Diaper Dan

Diaper DanThanks to the current baby boom, Daniel Gold's new diaper service is ahead of projections. The next step: to become one of the first in his industry to franchise

As career switches go, few have been as odd as Daniel Gold's. Two years ago, as a Manhattan lawyer, he was operating in the high-octane arena of corporate takeovers. His days were filled with proxy contests, greenmail strategies, and junk-bond machinations. But like a refugee from The Bonfire of the Vanities, he abandoned his Fifth Avenue law office for an earthier field of play. Now Gold is better known as Diaper Dan.

It happened that Gold was looking to get out of law anyway and start a business of his own. And if he needed a push, the collapse of the junk-bond market provided one. In seven and a half years of legal work he had reviewed thousands of prospectuses, and he had a few ideas about what businesses he might want to try. He had a couple of false starts: in April 1989 he started his first business, Vision Capital Associates Inc., a venture capital consulting firm that still exists but has no active clients. That summer he opened a West Hampton, N.Y., restaurant called Crabby Dan's, but after one week of operation he closed it because he was unable to secure a permit. Restless and anxious for a big hit, Gold continued to cast about for business opportunities. The idea that most fascinated him was hatched as he roamed malls and department stores. "There were baby carriages everywhere," he says. "I figured there was a birth boom under way, and I thought there might be something in the baby market."

In his orderly, lawyerly way, Gold went to a library and did some research. Indeed, the country was in the midst of a boom. Births had risen steadily from 3.7 million in 1986 to 3.8 million in 1987 and then to 3.9 million in 1988. By 1989, when Gold began his research, they were topping 4 million and fast approaching the magnitude of the postwar explosion's peak years.

What particularly intrigued Gold, however, was that most of the media coverage also mentioned diapers. Some 17.1 billion paper and plastic diapers are sold each year in the United States, Gold learned, and they end up in the trash. More than 1 billion tons of wood pulp and 70 tons of plastic are used annually to make a product that lasts a few hours. With the average disposable-diapered tyke going through some 8,000 diapers before being toilet trained, each contributes nearly 2 tons of refuse to the country's overburdened landfills. The disposables make up only about 2% of municipal solid waste, but they have come to symbolize a throwaway society run amok. Cotton diapers, on the other hand, are the original curbside recyclables. And given the solid-waste space shortage, the debate has reached such a pitch that a number of state legislatures are on the verge of taxing disposables or banning them outright. If there was a market begging to be served, Gold's research showed, this was it.

Since their introduction in the mid-1960s, disposable diapers had captured 85% to 90% of the market. They had become a $3.5-billion industry for Procter & Gamble (Pampers and Luvs), Kimberly-Clark (Huggies), and Weyerhaeuser (private labels), and they had driven countless diaper-delivery services out of business. Only about 200 remained, mostly mom-and-pop outfits with a handful of trucks.

But as environmentally concerned new parents began turning to cloth diapers, the surviving services were swamped with demand. The landfill brouhaha had a big hand in the revival, and so did new technology. Cloth diapering was easier than ever -- Velcro tabs on the covers had replaced safety pins -- and new deodorants minimized diaper-pail odor. Moreover, Gold notes, there was a return to basics among upscale mothers older than 30 having their first child, a sense that it was stylish and more healthful for the baby to wear natural fibers. Diaper services had always been cheaper than disposables, about $10 to $14 a week versus $15 to $20. But now it was a matter of choice, not economics.

In any case, the industry suddenly was thriving. Diaper services reported growth rates surging from 12% in 1987 to 40% in 1989. Some were up by 200%. Customers were being wait-listed from coast to coast, and maternity wards were firming up the trend by switching to cloth. In Seattle alone, 20 of 23 hospitals used cloth diapers. And if hospitals use cloth, many parents figure, it must be the right thing to do.

Now that Gold had a potential business -- a diaper service -- he needed a good location. New York City, he knew, was not it. Rent, labor, and other costs of doing business were just too high there. "Getting anything started in New York is just a nightmare," Gold observes.

Washington, D.C., 250 miles to the south, looked more promising. For one thing, Gold knew the territory. He had spent four years at the Securities and Exchange Commission and a year with a Washington law firm before going to New York. For another, the demographics looked promising. Washington had hordes of government employees, and by Gold's reasoning they would be a socially aware group, cognizant of the environmental debate. Washington also boasted a huge number of affluent families and educated working mothers, ideal for the premium service he planned to run. And the ultimate end-users -- babies -- were in good supply. The metropolitan area recorded 63,000 births in 1989. In fact, childbirth-education classes in the Washington area were oversubscribed.

What's more, Washington was "still a kind of folksy southern town," Gold says, one without the predatory business ethics of New York. "I saw an opportunity there to work with other businesspeople like myself to get things started, to help me bootstrap." So in December 1989 he packed up and moved down. By that April he had incorporated as Diaper Dan's Delivery Inc. And in May he signed on his partner, Dana Goldman, a 29-year-old Washington lawyer. Like Gold, she wanted to get out of law and into the wider world, and she saw Diaper Dan's as blending business with social responsibility. If nothing else, the company would have plenty of legal advice.

Right from the start, Gold knew he wouldn't be content with just running a few diaper vans around the capital area. His background suggested something more ambitious. He had completed college in just two years. At California Western School of Law, in San Diego, he had served as editor of the California Western International Law Journal and won awards in national moot-court competition. He had gone on from there to pick up an M.B.A. and was already at work on a master's degree in taxation. "A headhunter told me to quit going to school," he says with a laugh. "He said my parents were already proud of me."