A sex toy story
Fabled San Francisco co-op Good Vibrations brought 'adult novelties' out of the closet in the 1970s. Now it's ditching its socialist roots to try to grab its share of the billion-dollar industry it spawned.
byLessley Anderson, Business 2.0 Magazine contributor

(Business 2.0 Magazine) - "Would this be her first vibrator?"

Late in the afternoon on Valentine's Day, a dozen or so people are milling about a San Francisco Good Vibrations store, 11th-hour shoppers on their way home from work. A woman in hospital scrubs scans neat shelves of female-friendly porn. In a small book section, another woman sets down a bag of groceries to page through 101 Nights of Grrreat Sex. And near the front counter, the clean-cut 20-something dude in a Yankees cap ponders the cheery saleswoman's query. "Mmm hmmmmmm."

The clerk begins an enthusiastic rundown of product features as a male eavesdropper angles in for a closer look at the fuchsia-colored gizmo. A few minutes later, each of the men hits the cash register with the $60 G-Swirl, batteries included. Toting a pretty blue-and-orange gift bag, neither gets so much as a raised eyebrow as he heads out the door and onto the street.

And why would they? Next door to Good Vibrations, in an upscale shopping district near Nob Hill, is a hair salon. Across the street, a Christian Science Reading Room. The general vibe of the place -spacious and clean, under bright lights and filled with colorful displays - hews a lot closer to Pottery Barn these days than the homespun sex-toy retailer it's been in the Bay Area for nearly 30 years. That's all by design, of course.

Taking the sleaze out of sex toys

In fact, everything is moving according to a plan as audacious as any in the annals of retail makeover. The former co-op company that pioneered American sex-toy retail in the 1970s is trailblazing again, this time aiming to turn Good Vibrations into a brand as mall-friendly and all-American as Restoration Hardware.

While the company's $12.5 million in annual sales is tiny compared with the overall $1.5 billion "adult novelties" market it helped to create - which includes everything from vibrators and massage oil to bachelorette party favors - Good Vibrations is repositioning itself in an effort to become the industry's major player. It's plastering ads on buses and subways and launching a nationwide expansion that includes a chain of stores (its first East Coast outlet just opened in Brookline, Mass.) and a push into hotel minibars with its own NC-17 "intimacy kits."

The story of Good Vibrations has more going for it than a titillating product line. The tale shows how a group of unlikely business partners made a company profitable despite its anticapitalist, employee-owner roots. At the same time, it's a lesson in how to make a business move forward, even as disparate forces within it are pulling in other directions. And most of all, it's a case study of how it's possible to take a company out of the shadows and into the mainstream - without completely losing its soul.

"Good Vibrations seemed radical when it first began in saying, 'Let's just have an honest conversation about sex,' rather than linking it with porn," says Madeline Temple, a retail analyst with consumer research firm Iconoculture. Now that sex isn't taboo, Good Vibrations is ideally positioned to cash in. "They got there first," Temple says, "and they're the most trustworthy brand out there."

In the beginning was a woman with a mission, $4,000 in savings, and a small collection of antique vibrators. Joani Blank was 39 in 1977 and working as a sex therapist in San Francisco. She had already written two books (including The Playbook for Women About Sex) and taught groups of "pre-orgasmic" women the nascent art of self-satisfaction.

So to her, the notion of offering women a safe, comfortable alternative to sleazy porn shops to indulge their curiosity seemed like a logical, if radical, next step. Good Vibrations opened its doors in March of that year in a 200-square-foot shop in the city's bohemian Mission district. Blank sat behind the counter, showing off her historic models and selling a dozen or so other toys to women adventurous enough to wander in. The selection was limited. "I don't even think we had lube," Blank says. On a good day, she did about $100 in sales.

Profit wasn't the point, she says now; education was. Blank and the young saleswomen she recruited knew human physiology as much as each toy's benefits, so they could coach customers through potentially awkward purchases. If anything, Blank described herself as "antibusiness" and happily gave employees the autonomy to make big decisions. "There was always democratic management," she cracks, "because I was too lazy to be a boss."

Social experiment, financial risk

Yet real money started to flow in. Within a few years, her young staffers had launched a mail-order business and added merchandise from handcuffs to videos. Sales doubled in the store's first decade, and workers loved the freedom Blank gave them to shape the company. For a time, Blank even let them set their own salaries. Ironically, the bigger Good Vibrations got, the less Blank wanted to be part of it all. "Joani was never profit-driven," says Anne Semans, who headed up the store's catalog marketing from 1986 to 1999. "For her it was more of a social experiment."

Blank's experiments often posed considerable financial risk. She had long kept an unprofitable publishing venture afloat simply because she loved books and wanted to support "sex positive" authors. But it was a drain on cash flow.

Undeterred, in 1992 Blank invited two women entrepreneurs interested in starting similar stores to intern at Good Vibrations. Blank's idea was based on a business-network philosophy born in the 1970s called "briarpatch," whereby "honest" companies supported and helped one another to promote ethical capitalism. That it did: After a stint at Good Vibrations, one of the women launched a sex-toy shop in Boston. The other, Claire Cavanah, co-founded Toys in Babeland, a female-owned store in Seattle. "What we learned most was how to talk to customers and be supportive," says Rachel Venning, Babeland's co-founder. "Joani also gave us her entire vendor list." Babeland expanded into New York and Los Angeles and today does $10 million in annual sales.

With rivals like that springing up on both coasts, some workers grew impatient with the founder's ambivalence toward profit. By 1992, uninspired by growth ambitions or even the opening of a second store in nearby Berkeley, Blank had had enough. In typical against-the-grain fashion, she sold the company to 12 co-workers, converting it from a sole proprietorship to a worker-owned co-op.

"I'm very, very proud of Good Vibrations," says Blank, now 68. "But the company went commercial with a capital C, and all they care about is making money.... Can I help it if everybody is more old-fashioned than I am?"

Blank was out of the picture. But Good Vibrations's co-op model effectively handcuffed expansion plans. Every employee had an equal share in decision-making and profits. Division managers reported to a general manager, who reported to a board of elected employees with little or no business experience. The result was predictably chaotic. Discussions about adding new stores or products turned into unresolved debates. "There was this feeling at meetings of having to fix everything in management before we could open another store or launch a website," Semans says. "We couldn't do any of it because we were so screwed up internally."

It became obvious to the owner-employees that only someone with corporate management chops could spring Good Vibrations from this trap of inward-gazing. In 1999 the co-op authorized the board to recruit a GM to untangle the management mess and mobilize the troops for a run at the mass market and new stores. The person who answered the call: Beth Doyle, a former director of operations for a rehabilitation services company. Doyle, known for her no-nonsense style and thirst for challenge, recalls, "I was hired to rebuild the business from the inside without damaging its co-op ideals."

That would prove far easier said than done. Doyle began drafting different iterations of the org chart, each time pushing the co-op to adopt a more traditional hierarchy, often against strenuous objections from many in the company. She knew she needed allies from corporate America. As opportunities arose, she filled positions with driven, experienced outsiders.

One of the first to join her in the battle was, appropriately, a real, honest-to-God warrior: Theresa Sparks, an Army vet who - as a male - had spent 20 years running several waste management and recycling firms in Kansas and California. After undergoing a sex change in the late 1990s, Sparks had trouble landing a job.

She took a couple of turns at cab driving and working as a bank teller, then found a temporary job in Good Vibrations's shipping department in 2001. When the finance manager position became available a few months later - and Sparks's considerable management skills became apparent - Doyle put her in charge.

Going mainstream

Doyle had big ideas and wanted to expand and professionalize the business. For that, she needed retail veterans. Jonathan Plotzker, a former catalog inventory manager at Pottery Barn and more recently director of online sales at Restoration Hardware, was looking for a more altruistic vocation. It was a perfect match. Doyle brought him aboard in 2003 as the new merchandising manager.

Emboldened by the expansion, Doyle decided she needed a marketing director to take the Good Vibrations brand beyond the rarefied Bay Area. She reached out to executive recruiters and in 2004 found Nancy Crowe, a longtime retail consulting guru who'd recently worked with Restoration Hardware on improving furniture sales. The workaholic Crowe took the bait.

Some Good Vibrations lifers were anxious about the mainstream push. Crowe, with her digs in the burbs and diamond earrings, personified the shift and engendered a little hostility. "For the first few months, I was referred to as her," Crowe says. "It was tough." But she stuck it out. And the company kept growing.

While Sparks began scouting store locations and slashing costs (she backed the move to ax Blank's old publishing venture), Doyle's new marketing duo went to work. Crowe commissioned a survey that showed - a surprise to the staff - that the customer base was mostly 35- to 45-year-old straight women with $50,000 incomes who were in relationships.

Based on that information, Crowe green-lighted an ad campaign to run in Bay Area subway stations and on buses to lure more suburban women into stores. The first ad featured a June Cleaver-type housewife swinging a Good Vibrations bag. Then came a national campaign promoting the website, which along with the catalog business accounted for nearly half of sales. Within a year, revenue jumped almost 10 percent.

Store redesigns followed. In the past, the shops had looked like mom-and-pop video outlets. Plotzker and Crowe hung colorful banners in frosted front windows that previously had nothing but a plain stencil of the company's logo. Themed displays popped up in Pottery Barn-style islands on the floor. Plain brown shopping bags were replaced with blue-and-orange ones with matching tissue paper billowing out the top.

On shelves, Plotzker added a line of gleaming glass and metal-plated vibrators, some selling for as much as $1,500. Then came "kits," variety packs in clean, bow-wrapped boxes that would look right at home at Nordstrom. The Friday Nite Delight kit contains a tiny vibrator, fuzzy bath ball, body butter, massage oil, lotion, and lubricant. All for $32. "Sure, it's a gift," Plotzker says. "Though certainly not for your boss. The packaging mainstreams it."

The changes clicked with customers. Shoppers no longer hug the walls to stay out of view, but roam around checking out displays. The kits now generate 10 percent of overall sales. "During the three years I lived near San Francisco, I never went into Good Vibrations," says Melinda Walker, a 45-year-old commercial property manager who now lives in Hawaii. But, after seeing the new ads, she says she's now planning to stop in during an upcoming trip to pick up a gift for a bachelorette party. "It seemed like it was appealing to a wider variety of clientele," she says of the marketing campaign that caught her attention. "It made me feel included."

By late 2004, Doyle's A-team was on a roll: Good Vibrations was set to open its store in Brookline, and Plotzker had even launched a promising new wholesale business, working with toy manufacturers to sell exclusive GV gear - like the G-Swirl - to some of its retailing rivals, a la Sharper Image. And Good Vibrations's member-owners voted to green-light the franchising of the company so they could expand nationally.

Beth Doyle was winning the battle. But, as it turned out, she decided to surrender anyway.

Her undoing was the co-op. For most of 2004, Doyle, true to her word, worked constantly on an expansion strategy that kept the co-op intact while planning a separate company to launch new franchises. But she ran into walls, inside and out.

Banks wouldn't give her unguaranteed loans. Investors, Doyle says, were leery of giving money to a co-op - especially this co-op. Worse, the all-employee board insisted on being involved every step of the way, despite having no experience in such matters. "We just came to loggerheads over whose job it was to develop this new model to expand the business," Doyle says.

Unable to make peace with the board, Doyle quit in April 2005. In the aftermath, the company saw 12 out of about 75 employees leave, including most of the five-member board. Sparks, Plotzker, and Crowe watched in horror. "Suddenly there was a recognition that people who had no business experience were running the company, and the person who had it had left," Sparks says. "There was a huge lack of confidence."

With the organization on the verge of collapse, Sparks stood up at an all-hands meeting last fall and asked her colleagues, "Is this a co-op that performs a business function? Or a business that is managed cooperatively?" If the business dies, she pointed out, the co-op will die too.

The remaining board members quickly appointed others to gain a quorum, and then named Sparks as the new GM. More important, they finally agreed to consider abolishing the co-op structure for good. "We researched Whole Foods, Ben & Jerry's, and others," Sparks says. "All these companies have progressive values, but they're not co-ops. Something had to give."

The decision had to be unanimous, according to bylaws. And in the end, there were 69 yes votes and three abstentions. On Feb. 1, the co-op was laid to rest. Still intact in the new bylaws are the company's values of diversity, sex positivity, and equal treatment of employees. These can be changed only by a majority vote of the shareholders, who, at least for now, are the employees. Everybody was given the same number of shares in the company, so all votes count the same.

This, of course, will change - especially if business keeps clicking the way it has. In February the new Brookline store pulled in $60,000, making it profitable in its first month. Good Vibrations is once again enjoying double-digit profit growth. It's also looking for debt and equity investments from both individuals and private firms. If it succeeds, investors will join the board and have a say in the company's future, probably more say than the rank-and-file employees. A chief executive position is soon to be created. Sparks will most likely fill it and run Good Vibrations based on the board's expectations. Just like a normal company. Well, almost.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.