The Inclusive Enterprise: Giving Employees the Keys to the Business
Entrepreneurship can be a powerful force for prosperity. Business ownership gives entrepreneurs the opportunity to earn more money and create jobs. But this pathway to self-made success is mostly an option for the wealthy and for white households with access to capital and connections.
Latino or African American households are historically less likely to start a business than white households, contributing to a persistent racial wealth gap. The business asset gap has notable impacts for women—in fact, women of all ethnic backgrounds and races: women business owners have household incomes 56 percent higher than other women working full-time.
Making it easier for all people to become business owners will increase the wealth opportunities in our neighborhoods, cities, and the national economy.
Together with Citi Community Development, Democracy at Work Institute (DAWI) is collaborating with National Urban League and key local leaders to enable more people to share in business assets in their communities—not through creating new businesses, but through leveraging and preserving assets already invested in communities, specifically by promoting shared ownership of existing businesses.
When we focus on retaining existing businesses that are already successful, we can expand the wealth of a business to its employees, so that the assets a business creates can serve more people.
It’s called a business conversion and the opportunity is ripe.
As the large Baby Boomer generation begins to retire, there is a fleet of businesses at a flash point amounting to 2.34 million private businesses employing 24.7 million workers: Will they be sold off? Will they shutter? Can they continue to thrive under new ownership? Almost half of all owners are now 55 years of age or older and more than 85% of all business owners do not have a succession plan in place. Additionally, DAWI found that an estimated 284,000 business owners of color are nearing retirement nationally, including 40,000 African American business owners. Will all the people these businesses employ and the skill sets developed be lost, or can we find new ways to retain profitable jobs and businesses as well as expand ownership opportunities? We think we can.
Throughout the year, DAWI and Citi hosted a series of convenings for community leaders in Washington D.C., South Florida, Chicago, Oakland and the San Francisco Bay Area to identify businesses that could benefit if converted to an employee-ownership model. We focused on minority-owned or operated businesses, with particular interest in African American-owned and operated firms. The events shared capital models for the conversion process to align business services and resources that can help ensure legacy businesses continue to provide invaluable services in their existing neighborhoods, continue to be an employer and economic contributor for residents and other local businesses, and expand the set of owners who are invested in the business and its success.
DAWI and Citi also engaged senior leaders at the National Urban League (NUL), a long-time champion and “go to” institution that is deeply rooted in community and committed to the prosperity of minority businesses. NUL’s leadership delivered expertise regarding the needs of African American businesses and ensured authentic engagement and coordinated outreach that attracted many business owners within their network to receive information about conversions and capital access pathways.
Together, we sought to understand the common challenges that minority businesses face, like lack of capital access and trepidation about approaching lenders to help address their financial needs. What is more, we also heard that there may be limited awareness among traditional small business providers about the importance of early succession planning. Through ongoing focus groups and field interviews, we learned about opportunities to increase the number of business conversions, including adding succession planning programs to the suite of services offered by minority entrepreneurship centers and incorporating conversions as a line of work for CDFIs focused on minority-owned businesses to accelerate implementation in the field.
In 2016 the Democracy at Work Institute convened a collaborative to accomplish together what no single organization can do alone: catalyze business conversions to employee ownership. Collaborative members are part of a wave of organizations approaching employee ownership explicitly as a strategy for equitable economic development. Together we are engaged in coordinated efforts to increase equity in communities across the United States, particularly communities of color. Since we started this initiative over a year ago, collaborative member organizations have spoken to hundreds of interested business owners and helped over 20 small businesses to convert into shared-ownership models that meet their priorities, extending profits and building additional wealth among their low- and moderate-income employees.
We all have a stake in cultivating and preserving a vibrant small business community. Thriving small businesses promote job stability for local residents and anchor neighborhoods that help driving local economies. Broadening ownership can prevent one of the greatest wealth transfers in history from resulting in a loss of jobs, goods and services in all communities, especially those that have historically lacked access to business assets, such as low-and-moderate income communities and communities of color. Employee ownership can be a critical solution to avoid this outcome.
Democracy at Work Institute
To learn more, read our new report, Legacy Business: Our opportunity to build wealth, economy, and culture.