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Hollymead Capital, LLC RFEC Case Study

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Hollymead Capital, LLC RFEC Case Study

  1. 1. SEMINAR XIX<br />Eugene & Canyonville, OR<br />Re-thinking our rural economic future through enterprise:<br /><ul><li>Local
  2. 2. Sustainable
  3. 3. Asset based</li></ul>HmCapitaL <br />
  4. 4. 2<br />The Growth Dilemma<br />Bill McKibben (Deep Economy) –<br />Three fundamental challenges to our collective fixation on growth have now emerged -<br />Growth is producing more inequality than prosperity and more insecurity than progress;<br />We do not have the energy needed to keep the magic going nor can we deal with the pollution in creates;<br />Growth no longer makes us happy.<br />
  5. 5. 3<br />What do we know now?<br />Climate change debate is over. The changes are underway and they are irreversible in our lifetime and our children’s lifetimes – our planet will be more hostile and more volatile<br />The corporate model for meeting our needs is too dependent on fossil fuels and non-renewable resources and will literally kill us if we let it<br />There apparently is no serious way to change the “short-termism” of the financial sector – any chance they get to destroy their own economy, they will do it for the right return<br />Poverty, income inequality, isolation from our neighbors and our lack of empathy for one another – all increasing<br />The tools to reshape the economy are in front of us and we are the ones in the best position to see that<br />
  6. 6. 4<br />Our world is changing and we need to change with it<br />This is NO time to be a mushroom when it comes to your local economy<br />No matter what they tell you – our “best days” are really behind us<br />There is no going back to the last century – party’s over<br />The new economy must become a local-out economy<br />Community-initiated, sustainable enterprises are the absolute key to this happening, particularly in rural communities<br />
  7. 7. 5<br />Getting past the 24-7 News Cycle<br />Our optimism is being battered by “wedge issue think” and self-serving radio and cable show pitchmen pretending to be journalists<br />Energy needs to be focused on building a local consensus to establish a sustainable, caring and enterprise-based economy<br />No time to let the forces of division and separation win if we are to succeed – let the dinosaurs go play with each other<br />
  8. 8. 6<br />Seriously he is not sustainable<br />
  9. 9. 7<br />Why can’t rural communities retain their wealth?<br />“Rural areas provide many goods and services to urban areas…However the terms of trade between rural and urban areas are such that rural areas…are less able to accumulate wealth…In other words, wealth doesn’t stick in low-wealth rural areas and when it does, it is concentrated in the hands of a relative few who typically invest it elsewhere.”<br />Yellow Wood Associates<br /> Formulating a Sustainable Economic Development Process<br />
  10. 10. 8<br />So what can we do?<br />We need to move our local economies from being import dependent to being a net exporter<br />We need to leverage the assets we have which are the tools for building community wealth<br />We need to acknowledge the existence of local business systems and build our enterprises with those systems in mind<br />In short, we need to all become George Bailey<br />
  11. 11. George Bailey vs. Mr. Potter<br />Potter took advantage of his position and power in the community<br />George believed in the people and in his community’s assets and their economic inter-dependence<br />Potter would exploit a crisis (the “bank run”) without regard to the consequences<br />George would reinvest and take more risks regardless of the personal consequences<br />9<br />
  12. 12. Hhhhrumph!<br />“ What does that get us? A discontented, lazy rabble instead of a thrifty, working class. And all because a few starry-eyed dreamers like Peter Bailey stir them up and fill their heads with a lot of impossible ideas.”<br />10<br />
  13. 13. George Bailey – Social Entrepreneur!<br />“But he did help a few people get out of your slums, Mr. Potter, and what's wrong with that? Why - here, you're all businessmen here. Doesn't it make them better citizens? Doesn't it make them better customers?”<br />11<br />
  14. 14. 12<br />The Quakers had it right too – Do good and you will do well<br />Build community thru honest and fair commerce<br />The more we invest in those around us, the more we grow together<br />Hang together<br />Seek to find the tools of co-operation in our social, economic and spiritual lives<br />Focus on balance and the ecology of our world<br />
  15. 15. 13<br />Our Shared Mission – Common-Wealth<br />We are here to build wealth for our communities and leverage the wealth we have around us<br />This requires an intentional wealth-building strategy<br />We are not here to create “jobs” – or subject matter for motivational posters<br />
  16. 16. 14<br />What is a “wealthy” community?<br />Where assets are put to productive use<br />A system that enhances the value of its assets sustainably<br />Able to leverage economic and social connections with neighbors<br />Where people expand their assets and strengthen their skills at managing them responsibly<br />Where healthy, unimpaired assets are continually re-invested to offset depreciation and generate a reliable stream of income over time <br />Where a portion of every dollar (or other form of income – clean air, etc.) is saved and reinvested (not consumed) to sustain its wealth over time.<br />
  17. 17. 15<br />Community Wealth Building<br />According to the “Wealth Creation in Rural America Initiative” there are seven forms of community wealth - <br />Individual<br />Social<br />Intellectual<br />Natural<br />Built<br />Political<br />Financial<br />
  18. 18. 16<br />Wealth Builders<br />
  19. 19. 17<br />Value Chain Investing<br />All businesses already exist within a supply chain<br />Value chains take supply chain to another level<br />Value chains support community, relies on synergies<br />Not only moves goods and services but recognizes the value they bring to the rest of us<br />Value chains are built to last – strengthen partnerships, increase capital flows to all parties and create sustainable businesses, take care of the world we live in and the people in it<br />If you build an enterprise that fits into a supply chain and can leverage your role in the chain to improve the economics and sustainability of those around you – you are part of a value chain<br />Do good – do well<br />
  20. 20. 18<br />Where to start?<br />Focus on Basic Needs<br />Food<br />Health <br />Shelter<br />Energy<br />Transportation<br />Environment<br />
  21. 21. 19<br />What to look for<br />Gaps<br />Inefficiencies<br />Trade imbalances<br />Score the opportunity<br />Recurring demand<br />Low barriers to entry<br />Can grow to scale<br />Can generate a return on capital invested<br />
  22. 22. 20<br />Check List<br />
  23. 23. 21<br />Recurring Demand<br />A good value chain has strong end market partners who understand the strategy<br />The business plan is not limited to one season or one business cycle<br />Customer diversity is key to building long-term sales and growth<br />Suppliers understand the strategy as well and the needs of the customers<br />
  24. 24. 22<br />Synergies are High<br />Investment here yields benefits to others in the chain<br />Enterprise is a fit into an existing business eco-system<br />Less a competitor and more a complimentor to all parties – there is a compelling logic in the business model<br />
  25. 25. 23<br />We can grow it to scale<br />Room to grow in the core market we live in<br />Technical capacities are flexible and within reach in terms of cost<br />The success of the network will be complimentary to the partners<br />
  26. 26. 24<br />Generate market returns<br />Can the business plan be achieved without heroics?<br />The return on invested capital can start happening within two to three years?<br />Margins can be defended, investors can measure progress?<br />Profits are derived from sales and not from subsidies – and they can be readily reinvested to grow the business<br />
  27. 27. 25<br />Case Study – Republic Food Enterprise Center<br />
  28. 28. 26<br />Fayette County, Pennsylvania<br />20.8% of the population lives below the federal poverty level*<br />The median household income is $34,050, compared to Pennsylvania’s median income of $50,702*<br />9.2% Unemployment rate<br />25.9% of residents receive medical assistance<br />21.7% of residents receive SNAP assistance<br />*According to the 2006-2008 American Community Survey<br />
  29. 29. 27<br />Making the case<br />We estimate that there are upwards to 17,000 producing farms in western Pennsylvania<br />Farms growing fresh vegetables and fruits may lose as much as 40% of their annual yield because they are “seconds” and cannot be sold at retail or in open air markets<br />Farmers have to manage all the logistics along with the planting, cultivating and harvesting of these crops –which drastically reduces their return on investment<br />Recent studies indicate that few if any family farms are operating at or above break-even<br />There is unprecedented interest from local retailers, food service companies and social services and education institutions for locally grown and processed foods<br />The potential dollar value of these sales is estimated to be in the billions of dollars annually<br />Some of these end users even have full-time staff who’s task it is to source local products from the market<br />Despite that there is broad agreement that the current market is inefficient and mismatched between supply and demand<br />
  30. 30. 28<br />Strategy<br />Convert the facility to a flexible food production and stabilization center<br />Develop capacities to build strong trust relationships with both growers and end markets<br />Build a stable, employee owned company as the center of a dynamic regional food systems integrator and innovator<br />
  31. 31. 29<br />Republic Food Enterprise Center<br />
  32. 32. 30<br />Building a solution<br />Regional production Hub modeled on proven industry examples of co-packing, shared production and kitchen enterprise centers<br />Leverages the ability of the community action agency to get low cost capital for enterprise investment<br />Partner with both sides – suppliers and customers<br />Build a stable, well-trained workforce and provide opportunities for long-term employment and ownership<br />
  33. 33. 31<br />Supply Chain Management<br />Build one on one relationships with area growers and producers<br />Provide logistics to simplify the produce collection process<br />Provide market intelligence during the year prior to farms making planting decisions<br />Offer fair price for seconds<br />
  34. 34. 32<br />Bakery Products Group<br />Existing commercial kitchen capable of functioning as a mid-sized regional bakery<br />Start building customer base with local restaurants and food services<br />Add frozen bread products and ready-to-heat specialty breads over time<br />Develop strategy for regional suppliers<br />
  35. 35. 33<br />Canning & Stabilization Group<br />Targets the seconds from the growers<br />Uses flexible canning lines that are not highly automated and can do relatively quick change-overs<br />Target the institutional and restaurant markets who want to feature regional content year-round<br />
  36. 36. 34<br />Brand Development Resource<br />Support local entrepreneurs who want to launch a branded food product<br />Assist in market research with business development partners from Katz Business School and brand mentors<br />Design and plan a product launch<br />Introduce products either through internet channel or market partners<br />
  37. 37. 35<br />Demand Side Development<br />As a result of interviews we know that multiple end market makers have placed a premium on “buy local”<br />Regional buyers represent businesses that are essentially “land locked” and have committed to the region<br />Decision-makers are both approachable and friendly<br />
  38. 38. 36<br />End Market Partnerships<br />Retail grocery chains such as Giant Eagle (family owned) and Whole Foods<br />Regional restaurant chains such as Eat’nPark and the Big Burrito Restaurant Group<br />Regional food services and social services such as Parkhurst Corporation, food pantries and charter schools<br />Year-round farmer markets are also developing<br />
  39. 39. 37<br />Organizational Approach<br />Build business Hub with a transitional management team – Hollymead Capital over a two to three year period<br />Organize the operating company as a worker co-operative modeled after Evergreen Co-operatives (Cleveland)<br />Integrate third party resources to provide education, training and technical support to grower<br />Simplify the farm to market connections by building strong alliances with regionally based and locally controlled industry leaders<br />Once the Hub is established, direct additional resources – both technology and financial into supporting new gap-filling enterprises such as mobile processing for meats and produce, in-field container collection systems, direct internet marketing<br />
  40. 40. 38<br />Hollymead Capital<br />HmCapital and it's affiliates are a business development and management support group dedicated to providing assistance in the formation of sustainable community enterprises for the direct benefit of low and moderate income communities.<br />
  41. 41. 39<br />Management Team<br />HmCapital delivers a highly qualified team to the effort and in turn will develop on-site management group over three years<br />G.M. – has 15 years direct investing in middle market companies, board member, investing experience in food products businesses, 25 years in community program development<br />Operations – partner in a regional CSA organic farm, former regional coordinator for PASA, expertise in sustainable technologies<br />CFO – currently Director of Acquisitions for AmeriGas, former CEO of a propane company, accounting degree and MBA<br />Food Technologist – principal food technologist for several food businesses, including Heinz North America, TreeHouse Foods, Ebro-Puleva<br />
  42. 42. 40<br />Worker Co-operative<br />Operating company will be established as a worker co-operative<br />All permanent employees will become eligible for membership after a defined term of employment after their training period<br />Profit-sharing benefits will be accrued and distributed to employees as owner dividends after a prescribed period of time<br />Structure modeled after Evergreen Co-operative and adaptation of Mondragon <br />Focuses on retaining the knowledge and training investment of the RFEC with the employees as they become expert at the safe and efficient processing of food and organic materials<br />
  43. 43. 41<br />Third Party Support<br />Partnership agreements will be developed with local business resources (SBDC, Extension Services, PASA)<br />RFEC will subcontract services such as logistics with regional partners and co-venture with them on innovations in moving crop from field to processing to lower farmer’s direct costs<br />RFEC will explore other such ventures such as mobile canneries, meat processors<br />Later stage development will support selected brand development for producers and food entrepreneurs<br />
  44. 44. 42<br />
  45. 45. 43<br />
  46. 46. 44<br />
  47. 47. 45<br />
  48. 48. 46<br />Vertical Ovens<br />
  49. 49. 47<br />
  50. 50. 48<br />Warehouse and Staging Area<br />
  51. 51. 49<br />Acknowledgements<br />We wish to acknowledge the work and insights of some folks we have been talking to and listening to these past few months:<br />Yellow Wood Associates and the Wealth Creation in Rural Communities Initiative/Ford Foundation, Vermont<br />John L. McKnight and the Asset-Based Community Development Initiative<br />Evergreen Co-operative, Cleveland and the Ohio Employee Ownership Center<br />
  52. 52. 50<br />Suggested Readings<br />Deep Economy and Eaarth – both by Bill McKibben<br />Economy of Cities – Jane Jacobs<br />Small-Mart, Michael Schuman<br />Unsettling of America, Wendell Berry<br />Free Fall, Joseph Stiglitz<br />Bad Money, Kevin Phillips<br />Building Communities from the Inside Out, McKnight and Kretzman<br />
  53. 53. 51<br />For More Information<br />Joe Bute for the team at<br />HmCapital<br />6000 West Grove Circle<br />Gibsonia, PA 15044<br />joe@hollymeadcapital.com<br />www.hollymeadcapital.com<br />

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