I mean, that wasn't written down anywhere. So we were left with very different experiences and different points of view about what the outcome of the sabbatical would be. Jeffrey, it sounds like you wrote that letter thinking Alan would not be surprised, that, you know, he was sort of out of the picture and, you know, it was kind of. No, I'm not sure that I thought he wouldn't be surprised. And I was probably relatively certain that he would be angry and hurt. For me, I think it would be crazy for me to expect anything else. Alan, how did you feel when you got it, when you got that letter? Well, I was totally shocked when I got the Dear John note.

48:40And, you know, you got to remember that I really felt that we were friends. I felt that we were in this together. In my mind, at least, I was doing the best thing that I could do for the business. And I felt this was really my baby. Yeah. You know, and Jeff was clearly a valuable participant and partner in it. But I really still felt it was my baby. And the fact that my friend threw me out and stole my baby without even a fucking discussion. You know, I was ripshit. When we come back in just a moment, how Alan's departure left a big hole at the company. And how Jeffrey filled it with some very risky decisions.

49:26Decisions that would turn 7th Generation into a completely different company. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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51:07Hey, welcome back to How I Built This. I'm Guy Raz. So it's the early 1990s, and Alan Newman has just been forced out of the company he started, seventh generation. He still owns about 20 % of it, but nothing else. Not even a seat on the board. You know, I licked my wounds for a while, and then I started coming out of it. And one of the things for me was how I got paid out of 7th Generation and the impact that that had on me. When I finally got paid for my stock, I didn't get a lot. But it essentially gave me enough to start up another business. Right. Right. And I guess you got paid out in 1993, which was a bit after you were forced out of the company.

51:57How'd that happen? Well, I got a phone call. Seventh Generation is going public. They need you to lock up your shares. And what does lock up mean? It means I agree not to sell my shares for 18 months after they go public. And I said, why would I do that? And they said, because it will allow Seventh Generation to go public. And I said, why would I care? You've never cared about my financial situation. Why should I care about yours? If you really want to solve this problem, you need to buy me out. And that's when I got paid out. You sold your 23 % of Seventh Generation. I think you got like$200 ,000 from selling that.

52:37Something like that. Yeah. And when that happened, a lot of my animosity subsided. And Jeffrey, around that time period, I mean, you were still living in Burlington, which is not a big place. I mean, did you ever run into Alan? Did you ever see him? We actually did see each other several times. We – and I don't know who instigated this, me or Alan, but we went to see a third party to try to reconcile our differences. And we had a series of meetings with a sort of marriage counselor type person to see if we could mend the relationship, which I don't think happened very successfully. You tried to do this just for the sake of mending the friendship or to see if he could come back to the business?

53:27I think it was just to mend the relationship. And, Alan, what do you remember about those sessions? Honestly, I don't remember a lot. The only thing I really remember is they were grossly unsuccessful. You know, we were both kind of dug into our point of view, and neither one of us, my recollection at that time, was willing to accept that the other one had, you know, some valid issues that were worth discussing. And do you remember feeling uncomfortable when you would see Jeffrey? Would you get, like, butterflies in your stomach? Like, ugh. No. My recollection is Jeffrey was so uncomfortable whenever he was around me that I loved it.

54:07My all-time favorite. I was sitting on a plane in Burlington getting ready to take off, and they're getting ready to close the door, and there's a seat next to me that's open, and I look up, and there's Jeffrey getting on the plane, and I immediately know what seat he's going to, and it's this little tiny puddle jumper. We're literally locked together, and so we say high cordially and Jeffrey sits down. Literally as he sits down, the pilot gets on the thing and says, we have a little weight balancing problem. Do we have anybody up front who's willing to move out back? And Jeff got out of that seat really quick.

54:46Do you remember that one? I don't, but I'm sure that was exactly what happened. All right, Alan, I'm going to ask you to hang on for a while. I want to turn to Jeffrey now and talk about what happened after you left Seventh Generation and Jeffrey went on to lead the company. Yeah, you got it. Okay. Now, Jeffrey, so Alan is no longer part of the business. It's now a shadow of what it was a year earlier. But you still believed in the business? You still believed it had potential? I did. And at a certain point, my perception was that potential was in a very different direction than the one we had been preceding.

55:29That rather than having a catalog business, I had developed the vision for a wholesale business where we would sell our products to retailers and attract consumers in retail stores to buy the brand. Right. You know, that was a business that I had my own experience with because of the books on tape business. Sure. And I just didn't understand and know the catalog business the way Alan did. Alan had done it for years and knew it well. I didn't. And so I guess like around this time, it's clear you need to raise some cash. And as we heard Alan say earlier, you wind up taking the company public. And that does bring in several million dollars.

56:18So with that money, what were you now able to do at 7th Generation? So we sort of did three things. We... We built up our line of branded seventh generation products. We were selling in the catalog a lot of other people's products. So if we were selling sheets and towels and t-shirts, those were not ours with our name on them. So we expanded the assortment of our branded products. So that was number one. Number two was we redesigned and relaunched the mail order catalog, hoping to get better results than we had been getting. And number three, we started experimenting, actually having my brother, Peter Hollander, go to natural food stores in New York City and put our products on the shelf to see if they actually sold.

57:13And we got a pretty quick feel of what was moving. And there was no question that three products dominated the assortment, bathroom tissue, paper towels and laundry detergent. So from what I understand, I mean, this strategy started to work. I mean, you had a terrible couple of years, right, from sort of 1991. But by 1994, from what I understand, revenues back up. You exceed$8 million. So your biggest year since I think 1990 at that point. And catalog sales, I guess, at this point account for like 80 % of what you're doing. So the strategy seems to be at this point working. The strategy was working.

57:55And the challenge we faced was we had raised about$5 million of additional capital. And the board and I came to the conclusion that we had two very different businesses. And they both demanded lots of money. And we decided that we should do something that appeared highly risky and bet on the wholesale retail business rather than the mail order catalog business. Because that was my intuition about where the biggest upside was in the future. I guess the thinking was, look, we're really going to make money by being in stores and lots of stores rather than trying to just sell to individual people through mail order catalog.

58:41And the mail order catalog had a problem. I mean, it was a very wasteful business. Whether you got one, two or three customers for every hundred catalogs you mailed, you were creating tons of garbage and tons of waste for all the people that recycled those catalogs without even opening them. and postage costs were rising, paper costs were rising. So we decided to place our bet on the natural product industry and work on getting more and more retailers like Whole Foods and Bread and Circus and Mrs. Gooch's on board with the brand. So this is 1995. You decide to sell the catalog business. As you say, I mean, this is 80 % of your revenue, but it sounds like it was risky, but that you knew you kind of had to dump this aside so you could really focus on growth.

59:40It was sort of like taking a half a step back to take five steps forward. Exactly. All right. So you are now fully focused on being in retail stores. And I guess you guys enter Whole Foods. 7th Generation enters Whole Foods in 1998. And was that like a major turning point for you? Was that a year or a time where you can point to and say, that was the moment seventh generation just, you know, turned a major corner? Yes, it was huge. And it basically unleashed growth that would propel us from, you know, 10, 12 million dollars to five years later, almost 50 million dollars. Whole Foods had so much credibility with the consumer that that trust rubbed off on us as well.

1:00:29So we had sort of the Whole Foods stamp of approval by just being present in the store. And you're still trying to convince other retailers around this time to carry your products. I have to imagine that you came across people who were like, listen, I used it. Lysol's better or Mr. Clean is better. Just kicks us in the butt. And what would you say when people said that to you? Well, every product we sold, we sent to an independent lab and tested our performance against Lysol, Tide, or Bounty. And we had pretty good test results. We were 90 or 95 percent as effective. But we felt that we got the job done for most consumers, and that was what would be good enough.

1:01:16And that's the data you would show to retailers? Well, we would show that data, but we would also show a lot of sales analysis. And basically what we said was, not only are these products healthier and safer, but you will make more money per square foot by selling them than you will selling traditional products. You'll have bigger margins. You'll sell more with less space. And honestly, that financial argument was often what was a winning argument because these retailers are in the real estate business. And if you can create more profit per square foot, they're happy. You know, we had the founders of Methodon a couple years ago, and one of the early insights they had was that you don't – they didn't have a whole lot of success telling their customers that their products were organic and plant-based, et cetera.

1:02:11So they didn't even really advertise that. They just advertised it as a great product that was effective. Did you find that appeals to consumers like, I don't know, Better Angels worked or did you just try to kind of sell the cleaning products as good cleaning products and good paper towels? No, I mean, the truth was we sold health and safety first, environment second, and as an and, these products really work as well as traditional products. We believed that in order to really set ourselves apart, that health and safety was critical as well as the environmental benefits. And yes, the products had to work, but that wasn't our niche.

1:02:56Our niche wasn't, we're cool and we'll look nice on your bathroom shelf. We appealed to a quite different market. What about kind of figuring out how to expand your product line? I mean, were there any, did you ever come up with products that just like were total dogs that just you really wanted them to work and they just didn't? Oh, sure. We created this product made of zeolite that you would put in your refrigerator. And basically what it did was take the humidity out of your refrigerator to allow your vegetables to last longer and your refrigerator to run more efficiently. So it was an amazing product that's used in many professional institutional refrigerators.

1:03:45I love the idea, but it was far too complicated a story to tell on a retail shelf. That was a total failure right away. No one bought it. Unlike our diaper business. I mean, when we got into the diaper business, I was traveling in Europe and I saw these brown diapers. I said, wow, unbleached diapers made from non-chlorine bleached pulp. And I said, I got to have these. We got to sell these. And they were a success from day one. And that added, you know, about a third to our sales. That was a huge, huge driver of our growth and expansion. And who was your first big kind of mainstream retailer that you were able to convince to carry this stuff?

1:04:34Well, beyond the focus on the natural food industry and Whole Foods, our first traditional grocery store was a grocery store called Albertsons in Southern California. Sure. I grew up in L.A. I know Albertsons. Yeah. And we had a very unusual experience with Albertsons about two weeks after we got on the shelf and we were celebrating and excited because it was the first traditional grocery store. There was a labor strike at Albertsons because they were trying to reduce the health care benefits that their employees had. We were so idealistic that we felt that those were not the values that we wanted to be associated with.

1:05:18And we had a contingent of our employees pushing to take the products off the shelves. And we debated and we debated and the whole company sat down in a meeting together. And some brilliant young man whose name I can't remember came up with this idea that we should take all the profits we generated from selling in Albertsons and donated to the workers strike fund to help the workers extend the strike and hopefully win back their health care benefits. And that's, in fact, what we did. That is amazing. I mean, this is 1995 when, let's be honest, consumers didn't care about that kind of stuff as much.

1:05:56Like today, if you did that, you know, you'd have a bunch of people who were like, yep. But in 1995, I don't think consumers really cared. They probably thought you were, if they even knew that you were doing it, maybe thought you were a little kooky. It was kooky and it was unusual. And it was the exploration of a new way to embed values into business. All right. So the company is starting to do pretty well. And I guess around this, around like the end of the 90s, 99, you actually decided to raise some money and buy back all the shares and take the company private again. So what did that mean?

1:06:35Basically meant we had a small group of much more powerful, influential investors who were relatively traditional in their investment strategy. They liked the mission, but they loved the business performance and sales growth. Yeah. And some of the things that they considered to be silly or extraneous, they were willing to put up with as long as the sales kept growing at a fast pace. I want to go down a little bit of a rabbit hole here. It's that seventh generation and companies like it create great products with a great mission, but that also allow consumers to consume but not feel as bad about it or feel like they're actually not doing any harm.

1:07:31I mean, for example, if you buy seventh generation diapers, they're recycled, they're brown, but you're still producing a lot of waste, right? It's still going to sit in a landfill for 100 years, no matter what anybody says. If you buy seventh generation spray, you're still buying it in a bottle that is pretty much impossible to recycle. And I don't know. I just wonder about that. I mean, I'm not trying to criticize you or anybody who does this. But still, I just I can't get around this idea that it in some ways gives people this feeling like they're doing good when in fact they are still, you know, they're still throwing stuff away.

1:08:11Well, first of all, I totally agree with you. And it's a fundamental challenge that the whole green responsible products industry faces. To be quite honest, it's often about being less bad rather than good. And I think we've gotten the two things confused. I think that when you're buying a seventh generation diaper, you're causing landfills to fill up. You're causing increased climate change. You're causing water pollution. You're having a bunch of negative impacts. They're just not as bad as they would be if you purchased another brand. But being less bad is not being good. And I think we really need sort of a sustainability 2.0 that's focused on good products, that's focused on cloth wipes rather than paper towels, that's focused on reusable diapers rather than disposable diapers.

1:09:13And that's why Seventh Generation just this year came out with cleaning products that had no water and no plastic packaging. Now, that's still not good, but it's better than having the plastic waste that we have with our traditional cleaning products. You know, over time, Jeffrey, you started to make a name for yourself, not only as a CEO of 7th Generation, but also as a kind of a leader in sustainable, green, eco-friendly business as a whole, which I gather led to some tension between you and the board of directors. At what point did you start to reassess the role you were playing in – it sounds like in your head you started to feel like maybe this wasn't really the way to save the planet.

1:10:12I don't know. Am I kind of projecting here? Well, in 2007, I began to reflect on my own personal goals and the impact I wanted to have. And it wasn't that I didn't want to be working at Seventh Generation. It was that I wanted to be doing different things than I was doing. I didn't want to be completely focused on the monthly profit and loss statement. I didn't want to be obsessed about product development. What I really wanted to do was help build this responsible business movement. And I wanted to write more. I wanted to speak more. I loved being the public face of the company, but I didn't love doing all the things that a traditional CEO does.

1:11:00And did that start to affect your performance as a CEO? Let's say the performance that is expected of a CEO? I don't think so. I mean, you know, 2010 was the best year financially that the company ever had with about a 50 % growth rate. But there were a series of factors that had created an increasingly tense situation with the board. One was we were in the middle of going to raise about$30 million of additional capital. And there was definitely concern about how my shifting role would play with those new investors. Your shifting role, focusing on? More public speaking, more building the movement of responsible business.

1:11:48You know, I was a board member of Greenpeace for 13 years. I was getting arrested for standing up for things that we believed in. And my board was definitely not comfortable with a CEO who was getting thrown in jail. Another area of tension was employee ownership. We had built ourselves up to having a company where the ownership of 20 % of the company was resting in the hands of the employees. One of the things that I was the most proud of, hoping to get that to 30%. And that was another source of tension with the board because they felt that the employees had enough stock they didn't really need anymore.

1:12:28And there was a third area, which we had hired this guy, Chuck Maniscalco, who was going to be the sort of business operational leader. He was the Gatorade guy who grew Gatorade from a billion to four billion. We hired him together. I came to the conclusion that he was the wrong person for that role, that his values really weren't aligned with the company. my mistake, my fault. The board loved him and the board wanted to keep him. And the board was very nervous about the tension between Chuck and myself. So one of you had to go. One of us had to go and it wasn't going to be Chuck. So in 2010, you were fired.

1:13:15Yes, indeed. I'm wondering though, if the The year you were pushed out of the business was the most profitable year. Were you surprised that you were asked to leave to step down? Yes, I was shocked and totally caught off guard. You were totally caught off guard, unexpected. Totally unexpected. And, you know, it was done in a somewhat brutal fashion because not only was I let go, but I was let go over the telephone on a Saturday morning and told that I wasn't even allowed to go back into the office ever again. I mean, you really took this company to where it was, you know. It was a little mail or a business when you started it with Alan, and now it's a huge force.

1:14:08$150 million. It was like a child that had been stolen from me. I was incredibly depressed, sad, angry. Boy, I don't know that I've ever cried as much as I cried in the weeks and months following that experience. When we come back in just a moment, we'll hear how Jeffrey's former partner, Alan Newman, reacted when he found out that the man who ousted him from his own company had now been ousted himself. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

1:14:59Hey, welcome back to How I Built This. So it's 2010, and after 20 years of building and leading Seventh Generation, Jeffrey Hollander is kicked out of the company by the board. And it felt like a gut punch. But at the same time? I feel like I have to take responsibility for what happened to me. It didn't happen all on its own. I was very headstrong. I was impatient. And I was too focused on doing what I was passionate about doing and not focused enough on ensuring that I had brought the board along with me. Jeffrey, I want to bring Alan back into the conversation. Alan, I know you've been patiently listening for a while.

1:15:44So thank you for your patience. No problem. At the time when Jeffrey was ousted, were you following what was going on inside of Seventh Generation? Do you remember how you felt? Yeah, no, I definitely followed it. I was aware of it. People, it's a small town. I know a lot of people who were working in Seventh Generation. So I was certainly aware of what was going on. And also, while we're on the topic, you didn't ask me, what did I learn from being ousted from Seventh Generation? And what's really interesting is I would have given you the answer that Jeffrey just gave you. I really let Jeffrey handle the board.

1:16:23They were his investors. I was busy trying to run the business. The board meetings were down in New York. And I really stayed out of it. In retrospect, I realized that was something that I've never done since. You know, I always say, as Jeffrey put it, I think well put, you've got to bring your board along. You can't be out there in a different place. Otherwise, you will lose. So, yeah, I did follow it. And I saw the similarities. But I'm not going to lie. I took solace in, okay, how does it feel, Jeffrey? And the deja vu certainly occurred to me. Alan, I think five or six years after Jeffrey left the company, Unilever acquired it for reportedly for$700 million, which is incredible.

1:17:15When you found out about that, what did you think? Well, first of all, I think what Jeffrey did with the business after I left was in many ways brilliant. You know, certainly deserves a lot of credit for taking this concept and this fledgling business who was really down on its luck and finding the way. It's what entrepreneurs do. They find opportunities. They climb over the mountains. And that was a hell of a mountain that seventh generation had to climb. and to get it into condition to sell to Unilever. You know, when I got all the calls saying, well, how do you feel about big, bad Unilever buying your company?

1:17:55It's like, well, number one, it's not my company. And number two, I always wanted to see Seventh Generation go international. I saw no reason why it was a local, regional, national brand. And so the fact that Unilever took it over and is now expanding internationally, to me, was exciting as hell. It was my dream for it. Hmm. So I actually want to rewind in time for a moment because before we left off with you, Alan, you mentioned that after you left 7th Generation, you went on to start a whole new venture. And this is going to be mind blowing for craft beer lovers. It was called Magic Hat Brewing Company, which became a pretty successful craft beer.

1:18:36What's the story? How did that happen? So I had been looking for a business to buy. I was trying to get into the music business. And I had this friend who was working the warehouse at Seventh Generation. He came in one day and said, listen, this is not what I had in mind. I'm going to go. And I said, what are you going to do? And he said, well, I'm going to go learn how to start a brewery. He had done a lot of home brewing, had won a lot of competitions. And I said, well, you know, we could start one here. And he said, really? I said, yeah, I got nothing else to do. All right. So you and this friend, his name was Bob Johnson.

1:19:13You guys, what, just decided, like, let's do this? Exactly. And did you have some kind of strategy? Like, what did you even know about the beer business? I knew nothing about it. I was not really a craft beer guy. You know, I was much more of a pothead than an alcohol guy. And I figured, well, I better get educated. And Bob had been following it, so he knew what was going on. And he said, why don't we fly out to the Pacific Northwest? because that's where it's most developed. And we flew out to Seattle, we rented a car, and we drove down to San Francisco, and it took us 11 days. We stopped in, I think the number was like 33 breweries along the way.

1:19:55And the aha moment for me, Vermont already had three craft breweries. This is 93. And I said, does Vermont really, with its 600 ,000 people, really need a fourth craft brewery? And everybody was doing the same thing. And so I was really struggling with, well, how can we be different? And all of a sudden I went, oh, don't make this about beer. Everybody was, everybody, 100 % of the craft breweries were saying, made with only the finest all natural ingredients. I banned that from our label. I banned that from our thinking. I wanted to be in the music business. So we're going to do a craft beer company, but we're going to focus on pretending we're a music company.

1:20:42And supporting music became the lifestyle. And this is long before anybody else was doing that. Nobody in the craft business was putting their beer in music festivals. I always thought that I would measure my success at Magic Hat. When Ben & Jerry's was at its prime here in Vermont, nobody ever went to a party without taking at least a pint or two pints of Ben & Jerry's with them. They grabbed Ben & Jerry's because Ben & Jerry's was really cool, and they knew that everybody there would be thrilled to see Ben & Jerry's there. And so I made that my North Star. I said, I don't want to be a beer company because that's too limiting.

1:21:24I just want them to buy it because it's fucking cool, and this is a great thing to take to a party. And Magic Hat kept growing, right? I mean, you started to distribute it nationally. How did you guys do that? You know, no success and no failure is ever because of one issue. One factor was that there was Bob and me. There were two of us. Most other craft breweries in those days were started by an engineer who loved home brewing, knew nothing about business, knew nothing about finance. They just were fascinated with being able to put this equipment together and make beer. Well, I had just come out of an experience with Seventh Generation where I had seen the effects of growing too fast and hitting a wall.

1:22:13And so when I got into Magic Hat, I said, we're not going to do that. We're going to grow organically. We opened up new territories very slowly. We let demand exceed supply for 18 months before we started trying to match supply. And it kept the demand for our beer growing until we were in the top 10 largest craft breweries in America. Alan, I know that both of these enterprises, Magic Hat and 7th Generation, I mean, there are different chapters in your life and some maybe fonder memories than others. And I know that Magic had got – eventually got into some pretty severe financial problems during the 2008 recession and ultimately you had to sell it off.

1:23:02And you're not involved with it anymore. But I mean if you think about it, right? I mean you helped to create two really iconic brands, right? I mean that's pretty awesome. I mean do you take pride in that? Does any part of you take pride in that? Absolutely. I'm very proud of what I've left behind, more proud in some areas than others. But on whole, I look at what I've done more as, you know, building opportunities for people to grow, find passion in work, and find a way of earning a living doing what they love doing. And that, to me, is what's most exciting. You know, I unfortunately just had an experience where at the same time that seventh generation was being sold to Unilever and I was feeling really good about that.

1:23:56I was watching Magic Hat, you know, tank and it's probably not going to make it much longer. And it made me really sad to realize that that's not living in my legacy. Seventh generation, I feel, you know, has been a nice part of my legacy along with Gardner Supply Company. And I'm just, I do have a sadness for the fact that Magic Hat didn't make it. Alan, do you think, because I think you are, you're a visionary, okay? You've got a vision and you are, you're a dreamer and you've got these incredible ideas. But I think you are stubborn too, right? Is that fair to say? Oh, really? Yeah, okay. A little bit stubborn.

1:24:41And so maybe that stubbornness, and by the way, I am too. I'm not an easy person to work with. I love my team, but I'm not always easy to work with. I think that sometimes you're a little hard to work with, maybe. Oh, I'm really tough. So let me tell you a story that you'll probably like since it relates back to how I built this. I'm well aware how difficult I can be. I've gotten less difficult as I've aged, but I'm still difficult. And I'm listening to the woman who had a cosmetic company. Was it Bobby Brown? Bobby Brown, yeah, sure. and she was talking about the sale to the bigger company and how that really allowed her to have a life and still grow the business and how wonderful everything was.

1:25:22And then you said, so why did you get out? And she gave the answer that has transformed my view of myself. And probably to some degree, I think describes the relationship, why Jeffrey and I didn't make it. She said, well, what I realized is at the end of the day, I like being the boss and I was not the boss at seventh generation. You know, Jeffrey and I both had that role. And I think Jeffrey also likes being the boss. And I think there was always a friction when we needed each other, you know, and we really needed each other during the growth spurt, but it ended rough because I wasn't the boss.

1:26:03Knowing what you know now and, you know, you did it a little different and maybe you kind of gave a little bit more or accommodated Jeffrey or didn't take that sabbatical. I don't know. Do you ever regret not seeing if you could make it work with Jeffrey? I think it was not possible to make it work back in those days. And I have thought frequently, and I've even said this publicly, that the shame of it is seventh generation would have been much stronger had I stayed and had we both been there, because I think we were very complimentary. I think we shared a sense of values and I think seventh generation probably would have been better off.

1:26:47I don't know this for a fact, obviously, had we both been there and found a way of working together. That said, I don't know that that's within either one of our DNAs. What do you think, I mean, lots of people obviously listen to this show for business ideas and also for guidance. Jeffrey, what do you think somebody should look for on a co-founder? Well, first of all, they got to make sure that they want a co-founder. It's not for everybody. As Alan has suggested, some people, maybe like him and I, are happier being in the leadership role alone. So if you're going to have a co-founder, I think you need to have a very, very transparent and clear agreement about the relationship.

1:27:33Not just who's doing what, but how you handle disagreements, how you handle things when things go wrong. It's a challenge. I mean, it's, you know, to me, in some way, being married is like having a partner. And it takes a tremendous amount of work. So, you know, I think if you're not prepared to do the work, you shouldn't get into the relationship. You know, I agree with a lot of what Jeffrey said. I think that my most successful partnership was with Bob Johnson with Magic Hat. He clearly recognized that I was the lead dog. I had the experience. I was putting in the money. And that at the end of the day, I was going to make critical decisions.

1:28:18The other side of it was we had very complementary skills. He just wanted to be a brewer. He just wanted to make great beer. And my interest was growing the business. And so we never stepped on each other's toes because at the end of the day, you really need to be on the same page. You know, Jeffrey, I've been meaning to ask because we mentioned earlier that in 2016, 7th Generation was acquired by Unilever. And at that time, you were actually invited by Unilever to return to the board. I think this is like five or six years after your ouster. Were you surprised? I was very surprised, very surprised.

1:29:05Thrilled, but very surprised. Yeah. Anybody on the board who was also on the board when you ran it? There were a couple of people who were on the board briefly, but cycled off pretty quickly. And it was a little awkward, quite honestly. But there were also some incredibly wonderful people who were new along with me. And it was a terrific experience, and it's been a terrific experience. And I have had a unique opportunity to sort of continue to shepherd my legacy with Unilever in a way that I never imagined I'd have the opportunity to do. Yeah. Jeffrey, when you think about the journey you've had and all of the ups and downs and the incredible successes and challenges, how much of this do you attribute to your business acumen, hard work, and how much do you think happened because you got lucky and you kind of rode the wave of the natural food revolution?

1:30:07Well, there's no question that you have to be a little lucky to be successful. I don't think anyone is successful without a fair measure of luck. But I attribute a lot of my success to my unwillingness to give up, to no matter what challenge I'm facing, no matter how bad things look, I'm glad that I have not given up and I've stuck with it. and if you don't have that passion, if you don't have that love for what you're doing, you won't make it through the hard times. You won't be around to experience the luck that might be waiting out there for you. Alan, luck, skill, hard work, what do you think?

1:30:49All three. You know, I got lucky numerous times. I got lucky when I took a job at Gardens for All. That took me on a ride and really taught me the catalog business. which then took me on my next ride through Seventh Generation. And neither one of those was planned. So were they lucky? I don't know. I was in play. And Jeff's ability to continue, I mean, it's one of the things that I always marveled at. When things looked impossible, Jeffrey would just dig in and grunt through them. That causes luck to happen to you because you stay in play. That's Alan Newman and Jeffrey Hollander, co-founders of Seventh Generation.

1:31:38That episode first ran in 2021. These days, Jeffrey still has a seat on the board. And as for Alan, he is happily retired and still living in Vermont. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please do sign up for my newsletter at GuyRoz.com or on Substack. This episode was produced by Casey Herman with music composed by Ramtin Arablui. It was edited by Neva Grant. Our production staff also includes Catherine Seifer, Chris Messini, Alex Chung, Sam Paulson, Carla Estevez, JC Howard, John Isabella, and Elaine Coates.

1:32:24I'm Guy Raz, and you've been listening to How I Built This.