African American and Latinx worker coop envisions a zero-waste future
by Karen Kahn
Back in 2011, following the worst financial crisis since the Great Depression, a group of Latinx and African American residents of Boston were in search of a way to bring good jobs to their communities. Referring to the Roxbury neighborhood where she lives, Dominican immigrant Josefina Luna explained to YES magazine back in 2015, “The 22 years I’ve been here, nothing’s changed. We see the same few stores; the same few jobs that don’t pay workers well.”
Luna and her fellow community activists wanted to start a worker cooperative, a democratically controlled business that would provide better quality jobs than what was available in their local neighborhoods. They were also concerned about the environmental challenges facing their urban neighborhoods. Thus, they looked to new opportunities emerging in the green economy. Serendipitously, as the group was exploring potential businesses, the state passed a food waste ban, requiring commercial operations with more than one ton of organic waste per week to divert that waste from landfills and incinerators.
Our goal is to return this organic matter to the earth. Our customers appreciate that we are focused on highest and best use.–Lor Holmes, leader of venture development and capitalization strategies at CERO
The new regulation presented the perfect opportunity to start a new organic waste business. What evolved was CERO (Cooperative Energy, Recycling and Organics), a bilingual worker cooperative based in Dorchester that picks up organic waste from large commercial enterprises—groceries, restaurants, breweries, colleges and universities, hospitals, large businesses such as Amazon and Google—and delivers compost to local area urban farms. Luna currently serves as Operations Manager.
Launched in 2015, CERO was collecting more than 80 tons of food waste per week from 85 customers prior to COVID-19. Annual revenues had grown to $700,000.
Determined to put organic waste to the highest and best use, the staff work closely with customers, training them on how to keep the organic trash stream uncontaminated. They also keep the process easy for the customer by providing clean bins with every pickup.
CERO truck drivers transport the waste to a farm about 40 miles outside of Boston, where the material is composted. The same drivers pick up the composted soil and deliver it to urban farms, thereby “closing the food loop,” says Lor Holmes, who leads venture development and capitalization strategies for the co-op.
“CERO doesn’t provide the cheapest services,” Holmes explained in a phone interview. “But we do provide the best.” She continued, “Our goal is to return this organic matter to the earth. Our customers appreciate that we are focused on highest and best use, and that our business is a grassroots, democratically run cooperative.
CERO’s competitors are the big waste haulers who have only one interest: profit. Their high volume makes the service cheaper, but it is more “green washing” than “green,” says Holmes. These haulers take the waste to Charleston—an environmental justice community—where they use a slurry and spinning process to filter out the nonorganic trash that has contaminated the food waste; the trash is sent to landfills or incinerators. The organic waste is then transported north of Boston to Lawrence—another environmental justice community—where it is mixed with treated waste from a sewerage treatment plant and turned into fertilizer pellets. Not the kind of fertilizer best suited for growing food.
CERO is a relatively small operation, says Holmes, with five office staff and two or three truck drivers. All of the staff are eligible to become owners after being with the business for six months. Holmes says it has been difficult to bring the truck drivers into that process, but the cooperative is working on finding better ways to engage the drivers in cooperative education and learning the business skills needed for decision making. Classes and meetings after a long day of hauling waste, she says, don’t work well.
The lean staffing has made it easier for the cooperative to survive the COVID-19 economic downturn. Despite losing about half of their customers (the businesses were shut down in March), with support from the CARES Act, the business has continued to operate and serve grocery stores and other essential businesses.
Financing a Start Up
It took two years for CERO to go from an idea to an operating business, with the most difficult challenge raising capital. Traditional routes—banks and venture capital—were quickly ruled out, when it became clear that there was no interest in investing in a small business cooperatively owned by working-class people of color. Though impact investors expressed some interest, says Holmes, they still wanted a level of financial return that was not practical.
Holmes turned to the Cooperative Fund of New England (CFNE) and Boston Impact Initiative Fund, a new initiative at the time, and raised $20,000 with interest-only payments during the first year. The co-op parlayed that initial funding into a crowd-sourced Indiegogo campaign that raised enough to build a website and make a video that became the basis for a Direct Public Offering (DPO).
About 85 individuals and institutions from the community invested from $2,500 to $25,000 through a Direct Public Offering, which allowed the co-op to raise nearly $350,000.
A DPO allows a business to raise money from its community. Says Holmes, “For many in the community, this was the first time they had invested in anything.” About 85 individuals and institutions invested from $2,500 to $25,000, which allowed the co-op to raise nearly $350,000 to buy the equipment it needed to begin soliciting customers.
Most recently, facing increased debt payments in spring 2020, Holmes worked with technical assistance providers at LEAF (Local Enterprise Assistance Fund) to restructure the co-op’s financing to a mix of debt and equity-like holdings. Holmes says, “In talking with small business owners and investors, I’ve learned that a start-up rarely becomes profitable before ten years. Our initial financing assumed we would be profitable in five years. Even before COVID-19, we knew we would not be able to make our debt payments this spring.”
But that didn’t stop these scrappy business owners. They reached out and learned about other options. They spoke with their investors, and they asked for their patience while offering alternative financial instruments. The new financial model includes loans with seven- to eight-year terms at 3 to 5 percent annual interest, and a more patient equity-like instrument that pays 3 percent annual dividends and offers a greater upside return if CERO becomes profitable over the next two decades. As explained in a recent blog post on CERO’s website:
“CERO has reduced indebtedness by approximately $430,000 and significantly streamlined its capital structure. In connection with the restructuring, CERO also raised approximately $365,000 in new financing from the Boston Impact Initiative Fund, the Ujima Fund, CFNE, LEAF and other individual investors.
With new capital available, the business is preparing to grow and evolve.
A Vision for the Future
CERO has a big vision, one that goes beyond composting. In Spanish, cero means zero—and CERO, along with other environmental advocates, is working toward a zero-waste future. An environmental coalition that included CERO, pressed the state to strengthen its composting goals for the next decade. Thus, beginning in 2021, the Department of Environmental Protection will require businesses with a half-ton of organic waste per week to divert it from the waste stream, providing new opportunities for CERO to expand its business.
Ultimately, CERO would like to build its own processing infrastructure in the Roxbury/Dorchester area. Trucking the waste 40 miles out of the city is expensive and inefficient, says Holmes. But land is at a premium in the city, so CERO is working with a technology partner to develop a network of community-scale windrow composting and anaerobic digesters that would turn the waste into a high-grade liquid fertilizer and local power generation. “In five years,” says Holmes, “we see CERO growing to about 35 workers and diverting and upcycling a million tons of food waste per year.”
If CERO can weather the current economic storm, it is well positioned for a bright future. Boston’s cooperative ecosystem is growing stronger; according to the Democracy at Work Institute, the Boston metropolitan area has nineteen worker cooperatives, the third largest number for cities across the country. The city’s worker cooperative initiative has helped to jump-start several cooperatives in the last few years. Additionally, people of color are coming together to take control of their neighborhoods and economies, launching initiatives like the Ujima Project, to support sustainable, purpose-driven businesses like CERO that offer good jobs, empower workers, and build community wealth.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.