New Employee Ownership Mandate for Small Business Development Centers

SUNY Center preparing to support employee ownership transitions

SUNY SBDC recently assisted the Rose Garden Early Childhood Center in its transition to becoming a worker cooperative.

The nation’s roughly 1,000 Small Business Development Centers have a new mandate. The newly passed Main Street Employee Ownership Act (MSEOA) directs these technical assistance centers, which are hosted by universities and state economic development agencies all across the country, to reach out to small business owners to educate them about employee ownership and to assist them in converting their businesses.

Fifty by Fifty recently spoke to Andrew Delmonte, a business advisor and the social enterprise coordinator for the Small Business Development Center (SBDC) at Buffalo State College, part of the State University of New York. Delmonte has had a longstanding interest in employee ownership and cooperatives, which he brought with him to his position at the SBDC. He is the go-to advisor for entrepreneurs and business owners who have a social mission, want to become a B Corp, or want to pursue employee ownership.

Delmonte is excited about the MSEOA and has already been part of a team preparing New York’s network of SBDC business advisors to take on this new task. He has also been sharing his learnings with a working group on employee ownership that is part of The Democracy Collaborative’s Higher Education Anchor Mission Initiative. That group is beginning to catalyze pilot projects training advisors at university-based SBDCs about employee ownership, so they can advise business owners about the topic.

Fifty by Fifty: What is the mission of the Small Business Development Centers, and how do they operate?

Delmonte: Our mission is to provide expert technical assistance to business owners who may be starting, running or exiting a business. We do this primarily through advisement, education, research, and advocacy. New York SBDC has 24 campus-based regional centers and 29 outreach offices, most of which are hosted on the state and city university campuses. The New York SBDC has helped entrepreneurs invest $6.3 billion into start-up and expansion since 1984 and has helped to create or save nearly 200,000 jobs. We invest in the community and build community wealth.

The Buffalo regional center serves around 1,000 clients per year, many of whom have very small businesses, with less than 20 employees. They may be retail businesses, restaurants, business services, personal services — they are quite diverse.

Fifty by Fifty: Do you find that many business owners come to you looking for advice on employee ownership?

Delmonte: I work with about 200 clients a year. Maybe 5 to 10 percent bring up employee ownership. Since these tend to be very small businesses, they are often curious about how to form a cooperative; we don’t have much interest in Employee Stock Ownership Plans (ESOPs), which make more sense for larger firms. We recently helped a local childcare business, Rose Garden Early Childhood Center, transition to a worker cooperative. Because our service is low-touch — i.e., we don’t provide lots of hands-on assistance — we connect businesses like this one to cooperative developers such as the ICA Group, Democracy at Work Institute, Project Equity, or locally, Cooperation Buffalo.

Because employee ownership is rarely presented as an option, most business owners tend to think of it as some kind of fringe idea. Much of my work is spent dispelling the myth that employee ownership is strange, risky or impossible.

I would venture to say that most business owners or aspiring business owners in the area know very little about employee ownership, and there has not been any concerted effort to educate or encourage this type of ownership. My position, which focuses on assisting businesses with an interest in social mission or social impact, is new at our center — and not one that you see at most SBDCs. Employee ownership has been a tool that has lived in the back closet; it was only pulled out when a business owner asked about it specifically.

Because employee ownership is rarely presented as an option, most business owners tend to think of it as some kind of fringe idea. Much of my work is spent dispelling the myth that employee ownership is strange, risky or impossible.

Fifty by Fifty: How will the Main Street Employee Ownership Act (MSEOA) change that?

Delmonte: The MSEOA includes a mandate to be proactive in reaching out to educate business owners about converting to employee ownership and to provide training and other resources to support these conversions. Before the law passed this summer, I realized that my colleagues would need to learn more about employee ownership themselves in order to be effective in assisting business owners in this area. With another business advisor in the New York SBDC with expertise in cooperatives, I put together a series of webinars for our colleagues across the state. At our annual meeting, we also sponsored a workshop; we used the Rose Garden conversion as an example, and also brought in an expert on ESOPs.

The webinar was very successful, so we have re-purposed it and promoted it to our client base across the state. My sense is that increasing national attention is making inroads and growing interest among small business owners.

Fifty by Fifty: What are the most compelling arguments for business owners to consider employee ownership?

Delmonte: The advantages of employee-owned businesses are well documented: higher job retention, higher job satisfaction, better wages for employees, greater retirement savings, and even better business success rates. The advantage to the community is a business that is rooted in place, and will continue to benefit the region, its tax rolls, and its social fabric. These companies are owned by people who live, work, and play in the same community where the business is located, which results in business practices that don’t harm that community. Also employees who are more active in the democratic processes of their business are more likely to be involved in the democratic processes of their municipalities.

For a retiring business owner looking to sell their business, employees provide a buyer that will keep the company going strong and maintain the seller’s legacy.

For a retiring business owner looking to sell their business, employees provide a buyer that will keep the company going strong and maintain the seller’s legacy (because employees have a vested interest in maintaining their jobs), and a buyer that will see the value of the company and be willing to pay for it. I find when I can get past the initial skeptical reaction from business owners, these benefits are compelling — as are the tax advantages.

Importantly, we are seeing a surge in interest in succession planning. The number of business owners coming to our Buffalo SBDC for succession planning doubled last year. If we can interest this group in selling to their employees, then we could see significant growth in employee ownership.

Fifty by Fifty: How do your clients find you, so they can learn about these options?

Delmonte: Most of our clients come through partner organizations, other economic development agencies in Buffalo, or commercial banks. Banks want to see a business plan before lending, so they will send the client to us to get assistance with that.

Those referrals I would call “passive referrals” — the client comes to us. But to find business owners who have an interest in alternative business structures or social impact, who would like to learn more about B Corporations or employee ownership or cooperative incorporation, I engage with a different network: community-based organizations, nonprofits, activists looking for solutions to community problems. It will be important for SBDCs to explore these networks to promote employee ownership as a community wealth-building strategy — and as a great opportunity for retiring business owners to secure their legacy.

For more information on The Democracy Collaborative working group on university SBDCs and employee ownership, contact Emily Sladek at esladek@democracycollaborative.org or Andrew Delmonte at delmonas@buffalostate.edu.

@karenakahn interviewed Andrew Delmonte for Democracy Collab