Eleanor Kinney came to the Slow Money Maine conference this year to talk about a serious topic: Why do sustainable food businesses fail, and what lessons can be learned in Maine from the recent high-profile failures of MOO Milk and Coastal Farms & Foods Inc.?

But first, she made everyone laugh. “I’m the one up here without a shirt on because I invested in these companies,” she said.

The audience chuckled but also took in the underlying message: Investing in small businesses can be risky. If it’s a sustainable business that fails, the financial “ouch” carries an emotional bite as well. Investors in so-called triple bottom line businesses – those that pay attention to social and environmental outcomes as well as financial results – care more about Main Street than Wall Street. People who start these kinds of businesses are passionate about their projects and what they can do to improve the way we live. Consumers often cheer them on from the sidelines.

Yet the laws of business, like the laws of physics, still apply, notes Fiona Wilson, an assistant professor of social entrepreneurship in the Paul College of Business and Economics at the University of New Hampshire and a board member of Wolfe’s Neck Farm in Freeport. No matter how much good they want to do in the world, people who start sustainable businesses must realize they are still subject to all of the pressures and constraints of the marketplace. “My experience has been that sustainable businesses focus a little too much on the sustainable piece and not enough on the business piece,” Wilson said.

Local food businesses present particular challenges. Structurally, they may be missing big pieces that other businesses take for granted – such as the ability to buy the right equipment. The explosive growth of big agriculture decades ago meant the gradual demise of medium-sized everything.

Plus, food itself is inherently intimate, tied to how we feel about our bodies, our communities and the planet. People who start such businesses are fueled by their passion for a cause, and their customers have come to know and love the farms and farmers that produced the food destined for their pantries.

New England is a hub of local food investment, and Slow Money Maine, which connects food businesses with money and technical assistance, is considered the national group’s most active chapter. Slow Money investors pumped $11.5 million into New England projects over the past five years, more than in any other part of the country, according to a recent report by the organization.

In five years, Slow Money Maine has connected 74 farms, fisheries and food businesses with $9.7 million in 260 transactions. Their losses? Two out of five businesses with equity investments, and just under 3 percent of loans.

The businesses that went under were one farm and three processing or “value-added” food businesses, according to Linzee Weld, who crunches the numbers for Slow Money Maine. The biggest, most high-profile failures, were MOO Milk, an organic milk company based in Augusta, and Coastal Farms & Foods Inc., a food hub processing center in Belfast.

At Slow Money’s annual conference in November and in follow-up interviews, the leaders of these two businesses talked about what went wrong and what other sustainable food businesses can learn from their mistakes.

A MATTER OF MONEY

The vision behind Coastal Farms & Foods in Belfast was to create a food business incubator and processing kitchen that would fill a gap between growers and consumers. The 50,000-square-foot facility would be a place where farmers could store their crops and other Mainers could follow their entrepreneurial dreams of getting their homemade jams, sodas and other value-added products ready for grocery store shelves. The idea had been tossed around for years, but nothing ever seemed to get started. An initial attempt to launch the business as a nonprofit failed.

That sluggishness getting the business off the ground led to a sense of urgency when it launched in 2011, according to Wayne Snyder, a businessman who became a member of the Coastal Farms management team. The team’s idea was to combine the riskier incubator portion of the business with more stable blueberry processing, which presumably would make enough money to underwrite the rest of the operation.

Coastal Farms & Foods raised $1 million from investors who took equity in the company and $1.1 million in loans. “That was not enough to sustain or even get both of the operations started effectively,” Snyder told the Slow Money conference. “The vision was there. The money was not there to the degree that it needed it to be.”

The managers succeeded in getting another $1 million or so in soft loans – and more lenient terms – to make up the company’s deficits, Snyder said, “but that also deluded us into thinking we could keep doing that.” He estimates it would have taken another $1.5 million to make the project work.

The rush to get the incubator operating undermined the company’s business plan. “It took the focus off of solid management, financial controls, and put the focus on getting it going with the belief that the vision would carry things through and that ultimately we would succeed,” he said.

Wilson, the New Hampshire professor, said too few entrepreneurs pay early attention to their business model and to understanding their sources of revenue. Investors, meanwhile, “will often put good money after bad, but they’re not paying attention to the underlying root cause of the problem if the business fundamentals aren’t right.”

LACK OF INFRASTRUCTURE

MOO Milk had investors. It had loyal fans, who loved its great-tasting organic milk and romantic back story. It had a grand vision that encompassed a shiny new processing plant with an amphitheater, sustainable agriculture diorama, and an ice cream bar.

What MOO Milk lacked was infrastructure.

Bill Eldridge, chief executive of MOO, was thrown into the deep end in 2009, when HP Hood ended its contracts with 10 small, organic dairy farmers in Maine. There wasn’t much time to plan or to build a management structure for MOO Milk, which brought together the farmers who had been cut loose by Hood. While most businesses start small and build from there, MOO had 10,000 gallons of milk to sell the minute it opened the door.

Like Coastal Farms & Food, MOO Milk had its money issues.

“No matter what you’re doing, there is a huge inertia in the (grocery) industry that makes breaking into it a very slow process,” Eldridge said. “And what slow means is that you’re going to have to spend more money. One of my failures was the inability to anticipate how much more money that was going to be, and how slow things would move forward.”

While getting onto retail shelves was a slog, the day-to-day operations of the company moved so quickly Eldridge had no time to do the paperwork required to keep investors informed, or to hire someone to do it. He was so shorthanded that he did many of the consumer taste tests himself, in grocery stores throughout New England.

In the first year, sales were $800,000; payments to farmers were $1.1 million. As time went on, MOO found more investors, and the business ultimately raised $6.9 million.

In the beginning, the company processed 8,000 to 9,000 gallons of milk per week using outdated equipment from Smiling Hill Dairy. The break-even point financially would be double that, a goal Eldridge felt the company could meet or even exceed before breaking ground on a new $15 million plant, which would have been able to produce 20,000 to 25,000 gallons of milk per week.

Then, the borrowed equipment began to malfunction. Leaky cartons dripped milk in refrigerator cases. Trucks left the plant half-empty.

The company tapped investors for more money to keep the struggling business going. In the end, it was not enough.

When MOO went under, it was a surprise to many people, including Eldridge himself, who called the decision-making process at the end “very poor.”

“The decision to close was made in the space of about a week,” he said. “I caught some flack, not unjustifiably, from some of my investors.”

Eldridge now believes the company might have been able to stay open, at least temporarily, with another $250,000 to $300,000 to tide it over while managers came up with another plan.

The new plant, had it been built, would have provided the medium-sized milk processing infrastructure the state has lacked ever since the consolidation of the agricultural industry left small dairies and huge milk companies, but nothing in between.

“You go back to the end of World War II and the landscape is dotted with these smaller dairies, any one of which could have been (part of) MOO,” Eldridge said. “But they’re all gone.”

Infrastructure investments are important if Maine wants to grow its food economy, said Kinney, the investor, but they often require more money up front than startups that are less dependent on brick and mortar.

“When they go down, they’re big losses,” she said.

FAILING TO COMPETE

Wilson says a lot of new businesses operate under the assumption that all customers care about is whether they are sustainable. But, as with any business, a sustainable food business will succeed only if it can compete with other products in the marketplace. Fair Trade coffee, Wilson said, is an example of a food sector that got it right. Early on, the pioneers in Fair Trade coffee understood that the coffee itself would have to be exceptional because, no matter how noble the principles, consumers weren’t willing to compromise on taste.

The company Equal Exchange, Wilson noted, didn’t want customers to balk at the cost of its coffee. From the beginning, it priced its coffee the same as conventional coffee. MOO Milk, on the other hand, cost 20 to 30 percent more than other milk, she noted. “I think that’s quite problematic.”

POOR COMMUNICATION

Sustainable businesses often fall short in how they communicate, too.

Kinney, who lives on a coastal organic farm, co-founded Slow Money and the No Small Potatoes investment club, which provides micro loans to farms and food businesses. She has invested in a lot of sustainable food businesses in the state and has noticed the tendency toward poor communication.

With MOO Milk, there was little financial reporting because things were moving so fast, but managers at least tried to keep her informed personally. Yet, at the end, communication broke down, Kinney said. “When it’s prioritized to write a press release before you call your investors, that’s a problem,” she said.

But, she said, she won’t pull back from investing in sustainable food businesses because she believes in them deeply. She will, she said, be more vigilant about demanding regular reporting from the companies she invests in.

TOO MUCH PASSION?

Is it possible to have too much passion for your business? Yes it is, especially if it means avoiding certain hard economic realities.

Coastal Farms & Foods might have been saved if its leaders had slowed down the food incubator portion of the business and focused on processing blueberries to start, Snyder said. The business had 1.5 million pounds of blueberries under contract for processing during the first year, an amount that doubled in year two. But the owners and managers were driven by their vision of what the company could be. The community had talked about the food incubator for years; they wanted to see it come to fruition, not be caught in “that endless cycle of studies and talks and seminars,” Snyder said.

“The stronger the vision and the stronger the passion, the more you have to be double checking yourself to be sure you’re focused on the hard economic realities,” he said. “The checkbook runs out and you don’t have any money left, and it’s over. That’s something that the vision, sometimes, can cloud.”

It’s the passion of consumers who are increasingly asking for locally produced food that could keep investment in these startups going, even with the added risks.

“The educated American consumer really does have in their mind that they want healthy food for their family,” Eldridge said. “People relate to food that they can trace its ancestry back to the farm or farmer.”

He doesn’t regret his MOO Milk experience because he believed in its mission and the ultimate goal was fulfilled: All of the farmers but one are still milking their cows.

Kinney describes investing in MOO Milk as riding a roller coaster, “but with people I liked and believed in.”

Investors who gravitate toward the sustainable business sector believe in a different kind of capitalism, one that requires more patience. With these businesses, which are typically funded with a combination of debt and grant money, returns are slower to materialize or may be lower than mainstream investors expect.

“I don’t invest more than I can afford to lose,” Kinney said. “And that’s what I advise anybody else investing, particularly in this sector.”

Kinney said more and more wealth managers are considering investing in sustainable businesses, driven partly by their clients’ interests in their local economies. And, there are an increasing number of opportunities for people without big money to participate, such as investing even $1,000 at a time to benefit an individual farm. Kinney has had many loans paid back by small-scale businesses – the No Small Potatoes investment club, which pools its funds, has had only one loss – “so there’s a lot of success.”

Slow Money Maine has put together guidelines that outline what investors expect from a business and has been working on a technical assistance program to help struggling entrepreneurs or to connect them with mentors.

“A single entrepreneur typically does not come in with the set of skills required to have a successful business,” said Bonnie Rukin, the Maine chapter coordinator.

People often need little help in finding their mission. While having passion can sometimes get in the way, it’s still “a critical thing that you don’t ever want to lose,” Snyder said.

“If you do lose it, then this whole concept of change in our society and going away from the mega farm and mega food distribution will be lost,” he said.

In other words, he said, money matters. But today’s food economy does not favor the small- and medium-sized companies. To find a new way takes vision.