Double Bottom-Lining It: The Success of Evergreen Lodge
This month, I’m focusing the spotlight on Evergreen Lodge, which is much more than a tourist resort nestled in the woods bordering Yosemite National Park. Besides offering a charming Yosemite experience with fully furnished cabins, delicious food, a classic all-wood tavern, and wonderful recreational activities, behind the scenes it runs a youth employment program that is fully funded by the Lodge. This is an example of a highly successful for-profit social enterprise whose social mission is fully integrated into the fabric of the business.
I recently spoke with cofounders Lee Zimmerman and Brian Anderluh (GSB ’94 grads) about how Evergreen Lodge works as a social enterprise and a business rolled into one.
Q: Tell me about your youth program.
A: The Evergreen staff includes a group of high-potential young adults, 18–24, from disadvantaged urban backgrounds who work as paid seasonal interns. They leave the city and their normal lives behind and come to live and work with us in the mountains. The youth work in full time paid roles in a variety of departments throughout the lodge, and in their off time, they receive customized one-on-one social service support focused on preparing for their next career and educational steps. Not only do they learn numerous work and life skills, but they’re also able to live in a supportive community and to participate in Yosemite outdoor experiences that challenge, motivate, and inspire them.
http://www.youtube.com/watch?v=BHvoo6hucA4
Q: What’s behind your commitment to your youth program?
A: Two central beliefs: that supportive employment can help young people build momentum in their lives and realize their fullest potential, and that the outdoors in general, and particularly places like Yosemite, should be accessible to everyone.
We catch young people at a point where they’re not sure of their next steps, and we get them out of their environment, which is often holding them back, and give them great work and life experience. We open their eyes to life’s responsibilities, have them be part of a healthy community, and help them figure out and plan for what they’re going to do next, whether they’re going to school or work, and so forth. We help transition them through that critical period into adulthood. Research shows that if youth from low-income neighborhoods don’t gain momentum in their lives in early adulthood, they often never will.
Q: How did you come to launch this social venture?
A: Evergreen Lodge was actually founded in 1921, but we started this business there at the end of 2001. We knew each other from business school and we loved small business but weren’t excited about the trajectory of high growth businesses with a sole focus on the bottom line, so we became interested in starting a social enterprise together. We secured a Farber Fellowship with Juma Ventures http://jumaventures.org/ to help us develop the right model, and we spent the year doing that. Over time we got excited about the idea of exposing young people to the outdoors in addition to providing them with great job experience and support. It was an extended Outward Bound model with work and social service formally layered in. A third partner of ours knew that the Evergreen Lodge was for sale and it felt like a great opportunity for us to launch the social enterprise.
Q: How long did it take for that model to gel during that fellowship year?
A: Early on, we focused on trying to understand the lessons learned from the Juma Ventures model and how to scale a combined youth employment and social services program. It was probably six months before we had good traction on the business concept and found the Evergreen opportunity. It felt like a great fit for us because it played to our strengths in terms of our background in hospitality and the outdoors. It felt like a great fit for youth since a hospitality operation could offer many different types of jobs and could appeal to different types of young people.
Q: What other levers were important to getting this idea off the ground?
A: We thought about a lot of businesses and we kept coming back to what we were excited about. It wasn’t just serving young people that was going to make us interested, we also had to be truly excited about the business itself. The Evergreen Lodge opportunity meshed with the outdoors and hospitality. We were interested in it as a business, it had great potential for youth impact and we had the right skills to manage it.
Q: What worked well in launching this venture, and what did you need to change?
A: We had the chance to operate the lodge at a small scale initially, which was really helpful. We didn’t make a lot of money and weren’t serving a lot of young people, but it was great for us to work out the kinks. It allowed the idea of an employment program to be worked into our new organization and for the required organizational buy-in to develop. We had to make adjustments along the way about how to avoid stigmatizing the group we were working with and how to avoid overwhelming the organization with bringing a lot of less skilled young people in at the same time –– so we moved to a staggered start model. Because it’s a seasonal business, we have had the opportunity to take stock each fall about the lessons learned and to refine our model each year.
Q: Did you ever have any pushback from investors to let go of the youth model and just focus on making money?
A: Early on when we were trying to raise our initial capital for the expansion we had to bury our youth employment program line item into our general administrative expenses, because it was too confusing and scary to the banks we were talking to. But our investors did get it. In fact, some had concern about whether we would abandon our social mission down the road, so we decided to work into our board governance structure mechanisms that would not allow us to do so.
Q: What does it take to be a successful for-profit social purpose enterprise?
A: First, we needed enough scale and profitability to be able to absorb the costs of our social service program – expanding the lodge was the key to addressing this requirement. In addition, two other things were critical to the long-term commitment and viability of our venture. One was ensuring that the social mission not be left behind, and the other was coming up with a structure that didn’t require us to sell the business in order to get our investors their money back. Those were key things we’ve done differently from most other businesses.
Q: What did that look like?
A: We structured it so that we can return investors’ original equity capital via refinancing, and at that point they get their money back but still remain as owners sharing in excess profits each year. Our approach is that getting investors their capital back provides needed liquidity, and then remaining long-term owners earning an annuity over time is attractive as well. It’s a hybrid model whereby their risk is mitigated by returning their initial investment.
Q: So how does this refinancing tool work?
A: We’re a real estate based business whose cash flow has grown as the lodge has matured. This year, our strong cash flow allowed the property to take on additional debt, which we used to return to our investors 100 percent of their original equity. Our investors continue to have exactly the same ownership interest they had previously, and they will continue to get a distribution every year without having any cash in the deal anymore. Now that their capital has been returned it will hopefully be redeployed either with us or another social enterprise.
Q: Have you had challenges with the capital markets?
A: Yes. Our largest investor was interested in getting out of the investment after a certain number of years due to fund life requirements they faced. We have struggled to find the right partner to come in and buy their interest. The equity market isn’t very well developed in regard to social enterprise. On the debt side, we were excited to try to find socially aligned debt to come in and return the originally invested capital, but it was difficult because of the scale of our operation in relation to the social investors we found, who were smaller. Again, the social enterprise debt market isn’t well developed yet either.
The youth program component of our business is established and provides a social annuity, and now our business is providing a strong financial returns as well. Given this, we would have expected that there would be more foundations or others out there who would welcome the kind of ongoing financial and social annuity we offer, but we struggled to find those who were a fit. That’s hard when you are trying to build a long-term for-profit social enterprise. We continue even ten years later to be disappointed that a model we think is the perfect investment fit for foundations is not getting the support we thought it would.
Q: What are you doing to push this financing frontier?
A: Ten years later, we’re excited to pursue our next opportunity, which is a hotel larger than the Evergreen that will allow us to more than double the scale of our model. We feel that we will be able to break through with new socially aligned funding. We’ll go back to some of our same investors and those who have provided debt financing before, but we are also interested in bringing in the foundations.
Q: What advice would you give to social entrepreneurs who are just starting?
A: Start small if you can so that you’ll have the opportunity to learn along the way. Choose a business that can handle the social enterprise, one that can grow and be profitable. It’s hard enough to start a business; it’s doubly hard to build a social enterprise from day one. There are benefits to being a for-profit, as long as your investors are thoroughly on board with the slow growth. If you create a nonprofit you have to go back to the well for funding every year. If you’re not continuing to be the hottest thing then maybe that funding dries up. Deciding to be a for-profit was key to our success and being able to grow as we did.
Also, get out there and let people know what you’re doing and that you are proving yourself. Even if we didn’t get support from certain potential investors when we first spoke with them, several years later we were able to come back, having hit our numbers, and things worked out at that point. Build long term relationships and be persistent.
Q: What’s your philosophy behind making a social impact?
A: We use the “housing model” analogy. There’s the tenement model of old that tries to scale up across the board all at once. And then there’s the newer model of smaller, more targeted housing for different types of people in need, and the spreading out of the problem and associated solutions. We go by the latter and demonstrate that a diffuse approach to creating social impact can be a really powerful one. You can still achieve scale if others will try what we are doing in different industries and different locations.
We hope others will choose to follow our model –– creating a successful for-profit business that succeeds in its industry, provides return to investors and also has a social program ingrained in it from day one. There’s something very efficient about this model that requires no annual fundraising and provides an annuity through a one-time investment. Plus, it’s incredibly rewarding to both love your business and its social impact.
Lessons from Evergreen Lodge
Praise the tortoise, not the hare. We live in a world where there is intense demand for social enterprises (nonprofit and for-profit alike) to get bigger –– faster. For anyone who has sat in front of investors, the demands to grow revenue, grow the numbers of people served, and grow locations can be relentless. But is that always the best approach to achieve impact? Evergreen Lodge has highlighted the benefits of “going steady.” Increasing investments as the model becomes more defined and achieves its intended goals is, as they have shown, a wise way to go. In the end, the tortoise may win.
Grow mission investing. A recent report from the Foundation Center on mission-related investing reveals that only 14.1% of respondents engaged in it, including program related investments (PRIs) and/or market-rate mission related investments. If we want to see more social enterprise organizations like Evergreen Lodge, we need to expand this sector of the market. Foundation assets are a ripe resource that can be leveraged to meet mission goals.
Remember that scale comes in many forms. While Evergreen Lodge is not a social enterprise that will scale its individual organizational impact to thousands or millions, it is a model that can be replicated across business enterprises. The field would be well served to find such gems and understand their growth and evolution dynamics so they can be shared with the larger field.
Visit the CSI/PMP 40th Anniversary page for more GSB Alumni Social Innovator stories