After sale to employees, business founder will stay on to ensure success of future cooperative
by Karen Kahn
Martin Berry, owner and operator of Berry Insulation in Cleveland, attributes the success of his business to his team of 15 employees. Now Berry is giving those workers a new opportunity—a chance to become owners. At the end of February, his company became the first ownership transition deal financed by the Fund for Employee Ownership, an initiative of Evergreen Cooperatives. Over the next several years, the Fund hopes to acquire multiple small businesses in northeastern Ohio and transition them to either worker cooperatives or employee stock ownership plans.
A 10-year-old firm, Berry Insulation is in the energy efficiency business, providing energy assessments and retrofits for homes and commercial buildings. Berry found himself in recent years thinking about the future. The market for energy assessments and retrofits is growing, and the industry is consolidating. A small business like his, Berry said in a recent interview, wouldn’t be able to keep up. The business would need to grow in a sustainable way.
When pondering the future of his business, Martin Berry heard about the Fund for Employee Ownership, which offered an alternative succession path.
At the same time, Berry wasn’t sure of his own path over the next five to ten years. What if something should happen to him, or he was ready to move on? He didn’t have a natural successor, and for small businesses, there aren’t a lot of pathways to a successful transition. It is difficult for one or more employees to buy the business, because of the challenge of getting a bank loan; at the same time, venture capital would find this solid, but small firm a poor target. He certainly didn’t want to close the business and leave his employees without jobs.
It was while he was pondering these questions, that Berry heard about the Fund for Employee Ownership, and realized that there might be an alternative succession path. As he got to know the Fund’s leadership and goals, he felt he had found a good partner, who would work with him to ensure the firm would not only survive but grow and sustain itself long after Berry moves on to the next chapter of his life.
But that’s not happening yet. The deal that the partners struck has multiple phases. In phase one, the Fund financed the acquisition of Berry Insulation, much in the same way a private equity firm acquires a company. Brett Jones, the director of the Fund, set up a new legal entity, in this case a worker cooperative, which took a loan from the Fund to acquire a controlling interest in the business. Berry retained a 20 percent stake. He’s staying on for the next four years to ensure a smooth transition for the workers and for the firm’s customers. After four years, the employee owners will be able to buy out Berry’s stake in the company.
One of Berry’s goals during the transition period is to ensure that the company continues to support its customers with the best quality work, at the best price. Like many businesses, Berry, as the CEO, has held the important relationships, and it will take time to develop the team, so they can take on nurturing all of the various partners and customers that are critical to the firm’s business.
More immediately, Berry, with the support of Evergreen, will begin educating the workforce on what it means to be owners of the business. In May, the workers will be asked to decide if they would like to become member-owners of the new cooperative. To do so, they will have to make a small equity contribution, which will be deducted from payroll. Then the new owners will elect two board members to represent their interests. Board seats are also designated for the Fund and for Berry, while he remains a partner in the business.
Berry is excited about the next phase of the transition, when he’ll be grooming the employees to think and behave like owners.
Jones is pleased to have completed the Fund’s first deal with Berry. He said in a statement, “It’s been great working with Marty and his team to get this deal done. We are thrilled he has agreed to lead the transition to employee ownership for Berry Insulation and to ensure its continued success. We are now focused on a seamless transition and very much look forward to helping the business thrive and grow as a worker cooperative.”
Berry is excited about the next phase of the transition, when he’ll be grooming the employees to think and behave like owners. He’s looking forward to giving everyone a deeper understanding of the business through introducing open-book management and engaging more people in decision making. He sees a strong ownership culture as the engine for creating an even more dynamic and successful company. “Each person’s actions,” he says, “impact everyone else—and the bottom line.”
When everyone understands that the year-end dividend depends on each and every person doing their best, Berry believes, the business itself will benefit—and so will the customers. He explains, “Every step we take on this pathway, we will see more energy, teamwork, curiousness about the business, with everyone working toward the same goal.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.