My brief trip to Ann Arbor last April introduced me to a real-life application of conscious capitalism. Zingerman’s Community of Businesses is a thriving enterprise that does good business while doing a lot of business good. Rather than extracting all the profits from their companies, the owners put back much more than they take out. It’s a model that deserves some deep contemplation, and it’s the example I turn to as I seek a new investing construct for myself. Allow me to introduce what I’m calling the Enough Project, a gonzo investing and writing experiment to see what kind of impact I can have by investing small amounts in good businesses committed to doing good.
Eating in Ann Arbor
It’s raining hard this April morning as our rental car speeds west down the short stretch of interstate 94 connecting the Detroit airport to Ann Arbor. The windshield wipers set quick cadence, a rhythmic background for the good-humored argument entangling my two colleagues and me. My boss, Josh, sits in the back scrolling through his iPhone, barking out various Yelp recommendations for good eating options in Ann Arbor. Daniel is in the front seat, and I’m behind the wheel. We’ve already shrugged off Josh’s first suggestion – that we let some group of restaurants called Zingerman’s monopolize all of our meals – and now he’s tossing out alternatives.
Josh is our company’s resident foodie, and so we usually defer to his better judgement when it comes to dining on the road. Plus his wife earned a masters at the University of Michigan, so he can call on first hand experience when it comes to the local restaurant scene.
Yet we challenge his every recommendation – we’re feeling argumentative – and so we’re now resorting to the advice of anonymous Yelpers.
As Josh relays their suggestions, we sense his heart isn’t into any of the substitutes.
Okay, we finally relent. Your original idea sounds fine.
“Great!” Josh responds, his demeanor changing instantly.He dials a number and within seconds we have a dinner reservation that evening for some place called Zingerman’s Roadhouse.
Second Thoughts on Investing
I’ve been mulling over a change to my investment approach for nearly a year now, seeking to reconcile my desire for high returns with a growing sensibility to do something constructive and socially beneficial with my money.
My investments have scored respectable success through trades in exchange-listed companies where I buy shares of a business after the markets have meted out harsh punishment for earnings misses. Wall Street wants profits today, and woe be the company that disappoints! So by buying when overreaction pushes a stock down, I’ve found financial rewards by being patient enough to hold on to a depressed stock through a cycle or two.
For me it’s been a pure profits game. True to the homo economicus ideal (that man is solely motivated by his own self interest), I saw my investing job as putting dollars in the companies I believed would generate the highest returns. And once I was a shareholder, I believed the purpose of those businesses was to maximize profits, doing whatever it takes to get back in the good graces of Wall Street and goose the value of my holdings.
This is the traditional model of total shareholder returns, and I have sipped gladly from that Kool Aid for years. To borrow from Milton Friedman, the business of business is business, and CEO’s owe it to investors to do whatever it takes build stock value and quickly. That’s the dogma that rationalizes all sorts of questionable behavior. And if you’re on any end other than the winner’s, well, don’t take it personally. It’s just business.
But over the months it’s dawned on me that my investments have more impact than that innocuous click of my mouse might suggest. Each buy and each sell through my brokerage accounts is a form of expression. Much like my vote in an election year, the ways I choose to deploy my hard-earned capital expresses my priorities. My values. It’s hardly different than a vote for a candidate indicating support for what that politician represents. This is true whether you’re buying shares of a business anonymously through the stock market, or putting investment dollars directly into a local company you want to support. It’s an expression of your values whether you like it or not.
So: if these investments represent who I am, even if only in tacit ways, I need to think long and hard about the businesses I invest in.
I’m feeling a little hollow by measuring success purely by financial return. Yes, it’s a relevant component, and I’m not suggesting otherwise. But are there other criteria of success that matter here, too? Can I use these dollars both for financial return and to support businesses that will deploy them in ways that benefit my community?
It’s a question with which I’ve developed a somewhat neurotic obsession.
A Zingerman’s Education, 101
A few hours later we’re walking through the doors of Zingerman’s Roadhouse. My colleagues and I have had productive meetings on campus that afternoon, and we’re ready to wind down.
The hostess greets us warmly, informs us our booth will be available soon, and invites us to look around or perhaps belly up to the nearby bar for a warm-up cocktail. We elect to mill around the entrance for a bit and quickly gravitate to a long row of hardcover books placed neatly on a shelf by the front doors. Soon enough each of us has one in his hands, and we’re thumbing curiously through the pages.
Josh, Daniel and I are part of a team working hard to build a small software business in Raleigh. Our ambitions are grand, but we believe the way we accomplish our goals count as much a whether we accomplish them. The means count as much as the ends. Our corporate mission is “love,” and we’re dead serious about it. We believe we have a commitment that extends beyond the most common measure of business success…high returns for investors. Don’t get me wrong, we are no slouches when it comes to growing our sales and keeping costs down. But that’s only one piece of our larger goals. Making money counts, but we work hard to make sure it doesn’t overwhelm the mission.
This is not always easy. Businesses with a mission have a heavier burden than those out solely for profit. If you’re just about making money, there are all sorts of shortcuts you can take to maximize your returns. If you’re trying to do more, you can’t always avail yourself of the quick path. You are forced to be better.
And part of being better is following those who blaze the trails for you. We’re always eager to learn from other businesses and entrepreneurs whose experiences can serve as our models.Thus are noses are frequently in books.
What we begin reading in the Zingerman’s books piques our interests as we wait to be seated. Each is authored by co-founder and CEO, Ari Weinzweig, and the titles begin, “A Lapsed Anarchist’s Approach to…” Volume One is “…Building a Great Business;” and Volume Two is “…Being a Better Leader.”
The books provide some quick highlights about the company. For example, the Roadhouse is part of the Zingerman’s Community of Businesses, an Ann Arbor institution built slowly on the back of a humble delicatessen Ari opened in 1982 with his partner Paul Saginaw. They started small in an oddly shaped building in the run-down Kerrytown neighborhood near the University of Michigan hospital. They had a vision of bringing old style jewish deli sandwiches to their adopted town, of introducing high stacks of of sliced meats piled between locally-baked fresh bread. Ari and Paul had both enjoyed such delights growing up, in Chicago and Detroit, respectively.
In the 31 years since they started on a shoestring and a vision, they’ve expanded to ten separate companies that register annual sales approaching $50 million.
They’re doing something right, but it’s not so much that they’ve managed to grow, it’s how they’ve done it. Zingerman’s proclaims a triple bottom line of “Great Food, Great Service, Great Finance.”
As that little deli became a cult classic, attracting patrons far and wide, Ari and Paul had many opportunities to cash out. Interested business people approached them, eager to buy the deli’s franchise rights; eager to expand the brand to bigger cities, broader customer reach, and certainly more money.
Ari and Paul decided to stay put. They made a conscious decision to devote their business to the larger Ann Arbor community, confining its investments to the town and surrounding area. They wanted to build this business in a sustainable way where more stakeholders (customers, employees, suppliers, etc.) could take part of a growing pot rather than a couple of investors cashing out and walking away with all the chips.
Though the business of business might often be profits, Ari and Paul implied with their action that it can also be about creating an organization through which more people win than just the investors.
Milton Friedman’s ghost is not smiling on Zingerman’s. But a lot of people in Ann Arbor are.
High Prices for a Purpose
The hostess leads us to our booth now, a spot to the side of a wide-open dining room filled with tables that are crowded with diners. Every seat is taken this Thursday evening.
The walls are adorned with Zingerman’s own graphic art, whimsical cartoons created in-house to tell us the story of the food, the people who produced it, and the farms from which it came. Glass-encased shelves are mounted on the walls packed tight with an expansive collection of miniature salt-and-pepper shakers. These porcelain figurines of cows, chickens, garden vegetables, and pigs (lots of pigs) remind us of the folksy Americana that defines Zingerman’s at least as much as their calorie-laden comfort foods.
We sit down, open our menus and…Wow! Suddenly the folksiness seems at odds with the prices we see. Zingerman’s is not the low-cost option in Ann Arbor’s dining market. The price list is more reminiscent of the stereotypical snooty French restaurant that serves its entrees in tiny portions on the finest bone china to be consumed only with glimmering silver-plated utensils atop starched tablecloths. All while charging top dollar for the privilege of dining there.
We ask each other, is it a conflict to be so vocal about customer service and still charge these prices?
There seem to be three reasons any business charges high prices for what it offers, whether it be food, widgets or service:
1. They MUST charge premium prices (so they do) because they have high costs. If they didn’t charge a lot of money they wouldn’t be viable. The money is consumed by the business with nothing left over for the owners, or anyone else. These are not good businesses and so they also have little opportunity to do business good.
2. They CAN charge premiums (so they do) that far exceed their costs because their stuff is in such high demand. The owners then seek to maximize the share of the profits they get from the proceeds by minimizing the take by suppliers, employees and other stakeholders. They have good businesses, but they opt to hoard the benefits for just a few.
3. As with number two, they CAN charge premiums (so they do), but they do it with a sense of purpose that transcends profits. The high prices cover the costs, and some meaningful portion of the profits are reinvested in the business and distributed to other stakeholders. The owners get enough of it back, but not so much that they’re shortchanging others that work hard to help the business succeed.
Zingerman’s seems to fall into the third category.
In pursuit of great food, the Zingerman’s restaurants source supplies from the highest quality local farms, bakeries, cattlemen, creameries, etc. Rather than arm-wrestling with vendors to extract every last nickel and keep their costs of goods down, Zingerman’s commits to paying fair prices that allow suppliers to create sustainable businesses of their own.
This creates a pay-it-forward virtuous circle. The high prices allow Zingerman’s to serve great food, pay its people (who satisfy that “great service” bottom line) fair wages, and also buy from suppliers at fair prices that allow these business to do the same…create great products, pay fair wages, and support their own suppliers in fair ways. The ripple effect spreads through Ann Arbor with more people earning wages that allow them to pay their bills and have some disposable income left at the end of each month, making for more consumers with enough money to spend with local business, and a whole lot of goodwill to support places like Zingerman’s.
This is no accident. It is the result of some conscious decisions. Ari and Paul are savvy business people, and they’re not going to fall into the trap of category one above. But they could easily opt for number two. They could drive hard bargains with their suppliers. They could pay lower wages. They could give less back to the community food bank. They could reinvest less in the business. All of these things they do that benefit Ann Arbor over the long run, take money from the owners’ pockets in the short run.
But I imagine they’ve done well enough for themselves over the past 30 years. I assume they maintain comfortable standards of living. And from hearing Paul speak at a recent event in Durham, I know that they possess a sense having enough. They don’t need to squeeze every last penny. They’d rather share the gains with others in Ann Arbor.
Zingerman’s charges high prices for the food, but their business practices have helped create a clientele that’s happy to pay a premium to combine the great food and the energy of great service with the knowledge that they’re supporting an organization doing a lot of good for the community.
My colleagues and I get this. These are values we’re trying to instill in our small software company. We’re known for charging higher prices for our product, but we’re also committed to using the proceeds for doing good for our employees, our customers, and our community.
Josh, Daniel and I discuss these very points while sitting around the table, waiting for our food.
Enter the Water Pourer
Our server is now standing alongside our booth contorting her body in Cirque du Soleil fashion, twisting her right arm behind her back, leaning to one side, and turning herself sideways towards our table.
Our meal has been delivered and the contortions come in response to my innocent musing, hmmm…I wonder what part of the cow my steak came from.
The statement was probably rhetorical, but she was not going to miss an opportunity to educate me about the Zingerman food. Her pointing finger makes clear, my steak came somewhere just below the shoulder blade of the pasture-raised bovine.
As she’s teaching my colleagues and I, we notice the man who keeps showing up to fill our water glasses. He bares a striking resemblance to the actor Jeff Goldblum – tall, wiry and bespectacled with close-cropped curly hair and a small black stud in each ear. He’s doing a respectable job slaking our thirsts, but something about his air makes him seem out of place for this role.
He lacks the casual indifference we’ve come to expect of wait staff relegated to this particular duty. He’s engaged. Attentive. Perhaps even eavesdropping a bit on the conversations between us and our flexible server.
This Sense of “Enough”
I have this growing sense of “Enough.” The combination of living below our means and some investments that have paid out handsomely, has allowed my wife and me to build a little bit of wealth. We aren’t rich, but we have enough to breathe a little easy; to hold some sense of security if emergencies ever pop-up.
For some reasons we’re not of the conspicuous consumption ilk. To be fair, this is not by accident. We definitely find ourselves wanting things that are bigger, better, faster and that might even stoke a little envy in our neighbors. And occasionally we indulge. But not often, and we find that indulging rarely carries with it any enduring sense of happiness. So we work to cultivate a sense of enough; of contentment with simple things; of experiences that bring joy.
We have a reasonable path laid out for ourselves where we can provide comfortably for our daughters, pay off our house a bit faster than the mortgage note requires, and sock away some extra to cover tuition costs for when the college days roll around.
We’re pretty happy. It seems enough.
We want our wealth to continue growing, but do we really need to funnel every last penny into wealth-maximizing investments? This burgeoning sense of enough says “no.” It is not our ambition to be billionaires with mansions for summering on Shelter Island. We relate more to the author who created something meaningful for the world, supported himself just fine, and steps back to say “I’ve got enough.”*
So we’re at a place where we’re willing to let some piece of our money go to work in ways that express our values and interests. It doesn’t all have to go to our next Facebook investment. Some portion of it can help build our community into the kind of place we want to live, supporting people who create things and provide services that make Raleigh and the Triangle richer places for our friends, our family, our children to live.
I look at Zingerman’s and all it does to enrich Ann Arbor, and I wonder, how can I (as an investor) help support businesses like that here? How can I use my capital in positive ways to foster an ecosystem of conscious capitalists who put back more than they take out?
Return of the Water Pourer
My colleagues and I finish dinner and eagerly consent when offered a chance to peruse the dessert menu. After some tasty food and plenty of philosophizing about all things business and virtue, Josh is finally getting his due for pushing us hard to eat at Zingerman’s Roadhouse tonight.
We’ve spent much our meal discussing the few excerpts we read from the Zingerman’s books earlier, and as we place our orders, we mention to the server that we’d like to purchase several copies of the books. She promises to deliver them after dessert.
And she adds, “Ari is actually here tonight so I’ll ask if he’ll sign them for you, too.”
When dessert has been polished off, we see Jeff Goldblum back at our table. This time without water. He skooches Daniel over on the bench seat, sits down with us, and pulls out a stack of six books he brought with him.
“Hi, I’m Ari,” he says, reaching out his hand and smiling widely. “Thanks for buying my books.”
Wait? You’re the CEO? Weren’t you just filling glasses for our server? “Sure!” he responds cheerily. “I call it management by pouring water. You can read all about it in the book. It’s my management secret number 25.”
He asks why we’re in town and wants to hear about our business. He patiently answers many questions about his. After several minutes he opens the books and scribbles notes into each. One of mine reads, “Paul – Lead well, have fun! Ari 4/2013.” He then hands us each his card and tells us to send him an email anytime. He seems genuine with the offer, adding that he reads each email and always responds.
Ari gets up, tightens his apron, shakes our hands and walks off. Moments later we see him behind another server, pouring water, and listening intently to the banter between waitress and customer; a look of attentive interest spreading across his face.
The Enough Project
As I contemplate ways my small chunks of capital could be put to use in this community, I imagine how investors might have supported Ari and Paul as they got Zingerman’s off the ground. I think of all the good they do for the Ann Arbor community – the jobs, supporting local suppliers, creating delicious food, helping the local food bank with cash and in-kind donations – and I wonder…
Were investors glad participants in the founding of that small deli at the corner of Kingsley and Detroit Streets? Were there offers of financing during those inflection points when they expanded the deli and started opening the other businesses?
My suspicion is that capital was difficult to come by until they stacked success on top of success on top of success. I suspect that traditional investors – angels, venture capitalists, banks and even credit unions – were not eager to jump in and lend support for a business still proving itself; for a business that doesn’t offer the huge upside of explosive growth to compound investment returns.
And yet this is the exact sort of business,run by the exact sort of people, we most want in our communities.
And so, I’m starting a journey I call the Enough Project. I’m curious if it’s possible to identify burgeoning Zingerman’s in my area, to find small ways to provide assistance with either entrepreneur-friendly equity or credit extended on favorable terms.
The project will ask: Is there a need in our own ecosystem that’s going unmet by traditional sources of funding? And if so, are there small ways I can help, using my investments to express my values and – in the process – contribute to a richer, happier community here in the Triangle?
Join me on this website over the next couple of months as I document the stories from putting this little slice of my money to work in the Enough Project. I’d love to hear your thoughts and get your suggestions. Feel free to get in touch to share any stories or insights you might have.
* Here I refer to a previous post, Being Content: An Investing Opportunity?, featuring a poetic conversation between authors Kurth Vonnegut and Joe Heller. It’s the inspiration for the Enough Project tag.