|
The Worm Buy-back Business |
|
|
Written by Administrator
|
|
Sunday, 11 September 2005 |
by S. Zorba Frankel and Kelly Slocum, from our issue #25
In 1996 we devoted an issue (#14) to worm growing and selling.
Alongside articles praising the hard work of several long-time leading
vermicomposting and vermiculture businesses were several that took aim
at unscrupulous businesses. Buy-back Guarantee, Some Worm History and
Don’t Pay Cadillac Prices for a Volkswagen, among others, warned
potential worm growers to avoid being duped. In our editors’ minds, the
worm buy-back business model itself looked as bad as the unscrupulous
businesses we were trying to stop.
At that time we received as many as two calls a week from people who’d
spent large sums of money — typically $5,000 or $10,000, some-times up
to $25,000 — on a buy-back contract and then couldn’t reach the company
by phone, were refused help when they asked for more information or
assistance, or the sale was rejected because the contractor “hadn’t met
some initial condition,” etc.
In our own articles we focused solely on determining the legality of
the “contract”. We couldn’t find anything that supported it as legal,
and, based on that, we warned people against buy-backs. It was an only
an agreement, as good as the company’s word, we said. We didn’t go far
in our research and didn’t explore the many other sides of the question.
Four years have passed since that issue was prepared. We occasionally
hear from people who are considering purchasing a contract and some who
have already entered into a contract growing relationship. Some express
satisfaction with the company they grow for. Thankfully, very few calls
now come from folks who feel they’ve been burned. Perhaps this is a
sign that things are slowly changing.
A recent flurry of posts to our website’s Worm Forum have us thinking
about the worm buy-back business model again. The online discussion
began with a couple of posts reporting that one buy-back business in
particular operates integrously and has been in business since 1990!
Our editors were certainly surprised that we hadn’t heard of it.
Before we go on with our own discussion, here are just some of the arguments brought up by our Forum writers:
• Beginners like the idea of “investing” a few thousand dollars “up
front” to be assured they have a guaranteed market for all the worms
they will be able to produce. What happens, though, if buy-back dealers
can’t keep their promises?
• There is always the possibility that whichever company I choose to
deal with will go out of business and be unable to fullfil their end of
the bargain. If this situation arises, I’ll have to deal with it just
like any other business setback.
• As I understand it, a guaranteed price offered to buy back worms has
to be registered as a security, which places the whole thing on a
heavily regulated playing field.
• The technical support required to put a novice worm grower into
business can take considerable time and is worth something. ...their
initial investment is...higher than I would pay to get into this
industry! But ... I do know how to grow worms. Were I uneducated as to
the process, my opinion might be different.
• I’d prefer that the industry wasn’t wholy controlled by large
conglomerates with the space, equipment and capital to produce (and
control) all of the product, but would rather small growers be a part
of the industry equation. Buy-backs, honestly run, can enable that.
• It seems to me that if the contract keeps us from having to gamble
time and money on marketing efforts later, these prices could be a
bargain. How much would it cost to set up a web site? How about
magazine ads? How many hours would it take to approach all the local
bait shops, fish camps, recycling centers, landfill diversion sites,
etc?
Searching Beyond Opinion
We have been digging to find out a lot more on buy-backs. There’s a lot
we didn’t know four years ago. Buy-backs aren't new at all. They have
existed for many decades, in the form of contract farming. Companies
such as Tyson Chicken and Del Monte have provided their contract
growers, for several thousand dollars’ startup fee, with the seed and
specific instructions to grow the produce or chickens they supply to
the marketplace. This business practice is legal, provided they have a
market greater than simply selling to the next investor. The grower is
gambling. The grower expects good instructions, hopes for optimal
weather, and strives to provide the best conditions for the plants’
growth. Things may still not work out, but that’s business.
After contacting one of the buy-backs mentioned in Forum posts and
speaking to the Vice President in charge of marketing, we inquired as
to the business’ actual markets for worms. Under agreement to not
discuss or disclose this information, we received a copy of their
business’ profit and loss statement and a list of those they sold worms
to. They were not, as it turns out, selling only to new growers, but
did have several markets for worms outside of their new investors. They
also had a detailed business plan that outlined the number of worm
growers the company could support based on projected ongoing worm
sales. The company has been in the same place doing business the same
way for over ten years and are part-owners of the business park in
which their offices reside. Kelly spoke with several of their contract
growers who were very pleased with the company and had been
successfully selling worms to them, some for a few months, some for
several years. Many of the growers had developed markets in their own
area and expanded their worm beds to supply both these new markets and
the company with whom they’d initially contracted.
We also spoke with the President of Marketing about the growers
information packet, a copy of which we’d received via fax. Innacuracies
in worm growing information are one of the problems with unscrupulous
companies, who seem to be setting their growers up to fail. The
incorrect information, reflected in the manual supplied by this
company, came from some of the older worm growing guides still
available today and was a source of frustration to the company, who
needs their growers to be successful in order to supply their markets.
Our offer to supply the company with accurate data on worm growing was
gratefully accepted.
We also checked with the Securities and Exchange Commission ,who have
no record of the companies on whom we checked. They suggested we
contact the States’ Attorneys General, who would have information on
any known illegal business activity within their jurisdiction and from
whom the SEC receives much of their information. Upon contacting the
Attorneys General for the States in which the companies we were
investigating do business and are registered, we likewise found they
had no information suggesting these companies were operating outside
the law. One Attorney General’s office, in Nevada, was well acquainted
with worm buy-back scams, as they have had difficulty with such
companies in the past. They had no reason to believe that that company
we were inquiring about was operating illegally. We contacted the
Better Business Bureau in the States where these companies are
registered. One had a satisfactory rating and the other had no rating,
meaning that no reports had been filed on the company.
We, as an industry, have erroneously equated the buy-back business
model with dishonest business practices, which now seems to have been a
mistake. There is the misperception of purity of purpose on the part of
small, backyard worm growers and a stamp of self-servitude attached to
companies that are actually making money with worms. Our industry will
never flourish until it can be made economically viable and economic
viability is being hurt by a lack of product availability. Getting
enough product to meet the demand will take lots of us working in the
areas in which we excel. Some are great at growing worms, but have no
clue about marketing. Some are outstanding marketers who believe in the
product, but have neither the knowledge nor the space to grow worms.
Getting these two groups together seems a wise thing.
Warning
Please do not take this article as an endorsement of worm buy-back
businesses in general. Unscrupulous businesses have not disappeared and
there are many questions that a potential investor must always ask. How
many growers does the business have and how many will they set up — how
many will be enough to match their current need?
Do your own research. Ask for references — names of growers for the
company you’re considering — and check them well. Talk with those
growers to make sure that the buyer has a history of integrous
operation — that it reliably purchases the worms grown at the agreed
upon price. Make sure the growers have been selling to the company for
at least several years and that their work has been profitable
(factoring in the large initial investment). Specifically ask these
growers if the equipment and material costs, the work put in and the
time required to grow the worms match what the company told them.
As with buying into any business, study up before you invest. Seek good
financial advice. All we’ve discussed in this article is the legality
and morality of the buy-back business, not whether it is a good
investment.
Please visit our website's Worm Forum and join in the ongoing discussions on any number of worm-related topics.
Buy-back Contact Information:
Combined Resource Systems (CRS)
Tel: 800-802-5073
Unco Industries, Inc.
7802 Old Spring St, Racine, WI 53406
Tel: 800-728-2415 or 414-886-2665
Fax: 414-886-2296.
B & B Worms
Meeker, OK
877-779-9676
Please note that Worm Digest is not recommending that readers enter
into contract with the above businesses, but is simply giving contact
information. |
|
Last Updated ( Sunday, 02 October 2005 )
|
|
Latest News 
