The Verdeagua case study, developed by faculty members at Universidad ORT Uruguay, was published by Harvard Business Publishing.
Verdeagua is a company dedicated to growing vegetables using hydroponics. Over its 15-year history, it has achieved success in market penetration, production improvements, and financial performance. However, by the end of 2017, it had reached its peak productivity. In light of this, its owners began looking for an investor.
The case study developed by Enrique Kramer (MBA, academic coordinator of the Bachelor’s Degree in Management and Administration and professor of Strategic Management) and Luis Silva Domingo (academic coordinator of innovation and special projects) focuses on the challenges faced by the founders of Verdeagua in finding an investor willing to back their company.
The case features businessman Jorge Ariel Fernández, who sees an opportunity to invest in Verdeagua but faces the dilemma of whether or not to evaluate this company in the same way he does the others.
A New Economy
Verdeagua has a unique organizational philosophy. It is part of Sistema B, which means it places special emphasis on the various stakeholders associated with the organization. Sistema B companies strive to build a new economy focused on collective needs. They are accountable to shareholders, the community, and the environment.
“Verdeagua raises an issue that goes to the very heart of the System B’s existence,” according to Silva Domingo. However, belonging to this system is not the only characteristic that sets this company apart.
The vegetable production technology used is hydroponics, which involves using nutrient solutions instead of soil.
By avoiding the use of fertile soil, the environmental impact is significantly reduced (soil erosion is prevented, and less water is consumed per plant, since when water is applied to soil, it tends to evaporate and lose nutrients), and working conditions for staff improve dramatically (work is done on benches rather than on the floor, and there is year-round employment rather than seasonal work, among other benefits).
The leap of faith
According to Kramer, Verdeagua took a“leap of faith.” It went from having five makeshift greenhouses to making an investment of nearly half a million dollars and building “a large greenhouse.” To finance this investment, it took out a 10-year bank mortgage loan. This loan, combined with a change in tax regulations that reduced revenue, placed heavy demands on the company’s cash flow and led the founders to seek an investor.
In addition, the owners of Verdeagua recognized that the local market offered significant growth opportunities but were unsure how to capitalize on them. One option was to focus on other supermarket chains besides Tienda Inglesa, their main client.
The problem was that this chain required exclusivity, which made Verdeagua heavily dependent on it and limited its growth opportunities. In that regard, the case raises the question of whether it would be worth continuing with Tienda Inglesa or whether it would be better to target other clients and risk losing its most important one.
The case study is intended for students enrolled in both graduate business administration programs and advanced undergraduate courses related to management. The situation at Tienda Inglesa is one example of the open-ended questions students are asked to address. As Kramer and Silva Domingo explain, the purpose of case studies is not to provide a solution but to present scenarios that facilitate discussion.
As for Verdeagua’s organizational structure, while it is clear who the company’s owners and leaders are, all relevant information is shared with the entire staff. There is a distinct approach to management, one that values transparency and conveys the message that everyone contributes and should be rewarded in the best possible way: not only with money but also with opportunities for growth. The owners are convinced that the company’s commercial success is due to the commitment of every team member.
A genuine conviction
Juan Herrera and Sebastián Figuerón, the founders of Verdeagua, are known for their “passion, commitment, unwavering dedication, and firm belief in their vision and philosophy.” This is how Silva Domingo describes them, adding that “they don’t just talk the talk—they’re actually the first to put their beliefs into practice.”
Kramer and Silva Domingo question whether Verdeagua’s management model is scalable or whether it only works because the owners have personal ties to each of the employees currently working at the company.
The Verdeagua team consisted of about 20 people, and“decisions very rarely came from above,”explains Kramer. For example, Tienda Inglesa gave them the opportunity to increase sales in exchange for delivering orders on Monday mornings, which meant picking up the vegetables on Sunday. The community accepted the offer and organized shifts to work on those days. Kramer says that in another company, where the order would have come from management, employees would likely have objected to coming to work on a day off.
According to Kramer, Verdeagua has undergone a“quantum leap,”and “the entire business model could start to show cracks because it’s under strain and could break down.” In other words, what works for a community of 20 people might not work for one of 80 or 120.