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

Context

This is a replay of a January 2021 episode of How I Built This. Guy Raz interviews the two co-founders of Seventh Generation, Alan Newman and Jeffrey Hollender, together for the first time since a bitter split in 1992. Seventh Generation began as a mail-order catalog of eco-friendly goods, became a household brand in supermarkets, and was bought by Unilever in 2016 for a reported $600 to $700 million. It matters to PMs because the story shows how a product strategy shifts (catalog to retail, gadgets to consumables), and how a partnership can break even when the business is working. Note that the transcript spells Jeffrey's surname "Hollander" in places, while the episode title spells it Hollender.

The Big Idea

The relationship between co-founders matters more than the skills each brings, and a partnership with no written agreement on roles, disagreements and time off can break the very business it built.

Alan and Jeffrey complemented each other well (operations and catalogs versus fundraising and retail). Yet a six-month sabbatical that was never written down ended their friendship and Alan's role in the company.

Key Insights

Saying yes started the company

• What: Alan had no belief in the Renew America catalog, yet when its owners offered to give it to him free, he said "I'll take it" while his brain said no.
• Why it matters: he calls his greatest strength and greatest weakness the same thing, a tendency to say yes, because it opens doors.
• Example: he had about six weeks to get a catalog into the mail for the holiday season, renamed it Seventh Generation, and got more orders than he expected.

Sell the benefit, not the feature

Alan's early catalog led with money saved, not planet saved. A water-saving shower head was sold as one that feels as good as others but costs less to run. In his words, the environmental feature only mattered "after you passed the what's in it for me." Jeffrey later echoed this in retail: the company sold health and safety first and environment second, and its niche was not being cool on a bathroom shelf.

Every new customer lost money

Early growth was expensive. Seventh Generation spent more to win each customer than that customer's first order brought in.

• 99 of every 100 catalog recipients did not buy.
• The bet was on repeat purchases over many years.
• That gap is why Alan says he needed a lot of capital and why Jeffrey's fundraising skill mattered so much.

Consumables beat one-time purchases

A low-flow shower head is bought once. The breakthrough was moving into household products people buy again and again. About 25 percent of catalog sales came from bathroom tissue, paper towels and laundry detergent. Later, when Jeffrey tested products on natural food store shelves, those same three products dominated. Bathroom tissue was made with unbleached, 100 percent recycled fiber, and the co-packer thought the founders were crazy to print that on the label.

A crash exposed the catalog model

Sales went from $1 million in 1989 to $7 million in 1990, helped by the 20th anniversary of Earth Day and press such as a four-page People Magazine story. For 1991 they expected $20 to $21 million and got far less.

• Interest in the environment faded after Earth Day.
• A recession hit, and repeat buying did not happen.
• The Gulf War drew attention to television. Alan recalls orders falling from about 1,200 to 1,500 a day to fewer than 100.
• The company laid off roughly 60 of its 120 people.

Sell the core line to bet

In 1995 the board and Jeffrey sold the catalog business even though it was about 80 percent of revenue. Jeffrey's reasoning: the company now had two very different businesses that both needed lots of money. He saw the bigger upside in wholesale to retailers. He also called the catalog wasteful, because at one to three buyers per hundred catalogs most were thrown away, and paper and postage costs were rising.

Sell retailers on shelf profit

To win Whole Foods and later mainstream chains, Seventh Generation combined two kinds of proof.

• Performance: each product was tested by an independent lab against Lysol, Tide or Bounty. Results were about 90 to 95 percent as effective, which Jeffrey called good enough for most consumers.
• Economics: the pitch was that retailers make more per square foot with these products, through bigger margins and more sales in less space.

Jeffrey says this financial argument often won, because retailers are in the real estate business. Whole Foods in 1998 pushed sales from $10 to $12 million to nearly $50 million five years later.

Mental Models & Frameworks

Reward the biggest mistake

At staff meetings, the person who made the biggest mistake that week won a coupon for a dinner out. Alan's reasoning was that fear (people worrying they will be found out) is the biggest obstacle to success. If a mistake is hidden, someone else repeats it. Because the company grew so fast, staff had to make decisions daily, so they also had to feel safe reporting bad ones instead of hiding them in a desk.

Less bad is not good

Guy pushed on whether green products let people feel good while still throwing things away. Jeffrey agreed and named the issue.

• A Seventh Generation diaper still fills landfills and adds to climate change and water pollution, just less than other brands.
• He wants a "sustainability 2.0" built around actually good options such as cloth wipes and reusable diapers.
• The company had just released cleaning products with no water and no plastic packaging, which he called better but still not good.

Grow slower than demand

At Magic Hat brewery, Alan applied a lesson from Seventh Generation, where fast growth hit a wall. He opened new territories slowly and let demand exceed supply for 18 months before matching it. The brewery grew to be among the top 10 largest craft breweries in America.

Sell the lifestyle, not the category

Vermont already had three craft breweries in 1993, and every brewer said "all natural ingredients." Alan banned that phrase and positioned Magic Hat like a music company that happened to sell beer, sponsoring music festivals. His North Star was Ben and Jerry's: people bring it to parties because it is cool.

Decision Principles

Principle: Test products on real shelves

• When: deciding whether a new product line is worth scaling.
• Why: Jeffrey's brother put products on shelves in New York natural food stores to see what actually sold. That showed three products dominated before the company committed to wholesale.

Principle: Bring your board along

• When: you are the operator and someone else handles investors and the board.
• Why: both founders lost their jobs partly for this reason. Alan let Jeffrey handle the board and stayed out of it. Jeffrey was fired in 2010 after focusing on his own goals without bringing the board with him. Alan says he has stayed close to his boards ever since.

Trade-offs & Nuance

Mission versus investor patience

After a buyback in 1999, Seventh Generation had a small group of more powerful and traditional investors. They liked the mission but loved sales growth, and they put up with things they saw as silly as long as sales kept growing fast.

• Growth of about 50 percent made 2010 the best financial year ever.
• Even then, the board was uneasy with a CEO who was mostly building a responsible business movement, and who had been arrested at protests as a Greenpeace board member.
• The board also resisted raising employee ownership from 20 to 30 percent, saying employees already had enough stock.

Values costs versus values proof

When Seventh Generation first landed in Albertsons, a labor strike broke out over health care benefits. Some employees wanted the products pulled. After a whole-company debate, they kept the product on shelves and donated all profits from Albertsons sales to the strikers' fund. Jeffrey called it kooky in 1995 and also "a new way to embed values into business." It shows a way to hold both a revenue goal and a value without dropping either.

Complementary skills, clashing egos

Alan says the pair complemented each other and that the company would probably have been stronger with both of them. But both like being the boss, and he doesn't think that fit either of their DNA. This is his view, and he says he can't know for a fact.

Common Mistakes

Mistake: Leaving a sabbatical unwritten

Alan took a six-month sabbatical in January 1992, planning to come back with ideas to rebuild sales. Jeffrey felt abandoned on a "sinking ship" and did not say so. They barely spoke during the break, and each built a different story.

• Alan returned expecting his old role and got a "Dear John" letter.
• Jeffrey's view in hindsight: they should have written down that Alan would leave for six months and then return to his previous position.
• Alan admits he had no idea how angry Jeffrey was.

Mistake: Saying nothing during stress

Jeffrey says he tends to hold a grudge, and Alan says he had no idea how angry Jeffrey was until the letter. Their later meetings with a marriage-counselor-type mediator failed because each dug in and would not accept that the other had a valid point.

Practical Application

Write a founder agreement

• Do: put in writing not just who does what, but how you settle disagreements and what happens when things go wrong. Jeffrey's advice is a "very, very transparent and clear agreement."
• Include: any extended leave, with a return date and the role the person comes back to.
• Why it works: Alan and Jeffrey each remembered the sabbatical differently, and nothing on paper settled it.

Stay in touch during time off

If a co-founder or key leader takes leave, schedule check-ins. The two men did not talk during Alan's break, which left "a lot of room" for each of them to think in different directions.

Write benefit-first product copy

Before your next launch page or catalog listing, rewrite the top line to lead with what the customer gets or saves, and move the mission or feature below it. Alan learned this from the shower head copy.

Pitch retailers with unit economics

If you sell through partners, bring their math. Jeffrey's winning pitch was profit per square foot backed by lab test data, not an appeal to values alone.

Questions to Consider

• If one co-founder took a six-month leave from your company tomorrow, what written agreement would say what role they return to and who decides?
• Which of your products is a one-time purchase, like a shower head, and which is something customers buy again and again like paper towels, and how does that change what you invest in?
• Do the people on your team feel safe reporting their biggest mistake this week, or would they hide it in a desk drawer?
• Who on your board or leadership team would be surprised by your current priorities, and what are you doing to bring them along?

Bottom Line

Seventh Generation grew because its founders' skills fit together and because it kept changing its business model, from catalog to shelf. The partnership still broke because there was no written agreement about a sabbatical and no direct conversation about anger. Put roles, leave and disagreement rules on paper before you need them.

Resources Mentioned

Case Studies Mentioned

The string shopping bag flood

A French-made net shopping bag became a top seller, and customers waited over a year for orders. Back orders passed 100,000, which broke the company's Cobol order software that assumed no more than 99,999. A shipment was held up at customs over a label problem, and a penalty bill of around $120,000 followed. The lesson Alan drew was about operational limits in the tools you build on. More than 100,000 of the bags were eventually sold.

The zeolite refrigerator flop

Seventh Generation sold a zeolite product that removed humidity from a fridge so vegetables lasted longer. Jeffrey loved the idea and it is used in professional refrigerators, but the story was too complicated to tell on a retail shelf. No one bought it. In contrast, unbleached diapers Jeffrey spotted in Europe were a success from day one and added about a third to sales.

Magic Hat Brewing Company

Alan and Bob Johnson founded Magic Hat after Alan left Seventh Generation. Alan calls his partnership with Johnson his most successful because Johnson accepted that Alan was the lead dog and the final decision maker, and wanted only to brew. The company later got into severe financial trouble in the 2008 recession, and Alan sold it. Alan said it made him sad that it did not survive.

People to Follow

Jeffrey Hollender

Co-founder of Seventh Generation and its longtime CEO until he was fired in 2010. He later returned to the board after Unilever's 2016 acquisition. He writes and speaks about responsible business.

Alan Newman

Co-founder of Seventh Generation who ran operations and the catalog. He later co-founded Magic Hat Brewing Company and is now retired in Vermont.

Notable Quotes

"Everybody's greatest strength is also their greatest weakness. One of mine is I tend to say yes." (Alan Newman)

"Being less bad is not being good." (Jeffrey Hollender)

"You've got to bring your board along." (Alan Newman)

"At the end of the day, you really need to be on the same page." (Alan Newman)