Ho-Chunk Inc.

views updated

Ho-Chunk Inc.

1 Mission Drive
Winnebago, Nebraska 68071
U.S.A.
Telephone: (402) 878-2809
Toll Free: (800) 439-7008
Fax: (402) 878-2560
Web site: http://www.hochunkinc.com

Private Company
Incorporated: 1994
Employees: 350
Sales: $95 million (2003 est.)
NAIC: 447110 Gasoline Stations with Convenience Stores; 484220 Specialized Freight (Except Used Goods) Trucking, Local; 514191 On-Line Information Services; 334119 Other Computer Peripheral Equipment Manufacturing

Ho-Chunk Inc. is the business arm of the Winnebago tribe of Nebraska. The corporation was founded in 1994 to provide longterm economic growth to the perpetually impoverished Indian nation. Ho-Chunk Inc. operates eight divisions in several business sectors. It runs Dynamic Homes, a Minnesota company that manufactures modular housing, as well as HCI Construction, a residential and commercial building company. Ho-Chunk Inc. runs the Heritage Express chain of convenience stores. It also operates HCI Distribution Company, which sells gas and tobacco products blended on the Winnebago reservation. Ho-Chunk has two e-commerce divisions, AllNative.com, which sells Native American goods, and Indianz.com, a news outlet. All Native Systems is Ho-Chunk's voice and data communications division. Ho-Chunk also operates a nonprofit subsidiary, Ho-Chunk Community Development, which manages fundraising and development of projects on the reservation. Ho-Chunk Community Development in 2003 began to build an entire new town on Winnebago reservation land. Ho-Chunk Inc. began with seed money derived from the tribe's casino and developed a thriving, diversified business that has served as a model of reservation economic development. The corporation is run separately from Winnebago tribal government, though the Winnebago Tribal Council does appoint Ho-Chunk's board of directors.

Winnebago History

The Winnebago tribe initially lived in the area around Green Bay in Wisconsin. A substantial number of Winnebago still inhabit that area, but their tribal governance and business ventures are separate from the Nebraska Winnebago. The early Winnebago lived in villages near Green Bay, Lake Winnebago, and along the Wisconsin, Rock, and Fox Rivers. Their early relations with French fur trappers and missionaries were amicable. Around 1670 the Winnebago came into conflict with the Illinois tribe. The Illinois almost eradicated the Winnebago in this war. Gradually the Winnebago population recovered. In 1760 the British government took over French interests in the area. The Winnebago allied themselves with the British, and fought for the King in the American Revolution. They also took the British side in the war of 1812. In 1816, the U.S. government signed its first peace treaty with the tribe. A series of treaties in ensuing years meant the Winnebago gave up their original territory and were pushed westward. An estimated onequarter of the Winnebago population died of smallpox in 1836. In 1837, the Winnebago gave up all their land east of the Mississippi, which amounted to some seven million acres of prime forest and farm land. The Winnebago moved or were forcibly relocated several times over the next decade. In 1852 the tribe was held on a reservation in Minnesota. Total Winnebago population had dwindled to approximately 2,500. In 1862, the United States was at war with the Sioux tribe, and the people of Minnesota demanded that the Winnebago leave the state. In 1863, soldiers forced the Winnebago out of Minnesota and resettled them on a reservation in northeastern Nebraska. Almost half the tribe died in this final resettlement.

The Winnebago lived on 30,000 acres of reservation land in Nebraska. Over the next hundred years, little changed in terms of economic development for the tribe. The area offered little or no business opportunities, and the people suffered high unemployment. By the late 1980s, unemployment on the Winnebago reservation was around 70 percent. People who did make enough money not to qualify for government-subsidized housing usually had to leave the reservation, as there was no other affordable housing.

Gambling As the First Business Opportunity in the Early 1990s

In 1988, U.S. law made it possible for Native American tribes to operate casinos. Arcane laws governing gambling had often led to odd strictures on casinos, which had to ply offshore waters, for example. The 1988 law took advantage of the sovereign nation status of Native American tribes, and this at last provided a unique opportunity for the tribes to get into business for themselves. The Winnebago opened a casino, the WinneVegas, on tribal land near Sloan, Iowa, in 1992. The casino was a success, and quickly generated much welcome revenue for the Winnebago tribe.

But in 1994, the Iowa government decided to revise its strictures on gambling. The state already had riverboat gambling, though these floating casinos were restricted by rules about loss limits and how much could be wagered. The state government lifted these rules in 1994, and thus put its casinos in competition with the Winnebago's casino. Revenue from WinneVegas slumped as soon as the regulations were lifted from the state's other gambling operations.

The Winnebago, however, had a gifted leader, John Blackhawk, and he took unprecedented steps to safeguard the tribe's new financial independence. First, Blackhawk went to Washington, D.C. and hired a public relations firm to counter negative press perceptions of the Winnebago people. He hired McCarthy Communications in 1993, and the agency came to Nebraska and helped tribal representatives figure out how to get better stories in the local media. Then in 1994, Blackhawk tracked down a tribe member, Lance Morgan, who had just graduated from Harvard Law School. Blackhawk convinced Morgan to leave a lucrative position at a Minneapolis law firm and come back to the reservation. His job was to build up some kind of financial entity that would lift the tribe out of its endemic poverty. Morgan's seed money was 20 percent of the casino's earnings over two years. In 1994 the tribe incorporated Ho-Chunk Inc. with Morgan as chief executive.

Lance Morgan's father was a roofer of Czech descent and his mother was a full-blooded Winnebago. Morgan's family left the reservation for Omaha, but they remained involved in tribal affairs. As a child, Morgan ran his own business selling snow cones at Winnebago gatherings. He also helped his father on roofing jobs from the age of six on. Morgan told Fortune Small Business (December 2003/January 2004) that his ambition as a child was very simple: "I wanted to quit being poor." He traced his desire to become a lawyer to watching television shows such as L.A. Law. He studied economics as an undergraduate at the University of Nebraska. Then he went on to Harvard Law School in 1990. After getting his law degree, he took a post at a prestigious Minneapolis firm. Although he never claimed to be particularly interested in Native American legal issues, his first case involved his own Winnebago tribe. He was only 26 when Blackhawk approached him in 1994, but Morgan already had some expertise in tribal law. He took the job as CEO of Ho-Chunk Inc., determined to get the tribe out of gambling and into a less fragile industry.

Ho-Chunk Inc. immediately differed from other existing tribal business plans. Its aim was not to give a quick turnaround of profits to individual tribal members. It operated independently of tribal government, so it was not subject to the whims of elected leaders. It set out to make an economic impact on the future of the tribe, even if members in the present might not benefit. In its first year, Ho-Chunk Inc. basically was Lance Morgan, who worked alone out of his apartment. The company first invested in hotels. By 1997 it owned three, one in Sloan, Iowa, and one each in Lincoln and Omaha, Nebraska.

Company Perspectives:

The Winnebago Tribal Council understands that the Winnebago Tribe of Nebraska ("Tribe") is entering into a new phase of economic development. Tribal business operations are growing in sophistication and in the amount of attention they require. In order to allow Tribal business enterprises to be developed and operated more efficiently, the Tribal Council has established Ho-Chunk Inc., a Triballychartered corporation which is wholly owned by the tribe. Ho-Chunk Inc. was established so that Tribal business operations would be free from political influence and outside of the bureaucratic process of the government.

Ho-Chunk Inc.'s immediate mission is a simple one—to use the Tribe's various economic and legal advantages to develop and operate successfully Tribally-owned business enterprises, and to provide jobs and opportunities for Tribal members. Such businesses will be developed both on and off the Winnebago reservation.

Diversifying the Company in the Late 1990s

Owning motels and real estate were passive investments for Ho-Chunk Inc. They offered monetary returns without requiring much manpower. But as revenue from the casino dried up, Ho-Chunk realized it had to look harder for an industry in which it could grow. Morgan told the South Dakota Business Review (March 2003) that the young company reached a "make or break" point when funds from the gaming operation disappeared. Although this was a difficult time, he told the Business Review, "The experience was extremely beneficial because it forced Ho-Chunk Inc. to be an innovative and aggressive entity." The company began to move in several different directions. It began buying up convenience stores on reservation land. Eventually it owned ten. Then in 1999 Ho-Chunk Inc. began a new business, HCI Distribution, which distributed gasoline and tobacco products to other Native American businesses. In 2001, the company finessed the leveraged buyout of Dynamic Homes, a publicly traded Minnesota company that was one of the nation's leading purveyors of modular housing. Dynamic Homes was founded in 1970, and had its best years in the late 1970s, when there was high demand for its prefabricated houses. The company had fallen on hard times in the 1980s, and then recovered in the early 1990s, with sales of around $12 million. Ho-Chunk Inc. was interested in the company because it knew people in its area had a high need for good, cheap housing. Ho-Chunk Inc. bought 10 percent of Dynamic's stock, and Lance Morgan took a seat on the board. Morgan and two other Dynamic directors then formed a management group that took the company private in a leveraged buyout. This was one of the first business deals of its kind by an Indian tribe.

Shortly after buying Dynamic Homes in 2001, Ho-Chunk Inc. founded a construction business, HCI Construction. Ho-Chunk moved out of owning real estate and into construction and prefabricated houses. Ho-Chunk also began to develop some information technology businesses. It established its All-Native Systems division in 1999, which manufactured computers for major vendors including Dell. Soon Ho-Chunk Inc. was running two e-commerce businesses as well. One was a news clearinghouse for Native American matters. The other, run by Lance Morgan's wife Erin, sold all kinds of Native American products and crafts on line.

Setbacks and Success in the 2000s

By 2001, annual revenue at Ho-Chunk Inc. had risen to more than $50 million. The company had reinvested all profit over its first five years, but now was able to pay out a small dividend to the Winnebago. Unemployment had dropped on the reservation, from 65 percent when Ho-Chunk Inc. incorporated to 10 percent. The company had close to 300 employees by 2001. Ho-Chunk's success also helped other tribes in the region. It built a call center on the Lakota tribe's Pine Ridge Indian Reservation in South Dakota in 2001, financing the construction of the building in exchange for equity in the business. Ho-Chunk's gas and tobacco distribution business, HCI Distribution, sold its goods to other area tribes, including the Fox, Sac, Iowa, and Kickapoo.

Ho-Chunk's success did not go unnoticed, and the company garnered both awards and unwelcome legal action. The Winnebago operated as a sovereign nation inside the United States. This gave the tribe's businesses a tax status different from that of other non-Indian area businesses. Gas prices on the reservation were lower, for example, because of the different tax structure. The issue was extremely complicated, and Ho-Chunk Inc. worked hard to negotiate with state governments to come up with a fair taxation plan. At its convenience stores, no gas tax was required on sales to Native American customers. Although 90 percent of its customers were Indian, the stores were bound to pay the state taxes on all of its customers. The company then applied for a refund of 90 percent. Lance Morgan eventually decided this system was unfair, and offered instead to remit the 10 percent the company owed, avoiding the refund process. Native American taxation issues were slowly hashed out in the affected states' legislatures, while Kansas unsuccessfully sued to collect taxes on inter-tribal gas sales. Then in April 2002, the Kansas Department of Revenue stopped two HCI Distribution gas trucks, arrested the drivers, confiscated the vehicles, and issued arrest warrants for tribal leader John Blackhawk, Ho-Chunk CEO Lance Morgan, and Morgan's wife Erin. The state claimed Ho-Chunk owed it $1.25 million in motor fuel taxes, and it threatened to sell off personal property of the Morgans and Blackhawk in order to recoup the money.

This crisis set off more negotiations. In 2003 a U.S. district court ordered the state of Kansas to cease its attempts to collect delinquent taxes from the company. The state continued to press its case in appeal. The irony of the criminal charges filed in 2002 was that just a few months earlier, Ho-Chunk Inc. had been awarded the prestigious Innovation in American Government award from Harvard University. The company won $100,000 in tribute to its innovative business plan, and its transformation of the bleak reservation into a viable financial entity. Ho-Chunk Inc.'s rapid success made it a model for other tribes. It had found a new way for tribal nations to parlay their special circumstances into economic power.

In 2001 Ho-Chunk Inc. founded a new division, the nonprofit Ho-Chunk Community Development Corporation. This division worked to secure grants and funding for housing and business projects in and around the Winnebago reservation. In 2003 the Community Development Corporation broke ground for a large new development on the reservation, Healthy Village. The $20 million project was to be a mixture of houses, government buildings, and businesses, replacing the derelict and dilapidated structures that had been all the reservation had to offer earlier. In 2003 the nonprofit arm also set up a small business incubator to help smaller ventures, such as an office supply store, get a start.

By 2004, Ho-Chunk Inc. employed around 350 people and was bringing in close to $100 million in sales. The distribution business alone brought in some $40 million. The company had clearly done what it set out to do, bringing financial independence to the Winnebago. Ho-Chunk Inc., first launched with casino money, had evolved into a complex and sophisticated business that seemed sure to last.

Key Dates:

1863:: The Winnebago tribe is forcibly resettled to Nebraska.
1988:: Indian gaming is legalized.
1992:: The Winnebago open a casino in Sloan, Iowa.
1994:: Ho-Chunk Inc. is founded with seed money from the casino.
1999:: HCI Distribution division is begun.
2001:: Ho-Chunk buys out Dynamic Homes.
2003:: The nonprofit division breaks ground on a new reservation housing development.

Principal Divisions

HCI Distribution Company; Heritage Express; AllNative.com; Indianz.com; All-Native Systems; Dynamic Homes; HCI Construction; Ho-Chunk Community Development.