This company is making small businesses employee-owned and narrowing the wealth gap. Here’s how

Michael Sutherland Brown co-founded Teamshares with his former colleagues Alex Eu and Kevin Shiiba in 2018. After years of experience dealing with mergers and acquisitions on Wall Street, and running his own small businesses, Brown was determined to spread the positive benefits of the employee-owned model across America, and use what he had learnt to solve a persistent problem with small firms: 70% failed to sell.

When small businesses are forced to close because they have no buyers, they leave a hole in the pockets of their employees, and in their communities. It is no exaggeration to say that small businesses are the backbone of employment in the country – they hire half of all workers in the US and are responsible for 44% of its economy.

Teamshares buys small businesses from soon-to-be-retired owners and transforms them into an employee-owned entity. Employees then earn stock through continued service in the business and directly benefit from its success.

Ahead of the 14th Annual Meeting of the New Champions, Brown spoke to the World Economic Forum about the social impact of having more employee-owned companies and protecting small businesses from unnecessary closure.

This interview has been edited for length and clarity.

Yes, I do. It was 10 pm on 18 December 2018. There was some conversation on Slack that went on for about 10 minutes, forming the basis of Teamshares. It's not the best story, but that's how it happened. We saved a pdf version of the chat for posterity.

Ahead of that moment, we’d spent about five years playing around in the muck, doing hot, sweaty work trying to buy, rescue and run small businesses. We were hungry to build something of value but we just couldn’t get it right. And then we had this lightbulb moment that we had basically conceived of a business model that was very good with scope for social impact, with the linkage being stock ownership. That was very exciting for us.

We knew we wanted to spend the rest of our careers working together and thought, “We might as well build the biggest company we can.” So we set off to raise venture capital to accelerate company growth on the basis that, the larger Teamshares is, the larger our financial impact is on employee owners of small businesses.

In the past, small businesses were never really put up for sale. Historically it was the owners’ kids who just took them over but that’s not happening as much these days.

Depending on who you ask, there are around 2-3 million small businesses with employees in the US, owned by baby boomers who are now 57-75 years old. But there aren't 2-3 million buyers.

The problem is even more pronounced in Japan, where the age of owners stretches well into the 70s and 80s. Fewer than 20% of businesses are owned by people under 50.

Because there's no easy way for retiring owners to sell their businesses, two things happen. Firstly, owners tend to run the business longer than they want to, and secondly, the complexity of selling a business often leads to a high risk of a functioning and profitable business shutting down. That means job losses, and communities losing services, which is bad for their local economy.

We’ve acquired 82 companies so far in the last two years from retiring owners, and we should be up to 85 at some point in July. Of that number, there are now 2,100 employee-owners in the US because of Teamshares, and they have $27 million of stock value accrued.

We’ve also made a lot of people happy, and proud.

I remember one moment when I really began to appreciate the impact we were having on people’s lives. We do Open Book management meetings, where we open up the financials and show employees how they work, etc. And a fairly junior electrician at the firm came up afterwards to thank me for doing that. “It makes me feel like much more than an electrician,” he told me.

What we do for employees goes beyond issuing stock. We’re teaching people financial literacy and showing them a different way to view employment, and maintaining small businesses for generations.

Owners can retire, with their legacy in place. Employees feel empowered as they lead and benefit from a business. The community still has an operating business that continues to provide jobs and support the local economy. It’s a win-win.

We're very excited to engage with the World Economic Forum, specifically because we want to be part of a global community that is fostering communications with smaller businesses. It’s a great opportunity to network, learn, and share our knowledge, too, with the ultimate goal of accelerating the positive impact this growing community is having on society.