Can Employee Ownership Preserve Legacy Businesses in Communities of Color?
July 15, 2019
By Sandra Larson
By Next City
[caption id="attachment_9729" align="alignnone" width="749"] Sharif Abdur-Rahim, one of two founding brothers of West Philadelphia's African Cultural Arts Forum, stands in a second-floor workshop used to store African art and to produce the oils, incense and personal-care products they sell.[/caption]
Next City looks at year one of the SEED Fellowship, which educates small-business owners on how to craft succession plans and convert to employee ownership.
Hakim’s Bookstore, at 210 S. 52nd St. in West Philadelphia, is one of the oldest black-owned bookstores in the U.S. When founder Dawud Hakim passed away in 1997, the landmark establishment formed in 1959 might have closed if not for the efforts of Hakim’s daughter, Yvonne Blake, who kept the store afloat while juggling her own career and family responsibilities.
A half-block away, African Cultural Art Forum (ACAF), founded in 1969, sells art and jewelry by artists of African heritage and manufactures its own incense and body products in a building once occupied by the Aqua Lounge jazz club in the street’s entertainment center heyday in the 1960s and 70s. For more than 50 years, owners Sharif Abdur-Rahim and his brother Rashie Abdul Samad have provided summer jobs to generations of young locals.
Among the 264 businesses that line this stretch of 52nd Street between Arch and Pine streets, these stores exemplify the “legacy businesses” that 52nd Street Commercial Corridor Manager Tempest Carter sees as integral to the social and cultural fabric of the predominantly African-American neighborhood.
These business owners have weathered decades of economic and neighborhood ups and downs. But it’s an open question if and how such local mainstays will live on — or what might take their place — when aging founders retire, fall ill or pass away.
ACAF has a succession plan; a new generation of family members in their 20s and 30s is situated to take ownership. Indeed, this group has already guided the business into modern times, adding online sales capability and building an Instagram following.
But, Carter says, “That’s the minority. Most of my business [owners] do not know what they’re going to do. They’re just planning on working until they’re carried out.”
The percentage of black-owned businesses in Philadelphia is already small. Although 41 percent of city residents are black, only 2.5 percent of businesses in the Philadelphia metro area are black-owned, according to the latest Pew Charitable Trusts State of the City report. If current owners lack succession plans, odds are good that many of these operations will shut down, or be acquired by investors. This kind of turnover is sure to alter the types of businesses in these primarily African-American commercial corridors, which in turn would change the face of the districts.
“We are definitely in a space of massive transition right now,” Carter says. She notes that the 52nd Street area has become more “porous” demographically, with a shift toward more white and wealthy residents, adding, “What we’re going to get is a transference of wealth and assets from a historically marginalized community to a community that by and large is already well-equipped.”
A SOLUTION FOR THE LOOMING RETIREMENT CRISIS
Philadelphia and other cities across the U.S. face an impending wave of small business upheaval as Baby Boomer-era owners reach and pass retirement age. The majority of those owners have no clear succession plan, nor do they have a new generation ready and willing to assume ownership.
[caption id="attachment_9730" align="alignnone" width="749"] 52nd Street Commercial Corridor Manager Tempest Carter, standing in West Philadelphia's Malcolm X Park.[/caption]
As this “silver tsunami” approaches, one emerging strategy to prevent an exodus of community-anchored businesses and wealth is to transfer ownership to employees. The idea gained some momentum with the 2018 passage of the federal bipartisan Main Street Employee Ownership Act, which promises employee-owned businesses easier access to Small Business Administration assistance and loans.
Employee ownership can take various forms: It could mean a simple sale to a group of employees who know the business well. For larger firms, adopting a more complex Employee Stock Ownership Plan (ESOP) allows employees to reap some equity upon leaving the company. But the best way to broaden ownership, in the long run, could come from the worker cooperative model, which provides workers with both ownership and democratic control of the business.
Unfortunately, few business owners are familiar with the co-op model. Similarly, city economic development teams, small business advisers and capital providers often lack expertise in co-op conversion nuts and bolts. And yet no city leader would stand idly by and watch small-business revenue and jobs take a hit when these community mainstays disappear.
Enter the multi-city Shared Equity in Economic Development (SEED) Fellowship, introduced in 2018 to help city governments promote and support employee ownership. Organized by the National League of Cities and the Democracy at Work Institute (DAWI), a national organization dedicated to worker cooperative development, the SEED fellowship program offers technical advising, peer information exchanges and visits by advisers and peer fellows to each of the four cities in the year-long program.
A recent report by the ICA Group and Capital Impact Partners examines the potential for scaling up co-op conversions. Among its broad recommendations: increase education and outreach to business owners; increase access to capital and technical assistance for co-op conversions; and support targeted geography-specific and/or industry-specific initiatives.
The SEED fellowship promises to bolster these types of assistance. The first year is intended as a time to build infrastructure, examine current policies, research local businesses and plan policy changes. In a second phase, after the formal fellowship ends, cities are expected to actually deploy policy changes and start to approach and assist businesses, with ongoing support from DAWI and NLC such as quarterly check-ins and pro bono trainings.
Through this outreach, education, and assistance to cities, the SEED program’s long-term goal is to build assets and wealth for people in communities of color, immigrant communities and low-wage sectors. The four cities in the inaugural cohort (Philadelphia, Atlanta, Durham and Miami) all chose to focus energies on preserving legacy businesses in communities of color.
“Employee ownership can be an anti-poverty, racial wealth gap-addressing tool,” says Zen Trenholm, SEED program manager with DAWI. While saving jobs is a success and employee ownership could take other forms, DAWI is devoted to the worker cooperative model, he says. “We don’t want to forget that it’s not just about saving jobs, it’s creating ownership. We are addressing a long history of people not having opportunities to build assets.”
ADAPTING SEED TO EACH CITY’S NEEDS
At the start of the program last summer, each city formed an initial SEED team of three city employees, who then recruited a community fellow — someone from a local nonprofit or philanthropic organization who would have on-the-ground connections with neighborhoods and small businesses.
The fellows converged at a June 2018 kick-off in Boston, a city notable for its recent equitable economic development work. Then, from September to December 2018, DAWI and NLC convened site visits in each city that brought together fellows from peer cities along with invited technical assistance experts such as business development specialists, capital providers and co-op conversion experts. A mid-year retreat brought fellows together in New York City.
Each city came to the inaugural SEED cohort with its own advantages, problems and potential solutions.
Atlanta set as its “North Star” the preservation of African-American owned businesses in Southwest Atlanta, particularly in Cascade Heights, the commercial hub of a middle-class African-American neighborhood, says Christina Cummings, SEED fellow and interim director of Atlanta’s Office of Housing and Community Development.
Seated at a large white work table with a few local community members at the Atlanta City Studio, a pop-up outpost of the city’s planning department in the heart of Cascade Heights, Cummings describes some of the anchor legacy businesses in the surrounding blocks.
[caption id="attachment_9731" align="alignnone" width="860"] The Beautiful Restaurant, in Atlanta's Cascade Heights neighborhood (Photo courtesy The Beautiful)[/caption]
Among them are Dr. Young’s Dental Clinic, owned by dentist and civil rights activist Dr. Walter Young, brother of former Ambassador and Mayor Andrew Young; Barlow’s Barbershop, whose founder once tended the hair of Atlanta luminaries such as Martin Luther King Jr., Mayor Maynard Jackson and Dr. Benjamin E. Mays; Ashmel’s Plumbing and Contracting, started in the 1970s by husband-and-wife owners Ashmel and Marie Williams, known as “Mr. Ashmel” and “Mrs. Ashmel”; and The Beautiful Restaurant, a church-owned Southern-food spot known for its macaroni & cheese and banana pudding as well as its mission to hire returning citizens and other people in transition.
“The Beautiful has had a vision for how to create jobs, create wealth, keep those dollars local, for 40 years,” Cummings says. With 50 employees and a growing catering business, the restaurant could be a good test case for the SEED team’s co-op conversion outreach.
The City Studio is where the SEED team convened 50 or 60 community stakeholders and business owners last fall during Atlanta’s technical assistance site visit. Cummings went door-to-door and invited business owners old and new to learn and share in the discussion with DAWI and NLC representatives and a panel of experts on small-business preservation and worker cooperatives.
By paying visits to local businesses and gathering that large and diverse group of stakeholders in the room during the site visit, her team has “built a bridge,” Cummings says, forming a base of trust for future discussions with local businesses — which she knows are not going to be simple.
“We’ll have to do a lot of education and community engagement as to what worker-owned businesses are and what that process looks like,” she says. “Not only do they need the knowledge and education, they need technical support and they need the money. Conversations could take two years, sometimes three years start-to-finish, to get someone ready for that model.”
In the other cities, too, local ecosystems helped define SEED project goals.
Durham has a history of strong black-founded enterprises that contributed to its “Black Wall Street” designation during the Jim Crow era. As Next City has reported, city officials want to build on that legacy while helping businesses climb back from the recession and respond to a new knowledge economy and gentrification pressures.
Philadelphia already had a robust infrastructure for co-op support, with its rich co-op history, dedicated city funding for co-op development and the presence of the Philadelphia Area Cooperative Alliance (PACA), which had already done extensive work supporting the formation of new worker co-ops. With the SEED Fellowship, the Philly team sought to build systems for identification, outreach, education and support of legacy business owners on 52nd Street and other business corridors, tapping into its system of city-funded corridor managers such as Carter, who connect with local businesses on a regular basis.
In Miami, small business districts in Little Haiti and Little Havana have for years been subject to gentrification pressures as development spills over from the Design District and Wynwood areas. Some other historically vibrant but recently troubled lower-income neighborhoods such as Overtown and Liberty City are seeing increased interest from developers and new residents, adding to pressures on longstanding business owners.
“People are trying to move toward the urban core, which have not been the best neighborhoods in the past,” says Santra Denis, Miami’s SEED community fellow and chief program officer at the anti-poverty organization Catalyst Miami. “And there’s a trend toward moving back into the city. So there’s a lot of pressure that those communities are experiencing.”
ONE YEAR IN, THE PRELIMINARY RESULTS
The inaugural SEED year concluded in June with a closing retreat in Washington, D.C. Now that the first year has wrapped up, how effective was the program at spreading the worker cooperative gospel? The purpose of the fellowship is subtle — more to lay the groundwork for action than to achieve concrete results. But it has spurred some changes already, and others are in the works.
DAWI’s Trenholm says that for SEED organizers, the baseline success metric was that each city leaves the fellowship with a clear plan for implementing their project and with some initial steps taken based on the expert advising and feedback they received during the year. In his view, all four SEED cities have devised “clear plans, clear roles and good foundations for future business conversions.”
All of the cohort cities report some progress, including new processes and policies set in motion. Additionally, all emphasize the value of gaining new peer connections.
The Durham team points to a wealth of outcomes so far. They created their first-ever citywide business survey, a step toward creating a legacy business registry. The city has engaged graduate student fellows and interns to analyze data on local black-owned businesses to help target further outreach and assistance. Durham already had a strong small business advisory committee, and now they’ve been able to connect it with the technical assistance advisory group formed in the SEED project. They’re creating a website for small businesses that highlights succession plans and worker co-op information. And they helped form a new statewide 501c3 nonprofit, the North Carolina Employee Ownership Center.
“The seed has been planted,” says LaTasha Best-Gaddy, a Durham small business technical assistance provider and the SEED team’s community fellow.
Miami amended its economic development loan fund to authorize the use of Community Development Block Grant (CDBG) funds to finance business conversion costs. In addition, it has provided grants to three technical assistance providers to help identify and support business owners ready to contemplate conversion. They added worker cooperative information to the Housing and Community Development Department website. To support outreach, they produced flyers to hand out to businesses with information on succession planning, employee ownership options and a list of contacts for further assistance — a simple idea that other SEED fellows are eager to replicate.
In Philadelphia, the SEED team honed its focus on the 52nd Street Corridor as a pilot area and is planning a full-corridor business walk to identify owners ready to explore succession planning options. The new co-op technical assistance advisory group built as part of the SEED year adds to the city’s existing small business and co-op support. In addition, commercial corridor managers are receiving training from DAWI to help them discuss the business conversion process with business owners.
The Atlanta team created a robust local business database — much admired by the peer city fellows — and used it to refine their focus on types and sizes of businesses most suited to co-op conversion. They are preparing to introduce statewide legislation to codify worker ownership models and are amending the city’s Invest Atlanta fund to provide “gap funding” for business conversions while making arrangements to funnel CDBG dollars toward business conversion loans.
One of the benefits SEED fellows describe enthusiastically was the opportunity to learn about other cities’ unique business ecosystems and share ideas and strategies.
“We began to look at things differently,” says Yvonne Boye, Philadelphia’s coordinating fellow and senior director of the city’s Office of Neighborhood and Economic Development. “Just talking with each other broadens our way of thinking. For instance, having the library as a partner — we got that idea from Atlanta. In Miami, they have a lot of different cultures and the way they approach that gave me some insights.”
Philly’s corridor manager system caught Atlanta’s interest, as did Miami’s use of CDBG funds. “I wanted to steal everything Miami was doing. I immediately came back and said, ‘We’re going to do it, we’re going to use CDBG funds,’” Cummings says. “So we were able to glean best practices from those sister cities and build a better, more comprehensive set of tools.”
THE LESSONS LEARNED AND CHALLENGES THAT REMAIN
Beyond the successful first steps and the pleasure of peer connections, this first cohort of SEED fellows gained acute awareness that legacy business outreach and co-op education will be a slow, painstaking journey. Not only is the co-op conversion process complicated for everyone involved to understand and implement, but the topic of succession planning can also be a sensitive one, just as discussions of life insurance or end-of-life care might be.
“In Miami, we’ve learned that that’s a delicate conversation. We don’t want people to think we’re trying to push them out,” says Denis.
“There is an educational disconnect in the small business community about what their options are,” says Cummings, adding, “We don’t have the same ecosystem they have in Philadelphia. We are in the infancy of exploring these ideas.”
The closing retreat for the inaugural SEED cohort also welcomed next year’s fellows from San Francisco, Louisville, Washington, D.C., and Richmond, Virginia. So SEED’s peer-to-peer network doubled in a flash, and the information sharing has already begun, with several fellows saying they were inspired by hearing about San Francisco’s legacy business registry and preservation fund.
In its second year, the SEED fellowship will run in much the same way, but with an increased focus on commercial rent stability and land affordability. “We have to talk about rent and property costs in addition to employee ownership,” Trenholm says. “Not as two different strategies, but a multi-pronged strategy. The core is employee ownership, but how does the city also address issues of property and stability?”
[caption id="attachment_9734" align="alignnone" width="860"] The African Cultural Arts Forum, on West 52nd Street in West Philadelphia, was founded in 1969, and is now housed in a space that was once the Aqua Lounge jazz club.[/caption]
So far, there are whispers of interest in the worker co-op model — or at least some type of shared operation — from some legacy and newer businesses.
Sharif Abdur-Rahim of Philly’s ACAF says he could see embracing a cooperative business model, once he knows more about it. “I don’t understand all the ramifications of that,” he says, “but there’s a real interest among small businesses in the city in trying to do something collective. We would definitely be interested.”
The Durham team reports being in conversations with two businesses that may be co-op conversion candidates.
In Atlanta, The Beautiful Restaurant’s CFO, Lucy Sims, expresses hesitant interest. “I do see that the city was thinking of all the employees wanting to be a part of it, and that’s not impossible. That’s something that’s doable,” she says, hastening to add that they are nowhere near thinking through the revamping needed to shift from the current church ownership.
Not far from Cascade Heights, in Atlanta’s close-knit Westview business district, The Good Hair Shop owner Kiyomi Rollins envisions shared ownership of commercial space as a way for currently renting businesses to survive and thrive in the face of potential gentrification effects from the nearby Atlanta BeltLine. And Cascade Heights resident Shanda Laws, who attended last fall’s SEED presentation and is preparing to launch a fresh produce market next door to Barlow’s Barbershop, is looking into making the market a worker cooperative.
CULTIVATE PATIENCE, RECOGNIZE THE URGENCY
Even with the steps forward and enthusiasm, a clear message from the SEED year is that co-op conversion is hard. Explaining it is hard. Initiating conversations about succession planning is hard. For nearly everyone involved, there is a lot to learn about how co-op conversion would work, in real life, for a particular business.
To implement greater support for co-op conversion, policies often need to change at the city or state level to formally recognize the worker cooperative model or to allot municipal funds. Education and outreach are imperative. Each business is different, each owner is an individual, and a great deal of forethought and cultural competence is necessary to create productive relationships between city officials and entrepreneurs, as the foundation for these conversions. This all takes time.
For those on the ground in vulnerable communities, new policies and funding to support legacy businesses can hardly come too soon.
“I think we’re at a really pivotal point,” says Carter, of 52nd Street. “Our people are already elders. I haven’t lost any of my businesses yet, but it could be any day now, where one of my owners passes away, and the business transfers.”
But even amid this backdrop of urgency, the spirit of SEED is to take the time to lay a strong foundation.
“We’re going to be hyper-attentive to the kinds of businesses and districts we want to target. We’ll start small, get a proof of concept, and when we see that we’re generating wealth, then we can expand,” says Reese McCranie, Atlanta SEED fellow and Deputy Chief Equity Officer in the Mayor’s Office of Equity, Diversity and Inclusion.
In Philly, a full-corridor walk, perhaps with city councilors along, is in the works for 52nd Street. It’s one step on a longer path. “We want to make sure to do as much as possible in advance to get it right. We haven’t been rushing it. It has to be part of a relationship-building exercise,” says Philadelphia SEED fellow Frank Iannuzzi, legislative director for At-Large City Council Member Derek Green. He adds, “The work that came out of SEED will perpetuate the broader conversation for much longer. Without the year of really concentrating on this, that wouldn’t be happening.”
Next City is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. Read more at BrokeInPhilly.org and follow us on Twitter @BrokeInPhilly.
UPDATE: This article was amended to clarify the statistical context regarding the percentage of black-owned businesses cited from the Pew Charitable Trusts report. The 2.5 percent of minority-owned businesses covers the Philadelphia metro area, not just the city itself.
This article originally appeared in Next City.