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Planning For "the Next Economy"

Paul Hawken's provocative approach to corporate strategy is more than just small talk.
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At the age of 16, after he had already left home and high school to begin his true education on the streets of California's Bay Area, Paul Hawken apprenticed himself to a building contractor, a West Indian named Leonard Gordon. He taught Hawken how to swing a hammer and string electrical wire and master an array of craft skills. He also taught him how to read the signs and live by his wits.

"We were tearing down an old building once," Hawken recalls 22 years later. Hawken was inside whacking away at the walls of one of the upper floors. Suddenly, Gordon bellowed to Hawken that the building was about to collapse and that he should make a run for it. Hawken bounded a few strides to the open window and vaulted the sill to alight on the scaffolding just outside. The trouble is, the horizontal plank was missing. Hawken plunged 20 feet to the sandy ground.

As he shook off a daze and blinked away the stars, Hawken realized he had just been tricked by one of his mentor's object lessons. "Aha, Mister Hawken," cackled Gordon in his West Indies lilt, "Pay attention!"

Hawken has taken Gordon's deceptively simple advice. He has paid attention, close attention, ever since. In fact, he owes his entrepreneurial success to his facility for observing the world and its economic shifts with a special clarity and then applying those observations to the mundane, day-to-day decisions of business.

Hawken's guileless face and lanky frame don't suggest the rib-crunching vigor of his building-trade days, but seeing the 38-year-old entrepreneur in action in his catalog marketing company, Smith & Hawken Ltd. of Mill Valley, Calif., gives a sense of the subtler, agile sort of toughness in him. Clad for the Marin County spring in jeans and a knit shirt, Hawken plays his position in the busy office as if he were a free wheeling shortstop. Up on his feet, with his knees loose and his hands up, with his jaw working and his amused eyes sweeping a 300-degree range, Hawken rocks on the soles of his running shoes. He seems ready to move in any direction to field the tasks as they arise: an employee's question, a balky computer terminal, a ringing telephone, a customer in the retail store a few steps away. The strength in Hawken isn't brute; it is tensile, tempered to bend, but to snap back with surprising speed and force.

"Don't let the gentle manner fool you," cautions a friend, writer David Harris, a graduate of Stanford University and the La Tuna Federal Correctional Institution in Texas. Harris did time for draft resistance, and he passed some of it by competing at penitentiary handball. A few years ago, he taught the game to Hawken. Says Harris: "On the court, he's an absolutely ferocious son-of-a-bitch."

But Hawken is willing to credit and follow a spiritual and even mystical dimension in life and to use it in business, even if he can't record it in a business plan. Thus, as he pays attention and reads the signs around him, he is open to heeding evidence as concrete as the earth we walk on or as abstract as the music of the spheres. This unusual cast of mind and diverse body of learning is what accounts for the three sides of his remarkable success:

* He is co-founder of a highly successful company, Smith & Hawken, an importer and direct marketer of high-quality garden tools. Its success lies in its novel approach to marketing. As Hawken puts it, "Our marketing strategy is really an educational strategy." Through a meticulously detailed catalog and an unusually well-informed group of employees handling customer service, the company provides its actual and prospective customers with a body of information on methods and schools of thought in gardening and on the tools themselves -- where they come from, how they are made, how they can be used, why they are good. "Then we just sit back and let our customers decide," Hawken says. Enough of them have made the Smith & Hawken decision in its four years to bring its annual revenues from $40,000 to a projected $4 million.

* He is creating the means for bringing a strategic outlook to small businesses. To Hawken, strategic thinking isn't and shouldn't be the sole preserve of the large corporation. Individuals and small businesses should and do think and plan in strategic terms. Through his writings and his speeches, and through his own consultations to scores of smaller companies, Hawken has shaped and tested a simple but distinctive set of strategic principles. These can be found in his current book, The Next Economy, which sold around 40,000 copies in hard-cover and has just been issued in paperback ($3.50; Ballantine Books; New York). The book argues that smaller companies are particularly well suited to capitalize on the reshaped world economy that is emerging, and it shows small companies how to make use of that advantage. Hawken's book also caught the eye of the corporate world, garnering favorable reviews in The Wall Street Journal, among other publications.

* Finally, he is a philosopher in the formal sense of the word. Entrepreneurs cite many factors for their success: a brilliant idea, elbow grease, stamina, good timing, the right location, patient creditors, dedicated employees. A few will also cite such intangibles as faith in God or in themselves. Rarely, however, will an entrepreneur say, "What has worked for me is my philosophy." Hawken says precisely this. And this is where his story should begin.

At 19, Hawken returned to the Bay Area after a trip abroad and a tour as a civil rights worker in the South to enroll for the 1965-66 academic year at San Francisco State University's experimental college. Plagued from birth by a chronic health problem, Hawken that year became interested in natural foods as a possible cure.

Although loath to become a food faddist, Hawken says, he began to study how America had altered its food supply. As we industrialized our farming practices in the late 19th and early 20th centuries, Hawken found, we had also industrialized the food supply itself. "We weren't cultivating the soil, we were mining it," argues Hawken. Before the nutrients got to our table, moreover, we were adulterating them with artificial additives, he concluded.

This research provoked Hawken's epiphany. He was reading a standard textbook on the soil sciences, when suddenly, an idea hit him: "I realized the soil is alive!" It isn't just dead and inert matter like sand or powdered rock, but is teeming with millions of minute organisms with their own organic systems. With that flash, Hawken scuttled his old metaphysics and took up a new sense of what the world is.

Hawken's old view cast the earth as something cold and sterile, a big, blue marble with vinyl land masses and plate-glass oceans. The earth and its soil were dumb in both senses of the word: stupid and inarticulate. Hawken's new view casts the earth as a living entity, an organism. The earth and its soil are articulate, if only we would pay attention to them; and intelligent, if only we would credit them.

Hawken's new philosophy soon served as the basis for his first major commercial venture, Erewhon Trading Co., a leader in the development of America's natural-foods business. He moved to Boston in 1966 and realized he had outrun his natural-foods supply lines. So he fell in with what was known in those days as a food conspiracy. This one was a small group of people who pooled their time and money, made a weekly station-wagon run into the countryside to find and buy organically grown food, and then returned to a small basement to divvy up some of it and store the rest. Hawken thought they would have an easier time supplying themselves if they opened a store to sell a larger volume of food to a broader public. He volunteered to take the lead: "Remember, none of these folks wanted to be a merchant!" He filed incorporation papers for Erewhon, the group turned the basement into retail space, and Hawken ran the store. Initial capital: $500.

At first he bought the food through conventional suppliers, until the day a woman asked him how he knew a bag of grain was organically grown. "Why, it says so right on the bag," he remembers saying. Then he caught himself and figured it was time to pay a little attention. He checked the origins of the grain and the rest of the store's wares with his own eyes and ears.

"Just about everything we sold was fraudulent," Hawken discovered. "It wasn't grown organically. You could get the same stuff at other stores for cheaper prices."

Hawken's solution was to integrate the business vertically. He hit the road to recruit his own network of 55 farmers on 40,000 acres in 37 states. He signed up his own trucks and rail cars. He set up manufacturing facilities in Los Angeles and Boston. He leased his own warehouses. Soon, Erewhon was growing and making and selling several hundred different products: wheat, rice, nuts, fruit, bread, cereals, pasta, peanut butter, jams, beverages, cosmetics, and more. It supplied retail stores and institutions and opened its own string of stores on both coasts. Its gross revenues rose in its first six years to about $10 million, while its work force grew to 150 employees.

Erewhon enjoyed the advantages of being a pioneer in a new field, but Hawken didn't learn much about business while he was building and running the company, he concedes. "I mainly learned what not to do. How not to treat workers, how not to plan -- although it later proved to be a good experience to reflect on."

But, as he had been taught so compellingly, Hawken paid attention to what he saw and heard in the field and in his business. His shrewd sense of which information to credit and how to use it shaped Erewhon's ingenious marketing strategy. Simply put, Hawken persuaded people to pay high prices for what were literally commodities. He did this by making the case, exhaustively and imaginatively, for the distinctive origins, good taste, and high nutritional value of his merchandise.

"We could give every carrot a pedigree," says Hawken. Thus, bags of food on Erewhon's shelves carried in loving detail the story of the produce's origins: the name of the farmer who grew it, the farmer's methods, the location of the farm, the nature of its soil, the wind and weather conditions, and the source of the water.

"We wanted customers to know why our food had better taste and better nutrition," Hawken explains. "And we also wanted to make our food interesting." The typical Erewhon store, with its rows of products bearing detailed stories of their provenance, was like a living catalog.

As the company grew, however, Hawken lost his close ties to farmers and customers. He found himself a prisoner atop the Erewhon hierarchy. In 1973, after seven years at Erewhon, he decided he had to escape. He went off to Europe, where he worked on his first book, The Magic of Findhorn, a study of a Scottish coastal village known for the abundance of its gardens.

During this time, Hawken's marriage ended. He lost his ties to and equity in Erewhon in the divorce settlement. At the end of 1974, he hightailed it back to the West Cost. Erewhon's ownership changed hands over the years and -- despite the dramatic growth in the natural foods business -- wound up in receivership in 1981.

For the next five years, Hawken earned his living as a writer and consultant while he shaped and tested his strategic principles for small business. He successfully took on three corporate turnarounds for companies in the fuel, adhesives, and jewelry businesses, occasionally sifting through the ashes of his Erewhon years to find lessons. He also served on the board of a number of not-for-profit agencies, such as the Farallones Institute, Ecology Action, and The Point Foundation. They had begun to look for ways to become self-sustaining, and Hawken tutored them on how to set strategies for entering the marketplace and build cost controls into their philanthropic work. "The challenge was to sharpen their business sense without weakening their spirit of service," he says.

He also met David Smith, now 41, his future partner in Smith & Hawken. Smith was managing a cooperative store, Briarpatch Market, and Hawken was a member. They began to spend a morning a week at a diner called Late for the Train, where they would counsel small business owners who came to them with problems of all sorts.

Through social ties, meanwhile, Hawken began to kibitz with a circle of futurists at SRI International, the vast think tank in Menlo Park. Eventually, Hawken worked with them to think through and write up a series of strategic studies of the future. This circle was working on SRI contracts for such clients as Ford Motor Co. and Royal Dutch/Shell Group of Cos.

As Hawken and others immersed themselves in huge pools of information and analysis for SRI's large corporate and government clients, they decided they should find a way to put that sort of knowledge into the hands of ordinary people and smaller organizations. Hawken quietly disputed one of the vital but unspoken premises in the work they were doing: namely, you had to be big and official in order to be strategic in your view of the future. "We were serving the institutional market for the future, but we knew there was also, of course, an individual market for the future" -- and for ways to get a strategic handle on it, Hawken says. Further, he believed that individuals and small businesses, especially existing or likely startups, were more likely than large institutions actually to act on such strategies.

Consequently, Hawken and two SRI staffers, James Ogilvy and Peter Schwartz, decided to write a popular paperback to equip ordinary citizens to do their own strategic thinking. Although Hawkens estimates that it has sold 40,000 copies, Seven Tomorrows isn't truly a popular work, since some of its concepts and passages are difficult for the lay reader to follow. However, in setting the stage for The Next Economy, it does argue for an appreciation of how economic change occurs chiefly from the bottom up through small organizations, rather than from the top down, through large organizations.

"There comes a point of diminishing returns beyond which the economic and political advantages that accrue to larger organizations are offset by organizational inefficiencies resulting from sheer size," say the authors.

The Next Economy, a solo performance by Hawken, begins to answer this call. It credits the vitality of bottom-up change through smaller businesses, breaks older molds of economic thinking, and roots much of its analysis in realities of ecology and the energy supply. More to the point, it sets forth Hawken's own strategic principles for small business to apply in addressing a changing economy. His thinking can be broken down into five broad and simple propositions:

* Pay attention. Be open to all the evidence. Search for it as widely and deeply as you can. After Erewhon began, Hawken realized years later, he saw and credited information that he would have missed in a traditional business setting. "Because Erewhon was without precedent, there were no rules to guide us," he says, "and this meant there were no blinders on us, no reason to ignore some things or trivialize them reflexively."

* Be direct. Middlemen waste time and money and block the flow of vital evidence into the eyes and ears of the entrepreneur, argues Hawken. Try to collapse as many functions as possible into your business. Do this to get closer to your suppliers, closer to your customers. "It's important for small businesses to grow not so much in sheer size as in sophistication," says Hawken. "They should strive to become more highly differentiated organisms by broadening their scope to embrace more functions."

* Understand the basic shift in the economy, from mass to information. As his book explains, every product or service is made up of two elements, mass and information. The mass is the physical stuff, usually matter and energy. Hawken defines the information as the design, utility, durability, and knowledge that are added to the mass. For the user of Hawken's principle, the key is the relationship of the two elements.

Since the oil crises of the 1970s, mass's costs have jumped as the costs of energy and energy-related materials have jumped. This puts a premium on the other element, the information. Success in the emerging economy, argues Hawken, depends on the ability to use far less mass and far more information. The market already displays a behavioral grasp of this change, contends Hawken: "Consumers wanting to preserve their standard of living are choosing those products that conform to this adaptation while shunning those that ignore it."

The sheer dollar leverage of the big company doesn't help here, Hawken goes on: "One of the reasons U.S. business is slow to grasp the kind of changes necessary to make the shift . . . is that no one can buy what is needed to make the transition. . . . To make a company more intelligent, to bring a work force together, to create and design better products, to eliminate waste, and to solicit innovative techniques and ideas from employees -- these are elements that cannot be purchased like new plants, machines, or licenses. These changes are not forbidden to big business, but they are more difficult to achieve in a large company that does not already strive for these qualities than in a smaller and newer company."

* Craft still makes a difference. The premium on information and intelligence, says Hawken, shouldn't lead reflexively to an increased use of the new information technologies. To be sure, these devices can imbue goods and services with more intelligence. This is a major reason why their use is spreading so rapidly, but this doesn't mean tomorrow's economy will be a hardware jungle of computers and robots. As Hawken emphasizes, the older virtues of craftsmanship and personal service can work just as well or even better to inform economic life. "As a matter of fact," says Hawken," they probably give you a distinct edge. The changing economy doesn't exclude anybody." Hawken's own businesses, although they aren't strangers to the new technologies, have stressed the classical virtues.

* Trust your own experience. "Don't try to figure out the market -- be it," urges Hawken. "The market is as fickle as fog in a swamp. It is constantly changing, and there is not any agreement yet as to how to measure it. How else can you explain the fact that the largest companies, the ones with the most money to spend on marketing, launch some several thousand new food products every year for supermarket shelves, and only a tiny fraction make it?"

To organize one's experience, Hawken suggests using his mass-to-information principles. He likens it to a pair of spectacles and says it will help to see patterns that were unnoticed before. Look at our cars, he says. They have shed up to 2,000 pounds of metal. But they have built microprocessors into the engine and dash: mass to information. Look at our homes. They are shrinking in size, and thus mass, but are bursting with information as personal computers and home media centers become commonplace.

"Manufacturers are shifting from duplication to simulation," he notes. "Time was, the only way you could test a car in a wind tunnel was to build a car and build a wind tunnel and put the car into the wind tunnel. Now, you can use a Cray supercomputer to simulate a car in a wind tunnel. This is virtually pure information."

But for Hawken, this sort of analysis is not idle philosophizing. He puts it into practice. For instance, Hawken was hired as a consultant by Lazzari Fuel Co. of San Francisco to develop new markets for its mesquite charcoal. The company was selling the hardwood charcoal to some Bay Area restaurants, but was barely breaking even on the business, and it couldn't add new accounts because conventional charcoal briquets were cheaper. "We ran into lots of price resistance," recalls Kay Rawlings, one of the owners at the time. "But Paul took a very wise approach to solving our problem."

He paid attention to mesquite charcoal's qualities, such as its ability to enhance the flavor of meat and fish and to sear them quickly enough to lock in their juices. Hawken told the company it was selling its charcoal short by selling it as a commodity. "The way he put it was, 'This isn't a fuel, it's an ingredient,' " says Rawlings. Consequently, the company began to urge restaurants to see the mesquite charcoal as an element in their recipes for fine food. To advance this view of it, Hawken recommended a price increase and designed a new package to explain the charcoal's culinary value. The approach is classic Hawken: Through the new positioning and the fresh package, he added information to the charcoal's mass. The company's charcoal accounts increased dramatically.

But the concepts are broad enough to apply to companies regardless of size. One of Hawken's Seven Tomorrows collaborators, Peter Schwartz, is now the Head of Business Environment for Royal Dutch/Shell, the world's second-largest company. He and others in the London office of the petroleum giant are now drawing on Hawken's mass-to-information principle in shaping corporate strategy. "You can grasp how critical this principle is for an energy company," says Schwartz. "Oil has been the fuel of this century. But the fuel of the 21st century will be gas. The key to its use is information: How do we move it economically from the wellhead to its end uses?"

At the same time, Schwartz appreciates Hawken's resolve to use his strategic principles on a smaller scale. "Strategy is simply understanding the proper connections of means and ends. Paul has the best intuitive sense of this I've ever seen. He just happens to apply it to small business." And, as he adds, Hawken's principles are powerful enough to lend themselves to exceedingly flexible use. Thus, he doesn't see Hawken following the lead,of large strategic consulting firms by offering a standardized approach. "For Paul, businesses are like gardens or snowflakes or fingerprints," says Schwartz. "They're all different, unique. You can't impose S-curves on them. You've got to let them speak to you."

If Paul Hawken were a novelist or a painter, then we would call Smith & Hawken a mature work, because it fuses his business experience and his economic philosophy into a single, successful application: the direct marketing of imported gardening tools.

The company fills up both floors of a recycled post office opposite the Mill Valley firehouse. Downstairs, a third of the 22 employees sit in chest-high acoustic cubicles and handle orders and inquiries by mail and telephone. Sometimes they post data into a computer terminal; other times they counsel a caller at length until the problem is solved. On slow days, the first floor is virtually silent. On busier days, just after a half-million-catalog mail drop, for example, the noise and bustle match the trading floor of a grain exchange. Upstairs, the imported garden tools of a dozen nations and a score of manufacturers fill supply shelves, awaiting order pickers and mailers. To the untutored eye, then, Smith & Hawken is simplicity itself: It takes the orders downstairs, it fills them upstairs. In fact, its stategy is subtler than this suggests.

For one thing, Hawken has paid attention to market conditions. He noticed how Americans hated their garden tools but the British loved theirs, how American companies made throw-away tools but the British and other overseas companies kept alive a centuries-old craft of toolmaking, and how American companies treated gardening as a chore to get through quickly while the overseas toolmakers saw it as a craft and possibly an art.

"People enjoy it," argues Hawken. "They express themselves in the garden. They want the moment to last. They want to get as deeply involved as they can."

Clearly, the Smith & Hawken approach is also direct. By eliminating middlemen, the company can sell its tool at much lower prices than a conventional distributor or retailer could. It also puts the company closer to its customers and lets it do more to shape the way they interpret the tools and Smith & Hawken itself.

It obviously puts a strong premium on information. The company's major information vehicle, of course, is its quarterly catalog. Hawken writes the copy himself, takes the photographs, designs the book. His text carefully explains the history, the nature, and the uses of the tools. "We want our tools to mean as much to gardeners as their gardens do," explains Hawken. The catalog is used to create this sense of meaning.

The company also cultivates the information base of its employees. It hires people with an interest in its ethos of quality and service, pays them about $10 an hour -- well above the normal rate for catalog order clerks -- offers them incentive stock option plans after two years, and expects them to learn the products and business itself, largely through job-rotation and the sharing of such tasks as data entry and grabbing the ringing phones. "Everyone here can talk tools," says Hawken. And task-sharing and job-rotation create more than just knowledge, argues Laura Burgess, the office manager. "It creates a sense of mutual sympathy. We all know what our colleagues are doing; we understand how it connects to the whole, and it gives us a sense of almost organic unity."

The craft lies in the tools, the sense of service lies in the staff, and Smith & Hawken's people trust in their own experience of their own products. "We love the tools," says 39-year-old Lou Wheeler, who does his own gardening on the weekends. "We know we're going to make our customers feel good by getting the tools and letting us help them to use them."

Although there is a sympathy at the center of Smith & Hawken, its corporate culture also looks outward to its customer base. For this reason, and because the company doesn't get locked into rigid ways of doing things -- "What makes it fun here is that we make it up as we go, and come into the office every morning wondering what we'll think to try next," says Laura Burgess -- it might be evolving into a new and interesting form. Once a tool hooks a gardener and turns the person into a customer, the company is committed to serving the customer's gardening interests in the fullest sense. "We'll frequently help customers to find and get things we don't sell," says Wheeler.

Smith & Hawken has joined Brookstone Co., a unit of The Quaker Oats Co.; and Gardener's Eden Inc., an offshoot of the highly successful catalog marketer Williams-Sonoma Inc., in the arena of high-quality garden tools. But Smith & Hawken's sense of personal commitment and involvement with customers can give the company an edge against even those foes. As the customer base grows, and as customer-driven services become diverse, Smith & Hawken is likely to become virtually a membership organization -- a vast garden club, tied together by the mail and the phone, and tutored and staffed at the center by the Mill Valley professionals.

This freedom to grow by following the wind and the slant of the ground is what pulled Hawken into business 18 years ago and what keeps him there today. He stepped onto the bottom line in the middle 1960s, a time when members of his generation were taking to the streets to protest the involvement of American corporations in Vietnam. Characteristically, Hawken paid close attention to what was happening then and drew a distinctive conclusion: "If a corporation has the freedom to create such evils as napalm and Agent Orange, then think of the freedom corporations have to do good." Hawken pauses for a pulse beat and then concludes:

"Of course, this freedom would mean a lot more if a lot more of us would get into business and use it."

Last updated: Jun 1, 1984




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