Meeting the moment

These are uncertain and unprecedented times.

COVID-19 has exposed how easy it is to fall from the middle class into poverty. The United States has experienced the highest level of job losses since the Great Depression, as many businesses shut down or severely curtailed operations to try to limit the spread of the coronavirus. Many leading economists fear that many of these jobs will not come back, even as most parts of the country begin to re-open.

At the same time, Black Lives Matter protests have spread across the country and the globe in an outcry against systemic racism in the criminal justice system. This “double pandemic” of racism and COVID-19 challenges us to find new paths forward. We must rebuild our economy with greater resiliency and equity so that we come out of this crisis stronger. Together we can forge a different future.

Please read on to learn how this moment is affecting businesses and workers, and how Project Equity is responding through our pilot projects and policy initiatives.

Small businesses and workers are in crisis

Small business ownership was already threatened before COVID-19 by the Silver Tsunami of retiring business owners.

Nearly half of job-creating small businesses are at risk simply because their owners are of retirement age, with few options for business succession.

The COVID shutdowns—required to protect public health—have created new challenges, now compounded by the need to retool in order to operate in our changed social distance environment.

A poll of small businesses published by the U.S. Chamber of Commerce on June 3, 2020 showed dramatic negative impacts:

Significant business closures: One in five businesses were closed, either temporarily (19%) or permanently (1%). Businesses owned by people of color are harder hit than white-owned businesses, and an estimated 40% of Black-owned businesses are not expected to survive the crisis.
Long recovery timeline: Fifty-five percent of small businesses believe it will take six months to a year before the U.S. business climate returns to normal.
Financial hardships: Most small businesses (71%) are concerned about the financial hardships due to prolonged business closure, and more than half (57%) worry about having to permanently close their business. Looking ahead, 66% are concerned about having to stay closed, or closing again, if there is a second wave of COVID-19.

Frontline workers—even those in “essential” jobs—lack financial safety nets and economic resiliency for themselves and their families. Even before the economic crisis brought on by COVID-19, income and wealth inequality and downward economic mobility for frontline workers were truths so obvious that one could visually observe them in most communities. Many of these workers are workers of color who have often faced barriers to economic success and whose concerns are at the forefront of our national conversation right now.

Large swaths of working people across the country are financially insecure, as the COVID-19 crisis makes heartbreakingly clear.

Pre-COVID, a 2017 Harris poll found that nearly 80% of U.S. workers reported living paycheck to paycheck. And as of late May, there had been more than 40 million unemployment claims since the start of the pandemic, with Black and Latinx workers being the hardest hit.

Forecasters suggest that many who come back into the workforce will come back with lower pay. Now, more than ever, we need solutions that create economic resiliency for workers and local economies.

What we can do about it

We must support small businesses to both weather this crisis and to retool to meet the COVID-required interaction models. Businesses need flexible, low cost capital and, in many cases, access to skilled business advisors / technical assistance to help navigate their local and industry requirements.

We must also support retirement-age business owners to not just close up shop—the community assets that their businesses have generated need to be preserved: jobs, services, tax base and vibrant local businesses communities. Faced with the challenges of bridging this crisis, many business owners may feel that the best route is to close down; the investment of energy and capital may not feel worth it at the end of a long career as a small business owner. Since for most small business owners, the business is their retirement nest egg, they are faced with devastating choices.

The next generation can step in and help bring the business through the crisis and carry the torch forward. Employee ownership offers business owners a path to a sale and to preserving their legacy. But only if the business can weather this crisis.

Given the changing nature of work and the economic insecurity of low- and middle-wage workers, proven yet under-represented solutions like employee ownership have immense potential for impact.

There is strong evidence that broad-based employee ownership has tremendous benefits for workers, for businesses, and for society. When successful businesses become employee-owned, they create better working conditions, increase worker voice, and facilitate asset building for employee-owners—all while boosting business survival rates and keeping local economies strong.

For more detail, see our recent publication, The Case for Employee Ownership.

How Project Equity is stepping up

We can help get our community’s small businesses through the crisis and embed employee ownership into the recovery.

We urgently need to provide flexible, low-cost capital to small businesses (alongside business advising and technical assistance), and to demonstrate, especially to retirement age business owners, that there can be a light at the end of the tunnel.

Project Equity is accelerating our efforts and working with partners around the state and the country to help business owners who are considering closing their businesses for good. Our key message is that keeping these companies alive through this crisis can have a positive long-term outcome of an employee ownership transition. Employee ownership increases employee engagement, which is key to business success during this uncertain time when businesses must be nimble and respond quickly to change.

Business owners who sell to their employees post-crisis can gain retirement income and prevent the flame of their life’s work from being simply, and unceremoniously extinguished. Communities will retain job-creating businesses and economic engines. And through employee ownership, workers gain a voice and ownership stake in their companies and greater job security.

Business Continuity Funding Pilot: helping companies through the crisis and toward employee ownership

At Project Equity, we are actively designing our first pilot project to create a fund to help small businesses survive this crisis, so that their owners can execute a business sale upon retirement that leaves a powerful legacy: employee ownership. We are working with workforce development boards, small business development centers and others across the state of California and beyond to lay the groundwork for this pilot and others to follow.

We are targeting long standing businesses (among others) because they have an outsized impact on local economies. Our studies (see this example, developed through our partnerships in Long Beach, CA) demonstrate that businesses over 20 years old typically provide upwards of 60% of small business revenue in a local community and about one-third of small business jobs.

We are actively raising impact capital and welcome pilot partners from communities across the country.

Policy recommendations: embedding resiliency in the recovery through employee ownership

Project Equity is advancing a vision for economic recovery that prioritizes employee ownership as a way to create more resilient businesses and higher quality jobs.

In our home state of California, we are working at several levels of state and local government to advance employee ownership.

We co-founded the Worker-Owned Recovery California (WORC) Coalition, and together with many allies, created and are advancing a comprehensive policy agenda through which the State of California can accelerate and support businesses to transition to broad-based employee ownership through education and outreach, technical assistance, and financing support and incentives.

On the national level, we contributed policy recommendations to advance employee ownership as part of the American Sustainable Business Council’s policy efforts in response to COVID-19.

These priorities are:

Employee-owners at A Slice of New York in San Jose, CA.

Provide funding to states to educate business owners about broad-based employee ownership as a business continuity option.
Build on the Paycheck Protection Program (PPP) forgivable loan program to roll out additional financing for companies that commit to a broad-based employee ownership transition.
Address barriers to lending for employee buy-outs: Extend the Economic Injury Disaster Loan (EIDL) waiver of the personal guarantee for cooperative lending to the SBA 7a loan guarantee, and remove the “standby” requirement for seller financing for employee buyouts.

Please join us in advancing a recovery agenda that incorporates employee ownership. We must rebuild with more resiliency and equity for workers, businesses and communities.

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