IN A BLUE MOON.

It's a rare recipe for profitability, but the owners of an Asheville bakery stir in a heaping helping of democracy.

It's Saturday morning, and Blue Moon Bakery and Cafe is hopping. Parents with kids, bicyclists, joggers and well-to-do retirees inhale the aroma of coffee and freshly

Although it opened in 1992 and seats just 50, Blue Moon is an Asheville institution. Its popularity on Biltmore Avenue has helped revive a once-forlorn stretch of downtown between Pack Square and the French Broad Cooperative grocery. Out-of-towners veer off Interstates 40 and 240 to grab a cup of Joe and pastry, maybe a bowl of soup or a sandwich. "The Blue Moon's best drawing card and greatest contribution to Asheville's quality of life," Southern Living magazine once gushed "are the mingled aromas it lets loose on the town."

The 22 aromatherapists on the payroll are what you'd expect in a hip coffee shop in the middle of what Rolling Stone magazine called America's new freak capital. Many are 20-somethings steeped in Asheville's counterculture. "They're trying to find themselves," Dick Gilbert, 70, says. "They want to be a musician, and they supplement their income working in a restaurant." Seven employees, including Gilbert, are also owners. Most are in their 30s or 40s, but one, like Gilbert, is in her 70s. Though the elder statesman, he makes just $6 an hour. One of his jobs is washing dishes. "Sharing the scud work," he says, "is an important part of the scheme."

It isn't all they share. Each has one vote when setting policy at twice-a-month management meetings. The employee-owners are joined by an eighth partner, an equipment repairman who is paying off his ownership stake in kind. They haven't voted on anything in the 18 months they've owned Blue Moon. All decisions have been by consensus, a touchy-feely meeting of minds practiced more often by Quakers than business owners. They also share blame for Blue Moon's losses. Sales in the fiscal year that ended Sept. 30 fell short of the $775,000 goal. The bakery has never had a profitable year. Gilbert and his gang are the fourth group of owners to try.

They're also the first to bring restaurant experience to the table. But they're doing it in a way that, well, goes against the grain of traditional business structure. Imagine having to win the consensus of seven others about such matters as whether to keep the $20-a-month Internet service or vacating basement office space to save $400 a month in rent or switching from packets to bulk containers of turbinado sugar to prevent theft. "The baseline rule is," Gilbert says, "every owner who is substantially affected by a decision has a vote and a voice in making it. It sounds really picky, but it is such a bedrock principle that we are willing to make the extra effort to see that it is observed."

When the bakery couldn't meet payroll in mid-February, the owners didn't pay themselves until the 15 other employees got theirs. They cut in half the amount the bakery pays toward their health-insurance premiums, saving $750 a month. They bought rags and aprons and laundered them at home. They assumed some janitorial chores. Though these might not seem the best ways to entice employees into becoming owners, that's what they believe will make the difference. "People who work in an organization have a stake in its success and ought to be involved," Gilbert says. "People stay longer. They get more involved. It helps productivity."

Maybe so, but only if enough employees buy into it -- literally. A good goal -- Blue Moon's original goal -- is to have at least half of its workers become owners. Worker-owned companies that don't move quickly to do so are asking for trouble, says Frank Adams, the Asheville-based democratic-management guru who helped Blue Moon convert from a corporation to a cooperative. "It creates, in effect, what we consider second-class citizenship. Any firm that allows that to go on for more than a year will find that there is deterioration in the democratic practices in the firm. If there is the deterioration of democratic principles, the advantages of employee productivity and efficiency begin to disappear in small firms rather quickly."

Put simply, the nonowner majority can feel left out and disillusioned, and it will stop generating ideas. Spreading ownership spreads the risk, spreads the base of management knowledge -- making the business less vulnerable to departures of key people -- and increases capital in an industry where it's hard to get. By violating Adams' rule of thumb, Blue Moon is taking a gamble. Half of Blue Moon's head count is 11. The tally of active owners has stood at eight for a year and a half, and only seven are on the payroll. The bakery compensates for its low employee-ownership percentage in other ways - nonowner employees, for example, can speak at management meetings -- but it's not the ideal, Adams says.

No matter how Blue Moon's democracy might fare, it can't do much worse than the management that went before it.

Margaret Kobler and her husband, Chris, started it all. They came from Washington, D.C., where she had sold ads for The Washington Post. He was national program director for the Service Corps of Retired Executives, a nonprofit funded by the U.S. Small Business Administration. It bills itself as "Counselors to America's Small Business." Whatever advice SCORE was dishing out didn't apply, or wasn't applied, to Blue Moon. In five years, the Koblers blew their life savings and inheritances - about $350,000, Margaret, now 52, says.

Customers raved about Blue Moon and urged the couple to expand into a vacant shop next door. To get the money, the Koblers sold two-thirds control to Don Dixon and Al Kirchner, Asheville small-business consultants who incorporated the business as Blue Moon Inc. in 1994. As the first step of what they hoped would be expansion across the South, they teamed up with former Knoxville, Tenn., Mayor Kyle Testerman and his wife to open a Blue Moon in that city's downtown.

In Asheville, the Koblers were unable to rein in costs. They bought expensive spices and ingredients from New York. Finding dependable employees willing to work for $6 an hour, not much more than the $4.25 minimum wage, was a problem. Dixon and Kirchner pressured the couple to turn the business around. After two years, the business consultants wanted out.

In stepped acquaintances of the Koblers, Terry and Liz Simmonds. In 1996, they bought out Dixon and Kirchner and kept the Koblers as managers. The date was June 6, the 52nd anniversary of D-Day. In this case, D stood for disaster, says Terry Simmonds, 63, who, along with his wife, retired to Asheville in 1994 after careers as actuaries in Washington, D.C. Despite pumping in more than $500,000, "we never received one nickel [of profit] from Blue Moon," he says.

The bakery in Knoxville was losing $10,000 a month; the one in Asheville, $1,000 to $2,000 a month, Simmonds says. To get out of Knoxville, the Simmonds paid $100,000 to the Testermans to cover a portion of the expansion-related debt and rent on the building, which Testerman owned. In Asheville, they began serving dinner and Sunday brunch, two flings that flopped. "Honestly, we did not know what we were doing. As a bakery, we had very little competition in Asheville. As a restaurant, we had all sorts of competition."

The Simmondses fired Kobler in the fall of 1997, and his wife left in January 1998. They divorced in 1999. Chris Kobler, whose Making Great Sausage was published by Asheville-based Lark Books that same year, does catering and is a private chef for an elderly local woman. Margaret Kobler, now human-resources manager for an Asheville manufacturer of roofing components, hasn't set foot in Blue Moon since 1998. She recalls a dream she had after she quit: "I was standing in front of the bakery. I could feel my heart breaking. I felt as though a child of mine had been stolen.

In 1999, the Simmondses hired a restaurant broker to find a buyer. If no one stepped forward by year's end, the couple planned to close it. Head baker Scott Elliott overheard these discussions. He saw a way to reunite himself with five owners of Stone Soup, a worker-owned Asheville restaurant that closed in 1994. They approached the Simmondses, who, lacking other bidders, cut a deal for the buyers in December. The couple agreed to finance over four years the sale of their stake. Neither party would disclose the price, but Simmonds says he was generous. "You set the price, and it will be enough," he recalls saying. "We lived with this thing for so long, we did not want to kill it."

The buyers formed New Moon Partners, a partnership that owns 95% of Blue Moon Inc. stock. The Koblers still own the rest. Each of the eight partners put up the same amount, but their share of profits and proceeds from any sale of the company would be split according to how many hours each worker-owner contributed to the business. "That's a great example of how this is different," Gilbert says. "It's your work and your experience and your knowledge that earns money and not your capital. Your capital is your work."

That setup might discourage prospects from joining the group and having to play catch-up, but Gilbert says it hasn't come up, partly because the owners are more focused on turning the business around than adding to their group. They can take their stakes with them if they leave, but they would lose their votes and wouldn't get a share of profits in years they didn't work there.

Gilbert oversees operation of the cafe, including the counters serving baked goods and soups and salads, the coffee bar and the seating area. Others lead the four other teams -- bread baking, dessert pastries, breakfast pastries and business administration. Team leaders often wield more clout in day-to-day operations. "Especially among the folks who aren't worker-owners," Gilbert says. "But when we do all of our administrative business, we do it all together."

Each department is trying to figure out how to operate efficiently enough to make money. After last fall's tourists disappeared with the colorful leaves, Blue Moon's business dwindled over the winter. "January-February is white-knuckle time," Gilbert says. It got better in March -- a 30% boost over the previous March. So far, the owners have held together without major rifts. "Consensus works a lot better than people think," Gilbert says. "It requires getting used to. Sometimes you have to wait."

Simmonds, for one, is skeptical. He'd like to see a touch of autocracy, the emergence of demanding leaders in key parts of the business -- the dining room, the kitchen and the business office. "Total democracy is hard in a business as difficult as food service. There is so much diverse need -- ordering supplies, training staff, product development, customer development -- they would almost have to be telepathic to do that without a boss."

If done right, the rewards of democracy can be great, Adams says. Because of better productivity, worker-owned companies earn profits 4% to 9% higher than a conventionally managed company in the same industry, he says. Adams, co-author of the 1993 book Putting Democracy to Work: Starting and Managing Worker-Owned Businesses, has negotiated 90 such deals over a quarter century. They include the biggest employee buyout in North Carolina history, the $200 million purchase of the Champion International Corp. paper mill in Canton and six other plants in 1999. The 1,300-employee company, Blue Ridge Paper Products Inc., has been profitable since then. Blue Moon is a small fry by comparison, but democracy works the same way. Worker-owners, he says, have the right to set policies regarding wages, hours and working conditions. Expanding employee ownership is still a goal its owners should seek, partly by proving that democracy makes the bakery a better place to work, he says.

But the owners seem indifferent to the recruiting game. They expect employees to express their interest to owners, then attend management meetings and participate in training sessions. They must show they're committed to Blue Moon by working hard and investing $3,000 in the bakery's capital fund. "You are not going to be recruited," Gilbert says. "We want people who want to join us. Ownership is not easy."

With that kind of sales pitch, it's not surprising that no other employees have joined the ownership group. Baker Erik Peake, 22, thought about it, but he decided to go back to school at UNC Asheville. Peake says other employees aren't interested because they're busy with college and families, or they would rather do things besides work a lot. Some are lukewarm to the prospect of sinking $3,000 into an unprofitable business, even though the investment can be deducted from their pay over three years.

Blue Moon probably won't achieve 50% ownership by employees, despite its original intent, Gilbert says. The margins in the restaurant business are too thin to support many people. He and his wife, Mary, were among the owners of Stone Soup for 17 years. That's where they learned the restaurant business and gained experience that might help Blue Moon make it through lean times.

When Stone Soup opened in 1976, it was one of eight restaurants in downtown Asheville. Gilbert says it operated profitably until 1994, just months before the owners closed it with $137 in the bank. It ran into trouble, Gilbert says, because of competition from a growing number of bakeries and cafes. One was Blue Moon, which now faces the same problem. Competition in Asheville is still growing, with locally owned wholesaler West End Bakery opening a retail outlet in March and Smyrna, Ga.-based Atlanta Bread Company Inc. International opening its first Asheville store in May.

Blue Moon's owners are trying to increase revenues. The process is guided by an internal survey of the owners and employees. In one recent meeting, they ranked nine ideas to boost sales. Those include improving customer service, more promotions, offering a full breakfast and starting a catering service. The owners also are testing whether staying open longer will help. In late February, Blue Moon, which opens at 7:30 a.m., moved its closing time back from 4 p.m. to 5 p.m. The extra hour typically brings in a half-dozen customers. Owners man the counter without extra pay. "We are pushing the envelope as far as you can go," Gilbert says. "Most employee-owned companies do not go as far as we go."

The spring spurt has the owners hopeful that they can make a profit this year. "We're a fairly busy restaurant, but if you don't pay attention, that money just leaks right out between your fingers," Gilbert says. "It looks like we may have turned the corner. Now, you never know in business ..."

Chris Burritt is a Greensboro-based writer.

Active owners hold 95% of Blue Moon's equity. But the productivity gains
from democracy could be eroded because fewer than half of the employees
are owners.
Ownership
Nonemployee active owner   7.9%
Employees                 87.1%
Inactive Owners            5.0%
Work force
Nonowner employees        68.2%
Employee owners           31.8%
(*)Except for inactive owners, ownership shares are approximate because
the equity of employee stakes is based on hours worked, not money
invested. Head count can vary from day to day.
Note: Table made from pie chart.