October 2016

October 1, 2016

Multiple Industries Find Economic Traction

Inside This Issue: Klamath Falls—Rural Business and Economic Summit S.W. Oregon Agriculture Measure 97—Impact and Opinion Irrigation Modernization

A few words from Greg Fall has arrived and it makes me feel pretty good. We need some rain in this state with a national reputation for having more than our fair share of it.

This issue of the journal covers a number of topics important to all of us. We keyed on economic development in Klamath County for several pages, touched on the issue of Ballot Measure 97, and printed our contributions about business and the economy from experts in the industries. It may be best to plan on reading every page, otherwise you may miss something directly affecting you.

I’ve spent a good deal of time in the last couple of months talking to people about agriculture in Southern Oregon. Wow, there’s a lot going on. It would take a year’s worth of forty page journals to even begin sharing all of it. And that wouldn’t include Oregon’s largest agriculture contributor, cattle. You’ve noticed the cover this month with the display of a stem of blueberries. It’s a mouth-watering tease for all the produce of southwest Oregon. See more in this edition.

There are about 200 communities in the southwestern corner of Oregon where over 500,000 people call home. That’s a significant number. Politicians are getting the message that this part of the state matters. We matter to agriculture. We matter to tourism. We matter to manufacturing. We matter to education. Our part of the coast matters for multiple reasons. We matter to the entire state for the economic contributions of our region.

Someone told me, almost in jest, that it is twice as far from Portland to Medford as it is from Medford to Portland. Once the remainder of the state (think Salem and Portland) understands how much we matter they will quickly discover the distance to southern Oregon is a lot closer than they thought.

Election Day isn’t until November 8th, but I know we will be getting our mail-in ballots well before that. Since most of us vote by mail, I’m reminding you now. Please vote.

Take care,

Greg Henderson Greg Henderson, Publisher greg@southernoregonbusiness.com

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A JOURNAL FOR THE ECONOMICALLY CURIOUS, PROFESSIONALLY INSPIRED AND ACUTELY MOTIVATED

703 Divot Loop

ASSISTING THE ECONOMIES OF THE SIX COUNTIES OF SOUTHWEST OREGON

Sutherlin, Oregon 97479 www.southernoregonbusiness.com 541-315-6127

PUBLISHERS NOTE

AGRICULTURE

BUSINESS

ELECTIONS

2 A Few Words From Greg

23 Industrious Activity

6 Uncommon Sense

29 Measure 97

24 Farm & Ranch Overview

13 Stuck in the Middle with Boomers

31 Price, Revenue & Profits

ECONOMICS

26 Norris Blueberry Farms

15 Big Companies Should Collaborate

32 Impact of Elections on Investment

5 Oregon Economic Indicators

27 Thinking in Trillions

17 Occupational Licensing

DEVELOPMENT 8 Klamath County Business Summit 10 Choose Klamath

19 Keeping the Rogue Valley Connected

FINAL NOTES 34 A Look Back

21 Down to Business— Remodeling for energy efficiency 22 Is your competition spying on you?

Correction: The article “Will They Stay or Will They Go” that appeared on Page 15 in the September 1, 2016 issue of the journal incorrectly credited its authorship. The author of that article is: Richard P. Appelbaum, Global & International Studies, University of California at Santa Barbara. The archived issue in the Southern Oregon Business website has been changed to correctly credit the author.

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State of Oregon Economic Indicators

TM

Review A reading of “zero� corresponds to the average growth rate for that particular region. In other words, the measures identify periods of fast or slow growth relative to trend.

What is the significance of the moving-average measures?

The monthly measures can be very volatile. To reduce the noise, it is helpful to focus on the average of the most recent data.

a narrower set of variables using a different methodology used by the Conference Board to compute leading indicators for the United States. Using different indicators allows for a more complete picture of the Oregon economy.

Tim A. Duy Director, Oregon Economic Forum Department of Economics University of Oregon duy@uoregon.edu

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UNCOMMON SENSE: BREAKING OUT OF THE COST REDUCTION DOOM LOOP By: Jason Green, CEO, The Cambridge Group, and Dan Vucovich, former SVP, President U.S.,

The Hershey Co.

For many companies, cost reduction efforts become an endless downward spiral. As soon as one cost reduction program is completed, it’s followed by another.

Competitors become locked in a race to the bottom, as price reductions predicated on cost reductions are countered by more cost-cutting from competitors to drive another round of price declines. Before you know it, the industry has shrunk and retailers, manufacturers and consumers alike all lose out on greater growth and access to greater innovation.

It’s a dangerous cycle, but one we know how to break.

The first step is dispelling the notion that cutting costs and driving growth are opposing objectives. Put another way, you don’t have to spend money to make money.

Taking a demand-based view of growth opportunities can identify significant expense that is misaligned with profitable demand. What that means is that the growth opportunities identified by assessing your business from a demand-based perspective can be funded through the cost savings identified in that same assessment. In fact, the typical savings realized are sufficient to fund the new growth initiatives identified and much more.

At its simplest, a demand-based perspective is one that tests every expense against one touchstone: What does the consumer want? When we do this, we generally find that companies are overspending in four areas in which they are particularly prone to take a supply-based view: investments in the supply chain, in distribution, in media spend, and in innovation. The degree of overspending can often represent as much as 20% or more of a company’s total cost, and often translates into billions of dollars of waste. These are areas of wasted spending that most traditional cost reduction approaches miss entirely, precisely because, from a supply-based point of view, they look reasonable. When you look for growth from a demand point of view, however, you will necessarily identify costs that are not justified—which is why the savings to fund the growth can be found by the same process that identifies the growth opportunities.

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Overspending in the supply chain We identified a growth opportunity for a division of a large multinational food company by repositioning its core brand—originally treated as a lunch or dinner entrée with a summer spike—as a year-round snack.

Looking at the nature of the demand for the brand, we found that moms preferred that their teen and tween kids eat our client’s brand between school or camp and afternoon activities—that is, as an afternoon snack—to most other snacking options, which they considered less healthful. Focusing on the seasonal spike meant that the company was overlooking profitable, year-round consumption. Hence the growth. But focusing on the spike also meant running a peak-and-valley supply-chain, which was more expensive than a steady-state yearround model—hence the savings. In addition, savings were available from focusing only on those materials aligned with demand (which in our experience can often be less expensive). Supply chain savings alone can be significant once the lens of demand drivers is applied to total supply chain costs, including raw materials, processing and packaging.

Repositioning the brand as an afternoon snack worked almost immediately: Sales, which had slumped through endless rounds of cost-cutting (a common issue with seasonal products), increased dramatically throughout the year. In fact, for the first time in its entire history, our client’s brand surpassed the competitor brand that had always dominated the market. With higher yearround volumes, the client was able to expand its own manufacturing and eliminate costly seasonal co-packers, which dramatically reduced supply chain costs.

Distribution and retail investment. We find that, without a robust understanding of demand, both manufacturers and their retail partners significantly misallocate resources by class of trade, by store and within stores. When Dan Vucovich was Chief Customer Officer at Hershey’s, he and his team found that their retail investments were not aligned with the stores their most valuable consumers shopped most frequently— which also meant that their distribution system was not optimal. According to Dan, “ I remember a CAGNY meeting where we shared our success lowering inventories, reducing SKUs, reducing complexity, creating 6

efficiencies and generating improved cash flow. The magnitude of improvement in the business was something I'd never seen before.”

Specifically, by developing a granular understanding of shoppers who patronized thousands of stores across the U.S., Dan and his team were able to show retailers how to drive growth across stores and within stores by expanding the candy assortment and upgrading the candy aisle and check-out lanes with collateral, products and a layout more in keeping with an updated understanding of demand. The essence of the program was that only some stores received new investment. Once again, applying a demand lens to the challenge made it possible to fund areas where investment could yield dividends by reallocating spending away from areas where investment was not yielding a return. In 2009, retailers rated Hershey’s 13th among consumer products companies that added value to the relationship, as measured by Advantage Program Ratings, a business tool used to evaluate a company’s performance relative to their competition. In 2014, Hershey’s ranked second in this same report.

Media spend. Many companies invest in media based on industry benchmarks. We recommend optimizing media investments simply by identifying the right audience and delivering the right message to them. We have always found that this results in a more effective, more efficient total outlay.

But you can’t do this without understanding who your primary consumer is and what motivates them, which is why benchmarks are a familiar fallback. But the result is that most companies end up buying against broad demographic audiences rather than getting their messages to those who really matter. To address this, we helped Crown Media, owner of the Hallmark Channel and Hallmark Movies and Mysteries, harness big data to identify high-value audiences for a range of brands and categories and understand what they tune into on TV. This enabled agency and advertising clients to drive better ROI by allocating media spending to networks that delivered these high-value customers.

“We are constantly collaborating with Nielsen to identify new opportunities that optimize value for our clients and help them more efficiently reach their audience,” explained Ed Georger, EVP, Ad Sales & Digital Media.

Identifying the most effective TV properties for advertising and measuring incremental sales potential with actual retail data is valuable to Crown Media and its advertiser client base.

Innovation.

One

personal

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care

company

had

successfully negotiated lower costs from vendors for some key ingredients used in their product. However, we found that consumers wanted an added benefit that could be delivered through an innovative reformulation of the product that used less of the most expensive ingredients and that added a new, lower-cost ingredient.

As it happened, using the lower cost ingredients made the product easier to produce, which improved plant throughput. Because the new product actually looked different, too, it made it possible for the marketing team to trademark a successful “new and improved” claim, which also helped drive sales.

This last example is a perfect demonstration of the way in which applying a demand lens brings to light not just growth opportunities, but savings opportunities that will necessarily remain invisible to traditional cost-cutting efforts. This is because applying a demand lens leads you to do things differently, rather than simply focusing on doing the same thing more cheaply.

These client experiences are typical. What we’ve found across both industries and markets all over the world is that developing a profound understanding of consumer demand and aligning all activities to it identifies growth opportunities that can be funded—and more than funded—by cost-savings identified by the same process.

Why is this so? Many businesses build in unnecessary costs over time by chasing the wrong opportunities as well as the right ones. When they do cut costs, it is often by seeking to do the same thing more cheaply. And if “the same thing” is right in some areas but wrong in others, cost-cutting across the board may well inadvertently eliminate processes critical to long-term growth.

Aligning the business system with profitable demand grows the top line while optimizing supply chain, distribution, media and innovation costs. “Spending money to make money” suggests that cost-cutting and profitable growth are mutually exclusive. A demand lens shows that they are in fact entirely consistent.

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Klamath County Rural Business & Innovation Summit The smaller your team, the larger your toolbox needs to be.

On September 14th and 15th a team of some 110 attendees gathered at Klamath Community College to engage in the second summit of Klamath County leaders and entrepreneurs to build on ideas, exchange information and create an arterial for addressing obstacles to economic development. Speakers included experts from the governor’s office and nationally known authors from mid-western states as well as local leaders with decades of knowledge and expertise.

The toolbox received many new and innovative tools.

Ainoura Oussenbec and Damon Runberg from the Oregon Employment Department shared thoughtprovoking information using examples of Lind, Washington and Post Falls, Idaho to explain the critical influence of infrastructure like major highways on rural economies. Post Falls has grown to be a vital community while Lind has seen a dramatic loss of population and business. While decisions made at state or national levels are often done without local public participation, it remains important for rural communities to prepare for changes in the workforce, both positive and negative. Forward thinking leaders become essential to the progress of every rural community. Whether it is industry composition or infrastructure the leaders should press for provision of the demands of incoming generations.

LOCAL LABOR MARKET:

Growth of rural communities is often a “back filling” of retirees rather than growth of young families. To address this recognition of lifestyle expectations must be considered. The Millennial Generation often considers quality of life over careers, for example. But, they also demand connection to the larger world through broadband and internet access.

Traveling from her rural home in Oklahoma, Becky McCray, published author and national speaker, gave an inspirational talk on the hope of small towns by naming many across America that have identified who they are and are thriving today. Her quote from Will Rogers: “Folks make towns, not numbers” expressed clearly that according to her, small is a big trend. “Small towns have a future” and they are too important to society for them to disappear. If you look at your town with today as a snapshot of who you are, you can also know that it is today’s snapshot that will make tomorrow’s snapshot. She said it is a must that we make the most of the small town we have. We have people and assets to draw from that are already here. She also coined the term “micropolitan (not metropolitan) to describe the vitality of rural communities that have figured out who they are and are embracing it. She said, “If your town is a nice place to visit, it is also a nice place to live.”

Lets Talk About Self* Employment * Self employed in own not incorporated businesses

U.S.

–

6.1 percent

Oregon

–

7.9 percent

Klamath

–

7.6 percent

Lake

–

11.9 percent

Jackson

–

10.5 percent

Josephine

-

10.7 percent

In the Knowledge Economy, selfemployed workers do not have to live in big cities, thanks to the power of modern technology.

The percentage in Klamath County is lower than in many rural areas. Why?

EDUCATIONAL REQUIREMENTS The majority of jobs today do not require advanced education In 2014, about 67 percent of all jobs required only High School diploma or less; about 9 percent required Associate’s degree or postsecondary training (non degree).

According for OED’s estimate for 2024, about 69 percent of all jobs will require only High school diploma or less; and 11 percent will require Associate’s degree or postsecondary training (non degree).

Does this mean there is no need for training and education?

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Describing herself as a “Control Enthusiast” Janet Ady from Wisconsin spoke on the site selection process and economic development megatrends. Her theme was based on her knowledge and expertise gained through years in the business recruiting industry.

Her base statement: “Competition for business locations and high quality jobs will intensify in the twenty-first century, and utilities, communities and regions that are prepared to address the needs of existing relocating business will be most successful in capturing new 8

investment.”

A team of panelists talked about rural challenges that included many familiar concerns. We hear our own echo when someone complains about a lack of funding, an inexperienced or proper-attitude-deficient workforce, and poorly designed infrastructures. This panel shed some light on where attention is important.

Charles (“Chip”) Massie, former Klamath Chamber Executive Director and current Klamath Community College Workforce Development Director urged his audience to take a look at their workplaces. Is your workforce a 21st Century workplace ready for a 21st Century workforce? The responsibility to be prepared in this new century works both ways, for the employer and the employee.

Workforce Characteristics Census Klamath County Employed by Age 2015 4th quarter 14-18, 1.8%

19-21, 4.9% 22-24, 6.3%

55-64, 19.1%

ing positively the question, “Am I good enough?” because if we answer that question negatively then we’re believing in garbage. We cannot change yesterday. It’s time to move on and stop carrying garbage on our backs.

Margi Hoffman from the Farmer’s Conservation Alliance gave a lunch-time presentation about irrigation modernization that results in water conservation through piping and out of canals. The solution comes from the realization that much of the water loss comes from three things, evaporation, seepage, and push-through. She credited FCA with the launching of a fish screen in 2005 that reduces operation and maintenance for irrigators while at the same time protecting fish. The Irrigation Modernization Program once fully implemented will ensure a resilient agricultural community while delivering significant environmental and community benefits.

Attendees of the Rural Business and Innovation Summit were treated to an energetic and fact-filled two days.

For all our humble self-talk, there are many who are realizing Southern Oregon does matter to the future of all of Oregon.

25-35, 19.6%

45-54, 21.4% 35-44, 2 0 .2 %

Chip exudes confidence and a positive attitude to the future of Klamath County. He believes Klamath County has begun to find its voice. “We’re on the cusp of things getting better.” Find its voice means Klamath County understands how it plays a vital role well beyond the county borders.

Vince Adams from the Extension office of Oregon State University talked about diversity and pointed out that during the Great Recession of 2007-2009 overall business numbers in Oregon declined by 2½% while business ownership in the Latino population grew by 39%. He said that the Latino population has been an unrecognized asset in Oregon’s economy, but they make tremendous contributions to the economy and entrepreneurship around the state.

Steven Kaufmann from the Portland area gave his presentation based on his book, “The Garbageman’s Guide to Life: How to Get Out of the Dumps”. He stressed that we have to believe in ourselves by answerSouthern Oregon Business Journal

By: Greg Henderson, President Southern Oregon Business Journal 9

PREDICTION: Construction Will Lead a Recovery for Klamath by 2021 By: Greg O’Sullivan, Klamath County Association Economic Development Association

Klamath County’s construction industry economy will surge in the next five years. However, a tight labor-shed could blunt the recovery.

When it comes to predictions, economic development professionals, academia, and government agencies do a great deal of “Monday morning quarterbacking.” Often, these predictions are formed using economic data and forecasting models that provide little in the way of useful information to determine where an economy is going. As economic development professionals, we make wideranging assumptions on the performance of our local economies using state and federal reports that examine trends in population growth, unemployment rates and industry characteristics. The problem with these historical “time series” intelligence methods is that they take a “rearview mirror” approach to economic forecasting.

We know economic analysis is more of an art than a science. I was reminded of this early in my career after attending a statewide economic development conference that was sponsored by a major utility agency.

Impressed by what I heard, I made my way to the stage to meet the guest speaker. He had just given a speech on where the California economy was going with regards to its business environment. As I shook his hand and complemented him on his remarkable insight, I reached for a business card and phone number. He responded by saying “Don’t worry about it, Greg. I’m an economist; I’ll estimate your phone number.” We both chuckled.

That was my first of many lessons that revealed to me how economists and recognized experts use historical data sets, statistical profiles and economic base analysis for wide-ranging planning. However, I still believe that these tools are imprecise when it comes to the practice of futurism or determining what is in store for a community like Klamath Falls.

Conducting Our Own Research With that in mind, KCEDA decided to take a thoughtful approach, accompanied with some old fashioned Southern Oregon Business Journal

firsthand research and local interviews, to identify what the development climate might look like for the next five years. KCEDA staff interviewed local planning agencies, building officials, industry contacts and other informants.

The objective was to gather as many projects as possible that were slated to be under construction from 20162021. The criteria we used to identify active development projects included four co-factors relative to: 1. Status - Projects that have been submitted for permits 2. Capital Investment – Projects that have budget assigned to them with a capital investment $500,000+ 3. Timing – Projects under construction within 5 years 4. Funding – Projects with allocated and/or Identifiable funding sources Our intention was to see if the construction industry “is” or “will be” the bellwether to predicting an economic recovery for Klamath County.

Construction Industry Project Sectors Research fell within five project sectors of the construction industry: education, energy, infrastructure, healthcare and retail.

One “outlier” project was identified that did not clearly fall within any of the sector industries: the Klamath Dam removal, a demolition project that we ultimately grouped within the infrastructure group (although it could likely be considered an environmental restoration project).

Progressive Economic Recovery The research indicated that Klamath County is well on its way to economic recovery. More importantly, the county is on its way to the right type of recovery: progressive recovery. According to the list of projects, more than $1.4 billion will be spent to construct, rehabilitate, restore or demolish buildings and infrastructure.

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telecommunications. Those seven significant infrastructure projects are: 1. Crater Lake—Klamath Regional Airport (Taxiway B) 2. Klamath Dam Removal 3. Irrigation System—C Flume Replacement 4. Airport Maintenance Hangar 5. Pelican City Booster/Water Main Phase 1 6. Altamont Main Replacement PHV 7. Crescent Sanitary District (Wastewater facility) These projects have a huge multiplier effect, considering that $1 spent on infrastructure results in $2+ dollars in secondary (indirect) investment. When you invest in power generation facilities or expand airports, employment improves and the industrial base around the infrastructure is expanded. Today’s companies want to tap robust communications and build communities Industry Sectors Education

Construction Spending

Energy

$840,000,000.00

Infrastructure

$477,725,000.00

Medical/Health

$62,900,000.00

Retail

$32,000,000.00

$50,200,000.00

Energy Projects Energy projects lead our construction spending, with over $800 million slated for just three projects. The Swan Lake pump storage project represents $700 million in construction spending. Pacific Power is already underway with the Snow Goose substation, estimated to invest $60 million to improve distribution and prepare for new energy loads in the Basin. According to county records, the $80 million in solar projects that private energy developers have planned are permitted for construction.

Infrastructure Projects

with infrastructure ready to connect. It is these communities that get more entrepreneurs and employ more labor. These workers purchase more goods from the markets, creating a virtuous cycle.

Klamath County and the Basin is “betting long” when it comes to infrastructure spending. Some of these investments are controversial—but nonetheless scheduled, budgeted and in progress towards permitting and regulatory allowances KCEDA identified seven significant infrastructure projects in Klamath County, all of which fall under the foundation of modern local economies: roads, airports, water systems and

From where we site, Klamath County and the Basin are both on their way to a significant recovery and economic expansion. More that 4,600 construction jobs will be created by 20 projects.

According to Indeed.com, the average salary of a Klamath County construction worker is $47,000. Therefore, each project represents a significant contribution to the local economy.

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The Labor Impact: Pros and Cons

At the same time, these 20 projects provide a significant amount of full time employment (FTE) after the buildout. Our projections show that over 500 FTEs will be created in the next five years in education, healthcare and retail. These too carry significant benefits for the economy, as the education and healthcare industry sectors average $55,000 and $46,000 respectively in annual salaries. Even lower paying retail positions are important, as they often provide the first rung on the career ladder for youth, college students and those returning to the labor force.

Local Knowledge. Regional Leader AmeriTitle began as a single office in Klamath Falls, Oregon in 1985.

Today, AmeriTitle has 42 offices in 3 states: Idaho, Oregon and Washington.

While this research and subsequent report paint an optimistic recovery, there are threats on the horizon.

Locally, Klamath suffers from a skill shortage to meet the demand of employers. The recession took its toll on construction laborers, tradesmen and specialized skilled workers. For example, many of these projects require journeyman-level electricians. However, throughout the Oregon these jobs remain difficult to fill.

Fortunately, we have the foundational elements necessary to address the “skilling up” of our workforce. Klamath Community College fills the gap with career technical education (CTE) programs that include skill-building and certification in construction trades. The newly formed East Cascades Workforce Investment board may also be a resource. The ten county consortia will receive significant funding and resources through the Federal Workforce, Innovation, and Opportunity Act. Local representation and strong leadership will assure that these resources are directed toward meeting the labor and training challenges of the projects we have cited.

Greg O’Sullivan is Executive Director of Klamath County Economic Development. Greg has spent over 25 years as an economic development professional in Arizona, California and Oregon. Serving on statewide taskforces, working as a he consultant and managing EDO’s he has earned the respect of his peers as a pragmatic results oriented leader.

Southern Oregon Business Journal

1495 NW Garden Valley Blvd.

Roseburg, OR 97470 Ph: (541) 672-6651 Fax: (541) 672-5793 Barry Robinson General Manager barry@ameri-title.com

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Stuck in the middle with boomers, again

By: Matt Bai National Political Columnist - Yahoo

Let’s face it: When it comes to politics, the boomers have left us a pile of wreckage unparalleled since a generation of leaders in the 1850s fumbled their way toward civil war.

The collective legacy of the ’60s generation — assuming they ever step aside and allow it to be tallied, which might or might not happen, depending on impending advances in cryogenics — includes gradual economic decline, rising inequality, a confused role in global affairs, a hateful and totally dysfunctional governing environment, a seriously endangered planet and, not incidentally, a looming crisis brought on by massive public spending on the oldest Americans .

The age of our leaders isn’t always relevant. There are moments, I suppose, when the world changes at a predictable and manageable pace, when technology and social orders evolve in a way that makes them recognizable to everyone.

The 1980s were probably like that. Reagan governed at the zenith of broadcast television, which was a medium he had been dominating, more or less, for 20 years leading up to then. He didn’t feel out of time.

But our moment isn’t like that. And in November, we will elect a president who didn’t grow up with cellphones or email, who never dated or did back-to-school shopping online, who works hard to grasp the cultural and economic norms of a digital world but who will always be reaching back for some frame of reference.

The health outlook for either candidate, I trust, is just fine. The prognosis for our politics is another story.

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By: Eddie Yoon & Steve Hughes

C

ampbell, the food company best known for its soups, is investing $125 million in a venture fund to help finance food startups, according to the Wall Street Journal. Other large consumer companies are doing the same. They share a motive: Growth is increasingly hard to come by, so large companies are increasingly looking to entrepreneurs to help them find it.

Consider the numbers. Over the last four years, the entire U.S. grocery store’s entire food and beverage category grew just 2.3% a year. The largest 25 food and beverage companies contributed only 0.1% of that annual growth rate. Who drove the growth? It came from 20,000 small companies outside of the top 100, which together saw revenue grow by $17 billion dollars.

Despite that aggregate revenue growth, not every startup is successful — in fact, the vast majority will fail.

Ironically, startups and established companies would both improve their success rates if they collaborated instead of competed. Startups and established companies bring two distinct and equally integral skills to the Southern Oregon Business Journal

table. Startups excel at giving birth to successful proof of concepts; larger companies are much better at successfully scaling proof of concepts.

Startups are better at detecting and unlocking emerging and latent demand. But they often stumble at scaling their proof of concept, not only because they’re often doing it for the first time, but also because the skills necessary for creating are not the same as scaling.

Startups must be agile and adapt their value proposition several times until they get it right. According to Forbes, 58% of startups successfully figure out a clear market need for what they have.

In contrast, big companies often end up launching things they can make, not what people want. Successful established companies are focused on increasing scale and are often better at scaling proof of concepts than creating new products from scratch. They have huge advantages in procurement, distribution, and manufacturing, as well as sales and marketing advantages. But they have a challenge not only creating a proof of 15

concept, but leaving it alone until it is ready to scale.

Large companies can assist and gain access to startups’ prowess at creating proof of concepts via early-stage funding and later-stage M&A. But ideally these relationships are more than just financial and transactional.

That’s because capital is abundant, and there are more buyers than sellers; if the first time an established company is made aware of a startup is by receiving a deal book from an investment banker, it’s already too late. Moreover, established companies that try to win by making the biggest bid will hurt themselves by driving acquisition multiples even higher. Successful collaboration between startups and established companies must go beyond financial deals: it must be personal and mission-oriented.

Personal knowledge is the first place to start. Most times, established companies are woefully unaware of startups. These companies are too small and fly under their radar. Big-company executives must choose to become personally more aware of new, growing companies. This is actually easier than it sounds, because areas of emerging and latent demand are often highly concentrated. A consumer packaged goods executive should regularly spend time in Boulder, Colorado and Austin, Texas, a couple of the hothouses of consumer packaged goods startups. They should take their teams and regularly walk the aisles of Whole Foods, which is as much a greenhouse incubator of the hottest new brands as it is a retailer. They should explore up and coming datasets. SPINs is a retail measurement company that covers the natural and organic grocers. Yet too many companies don’t even bother to acquire this data because they dismiss it as too small to matter.

Just as important as personal knowledge are personal relationships. A McKinsey global survey notes that CEOs spend about 17% of their time with customers. Not only should that number be higher, but the mix needs to skew more toward emerging customers. The community of entrepreneurs is also very tightly knit. Building personal relationships within these communities is essential. It’s also vital to connect with key people who have tight connections with both startups and established companies in your industry. For example, one of us (Steve) was successful at big companies (ConAgra, Tropicana) and also smaller companies (White Wave, Boulder Brands). Reach out to executives like these to help you navigate and build relationships in these communities.

Finally, collaboration needs to be mission-oriented, Southern Oregon Business Journal

meaning it has to be focused on something larger than financial success. Within both the startup and established companies, there are missionaries and mercenaries. For successful collaboration between a startup and established company, correctly matchmaking like mindsets is critical. But beyond that, our experience is that missionary mindsets have more upside than a mercenary mindset. A missionary mindset provides protection to a proof of concept that is being scaled or sold in an established company or as a startup.

Steve has personal experience around building a new brand in a mission-oriented fashion. Mike Harper, the former CEO of ConAgra, had a heart attack in 1986. It caused him to want to improve his lifestyle, but also put him on a mission to create a heart-healthy food brand: Healthy Choice. He anointed Steve, who’d previously worked at ConAgra and Tropicana, as the “brand mama” who helped grow this from launch to over $1 billion dollars in a few years. Much of its success was due to Mike protecting Steve and allowing him to adhere to the mission of the brand and grow the business without the usual “organ rejection” that can happen in a new company.

Later, when Steve was CEO of Boulder Brands, he acquired Udi’s, a gluten-free brand, for $125 million. When he bought it in 2012 it had $93 million in revenue. Three years later, it had $300 million in revenue, as Steve adhered to its mission of providing delicious, safe food for gluten-intolerant consumers. In fact, on each of Boulder Brand’s acquisitions — Smart Balance, Earth Balance, Glutino’s, and Evol — Steve retained key leadership teams and founders to ensure the mission and DNA of each brand was retained as the Boulder Brand’s platform was leveraged to drive scale.

Executives who wish to tap into the growth of these smaller companies will find that having a big checkbook is not going to be enough, and that waiting for an investment banker to bring them deals is the wrong approach. A mercenary mindset will only go so far.

When big companies try to engage with startups, a missionary mindset will create better odds of success.

Eddie Yoon is a principal at The Cambridge Group. His new book, Superconsumers, is forthcoming from HBR Press in December 2016. Follow him on Twitter @eddieyoonTCG. Steve Hughes is CEO of Sunrise Strategic Partners, a private equity firm for emerging food and beverage businesses. Steve is founder and former CEO of Boulder Brands and former CEO of Celestial Seasonings.

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By: Jason Wiens jwiens@kauffman.org

High rates of new business creation are a sign of a dynamic economy in which the barriers to entrepreneurship are low. As entrepreneurs bring new ideas to market, they spur economic growth and create jobs. In fact, companies less than five years old are the primary source of net new job creation in the United States.

Yet, in certain fields and professions, the path to opening a new business is marked with barriers that can slow or even block entrepreneurs. These barriers often go unnoticed until the entrepreneur runs up against them. Such is the case with one form of government regulations known as licensing, which has the effect of fencing out new entrants while protecting the licensed from competition.

Since colonial times in America, governments have

imposed licenses on certain professions and trades in the name of public health or safety. Today, licensing most often originates at the state level.

But all levels of government engage in this form of regulation and ought to care about the labor market inefficiencies that are caused by licensing.

Over time, the number of licensed professions had grown and expanded to industries that pose little or no threat to public safety. In some states for example, a license is required to become a tour guide, sell caskets, or braid hair.

About 29 percent of the jobs require a governmentissued license – a dramatic increase from just forth years ago when only 10 percent of workers were licensed. These licensure requirements result in fewer practitioners, who can demand higher wages, while also stifling new business creation and innovation.

CLEARING THE HURDLES TO ATTAIN A LICENSE

Southern Oregon Business Journal

17

LESS

Certification

MORE

while still addressing concerns about public safety.



Besides an outright ban, licensing is the most limiting form of occupational regulation, where practitioners must meet certain requirements to practice. Examples: Dentist, Master Plumber



Certification has fewer restrictions than licensing, allowing any



which requires professionals in a field only to record their qualifications with the state or regulatory body. Examples:

requirements, and make recommendations to lawmakers.

no difference in the number of consumer complaints registered.

Licensing boards can inhibit innovations in training, practice, education, and the delivery of services, preventing the

Strict state licensing without a system of mutual recognition in other states restricts the ability of practitioners to move to with many states requiring some additional documentation, fees, and/or testing to obtain a license.

Occupational licensing requirements can be a hurdle to upward economic mobility. Research shows lower rates of

Examine the professions that require a license and replace licensing with a less onerous form of regulation where public health is not seriously threatened.

creating stale labor markets and underemployment. Mutual recognition of other state licenses would improve worker mobility and, thereby, boost economic dynamism.

Occupational Licensing: Is it an unnecessary barrier to start-up entrepreneurs?

The need to require licensing in some occupations and industries is a given. When safety and health are concerned I want to know the person providing service to me, or in the case of surgery – on me, knows what he/she is doing. They should be required to prove their competence. The same is true of airline pilots, electricians, hazardous materials handlers and in hundreds of other special occupations.

But, do we allow politics, government and some industry influencers too much authority when creating the licensure requirements of our occupations?

Sometimes it seems to be nothing more than a way to reduce competition or to raise more revenue for a particular political jurisdiction.

The Kauffman Foundation has been considering this for quite some time. In 2015 they updated some of their material. The preceding article is a good review of their findings and opinions.

Greg Henderson, SOBJ

Southern Oregon Business Journal

18

Photo by David Gibb | dgibbphoto.com

Keeping the Rogue Valley Connected

Hunter Communications isn’t the biggest name in the world of fiber-optic communications, but it’s the company Rogue Valley businesses turn to if they want a reliable, lighting fast connection.

The company’s specialized dual-ring design provides redundant systems that surround local cities ensuring that if a line goes down another is ready to keep the connection humming. This means that customers can keep their businesses and credit card machines running without interruption.

Carey Cahill, Director of Business Development Hunter Communications www.HunterFiber.com 801 Enterprise DR Central Point, OR 97402 (541) 772-9282

Hunter started in 1994 offering fiber-optic connectivity to large corporations and educational institutions. They recently expanded to provide the same top-tiered internet and telecommunications to small businesses as well.

With a solid system that has been proven in Southern Oregon and other parts of the state.

Hunter plans to branch out to Northern California after seeing installations jump from six a month in 2015 to 35 in March 2016.

Giving back to the community is so important to Hunter that they provide free Wi-Fi at the Medford airport and free access to the Skycam on top of Mt. Ashland. “There is literally a world class network here that anybody can tap into,” said Carey Cahill, Director of Business Development at Hunter Communications. www.SouthernOregonEdge.com Southern Oregon Business Journal

“There’s a lot of fiber running around the streets of Medford, but there’s not a lot of small businesses tapping into it.”

Carey Cahill Director of Business Development Hunter Communications

by Southern Oregon Regional Economic Development Inc.

(541) 773-8946 19

Keeping the Rogue Valley Connected If you want blazing-fast, rock-solid internet service, Hunter Communications fiber-optic network runs circles around the completion.

“We want our customers to go fast without interruption,” said Carey Cahill, Director of Business Development at Hunter Communications. “We are basically building an entire fiber network only, where everybody else is mixing technologies with fiber and copper.”

Photo by David Gibb | dgibbphoto.com If a fiber optics line is taken out by a backhoe operator or drunk driver, local businesses that have signed on to Hunter may hardly notice it. “Our customers aren’t complaining that they are down all the time,” Cahill said.

With 60 employees located mostly in the Rogue Valley, Hunter continues to see its far-flung empire grow year over year. After years of offering its services to large companies and educational institutions, they are now expanding their top-tiered connection speed and stability to small businesses.

“There’s a lot of fiber running around the streets of Medford connecting big businesses, but not many small businesses have tapped into it,” Cahill said. In addition, many small businesses that have access to fiber-optic lines, have their connection speed choked by the slow copper lines in their buildings. Hunter goes around that bottleneck to provide an adrenaline rush of speed to computers.

Hunter is a company that believes in giving back to a community that has helped propel it to success. When you’re at the Medford airport, the Wi-Fi is free, and you’ll notice it’s courtesy of Hunter. If you want to check on weather conditions at Mt. Ashland, check out the Skycam, also thanks to Hunter. But that’s not the biggest impact that Hunter is making on our communities. They also provide discounted and free services to our schools and libraries, ensuring our community is connected.

Rich Ryan, president and chief executive officer, started Hunter in 1994 as a construction company that installed cabling for local businesses.

At the time, Ashland was interested in creating its own fiber network to give that community an advantage in the growing internet market. As a result, Ashland Fiber Network was formed. With a fairly robust internal network, the city quickly found out it didn’t have a strong fiber line to the outside world.

After a little brainstorming, Ryan agreed to run 12 miles of fiber from Ashland to Medford at a reduced cost as long as he had a half interest in the line. He saw an opportunity to do something for kids and education, so he approached the Medford School District and offered to install a robust network. “We were not sure it was going to be profitable,” Cahill said. After the system was installed, students went from a pokey 3 megabits a second of data to a lighting fast system that clocked in at 1 gigabit a second. Since then Hunter provides the same level of service to 24 school districts.

Other cable companies have almost one-third of their customers cancel their service every year. Hunter has a more dedicated following, with a customer turnover rate of only about 3 percent, mostly due to corporate decisions to shut down or leave the service area.

Consistent with many small cities in the U.S., it’s often difficult to attract skilled employees at Hunter, particularly ones that want to remain on the front lines of technology. “It’s a constant battle,” Cahill said. “We find that we are able to recruit great talent out of Oregon Institute of Technology or SOU, but they consider us a stepping stone on their way to a bigger city.

To keep talented workforce in the area, Hunter is trying to bring more high-tech employers from the Silicon Valley to our region. Main attractions to the Rogue Valley are short commute times, better quality of life and an internet connection that is top notch anywhere in the U.S. “There is literally a world-class network here that anybody can tap into,” Cahill said.

Hunter Communications | 801 Enterprise DR, Central Point, OR 97402 | www.hunterfiber.com| (541) 772-9282

www.SouthernOregonEdge.com Southern Oregon Business Journal

by Southern Oregon Regional Economic Development Inc.

(541) 773-8946 20

Southwestern Oregon Community College

Whether your building uses electricity, gas, or you are interested in exploring renewable power resources, there is a program to help you.

Getting Started If you’ve done nothing to your property to date, there are a few areas you might consider:

DOWN TO BUSINESS A look at small business questions from the Southwestern Oregon Community College Small Business Development Center.

By Arlene M. Soto CMA, CGBP Southwestern SBDC Director, asoto@socc.edu Article Source: Energy Trust of Oregon Susan Jowaiszas, susan.jowaiszas@energytrust.org

Energy-efficient equipment and building systems can save energy and increase net operating income. The proper HVAC system is fundamental to top building performance.

Lighting in commercial buildings can account for nearly 35 percent of electric use, which has a big impact on your bottom line. Lighting upgrades are the best—and often the easiest—first step in any energy-efficiency strategy and can pay back your investment through energy savings in as little as two years or less.

To get started with Energy Trust:

Q: I’m remodeling my business building.

Are there programs to help me make it more energy efficient?

The average commercial building wastes 30 percent of its energy consumption, according to the US Department of Energy’s ENERGY STAR® program. By saving energy, property owners can reduce overhead costs, make a building more comfortable for employees or tenants, and improve the performance and value of the asset. If you are making upgrades to your property, this is an excellent time to investigate solutions to help reduce your building’s energy use.

Programs in Oregon Growing awareness of energy conservation has given rise to programs that help commercial building owners make facility improvements. Energy Trust of Oregon provides technical assistance and cash incentives for energy-efficiency improvements to customers of Pacific Power and NW Natural. Energy Trust cash incentives can reduce upfront costs and make energy-efficient upgrades more affordable. Because energy savings often pay for improvements in a few years, you can get a high return on your investment.



You must be a customer of either Pacific Power for electric saving incentives, and of NW Natural for gas incentives. Depending on the scope of your project, there may be additional eligibility requirements.



Think about what you want to accomplish at your property – reduce utility bills, improve lighting, reduce your carbon footprint or improve comfort for building occupants. If you’re not sure, you can call Energy Trust for help at 1.866.368.7878.



Find a local contractor experienced with Energy Trust programs and knowledgeable about what steps qualify for incentives. These contractors have been trained on the latest energy-efficiency and renewable energy services and products and can walk you through the process from start to finish.

Visit Energy Trust’s website at energytrust.org for information about free technical services and cash incentives, experienced Energy Trust trade ally contractors, and success stories of other building owners — large and small —that are reducing overhead costs and saving energy.

Consider Your Needs Energy Trust addresses the needs of specific types of businesses, such as hotels, grocery stores and manufacturers. Whether you are looking to more efficiently manage your energy use in an existing space or design efficiency into your new construction project, Energy Trust can help you identify opportunities for energy savings.

Southern Oregon Business Journal

The SBDC is a partnership of the U.S. Small Business Administration, the Oregon Small Business Development Center Network, the Oregon Business Development Department and Southwestern Oregon Community College.

21

4 Ways Your Competition is Spying on You By: Jared Brox , in Executive Insights, Quick Tips

Companies will go to great lengths to get the upper hand on their competition. And, in our always connected world, it is becoming easier than ever to gather information about other companies’ business practices and strategies. The first step in combating corporate espionage is to understand its methods. Here are four ways your competition may be spying on you.

Following you on social media There are many benefits to being active on social media, and these days you’d be hard pressed to find a company that didn’t have some kind of online presence. But with all the good that can come from a robust social media strategy, there are just as many opportunities for the competition to keep tabs on not only your company, but even key executives, clients, vendors, and employees.

An innocent Tweet about a new client, a congratulatory Facebook post after finishing a big project, or an updated job description on LinkedIn could all provide clues about the state of your business. Competitors may also sign up for company newsletters and email lists, so it’s important to purge them on a regular basis.

Mystery shopping Mystery shopping is an effective way for a competitor to gauge a wide variety of important characteristics about your company, including customer experience, employee knowledge, and sales processes or techniques. By posing as a customer and interacting with your brand, competitors can gather some very important information that can be used to build strategies that may undercut your most successful business practices. Unfortunately, because mystery Southern Oregon Business Journal

shoppers can be hard to spot, it’s often a difficult tactic to defend against.

Watching job boards and postings Another way the competition may be learning about the inner workings of your organization is one most businesses might not think about right away. A lot of information can be inferred by watching the kinds of positions a company is hiring for on job boards like Indeed or Monster. For example, if a company is all of a sudden ramping up their Accounting department, it might be a sign of increased revenue or expansion into new territories. Or, if a company starts hiring for positions that seem outside their standard business model, it could indicate growth into a new industry or product line.

Recruiting former employees Former employees are a goldmine of information for competitors. When employees leave, there’s a good chance they will be recruited by a competing company looking to level the playing field with someone who already knows your playbook. Effective employee retention practices are a great first step toward defending against this risk. Building a positive and productive work environment helps ensure your employees aren’t out considering greener pastures.

22

Industrious Agricultural Activity Greg Henderson, SOBJ

Agriculture in southern Oregon is growing more quietly than most industries but is no less vital to Oregon’s economy than others. In meeting with dozens of people in the counties of SW Oregon who spend their days raising crops and animals I also discovered an eager population of well-educated and hard working professionals embracing new ideas and technologies to be competitive on a world scale.

These are people who can tell you about ROI and know where they stand in a competitive marketplace. They know margins and todays price and cost of everything to do with their business. They may wear blue jeans and sweat-stained hats but don’t let that fool you. They can tell you about multiplier effects and trade practices, exchange rates, and the value of the American dollar. They know what they’re talking about.

A conversation with a farmer in Merrill, Oregon brought out the comment that sometimes it’s more cost effective to buy $400,000 worth of new machinery than to fight the challenge of finding reliable labor. He would rather give someone a chance to learn how to work but if reliable help won’t show up at six in the morning when harvest has to be done by noon, then other options must be considered.

Oregon’s agricultural economy continues to grow. The resources of our universities and laboratories testing new ideas for tomorrow’s farmer is in high gear. SW Oregon ships millions of pounds of product to overseas markets every year. Expect that activity to continue.

Wine Grapes Bradley Vineyards, LLC Elkton, Oregon

Umpqua Hops Umpqua, Oregon

Hardy Kiwi Popeye’s Girlfriend, LLC Umpqua, Oregon Southern Oregon Business Journal

23

Oregon Farm and Ranch Overview Oregon is home to approximately 35,000 farms and ranches. A farm is defined as any place from which $1,000 of agricultural products were produced and sold, or normally would have been sold, during the Census of Agriculture (2012) year. These farms and ranches grow and raise over 225 different crops on 16.3 million acres. Oregon’s principal operators of farms and ranches make up less than one percent of Oregon’s total population. However, when paid and unpaid on-farm workers are included that percentage increases to four percent of Oregon’s population.

Over the years the decline of the number of farmers reflects both production efficiencies that have reduced the need for farm labor and changes in the operator to hired labor ratio. Hired labor has moved “farmer” or farm labor residences off the farm though the work is still done on farms.

Conversion of farmland on the urban fringe can create unforeseen compatibility issues (e.g. timing and costs of farm practices) for remaining farmers and ranchers, which may ultimately contribute to even more acres removed from agricultural production due to the higher management costs. At the same time, for farms and ranches with a high proportion of their sales made directly to consumers or which have agritourism as a part of their operations, proximity to population centers can create opportunities for them to use more value added practices.

Non-farm development on agricultural lands; recreational developments, conservation reserves, rural residential use and aggregate mining also remove acres from production. Unlike urban growth, these conversions on agricultural lands can be more easily reversed than residential and large scale commercial developments.

Also a contributing factor to these changes in agricultural land use may be the increasing average age of the operators of farms and ranches. Oregon’s average age for farmers and ranchers (all operators) has increased from 55.3 to 57.4 over the last five year years.

Contributions by: Kathryn Walker, Special Assistant Stephanie Page, Program Director Oregon Department of Agriculture

Oregon Agriculture, Food and Fiber Industry Economic Linkages in 2015 Dollars Industry Production

Out-Put Sales ($)

Employment Full & Part time Jobs

Value-Added or Net Products ($)

8,191,288,907

77,490

4,745,480,088

Processing Food

23,073,136,049

80,155

7,043,139,183

Processing Fiber

128,155,159

338,666,309

2,294

Ag. Support Services

1,048,517,549

16,821

727,311,289

Wholesale Trade

8,984,154,703

54,336

5,434,770,272

Transportation & Warehousing

3,313,911,344

22,488

1,737,441,368

888,685,750

10,662

541,339,839

4,391,585,329

62,371

2,512,443,397

50,229,945,940

326,617

22,870,080,595

2,363,234

215,756,616,650

Retail Trade - Food & Beverage Stores Food Services & Drinking Places - Oregon Portion

Total Agriculture, Food and Fiber Total all Oregon Sectors Agriculture, Food & Fiber Percentage of Oregon Economy

Southern Oregon Business Journal

379,892,513,834 13.2

13.8

10.6

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OREGON AGRICULTURE Top 20 commodities: 2015 Rank

Commodity

Value - Dollar

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Cattle & calves Greenhouse & nursery Hay Milk Grass seed Wheat Potatoes Pears Grapes for wine Onions Christmas Tree Eggs Blueberries Hazelnuts Cherries Mint for oils Apples Corn, sweet Blackberries Crab

$914,324,000 $894,833,000 $604,062,000 $474,486,000 $383,972,000 $217,433,000 $176,450,000 $152,497,000 $147,550,000 $125,273,000 $123,857,000 $116,161,000 $104,307,000 $ 86,800,000 $ 68,102,000 $ 52,544,000 $ 44,383,000 $ 39,493,000 $ 38,036,000 $ 33,900,000

Estimates from: Oregon Department of Agriculture, Oregon State University and Oregon Department of Fish & Wildlife

Tibetan Hulless Black Barley Oregon Test Crop Buhl, Idaho

Southern Oregon Business Journal

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NORRIS BLUEBERRY FARMS It all started with 5 acres in the back field...

... and grew into a local legacy.

Founded: 1976

Crops: Blueberries and Hardy Kiwis

Acreage: 500+

Welcome to Norris Farms, our family-owned and operated farm since 1976.

Located in southern Oregon in the pristine Umpqua Valley, we are blessed with a perfect climate, abundant water, excellent soil types and unsurpassed natural beauty. Our tasty and healthful blueberries are grown and harvested on over 500 acres of carefully maintained fields.

Seasonal Crew Each summer, we employ over 120 seasonal crew members to run our harvest crews and packing facilities. Many of them are High School and College students looking to work hard and save money. Most of them return each summer until we kick them out to find “real jobs”. One of the real highlights is working with the youth, and watching them develop and learn the values of integrity and hard work.

Year-Round Crew Our year-round crew is the backbone of our farm and the reason we, as a family run farm, are able to successfully handle the large-scale production we see during season. During the off season they ensure that the fields are cared for, machinery keeps running and that the farm is prepared the next harvest.

Office Crew The hard working team in our office is the glue that holds our operation together. They oversee the numerous certifications and self-audits we undergo each year while providing excellent guidance to the many young first-time job holders we employ each season.

Enjoy the blueberries – they are the nutritious product of our labor. We wish you a long, healthful and fruitful journey in life.

Norris Farms LLC Umpqua, Oregon www.norrisblueberryfarm.com Southern Oregon Business Journal

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Thinking in Trillions A trillion is a quantity that is hard to fathom. We usually hear that word in terms of dollars. For example, the U.S. debt load is currently estimated at 19.3 trillion dollars.

Try to imagine that each of those dollars was a gallon of water. That is the scale of water needs for agriculture in the American West.

The Business of Agriculture According to the U.S. Department of Agriculture, 55% of the total value of all crops sold in the U.S. come from irrigated farms.1 In order to produce that kind of value, it takes trillions of gallons of water, every year. In fact, agriculture accounts for 80% of all water consumed .2 Oregon’s agricultural production is valued at $5.4 billion (2014), making it the second-largest economic driver in the state.3 In Oregon, over 75% of harvested crop value is produced using irrigation water.4 The takeaway from that statistical picture is that agriculture is both an indispensible economic resource and an extraordinary conservation opportunity. Moving the needle by just 10-20% would mean gains in water and habitat conservation as well as cost savings that are so big and far-reaching they are hard to imagine.

Uncommon Ground Creating efficiency and conserving are often presumed to be on opposite sides of the spectrum. In this case, they share a surprising amount of common ground. Irrigators are well aware of the importance of water conservation and protecting species in the streams and rivers from which they divert their water. And many conservationists understand that eliminating irrigation is an impossible and undesirable answer. The biggest barriers to reaching their shared goals is not surprising however: cost and commitment.

of these systems were installed over 100 years ago and are known to experience losses of up to 40% due to seepage, evaporation and other inefficiencies. Today we have technologies available that can eliminate most of the losses in these systems and even generate green hydropower. (Please reference infographic.) However, the scale and cost of effort to modernize these systems is far out of reach for most irrigation districts and individual farmers.

Finding Solutions The Farmers Conservation Alliance (FCA) is a non-profit social enterprise that is bridging the gap for irrigators and conservationists. During their work to install modernized fish screens in points of diversion all over Oregon and beyond, they became keenly aware of the gaps in funding needed to modernize the greater irrigation system. Energy Trust of Oregon stepped in at the right moment with an integrated partnership that allowed FCA to develop their Irrigation Modernization Program.

This ambitious initiative has devised a working strategy for the complete modernization of our current irrigation infrastructure. Essential to its success is the on-theground, upfront assessment work to bring together local stakeholders and ascertain the needs and opportunities unique to each district. This work is happening right now with 12 irrigation groups in Hood River, Deschutes and Wallowa counties. When this first phase is complete, FCA will provide the support and expertise for obtaining permits and funding to implement the system improvements. Simultaneously, FCA is knocking on doors in Salem and Washington D.C. to draw attention to this important opportunity so that the necessary funding for each district can be realized.

When large-scale agriculture was first forming in the West, farmers banded together to create irrigation districts to share expenses and help ensure regular flows.

This infrastructure investment led to more consistent crop yields and higher quality goods—a critical chapter in the success story of American agriculture. These districts still exist today to regulate and optimize water use, maintaining hundreds of thousands of points of diversion and countless miles of irrigation canals and hydro systems.

Managing and regulating water use has become increasingly difficult and expensive due to aging systems. Many Southern Oregon Business Journal

27

In the American West, water is money. This investment in our vast agricultural economy is also an investment in conservation. The bonus win-win is the avoidance of amassing a trillion gallon per year debt that can never

Southern Oregon Business Journal

be repaid.

To find out more, please visit: fcasolutions.org 1, 2 US Department of Agriculture, Economic Research

28

Measure 97 directly threatens Southern Oregon's growing prosperity By : Brad Hicks CEO, Medford Chamber

Opinion

I’ve had the great privilege of serving as the President and CEO of The Chamber of Medford/Jackson County since 1999. Our 1,500 members provide over 35,000 jobs in Southern Oregon. Our priority always has been, and always will be, to create a stronger local economy.

Over the past decade Southern Oregon has slowed and steadily clawed its way out of the dark days of the recession. Our vineyards are producing some of the finest wines in the nation, our farmers are competitive in the global market, our healthcare is among the best in the country and our region continues to exemplify the entrepreneurial spirit. In other words, things are going well, once again, for small businesses and southern Oregonians.

Unfortunately, all this progress and prosperity is under threat in the form of Measure 97.

Measure 97’s tax on Oregon sales would be the largest tax hike in our state’s history. The proponents claim this is only a small tax on a few, out-of-state companies.

That’s absolutely false. Measure 97 would increase prices for Oregon consumers and Oregon businesses.

That explains why there’s a coalition of over 24,000 Oregon consumers, small businesses, family farmers, health care professionals, educators, community leaders and organizations all opposed to the measure.

Measure 97’s fatal flaw is that it taxes sales, not profits.

Businesses with thin profit margins, such as farms, medical clinics and grocery stores—like the one my parents owned and I grew up working in—would be especially harmed. Clearly businesses like these with thin profit margins would be forced to either pass along the tax on sales or reduce their expenses—almost always in the form of job cuts. Neither is a good option for Southern Oregon.

Nonpartisan state economists at the Legislative Revenue Office (LRO) analyzed Measure 97 and determined that the $6 billion tax hike would largely be paid for

by Oregon consumers in the form of higher prices for Southern Oregon Business Journal

goods and services. They determined that the average household would pay over $600 more each and every year. It’s particularly troubling that Measure 97 has no exemptions, even for basic necessities such as food, utilities and medicine. Every product and service sold in Oregon would be subject to the tax on sales.

Oregonians have repeatedly rejected proposals for a retail sales tax, and for good reason. So, the proponents of Measure 97 tried to hide their tax on sales by imposing it on companies that sell their goods and services in Oregon. Economic reality and common sense show that’s just a tricky way to create a stealth sales tax that would end up being passed on to consumers through higher prices.

Taxes on sales are a highly regressive and punishing form of taxation, hurting low and middle income families the most. Lower income families would experience a higher tax burden as a percentage of their income than higher income households. This is grossly unfair and places the highest burden on those least able to afford it. A study conducted and paid for by the proponents agreed with the LRO: Measure 97 is regressive.

It’s interesting to note that when the author included this fact in the study, the proponents tried pressuring him to remove it. He stood his ground and responded via email “Applying [a gross receipts tax] to a narrow group of C corporations does not make regressivity go away.”

Oregon businesses would also experience higher costs for everything they need to operate. Most small businesses wouldn’t reach the level of sales to trigger Measure 97’s tax directly, but their suppliers and service providers most certainly would. Those costs would be passed down and land squarely on our state’s small businesses. It’s why organizations such as the Oregon Small Business Association and nearly every chamber in the state are urging a NO vote on Measure 97.

Measure 97's badly-designed tax on sales would result in 29

Measure 97—Southern Oregon - cont. taxes on top of taxes. Measure 97’s 2.5% tax would be imposed on the companies that make, ship and sell the majority of products and services purchased by Oregon consumers and businesses. Many products come to Oregon through a series of producers, manufacturers and distributors who would each pay the tax. This “tax pyramiding” effect means 5% to 7.5% or more in taxes would be added along the way by the time many common products – like food and gas – get to consumers.

So what do we get for this new, highest-in-the-nation tax on sales? We don’t know. Despite claims by the proponents, Measure 97 is NOT dedicated to funding education, healthcare or senior services. If that was their intention, they would have proposed a constitutional amendment to ensure the tax on sales funds these services. They didn’t do that. Instead, the $6 billion goes into the General Fund and allows Salem lawmakers to spend in “any way they choose” according to our state’s nonpartisan Legislative Counsel.

The LRO and the proponents’ study also concluded that Oregon should expect to lose tens of thousands of jobs if Measure 97 were to pass. In fact, the LRO estimated 38,000 job losses. To put it in perspective, that’s over half the population of Medford.

Many newspapers and lawmakers have suggested the real intent of Measure 97 is to bailout the government employees pension fund (PERS).

It’s a plausible conclusion. The funders of the Yes on 97 campaign are two government employee labor unions who have longsought massive additional funding for PERS. It would also explain why the $6 billion tax increase isn’t required to be spent on any specified purpose, despite the deceptive claims by the proponents.

Measure 97’s 2.5% tax on a company’s total sales – with no deductions for expenses, employee salaries and benefits, or any other operating costs – would be the highest tax on business sales in the country. An analysis by nonpartisan economists at ECONorthwest determined that it would be the equivalent of a 40% corporate income tax – over three times higher than the highest state corporate tax rate in the US (Iowa's top rate of 12%). It would also make Oregon one of the worst states in which to expand a business or locate a new business.

Southern Oregon Business Journal

Measure 97 is disastrous tax proposal that has the capacity to significantly damage our region’s economy, wipe out family-wage jobs and increase costs for everything we buy. It deserves a NO vote in November.

30

Sales Price, Revenues, and Profits These Three are Not the Same

By: Gary Gray

Currently the State of Oregon is debating a new ballot initiative that would add a tax to the gross receipts for large corporations. Inherent in this debate is a presumption that the citizens have an equal understanding for the concepts of sales price, revenue, and profit. In reality many consumers and small business owners fail to recognize the critical differences that exist between these accounting terms.

Many small business owners run into a cash flow challenge when they forget that the amount of money captured during the sales process does not equal the profits of the business that can be used to pay other expenses. Consumers often mistake the high cost of an item for a representation that the business owner is making a large profit. In reality the sales price does not equal the revenue and the revenue does not equal the profit.

The sales price or the manufacturer’s suggested retail price is simply the ideal price that a business would like to achieve for their product or service. There are many things that can reduce the sales price so that the overall revenue is less than the number of items sold times the sales price. The most common impact is the use of coupons or earned discounts that occur at the time of the sale. For example, a consumer purchasing a gallon of milk that is priced at $3.99 and using a $1.00 off coupon will only pay $2.99. Therefore, the grocery store has a sales price of $3.99 but only shows revenue of $2.99 for the gallon of milk. Automobile sales often occur with the inclusion of manufacturer rebates at the time of purchase.

The concept of profit on a sales transaction becomes even more complex. Profit in a business represents the amount of revenue that remains after all of the business costs are met. In most industries the actual cost of goods can run up to 50% of the sales price. Cost of goods represents the amount of money that the business must pay for the products that they sell.

Following this the company must pay the building rent, utilities, employee salaries, supplies, advertising, and the other expenses that occur in running the business.

A significant mistake made by small business owners and a common misconception held by consumers is that business operations yield excessive levels of profits. In the United States the profit level for most consumer companies is actually quite low. The New York University Stern School of Business publishes an annual survey of profit margins achieved by a broad spectrum of companies. The full survey can be found at: http://www.stern.nyu.edu/~adamodar/pc/datasets/margin.xls.

Utilizing the NYU Stern School table for January 2016, shows the profit or net margin for three common consumer companies.

Retail grocery companies have a 3.64% pre-tax profit margin, retail clothing has a 6.95% pre-tax profit margin, and automobile retailers have a 4.40% pre-tax profit margin. When consulting with small business owners we often encourage them to plan for a 5% pre-tax profit margin.

Category

Sales Price

Discount

Revenue

Total Purchase

Total Revenue

Pre-Tax Profit

Total Profit

Milk

$3.99

$1.00

$2.99

2 Gallons

$5.98

3.64%

22 cents

Clothing

$29.99

10%

$27.00

3 Items

$81.00

6.95%

$5.62

Automobile

$24,000

$5,000

$19,000

1 Car

$19,000

4.40%

$836

Retail Comparison Table

In order to understand the difference between these accounting concepts let’s look at the retail comparison table for three common consumer transactions. These transactions show that the sales price, the resulting revenues, and the bottom line profit numbers are all quite different. It is very important that small business owners and consumers understand what each of these key accounting terms represent.

For the consumer and often the small business owner the sales price or the shelf price mistakenly represents the profits resulting from the sale. In retail we often have to counsel small business owners that the money in the cash register does not equal the profits from the business. The sales price represents the potential revenue. When the discounts are taken the actual revenue is achieved. When all of the costs of operation are deducted from the revenue the profits are left. The sales pr ice, the revenue, and the profits are three different accounting concepts that represent three different stages in the sales process.

Gray Gary is an Associate Professor of Business at Umpqua Community College, a former Commercial Banking Officer and an ongoing consultant to small businesses, non-profits, and consumers focusing on strategic planning and cash flow forecasting.

Southern Oregon Business Journal

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Opinion: Impact of Election on Investments By: David Littlejohn, Principal Littlejohn Financial Services This year’s Presidential Election is shaping up to be a polarizing event. Regardless of who your candidate is -- or whom you believe to be the lesser evil -- there is one thing the stock market is expecting: a decision.

Election years provide an interesting dilemma for the stock market. And unless a third party candidate makes a big leap forward, that dilemma is setting up as a binary data point. Clinton or Trump? Whether the election results are relevant or not, the perception is that the economy, social justice, individual liberty, and our very way of life hang in the balance. And for many investors, perception is reality.

A great deal of speculation exists as to how the stock market will react depending on the November election results. For those that believe that markets are efficient -- that all the variables -- everything that is known about an investment -are already priced into the markets at any given time, one would expect very little change for the markets post-election. For those that don’t believe markets are efficient, the market’s response could be more significant.

The question is, has the market already tipped its hand? Is a significant move being forecasted?

A somewhat controversial method of forecasting involves the use of price and volume data to project price movement. The process is known as technical analysis. It typically involves a lot of charts, graphs, and other statistical forms of analysis. The idea is to evaluate where investors have been buying or selling market instruments -- often relative to specific news events -to get a sense of where investors or traders (aka the markets) believe current or projected prices are likely to move.

In an oversimplified example (of a fictional investment), ABC stock company may be selling for $95 per share. A technical analyst may note that the stock had a lot of buyers at $90 per share, and saw a sell-off at $100 per share. By noting these behaviors ABC stock would appear to be trading within a price range. A breakout would be a move above or below the $90 or $100 price levels.

Using a bit more complex analysis, one can observe the S&P500 index has been trading in a range between 2119 and 2193 since July 11, 2016. This is roughly a 3% window - pretty narrow by many standards. Is the market trying to tell us something?

This is a classic case where a picture is worth 1,000 words. Take a look at the chart below:

Note that the S&P500 had been trading roughly sideways since early July. The index moved down prior to the FOMC rate announcement. Once suspicions were confirmed the Fed would not be raising rates the index quickly moved back into the trading range.

Southern Oregon Business Journal

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The markets have been paying close attention to the Federal Reserve and whether or not interest rate policy would be changing. As of September 21st, the Fed announced there would not be a rate change. This leaves the next rate hike so close to the election most analysts agree the Fed will not raise rates (because they don’t want to appear partisan). This leaves the election as the primary focus.

The S&P (as of the writing of this piece) continues to trade within a 2120-to-2185ish range. This indicates the market had correctly priced in the assumption of no rate hike by the Fed. Based on early-stage polling with a Clinton lead, the markets have also remained in the trading range.

Again, is the market trying to tell us something?

If no rate hike and a slight Clinton lead in the polls produces a flat range-bound market, one needs to examine how the market has reacted leading up to other events. When a rate hike was a possibility, the markets fell until the possibility passed. Can the same market behavior be expected if Trump takes a lead in the polls?

The markets seem to be pricing in a Clinton victory… at least for now. How do we know?

Typically speaking, markets penalize uncertainty. The more that is known and transparent, the more effectively the markets seem to arrive at a price. The markets appear to be treating Clinton as more of a known quantity. By contrast, Trump would be the unknown. And the unknown, as far as the markets are concerned, is a risk; a risk that hasn’t yet been priced in.

Just like the possibility of a rate increase was preceded by a market decline, it appears the possibility of a Trump victory may also be preceded by a market decline. This is not because the market endorses Clinton over Trump. It’s simply a function of how variables get priced. If the market is assuming a Clinton victory, data that contradicts this assumption would likely lead to a downward move. It’s simply more uncertainty being priced into the system.

The Presidential Election is similar in that it’s a binary decision with significant perceived importance. Most news organizations and polling statistics appear to favor Clinton. Stock traders see this data and position their holdings accordingly. Therefore, a result to the contrary is not likely priced into the market yet.

To test this theory, watch the direction the markets head between now and the election. If Clinton pulls ahead in the polls, the market is likely to stay in the trading range. If Trump takes a lead, the markets (as forecasted by the technical set-up) are likely to decline as the election approaches. If Trump wins, the markets may have a short-lived tantrum (similar to the Brexit vote). The more extreme the difference in polling data becomes, the more likely the market move the higher or lower end of the trading range.

After the election? Your guess is as good as mine. The market will go into reaction mode.

In reality, 2017 is shaping up to be a challenging year regardless of who is elected. Fed monetary policy has created a lowinterest-rate economy that has forced many investors to invest in riskier assets (like stocks instead of bonds) in order to generate income. If the economy is strong enough to raise interest rates, the shockwaves through the fixed income and dividend-paying-stock markets may cause the markets to pull back 10-to-20% regardless of who gets elected.

Alas, perception is reality.

IMPORTANT DISCLOSURE INFORMATION This article was provided "as is" for informational purposes only and not intended as investment advice. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.

When extrapolating based on previous market moves, technical analysis suggests the S&P500 could fall as much as 8to-10% from its current level should Trump take a lead in the polls and win the election in November. By contrast, there is approximately 4% of up-side movement from present levels if Clinton wins.

The election is similar in nature to the Brexit vote that occurred on June 23rd. That was another binary event. Recall the expectation, based on polling, that the United Kingdom was going to remain in the European Union. Once the votes were tallied, markets were surprised to learn the vote went the other way.

Yay on Brexit.

Initially markets dropped. Then, a few days later, things stabilized and recovered.

Southern Oregon Business Journal

David Littlejohn 2435 NW Kline St, Suite 200 Roseburg, OR 97471 (541) 375-0898 info@littlejohn.com

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A Look Back There are supposed to be learning opportunities in every event. Sometimes it doesn’t come easily or without a high cost.

A shooter went beyond understanding a year ago October 1st. Nine students died and ten more were seriously injured in a classroom at Umpqua Community College. What was the lesson? What have we learned?

The easy answer is that the world has changed. It is more dangerous than it once was. We must always be careful and watch for suspicious things and people. We learn some things we wish we didn’t have to learn. On the other-hand there are unexpected lessons we are pleased to have. Like finding out the unbelievable generosity of complete strangers who live where we do. People who assure us by their actions they will do all it takes to come to our rescue.

Two thousand runners and walkers have paid entrance fees to say they care out loud and they have memories that won’t soon go away. The fees will help pay for scholarships for families of the October 1st tragedy.

The good learning is not reserved for horrendous events. It transfers. Now we know what we should have known in the first place. “I’ve got your back” is ubiquitous.

Local councilors and committee members, including those with or without aspirations to serve in those roles have a new definition of what it takes to lead when leadership is most important. We have confirmed knowledge that local people and assets are quick and reliable when any need arises.

It sometimes takes an extreme event for us to hear the heartbeat of people who have been standing next to us all along.

Greg Henderson, Publisher greg@southernoregonbusiness.com

Southern Oregon Business Journal

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