Investment to support the value chain

Investment to support the value chain

In WealthWorks, investment includes any use or dedication of a capital for wealth-building results. Applying an underutilized resource to fill a gap in the value chain is a wealth-building investment.

Like any economic and community development approach, building a WealthWorks value chain is an undertaking. Identifying the coordinator, spotting the right market opportunities, assembling and connecting partners, finding leverage points and addressing gaps, bottlenecks and underutilized resources is real work. So, like any market-driven approach, it requires investment—not just financial, but investments of creative thinking, willingness to innovate, commitments to doing things differently to create different results—and time.

Think of a WealthWorks value chain as a venture undertaken by a group of investors. Each invests in the value chain to, over time, generate a good return. But WealthWorks investors don’t necessarily invest dollars, and not all value chain investors are looking for financial returns.

Three big investment questions guide the construction of a WealthWorks value chain:

  • Who will invest in the value chain—and why?
  • What types of investment does the value chain need?
  • How can each investment be tailored to support wealth building?

Who will invest in the value chain and why?

Every partner who is drawn into a WealthWorks value chain is an investor—whether a demand, transactional or support partner. Each must receive something of value for their investment, or they would not be connected to the value chain. But there are two kinds of benefits: Direct benefits and broader benefits.

Direct benefit: Self-interest and shared interest. Typically, what draws a partner into participation and investment in the value chain is something that will fulfill their self-interest. Self-interest can have many facets, not all of them financial. Here is a simple partial list of self-interest motivators:

  • Saves cost
  • Stabilizes price
  • Ensures reliable supply
  • Creates local supply
  • Produces better quality
  • Increases self-sufficiency
  • Provides access to new markets
  • Diversifies product mix
  • Develops marketable skill or capacity
  • Fulfills mission
  • Improves image
  • Creates more jobs
  • Creates better jobs
  • Increases income
  • Reduces time wasted
  • Uses abandoned facility
  • Increases connections to power
  • And on and on…

Many refer to finding this self-interest as addressing the partner’s “pain point.” So, a good initial organizing question for value chain construction is: “What issue or opportunity or pain is the potential partner experiencing that the value chain can address or alleviate?” From their point of view, the potential partner is asking a parallel question: “What’s in it for me?”

Quite often, two partners in a value chain have the same self-interest in participating and investing. So, in our tomato soup value chain, to operate at full capacity, both the food processing firm and the aggregating distributor might share self-interest in having a reliable supply of organic tomatoes. Once they realize that shared interest, they may be willing to invest more time and effort in working with the value chain coordinator and other partners to ensure that more local farmers have what they need to produce an adequate supply of organic tomatoes every season. Recognizing such shared interests can strengthen the bonds in a value chain in ways that encourage more investment.

Broader benefit: Common interest. It is also important to look beyond direct benefits to broader benefits produced by a WealthWorks value chain. This can include benefits produced by the value chain that accrue to people, places or businesses outside of the value chain.

For example, the more nutritious organic food options in the schools might help children make better food choices and reduce obesity. Both their parents and their doctors might notice and realize the benefit. Likewise, local officials might appreciate that local farmers are doing better financially now that they are growing and selling organic tomatoes, are also becoming more active leaders in the community and showing up and contributing ideas at town meetings and regional economic forums.

WealthWorks value chain partners and coordinators do well to keep asking two useful broader-benefit questions: “What broader benefits will this value chain produce for those outside the value chain?” and, “Who is it that will benefit?” These can help expand your thinking about all the ways the value chain might produce results that benefit the region. It can generate a list of potential support partners who might invest in the value chain. For example, the elected state legislator in the region might take a new interest in the potential of the organic food sector and begin to sponsor legislation or advocate for regulations that help the sector achieve more scale of production, participation or results.

Overall, what’s important is recognizing that a WealthWorks value chain will produce a range of direct and broader benefits that may provide investment opportunities in your value chain. Working with potential partners to identify their value proposition—that is, what they care about that is of sufficient interest to energize their participation—can lead them to invest in the value chain. The value chain may help them address a specific pain point in need of a solution or may help them achieve a goal related to their mission. An individual’s or organization’s interest in investing in a value chain may not be immediately apparent. It is through conversation and relationship-building that value propositions emerge and investment can take place.

What types of investment does the value chain need?

WealthWorks value chain coordinators and partners learn to broaden their sense of what investment means to get beyond the common frame of “All we need is more funding or financing or profit to make things work better in this region.” The exact investment needs of any WealthWorks value chain will depend on that value chain’s market opportunity. In WealthWorks, investment includes any use or dedication of any of the eight capitals to the value chain for wealth-building results.

Think of investment as the nature of each partner’s participation in the value chain. Are they providing time and technical expertise to other partners? Offering use of space or materials? Committing to a purchase? Taking on some risk? Funding a critical function? Organizing a pivotal conversation to address a roadblock? Lending their voice to advocate for changing a regulation? Creating a new financing option? Volunteering time and paying fees to be trained in new skills? These are all investments.

How can each investment be tailored to support wealth building?

The structure and timing of investments affect how—and how well—WealthWorks value chains fulfill wealth-building goals. Well-designed investments can help the value chain grow the capitals, expand ownership and improve livelihoods. This happens when you pair investments with strategies to fill gaps, untangle bottlenecks and bring underutilized resources into productive use.

While the value chain coordinator is often the leading wealth-building advocate, it takes value chain partners to make wealth building a reality. Initially, partners may simply invest in the value chain because it meets a narrowly-focused self-interest. Over time, however, they may come to see the broader benefits produced by the value chain and expand their investments to include wealth building from the start. These partners may even become wealth-building champions, encouraging others to invest and build wealth in the region.

Wealth-building investment: An example

A value chain coordinator helps motivate the self-interest of partners or potential partners into an investment in value chain “action” that is tailored to increase wealth-building results in the region.

  • Partner or potential partner
  • Motivating interest or “pain point”
  • Wealth-building opportunity
  • Wealth-building investment
  • Food processors
  • Seek to reduce high turnover rates that increase the cost of hiring and training employees
  • Gap: No ongoing skills training is available for local food processing workforce outside of on-the-job training provided in local processing firms
  • Food processor group works with local community college to develop tailored training program, and commits to increase wages for program graduates who stay with their firms at least one year.
  • Soup distributor
  • Wants to sell soup to local school district, but district has exclusive contract with large, national food distributor
  • Bottleneck: Because they receive some state funding, schools must procure food through a complex bidding process only large national food distributors can manage
  • Distributor joins others in a “local-foods producers alliance” that lobbies state legislature and procurement agencies to open up bidding process to be more competitive and inclusive of local producers at smaller scale.
  • Heritage foods non-profit
  • Seeks to expand use of disappearing varieties of tomatoes
  • Gap: No supplier willing to offer price-competitive seeds to small growers
  • Heritage foods non-profit helps lower-income farmers gain traditional know-how to grow heritage varieties  and harvest seeds for their own use and for profitable sale to other farmers.
  • Regional community foundation
  • Aspires to play a more useful role in building the region’s economy.
  • Underutilized resource: Small-farm producers lack capital for hoop houses that can both protect crops from extreme weather and extend the growing season.
  • Community foundation works with its donors to develop revolving loan fund for new small-farm producers who can’t get conventional bank financing.
  • Health insurance company
  • Wants to keep its insured customers healthy and not using expensive medical services
  • Bottleneck: Families have little disposable income to purchase higher-priced, more nutritious local organic food at the market.
  • Insurance companies offer monthly premium reductions to families that pre-purchase discounted weekly vegetable boxes (with recipe guides) from regional cooperatives.