A quality food-based business has the ability to provide solutions to our nation’s numerous social and environmental issues. However, entrepreneurs of such ventures have a significant lack of access to the funds they need to get off the ground, let alone grow. Written primarily for people managing socially responsible food businesses, Raising Dough by Elizabeth Ü is a guidebook to resources, strategies, and lessons that will benefit any entrepreneur and their supporters, investors, and partners. Ü is a social finance expert, and her descriptions of case studies and personal experience will lead readers through the many stages of a new business, from choosing an ownership model to understanding funding sources like loans, grants, and even crowdfunding. This book is an irreplaceable guide to sustainable finance, and it lays out the tools and planning required to help your small, food-based business launch and thrive.
Clarifying Your Values
In 2007 Katie McCaskey and her boyfriend, Brian Wiedemann, moved from New York City to the small town of Staunton, Virginia, where Katie had grown up. One night they realized they needed feta cheese for the recipe they were preparing for dinner. Whereas they would have had no problem finding feta in New York City, there were no grocery stores left within walking distance of their home in Staunton. When Katie happened to mention her feta-free dinner experience to the owner of her local coffee shop, she learned that a man named George Bowers had operated a grocery store in the very same building around the turn of the twentieth century. “Wouldn’t it be great to have a grocery store in the neighborhood again?” Katie mused.
A few weeks later the coffee shop owner told Katie that he and his wife had decided to reopen the grocery store in the location next to their shop. They had already invested a significant amount of money into the business; would Katie and Brian like to join them as minority partners? “These people were fun, enthusiastic, and nice! It sounded like they had great experience, connections in the community, and connections to local farmers,” Katie recalls. “Personality-wise, it seemed like a really good fit. They were talking about all the things that we cared about: community, neighborhood, local food.” She and Brian liked the idea of being able to invest in the community while also helping create the kind of neighborhood store that they themselves would like to spend time in—one that would carry both local products and gourmet “essentials,” including feta cheese.
Katie and Brian invested $20,000 of their own funds, which gave them a minority ownership stake in the business. In 2008 the George Bowers Grocery Store received the first microloan from the newly established Staunton Creative Community Fund, a grand total of $5,000. “This was a small percent of the overall cost of renovating the 130-year-old building and buying inventory for the store,” Katie says, “but we weren’t going to say no! Fortunately, we were also able to get a $17,000 line of credit from a community bank.” The two couples opened the new grocery store at the end of 2008, much to the delight of the community.
Within a few months, however, the business partnership began to sour. Katie and Brian found themselves shouldering the bulk of the daily work of operating the store, and their partners—who were going through a divorce—were less and less available to share the workload. In addition to differences over appropriate work ethics, the couples found themselves at odds over the procurement standards for the store’s inventory, despite the fact that they had seemed to agree that purchasing local food was a major priority. “One day, one of our partners came back with a load of cheese from Costco. I was shocked. I asked, ‘Why did you do that? This isn’t local at all,’ and the response was, ‘Well, it’s from our local Costco.’ It was agonizing! We clearly didn’t share the same values around what ‘local’ means.”
Then came the real zinger. In January 2009 the other couple, who had already shuttered their coffee shop because of personal financial troubles, threatened to close down the grocery store, too. Katie and Brian, determined to see their own dream through, had no choice but to buy out their partners. “They were asking an outrageous price,” says Katie, “considering we were also renting the space from them. But we couldn’t negotiate it down.” They came up with the money by draining the last of their savings, all of which added quite a bit of stress to their lives.
Katie says that the next couple of years were challenging, but she and Brian made a series of smart decisions, including moving the George Bowers Grocery Store to a larger location closer to the main street in town and adding an outdoor beer garden that hosts popular community events. (They were also able to secure an additional loan of $10,000 from the Staunton Creative Community Fund in April 2010, a loan made possible by U.S. Department of Agriculture (USDA) programs and a Community Development Block Grant.) Their business is thriving, and they are proud of what they have accomplished, despite having learned the hard way about the importance of choosing partners with aligned values. “Looking back, we realized we had failed to do sufficient background checks,” Katie says of the couple they had gone into business with. “We took them at their word as far as their professional backgrounds were concerned, which was a mistake.” She wishes they had asked for resumes and followed up with their references. “Had we done that,” she says, “we would have quickly uncovered some of their exaggerations in terms of their management experience, qualifications for running a business, and connections within the community.”
“It is so important to find people with values that match your own. I can’t emphasize that enough,” Katie stresses. This is true whether you’re setting out to find business partners or investors—and often, as in the case of the George Bowers Grocery, your business partners and investors are the same people. But it’s very difficult, if not impossible, to gauge a good values fit if you haven’t first determined your own values and priorities. The following helps lay out several concepts and principles that many socially responsible food entrepreneurs incorporate into their own businesses. Once you’re clear about what is most important to you, it will be much easier to find the types of people you want to work with and the types of financing that will make the most sense for your venture.
As you read through the following list of values, note which of them resonate most strongly with you. Where on the spectrum of options do your own values lie? If you had to sacrifice some to stay true to others, which would rank as the highest in priority? Which values are most closely connected to your vision of success? (If your business has more than one founder, or if you have already built a managing team, make sure that you each go through this section so that you can compare notes. Like Katie, you might be surprised at what you discover!) I might have called this section “How Do You Measure Success?” because your vision of success will reveal your true values. How would you measure the ones that are most important to you? Where would you draw hard lines? Values are complex and interrelated. Some may be mutually exclusive, meaning that if you focus on one it could be harder to achieve the others. But many of them can happen simultaneously and may in fact reinforce one another.
Here are some values to consider for any type of business:
• Place. How important is the place where you do business, such as the farm, the neighborhood, the city, the state, or the region? It might not matter at all. But in many cases a venture is inextricably connected to its place, such as in the case of a family farm that operates on one’s family land or a retail business designed to serve a particular community. The wildly popular Zingerman’s Deli in Ann Arbor, Michigan, for instance, chose to leverage its success by spinning off several complementary businesses in the same town (including a creamery, a bakery, a coffee company, a candy “manufactory,” and a consulting company) rather than expand through franchising the deli in different locations. Another situation in which commitment to place might be important to you is if you intend to stay involved in the business and you are not willing to move, whether or not it might make more sense for other reasons to take the business elsewhere.
• Control. Do you intend to stay at the helm of your venture until your dying day? Does the thought of having to answer to someone other than yourself make you cringe? Or perhaps it is important to you to be able to pass your business on to your children or to your employees. These are a few cases in which staying in control would be an important value. On the other side of the spectrum, you might be a serial entrepreneur who frequently has great ideas, and you don’t mind at all if other people take over what you have started, so long as your idea or product gets out there. If you have one or more business partners, you need to discuss various scenarios for what will happen if one of you decides to move on to other things, both in terms of control and in terms of buying out the departing partner.
• Scale. How big is big enough? Whether you measure by annual revenue, number of jobs created, customers reached, market share, pounds of food waste diverted from landfill, acres of farmland converted to organic, retail locations opened, or some other metric, you probably have an idea of what success looks like. Bigger is not necessarily better! If you would prefer that your home-based business stay small enough that you and your partner can handle all its operations yourselves from your garage, don’t be shy about saying so. Likewise, if you want your breakthrough product to be available in every major grocery store across the country, you value scale in a different way.
• Pace of growth. Once you have a clear goal in terms of scale of your business, how quickly do you intend to get there? Rapid growth requires a different mind-set and a different set of tools than slower growth. You may be perfectly satisfied with a slow-growing business or one that doesn’t need to grow at all once it’s breaking even. Think carefully about your personality, work ethic, and lifestyle expectations. Are you willing to pour all of your life energy into your business? Or do you intend to make time for other priorities as well, such as spending time with your family or volunteering? If you yourself are not willing to put in the hours that rapid growth may require, would you consider hiring someone else to take the helm and giving them the autonomy to do so?
• Financial success (and for whom). How much money do you want the business to generate for yourself and for your partners, employees, vendors, and other stakeholders, which may include shareholders? Maybe your business is a labor of love and not your primary source of income, and the social mission is more important than your own earnings. But maybe you want to be able to generate enough income through this venture to support your entire family, including sending your kids to college. It might be challenging to juggle these conflicting values. For instance, if your mission is to support local farmers, a policy of paying them a premium price for their goods might be at odds with the goal of paying yourself a higher salary, unless you can achieve efficiencies in other parts of your business.
• Time horizon. Do you want the business to last a few years, a few decades, or long after you are gone? Or perhaps it’s a onetime project with a short duration, such as a pop-up restaurant. Make sure your time line is clear to any potential partners.
Socially responsible food businesses often incorporate one or more of the following additional values:
• Buying locally. If local food is at the core of your venture’s mission, then this value is obviously very important to you. But depending upon where you live and what grows there in which season, you might discover that it’s hard to commit to exclusively purchasing local food. How much money or energy are you willing to spend working with local growers or manufacturers so that they can meet your procurement standards? What about your other vendors? Will you purchase other inputs, such as packaging, printed materials, and office supplies, as locally as possible? Do you prioritize independent service providers for taxes, accounting, legal counsel, and so on over national-brand services?
• Supporting organics. Whether you produce or purchase grains, fruits, vegetables, or animal products, the question of production methods is an important one. For you, is “organic” more about keeping toxic chemicals out of the environment, keeping farmworkers safe from chemical exposure, healthier food, or something else entirely? Will you insist upon third-party certification and the federal definition of “organic”? (Many farmers who meet or exceed organic standards choose not to get certified because of the costs and record keeping involved.) If your business focuses on ensuring access to low-cost fresh fruits and vegetables, organics may not be your highest priority if they are more expensive.
• Humane treatment of animals. Again, it’s a question of how far you want to go with these issues and considering the trade-offs. Perhaps you would prefer to avoid any animal products from concentrated animal feeding operations (CAFOs). Or will you insist upon products that are certified humane by one of several third-party organizations?
• Sustainably sourced seafood. If you want to protect the ocean’s resources and procure seafood only from the most sustainable fisheries, can you commit to only the “best choices” as specified by the Monterey Bay Aquarium’s Seafood Watch program, or perhaps only products that are certified by the Marine Stewardship Council, for instance? Or would you prefer to support small, independent fisherpeople and purchase whatever they can provide? Would committing to all of the above be too challenging—or expensive—to make it work for your business?
• Food justice, food sovereignty, and food security. Ensuring that all people, regardless of economic class or location, have access to healthy, fresh, just, sustainable, and affordable food is just one aspect of this value. How does your venture relate to helping communities grow, process, and retail their own food? Does your business factor into a larger community democracy?
• Healthy and safe conditions for employees. How far down the supply chain does your commitment go? For instance, if you want to support improved conditions for farmworkers, how will you confirm that your vendors meet your standards?
• Healthy food. How do you define “healthy”? Will you manufacture or provide healthy foods only, even if you could sell a lot more, at higher margins, of the unhealthy options?
• Energy use and carbon footprint. Every business uses energy and emits carbon at multiple points in its operations and in the lifecycle of its products. Is your equipment and physical infrastructure energy efficient? Will you source your energy from more ecologically friendly utilities? Will you purchase carbon offsets? You might run your vehicles on biodiesel or even used vegetable oil, or contract with distributors or delivery companies that address their own carbon footprint. Your product design also has an impact; for instance, you might design your heat-and-eat products so that they remain stable at room temperature rather than requiring refrigeration.
• Minimizing waste. What can you do to reduce the amount of waste that your company produces? Will you use recycled and/or recyclable packaging? What about compostables and bioplastics? If avoiding genetically modified (GM) products is important to you, you might need to think twice about some of your options.
• Investing in your community. This could take a number of different forms in addition to purchasing local goods and services. Will you host community events at your place of business or sponsor other local events? Will your company donate money to local charities or match employee donations? Does your company policy cover paid volunteer days for employees? Maybe you will commit to hiring local people, even if this means providing extra training.
• Employee compensation, benefits, and decision-making processes. Which of the following would you like to provide for your employees: paid time off for holidays, vacation, illness, bereavement, care of family members, maternity, paternity? Flexible work schedules? Subsidized health, disability, and life insurance premiums? Matched contributions to retirement plans? A generous definition of what constitutes “full-time employment” for the purposes of providing benefits in the first place? Meal plans? Affordable housing? This is just the start, as there are many other benefits you could choose to provide. How do you engage your employees in making decisions about your business? For some, democratic and/or consensus decision making is an important value.
• Transparency. You may be committed to transparency of your venture’s activities, but of which specific details and to whom? What will you share with your board, your customers, your suppliers, the public? How will you make this information available?
Putting It in Writing
Once you’ve determined what is most important to you and your business, make an effort to clearly articulate your commitment to these values. Will Rosenzweig is cofounder and partner at Physic Ventures, a venture capital firm that invests in breakthrough technologies, products, and services in health and sustainability. He’s also a successful food entrepreneur (he was founding CEO and minister of progress at the Republic of Tea) who served on the faculty of the Haas School of Business at the University of California, Berkeley. “A company’s values need to be explicit, not just in terms of ‘what are we doing’ but also ‘how are we going to do it’ so that there is a constitution to follow,” he says. If possible, use specifics to describe your commitment to the value, such as, “We commit to spending at least 50 percent of our store’s produce budget on farms located within seventy-five miles.” Keep in mind that these commitments might change after you have been in business awhile, as you learn through experience what is realistic and sustainable for your operations. (You’d be wise to avoid printing your commitments on every sign, doormat, and T-shirt associated with your business until you’re sure that you can keep them.)
These value commitments might become part of your venture’s mission statement, operating principles, or other guiding document. You’ll want to refer back to them as you read through the chapters to come, as they will help you evaluate which options are the best fit. Your statement of values will also serve as a guiding star when you come up against challenging management decisions. Not sure which vendor to commit to, which distributor is the best choice, or even which customers to focus on? Checking for a match in values will help you determine the correct path of action. Clearly articulating your values and priorities will also give you and your prospective investors a sense of whether or not you’re on the same page.
Finally, consider how you would explain your position on these values to somebody else. As a social entrepreneur, this is a skill you will need to cultivate. You might already know exactly why your values feel right, but others might not be so understanding. The overriding assumption in the world of business is that a company exists to make as much money as possible through whatever means necessary. Entrepreneurs with a wider value set bear the burden of justifying their actions not only in terms of the financial but also in terms of their other stated areas of impact.
For more from Raising Dough, see:
Reprinted with permission from Raising Dough by Elizabeth Ü, published by Chelsea Green Publishing, 2013. Elizabeth is also the host of the weekly podcast Xero Gravity for entrepreneurs and small businesses.