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HOW TO INCORPORATE

It's Not Easy Being Green

Jeffrey Hollender and Alan Newman disagreed about strategy, fought bitterly -- and created two successful companies. They'd set out to change the world, but what they really changed was each other.
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Jeffrey Hollender was clearly enjoying himself. It was a misty evening in January, and he was the guest of honor at a tony Manhattan party, thrown to mark the release of his new book, What Matters Most. The setting was the "sky terrace" of the Galleria, an exclusive residential tower on the city's Upper East Side. Dashing and handsome in a dark jacket and tie, Hollender moved through the crowd with characteristic ease, stopping every so often to marvel at the glittering views of the Midtown skyline. In What Matters Most, Hollender, 49, tells how he and his company, Seventh Generation, a manufacturer of environmentally friendly household products based in Burlington, Vt., fell in with the likes of Anita Roddick of the Body Shop, Ben Cohen of Ben & Jerry's, and other civic-minded businesspeople -- entrepreneurs determined to prove that a progressive, values-based company can make a difference. Early reviews were glowing. "Reading this book may help you look at how your company affects the world," noted a Harvard Business School report. An official reviewer for Amazon.com called Seventh Generation a "poster child for corporate conscience." After the party, Hollender began a nationwide speaking tour, with stops at the Haas School at Berkeley and Northwestern's Kellogg School of Management.

But not everyone was impressed. In fact, Alan Newman, the man who had founded Seventh Generation in 1988, was somewhere near irate. A few weeks before the book party, Newman, now CEO of Magic Hat Brewing Co., a craft beer maker in Burlington, sat at the desk in his cluttered office, bearded and barefoot as usual, and composed an e-mail to Hollender:

"I've been aware that you've been referring to yourself as the founder of Seventh Generation for some time now. Frankly, [I] have been ignoring it. That part of my life is long over and I am happily onto the next phase. But it is a problem for me when reporters show up to discuss Seventh Generation, which happened recently, and they are surprised that: (a) I clearly was the founder, and (b) you were not around or involved until well after the name change to Seventh Generation, the positioning, the product direction, and (multiple versions of) the first catalog had been produced and mailed." He went on: "While we may always have a different point of view about what happened at the end of our relationship, the founding of the company is a matter of record and not subject to 'personal perspectives.' I only hope you do not take this opportunity to present yourself as being the founder of Seventh Generation....It just isn't so and can only lead to embarrassment for both of us."

Hollender responded immediately, changing passages in his book and editing Seventh Generation's marketing and press materials. But that did little to ease tensions that had been simmering for years. Newman had been one of the original wave of radical Vermont entrepreneurs (see "What Is It About Vermont?" page 116), a dreamer who went into business less to make money than to change the world. Seventh Generation was his baby, and he had infused it with all his hippy sensibilities. Hollender, a New York City businessman who had founded two previous ventures, joined Seventh Generation later, bringing new levels of marketing and financial sophistication -- as well as ambition -- to the company. Together, Newman and Hollender, with their lofty goals and unusual business culture, enjoyed a white-hot growth streak -- until those same values collided head-on with the brutal realities of running a business. The partnership unraveled amid circumstances that remain murky and contentious even today, and the company appeared to be doomed as well, teetering on the brink of bankruptcy. But somehow, Seventh Generation managed not only to survive but to thrive, as have the two entrepreneurs -- although the beliefs of both men, and their philosophies about entrepreneurship in general and socially responsible businesses in particular, have changed in ways neither would have thought possible.

Alan Newman, 57, is something of a local celebrity around Burlington. He has a Santa Claus-like beard and often wears vintage leather motorcycle gear. When it's warm out, he rips around town on a bad-ass Kawasaki, his beard flapping in the wind. When he sits at an outdoor table in downtown Burlington at lunchtime, a stream of passersby call out his name, stop by and squeeze his arm, or shout hello from their Volvos.

Though not a native Vermonter, Newman might make an excellent state mascot. After living on a commune in Oregon, he and his wife, Judy, moved to Burlington in 1970, joining so many other back-to-the-landers looking to flee their harried urban existences. He became an entrepreneur because he had nothing better to do. An environmental activist with no business training and a resume that was little more than a string of odd jobs, he was drawn to the idea of running a business with a strong social mission. In 1983, he helped launch a retailer called Gardener's Supply with his friend Will Raap, who still runs the place today. The driving idea was that gardening and sustainable agricultural and environmental practices improve communities and can save the planet. Running a business was a blast, Newman found, and three years later, he launched a new venture -- Niche Marketing, which advertised and distributed products for progressive companies and nonprofit groups, such as a militant left-wing T-shirt maker and a manufacturer of water-saving showerheads.

One of Niche Marketing's clients was a Washington, D.C., nonprofit, Renew America, that developed and sold household devices that conserved energy. In the summer of 1988, Renew America tried to sell Newman its catalog business. He wouldn't buy it. After failing to find a buyer elsewhere, though, the nonprofit simply handed it to him. Newman didn't like the name, and during a brainstorming session, one of his employees, a Native American woman, came up with a new one -- Seventh Generation, a reference to an Iroquois saying that, "In our every deliberation we must consider the impact on the next seven generations." Later that year, the first Seventh Generation catalog appeared. Its tagline: "Products for a Healthy Planet."

At about the same time, Jeffrey Hollender was having an epiphany of his own. Hollender had been raised on Park Avenue in New York City, but his goals were much the same as Newman's. Eager to do something that would have an impact, he had dropped out of Hampshire College after a year and a half and in 1977 moved to Toronto, where he founded a nonprofit called the Skills Exchange of Toronto, which offered courses such as "Introduction to Meditation" and "Marxist Thought." His father, a successful advertising executive, was appalled and grew even more concerned when his son was arrested in Canada for failing to file proper work permits. Hollender moved back to New York City and started a for-profit version of the business, the New York Network for Learning. This time, Hollender was determined to make money. His father was an investor and an adviser, and the courses included "How to Meet Men" and "How to Lose your Brooklyn Accent." One offering, "How to Marry Money," landed Hollender on The Phil Donahue Show -- accompanied by one of his lecturers, Joanna Steichen, who had married photographer Edward Steichen when he was 50 years her senior. The Donahue audience took great pleasure in heckling the pair, accusing both of being unscrupulous money-grubbers. Wiping off his stage makeup after the show, Hollender wondered: "Is this what I have become?"

He was 28 and his lofty goals were starting to seem distant. At the same time, the buzz about his classes was fading, and the company needed to shift direction if it was going to survive. Working with an executive from the Waldenbooks chain, Hollender decided to offer taped, rather than live, lessons. The timing turned out to be perfect. Books on tape had grown increasingly popular, and Hollender soon found himself sitting on a lucrative library of material. In 1985, Warner Communications bought Network for Learning for more than $2 million.

Vermont was teeming with entrepreneurs who believed they had a better way to run a business. "We smoked way too much pot, stayed up too late at night, and talked about how to change the world," Newman says. "We were full of ourselves. It was so much fun."

Hollender became head of Warner's new audio book division. He was the corporation's youngest division president, often hobnobbing with high-profile executives in private dining rooms across Manhattan. But Hollender grew bored. Finding the lavish lifestyle less than fulfilling, he quit to devote himself to what he hoped would be a redeeming project -- a book called How to Make the World a Better Place. Research for the book led him to Vermont, a state teeming with entrepreneurs like Alan Newman, who believed that they had a better way to run a business -- with emphasis on environmentally friendly materials, fair dealings with suppliers, and generous benefits for their own workers. They were also spending long hours debating how to get the message out to the rest of the world. "We smoked way too much pot," says Newman, "stayed up too late at night, and talked about how to change the world. We were full of ourselves. It was so much fun."

Newman and Hollender met when Hollender traveled to Vermont as part of his research. At the time, Newman was growing increasingly serious about Seventh Generation. Sales from the first catalog had met expectations, and he sensed that the company had a real shot at success. But the company needed money. As it happens, raising money is one of Hollender's great talents. Neither man remembers connecting during their initial meetings, but their business interests clearly coincided. In early 1989, Hollender helped Newman write a business plan. He shopped the new plan to investors -- most of them friends who had invested in his previous venture -- and raised $850,000. Under the deal, Hollender and Newman would each own 23% of company stock. There were about 40 other shareholders, none of whom would own more than 3%. Hollender, who took the title of CEO and chairman, continued to live in New York City and commuted to Vermont a few days a week. He was mainly in charge of financing and product development. As president, Newman oversaw marketing and day-to-day operations.

With the new money, the company moved to new space in nearby Colchester. Newman quickly transformed it into a cheerful hippy den. There was a Ping-Pong table in the warehouse, free Ben & Jerry's, and chalkboards in the bathrooms where people could write things about the company they didn't feel comfortable saying out loud. The main conference room, where Newman held staff meetings, had no table or chairs. Only pillows. No matter how busy the company was, he conducted weekly "check-ins" at which every employee was invited to report on new projects or problems or just about anything. Some stuck to business, others discussed conflicts with co-workers or troubles at home. The idea, Newman says, was to create a culture of absolute honesty in which employees would not be hampered by fear of admitting mistakes or suffering disapproval. The way Newman saw it, such fears dominated most workplaces, which led people to hide or cover up errors. He even launched a policy known as "Five Dollars for the Best Mistake" -- rewarding people for admitting and taking responsibility for their missteps.

Hollender, for his part, kept a small office in midtown Manhattan with an assistant and a staff of about five. He stayed in close contact with Newman on the phone, speaking to him several times a day. The office culture in Vermont, he says, was "very different than the one I might have created." But he adapted -- sitting in Newman's beanbag chairs without complaint, though he conducted his own meetings in a smaller conference room outfitted with a table and chairs. Once in a while, he drew the line -- "Alan wanted to have a nap room," he says -- but he put in long hours and tried to remain open and honest with employees. That got harder as the company began to grow and evolve. "I didn't have everything under control," he acknowledges, "and it would have been misleading to create that appearance. When things were uncertain, I let people know that they were."

But things seemed to be coming together. A March 1989 profile of the company in The New York Times painted Newman as the prophet of a new environmental movement. The article quoted him predicting that the watchwords of the new decade would be recyclable, renewable, and biodegradable. The story was a publicity windfall. By early 1990, monthly orders had jumped from fewer than 600 to more than 7,000. Earth Day 1990 was fast approaching, and Newman and Hollender could feel the momentum building. They expanded their product line like crazy, adding everything from beeswax crayons to biodegradable panty-liners to chemical-free carpet deodorizers ("with flea-chasing herbs!"). They hired some 80 new employees and drafted plans to mail three million catalogs.

Reporters began calling regularly. Most stories focused on Seventh Generation as an environmental pioneer, but reporters were also struck by the unusual pair that ran the company. The Associated Press called Hollender and Newman the "odd couple." People magazine noted that "Hollender favors pin-striped business suits" while "Newman's business attire consists of Patagonia shorts and Day-Glo green sunglasses." And yet, as managers the pair seemed deeply complementary. Newman inspired loyalty through sheer charisma, while Hollender was the indefatigable worker who led by example. "I was the emotion and Jeff was the intellect," Newman says. The partnership was working.

At the end of 1989, sales of catalog products were nearly $1 million; by the end of 1990, they topped $7 million. Hollender raised an additional $5 million and outlined sales projections for 1991 of $20 million, an increase of some 300%. Things were moving fast, and there was little time to talk. At one point, Newman and Hollender got word just before they were scheduled to depart for a conference in Los Angeles that the event had been canceled. They went anyway, figuring they'd have the roundtrip plane ride to catch up and strategize.

If the two had managed to slow down for a moment, they might have noticed that a major shift was under way in the marketplace. The economy had slowed and was on the verge of a deep recession. Iraq's invasion of Kuwait, and the subsequent Gulf War, further dampened things. Just as suddenly as their switchboards had lit up, the phones at the Seventh Generation office went silent. "It was like people put down their telephones and turned on CNN," says Newman. "The world had changed, but Seventh Generation hadn't."

As 1991 wore on, it became clear that hitting $20 million was a pipe dream; even remaining flat at $7 million would be a challenge. "It was like falling through the air and not knowing where the ground is," Hollender recalls. "It was the most stress I can imagine." Indeed, he had raised all the capital, and now it was his wealthy friends who had the most to lose.

In late 1991, the company dismissed about 50 employees, some of whom had been with Newman since his Niche Marketing days. A few months later, even more workers were laid off. Newman took the second round of layoffs particularly hard and wasn't sure how to proceed. "We hit a wall and had to reinvent ourselves," he says. "I was burnt out." What he needed was time to think things through. At the beginning of 1992, he told Hollender that he would be taking a six-month sabbatical.

Hollender was livid. He had resisted his own impulses to flee and felt Newman was abandoning him. "I thought, 'If you're leaving now, don't bother coming back."

Hollender was livid. He had resisted his own impulses to flee and felt Newman was abandoning him. "I was so angry and hurt," he says. "I thought, 'If you're leaving now, don't plan on coming back." Further complicating matters, the two men had begun to harbor deep differences about the company's direction. Despite the slumping sales, Newman remained confident in the catalog business. Hollender, on the other hand, believed that Seventh Generation's true potential was in becoming a full-scale consumer brand. His plan was to narrow the company's range of products, mass-produce popular items like recycled toilet paper, and retail the goods under the Seventh Generation label.

Such differences were left unresolved when Newman departed. His goal was to get away from the business, clear his head, and think. He hung out with his daughter, Zoe. He learned to play bass guitar. When he was good enough, he started playing with a rock band composed mostly of Seventh Generation employees. He heard from friends around town about Seventh Generation, but for the most part, he didn't call in. "Jeffrey was decidedly cold," he says. "I thought I would give him some space."

Hollender was doing some soul-searching of his own. He had been shaken by the experience of firing more than fifty people -- many of whom he had hired in the previous twelve months. "It was a very painful period," recalls Arthur Gray, a Seventh Generation investor and one of Hollender's closest advisers. "I don't think he lost his belief in the company, but he was sorely tested." Amid the strain, Hollender was in no mood to let Newman waltz back into the company. In the early summer months of 1992, after Newman wrote Hollender a letter outlining his ideas about repositioning Seventh Generation, Hollender wrote back informing him that he no longer had a job with the company. The letter stunned Newman. "I felt he had stolen my child," he says. "I knew he was unhappy with my leaving, but I thought we were in total agreement [on my coming back]." Gray, then chairman of Seventh Generation's board, says he shed no tears over Newman's departure. "Alan Newman was never interested in making money," Gray says. "He was one of those people who believes it doesn't matter. I saw Alan as an impediment."

As personal as it was, the struggle between Hollender and Newman reflected one that has long split the wider community of so-called green business owners. The issue is a basic one: What does it mean to run a socially responsible business? To Newman's thinking, Seventh Generation had more in common with activist groups like Greenpeace than it did with traditional corporations. He had no problem with rapid growth, but he envisioned Seventh Generation's catalog, as he had that of Niche Marketing, as a distribution channel for small, independent companies whose products might not otherwise reach consumers. Hollender advocated a different approach. The way he saw it, a company stood a better chance of influencing the world by developing leverage in the mainstream marketplace, building strong brands that can compete with the big players.

They were hardly the first business owners to grapple with such issues. The green business world is still reeling over the 2000 decision by Ben Cohen and Jerry Greenfield to sell their ice cream company to the Dutch conglomerate Unilever. The sale drew new lines in the battle, says Judy Wicks, owner of Philadelphia's White Dog Cafe and a former girlfriend of Ben Cohen, who went so far as to organize a group to try to buy Ben & Jerry's. Because their duty is to serve shareholders, not stakeholders, Wicks says, large public companies have a hard time being socially responsible. Socially responsible entrepreneurship, she says -- and many in Vermont agree -- is not about growing large or building brands. "What happened to Ben & Jerry's was a wake-up call," she says. "Twenty years ago, the socially responsible business movement was focused more on business practices -- not on ownership and size. But even the most socially responsible companies can end up adding to the concentration of wealth and power."

Obviously, many entrepreneurs disagree. "If you sincerely want the world to be a better place, and you believe business is a way to get there, then it's pure academic nonsense to set some arbitrary size limit above which you cannot be a responsible company," says Gary Hirshberg, who founded the organic yogurt maker Stonyfield Farm in Londonderry, N.H., in 1983. In 2001, Hirshberg stirred up his own brouhaha among do-gooders by selling a stake to the French dairy and bottled water giant Group Danone. Earlier this year, Danone upped its ownership to more than 80%. The way Hirshberg sees it, partnering with a Goliath like Danone means he can do good on a grand scale. "Things happen a whole lot faster when a company like Danone flexes its muscles," he says.

By the winter of 1992, Newman had his own answer to the conundrum. He had pleaded with Seventh Generation's board to be allowed to rejoin the company. Not only was his request rejected, he was also denied a spot on the board. He considered legal action but decided against it. "It's not my style," he says. And so, having lost control of Seventh Generation, Newman vowed never to start a business again.

Less than a year later, walking down Church Street in downtown Burlington, he ran into Bob Johnson, his old friend and former warehouse manager. Johnson had quit Seventh Generation and was now in the beer business, working as a brewer for an East Coast beer maker. But what he really wanted to do, he told Newman, was launch his own brewery. "Well, why don't we?" responded Newman. A few months later, their first test brews were ready and the partners rented a small space in downtown Burlington. Their new venture, the two men decided, would be different from Seventh Generation. Johnson had never gotten over the frustration he felt when warehouse employees were having check-ins or playing Ping-Pong instead of getting the orders out. Newman, for his part, was re-thinking everything. Did social responsibility require absolute honesty and regular check-ins, he wondered. Or was it possible to manage in a more traditional manner -- and still do the right thing? In any case, he was willing to try again. Money was tight, and they were funding the project mainly on credit cards. But then something fortuitous happened. Newman got a phone call from Hollender's attorney.

Seventh Generation had changed since Newman's departure. "Alan's leaving was a very difficult transition for the company," Hollender says. "I felt like we had endless healing processes." Employees loyal to Newman viewed Hollender with suspicion -- leading Hollender to hire a New Age consultant to come in and take a "spiritual inventory" of the place. The guru, who went by the name of Malachi, led a series of sessions called "withholds" in which small groups of employees vented their deepest feelings and frustrations to one another.

But that healing process was the least of Hollender's problems. Seventh Generation was on the ropes, and Hollender, frankly, had run out of people to ask for money. His options, as he saw them, were to seek venture capital or take the company public. Neither option seemed particularly consistent with social responsibility. On the other hand, you can't do much good from bankruptcy court. So in 1993, on the advice of the board, he decided to take Seventh Generation public.

To do that, he needed Newman's stock. Newman's first reaction? "Over my dead body." But then he started thinking -- the brewery did need cash. Eventually, a childhood friend of Hollender's, a New York City investment banker, bought Newman's stake for about $200,000, which went right into the new venture. The cash was serendipitous, to say the least, and Newman later named the brewery for his ability to pull things together at the last minute -- like a rabbit from a magic hat.

The deal allowed Hollender to proceed with attempting to sell his struggling company to Wall Street. It was a pitch unlike anything the Street had seen. He printed his prelude to going public on 100% recycled paper. Plus, the statement was, as The New York Times termed it, "unusually candid." It conceded that the company's losses from the years 1991 and 1992 totaled $3.4 million, that its debt was so severe that 30% of its catalog orders still stood unfilled, and that, though it had recently decided to make a line of branded products, it had no money for shelf space and no intention of paying for it. "Without guarantees from retailers that such projects would be welcome," the Times reported, "a real question exists whether Seventh Generation can pull it all off."

Nonetheless, on November 8, 1993, Seventh Generation offered 1.2 million shares of stock to the public, at $5 a share, and 1.2 million warrants, at 10 cents a piece. The company managed to raise $7 million. Getting the money and seeing Seventh Generation's name in the papers again were energizing, but it didn't take long for doubts to set in. As 1994 wore on, Hollender realized that the ongoing costs of being a public company were enormous. The time and expense of dealing with accountants, attorneys, and investors was a massive headache. And Hollender's heart sunk when the company's stock price plummeted.

What's more, Seventh Generation still lacked the money it needed to make a real push into retail. So Hollender made his gutsiest move ever: He decided that Seventh Generation would sell its struggling catalog business, even though it accounted for 80% of revenue. He found a buyer in Gaiam, a healthy-lifestyle products company in Broomfield, Colo. Most of the staff either quit or went to work for Gaiam, leaving Hollender to rebuild Seventh Generation essentially from scratch. He poured the proceeds into developing products like bleach- and dye-free dish and laundry soaps, recycled toilet paper, and other paper products made from recycled materials and began building relationships with chains like Whole Foods and Wild Oats, as well as mainstream supermarket retailers like Kroger. Before long, the company was making progress -- though you wouldn't have known it from its stock price, which was stuck at about 70 cents. So in 1999, again on the advice of the board and with the help of wealthy New York friends, Hollender bought back his struggling company for $1.30 a share.

Turning to Gray and a new crew of consultants for advice on yet another repositioning, Hollender decided that his products needed to appeal not only to a sense of moral and ethical duty but also to health consciousness. The idea appealed to him on a personal level, too. His son, Alexander, then 9, suffered from severe allergies and asthma, and one of the things that helped the Hollenders keep him healthy was the use of Seventh Generation's mild, chemical-free products. The consultants eventually helped him reposition Seventh Generation under a new tagline: "Healthier for You and the Planet."

Today, Seventh Generation is based in a gleaming office building in downtown Burlington. The Ping-Pong table, beanbag chairs, and pillows have been replaced with more traditional office furniture. Hollender himself lives outside Burlington in a 6,000-square-foot mansion overlooking Lake Champlain. Two years ago, the house, constructed from untreated woods and equipped with water-saving laundry equipment and compact lighting, was the subject of a story in the Burlington Free Press under the headline "Greenhouse" -- which raised the hackles of many hard-core Vermonters, including more than a few former Seventh Generation employees. "There is no way that five people living in 6,000 square feet, miles from work, schools, and shopping, can be 'environmentally friendly' or sustainable for humanity in the long run," one reader wrote.

Hollender makes no apologies -- for his home or for the direction in which he's taken Seventh Generation. He continues to believe that the best way to make an impact is to head straight for the American mainstream and is not shy about battling giants like Procter & Gamble on their own turf, pushing hard for market penetration in mainstream supermarkets in health-conscious cities such as Denver, Austin, and Seattle. Though Seventh Generation's prices are generally about a dollar more than mainstream brands, the products have attracted customers willing to pay a premium.

Nor has Hollender abandoned the company's original values. Seventh Generation continues to demand brutal honesty. Hollender still conducts check-ins with his 30 employees regularly, and every employee participates in a painstakingly frank 360-degree review process. Bonuses are awarded not only on the basis of having achieved key business objectives but for exhibiting certain "trust behaviors" -- such as "listening actively without interruption." The company also turned heads, in late 2003, when it published its first Corporate Social Responsibility Report. The document details not only growth in markets like Denver, where Seventh Generation's chlorine-free baby diapers outsell all other brands, but also points out the ways in which the company has fallen short of its ideals. The fragrances in the green apple dish liquid and mint toilet bowl cleaner, for example, are still synthetic, the report says, though the company is looking for natural replacements. With such moves, Hollender hopes to establish Seventh Generation as a role model for corporate social responsibility. "Businesses no longer have a choice whether to behave in a moral fashion or not," he says. "The world will soon expect it from them."

Newman's Magic Hat, on the other hand, continues to build its customer base one New England community at a time. The brewery is a 50-employee operation whose best-selling beer, an apricot-tinged pale ale called No. 9, has helped attract fans in 12 eastern states. But its main focus remains on its hometown, Burlington. About 15 people work in a South Burlington warehouse Newman calls the "Artifactory." A retail store is festooned with vintage televisions, Mardi Gras beads, and other artifacts. Brews have names like Fat Angel, Blind Faith, and Thumbsucker. All employees have fanciful titles. The director of sales is the Ambassador of Ales and Odd Notions; the PR rep is the Minister of Fermentation Elation Relations. The company's official name is Magic Hat Brewing Co. and Performing Arts Center, and it shows: Each year, Magic Hat sponsors several arts and music festivals in Burlington, as well as about 20 other concerts, mainly at New England venues. The biggest event of the year is the Magic Hat Mardi Gras weekend in late February -- in which Newman leads thousands of drunken revelers, parading through Burlington's snow-covered streets wearing a goofy, fruit-covered "magic hat."

Ask Newman if he's held a check-in lately, and the answer is not what you'd expect. "I'm fed up with the touchy-feely employee-empowerment crap," he sn
orts.

Newman runs the show from a cluttered corner office. He almost never wears shoes and often takes naps on a purple velvet couch under his collection of psychedelic posters. Magic Hat has many of the trappings of a "socially responsible" company, sponsoring arts events, donating to a local rape crisis center, and generally being a good neighbor. But in other, important ways, Newman's feelings about the "social responsibility" label have changed. The phrase, he believes, gets tossed around so often now that it's nearly meaningless. Does it mean offering health benefits to employees? Donating to charity? Newman's answer to the question has been to avoid the label altogether. He chooses his do-gooder battles carefully, promoting causes like rape prevention, AIDS awareness, and safe sex -- issues often linked to alcohol use. His management style has also shifted. Ask Newman if he's held a check-in lately, and the answer is not what you'd expect. "I'm fed up with the touchy-feely employee-empowering crap," he snorts. He never lost his fun-loving free spirit, but decisions at Magic Hat tend to come from the top. "There's much less participation, and much less illusion of participation," says Newman. "There's no need to be disrespectful or mean, but we have a job to do, a budget to live to. That's the driving mission of the organization."

As for Hollender and Seventh Generation, Newman says his "voodoo pin phase" is over. That's for the best, he says, because "Vermont is small, and Burlington's even smaller." In fact, in the late 1990s, Newman and his former partner were forced to be cordial with each other when they discovered that Hollender's son and Newman's daughter were attending the same private elementary school and were becoming friends.

But Newman still can't bring himself to buy Seventh Generation's recycled toilet paper -- once his favorite catalog item -- when he sees it at a Burlington grocery store. "When I left, I made a conscious decision to stop using all that stuff," he says. "It was a painful reminder, and I didn't need it. Now, I pass it in the grocery store and think, 'Hmmm, they've got quite a lot of shelf space.' But that's as much thought as I give it."

Sidebar: What is it about Vermont?

Ben and Jerry may be the most famous of Vermont's entrepreneurs, but they're not the only ones. In a state where there are 600,000 citizens and few jobs with big corporations, starting or working in a small company is not so much a choice as a necessity. And that's the way most Vermonters like it. "You get enough quirky, creative people up here doing their own thing, and it's inspiring," says Elisabeth Robert, CEO of Burlington-based Vermont Teddy Bear. "There are always a bunch of good ideas floating around."

The idea that running a company could be a vehicle for social change has been part of Vermont's business culture at least since the 1940s, when a New Yorker named Lyman Wood moved to Burlington and founded Garden Way, a mail-order gardening supply business. Wood's goal was to "live the garden way of life" and his approach was "not for profit only." But Garden Way was a big success, and Wood later served as a mentor to younger do-gooder entrepreneurs, including John Sortino, founder of Vermont Teddy Bear, and Will Raap of Gardener's Supply. By the 1970s, the state got involved, doling out loans to would-be business owners, and socially oriented private venture groups, such as Northern Vermont Lending Partners and the Vermont Food Venture Center, soon followed suit. In 1990, Ben Cohen helped found Vermont Businesses for Social Responsibility, the largest state group of its kind, with more than 450 members.

Since then, Vermont has become as much a brand as an address. Businesses like Green Mountain Coffee Roasters, based in Waterbury, and Orvis, an outdoor gear retailer in Manchester, make direct reference to the state's landscape in their marketing materials. That makes sense to Bernie Sanders, a longtime mayor of Burlington and now the state's independent representative in Congress. "Would you rather have a product that was New Jersey pure or Vermont pure?" he asks. Sanders, a hard-core progressive who consistently votes in favor of pro-worker, pro-abortion rights, and pro-environmental legislation, says he's also pro-entrepreneur. In the '80s, when he was mayor of Burlington, he helped oversee the conversion of old warehouses into small-business incubators. Now he's happy to see the progressive meet the practical in the socially responsible business movement. "Bright entrepreneurs recognize that there's a lot of political and cultural excitement in Vermont," he says. "It attracts a different type of imagination."

Jess McCuan is a staff writer.

Last updated: Nov 1, 2004




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