C2BE – Leading the Way to Employee Ownership

In our recent article, we looked at the importance of developing a thriving local economy. The Center for Community-Based Enterprise (C2BE), a non-profit based in the heart of Detroit, supports local business through the expansion of worker-owned businesses.

This June, C2BE joined us as a presenter at our Triple Bottom Line Forum at Wayne State University, speaking to many businesses, students, and entrepreneurs about the basics of worker-ownership and the benefits to the local community. Following the forum, we had the opportunity to speak more with Karen Tyler-Ruiz. With over 20 years in non-profit management, Tyler-Ruiz started with the organization as a member of its board and has since become the Executive Director.

Since 2007 C2BE has worked with a variety of businesses from startups (such as Pingree Detroit) to established corporations (like Zingerman’s) and everything in between. C2BE seeks to nourish community-based enterprises “as sustainable, locally rooted businesses that provide community benefit, particularly equity ownership for workers and producers, pay living wages and share resources to help each other grow.”

From legal help, business education, to technical assistance, C2BE’s services encompass everything a business might need on their path to worker-ownership. Typically, Tyler-Ruiz works with two types of businesses: startups and established businesses looking to make a change in ownership. We were curious, what were some of the biggest challenges she noticed when working with these organizations?

For startups, the biggest initial hurdle is finding access to capital, “It’s about finding the right kind of capital – Non-extractive capital,” explained Tyler-Ruiz. The concept of Non-extractive capital, in this sense, means that financing and loans can be acquired without extraordinary collateral. Additionally, while the business is successful investors will be paid back, however, there is no guarantee of repayment if the business fails. C2BE can provide initial guidance for startups so they can find alternative sources of capital and provide feedback on their business plan to ensure it is profitable.

For established businesses, C2BE provides succession options to businesses to help them survive any change in ownership or governance. According to Tyler-Ruiz, often the biggest challenge for this type of business owner is that “they don’t know what they don’t know.” C2BE gets out into the community aims to get in front of businesses to help them find alternatives before they close up shop.

What is Employee Ownership?

Employee Ownership means that employees share in the profits and losses of the business. Employees shape the future of the company and determine its priorities rather than an outside investor or an outside stakeholder.

Employee ownership can take many forms; some of the common types include:

  • Employee Stock Ownership Plans (ESOPs) – A retirement trust that doesn’t require contributions from employees. Stock is held in a trust and employees are awarded shares which they can then cash out once they leave the company. Ownership can be anywhere from a small percentage to 100% of the company.
  • Cooperatives – In a Worker Co-Op, employees have an equal share in the company and an equal role in managing the company. Employees own 100% of the company.
  • LLCs or L3Cs – L3Cs are a variation of the LLC and many are operated on a cooperative basis, where profits go to the workers/owners and not to the investors. Many L3Cs operate like a nonprofit, putting a social mission first, which allows the business to receive money from foundations and private investors. Investors only receive what they put in.
  • Employee Ownership Trusts (EOTs) – Employees receive a share of the company’s annual profits, rather than owning an asset that annually changes in value. The business is preserved and designed to remain employee-owned and avoid acquisition. Shares don’t circulate, they stay in the trust. Ownership can be anywhere from a small percentage to 100% of the company.

Benefits to Our Local Economy

Worker ownership is a tool to build wealth in the community. “Companies that invest in themselves will stay locally,” explained Tyler-Ruiz, “If the market changes, they will not lay themselves off, they will adapt and find other ways to stay relevant to the market.” Unlike other businesses with stakeholders around the globe, the personal interests of worker-owners are intertwined with those of the business.

Worker-owned businesses:

  • Helps to anchor – Employee-owners won’t offshore themselves
  • Provides job stability – Employee-owners won’t lay themselves off
  • Provides workers with income beyond basic wages – Employee-owners will share in the company’s profits

Additionally, C2BE has found that by providing employees with a role in governing the company, employees are more informed and more committed to the success of the business. Tyler-Ruiz notes that worker-owned businesses are more likely to pay higher wages, remain active in their communities, and prioritize the local economy.

Goals for the Future

C2BE has worked with numerous businesses over the last 12 years and looks forward to the opportunity to serve even more in the future. What’s up next? Taylor-Ruiz spoke a bit about the organization’s goals: First, invest in businesses owned by people of color. These businesses are often operating at a disadvantage, and as Taylor-Ruiz points out, “many of them are Mom-and-Pop shops and we want to keep those businesses in the neighborhood.”

Next, C2BE wants to continue to build stronger relationships with regional business groups like the Detroit Economic Growth Corporation and others. Part of the challenge for any business, C2BE included, is getting in front of the right people; partnerships and networks are a way to overcome that challenge. Recently, C2BE has aligned itself with business brokers to ensure that the broker representing a local business is aware of options other than just selling the business. However, as Tyler-Ruiz has experienced, sometimes business owners find out about other options too late. C2BE wants to help.

Interested in learning more? Reach out to C2BE at: [email protected]. And plan on attending future SMSBF events to hear from local businesses and entrepreneurs about what works best for them.

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Image: Courtesy of C2BE and Eastern Market Partnership, 2015.

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