A venture-backed startup has quietly bought more than 80 mom-and-pop shops
techcrunch.com
techcrunch.com
Perhaps Teamshares is good at identifying acquisitions with sufficient margins to permanently afford Teamshares services, but if I was an employee at a company being bought I'd be concerned that after the owners retired with their cut and after Teamshares kept extracting their fees, I'd be left holding the bag, ie, a non-growing company slowly dying.
> Due to our specific needs, we are often forced to pass on good businesses.
And they want companies with:
> at least two managers or supervisors supporting the owner in bookkeeping, dispatch, sales, or project management
And:
> Our structure requires the inclusion of certain expense items (like presidents, finance leads, and/or general managers) that other buyers may not have to factor in. This means sometimes our price comes in lower than an individual buyer who benefits from that salary.
>> at least two managers or supervisors supporting the owner in bookkeeping, dispatch, sales, or project management
That sounds like a bigger business than “mom and pop” to be honest.
Somewhat related, I feel like probably every city in the U.S. has a family or two that have seemingly sewn up the new-car dealership businesses in their respective communities.
Genuinely, why is this unfortunate? It sounds like the workers in the business are getting to keep the value they create, and were more likely to be committed to the business as a result.
gestures broadly at every company large enough to hire MBAs
That ultimately means that the business itself isn't worth anything, so when the owners decide they don't want to manage it anymore, it'll likely just have to fold.
Genuinely.
It seems like the people doing the labor keeping the profits is a good outcome?
Also, the owners presumably took a significant financial risk in starting the business, which hasn't paid off. It really baffles me when people think that employees, who aren't taking out personally-guaranteed SBA loans and risking losing it all in order to start a business, deserve all of the profit from the business. They deserve to be paid a fair wage, but people who actually take the risk to create something deserve to capture the upside.
"Unfortunately, my friend ate his entire birthday cake." It's not unfortunate that my friend ate the cake (though it probably actually is, that's not why it's used there). It's unfortunate that I don't get to have any of his cake.
If all you have is a business that supports a good wage for 1-2 overworked owners, that's worth something not materially different from $0.
If you are happy to walk away and hand the "business they work at" for free to someone, flame on. Thing is, unless that is family, who would you give it to and why?
If the business's only value is that it can provide full-time employment to someone, then it has worked out as a job but not as an investment.
There's no one right way to do it. You could instead pay yourself a salary, invest the money in other stuff (maybe through IRAs or individual 401k), and just shut down the business when you retire. And for your kids, send them to college and let them find their own careers.
It really depends on why you got into business in the first place. Maybe you just like working that way better. Or maybe you're good enough at it that you think you can get better returns by investing in your own business than you can by buying a stock market index fund.
What? Of course it can be sold. To someone else who wants to run a mom-and-pop operation.
> might as well just go get a job for someone else.
Or be your own boss?
> That ultimately means that the business itself isn't worth anything
Are you serious?
> so when the owners decide they don't want to manage it anymore, it'll likely just have to fold.
Or they sell it to another person who wants to run the business?
You act like the only option is as passive investment.
It's a small market of people who are just rich enough to buy that business, don't have another job already and don't mind working that business. And that market is already filled pretty well by franchises. It's not impossible to sell the business obviously but if they were only making eg. 100k a year there is really no market for buyers for that because if you need to take out a big loan to buy it you might make nothing and if you can afford it you have better options. It's more common in these cases from my anecdotal experience, especially for something like a restaurant, that whoever buys it will restart the business completely with a new sign, menu, ect. after the last one shuts down. This is especially true in big cities where the owners usually lease the shop. What do they really have? Why would I buy a sign and menu from them for x hundred thousand dollars if I have another option?
If times are tough, then the owners probably take a smaller salary for their labor, or the workers can decide how to cut costs together through salaries, benefits, reducing costs of manufacturing, or whatever.
Typically they are only interested in injecting money for growth.
If there is insufficient profit to satisfy their cost of capital expectations they sell off or fire until it does.
Our growth model doesn't support resilient businesses only gambling at phenomenal amounts.
Maybe they’ve identified that employees in small business will overpay for stock in the company they work at. Then this is just a financial move to own that stock and sell it overvalued to employees?
Same here. You buy a small business, improve it by adapting your solution, and sell it back at higher price.
Of course, the "improve"-ment part better be real, but it sounds like a win-win business model if properly conducted.
Its not a fintech business model.
This is more like a McDonalds franchise model where they are extracting value by forcing stores to buy amounts all mannner of services from Food to Ordering Automation along with paying a percentage of gross sales back to Corporate.
Except in this case TeamShares won't even provide for good marketing support or branding to drive traffic.
[0]: https://www.amazon.com/Buy-Then-Build-Acquisition-Entreprene...
"we sell our stock back over time to the companies until it becomes 80% employee owned"
If the fintech company has a controlling interest in the business (more than 50% of the share ownership), what's to stop them?
Entire model is about buying dental practices with cash, profit share with the dentists and then do all back-office work with economy of scale.
Pocket any efficiency gains and reinvest in more dentists, rinse and repeat.
I think this model might be a huge opportunity in Mexico.
So multiply all of those prices by >2.5x to account for the inflation of costs.
"And so we recruit people from some really great companies — McKinsey, USAA, Tesla and Amazon — and train them to run these small businesses."
I look at it like how every politician either elected or appointed seems to have gone to one of 10 well known universities -you know Harvard, Yale, Stanford..etc. It's not about what they know or what they want to do as much as the fact that they are all in the same club. I've always said that being a CEO is just a game of playing follow the leader -one CEO cuts their 401K, they all cut their 401K, one CEO switches to "unlimited vacation" they all switch to "unlimited vacation". It's not a surprise that these companies all act the same, all the leaders all went to the same schools with professions that went to the same schools. They've all bee taught to think alike, they aren't disruptive-it's just group think.
When was the last time you heard of a CEO that went to community college and some shitty state school -even if they founded the company they are quickly replaced by a person more suited to be the CEO- someone for a Ivy school/FAANG once they IPO.
It being a negative depends on which end of the table you sit. I agree it's telling on the kind of leadership they expect, given the reputation of the environments and people who work at those organizations.
Prob buying at 1x revenue and selling stock to investors at 100x revenue
In a way, it's a lot like a franchise model.
I wonder how practically useful all of this data collection is going to be, and whether doing it will be accurate and result in insight.
Learning about small niches where modest profit can be made (which is where many small businesses tend to fit, IMO) is not the typical/theoretical "scale to the heavens" startup plan, but if just getting ideas is the goal... good luck?
Of course business owners who are selling to them are happy because they can buy their business back for less when TeamShares goes tits up. TeamShares is probably going to find this scheme will only work if the businesses being acquired are very homogeneous. Trying to scale something which inherently cannot or should not scale is kinda silly.
Archive link because clickbait can die in a fire.
This basically seems like a search fund run at scale. Its actually a cool concept that I suspect is quite profitable. From the article though I don't really know if there is a tech component. It's more like a pure-play private equity company, e.g. finance. That said, there are a lot of interesting opportunities here and probably limited competition.
Isn’t this essentially a reworked trust?
And that's the rub - it'd be more profitable to thr mothership if the fintech expenses were not negligible over 20 years.
Sort of, but they'll be pulling money from a joint wallet that's 80% owned by other people. I expect even if the workers gain majority ownership, they will have no control - so the fintech service contracts will likely outlive the businesses.
Is this accurate? Those percentages just -feel- way too high at first glance. Is it counting every gig worker and etsy seller as an independent small business or some other trickery, or were my assumptions just that far off?
Not really, no. Large corporations have lots of employees per corporation, but there just aren't that many of them, so the total number of jobs they represent is still a minority of all jobs, and the fraction of firms they represent will indeed be tiny.
https://www.shopify.com/blog/what-is-considered-a-small-busi...
Businesses shouldn’t be immortal so it’s fine. People should celebrate closing as most owners are indifferent.
If they're diluting themselves to 20% in order to incentive worker-owners, do they lose control? If so, they have no leverage to force the business to buy their fintech products. Theyll have to compete for those customers with other fintech firms. On the other hand if they keep control, then it's just extracting the earnings to the holding company with extra steps.
Is that a business strategy now? Take some socialist idea and repackage it as a for profit one?
It's probably been a business play for a long time and I just never realized it
As it's set up currently it reads more or less like a tribute system, which is pretty trashy - it draws a line in the sand where they're effectively minimizing risk to themselves and slowly foisting responsibility onto others in exchange for a quasipermanent deal. I'm curious as to how the "ownership" works, as well, I'm sure there are caveats written in that secure the stake of Teamshares.
> The plan instead is to generate revenue from a growing array of fintech products that it sells to the businesses it buys.
If these products were any good, couldn't they make money with them on the open market? The only thing that owning gives you is the ability to force them to buy from the company store, so to speak.
This isn't tech. This is pure capitalist financial engineering: extracting money from people who actually do real work for real paying customers.
Honestly, this feels like one of the better/more practical uses of venture capital that I've seen in a while.
Just because you can't imagine a way it could be good doesn't mean they're evil.
It seems the core problem at hand attempting to be solved is baby boomer small business owners retiring and having no one to buy their business (or pass down to who actually wants to run it)...
That seems like a worthy problem to tackle. Definitely will keep an eye on this company over the years to see if the model pans out or not.
Instead of saving on labor costs by pretending your employees are contractors like Uber and friends, they go in the opposite direction. You're not a contractor, or even an employee, but an owner.
Just imagine how big your milkshake will be once you all own 80% of the business! Admittedly, a business where this company has slurped out most of the value and saddled you with various software license fees or whatever in perpetuity. But a business nonetheless.
And now when the business goes belly up and these owners are destitute, the HN logic applies-- hey man, most businesses fail. So why not just learn some python and code up some nice fintech that extracts value from other rubes?
I haven't really seen this here. Is there any need to perpetuate such silly stereotypes?
On HN we're used to FOSS devs acting quickly when, say, a proposed or implemented license change turns project X into project X'. Upon reading the diff, they'll fork from X and continue on with a new org, and X' dies on the vine. We've seen it recently on HN.
Employees of a mom and pops have specialized skills either in the frontend or backend of the business but typically only a basic idea of the fundamental business model. If they were to become owners in X it would take them at least a year and probably longer to learn the ins and out. E.g., how a change to even a few vendors can have a large effect on the bottom line. If they think they are getting X but instead get X', they won't know for awhile. In fact, if were talking about succession then the owner may be gone and they'll never know.
Perhaps I'm being cynical and fintech really is here to help the little guy. But something tells me that's unlikely.
If you're a restaurant or retailer that needs your staff to work 14 hour days 7 days a week, giving ownership is a fairly common scheme to CYA against future lawsuits. The ownership shares are usually miserly and forced-transferrable upon leaving.
Not saying that's what's happening here, but it could be.
If someone wants to work 14 hour days 7 days a week so that their shares are worth more, that is their choice.
The important cog in this wheel is the one you haven't touched on, namely, that president Teamshares installs - wish they'd explain more about that. Teamshares' investors aren't stupid. They know very well the risk on their money if the company comes in like a bull in a china shop, quickly destroying the businesses it buys. There aren't going to be consolidation options and economies of scale like you see with medical practices - each of these mom 'n pop shops are somewhat special snowflakes.
I’m cynical because Buffet’s goal was very clear - he needs to generate cash flow forever to make more money. A venture capital entity has a different vision of success, which I can’t see being aligned with the “owners” of these companies.
If team shares can be a good partner to complement the strengths of the small business owners, they can increase the profitability significantly. By leaving the community element in place, theoretically it could be the best of both worlds.
Also: "Lots of small mom and pop places pay exorbitant amounts for things like credit card processing, cash management and banking, tech, inventory management, etc." is totally unsubstantiated. Like they're too stupid to know what they're doing?
We'll have no trouble at all finding stories of old businesses that changed ownership to a soulless group of MBA's, the customers heard about it, complained that it wasn't the same anymore, and quit coming. I doubt you can find many stories going the other direction.
(Emmet Shear’s 5 viral growth methods: https://twitter.com/eshear/status/1402449655208632321)
Are they necessarily forced into it for perpetuity? Once they transition to 80% employee ownership (or 51%), don't the employee-owners decide whether to continue? Unless there's some kind of non-voting ownership stake or contract that never expires or something.
Plus, 20 years is the timeline to transition to employee ownership. So for the first 10 years, if the acquired business pays software license fees, the parent company is mostly paying itself, which isn't revenue. More importantly, that means whatever tech stuff they supply to the acquired companies needs to actually pull its weight.
It seems more likely they just want to keep proven businesses going so they can tap into that established revenue year after year. Giving ownership to the employees probably helps with retention and continuity so that the company doesn't fail after being sold. The corner pizza shop's customers still see familiar faces, the plumbing company's customers still recommend them to neighbors, etc. People don't say, "It used to be good, but it's not the same since it was bought." The point of handing over 80% is keeping the goose healthy to keep laying golden eggs.
Yes, being a supplier to these companies you own 20% of is some nice gravy. But you also want the revenue (and expansion), so you really can't bleed them dry.
didn't I see an episode of The Sopranos where this was the plot, albeit in mafia dress.
And headlines using “This company” rather than naming the company are clickbait.
Funny that TechCrunch wants to cast aspersions using cheap devices like that.
That’s why it’s bad faith. It’s a cheap shot that purely injects a negative feeling without actually expressing an opinion.
“Teamshares buys mom and pops to lock them in as customers” or “Teamshares screws small businesses to make a buck” would be honest, good faith headlines. Innuendo is never good faith.
But it is possible (just possible) that there's something else going on here.
It's possible that the founders genuinely are dedicated to increasing the prevalence of employee owned and governed businesses. And that they've found social impact investors aligned with that mission. In that world, they aren't looking for astronomical returns, just modest returns and enough revenue to keep going.
If you assume that's what is happening here then a lot of these decisions make sense and don't look so ominous.
Employee owned businesses often struggle to get financing and insurance from traditional banks and insurers. Because those companies don't know what to make of them. So creating financing and insurance products allows Teamshares to provide those services to businesses that would otherwise struggle to get them. (And if they're doing that - why not offer them to others as well?) The gradual increase in ownership is how employee buyouts often go. And retaining the 20% ownership stake also makes sense - it's a pay it forward thing, allowing Teamshares to continue to help businesses make the transition to employee owned.
If you assume it's on the level - that the founders and investors are genuinely interested in helping owners sell their small businesses to their employees when they retire - and that they're genuinely dedicated to increasing the prevalence of employee ownership - then this is _brilliant_ and _incredible_ and to be lauded.
It is also possible the whole thing is a scheme to screw the employees and extract a ton of wealth from them for venture capital. Only time will tell.
Personally, I'm going to choose to be optimistic and hopeful for the moment.