A Co-op Grows in Massachusetts

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Imagine Bernie Sanders owning a music store. The chances of that are fairly remote, especially since he’ll likely be busy with other responsibilities until November 2020. But the next closest thing might be the Downtown Sounds Workers Co-op, a consortium of six employees of the 43-year-old Downtown Sounds music shop in Northampton, Massachusetts that this year bought out retiring founder and owner Joe Blumenthal.

While the name of the new ownership entity might elicit a squeal of delight from Alexandria Ocasio-Cortez, there is still plenty of capitalism to go around on this deal. The six new owners, who have all worked at the store for different lengths of time and who range in age from low 30s to mid 50s, each bought into the agreement with Blumenthal, making them in part personally and in part collectively responsible for a share of the total cost (which was not divulged). But the bulk of the capital is coming through a locally targeted shareholder investment program whose minimum buy-in is $2,500 and which pays shareholders a three-percent dividend.

While that rate is better than you can get at a bank these days, no one is going to get rich off of it, either. But that’s not the point, emphasizes Dana Wilde, one of the six new owners and the one woman of the purposely and officially leaderless group. “This is really about how the store has always been part of the community here,” she told MMR. “[The shareholder approach] is structured in such a way to keep the store at the center of the community here, to make the community part of the store. There’s no other way that employees of a music store could even think about affording to buy the  business themselves.”

The Downtown Sounds Workers Co-op hit its first benchmark over the summer, signaling $90,000 invested by community members, who are joining the six new owners in making an investment that’s as emotional as it is financial, if not more so.

They are the childless Blumenthal’s metaphorical offspring: “In a way, the closest thing I have to kids is the people who’ve been working for me for a long time,” Blumenthal told the local newspaper covering the transaction.

While the community invests in the store, the store will be investing in itself as that first tranche of cash leaves escrow. Wilde says they will increase their commitment to education, upping the number of teaching spaces to 10 from seven, for the 20-plus freelance music teachers who work out of the store. In addition, they plan to extend their education services deeper into the community: they’ll market directly to music directors of school band departments as they ramp up a new band-instruments department, and to families with a first-lesson- free program to develop interest.

Other changes will be less apparent, but just as critical. As a sole proprietor, Blumenthal, like many if not most like him, had has own way of doing things, from tracking inventory to keeping the books. The new co-op is refreshing those tasks, mainly with software, and they’ve shaken some of the 1980s cobwebs off of the store’s layout. “There’s a lot we can improve on, and that’s what we’re doing,” says Wilde.

There’s a giddy sense of a 1940s Mickey Rooney-Judy Garland musical here: a bunch of kids doing whatever it takes to put on the show. They’ll need that esprit de corps to be successful, as retail in general remains a challenged market sector and the employee co-op model has little data – there are a few over 300 in the U.S., versus the far more popular employee stock-option model – on which to base expectations. On the other hand, they’re in a good time and place to do what they’re doing. Massachusetts has recognized that sole owners of small businesses are aging as part of the Boomer cohort and many of them look to large corporations or equity firms for buyouts, which may lay off local workers or even shutter a shop, when children don’t want to take on the parents’ business.

To avoid the loss of small businesses, the state hired two nonprofits with expertise in shifting to cooperative ownership models to revive its Office for Employee Involvement and Ownership (EIO) program. And senators including Massachusetts’ Elizabeth Warren and Kirsten Gillibrand from New York have both advanced policies to encourage loans for businesses converting to employee-ownership models.

But mostly they’re such an enthusiastic bunch that you just want them to succeed. The initial shareholder proposal was catered at a local art gallery – with live music, of course –that seems to have charmed their core audience. They may just be good enough to make it another 43 years.