LC: There is a symbiosis between non-organic cotton and pesticide industries, yet organic cotton is still growing in double digits. As a subset of organic, it is growing at twice the rate.

JG: There are three organic cotton producers - Sally Fox and two others on Texas. One product name is organic essentials.

LB: Will we take a position on GM cotton?

JG: Has not heard of any organic certifier that will allow GM.

LC: Thinks we are only selling organic cotton.

LB: Hasn't heard of any organic certifier who would accept it...

JG: Organic cotton futons are on the order of eight times more expensive than the rest - yet we are considering eliminating cotton but not 60% post-consumer toilet paper which is clearly worse, costs more and is not as soft?!?

(MM, Avery and Tennessee arrive - people start drifting out of the room, Craig Miller of 21st Century Home arrives and is introduced around. The group talks to the kids for a while… The party begins is earnest. MM and JG begin a conversation The following conversation is recorded but not audible.)

LC: How can we start to rectify inconsistencies in scale - once we get it all these issues out there - we have to go back and iron all of these issues out.

MM: Price is an important axis point and the market may make the decision for us.

JG: From a business point of view - if you sell 2 or three, because of the ration of price - you probably have to sell 1/8th as many organic cotton futons and get the same profit margin as a regular futon - it works if the profit margin is the same.

MM: So what is the contradiction?

JG: In the case of toilet paper you have a very clear criterion (according to John) yet we go below the best, below superior - we may be above the worst but we don't have any GROUND for going below the best because the axes of price and quality do not apply. In the case of cotton towels it may not be 100% clear that the organic cotton is not the clearly superior product. It seems to be hard core on towels and "no core" on toilet paper.

MM: No one is MIXING organic and non-organic cotton.

Pool Filters (recorded on an earlier disk)
(Issues)

LC: The way we handle the problem is to migrate toward an inventory play as quickly as possible - we need to own the last mile of the customer experience.

JS: No one says that "When we grow up" we want to be a virtual retailer. This business grows so fast that there are only two points that matter:

1.	What is your long-term plan and
2.	What is NEXT / tomorrow

LC: Tomorrow we work with this model - we work with Al Sonntag to keep the fire under the suppliers to make sure that they fulfill. As soon as it makes sense - when there is revenue we will be cross-docking and owning our own warehouses. This will happen "organically" For now we can fulfill well-enough so that we do no loose our business.

JS: I still don't get why it is ever necessary to be an inventory provider - ever.

JG: for certain goods there are minimum orders.

JS: If there are distributors and they can be made to work together better - why not keep it that way.

JG: This changes my business model entirely. I am used to selling in quantities that GH customers are not going to buy. I don't know if that will work or not.

JS: Then at least half of our job - our business plan is to figure out how to make you successful. One possible solution is to BUY a distributor (like living.com did)

LC: Margins and branding - there is a retail axiom that you get a huge % of your profits from your generic brand. We need to start sticking the Green Home label on stuff and selling it. Do you think that there is a revenue stream possible for branding items that we may not even carry.

JS: I can imagine a store-within-a store model or you could do a Martha Stewart at K-Mart.

JG: A lot of the manufacturers are small, incompetant.

LC: We want to absorb those brands.

JS: OR tell them that you want them to be one of us for all of the non-store goods fulfillment.

LC: Double Rainbow is all but out of business as a label but they supply ice cream to everyone.

JS: So right now we pull together all the front end stuff for someone who wants to buy green. The long term plan is to build our own distribution center by buying or rolling-up the local distributors, co-branding with stores, branding our own products.

LC: We will move up the food chain and as we do we find small manufacturers with good products and bad businesses -w e buy them. We also re-brand things like Whirlpool.

SS: How are you going to compete on price with Real Goods if they inventory.

JG: Whole Foods is supplied by United Brands. There is another one in Brattleboro - C & S - the 5th largest in the country - who no one has ever heard of because they are no one's front-end. Maybe when you own the whole world instead of distributing yourselves you contract with a huge distributor.

SS: Still, how do you stay price competitive?

JS: This is like Peapod vs. WebVan. Peapod went to Safeway and shopped for you and visited you in a peapod uniform. It is not reducing cost it is increasing the level of service for money and unless they can go to someone OTHER than Safeway they are buyin slightly doiscounted retail instead of wholesale. Then Webvan comes along to take Safeway out of the picture - plug straight into the suppliers. Unless you are really good at the logistics of distribution it may be better to buy it from someone else.

LC: Whole Foods has one big supplier. Green Home has an extrnat where we are making the small manufacturers and suppliers to get them to perform. United has a huge incentive to perform - we have to make sure that our suppliers are on board. We have hired an expert in this and at the end it is his question.

JG: The one disadvantage is that they have on big supplier and ours are spreas out all over.

SS: Still, every time we sell CitrSolv we will make less than Whole Foods because Whole Foods was able to buy 50 cases and we could not.

JG/LC: Right now GreenCo. and United Brands buys this product at the same price. The manufacturer believes that there is a law that makes them do this. But then GreenCo. sells it to Green Home for a dollar or two more and we retail to the customer for more than that. The difference is that when GreenCo. sells it to us we are delivering it straight to the customer.

LC: We sell it to our customers for a 25% margin (33% mark-up). The customer pays for the shipping - it is not a profit center - we pass the cost through.

JG: Froma business plan proint of view we do not need to worry about the out of the door price and the in the door price.

JS: OR can we provide enough value that makes people NOT price compare. Let's say for a minute that we will find out by driving traffic whether that is a sustainable business model to do business with the small guys. Today we are definitely NOT an inventory play because we are not buying warehouses.

JG: I just want to be sure that after 27 hours we have an answer for the VCs. IF I were a venture capitalist I'd be concerned about price competition.

JS: Let's say that we are not building an inventory structure now while taking ointo account that if we do move into bricks and mortar we will. In the long term, we are problem solvers. In the short term there is not a good source of information. We are not an inventory play this year and we might be one eventually if the market pushes us in that direction. We have to watch our relationships with our suppliers.

JG: If I am a VC - why do I care? I may be out of the picture before you change your business plan. I think you want to tell me how to make money without doing any of that crap - I want to know how to make money with the plan as it is now.

JS: The answer is that we are an eyeball play - we know that people like John are out there 'cause there is John. I (as a VC) care very much if GH has a compelling relationship with your fulfillment partner. I need to know that the supplier is happy and will stay that way.

LC: There is an execution risk with this model - in certain ways because I do not own the last mile which is scary to investors.

JG: But it is the most common business model there is.