38
ILLUSTRATIONS BY ARNE BELLSTORFSharingaShare
OftheCompany
co-opstogetloansandforsmallbusinessestofinance
aconversion,whichtypicallycostsabout$30,000for
technicalassistanceandclosingexpenses,according
totheCDI.TheU.S.DepartmentofAgriculturein 2017
modifieditslendingrulestoallowformerownerstostay
involvedina co-opforfiveyearsafterconversion.And
a 2018lawrequirestheSmallBusinessAdministration
tomakeloan-guaranteeprogramsmoreaccessibleto
worker-ownedco-opsanddirectstheagencytopromote
employeeownershipthroughitsinvestmentfunds.
Businesseswitha longhistoryintheirmarkettend
to transitionbest,and most remain small so each
workercanafforda meaningfulshare.Almostthree-
fourthsofAmericanworkerswouldprefertoworkforan
employee-ownedcompany,accordingtoa surveybythe
EmployeeOwnershipFoundation,andstudieshavefound
that worker ownership increases productivity, profits, and
wages and creates stability.
Entrepreneurs who need help with rapid expansion
but have difficulty recruiting and retaining managersare
alsocontributingtotheshift.AjaHudsonfoundeda land-
scaping company in New York’s Catskill mountains 19 years
ago, and as the business thrived she found herself hav-
ing to turn away potential customers. Four years ago she
convertedthecompany,nowcalledEarthDesigns,into
acooperative she owns with nine employees. “It was too
much for me to manage by myself,” Hudson says. The tran-
sition from owner to co-owner “required a tremendous
amount of patience and many more meetings than any of
us expected,” she says. “But every time, the group was able
to rise above it, and the rewards have been great.”
Since the conversion, Earth Designs’ staff has grown
from 9 to 25, and sales last year approached $2 million,
almost four times what they were in 2015. Before the
transition,ErinDomagalhadworkedasa crewmanager,
overseeingprojects in the field; after buying a stake in
the business, she became creative director. She’s work-
ing harder, she says, but she earns more and the job
feels more meaningful. “It takes more work to engage
this deeply,” Domagal says. “Our employees value the
way they are seen and heard within the company, which
they’ve never experienced at other jobs.” �Karen AngelTHE BOTTOM LINE Conversions of small companies to co-ops are likely to
become more common as baby boomer business owners retire. Many have no
succession plan, and it can be tough to find a buyer, especially in rural areas.More entrepreneurs
are opting to transform
their small businesses
into cooperativesIn 1995,SusanneWardopenedRockCity,a homeycafein
theMainefishingtownofRocklandofferingmorningcoffee,
warmlunches,andeveningperformancesbylocalmusi-
cians.Fast-forward 20 years,andWardwastiringofthe
grindandwantedtocashoutandtravel,butshefeareda
buyermightchangethecharacterandcharmofthebusi-
nessshe’dspentmuchofheradultlifenurturing.Soshe
floatedtheideaofconvertingRockCitytoa cooperative
ownedandmanagedbythestaff,andaftersomeinitial
resistance, 17 ofthe 35 workersoptedtojoin.“We’resmall
andlivein a ruralareawheregoodjobswithretirementpro-
gramsarefew,”Wardsays.“Noneofmyemployeescould
haveboughta businesslikeRockCityontheirown.Buying
it asa groupallowedthemeachtohaveownership.”
It’sanideawithgrowingappealforsmall-business
owners.TheU.S.hasabout 800 worker-ownedco-ops,up
from 350 a decadeago,employingmorethan8,000peo-
pleandgeneratingalmost$500millionin annualrevenue,
theU.S.FederationofWorkerCooperativesestimates.
Co-opsrunbusinessesrangingfromhousecleaningto
taxiservicestoconstruction.Thesmallesthavefewer
thana half-dozenworker-owners,whilethebiggestare
sizableplayersin theirindustries.Founded 35 yearsago
toboostemploymentandwagesinlow-incomeareas,
CooperativeHomeCareAssociatesin NewYorkCityhas
morethan1,000worker-ownerscaringfortheelderly,ill,
anddisabled.“Inmanycommunities,there’sa hungerfor
jobsthatofferbothdignityanda chanceatownership
andcontrol,”saysJosephBlasi,directoroftheInstitute
fortheStudyofEmployeeOwnershipandProfitSharing
atRutgersUniversityin NewJersey.
Whilemostcompaniesoperatingascooperativeshave
sharedmanagementandownershipfromthebeginning,
moreconversionsarelikelyasbabyboomers—whoown
two-thirdsofsmallbusinessesin theU.S.—movetoward
retirement.Manyhavenosuccessionplan,andfindinga
buyerisn’talwayseasy,especiallyinruralareaswhere
high-quality employeesarescarceandmanyyoung
peoplehavemovedtocitiesinpursuitofopportunities.
“Thetypicalsuccessionstrategyin a lotofruralMaineis
liquidation and closure,” says Rob Brown, a director at the
nonprofit Cooperative Development Institute (CDI), which
provides training and technical assistance to co-ops in
New England. “The business owner isn’t realizing the
wealth they should be, and employees lose their jobs.”
Recent federal legislation has made it easier for◼ SOLUTIONS Bloomberg Businessweek February 10, 2020