Detroit Goodwill to Expand Social Enterprises and Incubate Employee-Owned Businesses

By: Steve Dubb, Nonprofit Quarterly

“Diego Rivera – Detroit Industry Murals.” Credit: Ashley Street

“In an effort to expand capacity for its workforce development programs, Goodwill Industries of Greater Detroit [Detroit Goodwill] plans to hunt for businesses to add to its stable early in 2018. In some cases, the plan’s ultimate aim is to give the workers it trains a share of ownership in companies it acquires,” writes Sheri Welch for Crain’s Detroit Business.

In taking this approach, Detroit Goodwill is joining a broader trend, illustrated also by New Mexico Community Capital’s program in Indian Country to use investment in the development of businesses owned by members of disadvantaged or under-represented groups as a direct strategy for community economic empowerment.

To date, Detroit Goodwill—which has $22 million in assets, serves 10,000 people a year, and works with 900 companies—has focused on “basic training that sets people up for jobs, including resume building, interview skills, professionalism and communication.” But it is increasingly branching out and trying to expand its impact and create opportunities for the people it serves to enjoy greater independence and dignity in the workplace. To achieve this end, Detroit Goodwill is implementing a three-part plan to increase opportunities for jobs and economic empowerment.

Welch notes that Detroit Goodwill already “operates three businesses that provide job training opportunities and revenue to support its mission.” These include its thrift stores; Green Works Inc. (which operates an industrial recycling facility on the city’s East Side); and Goodwill Automotive, a tier-one supplier that provides “kitting, bagging, and on-vehicle assembly services to large automotive companies.” So, one strategy is to simply expand existing business lines. This includes efforts to expand in new directions, such as marketing thrift store items online and expanding the work it does to support with employers after clients have placed in jobs.

A second strategy is to acquire businesses that “would provide both short-term training opportunities for people like those returning from prison who need to show a recent work history and long-term training and jobs for people who need them.” Detroit Goodwill’s CEO Dan Varner notes that the nonprofit serves “populations living with developmental (and physical) disabilities and mental illness who are not transitioning into work quickly but do eventually want to transition into (permanent) work.”

So, the businesses that Goodwill hopes to acquire would need to provide workforce training with jobs for “two or three years so that those clients can have the necessary transition period to move into competitive employment.” Welch adds that the nonprofit “hopes to close its first deal by the end of next year, targeting healthy companies that align with the new areas of occupational training it plans to launch.”

A third strategy is for Goodwill Detroit to identify business to purchase that it “can own for three to five years while it trains employees to be owner-operators and then sell the business to them.” A recent study found that 400,000 jobs in the seven-county southeast Michigan region are at risk of shutting their doors, because as many as four in five baby boomer business owners who are likely to retire in the next 10-20 years lack business succession plans. As John Gallagher wrote earlier this month in the Detroit Free Press:

The estimate, released by the Center for Community-Based Enterprise and performed in partnership with Oakland, Calif.-based Project Equity, shows that nearly half of all privately held businesses in metro Detroit are owned by boomers who may retire in the next 10 years. Billions of dollars in sales and payroll could be at risk.
Mike Coast, president and CEO of the Michigan Manufacturing Technology Center, who was interviewed by Gallagher, adds that: “We know that there is a lack of succession planning among manufacturing business owners in Michigan generally. We should all be very concerned.”

Employee ownership can preserve these jobs, but the conversion process can take from three to five years. It is not uncommon for an owner wishing to sell a company to his or her employees to sell in stages—typically 30 percent to start, with two additional tranches leading to full transfer of ownership. “Many owners are interested in…sell[ing] to their employees but choose not to, ultimately, because the process can be long and complicated,” Varner observes. So, the solution that Goodwill proposes would enable the owner to get fully paid up front, with Goodwill serving as an incubator, ensuring the business’ survival during the transition period, as well as serving as the business owner until employees are fully trained to take on the responsibilities of ownership.

Varner adds that he thinks there will be many opportunities to undertake this approach:

Folks in our community who are making a low wage, a minimum wage, one way to tackle that is to give those folks a share of the business. There are plenty of opportunities for low-wage workers to actually earn a share of the profit as well as their wage and to have an asset on their personal balance sheet that they can take loans against to buy a house or buy a car.

 

Disclosure: author is a member of the board of the Center for Community-Based Enterprise, which is mentioned briefly in the article.

—Steve Dubb

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