Tuesday, January 24, 2017

The Lancaster Food Company: 20,000 Loaves Donated

One of the biggest challenges of building a commercial bread company is handling unsold product, otherwise known as waste.

From the beginning we donated any unsold product, initially to the Council of Churches Food Bank because I had a previous relationship with them from my Lancaster Community Gardens days. Over time we added a variety of food banks, kitchens, and churches, including Crispus Attucks and Water Street.

One of our key indicators is our "return rate"; it's the measure of invoiced products vs. unsold product; we give full credit to stores for unsold bread. We lose money when there's a lot, and we make money when there's only a few. When there are no returns, we're leaving money on the table because we don't really know the strength of the demand.

The ideal scenario is that we keep increasing the amount we deliver, and it always sells out, but that doesn't happen ofter, so the next best thing is we find the bottom of the market, which is indicated by just one or two unsold units of each variety.

We don't currently disclose our unsold rate, so I'll just say we've helped feed thousands of families since 2014. While it's been a source of pride for us, it's also a painful reminder that not all customers at all stores want or know about our products, and we have to do a better job marketing them.

And donating bread doesn't align with our goals to get to profitability: we want to donate less--not because we don't care, but because we need to be self-sustaining before helping others (put your own mask on first).

So we've been testing selling previously unsold product at Grocery Outlet, which has 22 stores in PA and over 300 in California. It's going very well, so we'll continue to add more of the PA stores, to the point we expect to reduce our unsold product to a very low percentage. This strengthens the company, gives people with lower incomes access to tasty, locally made organic bread at a lower price, and keeps read out of the waste stream.

We'll continue to make donations, and we hope to get back up to our previous levels, but only as part of our overall growth plan. We much prefer treating root causes of poverty (with income through thriving-wage jobs), and keeping the company on the path to profitability.

Monday, December 19, 2016

The Search for Expansion Space: Part I

About a year and a half ago, two professors from F&M released a report on Lancaster's poverty problems.

The rate is about 29%; you can find data like this at the US Census bureau or through cool tools like PolicyMap, which also gives very refined views of neighborhood statistics.

Before we started The Lancaster Food Company in 2013, I spent some time on PolicyMap to try to figure out where we should locate the company. It's a lofty goal--try to reduce poverty by hiring people living under the line who live within walking distance, and there isn't a lot of real estate available in the city for food manufacturing.

Some of the highest poverty rates were right around South Water Street and Hazel. So we looked very closely at a few buildings when we started. We passed on the building that became Spring House's third location. It's a very cool building, but it needed a lot of work and we're not developers. The property itself is two acres, and has a remarkable view of the city from its north side.

We ended up leasing a space completely inappropriate for food manufacturing, but we were eager to see whether we could prove our concept could become a viable company in the increasingly competitive certified organic food sector.
Liberty St space before the buildout

So we took a space at 341 East Liberty, complete with flaws and obstructions, and made it work. We invested in a conversion of the space with a loan from Community First Fund (the landlord would not finance a buildout for a startup), passed our USDA Certified Organic and FDA & PDA inspections, and literally took our products to market. Things really took off--we grew 30% every quarter until March of this year, when we hit production capacity.


We knew early on we'd need to expand, so we continued to look for space while growing the company at Liberty.

Just to the east of the Spring House building is the Brookshire Printing Company building. Across the street is a city-owned lot, warmly called Lot 13. We felt we could work with the Brookshire building, and went into contract with it. It needed work, but we're flexible and figured out something that could get us to our own sustainability, plus the location couldn't be beat for impact. The area's poverty rate was something like 60% at the time. 

The bank required an environmental report. A "Phase I Environmental Report" is basically a survey of the immediate area. Phase II requires samples from the site itself. Old cities tend to build on top of themselves. As standards evolve, cities adapt, sometimes by burying the past and looking the other way. Lancaster is no different. 

Well. The Phase I report was alarming. There are high concentrations of PCBs next door, uphill on the UGI site; PCBs can cause leukemia and a host of problems you don't want. PCBs were banned a long time ago (Monsanto was a primary manufacturer), but the site was never cleaned up. There was also benzene and lead. A visual inspection found a tank somewhere below ground level in a sort of basement with an unknown liquid in it. 

We balked. We couldn't imagine building a food company in a space that could be potentially poisoning us and our employees, or tolerate even the perception that we were making food in possibly dangerous conditions. If that sounds like an overstatement, please read about the Housotonic river after GE dumped tons of PCBs into it.

We also looked at Lot 13 across the street, and asked for the most recent environmental report. Again, very high levels of lead, benzene, and some other harmful chemicals. We would have had to remediate the site, which isn't currently part of our mission, so we passed.

Later this week I'll post Part II about the space that almost was, and what we eventually landed on. It's been a long, challenging process that almost killed the company. 

Wednesday, December 14, 2016

Watching from the Shore

I almost drowned.

Two and a half years ago I stopped at the beach to get a swim in at the end of a sales day in NJ. It was a beautiful day--perfect sky, perfect air, perfect water. It was after hours so it was just me out there with some surfers beyond the breakers. The waves were large but you had to swim out to them because it was high tide and the sandbars that summer were further out. After riding some of the small inside ones and still feeling good, I started out for the big waves. At some point I realized I wasn't really getting anywhere, or it seemed like that; I looked back to the shore, and it seemed far away, looked toward the large waves, then tried to touch the sand with my toes.

I couldn't. I was in a fairly deep channel that was basically a wide riptide, and I panicked and tried to swim out of it. Then I tried to swim toward a visible sandbar about 50 yards away but the rip was too wide. So I turned toward shore, trying to get past the pull of the ripe, using the force of the waves and swimming hard.

Swimming hard was a mistake. I've been an ocean swimmer all my life, and surfed for 10 years, and there I was doing it wrong. I was tired. I didn't think I could make it so I floated a bit.

Someone noticed. Two lifeguards stopped their ATV on the beach, got out and leaned back on it, watching from the shore. I tried again. Stopped. Tried again, kept going. My arms were dead so I kicked hard as a wave would pass. I went under to see how deep it was and I could barely touch a foot down--I knew I was close, but I was done. I was ready to start waving, but almost too tired to do it. And then a larger wave passed by and I made one last effort--truly the last energy I had, because I was done and had given up. It worked--I moved forward enough to touch sand and keep my head slightly above water. It was enough of a break that I could make another push.

The lifeguards got back on their ATVs and drove off. They had been watching from the shore the whole time, long after their shift had ended.

People lose their lives all of the time because nobody's watching from the shore. When you live alone nobody's watching from the shore. Things aren't going well, nobody's watching from the shore. Even when you're not alone, often there's nobody watching from the shore. You bob up and down, try to breathe, try to keep your head above water, try to touch the sand, fight the wave... it consumes you, exhausts you. Giving up isn't a choice, it's inevitable: it's what happens when you have nothing left to give. That's why those watching from the shore are so important.

Thursday, December 8, 2016

Poverty is the Moral Failing of Our Time, So Make Livable Wages Our Moral Imperative

If Lancaster area employers would raise their wages to one that reflects human dignity, one that honors an honest day's work, we could cut poverty in half and improve family lives for thousands, because so many have to work two jobs to make ends meet. You probably know this but it's worth saying again: I believe paying poverty wages is an immoral act that hurts the community, and that ending poverty is a moral imperative for Lancaster.
Not everyone believes that, of course.
And not everyone has built their businesses with moral wages in mind , so changing from extractive, exploitative wages is difficult. It takes work, reimagining what the business model could or should be.
And who is to say what that "moral wage" is: $15? $20? $12? It's like the judge said about porn; it's ahrd to describe but I know it when I see it. It's a wage that allows someone to live without anxiety of losing a place to live, or food to eat, or meeting other basic needs for themselves and their families.
An argument against setting a minimum wage, or a scale based on regional cost of living, is that every employment arrangement between the employer (the buyer of labor) and employee (seller of labor) is fair, that the negotiating positions are equal, that the power dynamic is equal. The free market, though, is not free for those on the losing side of that power dynamic. And free markets are not intrinsically ethical--that's why we have a large body of law around markets: to enforce ethical behavior so people and our communities don't get screwed.
These are not equal things for a single mother with a spotty resume and a conviction trying to build a solid work history.
And some might respond, well then she shouldn't have chosen to be a single mother, or to have broken the law. But that's advice to give prior to those choices.
After those choices, advice like that is demeaning, irrelevant and senselessly, corrosively punitive. After, we have a friend and neighbor willing to work who has served her time, and as a society we want her to be healthy and stable, and we want her to have the time and resources to raise her child well. Living under the duress and strains of the very difficult set of tasks of managing life in poverty undermines our goals as a community--to have a safe, healthy, humane community for all. Despair is a terrible emotion to live and work with and it contributes to weakness and corrosion in our neighborhoods--both in our fair city the and county. In any city.
Here's my offer, as a fellow business person: if you're an employer and want to find a way to improve pay for your employees, I would love the opportunity to try to help you with that. I'd be honored and would honor the attempt regardless of our success. And maybe with it's not possible with some businesses at this point, as I said before. But it's worth re-imagining what your business offers to the world, because at the moment it might not be positively impacting the community.
But maybe it could be. And maybe we can make it happen, together."

Thursday, March 26, 2015

Almost Anyone Can Now Invest in Private Companies: SEC Finalizes CrowdFunding Rules


It's been a long time, you and I. We'll try this again for this special news. 

Yesterday, the SEC announced its final guidance for fundraising under the JOBS Act, and the news is overall very good for startups and any private companies that want to raise capital. 

Here's the full 250+-page SEC document (and I expect you to read it all. Quiz on Friday). 

At least two parts are worth paying attention to: 

1) you can invest up to 10% of your net worth if you're not an accredited investor (acc investor has at least $1 million net worth or $200k annually of income)', which means if you're net worth is $10,000, you can invest up to $1,000 in private companies, and

2) up to 30% of a stock offering can come from existing shareholders; the rest comes from the company issuing new stock. It's a built-in path to liquidity for investors, employees, and founders, with a rational limit that should attenuate attempts to dump stock on the unsuspecting general public. 

That 30% rule gives companies a great answer to the "when will I see this money again" question. Until now, the only answers have been IPO, sale of the company, dividends, and stock buyback. 

Dividends require profitability. Stock buybacks require cash on hand, which really should be used to grow the company. IPOs are difficult and unlikely for most companies, and a sale of the company is an awfully radical step just to put cash in investors' pockets. 

I'm not a financial expert by any means, but I'm thrilled by the new rules and look forward to great companies raising capital more easily. That said, I do not look forward to the inevitable absolute and soft fraud that will happen. 

"Soft fraud" is when the company is legitimate, but it oversells its prospects to unwitting investors; the company misleads them in a breach of ethics, but doesn't quite cross the line of legal fraud. 

I'm looking forward to reading the entire document. Ok not really, but I probably will soon. Because, you know, geeks. 


Friday, October 17, 2014

Jobs vs Job training: Meet People Where They Are

I remember President Clinton giving one of his incredibly convincing speeches about boosting the economy, world trade, and transitioning screwed middle class workers from good jobs to theoretically better jobs if we just had this one thing: training.

So we funded a lot of training, largely focused on tech. Tech was gonna save everything. And then the market collapsed in 2000 and we hit the recession, and no amount of training would create new jobs for everyone getting training.

Training is important. Some people really thrive with it--they hit the classroom, hit the books, get first-hand exposure to new equipment, machinery, and technology, and companies hire them right after completion of the course or degree.

Yet manufacturers around here complain that they can't get enough skilled workers. And this is for "good" jobs, with pay starting at $18/hr and higher.

Yet we have relatively high unemployment, and the city sports a high poverty rate and a higher near-poverty rate, making up 75% of its residents.

So how is this possible? Training is available, the jobs are available, so why the high unemployment, poverty, and unfilled jobs?

It's because both the training and the jobs require an existing platform of skills and education, and that's where the gap is. If someone hasn't finished high school, or finished but isn't literate (how is it possible that SDOL graduates 82% of seniors, yet 50% aren't proficient at reading and math?), they won't get through the training if they're even admitted to the program.

If the goal is to employ people, you have to meet them where they are. We definitely have a lot of talented people getting solid jobs in local manufacturing; something like a gagillion percent of Stevens College graduates land jobs before they even graduate, with high starting pay.

But we have a significant number of neighbors who don't have that basic foundation of education and skill. And it's unlikely--not impossible, but unlikely--that they'll get there.

So what to do?

You have to meet them where they are. We need to create demand for products and services that require little skill or education, but that also pay well. That's what we're trying hard to do at The Lancaster Food Company. We have a relatively high entry wage & benefits, and anyone who can lift 50 lbs and learn parts of the production can apply.

What other businesses could create demand for low-skilled labor? Or where skills could be developed? It could be service work, furniture production, bookbinding, composting--many, many types. The key is not to chase cheap labor overseas and keep these types of jobs here.

But what's missing are the businesses--new ones and existing--focused on creating demand for those kinds of jobs. We're hoping to see more businesses that build their model around ethical wages and unskilled or low-skilled labor.

That's how we'll end poverty in the city as we know it, and that's how we'll get the unemployment rate down. It will reduce crime, improve housing, and improve education. It will take 15 to 20 years for the full effect, but the immediate effect will be felt in the families of those that get the jobs, the place they live, and the places they shop.

Clinton was right, but he was wrong about the universal impact of training; it's good for some people, but for others, you have to meet them where they are.


Wednesday, July 16, 2014

The Not Really Sharing Economy

Words have meaning, words matter.

Sharing is one of the great human attributes; you have something and your neighbor can benefit from it, you see the need, you offer to share it. There's no or little cost to you, and no cost to your neighbor.

In the lunchroom: "Would you like to share my table?"
On the playground: "Would you like to share my ball?"
At the picnic: "Please, have some of our chicken!".



That's sharing.

We share without the expectation of something in return. Sharing is not transactional. It's an act of generosity, an act of love, and sometimes an act of necessity.

So when the tech, investment, and startup media and bloggers came up with "The Sharing Economy", they weren't talking about you and I pooling our tools together, creating a tool library, and sharing it with others. They weren't talking about a couple sharing a milkshake.

They were talking about transactions involving excess capacity of stuff--a house, a car, an office.

Folks, when you charge me to stay at your house, that is not sharing. That's a great business model, and I love AirBnb, but that's not sharing. That's rent.

When you offer to drive me from one place to another for $15, that's not sharing. That's charging me for a transportation service.

Sharing is a beautiful thing. The media--and VCs, and etc, etc etc--got it wrong, and are sullying a great word with an otherwise stellar reputation.

Now that I've shared my thoughts with you, I'm going to go charge somebody for a loaf of bread.