MMC / MDARD Boot Camp Workshop Series Project

MMC / MDARD Boot Camp Workshop Series Project Case Studies, September 2014

9 Bean Rows

Overview

Mission: The 9 Bean Rows mission is to increase the availability and access to locally grown and handcrafted artisan foods year round.

Their Story: In 2008, Nic and Jen Welty began their second season of Community Shared Agriculture (CSA) farming at Black Star Farms, just south of Suttons Bay, MI. They installed a wood-fired pizza oven in the Black Star Farms market (the Hearth and Vine cafe) and added artisan breads to their lineup of produce. That fall, they started their own small farm in Omena (north of Suttons Bay) and called it 9 Bean Rows. The 9 Bean Rows 11 acre farmstead, while modest in size, is filled with wild and cultivated edibles. There are ramps, blackberries, red raspberries, apple trees, choke cherries, asparagus, rhubarb, table grapes, garlic, walnut trees, sugar maples, and a forest full of edible wild mushrooms. There is also a spring-fed pond. Jen and Nic added a 144 x 34 foot passive solar hoop house to extend their growing season, and Nic continues to use the hoop house located at Black Star Farms.

Since those humble beginnings the bakery has expanded to a new location on a second farm purchased in 2013. This new venue includes a retail farm stand for bakery and produce sales. Paul Carlson, a friend who previous ran Black Star Farm’s café, joined the Weltys in 2013 to help establish the 9 Bean Row Restaurant in what had been the old firehouse in Suttons Bay. Renovated on the cheap with lots of sweat equity and creative décor, the café quickly garnered rave reviews for its food, local ingredient sourcing, and recognition as the best new restaurant in the region by Traverse Magazine and Northern Express – two local magazines. Business Structure The 9 Bean Rows brand is structured as a cluster of related Limited Liability Companies (LLC) tailored to meet business needs.

9 Bean Rows, LLC is the original incorporation established in 2009 and is the home for the farm and serves as the asset holding company. The farm produces products for marketing and sales to a CSA, a number of farmers markets in the Leelanau /Traverse City area, and to a range of wholesale markets that include its sister companies – the bakery and restaurant.

Two other LLCs, Roux 9 and Boulangerie 9, have been incorporated in recent years as operating companies for the bakery and restaurant respectively (see chart in Finance section, below). Both rent their facilities from the 9 Bean Row, LLC that hold the title on the buildings they operate from. Both do business under the 9 Bean Row brand.

The 9 Bean Row, LLC’s members are Nic and Jen Welty. As 9 Bean Rows explores other ventures, it begins those initiatives under the initial LCC structure, establishing new discrete units as they prove viable or when legal or licensing requirements predicate. For example, the restaurant had to be structured as a separate legal entity for

1 reasons including the ability to secure a liquor license for the establishment. The chef partner in the restaurant owns a small share in Roux 9, LLC and his compensation is structured with ownership and other incentives to grow the business. Establishing the various LLCs also allows for better tracking and management of the specific enterprise, including valuing the sales transaction between each of them, ensuring a way to manage each unit for profitability. There is also a benefit of remaining clustered under the 9 Bean Row brand and having common ownership, as they can offset each enterprise’s cash-flow needs based on seasonality and sales, while still being managed as a discrete businesses –very important in the early years of these beginning farm and value-added enterprises.

In 2013, 9 Bean Rows issued W-2s to 32 people– primarily part-time help in the restaurant and in the other ventures. Altogether, this equated to ten full-time equivalent jobs, a small but significant contribution to the rural Leelanau economy that also serves as a training ground for other prospective food entrepreneurs. Much of this expanded workforce is a result of the value-added growth beyond the farm base – through the establishment of the bakery and restaurant. Markets Served 9 Bean Rows serves a wide range of local markets as part of its strategy to provide fresh local food year-round to their community. The farm produce is sold through a CSA, farmers markets, and wholesale channels. 9 Bean Rows also sells to its sister bakery and restaurant. The wholesale channel reaches to other foodservice and retail users in the region, including schools when in season. They sell both cultivated crops and a range of wild edibles harvested on the farm. The bakery operates its own retail location that also sells 9 Bean Row produce and beginning in 2014, CSA members can add “Breaking Bread” option that provides one loaf weekly. The restaurant, on the main street of Suttons Bay, is well positioned to attract tourists, cottagers, and local residents year-round. Nic also provides advise and services (hoop-house construction, production, marketing) to other local-foods entrepreneurs – a complimentary income stream to the farm operations.

The common branding has served the various ventures well, leveraging recognition of 9 Bean Rows into new channels effectively.

One product that 9 Bean Rows markets is Mixed Salad Greens to a number of channels that include direct sales and wholesaling through the regional distributor Cherry Capital Foods. This approach to market provides several outlets and associated income streams from the product. Below is an illustration of 9 Bean Row’s participation in this regional food value chain1.

1 Food Value Chain Analysis, Grand Traverse Regional Food Hub Pilot Project, Final Report, Prepared by Heather Hirschtritt with support from Susan Cocciarelli. February 28, 2014 2

This model is very different from a traditional lineal go-to-market approach, and illustrates the importance of being both creative in the approach and building trust relationships with others in the supply and value chain to achieve success.

Advisors

Nic is a graduate of the Carnegie Mellon Tepper School of Business where he had participated in a number of business plan competitions – great training and experience to bring to the 9 Bean Rows. Since the age of ten, Nic has also been engaged in growing Atlantic Giant Pumpkins and other giant vegetables (http://www.bigpumpkins.com/htgwcgpiii/nic_welty.pdf), cultivating his “green thumb”. This background positioned him well in the food entrepreneur space.

Nic also relies on his father for guidance, leveraging his years of experience running the family farm.

The Welty’s came to Leelanau to work at Black Star Farm and gain some experience before starting 9 Bean Rows. Don Coe at Black Star has been an important mentor (see sidebar).

The Welty’s are also well networked into the local food community in the region and statewide including the Grand Vision Food & Farming Network http://www.thegrandvision.org/food-farming-network, and the Grand Traverse Foodshed Alliance. Nic also serves on Michigan Food and Farming System (www.miffs.org) Council and has relationships with Michigan State University (MSU) and MSU Extension including the MSU Student Organic Farm at the MSU Center for Regional Food Systems. These networks provide both a learning forum for 9 Bean Rows and an opportunity for the Welty’s to contribute to the broader development of thriving and successful local food farm enterprises.

Food Value Chain 3

9 Bean Rows continues to expand and meet market opportunity in the Traverse City region. Cherry Capital Foods, a key wholesale customer, is building a new distribution center in 2014 that includes half dozen suites for supplier business co-location. 9 Bean Rows will locate its produce processing facility in one of those spaces – allowing for direct “through the wall” delivery to Cherry Capital for broader distribution.

Finance

Income Streams: In 2014, the 9 Bean Row branded cluster will exceed half a million dollars in sales from the various enterprises. The revenue channels include: - 9 Bean Rows, LLC that operates the farms and produces the produce and bakery products, provides consulting and services to other local-food entrepreneurs, and also serves as the asset-holding company from which other ventures rent/lease facilities. The asset-holding arm of the LLC is revenue neutral at this time, with income covering depreciation, and the prospect of accruing future asset appreciation. - Roux 9, LLC a separate entity doing business as 9 Bean Rows Restaurant (allowing it to hold a liquor license) - Boulangerie 9, LLC – doing business as 9 Bean Row Bakery.

Approach to Business: Behind this simple organization are five years of sweat equity, creative capitalization from a number of sources, and trust relationships that have fostered this growth. The 9 Bean Rows name is derived from Yates’ poem “The Lake Isle of Innisfree”, “…a small cabin build there, of clay and wattles made: Nine bean-rows will I have there, …and I shall have some peace there”. The Welty’s have not strayed far from Yates’ vision, building small as they started, but expanding as the opportunity arose! 9 Bean Rows was incorporated in 2009, a year after starting the CSA garden and hoop house on the site of Black Star Farms (www.blackstarfarms.com) - where Nic had previously been farm manager. Black Star has a track record of incubating complimentary value added food and hospitality ventures. That year Nic rented the land and hoop house under an arrangement that had them pay only a percent of revenue. Initial working capital was provided by the pre-sale of CSA shares. Jen Welty also leased the Black Star ovens for the early-morning hours to launch the bakery, completing her baking before the Black Star culinary staff’s day began. This creative arrangement allowed 9 Bean Rows to launch with minimal capital outlay. Nic was an astute manager, keeping costs low by determining that he could grow amazing vegetables without the need of a tractor or other power equipment – leveraging soil, compost, mulch, water, sunlight and a lot of sweat equity both on the production and marketing side to establish the business and brand.

Asset Capitalization: Hoop houses are key to 9 Bean Row’s season extension production strategy in the Leelanau climate and they now have three on the farm. The first hoop house at Black Star was financed in part through the MSU Hoop houses for Health program, as well as some volunteer construction labor. By its second year, 9 Bean Rows assumed ownership of the Black Star hoop house and financed the building of the second structure with funds borrowed from family members. The third structure was partially financed with NRCS funds in partnership with Northern Michigan Community Action Agency where the Welty’s had established an Individual Development Account (IDA) that provided matching funds for small business start-up and expansion.

By year three, having some success in the marketplace, both the bakery and farm needed to expand. That year Nic’s father had sold the home farm in Ohio, and invested some of the process as a part owner in a second 14- acre farm purchased in 2012. That financing is structured to repay Nic’s father – as a partial contribution to his retirement income. The restaurant building was purchased in 2013 with a combination or bank financing, a SBA loan. The building needed a lot of sweat equity to clean up the existing kitchen and make the front of house venue ready for opening, but this minimized costs. Several customers of the 9 Bean Row Farmers Markets stepped up as angel investors with fixed rate 10-year loans to cover the liquor license related costs and an operating/working capital fund.

Working Capital: The pre-sale of CSA shares are an important working capital source for the farm. By year-two, 9 Bean Rows had established enough of a track record to qualify for a Small Business Association (SBA) working capital loans and 504 loans. This allowed them to establish wholesale account and manage cash-flow for the net- 30 day or longer terms till they received payment. Astute management and good planning have allowed 9 Bean Rows to retain the working capital revolving credit needed for ongoing operations. Nic uses a self-developed real- time tracking app on his smart-phone to track yields, sales, margins and profits to ensure he is fully informed on the status and progress of the various enterprises.

Key Learning

Plan well and manage costs. Early on, it’s important to invest sweat equity as a way to minimize expense, become profitable and build real equity. Leverage branding and marketing across new market channels to get quick recognition and grow new businesses.

Visit the 9 Bean Rows website to keep current on the development of the farm and related businesses: www.9beanrows.com Nic and Jen’s work and 9 Bean Rows were recently featured in National Geographic Magazine –September 2014: http://news.nationalgeographic.com/news/2014/09/140919-aging-american-farmers-agriculture-photos-ngfood/