Conscious Company Magazine | Issue 9 Sep/Oct 2016 by Conscious Company

HOW CONSCIOUS BUSINESS CAN SAVE OUR CITIES

THE

LOCAL ISSUE

THE FUTURE OF BUSINESS AS USUAL

BUILDING A BILLION DOLLAR CO-OP

INNOVATORS REBUILDING

DETROIT HOW TO

FIND LOCAL INVESTORS MOVE TO EMPLOYEE OWNERSHIP USE THE NEW CROWDFUNDING LAW

ROBYN SUE FISHER INVENTS THE NEW RULES OF BUSINESS FOOD | ENERGY | FINANCE | INNOVAT ION & DESIGN | LEADERS HIP

YOUR CHOICE HAS POWER By choosing clothes that are responsibly made, you make a statement about what you value. Itâ&#x20AC;&#x2122;s a small act, but one that changes the way business is done, one purchase at a time.

TABLE OF CONTENTS FOOD STARTING BLOCK

HELP YOUR LOCAL ECONOMY BY BALLE

HOW CONSCIOUS BUSINESS CAN SAVE OUR CITIES* BY JEFF CHERRY

ADVICE FROM THE SUM AND SUBSTANCE TOUR

LEAD BETTER BY LISTENING BETTER BY GRACY OBUCHOWICZ

46 INNOVATION & DESIGN

6 INNOVATORS REBUILDING DETROIT* BY JESSICA MEYER

IS SHINOLA THE REAL DEAL?

LESSONS FOR MAKERS BY RACHEL ZURER

BUILDING THE BUSINESS

SPECIAL REPORT: EMPLOYEE OWNERSHIP DEMYSTIFIED*

*Cover Story

RESTAURANTS RESPOND: WHAT DOES “LOCAL” MEAN? BY NICOLE HAASE

SMITTEN ICE CREAM’S ROBYN SUE FISHER IS ON A MISSION: JOY*

MEET ORGANIC VALLEY’S RELUCTANT CEO*

DIVINE CHOCOLATE’S WORLD OF GOOD

FINANCE

SPOTLIGHT: THE SHARING ECONOMY

100

THE BROKEN PROMISE OF SHARING BY GERRY VALENTINE

THE NEW CROWDFUNDING LAW, EXPLAINED*

INSIDE WEFUNDER, EQUITY CROWDFUNDING’S BIGGEST PLATFORM*

HOW TO TURN YOUR FUNDERS INTO FANS BY STEVEN MORRIS

OTHER WAYS TO SOURCE LOCAL CAPITAL* BY MICHAEL WHELCHEL AND AARTHI BELANI

ENERGY

THE URGENT NEED TO FIGHT FOR LOCAL SOLAR ENERGY BY DAVID BRODWIN AND TOM MATZZIE

A&R SOLAR: ONE OF SEATTLE’S FASTEST GROWING BUSINESSES

6 WORKER-OWNED DIGITAL SHARING BUSINESSES BY AMY CORTESE

104

CASE STUDY: WHEN SHARING DRIVES OUR ECONOMY BY LORI HANAU AND CLAIRE WHEELER

108

PROTECT YOURSELF AS A WORKER IN THE GIG ECONOMY BY RYAN SHAENING POKRASSO

FROM THE EDITORS

September / October 2016 | Issue 9 The Conscious Company Magazine Team CO-FOUNDER AND COO Maren Keeley CO-FOUNDER AND EDITOR-IN-CHIEFTESS Meghan French Dunbar ART DIRECTOR Cia Lindgren CHIEF COMMUNITY OFFICER Kate Herrmann EDITORIAL DIRECTOR Rachel Zurer CHIEF CULTURE OFFICER Amber Lee Eckert ADVERTISING MANAGER Elena Nebreda COPY EDITORS Robin Dickerhoof Shane Gassaway DIGITAL CONSULTANT Lesley Barnes

As we took a deep look at the concept of “local” for this issue, it became increasingly clear that the most critical factor to making progress on a local level is community — in the sense of helping those around you, treating people well, and coming together to support a shared vision. Research suggests that a sense of community belonging correlates with higher levels of mental and physical health. From a business perspective, a sense of belonging in the workplace leads to higher productivity and employee engagement. All the companies we profile in this issue see community and togetherness as key components to their success — from the Smitteneers at Smitten Ice Cream (page 48), who’ve created a thriving business with “joy” as the mission, to the farmer co-op members of Organic Valley (page 56), who together built the largest organic-only food company in the world, to the tech whizzes at Wefunder (page 70), who are creating a platform that allows businesses to raise money from their own customers. A sense of community is also what we hope we’re creating through CONSCIOUS COMPANY — in fact, it’s one of our core values. With all of our actions and products — from the magazine you hold in your hands to our Sum and Substance event series to the workshops and other exciting initiatives we’ll be launching later this year — we strive to foster a community of individuals and businesses who support each other around the shared vision of making purpose-driven business the future of business as usual. As the African proverb says, “If you want to go fast, go alone. If you want to go far, go together.” So thank you for joining us. Let’s go farther — together. With respect and gratitude, Maren, Meghan, and the Conscious Company team

Photo: Julie Harris Photography

TRANSCRIPTIONIST Carla Faraldo WEBSITE GURU Jay Mantri & Thrive Consulting Group ADVISORY BOARD Ashley Coale Devon Bertram Emily Olson Katie Dunn Nathan Havey Scott Dunbar Wendi Burkhardt NEWSSTAND CONSULTANT Bill Golliher & Full Circle Strategies, LLC PRINTING Publication Printers COVER PHOTO: Audrey Ma

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QUICK TIPS

SIMPLE WAYS

BUSINESSES CAN HELP THEIR LOCAL ECONOMIES

Business is a powerful vehicle for community change. How entrepreneurs manage their money, hire, and source matters just as much as where they open their doors and how they grow. Over the past 15 years, BALLE has seen locally owned independent businesses driving the creation of healthy, equitable economies across the US and Canada. Make your business a reflection of the future you want to see, starting in your own community. Here are five easy and effective ways to start. BY THE BUSINESS ALLIANCE FOR LOCAL LIVING ECONOMIES (BALLE)

Photo: Nardoleo

Thanks for shopping locally

BUY LOCAL

You probably already know about the powerful impact consumers can have by shifting their dollars to local businesses. But there’s also a massive opportunity for businesses to support each other directly. Case studies in Arizona and British Columbia have shown that buying from local, independently owned office supply companies recirculates twice as much money into the local economy as purchasing from a multinational company, because local supply companies’ purchasing and hiring choices prioritize local reinvestment. Likewise, sourcing from firms owned by people of color increases wealth and opportunity in communities that have historically been under-resourced.

ASK: What are your largest regular purchases? Could any of those goods or services be procured from a local, minorityowned, and/or values-aligned business?

COLLABORATE

Set aside everything you think about your competitors and consider the success of the craft beer movement. Craft breweries across the US are growing at an incredible pace by recognizing that their chief competition is not with each other, but with the corporate beer industry. Small breweries know that by investing in each other, training industry newcomers, selling each other’s beers, cross-promoting events, and locating near each other, they are expanding the market and growing profits and benefits for all of them together. This is a fundamentally different mindset: rather than competing for a small slice of a pie, they operate with the belief — which business results bear out — that they can work together to create a bigger pie.

ASK: How can your business share information or infrastructure with others so you all do better together? Can your voices advocate for policies or deals that benefit each of you — and all of you?

MOVE YOUR MONEY

Small and mid-size banks control less than a quarter of all bank assets, but they account for more than half of all small-business lending. They often have lower fees, are controlled by people who live locally, and are far less likely than big banks to use large portions of their resources for speculative investing that may create temporary shareholder profit but provide little economic or social value to your community.

ASK: Is there a local bank or credit union to which you could move your accounts? If you offer your team a retirement plan, do you offer a fund that invests in local businesses? Where are your personal investments?

PRIORITIZE PEOPLE

Giving people a chance and investing in their futures can go a long way toward creating an economy that works for all of us. The owner of Awaken Café in Oakland realized that judging written job applications from an English-major perspective was getting in the way of hiring good people who could provide effective customer service and has since stopped using grammar as an employment criterion. Cascade Engineering in Michigan has created an on-site social service team to help employees — many of whom were formerly incarcerated or have not been employed before — get the support they need to succeed. WinCo Foods, a supermarket chain with 98 stores in eight states, offers an Employee Stock Ownership Plan (ESOP) granting every employee, from clerk to stocker to display builder, ownership in the company. (See more on ESOPs on page 36.) The combined wealth of the 130 employees at WinCo’s Corvallis, OR, store is more than $100 million: many of their staff will eventually retire as millionaires.

ASK: How do your hiring practices shape who you recruit and employ? Can you offer jobs to people who have barriers to employment? Could you consider an ESOP or other employee ownership or profit-sharing model to increase wealth, ownership, and opportunity among your team?

GROW TOWARD WHAT YOUR COMMUNITY NEEDS

The Zingerman’s Community of Businesses (ZCoB) began as a deli. Over time, they wanted to expand because their team wanted new challenges. Rather than create “second-rate versions of [the] original deli under fluorescent lights in airports,” they decided to grow deep. Today, ZCoB includes a creamery, a bakery, a full-service restaurant, a coffee roaster, and more, each of which serves the original deli, meets the same level of quality, and is located near Ann Arbor, MI. Today their 12 separate businesses employ more than 500 people. (Read more about Zingerman’s in Issue 4: bit.ly/growing_deep.)

ASK: What does your community need? What does your community import and what services are missing? How could you expand not by moving to other towns, but by enriching your own community’s interdependence?

BALLE is a nonprofit organization that represents hundreds of communities and hundreds of thousands of conveners, entrepreneurs, investors, and funders who are creating new economies that work for all of us. We believe that local, independently owned businesses are the key to solving our communities’ toughest barriers to healthy, equitable economies. Learn more at bealocalist.org.

CONSCIOUS COMPANY MAGAZINE

SEPTEMBER / OCTOBER 2016

OPINION

Conscious companies help reverse inequality, and thereby the decline of American cities. BY JEFF CHERRY

Baltimore, Cleveland, the Bronx, Detroit — to some, these cities and neighborhoods are simply home. But to many of us, these names represent once-great cities that are now in decline and in danger of coming apart at the seams because of economic and class divides. I witnessed this personally from my new home in Baltimore in April 2015 when the city erupted in riots after the killing of Freddie Gray in the back of a police van. What I saw, or felt viscerally, to be at the core of the protests was a sense that the system — economic as well as legal — was stacked against the citizens of West Baltimore. The upheaval was as much about economic opportunity as it was about social justice. And, in fact, the two are inextricably tied. Without economic opportunity, there can be no social justice. These two principles have always been integral to what makes a city or a society truly flourish.

Yet by every imaginable metric, income inequality in the US is bad and getting worse. (See sidebar, next page.) Intelligence, resilience, and the desire and ability to work hard are equally distributed across our society. Opportunity is not. The opportunities for great jobs, access to capital, and the best education are sorely missing from the poorest neighborhoods. The hopelessness that results can make or break a city and a society. In allowing this inequality to continue, not only are we creating an environment for more social unrest, we are also cheating ourselves of massive opportunities by leaving valuable human assets untapped. As my friend Richard May, chairman and cofounder of Baltimore’s Innovation Village, says: “If the Baltimore Ravens only fielded half their football team, we would surely lose every time we played. Not only would that

scenario never happen, but if it did, the fans wouldn’t stand for it. Why, then, would we do the same with half the citizens of our city and find it acceptable?” We need to address the income and opportunity inequalities in our society. Though there’s work to be done around tax policies or redistribution schemes, I’m a businessperson, not a politician, and society is demanding that business play an increasingly important role in healing its wounds. What we need is a mindset of abundance and shared prosperity as a path towards more opportunity, more equality, and more joy.

Conscious business is important for cities like Detroit

Photo: Doug Zuba

SIGNS OF ECONOMIC INEQUALITY IN THE U.S. The share of total US income for the top 1% of income earners has gone from 8.9% in the early 1970s to over 21.2% as of 2013

1970s

2013

Since 1979 the income of the top 1% of earners has increased more than 187% while that of the bottom 20% has increased a mere 39%.

Top 1%

bottom 20%

The 400 people who make up the Forbes 400 list have more wealth than all 16 million African-American households in the United States combined.

$2.34 TRILLION

$1.56 TRILLION

Forbes Top 400

16 million African-American households

In 2014 corporate profits were at their highest level ever as a percentage of GDP, while total compensation to employees sank to a 65-year low.

SEPTEMBER / OCTOBER 2016

A MINDSET OF ABUNDANCE When companies focus myopically on creating value for shareholders, there’s a natural tendency to view the world in a context of scarcity. Value decisions become zero-sum: If employees get more, then someone else — like shareholders — must get less. By contrast, conscious companies see themselves as part of an ecosystem of stakeholders with an objective — a purpose, if you will — of improving the wellbeing of all of the stakeholders they rely upon. They adopt a mindset of abundance, as opposed to one of scarcity. They understand that in creating value for customers — that one thing all businesses must do — product or service quality is no longer enough. Employees must be engaged in the mission of the organization, or else they will look for the next best opportunity or, even more dangerous for the company, take what they’ve learned and disrupt the industry with their own new startup. Conscious companies also understand that creating a relationship with a customer via a shared vision of how the world should work — socially, environmentally, or in some other way — is more compelling and more profitable than simply competing on price or quality. Fair pricing and good quality must be strategic table stakes in our economy. But the thing that will set you apart is not what you sell me, but how you make me feel. These practices and many others that are inherent to running a conscious company are also practices that lead us to a mindset of abundance. They lead us to understand that paying a fair wage, one that allows our employees to live with dignity and care for their families, isn’t anathema to creating value for shareholders. When an entrepreneur starts to consider the real societal purpose of her business and how that business can create value for all stakeholders in an interdependent exchange, she starts to understand the shortsightedness of the scarcity mindset, and the benefit of finding ways to create a bigger pie. These practices lead us down a path that opens our eyes to the value of investing in our schools, sustaining our environment, caring about what happens to the least of our citizens — and

CONSCIOUS COMPANY MAGAZINE

addressing these needs as an integrated part of the way we do business, not merely as some bolted-on notion of corporate social responsibility. In fact, with every new social entrepreneur or mission-driven business that comes through our programs at the Conscious Venture Lab it is becoming more apparent that the endearing and engaging treatment of all stakeholders is now one of the most powerful competitive advantages that any company can wield. If we are to be a great nation, we need to create the environment for conscious companies to build and grow in the inner cities. At the Conscious Venture Lab, we are working to train and invest in thousands of companies in cities like Baltimore, Cleveland, Columbus, and Detroit over the next ten years. We all have a stake in this endeavor, but those of us who come from these cities and these neighborhoods need to take the lead. We entrepreneurs, executives, and investors of color who have had the extreme good fortune to be successful have a tremendous opportunity — I dare say responsibility — to change the narrative of the inner city; not by advocating for more philanthropy or government programs, but by investing in these urban areas and training entrepreneurs to build businesses that matter to their communities. I’ve seen precious little of this in the communities where we are working today. But I continue to have faith and push my colleagues to join us, and in doing so help us seed a new economy based on the principles of Conscious Capitalism — and, in the process, create a more just, joyous, and prosperous economy for us all.

Jeﬀ Cherry is the CEO and managing partner of the Porter Group, LLC, an investment consulting and venture capital firm. He is also the founder and executive director of the Conscious Venture Lab, an accelerator for earlystage companies focused on purpose and profit: consciousventurelab.com.

SUM+SUBSTANCE

Photo: Jay Mantri

ADVICE FROM THOUGHTFUL LEADERS FROM THE SUM AND SUBSTANCE TOUR Who: Cesar Gonzalez

Cesar Gonzalez is the CEO of StartingBloc, a selective and highly respected fellowship program for leaders of change. He believes that for the first time in human history we have the opportunity, tools, and will to build a world that works for everyone. He lives out this belief by supporting leaders to build the skills, alliances, and strength they will need to bend the arc of history. Originally from Peru, Cesar has a degree in Computer Engineering from Caltech, is an Unreasonable Fellow, a StartingBloc Fellow, and has training and experience as a facilitator and speaker. Oh, and once upon a time he taught Cuban dance professionally.

What do you do to bolster your creativity? What personally bolsters my creativity is a sense of spaciousness: when I’m rested, when I don’t have a hundred meetings on the calendar, when I know I get to be outdoors. So when something new has to be created, the work that I do is to create space in my life.

What do you do every day that you consider important to your success? Sleep. Next question. [Laughs.] The only thing that I do every day that I consider important to my success is sleeping. I meditate, I exercise, I eat well, I get very clear on my priorities every week and once every day. All these things are important, but at the end of the day, if I’m not rested, none of that stuﬀ works.

Watch our full interview with Cesar and other inspiring stories at sumandsub.com.

CONSCIOUS COMPANY MAGAZINE

SEPTEMBER / OCTOBER 2016

MINDFUL LEADER

SIMPLE STEPS

TO LEADING BETTER BY LISTENING BETTER Improve your relationships at work and at home by tuning in and shutting up. Here’s how. BY GRACY OBUCHOWICZ

Listening is a powerful skill. Practicing it will help us all become more dynamic in our careers and help our personal lives thrive (which, in turn, helps us become even more dynamic in our careers). But listening well is a challenge. It’s not well taught in our culture, which praises wit and extroversion. I’m a professional listener these days, but it has taken me many communication courses and a lot of practice to learn how to listen effectively. What follows is my primer on five steps to improve your listening skills. My hope is that you begin to practice them immediately to tap into the simple yet transformative power of deep listening.

RELINQUISH CONTROL A big part of learning to listen well is giving up control of what will be said or where the conversation will go. This may sound easy, but it’s surprisingly hard for a lot of us. My listening pitfalls begin with my desire to be favorably perceived. I want to look competent, so I start to think about what I’m going to say next. The more I want to impress the person I’m talking with — like a potential client — the less I tend to actually listen. It has taken me a lot of practice, but I’ve learned that if I am feeling insecure, it’s a good sign that I need to listen more deeply. Now I trust that no matter what happens, if I listen well, I will know the right thing to say when it’s my turn to talk. Sometimes after deep listening, the things that come out of my mouth surprise me. They are often less about what I want to say and more about what the person actually needs to hear. In a world where very few of us feel authentically understood, real listening is noticed and rewarded. Often, my clients tell me they signed up for my programs because of the quality of listening they experienced during our first conversation. Speakers know when they are being heard and when they aren’t. Listening well can help you increase intimacy and gain immense amounts of trust. At a time when many people say they can’t trust their co-workers, these interpersonal skills will pay off in both obvious and subtle ways.

SET CLEAR RULES AROUND RECEIVING FEEDBACK I notice that I also tend to stop listening when I want to regulate the emotional quality of the conversation. It’s a really vulnerable thing to listen undefended, especially at a moment when someone might give harsh feedback. Who wants to hear that? Why not just zone out? It’s way easier to think about what I’m going to eat for lunch than to listen deeply to someone who may hurt me. It’s natural to want to shield ourselves from criticism. However, receiving feedback — both the positive and constructive kinds — is essential for personal and professional growth. And we can’t receive feedback if we don’t listen. I see this fear of receiving feedback (and lack of giving feedback) as one of the biggest blocks to professional development. So I have to walk my talk. In order to grow as a business owner and a person, I always ask my clients and collaborators for feedback. However, I also know when I am emotionally prepared to listen to negative feedback. If I have asked for written feedback, I wait until I am feeling pretty stable before I dive into the answers. When I begin working with a new collaborator, I like to have a conversation about feedback. My rule is that they are allowed to give me as much negative feedback as they can think of, but they must warn me that it’s coming. That way I can check in and see if I am actually able to receive the lessons they are offering, and if not, suggest waiting for another day.

STOP RELATING We usually begin listening with good intentions. An employee comes to us distressed. We sit across from her, make eye contact, and let her know it’s OK to begin telling her story. It’s time to listen! Then she gets five sentences in, and suddenly we totally get what she is saying. We actually went through the same thing last year! Our next move is to let her know how much we relate to her story and perhaps help her solve her problem. So we interrupt her and begin to tell our story. Suddenly we are no longer listening. Relating is a deeply important part of connection. It helps us feel compassion for others. The issue is that when we over-relate, we are not listening. By switching from listening to relating, we’re cutting off the possibilities of the new insights that can arise when we discover that her story is more nuanced than we imagined. Maybe our advice will help her a lot, but my guess is that deeply listening to employees (and coworkers and friends) will help both them and us a whole lot more. If you struggle with over-relating, start noticing how it feels when you’re in conversation and the other person cuts off your story to tell their own. Does that change the course of the conversation? Did you get to fully express yourself? Although you may enjoy hearing about someone else’s similar story, you might still not feel heard. Once you begin noticing how this feels from the receiving end, it will make it easier to practice restraint and bite your own tongue when you want to say “Oh, me too!”

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SEPTEMBER / OCTOBER 2016

“I’ve learned that if I am feeling insecure, it’s a good sign that I need to listen more deeply. Now I trust that no matter what happens, if I listen well, I will know the right thing to say when it’s my turn to talk.”

BE WILLING AND ABLE TO GO BLANK I once took a communication-skills workshop where our task was to partner up and take turns speaking for five minutes about a problem we were struggling with. As the listener, we were not allowed to say anything or give any kind of physical clue that we were relating. This meant no encouraging nodding, no sympathetic clucking, no deep sighs — we just had to make emotionless eye contact and hold space for someone else to speak. This was extremely challenging for me as both the speaker and the listener. When I was speaking, I wanted the signs of approval that my speaking was effective and that I was understood. As the listener, I wanted to let the other person know that I heard her and understood her, and that she could keep going. It felt cold and awkward and impersonal — at least initially. But within five minutes of being listened to by my partner, I’d solved my own problem. I knew the right action to take for a situation that I’d been stuck on for a while. And the person I was listening to also solved her problem. Despite the awkwardness, the effectiveness of our communication felt oddly effortless. As we thanked each other, I felt a fierce kind of intimacy with my partner. I realized it’s rare in our culture to find that kind of open space to really be heard. I know it’s a big stretch to resist so much as nodding when someone else is talking. Actually, it can be kind of creepy unless you tell the person what you’re doing. But when you are listening, notice how your “active” listening might be getting in the way of true hearing. Perhaps your Herculean effort to show you are understanding someone is actually making them feel less understood.

SEPTEMBER / OCTOBER 2016

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LISTEN TO YOURSELF If, after practicing a few of these deep listening skills, you still find yourself interrupting or spacing out, I suggest investing more time in listening to yourself. We can only give others what we are giving to ourselves. If your life is filled to the brim with other people’s ideas and opinions and needs, then the chances of you being able to effectively hold space for another person are small. Learning to listen to myself has been quite a journey. As listening to myself usually means dealing with trickier emotions like anger and fear, it’s natural that I resist it. This is why I have to program time for it into my days. Some days this looks like 30 minutes of journaling in the morning. Other days it’s five minutes of meditation upon rising, while waiting for my hot water to boil. It can often be calling a friend who doesn’t over-relate and so can help me ramble my way to clarity. Listening to myself is the best way I’ve found to be my own friend. When I’m feeling friendly to myself, my cup is full enough to offer some to others. I can listen to my coworkers and my other relations. Listening is a rich way to live life because I can learn so much more than when I am just talking to fill space. I soak in knowledge and hold space for others’ breakthroughs. I grow so much in the process. Listening is simple, yet so effective and so very valuable. I can talk about it all that I want, but the proof is in the practice. So try it. Where can you listen more today?

Gracy Obuchowicz is a self-care mentor, workshop facilitator, and retreat leader in ever-stressed Washington, DC. She is a recovering perfectionist who has learned to live a life of real self-care and self-love. Through her self-care coaching programs, she helps overwhelmed professional women transform their lives. Get more of her essential self-care tips at selfcarewithgracy.com.

When everyone looks to you for answers, where do you turn when you have questions?

Life & Career Coach LifeStyleIntegrity.com

INNOVATION & DESIGN

(RE)DESIGNING

DETROIT Photo: Mike Boening Photography 20 SEPTEMBER / OCTOBER 2016 | CONSCIOUS COMPANY MAGAZINE

INNOVATION & DESIGN

THE CITY IS MAKING A COMEBACK. BY JESSICA MEYER

Thereâ&#x20AC;&#x2122;s still a lot of work left in bringing the new prosperity to all residents, but community leaders are now looking beyond basic stability toward cutting-edge inclusivity, diversity, and urban design. Meet six organizations and innovators leading the charge.

Agnes Church in 2016 Detroit CONSCIOUS COMPANY MAGAZINESt. | SEPTEMBER / OCTOBER 21

INNOVATION & DESIGN

THE INSTIGATOR

ust seven years ago, Detroit’s core neighborhoods were hemorrhaging residents. As of 2016, the situation has drastically changed. Housing is consistently close to capacity, with 97 percent of existing housing units in the greater downtown area currently occupied; small business districts are thriving; and crime rates have decreased significantly. There are more job opportunities, thanks to the downtown relocations of major companies like Blue Cross Blue Shield and Quicken Loans, and the establishment of new ones like Detroit Bikes. Meanwhile, more and more residents now have access to resources and support to help them pursue their own entrepreneurial endeavors. With the basics starting to fall into place, Detroit’s interconnected community of innovators, designers, and entrepreneurs is aiming even higher. The new challenge: Turn Detroit into a leader in inclusive, humancentered, and intentional urban and regional design. A focus on inclusivity is especially key to this new vision. “The city has a unique chance to put equal opportunity front and center,” says Bradford Frost, director of Capital Impact Partners’ Detroit program. “It can be our shared goal in all of our community development activities, public investments, city services, and educational systems, and change strategy for a generation to come.” Here are six organizations and innovators honoring Detroit’s history while looking toward the future.

SEPTEMBER / OCTOBER 2016

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HUDSON-WEBBER FOUNDATION

Many of the organizations, partnerships, and projects behind the current boom in greater downtown Detroit are the result of an innovative shared vision led by the HudsonWebber Foundation (HWF), a 75-year-old nonprofit whose mission is to improve quality of life in Detroit. Starting in 2008, HWF coalesced key members of Detroit’s philanthropic, nonprofit, and corporate sectors around what would come to be called the 15x15 Initiative, a strategic vision to attract and retain 15,000 young, educated residents by 2015. Around that time, reports from Michigan Future Inc., a data-driven, nonpartisan nonprofit, highlighted Michigan and Detroit’s disproportionate loss of educated people under the age of 35. “If we didn’t reverse [the flow of young talent], it would have had a ripple effect for generations,” says David Egner, HWF’s former president and CEO. “Our tax base would shrink, and we would see fewer philanthropic dollars.” So HWF began researching other cities to determine the most important factors and amenities that young, educated people look for. They identified four core focus areas in which to guide infrastructure improvements: jobs and entrepreneurial opportunities, safety, housing, and retail and third spaces (the places you go outside of work and home). These four areas all saw incredible progress as HWF worked with partners throughout the greater downtown area to develop programs aligned with the 15x15 vision. The initiative didn’t hit its goal of 15,000 new households, partly because the pace of new housing units didn’t keep up with demand. But 15x15 did generate huge momentum for the city, and proved that a diverse group of organizations could come together with a common purpose. “A lot of [partnerships] came along because people caught the vision of 15x15,” Egner says. “We’re now starting to ask the question, ‘What lessons did we learn during this process that can be translated to the neighborhoods to start the same type of revival?’”

INNOVATION & DESIGN Photo: Courtesy of Hajj Flemings

THE MARKETER

HAJJ FLEMINGS, REBRAND DETROIT

Hajj Flemings is rebranding neighborhood small businesses.

After working with individual small-business owners around the city, Hajj Flemings, founder of Brand Camp University, the largest personal branding conference in the Midwest, started feeling a disconnect between the revival of Detroit’s core and lack of attention to other adjacent neighborhoods. So he began exploring what creating brand identities could do for Detroit’s most promising but struggling commercial corridors. In 2015 Flemings won a Knight Cities Challenge grant for ReBrand Detroit, a project he designed to help revitalize these communities by applying branding, marketing, and other digital technology strategies to help revitalize entire neighborhoods or commercial corridors. “For our city to be sustainable, we have to drive economic development into neighborhoods,” Flemings says. “Our goal is to make Detroit neighborhoods [besides the core downtown] into destination spots for consumers, but that starts by first bringing visibility to the people who are doing amazing work in these neighborhoods.” ReBrand Detroit is also creating a Neighborhood Business Brand Accelerator, a six-toeight-week program designed to help neighborhood entrepreneurs with branding, marketing, and design assistance focused on customer service. “Building brands is about more than creating beautiful logos,” Flemings says. “It’s about creating systems that create amazing experiences that convert visitors to customers.”

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SEPTEMBER / OCTOBER 2016

INNOVATION & DESIGN

THE CONNECTOR

Photo: Andrew Miller

LISA NUSZKOWSKI, DETROIT BIKE SHARE As executive director of Detroit Bike Share, a program of the Downtown Detroit Partnership that will launch in 2017, Lisa Nuszkowski is hoping to enhance public places by connecting them. The first phase of her program will begin with 350 bikes and 35 stations, with an expectation to expand into more neighborhoods. Nuszkowski hopes Detroit Bike Share will address the needs of many communities, including residents who need more transportation options to get to work and run errands. Her team is currently researching how similar city programs maintain accessibility and inclusivity in order to develop a community engagement plan that builds resident ownership of the program. “Detroit has a real opportunity to be a leader around mobility for the rest of the country and — who knows? — the rest of the world,” she says.

Chad Rochkind

THE URBAN DESIGNER CHAD ROCHKIND, HUMAN SCALE STUDIO

Chad Rochkind, founder of Human Scale Studio, an urban planning firm, and executive director of the Corktown Economic Development Corporation, is rethinking how urban design influences the way people interact in their environment. Corktown prides itself on being Detroit’s oldest neighborhood, with a rich history of welcoming immigrants through Michigan Central Train Station and sports fans at the old Tiger Stadium. But a state highway, Michigan Avenue, cuts the neighborhood in half over nine lanes of traffic. Rochkind is working with the city, state, and community on a shared plan for transforming the road into a complete street, which means extending sidewalks for cafe seating, adding protected bike lanes, and supporting and nurturing public life on the street level. “For decades, city governments have been dominated by top-down, auto-centric planning,” Rochkind says. “We’re striving to move toward a more participatory and human-centered approach. Leading with policies that encourage public life should be our main objective. When you put people-centered places at the center, you get vibrancy and strong economic development.”

Photo: Courtesy of Downtown Detroit Partnership

Lisa Nuszkowski, executive director of Detroit Bike Share 24

SEPTEMBER / OCTOBER 2016

CONSCIOUS COMPANY MAGAZINE

INNOVATION & DESIGN NEIdeas winner Nefertiti owns Textures by Nefertiti, a spa and salon that helps black women embrace their natural hair.

THE REHABILITATOR

DIANA VAN BUREN, ZACHARY & ASSOCIATES INC.

Photo: Ali Lapetina

THE ENTREPRENEURS NEW ECONOMY INITIATIVE

In addition to growing a jobs base for residents in development-related trades, Detroit also has an opportunity to help its residents define their own economic destinies through entrepreneurship. The New Economy Initiative (NEI), a special project of the Community Foundation for Southeast Michigan, works to build a network of support for entrepreneurs and small businesses. In 2014, NEI launched NEIdeas, a program focused on supporting neighborhood businesses through grants and technical services with an emphasis on minority and female entrepreneurs. The pillars of NEI’s work continue to be collaboration and inclusion; it focuses its financial support and program development on creating an entrepreneurial network for all stages and needs of business growth, in particular helping entrepreneurs from communities historically cut off from capital build confidence in pursuing funding. NEI’s leadership thinks Detroit has a chance to do something unique if it can build relationships between neighborhood small businesses and tech startups that are clustering in the city’s greater downtown area. “We’re in the process of learning how to reinforce ties between small business and the high-tech and innovation world,” says Pam Lewis, director of NEI. “They are not mutually exclusive. There can be a meaningful connection between those two worlds. Some of our work will focus on articulating that connection so we and others in the ecosystem can understand it better.”

For more than 30 years, Diane Van Buren, president of Zachary & Associates consulting firm, has worked at the intersection of Detroit’s history and future by sustainably redeveloping historic buildings. She has worked on housing developments across the city and led efforts to achieve historic designation for more than 300 buildings. She conceived of a bed and breakfast, the Inn on Ferry Street, as a way of attracting visitors — and eventually residents — to the often-overlooked Midtown Art Center area. And she also contributed to creating a new investment pool called Invest Detroit. She has worked with leading local art dealer George N’namdi on revitalizing the Sugar Hill district, whose name pays homage to the enclave of African-American jazz clubs from the ’20s and ’30s in a section of Midtown adjacent to the Detroit Medical Center. “We kept saying, ‘What’s keeping people from investing in this area?’ It was the perception of a lack of safety, cleanliness, and livability,” Van Buren says. “People would live here if these conditions were met, so we had to push it to that next level.” Part of the Sugar Hill revival included redeveloping 71 Garfield into a green residential and commercial building that includes a solar roof, a geothermal heating and cooling system, water recovery, and Energy Star appliances, elevators, and windows. It’s a model of how to use both historic and energy tax credits to economically and sustainably renovate historic buildings in Detroit. Van Buren sees huge potential for Detroit to become a leader in new sustainable energy and green infrastructure development, which could bring desperately needed job-training opportunities to residents of a city with a poverty rate of nearly 40 percent. Jessica Meyer moved to Detroit from Chicago in 2011 to serve in the City Year Detroit AmeriCorps program and never left. She is director of engagement for Human Scale Studio. She is also a graduate of Build Institute, board member for Detroit SOUP, founder of The Pack, a writer for Model D media, and a comrade in the Black Lives Matter movement. CONSCIOUS COMPANY MAGAZINE

SEPTEMBER / OCTOBER 2016

LEADERSHIP

IS SHINOLA THE

REAL DEAL?

Luxury brand Shinola is bringing manufacturing jobs back to Detroit â&#x20AC;&#x201D; and proving that consumers are willing to pay a premium for a good story.

Shinola has 17 retail stores, 26 JULY / this AUGUST 2016 | CONSCIOUS COMPANY MAGAZINE including one in Detroit.

INNOVATION & DESIGN

SHINOLA AT A GLANCE Location: Detroit, MI Founded: 2011 Team Members: 530 (374 in Detroit) Awards or Recognition: American Apparel & Footwear Association 2016 Retailer of the Year Structure: For-profit 2015 Revenue: $100 million

hat to make of Shinola Detroit? On the one hand, the company is a perfect case study in the power of consistent branding paired with a strong, compelling story to build a company that rises above the crowd. On the other hand, it may still end up a cautionary tale for conscious businesses about the importance of authenticity. Like, the real kind. Let’s back up. First, the basics: Shinola makes luxury watches, bicycles, leather goods, pet accessories, and more. It was founded in 2011 by a Texas-based venture capital firm called Bedrock Manufacturing Co., led by Tom Kartsotis, founder and former CEO of Fossil Group Inc. The name Shinola comes from a vintage shoe polish brand that gained fame in the 1930s and inspired the popular expression “You don’t know shit from Shinola.” Kartsotis and team decided to revive the brand and use the name to build luxury watches in the US — specifically, in Detroit, in part thanks to the city’s manufacturing heritage. Also because it was a smart branding move: As legend has it, an early focus group revealed that people chose to pay a premium for the “made in Detroit” story when given the choice between a $5 pen from China, a $10 pen made in the US, or a $15 pen from the Motor City. Shinola had 17 retail locations at press time, and is continuing to expand its offerings, with audio coming this fall and eyewear reportedly on tap for 2017. President Obama gave a Shinola watch to then British Prime Minister David Cameron in spring 2016, and Bill Clinton supposedly has bought more than a dozen of them. The company has created more than 350 full-time jobs at its Detroit offices, and holds community events at its stores. CONSCIOUS COMPANY MAGAZINE

Shinola president Jacques Panis

SEPTEMBER / OCTOBER 2016

INNOVATION & DESIGN

And yet ...

Bill Clinton bought more than a dozen Shinola watches in 2014.

SEPTEMBER / OCTOBER 2016

Despite those successes, Shinola’s story isn’t all shiny. In 2016, the Federal Trade Commission (FTC) reviewed the company’s marketing practices and, according to a June 2016 FTC filing, “raised concerns that certain marketing materials overstated the extent to which certain Shinola-branded products … are ‘made’ or ‘built’ in the United States.” Shinola imports many of its parts from overseas and merely assembles them in Detroit. The FTC opted not to take any enforcement action on the condition that Shinola change its marketing, including “transitioning away from the Company’s ‘Where American is Made’ slogan and developing enhanced policies and procedures … to avoid future deception or mislabeling.” Meanwhile, the company has faced criticism for appropriating the Detroit “brand” to sell luxury goods made in the poorest large city in the US, thus (the critique goes) perpetuating problems of inequality. “Bougie crap sells itself as a product inspired by manual labor, either related to the work of a craftsman, artist or designer or to the physical exertion of, say, a farmer, woodsman or rancher,” writes University of Michigan art professor Rebekah Modrak in a critique of Shinola. “Bougie crap uses the pretense of ‘quality’ to create a two-tiered system: the people who can afford to buy these products and the people who can’t.” Is Shinola’s success so far a powerful lesson in the importance of a clear mission and story? Is it a bona fide conscious company that has found the secret sauce for bringing long-term jobs back to Detroit — and beyond? Or rather a cautionary example for conscious entrepreneurs around the potential unintended consequences of well-meaning actions divorced from a true connection with community?

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Some of each? None of the above? The truth is that we don’t know, even after the following interview with company president Jacques Panis, which has been lightly condensed for space and clarity. Perhaps only time will tell. Until then, we’re glad to see an example of a company bringing jobs to a city in need, and we hope any tough or critical conversations about the company encourage it to make its commitments to mission even clearer. You and your founder have said many times that the company isn’t primarily about the product, it’s about creating jobs in Detroit. Is that mission formalized in any way? [Editors’ note: As of press time, Shinola’s mission does not appear on the company’s website.] Jacques Panis: Yeah, of course. That is our mission. Our mission is to create world-class manufacturing jobs, more specifically here in Detroit today and, if we’re able to, in other cities around this country. You might have read recently that we would potentially do something in Chicago in the future. Nothing has been confirmed, but we are a job-creation vehicle in the United States. How are you ensuring that the mission, creating world-class manufacturing jobs, stays central and isn’t compromised at all as you grow and expand? JP: It’s the core of what we do. It’s a focus that we talk about. It’s an objective that we have at the center of this organization. All of our teams that have to do with managing and operating the business understand what that mission is and that we are here to create jobs. And not just jobs, but good jobs. Jobs that are healthy. Jobs that imply a good workplace. Jobs that imply good wages. Jobs that imply healthcare benefits. Jobs that imply paid time off. How we maintain that internally starts with ensuring that the management teams understand what our mission is, what we are here to do and, from there, we go execute. It really

INNOVATION & DESIGN

depends on the leaders of the organization to execute that mission. What are you doing specifically to attract and retain workers? Has that been a challenge for you? JP: I think when people come to Shinola for an interview or they learn about Shinola and the opportunity to be part of this team, it’s exciting. People come in very excited and people stay here and there’s not a lot of turnover. We’ve been extremely fortunate in terms of building a culture that enables long-term employment. And that’s what we want. We want people to be here for the long run. We foster people and we work with people to give them opportunities, to bring them up through the various stages of becoming a leader. We give opportunities to people in terms of

Do you have any specific practical things you’re trying to help that happen? JP: It’s, again, making sure the leadership teams understand what that mission is and deploying strategic initiatives around maintaining the integrity of our mission and our culture. Strategic initiatives continue to drive the message of our culture; we call it “high-five culture.” Can you talk more about what that means to you, high-five culture? JP: The high-five culture means gratitude, respect. It means honesty and integrity. It revolves around our values. Equality. It’s a culture where people are thanked. People, we hope, are happy. It’s one where we are approachable, we engage, we find

the organization together in a very collaborative way that enables us to communicate with folks on a one-onone basis if need be. But, again, I go back to the scalability. As we scale, how do we maintain that? That’s something that we’re working on all the time. For example, yesterday, T.T. [employee Te’Nesha Martin] walked up to my desk and said, “Hey, Jacques, it’s my birthday next week. Come if you’re in town.” It’s that kind of approachability that exists, still, here today. In many ways, Shinola has been a huge success story; you have President Obama aligning himself with your products. Yet your founder, Tom Kartsotis, told the New York Times in January 2016 that you weren’t profitable yet. Is that still true? And how are you measuring success internally, if not by profit?

“Shinola is part of Detroit, but it’s not about what Shinola has done for Detroit, it’s what Detroit has done for Shinola.” leading; for example, our community outreach program called Reach, to organizing our company picnics, to being part of organizing various events within the organization. For example, you have Krystal Bibb, who was our nighttime janitor. Today, Krystal leads a team of twelve people in our quality-control operation. Shinola is enabling people to come in and flourish and become part of the team for the long run. What are the biggest challenges that you are facing as an employer right now? JP: For us, as we scale, it’s maintaining that culture I just spoke about. We have to maintain the integrity of our culture and make sure that the integrity of the mission of this organization stays intact.

solutions together, and we work, again, towards one common goal of creating world-class jobs here in the United States. When you say you’re approachable and you engage, what does that really look like in practice? Do you have any channels for, say, Krystal the janitor to be approaching you if she has an idea? What are the strategies you’ve put in place, especially as you grow, to keep that approachability without getting overwhelmed within the leadership team? JP: That approachability is very much alive and real to the degree where someone can walk right up to my desk. I don’t sit in an office; our leadership teams don’t sit in offices; no one sits in an office here. We all sit out on a big floor, and we all operate

JP: We’re not profitable yet, as Tom mentioned in that article. We’re measuring success through incremental improvement and working towards profitability and working towards scaling the organization to where we need it to be. It’s an interesting paradox that you are, in many ways, incredibly successful but not profitable yet. How do you deal with that tension? How do you communicate around it? How do you think about it? JP: We think about it in a lot of different ways. We look, again, to “Are we improving?” Do our KPIs [key performance indicators] tell us that we’re headed towards profitability and headed in a direction which we’d want to go in from a financial point of view? Are we maintaining the

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SEPTEMBER / OCTOBER 2016

INNOVATION & DESIGN

A worker in Shinola’s Detroit watch strap factory. The company has created 240 manufacturing jobs.

integrity of the brand? Are we ensuring that the jobs we’re creating are good jobs? There’s a bucket of things that we look at and measure and ask ourselves on a daily, if not hourly, basis. Are these key strategic initiatives in place, and is everyone on board and aligned with one another in terms of what we are doing to drive this business towards profitability? Are you able or willing to share any of those specific measures? Obviously, profit is one of them. But are there others that you can point to, in the interest of helping other people think about what they could be measuring? JP: Yeah. There are so many… If you look at e-commerce KPIs: Is traffic up? Is conversion rate moving in the right direction? How does our bounce rate look? Are we up year-over-year? Are we hitting our numbers from a plan point of view? There are so many different KPIs that we look at across the entire business. Just to narrow it a little bit, you mentioned maintaining integrity and ensuring good jobs. Do you have any specific KPIs that help you measure that piece as you grow? JP: In terms of what good jobs look like, I mentioned these things. Is the 30

SEPTEMBER / OCTOBER 2016

“We all sit out on a big floor, and we all operate the organization together in a very collaborative way that enables us to communicate with folks on a oneon-one basis if need be.” work environment clean and healthy and good? Are we paying livable wages? Are we providing excellent healthcare benefits? Are we offering people participation into a great retirement plan? Putting measurable elements in place for good jobs is somewhat challenging but we do measure it at different levels. And some of it is subjective, what we believe are good jobs. We believe good jobs are jobs that pay livable wages and afford people opportunity to grow within the organization. A little bit of a tough question here: Please correct me if I’m wrong, but some of the coverage that I read

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about the company includes criticisms that Shinola is swooping into Detroit and taking advantage of the struggles of the city to help with branding. In response to that, how are you ensuring that Shinola’s success is also truly Detroit’s success? JP: I can’t assure that Shinola’s success means Detroit’s success. All I can assure is that what we’re doing in the city is very real. We’ve done what we’ve said we’re going to do and we’re going to continue doing what we say we’re going to do. Shinola has not saved Detroit and Shinola will not save Detroit. Shinola is part of Detroit, but it’s not about what Shinola has done for Detroit, it’s what Detroit has done for Shinola. And we’re grateful for that. All we can do is continue to be good citizens here in the community and stick to our mission. Do you have three pieces of advice that you would give to somebody else considering trying to start manufacturing in the US? JP: Don’t take no for an answer. Fail fast. And don’t give up the fight. What’s giving you hope right now? JP: The people around me. I am inspired daily by the people around me. Photos: Shinola

Conscious Capitalism 2015 CEO Summit, featuring Jenn Perell and the RTC Vulnerability Wall. Photo by Jared Tennant @ www.JTpics.com.

INNOVATION & DESIGN

LESSONS FOR

MAKERS

How do you turn a hobby or flash of insight into a business that pays your bills? We asked Jules Pieri, CEO of The Grommet, to share what she has learned from helping thousands of local makers scale. BY RACHEL ZURER

Jules Pieri is an industrial designer with a Harvard MBA.

SEPTEMBER / OCTOBER 2016

CONSCIOUS COMPANY MAGAZINE

Every weekday since October 20, 2008, at 10 a.m. Eastern Standard Time, TheGrommet.com has introduced a new product to its 2.5 million followers. “We’re a launch platform,” explains the site’s co-founder and CEO, Jules Pieri. “For a lot of makers, we’re what you do next after crowdfunding.” And after introducing upward of 3,000 products and rejecting something like 100,000 more, Pieri has a pretty good idea of what separates successful makers from those who don’t… well, make it. We asked Pieri to share her best insights and tips for turning a cottage industry into a purposedriven success.

INNOVATION & DESIGN

ASSESS THE MARKET “The thing that’s most heartbreaking to me is when somebody builds a product that has a tiny, tiny potential set of customers,” Pieri says. “I can see their life potentially being dedicated to something that will never be big enough to provide them a livelihood. People fool themselves into thinking something small will be easier. It’s not. It’s just as hard to build a really teeny business as one that has some opportunities to be profitable.” Instead, she recommends being honest with yourself about whether you see a large opportunity with a lot of potential customers. Use simple online market research tools: look

says. “One of our Grommet makers was an ER nurse and she transferred some of the technology she used in that capacity to a home product. That’s a cool route to innovation.” After interviewing 100 makers in 2015, The Grommet learned that only one-tenth of them had any professional experience in the arena of their product. Rather, 90 percent were entering a new field; “That’s an advantage for a maker,” Pieri says.

HAVE A STORY “It’s super important to our community that the company represent more than an interesting product,” Pieri says. “They want to know what the

the first time I’ve ever seen two generations collide around big value sets in that way.”

BE REALISTIC ABOUT MARGINS Figure out if the cost to produce the product aligns with the price you can sell it for. Pieri’s rule of thumb: “Can you hold that product in your hand — literally own it, packaged — for one-fifth the cost that it would be at retail?” Why such a large margin? “A lot of people think they’re doing fine because maybe the product costs them $50 to make and they can sell it directly to consumers for $100.

“It’s just as hard to build a really teeny business as one that has some opportunities to be profitable.” at the volume of Google searches for keywords related to your product concept. See if there are similar products on Amazon.com. If so, what are their reviews? What are the flaws in those products? If the reviews are positive, “then you shouldn’t start this product because somebody else is already doing it well,” Pieri counsels. On the other hand, don’t be discouraged if nobody is searching for or already making your product — if you can identify a large core market opportunity. “Every single day we see ‘Why didn’t I think of that?’ products that are viable businesses,” Pieri says. “It’s more about, ‘Are there enough people out there that have the same problem?’”

DON’T WORRY IF YOU’RE NOT ALREADY AN EXPERT IN THE FIELD “Sometimes people have a great hidden advantage because they work in one industry or profession that uses a technology or a material that hasn’t been used somewhere else,” Pieri

business practices and values of the company are.” Have a clear picture of why you exist in the world and what values distinguish you. If you’re an underrepresented entrepreneur — under 20, over 80, a woman, a minority, a veteran, etc. — don’t forgot to mention that. “People actually really care,” Pieri says. “They want to know who you are and maybe some obstacles you had getting here.” Similarly, be clear if your product is made in the USA, is creating jobs in an impoverished area of the world, supports a sustainable lifestyle, is made sustainably, is crowdfunded, or has a lifetime guarantee. “These things are right next to features and price” in terms of what customers look for, Pieri says. “For us, a product can’t become a Grommet unless there’s more ‘there’ there — an interesting set of values or business practices behind it. It’s not just the NPR crowd or the crunchy crowd who care about this anymore. Most Millennials and most Baby Boomers are organizing their attention, resources, and budgets around these things. It’s

They’re making what they consider to be a 50 percent margin, but they’re not anticipating having partners down the road.” However, Pieri says it would be unlikely that you could build a large business, either locally or on your own website, without massive marketing dollars. So that means you’re immediately going to need retailers, and retailers need to make their own 50 percent margin. Then add the costs of the logistics: you’ll pay somebody to ship the product, you’ll pay somebody to put it on the shelf, and you’ll pay somebody if it doesn’t sell and you have to take the return. Bottom line: “Be aggressive about setting prices as well as creating a cost structure that will give you a real business down the road,” Pieri advises.

PAY ATTENTION TO PACKAGING “We love to look at products before they’ve been launched,” Pieri says. “We see them when they don’t have

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SEPTEMBER / OCTOBER 2016

INNOVATION & DESIGN enterprise-level logistics and shipping services for small companies. “You might ship one product a month,” she says. “But they give you an easy entry point.” (For more ideas, check out Pieri’s SlideShare on the topic at bit.ly/launch_slides.)

Modern Fuel mechanical pencils are a Grommet success.

PROTECT YOUR PRODUCT One of the downsides of a transparent, connected world is how quickly the competition can come in and counterfeit or copycat good ideas. To protect yourself, do thorough research around trademark and patent protection. A good place to start is the US Patent and Trademark Office (uspto.gov). packaging yet. But too many companies live in that state.” For example, one of The Grommet’s most successful products in 2015 shipped in a plastic baggie for a few months. But stores — which still account for 93 percent of retail sales — need packaging to keep the product clean and safe and explain what it is. “It’s surprising how people don’t think about that as fast as they should, and it holds them back,” Pieri says.

PILOT LOCALLY Before diving into trying to reach a national audience, it’s a great idea to make sure you’ve fully worked out the kinks within your own community. “That can mean, literally, the classic thing of door-to-door selling to the local Main Street retailers in your area,” Pieri says. Start with small mom-andpop stores: “Their entire business is having differentiated products, and local, new product is the most differentiated of all,” she says. In addition to local businesses, Pieri recommends checking out Whole Foods or Ace Hardware (a cooperative of locally owned stores), each of which expect up to 10 percent of the products in each store to be local. “They’re dying for people to show up with local products,” she says. “It distinguishes them from their competitors.” Don’t forget farmers markets, even for products that are manufactured or unrelated to foods: “Even if you’re

SEPTEMBER / OCTOBER 2016

building something that might literally be manufactured in a large factory someday but you’re starting out small, you might get some initial traction there.” By aligning yourself with the customers who shop at farmers markets, you’ll piggyback on the popularity of the markets themselves. Finally, check out independent bookstores. “I don’t think of booksellers as books-only anymore,” Pieri explains. “A lot of Grommets do really well in bookstores because it’s sort of a sensibility. If you’re the kind of person who shows up for books, you probably would enjoy well-made products that have nothing to do with books, but are really great gifts or good household items for yourself.”

LEVERAGE OUTSIDE SERVICES “Don’t forget, there are something like 16 different things you need to do well to pursue a business,” Pieri says. “The product is just the first thing. For the next 15, from creating packaging to legal services to funding to logistics to research, often you can find a partner or a service that can be very efficient and a lot less expensive than you building it yourself. These are mostly technology- or internetdriven resources that weren’t available 20 years ago.” For example, Pieri recommends a company called Shipwire that provides

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EXPECT SUCCESS AND INVEST IN IT That means get help. “Founders almost always wish they’d hired people faster than they did,” Pieri says. “The one-armed paper hanger thing is good for the very beginning — let’s call it six months — when you really have to do all the jobs to figure out what they are and what matters. But founders often say that they stayed in that mode too long. We can see when it happens. They can’t respond to the success we create. They literally can’t ship as fast as demand is created, or they’re always behind on ordering new inventory, or they’re capitalconstrained. Some of it is a vicious cycle. If you can’t ship the product, then you can’t get the revenue and then you can’t hire people. You have to invest in the business ahead of today’s reality.” Photos: The Grommet

Rachel Zurer is CONSCIOUS COMPANY’s editorial director. To suggest a story idea or learn more about partnerships, visit consciouscompanymagazine.com/ pages/contact.

BY THE

PEOPLE PEOPLE FOR THE

AN H T P E D IN T A K O O L E E Y O L P EM P I H S R E OWN Employee ownership is not just for hippies and socialists. Employee ownership takes various forms, but giving an ownership stake in a company to employees has proven time and time again to be an effective way to build an engaged workforce and a successful business. But thereâ&#x20AC;&#x2122;s more than one way to do it, each with its own advantages, disadvantages, and quirks. In this special feature section, we bring you key info on the difference between an Employee Stock Ownership Plan (ESOP) and a cooperative; highlight successful worker-owned ventures; and offer two different perspectives on which way is best. Plus, we compile the best resources on the topic so you can explore which might be right for your business.

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CONSCIOUS COMPANY MAGAZINE

WHAT’S THE DIFFERENCE BETWEEN AN E.S.O.P. AND A WORKER COOPERATIVE? Here’s the key information you need to understand about each of them, adapted with permission from information originally published by the Cooperative Development Institute.

WORKER-OWNED COOPERATIVES

A worker cooperative is an employee-owned business in which each member or worker-owner has one equal share of the business. This also means that every worker-owner has one equal vote in the co-op, no matter their pay or seniority. Of course, different worker co-ops have different structures. Some are more hierarchical and have managers, an elected board of directors, and sometimes an elected board president. However, at the end of the day these leaders are accountable to the full membership. And in fact a manager or co-op president only has one vote and one share in the business, like any other worker-owner. While the board makes major strategic decisions and management has operational authority, both are ultimately empowered by and responsible to the full membership. Worker co-ops that are more collectivized and horizontal in their structure, with no internal hierarchy, are often very small enterprises, with a few notable exceptions. Tasks and decisions may be delegated to individuals or groups, but the “board,” the top governing body, is made up of all the worker-owners. In addition, in the worker co-op world there’s a thing known as the “patronage dividend.” Basically, this is a member’s share of the business’s profits at the end of each year. According to co-op principles, it is allocated based on “patronage,” which, in a worker co-op, means hours worked. Sometimes the formula takes into account additional factors such as relative pay. But because the worker-owners each have the same membership share no single person can receive a higher return on their investment from owning more of the company.

10 E.S.O.P.s AND COOPERATIVES YOU SHOULD KNOW ABOUT

E.S.O.P.s An ESOP has a completely different ownership structure. In this case a separate entity, a trust, acquires some portion — sometimes all — of a company’s stock, and holds it for the benefit of employees. The company generally appoints the trustees who administer the plan, which is largely a retirement or separation benefit. Employees’ accounts within the trust accumulate shares of the company based on various formulas, usually salaries as well as the pace of the company paying back bank loans for the purchase of company stock. The value of the shares at any given time depends on an annual independent valuation of the company. Typically, employees receive the cash value of the shares in their account upon leaving the company. ESOPs are not cooperatives — there is no direct ownership by workers of company stock — and there is no requirement for democratic governance. Employee shares do not generally confer voting rights (except in very specific rare circumstances). That said, a growing number of ESOPs own 100 percent of their company’s stock, and that does change the nature of the enterprise. ESOP companies that invest in workforce education and have participatory structures enjoy productivity gains compared to non-participatory, non-employee-owned companies.

MONDRAGON Corporation

Headquarters: Basque region, Spain Established: 1956 Number of employees: 74,335 Ownership model: Federation of worker cooperatives MONDRAGON is the world’s biggest and most successful worker cooperative, with 260 companies around the globe, 103 of which are cooperatives. Its first product was paraffin heaters, but it now operates in sectors that include finance, manufacturing, retail, and knowledge. Founded by a Catholic priest, the company values education, work, and solidarity above all else.

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A COMPARISON OF EMPLOYEE OWNERSHIP MODELS

WORKER CO-OP

E.S.O.P.

Key Benefits

• Flexible tax benefits • Deepest employee/community impact • Best structure for mission preservation

• Good structure for mission preservation • Significant tax benefits • Easier to find financing

Key Challenges

• Will likely need multiple sources to finance the transaction • Considerable employee training requirements • Needs employee buy-in

• High initial and ongoing costs • Less ﬂexible • Larger audit risk from the Department of Labor

Tax Benefits

• Capital gains tax deferral for transition • Ongoing: Deductibility of profits allocated to employees

• Capital gains tax deferral (C Corp ESOPs) • Exemption from federal corporate income tax (S Corp ESOPs) • Ongoing: Deductibility of contributions to the plan

Cost

• Initial transaction: $20,000 to $50,000

• Initial transaction: $60,000 to $250,000 • Ongoing: $15,000–$40,000/year

• Profitable company • Early and ongoing investment in employee training • Willingness of owners to give eventual control of board to employees • Willingness of employees to step up as worker-owners

• • • •

• 6 months to a year for the initial transition, up to 3 years to transition leadership

• 6 months to over a year

Minimum Requirements

Timeline

Profitable company At least 20–25 employees At least $500,000 in payroll Currently a C or S Corp (or can convert to one)

Adapted with permission from “Becoming Employee-Owned” by the Democracy at Work Institute

2 38

Cooperative Home Care Associates

Headquarters: Bronx, NY Established: 1985 Number of employees: 2,200+ Ownership model: Worker cooperative The largest worker cooperative in the US provides free training, full-time hours, and competitive wages to its staﬀ of almost entirely African-American and Latina women. In 2012, it became a B Corp, and continues to provide high-quality opportunities in home healthcare, one of the fastest-growing job sectors in the US.

SEPTEMBER / OCTOBER 2016

CONSCIOUS COMPANY MAGAZINE

Seikatsu Club Consumers’ Cooperative Union Headquarters: Tokyo, Japan Established: 1965 (worker cooperatives in 1982) Number of employees: 10,400 Ownership model: Federation of consumer cooperatives

The Seikatsu Club is primarily a consumer buying co-op with 360,000 members. But it now also incorporates more than 400 worker cooperatives in food distribution, food preparation, catering, recycling, childcare, education, and more.

WHY YOU SHOULD CONSIDER AN EMPLOYEE STOCK OWNERSHIP PLAN (E.S.O.P.) BY COREY ROSEN

aby Boomers will be retiring in record numbers in the coming years — 10,000 per day, by some estimates — and record numbers of businesses will be for sale. In fact, two out of three of all privately held businesses in the US are forecasted to go through an ownership transition in the next five to 20 years. Meanwhile, with unemployment at 4.7 percent, employers need an edge to attract, retain, and motivate the best people. And economic inequality continues to be a seemingly intractable problem. Sharing ownership with employees via an employee stock ownership program (ESOP) is a means of addressing all these issues in a way that is good for owners, companies, and employees. Here’s why.

IT’S YOUR LEGACY. DON’T LET SOMEONE ELSE SPOIL IT Sure, you may be able to sell your business to a competitor or private equity firm. And they’ll make all kinds of promises about keeping the legacy you have created — and then probably break them. Instead, you could sell to an ESOP. Here is how it works: You set up a trust for employees. The trust can borrow money to buy your shares in a

block or you can contribute cash to the trust and buy yourself out over time. If the trust borrows money, the company puts cash into a plan to repay the loan. The trust can borrow from a bank or from the seller. ESOPs have a default rate of 2 per 1,000 per year. This is not just altruism. All the contributions are pre-tax. You can defer tax on the gains from the sale by reinvesting in other securities. Employees pay nothing. All employees with over 1,000 hours of service must be covered by the plan, and get allocations of stock on an equitable basis such as relative pay. The shares vest over time, and employees sell their shares back to the company when they leave. You can sell all or part of your company, but if you sell 100 percent into an ESOP, the company pays no income tax. You get a fair price, can decide on your future role, and get tax benefits you can’t get any other way.

BROAD-BASED EMPLOYEE OWNERSHIP WORKS There is now a vast amount of research, including a massive study published by the National Bureau for Economic Research analyzing applicants for the 100

Equal Exchange

Headquarters: West Bridgewater, MA Established: 1986 (became a worker cooperative in 1990) Number of employees: 145 (120 worker-owners) Ownership model: Worker cooperative Equal Exchange helped introduce Fair Trade coﬀee to the US in the 1980s. Now, the cooperative imports and sells coﬀee, tea, chocolate, and more from around the world. Each year, worker-owners reinvest 60 percent of net profits in the co-op. (Read our previous interview with the company: bit.ly/issue2_ee.)

Best Companies to Work For list, which showed that companies that share ownership with most or all employees, whether through ESOPs or broadly granted equity awards, perform significantly better on a variety of dimensions than those with narrower ownership. The effect is magnified if the company has a high-involvement culture and open-book management. Employee ownership companies also have much lower turnover.

CONCENTRATED OWNERSHIP IS NOT CONSCIOUS CAPITALISM There is a lot of legitimate concern about income inequality, but what about wealth inequality? Those in the top 1 percent don’t just make most of the money, they own a large majority of all productive assets — more than 90 percent. Sharing ownership widely with employees is a way to address these issues. Participants in ESOPs, for instance, have 2.5 times the retirement assets of participants in non-ESOP plans — and their companies make more money. Your employees and you will be better off.

IT’S SCALABLE Worker co-ops, though an appealing idea in many ways, have not proven scalable — there are a few hundred worker co-ops, mostly very small. Worker co-ops employ probably less than 25,000 people. ESOPs employ about 13 million, and majority ESOPs employ at least 2 million people. ESOPs are scalable because they are more flexible and have much better tax treatment — they don’t rely purely on altruism to drive change.

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Corey Rosen is the founder of the National Center for Employee Ownership, a non-profit information, membership, and research organization (nceo.org).

SEPTEMBER / OCTOBER 2016

Evergreen Cooperatives

Headquarters: Cleveland, OH Established: 2008 Number of employees: 118 Ownership model: Federation of worker cooperatives

After the most recent major recession, a group of major Cleveland-area nonprofits, hospitals, and universities came together to create a portfolio of businesses to try to alleviate poverty in some of the city’s lowest-income neighborhoods. Though much-hailed at inception, some of the businesses — especially the laundry and greenhouse — struggled to deliver on their promises of self-sustaining wealth generation. That’s improving, and in 2017 Evergreen will begin planning its fourth cooperative project.

Bob’s Red Mill founder Bob Moore

HOW TO CONVERT YOUR BUSINESS TO A COOPERATIVE BY FRANZI CHAREN

The reality is setting in for Baby Boomer business owners close to retirement: Your life’s work? Your kids have better things to do. Only 15 percent of family-owned businesses make it to the third generation, yet 70 percent of business owners over age 50 lack an exit strategy. What, then, do you do with the business you’ve dedicated years of your life to creating and nurturing when you’re on your way out? Hilary Abell and Alison Lingane are co-founders of Project Equity, a nonprofit that helps business owners sell their businesses to their employees as cooperatives. “We envision a future where most business decisions are made through a lens of what is good for workers and communities, generating businesses that are more successful and workers who have good, stable jobs and economic security,” explains Abell. “Cooperatives have this built into their structures.” Their advice follows.

5 FREQUENTLY ASKED QUESTIONS FOR COMPANIES INTERESTED IN CONVERTING TO COOPERATIVE EMPLOYEE OWNERSHIP

Bob’s Red Mill

Headquarters: Milwaukie, OR Established: 1978 (employee ownership began in 2010) Number of employees: 200+ Ownership model: ESOP (100 percent)

In honor of his 81st birthday, company founder Bob Moore presented his employees with an ESOP program that gave them full ownership in the organic whole-grain products company he’d built. Since then, the company has expanded its line of grains and ﬂours to more than 400 products.

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Q A Q A

CONSCIOUS COMPANY MAGAZINE

Why would I choose the cooperative model over an ESOP? Employee Stock Ownership Plans (ESOPs) are another form of employee ownership. However, co-op conversions are less expensive and have many similar tax benefits. Most importantly, cooperatives have employee engagement baked into the business structure through employee governance and profit sharing.

Can my employees really run my company? Yes, with the right leadership. Your employees do not have to be the ones to step into your role in management of the company. You can find someone to become the general manager — whether from within the company or a new leader — then engage your team around the expanded mission and culture shift as they transition into their new role as worker-owners. Most typically, management and day-to-day operations don’t change when a business becomes a co-op, but the new board of directors made up of majority worker-owners is responsible for governance decisions.

Publix

Q A

Headquarters: Lakeland, FL Established: 1930 Number of employees: 182,500 Ownership model: ESOP (30 percent)

How much time will the conversion take? Some business owners want to stay with the company and continue to engage with employees to plan the transition. Others are seeking a faster exit and are looking to retire or transition out of the business quickly. Both scenarios can work with the right planning and support. (Project Equity and others can provide technical assistance and training.) A full conversion can take as little as six months and up to three years depending on the nature, size, and culture of the business. The future owners will share the responsibility and actively engage in the conversion process. Like any good challenge, the best part is the outcome — the satisfaction of having carved out a path for others to follow.

This southeastern grocery chain is the largest US company that counts employees as a majority of its shareholders. It’s had some form of employee profit sharing since it began, even during the Great Depression. Publix now contributes an average of 9 percent of wages to employee ESOP accounts each year. Fortune has awarded the chain a spot on its “100 Best Companies to Work For” every year since the list started in 1988.

“Of the existing cooperatives in the US, almost half were formed by converting from an existing traditional business structure.”

Q A Q A

What kind of legal structure does employee ownership take? The legal requirements vary from state to state. In some states a cooperative is a legal entity for a corporation. Some businesses choose to form an LLC and incorporate cooperative principles and practices in their governing documents. The Sustainable Economies Law Center has a library of resources to guide you through best practices and link you to regional attorneys wellversed in cooperatives.

Publix workers are employee owners.

How is employee ownership financed? Employee ownership is quite likely the investment opportunity of a generation, and Community Development Financial Institutions, credit unions, and local banks are increasingly banking on the cooperative model. National organizations like Shared Capital Cooperative, which has 37 years of experience and over 800 loans to cooperatives, actively seek to invest in employee ownership. To give another example, the regional organization Cooperative Fund of New England just celebrated 40 years in business and over $42 million in loans to cooperative businesses. Some businesses are able to finance the sale to employees through a Direct Public Offering, a tool that allows both accredited and unaccredited investors to participate (see page 76 and our story in Issue 2: bit.ly/issue2_dpo.

Herman Miller Inc.

Headquarters: Zeeland, MI Established: 1905 (employee ownership began in 1977) Number of employees: 8,000 Ownership model: ESOP

Best known for the Aeron chair, this furniture and design company includes employee ownership in its list of commitments to corporate social responsibility. All full-time employees with 30 days of service are entitled to own stock in the company through the Employees’ Stock Purchase Plan.

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SEPTEMBER / OCTOBER 2016

Lifetouch

Headquarters: Eden Prairie, MN Established: 1936 (employee ownership began in 1977) Number of employees: 15,400 Ownership model: ESOP (100 percent)

This photography company specializing in school photography and family portraits is the largest 100 percent employee-owned business in the US. With an ESOP trust valued at $1.6 billion as of 2014, the plan paid $148 million to 9,200 active participants in 2014.

W. L. Gore & Associates Inc.

Headquarters: Newark, DE Established: 1958 (employee ownership began in 1974, as soon as it was enabled by the Employment Retirement Income Security Act) Number of employees: 10,000+ Ownership model: ESOP (90 percent of company is owned by employees) Best known as the makers of GORE-TEX waterproof fabrics, the Gore company has a particularly egalitarian culture, with associates working mainly in teams. Fortune has named it one of the best 100 places to work in the US for 19 years straight. Meanwhile, the company brings in worldwide revenues of around $3 billion a year. Gore employees

2 QUESTIONS TO ASK YOURSELF PRIOR TO MAKING THE FIRST MOVE TO BECOME A COOPERATIVE

Q A Q A

Is my company a salable entity? Selling your company to your employees as a cooperative invokes the same set of questions you would have to answer for any potential buyer. Do you have a profitable company? Do you have a diverse portfolio of customers and clients? Is your business dynamic, and can you envision the variety of ways your company can grow to stay competitive in the market? You will need accurate and detailed financial history as well as clear and reasonable projections. Sometimes both parties will have an independent valuation conducted and engage experts to help negotiate a fair market price.

Am I willing to get help along the way? Project Equity has dozens of case studies, and most likely can put you in touch with others in your industry who are in the process of or have completed the conversion to cooperative employee ownership. Through their Cooperative Business Incubator, Project Equity is helping multiple companies spanning a variety of industries with their conversions. Of the existing cooperatives in the US, almost half were formed by converting from an existing traditional business structure. With one of the seven core principles of cooperatives being cooperation among cooperatives, help or advice isn’t far away.

Increasingly, cities like New York, Madison, Rochester, Oakland, Berkeley, and Austin are realizing the positive economic impact that converting companies to cooperative employee ownership can have on the local tax base and are investing in regional efforts to support the process.“We need creative people and bold entrepreneurs like you to shift the expectations we have of the role of business in our society and our communities,” Project Equity co-founder Alison Lingane adds. “You are the true leaders in this movement, and we can help make it a reality.”

Franzi Charen has been an independent business owner in Asheville, NC, for 14 years and is the founder and director of the Asheville Grown Business Alliance, which has over 460 members. She recently joined the team at Project Equity and is passionate about the potential of cooperatives to deepen the local economies movement.

RESOURCES FOR INFORMATION ON EMPLOYEE OWNERSHIP

National Center for Employee Ownership nceo.org

The Employee-Owned S Corporations of America esca.us

Sustainable Economies Law Center co-oplaw.org

The ESOP Association esopassociation.org

Cutting Edge Capital cuttingedgecapital.com

Project Equity project-equity.org

SEPTEMBER / OCTOBER 2016

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LOCAL 360 Local 360 Seattle, WA

“We try to get everything within 360 miles of our location. In the summer, up to 90 percent of our ingredients and in the winter, up to 60 percent meet that goal. If we cannot get it locally we try to find a local distributor.”

// general manager Sylvain Berthe

THE KITCHEN

The Kitchen Restaurant Group Colorado, Tennessee, and Illinois

“We strive to source within 350 miles of each restaurant as much as possible and we strive to be able to trace everything back to its original source.”

ARROYO VINO

// co-founder Kimbal Musk

WHAT DOES “LOCAL” FOOD REALLY MEAN? Farm-to-table and local ingredients are popular in restaurants, but “local” doesn’t mean the same thing to every chef or business. We asked 8 farmto-table restaurants nationwide what local means to them. BY NICOLE HAASE

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PHARM TABLE

Arroyo Vino Santa Fe, NM

“We have an on-site garden and farm. In the height of growing season, 75 percent of our produce comes from our farm. In winter it’s at 25 percent, but our kitchen is doing more with preservation and fermentation to increase that number.” // general manager Brian Brigsten

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Braise Restaurant Milwaukee, WI

“Anything coming from the state of Wisconsin. We have our own distribution system to help procure ingredients, called Braise RSA. We not only source for Braise but 35 other food businesses in Milwaukee.” // owner and chef Dave Swanson

Noble Bistro Oakville, ON, Canada

“The hard part is produce. We use a company called 100 KM Foods which sources everything from within 100 km (66 miles) of the general Toronto area.” // chef John Ross

NOBLE BISTRO BRAISE RESTAURANT

GREENHOUSE TAVERN Greenhouse Tavern Cleveland, OH

“All land-based proteins across the board are from within 200 miles, and we really only source ocean fish and specific regional items like olive oil from farther away. About 70 percent of seasonal produce is sourced locally. Our first choice is local product that is certified sustainable, humane, and equitable for farmers. If that’s not available, we purchase from someone local who may not have certifications but practices that way. After that, we look for someone local who shows interest in transitioning into those practices. If we can’t source locally, we look for national producers who practice sustainability.”

THE RESTAURANT AT PAWTOMAK FARM

// chef Jonathon Sawyer

The Restaurant at Pawtomak Farm Lovettsville, VA

“Most of the ingredients we use we grow ourselves. Beyond those our menu — from cocktails to sweets — is comprised 99 percent from ingredients found within 20 to 50 miles around us.”

Pharm Table San Antonio, TX

“Texas products. Most of the people that we source from are farmers from the Austin area.”

// chef Tarver King

// owner and chef Elizabeth Johnson

CONSCIOUS COMPANY MAGAZINE

SEPTEMBER / OCTOBER 2016

MISSION:

Joy

Meet the conscious ice cream brand built on local ingredients, liquid nitrogen, and joy. Its focus on quality is helping it grow fast — but not too fast.

obyn Sue Fisher, founder and CEO of Smitten Ice Cream, likes inventing things: a machine that uses liquid nitrogen to freeze ice cream on demand; a company to sell that ice cream; a new vocabulary to describe how that company runs (one example: “We don’t have a ‘sourcing manager,’ we have a

‘hunter and gatherer,’” she says); and perhaps most importantly, she’s inventing a new definition of success for herself, one that prioritizes quality over quantity, purity over profit, and community above all. We spoke with her about growing in a smart way, failing fast, and the lessons she’s learned along the way.

Smitten creates made-toorder scoops from locally sourced ingredients.

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SMITTEN AT A GLANCE Location: San Francisco, CA Founded: 2008 Team Members: 200 Structure: For-profit Awards: Food & Wine’s Top 10 Ice Creams of 2016 Fisher started her business out of a Radio Flyer wagon.

Tell us a little bit about the origin of Smitten Ice Cream. Robyn Sue Fisher: I absolutely love ice cream. I have two stomachs, and one is solely reserved for ice cream; I learned that from my mother when I was 3. Once I grew up, I was really bothered by the fact that this product that I love so much is not what it seems in a lot of ways. Ice cream is now largely made with extra ingredients because of shelf-life concerns, as opposed to purity and taste. After spending four years in the corporate world not really knowing what the hell I was working towards, I decided to get off that train and dive into something I love and make it better. That thing was ice cream. I had to fix this lack of purity and bring ice cream back in time. Little did I know I’d also be bringing it into the future. I spent a lot of time researching ice cream and learning the science behind it. The gist is that the colder you freeze ice cream, the smaller the ice crystals and the smoother the product. I looked into the coldest thing I could freeze ice cream with, and that brought me to liquid nitrogen, which is −321°F. I realized that if I could

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freeze ice cream that cold, I could make individual batches in approximately 90 seconds from scratch. And if I could make ice cream that quickly, then I could freeze it to order, which means I could take out all the things that people put in it for shelf life and just make it about taste again. This is where old-fashioned and new-age come together and create harmony. From there, I spent the next two years in a basement workshop basically inventing what would become our Brrr machine. It’s a cryogenic ice cream machine that freezes ice cream with liquid nitrogen. That was a hellish two years; a lot of blood, sweat and tears, in the literal meaning of the words. The prototype of the machine was done in 2009. That was an awful year, and I was broke because I spent my life savings on inventing Brrr. I needed to get feedback on whether this company was going to work or not, because I was near the end of my rope. I needed something that could carry my machine and get it out to people; I chose a Radio Flyer wagon because it was inexpensive, it carries a heavy load, and it has the association of old-fashioned. I loaded up my prototype Brrr machine on

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a milk crate, strapped it on with a bungee cord, and made a battery pack out of an old motorcycle battery that I rewired to power my machine for about four hours. I packed the wagon with the freshest ingredients of the day and a tank of liquid nitrogen, and I used Twitter to tell people about it and went rogue on the streets of San Francisco selling ice cream. It was totally and absolutely terrifying and totally and absolutely gratifying because within a couple of days of being out there, we had huge lines and a huge fan base and they made my world and my dreams come true. After a year of selling ice cream on the streets in San Francisco, I was able to gain enough traction that there were people who wanted to help me finance the first store. I also learned through starting the company in the way I did that I could make a company work on a pretty scrappy budget, so I decided to raise as little money as I possibly could to open a store. The philosophy is that it’s more important to us to let the ice cream shine, and don’t waste stuff on bling. I opened the first shop and I did that in a fun way. The combination of new and old is really important to me, so we found an old beaten-up

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shipping container and refurbished it. We craned it down in the middle of Hayes Valley, San Francisco, which was this little up-and-coming artisan neighborhood — the perfect place to open our doors officially to the public, legally. That was five years ago, and by the end of this year we’ll have ten shops. One thing that we find with entrepreneurs is this sense of persistence even in the face of insurmountable odds. What do you think gave you the courage to keep going for those two years that you were developing the Brrr machine? RSF: First of all, I realized that I’m a shitty employee. [Laughs] I don’t follow directions well. I hate routine. I don’t like office buildings. The idea of going back to a job that put me in that box was scary, and that was at the back of my mind.

The second thing that kept me addicted to it was I needed to know if it would work. I was totally fine with failure as long as it was brutal, obvious failure. If I half-assed it and didn’t really know the answer, I’d always have that “what if” in my mind and that would beat me up over the rest of my life. Comfort with failure is a huge advantage. Otherwise, there’s a tendency to hold back a little bit so that there’s always an excuse. But if you’re comfortable failing, you can go all-out. What is the mission of Smitten, and what are your core values as a company? RSF: The mission of Smitten is joy, which is really fun to say. We have in parentheses underneath that, in small type, “We also serve the world’s best ice cream.” But that’s not our mission. Our mission is joy and it’s rooted

in four different values, which we vet every single decision through. Those values are, first and foremost, “make people’s day.” That’s both internally and externally. Our Smitteneers — we don’t say coworkers or employees, we say Smitteneers — we care about each other and also the guests who walk through our doors. We don’t call people “customers,” we call them “guests,” because we believe it’s not a transaction, it’s an interaction — that’s a totally different approach from just serving ice cream. The second value is “commit to being the best.” Again, everything’s internal and external. Internally that means that all of us show up every day trying to give our personal best. Externally, the whole reason Smitten is doing this is that we’re proving that ice cream can and should be better. We’re saying, “Screw the status quo.” We’ve all gotten so used to the status

“Comfort with failure is a huge advantage. Otherwise, there’s a tendency to hold back a little bit so that there’s always an excuse. But if you’re comfortable failing, you can go all-out.” Fisher invented and patented the Brrr machine, which freezes ice cream to order. CONSCIOUS COMPANY MAGAZINE

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FISHER’S TOP 3 PIECES OF ADVICE

EVERYTHING 2 STRUCTURE AROUND THOSE VALUES You should have specific hiring questions that get into the heart of each value. So you’re not saying “Do you believe in this value?” but you have questions that are testing them for each one. Do the same with every other aspect of your organization, including training, promoting, and bonuses. Everything should be structured around that. It’s the root of who you are.

FOR MISSIONDRIVEN ENTREPRENEURS

THE COMPANY 3 LET EVOLVE NATURALLY

KNOW WHAT YOU STAND FOR

When I started Smitten almost ten years ago, I wouldn’t have designed it exactly how it is today. I learned a lot through doing. Don’t create such a rigid structure at the beginning that you can’t move forward to make the business work. Don’t be scared to evolve as long as you don’t violate what you originally set out to do.

Codify what your mission and values are as early as you can so that you know what your BATNA [best alternative to negotiated agreement] is. BATNA is a fancy word for your walkaway point with people; your line in the sand.

quo that we don’t really know what we’re missing, but we’re missing so much. We’re out to prove just how great ice cream can be. The third value is “think like an entrepreneur.” It’s important to us that everyone involved in the company, from our Brrristas to what we call our COW team — we don’t use the word “corporate” because I hate corporate stuff, so we call ourselves the COWs; it stands for “corporate or whatever” — our philosophy is “self-deprecating”: we work for everyone else, and our org chart is flipped on its head so I’m at the very bottom and our Brrristas are at the top. “Think like an entrepreneur” applies to everyone, and our Brrristas throughout the shops see so much more than the COW team does, so a lot of the ideas on how to improve or how to develop new offerings come from them. I make sure that I make

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time for idea sessions. We also believe that there is no endpoint. We’re not like, “Okay, once we get there, then we’re done.” It’s a constant evolution of who we are. Our fourth value is “be genuine,” which is plain and simple. What do you believe has been the key component to your success so far? RSF: Simplicity. We do one thing better than anyone else in the world. We don’t try to do two. Also, transparency and purity. We have nothing to hide. The more we can communicate what we’re doing, the more it’s attractive, as opposed to when there’s a lot of covering up, which is scary, especially in food. We’re actually not very good at communicating all the amazing things that we’re doing. We’re trying to get better

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at it. We’re just realizing the more we are transparent, the more traction we gain with people outside of our company. The last thing is people. People are everything. That’s been core to our success, for sure: attracting amazing people with the same values. Could you talk a little bit about your long-term vision as an Evergreen Company and what that means for you? RSF: I have promised myself and my team not to ruin this thing. To me, that means controlling our growth. I believe strongly in growth, but I don’t believe in growth for growth’s sake. It should be calculated and thoughtful and dynamic and multifaceted and not, “Put your head down and clench your teeth and look up when you’ve already lost your specialness.”

FOOD & AGRICULTURE

Can you talk a little bit about the culture that you’re developing at Smitten, and also if you have any practices that help you be intentional about facilitating that culture? RSF: Our culture is based on our values and our mission and it’s not hierarchical, whenever possible. On some level, you need to know who you’re reporting to because you tell them what you’re doing. But the belief that the org chart is on its head is critical to our culture. It’s really important to me that everyone feels connected to me, even though we’re almost 200 people. Within 30 days of being hired, every new Smitteneer comes to what I call a

company. An ice cream company cannot be about one person. It’s about a team; especially how we do it, making everyone’s ice cream to order. It all needs to be very well-connected, and you can sense the chemistry of the team when you walk in. That is my goal: to make sure that you walk in and you feel the energy, and maybe see some people dancing in the back. I love that we’re known for, in some shops, those dance parties. In the end, it’s ice cream. It needs to be fun. What is your commitment to sourcing local ingredients, and what are you doing in the name of sustainability?

people don’t think of. Most everyone is going overseas for manufacturing right now, so that’s pretty big. Things like vanilla that aren’t made in California, we go outside for that. But even chocolate, we work with a company called TCHO Chocolate based here in the Bay Area. We ended up with them for two reasons. One was they won our blind taste-test. And two, they have amazing standards where they help support the local cacao bean farmers and cooperatives. [For more on TCHO, see Issue 2 of CONSCIOUS COMPANY]. Again, we just have really high standards about owning our impact on the world.

“I believe strongly in growth, but I don’t believe in growth for growth’s sake. It should be calculated and thoughtful and dynamic and multifaceted and not, ‘Put your head down and clench your teeth and look up when you’ve already lost your specialness.’”

Culture Session, which is never more than 30 people. Every Culture Session is entirely different because it’s solely based around whatever people want to know about me or about Smitten. I answer every single question honestly, and a lot of it is me admitting what I don’t know and also just sharing and connecting with people. It’s important to me that I know everyone’s name before they walk in that room; I make sure that I do. Also, as we grow, instead of getting less and less connected with our Brrristas, it’s my goal to get more and more connected. I like to reverse the cycle. Also, I didn’t sign up for Smitten to be sitting in an office chair all the time. Part of my promise to myself is to be genuine to what I want to do with my time and put myself in a position where I can be the best of who I am and also help the company the most. I’m a twin, so I’ve had a teammate from day one, and I’ve always flocked to team sports, and that’s how I see the

RSF: We source everything that we can locally. All of our dairy comes from Northern California. We use more expensive organic dairy than we could; there are companies that come to us with organic dairy that’s a third less expensive, and we’ve said no because we don’t believe in their larger values. We’re not just sourcing from one place for all of California. We now have stores in Southern California and Northern California, so we source our Southern California berries from Harry’s Berries, an organic farm in SoCal, and our Northern California berries from Swanton Berry Farm. Just for the record, it’s not just because we love local. It’s also because it tastes better. We make our ice cream machines here in California — that is a huge cost for us. But it’s meaningful to be able to drive to check in on how our manufacturing is going and to work with our partners. That’s our credit to local on the engineering side, which lots of

The other important thing is that we don’t use any of the extra ingredients that you see in other ice cream. There are no unnatural stabilizers, there are no synthetic preservatives; none of the things I call “unpronounceables” — and there aren’t even any “pronounceable” extras. Like, despite the fact guar gum is technically natural and it can be organic, it’s still gum, and it’s still hard for your body to digest. We just don’t believe in using anything that is not for taste. So it’s partly about what we do put in and it’s partly about what we don’t. Do you have advice for other missiondriven entrepreneurs embarking on a capital raise? RSF: Get to know people before you need to raise money. You can say, “I may be raising money in the future but we’re not right now. Relationships matter, so let’s grab coffee.” Don’t make it about the money, make it

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FOOD & AGRICULTURE Smitten partnered with a local bakery to create a seasonal American Pie flavor.

about the relationship. Make sure they understand where you’re going. I don’t think that “growth” is a dirty word, but I think it needs to be done the right way. Our philosophy is that we’re going to partner with people who share the same values. I always make sure that we develop relationships with people who we end up working with for financing. We have a handful of amazing individual investors who believe in what we’re doing. We know that we can grow with financing partners without selling our soul. How do you make sure that the team that you’re putting together is one that can really stay true to the company’s values? RSF: We structure our interviews such that we’re evaluating for our mission and values, even though people don’t necessarily realize it at the time. Part of it is admitting what I suck at, or the things that I don’t like that make me less fun to be around. I try to find someone who’s good at or who enjoys those things and can help me be a better person and help me better live my value, “commit to being the best.” Also, as people come on board, figuring out how and where they shine and actually letting people help define their jobs. I’d rather hire a super-smart person who doesn’t know exactly what

they’re going to be doing but has a lot of passion to figure stuff out and be like, “All right, this is going to be a little bit of an amorphous role at first but we’ll hone in on it.” That’s worked a handful of times for us. I don’t believe in rigid structure, if you haven’t gathered that. I like letting things breathe and live. I think we’ve created a great space for that, and that’s not how a lot of corporate America is set up. Knowing what you know now, is there anything you would have done differently when starting the business? RSF: I am so glad I didn’t know what I know now because I’d have been too scared to start. So I believe that naïve optimism is a good thing. Live it up! If I had known it would take me four years to make a dime, I would have been terrified to start this. So, no. Don’t know too much. [Laughter] Do you have a favorite quote that keeps you going? RSF: I should. I really just believe in no regrets. That’s why I’m like, “If you’re going to fail, fail fast and fail hard.” I hate what-ifs. Do you have any best practices for

keeping your sanity as a young entrepreneur, especially traveling? How are you staying centered in the midst of this rapid growth that you’re experiencing? RSF: Part of the hardest thing is that I’m also a mom, and I care so much about that job as well. I joke that Smitten is my first kid and my son is my second kid, because he arrived after Smitten had taken off. I have gotten much better at setting boundaries. I don’t look at my computer after 9 p.m., which still seems kind of ridiculous. And I bike everywhere. That keeps me sane. I don’t get in my car unless I have to carry something heavy. And sometimes I even carry that something heavy on my bike. I always have a helmet head and I always show up a little sweaty. San Francisco has a hell of a lot of hills. [Laughter] What is giving you hope for the future? RSF: The people younger than me who I work with have higher standards than most people I know in terms of thinking through impact in a holistic manner. It makes me relieved and excited to rely a lot more on them to help create our future as a company, as a nation, and, hopefully, a planet. But I think we’re starting to examine everything on a deeper level. Photos: Audrey Ma

SEPTEMBER / OCTOBER 2016

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THE

RELUCTANT

CEO

George Siemon has been CEO of Organic Valley, the USâ&#x20AC;&#x2122;s largest organic-only food company, since 1988. The key to his success? The rest of his cooperative.

A calf named Helsinki on an Organic Valley member farm in upstate New York Photo: Russell French for Organic Valley

FOOD & AGRICULTURE

ission-driven business might be trending right now, but George Siemon has been running one since before it was popular. He’s the longtime CEO of Organic Valley, the Wisconsin-based cooperative of organic farmers that sells dairy products, eggs, and produce at mainstream grocers nationwide. In 2015, Organic Valley became the first organic-only food company to pass $1 billion in revenue. We spoke with Siemon about Organic Valley’s secrets to success, and the unique challenges and opportunities that come with scaling a co-op model to that size. What inspired you to start Organic Valley? George Siemon: Organic Valley is a farmers’ co-op that came out of the farm crisis of the mid-80s. It was a terrible time, with a lot of foreclosures and suicides, and there was a tremendous amount of upheaval in the family farm movement. There was a lot of activity around the 1985 Farm Bill to get some solutions out of Washington, DC, and that was a complete disappointment. Out of that, the same farm movement groups started looking for other ways to help family farms. I was a child of the ’60s, raised in the city, but I had family from the country and farms. I studied to be a forester, but I realized I wanted to be more outdoors and not work for the government. I moved into agriculture, became part of the back-to-the-land movement, and ended up buying a farm in the hills of Wisconsin in ’76 and went to organic farming. In 1987, one of the board members of our home region here in Wisconsin had the idea to start an organic, valueadded vegetable co-op. The idea was using organics as a vehicle to try to get sustainability and fair pricing into supporting family farms. Pretty exciting, really, and very idealistic — and it probably would have failed quickly, but fortunately we had a lot of good things go our way. What have been the key components to your success? GS: One of the surprising things that made us a success was that we immediately partnered with conventional agriculture, which is not what you would think of. We were able to get them to be our friend and partner, to do our manufacturing work on a co-pack basis. We got a dairy association here to sponsor our organic dairy

GEORGE SIEMON’S TOP 3 PIECES OF ADVICE FOR CO-OP FOUNDERS 1. GET BUY-IN. You have to make sure that the people you’re trying to serve are really into it —. that it’s their idea, they want to do it, they put the energy into it. When we started our co-op, the dairy part of it only had seven farmers, then eight, then ten. But those ten people, they met every week for several years. They wanted this to work. It wasn’t some outside group trying to push some idea on them. They owned the idea. They carried cheese. They did all they could do, with no wage or anything, to make this thing happen. You have to have ownership by the people you serve. 2. TEMPER THE IDEALS. You never want to think that because you’re right, you’re going to succeed. Being right does not make sure that you’ll succeed. A lot of people get idealistic — “We’re doing the right thing, we can’t go wrong” — but cash is oxygen. You can be right and still die of a lack of oxygen. 3. BUILD THE BUSINESS FIRST. In order to save the world, in order to have a mission-based business, you have to have a good business. A good business is really what matters most. It’s really easy when people start a new venture to get so excited, and, for example, build a cheese plant because you know you can sell all this cheese. Our strategy has always been to build the business, then build the building. We hired someone to make our cheese so we didn’t have the risk of that big, new building. Business plans rarely come true like you think they will, so don’t let that guide you into a dangerous position.

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program. They helped provide us with some of the initial funding and they gave us the ins to go to what you would call a conventional cheesemaker and make organic cheese. What made the conventional producers willing to work with you? What incentive did they have to help you? GS: Nobody was happy to see the failings of family farms. It was a terrible era. It’s still this way today. There are some people that don’t like organics, but the second you say, “Yes, but it’s a really great market to save family farms,” everybody says, “That’s great.” Even if they don’t really believe in organics, they know

that family farms are challenged in the era of mega and super big. “How do we help family farms?” was always our key in the door. What have been the largest challenges that you’ve faced scaling Organic Valley? GS: Well, of course there’s financing. The big issue is how to grow a big company and not bring outside investors in. But there are two things that have really helped us along that path. One is, of course, that our farmers are our owners, and the number one expense we have is the price we pay them for their product. If we were ever in a crisis, we could lower that pay price and swim out of it because

we were providing hope to farmers. Having a backup like that is very helpful. The other thing that we did is instead of going to the investor-type world, we went to the community, before there was any crowdsourcing, and opened preferred stock. A preferred stock program is basically when outside people lend you money. They don’t own the company, but it comes on our books as equity because it’s a stock. It’s written to our favor, but we made the return desirable, which is 6 percent. We opened it up locally and then we slowly opened it up state by state where it was legal. Today, we have $50 million in preferred stock and those are mostly outside people, customers, neighbors — people who Photo: David Nevala for Organic Valley

“We don’t know what our company’s worth. There is no valuation number. We really don’t want to know. We just worry about ‘Are we fulfilling our mission?’”

Farmer-owner Allison Bansen and her jersey cow in Oregon

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FOOD & AGRICULTURE Photo: Russell French for Organic Valley are thrilled to have their money in some place that they believe in, and they’re thrilled to get 6 percent annual return in today’s environment. In addition, we also make our farmers make an investment in the co-op, so they, too, have invested in a form of preferred stock. We’ve made it this far, and now we have very little debt, really. We have the ability to borrow money, but we also have the ability to open up our preferred stock again if we wanted to, to raise money — but we probably wouldn’t do the 6 percent this time. How intentional was that decision to not take on any outside capital? Would you recommend that valuesbased businesses do everything in their power to not take on outside capital, or do you think that that has changed with the landscape of impact investing and more missionaligned investors? GS: First off, we really had no idea we would succeed. We were a frustrated group that just wanted to do something different. That meant that we actually were willing to fail. We had a stubborn attitude. We were going to do it our way or we were not going to do it. We didn’t ever consider outside money. We actually were offered to be bought many, many times, and there was a time or two when we were down on our knees that we had to at least talk to the people. But we wanted to do something that was farmer-oriented. We didn’t want to wander from that. Some could say we were naïve. Certainly, the primary leaders, of which I’m one, were a sacrificial group who were willing to work for a sub-par wage for a long, long time when they could have been glorious entrepreneurs who rode off on a sailboat with millions of dollars. That wasn’t us, and that wasn’t me. We never considered anything. As far as outside money, I deeply appreciate the socially responsible money. Most of that money, though, still, at the end of the day, is looking for an exit strategy. An exit strategy, in the long run, means losing control or selling, so I’m not convinced that that’s a safe place. As long as you’re

looking to sell and build on the valuation of the company, your company is going to change in its direction. It doesn’t have to be that way, but I’ve watched 30, 50 companies go through raising money thinking that they’d be able to keep their independence and, in the long run, have the pressure of those investors to get their big return on investment. One of the things I challenge in the sustainable funding world is: What is a fair return? Is it never enough? What is the right amount? Because once you get involved in the valuation of a company, you see big dollar signs, and the driving factor is that exit strategy. I guess that’s the American way, to a certain degree. A co-op is a different beast. You don’t deal with valuation. We don’t know what our company’s worth. There is no valuation number. We really don’t want to know. We just worry about “Are we fulfilling our mission?” Have there been any particular challenges because you’ve been a co-op and had that unique vehicle or structure? GS: Well, yeah. Instead of having outside investors to address, we have 1,800 member-owners to address. A co-op can be plagued from politics; can do things that are more satisfying in the moment versus the long-term. They have their own pitfalls, but at least they don’t have this valuation to serve. At least with a co-op, you’re saying, “Are you fulfilling your mission? Are you fulfilling your purpose here?” And, of course, that means you have to have a viable business to do that. A co-op is a good business model, but you have to remember it’s a business and not a political vehicle. Business is still business, and in order to fulfill a mission, you have to run a good business. I once said that we’re a social experiment disguised as a business. Once you get the business going, then you can start turning to things like culture and to new ways of working together and new relationships. But you’ve got to have that sound business to build on.

Farmer-owners Michelle and David Stratton in Earlville, NY

What is your largest pain point, right now, as a company? GS: We’ve been very fortunate to have a dedicated group of employees who have worked too hard to accomplish what we’ve accomplished, but that is not the way you go forward. Our pain point now is going from the era of what I call “heroic employees” to more of a widespread, empowered, and process-oriented structure. It’s great that you can have a few people that work too hard, but at the end of the day it’s frustrating to the people below them that they don’t get more empowerment. You’re much better off when there’s a wide group full of responsibility. Those same employees that have worked so hard now are five years from retiring. Have we really allowed the people underneath them to flourish? Have

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FOOD & AGRICULTURE Photo: David Nevala for Organic Valley

Organic Valley farmer-owners the Bansen family in Monmouth, OR, on the Double J Jerseys farm

“It was our collectiveness that made us strong.” we built systems so we’re not dependent on the individuals? And how are we protecting the co-op’s mission long-term versus just serving it today? What’s the best piece of leadership advice you’ve ever received? GS: Early on, we adopted the idea that you should build the business and then the building. We’re a relatively virtual company. We work with 90 to 100 processing plants in the US, but we only have two or three of our own. We hire our work down, and that enables us to have a clear focus on the word “organic” and organic farmers, the organic marketplace, and all that, and leave the actual brick-and-mortar investments of dairy plants to the people who, that’s their business, that’s what they do. That’s been a real key to our success, our virtual view that we took. I find people all the time who get in over their heads building a building that they weren’t ready for, and it just doesn’t work. You can think you’ll sell 20,000 pounds of cheese a week, and you may do it in three years, but you 60

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thought you’d do it in three months. All of a sudden, you can’t keep up with cash flow, and what was a good idea failed when it could have worked, if you built the business some and then built the building. A good business idea can fail just as much from a lack of cash as it can from the wrong leadership. You’ve been the CEO for the entire life of this business. What kind of leader would you describe yourself as, and why do you think you’ve been able to be successful leading this group for as long as you have? GS: First off, I was raised in a business family, and there’s only one thing I knew when I was raised: I didn’t want to be a businessperson. I wanted to be outdoors. I didn’t want to be a CEO. For the first five years in the job, I spent all my time saying, “I’m just going to do this another week and then I’m quitting.” I definitely promote the Japanese business idiom “None of us are as smart as all of us.” In the first 15, 20 years, it was our collectiveness that made us strong. Really, I was more the facilitator. I’m a calm enough guy

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that if we had trouble, I’d always say, “We can make it through this.” My job has been to verbalize things in a simple way that builds a group mind. Now, 28 years later, I would have to admit I’ve become a CEO. There’s nothing like experience. I’ve learned a lot. Now I feel good about such meaningful work that’s had such an impact on so many families. We have 850 employees, 1,800 members, and a whole lot of other people that do our work for us, so it’s a pretty big responsibility to take care for that many families. Speaking of learning a lot in this last 28 years as a reluctant CEO, what is the largest lesson you’ve learned so far? GS: Oh, boy. I think it’s the value of values and the value of believing in your values and standing by them. It’s kind of like your pole that you hold onto during a storm, as you return to those. During the storm, you don’t leave your values, you stick by them. I’ve always been amazed by our devotion to our mission and how well it’s served us to have that devotion.

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DOING GOOD

WHEN LOCAL SPANS THE GLOBE Divine Chocolate is a fully international brand that holds board meetings in three countries. We spoke with CEO Sophi Tranchell about what caring for local economies means in that context. What’s the origin of Divine?

DIVINE CHOCOLATE AT A GLANCE Location: London (UK); Washington, DC (USA) Founded: 1998 Team Members: 25 (UK & USA) Structure: For-profit; 44% (the largest share) is owned by Kuapa Kokoo farmers’ cooperative Impact: 2% of revenue goes toward the cocoa farmer support & development program 2015 Revenue: £12 million (about $15.8 million)

Sophi Tranchell: Divine’s story started back in 1993, when the liberalization of the cocoa market in Ghana meant that there was an opportunity for farmers to set up a cooperative run for farmers, by farmers. They set up “Kuapa Kokoo,” which means “good cocoa farmer.” They were also committed to democratic principles and gender empowerment right from the beginning. They had an annual general meeting each year; two people from each village attended, to ensure that one of them was a woman. They invested in weighing scales and carried around a weighing stone to check the scales often, and ultimately employed technicians to maintain those scales. That meant people trusted the transactions. They quickly grew because they were seen as honest and efficient. By 1997, they had about 25,000 members. In their annual meeting, they voted to set up a chocolate company, so the NGO that had been working with them in Ghana came back to Britain to find like-minded investors. The Body Shop International and Christian Aid invested, and then the British Department for International Development, which is the equivalent of USAID, gave a loan guarantee. Tell us a little bit more about the business model and how it empowers the cocoa farmers. ST: From the start, the farmers have had two seats on the board. The board meets four times a year, once in America, twice in Britain, and once in Ghana. The farmers own 44 percent of the company, so they get 44 percent of the distributed profit. We also pay a Fair Trade guaranteed price for the cocoa, and that includes a social premium of $200 a ton above the world market price. In addition, we invest 2 percent of our topline turnover [revenue] in programs which support the farmers setting up their businesses, like training in agricultural practices, training in working in a cooperative, developing databases so that we’ve got good member information, and helping and supporting the cooperative election process to ensure that it’s free and fair. We’re creating, in total, four income streams: the guaranteed Fair Trade price, the Fair Trade social premium of $200 a ton, the profit dividends, and the 2 percent producers’ support and development program.

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How do you manage the relationship with the farmerowners, and what lessons have you learned along the way?

SOPHI TRANCHELL’S TOP 3 PIECES OF ADVICE FOR MISSION-DRIVEN ENTREPRENEURS

It doesn’t matter how good your mission is; you’ve got to have a really fantastic product. Whether that’s goods or a service, people aren’t going to buy it twice if it doesn’t work. We really wouldn’t be here today if our chocolate wasn’t fabulous.

Clearly articulate the mission. We’re undistracted from the fact that we’re trying to improve the livelihoods of the cocoa farmers in Ghana. That gives us a real sense of focus, and it means that everybody who works for us and with us knows that’s what we’re trying to do.

Pick your partners wisely. Having partners is a good way to expand your reach, scale, and the speed of your growth, but you need to be careful about picking them and then be clear about what you’re agreeing to do to get there. If you pick the wrong partners, it can sink you.

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ST: Their representatives have full transparency on all of the matters that come up in a board meeting, like the strategy for the company and the business plan for the next year. We produce an annual report as a laminated poster that goes up in each of the village cocoa sheds, so everybody has access to that information. Then I attend their annual meeting each year and report to them on how the company is doing. But the farmers have been their own best ambassadors. It’s one of the things that’s been integral to the success of Divine and also motivating to be a part of. They’ve come to Britain and America and traveled around and met all sorts of people. They’ve told their story and answered questions and seen just how much chocolate we all eat. Actually, they’ve been surprised about how many people are interested in how they grow cocoa and whether they are getting a decent livelihood out of it. The lesson I’ve learned is that if you’re going to put together an unusual group of stakeholders, then you have to invest in making sure that the communication works and that people feel they are welcome to contribute in a board meeting. You’ve actually got to make an effort to make this work. One of the advantages we’ve had is the official language in Ghana is English. But our board meetings have been challenging because we’ve got Dutch investors, a German investor, Americans, English people, and Ghanaians. Everybody’s speaking in English, but are they actually understanding each other? Having patience and investing in making sure people are coming on the journey together is quite an important thing.

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Has this shareholder model strengthened the Divine brand? ST: It’s the absolute core of it. It’s been all of our inspiration. It’s also the story we tell. We launched into an incredibly mature market which is dominated by giants. The sense that we have something different to say because the farmers own us and they have lovely stories of their own has been very important. Do you have any specific stories that really illustrate the purpose or the mission of Divine for you personally? ST: One of my favorite memories is from when we launched Divine in America in 2007. We launched it on Valentine’s Day in Washington, DC. The farmers chose a 55-year-old woman called Comfort Kumeah to represent them. When we first came across Comfort in 1999, she hadn’t really left her village. Then, through the process of engaging with us, she came to Britain in 2002, got a bit more confident, and got elected onto Kuapa Kokoo’s National Executive Committee. She came to Washington, and we woke up on Valentine’s Day to two feet of snow. We had to get to a briefing on Capitol Hill, and she spoke at that event, and her picture was on the front page of the [Washington] Times. When she was 50, if you’d asked her if she could imagine all these things, she would have just laughed. It was unfeasible. I love the way that that’s life-changing; she becomes a completely different role model to her children and her grandchildren. Could you talk to us about how you financed Divine? Were you able to find missionaligned investors and, if so, how?

FOOD & AGRICULTURE ST: One of the advantages of Fair Trade is that there is some finance that has been particularly developed for it. But the finance we’ve had more recently, which enabled us to set up in America, was from a Dutch social investment organization called Oikocredit. They’re completely aligned with our mission, and it means that they’re also a patient investor. One of the things that’s really challenging when you’re setting up a startup is how much time you spend mobilizing money versus how much time you spend building the company. Because we got good, patient money, we were able to then spend our time building the company.

Cocoa farmer Juliana Danso and her family

Do you have any advice for missiondriven entrepreneurs who are embarking on a capital raise? ST: You need to be very careful. You need to make sure that you’re working with people whose values align with yours and be brave enough to have the conversation about, “Are you expecting to exit? When?” Rather than hoping that they’re not going to exit, actually put it on the table, have a conversation about what your long-term expectations are. The thing that’s complicated is discerning between people who are targeting social businesses as an area of high growth versus people who are genuinely aligned with your values. Can you comment on how Fair Trade really ensures that the local economy, wherever you’re working, is being treated fairly and that it’s actually bringing people out of poverty? ST: The Fair Trade certification is a good consumer guarantee that what we’re saying is true. We have to make quarterly declarations, and they come and check our books on an annual basis. But they also go and audit the manufacturers in our supply chain, and they make sure that the money is getting to the farmers and the democratic process is happening effectively. Obviously, it’s all spot-checks. They’re not everywhere all the time,

but they’re looking at minutes of meetings, then seeing people who were apparently present in those meetings to check that those meetings took place. And if it says that there was a school built, they’re going and seeing it. The level of poverty is quite high, and so you’re managing to go from things like not having clean water to having a pump. You’re not ending up with taps in everybody’s houses yet. Now that you know what you know, after 17 years in your position, is there anything that you would have done differently along the way? ST: I walked in and they had one product, Milk Chocolate, 150 grams. Knowing what I know now, I would have come up with a range of products. Because when you manage to get in to see a buyer, you want to have a range of things to show them so that if they really like it they can take everything, and if they’re not too sure they can take one or two things. We showed our one bar to people and they were surprised at how good it was, but all they could do was take one thing, and then it just sort of disappears, because one thing on the shelf is too

small. It’s about understanding the category you’re in, and chocolate is a category where brands have a selection of products. Also coming in with a whole proposition would have enabled us to grow more quickly. What is giving you hope for the future? ST: It’s great to see an increased interest in the different ways of doing business. We’re seeing consumers who are becoming more demanding. The other place I’m seeing it is people wanting to work for different sorts of businesses that deliver more than a bottom line. That’s increasingly what people are saying in interviews when they come to talk to me. There’s also an interesting thing happening about gender. Thirty-five percent of the 85,000-plus farmers we work with in Ghana are women, and the country elected its first woman president in 2010, and its second one in 2014. That was previously quite unthinkable. Women are starting to get their place, and people are assuming that women should be part of it. That’s also cause for hope. Because I think we might look after the world a bit better! [Laughter] Photos: Divine Chocolate

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FINANCE

MEET THE FUTURE OF CROWDFUNDING This year, a new type of equity-based crowdfunding became legal in the US. Here’s everything you need to know about Title III of the JOBS Act. At its core, crowdfunding is the process of raising money to fund a venture through multiple small contributions from a large number of people. You’ve heard of some of the projects: the video game that has raised more than $117 million to date after starting with a $2.1 million Kickstarter campaign. A better beehive that brought in $12.4 million on Indiegogo. This very magazine, which got its start through a similar campaign generating $16,000. But until recently, businesses could only reward their donors with gifts or products (see “4 Types of Crowdfunding,” page 71), not a piece of the business itself. That’s all changing thanks to a law that promises to shake up the crowdfunding world as we know it. On May 16, 2016, Title III of the 2012 Jumpstart Our Business Startups Act (JOBS Act) made equity crowdfunding available for the first time to unaccredited investors.

Sounds Great! What Does It Mean? Title III of the JOBS Act permits everyday people to become investors in private businesses. Using third-party platforms such as online portals to facilitate transactions, companies can now raise small increments of money from anyone in exchange for small pieces of company ownership. This is a huge deal.

For more than 80 years prior to this provision, only accredited investors — those with a $1 million net worth or who make $200,000 or more per year ($300,000 as a couple) — could invest in private companies. Thanks to Title III, companies across the US will be able to raise capital from ordinary Americans in exchange for equity without having to put their offering on public stock markets. That hasn’t been true since the 1930s.

Why Is This Such a Big Deal? Equity crowdfunding opens up an entirely new avenue for entrepreneurs to raise capital. In theory, Title III should make raising capital easier and more time-efficient by greatly expanding the pool of potential investors. Equity crowdfunding also benefits everyday people who can now get in on investment deals that had been relegated to only wealthy individuals for the past eight decades.

For Companies Wanting to Raise Money Through Equity-Based Crowdfunding TITLE III AT A GLANCE Companies can raise up to

$1 million

per year from unaccredited investors All offerings must be done through a

registered intermediary — an online crowdfunding portal Companies can accept investors from

all 50 states

The company’s financials are required to be public and must be available on the company’s website To raise more than $100,000, a company first needs a

How do I get involved? Read our interview with Wefunder president Mike Norman (next page) for more information about how this new crowdfunding works.

certified public accountant to review its financials

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THE NEW STOCK EXCHANGE The JOBS Act and crowdfunding platforms like Wefunder are making investment opportunities available to anyone — not just the rich. WEFUNDER AT A GLANCE Founded: 2013 Locations: San Francisco, CA and Boston, MA Team Members: 8 Impact: Helped companies raise $3 million in investments under Title III of the JOBS Act since May 16, 2016

Now that US law allows privately held companies to raise investment from everyday people — so-called unaccredited investors — anyone can now financially support the companies they care about. (For more on the law, see previous page.) A number of investment crowdfunding platforms have emerged to meet the growing demand for these opportunities; think Kickstarter, but for investment deals. One such platform is Wefunder, which connects both accredited and unaccredited investors to offerings from a wide range of companies seeking to raise capital. We spoke with co-founder and president Mike Norman about this new type of opportunity and what it could mean for the future of investment.

Co-founder Mike Norman (left) and the Wefunder team 70

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FINANCE In simple terms, can you explain the new crowdfunding provision from the JOBS Act? Mike Norman: Before May 16, 2016, you generally had to be pretty wealthy in order to be allowed to invest in privately held companies. The specific threshold was $1 million in net assets, not including the value of your primary residence, or $200,000 of annual earned income — $300,000 for couples. The JOBS Act allows anyone to invest in companies they care about. It could be a local food store or a tech startup; you can invest as little as $100 to help that vision come true, and hopefully make some money at the end of the road. Is there something you wish everyone understood about crowdfunding? MN: I wish everyone knew that this is not just for equity. Some people use the term “equity crowdfunding,” but you can structure it as debt or equity. For a lot of community or locally owned businesses, offering equity doesn’t make sense because for an equity investor to get a return, oftentimes there needs to be a sale of the business, like an acquisition by a larger company or an IPO. If it’s a locally owned business and it plans to stay locally owned, that doesn’t always happen. One of our more successful campaigns, Hops and Grain, a brewery in Austin that has raised close to $600,000 with us, is using a revenue-sharing contract where they share a percentage of their revenue up to a certain amount with the people who invest. It’s technically a loan; it’s a debt instrument. A lot of the investors in Hops and Grain are everyday people who love their beer. They want to be able to sit in the building they helped finance. It’s a change in the way people are able to own a piece of the companies they believe in and help get them off the ground. This idea of community ownership was impossible until this year for early-stage companies. This is going to be a tremendous opportunity for all types of businesses, not just the high-tech startups that we’re used to hearing about when it comes to fundraising. Do enough people know about this yet? MN: A lot of business owners are only familiar with the traditional forms of

raising capital, which is either, “I’ll go to my rich uncle” or “I’ll go to the bank for a loan.” I don’t think we’ve broken into the general consciousness around this being an option for companies, and the same thing from the individual perspective. Regular people have not been able to invest in startups since the Securities and Exchange Commission was formed back in the 1930s, so they never even heard about the opportunities. So it’s not only letting people know that things have changed, but letting people know, “Hey, this thing changed that you didn’t even know prevented you from doing something.” [Laughter] What’s good is that we’ve got a bunch of great success stories under our belt. It’s going to be important for us to get more and more out there. People are happy; it’s about spreading tangible examples of how this works in practice rather than, “Oh, the law has changed. Now I can do this abstract thing.” Unaccredited investors are often scared of the investment space because of a heightened sense of risk. What sort of due diligence are you undertaking before you put a company on the platform? MN: Our regulatory responsibility as a funding portal is to make sure that the company discloses all of the information required in Form C. This is a formal filing with the SEC that has to include a bunch of information about the company: who the majority owners are, what the indebtedness of the company looks like, a general outline of the shares that have been issued, any past offerings. Things have to be factually correct. It’s not necessarily our job to tell people what they should and should not be investing in; it’s our job to make sure that all the information they need to make that decision for themselves is up on the company’s profile. People should go to the profiles and check things out. They can ask questions of the founders right there on the profile. Investors should make sure they have all their questions answered before making the investment. Let’s say I’m a company interested in raising money this way. What are the first steps?

4 Types of Crowdfunding 1 // REWARD-BASED The most common type of crowdfunding, wherein an individual gives money to a project, initiative, or business in exchange for a “reward,” which is typically a product or service. Think Kickstarter or Indiegogo. 2 // DONATION-BASED Crowdfunding where individuals provide capital as a donation with no expectation of return — reward or otherwise. This type of crowdfunding is most often used for social or charitable causes. Think GoFundMe or CrowdRise. 3 // DEBT Crowdfunding that allows entrepreneurs to raise capital as loans to be paid back over a set time period with predetermined interest rates. These campaigns work well for ventures looking to raise money without having to give up ownership of their companies. 4 // EQUITY Crowdfunding that allows investors to put money into private companies in exchange for a small piece of ownership in the company. This type of crowdfunding has typically been reserved for accredited (meaning rich) investors, but since May 16, 2016, it is open to unaccredited investors because of the JOBS Act.

MN: The first step is getting familiar with

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all the requirements you have to go through. The flip side of investors having all this legally mandated information is that the company has to provide all that information. It’s not generally an issue with companies, but they should know that they have to make all these disclosures about their business and make them public in order to be able to bring on these investors. Then make sure you have a community already together that you can go out to. More than 50 percent of the investment dollars are coming from companies’ existing customers, community members, users — folks that know the business already and are excited about what it’s doing. Companies should really think about, “How big is that community of people

can focus on building the business, which is what the investor should want anyway. A big piece of that is also expectation-setting. You should not expect that just because you invested $500 into a company you’re going to be sitting in on board calls, and so on. That’s something we’re very careful about positioning right. Are you finding that there’s an investment round that this is typically good for? Are you seeing more Seed-Stage or Series A? MN: We’re seeing across the board, and also seeing companies where Seed or Series A don’t really apply. We have one company, Beta Bionics, which has

money. We’d love to have you be a part of it. Come to our Wefunder page to see how you can participate.” That’s absolutely allowed. What are you predicting as the future of the crowdfunding space? How large do you think this could get? MN: I think it could be huge. If you think about the breadth of companies we’ve already seen be successful, meaning the variety of stages, and then the fixes that are coming through on the legal end to make this even easier for companies to take advantage of, I think every company that has some type of consumerfacing component is going to want to reserve at least a part of their

“Every company that has some type of consumer-facing component is going to want to reserve at least a part of their financing for their customers and community members.” I’m going to be able to talk to about the offering, and how likely do I think it is that they’re going to invest?” Remember, invest means that people put in $100 or $200 — we’re not talking about asking someone to write huge checks. One of the values of this kind of regulation crowdfunding is that you can have hundreds of investors coming into your business; it’s a small piece of risk for a large number of people to believe in what you’re doing. One of the concerns entrepreneurs commonly have with crowdfunding is that there are going to be too many shareholders or stakeholders to deal with. Have you seen anything in that regard? MN: We’ve done offerings where we’ve had 100 investors come in, and we haven’t had any issues. We’re very thoughtful about how we construct the software to make sure that an entrepreneur is not going to be distracted by 100 different investors saying, “Hey, I think this is what you should set your next quarterly goals at,” or whatever. We mediate the entire interaction between the investors and the entrepreneur through Wefunder such that the entrepreneur 72

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received a $5 million investment from one of the largest pharma companies. Five million dollars from one main investor, obviously, is at least a Series A-style investment. And then we’ve got folks raising C rounds, and we’ve got folks using debt securities. It really does span the board. I think a key piece is that it doesn’t have to be your entire round. You might be raising a bunch of equity investment from institutional investors — like we saw with Beta Bionics — or you might have a bank loan that this is going to complement to give you a little bit more liquidity. It’s really a complementary form of capital-raising and not something where, if you’re going down this route, this is the only way that you’re going to accept funding.

financing for their customers and community members. An important thing to realize — and companies are thinking about this already — is that the fundraising piece is important, but it’s also a really powerful marketing channel. [See page 74 for more on this.] People want to help businesses they believe in, and this gives them that identity and piece of the upside to be able to say, “Hey, I absolutely want to pitch in and help in ways that I can.” All of the hundreds of investors that will come into a specific company through their round will then be the best advocates they’ll have and will pay non-financial dividends down the line.

Are businesses allowed to advertise this crowdfunding to their consumer base? Is there anything that people should know about that?

MN: The traction we’ve gotten already is giving me hope; the fact that we’ve seen a few different use-cases in different industries with different securities work well speaks to the fact that this is applicable to so many different companies in different spaces at different stages. I think that as things get easier and easier, it’s going to become part and parcel of the way all companies think about fundraising moving forward. That’s really exciting.$

MN: There are some restrictions in terms of what you can talk about. You can’t or you shouldn’t talk about the terms of the offering. You can’t say, “Hey, this is a great investment. Buy for $5 a share.” But, you can absolutely say, “Hey, we’re raising

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What’s giving you hope for the future?

Photo: Wefunder

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TURN YOUR FUNDERS INTO

If you’ve raised funding from community investors, the next step is leveraging them to help get the word out. Here are three steps to building an audience who loves you. BY STEVEN MORRIS

Now that you’ve got the funding to get your business off the ground, your business is calling for something different from you, and it’s likely closer to your heart: building a raving audience. If you’ve tapped into the JOBS Act for funding, you can now look to your investors as a group of people aligned with the success of your business. Capitalizing on this community can create a groundswell of customer attention and traction, especially if you amplify it through traditional and digital marketing programs. You can also strengthen your brand through the might and reach of your investors. Having committed 74

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brand advocates can significantly intensify the effectiveness of getting the word out about your company. Marketing done right is the science and art of creating both an intellectual consideration — people understanding what you’re selling and its value — and an emotional connection that moves your audience to act. The beauty of this is that you can develop a sustained marketing program that builds a loyal following based on a powerful brand and this combination of mind and heart. Creating the entire branded experience takes time, but pays off with loyalty. Photo: HaloVeg

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BUILD YOUR BRAND FIRST AS AN EXPERIENCE

FIGURE OUT HOW TO REACH YOUR TRIBE

COMMIT TO DELIGHTING YOUR TRIBE

Marketing starts with a strong brand based on deep beliefs. A strong brand has a clearly defined values system that guides all of its actions and expressions. A brand, just so you know, is the culmination of how any one person — either inside or outside your company — experiences your company. You can’t effectively market without a strong brand. Too many brands get stuck in the product mindset: a clothing company always selling clothes, a software company always in the world of software. A product- or service-defined brand is inherently limiting. Spy Optic, in contrast, is a top sunglass company, but what it really sells is emotion — specifically, “happiness.” When thinking of your product or service, ask two questions: 1) “What problem are we solving for our customers?” 2) “What emotion does that equate to in their lives?” Build a brand that’s worthy of the great product or service you created, and that lives up to the expectations you set through your crowdfunding campaign. If they funded you, they believe in you. Now it’s time to deliver on the promise you made to them. Putting the crowdfunding promise into action through your brand experience will get your crowdfunding group moving to support you, telling their circle of friends, and singing the praises of your business.

Now that you’ve defined your brand, it’s time to build your marketing plan — the map upon which you chart your external communication direction — and deploy it. Build it so that you, your team, and your investors know where you’re headed and how you can measure your market success — and, of course, how this links to sales. A solid marketing plan should look ahead at least 12 months. Figure out where your intended audience lives, what they read, what media they consume, and how they can and will find out about you. This will define your media mix. Your media mix can include owned, earned, and paid media. Each has its own benefits and resource requirements. Consider how you’ll leverage and communicate through each channel. Communication should build on everything you’ve done on the crowdsourcing and branding side and put those beliefs into actionable steps that your audience can connect with and respond to. All audiences want to be connected to brands that they believe in, which is why it’s essential to know what you believe in and that you live up to your brand promise. The brand promise is the value that you deliver to your tribe.

To get your fans raving, give them something to rave about. This requires delight, or at the very least the unexpected. More important than simply acquiring a conversion or customer is the creation of a relationship. A relationship requires relating to and with your customers, not just selling them something. It requires that you connect with their needs and wants, and through your product or service add value to their lives. This goes beyond simply trying to satisfy them. Here’s how to deliver delight: • Exceed their expectations. An exceptional service or offer, a gift, a discount, or an exceptional product at a fair price can play a role in your offering. Consider your relationship with your audience to be an act of continual generosity. For those who took part in your crowdfunding, an unexpected expression of gratitude, even as simple as a hand-written note, says that you appreciate them and their support. Go above and beyond with your crowdfunder family. • Constantly connect. True connection is constant and ongoing — socially, virtually, and in person. A two-way communication can lead to open dialogue and deeper customer relationships. • Listen to what they have to say. You’ll be amazed by what you can learn from your customers about your brand and product or service if you actively listen. It takes fierce vulnerability on the part of your brand, but it will drastically improve your offering and will create customer delight.

Steven Morris is president of Mth Degree Inc. (themthdegree. com). Over the past 20 years Steve has led Mth Degree, a brand strategy and marketing agency that specializes in building purpose-centric brands that create authentic connections to audiences, amplifying value to business and the world and motivating people to live more inspired lives. Steve has been a speaker at various national and international events, has written for numerous business and industry publications, and is the author of the upcoming book “The Conscious Brand.”

As business owners, we should be constantly thinking about how to improve our businesses, and this includes how to improve the lives of our customers. Following the above steps is a great start. Once you get traction in building and growing a loyal and loving fan base, keep looking for ways to improve in all that you do. And by all means, keep listening to your customers and leaning in to those who also benefit from your success. Both will keep you constantly learning and improving your impact on the world around you. $

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9 OTHER WAYS

TO SOURCE LOCAL CAPITAL BY MICHAEL WHELCHEL OF BIG PATH CAPITAL AND AARTHI BELANI OF JONES DAY

The key financial transactions of a company’s life, such as bringing in new equity investors or selling to new owners, have permanent effects on its future, for good or ill. And just as with, say, buying local produce or supporting local businesses, sourcing local capital in these situations has many benefits. It creates a more connected capital relationship between the investor and the company, helps promote a vibrant local economy, leads to a more dynamic community featuring a higher quality of life as more dollars are circulated within it, and results in a place where more of us would like to live. A local investor’s destiny is more intertwined with a company’s. But when it comes to capital, local sourcing is not as easy to implement. New crowdfunding laws are opening some doors to local investors, but that’s not the only way to tap into your community for financing. We’ve rounded up nine other ways to source local capital so your investors are also part of your local ecosystem.

FIND LOCAL OR REGIONAL ANGEL NETWORKS

Most larger cities and many regions of the country have established angel networks. These are groups of investors who typically organize around geography (e.g., Detroit), social change theme (e.g., backing women entrepreneurs), or sector (e.g., sustainable foods). They pool pipelines and sometimes resources, share research and due diligence, and form complementary teams to provide advice to their portfolio companies. Their investments can range from $10,000 to $1 million. There are directories of established angel networks like Angel Capital Association, and you can Google search for more or contact your local chamber of commerce to find them. Radhika Shah, co-president of Stanford Angels & Entrepreneurs, a group that provides seed funding to Stanford alumni, faculty, staff, and their family members, points out that even within angel networks, it’s critical that social entrepreneurs partner with seed-stage impact investors and/or philanthropists who are deeply missionaligned — both on the core mission of the organization and on how much they value social impact versus profitability. “In the investor ecosystem,” Shah says, “investors and donors are on a spectrum, and connecting with those that have deep alignment can make all the difference.”

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PRESELL YOUR GOODS AND SERVICES

Preselling allows businesses to bring in revenue early, before incurring the cost of goods, thereby allowing the company to use the cash for other purposes. For example, a cafe might raise most of the $100,000 it needs to open a new store by preselling its coffee on Smallknot, a platform for users to invest in small businesses in their local communities. Another upside of preselling is that businesses gain valuable insights about prospective product or service users in the marketing process. Note: In some states, preselling is considered a form of securities issuance; check local laws.

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3 4

DO AN INTRASTATE DIRECT PUBLIC OFFERING (DPO)

Crowdfunding (Regulation A+ created by the 2012 JOBS Act) is considered a DPO, but “intrastate DPOs” have been in use for much longer. Like crowdfunding, intrastate DPOs allow both accredited and unaccredited investors to invest in private businesses, but unlike with the recent crowdfunding legislation, the process is less burdensome and has lower associated costs. One catch with this approach is that all investors must be in the same state, along with a few other requirements, but there is no limit on the number of investors. Regulators require statelevel registration, but it is not as burdensome or expensive as a federal registration. Ben & Jerry’s used this approach in the 1980s to attract Vermont-based unaccredited investors as a way to raise capital.

PLUG INTO PEER-TO-PEER FINANCING MODELS

While this sector has definitely been challenged by the management scandals that Lending Club, a big name in the space, faced in 2016, the higher transaction speed and lower cost of these platforms represent a fundamental disruption that will survive early operational bugs. Online portals such as Community Sourced Capital (see page 80) and the Grow Local Project, which match investors with local businesses seeking loans, take advantage of a locally-minded investor pool, low overhead, and high-tech business models to provide loans faster and at lower rates than brick-and-mortar banks. Newer business models like ZipCap unlock “loyalty capital” by leveraging the loyalty of a business’s repeat customers to act as a kind of “underwriter” or credit to reassure lenders who may not themselves be part of the local community. The aim is to offer small retailers like restaurants and service providers access to loans financed by investors with a vested interest in supporting a local economy. Successful merchants have a network of repeat customers who give those businesses a predictable revenue stream, which in turn is a ready source of data for lenders on their ability to repay a loan.

TAKE ADVANTAGE OF COMMUNITY REINVESTMENT REQUIREMENTS

Banking institutions have to comply with the Community Reinvestment Act (CRA), a 1977 US federal law designed to incentivize banks to meet the credit needs of community borrowers. Since the CRA regulations were revised in 1995, banks and thrifts have been required to disclose information about their small-business and community development lending as part of the CRA compliance ratings process through the Federal Reserve. For 2014, about 5.6 million small business loans (originations and purchases) totaling $214 billion were reported, representing an increase of about 12 percent in reported loans and 2 percent in dollar amount over 2013. So banks in your neighborhood are worth contacting about promotional loan programs for local businesses, especially as the favorable lending environment continues and if there is any feature of your business, such as ownership by underrepresented minorities or women, that is promoted under the CRA.

NEGOTIATE BETTER PAYMENT TERMS

This source of capital couldn’t be any more local; it is simply your own company, courtesy of your vendors and customers. An oftenoverlooked tactic for a business seeking to raise capital is asking vendors to extend payment terms and customers to accelerate payments. For example, say your suppliers require you to pay 10 days after invoice, but you get paid by your customers 30 days after you invoice them. For every additional dollar in sales, you will need more capital due to working capital needs. Negotiating longer terms with your suppliers and shorter terms with your customers translates into real cash. Even a temporary extension from suppliers during certain critical timeframes can concretely help your financial situation.

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SEEK REGIONALLY FOCUSED GROWTH EQUITY

Early-stage equity financing now comes in many more than 32 flavors, and increasingly, fund managers are responding to the demand for impact investments by setting up funds dedicated to social and environmental themes such as recycling, financial inclusion, diversity, and, yes, even local development. While the deployment of venture capital investment is more concentrated in cities like San Francisco, San Jose, Boston, and New York, there are venture capital funds that have a regional focus. New venture capital and growth equity funds have been established to fund good companies that are not in top metropolitan areas. These see geographic diversity as an opportunity, because ability is equally distributed by zip code, whereas access to capital is not. A few examples are SJF Ventures, Meritus Capital, and Advantage Capital. ImpactBase, a searchable online database of impact investment funds, can help you find a fund with a mandate that matches the mission of your company.

CONNECT WITH A SLOW MONEY CHAPTER

Slow Money is an organization “connecting investors to the places where they live and promoting new principles of fiduciary responsibility that ‘bring money back down to earth.’” It has 23 active chapters in the US that involve both professional investors and newbies. The members of Slow Money are generally interested in place-based investing and looking for opportunities to invest to strengthen their local communities.

The virtues of going local for your personal purchases are self-evident at this point: a more connected, resilient community and a more satisfying model for both consumer and business. Finding connected capital and building a local investor base can be a source of prosperity for both your company and your community. $

BRING ON REVENUE SHARE INVESTORS

Some impact investors are experimenting with revenue share interests, which occupy a space in the “capital stack” somewhere between debt and equity. Because of that “Goldilocks” risk-profile, these are increasingly of interest to the types of community investors who feel like they have good information about the revenue potential of a local business but not the risk appetite of an equity investor. A revenue share is paid out prior to an equity share, and in theory could also be paid prior to debt, but they most often exist in circumstances where the venture has not taken on traditional debt due to its cost or unavailability. Like an equity share, a revenue share’s repayment is not fixed, but rather is usually set as a percentage of top-line revenues for either a certain period of time or until a certain return on investment is reached. One advantage of revenue share investment is that the expectation of return is also somewhere between equity and debt; some investors peg their expected recoupment at two to three times investment. Tip: In negotiating a revenue share, it’s important to define the net revenues that the share will be based upon, and exclude from the definition of net revenue certain expense items you would want to be sure of being able to pay before the revenue share investor is paid.

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Michael Whelchel is co-founder and managing partner of Big Path Capital, an impact investment bank assisting purpose-driven companies in their most important financial transactions, including acquisitions, mergers, and capital raises. Learn more at bigpathcapital.com. Securities are oﬀered through Intellivest Securities Inc., Member FINRA, and SIPC.

An attorney at Jones Day, Aarthi Belani focuses on M&A, social enterprise, and impact investment. Previously, Aarthi was in-house at Credit Suisse, where she was a member of a cross-divisional initiative to develop impact investment products, and before that, at Cleary Gottlieb, she was involved in innovative financing deals for global development, such as Product (RED), Liberia’s debt restructuring, and counseling the Grameen Foundation.

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FUND THY

NEIGHBOR Community Sourced Capital rallies individuals to give no-interest loans to their favorite local businesses. We talked with co-founder and CEO Rachel Maxwell about how this kind of hyper-local finance can change the world. Start by telling us the story of Community Sourced Capital and where the idea came from. Rachel Maxwell: Community Sourced Capital (CSC) was born at Bainbridge Graduate Institute (BGI), which became Pinchot University. I went to BGI because I wanted to deeply understand finance. I came out of the international climate policy world and I recognized that in the US particularly, finance was the roadblock to the uptake of clean energy. After taking a deep dive into sustainable finance my first year, I came to the conclusion that just like we need a distributed grid in order to have a strong and resilient energy system, we need a distributed financial system in order to have a strong and resilient global financial system. I called a team together around the idea of building resilient local economies. That team ultimately came up with the idea of Community Sourced Capital, which is a system of making loans to small businesses using money that comes directly from the people who know, love, and use those small businesses. You’re creating a positive financial loop where people support the businesses that support them by making small, zero-interest loans to those businesses. It’s a reciprocal, generous relationship.

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What are some of the challenges with funding small businesses? RM: When we entered the world of small-business finance in 2012, small businesses were really struggling to get financing from traditional sources; banks were not lending to them. Small businesses are, in a certain way, inherently risky. Most of them do not have a lot of assets they can use as collateral — they have used their personal assets already to build their business — and therefore bank lending doesn’t work well for them. So there were many, many small businesses shut out of the traditional financial system, particularly after the 2008 crash, when people lost so much value in their personal assets and their homes. Even with loosening up of capital for all sorts of things, small businesses continue to struggle. That’s in part because often they need smaller loans while lenders want to make big loans, because it’s just as much trouble to make a small loan but they make way less money. Small businesses can access small amounts of money now through systems like merchant cash advances that seem to behave an awful lot like Payday Monday [payday loans], where they are paying a tremendous amount of money for the capital they’re getting.

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What are some of the lessons that you discovered in starting and running this business? RM: We started with the idea that we need a financial system that builds community and builds on community — a full system that is a positive systemic loop. In order to do that, we need to stop thinking about value only in terms of dollars. We’ve made almost 100 loans and involved 6,000 people at CSC, and we’ve found that community members seem to intuitively understand that value isn’t only measured in dollars. They’ve made these zero-interest loans to the small businesses they know in a spirit of generosity. There’s not been a perk or a special thing that they get for doing this, but people are really, really excited to be part of it. We ask them why they did it and they say, “Because I love this business,” “Because I love this business owner,” “Because I want more businesses like this in my community,” “Because I think these people do really good things and they have a lot of integrity.” That’s exciting for me because it demonstrates the possibilities around unleashing the capital that’s available amongst the people who live in communities. Some of the real difficulties are that small businesses are in many ways inherently risky, from a financial point of view. Smallbusiness owners basically need to do everything and understand everything — from how to build the business to how to cope with their physical spaces to how to get customers to how to do their own

FINANCE finances to how to market and advertise. Every single small-business owner that we have served seems to work basically non-stop. While they’re excited to do all that stuff, it’s also therefore riskier because not every business owner really does understand everything about finance or has the time to remember to do all the pieces of the puzzle that they need to do. We’ve had several businesses that have gone under for one reason or another. The people who made the loans to them don’t get upset. They’re like, “We knew this was a risk. We hope you’ll do well in whatever next thing you do.” It’s fascinating to me that that generosity exists out there, that understanding. The community members seem to recognize that inherent value of having those businesses in their communities, and they’re willing to put their dollars to work for their community without thinking about what traditional investors think about, which is “how many dollars am I going to make?” Were you surprised to find that? RM: Yes. It makes a person really happy to see that there is this generosity and positive feeling out there in the world.

Too often we hear about all the negative, about people suing people and getting upset over all sorts of things. This shows me that communities really can care for each other, even in financial relationships. The concept of trust seems to weigh heavily into what’s missing from a lot of modern banking transactions. RM: I believe that we are wired to need and want to trust each other. Community Sourced Capital provides people with an opportunity to do so. One thing that happens in our system that is really different is communication based on integrity rather than on painting a picture so people will be happy. We call everybody who participates in the loan “Squareholders.” They are not shareholders. They are not equity holders. Nothing about this is like a traditional investment. Basically, it’s not an investment, but it’s not a donation either. It’s an investment in a much more abstract sense, or a more solid sense, actually, which is that you’re saying, “I care.” It’s like investing your time. You’re saying, “I want this to happen,” and you’re saying it with your money. Integrity on the part of the business

owners is essentially what builds the trust. Also, all their people know whether or not they’re repaying their loan. In a bank loan situation, no one knows except the bankers. What are some of the attributes of a community that make it more or less conducive to a CSC model? RM: What’s best suited for CSC are communities — meaning groups of people who have something they care about in common. The community can be geographic, but it can also be a community that is much broader depending on how that business or those business owners touch the world. One community that I think is a really beautiful example is a small town: Long Beach, Washington. In that community we’ve made a number of loans — I think six, maybe seven — to a handful of different businesses. The population is like 1,500 and the average income is quite low, but the people love to help the businesses and owners that they know, and then they can reuse the same money for another loan. We had one Squareholder write to us when she was rolling the money that she had invested or lent for the third time. She was like, “Oh my gosh. I lent $250

HOW COMMUNITY SOURCED CAPITAL WORKS

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FINANCE

and it got repaid, so that’s one business. Then I lent it again for this project, and now they’ve repaid also, and now I’m lending it for the third time. Wow! That’s a return on investment. I basically tripled the impact of my money over the course of two or three years, in my community!” Sort of an interesting way to think about money. For a different kind of example, the owners of a particular solar installation company were very involved in the regulatory and political world around solar. Their Squareholders included their competitors, because people felt

Northwest with our current system, and then we haven’t quite figured out what our model for expanding will be, but it will be akin to a white label or a type of franchise or something. We’ll be able to deploy the platform so that other people in other communities can use it themselves. That’s what we’re working on. How do you think the larger banks and other financial lending institutions feel about this? RM: Well, my conversations with banks and other lending institutions,

RM: I’d say there’s a combination answer to that. Partly, it can work because it involves small amounts of money collected together to make larger loans. CSC has been in conversation with different funding entities to leverage that matching capital. So, maybe Squares to community members could be as small as $10, and then the match would be four times that. We haven’t cracked that code completely. I’ve had business owners talk to me and say, “Look, my people might be able to scrape $50 together to buy a Square. They

“Just like we need a distributed grid in order to have a strong and resilient energy system, we need a distributed financial system in order to have a strong and resilient global financial system.” that that business owner had a lot of integrity and they appreciated the work they had done. That’s amazing, and that’s because those business owners were deeply connected to their competitors. They provide value in the community and they reached out to their community. How do you take the work you’re doing and get it into as many communities as possible? RM: CSC is looking into making a transition from for-profit to non-profit. In order for the revenue model to work well as a for-profit, we would have needed to take less time with each business owner than really is required. Small-business owners tend to need help both understanding what CSC does and how we can help. To be as effective as we want to be, we need to spend time and personal focus on each small business we work with. It’s like a combination of community and economic development. We benefit communities in a way that nonprofits or foundations and government would like to have happen in their communities. And we were not able to grow in a streamlined, lean, rapid way to satisfy those who make equity investments. We’re going to focus on the Pacific 82

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Community Development Financial Institutions (CDFIs), credit unions, is that they love it. The reality is that bankers get very frustrated that they can’t lend to these businesses, and even CDFIs have more constraints around capital and risk than we do. They adore that these wonderful businesses will have a way to access capital to grow and thrive. We have a CDFI in the Pacific Northwest, Craft3, that has deployed $500,000 on our platform, matching communities dollar for dollar. They love the model so much and it’s so beneficial to the communities that they work in that they agreed to do this, and it’s been tremendously helpful to small-business owners. They did it exactly the same way that community members did: They deployed it at zero interest, and they get repaid at the same time as other Squareholders. That kind of matching capital is something we’ve been negotiating with various other kinds of funders. What does success for the CSC model look like in a low-income community that has strong social capital and connections but not necessarily the financial capital that we traditionally think is necessary to catapult small businesses to success?

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also could run into a time when they desperately needed that $50 back right away. How do I seek that in a safe way from community members?” Frankly, I don’t have all the answers, but I’m working on it. The community itself really has to be the driver, the piece that says, “Yes, I want to fund this business owner.” It has to be the community rather than well-funded, well-heeled outsiders coming in and saying, “We have the capital so we’re going to pick and choose which things get the money.” That’s going to be the most effective way, I believe, to build generative, resilient communities. What are your hopes and dreams for the future? RM: I believe that resilient local economies will create a resilient, beautiful global economy, and that the way we create resilience in local economies is that we involve all the people who live in those places and we build on the connections people have with each other. We’re creating a system that builds community, and with CSC, my piece of my puzzle is around finance. $

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THE URGENT NEED

TO FIGHT FOR LOCAL SOLAR ENERGY Local solar energy is the key to a sustainable future, yet across the country, utilities are rolling it backward. It’s time for businesses to demand better. BY DAVID BRODWIN AND TOM MATZZIE

Solar energy has immense potential to reduce climate change, save consumers money, and generate jobs. It offers a way for individuals to be energy producers as well as consumers. When solar power is generated at the community level, it helps develop inclusive, local, sharing economies where everyone can participate in the clean energy infrastructure. Yet solar — especially solar power produced at the local level — is under siege. Utilities and their allies around the country are fighting hard to limit its development and are funding efforts to prevent renewable energy producers from feeding power into the electric grid. Solar energy threatens the traditional utility business model in several ways: it reduces utilities’ overall revenue; it reduces the asset base, which for some utilities reduces the profit they are allowed to earn; and it dramatically cuts the profits utilities can reap by selling power at premium prices at the times of greatest demand. The battle to preserve and enhance the right to produce cleaner electricity and deliver it to the grid might be the most important local policy fight on the path to a sustainable economy. 86

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NET METERING IN DANGER By 2014, nearly the entire country — 44 states and Washington, DC — had authorized individual and community-scale solar producers to sell the electricity they produce to their local utility, a practice called “net metering,” whereby the meter essentially subtracts the energy generated from the energy consumed. Since then, however, net metering has come under attack by efforts to roll back the rules. Much of this attack has come from utilities, joined by the American Legislative Exchange Council (ALEC), a corporate lobbying group that has also tried to block implementation of the Affordable Care Act. ALEC receives funding from fossil fuel interests, including ExxonMobil and the Koch brothers, so it is no surprise to see it siding with utilities against local control of energy. Among the key arguments that utilities make in their campaign against net metering is that the practice subsidizes solar energy. That’s essentially a veiled way of saying that net metering increases costs, not just for the utility companies themselves, but for ratepayers as well. But this argument is just plain false. The reality is that solar

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is especially efficient, and its overall cost savings are substantial.

SOLAR’S COST ADVANTAGES A major factor in solar’s cost savings is that its peak production time coincides with the time of peak demand for power. Usually that peak demand is driven by the use of air conditioning on hot, sunny summer afternoons. Because peak rates are higher than non-peak rates, ratepayers see savings when solar energy is available at those peak times. And because solar is often produced near where it’s consumed, it doesn’t require as much investment in transmission lines and doesn’t suffer the same energy losses from transmission as traditional power generation does. In addition, solar saves by avoiding the public health problems and environmental damage that result from fossil fuels. The economic advantage of solar has been acknowledged across the political divide. A few years ago, a Georgia chapter of the Tea Party fought alongside some environmental groups to require Georgia’s investor-owned utility to accept more electricity from solar providers. Their victory, and a subsequent similar push in Florida, led to the

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“The battle to preserve and enhance the right to produce cleaner electricity and deliver it to the grid might be the most important local policy fight on the path to a sustainable economy.”

rise of what was known as the Green Tea Party. While Tea Party members and environmental groups may differ in their reasoning, both agree that net metering offers consumers important savings.

EQUITABLE, COMMUNITY SOLAR Notwithstanding the cost savings and the benefits to the environment provided by solar energy, there is one valid argument against rooftop solar when it’s implemented by individual homeowners: it could be more equitable. To take advantage of rooftop solar, you have to own your roof — and there are well-documented racial, generational, and economic inequities in rates of home ownership. In addition, according to the National Renewable Energy Laboratory, only about 13 percent of homes in the US are appropriate for solar. (It helps to have a large, south-facing roof free of shade from nearby buildings and trees, and in be a region that isn’t too cloudy most of the time. You also have to own the building outright, rather than rent it or own a condo within a larger building.) This means that for many communities and individuals, this major cost-saving and climate-protecting measure is totally out of reach. The solution to making solar accessible to everyone is to set up community solar projects. These are relatively small solar power facilities

sized to serve a particular community and located in that community. Community solar installations enable all members of the community — including renters, condo owners, and homeowners whose houses aren’t well positioned for solar — to invest in a cleaner energy future and share in the benefits of reduced energy costs. Suddenly, solar power can move from a marginal sustainability solution to a significant one. Community solar requires an extension of the net metering principle to what’s called “virtual net metering.” Under virtual net metering, the community solar installation can sell excess power back to the utility and distribute the savings back to each individual member household in the form of a credit on their bill. However, virtual net metering requires special legislation. A handful of states, such as Colorado, Massachusetts, Maryland, Minnesota, and Washington, DC, have passed the needed legislation, and more are considering it. But it’s far from being a done deal. The opposition is well-funded and is lobbying aggressively to stop it.

THE ROLE OF BUSINESS With the future of the planet at stake, local businesses could make a big difference by engaging in the fight for community solar. Business owners have special stature and clout that make them powerful advocates. While many local issues seem to help only locally, fighting for solar power has

global reach. In states that don’t yet have the legislation, businesspeople should push their governors and state legislatures to enable community solar. In states that have the legislation, they should engage with their communities and focus on getting individual projects done. As Frederick Douglass said, “Power concedes nothing without a demand. It never did and it never will.” In the case of solar, that’s especially true — in both senses of the word.

David Brodwin is co-founder and vice president of media and communications for the American Sustainable Business Council (ASBC), and Tom Matzzie is president and CEO of Ethical Electric, an ASBC member and clean energy supplier based in Washington, DC, whose mission is to make 100 percent renewable energy available to everyone. The American Sustainable Business Council advocates for policy change and informs business owners and the public about the need and opportunities for building a sustainable economy. Business members in ASBC’s national network have the opportunity to engage with policymakers, give public testimony, gain media exposure, write op-eds, inform the public, and more. Join the eﬀort to forge a more sustainable economy through policy change.

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SEATTLE’S SUNNIEST FORECAST Washington-based solar installer A&R Solar grew 144 percent in 2015 — its third year of mega-growth. We spoke with CEO Reeves Clippard about his secrets to success. Hint: it involves treating both employees and customers right.

A&R SOLAR AT A GLANCE Founded: 2007 Location: Seattle, WA, and Portland, OR Team Members: 43 Impact: 7,500 MWh per year produced by systems it has installed Awards or Recognition: • Puget Sound Business Journal’s Washington’s Best Workplaces: 2015 Finalist • 2013, 2014, and 2015: Puget Sound Business Journal’s list of Washington’s Top 100 Fastest-Growing Companies • Solar Power World: #1 Solar Contractor in Washington, 2015 Structure: For-profit 2015 Revenue: $12.5 million ($5.8 million in 2014)

CONSCIOUS COMPANY MAGAZINE | SEPTEMBER / OCTOBER 2016 A&R designed this installation for Heyday Farms on Bainbridge Island, WA.

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CLIPPARD’S TOP 3 PIECES OF ADVICE FOR SOCIAL ENTREPRENEURS 1. FIND MENTORS

Formal ones definitely help, and if you can pay to get a great coach, that’s awesome. But with an open mind and heart, you will find a lot of people can be your mentor. Outside help is critical because you get so lost in the day-to-day minutiae that it’s a long time before you can pull out and see the big picture.

2. KNOW YOUR VALUES

That includes your personal values and your business values and how they’re diﬀerent. Make sure all decisions point back to those. If you cannot build a business that supports personal values and company values, then you’re doing the wrong thing. It’s not going to work out for you no matter how hard you try.

3. CARE ABOUT CULTURE

Learn to hire to and develop your culture as much as you’re developing whatever spreadsheet. That’s what’s going to make you come back to work the next day.

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Tell us how A&R got started and where the idea came from.

What motivated you to make A&R an employee-owned company?

Reeves Clippard: We started in early 2007 with co-founder Andy Yatteau and myself. The idea had been percolating in my mind for some time. Both Andy and I came from different industries besides solar and needed to get into something more aligned with our values. We both got some training and on-the-job experience working as solar installers, but there were two really key pieces missing there: treating customers right and treating employees right. We felt that in order to get to a more sustainable planet and sustainable American society, we needed to start shifting the way business was done. It came back to taking care of our employees. If they were taken care of, then that would naturally roll out to our customers as well. I had never been in the contracting world before, but most people have this stereotype expecting your contractor is always going to take you for a ride. We wanted to provide customers with a quality experience where they didn’t have to second-guess if we were deceiving them.

RC: I worked for very small companies where I had zero ownership stake, and I worked for mega-national companies where I had zero percent stake, and in both places, there’s this trend of, “how do you engage your employees to think like an owner and act like an owner?” Well, why don’t you just make them an owner? That seemed to be the simplest way. It’s certainly not the easiest way. At this point, we are 100 percent employee-owned. All owners currently work here. Not every employee is an owner. We just rolled out a new ownership plan: people get their ownership after three years, and then they just get it; there’s no vesting schedule or anything like that. There are 43 employees right now and seven of us are currently owners. By the end of the year, 11 or 13 of us will be owners.

You mentioned trying to take really good care of your staff. What are some of the things that you do to make sure that happens? RC: We pay entry-level workers above living wage for the area. It’s always very important to us that they are able to take care of themselves at home so they can bring their best selves to work. As we grew, we were able to provide healthcare benefits and retirement plans, employee ownership, paid time off with as few strings attached as possible, unpaid time off. We’re a male-dominated industry, so we wanted to be able to provide paternity leave. There are a lot of other benefits that are a little more intangible, like being involved in decision-making and strategy. We’ve been horizontally organized, whereas in a lot of job sites, you see this hierarchical, commandand-control attitude. We’ve been intentional in making sure that doesn’t come into A&R Solar.

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Interesting. How did you decide on that three-year time period? RC: We wanted people to be invested, time-wise. Some companies do that through a vesting schedule and say, “You’ll get 30 percent of your shares this year.” But we wanted to reward longevity, not a “get it while it’s hot” attitude. While you’re coming up on 10 years, is there anything as a company that you’d like to be able to do in the future that you’re still not able to do for your employees? RC: Oh, geez. All kinds of things. We’re always working on building a greater sense of community. Right now we’re split between two warehouses and another office in Portland. There’s a real split that happens between field and office. When you’re working in the field all day, you think that people in the office do nothing but look at cat videos. And when you’re in the office all day, you think that people out in the field are doing nothing but sitting around drinking coffee and enjoying the sunshine. We are missing the cross-pollination of those two different cultures to make a cohesive A&R culture.

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Now we’re seeing an extension of that as we have a new Portland satellite office where we want to make sure what we’re exporting isn’t just our technical expertise, but the same culture of caring. How has having a second office impacted the business? RC: There’s a sense of excitement that we have something of real value we’re trying to wrap a bow around, to export what’s special about us into a new marketplace. You were named one of the fastestgrowing businesses in the Seattle area three years in a row. How has that impacted your team? RC: It impacts everything. We’ve always tried to take a “go slow to go fast” mentality; it’s better to get it right the first time and then iterate off that success rather than to go so fast that you shoot yourself in the foot and have to undo and redo things. Those kinds of things can really hurt your brand. Every year we set an intention around what we’re focusing on, and every year, we come back to “How do we do what we’re doing better than last year?” Every time we focus

on that foundation, the growth just happens. A lot of that’s in the marketplace, which has been averaging 41 percent growth. We’re at 117 percent growth for last year, and we doubled the year before that, and the year before that it was 70 percent growth. The early years of growth were incredibly stressful. We’ve bootstrapped since we started, so we were always strapped for cash and people. In the last few years we invested more in people and made sure that we had a staff we could lean on. Even then, we’ve been stretched thin. But as long as our culture is still having some fun and the attitude is “How do we get this right?” not “How do we get it done?” then it’s made things easier than they could have been. When, say, you sit down as a group to talk about your intentions, who’s the “we”? RC: Everyone in the company. Wow. Very nice. Bringing other people in is an interesting puzzle. How do you find the members of your company, and then what’s the training process like? RC: The short answer for training is: in the past, it’s been horrible. It’s

really been “pitch someone into the fire and see how they do,” which is not the best. With our latest round of hires, we spent a lot of time and energy putting together a good training plan for them and it’s worked out tremendously. They’ve gotten up to speed in a fraction of the time of previous hires. Bringing the right people in is always a challenge. We hire to our values first and then technical skills second. It’s a lot of behavioral-based questions. You talked about your remarkable growth over the last three years. What is driving that business growth? RC: Definitely public awareness. More than 9 out of 10 Americans believe that we should be pursuing more solar energy. That’s across political spectrum. We’ve seen real government support that has a timeframe long enough for us to want to invest. When the government just gives and takes away incentives left and right, there’s just not enough certainty to put my cash back in. This last year, depending on the month, direct referrals from existing customers were north of 40 to 60 percent of our contracts, which, for contracting, is just phenomenal. It’s a good indication that we’re taking care of people by having direct referrals that high. It seems like policy plays a major role in the clean energy world. How is it impacting your work and how are you navigating that?

This Bainbridge Island house has a 5-kW system installed by A&R.

RC: Policy is critical. It’s not just clean energy. We’re a part of the whole energy ecosystem, and energy is the most political of industries. We’re interfacing with coal, environmentalists, natural gas, oil, hydro, and everything. There will never be a day that we are not having to work at a policy level. Our CFO, Dave [Kozin], is very active in trying to steer policy from a trade group platform, CONSCIOUS COMPANY MAGAZINE

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and we’re always watching what’s happening on a regional and national level. How has the technology improved since 2007, and what areas would you like to see continue improving? RC: Panels have gotten more efficient, but not as much as a lot of people expect, thinking of Moore’s law and cell phones, how quickly computing advances. Solar panels do not follow that same kind of development curve. The biggest improvements have been in process: simplification at an administrative level of being able to interconnect with the utility and get it through a permitting process. Also, standardization: manufacturers are

And I would like to see better ways for people to connect with their power. Right now, you just have a little LCD screen that says, “I’m producing these numbers that are a metric that I just don’t understand.” How do you get someone to think, “Okay, I really should change my behavior or think about my buying patterns in order to achieve some kind of goal” — be that net zero or being a producer or even just making whatever impact they think they should? What are some of the differences between A&R and other top-of-the-line solar companies versus ones that just don’t perform as well, and how would someone know the difference between those things?

you just throw them up there willynilly then you’re not doing anyone any favors. Maybe you’ve fit one more panel up there, but you’ve sacrificed the aesthetic of the entire house and potentially the neighborhood. How are you preparing to continue growing the company and to handle the next phase? What are you doing to make sure that the future is not going to surprise you? RC: The future could certainly surprise us. I think it comes back to always doing foundational work, always thinking about how we can best take care of our people so they are prepared to take whatever comes their way. It’s a lot of internal training. It’s

“If you cannot build a business that supports personal values and company values, then you’re doing the wrong thing.” able to reach an economy of scale to make sure that their product is compatible with the next product down the line. We’re keeping fewer parts on a truck and things are more universal so you can speed up the labor side. Another important development is the panel manufacturers getting to a scale where prices have absolutely plummeted. They’re about 60 to 70 percent less than what they were just a couple of years ago. People are usually spending the same amount of money as they were, they’re just getting more for their buck. What I’d like to see change is for people to realize that there is no magic bullet for solar two or three years down the line that will suddenly make the technology “viable.” It’s viable now. There’s no reason to wait three years. The government support that we have now may not be available in three years. Hopefully, we won’t need those incentives; I don’t think anyone in the solar industry wants to be married to incentives like we are, but we’re in a position where we need them until we can get to grid parity. 92

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RC: Knowing the difference is really about doing your homework, and it’s hard to take the time to talk to several contractors. It’s kind of like interviewing new employees. For homeowners, it comes back to trusting their gut. Do they feel like they’re being “sold,” or is someone educating them and making sure that they have the information they need to make a decision? It can be really complicated, but when you’re working with someone who really knows what they’re doing, they’re able to simplify and educate in such a way that you come away feeling smarter. Everything we’re doing is a design choice. We could produce more by tilting up panels in weird ways and ultimately it would look like a satellite crashed into someone’s roof, but our attitude is that we’re not just building a solar company, we’re building the solar industry. It’s not just your roof and your aesthetic, but how the next buyer might evaluate it, how your neighbors think of it. By putting panels on the house, are we adding to the community or are we subtracting? If

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a lot of getting people engaged. The more eyes we have on the future, the better off we are and the more flexible we can be. We don’t see ourselves as just solar installers. What we are learning to be the best at is delivering technology to someone’s home or business. If there is a disruptive technology that’s micro black holes, that inventor, that manufacturer, is going to have to get that technology to someone’s home or place of work. What we’re good at is connecting what can be complex technology to end-users and rolling the trucks and getting the boots on the roof or on the jobsite in order to get that technology to those people. We feel like the future of the utility grid, whether it’s with solar or not, is going to be highly distributed. Content creation, telephoning, computing — everything has gone distributed, and we think the grid of the future will be the same. Whether it’s solar or storage or some other generation, we’re learning the best ways to mobilize to do that. Photos: A&R Solar

THE SHARING ECONOMY

SPOTLIGHT

LETS BUILD A

BETTER SHARING ECONOMY

Sharing-economy companies have come under fire for exploiting workers and damaging communities. But it doesn’t have to be that way. BY GERRY VALENTINE

We’re witnessing the birth of two very different business paradigms. One can reduce carbon emissions, restore communities, create jobs, and bring people together in mutually beneficial relationships. The other exploits workers, damages communities, increases inequality, and often misrepresents its intent. Yet these two disparate paradigms go by the same name: “the sharing economy.” Whether the sharing economy ultimately delivers a societal benefit or ill depends on how it’s used. It’s an area that is still rapidly evolving, and thus one in which the conscious business community can have significant influence. Success will require that we let go of the illusory altruistic aura that is often associated with the sharing economy; understand its foundation and drivers; and use a combination of rigorous strategic principles and conscious business practices to actively bend the sharing economy towards delivering social good.

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DEFINING THE SHARING ECONOMY A sharing economy is a system based on shared or rented assets rather than individual ownership. Sharing has the dual benefit of allowing assets that would otherwise remain idle to generate more value — thus providing their owners more income — and allowing people who share or rent assets to avoid the cost of full ownership. For example, one of the best-known sharing-economy companies, Airbnb, allows travelers to rent spare rooms, apartments, or entire homes, thereby generating income for hosts and providing travelers with savings over hotel rates. BlaBlaCar is another sharing example; it enables people to share long-distance rides and split costs. This “peer-to-peer” sharing model has been extended to include companies that purchase the asset and rent time to their customers — companies like Zipcar, which rents time on a fleet of automobiles,

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and BCycle, which rents out a fleet of bicycles. Perhaps the ultimate extension of the sharing economy is what has been dubbed the “gig economy,” in which individuals rent out their time or talents via companies that connect those offering the service with people seeking it. These gig economy companies include ride-sharing services like Uber and Lyft, while others like Handy, Upwork, 99designs, and TaskRabbit allow people to rent out their own time for all manner of jobs, including creative services, house cleaning, home repairs, odd jobs and errands, and more.

THE BROKEN PROMISE OF SHARING The promises of sharing assets (whether cars or people’s time) have been lofty: reduced carbon footprint and environmental impact; new and more flexible jobs; better business models and entrepreneurial opportunities; and increased connections between people who meet

SPOTLIGHT

while “sharing.” While there are instances where some of these benefits may materialize, a host of serious challenges have also emerged. Companies like Uber, Lyft, TaskRabbit, and many others have been accused of exploiting workers by misclassifying them as contractors rather than employees and thus sidestepping minimum wage laws, social security payments, and other worker protections. There have been reports of gig-economy workers facing homelessness — despite grueling work schedules — while the companies make millions by collecting commissions on all jobs. Many gig-economy companies don’t provide insurance protections for workers who might be injured on the job, and there have been accusations that some companies mislead potential workers into thinking they will be hired as staff, or about the hidden costs of contractor work, such as car maintenance for drivers or cleaning supplies for housekeepers. Airbnb has come under fire for other serious issues: reducing the amount of affordable housing available, eroding progressive taxation, fostering discrimination, and enabling (and possibly encouraging) its hosts to operate illegal hotels when apartments in areas zoned for residential use are actually continually rented to temporary guests. Housing advocates argue that illegal hotels damage communities — especially poor urban and minority communities — because they pull rental units off the market and exacerbate the housing crisis in places like New York City, San Francisco, and other areas with high income inequality. Illegal hotels don’t pay

the hotel taxes that are needed to support the communities in which they operate, and there have also been a large number of racial discrimination issues on Airbnb — cases where hosts decline to rent to minorities — because the site allows hosts to sidestep civil rights laws that prohibit discrimination in public accommodation. Rather than delivering shared prosperity, it now seems that the “sharing” economy itself may increase inequality, creating billionaires while exploiting and even endangering workers, further ravaging poor and minority communities, and fostering discrimination and racism. In short, the sharing economy — the thing we expected to deliver vast social and environmental benefits — could ultimately lead to a less sustainable society.

STRATEGIC PILLARS TO CREATE CONSCIOUS SHARING-ECONOMY BUSINESS MODELS In order to reap the promised benefits of the sharing economy, conscious business leaders need to get beyond the illusion created by altruistic language, i.e., “sharing,” and take a more strategic business approach based on conscious business principles. Rather than seeing the sharing economy as inherently good or bad, we need to see it for what it actually is: the result of dramatic technological advances that can have a positive or negative societal impact depending on how they’re leveraged. It’s a similar dynamic to what we’ve seen in the past with dramatic advances in technology.

For example, the Industrial Revolution ultimately enhanced and extended human lifespans and increased human productivity. However, it also fostered sweatshops, grotesque worker abuse, and child labor, and damaged the environment. Over time we developed the business models and laws needed to leverage the advances of the Industrial Revolution toward broader societal good. Likewise, the challenges that have emerged thus far with sharing-economy businesses are due to shortcomings in the companies’ business models. There are three strategic pillars that businesses can use to develop sharing-economy business models in alignment with conscious business practices. STRATEGIC PILLAR

BUSINESS VALUE PROPOSITION The foundation of any business is its value proposition — the way in which the business delivers incremental value to its customers and to the world. This is where some of the most egregious sharing-economy problems begin. Here’s the key question all business leaders need to answer: Does your business model produce incremental value, or are you simply shifting value? Uber CEO Travis Kalanick has articulated an ultimate goal of making Uber car rides the cheapest option — cheaper than owning a car and cheaper than taking public transportation. However, the company’s business proposition doesn’t actually reduce the expense of providing a car ride;

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i.e., the expense of operating a car. The company doesn’t offer new automotive technology, and Uber’s ride-sharing option (Uber Pool) only comprises 20 percent of rides globally and isn’t available in all areas. Rather, Uber reduces the cost to passengers by fostering competition between drivers and fixing prices. As a result, Uber is simply squeezing drivers, and thereby fostering inequality rather than shared prosperity. To be conscious, the Uber business model would need to step up to the much harder challenge of reducing the actual expense of providing a car ride — i.e., produce incremental value — thereby delivering shared prosperity. STRATEGIC PILLAR

SYSTEMS THINKING & BROADER IMPACT Airbnb is based on a simple notion: connecting people looking for a place to stay with people who have a space to rent. In many respects, it’s a classic sharing concept. However, our modernday businesses operate in an extremely interconnected world, and it’s critical to evaluate the broader impact we have on the entire system in which we operate — i.e., the people, organizations, communities, and others that we touch. It has become obvious that the Airbnb model has a much broader impact on communities than the founders originally envisioned. As conscious business leaders, we have a responsibility to engage in the type of full-systems thinking that will allow us to understand broader impact, and if necessary, to pivot our business models to ensure we remain true to our

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values. The Airbnb illegal hotel debate has been raging for years, and housing activists argue that 55 percent of Airbnb listings in New York City violate the law. Airbnb has responded with extensive — and expensive — PR and lobbying efforts; however, a more conscious approach would be to partner with housing activists to identify systems-based solutions to the housing problems triggered by the Airbnb business model. STRATEGIC PILLAR

III

FEEDBACK, RE-EVALUATION, & RESPONSE The upside of today’s complex, interconnected business environment is that it comes with an abundance of feedback. There are any number of articles and blogs detailing Uber driver grievances, the hashtag #AirbnbWhileBlack went viral, and there are myriad stories on the abuses gig workers face with TaskRabbit, Handy, and the like. The traditional business approach calls for leaders to “influence the environment” to promote business success. Conscious leaders, however, have a much harder challenge: to listen to the environment, to shift from a “you versus me” to an “us” mindset, to re-evaluate based on feedback, and to respond productively to the environment’s feedback. For example, in the case of racial discrimination on Airbnb, listening to feedback will likely mean changing a fundamental part of the company’s process — the fact that hosts see photos of renters before accepting the rental — a change that the company has thus far been resistant to.

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BENDING THE SHARING ECONOMY TO DELIVER SHARED PROSPERITY As with all tools, the sharingeconomy platforms can be used for societal good or harm. As conscious leaders, we need to rigorously evaluate our business strategies — our business proposition, systems thinking and broader impact, and feedback and re-evaluation — to ensure sharingeconomy businesses stay true to conscious business principles. Ultimately, the disappointment with many sharing-economy companies may be because the name itself is a misnomer that has led to overly high expectations of altruism. In their Harvard Business Review article “The Sharing Economy Isn’t About Sharing at All,” Professors Giana M. Eckhardt and Fleura Bardhi discuss the idea that the sharing economy is really about consumers who are willing to pay for access to someone else’s goods or services, and altruistic “sharing” isn’t really part of the equation. I believe their point is well taken, and that conscious leaders should keep this in mind.

Gerry Valentine is the founder of Vision Executive Coaching. He helps build companies that work for all — supporting profit, people, and the planet. Gerry focuses on business strategy, innovation, and leadership. He has 30 years of experience with multiple Fortune 100 companies, an MBA from NYU, and a BS from Cornell University. Connect with Gerry on Twitter @gerryval or by email at gerry@VisionExecutiveCoaching.com.

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FAIR SHARE 6 businesses envision a digital sharing economy that truly lives up to its name BY AMY CORTESE

More and more aspects of our lives are migrating online, including how we order goods and services. There’s Uber for rides, Handy for housecleaning, TaskRabbit for odd jobs, and Amazon for just about everything. These digital behemoths like to consider themselves part of the “sharing economy.” Yet, in reality, very little trickles down to the individuals actually doing the work. What if Uber were owned by its drivers? Or TaskRabbit by its worker-bunnies? That’s the idea behind a crop of startups that are borrowing the tools of Silicon Valley to create a true digital sharing economy. Many of them are structured as cooperatives — democratically owned and governed organizations. But they all seek to treat workers more fairly and allow them to share in the fruits of their labor. Think of them as Fair Trade apps. Here are some to be on the lookout for.

1 RIDEAUSTIN // rideaustin.com

After Austin residents voted for more stringent regulations on ride-hailing services in May of 2016, Uber — along with Lyft, its smaller rival — abandoned the city. That has prompted a host of new startups with more driver- and community-friendly services to take their place. One of those is RideAustin, a nonprofit ride-sharing company that began phasing in service in spring of 2016. As a nonprofit, the startup vows to work with the city and share data to help improve transit planning. And the app allows customers to round their fares up to raise money for local charities that will include free and reduced-rate rides for low-income elderly and disabled citizens.

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2 JUNO

// gojuno.com

Juno is a new ride-hailing service that opened for business in New York in 2016. It’s not a co-op, but co-founder and CEO Talmon Marco has called it “an ethical, socially responsible ride-sharing service.” Marco is betting that by treating workers better, he can attract the best drivers and take market share from Uber. Juno takes a 10 percent cut from each ride, compared with Uber’s average commission of 20 percent. It also provides smartphones to drivers and pays for their data, and plans other driverfriendly features such as 24-hour support and the ability to block riders. And unlike Uber, ownership of which is closely held by its founding team and investors, Juno has pledged to put aside half of its founding stock — or a billion dollars’ worth — for drivers. The shares will be awarded to drivers who work for Juno full-time or close to it, and drivers can earn more shares the more time they put in driving for Juno.

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3 FAIRMONDO

// fairmondo.de/global

If Etsy were owned by its crafters and buyers, you might begin to get something like Fairmondo. Based in Berlin, the site is a digital marketplace for sustainable and Fair Trade products from smartphones that are ethically manufactured with conflict-free minerals to organic clothing. Since it launched in 2013, Fairmondo has attracted 15,000 users, including 2,100 members, each of whom buys a 10-Euro share in the company. In addition, it has raised funding through two successful crowdfunding campaigns. Now Fairmondo is looking to expand globally through a network of co-ops in different countries that are independently run by locals in their native languages. Next up: the UK, followed by the US sometime in 2017. “Fairmondo is to me a big experiment to create a new model of multinational corporation, which is transparent, decentralized, and democratically owned by its local stakeholders,” says founder Felix Weth. “As a marketplace, Fairmondo will hopefully help other good businesses reach customers who care for the future of their children.”

STOCKSY // stocksy.com

One common complaint of creative workers in the digital age is that their work is being commoditized. From musicians to artists to writers, the freewheeling internet has driven down prices — and morale. Enter Stocksy, a stock photography site based in Victoria, British Columbia. Unlike other stock photography sites, it is owned and governed by its photographers and employees. At Stocksy, photographers keep up to 75 percent of revenue, compared to 15 to 45 percent at most sites. And the company distributes 90 percent of its profits at the end of each year among its photographers. That has helped it attract more than 900 photographermembers around the globe. Stocksy’s staff are also owners.

Photo: Jeﬀrey Bosdet, Page One Publishing

Stocksy’s Victoria oﬃces CONSCIOUS COMPANY MAGAZINE

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COOPIFY

// wecandoit.coop

In recent years, domestic workers have banded together to create cooperatives to control their destinies. Now a new app is helping the co-ops expand their presence into the digital sharing economy. The app, called Coopify, was dreamed up by the Robin Hood Foundation, a nonprofit that fights poverty in New York, and the Cooperative Development program of the Center for Family Life, a social services organization. The two organizations approached students at Cornell Tech and challenged them to create a digital platform that could benefit low-wage workers. The result, Coopify, will allow customers to book services with organizations like New York’s Si Se Puede! Women’s Cleaning Cooperative and Golden Steps, a co-op of elder care workers. The students at Cornell Tech worked closely with co-op workers to create an app that reflected their needs, including multilingual support and SMS text messaging for those without internet access or smartphones. Coopify is being beta-tested by the cooperatives and is expected to launch publicly in January 2017.

6 LOCONOMICS // loconomics.com

Josh Danielson got his first taste of the sharing economy when he began renting out his San Francisco apartment on Airbnb to help cover the rent while he was in business school. He realized the power that flowed to the booking platform owners, and decided to create a more worker-friendly version. The result: Loconomics, which launched over the summer of 2016, is like a digital cooperative for all sorts of freelance professionals, from web designers to masseuses. The freelancers pay an annual membership fee that gives them access to the site’s tools, including software to post a profile, manage bookings and payments, and see customer reviews. They also receive a stake in the company and a vote in its management. Danielson worked with the Sustainable Economies Law Center on the co-op’s bylaws. At press time Loconomics was operating only in San Francisco, but plans to expand to other parts of the country.

Amy Cortese is a New York-based journalist who writes about topics spanning business, finance, and food. Her book, “Locavesting,” was one of the pioneering works on the emerging local investing and community capital movement. More recently, she founded Locavesting. com, a media and educational site that covers this evolving financial landscape. Follow her on Twitter: @Locavesting.

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WHAT WOULD IT LOOK LIKE TO ACTUALLY MAKE SHARING — NOT PROFIT — THE PRIMARY DRIVER OF OUR ECONOMY? BY LORI HANAU WITH CLAIRE WHEELER

Whenever someone tells me ‘I like coming to work,’ I ask myself, ‘What’s that worth?’” — Bill Whyte, W.S. Badger Company founder

hanks to modern technology, sharing resources with neighbors has become easier than ever before. While many of today’s “sharing economy” tools don’t live up to the hype (see page 96), some, such as networks like Nextdoor or apps like Peerby or NeighboorGoods, genuinely foster increased connection and prosperity among neighbors, coworkers, and friends. Time banks, sharing apps, and neighborhood forums can bring the distant globalized world of commerce close to home by connecting us directly to the people and resources right in our very own communities. As a member of my local time bank, Onion River Exchange, I can offer an hour of cooking, coaching, or carpooling to my neighbor in exchange for exactly what I might be needing: a deep tissue massage, a marketing consultation, or a dozen of my next-door neighbor’s famous homemade cookies. All of this happens without the traits of the typical business transaction — no prices, no contracts, no negotiation. The beautiful byproduct of this way of transacting with one another is the depth of connection and community it cultivates.

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That intimate “village” mindset was the more widespread norm of yesteryear. Our greatgrandparents trusted that they could count on their community for some extra butter, or to collectively raise the neighbor’s barn. There was even a word for it in Old English: “frith,” which describes how people’s lives and actions are inextricably bound to one another, and how the quality of that connection makes a group collectively strong enough to meet all that life brings. While this kind of sharing mentality is rarer now, it’s a welcome departure from the dominant modern economic model that relies primarily on monetary value and all too often ignores the currency that really matters: trust created through mutual support. It’s amazing what can happen in our lives and work when we choose to see past the price tags we wear and affix, when we give way for money to be less of a rule and more of a tool. No longer the end-game, money and profit can instead become mechanisms to help us achieve greater connection, satisfaction, and enjoyment. Imagine what could happen if we brought this mentality into more of our organizations.H

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CASE STUDY: A SHARING MINDSET IN ACTION Southern New Hampshire’s W.S. Badger Company Inc., makers of the famous Badger Balm salve and a suite of natural health- and body-care products, began in 1995 with a conscious reorientation of the role money would play in its operations, leading instead with a frith-based mentality. Badger embodies the concept in its mission: “to run a business that is fun, fair and profitable; where money is fuel, not a goal; and where our vision for a healthier world finds expression through the way we work and through the way we treat each other and the people we serve.” This approach has been embedded in the company culture from the very beginning and remains 20 years later, even as the company has grown to employ more than 100 people and produce 100 products. During my visit, there was a

palpable sense of vibrant community as soon as I walked in the door: everyone looks you in the eyes and greets you with an exuberant welcome. With one glance out the window, I noticed employees tending to garden beds next to a labyrinth designed for walking meditation. In the company’s open kitchen, chefs prepare local and organic food as the daily lunch. The office’s “Badger dens” boast standing desks and privacy partitions to create comfortable and productive workspaces. I sat down with co-founder and CEO Bill Whyte and his daughter Rebecca Hamilton, VP of Innovation & Social Impact, to explore their approach of cultivating a sharingeconomy mindset within the company. Here are three key types of sharing I saw brought to life:

“Focusing on our innate human ability to see ourselves as a part of a larger whole gives us the freedom to be more than just the makers and spenders of money, even when we’re on the clock.”

Badger Balm’s founders, the Whyte family From left: Rebecca, Bill, Katie, Emily, and Maya CONSCIOUS COMPANY MAGAZINE

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SPOTLIGHT SHARING COMMUNITY Sharing Community is about leading first and foremost from our humanity, such that we are all equally responsible for bringing out the greatest capacity in each other at work.

Here’s how Badger does it:

• The company is committed to being a model for business as a community foundation. This means tending to everyone in the community, including the children of any parent who works at Badger. “Many businesses today put a lot of money toward their executives,” Hamilton says. “We feel businesses have a role in developing happy, healthy children. Children are the responsibility of the community This starts with Badger offering six weeks of paid parental leave when a child is born. • In 2013, Katie Schwerin, Badger co-founder and COO, co-created Calendula Garden, a full-day, partially subsidized childcare center offering reasonably priced, high-quality, flexible childcare for children of Badger employees as well as a limited number of children from the community. Childcare workers are guaranteed a

living wage, including a salary and benefits for full-time lead teachers, and there is a high ratio of teachers to children. And for the parents, their time on the clock starts and ends not when they enter the manufacturing company, but when they drop off and pick up their children down the street. Badger also aligns its work schedule with school schedules: 8:30 a.m. to 4:30 p.m. • Badger is proud of its Babies at Work program, which allows new parents to bring their babies with them to work until the child is 6 months old or begins to crawl. As Whyte put it, “Our investment is in the parent, child, and community. You shouldn’t have to give a cost/ benefit argument for doing something that is kind and beautiful. If you can afford to, do it!” • Badger offers free, local, organic, home-cooked lunch to its employees every day. They even grow their own vegetables for the meals on the property. In the company’s culture, lunch is a time to step away from the screen and connect. • Like many of its B Corp peers, Badger pays employees for up to 16 hours per year of volunteering for environmental and community projects.

SHARING LEADERSHIP Sharing Leadership is about trusting our diversity and collective wisdom such that we acknowledge we know more together than any of us does on her or his own.

Here’s how Badger does it: • While the organizational chart looks like a hierarchical structure on paper, in practice Badger relies on a shared approach to leadership. Badger’s eight-person leadership team operates through democratic consensus, influenced by the Quaker form of decision-making. For any particular vote, five fingers up means whole-hearted agreement, three fingers up signifies deference to the judgment

of the strategic team, two fingers up is opting to stand aside from the decision, and one up is a request for more discussion. A fist signifies a full block, which, Hamilton says, “is an extremely rare happening,” as the team has developed a high level of trust and open dialogue. • Badger prides itself on mission-based and strengthbased hiring. A potential hire’s passion and natural gifts come before the details on their resume. Hamilton says, “No one is a master, regardless of their education, but if someone is well-skilled and passionate about our mission and principles, we welcome their application.”

SHARING WELLBEING Sharing Wellbeing is about developing a healthy ecosystem through a commitment to wholeness, cultivating balance and harmony within each of us, within a group, and within a company environment.

Here’s how Badger does it: • Cultivating a culture of wellness, not sickness, is a conscious approach that Badger stands by. Badger does not offer sick days, and instead uses the phrases “Health Days” and “Wellness Plan.” Each person is responsible for their wellness — no judgment and no questions asked. Whenever anyone needs time off for mental, physical, emotional, and 106

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spiritual wellness, they take it; the shared benefit is one paid 40-hour week of wellness leave per year. • This ethos also extends into the product line. “We blend organic plant extracts, oils, beeswax, and minerals to make the safest, most effective products possible to soothe, heal, protect, and otherwise treat your body” is the Badger promise. • Badger grants $800 annually to every employee toward any product or service that promotes wellness. It can go toward things like a health insurance deductible, vision care, enrolling a child in a swim class, buying running shoes, or taking a yoga class.

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The view from the garden of Badger’s New Hampshire headquarters

These new-but-old ways of conducting business, whether in our communities or in our companies, help to unlock us from a hyper-focus on money as the ultimate determinant of value. Synonymizing money with worth reinforces our separateness, which holds us in a constant state of competition for scarce resources. Focusing instead on our innate human ability to see ourselves as a part of a larger whole gives us the freedom to be more than just the makers and spenders of money, even when we’re on the clock. As important as the programs we use to foster conscious cultures is the approach we take when implementing them. What I admired from my visit with Badger was an intentional corporate culture that thinks about the wellbeing of employees as whole people, beyond their role in simply generating profits. There is an exhilarating freedom that comes when we invite ourselves to consider the natural value of a person, a product, or a resource before considering the monetary value or the costs and the benefits ascribed to them. “Why wouldn’t you run a business the same way you treat family and friends?”

Whyte asks. “I think the reason we are successful is that people are free to be good, kind, and hardworking without limitation. Kindness is an approach to doing business.” In today’s business world, which habitually values transaction and profit before people and thinks of relationships and community as separate from business, building a vibrant, sharing community as a workplace can feel very hard, often wasteful; even impossible. But changing what we value and how we value it requires a shift in perspective. I often return to my own father’s wisdom, which he imparted to all of the employees at his company, Vermont Container — including me. “Always remember to begin with caring about and appreciating what you do, and do it well,” he would say. “Begin by respecting and caring for the community around you as you work together. The profits will follow. Always value the quality of relationship first and foremost.” Or, as Bill Whyte told me, “the things that seem impossible are completely possible; it just requires a reorientation in thought.”

Lori Hanau is dedicated to supporting shifts in consciousness, communication, and community in the workplace through experiential learning. She founded Global Round Table Leadership, where she works co-creatively to coach, guide, facilitate and steward individuals and teams in opening to their innate brilliance, cultivating the soul of their organizations and their work. She is faculty and Co-Chair at Marlboro College of Graduate and Professional Studies and on the board of Social Venture Network.

Claire Wheeler is a freelance consultant and co-conspirator for sole practitioners, community-based businesses, and nonprofits. As principal of Re:work, her passion is to translate the creative genius of people and organizations into systems and structures that make work make sense. She finds power in prose and splendor in spreadsheets.

For more human-centered value streams and examples from Badger, visit the Global Round Table Leadership blog at globalroundtableleadership.com/c/blog/. This piece was written with support from Jodi Clark at GRTL.

Photos: Badger Balm

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HOW TO PROTECT YOURSELF AS A FREELANCER IN THE GIG ECONOMY Doing contract work for others is increasingly common. Here are the basic legal concepts you need to understand before diving in. BY RYAN SHAENING POKRASSO

The Bureau of Labor Statistics states that “all industry sectors” have been using contract workers more frequently over the past 15 years, and a recent paper by two Ivy League economists finds that nearly 9 percent of all workers classify themselves as independent contractors. This is not a huge surprise, considering that traditional employers save money by working with contractors rather than employees. Further, working as freelancers offers entrepreneurs the opportunity to work on their own schedules on jobs (or “gigs”) as they come their way. Here are some of the means by which independent freelancers can navigate the legal system to their benefit.

To set the stage for the topics below, consider two classic examples of freelancers: • Jorge is an independent videographer who works on a flat-fee basis (i.e., non-hourly fees that are fixed up front for the project) to produce videos that showcase his clients’ work. • Niki is an independent software engineer who builds mobile apps for her clients on an hourly basis.

THE IMPORTANCE OF A CONTRACT If you take nothing else from this article, please take away the following: You should always have a written contract in place when you are doing work as a freelancer! I say “written” contract because in most situations, while a verbal contract can be enforceable, it is immensely difficult to prove the terms of a verbal contract if a dispute arises. The obvious reason that a contract is important is that if a dispute arises, you have enforceable terms that dictate how the dispute should be resolved. But the less obvious reason for always using contracts is that a contract is a tool that gets the parties on the same page from the outset. In other words, it sets expectations in a way that significantly decreases the likelihood of a dispute. For example, without a contract, Jorge may believe

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that his flat fee only includes one cut of the video for his client, but the client may believe that the flat fee includes numerous revisions — as many as it takes for the client to be content. It may be that Jorge and his client never fully discussed this issue, but even if they did, there would be nothing in writing to demonstrate what was discussed. This dispute would likely not even have arisen if Jorge and his client had used a written contract. A critical part of the contract, in addition to all of the legalese, is the section that explains the specific services to be performed. This section is particularly important for contracts that are based on flat fees because if the services are described in a broad and open-ended manner, Jorge could find himself bound to do a wide range of work on an ongoing basis with only the one flat fee payment. Freelancers should consider putting together a template agreement that they can adapt and use with different clients. While there are some situations in which freelancers will not have the opportunity to use their template agreement — such as when the client is a large, established business entity that insists on using its own contract — there are many situations in which having one is helpful; if nothing else, it demonstrates the freelancer’s sophistication and allows the freelancer to start negotiations on their own terms.

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INTELLECTUAL PROPERTY LINGO Owner: The owner of the IP holds the full title to the work product and can then transfer ownership in the IP to others or license it out, etc. The rights associated with ownership can be limited in some ways by the licenses granted. License: The holder of a license is entitled to some type of use that is not the equivalent of ownership. Licenses come in many shapes and sizes, and may include the following terms:

DEALING WITH INTELLECTUAL PROPERTY “Intellectual property” (IP) is often — and understandably — a baffling concept for freelancers. The term broadly refers to creative work product and inventions. IP can be protected in the US under the laws governing trademarks (e.g., logos, slogans, and business names which identify the source of goods and services), copyright (e.g., creative and literary works), and patents (e.g., inventions that provide a new way of doing something). Freelance work often involves the creation of intellectual property, and it’s important for freelancers to understand each party’s rights to it. By default, i.e., absent a contractual provision, the work product created by an independent contractor — which is the standard worker classification for freelancers — is owned by the independent contractor. However, contractual provisions may alter this default by stating that the client owns the work product under either the doctrine of “work made for hire” or an assignment of the rights to the client. The details of these different doctrines are beyond the scope of this article, but the bottom line is that the parties should be on the same page from the outset about what rights each party will have in the work product created. For example, Jorge may negotiate a contract whereby all work product related to or incorporated into the services provided by Jorge are considered a “work made for hire” and are owned by the client. In this situation, Jorge is not only granting ownership of the final video to the client, he is also granting ownership of all footage captured to the client, as well as other work product that may be incorporated into the final video. Further, in this scenario, Jorge has no right to use any of the work product for any purpose because he has granted all of his rights to the client. So Jorge would not even be able to show the video on his website for portfolio purposes to attract new clients! In this scenario, Jorge would be in a much better position to get future work if the contract included a license stating that Jorge has the right to use the video for promotional/portfolio purposes. The takeaway here is that the freelancer should be clear about the rights

• Exclusive: The holder of an exclusive license is the only person who can use the IP. Most licenses are nonexclusive to allow for multiple license-holders. • Perpetual: The license lasts forever, as opposed to a set amount of time. • Worldwide: The license may be used anywhere in the world. • Fully Paid-Up: No payment (or other form of compensation) is due for the transfer of the license. • Royalty-Free: No payment for each use is due to the owner of the IP. • Modifications and Derivative Works: Allows the ability to modify or make new works based on the original IP.

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SPOTLIGHT

“Freelancers should be clear about the rights they are granting and the rights they retain.” they are granting and the rights they retain. In addition to maintaining some sort of portfolio rights, freelancers should consider explicitly retaining the right to pre-existing work product and tools that are incorporated into the final work product.

FORMING A BUSINESS ENTITY A big dilemma freelancers face is whether they should form a formal business entity, such as a corporation or limited liability company, or operate as a sole proprietorship. There is no absolute right answer on this issue, as it really depends on the individual circumstances of the freelancer. The downside of forming a formal business entity is that it comes with additional costs and administrative obligations. Most states impose a minimum annual franchise tax for formal business entities, and there are other associated formalities such as periodic filings, record-keeping obligations, annual meeting requirements, capitalization requirements, and the obligation to not commingle business and personal funds. The primary reason to operate under a formal business entity is limited liability, but this protection is often misunderstood. In brief, limited liability means that the personal assets of a business owner are not available to creditors of the company. While obtaining limited liability is absolutely an important consideration, it is also important to know that limited liability does not protect the business owner’s assets against liabilities that arise based on individual acts of the owner. For example, if Niki improperly uses a third party’s trademark when she puts together her client’s website, then limited liability may not protect her individual assets in a legal action for trademark infringement because the liability arose based on her individual acts. However, if Niki has an employee who improperly uses a third party’s trademark, then limited liability would likely protect her individual assets. That may be different from the conventional wisdom about limited liability, but it’s true in all states. As demonstrated in the example above, forming a

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business entity may not always further the protections of individual freelancers, but when it comes time to hire folks to help with your work, doing so is usually a good idea. In addition, forming a formal business entity can be helpful in showing a level of sophistication and legitimacy to certain clients, and it can provide tax benefits in certain situations.

INSURANCE The previous section demonstrated that having limited liability does not always provide the protection that freelancers are looking for. The best way for freelancers to limit their risk is to obtain insurance that covers their specific activities. Also note that insurance and limited liability are not mutually exclusive — it’s often a good idea to have both. Insurance comes in many forms and in many shapes and sizes. The best way to figure out which policies are necessary for a given freelancer is to speak with an insurance broker who understands the freelancer’s activities. The insurance broker can explain the different types of policies that may be available, and can shop around to find the right policies for the freelancer’s individual circumstances. The broker should be “independent,” meaning not bound to any individual insurance company. A policy that allows flexibility is best because freelancers are often required to meet specific requirements for individual clients, such as naming the client as an “additional insured” and/or increasing policy limits for an individual job. It is easy to feel like a small fish in a big sea as a freelancer, but if you take the time to understand and implement a few best practices, you can approach your work knowing that you have protections in place, and you will demonstrate to clients of all sizes that you are sophisticated, knowledgeable, and confident.

Ryan Shaening Pokrasso is an attorney who founded SPZ Legal in the San Francisco Bay Area to assist entrepreneurs using business as a tool for social change and environmental stewardship. Ryan advises for-profit and nonprofit businesses as general counsel on matters ranging from entity formation and financing to intellectual property.

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parting thought...

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”

- E.F. Schumacher, “Small Is Beautiful”