Partnership with Project Equity Aims to Address Wave of Business Closures
by Karen Kahn
On Tuesday, May 28, the city council in Berkeley, CA, approved a budget referral of $80,000 per year over two years to support worker cooperative development. If adopted at the June council meeting, according to a press release from the Sustainable Economies Law Center, it will be the city’s largest investment thus far in worker cooperatives. This new appropriation will allow the city to continue work that began in late 2018 when the Office of Economic Development announced that it would be partnering with Project Equity, an Oakland-based nonprofit that supports transitions to employee ownership, to address a growing concern: the potential loss of small businesses as baby boomer owners look to retirement.
“Small businesses comprise 97 percent of all of the employers in the city of Berkeley,” Jordan Klein, the city’s economic development manager, told Huffington Post. “And they account for about 40 percent of the jobs within the city—so obviously they’re critical to our local economy.”
Berkeley is one of several cities around the country looking at employee ownership as a possible solution to the business closure crisis.
Berkeley is one of several cities around the country looking at employee ownership as a possible solution to the business closure crisis. Like cities across the U.S., they anticipate that the coming wave of baby boomer retirements will bring thousands of businesses into the market for new ownership. However, 85 percent of business owners have no succession plan, according to Project Equity. Indeed, among small businesses, only about 15 percent are passed on to the next generation, and only about 20 percent of those listed for sale actually sell.
To prevent the loss of local businesses—and the jobs they provide—the city of Berkeley is thinking ahead. They have provided funding to Project Equity to advance three goals:
- Understand the data: How many businesses owned by boomers are at risk of closing, or of being sold to outside owners who might dismantle the local business?
- Raise awareness: Reach out to businesses regarding succession planning, including the option of transitioning to employee ownership; and
- Support businesses interested in employee ownership: Provide technical assistance for businesses to assess the feasibility of employee ownership and begin the process of employee-ownership conversion.
Through their analysis of the data, Project Equity identified about 1000 businesses in Berkeley that fall in the “silver tsunami” risk profile – meaning their owners are likely to retire in the near to mid-term but they may not have an easy time identifying a successor/buyer. These businesses employ about 30 percent of Berkeley’s workforce and generate 60 percent of the revenue from all city businesses. It’s a stark reminder of the risk cities face, with such a large wave of potential retirements in the near future.
Project Equity has begun to reach out to businesses and identify those that may be good candidates for conversion to worker cooperatives. The business must be profitable—and the workers must be interested in taking over the business. If the business wants to move forward with a feasibility study, which can take several months, the city picks up the $5,000 tab. Alison Lingane, co-founder of Project Equity, told Huffington Post that this investment from the city is significant. “Berkeley is the first city in California that we’re aware of where the city itself has actually put money into this strategy,” she said.
One local business that is transferring ownership to employees by becoming a worker cooperative is Adams & Chittenden Scientific Glass, a company that produces and repairs highly specialized glass instruments. In business over 25 years, owners George Chittenden and Tom Adams were concerned about their legacy as they approached retirement.
Project Equity identified about 1000 businesses in Berkeley that fall in the “silver tsunami” risk profile.
“Because the work we do is so idiosyncratic, finding a competent, knowledgeable buyer seemed highly improbable,” Chittenden explained to the Huffington Post. “The idea of converting into a co-op really made sense.”
The glass-blowing studio employs five glassblowers and an administrative assistant, who will buy out the current owners on a fixed payment plan. Moshe Schandelson, a glassblower who has been with the company for four years, is pleased with this arrangement. He noted, because the work is so specialized, he’d probably have to leave the area to find a job even “half as good.”
The employees’ specialized skills are what make this business successful—and probably bode well for an employee-ownership transition. “Everybody here is here because they dig glass,” Chittenden told Huffington Post. “So they’re committed. And if they’re productive and run the business well, they’ll be better paid and they’re going to have control of their situations.”
The plan also allows Adams and Chittenden to transition more slowly out of the business. “We need to have some skin in the game just so we know it’s going to carry on,” Adams explained to the San Francisco Chronicle. “It’s definitely in our interests to hold everything together as long as we possibly can. We think it’ll work.”
According to Jordan Klein, this arrangement also works well for the city of Berkeley. “Locally owned businesses tend to be more civically engaged,” he said in an interview. He thinks that with Project Equity’s help, the city will be more successful in retaining businesses that might otherwise have a hard time either finding new owners or converting to a worker-owned business.
“Project Equity is taking a more proactive approach to seeking out the businesses that might need their help and giving them the help they need in what may be a tricky transition process,” says Klein.
According to the SELC, the new two-year appropriation, if approved in the final budget, would “expand the scope and duration of the existing technical assistance services” focused on business succession and worker cooperative conversions, and “establish new programs to support startup worker cooperative businesses.”
Karen Kahn provides communications consulting and editorial support for Fifty by Fifty.