The Founders of a Million-Dollar Texas Startup Were Duped. It Almost Destroyed the Company. Here’s How They Recovered
A shocking revelation turned the cleaning-product business upside down.
PHOTO CREDIT: Courtesy Company
Three Branches Healthy Living had been around a couple years when it honed its product selection, which had formerly been an extensive slate of natural items, down to a single cleaning solution its three founders truly believed in. Founders Allison Evans, Kelly Love, and Marilee Nelson raised $1 million in funding from friends and family, and rebranded as Branch Basics.
They white-labeled the nontoxic cleaner and sold it as an all-natural alternative to harsh products that can irritate the skin and eyes and stress the immune system. The solution could be used on tile, glass, counters, as a hand soap, on laundry--really almost anything. And it developed a dedicated following. So did the company's website, which published articles about wellness, natural products, and clean eating.
It was a winning idea borne from the founders' personal experience using natural products. But culling down their product line would turn out to be a minor change compared with what was to come.
Just as the business was taking off, Evans, Love, and Nelson were caught off guard when livid customers began complaining that the product wasn't truly all-natural. This would not be the kind of bump in the road entrepreneurs handle on a semi-regular basis: They were facing an ethical and strategic dilemma that went right to the heart of their business model. There was a very real chance that doing the right thing would mean the end of the company.
Eventually the founders made the gut-wrenching decision to halt sales and pull the cleaner from the market. The move set the business back years and placed them under serious financial strain. Ultimately, though, it also enabled them to come back stronger than ever.
The gospel of "Crazy Aunt Marilee"
Evans was a sophomore at the University of Texas in 2006 when she got sick. The cause of her symptoms--chronic pain, loss of motor functions--eluded doctors. Nelson, her aunt, an environmental exposure consultant who also taught her clients how to heal themselves through food, had a theory: She suspected her niece's illness might be the result of a weakened immune system due to chemical exposure to building materials after she'd moved into a newly constructed apartment. It was an easy notion to roll one's eyes at.
But two summers later after having been on a cocktail of medicines and having seen little improvement, Evans was persuaded to go spend the summer with her aunt. She brought her friend Love along for the adventure out to Texas Hill Country, which Love later described as going to see "crazy Aunt Marilee."
Nelson took away the recent college graduates' perfumes, lotions, and other potentially irritating tinctures. It wasn't weeks before Love got on board the all-natural lifestyle. Living in Nelson's chemical-free home, Love soon saw her good friend's health turn around, and came away with a lesson. "Our bodies want to heal," she says. "We just need to stop exposing them to all the irritants that are holding it back."
Love and Evans soaked it in all summer, and decided they wanted to spread Nelson's gospel in a clean and simple way millennials wouldn't find kooky. They started a website, with Nelson's philosophies distilled through their recent-grad sensibilities. Soon, they were selling the sorts of natural products and home goods Nelson recommended to her clients. When that became "too overwhelming to people who didn't know where to start," they decided to focus on the marketing and selling the one perfect cleaning product.
PHOTO CREDIT: Courtesy Company
After Evans, Love, and Nelson raised the money and simplifed the brand to Branch Basics, the business grew swiftly. The company had 10 employees and a newsletter with 30,000 subscribers. Sales were on track to hit $2 million for 2015 and $16 million the following year.
But the founders started getting questions from their growing customer base. If the product was all natural, why don't you disclose all the ingredients? How do we know if there's an allergen? What assurances do we have that it really is what you say it is?
Their supplier--who had also white-labeled the product--initially told them the full ingredient list was proprietary. To the women, the evasion seemed suspect. Eventually the supplier said that the product contained a naturally derived surfactant that was deemed "synthetic" due to the processing it had gone through.
"It was absolutely mind-blowing to me," Nelson says. "We had been selling this as a completely natural formula." Still, she had used the cleaner extensively, as had her most toxin-sensitive clients. To them, it was demonstrably safe--and also was a very, very good product. It cleaned well. It was free of toxins.
The founders debated. Should they remove some of the claims and keep selling a product they and their customers loved? Or should they give up it and lose a huge amount of money in the name of integrity? After all, it had been their mission to educate people about natural living, and sell only all-natural products.
A subset of the brand's tens of thousands of fans was growing enraged. "That was honestly the hardest part of it," Love says. "People were threatening us with lawsuits because of mis-marketing."
The three women had a sense of guilt after being accused of not doing the one thing their company had set out to get right. They decided they could not continue.
During Christmas week 2015, they pulled the plug on all sales. They sent out an email to their subscribers explaining the situation, and laid off the entire staff on December 31.
Continuing into the new year answering angry emails from customers, the founders had to ask themselves: Where do we go from here? By turning off their entire operation, they were now themselves solely beholden to their investors and creditors, as well as to their customers, many of whom wanted refunds. They drained their accounts giving reimbursements, customers first.
"We paid back everyone," Nelson says. "It was the most stressful time I can remember in my life."
Gaining peace of mind
Over the next 18 months the founders worked with multiple chemists and labs to concoct their own entirely natural, non-irritating cleaning product that worked on everything from heavily soiled laundry to a sensitive baby's skin. They tested 100 formulations. "We were looking for a unicorn," Love says. She doubted it could exist.
They kept their former customers updated, but knew they'd need to earn back loyalty. They dreamed about controlling their own supply chain, manufacturing, and knowing the entire list of ingredients in their new cleaner.
"Never in my life could I have imagined that we could have come up with something that I like better," Nelson says. But one seemed to be working well. It was an unscented liquid mix of sugar-based cleansers, food-grade emulsifiers, chamomile, baking soda, and soapberry. All the ingredients are listed right on the reusable packaging. She said the chemists tested it on skin tissue and it "came back 100 percent with no damage. It was like water."
In August, Branch Basics relaunched with a new concentrated cleaning product, formulated in Colorado, with new packaging, a direct-to-consumer business model, and a do-good message of helping Americans create healthier lives. The company's new tagline: "Let's create a healthy home together."
Evans, Love, and Nelson gained two business partners along the way, who today run Branch's business operations out of Minneapolis. The women still live in Texas, and focus on the healthy lifestyle content of Branch Basics, and the brand's marketing. They say the company might not make it back to $2 million in revenue this year, but will be close enough that they feel they are rebounding.
Despite the agony they endured two years ago, they consider themselves lucky to have the foundation of their company made stronger--and made in a way they control. "We all are so thankful for where it has led us, and to have the product we now have," Love says. "The fun part is getting testimonials every day. People can't believe how well it cleans--and it gives them so much peace of mind."
BY Entrepreneurs Organization