Local independent businesses help define the soul of our communities as they face off against big money and power from giant corporations and private equity firms. How do they make it work?
Back in the late ‘90s in the waning days of Seattle’s grunge rock era, I once walked by the storefront of a little coffee shop on Seattle’s First Hill. Out front was a chalk sign board with a note: “Every corporate cup poured makes baby Jesus cry.” I remember feeling a twinge of annoyance or guilt upon reading that sign, possibly fueled by the fact that I may have had a venti vanilla latte from Starbucks in my hand. Damn it!
By that time, Starbucks was blowing up as a corporate brand competing with mom and pop coffee joints all over the planet. But the original Starbucks store was once itself an independent small business, opening its doors in 1971 to sell Peet’s gourmet coffee beans across the street from Seattle’s Pike Place Market.
Starbucks is a story of extraordinary corporate success. But has it been a human success?
The same year Starbucks opened, another coffee house called Village Coffee Shop opened its doors in Boulder. Entering Village Coffee Shop is like being teleported into an old Georgia diner. There’s a basic open-view kitchen, a customer counter with a row of red vinyl upholstered stools, and a tiny dining area of small booths. It is intimate, divey, and charming. And the French toast is the best I’ve ever had.
Village Coffee is owned by Shanna Henkel. Hers is the classic story of the long-time waitress who buys the joint. Chuck Taylor opened Village Coffee in 1971 and ran it for 31 years before finally selling it to Shanna, his favorite waitress, over 20 years ago.
Shanna describes Village Coffee as “890 square feet of reality surrounded by Boulder.” I can’t think of a better description. Shanna said she and her husband Ryan have made only two changes: They switched from canned to fresh mushrooms and added Cholula Hot Sauce. That’s it. Other than that, Shanna says the place is exactly as it’s always been, a neighborhood fixture for more than 50 years running. Shanna and Ryan run the restaurant seven days a week, week-in and week-out, and never get burnt out.
“I love my job,” she said. “I have so much fun going to work every day.”
The secret to Shanna’s work happiness is that she doesn’t go to work every day to wait tables, make great food, or even run a business. Those are the responsibilities of the job. Shanna goes to work each day to build relationships. Many of her customers are long-time regulars.
Shanna is passionate about maintaining the soul of Village Coffee Shop. Over the last couple decades, she has witnessed Boulder lose many of its other dive joints as they have been bought out and converted into “fancy pants” restaurants.
That won’t happen any time soon with Village Coffee. When I asked her about expansion, the answer came before I finished the question.
“Absolutely no expansion, never,“ she said. “Because I can’t be in two places at once.”
It’s harder to build those relationships when you can’t be present. Village Coffee competes successfully with corporate and chain restaurants by simply staying true to those community values it has always had. Its authentic character can never be matched from a distant corporate office. That’s the secret sauce.
Speaking of the importance of the soul of a business, Hap (short for Happy) Cameron, owner of Happy Cones, New Zealand style ice cream, is a very interesting guy. When Hap was in his early 20s, he embarked on an audacious life goal — to live and work on every continent. Over nine years, Hap worked an amazing variety of jobs all over the world. He taught English in South Korea, climbed on oil rigs in Northern Canada, and started up a bike shop in the Namib Desert. And that’s just a sample. You can read all about Hap’s odyssey in his book, “Hap Working the World.”
During his travels Hap met a Colorado girl in Mexico and fell in love, eventually bringing him and his new family to our community. Like Shanna at Village Coffee, Hap loves making people happy through service. Serendipity happened when he learned his old neighbor back in New Zealand had invented an ice cream-making contraption. It’s a table-top machine that mixes frozen fruit with sweet cream into a delightfully refreshing blend.
Hap brought that machine to Colorado and launched Happy Cones with a single food service truck in 2015. He still runs the truck, which you might just see on a warm summer day in and around Broomfield, Westminster, or Thornton. He now also has two fixed locations: one in Edgewater near Sloan’s Lake and the other in Golden. He recently considered a third location in Westminster but decided to slow it down for now, focusing on “getting better, not bigger.”
Aside from the joy of making people happy through service, Hap values the freedom of choice that running a small business affords him.
“I get to breathe my own personality into it,” he said. “I’m free to take the risks I want to take. There are no corporate roadblocks preventing this.”
Hap often leverages his business for social causes he believes in. When the Supreme Court overturned Roe, Hap got together with some of his employees and concocted a limited-time specialty ice cream. All proceeds of the new flavor went to Planned Parenthood.
Hap also values the opportunity his business affords him to help his employees in their own life journeys. “I think of Happy Cones as a vehicle to help people self actualize.”
It’s not all serious business. During a snowstorm last year, Hap ran an impromptu social media promotion: First person to show up and do a shirtless snow angel in front of the store would get four free pints of ice cream. A hollering shirtless guy soon emerged from the neighborhood and rolled around bare-chested in the snow, his prize personally handed to him by Hap Cameron.
I picked up on similar themes when I spoke with Rosemary Girard Bieker, owner of Longmont’s Ivy Rose, a women’s boutique clothing store offering on-trend clothing, jewelry, and accessories. Rosemary was just wrapping up her promotional work for her business’s five-year anniversary, a major milestone.
Rosemary opened Ivy Rose after visiting a similar business in Grand Junction and noticing a dearth of independent small retailers in Longmont at the time. Having been a personal shopper for fifteen years, her experience lined up with the timing and circumstances, so she took the plunge into business ownership.
Ivy Rose’s value system is about “helping people look their best,” and she tells her staff every day that “no task is ever more important than the person walking through the door.”
Rosemary views her competition in the area not so much as competitors but as participants in an ecosystem, each having their place in serving their customers’ needs. This is part of the secret to her success. She’s filling a niche in the community, not forcing her business to be anything that she doesn’t want it to be. Like with Village Coffee Shop and Happy Cones, customers appreciate that natural authenticity.
After speaking with all of these amazing small business owners, I realized that none of them discussed their success in financial terms. Financial success for them is a by-product of the professional fulfillment they get out of becoming a part of the local business community.
Small business owners like Shanna, Hap, and Rosemary have the freedom to run their shops the way they want without the bureaucratic labyrinth of a corporate structure. That ownership freedom can give small businesses a competitive edge as customers and the community sense the difference. It can pay off financially for the business, emotionally for the business owner and their employees, and beneficially for the communities they serve. Expand that to a macro level, and it’s clear how important small businesses are to the well-being of the nation as a whole.
Any advanced economy requires large enterprises to bring the economies of scale that are needed to drive innovation and solve big problems. But small independent businesses have an equally important role in our society — it’s important to ensure that they have a leg to stand on in the face of big corporate money and power.
Contrary to a small independent business, a large corporation’s shareholders are the owners of the company, and they expect financial performance above all else. This creates pressure on the corporation’s leadership to deliver short-term, quarter-to-quarter financial results. This can often be at odds with desirable longer-term business development ideas and values that work to serve the needs of a community.
Too much emphasis on short-term profits can sometimes have disturbing consequences, especially in certain industries like health services. A recent New Yorker article titled, “When Private Equity Takes Over a Nursing Home,” by Yasmin Rafiei, revealed a horror story of neglect at the altar of a singular focus on profit making. As reported in the article, a once-beloved elder care facility run as a non-profit by a group of nuns was acquired by a private equity firm. The firm increased the patient load while decreasing staff levels creating a cascading collapse in the quality of care. Perhaps the balance sheet looked good, but the human results were tragic.
I was introduced to that heartbreaking article by Dr. Michael Koditek of Carbon Valley Eye Care, an independent optometry practice in Frederick. Dr. Koditek and his business partner Dr. Jeff Berger described the recent trend of private equity firms buying up local independent optometry practices.
“These private equity-owned firms try to squeeze every last penny that they can out of them,” said Dr. Berger. “They know that they can put any mediocre eye doctor in and, as long as the machine works, they can get by.”
Dr. Berger is no mediocre eye doctor. He successfully diagnosed and then corrected, through vision therapy, my daughter’s eye tracking problem. Around age six she had perfect 20/20 vision, but her eyes weren’t in sync. This can result in learning challenges. Imagine trying to read a book when the letters are dancing around on the pages. A few weeks of fun, game-based vision therapy corrected the issue, and I’m proud to say that my daughter is now a prolific reader and scores high in reading comprehension. I’m convinced this would not have been possible without the vision therapy she received as a first grader.
“I’m not aware of any other optometry practice in the area that offers vision therapy,” said Dr. Berger.
As more optometrists are absorbed into corporate or private equity-ownership structures, their incentives become increasingly profit-driven first, service and quality-driven second. Important services like vision therapy are on the chopping block when private equity firms focus on improving “business efficiencies” for their investors.
Dr. Berger explained that private equity firms make above-appraisal offers on acquisition bids. With this unfair buying power advantage, the neighbor down the street who wants to buy a business gets priced out. And it’s hard for the seller nearing retirement to pass up those big dollars.
The doctors are onto something. Last year private equity investment activity smashed records. According to the latest Bain Private Equity Report, global buyout activity reached $1.1 trillion in 2021, beating the previous record (2006) by an astounding 40%. “PE firms raised bigger funds, made larger deals and came to market more frequently.”
This trend seems to be caused by an increasing wealth disparity in America, short-term capital infusions related to pandemic stimulus, and the demographic shift caused by retiring baby boomers looking to sell their businesses. According to Bloomberg News, as of October, 2021, the richest 1% of Americans, for the first time, held more wealth than the entire middle class combined.
Wealthy people look for places to put their money, and private equity investment is a rich person’s game, off limits to 99% of us. To invest in a private equity firm, one must be an “accredited” investor who can plunk down between $250,000 and $25 million. These firms then use those wealthy investor dollars to acquire non-corporate-owned business entities. Once acquired, they focus on improving “business efficiencies,” jargon for cost cutting to increase profit margins. Under these priorities the doctor can’t spend as much time in consultation with the patient, or take the time and expense to gain additional training, or invest in better equipment. Profit margins increase, but quality suffers. The wealthy investor wins, but the local community loses.
On top of the growing wealth gap, global monetary stimulus injections during COVID-19 provided an accelerant that is driving strong volumes of business buyout transactions. And this is all happening right as the baby boom generation reaches peak retirement numbers. Retirement-age optometrists are looking for an exit, and now is the perfect time to sell if you’re riding off into the sunset.
The negative by-products of this trend are that local communities lose the character and quality of their small businesses, local services are at risk of being gutted in the interest of margins, and your neighbor down the street who has some savings and wants to buy a local business gets priced out of the market by big money firms.
The following graphic from Lionpoint Group illustrates the substantial increase in private equity activity in 2021:
During the Gilded Age of the late 1800s, a rapidly industrializing America witnessed the ruthlessness with which unchecked corporate interests can steamroll the well-being of workers, their families, and their communities. It became apparent that, if left unchecked, this could lead to a tyranny where economic power would be concentrated into the hands of the very few at the expense of the freedom and dignity of the many. Legislation ensued, such as the Sherman Act, the Clayton Act, and the creation of the Federal Trade Commission to even the playing field, keep competition alive, and begin to establish and protect the rights of working citizens.
Could too much economic power in the hands of private equity firms have a similar, if less visible, impact on our communities?
Dr. Koditek is cautiously hopeful that, in the long run, the pendulum will swing back in the other direction. Consumers who experience declining quality of service will gravitate back towards the remaining independent businesses. Supporting this theory is the fact that private equity investors typically look for a 4–7-year investment cycle. That relatively short-term focus can give encouragement to independent practices with long-term values.
A greater awareness of this trend in our community can encourage us to patronize independent businesses. And this brings us full circle to Boulder, Colorado where, in 1998, the nation’s first so-called Independent Business Alliance was formed. The alliance was born out of a concern about the growth of business chains at the expense of independent, locally owned businesses. Their model was adopted all across the country and has since become the national American Independent Business Alliance (AMIBA).
AMIBA’s website (amiba.net) offers a wealth of information on how to identify and support independently owned local businesses. They also have a business search function. I tested it out by entering “optometrists,” selecting Frederick for the city. The search returned one result: Dr. Michael Koditek of Carbon Valley Eye Care.