Bellingham Co-op: Moving Down The Relocation Road

This is the story of a relocation project with more lives than a cat. It has been near death many times and has come within a whisker of being a disaster more times than I care to remember. As I write, there are still some aspects that are up in the air, but finally, it looks like it is all going to come together, and our hard work and anguish will pay off with a great new store. We are planning to begin a total remodel at our new location in May and to open in September.

Construction costs will be over half of total project costs of $1,400,000. The new store will have a total of 16,500 square feet, with around 9000 of this in grocery retail space plus 2000 in deli.

I'm going to talk to you about my dislocating relocation experiences and illustrate some lessons I've learned. This article reflects my thinking on the subject, but it by no means implies that I was alone putting this project together. From start to finish it has been a collaborative effort among myself, our board of directors, and other staff members.

Some Background

Bellingham's Community Food Co-op, in scenic northwest Washington, opened in 1970 with about 800 square feet of retail space. In 1982 we moved to a more central downtown location with about 3,400 square feet of retail; subsequent remodels increased that to 3,840 square feet.

Beginning as a totally volunteer operation, the co-op slowly evolved a system in which a small paid staff managed the store collectively, and labor for operations was provided by a large workforce of working members. In 1984 the co-op board of directors eliminated the working member system for liability and other legal reasons. Thereafter, all labor for store operations and management was provided by a paid staff.

In 1985 the board reorganized the co-op's management structure to make it more directly accountable to them. A general manager, reporting directly to the board, was hired with the goals of maintaining a democratically managed workplace and improving the co-op's financial security.

Since that time, the co-op has undergone extensive changes. Improvements have been made in product selection and display, as well as in operational organization, marketing, and services to the member/owners. Our annual average sales growth for the past six fiscal years has been 25 percent, reaching $2.6 million in 1991.

In 1989 we began looking in earnest for a new location. We had pretty much exhausted the possibilities of expanding in our current location. Through surveys and discussion, co-op board and management had identified a couple of key characteristics which, in addition to a generally larger and more efficient space, we thought it was important to achieve in a new location. First and foremost, we needed a building with a parking lot. Lack of parking is a major limiting factor in our current location. Second, we wanted to maintain a central location as close as possible to our current site.

And it was only the beginning. After a mad scramble to arrange financing we were able to buy the building with the NCB Development Corporation's help, but we weren't able to finalize financing for the building improvements at the same time. As the changes continued, we scrambled to respond and adjust so as to maintain a viable project.

From my vantage point today, I can see that despite our most conscientious efforts to do so, we didn't really strip the project back down to its basics and look at all of our assumptions in the light of the changes that kept cropping up. I know now the value of maintaining a clear grasp of the major cost factors and the value of having a systematic way of analyzing the impacts of each change on the project as a whole.

In June 1989 we first approached the Swan family, owners of a local moving and storage company, about leasing their building. The more we had looked around town, the more we liked the Swan building as the site for our new store. It was only three blocks from our current store, it was three times the size of our current location, it had the potential for adequate parking, it had good visibility, it was closer to more neighborhoods than our current store, and it was at the corner of two heavily traveled arterials.

Lesson One: Expect change

It may seem at best simplistic or at worst cliched, but despite that, expecting change is the lesson upon which all the others rest. If you had asked me two years ago if I was ready to deal with changes to our project, I would have said yes. I'd read Tom Peters, I was a believer in informed opportunism.

For the first year, our negotiations with the Swan family centered around their leasing the building to us and financing all the tenant improvements. What a great deal. It looked like we were going to get into the building with a minimal investment of something on the order of $300,000. In July of 1990 we produced a business plan based on the lease scenario and began talking to the NCB Development Corporation about loans to finance the equipment. Life was good.

In the fall of 1990 our dreams of an easy, low investment move began to unravel. In a matter of weeks the Swan family told us first that they would be unable to finance the tenant improvements and then that they had to sell the building immediately! At the same time, other changes were taking place in how we were putting the parking together for the new store.

Lesson Two: Search for the true project cost

The need to arrive at a clear understanding of all the costs associated with a project is another of those truths which sounds deceptively simple. I discovered that it is much more difficult than I had thought to be sure that the bank, the contractor, the architect, my coworkers, and I all had the same assumptions about how various costs were being handled and what budgets they were part of. It borders on the mystical how costs continue to emerge as the project moves along.

A useful piece of terminology that I wish I had been familiar with earlier is the distinction between "construction costs" and "development costs." In any project there are going to be some things that are covered by the general contractor's bid, the "construction costs." There are also going to be a lot of other expenses that must be met to bring the project to completion, for instance, architect fees, performance bond, and sales tax. These are the "development costs." Fuzziness about what all the development costs were and how they were being paid for was one very big factor leading to the loss ofboth time and money we experienced as we put this project together.

A lack of clarity between ourselves, the architect and the bank resulted in a project design that mistook the construction budget for the development budget. The result was a design that was ultimately beyond our means to build.

Lesson Three: Write it down

There are really two parts to this lesson.

The first involves a list. It has only been relatively recently that I have recognized how important it is to have a comprehensive list of all the costs of developing the project, including (but not necessarily limited to) a list of all the expenditures you are expecting to finance with your loans, a list of expenses that will need to be covered that are excluded from the general contractor's bid, a list of design or architectural requirements that are not included in the architect's contract, and other expenses which fall through the cracks.

Putting all this information in one place not only helps you determine the complete cost of doing your project, it provides a way to check out the assumptions you've made in your financial projections. It is truly astonishing how many details there are and how costs keep surfacing. Ifyou go into the project with a healthy awareness of the importance of a comprehensive listing of all the costs and how they are going to be covered, it will put you in a better position to deal with the details and changes as they pop up.

The second part of this lesson involves dealing with lenders. Let me say at the outset that the NCB Development Corporation has really stuck with us and worked hard to help us put this project together. There is some criticism of them in what follows but it shouldn't cloud the fact that without them, we wouldn't have been able to put this project together. Their support has been invaluable.

In some ways, though, it's that very support and willingness to consider many options that have contributed to a fuzziness in our communication that ultimately resulted in some unnecessary expenditures of both time and money. In looking back over our correspondence there was a consistency in what the Development Corporation was putting into writing. Each time they put it in writing, however, we came back and asked them to consider something different, and for many months they kept the door open. Since the door was open, we assumed there was hope that they would come up to what we wanted. We're an optimistic bunch; we took the entrepreneurial path and directed our architect to design a project based on our expectations before it was nailed down in writing.

In the end, when more of the development costs were known and it got right down to it, it wasn't feasible for them to finance the project as it was designed. It is hard to fault their willingness to listen to our arguments and reconsider their position, but I think ultimately we would have been better served if they had let us know earlier and with more finality what the realistic limits of their financing could be.

It is also hard to fault our desire to realize our vision as fully as possible. We paid more attention to the Development Corporation's willingness to talk than to what they were willing to write. We made it hard to say no, and they had a hard time saying no. We proceeded to a large extent on our faith in our concept and its rightness for our community, and we failed to pay enough attention to the fiscal realities as represented by our correspondence with the bank.

Lesson Four: Don't make assumptions

In looking back over the two years of negotiating our moves it is evident that some of our decisions were made out of inexperience. Others were made because we assumed that others would be critiquing our assumptions and using their professional experience to point out weaknesses or omissions in our scheme. Everyone involved was doing their professional best and making a good faith effort to make the project successful, but no one was providing the type of feedback we assumed they would. At various stages, we assumed our reasoning about one aspect or another of the project was okay based partly on the fact that the bank wasn't telling us it was a bad idea. Those are a couple of assumptions I suggest you avoid.

One of the lessons I've learned is that financial institutions are not in a very good position to provide in-depth critiques of how a project is put together. I don't think they consider it their job. Experience with more than one bank has indicated to me that they only really take a hard look at what you have sent them when they are getting ready to put something in writing. That is one of the reasons that pushing for written communication is so useful for bringing problems and inconsistencies to light.

Lesson Five: Ask for help

One of the weaknesses we had going into this project was a lack of experience among management and the board with large projects of this type. In retrospect it is clear that we could have tapped a number of resources either in our membership or in the community for help in understanding the process and knowing what we could or couldn't expect. We're a pretty sharp bunch of folks, and we've done a good job of maneuvering through the twists and turns of this road. But I can tell you from my vantage point today, there is no substitute for experience. If the resources are there in your membership and in your community, don't hesitate to use them.

The Eternal Lesson: The dialectic of prudence

All of us walk a line between our entrepreneurial spirit and our sense of fiscal caution. I think of this as the dialectic of prudence. On one end of the spectrum is the pure go-for-it entrepreneurial spirit, and on the other end is caution and fiscal conservatism. Good decisions always have elements of both in them.

In looking back over the lessons I've drawn from my recent experiences, I see that many of the ways we strayed stemmed from listening too much to our entrepreneurial voice. I wouldn't want to leave the impression, however, that I think we should have taken a fundamentally more cautious approach. On the contrary, I think that the success we will realize in our new venture stems from the indomitable spirit of some of the folks involved. These lessons I'm offering are merely a fine tuning of the mix. I hope they offer something to those of you who are embarked on a similar adventure.

See other articles from this issue: #040 May - June - 1992