We are sharing a not-so-mini ESOP Mini-cast in order to continue our #EsOpWonderland tour of 2020 interviews with Part 2 of our interview with David Hincapie. In Part 2, we share concrete examples of how EO practitioners and advocates can use the Small Business Administration to grow EO. (Really!)
This episode originally aired on November 17, 2020 as Episode 126: David Hincapie Pt. 2 - SBA and Growing EO.
Mini-cast 116 Transcript
Bret Keisling: Welcome to the EO/ESOP Podcast and ESOP Mini-cast Winter Wonderland! We've selected our 10 favorite episodes from 2020 to bring you while we recharge our batteries and work on new content. We'll be back at the end of January, 2021 with all new episodes.
Bret Keisling: We'll still be active on social media, so reach out! You'll hear our contact information at the end of the episode. In the meantime, I'm going to mask up and follow the guidelines. I hope you'll do the same. Enjoy the episode!
Bitsy McCann: 00:03 Welcome to The EO Podcast, where we amplify and celebrate all forms of employee ownership.
Bret Keisling: 00:12 Hello, my friends. Thanks for listening. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. Today, we're bringing you part two of our conversation with David Hincapie who is an economic development specialist with the Small Business Administration's Washington DC metropolitan office. This continues from last week, Episode 125. If you haven't done so already, you may want to circle back and listen to Episode 125 before this one, although you'll certainly be able to follow the conversation here. Last week's episode does lay a lot of groundwork on the SBA, its district offices, two major SBA funding sources, and small business development centers. All of that features prominently in this episode.
Bret Keisling: 01:06 Also in Episode 125, David shares his EO "A-ha moment" when he realized that employee ownership was something special. Several times in today's episode, we're going to mention past podcast guests, you can find Episode 125 and all of the previous podcast episodes that we reference wherever you get your podcasts or at www.ESOPpodcast.com.
Bret Keisling: 01:35 Today, you'll hear David and I discuss how EO advocates and practitioners can utilize the SBA to build employee ownership and or their own EO and ESOP practices. As you'll tell from the excitement in our voices, we both get really excited discussing various new possibilities for growing the EO sandbox.
Bret Keisling: 01:54 I do want to give you a heads up. We recorded this in person last week in Washington, DC, several days after the November general election, as you may have heard, Washington was kind of crazy last week. So several times during the podcast, you'll hear sirens in the background. I want to apologize in advance, particularly since even as I edited this episode, twice I muted the volume to make sure sirens weren't right outside my door. With that, I hope you enjoy this important conversation.
Bret Keisling: 02:31 Where do we go from here? We have teed it up very greatly that there are products available that we're not making use of. You see an important interaction between the SBA, the communities, and employee ownership, and kind of an untapped path forward to create demand. The SBA is willing to do the supply. We need to create the demand. That's right. Can you talk a little bit about how you flesh out the various pieces coming together to increase demand?
David Hincapie: 02:58 Yeah, well, I learned a lot in the first -- you know, I was learning my SBA, my other SBA work, but then my district director and district deputy director, they said well, clearly you're very interested in this. So I guess you can be "our guy" for employee ownership in the district office.
Bret Keisling: 03:16 That's great!
David Hincapie: 03:16 So so that was part of my job then to learn everything. And so I immediately started to plan information sessions, but I didn't know who to talk to first. So I talked to the SBDCs and the SBDC...
Bret Keisling: 03:33 ...which is the Small Business Development Centers.
David Hincapie: 03:33 Yeah, Small Business Development Centers. So an explanation: The Small Business Development Centers have been around, effectively, as long as the SBA and they are independent nonprofit organizations, they're 501(c)(3)s, that win an SBA grant and sign a cooperative agreement with us to provide certain services and resources. Primarily the SBDC advisors, who any business person or person who wishes to start a business can walk in, or call in these days, and get free advice from a business advisor on how to start a business and how to grow a business.
David Hincapie: 04:10 Now, they're all over the country and they are one of the SBA resource partners and the one that's mentioned in the legislation. So I went to the SPDCs locally, here, the DC SBDC, the ones in Virginia, and the ones in Maryland. Said do you guys know what an ESOP is? Some of them did, some of them didn't. Okay, there's this new legislation, the SBDCs are specifically mentioned. They're going to be asking you to talk about employee ownership as a business succession option. This is language that's straight out of the legislation. And you know, some of them knew about it, some of them didn't -- most of them didn't know about it. Okay. So I would like to start talking about this to people in the business community, the small business community, or community of small business owners in this district office area.
David Hincapie: 05:00 And I started planning these information sessions and I had a couple of them -- poorly attended. But I learned quite a bit about what's difficult about getting this to happen, creating a groundswell. And so I came up with what I think are five groups. You have to have five groups all working in concert. They are, I call them the service providers -- it means the lawyers, the lenders, the trustees. They're easy to convince to be excited about this because they're all going to be working in that, I mean that's what they make their living doing. The lender - oh the lenders is the second one. They're not in the service providers. The lenders are the other ones they're going to be making the loans.
David Hincapie: 05:43 Then there's the field offices or district offices of the SBA where I work, right? Because the district offices are the primary points of contact for all the SBA lenders, if the SBA lenders are doing a lot of ESOP lending and or cooperative lending, then the district offices are aware of it, right? We're going to be talking about it to them. They're going to be talking about it to us. We were necessarily connected. Then there's the SBDCs. That is also a connection that must happen and will happen because very often lenders work with SPDCs for small businesses. They sometimes require a borrower to go to an SBDC and get business advisor advice. So that borrower becomes a good enough business owner to repay the loan, because let's be frank, that's what lenders care about -- getting repaid. So any resource that exists, if I'm a borrower and a bank, a lends me $2 million, if there's a resource that can help me become a better business owner to manage the business and keep the cashflow going so I can repay the loan, the banker's going to tell me to go to them, the SBDCs.
David Hincapie: 06:57 So that's four of them. All four of them are easy to get involved, easy to get excited. What's the fifth one? Owners. How do you find them? This is what I found was a big obstacle. Where are they? Well, let's stop and consider for a moment. We're looking at a business that might sell for $7 million. So what's its revenue? Maybe it's doing a million dollars a year? Okay. So think of a small business that does a million a year in revenue, that's a very busy business owner. They might not even have too many employees. They might have only four or five employees. So that doesn't sound like a good candidate for an ESOP in the first place. Maybe they're better as a worker cooperative.
Bret Keisling: 07:36 Right.
David Hincapie: 07:36 Right. So you talk to this business owner, who's probably wearing three or four hats doing three or four different jobs within it. Anytime you call them talking to them about something, it's just a sales call and they're going to hang up. So if you're an ESOP lawyer and you know, even if you're a lawyer with a great heart and they do exist --- rare though, they may be. [Laughter.]
Bret Keisling: 08:04 I don't practice law, but as a law school graduate, I think I just need to acknowledge the cheap shot you took at my colleagues! [Laughter.]
David Hincapie: 08:12 So they, you know, if they call up trying to help someone and say, hey, look, you don't have a succession plan. If you liquidate, you're not going to make any money for your retirement. You deserve a better retirement. How about working to sell this to the owner, to the employees? That's just a sales call and they're going to ignore you. So you see the difficulty in reaching a business owner?
David Hincapie: 08:35 Let's move on to a business owner that's, that's going to sell maybe for 20 million. Okay. That's a little bit more sophistication in the business. They've got more revenue. Maybe they've got a management team that can be the leaders of the new organization that's bought by the employees.
Bret Keisling: 08:52 And there's a lot of stuff in terms of, they've got the reporting already set up, they've got the historicals, blah, blah, blah, blah, projections, all the stuff that you need. You're just a little more likely to have that at 10 or $20 million worth of revenue.
David Hincapie: 09:05 Exactly. And the thing is they are still busy. So any phone call to them from a service provider, meaning a trustee, a lawyer, or perhaps even a lender who's saying, have you considered all of this? That's just another sales call. So they may not worry, they may not want to talk about it. And we're just dealing with, also, human beings, because you know, I'm never going to retire, I'm going to do this forever. You know, they just don't even want to face their own retirement and then mortality. So, how do you get people to talk about this thing? That's the hard part that I found was the owners.
David Hincapie: 09:40 And it occurred to me as we were speaking earlier, that there's another one. And this is the one that I think Project Equity has really they're really specializing in going after is the other institutions, meaning local governments and perhaps even state government -- so cities counties. Because I did a little survey, a little poll of economic development officials in my district offices service area and sometimes I would call them deliberately, sometimes we would be in a meeting for something else, some other event or some other business exposition of some kind or conference -- and say, hey, do you know, what do you know about employee ownership? I'd ask them. And they knew almost nothing. I said, you have this many small businesses in this county, and we know roughly half of small businesses nationwide -- so this is an assumption -- let's say, we're talking about Montgomery County. Let's make the assumption that roughly half of all small businesses in in the United States are owned by baby boomers. Let's make the assumption. That's roughly half in Montgomery County as well. Well, that's this many businesses. So these people are going to be retiring. What are they going to do? Who are they going to sell these businesses to?
David Hincapie: 10:59 And every single local person I talked to had no answer. They never even considered the problem. Over here in Arlington, for example, famously they, they, they won the competition to get Amazon to come over here. Right? I talked to them about this. They weren't thinking about it. They were thinking about getting Amazon over there.
David Hincapie: 11:21 So what are you going to do when all these businesses shut down? What are you going to do? I would ask this question of them and they didn't have an answer. And so we would agree to continue discussing it and talk more. And this is, this seems like what Project Equity has done, is focused on local governments, counties, and going to them and saying, you have a situation. Have you considered it?
David Hincapie: 11:43 So, they -- I was up again, this is about a year and a half ago -- they did a study for the city of Long Beach in LA County, in Los Angeles County in California and long beach is the second largest city in Los Angeles County, the largest being the city of Los Angeles. And they discovered some, some interesting statistics. I don't remember them exactly off-hand right now, but I remember it was roughly 40% of the small businesses employ 60% of the people employed in small businesses. And they produce something around two thirds of the small business revenue.
Bret Keisling: 12:28 40%,
David Hincapie: 12:29 40% of the small businesses.
Bret Keisling: 12:30 Employ 60% and produce two thirds of the revenue.
David Hincapie: 12:33 ...of the revenue. Right. And so I don't actually know how a Project Equity and Long Beach, the city of Long Beach, got connected, but they did that study because clearly somebody in the city of Long Beach was thinking, what are we going to do with all these small businesses?
David Hincapie: 12:45 If they don't find buyers, they're going to shut down. If they shut down, suddenly we have all these unemployed people in the city of Long Beach or people who commute to the city of Long Beach, which then affects the surrounding communities. If you have hundreds of people losing their jobs in the next five years. So their approach, that's the other institutions, right? The institutions are the field offices, us, the SBA -- the SBA as an institution as a whole -- the SBDCs are the institutions, but then also local government and counties and cities. They are concerned about this because they have to have a way of ensuring that these jobs stay in these places. If these are businesses they wish to remain open, that are providing good jobs that are sustainable businesses, et cetera,
Bret Keisling: 13:33 That are less likely to move out of the area...
David Hincapie: 13:36 Precisely...
Bret Keisling: 13:36 Employee-owned than being acquired.
David Hincapie: 13:39 Right.
Bret Keisling: 13:39 David, let me just throw in for listeners. Project Equity is doing amazing things and this past May in 2020, I had two separate episodes, Alison Lingane and Hilary Abell are the founders of Project Equity, and folks can hear more about what they're doing and you're right. It's time with the local governments. And what I like about their approach to finding businesses and I think it's fascinating that the biggest challenge that you found is where are the businesses because that's kind of the Holy Grail we're chasing. What struck me as really brilliant and new with Project Equity is by tying up with municipal governments and I believe they're also down in the Miami area in Florida, it's the county government that is sending out the notice to business owners and saying, hey, maybe you should consider employee ownership, we're going to put something on with Project Equity. But when that business owner gets something from a government entity.
David Hincapie: 14:34 Mmm hmm.
Bret Keisling: 14:34 That's more, that's taken it out of that sales call, right?
David Hincapie: 14:38 Right.
Bret Keisling: 14:38 You would talk about of, hey, just want to sell your business. This is the government not pushing you for employee ownership, but saying, hey, this is a good deal. One other -- and it ties into the SDBCs, one other guests that I've and we talk about his work with regularity is Steve Storkan of the Employee Ownership Exchange. In addition to Project Equity, one of our guests in the past was Steve Storkan of the Employee Ownership Exchange [Employee Ownership Expansion Network]. And he, they're just doing gangbusters. They're opening up in a variety of states with another more underway. Can you talk a little bit, I know that Steve and you are friends and you've been in touch. Can you talk a little bit about what you've seen of their work?
David Hincapie: 15:12 Yes. So, so what I learned is that they're opening up. They're trying to get when I -- the last time we met, actually -- he was telling me that the goal is to have an employee ownership center in every state, right. And some states already have them. So in the states that don't have them, right.? And he was working at the time on Georgia, North Carolina and North Carolina opened up. I talked
to the woman who was ahead of that one .
David Hincapie: 15:36 Yes, exactly. And so, and she was telling me how they were just getting themselves moving. And so going back to who are the -- what are the five categories of groups that you have to connect to kind of create a groundswell. Is, as I said, you know, there's the institutions, there's the field offices, the SBDCs, and now I'm adding to that -- the local governments, counties, and cities, you know, and perhaps states.
David Hincapie: 16:05 Well, when you have an employee ownership center, if that employee ownership center can quickly connect with these various institutions. So find the lenders who are interested. So for example, in this district office area here one of our lenders has made it known to us that they are very interested in doing 7(a) loans for employee ownership and they're happy to do them as what lenders call an air ball. Which means no fixed assets for security, right?
Bret Keisling: 16:48 Wow.
David Hincapie: 16:48 No collateral, right? They're willing to do it as an air ball. So they're doing it on the strength, the financial strength of the company, its cashflow.
Bret Keisling: 16:58 Which we argue is the way it should be done!
David Hincapie: 17:00 Right.
Bret Keisling: 17:01 It's breathtaking. That's wonderful it's being adopted.
David Hincapie: 17:04 They said to us, yeah, we're, we're happy to do it as an air ball. And we thought, okay, that's great. Now we just got to find some, some business owners who were interested in doing this, because now we have a lender who's willing to look at it and we've got to find a business owner. And then they have the lending program through the 7(a) that can be part of that transaction.
David Hincapie: 17:19 Okay. So you have the employee ownership centers find out who were the lenders who are willing to do it. You just call them up, say, are you interested in this? Do you have anybody who does it? Do you have an ESOP lending group, right? Big banks do, but maybe small regional banks do as well. Maybe that group has only one or two people, who knows? But until you call them and find out, you won't know what lenders are willing to do it.
David Hincapie: 17:47 So you get in touch with them. Then you have to find, you get in touch with a local SBDC. So who at the SBDC knows anything about this? If they don't know anything about this, teach them! There you go.
David Hincapie: 18:00 Now, the directors of the SBDC are going to know something about this, because they will have heard about the legislation saying the SBDC has got to do this. The business advisers working for those directors may not know about it, but the directors certainly know about it because it involves funding, right? So in a way here, we're appealing both to the self-interest and the institutional interests and just the social interest of the people involved. The SBDC advisors work in their communities. They're interested, they have a social interest in what happens in their community. The directors of the SBDCs have a financial and social interest as well, because there's funding for them to do this work because the law says that they're supposed to do this work.
David Hincapie: 18:45 So you get in touch with the SBDCs, see who at your local SBDC knows about employee ownership and who doesn't and whoever does it, you teach them and you offer to work with them in it. You get in touch with your local district office of the SBA. By the way, here's a little secret, we're a public agency. We're open. Which means every district office has its phone directory on the district office website.
Bret Keisling: 19:14 So you can find somebody!
David Hincapie: 19:17 You can find someone! You can find anyone from the district office director down to an administrative program, officer like an administrative assistant. We're all there. We're listed, our emails and our phone numbers, right? So you call the district office and you talk to a lender relations specialist or an economic development specialist. Those are the two probably you'll be dealing with and say, who there knows anything about employee ownership and, you know, the Main Street Employer Ownership Act and everything. You may well find their answer to do you know about the Main Street Employee Ownership Act is -- what? They've never heard of it. But maybe they have.
David Hincapie: 19:54 But the point is you begin the relationship, you begin talking to them and say, how can we work together to make this all happen? By the way I've been in touch with Jennifer over at the SBDC. Oh yeah. I know Jennifer! We just did a conference together. Okay, great. So now two of the institutions you're connected to.
David Hincapie: 20:11 Then you get all that together and you go to the economic, an economic development officer at your county. Which is the thing that Project Equity is doing right -- working with the cities or the counties. Hey, Mr. Economic Development Officer for the County of whatever, in whatever state -- you have this many small businesses. A lot of these are owned by baby boomers. What are they going to do when they retire? What are you going to about those jobs? Have you thought about this? Well, no, I haven't thought about it. Oh, well, that's interesting. Okay. Well, look as it happens, I know so-and-so over at the SBA district office. We've been in touch with Jennifer over at the SBDC and we have an idea for how to get in touch with business owners about this. Now you're at the county, which means you're probably, in economic development, you're probably in touch with a lot of business owners too. So let's all get together.
David Hincapie: 21:05 It seems to me that by bringing the institutions together, along with the advocates, all talking about the same thing at the same time, you can get some movement on this.
Bret Keisling: 21:21 What I think is brilliant about this, David, is first of all, it's networking 101 is what you're talking about. And, and it started to hone in, when you said, mentioned the SBDC to the SBA, and you're like, oh, I know Jennifer, you know, whatever name you use.
David Hincapie: 21:37 Yeah.
Bret Keisling: 21:37 To me, and you mentioned get the advocates involved, even if you're a practitioner and for those listening our good friend, Jenn Krieger is a valuation advisor down in Texas. She's on the podcast a lot, not to pick on Jenn, but for example, if she were to reach out and make contact as the SBA, no pending transaction at the moment, but just make contact, make contact with the SBDC. And by the way, Jenn is involved in the EOX new state center in Texas so that's actually a great imprimatur. Now, Jenn, when she's prospecting for transactions and every professional and what I call the emerging professionals who want to be like Jenn, now you're going to potential clients and saying, by the way, I've got somebody at the SBA, the SBDC, all of these different pieces together, tie the lenders, build your relationship. And now, as you're trying to sell a package or a transaction, all of our thinking has been, hey, valuation advisor, bring a team together, trustee, lawyer practitioners. Now what you're suggesting is not gather a team together, but have it be the, either the advocates or the agencies or the private public partnerships, like the SBDCs, bring those together. And by the way, if you are a selling shareholder where you talked about the vast majority of these contexts are treated as sales calls because they are!
David Hincapie: 23:05 Right.
Bret Keisling: 23:05 Well, now you're able to say, hey, I just want to talk about selling your business. And I'm going to introduce my, you know, my friends at the SBA, the SBDC, et cetera, et cetera. It's no longer just a sales call. You've evolved it!
David Hincapie: 23:19 Yeah. There's an SBDC advisor at at the SBDC here in in Leesburg, Virginia in Loudoun County, a guy named Eric, he is a really great guy. He's the director of the center there, like the manager of the center there. And that's how I imagine it working is Eric knows a lot of the, a lot of the people, a lot of the business owners. At some one of them, this may come up in conversation and Eric will say to them, well, you know, talk to David over at the district office about, you know, he's from the SBA. And then now he's going talk to me and I'm going to say to him, all right, I'm going to give them the rundown. This is what employee ownership is. This is how an ESOP works, basically. This is what's involved in the transaction, but if you're really interested in this, you should talk to one of the practitioners who's actually going to get involved.
David Hincapie: 24:05 So if I happen to know your friend from Texas, let's say she was in this area, or I happen to know Chris, that's an actual lawyer out in McLean, Virginia here who's an ESOP lawyer. Or I happen to...
Bret Keisling: 24:21 What's his last name, do you know?
David Hincapie: 24:21 McLean.
Bret Keisling: 24:22 Oh, Chris McLean...
David Hincapie: 24:22 Chris McLean, yeah.
Bret Keisling: 24:22 Sorry, I thought you said McLean.
David Hincapie: 24:25 No, he lives in McLean. It's pronounced McLean -- I learned this because I came I'm a newcomer to DC. So McLean, Virginia is pronounced McLean, but it's spelled McLean and Chris McLean, McLean goes by the pronunciation McLean, even though it's spelled the same anyway...
Bret Keisling: 24:41 And Chevy Chase, Maryland had nothing to do with Saturday Night Live!
David Hincapie: 24:43 No, nothing at all. [Laughter.].
Bret Keisling: 24:43 Sorry. [Laughter.]
David Hincapie: 24:43 So, so when I'm talking to this business owner, I, you know, the business owner heard about me from the SBDC advisor. He trusts me, I'm in the SBA, I'm not going to sell him something. I am going to tell him, listen, I know there's a lender because I told you I there's a lender in our district office who's willing to do one of these loans, air ball. Right. And so I say, look, this is a lender you might talk to, but maybe go to the, to the banker that you've been banking with for 20 years, go there first. But I do know another one. And also I happened to know an ESOP lawyer. I'm not recommending him. I'm not allowed to do that, I work for the SBA. I'm just saying, I know an ESOP lawyer. He's a good guy. He's not going to charge you anything to talk to him and go in and explain a little bit about ESOP s to you. Right. I also know a couple of ESOP advisers -- trustees, right? So if we all know each other, when that business owner is looking for information that's impartial, that doesn't feel like a sales call. If we all know each other, we can all help that person. And then accomplish the larger goal of helping them find a buyer for a business. So he doesn't liquidate and everybody loses their job,
Bret Keisling: 25:54 Which is the exact same result as if it were a sales call, but we have a much higher purpose. You have the good of the society on our... so it's a sales call. One of the things turning.. sticking serious because this actually is very important and I'm actually very excited about it. If I were a trustee, trying to build my business still back in the day, and I heard you talk on this podcast, I would be reaching out in either Pennsylvania where the trustee business was located or Colorado, where I spent much of the last year, I'd be building the relationships now as a trustee with, with anybody at the SBA that I could in the district office, anybody at the SDBCs, because this is -- and again for you emerging professionals, David, who's only been hyped on this for a couple of years, has been asked, then been able to say, well, I know this ESOP lawyer, it makes clear, you're not recommending anybody you can't, but we are all asked for that. And that's the networking. That's the boy. If I were an ESOP lawyer, if I were a valuation advisor, I'd want a legitimate relationship with a David Hincapie and your colleagues around the company, not on BS, don't do a sales call to you. Hey, have any questions, you know, I'm willing to charge a lot, blah, blah, blah, blah, blah. But the relationships, if you're looking to stand out and again, I'm talking to the ESOP professionals or the advocates, if you're looking to stand out in how you network, nobody has the relationships with the SBA, generally speaking or SBDCs. So what a powerful way to start building your network.
David Hincapie: 27:38 I'll give you an example of how professionals, even though they're for-profit, they're in the business for themselves, work with us. So this is a very normal thing. This happens across all 68 district offices. Earlier this year in February we're approaching tax season. And we, me and my colleague, had a "Taxes for Small Business Owners," right? New, small business owners, a little workshop. And we did it at a place called LEDC, Latino Economic Development Center. They're a CDFI and they're an SBA lender. They participate in the SBA community advantage loan program, it's a kind of SBA loan. And they're also an SBA micro lender, loans under $50,000.
David Hincapie: 28:28 So I forget whose idea it was. I don't know if they called me or I called them because one of my jobs as an economic development specialist is to get useful information out to business owners. And so we came up with the idea of having a workshop. Come round on this day at this time, we're going to do an hour and a half to two hours, depending on the number of questions that are on doing your taxes, small business loans, looking over your Schedule C. This is like really new small business owners, right? So this is what your Schedule C is profit and loss for business, blah, blah, blah, how to do all this.
David Hincapie: 29:09 Well, to get us to help that my colleague has a friend who has an accounting firm, he calls her up and he says, hey, can you, can you come over and do this for us? Sure. She comes over. So we're there talking about the SBA, me and my colleague, my colleague's old acquaintance, because he used to be a lender. He used to be a commercial banker before he was at the SBA. There's an old colleague, a colleague of his, she shows up, she does the bulk of the workshop.
David Hincapie: 29:38 So what's the a trustee or an ESOP lawyer or a lender from coming to the SBA and say, hey, how about we do a workshop on succession planning for small business owners. Great. Let's do it. Here's a little secret. That's part of my performance measurement as an EDS. My boss wants to know how much work am I doing in the community to bring this information out. So if somebody comes to me and says, let's do this workshop together, I have an idea for this and we talk about it and we think it's going to be useful and we think it's going to help people, well, we're going to do it. So you're appealing to my self-interest in my own job, but also it's my job to do it.
David Hincapie: 30:28 So what's to stop, like I said, the trustee -- or what's to stop, the ESOP lawyer what's to stop the lender who's interested in doing this or the valuation advisor who's interested in doing this, going to the SBA district office, talking to an economic development specialist or a lender relations specialist and saying, hey Michelle, you're a lender relation specialist. I know you're talking a lot to these, to these banks here and I know one of these banks is really interested in ESOP loans. Well guess what? I'm a valuation advisor. I specialize in valuations for ESOPs. Why don't we get to get together and do a workshop or something or put some information out or have a series of workshops, whatever. Just start talking!
Bret Keisling: 31:06 David, I am so energized with this part of the conversation because it checks off a couple of boxes. And what I'm going to say might get some in organized EO a little bit mad at me. Because it's the truth. It is very difficult. The reason I referred to emerging professionals as emerging professionals is they might be very talented at what they do, but it's tough to get speaking slots at ESOP conferences or any of them. If you can get a slot, chances are, you're not presenting with some of the national names. That sort of thing. Just breaking through is really, really difficult.
Bret Keisling: 31:45 Here, if I were a lawyer. If I were a valuation firm. If I were a trustee at a large trustee firm -- now we're talking about the number of clients. Imagine setting up a seminar, a webinar, some sort of program for your existing clients. And hey, I'm an ESOP lawyer. In this example, I'm going to bring in a valuation advisor to talk for a minute. I'm going to bring in a trustee to talk for a moment and I'm going to bring in somebody from the SBA who will talk about financing, not just for let's do a transaction, but to have that relationship available because now we're going back to, you also got the 504 loans for fixed assets.
David Hincapie: 32:34 Right.
Bret Keisling: 32:34 And if you have, you know, I'm focused on employee ownership, but if you're one of these firms that has, you know, multi disciplinary clients, boy, the emergency loans would be effective. In other words, having the SBA come, we're trying to build employee ownership, but you're doing, if you're that service provider, what a value add for your clients while tying in the SBA!
Bret Keisling: 32:58 Suddenly now let me take this a little bit further. And you're only in one district, so we're hoping to get all 68 districts involved, but your performance metric is improved because you're doing this. Meanwhile, if you have to explain to supervisors or your counterparts in other offices are explaining to their bosses, what employee ownership is because they're spending the time.
David Hincapie: 33:22 Right.
Bret Keisling: 33:23 We're building it up through the inside of the SBA, which is huge!
David Hincapie: 33:26 Right. Yeah. If I, if I were able to -- I think that the pandemic has scrambled things a little bit -- but let's say for instance, I were able to put on 10 workshops, really short ones, 90 minute workshops with 15 people attending, you know, let's say 15 business owners attending. If I did that in a year, my boss would love me. You know, my boss would be thinking like, wow, he's really getting this done.
David Hincapie: 33:50 And if that and that -- so that's 10 times 15, let's say that's 150. If you get three transactions out of that, 150, that's a success. Because you know, most of the people who look into it, the business is not a good candidate. We're going to find that their cashflow is not enough. Or they're not going to be happy with the fair market value price that they have to accept. They want the price that they would get from a strategic buyer, which we know they're not likely to ever get, but for whatever reason, maybe you only got three out of 150, but that's, that could be substantial. Because that could be three companies with 40 or 50 employees each. That's 150 jobs!
Bret Keisling: 34:28 It is the first of all, you are correct. The other thing that I'm very careful about with metrics like that is first of all, we, and long before I did the podcast, I did some webinars and that sort of thing outside of the conferences and I've just loved it. And for me, it really is -- let me talk employee ownership to the masses. I don't care where, you know, I'd speak to 10 people and just have fun. I got to tell you, and I don't want to jinx myself, but I would love post pandemic to set up a program that perhaps is you, Project Equity, Steve Storkan, and talk about, and come on the podcast, whether we do it as a webinar or just a standalone episode, but having that conversation and raising demand.
Bret Keisling: 35:14 So David, there are district offices and we've been going for a good bit so I want to work towards winding down and the winding down will be anything else you choose to cover. But let's just talk for just a moment. Obviously you're in the Washington district office. If somebody is in the district and you outline the counties involved, they by all means, should reach out to you. How they get in touch. If somebody is hearing this and they're in Texas or they're somewhere else, what paths should they follow to get in touch with somebody at the SBA? Or do they reach out to you and you direct them to the district office?
David Hincapie: 35:53 Well, every -- there's a district office, there's at least one district office in each of the states. Some states have exactly one office, right? Some states have a district office and then a kind of satellite. So Massachusetts for instance has a district office in Boston and then one in Springfield. California has six district offices. Texas, I think it's five or six. And then some of the smaller population states -- I think Missouri has exactly one office, for instance, even though they're not that small. One of the Dakotas for instance, has exactly one office. But every one of the states has a district office.
David Hincapie: 36:32 So if you're in a smaller population state, whether it's physically a large state or not, if you're in a smaller population state, just search for in Google, "the district office Nebraska," and then whatever's available to you will be there. Go to that district offices homepage because the homepage will be listed in the search results and there will be a little PDF with the office directory and it'll have everybody from the district office director to the lowest person in that hierarchy of that, of that district office -- phone numbers and email address. All you got to do is email them. All you got to do is phone is call them and tell them what you're interested in talking about.
Bret Keisling: 37:13 And as they do this, I don't know if it would make you happy, but it would make me happy if they start by saying, Hey, I heard David Hincapie on The ESOP podcast and I want to talk to you about employee ownership. A.) Doesn't hurt your metrics.
David Hincapie: 37:30 No.
Bret Keisling: 37:30 B.) Spreads the word a little bit about the podcast. But that is the entrée. And folks, if you're serious about building your business, and I'll be honest, when I sat down with this podcast, it was in my mind what we would really be talking about is increasing the interest from the business owner and creating the demand for loans. Now I'm just excited about what a great marketing, networking opportunity.
Bret Keisling: 37:57 So reach out, build the relationships. Please, if you're the State Center -- and you've already talked about Steve -- man, I'd be getting the SBA and the SBDCs onboard with the organization early on and have resources and that sort of thing.
Bret Keisling: 38:13 David we've run long probably a little bit longer than either of us have expected. You've been absolutely great. Let me open-ended cover any paths that you thought we should cover and we didn't get to
David Hincapie: 38:27 No, we covered everything. I just, I, but I just wanted to repeat the thing about the owners. It's finding these owners. That's big thing. I've mentioned them a couple of times because I admire so much the work that they're doing, Project Equity, you know, they're going straight to the government institutions who will have, who can have potentially very close connections to business owners, right? They're going to counties they're going to cities. You know, business licenses are held at counties or cities.
Bret Keisling: 38:57 Right.
David Hincapie: 38:58 So one of the ways they did their thing is they looked, they said, well, let's see which one of these business -- and I actually spoke to the, one of the guys doing their research on the first one with Long Beach. I said, how did -- what's the mechanics? What did you do? He said, well, we went to the city and we said, let's look at all the business licenses.
David Hincapie: 39:15 How many of these business licenses are over 20 years old? Okay. Let's find out. Are these the original owners? Let's find out. So we now have this data set of potentially 200 business owners that we know have been in business for more than 20 years. And this is the original owner. Let's go talk to them.
David Hincapie: 39:32 So -- the owners, that's the thing that I want to repeat, find these business owners somehow and let them know here's an option. Because what we do know is most of them never find a buyer. Most of them don't go to a second generation. The kids don't want to do it or nephews or nieces. So they liquidate. Jobs are lost. And these owners who worked very hard for 20, 25 years, don't get anything for this business.
Bret Keisling: 40:05 And they don't get the money. Their legacy is ended. They don't have a company that lives on long after they do. And got to tell you, I've been to a lot of employee owned companies where the founder might have died some years ago, but their picture is still in the lobby because you know, they founded the employee owned company.
David Hincapie: 40:23 And the last thing I wanted to bring this up earlier, and I'll just mention this. So what happens when a really good business that could have been an employee owned business doesn't become one. Have you heard of the Brokaw Act?
Bret Keisling: 40:35 No.
David Hincapie: 40:35 So the Brokaw Act was something introduced, this was over four years ago, it got nowhere. US Senators Tammy Baldwin and Jeff Merkley introduced legislation to strengthen oversight of hedge funds that go around buying businesses because of what happened in the town of Brokaw. The Wausau Paper Company was bought up and then broken up into pieces. The hedge company made a lot of money. All those people lost their jobs. It created a ghost town. Literally a ghost town. So much so that the town of Brokaw dissolved and was annexed by a town, I don't know, down the interstate.
Bret Keisling: 41:29 Wow.
David Hincapie: 41:29 This was in Wisconsin. So what would have stopped that? Maybe the owners of Wausau Paper Company sell to the employees as an ESOP and a hundred year old company gets preserved and those people get to keep their jobs.
Bret Keisling: 41:49 And their town!
David Hincapie: 41:50 And their -- and in this case, their town! The town disappeared. It does not exist anymore. It's been dissolved. That's not going to happen everywhere. I'm saying that's an extreme case of the worst thing that could possibly happen if you can not find a buyer for the business who will keep the business open in that town. That's why I think this is really important work.
Bret Keisling: 42:16 David, thank you so much for your time this afternoon, but that doesn't scratch the surface. You are such a bright and talented and passionate guy, and I am so grateful that you started your job at the SBA when they were too busy to give you formal instruction and you happened to upon employee ownership. There are a lot of people in employee ownership rooting for you and the SBA to do well. There are a lot of people who are doing exactly what you're doing and what, another thing that just blows my mind is you summing up everything you're trying to say is where are the owners is exactly what so many of us have been trying to do. You know, me as a trustee, all of the advocates now, who am I talking to? It's all chasing the owners.
Bret Keisling: 43:07 So we are all in this together. I do want to just reiterate, there are great programs available at the SBA. They are not one size fit all. They may not fit into what you're trying to do and that's okay. But if you're somewhere in the range where 5 million helps the SBA is a great resource. And as David went through, we've got to build the relationships between the local communities, the lenders, the SBA, and that's going to lead to more transactions.
Bret Keisling: 43:39 David, thank you so much for joining me today.
David Hincapie: 43:41 You're welcome. Happy to do it.
Bret Keisling: 43:42 We'll have you on again.
David Hincapie: 43:44 All right. Bye bye.
Bret Keisling: 43:46 With that, we'll bring today's episode to a close. I'd like to give a special thanks to previous podcast guest Rodney North, who not only suggested David as a guest, but was kind enough to make the introduction as well. Rodney's a great co-op specialist and a great resource to know if you're in that space.
Bret Keisling: 44:05 If you like what we're doing and want to support our work, it's really simple and it won't cost you a penny. Please subscribe to the podcast and like the podcast wherever you get your episodes. And if you're kind enough to repost or retweet about our podcast episodes, we'd be really grateful. Finally, if there's content you'd like to hear or a guest, we should feature, please let us know we're on the lookout for great episode ideas.
Bret Keisling: 44:33 We're going through a lot in our country together right now, and in the best spirit of employee ownership, that's how we'll get through it, together. Thank you so much for listening. This is Bret Keisling have a great day.
Bitsy McCann: 44:50 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email Bret@KEISOP.com, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling, and I'm Bitsy McCann.
Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.
A note on the transcript: This transcript was produced by Temi, an automated transcription service. While it has been reviewed by The ESOP Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.