Sunday, March 20, 2011

A capital idea?

Hello and happy spring!

First of all, I want to thank everyone who has taken the time to respond to our questions. We have had lots of messages and comments about the menu and service issue. We really, really appreciate it! Your feedback is really helping us make decisions, and tailor the pub to our community. Overall, people seem to be up for ordering at the counter, as long as it is clearly communicated. One great suggestion we've had for a better counter service model was to have menu/ordering forms on each table that can just be checked off with the order and brought to the counter, all filled out.

I'm still recovering from a jam packed ACORN conference in Fredericton. What an exciting event - so many people gearing up for spring, really great food and conversation, and so many neat people with great ideas and projects underway! For instance, Crown O'Maine gave a presentation on their cooperative model for warehousing and distribution of locally grown produce-an excellent business opportunity for someone in just about every community in the maritimes! And Ashley Durdle, co-owner of the Happy Hopyard, a 16 hectare hop growing farm near Anagance, NB, told me about her new venture–trying to get a hop pelletizing plant in the Maritimes!

So, I'm making a real push to try and get our business plan finished up by the end of the month! And next month we'll begin our fundraising efforts. 

Our next question for you is about the different models for raising start-up money that we're considering.

1. The most traditional fundraising model for a new business is to form a corporation and sell shares. I'm not sure I'm 100% comfortable with this model. The focus of the business narrows to increasing profits to benefit shareholders, and the restaurant industry is not known for high profit margins. Ownership is diluted and can become increasingly faceless. I'm convinced that for our venture to succeed, it really needs hands on, total immersion ownership and management–as my uncle Victor put it, it needs to be a "mom and pop shop."

2. Another option is to start a CEDIF, or Community Economic Development Investment Fund. Rather than investing your money in mutual funds or RRSPs that take that money out of the community, individuals pool their investments and put them into local businesses. This is a great fundraising model, but I'm under the impression that it requires a fair bit of money just to set it up, and is pretty red-tape intensive. The Port Pub in Port William used this model to raise their funding, but they operate on a much larger scale than we are proposing and employing far more people. I can't help but think this sort of fundraising initiative would be better suited to building a new space for our farmer's market (as was suggested at a recent Antigonish Sustainable Development meeting), or developing a cooperative warehousing/distribution operation for locally grown foods to retailers, buying groups, and restaurants (like the Crown O'Maine Co-op I mentioned earlier...).

3. Finally, the model we've been most seriously considering, as it seems best suited to the scale and spirit of our enterprise is one called Community Supported Restaurants, or CSR. This model has been used extensively in the North Eastern states, and grew out of the Community Supported Agriculture (CSA) movement, in which people buy a subscription to a farm and get weekly deliveries of produce. Several businesses in and around Hardwick, Vermont, have started up using this model. Incidentally, Hardwick is a fascinating case study for rural community redevelopment. When the granite industry packed up and left town they were in dire straits. There is a really great article from the NY Times about  Hardwick's agricultural renaissance, "Uniting Around Food to Save an Ailing Economy." The area is now known for things like the High Mowing Organic Seed company, great organic produce, artisanal cheeses, and a really great little bar and restaurant called Claire's.

Claire's wanted to use all the area's top quality locally produced foods and offer fantastic meals right downtown. They had a lot of support from the community and came up with their start-up funding using the CSR model, selling "subscriptions" (CSRs have to be careful not to use the word "shares" for legal reasons) for $1000 each to be paid back in free food. I was curious about how it all worked (like how could they manage their cashflow with all that free food going out?) and got in touch with manager and part owner, Linda Ramsdell. She very kindly sent me a detailed account of their system and the experience in general. Everyone who was interested in Claire's and what they would add to the downtown community bought a subscription for $1000. This entitled them to one $25 food voucher per month, for 10 months of the year, for 4 years. This carefully structured system brought Claire's very low-cost start up capital, and enabled them to manage their cash flow (they knew exactly how much free food would go out each month) and kept the accounting relatively simple. It's important to note that these subscriptions are not guaranteed–as in Community Supported Agriculture, part of the deal is that subscription holders share the risk of failure with the business. However, Ramsdell says they have been very happy with the model, and that there are other important benefits. Here's a brief excerpt from her letter:

“We have been very happy with the CSR model. We sold 50 subscriptions for $1000 each. Since most of those 50 represent couples or families sharing the subscription, we have over 100 people who are a part of Claire's in a most vital way. We have been very happy with the positive attention the model has received, and the literal buy in of so many of our customers. I would do it again. Raising money for a project is not something I enjoy, but this way of raising capital seemed innovative and exciting to people.”

I love the way this model keeps things very simple and straightforward. Obviously, paying less interest on start-up funding would help the business find its feet more quickly, and repayment in food would be far more immediate for subscribers than if they had to wait we were able to pay out dividends to shareholders. I also like the relationship it creates between the business and subscribers. It would place great responsibility on us to make sure the community is happy with our products and services, and also mean that everyone who chips in is really part of the whole venture. In order to make this more concrete we've been thinking about the SUDS (Start-up and Development Support) Club for people who buy subscriptions. This club would be set up as an informal board of directors who could offer advice and feedback as we proceed. Suds Club members would be entitled and encouraged to participate on this board (but not required to!), and, in addition to the free food vouchers, we'd offer other special perks. These perks could include some combination of the following, just for instance: 
- your own beer mug hanging above the bar
- an annual Suds Club meeting, free dinner and party
- regular updates on specials, events, etc.
- the chance to guest bar-tend once a year (this is my father's idea!)
- do you have any other ideas???
 We're hoping that with the Antigonish community's cooperative/community development heritage, a CSR will be a natural fit (anyone unfamiliar with this look into Tompkins, Coady, and agricultural pioneer Little Doc Huey!).

But what do you think? Could a CSR model work in a town like Antigonish? 

If you were able, would you feel comfortable contributing to a CSR start-up fund? Or would you find a CEDIF structure more appealing?

What kind of perks would entice you to become a SUDS CLub member?

Here are some great articles and resources if you'd like to learn a little more about CSRs and CEDIFS.

Very brief article on CSRs:

Clair'es Restuarant's "New Vermont Cooking" Blog explains their CSR model:

Article by Silver Donald Cameron on The Port Pub and CEDIFs:

Government Website explaining CEDIFS, note recent changes re: guarantees...

Please let us know what you think of these models, and if you or people you know would ever consider participating in something like this. We're not asking for any commitments right now! We just want to get a sense of whether people in Antigonish are up for helping to create Atlantic Canada's 1st Community Supported Restaurant and Brewpub!




  1. I think the CSR model sounds amazing, though I'm out of town so it's a moot point for me. That being said, if I were in town, I think committing $1000 to four years of eating out would be a bit steep, logistically. Then again, if the price were lower, the number of subscribers would be higher which might a) end up being a big short-term drain on your food planning, and b) limit the kinds of events you could throw for your subscribers. Thinking out loud.

  2. I immediately think CSR or CEDIF; CSR over CEDIF because it'd guarantee the foot traffic into your place that'd ensure word of mouth endorsements. People would come in often as they'd have those vouchers to use. Plus, some might choose to not use those vouchers as a way to reinvesting in your place again and again. ("This meal was too good to be free!") Could they share their vouchers to introduce other people who might not have invested but they feel would become a regular if they had a free taste? (If a physical stack of vouchers, could each have a space on the back that read "Try this out on me" or something?) I wonder if a CEDIF investor might be more hands-off as well as being unable to share the benefit of their investment as easily? Who invests in CEDIFS? I mean, I know people do, but who are they? It'd be interesting to know how often the HSP Farmers' Market for example sees their CEDIF investors. Every week? Once a month? At meetings only?

    I think the $1000 ask is reasonable and do think reducing it'd overburden you with promises of free food. It's also the same as the minimum CEDIF ask, isn't it? People will invest if they can make it in often enough and see the influence your establishment has on local farmers. Acknowledgments in addition to mugs: engraved table or chairs, bar stool, hand stitched names on cloth napkins, small photo collage, etc. There's no shortage of fun ways to make your investors feel a part of the place.

    Check out this video when you have an hour. The FearLess Revolution, and Common brand (heard of them?), have become topics of discussion around here as we talk about how marketing is becoming more about fostering communities than it is selling people things.

    This guy - an adman turned community-minded thinker-investor trying to enable a re-imagining of capitalism that better supports the creative community and fosters growth in small, community based businesses - is on to something along the lines of how TEDTalks are demonstrating how design plays into everything...

  3. Thanks, DW and JeffO. This is exactly the kind of stuff we want to be hearing... keep it coming, people!

    Looking forward to checking out that video–sounds like a direction worth pursuing.

  4. have you considered channeling some of the start-up costs through a kickstarter account? It offers a lot of the benefits you point out in a CSR model - kickbacks and material incentives for investors - without having to create a separate community of investors through exclusive club meetings, reserved beer mugs, &c.

  5. A Cedif investment has far to many benefits to the investor to simply list in a quick reply. Here are just a few quick thoughts. When investors place money into a Cedif approved business, the business plan has been checked over by the provincial government relentlessly to insure the business is a viable one. Further more 80% of the investment money placed into a Cedif must be placed into hard assests, such as building, land, equipment if the business were to fail there are assests to pay off the investor. The main reason I feel Cedif's are of the best value for an investor is the fact, you Recive 35% of the money you invest into a Cedif program, though a provincial rebate on your year end taxes. I invest 10 000$ I get back 3500$ at tax time. Lastly you can use existing funds in RRSP, where the individual has already received their kick back in the past and still get their 35% tax break at tax time. For example the maximum amount any one investor can place in a Cedif is 50 000.00$. If I have 50 000$ in my RRSP simply by investing that money into the new shares of the Cedif business I receive 17,500$ in cash at tax time. You have to have enough provincial tax to equal the 17 500$. Tax can be claimed 3 years prior or 7 years forward. So by investing in a Cedif you essentially just pulled out 17 500$ of tax free money from the government and retained a full 50 000.00 in a new local company, which depending on its success will appreciate in value. This is simply a no brainer to invest into Cedif projects when 80% of funds raised is in hard assests and the government gives you 35% tax rebate. Do the math... If the business fails you actually make money, the investors in the Cedif are the first ones to be paid back their investment. Well done Nova Scotia government, this is possibly the best business programs ever initiated by the province that unfortunately many haven't even heard of. What are the drawbacks? The main ones in my opinion are that your investment money placed into the Cedif is locked up for 5 years, if you withdrawal the funds or sell shares to buy into another investment you will be forced to pay back the 35% to the government. As well mentioned previously, the Cedif process is costly and requires a tremendous amount of paper work and back in forth checks at all stages of your business plan. Getting approval is not easy for this program but the extra time and cost are well worth it. Hope this helps. Cheers.