Cooperatives & Business Succession Strategies

do I have to click this good afternoon everyone my name is Courtney Berner and I'm the executive director of the University of Wisconsin center for cooperatives I'd like to welcome you to the third installment of the UW Center for cooperatives 2018 webinar series cooperative solutions for community needs today we'll look we will be exploring how the co-operative model is being used as a business and job retention strategy in communities across the country I am delighted to be joined today by Rob Brown and Josh Stoltenberg rob is the director of the business ownership solutions program at the cooperative development Institute in New England in this role Rob promotes employee ownership and works with business owners and their employees to facilitate conversions josh is the president and CEO of north wind renewable energy cooperative which converted to a worker co-op in April of 2017 Josh was one of the selling owners and the catalysts behind the decision to explore employ ownership with our business just a housekeeping thing as you listen to the presenters you can use the Q&A function to ask your questions we will answer your questions at the end of the formal presentations that feel free to type them in as they occur to you I will be watching for them if you have any technical questions or technical problems please use the chat function so before turning it over to our speakers I'm going to spend a little bit of time framing the topic up and talking about a few key concepts so before moving on to the topic of cooperative conversions let's talk about what a co-operative is in the first place a cooperative or co-op is a business that is owned and democratically controlled by the people or entities that use its services the people or entities that owned the coop are often called its members and the coop is defined by who its members are the members can be consumers producers workers business or businesses or organizations or some combination thereof today we will talk talking about worker owned cooperative and how they are a promising strategy for keeping small businesses in our rural and urban communities as many of you probably know we are on the precipice of a massive exodus of small business owners boomers or baby boomers are beginning to retire and a pair they were very good at starting businesses more businesses are founded by those born between 1946 and 1964 than any other generation unfortunately they haven't been quite as diligent about developing succession plans or exit strategies the exact statistics vary but approximately eighty-five percent of business owners have no clear written exit strategy this set of statistics presents a pretty big problem but it is also a great opportunity to rethink business ownership in our countries so why should a selling owner think about selling their business to their employees one of the most compelling reasons for business owners to explore selling the business to their employees is that there often isn't another interested buyer in some situations the most likely buyer is a competitor who might plan to shut down the business and lay people off most people who have spent some portion of their life building a business aren't very excited about the prospect of seeing it dismantled and seeing their employees laid off so in this way selling the business to the employees is an opportunity to leave a legacy both by rewarding the employees and by keeping the business in the community additionally in a transition to employee ownership the sale can happen more gradually at a pace that the owner controls and one of the long-term benefits for the owner for the workers and for the community is that on average employee owned firms perform better than traditional firms today we're highlighting worker cooperatives that I'd like to briefly mention to other employee ownership models that are worth knowing about Aesop's are the most common also known as employee stock ownership plans are the most common form of employee ownership an esop is a federally governed benefit plan like a 401k or a profit sharing plan that can be used to share an ownership ownership stake with employees when an esop is created the business owner sells some or all of their shares to an esop trust which owns those shares on behalf of the employees about 60% of Aesop's are created to provide a market for the shares of a departing owner of a company most of the other Aesop's are created to be used as a supplemental employee benefit plan or as a means to borrow money in a tax saving manner many but not all Aesop's have ownership teachers that encourage employees to think and act like owners an employee ownership Trust is an indirect form of employee ownership in which a trust holds a controlling stake in a company on behalf of all its employees it is not a retirement trust and thus is not regulated by ERISA or the Department of Labor the trust can have a majority or a minority stake in the business and can be used to create perpetual employee ownership of a business pass-through voting is also possible employee ownership trusts are more common in Great Britain where perpetual trusts are widely recognized it's a relatively new technique for establishing employee ownership in the u.s. that is starting to attract more attention as a promising model so what are the basic things you need for a conversion to take place like in most deals you need a willing seller you need a willing buyer need a feasible deal and then you need the necessary support to navigate the process whether that's legal accounting cooperative development assistance things like that so now I'm gonna turn the mic over to Rob who will talk about his experiences supporting businesses through this transition and he'll dig a little more deeply into his process working with some of these businesses Rob over to you yeah yeah hi can you hear me yeah okay great let's see there we go so yeah my name is Rob Brown I live in Maine I work with the cooperative Development Institute which is a nonprofit that works throughout New England and rural New York to some in upstate rural New York we work in a lot of different sectors as an organization and throughout the region so we do a lot of work and housing cooperatives and food system cooperatives with producer coops and so forth and provide a variety of technical assistance training education we do a lot of policy and advocacy work particularly in Maine I tend to leave that work so that's just a little bit about CDI we've been around since 1994 about five years ago I founded a new program within CDI cult business ownership solutions to work on this very issue the idea of converting existing enterprises a-goin concerns into employee ownership of worker cooperatives to address some of the challenges Courtney just identified around current business ownership so we provide work or connect people to a full suite of services needed to execute that so that's anywhere from education and training on the front end to a cooperative design and financial analysis business valuation and planning access to financing and then post conversion we continue to work with our companies or clients to help them be successful these employees have never run a business typically so they do need both support education training pre conversion and technical assistance post conversion as well in order for this model to work so that's a bit about business ownership solutions this is an example of what we're trying to prevent I think much of New England rural New York rural areas generally just as in Wisconsin economies are thin workforces are thin businesses in small towns are real they're not just sources of goods and services they're real community assets providers of jobs and community institutions often times and given some of the statistics Cortney laid out and I'm going to touch on a few others similar to them they closure and liquidation liquidation and closure does tend to be a default option and research shows that the more rural and smaller the business the more likely that outcome which is unfortunate and so we we would like to provide a model that can prevent that and preserve businesses pervert preserve jobs and preserve these community assets particularly in rural areas for for our sake and there we go so to flesh out a couple of those statistics just to drive the point home over half of business closings in this country are due to owner retirement so failure to have a succession plan to be able to sell the business on the open market to have a family transition plan in place or to consider employee ownership is the largest source of avoidable job loss in the United States today and too many business owners I think just don't think about it because I think well my kids will take it or I can just sell it on the open market but the statistics today show that's a risky proposition and rarely works out and if we think about this idea of the silver tsunami this impending wave of baby boomer retirements including business owners that dynamic is only likely to accelerate so if the annual rate of retirement over the last 20 years is projected to double compared to the or over the next 20 years can double compared to the previous 20 years all those statistics will just become much that more challenging for saving existing businesses just to give you a sense here in Maine it's it's a very small population and and in a big geography state so I mean in the whole state of Maine there's only a little over 32,000 small businesses with employees and that represents over half of Maine's workforce and ninety-one percent of those businesses have fewer than 20 employees so and research shows same as what Courtney referenced though 80 percent of Maine business owners want to retire within a decade we are the oldest state in the country that certainly holds true for our business owners but fewer than one in five have a real succession plan for what to do with their business so we see this as a looming crisis and we're trying to present a model perfect a model of preserving businesses and jobs that can address it I so just to put this out there to start with so you understand this process just in a practical way this tends to move forward usually a business owner gets in touch with us sometimes it's workers but usually it's a business owner and they do some basic level of education ask a lot of questions if they're interested they're doing some level of financial analysis and valuation which we do with them if all that looks good and it seems like a viable going concern we'll move on to a next phase of assessment of a deals sort of a feasibility stays stage and that includes meeting with employees educating them on the opportunity and what it what a worker cooperative is what it isn't how it works and how this could work for them if that all continues to look good and everybody remains interested we'll move on to a we call a structure phase and that's employee education around business and financial planning business and financial literacy the coop Education Development incorporation of the new cooperative corporation and then starting to negotiate the terms of a transaction and then the complete phase of finalizing of a purchase and sale agreement and securing financing and an actual transaction and then as I said before that support phase is as important if not more important than the others you can make it all happen and then the whole thing can fall apart easily if there is not post-conversion support ongoing for some period of time to help them learn what they've got and how to manage it effectively and how to govern it effectively and and what a board of directors is and and all of that so that's just a bit about the steps as we lay them out for for clients thought of in a different way and is this idea a business conversion involves three distinct transitions and what's interesting is that business owners themselves rarely grasp this concept because there are small business owners and they do it all themselves and they don't distinguish between ownership governance and management but if you're going to transition a business to employee ownership you have to approach these transitions distinctly and ideally in some sort of sequence so they're not trying to do all of this at the same time so the ownership transition is just who owns it today an individual a family partnership on a business after a transaction are the employees on it that's pretty straightforward the governance transition the big pictures the strategic growth new markets do you open a new store why do you close a store those types of big-picture governance decisions about the firm are a separate skill set the business owners bringing it and again that a lot of times they don't realize it that it's distinct or did or distinguish it and then there's the management transition and this is specifically I'm talking about operations and management and it is distinct and must be distinct from governance being able to make big picture medium to long term decisions about the future of a firm is not to say that you know how to manage a firm operationally day to day week to week that's a separate skill set and somebody needs to be capable of doing that otherwise the whole the whole project is for naught because you'll blow up a business so I think you know one lesson here is you know the more you can sequence and spread out these three distinct transitions the greater your likelihood of success in the long run so you're not trying to do too many things at once so with that the the idea of how this is used in business planning there's you know there's the idea of an immediate exit and this could be a business owner who's just done it till they are burned out and just want out completely they want nothing more to do with the business they maybe they've been trying to sell it or and weren't successful in that and are considering other options or it could be the death of the primary you know sudden death of a prime a business person in a family business for instance and the rest of the family has no idea what to do with the business because they're either engaged at a lower level or not at all and they don't know what to do with the business so this immediate exit not ideal but doable what it implies is that you're really trying to do that management governance and ownership transition all at once and I can get complicated and can get sticky so not ideal but it's doable this idea of the phased exit this is this is what we want people to do to have a plan and to pursue it over some period of time in a methodical way and I'm going to get more into that in just a second with my example and I just want to touch on this other idea this restructuring for growth there's lots of great businesses out there they were started by solo entrepreneurs all the sudden ten years later they've got ten employees 20 employees maybe more and they're still operating at like a like a solo entrepreneur and it's unsustainable for them and their families and so conversion to a worker cooperative in that instance it has nothing to do with a management transition or a succession plan per se it has to do with how to grow they continue to grow the company in a way that's sustainable for the founding entrepreneur and I work with a number of businesses where they're going through conversions and the business owners they're in their 40s they're not going anywhere they're going to continue to run the business for the foreseeable future or post conversion but it allows for an ownership structure and a governance structure that makes it more sustainable for them so to give an example Rock City Roasters in Rock City Cafe this is an example of what I described as a phased exit II this is two businesses actually two distinct businesses though interrelated Rock City Roasters is a Coffee Roasting Company wholesale retail they have a very small cafe counter but it is primarily a retail and wholesale coffee roasting business five and four or five employees Rock City Cafe is walk down Main Street Rockland Maine and that is a typical big coffeehouse cafe entertainment at night there a bar great food and and and the main retail distributor or seller of Rock City coffee outside of all the other wholesale accounts they have so interrelated but distinct owned by a couple founded by a couple in 1991 when Rockland Main Street was considered by and he is sketchy place it was a gritty working-class a kind of depressed area it was a major sardine cannery and ground fishing industries Center the ground fishing industry collapsed the sardine cannery is closed and it was a pretty desolate Main Street and that is where this couple opened up a coffeehouse and bookstore the first copy house bookstore in the state of Maine not quite where you'd expect him to open it up but they saw an opportunity and took a leap of faith and built it over 25 years and continually moved to three different locations including this their current getting bigger and better at what they do eventually they did sell the bookstore portion to one of their individual employees and so there is still a bookstore inside the cafe but it is separately owned and operated by one of the former employees that's interesting part of this it's not the first time that she thought about it the owners husband passed away of cancer unfortunately in 2010 in the middle of the recession in the middle of trying to take the coffee roasting business to a whole new level so they taken on a lot of dead they had just finished moving there was a national recession and her husband passed away it was not a good time for her but wisely she started thinking about what the future of the business looks like if she were not there and started thinking at that time in 2010 about it I first sat down with her in April of 2014 and we spent 15 months talking about what a worker cooperative business would look like doing financial analysis really educating her for accountant her lawyer everyone involved it was wasn't until October of 2015 that I sat down with the employees to talk to them about the opportunities so there was a real length of time there for her to plan and process and think about what she really wanted for these businesses I would say businesses like this if she she could have closed them they had really become anchors of a lively rejuvenated Main Street that is quite an arts community now 25 years later and they're viewed as an anchor institution of that development the cafe and the roaster in this business inevitably if she'd have tried to sell these businesses they would have been carved up the the cafe would have been probably stayed a cafe but it would not have been Rock City Cafe the coffee roaster business would have been bought for a brand and a client list and doubtfully the employees it would have been moved to another place it's it's an industry a big fish eats little fish so it's not certainly what she wanted to become of what she'd built she wanted these businesses to stay where they were and to reward the employees that had helped her build them many of whom had been there working for her since they were teenagers and now they're in their 20s and 30s so that's that's a bit of the history there some of the innovations I think around this field that I think you're notable and I will not take these in the order in which they listed sorry I looked at but in the process and I should say the transaction only happened in February March of this year again getting to this idea of a phased exit there was a tremendous amount of planning education training that went on over the course of four years before a transaction even happened some of the things that happened over that time frame are this idea of member control of some of the operations she started putting together groups of employees and putting them in charge of various elements of the business so hiring and interviewing and training of new employees she had employees working on that a developing new business plan doing financial projections for future years she worked with employees and I worked with the employees to train them and how to do that there's another big example I want to give you about their what they called their old smokey campaign where they had a bit of a crisis with their coffee roaster and needed to get a new roaster I'll touch on that in just a second that was an employee led initiative another example is an SBA financed business and entrepreneurship education we worked with a group mainstream finance which is in that community they're a CDFI and they're an SBA lender and ta provider they had a business and entrepreneurship curriculum that they did for free for people I worked with them to repurpose that whole curriculum and and the way they delivered it so that they could come and work with a group of employees an existing business to do that same type of curriculum but shifted so it was more though or less about a group of individuals learning their different learning their different business and and working together to develop a new one some of the others the the peer to peer co-operative management training group I've worked with them and a group of other co-op food industry managers and created a management peer to peer cohort and they're all working together to learn a big innovation I believe this is the first time we worked also with mainstream finance to do individual member loans to the co-operative members to two to four there share purchase and that put about 50,000 dollars worth of equity in these small individual micro loans that was then able to be leveraged as well so just to move on because of time this was their old smokey campaign their old coffee roaster speed a lot of ash and it's in a or butts a residential neighborhood and as much as everyone loves the business people are tired of having coffee ash on their cars and patio furniture eventually the town put their foot down but they didn't have the money to buy a $90,000 new clean green zero-emissions roaster so the employees developed a whole community engagement campaign used indiegogo to do a crowdsource I mean it was a really big campaign and it was led by the employees and the amount of goodwill it generated in the community they were able to raise $60,000 in community donations from people who loved these businesses and wanted to support their ability and they used the marketing of the fact that it was becoming an employee owned business as part of that and it worked really a small community they've raised $60,000 of the 90,000 they needed and then were able to get the other 30,000 that's a great example of the employees in the initiative and that's just a picture of their old cast-iron crazy roaster and their new roaster and the woman is Suzanne the founder of the businesses and that's Kevin the head roaster and I throw this up here for a quick humor at lunch they marketing strategies for a younger group of business owners are going to be different than for an older business they have really built their social media into coffee related source of humor and they have gotten thousands and thousands of followers of their news feeds not because people are looking for what's available for soup of the day but because they're really funny stuff that they have just constant stream of and it's again it's build tremendous goodwill amongst a new generation to and that's a picture the whole workforce and so as you'll see the vast majority of these folks are in their 20s and 30s and they're going to approach this business and run this business in a different way but they're doing an incredible job building it and moving forward Suzanne is staying on as the general manager for another year so again it just gets to that slow phase methodical transition and then another is taking over and if you're interested in some more rural community development this is I got to move on here but this is some legislative work that we've done here in Maine to promote business ownership conversions in a variety of ways feel free to contact me if you're interested some of the policy related stuff in an article that we published in Maine policy I need to what is it I need to do okay we'll take care of it okay thanks Rob thank you so much Rob that was great that is just one example of a business that Rob has worked with he is a wealth of knowledge and experiences so um he is definitely a person to connect with on this topic so thank you so much for being with us one housekeeping item before I move on to Josh so if you do have your zoom in fullscreen and you're wanting to ask the question and can't figure out where the Q&A boxes move your mouse to the top of the screen and likely a button will pop up that you can click on and if you don't find it there go to the bottom of your screen and it may pop up there and the same for the chat function if you have a technical related question so now I'd like it to turn to turn it over to Josh Stoltenberg with Northwind Renewable Energy cooperative thanks Courtney can you hear me yes yeah we can hi everyone my name is Josh I'm the president of Northwind Renewable Energy Cooperative which is a small solar contracting business in Stevens Point which is a small city in central Wisconsin I started working in renewable energy in two three when I discovered the Midwest Renewable Energy Association which is a local nonprofit that does education I worked for them for three years and got my technical education through their workshops but I left there wanting to actually work on getting renewable energy systems installed on the grid so I went to Madison and worked for a solar and wind contractor for a year before realizing that I wanted to live in central Wisconsin because that's where my community was and and I wanted to work on getting renewable energy system systems installed there however there's a problem there were no jobs available doing this in central Wisconsin so I took the leap and I started a business which is north wind renewable energy we design and install solar electric solar plus storage and electrical vehicle charging systems for homes businesses government's farms we've been doing that now for a little over ten years and we worked with all different renewable energy technologies that are available to the smaller scale and distributed market like wood heat wind electric Building Performance but now we've kind of settled in into just the solar electric side because if we're gonna make any significant strides in combating climate change in the energy generation sector the future is going to have to be electric and I think the market is is realizing that as well so we're a little bit different from the usual type of company that that's talked about with respect to the benefit of transitioning to we'll work our own co-op we're not a family-owned business I'm not a boomer who was close to retirement trying to figure out how to sell my business we've been working on in a sense since early on that we had four members of the LLC since about 2009 that were also employees with specialized roles in the company so like Ron mentioned I looked into the co-operative business model as a kind of necessary development tool and a way to engage and benefit more people who work here and certainly the underlying Democratic nature of this structure aligns with mine and other members values so we're we're not going to face the same challenge of what to do with the business when we want to retire but that wasn't really our original motivation looks like I cannot advance the slides Courtney all right so that said there they're both kind of external and internal forces that that pushed us into contemplating a transition to a corporate a cooperative at the time that we did our industry and the Wisconsin marketplace in particular is subject to rapidly changing and significant sort of forces that act on the marketplace that require quick reaction times or being a nimble business and and that can cause some significant ups and balance in sales we've had various federal and state subsidies since the 70s for solar but they've kind of been on and on again and off again and and they really started to ramp up in the 2000s when we were getting started and begin to begin to drive deployment of these technologies but there have also been interests out there that have tried to stop or limit this deployment and they've had varying levels of success in doing that particularly at the state regulatory level of offer for us here in Wisconsin can you advance Thanks still that sort of volatility look at the graph there that's our year year-over-year sales in 2012 we saw a very significant drop-off that was directly related to the state suspending some incentives and the Regulatory Commission allowing utilities to change their rate structures to disincentivize customer owned renewable energy system and that certainly caused a lot of stress forced layoffs and generally made succeeding in business difficult something that was not something that we couldn't control go ahead so for kind of initial reasons and considerations for a transition were related to that and trying to overcome some of that volatile volatility and take control of our own destiny in April at the suggestion of Margaret Bell at the USDA I attended a seminar that the UW Center for co-ops put on and there was a panel in that seminar that had Blake Jones of namaste solar out of Boulder Colorado on and he spoke about their transition to a worker owned cooperative and they really that really resonated and the bullet points in the top right of this slide come directly out of my notes from that seminar which I brought back to north wind and everybody took to it pretty pretty easily and I think that's people here took to that easily because what is shown in the bottom right there is that we work with technology that inherently distributes economic benefits rather than centralizing them so our mentality is kind of already in that space and certainly our business attracts people or employees that are drawn to that quality go ahead so timing started to become critical for a few reasons certainly like I mentioned 2012 and 13 were pretty rough years but following that the situation began to improve and by 2015 and 2016 we were consistently profitable and pretty stable and I started to have some concern that if we continued at the rate that we were growing that the value of the company would grow to a point that would make it hard for a new co-operative to justify taking on the debt to buy out LLC numbers so that was certainly one of the reasons go ahead but on top of that there are some other some other things that we were we were starting to face including some tensions that were arising between existing owners and between different divisions in the company we didn't we weren't good at and didn't have formal decision-making structures a good way to evaluate decisions that we did make and and review people and in performance and we were not ready to face the potential significant growth in the business and the necessary hiring and specialization that that would require we had critical structural issues like when he tried to put wind turbines on the house loose so creating a new co-op business was going to require that we start to build those things as a matter of necessity so I think people got on board to some degree for that reason as well not simply for the potential economic benefits so we started thinking through longer time frames and our own futures we recognize the key employees that we had that were not owners and we introduced them to the idea and they were certainly very interested from the beginning but they didn't really understand what it would mean and frankly the four of us didn't really either and we needed help go ahead so like Cortney mentioned we put together a kind of team or at least a group of people that could really help consult on the transition I had heard Margaret Bao from the USDA speak a couple of times on cooperatives and I asked her how to start and she put me in touch with the UW Center for cooperatives and Cortney burner and then the education and work began in earnest when there were also a couple of companies that really stood out as examples for us I mentioned namaste solar but also South Mountain Company they're both solar companies they're both companies that had made the transition not because the owners wanted out but for the same reasons that we were considering so we reviewed other cooperatives bylaws histories equity allocation plans and a bunch of other stuff and began working with Herrick law in Madison to draft our own organizational documents Cortney certainly was instrumental in feeding us great resources and helping facilitate the conversation into both internally and and with the specialists that we were using for example our accountant who was a great accountant generally speaking had no experience with working our own co-op she was able to help us find an accounting firm that he could talk to about some of the specifics that he needed to help help us set up our books with hey go ahead as I mentioned earlier we didn't really have a culture of disciplined formal communication and so we had to kind of fight against our internal nature to make sure we were really making the time for this process for meetings getting into the nitty-gritty on on the different documentation and the different decisions on the economics I felt very strongly that the economic pieces were really important to get nailed down first so then everybody understood the numbers and we could we could agree on them from both the sellers and a buyer's perspective so we had our accountant work on the valuation of the company from that perspective to be fair to both buyers and sellers we agreed to fix the price based on a valuation at a certain point in time and not change it despite what might happen during the time between that point and the formal transition date and then we worked on how a member equity would be allocated and decided to make it simply based on the number of hours worked in the year rather than waiting it based on role in the company so hours were worked the becomes members patronage in the coop and equity has allocated individual member accounts based on that patronage they also did some basic financial financial literacy training with the the initial six members and we set a limit on the highest to lowest paid member of 1.9 to one and I don't know that that will hold over the long term because of potential growth but I think the spirit of that will probably always be there and when went through about eight versions of bylaws development before we finalized it on I think the last day before we incorporated the coop go ahead which was April Fool's Day of 2017 so this this kind of groundwork then laid the structural foundation that we're building off of you were being forward one member one vote transparency open book management really trying to be disciplined about communication and common access to information go ahead and so we've that Foundation has really allowed us to start to take off and really do the the development work on the business that we we need to do since since transitioning we've held the co-operative principle of coops working together we've joined amicus solar co-op which is a purchasing and shared service cooperative out of Colorado which is a national purchasing co-op of solar installers we partnered with legacy solar cooperative and Wisconsin Farmers Union marketing and financing initiatives we have entered into a strategic planning process that's facilitated by a third party which has been absolutely fantastic and really driven a lot of good barrier-breaking internally and we committed to eight months of that so we're really diving in deep on that and embracing open books management as a tool to really engage members on how they can impact the business and that's improved our internal processes we're certainly we're getting to know each other a lot better which is fun because there's a lot of great people that work here new hires we kind of went through hiring blitz this spring and and everybody is is very excited to work for a worker own co-op and the opportunities to join in two years after they've made it through it's also been a really great sales and marketing tool I think it kind of engenders a trust with clients that might not be there otherwise because they're working with member owners all the way through the process of inquiry sales design installation so that's been a really great thing go ahead and so there's our strategic plan goals and I think that the third-party facilitated part of this has really allowed for people to not be intimidated in participation in the discussion and it's it's kind of related to the value of the post transition support that Rob mentioned that we're keeping keeping our eye on the ball and we're like trying to follow through with some of this stuff but that is certainly also invited a more rigorous and challenging inquiry and debate from and between membership so that that's challenging for leadership certainly but but ultimately a good thing and it's caused us to have to face head-on how to prioritize what is important to both individuals members and the company and how that impacts how we grow and what decisions that we make go ahead so I've personally become a really big fan of creating the organizational structures that enable this sort of openness and positive change the transition to a worker owned co-op that is allowing us to get everyone engaged in the company's success and though we certainly have a long way to go and the process of change feels slow at times it's now happening at a far more accelerated rate than it would have had we not taken this step go ahead you know we we've we've adopted a kind of pay it forward attitude like the one we encountered from namaste solar a few years ago that really you know push push this this model out in the world and show its benefits to other businesses in the hopes that they consider transition themselves so that's my piece happy to ask answer any questions that you have great thank you so much Josh we do have a couple of questions lined up so the first one Rob can you quickly share what is the cost range for working with you I love this question I mean we're a nonprofit that doesn't mean free you know we have a lot of we have some federal funds we have philanthropic funds so depending on where the business is located the type of business it is the size of the business and so forth we frequently have some philanthropic resources or public resources we can use to subsidize it certainly the initial stages of work I hesitate to throw general terms but usually I would say all considered a worker cooperative conversion for a cost somewhere between ten and twenty thousand dollars it could certainly be more I have done them that cost a lot more I've done them to cost a lot less that were just very simple very simple transactions with owner financing and really engaged employees to start with so it varies wildly but I think the ten to twenty thousand dollar range to get to a transaction is is is reasonable great thank you alright so quick question Josh what is the pay ratio did you mention a pay ratio from highest to lowest paid in the coop we did it is one point nine to one lower that in that at the moment great and then Rob how many employees and how many full-time employees at the Rock City businesses they depend depending on the seat so there's somewhere between 25 and 30 employees and that's somewhat seasonal I couldn't tell you how many are part-time and full-time most of them are full-time employees but I couldn't tell you exactly how many are full versus part I think they add a person at the at the roaster in the summer time because of increased volume and certainly they hire you know three or four or so more in the summertime you know busier spring summer fall months so yeah it ranges 25 to 30 depending on this time of year a follow-up question Rob does focus on you know if CDI works with groups outside of the Northeast I do I my first preference is to find a more local partner so I mean if somebody contacted me from Wisconsin because they've read something I wrote or heard about some business I worked with I I do him and and offers some assistance but my first thing would be to tell him to call court and that's true for any number of partners around the country that I trust folks who do this kind of work did that I trust so I would try and hook you up with the most local resource possible but I have worked with businesses in California and Florida and other places too so it's another question great thanks yeah we can send out some resources after this call and maybe include a list of some of the organizations that work in different regions of the country on these types of deals alright one more question Josh could you talk a little bit more about how the group learned to make decisions together did you have time to learn about various governance methods consensus so CRC etc did you use a quicker method for this learning and how does that work yeah we talked a little bit about that during at the beginning of the transition process we were developing bylaws because we needed to codify some of that and I don't think there was ever a strong interest in consensus decision-making at least to start simply because of the ability of one member to stop major decision-making so I think the majority of our decisions are simple majority with a larger decisions that have larger financial consequences or supermajority okay great Rob would you mind answering that question for Rock City Roasters you'd be curious to hear how they're how they sort of explored the governance topic and decision making within their new business yeah so with Rock City and anyone else any other business that I work with my the first thing I try to do is every which way possible make sure everyone understands as clearly as possible the distinction between management and governance and management decisions are for managers and governance decisions are for boards and members so if you start with a very clear distinction between what's a management decision what's a governance decision you've done some of your work there as far as governance decisions the boards and members might take up you know consensus along a lines striving for a consensus is great it's it's hard to get to you need you need a backstop I think there's a very practical framework and tool developed by South Mountain company that I use with all my clients it defines consensus in a way that ensures everyone's voice is heard but that no one voice can block progress and so striving for four equanimity and consensus is great so long as you define it in a way that does not hold up business and progress great thank you this is a question for both of you can you provide a little bit more detail on how each of the deals was financed Josh why don't you go first and we'll turn it back over to Rob yeah ours was ours was an owner financed over a five-year term that was a relatively easy decision to make since the four LLC members were all going to become members in the co-operative yeah I think a it was its relevance relatively friendly capital it's a it's a reasonable term that doesn't burden the coop too much with debt payments and it makes the LLC members whole from other early risk Rob yeah so Rock City was financed these are very rough percentages i Don the the equity financing and I was just reference that again but there was both CDFI financing from the co-operative fund of New England they financed I want to say around 60 55 60 70 % somewhere through there the owner financed most of the rest so about thirty to thirty five percent and that's junior debt so that's kind of how I can make these deals come together so owner financing was second position financing and then using this SBA loan product this micro loan product so that all the individual systems and I want to say that there are 18 18 of the employees are the owners are the members of the cooperative so not all the employees at Rock City became owners so the 18 of them we were able to process extremely cheaply like 25 dollars alone these these micro loans that fleshed out their $3,000 or 35 $3500 share purchases as individual loans backed by the co-operative which was then able to be leveraged for another 50 or 60,000 dollars in senior debt from C F and E's so that's that's how we put that financing package great thank you so I think we have time for one more question and I'm wondering um Rob if you could talk about you know what an maybe not ideal ideal business but a lot of the folks on the phone right now are out in their communities you know either extension professionals economic development professionals sort of what characteristics of a business should people be looking for that are that make them good candidates for this type of transition and what red flags might they also watch for and then Rob I'd like you to think about that question in terms of your experience going through the process what do you think economic development precious to be looking for in businesses or looking out for in businesses not to be glib but you know the the best candidate is is a viable business I mean it's all all the rules apply here if the business would be attractive to any other buyer because there's a sufficient track record established market good cash flow you know all you know decent workforce with longevity it knows what they're doing I mean those are all all those same rules apply here this should not be considered some sort of Hail Mary pass for a business owner you know to pawn off a failing business regardless of what sector it is to the employees so I mean I work I've worked with grocery stores convenience stores hardware stores solar companies landscaping companies manufacturing businesses restaurants in insurance brokerage a fifth generation insurance brokerage with no six generation to go to and they're converting to a worker cooperative so I don't think the sector really matters too much what matters is his market track record and cash flow would it be attractive to any other buyer than it could potentially be attractive to the employees just as much and then it was a second part of that question Oh actually I meant to say I meant to ask Josh to think about it in the context of having just gone through the transition as a business owner what he would advise people look for in businesses to help make them successful I just said the wrong name sorry oh I I mean I agree with Rob I think successful businesses are important businesses that have a strong employee base that might have an interest in that is important we we have a kind of a friendly business to Northwind here that's an environmental engineering firm that seems like an excellent candidate and they've started to talk about it okay great well I think we're about out of time thank you so much to rob and Josh for being our presenter present to all of you for joining before we say goodbye I just want to mention that the dates have been selected for the last two webinars in this series so on September 19th from 12:00 to 1:00 p.m. we'll be talking about community infrastructure needs and on October 17th we'll have a webinar at noon on community owned businesses so think about the conversation we just had but where the community actually buys the business to retain it and it's in their community sort of sort of similar and then I also want to mention that we're having a third employee ownership seminar the one that Josh mentioned attending that catalyzed their business to go through this transition and then he came back the next year and graciously spoke about their conversion so we're having another one I'm in Cottage Grove on September 21st so please mark your calendars and let us know if you'd like to receive more information about that event so thanks so much again and enjoy the rest of your week