Start-up businesses are more recession-resilient

Economic recessions can actually be a boom time for employee-owned businesses., writes Laila Roberts.

Before the pandemic arrived, did you ever wonder what was going to happen to your favorite local business when the owners retire? What about the workers in those businesses? Have you lost a favorite neighborhood place? One year into a pandemic-fueled recession, are you wondering what our main streets are going to look like when this crisis is past?

We were already in a business succession crisis before the pandemic. Half of all employers nationwide are small businesses owned by “Baby Boomers” approaching or past retirement age. In communities like ours* small businesses founded more than 20 years ago account for 63% of revenue and 40% of jobs. (*The rural county that’s home to Bellingham, Washington.) In 2004, the Small Business Administration reported that only 15% of family businesses were going to the next generation, and only 20% were getting sold to a new owner at all. The rest were just getting liquidated.

A year into a global pandemic, the situation seems dire. It’s tough to confirm exact numbers yet but it looks like, “As of early November, more than 30% of California’s small businesses remained closed. Thousands of small businesses have shut-down permanently.” (From “First Steps toward Recovery: Saving Small Businesses” December 2020 report #254 from California’s Little Hoover Commission.)

At the same time, economic recessions can actually be a boom time for start-ups. More than half of Fortune 500 companies were launched during a downturn. At the North Coast Small Business Development Center, we targeted most of our 2020 efforts to help established businesses trying to survive the pandemic, and yet still also saw only a 12% drop in start-up help requests compared to 2019.

So: Many owners are struggling to exit, new entrepreneurs are eager to start, and employees are working hard to keep their jobs or find new ones. What sits squarely in the middle of all that activity? Worker ownership.

Two years ago we learned three things: (1) Congress passed the bipartisan 2018 Main Street Employee Ownership Act. It instructed federally-funded small business support agencies like ours to help owners start and convert to employeeowned enterprises. (2) Employee-owned enterprises report 8.5% higher profit margins and 2.5% higher growth year after year. Employeestock owners engage more, report twice as much household net worth, and stay 50% longer. (3) Of six dozen seasoned Humboldt business owners, 20% said in a survey that “selling or transferring business to a group of worker-owners”