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Small Businesses Getting Acquired Left and Right

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Small businesses are the backbone of the economy, representing 99.7% of U.S. employer firms and 64% of private-sector jobs, according to the U.S. Small Business Administration. However, many small businesses lack a succession plan, leading to closures or sales to larger companies. Teamshares, a New York-based fintech startup, has identified this opportunity and is on a mission to empower small businesses through employee ownership and innovative fintech solutions.

In this article, we will explore the unique approach of Teamshares and its vision for the future of small business ownership. We’ll delve into its strategy, the benefits of employee ownership, and the fintech products it offers to drive growth and success. Let’s embark on a journey to discover how Teamshares is revolutionizing small business ownership.

The Vision: Empowering Small Businesses

Teamshares, founded in 2018, aims to tap into the vast potential of small businesses without succession plans. With an aging population in the U.S., the market for acquiring retiring small businesses is set to grow. Teamshares has already acquired 84 small businesses, primarily from retiring owners, with a unique proposition that resonates with sellers. While it may pay below market price, Teamshares installs a new president, trains the employees, and grants them 10% ownership in the company. The company’s ultimate goal is to increase employee ownership to 80% within 20 years.

This approach sets Teamshares apart from traditional private equity firms, as it positions itself as a fintech company rather than a business reseller. By generating revenue from a range of fintech products, Teamshares aims to become an integral part of the businesses it acquires, offering solutions such as insurance and credit cards. Let’s explore Teamshares’ journey and strategy in more detail.

An Unconventional Fintech Model

Unlike most venture-backed companies, Teamshares has chosen a path less traveled. We had the opportunity to speak with Michael Brown, the co-founder and CEO of Teamshares, to understand the inspiration behind their unique business model. Brown, along with co-founders Alex Eu and Kevin Shiiba, transitioned from investment banking and financial spreadsheet roles to becoming operators and entrepreneurs.

Their initial foray into entrepreneurship involved buying and operating small businesses. This hands-on experience shaped their perspective and paved the way for the creation of Teamshares. Brown explained, “Learning how to operate businesses informs [our work] today.”

The Journey from Acquisition to Employee Ownership

Teamshares’ strategy revolves around acquiring small businesses, diluting their ownership voluntarily, and jump-starting employee ownership. The company sets aside 10% of the business for all employees and an additional 5% for the president hired to run each acquired business. This stock is granted over time based on service.

Financially, Teamshares operates similarly to Berkshire Hathaway. When they acquire a business, the acquired company’s revenue becomes Teamshares’ revenue the next day. The profits generated by the acquired businesses are shared proportionately with Teamshares’ ownership. Over time, Teamshares gradually sells back its stock to the acquired companies, ultimately aiming for the businesses to become 80% employee-owned.

To augment their revenue streams, Teamshares has recently launched a neobank, is soon introducing credit cards, and is developing an insurance business. These additional fintech products aim to replace the vendors previously used by the acquired companies, offering a comprehensive suite of financial solutions tailored to small businesses.

The Broadening Scope: From Exclusive to Inclusive

Initially, the fintech products offered by Teamshares were exclusively available to the companies it acquired. However, the company has broader aspirations. Brown explained, “We only build something if a product doesn’t exist for our exact use case, which is some combination of really traditional small business or employee ownership.”

Teamshares aims to scale up and open its products to small businesses beyond its immediate sphere. Within the next five years, the company envisions becoming a well-known brand and a go-to provider of financial solutions for small businesses. By addressing the unique needs of small businesses and employee ownership, Teamshares hopes to create a lasting impact on the business landscape.

A Shared Vision: Common Values and Infrastructure

While Teamshares acquires businesses from various industries, there are commonalities among the companies in its portfolio. Brown highlighted four key areas of alignment: employee ownership, financial education, the president program, and financial infrastructure.

Teamshares places great importance on the concept of employee ownership, empowering employees to have a stake in the success of the business. Additionally, the company prioritizes providing financial education to the acquired businesses, helping them transition from basic accounting practices to robust financial infrastructure. To ensure consistency and transparency, Teamshares engages auditing services from reputable firms like KPMG.

Despite these shared values, Teamshares recognizes the importance of allowing acquired companies to operate independently. While providing support and working closely with the presidents of the acquired businesses, Teamshares believes in maintaining the unique identity and operations of each company. This approach fosters a sense of autonomy and encourages the growth of high-quality businesses.

Strategic Integration: Balancing Independence and Consolidation

While Teamshares emphasizes maintaining the independence of its acquired businesses, there are instances where strategic integration makes sense. For example, in certain industries such as pizza shops or pool maintenance, Teamshares has pursued a roll-up strategy. By integrating multiple businesses within these industries, Teamshares aims to create larger entities that generate more employee ownership wealth than standalone businesses could achieve. This strategic approach allows for economies of scale, while still preserving the autonomy of the individual businesses.

The integration efforts go beyond operational consolidation. Teamshares also encourages collaboration among the acquired companies through industry groups. For instance, restaurant companies within the Teamshares ecosystem can collaborate on common purchasing and share knowledge about software and systems. Furthermore, Teamshares leverages its network to establish corporate vendor partnerships, offering advantages such as national accounts with major vehicle lessors.

The Future: Going Public or Staying Private?

As Teamshares continues to grow, the question arises: What lies ahead for the company? While the most probable outcome is going public, Brown acknowledges that there are alternatives to staying private. Nevertheless, Teamshares has no plans to sell the company; it aspires to maintain its independence.

Drawing inspiration from Berkshire Hathaway, Teamshares aligns with its long-term mindset and efficient underwriting principles. However, Teamshares diverges from Berkshire Hathaway’s model by incorporating employee ownership as a core component. While forgoing some future growth, Teamshares believes that employee ownership is the right path, leading to larger and better businesses.

To support its ambitious goals, Teamshares has built a robust team of approximately 140 employees, including a dedicated tech team of 70 individuals. Leveraging technology and software development, Teamshares has achieved impressive scalability, closing an average of seven businesses per month with just two people. This efficiency enables Teamshares to focus on its core mission of empowering small businesses through employee ownership and innovative fintech solutions.

Conclusion

Teamshares is redefining the landscape of small business ownership by providing retiring owners with a viable succession plan. By acquiring businesses, jump-starting employee ownership, and offering a range of fintech products, Teamshares empowers small businesses to thrive in an ever-evolving market. Their unique approach, which combines financial expertise, operational support, and employee empowerment, sets them apart from traditional private equity firms.

As Teamshares continues to expand its portfolio, its vision of becoming a leading provider of financial solutions for small businesses comes closer to fruition. By fostering independence, collaboration, and shared values, Teamshares aims to create a network of successful, employee-owned businesses. As the world of small business ownership evolves, Teamshares stands at the forefront, championing the growth and success of small businesses through innovative strategies and unwavering commitment.

See first source: TechCrunch

FAQ

Q1: What is Teamshares and what is its mission?

A1: Teamshares is a New York-based fintech startup founded in 2018. Its mission is to empower small businesses through employee ownership and innovative fintech solutions. The company acquires retiring small businesses and grants employees ownership, aiming to increase employee ownership to 80% within 20 years.

Q2: How does Teamshares differ from traditional private equity firms?

A2: Teamshares positions itself as a fintech company, not just a business reseller. Unlike traditional private equity firms, it generates revenue from fintech products while acquiring businesses. Its unique approach involves jump-starting employee ownership, providing operational support, and offering a suite of financial solutions tailored to small businesses.

Q3: How does Teamshares acquire and operate businesses?

A3: Teamshares acquires small businesses, grants employees 10% ownership, and hires a president to run the business. An additional 5% ownership is allocated to the hired president. Teamshares sells its stock back to acquired businesses over time, ultimately aiming for 80% employee ownership.

Q4: What are some of the fintech products offered by Teamshares?

A4: Teamshares offers a neobank, credit cards, and is developing an insurance business. These products are designed to replace the vendors previously used by acquired companies, offering comprehensive financial solutions tailored to small businesses.

Q5: How does Teamshares plan to scale its fintech products?

A5: Initially exclusive to acquired companies, Teamshares aims to open its fintech products to small businesses beyond its immediate sphere. The company envisions becoming a well-known brand and a go-to provider of financial solutions for small businesses within the next five years.

Q6: What are the common values and areas of alignment among companies in Teamshares’ portfolio?

A6: Teamshares prioritizes employee ownership, financial education, the president program, and financial infrastructure. It empowers employees, provides education, trains presidents, and ensures financial transparency through auditing services from reputable firms.

Q7: How does Teamshares balance independence and consolidation?

A7: While Teamshares emphasizes maintaining business independence, it strategically integrates businesses in certain industries through a roll-up strategy. This approach aims to achieve economies of scale while preserving autonomy.

Q8: What are Teamshares’ future plans?

A8: Teamshares plans to continue its growth trajectory. While the most likely outcome is going public, the company aspires to maintain its independence. Inspired by Berkshire Hathaway, Teamshares aligns with long-term growth and employee ownership as a core principle.

Q9: How does technology support Teamshares’ operations?

A9: Teamshares leverages technology and software development, allowing impressive scalability. With a tech team of approximately 70 individuals, the company can efficiently acquire and operate an average of seven businesses per month.

Q10: How does Teamshares differ from traditional succession plans?

A10: Teamshares offers retiring owners a viable succession plan by acquiring their businesses and granting employee ownership. This approach allows businesses to continue under new leadership, fostering growth and success while promoting employee empowerment.

Featured Image Credit: Mike Petrucci; Unsplash – Thank you!

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