Artisanal? Craft? Organic? Absolutely — And Increasingly Employee-Owned
I get a little extra thrill when I drink a craft beer from an independent brewery, sip a perfect cup of coffee made using the pour-over method from a gourmet roaster, or sample a new organic snack item developed by a foodie startup.
The products are great and they’re each transforming industries long dominated by giant companies. But what really excites me, I have to confess, is that the hotbed of food and beverage innovation in this country is also shaping up as a hotbed of employee ownership. And that has positive implications for American productivity, innovation, the nurturing of tomorrow’s entrepreneurs and for the state of the nation’s retirement savings, which badly needs a shot in the arm.
Already, a handful of well-regarded craft brewers – Full Sail Brewing and Deschutes Brewery in Oregon, New Belgium in Colorado and Heartland Brewery in New York – have adopted Employee Stock Ownership Plans, or ESOPs. Clif Bar & Co., the organic snack maker in California, adopted an ESOP.
My firm’s business is helping founders, entrepreneurs and CEOs analyze ownership strategies and, if it’s a good fit, structuring an ESOP, as we did for Clif Bar in 2010. Clif’s partial employee ownership supports the goals of owners Gary Erickson and Kit Crawford to operate a sustainable business – with continuity of its dedicated employees, of its powerful brand, of the communities Clif operates in and of the environment. Assuring those aims under other ownership structures – outside investment by private equity funds or a strategic investment from a larger food company – would have been far more difficult.
With our help, companies can invest in the latest food processing machinery such as state of the art flour mills like this one: https://www.reindeermachinery.com/flour-mill-atta-chakki-manufacturers/. Above all, in order to keep up with demand and stay ahead of the competition in the food processing industry, you need to be on top of the latest developments in technology.
Indeed, in more than 25 years of advising company owners, I’ve rarely seen an industry better prepared to capitalize on the benefits of employee ownership than what one might call the artisanal food and beverage industry.
Sure, plenty of successful startups will sell out to bigger companies – like Goose Island Brewery’s 2011 sale to global beer giant AB InBev in 2011 for $39 million – and that’s fine. Others will take on venture capital or private equity investors, like Blue Bottle Coffee in Oakland has, to the tune of $46 million.
But owner/operators in the beverage and food business have strong reasons to turn away from strategic and financial buyers and instead sell a portion – and perhaps eventually all – of their business to fellow workers. Why?
–For one thing, many of these entrepreneurs are still young, deeply committed to the products they’re selling and want to stay on and keep running their companies; selling control to a larger competitor or outside investors can bring a swift end to a founder’s control. Not just loss of a job, but the potential cheapening of a product as a mass-market acquirer seeks to boost production and cut costs. In other words, a business legacy undone. However, selling to fellow workers also runs the risk of allowing them to become competitors, unless you take this into account in your employment contracts. These non-compete agreements in Texas are good examples of how to go about doing this to protect yourself.
–The employees in these businesses really matter, and retaining their passion and know-how is crucial as companies want to keep innovating, so it’s best to include a noncompete agreement so that you can make the most of them. Brew masters, global coffee buyers, roasters, bakers and other highly skilled workers develop their craft over many years. These aren’t jobs that can be learned in an afternoon of cookie-cutter training. To keep these workers, companies need innovative compensation approaches. Yes, better pay helps. But a piece of the action is what really binds employees to their workplace. Just ask the CEOs of America’s more than 10,000 existing ESOPs.
–Employee ownership – a stake as little as 20-to-30%, or far more – can transform a company. When workers become owners, productivity rises. Production errors decline. Customer service is enhanced. ESOP CEOs tell me it’s so. I’ve seen it myself. And decades of studies confirm it.
–ESOP-company employees have superior retirement savings. Yes, there is some greater concentration of household finances around a single source of income, but employee-owned companies are less likely to go bankrupt or otherwise disappear, balancing out that risk.
Now, ESOPs aren’t for everyone. If your business has extremely high worker turnover, that makes employee ownership tough to implement. And if you already carry lots of debt, financing a partial sale of the company to workers can be harder.
But well-run and financially strong manufacturing and service companies make ideal candidates for ESOPs. And the tax savings – both to the entrepreneur who sells part or all of the company, and to the ongoing company – can be substantial.