HmCapitaL

Re-thinking our rural economic future through enterprise:

• Local• Sustainable

• Asset based

SEMINAR XIXEugene & Canyonville, OR

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The Growth DilemmaBill McKibben (Deep Economy) –

Three fundamental challenges to our collective fixation on growth have now emerged -Growth is producing more inequality than

prosperity and more insecurity than progress;We do not have the energy needed to keep the

magic going nor can we deal with the pollution in creates;

Growth no longer makes us happy.

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What do we know now?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

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

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

Poverty, income inequality, isolation from our neighbors and our lack of empathy for one another – all increasing

The tools to reshape the economy are in front of us and we are the ones in the best position to see that

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Our world is changing and we need to change with itThis is NO time to be a

mushroom when it comes to your local economy

No matter what they tell you – our “best days” are really behind us

There is no going back to the last century – party’s over

The new economy must become a local-out economy

Community-initiated, sustainable enterprises are the absolute key to this happening, particularly in rural communities

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Getting past the 24-7 News Cycle

Our optimism is being battered by “wedge issue think” and self-serving radio and cable show pitchmen pretending to be journalists

Energy needs to be focused on building a local consensus to establish a sustainable, caring and enterprise-based economy

No time to let the forces of division and separation win if we are to succeed – let the dinosaurs go play with each other

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Seriously he is not sustainable

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Why can’t rural communities retain their wealth?“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.”

Yellow Wood AssociatesFormulating a Sustainable Economic Development

Process

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So what can we do?We need to move our local

economies from being import dependent to being a net exporter

We need to leverage the assets we have which are the tools for building community wealth

We need to acknowledge the existence of local business systems and build our enterprises with those systems in mind

In short, we need to all become George Bailey

George Bailey vs. Mr. PotterPotter took advantage of

his position and power in the community

George believed in the people and in his community’s assets and their economic inter-dependence

Potter would exploit a crisis (the “bank run”) without regard to the consequences

George would reinvest and take more risks regardless of the personal consequences

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Hhhhrumph!“ 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.”

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George Bailey – Social Entrepreneur!

“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?”

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The Quakers had it right too – Do good and you will do well

Build community thru honest and fair commerce

The more we invest in those around us, the more we grow together

Hang togetherSeek to find the tools of

co-operation in our social, economic and spiritual lives

Focus on balance and the ecology of our world

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Our Shared Mission – Common-WealthWe are here to build wealth for our communities and

leverage the wealth we have around usThis requires an intentional wealth-building strategyWe are not here to create “jobs” – or subject matter

for motivational posters

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What is a “wealthy” community?Where assets are put to productive useA system that enhances the value of its assets

sustainablyAble to leverage economic and social connections with

neighborsWhere people expand their assets and strengthen

their skills at managing them responsiblyWhere healthy, unimpaired assets are continually re-

invested to offset depreciation and generate a reliable stream of income over time

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.

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Community Wealth BuildingAccording to the “Wealth Creation in Rural

America Initiative” there are seven forms of community wealth -

IndividualSocial

IntellectualNatural

BuiltPoliticalFinancial

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Wealth BuildersIndividual Capital Skills, Health yields human energy

to be productive

Social Capital Trust, Relationships strengthen groups and permit building partnerships

Intellectual Capital Knowledge, Innovation generates new ideas and discovery

Natural Capital Sustaining natural resources yields economic and social returns – but most important environmental benefits to us all

Built Capital Infrastructure, productive resources such as roads, rails, mills, airports

Political Capital The leverage to get public support and respect

Financial Capital Monetary assets available for investing in other types of capital

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Value Chain Investing

All businesses already exist within a supply chainValue chains take supply chain to another level

Value chains support community, relies on synergiesNot only moves goods and services but recognizes the

value they bring to the rest of usValue 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

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

Do good – do well

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Where to start?Focus on Basic Needs

FoodHealth ShelterEnergyTransportationEnvironment

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What to look forGapsInefficienciesTrade imbalancesScore the opportunity

Recurring demandLow barriers to entryCan grow to scaleCan generate a return

on capital invested

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Check List

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Recurring DemandA good value chain has

strong end market partners who understand the strategy

The business plan is not limited to one season or one business cycle

Customer diversity is key to building long-term sales and growth

Suppliers understand the strategy as well and the needs of the customers

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Synergies are HighInvestment here yields

benefits to others in the chain

Enterprise is a fit into an existing business eco-system

Less a competitor and more a complimentor to all parties – there is a compelling logic in the business model

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We can grow it to scaleRoom to grow in the

core market we live inTechnical capacities are

flexible and within reach in terms of cost

The success of the network will be complimentary to the partners

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Generate market returnsCan the business plan be

achieved without heroics?

The return on invested capital can start happening within two to three years?

Margins can be defended, investors can measure progress?

Profits are derived from sales and not from subsidies – and they can be readily reinvested to grow the business

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Case Study – Republic Food Enterprise Center

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Fayette County, Pennsylvania20.8% of the population

lives below the federal poverty level*

The median household income is $34,050, compared to Pennsylvania’s median income of $50,702*

9.2% Unemployment rate25.9% of residents

receive medical assistance

21.7% of residents receive SNAP assistance

*According to the 2006-2008 American Community Survey

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Making the case We estimate that there are

upwards to 17,000 producing farms in western Pennsylvania

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

Farmers have to manage all the logistics along with the planting, cultivating and harvesting of these crops –which drastically reduces their return on investment

Recent studies indicate that few if any family farms are operating at or above break-even

There is unprecedented interest from local retailers, food service companies and social services and education institutions for locally grown and processed foods

The potential dollar value of these sales is estimated to be in the billions of dollars annually

Some of these end users even have full-time staff who’s task it is to source local products from the market

Despite that there is broad agreement that the current market is inefficient and mismatched between supply and demand

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StrategyConvert the facility to a

flexible food production and stabilization center

Develop capacities to build strong trust relationships with both growers and end markets

Build a stable, employee owned company as the center of a dynamic regional food systems integrator and innovator

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Republic Food Enterprise Center

Brand ProductDevelopment and

Test Kitchen

ProductCanning Group

RegionalRestaurant Chains

Food Services

ProductStabilization Group

Retail Chains andGrocery

Area Restaurants

BakeryProducts Group

ConceptDevelopers

Home-basedProducers

Republic FoodEnterprise Center

Product PlacementService

Test MarketProgram

Food Services

FoodEntrepreneurs

Co-operatives

Greenhouses

CSAs

TruckFarms

OrganicGrowers

Growers&

Suppliers

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Building a solution Regional production Hub modeled on proven industry examples of

co-packing, shared production and kitchen enterprise centers Leverages the ability of the community action agency to get low

cost capital for enterprise investment Partner with both sides – suppliers and customers Build a stable, well-trained workforce and provide opportunities

for long-term employment and ownership

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Supply Chain ManagementBuild one on one

relationships with area growers and producers

Provide logistics to simplify the produce collection process

Provide market intelligence during the year prior to farms making planting decisions

Offer fair price for seconds

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Bakery Products GroupExisting commercial

kitchen capable of functioning as a mid-sized regional bakery

Start building customer base with local restaurants and food services

Add frozen bread products and ready-to-heat specialty breads over time

Develop strategy for regional suppliers

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Canning & Stabilization GroupTargets the seconds

from the growersUses flexible canning

lines that are not highly automated and can do relatively quick change-overs

Target the institutional and restaurant markets who want to feature regional content year-round

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Brand Development ResourceSupport local

entrepreneurs who want to launch a branded food product

Assist in market research with business development partners from Katz Business School and brand mentors

Design and plan a product launch

Introduce products either through internet channel or market partners

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Demand Side DevelopmentAs a result of interviews

we know that multiple end market makers have placed a premium on “buy local”

Regional buyers represent businesses that are essentially “land locked” and have committed to the region

Decision-makers are both approachable and friendly

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End Market Partnerships

Retail grocery chains such as Giant Eagle (family owned) and Whole Foods

Regional restaurant chains such as Eat’nPark and the Big Burrito Restaurant Group

Regional food services and social services such as Parkhurst Corporation, food pantries and charter schools

Year-round farmer markets are also developing

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Organizational ApproachBuild business Hub with a transitional management team –

Hollymead Capital over a two to three year periodOrganize the operating company as a worker co-operative

modeled after Evergreen Co-operatives (Cleveland) Integrate third party resources to provide education,

training and technical support to growerSimplify the farm to market connections by building strong

alliances with regionally based and locally controlled industry leaders

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

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Hollymead Capital

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.

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Management Team HmCapital delivers a highly

qualified team to the effort and in turn will develop on-site management group over three years

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

Operations – partner in a regional CSA organic farm, former regional coordinator for PASA, expertise in sustainable technologies

CFO – currently Director of Acquisitions for AmeriGas, former CEO of a propane company, accounting degree and MBA

Food Technologist – principal food technologist for several food businesses, including Heinz North America, TreeHouse Foods, Ebro-Puleva

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Worker Co-operativeOperating company will be established as a worker co-

operativeAll permanent employees will become eligible for

membership after a defined term of employment after their training period

Profit-sharing benefits will be accrued and distributed to employees as owner dividends after a prescribed period of time

Structure modeled after Evergreen Co-operative and adaptation of Mondragon

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

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Third Party SupportPartnership agreements will be developed with local

business resources (SBDC, Extension Services, PASA)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

RFEC will explore other such ventures such as mobile canneries, meat processors

Later stage development will support selected brand development for producers and food entrepreneurs

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Vertical Ovens

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Warehouse and Staging Area

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Acknowledgements We wish to acknowledge the work and insights of some

folks we have been talking to and listening to these past few months:Yellow Wood Associates and the Wealth Creation in

Rural Communities Initiative/Ford Foundation, VermontJohn L. McKnight and the Asset-Based Community

Development InitiativeEvergreen Co-operative, Cleveland and the Ohio

Employee Ownership Center

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Suggested ReadingsDeep Economy and Eaarth – both by Bill

McKibbenEconomy of Cities – Jane JacobsSmall-Mart, Michael SchumanUnsettling of America, Wendell BerryFree Fall, Joseph StiglitzBad Money, Kevin PhillipsBuilding Communities from the Inside Out,

McKnight and Kretzman

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For More InformationJoe Bute for the team at

HmCapital6000 West Grove Circle

Gibsonia, PA 15044joe@hollymeadcapital.comwww.hollymeadcapital.com