Small Ownership Group
= seen as a possible type of Community-Owned Business
"Small groups, such as partnerships and closely held corporations (also called private-stock corporations), are such traditional forms of business ownership and capitalization that most people don't think of them as models for a community-owned business. But they can be. A small group, or even an individual entrepreneur, can open a business with a community-minded purpose.
Partnerships and private-stock corporations have different legal structures (in a partnership, the individuals are owners; in a corporation, they own shares, even though the stock is not publicly traded or easily sold), but both can embody social-enterprise and community-ownership principles. The most notable functional difference from a "community-owned corporation" (such as The Merc) is that small ownership groups tend not to be open to the general public and the "group" is usually, well, smaller.
Firefly Restaurant opened in Effingham, Illinois (pop. 12,000), in 2006. Operating their own restaurant was the dream of an Effingham native and her chef-husband, Kristie and Niall Campbell, who were then living in San Francisco. But they hadn't considered opening it in Effingham. Meanwhile, local leaders in Effingham had long seen a need for an upscale, independent restaurant where they could bring friends, family, and business associates, but they had not been successful in recruiting one.
During a visit home, the Campbells were courted by several local business leaders. Among them was Jack Schultz, CEO of Agracel, Inc., headquartered in Effingham, author of Boomtown USA, and self-described "business agitator." He was one of 18 local business people who helped raise $50,000 to invest in a new restaurant. The members of the group act as silent partners in the business, which is run by the Campbells. (A portion of the Campbells' ownership stake, in addition to a cash investment, derives from "sweat equity"; the remainder of the required capital was borrowed.)
The business is actually two LLCs: one owns the land and developed the building; the second operates the restaurant and leases the building. In its first three years of operation, the members of the initial group have made some additional investments, and the business is performing in the black. In Firefly's case, while the partners certainly hope to recapture their initial investment, they see their venture's primary goal as improving the quality of life in Effingham.
At the smallest end of the "ownership group" scale, even a sole proprietorship can incorporate social-enterprise tools and values. Linda Welch is a Washington, D.C., entrepreneur who has started and operated a number of businesses that have ranged from boarding pets to a comic book store. While she has never owned a restaurant, she is keenly aware of the need for additional vegetarian restaurant options in the city. So she's planning to open one, which will be called "Elements."
She teamed up with Neil Takemoto, an expert in crowdsourcing – a technique that uses a "community" to solve a problem. (See sidebar below for more information on crowdsourcing.) Together, they convened hundreds of local vegetarians to help Welch design the restaurant concept, including its name, logo, menu, location, and feel. Different from traditional focus groups, Welch's process helped her get potential customers' input while building buzz about her endeavor. What's more, this information-gathering and community-building process happened both online (using social media) and in-person. Crowdsourcing in practice: Army-Community: Heritage Partnership Program
Two Army communities – Fort Knox in Elizabethtown, Kentucky, and Fort Polk in Leesville, Louisiana – are currently organizing to develop community-owned or community-initiated restaurants.
Fort Knox and Fort Polk are participants in the Army-Community Heritage Partnership, a special initiative of the National Trust Main Street Center and the Department of the Army. Through surveys of local Army families (military and civilian), focus groups, and an analysis of consumer buying power, the Community Land Use & Economics Group and the National Trust Main Street Center were able to research and document the need for additional dining options "off-post," especially in the downtowns neighboring these two Army installations.
In Elizabethtown and Leesville, volunteer task forces made up of Army and community representatives are employing crowdsourcing techniques: they have each established blog-to-post updates about restaurant development plans and have invited local residents and Army families to participate in the initiatives. Each city hopes to establish a new, community-owned or community-initiated restaurant downtown within the next three years.
The "crowd" – which now numbers in the hundreds – has been meeting regularly for over a year and participating actively in online discussions. As one ongoing activity, members of the group collect pictures on their travels of places or characteristics they would like to see incorporated into Elements. Ultimately, Welch will own the restaurant, though she is considering a cash-plus-sweat-equity partnership arrangement with the chef. But Washington's vegetarian community will feel a sense of ownership, too, because they contributed to the restaurant's concept. And the benefit for Welch is clear: on opening day, Elements hopes to have 500 already loyal customers. Says Welch, "This is not a democracy, but I'm open to hearing any idea. For me, it's been wonderful." (Watch Elements in progress online.)
Members of a small ownership group may be active managers or silent partners, but they typically expect some degree of profit s haring in the business' success, usually in proportion to their investment or participation in the business' operations. If an ownership group is financing an entrepreneur, it is critically important that the business operator has a stake in the venture. The entrepreneur must assume a portion of the risk, just as the silent investors do. (See sidebar "Tips for Small Ownership Groups and Investment Funds.")
Firefly's story is the product of two great coincidences of entrepreneurship: a native, with restaurant experience, who was considering a move back home and was able to put together a compelling business plan. And a group of fast-acting local businesspeople that was able to secure resources, identify a site, establish itself as the building's developer, and provide financial and technical support. Cops & Doughnuts happened almost impulsively when a group of co-workers decided they needed to do something to save their favorite coffee spot. Community-minded investor groups can be cultivated by organizing individuals around a great idea with social impact, even if it means accepting a relatively high investment risk." (http://www.preservationnation.org/main-street/main-street-now/2010/marchapril-/community-owned-businesses.html)