An Exit Strategy For Colorado's Entrepreneurs
By Miller Hudson, Colorado Statesman, November 4, 2013
John Cassidy speculated recently in his New Yorker blog that America’s dysfunctional politics might be entwined with our dysfunctional economics. With one third of Americans struggling to pay their bills and the remainder of the middle class experiencing an inexorable evaporation of their discretionary income, there is much to be unhappy about. By contrast, in an economy that seems to be working well, Momma Merkel was just elected to her third term as Chancellor of all the Germans. Odds are that she will soon negotiate a ‘grand coalition’ with the Social Democrats that places the entire Bundestag in harness pulling Deutschlanders in the same direction. Imagine that.
Of course, if you’re old enough to remember the 50s and 60s, it was once the United States that was making democracy attractive --- dominating the world economy, spreading the wealth around and landing men on the moon. It didn’t seem to matter whether a Democrat or a Republican resided in the White House; American living standards kept right on rising. By 1990, however, Ross Perot was reporting a “giant sucking sound” created by NAFTA and a globalizing economy. It turns out that roaring in his ears was the funneling of dollars into the pockets of the wealthiest Americans. If you listen closely today, the complaints of the TEA Party and the Occupy Wall Street partisans substantially overlap --- albeit they currently posit differing casts of villains.
The next landslide President will be a candidate capable of merging these parallel currents of political rage into a flood tide of ballots in support of what looks like a reform agenda for all. Between now and then, we shouldn’t expect Congress to accomplish much of consequence. A group that can’t adopt a budget or agree to pay its bills sure as hell isn’t going to agree on an agenda that improves the quality of our lives. That requires an ability to understand what is truly important and a capacity to prioritize accordingly. Dream on.
CHANGE FROM THE BOTTOM UP
Off center stage more and more Americans are working together to launch initiatives designed to alter both our economics and our politics. The Rocky Mountain Employee Ownership Center (RMEOC) is one of these grassroots organizations. Since small businesses employ the vast majority of Coloradans and create the bulk of our new jobs, their health and survival is a matter of importance for all of us. Despite the lip service provided to the crucial role played by small businesses in assuring the health of our economy, historically state policy has done very little to support and strengthen them. This oversight has improved somewhat since John Hickenlooper, a small business owner himself, moved into the Governor’s mansion. Nonetheless, Colorado still offers little help to founders approaching retirement who wish to exit from the daily management of their companies. This is a growing problem for the nearly 60% of small businesses owned and operated by ‘baby boomers’.
Perhaps no more than 20% of these businesses can be sold as going concerns. There simply aren’t purchasers for most of these companies, particularly smaller ones, even when they are quite profitable. In a handful of cases there may be a family member, as there has been with Denver’s Rockmount Western Wear, who is interested in continuing to manage the business. Yet, even in these cases, cashing out other heirs can prove nearly impossible. Loans are difficult to secure and business purchases are subject to ever-closer scrutiny from bankers. Even when financing can be arranged a surprising number of these businesses close within three to five years---absorbed by competitors or sold off for assets.
A little discussed alternative is the transfer of a company’s ownership to its employees, either through an Employee Stock Ownership Plan (ESOP) or the creation of a co-op structure that provides ownership shares to each employee following a reasonable probationary period. Dick Peterson is the Director of Operations at the Employee Ownership Center and a proselytizer for the employee ownership model. He speaks from experience having founded the RE/MAX Cherry Creek real estate office, which he then sold to his employees who now operate the agency as a co-op. Not only are there tax advantages to such agreements but there are also a host of federal laws supporting employee ownership conversions. Federal laws enabling these transfers have enjoyed bi-partisan support for more than four decades. Nonetheless, many small business owners are unaware or unfamiliar with them.
The RMEOC held an informational forum on the Auraria campus earlier this month. A crowd of 80 spent a Saturday figuring out whether this option would make sense for them. Guest speakers from active ownership conversion programs that enjoy state sponsorship in Ohio, Maryland and California talked nuts and bolts. Yet, perhaps the most interesting presentations came from the two Colorado companies often pointed out as examples of employee ownership success: Namaste Solar installation of Boulder, which was intentionally founded as a co-op, and New Belgium Brewing which was sold to employees by its founders. Both enterprises consciously level salaries and engage every employee in regular briefings on company financial results requiring them to vote on major corporate decisions. Their representatives appeared to be very, very happy campers. Both companies set aside time for employees to socialize and ‘have fun’ together. At New Belgium you are awarded a cruiser bicycle on your first service anniversary (just in case you wondered why there are so many cruisers in Fort Collins).
Interestingly, nearly 90% of employee purchased companies remain in business five years following conversion --- far better than for those that are simply sold. The opportunity to take an active role in shaping a company’s success --- voting on decisions that improve profitability, product quality and reliability seems to bring out the best in workers. It was an employee vote that selected Asheville, North Carolina as the location of Fat Tire’s East Coast home. This arrangement doesn’t fit for everyone, however. As the New Belgium manager observed, “If you just want to collect a paycheck and forget your job when you get home, then New Belgium probably isn’t the place for you.” It was evident she, for one, was eager to return to work on Monday.
A NEW ECONOMIC MODEL
The American economy has evidenced a propensity for concentration and merger for more than half a century. Big box stores and franchised outlets have gobbled up an ever-increasing share of retail dollars. These are almost uniformly low wage, public companies that can provide reasonably high quality goods at a reduced cost to consumers. Even when you patronize these outfits, and most of us do, you know they can’t be fun places to work. And, when you’re lucky enough to encounter a particularly helpful sales associate, you can’t help wondering why they aren’t working somewhere else --- some place where all their energy and intelligence would benefit them rather than stockholders and corporate officers. Employee owned businesses constitute just a sliver of our current economy, but I plan to start watching for them.
At my last decennial birthday party, a rowdy crowd demanded I say something --- premised, I suppose, on the dubious supposition that with sufficient mileage comes some small measure of wisdom. One inebriated celebrant demanded to know what had improved during my lifetime? I replied there were only two things I was certain had improved: sunscreen and beer. If Dick Peterson and his compatriots can spread their gospel and expand employee ownership of small businesses across Colorado as their boomer owners begin to peddle them, I’d be willing to identify that as a third genuine improvement. Who knows, if we can make democracy function in the workplace perhaps common sense will spread first to Denver and then on to Washington. Why not?
Miller Hudson is a columnist for the Colorado Statesman. Most recently he was Director of the Colorado Association of Public Employees and now works as a public policy consultant living and working in Denver. Published November 4, 2013 in the Colorado Statesman.