Community Investment in the Local Food System How a small local food business in western Massachusetts preserved its social mission through transitioning to a worker-owned cooperative and using an innovative financing strategy Author: Jonathan Ward Special Projects Intern Community Involved in Sustaining Agriculture (CISA) Contributors: Margaret Christie Community Involved in Sustaining Agriculture (CISA) Addie Rose Holland Dan Rosenberg Real Pickles Jeff Rosen Solidago Foundation Sam Stegeman Pioneer Valley Grows (PVGrows) This publication with live links is available online at: www.buylocalfood.org/real-pickles-financing-case-study/ Abstract “We’re re-writing the standard storyline for these decisions, the worker-owners drew from the experience a successful organic food business,” says that one of them had working with Equal Exchange, a successful cooperative with a long history of raising capital Dan Rosenberg, founder of the twelve-year-old by selling non-voting preferred stock. Later, they sought the Greenfield, Massachusetts company Real Pickles, expertise of the PVGrows collaborative network in western which makes naturally fermented and raw pickles Massachusetts. A financing expert in PVGrows also connected Real Pickles to Cutting Edge Capital, a pioneering consulting from regionally grown vegetables in a 100% firm in the Bay Area that helped them navigate many legal solar-powered facility. hurdles. In the end, the worker-owners decided that the best way for them to raise $500,000 was to sell non-voting Instead of selling their growing company to a large preferred stock through a direct public offering. Real Pickles industrial-food corporation, as happens so often with officially launched a community investment campaign in March successful natural products businesses (think: Odwalla, 2013. Astonishingly, in just two months, the campaign was Naked Juice, Tom’s of Maine, Stonyfield, and so on), over. Seventy-seven investors — a mix of individuals, customers Rosenberg and his wife Addie Rose Holland (who had and suppliers, even a number of other co-ops — together joined him in running the business in 2004) went the other invested $500,000, which allowed Real Pickles to fully direction, deciding to keep Real Pickles small, locally owned, transition to worker-ownership. and mission driven. In late 2012, Rosenberg and Holland formed a worker-owned cooperative with other staff members, With interest growing in scaling up local and funded the co-op’s purchase of the business through a highly successful community investment campaign that food systems, the story of Real Pickles’ raised a half-million dollars. co-op transition and community investment Transitioning to worker-ownership gave the company a way to protect its social mission. Since its founding, Real Pickles has campaign offers important lessons. been committed to promoting human and ecological health by providing people with delicious, nourishing food and by working toward a regional, organic food system.1 In order to With interest growing in scaling up local food systems, help ensure that this mission would continue, the worker- the story of Real Pickles’ co-op transition and community owners inscribed these principles in the co-op’s organizing investment campaign offers important lessons. Communities documents, and made them very difficult to change. Still, even need businesses that can model ways to stay small, vibrant, after organizing the cooperative structure, the worker-owners and locally owned. This story is both inspirational and rich needed to raise a half-million dollars to buy the business from in technical detail so that others can speak about it, replicate Rosenberg and Holland. They considered a number of options it, and, ultimately, build upon it to fit their own visions of for financing, from subordinated debt to equity. In making resilient local economies. Kristin Nicholas photo 1 For more on Real Pickles, see www.realpickles.com 2 COMMUNITY INVESTMENT IN THE LOCAL FOOD SYSTEM Not Your Average Pickle Real Pickles sold its first jar of organic dills in system, the risks of building a business are accompanied by 2001, after Rosenberg decided to take a chance the potential for high financial returns down the road if the business is very successful, usually from taking the company and turn his pickle-making hobby into a startup public or selling to a larger corporate entity. Of course, only food business. He purchased a thousand pounds a handful of start-ups ever see high returns, and many of cucumbers from a family farm in western business owners work for a long time, without much income, before seeing any significant profits. An alternative definition of Massachusetts, pickled them, and convinced a entrepreneurial success might involve entrepreneurs receiving number of local stores to make space for them reasonable compensation for hours worked, with any addi- on their shelves. tional reward coming in the form of gratification knowing they have taken steps to ensure that the business will continue to make an important social contribution. But these weren’t your average pickles, and Real Pickles wasn’t your ordinary company. For one, there was no vinegar in For Rosenberg and Holland, the questions were less about Rosenberg’s recipes. These pickles were traditionally preserved whether they wanted to choose an alternative path, and using the ancient process of lactic-acid fermentation.2 And more about exactly how Rosenberg didn’t go into business just to make a living. He to do it. In 2012, they Real Pickles products are saw Real Pickles as a way of contributing to the growth of a began to find the answers healthy regional food system, opting to only source and sell and, along with Real traditionally preserved in the northeastern United States. Pickles’ staff, made the using the ancient process decision to restructure In 2002, Real Pickles moved into the Western Massachusetts as a worker-owned of lactic-acid fermentation. Food Processing Center, a state-of-the-art, shared-use cooperative. incubator kitchen run by the Franklin County Community Development Corporation in Greenfield, Massachusetts. Seven years later, the business grew big enough to need a facility of its own. They bought and renovated an old building across the street, outfitting it with energy-efficient refrigeration and enough solar panels to power the whole operation. Today, Real Pickles buys hundreds of thousands of pounds of certified organic vegetables from local farms, and offers eleven fermented products, running the gamut from their award-winning garlic dills to kimchi, sauerkraut, and tomatillo hot sauce. Whichever way you look at it, Real Pickles has enjoyed real success. They have built a loyal community following and profitable regional markets. But, this is also a point where entrepreneurs often confront the question of where to go from here. Although Rosenberg and Holland remain wholly invested in Real Pickles, they decided to do some long-term thinking about how to set up a structure that would support the business and help sustain its social mission should they ever decide to leave. And, if that meant altering the ownership structure of the business, this would also be the time for Rosenberg and Holland to receive compensation for the value that they had put into the business over the years. But, the concept of fair compensation can mean different things to different entrepreneurs. In the traditional capitalist 2 For more on lactic-acid fermentation, see Real Pickles’ discussion of the process: www.realpickles.com/process.html 3 COMMUNITY INVESTMENT IN THE LOCAL FOOD SYSTEM Real Pickles Goes Co-op Real Pickles founding worker-owners (left to right) Dan Rosenberg, Addie Rose Holland, Annie Winkler, Kristin Howard and Brendan Flannelly-King on the day Real Pickles converted to a cooperative. Forming a worker-owned co-op would be a At this point, “Why?” seems like it might be an appropriate hugely significant step in defining the future question for Rosenberg and Holland. What makes it worth all the extra time, money, and effort? The decisions to convert of this successful food company. to worker ownership and to fund that transition through community investments brought with them significant For one, now a group of worker-owners would share in costs and obstacles for Real Pickles’ founders and the other decision-making for the business, instead of just Rosenberg worker-owners. Nonetheless, these choices reflected priorities and Holland, helping Real Pickles to be less dependent on its that Rosenberg and Holland had set for the business from the founders in the long run. After being with the company for a outset. Why not buy into the argument made by many other year, Real Pickles employees could apply to become worker- organic food entrepreneurs who have sold their businesses to owners. Profit-sharing and a role in decision-making would give multi-national corporations as a professed socially beneficial employees an incentive to stay on for the long term, building a move? “As I see it, leaving it to big corporations to run staff of committed, knowledgeable the world leads to very bad social worker-owners. Doing business as a outcomes,” says Rosenberg. “If we are worker-owned cooperative also would Real Pickles has always been to really change the food system, and help to keep the company’s strong our society as a whole, we need lots social mission and community roots about more than just their of small, mission-oriented businesses. intact. In addition to sourcing regionally fascination with things And we need them to stay small.” grown and organic ingredients, and Despite the clear demand for their limiting sales to the northeastern United fermented. It’s a company products across the country, Real States, Real Pickles’ commitments extend Pickles just sells direct to regional stores to producing food with high integrity, formed out of respect and smaller, family-run distributors serving remaining a small business, and providing for good food, people, only the Northeast — decisions that only good jobs and opportunities for its seem to make sense if you look at their employees.