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As the ‘silver tsunami’ hits small businesses, could worker co-ops be a solution?

With a wave of retiring owners on the horizon, city and state policy makers are trying to promote the model of worker ownership

Are small business co-ops the new economy?
WATCH: Reporter Dana Gerber explores a new system of worker cooperatives in Massachusetts that are designed to encourage business ownership.

Since founding Dean’s Beans three decades ago, Dean Cycon has built his eponymous coffee company in his own humanitarian vision. The beans are organic and fair trade, the coffee bags tell the stories of the farmers he buys from, and the roasting facility has been powered by solar panels since 2006.

But, as his 70th birthday approached, Cycon knew he would need to consider the future of Dean’s Beans with someone else at the helm. A number of “progressive business people,” as he put it, approached Cycon to buy the business. But he suspected they cared more about profits than preserving the culture he had worked so hard to cultivate.

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So Cycon decided to sell to buyers who were intimately familiar with the mission of Dean’s Beans: His employees, all 16 of them.

“They know Dean’s Beans. They’ve been working it and running it for years,” said Cycon, whose retirement on July 1 will officially make Dean’s Beans a worker cooperative. “They’re going to carry on.”

Roastmaster Brendan Walsh pouring raw coffee beans into a dispenser where they are then portioned to be roasted at Dean’s Beans in Orange.Carlin Stiehl for The Boston Globe

Cycon’s tale is an unusual ending to a story that is playing out by the tens of thousands across the country as more baby boomers hit retirement age, with the small businesses they own hanging in the balance.

Dubbed the ‘silver tsunami,’ a wave of aging business owners is poised to roil the economic landscape, especially in New England, where the population already skews older. In Massachusetts, the 55-and-over crowd owns 53 percent of all small businesses — some 68,000 companies, which have more than 775,000 employees and $162 billion in annual revenue — according to Project Equity, an organization that advocates for employee ownership. With only a fraction of businesses put on the market ever selling and family succession not always an option, this demographic trend raises the question: Where will all these businesses end up?

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To solve this mounting succession dilemma, some policy makers and advocacy groups are promoting a niche solution: employee ownership. This can include an employee stock ownership plan — a type of retirement plan — or, like Dean’s Beans, a worker cooperative, a model built on the idea of “democratic governance.” Employees buy a voting share (at Dean’s Beans, this was $5,000) to become worker-owners, entitling them to a voice in business decisions and a slice of the profits.

While the ranks of worker co-ops are thin — currently the Massachusetts Center for Employee Ownership (MassCEO) counts 57 such businesses in the state — there are now new efforts afoot to encourage more owners to consider the atypical approach.

“Twenty years ago, starting a co-op was a very marginal idea that not a lot of people were taking seriously,” said Stacey Cordeiro, the founder of the Boston Center for Community Ownership, a co-op development nonprofit. “But now, it’s 20 years later, there’s a lot of people who are excited about it, and a lot more infrastructure.”

The economic development bill adopted by the state Legislature last year made MassCEO, which conducts outreach and education on employee ownership, a permanent part of state government. Another bill making its way through the Legislature would offer tax breaks to owners who sell their business to their employees.

In Boston, the city’s Office of Economic Opportunity and Inclusion is hosting a six-part co-op technical assistance workshop this month to teach business owners about employee ownership and funding. Co-ops will also get priority review for the city’s S.P.A.C.E. Grant Program, designed to connect small businesses with vacant storefronts.

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“While cooperative models are a small slice of the economic pie,” the office said in a statement, “they offer tremendous benefits to the workforce and their communities.”

Take RLMG, a digital design studio in Watertown. The pandemic spurred founder Richard Lewis, 66, to think seriously about succession, and after talking with his employees, he decided a worker co-op was a good fit. From there, he worked with the Cooperative Development Institute to navigate accounting and legal matters before officially passing the reins to 30-plus employees in April 2022 and becoming a worker-owner himself.

Richard Lewis, 66, is the founder of RLMG, a digital design firm in Watertown that became a worker cooperative in 2022.Suzanne Kreiter/Globe Staff

“Sole proprietorship: either you hand it over or you die, right?” said Lewis. “We figured out how to do the first option in the best way possible.”

Still, there is one frequent hurdle: Money.

Compared with more traditional buyouts, co-ops are more complicated. Traditional lenders such as commercial banks are often wary to finance them because of regulatory requirements and a general unfamiliarity with the model. Capital often comes from community development loan funds such as the Cooperative Fund of the Northeast — which, at the end of 2022, had committed over $12 million to 27 worker co-op conversions in the region, according to executive director Micha Josephy.

Some outgoing owners sometimes finance the deal themselves. At Dean’s Beans, for instance, Cycon is putting up 40 percent of the funds for the $3.5 million buyout, while the Cooperative Fund of Northeast (with some help from the Local Enterprise Assistance Fund) is providing the remaining 60 percent. This is below the market valuation of the company, Cycon said, but he didn’t want the new ownership to be saddled with so much debt that it might endanger its future success. This approach, however, isn’t always an option, given that owners often count on the sale of their business to fund their retirement.

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“There’s structural problems sometimes to allowing those conversions to happen,“ said Alex Papali, director of regional economies at the Center for Economic Democracy, a Boston nonprofit that oversees a co-op-focused coalition. “The workers are ready and willing, many times, but they don’t have access to technical assistance or to working capital to take over the business.”

But, advocates say, there can be long-term advantages for the business and its workers alike. Many co-ops in Massachusetts avoided layoffs during the pandemic. The model has been associated with lower employee turnover. And cooperatives can serve as an avenue for entrepreneurial equity: 58 percent of co-ops in Massachusetts are majority female or nonbinary, and 40 percent are majority BIPOC, according to a survey from MassCEO.

“It’s really a way for folks who have been marginalized and excluded from the economy to get a seat at the table,” Josephy said.

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And while the financial obstacles to a co-op transition can be cumbersome, “the part that takes the time is the culture shift,” said Cordeiro, especially when longtime owners have to divest themselves of decades of accumulated knowledge.

At Byggmeister, a design-build firm in Newton, founder Paul Eldrenkamp planned his retirement for seven years. The 66-year-old used the time to slowly hand off his day-to-day duties to eight new worker-owners. In 2021, Byggmeister officially became a co-op in a deal financed by Eldrenkamp, nearly 40 years after he founded the business.

The hope at Byggmeister, as with most co-ops, is that the model will be somewhat self-sustaining. The staggered departures of the current worker-owners and introduction of new ones will likely mean a smoother succession process down the road. But it doesn’t negate the concerns altogether.

“A group of eight owners is not necessarily a group of eight leaders,” said Rachel White, Byggmeister’s chief executive, who reports to the newly minted board of directors. “That’s still work that needs to be done.”

Back at Dean’s Beans, Cycon has also been phasing himself out of the business for years, cutting down his days there and relinquishing his coffee-buying duties. He now feels ready to retire, travel, and write, with full confidence that the company will continue in its namesake’s stead.

“The question was, will the co-op or whoever came after me be able to keep that legacy going? And the answer’s just clearly yes,” said Cycon. “I know everything at Dean’s Beans will be fine without me.”

Workers moved coffee bags in the roasting room at Dean’s Beans.Carlin Stiehl for The Boston Globe



Dana Gerber can be reached at dana.gerber@globe.com. Follow her @danagerber6.