Investment and Sale of Earth Fare: the Lessons of Success

In the 1990s, I started a venture capital firm with a partner, Derrell Hunter. We were such pioneers in this region that initially we didn't even call it "venture capital," because almost no one here knew what that was and it had a very negative connotation. For many entrepreneurs it still does.

In 1997, we first invested in a company with one organic grocery store, Earth Fare. In addition to capital, we surrounded the company with industry and professional expertise that we had. We helped the company grow to a chain with 13 stores and $100 million in revenue. Last week, Earth Fare was sold to a large private equity firm, and our investors realized several multiples of their original investment.

Earth Fare was Capital Insights most successful investment, which made Capital Insights itself one of the most successful venture capital firms operating in South Carolina at the time we did. Given that we were pioneers in venture capital here and that we survived the bursting of the technology bubble, we did pretty good.

In between the investment in and sale of Earth Fare, are there scores of lessons from which you can benefit. Last year, I published a book, Swamp Fox Insights, to describe "a systematic, risk-managed approach to launching a high-impact company to create and dominate a new market and create wealth." The book outlined four essentials.

Visualize a Significant Opportunity
At the time we met Earth Fare founder Roger Derrough, he had run a small, organic grocery store in Asheville for around 20 years. A few years earlier, he had recruited a grocery veteran who helped him create a larger store format that significantly increased revenue to around $7 million by the time we arrived. Roger had a vision to grow Earth Fare into a regional organic grocery store chain, which if successful could create significant wealth. To realize his vision, beyond capital Roger needed a strong management infrastructure.

Assemble Outstanding Leadership
After opening a second store in Charleston, it was abundantly clear that the management team did not have a skill set to grow a chain. To his credit, Roger was willing to recognize the limitations of his team, and he led the search that ultimately recruited Mike Cianciarulo to be the CEO. Mike had previously run an 18 store chain in Orlando, FL. Within the next few years, other strong management team members were recruited. A strong Board of Directors was assembled, including Jim Cockman, former chairman of the Sara Lee Food Services Division; Marsh Collins, former CEO of BiLo; Joe Pearce, former CEO of PYA Monarch; Bill Burton, CEO of Cafe Enterprises (Fatz); and Max Lennon, former President of Clemson and Natural Foods. I was Chairman of the Board from 2000 to 2005, during the period of our most rapid growth.

Articulate a Compelling Strategy
For core organic customers, living naturally is a lifestyle. Half of Earth Fare families include a vegetarian, and a third include a vegan. These customers do not want to shop in a conventional grocery store, and they will travel many miles to shop are a store that better meets their needs. We developed a strong market research program, which improved over time, for identifying core customers in new markets. And we evolved our store format over time to better meet the needs of our core customers. I used to tell industry analysts that if we could identify enough vegetarians in Greenville SC to support a large organic grocery, we could find them anywhere.

Execute A Focused Strategy
At the end of the day, what counts is results. You have to walk the walk. We executed well enough to deliver a strong return to our partners. Growing an entrepreneurial company is inherently a learning process. Looking back, there are plenty of things we could have, and should have, done better. Given the opportunity to do Earth Fare again, we could get the same results in about half the time. One of the hardest things for entrepreneurs to do is to be disciplined and stick with your focus. Entrepreneurs constantly want to change things, but it is hard for the team to execute and build momentum if things are always changing. The bigger the company gets the more true this becomes.

The Limits of Leadership
I’ve been involved in a number of high-impact companies now, from Earth Fare and Carolina Phone, to Specialty Electronics and Paradyme. In each case, the limit on their growth is the skill set of the CEO. To his credit, Roger recognized his limitations and brought in leadership that could get him to the next level. Once the company reached the limitations of Mike’s leadership, he was unwilling to effectively deal with this challenge and as a result the company’s performance was not as strong as it could have been at the end.

Perhaps the greatest lesson for entrepreneurs attempting to create wealth is to be self-aware of your own limitations and then to compensate for them. Don’t do that and you’ll hit a self-inflicted ceiling on what you can accomplish. Get it right and your company can soar. It is extremely difficult to assess yourself accurately, so surround yourself with people you trust, and listen carefully to what they say about you.

Happy hunting.

John Warner

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