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FALL 2008 UPDATE

from John Abrams

IT’S BEEN WAY TOO LONG since my last update – way. . .too. . . long. We are, in fact, in the process of working on a re-design of this website - - the first major revamp since we created it six or seven years. It should be done by year’s end.

After one of the most wonderful summers I can remember (lots of sun, not too hot, periodic downpours to keep everything green and growing), it has surely been a wild and wooly early fall. The pivotal election campaign we are involved in and the collapse of - the unmasking of - Wall Street has brought national events into our living rooms, into our business, and onto our island. As we are all painfully aware, our economic problems will not be going away soon. We won’t be shaking them without massive change.

At the same time, we are in the midst of a cascade of events that may add up to great opportunity. Several years ago, Al Gore released AN INCONVENIENT TRUTH. About the same time, Tom Friedman, NYT columnist and best-selling foreign affairs author, saw the green light and began to write about climate change and energy extensively, culminating with the release of his recent book HOT, FLAT, AND CROWDED: Why We Need a Green Revolution – and How It Can Renew America. He says it will be the greatest innovation project in American history. Meanwhile, venture capital has shifted its focus from software and internet to green technology. Oil prices shot up this year. Wall Street crumbled. Climate change and energy suddenly became a high level presidential campaign issue. Never before. We are at a convergence of staggering proportions.

We are bearing witness to – and suffering from - all the distress and difficulty that we knew had to happen, but we are on the path to – I hope – all the good things we know must happen next.

Maybe, just maybe, we are on the verge of the beginning of the re-industrialization of America, but of a fundamentally different sort. The first industrial age caused our carbon footprint to cover the planet; the next will consist of the effort to reduce it to a fraction of what it is today. Let us hope that this is what emerges from the financial mess and the bail-out because, as economist Paul Romer once said, “a crisis is a terrible thing to waste.”

IN OUR BUSINESS, we have seen some projects slow down and others get postponed this fall as some of our clients wait to see what will happen. Our business is strong and busy, but perhaps a bit less robust than usual in terms of immediate resiliency and backlog.

Meanwhile, our energy efficiency and renewable energy business continues to thrive, as people see the need to stabilize energy costs in their homes and businesses. This is an exciting place to be, and the future promises plenty more.

Our SMC Energy approach has been working well. When business or residential customers call – often with a particular idea in mind, like installing a wind turbine or a solar electric system – we offer our services in this way: for a fixed fee we do a complete audit of their property and provide them with a report that details a series of load reduction measures to minimize energy use and a proposal for using renewable energy – solar electric, wind, solar hot water – to provide the rest, or a reasonable part of the rest.

Tagged onto the recent congressional bail-out bill was the extension of and increase of a variety of energy efficiency and renewable energy tax credits and incentives. These federal measures, combined with the Massachusetts rebates already in place, make this an unusually good time to do these improvements, and the public seems to be more and more aware of this.

Even in our core design/build work, we find that more and more people are coming to us with strong goals for low energy use and high environmental performance. After all these years of pushing, it is immensely gratifying to feel the push coming back, and to find so many clients who share our values coming our way.

WITHIN SOUTH MOUNTAIN this has been a year of Great Works and Big Changes. In the Great Works department I would have to say that the completion of Jenney Way in Edgartown heads the list. We began the design of this project – an in-town cluster of ten high performance homes for moderate income families – way back in 2003.

When four of the houses were recently certified LEED Platinum by the US Green Building Council, they became the first single family permanently price-protected affordable housing in the U.S. to receive this highest designation of the Leadership in Energy and Environmental Design program.

Designed and built by us, the project was developed by the Island Affordable Housing Fund (IAHF), and the property is now owned by the Island Housing Trust (IHT). The trust leases the land to the homeowners who were selected by lottery in late April after qualifying with the Dukes County Regional Housing Authority. Sale prices for the completed dwellings ranged from $160,000 to $330,000, approximately 25-50% of the median home sale price on the Vineyard.

The houses and sitework are exemplary models of sophisticated but simple green building – with no-maintenance exteriors & superior energy efficiency to assure that they will not only be affordable at purchase but forever affordable to occupy. Four of the ten houses received grants from the Mass Technology Collaborative’s Green Affordable Homes program. The four include 1.5 Kilowatt solar electric systems; the other six houses were built to the same exacting standards, but they do not have the solar electric systems because the wooded site precluded good solar access.

Right after the closings, Philippe Jordi (executive director of IHT) and I met with the new owners. Someone asked why all the houses weren’t equipped with solar systems. I told them that we agonized over this, that we could have obtained funding, but that we felt we would have to remove far too many trees to make it work, thereby diminishing the quality of the neighborhood. After I finished explaining this, one of the new owners said, “Hey, thanks for saving our trees.” The others nodded assent.

The project has a long, storied, and sometimes difficult history. Some years ago, after I gave a talk at a church about affordable housing, an older couple approached me. They had land in Edgartown, and they wanted to do some estate planning on part of it and commit the rest to affordable housing. It turned out to be an extraordinary piece of land owned by two extraordinary people, Ralph and Olivia Jenney. The Jenney’s family home would abut the housing development, so this was a rare case of “YIMBY” – yes in my backyard!! The Jenneys sold the land to IAHF at a discounted price and Jenney Way was born.

When the design was presented to the Edgartown Planning Board and the Martha’s Vineyard Commission (the regional planning agency) it was held up as a model of what we need to be doing – in town, near public transportation routes, small scale, walking distance to amenities, tightly clustered, retaining open space, and designed for long-term neighborhood quality. There was opposition from some in the neighborhood, however, as there always is. And, as always, the opponents were more vocal than the many supporters. But the plan received unanimous approval from both the regional and town boards. After several years of legal wrangling with a small group of obstinate seasonal homeowners in the neighborhood, the project went forward and construction began in the early spring of 2007.

The high-performance building envelopes are comprised of a combination of materials and practices chosen for durability, insulation value, local availability and aesthetics. Some of the unusual aspects: no maintenance cypress exterior (and interior) trim reclaimed from river bottoms, FSC-certified white cedar siding, flooring and porch roof sheathing recycled from a local “de-construction” project South Mountain completed a few years ago, “tuned” window glazings (triple on north, east, and west for maximum insulation and double on the south for passive solar gain), and a variety of high recycled-content materials.

The insulation and airtightness will reduce heating costs 60% below a similar house designed to meet MA energy code and allows these small homes to be heated by point source heaters rather than a centrally located oil or propane boiler as is typical in a home of this size. Building ventilation is managed by low wattage exhaust fans with programmable timers.

The lucky lottery winners moved into their homes on Memorial Day weekend. But more people left the town hall disappointed than jubilant. Many more affordable housing opportunities are needed. And many more are being planned.

At this moment Island Housing Trust and South Mountain are collaborating on the design of a similar project, in West Tisbury, called 250 State Road. The land resulted from a collaborative open space/affordable housing purchase with the Martha’s Vineyard Land Bank. The eight houses in this cluster will again be designed to achieve LEED for Homes Platinum and will all be equipped with 5 KW solar electric systems provided by the Green Affordable Homes program. South Mountain will be attempting to make these homes as close to energy neutral as we can. Both projects are part of the Vineyard’s on-going long-term effort to preserve community vitality by providing sufficient high quality affordable housing for those who are excluded from the Vineyard’s high-priced housing market.

As is always the case with these projects, Jenney Way was a great collaborative effort that combined the talents and commitments of many. Led by project designer and manager Peter Rodegast and site foreman Peter D’Angelo, two of South Mountain’s employee-owners, a superb group of subcontractors fully in tune with South Mountain’s building methods worked together to maintain very high quality standards at reasonable cost. We were also fortunate to have the strong support of the Martha’s Vineyard Savings Bank and the Edgartown Affordable Housing Committee.

All affordable housing needs subsidies, and it is a complex undertaking to assemble, from a variety of sources, funding for these projects. In the end, there is always a big gap between costs and revenue. Much of this is funded, in many cases on the Vineyard, by private donors. One of the great synergies of our affordable housing work is that many of the donors are our former and current clients. Although it’s always hard to ask, our clients come through in spades, and we are tremendously grateful for their commitment to this special place and the preservation of its precious community.

WHEN IT COMES TO BIG CHANGES, perhaps the biggest news is in the comings and goings department. In May, Tim Mathiesen will become the first long-time owner to leave the company. He will have been an exemplary owner for 11 years and a valuable employee for 17. We will truly miss him when he and his wife Robin move to Vermont. He is our first and only Information Technology Manager, and he has done an extraordinary job taking us from the era of Fax and Film and Pencil and Paper to the digital world in which we reside today. He is also responsible for electrical and lighting design, appliances and fixtures, and shares management of our Small Jobs Division with Pete D’Angelo. The wonderful thing is that he will continue to be our IT guy, at least for the foreseeable future, mostly operating remotely combined with weekly or bi-weekly one day forays back here to the Vineyard.

VERMONT STOLE ANOTHER THIS YEAR, one of our favorite young brainiac carpenters, Justin Tourigney. Like I always say, it’s clear that Vermont is going to rule the world! We wish Justin well. Even better, we wish he’d come back.

NOW FOR THE COMINGS. For years we have been searching for the right person to manage our increasingly complex interface between design and construction as Design and Production Co-ordinator. When I broadcast an e-mail to a group of friends in the business to see if anyone had a suggestion, Greg Graham and his wife Christie Boulding were on their sailboat Breeze Maven somewhere in the Caribbean. Greg and Christie were the founders of Graham Contracting in Wayland MA in 1982, and had sold the business to their employees three years ago. When he read my e-mail, Greg had been retired for three days and wondered what his next challenge would be. There it was. He contacted me and suggested that he and Christie come to the Vineyard, and he would work for a few years to get the position established and systematized, and then pass it on to someone younger. Good fit. He arrived in early September and he’s digging in deep. One of his responsibilities is to take over Small Jobs management from Tim.

AND IN THE INTERIORS DEPARTMENT, where Deirdre needs help as her management responsibilities continue to grow (her new responsibilities bring new titles too: she is now the Vice President of the Board of Directors and the COO), we conducted a lengthy search for a highly qualified interior designer. We found one – a stellar architect named Beth Kostman, who we knew already as she has practiced on the island for the last 14 years. She too started in September and we’re thrilled to have her here. She will take over electrical and lighting design as well as appliances and fixtures from Tim.

Greg, Tim and Beth (L to R) review a plan together.

GOOD FRIENDS JAMIE WOLF AND DEVON HARTMAN (of Wolfworks in Connecticut and Hartman Baldwin in Southern California respectively) facilitated an early September company meeting called Sensing the Shape of our Future. Jamie and Devon were there to help us learn about ourselves and our business, and help us to think, together, about our recent efforts to plan for the long term.

Jamie described the concept of the “cone of uncertainty,” in which the tip of the cone represents the current moment and the mouth of the cone enlarges as we go out further in time. In regard to strategic planning, the analogy is that the further out in time we look, the more uncertain things are. Conversely, the tip of the cone can represent a completed job and the mouth of the cone can represent the current moment. As we draw closer to the completion of a goal, we progress from uncertainty to certainty, with each day offering new opportunities to make adjustments and decisions to shape the final result.

A central aspect of our thinking in recent years has been “Thinking like Cathedral Builders”. Those who designed and built the cathedrals of the Middle Ages, which often took 50 years or more to complete, did so while knowing they would not live to see them finished. Devon shared his personal experience of “cathedral building” in France, where he had the opportunity to share in the masonry restoration of a 400-year old building. He emphasized the value of planning for long past our generation and of building a culture that supports the interests of future generations.

I shared a chart which summarized changes in the company from 1988 to 1998 to 2008 which demonstrates that we are a very different company than we were 10 and 20 years back. We recognized that most of the changes were incremental and not part of a grand plan, but in recent years we have begun to chart a moré conscious course.

Devon remarked that long-term planning decisions are often driven by emotions, particularly around the question “What happens if it doesn’t go right?” He explained the growing need for SMC to invest in its strategic planning. In the past, he suggested, when SMC was smaller, if a client dropped out or if the company budget did not stay on track, everyone could adjust accordingly. Now that the financial picture is much more complicated, the company infrastructure is bigger, and more employees are depending on the all the numbers to work out, it is important for SMC to do more detailed planning, measuring, and communicating in regard to its strategic plan.

The challenge, he said, is to determine how we can get everyone’s individual goals aligned so we can move the company where we want it to go. “How,” he asked, “do we get all the wood behind one arrowhead?” He talked about the need to have Big Hairy Audacious Goals (BHAG - the term comes from Jim Collins’ classic business book Built to Last, about the successful habits of visionary companies), to have goals bold enough to inspire us to get out of bed each day but not so extreme as to stifle us with fear. I gave two examples of current SMC BHAGs: 1) that within 10 years we will significantly reduce our dependence on construction as a profit center by developing new endeavors; and 2) that we will become a carbon-neutral company.

This reminds me of something I heard someone say (can’t remember who and when): When you fish, in this life, always use a big hook, because, even if you catch nothing, it’s more exciting to not catch a big fish than to not catch a small one.

At the end of the meeting we took some time to analyze our strengths, our weaknesses, the threats to our success, and the opportunities before us. On all accounts, we found many. There’s big work ahead, I think we all relish the challenges, and we are grateful to Jamie and Devon for helping to move us forward. But change is not easy. Recently I visited a wonderful company in Maine, Johnny’s Selected Seeds, which is in the midst of an employee ownership transition. CEO Mike Comer gave me a tour. As we walked, he talked, mostly about all the many changes they were in the process of instituting. I asked him how the employees reacted to all this change. “Oh,” he said, “there’s a broad spectrum of reactions. It goes all the way from “against it” to “really against it” to “really really against it.”

SMC WAS DEEPLY INVOLVED in the MV Living Local and Harvest Festival in late September. The event was sponsored by four organizations - the Vineyard Conservation Society, the Island Grown Initiative, the Vineyard Energy Project, and the MV Agricultural Society, and consisted of a Friday night forum, which I moderated, and an all-day Saturday festival of all things local at the Agricultural Hall in West Tisbury. The daytime event included booths (SMC had one), demonstrations, and panel discussions (both Rob Meyers and I participated in these).

It was a seminal event – throngs of people came to celebrate all that we can do to increase our local self-reliance in the face of the out-of-control globalization that pulses worldwide.

THE NEW, REVISED, RE-NAMED second edition of my book (COMPANIES WE KEEP: Employee Ownership and the Business of Community and Place) was released by Chelsea Green Publishing in September. It has a broader and deeper focus on employee ownership of enterprise and tries to offer the tools that will help businesses to make these transitions.

We are in the process of setting up a blog at www.southmountain.com/companieswekeep to make the book into an on-going conversation. It should be in place by early November, and hopefully I’ll make the time to update it regularly.

AND FINALLY, I’ve just got to say Go Sox!! Did you ever wonder why baseball seems so different from all other games? Here’s why: it’s because it’s the only game in which the defense has the ball. Think about that. When you get tired of thinking about that, think about this, about the $700 billion Wall Street bail-out: it’s a lotta money. If you had a supply of crisp one thousand dollar bills and you piled them up, a pile four inches high would be a million dollars. How high would you have to pile them to make $700 billion? About 48 miles high!!!

THERE’S PLENTY MORE TO SAY, but I’ve probably said far too much already. Hopefully I’ve hit the highlights. Remember to check out the blog in November. Have a great fall and great holidays! Onward. . . John