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Clean 'n' Green
Page 3

Seventh Generation does not fit neatly into any business model, nor does its founder. Typically, the entrepreneurs of the socially responsible business movement started out as owners of small, cottage industries. They were back-to-the-landers. Hippies. Ben and Jerry mixing weird ingredients into their rich ice creams in the famous former gas station in Vermont. Mo Siegel of Celestial Seasonings foraging the Colorado mountainsides for wild herbs for his healthful teas. Samuel Kaymen hand-milking a few Jersey cows in New Hampshire to produce the yogurt that would become Stonyfield. Hollender, who is 49, came to environmentally sound business by an entirely different route. His father was a Manhattan advertising executive who, among other things, coached President Eisenhower on how to use the new medium of television. Driven by restlessness, Hollender moved in and out of a series of prestigious private schools -- The Putney School, the Baldwin School, Riverdale Country School -- before heading off to Santa Barbara at age 17 to spend a year surfing, attending a public high school, and supporting himself with after-school jobs. He lasted 18 months at Hampshire College in Massachusetts, quitting to follow a girlfriend to London and then to Toronto. In the late 1970s, Hollender returned to New York and started a business that offered courses and instructional audiotapes, a novel concept that eventually caught the interest of executives at Time Warner. They bought Hollender out, and, at age 30, he was earning a six-figure salary as the president of the company's audiotape division.

But he grew restless again. "The Time Warner job was exciting and challenging. I was very well paid. But one day I found myself on the Donahue show hyping a course called 'How to Marry Money,' and I realized I had gotten off the path. What I had started as a company that made education available to those who wanted it had gradually become an entertainment company. Instead of making value-based decisions, I was making economic-based decisions."

He quit Time Warner and spent two years casting about for a new direction. His musings served as research for the manuscript that eventually became his first book, How to Make the World a Better Place, which sold more than 100,000 copies. Crammed with addresses and phone numbers of organizations, the book is essentially a manual for anyone who wants to live a socially responsible life and includes information on everything from protecting the environment to raising children to feeding the hungry.

One of the groups listed in the book was a Washington, D. C.-based environmental organization that produced a slim catalog of environmentally friendly products. When he learned the catalog business was struggling financially, Hollender began to think that running a company that sold such products might be an ideal way to harness his entrepreneurial skills. About six months later, he met Alan Newman, a Vermont-based entrepreneur who was investing his own cash in the money-losing catalog, which he rechristened Seventh Generation. The name derived from the tradition of Iroquois elders, who felt they should consider the impact their decisions would have on the next seven generations.

Soon the two men were partners. Newman, a Falstaffian figure who favored billowy shirts and rainbow-hued Patagonia shorts as his workday apparel, would handle the catalog up in Vermont. Hollender, a compact man who hadn't lost his prep-school haircut and surfer's physique and had yet to abandon his ties and pinstripes (although he now shows up for work in black jeans and cardigans), would stay in New York, where he would search for new products to sell in the catalog and -- more important -- raise capital.

Together, they made magic. Sales rocketed from $100,000 to $7 million in two years, and the two entrepreneurs plowed every cent and then some back into the business. Their projections showed that revenues would keep soaring. Newman and Hollender kept adding staff. Overhead mounted. Then the economy plunged into a recession following the first Gulf War. Sales stagnated. The two partners quarreled over how to save the business. Newman said they should focus on the retail end; Hollender insisted that the future lay in developing a wholesale company that sold its own branded products to retailers. The investors sided with Hollender, and Newman left. After the falling out, Hollender moved to Vermont. "I spent two years of my life just ensuring that the business didn't go down the drain," says Hollender. "When you are losing money faster than you can count it, you have to totally redesign the business."

Which he did, not once but several times. Despite the company's faltering prospects, Hollender and his investors issued an initial public offering of stock in the company but soon found themselves -- again -- with insufficient resources to run both the catalog and the wholesale business. So Hollender sold the catalog, which had accounted for nearly 90 percent of the company's business. The move improved his bottom line but left Seventh Generation with nothing other than a small line of branded products and a struggling wholesale business that generated less that one million dollars a year. Essentially, it was no business at all. Hollender slashed his workforce from 140 to seven employees. Seventh Generation, which had traded as high as $7 a share, bottomed out at 25 cents a share. Hollender's solution was to buy back all outstanding shares at $1.30 a share, retaining 20 percent of the company himself. The rest was purchased by 20 investors who shared his long-term vision. "Jeff isn't one of those tree huggers," says Arthur Gray, one of his backers and senior managing director at the investment counseling firm Carret and Company. "He is an environmentalist, but he is also very practical."

And sometimes inspired. Hollender experienced an epiphany in 1999 that changed the course of his business. Organic foods, which once had occupied the same quiet market backwater as natural household products, were suddenly selling in the mainstream grocery stores. Hollender realized that it was consumers' lifestyle and health concerns, more than their concerns for the environment, that propelled organics. "People don't buy organic apples because they are worried about the pollution of a stream, for the most part," he says. "They are worrying about consuming pesticides." Seventh Generation's tag line had been "Products for a Healthy Planet." Hollender changed his message to "Safer for You and the Environment" to appeal to this broader market. He began to focus on asthma, allergies, and chemical sensitivity, all of which can be exacerbated by the presence of chlorine, petroleum products, and volatile organic compounds in household goods.

With sales already robust, almost tripling to nearly $9 million in 1998 from a little more than $3 million in 1995, Seventh Generation used its new strategy to push into major grocery stores in 2001 -- a fortuitous time, as it turned out. Traditional supermarkets face stiff competition from warehouse clubs and discount chains such as Wal-Mart and are scrambling to find products, like Hollender's, that can't be had at those box stores. At the same time, shoppers who purchase environmentally friendly products tend to be more educated and willing to spend more than buyers of mainstream brands. Grocers want these customers, so they make shelf space available to companies like Seventh Generation, even reducing "slotting fees," the up-front money a supplier must usually pay a grocer to place products on its shelves. And while supermarket sales of most household product brands are flat or falling, Seventh Generation represents a rare beacon of growth.

This brings its own challenges. Hollender must now figure out how to keep his company independent. A number of socially responsible companies profitable enough to make inroads into major markets simply have been swallowed up by their giant competitors. Hollender doesn't have to look far for examples. Just down the road from his office in Burlington, Ben & Jerry's ice cream operates as part of Unilever, the $46 billion conglomerate that produces everything from Hellman's mayonnaise to Dove soap. Groupe Danone, a French corporation that owns Dannon yogurt and Evian spring water, owns a majority stake in Stonyfield Farm. Odwalla is now part of Coca-Cola.

From an environmental perspective, corporate ownership is not in and of itself a bad thing -- it may even be a good thing. In partnership with Danone, Stonyfield's sales of organic products have continued to surge at the expense of nonorganic products. And CEO and president Gary Hirshberg remains in charge.

"Sure, it can be good," says Hollender. "But there are a lot of dimensions to the equation. Many of the environmental benefits that we build into our products are not necessarily appreciated by all consumers. A good example of that is postconsumer recycled content. A big company might reduce the postconsumer content because most customers really don't know or care about that. And what happens to the company's values and social commitments? Today our role is to push the limits of what is possible to do from an environmental perspective. Would we, as part of a multinational corporation, be allowed or encouraged to push those limits?"

Tom Chappell, cofounder and president of the natural personal care company Tom's of Maine, is one of the few entrepreneurs to have successfully navigated the waters that lie ahead of Hollender. Founded in 1970, Tom's sold its first tubes of toothpaste to the CVS drugstore chain in the mid-1980s, and the firm remains financially stable and fiercely proud of being family owned. "There are many challenges when you move from a core constituency to a broader group," Chappell says. "You have to be sure not to adulterate the product in some way that tries to reach a broader audience."

Battling with the giants for shelf space, Chappell knows from experience, can be an ugly business. "It's common practice for a sales executive from a major company to go into a chain store account with a new product and say, 'We want you to take this new toothpaste, and we recommend that you discontinue three or four Tom's items to find room on the shelves,'" says Chappell.

Whether Hollender might succumb to the allures of being bought by a larger firm depends on two variables, Chappell says. "Do the entrepreneurs still enjoy building the business, and are they equipped to handle the complexities that come with size? And how much do venture capitalists own of the company, and are they looking to sell out?" For the time being, Hollender and Seventh Generation seem to be passing both tests.

Recently Hollender went back to his investors for more money -- this time to create a modest war chest that Seventh Generation could use to become an acquirer itself. "We want to become a place where an entrepreneur can go and sell a company and ensure that its values and vision will be followed," he says.

In the free market, where growth and survival are often synonymous, where you are either the predator or the prey, Hollender says he wants his business to remain "an engine for positive growth. Why should we manufacture products that damage the environment and make people sick when we have the technology to do it in a way that's far safer?"

He admits there was a time three, four years ago, "when I thought, 'Man, I can't wait to get big enough to sell,'" he says. "I was spending a lot of time doing things I didn't enjoy -- like endlessly raising money." Now Hollender can focus on new product development, the part of the business that excites him most. He also has time for speaking engagements and writing. And he has been able to hire associates to whom he can delegate. Last summer he left Seventh Generation in the hands of his colleagues and took a seven-week surfing and beach vacation with his family. He has even written another book, What Matters Most , which takes a hard look at the future of the American corporation and, using examples from Seventh Generation and other companies, makes a compelling case that there are solid financial reasons why socially responsible practices -- not mindless pursuit of quarterly profits -- might be the key to building sustainable growth in the future.

"If business doesn't change, then we don't have a chance to survive," says Hollender. "At the end of the day, it's all connected: where our society is going, and where our planet is going." If Hollender can sell this vision to corporate America as effectively as he sells paper towels to consumers, the next seven generations may truly owe the man a debt of gratitude.

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OnEarth. Winter 2004
Copyright 2003 by the Natural Resources Defense Council