Tom's of Maine founder reinvents for-profit sustainability in his second company

Editor's Note: Due to the interview's popular reception, Mainebiz has published an extended version here.

Three days after signing the papers to sell his iconic Tom's of Maine to Colgate-Palmolive Co. in 2006, Tom Chappell and his son Matt went to Wales to hike. Two weeks of daily treks for 12 hours caused a lot of discomfort, mostly in what he wore.

“I was quite annoyed by what I had to wear,” he told Mainebiz in a recent interview at his office on Main Street in Kennebunk, where he runs his second-act company, Ramblers Way Farm, in a restored 1790 building that is now certified to the LEED gold standard.

Chappell noticed his choices for the layer of fabric next to his skin were Capilene, wool or polyethylene. None worked satisfactorily.

“The Capilene developed a body stench I couldn't get rid of if I washed it. And wool is scratchy and bulky,” he says. “I came up with the idea that I needed something that would dry out quickly, wick moisture from my body and be warm so I didn't freeze to death as temperatures dropped later in the day.”

The idea for his second company emerged from that discomfort. Chappell focused on wool fiber because it is hollow and acts as an insulator to keep the cold out and the warm in.

He returned to Maine and researched sheep that produced a very fine fiber, as he also wanted his fabric to be light weight. The most available sheep in the United States whose coats can be made into fine fiber are Rambouillet. They thrive in Montana, where he sources their wool, though he has 12 of the large sheep at his farm in Maine.

But Chappell, 71, an eco-entrepreneur known for instilling sustainable and family values in his companies — including working with his daughter Eliza and other family members — took time to think about his future and how to use his abilities before starting Ramblers Way in October 2009.

He recently ruminated on his experiences with Tom's of Maine and how they led to his founding of the clothing company, which, like Tom's, embraces the unusual model of being environmentally friendly and for-profit. An edited transcript follows.

Mainebiz: Why start again?

Tom Chappell: Maine's unemployment [was moving toward] 10%, and I care a lot about Maine. And I am too young to retire. In the years between Tom's and Ramblers I spent a lot of time thinking about how to use my abilities. I'm too much of an active, pioneering person just to retire, play golf and join four or five boards of directors. I hear the term 'serial entrepreneur.' It sounds almost criminal.

MB: What did you do during your time off?

TC: I went to see a counselor who I knew from Trinity College and talked with him for five or six months about how to use this next period of my life. I thought it was an important question and I didn't want to be cavalier about it. What I learned from my counseling is that I was free from any psychological or physical constraint to do what I wanted. What I really wanted to do was work with my family and start a business that would have social impact. And I had mentors. I had people telling me, 'Why not use your energy, your passion and your money to do something that is helpful and useful?' Physically, I felt great, and I had money for the first time in my life.

MB: Why did you sell Tom's of Maine?

TC: Because I got sick of it. I got sick of being a manager, running a board, running a leadership team, not having my hands in things and living in a world that was dependent upon what Walmart and Target decided. I also knew that as successful as we were, I didn't have the resources or the leverage to grow the business from $50 million to $250 million. That was the next stage.

MB: How did your career begin?

TC: I was an English major at Trinity College. I wanted to be an English professor, but I chose to go into business instead. I worked for Aetna Life in insurance sales for two years, and then I worked for my father in his waste treatment business. I started Tom's of Maine in 1970, [my wife] Kate and I, with the idea that we could do something that was good for the environment and the customer and do it in a for-profit business model.

MB: Why did you go to Harvard Divinity School?

TC: I felt that Tom's had lost its way. We had adopted what business schools would characterize as professional and strategic values. But we had built Tom's on creativity and intuition. We'd built the business in specialty health food stores and brought the products into CVS and Hannaford Bros. and Stop & Shop and transitioned from the health-committed customer who really knew the ingredients in a health food store to a health-concerned consumer who didn't know ingredients and shopped in supermarkets and drug stores. That transition required skills, communications, systems and packaging choices, all of which I needed help with.

We were the first natural product to go on the supermarket or drug store shelves next to toothpaste. There was a big education process. So we started to hire people from Procter & Gamble and Gillette to help us understand the world that we were going into. I had a great board of people from Booz Allen Hamilton and from Harvard Business School. Their wisdom was what I needed to professionalize the board, the leadership team and the strategy.

After five years of working with that transition, we made all the numbers we had hoped to make, improving gross margins, driving sales at high double-digit growth rates and penetrating supermarkets and drug stores across the country. But we didn't create a single new product. We had lost our willingness to take risk. We had stopped our creative evolution. I felt myself shutting down and wondering what was next. And I scooted to Harvard Divinity School in 1986 for half the week, and the rest of the week ran Tom's here.

In the four years I got my Master of Theological Studies, I realized that my intuition was right, that we by now had the knowledge base to retrieve the business from this professional grip and branch out and reach out once again with new products, new markets and internal thinking that was willing to be ourselves, and be very different from a Procter or a Unilever. That meant fundamentally becoming very much a relationship company interested in our people, our customers, our community, our environment and the powerless and voiceless people. So we started giving 10% of our profits away, and 5% of employee paid time was dedicated to volunteerism in the community.

MB: It sounds like you underwent an internal struggle, to keep your soul and do business.

TC: I did. And I wrote two books. In 1989 I wrote “The Soul of a Business” and it was all about that struggle, and in 1993 I wrote “Managing Upside Down,” which was more of a protocol about how to lead by values. So out of that success, what we found was Tom's now really started growing again. But we were hitting a wall with the growth strategy because we couldn't ask any more but modest growth out of companies like Whole Foods. But to get our products across the country was tough. We basically needed leverage to get into that world, and then we needed resources, people, R&D and capital to start to grow it again.

So I just felt I'd done my part here with this idea. We had 3% share of the toothpaste business nationally, so that's a very large share. I'd shown you could run a company by values. We needed to find a strategic partner who would honor what we'd done, understand it and want to affirm it. My COO, Tom O'Brien, ultimately became the CEO and he was a true soulful partner in the 11 years prior to my leaving. He was my partner from Procter & Gamble.

MB: Looking back, how do you feel about what you built?

TC: I'm very proud. We built something that people recognize had a good business idea and a good business management idea.

MB: If someone were to start a for-profit company today with eco and family values, how would you advise them?

TC: If we look at our economy and, particularly here in Maine, who's driving the economy, it's small entrepreneurs. They're not all about innovation. They're about a whole value set. It's bigger than innovation or just performance. When I say 'Made in America' [about my products], I'm doing nothing more than reiterating the concept of local.

MB: When you say you make your products locally, your wool and cotton aren't local.

TC: Our expertise is in very lightweight wool yarns and garments: soft, non-scratchy, featherweight. Local [companies] can't handle it, so I have to go to the places in the United States that have the technology. We're in the process of researching ways we can work with local textile firms.

We are bringing our dyeing to Kennebunk. We've rented 6,000 square feet where we'll be setting up two operations. One will be sponging, which is steam injected into a 60-inch-wide, 100-feet-long fabric on a roll. It relaxes the fabric. Then we'll have a capacity for natural dyeing. We [have been working with] a dye house in Fall River, Mass., but we're bringing all of that up here to Kennebunk. That company, Custom Apparel Processing, is closing down. We've bought their equipment and their owner will be consulting with us. We also bought the sponging equipment from Woonsocket Sponging [in Rhode Island], which closed down but will be helping us learn how to use their equipment.

We've also developed innovations for dyeing with natural dyes. We already know how to do the natural dyes in the garment stage, but we've learned to dye the fabric when it's being knitted or woven, and we've applied for a patent on that. We've also applied for a patent on dyeing with natural dyes in the yarn stage. The other part of the patent is the continuous consistency of natural dye color. Natural dyes have a reputation for being inconsistent in color.

MB: Are you hiring people for the dyeing operation in Kennebunk?

TC: Yes, and the whole cutting operation is being brought in-house. The man in charge of that was senior vice president of manufacturing for Liz Claiborne, Victor Soto. The wet finishing area will have some of our existing workers there part-time. We're probably going to go from 24 full-time people to 30 within the next few months. We moved the equipment in November and will be operational by Dec. 15.

MB: What are Ramblers Way's sales now, and where do you expect to be in five years?

TC: We're a $1 million company today. Our whole point-of-view is unique. We did pioneer this whole idea of sustainable apparel made in America. So we do expect to be well beyond the $10 million mark five years from now and I think we'll be in about 1,000 stores. I think we'll be in some of the better department stores, like Nordstrom, Neiman-Marcus and Bergdorf Goodman. Our online business will be quite vigorous. I think we'll be at least 100 employees. If we bring our cut-and-sew operation here that will change the employment picture considerably. But without that we'll certainly have 100 employees. We'll also have one or more Ramblers Way retail stores. I think we'll have our first one within two years, starting in Maine and then going to the resort areas.

We also have a very large account in Japan with the large department store, Isetan. We'll be exhibiting in Europe this January, and we hope to go there, but for now Japan is our primary export market.

So at this point, I have a family-owned business, a national brand — we're the leading pioneer in sustainable apparel, and we're in 500 independently owned specialty stores across the country.

MB: What are your sales channels?

TC: There are six sales people who work exclusively for Ramblers Way throughout the United States. The split of sales is 30% website and 70% wholesale.

MB: Are you tempted again to go larger?

TC: I'm hoping I can survive this next hump in being able to pass the business on to family. I have attracted some new investors. I've brought in about $5 million of investment beyond my own and that is being used to help grow the company. These [investors] are people from Tom's of Maine who know me and want to invest in the idea. The hump is to get yourself beyond break-even, which won't be for another two years.

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