Alison Lingane co-founded Project Equity to help retiring business owners transition their companies … [+]
Alison Lingane and her co-founder Hilary Abell started Project Equity in 2014 to build demand for employee ownership and help American businesses transition to this business model. They now work with major cities and partners across the country to accelerate employee ownership. Ashoka’s Michael Zakaras spoke with Alison about trends she’s seeing and why now is a critical pivot moment.
Alison, what’s the main problem you’re working on?
Our country is producing fewer and fewer quality jobs, jobs that give people an opportunity to work hard, advance, buy a home, build stability and wealth. People who start off “working poor” are getting stuck and finding it very hard to get out. The reality is, if you are a low-wage worker, you’re not able, in many parts of our country, to make ends meet, even working two full-time jobs.
This has ripple effects for the economy – what are some?
Income and wealth imbalances are getting bigger. There was a study done that found that every new tech worker in the Bay Area creates five low-wage service jobs – someone to clean their house, take care of their kids, cook food in restaurants, drive them around. So we’ve got the high-wage people, who are not only much higher in wages, but also much higher in wealth. And then we’ve got everybody else. That’s our economy right now.
Meanwhile, privately owned local businesses that have historically been an incredibly important part of our economy and communities are disappearing. On the consumer side: cafes replaced by Starbucks, food stores replaced by chain restaurants, barber shops turned Supercuts. On the business to business side, private equity and publicly-traded companies have been buying up whole sectors. So this middle part of the economy where opportunity has historically been available is shrinking rapidly.
This is where Project Equity comes in. Tell us what you’re working on.
We’re working to make business ownership accessible to the average worker via employee ownership – either employee stock ownership plans (ESOPs) or worker-owned cooperatives. Both structures support businesses where decisions are being made through the lens of what’s good for employees – and their families and communities by extension. We see this as a critical wealth-building strategy – business ownership is the second-most important way that families build wealth in the United States, following home ownership.
Your entry point?
The unprecedented demographic shift that is happening in our country as baby boomers reach retirement age – people are calling this the silver tsunami. Baby boomers are an entrepreneurial generation and nearly 2.5 million of them who still own the businesses they started decades ago will retire in the next 10 to 15 years.
That is huge – and not something we hear much about.
Exactly – and this group of business owners owns one in two local businesses. Not the multinational chain stores, but locally-owned businesses, from consumer-facing stores and restaurants to plumbers, local manufacturers, local warehouse and shipping companies. So what will happen to these businesses? Succession planning is notoriously on tomorrow’s to-do list for most business owners, but even so many see only two options on the horizon – find a big buyer (hard to do) or quietly close down, or in the case of 15%, pass to your children. We’re coming with another option – sell to your employees.
What do you say to business owners?
We start by asking: what’s the legacy you want to leave, and what is the best way to achieve it? We share that employee ownership transitions allow you to stay in the driver’s seat in terms of the timeline, process, how the transition goes – far more so than when you sell to a buyer you don’t know. We share that with tax breaks, you can end up with more money in your pocket than from a traditional sale. Many business owners we partner with ultimately say: “Many of my employees have been here for 10 or 20 years, they know the ins and outs. They understand the value. I would rather have this process play out so that they can carry on into the next generation.”
Are there things that owners, or employees, get wrong about employee ownership?
Ha! There are a number of important ones but the top one is owners saying, “My employees could never run my business!” In reality, any well-run employee-owned business has a well-run management structure – a CEO, leadership team, and people in day to day roles. None of that changes. Another is the expectation that employees have to bring money to the table. In an ESOP structure, stock ownership is a retirement benefit for employees (much like a 401K). In a worker cooperative, the employees bring a small buy-in, but not a meaningful percentage of the sale price. So the business is actually taking out a loan to finance the transaction, enabling employees to become owners based on the future profits their work creates.
You mentioned tax breaks – is the policy environment supportive?
Yes, more than people realize, and it’s getting stronger. The federal government is very much behind these transitions. In the 1970s and 80s it gave away tax revenue to people who transitioned into employee ownership. New legislation passed in 2018 further supports employee ownership.
Who else stands to gain?
City and county economic development teams. They are looking at the tax base and much of the tax base comes from these businesses. When we ask them, “Do you know what the impact will be of the baby boomers retirement on your tax base, in your city?” they are receptive because this is something important to act on right now. So, partnering with cities helps us to get succession planning on the today to-do list, and employee ownership on the menu for retiring business owners.
What looks different in 10 years?
Employee ownership will be normal, understood, and can be self-generative. With the 2.5 million baby boomer business owners who are retiring, we have a huge upward potential for employee ownership that we can take advantage of during this window of time, that will get our economy to a more steady state, even after we get through the baby boomer retirement wave.
What about your work energizes you most?
Talking with business owners. Hearing their incredible life stories about their 30 or 40-year old endeavors, what it means to them personally, what they have learned and struggled with and overcome in those decades. You can really sense the legacy that the baby boomers – this highly entrepreneurial generation of baby boomers – has in the business community and our local economies. You can sense the desire to hold onto that legacy and turn it into something that can continue to be of benefit to their local communities and to the hundreds of thousands, to millions of employees moving forward into the next generation.
Alison Lingane is a 2019 Ashoka Fellow. This article was condensed by Ashoka.
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