Beyond and before the tragic nightclub shooting and raging fires, we’ve experienced another, quieter set of calamities befell several sustainable food businesses struggling to find a toehold in our local Southern California landscape.
Sustainable Food Under Siege
The Thousand Oaks shooting is a horrible tragedy.
And the fires raging in both Southern and Northern California, the loss of life and the overwhelming destruction, are unimaginable events
But what else happened in Southern California?
In the weeks before these two tragedies, we saw core businesses we’ve come to count on as basic to our sustainable food economy falter and fail.
First, I got word that San Diego based sustainable farm, Archi’s Acres faces closure.
A few days later I learned the Southern California network of Slow Money would likely lose its charter of six years. While the national movement remains strong in other regions, seems our Slow Money SoCal Network reported too few investments.
Finally, just a day or two after learning of Slow Money SoCal’s dissolution, I got an email and then a Facebook post telling me that LA Kitchen, the brainchild of Robert Egger was closing its doors.
Disappointment coupled with the regional tragedies hasn’t lessened and continues to hang heavily over me and our Southern California region.
I think much of this business related perfect storm has to do with year-end bookkeeping for 2018.
I don’t think the three events:
- Archi’s Acres contract cancellation
- Slow Money SoCal’s lack of reportable investments
- LA Kitchen ’s helplessness to realize its business model vision
suggest a broad theme about sustainable food or an inability of sustainable food to inform a workable business model.
I do think reoccurring themes around all small business cycles, and insufficient infrastructure for sustainable food are root causes.
In Archi’s case, a contract canceled.
Not an unusual event for a small business or a farm.
Archi’s Acres is both.
I don’t know the nature of the Archi’s Acres precontract commitment. The GoFundMe page, where I dug deeper into the story, only says the promise was from a big company. Expecting to fulfill the new agreement with an increased demand for their sustainably grown basil (a primary crop), Archi’s Acres owners took a loan to build a hoop house.
A loan they are finding tough to repay without the contract.
They’re not the first business to push themselves financially only to have the promise of profits dissolve. It’s a well-known challenge for small food enterprise.
For example, I often hear stories about the impacts of Whole Foods contracts from sustainable food entrepreneurs in our local economy. The decisions these business owners make to realize their Whole Food dreams, the resulting production they take on, it’s all difficult.
When business model changes–think, Whole Food and Amazon– it can mean disaster for local small business.
For LA Kitchen, the contract issue is a bit different.
The LA Kitchen vision needed city contracts to fund feeding seniors to complete the closed loop, holistic business model.
These anticipated contracts never materialized.
The LA Kitchen vision determined to:
- create a balanced and aesthetic meal
- train the formerly incarcerated
- feed a surrounding population of vulnerable seniors.
One analysis suggests the city couldn’t factor impact into the bid. Policy forced a simple bottom line assessment.
The city’s failure to account for a multidimensional Return on Investment (ROI) was LA Kitchen’s undoing.
Despite a stated preference by seniors for healthy, appetizing food (better health outcomes), job training and a pipeline to employment for the formerly incarcerated, the bidding process as suggested, doesn’t allow for anything but a narrowly defined profit for a single profit center.
Bidding looks only to the expense for a single department, not to a holistic sense of the community.
Questions for Ethical Investors
So, as investors, how do we become agents for change?
How do we use our financial resources to create a more resilient local economy to support local businesses, reflect our regional voice and show our values?
Archi’s Amazing Community
I’d suggest there are several ways our financial resources might better support Archi’s Acres.
Throughout its development Archi’s Acres owners, the Archipleys worked hard to:
- create an inspiring vision for Archi’s Acres
- share their story
- develop a community of supporters and raving fans.
The community-centered work suggests the value of social capital and high trust relationships the Archipley‘s called upon during this time of crisis.
A Facebook post calling for ‘a miracle’ was the first the Archipley’s fans knew there was trouble.
The Facebook share, done in a moment of genuine vulnerability, not an organized campaign, gave rise to a fantastic response from the community (both the Patreon and the GoFundMe accounts for Archi’s Acres are active, feel free to donate).
- The Archipley’s established a Patreon Account
- A community member set up a GoFundMe account.
- Small business owners in the area pulled together a fundraiser complete with donated food and drink. They accomplished this within a week.
Better Agents for Sustainability?
The community response to Archi’s Acres call for a miracle is heartening.
Unfortunately, though the three-pronged community outreach may result in at least some of the needed money, what’s reflected in the campaigns is a vast outpouring of emotional support, but little real help resulting in financial resources.
This is a failure of imagination.
Folks have a long way to go before they actively consider themselves financial agents around community need.
The idea that we make a difference, the thought that even modest amounts of money can make a significant impact, is still, mostly beyond our resourcefulness.
We need to let these ideas penetrate our consciousness and find ways to express them in our actions. We need to find better ways to take part in future change making.
Royalty Notes: Opening the Imagination
We need to move beyond charitable giving for rescuing a threatened business to a dynamic flow of financial resources intended to co-create with entrepreneurs.
To do this, we can consider Slow Money influenced tools and philosophies.
If Archi’s Acres hoop house loan were a revenue-secured financial instrument (a royalty note or a demand dividend) from community-based ethical investors, the investors would have shouldered some of the risks for the business.
Risks that included the loss of the contract.
Investors would have given up their repayments until revenue picked up. (In this case, the Archipley’s believe this will happen in the next several months as other purchase orders come in to replace the income.)
When we base financial transactions in supportive, shared-value relationships, investor-lenders extend repayment terms and offer conciliatory interest rates.
People’s simple financial demands balance with a desire to help the business owner as a valuable member of the community and to back a triple bottom line visionary.
Short-term Working Capital from the Community?
Alternatively, Archi’s crisis seems to be a short-term need for working capital to replace the expected profits from the canceled contract.
Perhaps there is a solution to be found in another Slow Money experience.
In the early days, one of our Slow Money minded investors explored creating a working capital line of credit for a local entrepreneur.
My friend, the potential investor, had money saved for a new home but she had yet to find the property. She dreamed of finding a way for the money sitting in the bank to become a short-term loan for a worthy local entrepreneur.
As a former financial advisor, I have to be among the first to argue the hazard of extending working capital loans to small business.
We should never invest more than we can afford to lose.
In my friend’s case, there is a reason the money was sitting in the bank easily accessible for her down payment.
So it would be there when she found her dream home!
But, setting up a working capital revolving fund or credit line with conciliatory interest rates is an idea others might take up with caution and a more reasonable time frame.
As community members, we can anticipate uneven cash flow will beset many small businesses. Mission-driven businesses, balancing impact with financial profitability will have an even more difficult time.
However, if we genuinely believe in the business and can see an entrepreneurial team with a discipline, we might prepare ways to smooth the way so that these beloved businesses can stay open.
No financial idea is necessarily the right answer or the only answer to any given situation. However, what we need is to open our imagination to solutions beyond donations. We need to consider solutions that incorporate more agency around our financial resources.
LA Kitchen, A Hybrid Model
The LA Kitchen story, though similar on the surface, is much different.
More than a contract between a city and social enterprise, the transaction reaches the level of deep collaboration.
LA Kitchen’s incapacity to realize the desired but forward-thinking, collaborative partnership between social enterprise and city government called into question the entire business model.
This failure isn’t a short-term need we can meet with a loving community response–a community with members ready and willing to embrace LA Kitchen as much as the community that encircles Archi’s Acres.
No. This failure calls for a redesign.
Interestingly, one idea for redesign might look to the city instead of the business with an understanding that:
- policy needs to be more responsive to hybrid models that help nonprofits move away from an unhealthy dependence on grants and donations.
- City government should be able to make allowances for the social-environmental benefits or stakeholder preferences in their bidding process so creative solutions, like those offered by LA Kitchen, are competitive in the bidding process.
While LA Kitchen closed their doors earlier this month, a friend suggested financial tools like social impact bonds (also called pay-for-success contracts) might be a sophisticated answer to this challenging problem.
Social Impact Bonds
Social impact bonds originated in 2010. Used first in England, Goldman Sachs brought them to the U.S. in 2012.
Sometimes called pay-for-success bonds, stakeholders like governments, nonprofits and impact investors coordinate for the dynamic payout structure.
Generally, an institutional investor provides the investment funds and administrates the process to create a successful outcome. Though the bonds have their issues, the nonprofit (or social enterprise) receives payment when the results are successful.
If you’re an accredited investor, you can learn more about the Goldman Sachs Social Impact Fund here.
Slow Money SoCal
Which brings us to our final unfortunate event: the end of Slow Money SoCal’s charter.
What happened to Slow Money SoCal is a symptom of larger fundamental issues in Southern California:
- a sprawling geography
- a region characterized by fast-paced lives
and our Slow Money SoCal membership:
- early adopter participants
- an idealism that outpaced financial resources
- a failure to ignite our understanding of food infrastructure investment.
Despite a healthy movement for good food, it’s developers who build commercial kitchens and use New Market Tax Credits for exciting collaborations.
Not community money.
Not Slow Money.
We have yet to find a way to empower a large group of Southern Californian community members to participate in infrastructure development for fundamental change. We have yet to invest, in any meaningful way, during times of trouble. Times as we’ve just seen with Archi’s Acres or LA Kitchen.
To do this is the Slow Money vision.
In the years since our Slow Money SoCal inception, we’ve grown a community of committed individuals. We’ve also increased understanding and awareness around Slow Money mindedness.
In the short run, chasing individual investments to maintain a charter seems less important than cultivating Slow Money minded investors.
We carry on.
We are moving slowly to a robust understanding of what it means to have a resilient local economy that opens the imagination to investment around sustainable food and food infrastructure.
We’ve seen investors in other states bring community investment to the table for substantial loans. However, real estate prices in California may make it hard for community members to organize the needed capital.
That said, Direct Public Offerings (DPOs), another kind of investment instrument, do create an opportunity for folks to bring community money towards big ideas. We’ve seen DPOs successfully deployed in California.
In future posts, we’ll explore DPOs and the value they bring to community investment.
In the meantime, these failures in our backyard are a positive struggle for our development.
They offer the opportunity for lessons and insights.
Far from complete disillusionment, they become part of our experiential learning process. Our WIK as the community commits to finding ways to make these forward-thinking visions a reality.
I believe if not today, at some point in the future, we will realize these sustainable food values supported by ethical investments.
While we’re devastated to loose LA Kitchen, we look forward to LA Kitchen’s founder, Robert Egger’s next chapter.
Though Slow Money SoCal is no longer chartered, we look forward to cultivating Slow Money mindedness in the Southern California region. Watch for future collaborations.
Have you ever rescued a failing small business—maybe for a family member or a friend?
Have you, or an entrepreneur you know, failed at one business learned something you could take for bigger, greater success?
What are your thoughts about using some of these financial tools?
Love to see your comments below!