A 10-year review shows the Cleveland Model has delivered for workers
by Karen Kahn
Most small businesses have struggled to survive as the pandemic has dashed through just about every small town and big city across the U.S. Yet Cleveland’s Evergreen Cooperative Corporation is feeling pretty good. In the last year, Evergreen has sustained its core businesses and added several new businesses to its network of cooperatives.
Evergreen launched its first cooperative, Evergreen Laundry, back in 2009, with 12 employees. Today, Evergreen Cooperative Corporation is a nonprofit cooperative developer and lender, with an ownership stake of 10 to 20 percent in multiple cooperative businesses employing 320 people, many of them previously locked out of the job market. Its journey over the last 10 years is documented in a recent article in Shelterforce.
The Cleveland Model
In the early 2000s, Ted Howard, co-founder and president of The Democracy Collaborative, envisioned a different approach to economic development. The core idea was a place-based “community wealth-building” strategy, in which various locally rooted institutions and players would work together to build a new kind of system aimed at keeping wealth local and benefitting those largely excluded in the past. A key part of what is now called the “Cleveland model” is the role of anchor institutions–e.g., hospitals and large universities–which begin to use their substantial economic resources to benefit the community by hiring, buying, and investing locally. The Evergreen Cooperatives tapped this power, as the anchors reoriented their supply chains from national corporations (which extract wealth from local communities) to bring large contracts to locally owned worker cooperatives. Large, local contracts from anchor institutions would provide the cooperatives with a steady stream of business, ensuring they could create stable, quality jobs that paid a living wage. Employee-owners would also share in the business profits, increasing their financial security.
Today, Evergreen Cooperative Corporation is a nonprofit holding company, with an ownership stake of 10 to 20 percent in multiple cooperative businesses employing 320 people.
Howard garnered interest in Cleveland, where a partnership that included the Cleveland Foundation, Case Western University, University Hospitals, Cleveland Clinic and the city government came together to support what became known as the Evergreen Cooperative Initiative. Cleveland was ripe for community wealth building, as it was ready to try a whole new approach to community development, having suffered brutally from de-industrialization during the 1990s.
Evergreen launched three businesses in its first five years: the laundry; Green City Growers, an urban industrial green house; and Evergreen Energy Solutions, a solar installer.
Evergreen Cooperative Laundry had a rocky start, but once it found a manager with commercial laundry experience, it found its legs. Contracts with University Hospitals, local hotels and health care facilities allowed the company to grow to about 50 employees by 2018. With real experience behind it and core staff that knew the business, in 2018, the cooperative landed a contract with Cleveland Clinic. Evergreen took over operations of Cleveland Clinic’s Collinwood facility; the 100 workers at that facility were offered an accelerated path to ownership, and the cooperative tripled in size to 150 workers.
Green City Growers opened in 2013 with 15 employees. The industrial urban greenhouse has grown to 45 workers, about half of whom are worker-owners. The cooperative supplies fresh produce to University Hospitals, Cleveland Clinic, and Case Western Reserve University, as well as wholesale food distributors and local groceries and restaurants. Nestle buys its basil for pesto, salad dressings and other sauces.
Evergreeen Energy Solutions, a solar panel installation company, opened in 2010 and grew to 40 workers, but in recent years has not had the steady business it hoped for. It is winding down, with most of its worker-owners moving to other cooperatives in the Evergreen network, as part of Evergreen’s commitment to its workers.
Each of these cooperatives is an independent business, with worker-owners owning at a minimum 80 percent. Evergreen Corporation receives 10 percent of the profits from each business, for which it provides the businesses with “back-office services.” These include cooperative training and skill development, and services such accounting and bookkeeping that benefit from economies of scale. The network strengthens each individual business by providing a kind of “learning collaborative,” where lessons can be shared and technical assistance arrives quickly if problems crop up. As part of the Evergreen network, the individual cooperatives are also prohibited from selling their businesses to outside interests or relocating to another community.
Start-ups, whether traditional small businesses or cooperatives, face multiple challenges. Most don’t survive their first five years. Evergreen learned multiple lessons over its first decade regarding the challenges of starting and growing new businesses. In addition to ensuring the businesses had the operational know-how and skills necessary to become profitable enterprises, as cooperatives they needed added support to grow their democratic cultures.
The city of Cleveland used public dollars to provide start-up loans, and the Cleveland Foundation has been an important philanthropic partner.
Both Ted Howard and CEO John McMicken agree that, in the early years, Evergreen didn’t put enough money and effort into building strong democratic cultures within each of the cooperatives. They ran into challenges, when the laundry workers, for example, didn’t want to add new owners, believing that it would dilute their profit-sharing. This underscored that employees didn’t understand the underlying business fundamentals.
Beginning in 2018, Evergreen began to invest more in building cooperative cultures and training worker-owners in the financial aspects of their businesses. “We run open-book management where employee-owners are very involved in financial statements. They have a much better understanding of why you should add employees; it means that the company is growing. There may be more pieces of the pie, but we wouldn’t be adding more members if the pie wasn’t growing,” McMicken explained to Shelterforce.
McMicken also emphasizes the importance of the partner organizations that helped launch Evergreen and have remained committed for more than a decade. Though the anchor institution procurement strategies did not always match the needs of the cooperatives, the partners “committed to this early on and remained committed,” he said. “This is not a feel-good story that you put in the paper one day and then walk away from a year later. It’s an ongoing thing.” The city of Cleveland through its Department of Economic Development used public dollars to provide start-up loans, and the Cleveland Foundation has been an important philanthropic partner. McMicken is clear, without that support, Evergreen would not have likely grown into the economic engine it is today.
A New Strategy to Accelerate Growth
The anchor strategy helped the first three cooperatives succeed in creating dozens of good paying jobs. Nonetheless, startups are not a rapid path to growing employee ownership jobs. In 2018, Evergreen turned to a new strategy: creating a fund and raising capital to buy out exiting business owners and convert these businesses to worker cooperatives. With strategic support from The Democracy Collaborative, Evergreen launched The Fund for Employee Ownership (TFEO), a private-equity-like entity that finances the transitions. The Kendeda Fund helped to capitalize TFEO, which has now $11 million toward a goal of $30 million.
The Fund for Employee Ownership financed the expansion of the laundry business and has since brought three additional businesses into the Evergreen network: Berry Insulation, R-Tek, and Phoenix Coffee Co.
TFEO financed the expansion of the laundry business and has since brought three additional businesses into the Evergreen network: Berry Insulation, R-Tek, and Phoenix Coffee Co. Berry Insulation, now BI Cooperative, absorbed R-Tek. Now with 21 employees, BI Cooperative offers energy audits and retrofits to local businesses. Martin Berry, the original owner, has continued to lead the company through the transition to cooperative ownership, helping to sustain and grow the business as its employees become more comfortable with their role as worker-owners.
Evergreen was in discussions with Phoenix Coffee Co. before the pandemic. While some might have turned away from the deal—Phoenix’s cafes were hit hard by new social distancing rules —McMicken saw it as an opportunity. His goal is to save jobs, and what better moment to act on that promise. The deal was finalized, and the influx of cash helped Phoenix to pivot to a take-out and delivery strategy. McMicken says, “the Phoenix strategy was to reduce the workforce as little as possible, to survive the pandemic, thereby preserving all original jobs for those who were willing and able to return.” As employment returns to full strength, McMicken concludes, “we now know the strategy worked.”
A new acquisition is on the horizon. Evergreen is looking at a mid-sized manufacturing firm that produces specialized parts for automobiles and other vehicles. “If profits are as good as they seem,” states McMicken, “this will be a great opportunity for worker-owners to build wealth relatively quickly.”
Jobs that Pay Well and Build Wealth
Evergreen Cooperatives core mission is to create good family-supporting jobs that build wealth in communities that have suffered from disinvestment. Average pay, says McMicken “is close to $15 per hour across the cooperatives,” about 20 to 25 percent more than at the similar competing firms. But when you add profit sharing, the difference is more substantial. Employee owners are earning $4 to $5 an hour in profit sharing on top of wages, so the cooperatives are approaching a blended rate of $20 per hour.
Impressively, despite the many challenges of 2020, the laundry made a healthy profit. McMicken says that the 85 employee-owners with the longest tenure will receive their share of about $960,000, or $11,000 each in profit-sharing for 2020. BI Cooperative will be distributing profits as well. It’s 11 original employee-owners will receive somewhere between $6,000 and $7,000 each.
“These are significant sums of money in neighborhoods where the median income is $18,500,” says Howard. It is even more significant in a year when so many businesses laid off employees or closed their doors permanently. Evergreen has proved its mettle. With the right supports, cooperatives can grow and thrive, and help families build the financial security they need to live their dreams.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.