For cities, employee ownership offers opportunity to retain local businesses
by Alison Lingane
For most state and local economic development departments, business retention is an important goal. But for many cities, it is hard to get a handle on what businesses may be at risk of closing. Moreover, many municipalities don’t have the tools they need in their toolbox to help retain companies over the long term. Without a full set of strategies, it often seems easier to focus on start-ups (they’re shinier and newer) or on attracting a big employer with big tax incentives to grow jobs and economic activity. Our goal at Project Equity is to introduce a new path for business retention: employee ownership.
Our goal at Project Equity is to introduce a new path for business retention: employee ownership.
The current focus on start-ups and attracting big employers accelerates the decline of local business communities as chain stores take over markets or as businesses get consolidated by private equity or larger corporations. Given the benefits of locally owned businesses, this trend is concerning. It is further exacerbated by the challenges faced by everyday small business owners when they begin to consider their retirement and succession options.
For these small business owners, the picture isn’t always rosy — only 15 percent of businesses pass on to the second generation, and according to one leading business broker, only 20 percent of the businesses they list ever sell. These trends exist against the backdrop of the Silver Tsunami — the baby boomer business owner retirement wave, which Project Equity estimates has 2.34 million small business employers on the cusp of retirement. For cities and towns, the consolidation or closure of so many local businesses could have huge negative effects on their local economies — or it could present an opportunity to grow broad-based ownership.
Cities Support Employee Ownership
In our experience every type of business is threatened by the nation’s demographic shift, from retail and food businesses frequented by consumer shoppers to service businesses like landscaping, construction or tech services that service homes and businesses to manufacturing or transportation and warehousing businesses. The decline of local businesses and the risk of the Silver Tsunami doesn’t pick favorites among longstanding companies in our communities. But employee ownership offers a unique solution.
Project Equity helps cities navigate this important arena of business retention, by framing the problem for internal and external stakeholders. We do this by quantifying the risk, based on the numbers of businesses over a certain age, how the risk is concentrated by industry, and how this translates into jobs, business revenue, and city business tax. We then help cities turn this data into an actionable opportunity to keep their local small businesses rooted in their city into the next generation by connecting directly with the city’s longstanding businesses.
We are currently engaging directly with five cities in California, and expect this number to grow significantly over the coming year, including new partnerships with cities in different states and regions.
Case Study: Berkeley, CA
Among the cities in California we are working with is Berkeley, a city of 120,000 residents in the San Francisco Bay Area known for its liberal politics. Berkeley is somewhat unique in having a fairly high number of employee-owned businesses, including the 50-year-old iconic and beloved worker-owned cooperative, the Cheese Board Collective.
The city heard from its residents and local cooperatives that they wanted the city to provide more support for worker coops. With the leadership of the Sustainable Economies Law Center, Berkeley passed a resolution in February 2017 that instructed staff to develop an ordinance supporting worker cooperatives.
When city staff released an RFP in spring 2018 to support small business retention, Project Equity responded and was awarded a grant to support business retention through employee ownership. This work kicked off in late 2018.
To deliver on our strategy of business retention through employee ownership succession in Berkeley, as in other cities we work with, we have combined our data-driven methodology with a process that builds on local relationships and local stories, engaging a broad base of stakeholders to ensure their goals are met.
To deliver on our strategy of business retention through employee ownership succession, we have combined our data-driven methodology with a process that builds on local relationships and local stories.
First, we worked with the city to complete an in-depth landscape analysis of city businesses to highlight where the risk (and opportunity) lies. Next, we prioritized a list of businesses, based on local knowledge of the business community, stake-holder priorities, and where the city saw the greatest need. We then worked with economic development leaders to engage directly with those businesses that were most likely to be in need of succession planning and offered resources around local succession with an emphasis on employee ownership.
This work has paid off. After less than a full year of working with the city, several businesses have already initiated feasibility studies for employee ownership transitions.
Case Study: Long Beach, California
Project Equity is also partnering with Long Beach, a critical California port city, with nearly half a million residents. It hosts the second biggest container port in the U.S. (only after Los Angeles, which it adjoins).
Project Equity’s work, in partnership with LISC L.A. and Citi Community Development, aligns with the city of Long Beach’s Economic Development Blueprint and “Everyone In” initiative. Championed by former vice-mayor and current city councilman Rex Richardson, this initiative ensures that economic inclusion is central to the city’s economic development strategy.
Why does this work?
Having the city embrace this strategy gives it legitimacy. It also gives legitimacy to employee ownership succession. Given how few people are even aware of this option, this is tremendously beneficial.
We have found that one of the biggest barriers to employee ownership succession is that it simply is not on the menu for business owners. When business owners learn about it from a trusted source, the benefits can sell themselves.
The bigger picture
Beyond the immediate outcomes of engagement with cities, this strategy helps employee ownership begin to become more self-generative. By engaging with the existing systems of small business support, including cities, we get employee ownership on the menu for business owners considering their succession options … right where it belongs.
Alison Lingane has dedicated her career to enabling business to be a force for good. She is the co-founder of Project Equity, a national leader in the movement to harness employee ownership to maintain thriving local business communities, create quality jobs, and address income and wealth inequality.