Good Spirits are quarterly interviews with business leaders. During Good Spirits, we bring you a distilled look at business owners who are working to make a better future by giving back to their community through their work or philanthropy. These leaders inspire and empower us to make a positive difference in our own backyards.
Listen Here:
Transcript
Carolyn Keller:
Hi, this is Carolyn. And this is our second episode of Good Spirits, quarterly interviews with business leaders working to make a positive difference in our region. And I'm delighted to introduce our next guest, George Cook, co-founder and CEO of Honeycomb Credit.
It's so great to have you with us today, George. How about we just start off - Tell us what Honeycomb Credit is all about?
George Cook:
Yeah, thanks for having me, Carolyn, excited to be here. Honeycomb Credit is a community capital platform. We let locally owned independent small businesses access fair capital from their own customers and fans and community members.
So unlike a traditional reward crowdfunding site, instead of Carolyn donating $100, and hoping that the Kickstarter T shirts coming in the mail, she is investing $100, maybe even $10,000 into an independent small business, earning a nice return, potentially, while at the same time seeing that money go to work in your own backyard and seeing businesses grow and thrive, right and your community because of the money that you're putting to work locally.
Carolyn Keller:
Such a great idea of getting the people in your community supporting businesses in a way that isn't a traditional. Most people think about buying locally. But this starts from the other side of things. How did you come around to thinking about this as an idea and really getting it off the ground?
George Cook:
It's really interesting, you say that, because there is this local movement - the eat local movement. People think a lot about how they can support small businesses in their community, the economic benefits they have, the environmental benefits that they have, but not a lot of people have thought about investing local. And so for us, we're kind of a logical continuation or logical extension of that same spectrum, right? We're helping people, not just buy and shop local, but also really put money to work locally.
My background is in community banking. My family's been running a community bank, not too far from Pittsburgh for quite a while for about 130 years and I grew up in the family business. I spent a lot of time thinking about community banking and Community Capital and what that means for Main Street small businesses. But ultimately, I spent most of my career in financial services consulting. I was consulting some of the biggest banks in the country and I saw that they were buying up all the small banks. And as that was happening, it was actually getting much harder for the average small business to get access to a loan. This is something that was weighing on me pretty heavily.
I was in grad school and was thinking about the problem from a really big macroeconomic perspective. And I met one of my co-founders, Ken, who was an investment banker turned small business owner. And Ken was living and breathing the problems I was thinking about from this big picture macroeconomic perspective. He was literally just trying to get a loan for his business. And he kept getting turned down. And it was a painful process for him. We put our heads together and we said, “How can we bring that community lending model back in a tech enabled scalable way.” And that led us to this type of crowdfunding model where local people in the community can be the community bankers, if you will, and they can vote with their wallets, and the businesses that they care about the businesses that are offering products that make their community a better place.
Carolyn Keller:
That's fantastic. And full disclosure - I am an introductory Honeycomb investor and I'm very excited to be part of that community. But now, I'm starting to get your ads on YouTube. And so I've seen the “Put your money where your main street is,” and I love that phrase. It makes me think a lot about how businesses can utilize and leverage purpose to really generate support around the work that they do.
And so I wanted to ask you a little bit about what purpose propels your business forward. And you talked a little bit about that background, but Honeycomb is obviously growing and continuing to make such a big difference for local businesses and growing that local economy.
George Cook:
We started here in Pittsburgh, but we've really grown the model across the country. We've now done campaigns in 26 different states, we've worked with hundreds of businesses. We've moved millions of dollars from local investors into small businesses. And I think the thing that is really the Northstar for us is that small businesses are inherently good for communities. They make communities more vibrant, they make places more livable. They hire local people.
They pay local taxes, they fill local storefronts, they lower local crime, all the things you think about, about what makes a community a good place to live, work or play, small businesses help contribute to that.
Our fundamental hypothesis is pretty simple - that businesses are good, and that we are as a society under investing in businesses. And so if we invest more in the small businesses, then we're gonna get more good, we're gonna get more of these third places, these community places, we're gonna get more local employment, we're gonna get more of a local tax base. And that all has spillover effects into the broader local economy, regardless of if that local economies in Pittsburgh or Atlanta or rural Alaska.
Carolyn Keller:
I love the idea that businesses are inherently good for the community. And there's obviously statistics and measurements that back that up. But there's also just things that you can see too.
I've been reading a lot about where people think organizations can make the most impact. And I read a statistic that was something like only 18% of people think that nonprofits are the best way to make social or environmental change in the world. I think a lot of that comes back to that. nonprofits do a lot of good in the social sector, and they have a lot of areas that they touch and are able to support and move forward in terms of that area. But then there are so many other impacts and effects that businesses have both locally, regionally and globally, that really do have an impact.
That concept of businesses being good and being aware of the impact that they're having, and generating, whether it’s intentional or unintentional is just such a great concept.
George Cook:
Absolutely, there's this idea that a strong stable Middle Class is what keeps societies flourishing and and small business ownership is one of those really consistent ways throughout the history of the United States that people have had upward mobility, the ability to create a great middle class, or even upper middle class lifestyle for themselves and their families. So, you know, protecting that tradition and making sure that people do have the ability to be entrepreneurs and start new concepts and, and build generational wealth for themselves and their families is really critical.
Carolyn Keller:
First, when was Honeycomb Credit founded? How far along are you now? And then I have a follow up question for you.
George Cook:
We were making our first loans back in 2018. So almost five years at this point. We are in terms of how far along we are we've moved $12 million into small businesses across the country. And that number is growing really fast. We have almost 10,000 investors on the platform right now. And I think I mentioned we've done campaigns now and 26, this week, different states across the country.
Carolyn Keller:
Wow, that's impressive. And as you continue to grow, it started by looking at the challenges that you were seeing of access to lending. And I think we talked a little bit about this, but what are some of the big challenges that you still see in place? And how does Honeycomb address them?
George Cook:
Yeah, I think what's happened with small business lending, is, as banks have consolidated, the decision making process has gone from the local branch to increasingly some central hub in New York or increasingly into a blackbox algorithm. And what I learned from my credit analytics days was, you know, generally consumers have a big credit file and Experian and TransUnion, and Equifax and we have a mortgage or we don't, we're paying on time, or we're not. And so there's lots of really clean binary variables that you can put into a model. And if George is applying for a credit card, you can make a relatively good decision if you should give George a credit card or not. The consumer credit process is not perfect. But generally speaking at the aggregate level, it works fairly well for us as a society.
But if we think about that same context for small businesses, most businesses have been around less than a couple of years. There's no good central database that has all this information on small businesses. And at the same time, a coffee shop on paper looks a lot different than a manufacturing plant. And so just building some algorithm and thinking that you can take very little data that's not very accurate and put it into an algorithm and make a good lending decision is foolhardy. And that's what everyone's doing right now. And what that means is we lost this feel of - is the coffee shop making a good latte, how are they treating their customers? Well do their employees like working there?
These are really important characteristics of a small business that tell us if they have staying power, is this the type of coffee shop that's going to be around in 10 years. And for a lender, that's really important, but we've as an industry kind of given up on trying to find that information, because it's expensive to put people in branches and go out and meet with business owners, where it's gonna, we're gonna use an algorithm because it's cheaper. And, you know, for that means that the average business has a really hard time getting a loan. And for us, the what we're trying to solve is - how do you get that qualitative information that that kind of product market fit, if you will, if a small business is doing the things that the community resonates with, and for us, that's getting the local people to vote with their own wallets, right? If I'm willing to invest $100 in my local coffee shop, I probably like my local coffee shop. And that signaling mechanism, if you aggregate it up to the whole community, can actually really start to tell you which businesses are a good fit for the community and have staying power and our relatively good kind of investment quality, if you will, businesses for that neighborhood.
Carolyn Keller:
Right. And what does your process look like when a business starts with you? How do you then go through that? Is it partially site visits? Is it I'm sure you have meetings with the owners of the businesses and getting to know what their needs and future visions are for their businesses, but just walk us through a bit about what that looks like.
George Cook:
Absolutely. So a business can apply online. Then from there, we go into an interview process. That interview is really trying to understand what is the growth project? Are they opening a new location? Are they buying a new piece of equipment? Are they refinancing credit cards or expensive debt that they got online? Whatever the use case might be, we want to understand where the business is in its lifecycle, what they're working on. And explain to them how our process works. Because it's not like a traditional bank loan, there's a little bit more work involved, there's that we're asking businesses to go out to their community and be a little bit vulnerable, and share their story and see if that story, if customers will reciprocate and be a part of it, right. So we've walked them through kind of the nuts and bolts of what running a campaign looks like and feels like and the support that will offer them along the way.
If it's a good fit, then we'll go into credit analysis. And we'll look at the past couple of years of financials of the business. If it's not a startup, we'll look at some data around the business owners credit history themselves, we'll look at the business plan, and assess if it's a good fit for the platform. And really, what we're looking at is, does the business have a good head on their shoulders? Do they have a clear path to pay back the loan? And if they do, then from there, we connect them with a crowdfunding coach who helps them schedule their video shoot, who helps them put together a campaign page. We handle all the compliance work for them to make their lives easier. Then we launch the campaign and we go and we shout from the rooftops. We tell the story to the local people in the community and get people to come and invest.
Carolyn Keller:
I'm sure your partners appreciate that help on compliance and that there are a number of complications when it comes to looking into all of the rules and regulations.
George Cook:
It's funny, we joke that the SEC website, the Securities and Exchange Commission's website actually takes holidays off. It's the only website I've ever seen that literally shuts down on federal holidays. It only has certain operational hours every day. It you know, clocks in and clocks out.
And so for an organic farmer or for a restaurant tour to try to navigate how to deal with the SEC website. That's a really challenging thing to do. That's the type of expertise that we as an organization bring to the table so we can reduce the complexity.
Carolyn Keller:
What are some of the businesses that have had the most success? Is there a profile of a business that really matches Honeycomb's model? Your platform runs the gamut.
George Cook:
A lot of food and beverage I think food and beverage resonates really well. And that's everything from your gourmet pickle manufacturer to craft beverage non alcoholic and alcoholic through to restaurants and food trucks. So really when I say food and beverage is the whole ecosystem of food and beverage, but food and beverage tends to perform really well. I think that's one because traditional lenders have largely retreated from food and beverage. They just don't like to lend in that space anymore, unfortunately.
And too, it's inherently social. People love to talk about how they went to brunch and Square Cafe over the weekend or the ice cream that they picked up at Milly's, or the pickles that they bought from the Pittsburgh pickle company. And that's just a really social, great word of mouth way to talk about a business. And then inherently the crowdfunding campaigns are running on Honeycomb.
Carolyn Keller:
Right. So it sounds like you're in this process of working to serve these businesses, making that capital more accessible, helping to grow communities, ultimately, what impact do you hope to have as Honeycomb, whether that's on the businesses you serve, or on the greater community as a whole?
George Cook:
I think, for us, what's really important is that we want to have a one to one relationship, that we don't want to run a business where we think about growing the business, and then in a totally separate vein, we think about our impact, right, as much as possible, we're trying to align those into one thing. And what I want to do is create a business that by growing our business, we do more good. And for us that means, you know, setting goals to serve more businesses is really important. But also making sure that we are reaching diverse business owners that we are working in communities that other lenders are overlooking. Because it's a good business, if there's more whitespace, there's more opportunities in communities that are being ignored by other lenders. But it's also the right thing to do.
This year, so far, 80% of the businesses we've worked with, have been minority owned women owned and or based in low to moderate income communities. And that is unheard of in the lending industry. And that is in large part, the partnerships we've built and making sure that we are building our organization in a way that we can serve the communities that are too often overlooked, right now know, and I see that a lot.
Carolyn Keller:
Much of the work that Curio412 does is bringing together your business objectives and your impact objectives in order to create that growth that really does, like you say, grow together. So they're not at odds with each other. Sometimes, whether you're in the for profit or nonprofit sector, sometimes you think about your operational goals, and wonder how that really fits with what we're doing over here in the community. Can you tell us a bit more about what that process looks like for you and how you tend to do strategic thinking around those two goals?
George Cook:
Yeah, I'll give you a really tangible example. So one of the things we were thinking a lot about, kind of late last year, is we did a big analysis of all the campaigns we've ever worked with and all the businesses we've ever worked with. And all of our campaigns have a target funding goal and a stretch funding goal, and of businesses who launch campaigns on Honeycomb, but 83% of them are hitting their target funding goal. And what we found was that that 83% success rate is pretty universal, regardless of where a business is located, or the demographics of the business owner.
Businesses that were hitting their stretch goal were businesses located in higher income communities. White owned businesses were more likely to hit that stretch goal, then businesses coming from chronically disinvested communities. And inherently that makes sense, right? If there is systemically less wealth in a community, then it's harder to crowdsource money to fund a business. It's just the sad reality of the world we live in. And this was something that we were thinking a lot about, it was weighing on us really heavily, we saw that we were doing a good job of reaching out to businesses and disinvested communities. But we wanted to make sure that we were finding a way to level the playing field and getting businesses that are minority owned women owned low to moderate income community based, making sure that they're getting to their stretch funding goal and making sure they are fully capitalized and set up for success.
We started to explore how we do that. We did some advertising campaigns and found there are a lot of investors out there in the world who want to invest in black owned businesses. And so finding ways to bring those types of investors to our platform was a big success for us. But the thing that really broke through for us is we realized there's a lot of foundations and a lot of nonprofits and a lot of impact investors who are actively trying to level that playing field, but they don't have the operational sophistication to go out and find and vet all of these small businesses. Well, it turns out we're really good at finding and vetting them, but we were struggling to find the capital.
So we partnered with this phenomenal organization called Upstart Co-Lab. They're a program with the Rockefeller Foundation. And they helped us design this product where foundations can actually sign up for the Honeycomb platform, and invest side by side with local retail investors in the community, specifically into the types of businesses that they want to have an impact in. This was really an impact driven initiative at Honeycomb. But it's actually turned out to be an engine to really help us grow our business. And so you know, as we think about our strategy, it's looking at if we can figure out the problems that we're having on the impact side, and we can solve those problems, it can actually drive growth for the organization as a whole.
Carolyn Keller:
And I'm sure then that growth is also the more businesses that you can serve and reach and then the more communities that you end up having an impact on as well.
You’ve talked a little bit about this already, but what tells you that you're reaching those goals that you set, and what tells you that you're making an impact? I'm sure there's a number of different things that you both measure, and then probably can't even quantify the fit into that category. So I'll let you choose what you think is important to talk about.
George Cook:
For us, it is making sure we have performance metrics around the demographics that businesses are serving, it's making sure we are within our partnership strategy, we're reaching out to organizations that serve diverse businesses. And then I think the other thing we look at is the performance of the businesses, right, because if a business, if we pump money into a bunch of businesses, but then they go out of business, then our impact is nothing.
We want to set these businesses up for success, we want them to go and hire people and bake more baguettes or whatever they're doing, right, because that's inherently the impact that they're having if they're growing their own business. And so we look a lot at how businesses perform after they run a honeycomb campaign. And one of the things we discovered is the average business one year after running a Honeycomb campaign, is seeing a 60% increase in revenue.
Carolyn Keller:
Wow.
George Cook:
Right, I mean, these are main street businesses where 10-15% growth is normal. Having that 60% Jump in revenue can be really, really meaningful for a lot of entrepreneurs. And that speaks to the capital that we're unlocking. And they can, they can go and buy the new equipment, open the new location.
But it also speaks to the idea that they're not getting money from some faceless online lender or some suit in Manhattan, they're getting money from their neighbors. And when they grow their business, their neighbors are in line for the new product. And that helps kind of close that local circular economy and brings money in the local economy and keep people shopping locally. And when the businesses are making their payments back to their local investors, many of those local investors we hear are coming back and spending that money back into the business helping them to grow even more.
Carolyn Keller:
That's fantastic. And something that I know we haven't talked about yet, but that you've mentioned before is that you said your entire team works with a passion for supporting local businesses to and so I imagine that that passion ends up fitting into the work that you do, whether that's putting together the videos and marketing materials for the campaign itself, or even promoting those businesses after those campaigns have completed too.
George Cook:
Yeah, you know, we have a pretty strict no jerk rule at honeycomb. And, you know, I think one big way we screen for people that really, truly care about small businesses and the communities that they're serving.
One of the fun things we do, we just implemented this, we call it NITO, Nothing Important Happens in the Office. And we have requirement that once a quarter, every employee goes out and shadows the business owner for a day or a half day and put yourself in the shoes of a business owner see what they're thinking and feeling and going through so that we can really keep them as our Northstar we can be empathetic to the day to day challenges that business owners have and just be really connected to their work. And so as we build our product, and as we grow, we can stay really grounded. Make sure we're building the product in a way that's compatible with these very hectic lifestyles that small business owners are leading.
Carolyn Keller:
I love that! And I'm sure that your employees have a lot of fun with that process as well when they engage with the business owners.
George Cook:
We had one just yesterday visiting a jewelry shop and she was just sending us photos of her wearing a welding mask, you know, she was really getting into it. So yeah, we have a good time with it.
I was working with Sherree Goldstein at Square Cafe, I was shadowing her. And it turned out to be a really busy day, Sherree had to work in the kitchen to kind of roll up her sleeves and help her staff. And she just kind of let me loose on the host desk. I've never worked in a restaurant before in my life. And I was seeing people and trying not to get in the waiters way and bussing tables, just because that's the life of a business owner, even well established really successful businesses. Sometimes you just gotta roll up your sleeves and jump in and help out. And it was a ton of fun. And it was a great learning experience.
Carolyn Keller:
That's amazing. So when people in this region think about Honeycomb, what are some of the businesses that you've worked with that you can talk about? And just tell us a little bit about some of those businesses and how people might be able to get involved with Honeycomb in their own communities?
George Cook:
Yeah, absolutely. So I mentioned a couple of our alumni: Millie's Ice Cream, Square Cafe.
Iron Born Pizza is one of my personal favorites. When they were moving into their big Station Square location, they needed a little extra capital to get the doors open. And they came to Honeycomb and raised over $100,000 driftwood oven. Another fantastic pizza shop worked with Honeycomb, kind of in the depths of the pandemic, to retool their kitchen and change the layout and offer more products that can be opened for more meals, but also create a better takeout environment during the pandemic.
We've worked with so many businesses in the Pittsburgh area. We've worked with more than 50 businesses now. Baked True North is fantastic. We just worked with them recently. She makes fantastic gluten free baked goods. She's moving into her own kind of full commercial kitchen here shortly. And so she raised a bunch of money on Honeycomb to make that transition.
In terms of how to get involved, you can go to honeycombcredit.com. If you don't see businesses, in your neighborhood, in your community, refer businesses. Let them know if they're looking for funds or trying to find ways to grow and expand and perhaps having a hard time working with traditional lenders, why not go with Community Capital. We get a lot of referrals from our investor network all the time. You know, people just kind of tapping visitors on the shoulder and saying, “Hey, I love what you're doing. We'd love to invest in it, you should check out Honeycomb.”
Carolyn Keller:
We're getting close to our time here together so I'll leave you with one last question. What one piece of advice would you have for other entrepreneurs like yourself who want to start a business who want to do good? I'm sure you work with a number of entrepreneurs every day that have that same drive to make a difference in their community.
George Cook:
You know, for me, I would say, make sure it's something you're truly, truly passionate about. Because if you're starting a business, it's not a six month journey. It's not a two year journey. This is a multi year, big commitment. This is a really major part of your life, for the foreseeable future. And you know, if I find something that you're not just interested in, but truly passionate about, and that can be your NorthStar, and guide you through this really incredible entrepreneurial journey.
Carolyn Keller:
George, it was so nice to have you with us today. If someone wants to get in touch with you, whether they're an investor or business, what's the best way to get in touch with Honeycomb?
George Cook:
Visit us at honeycombcredit.com. And if you're trying to connect with me directly, I'm just george@honeycombcredit.com.
Carolyn Keller:
Fantastic. Well, thank you again! I loved having you on learning more about Honeycomb. It's just such wonderful work that you're doing and I'm excited to see what comes next.
George Cook:
Thanks for having me, Carolyn!