Maureen Conway, Executive Director of the Aspen Institute Economic Opportunities Program, recently sat down with two Shared Success grantees that are integrating job quality into their portfolios as investors: Viola Mai, Development Director at ICA Fund, and Robert Anderson, Business Navigation Director at Colorado Enterprise Fund. As investors, ICA and Colorado Enterprise Fund have both incorporated job quality assessments as part of their lending and investment process. This conversation explores the various tools capital allocators possess to help and incentivize small businesses to create quality jobs for their employees. This interview has been edited for length and clarity. Listen to the full podcast interview here.
Maureen Conway: Viola and Robert, thank you for speaking with me today about small business and job quality from your particular vantage point of investing in and lending to small businesses. Why do you think lenders and investors should care about job quality in the companies they invest in? Viola Mai: Every investor is thinking about the success of the investment. And when you are thinking about making an investment in a project, specifically a small business, what does that look like? You don’t want roadblocks. Having quality, well-paying jobs helps the project succeed in the long run, so the business succeeds in the long run. For us at ICA Fund, that means the business is growing, we’re creating more jobs in the community, and we’re getting repaid. Robert Anderson: For us at Colorado Enterprise Fund, we serve the entire state and, similarly, the success of the business is paramount because we have a mission to help businesses succeed, and we want to get paid back. It turns out that when businesses pay their employees a living wage and give them benefits, the business is stronger. We’ve learned how to help our customers see quality jobs as an investment in their people, not just a cost.I think that many people have viewed payroll as an expense that you’re trying to manage, especially with smaller businesses, thinking that they can’t afford to provide quality jobs. How do you respond to other lenders and capital advisors who may not think you should encourage people to invest in this way because maybe they won’t pay you back?RA: Working with loan officers at Colorado Enterprise Fund, this topic comes up. I’ve been proselytizing them whenever I can on this topic. In business school, they teach that people’s costs are costs like rent, and the idea is to negotiate and minimize the costs. But that is absolutely the wrong way to look at investing in people.VM: To get a little bit theoretical for a minute, I really think that cost-benefit analysis is still a model to try and fit the real world into some easy buckets. When we’re thinking about costs, that’s just a way for us to fit a lot of different variables into an easy model, but the cost of wages is not also considering the additional benefit of that household having higher wages, which means that household has more income they will spend into the local economy, creating a virtuous cycle. We don’t capture that when we’re just looking at cost-benefit analysis. So I think it really is important for—not just capital providers—all of us trying to work on our local economies and society to think about the other additional impacts and benefits that are tied to this cost, because it’s not just this one time cost, there are also all these other unspoken benefits that come with providing employees health insurance, childcare, or a living wage. I encourage folks to think about what all the other outsized benefits are that aren’t getting captured by the simple line on the accounting ledger, “salary.”I love that you both talk about how this is a benefit to your regional economy as well as a stabilizer for the business. I’m wondering if you have an example of a particular business that you’ve worked with that has invested in and retained their workers and has built this virtuous cycle we’re talking about.RA: In northern Colorado, there is a company called Top-Notch Plumbing. When I first met the owner, he said, “Well, when I start adding employees, I wanted to treat them far better than I was ever treated.” He very quickly understood that paying a living wage and benefits when he was able to grow into providing them was the first step. He has to run the business to take advantage of having good people on staff so that he doesn’t have to make all the decisions. He can push those decisions down to the staff, and they can make decisions to save costs. He understood that already, but our program just helped him see it more deeply. VM: For us at ICA Fund, we’re a CDFI, but we also operate a really intensive business accelerator program, which is how we provide the technical assistance to get companies ready to take on equity investment. With the spectrum of the clients that we work with, the vast majority of companies aren’t ready yet to have a health benefits plan and a retirement plan. We try to get those entrepreneurs to see the benefit of it. One entrepreneur who went through our accelerator was just not interested in the job quality conversation at all. He operates a gluten-free baking company. Months after doing the programming, he realized the important connection with job quality and retention, which could help employees become thought collaborators and strategists. We are trying to incubate more of that thinking. Our hope is that as these companies grow, they’ll think about the lasting legacy that they’re creating.Can you share more about the dimensions of job quality that you evaluate and the tools you use to assess progress? VM: Since ICA was started in 1996, we’ve helped small businesses go from focusing on making payroll and having enough inventory to thinking about how to scale or franchise and create a lasting legacy. Over the years, we’ve built two tools. One is called the GEM, the Good Employer Matrix, which is a scorecard to help companies see where they are on the spectrum of offering a quality job and what steps they could take to move along that path. Within that, we have two primary categories: health and wealth. Are you offering health insurance plans? What are you paying, and how does that compare to minimum wage or a living wage? Do you have retirement savings plans? The second category is equity ownership. As a venture capital institution, we really value equity ownership, meaning how the business owner is passing on profits to their employees. Do they have a profit-sharing plan? Do they have employee ownership or a path to passing on ownership using a different model? Lastly, we think a lot about company culture. We don’t mandate that you have diverse management, but we ask if your management team is representative of your community. If you are serving a primarily Latino community, how many of the folks making decisions in your organization are Latino? Is there commensurate representation? That is the GEM. We also have the ICA Impact Note, which is a tool for investing that incorporates those three categories into the vehicle, the investment note. If the company meets some of those metrics, we pay back equity ownership as a way to incentivize investors and align their incentives with small business owners to make sure that we’re all contributing to quality job creation. RA: The definition of small business covers a big spectrum. The customers that we’ve worked with are earlier in their trajectory, so their concerns are different. They are often so-called “mom and pops;” maybe they’re hiring their first or second employee. We have a quality jobs assessment similar to what Viola shared. The participant sits one-on-one with a member of our Business Navigators team to evaluate pay, benefits, work schedule, and inclusion in decision-making. Many participants realize, working with their navigator, that they have not accomplished much toward the ideal of providing high-quality jobs. We encourage them to make some decisions to change, and we help them set their goals for the upcoming year.We are using the funds that came through our grant with the Aspen Institute to provide modest incentives, such as $2,000 or $3,000 as a carrot to make changes. As soon as businesses start making changes toward their quality jobs goals, they tend to be able to fund more because of the operational excellence that they’re engaging in.VM: That’s so important to recognize that everyone is starting from a different place. When ICA Fund evaluates companies, we don’t tell them they have to achieve an arbitrary goal by an arbitrary time. We know that’s not realistic if the economy keeps changing and small business owners are under more pressure than ever. We need to give grace and help people make steps that make sense at that time.We have used our grant from the Aspen Institute to help entrepreneurs evaluate costs for retirement savings plans and professional development plans. A company called BOLD Property Restoration realized there’s so much potential to make a higher-quality job if they offered more tailored professional development, specifically with workplace safety. However, they really didn’t have the cash on hand to implement that kind of plan, but we were able to give them startup funding of $10,000 to help them build that curriculum. Now, they’re helping upskill their employees, who then contribute to safer workplaces in construction, which is a high-risk job. It would have taken them a year or more to find that extra income to fund that program, but with our funds, they were able to start upskilling their employees earlier.What advice would you give to other organizations that want to try to build this kind of work into their lending or investing?VM: CDFIs were created to fill a certain gap, to help our local economies grow and thrive. All of our programming was created because we listen to our clients and respond to what they’re asking for. Start by listening to what your local constituents are asking for.RA: I agree. There’s a recognition that in the United States, we have a shrinking middle class, and there’s a reason. People who go to business school and run larger businesses are taught to treat all costs as something to manage and minimize, including personnel costs. And then, small business owners are influenced by the opinions of bigger business leaders. I believe it’s so important for other lenders to understand that when you’re working with their customers, they have an opportunity to change our economy. I believe a strong economy depends on a strong middle class, and a strong middle class depends on people who work for a living wage and can help the leaders of that business have better products and better services.When the right investment is made, and business leaders see the vision of investing in people to strengthen their business, it can create a virtuous cycle. Agreed. Thank you both so much for the work that you do in your communities. The Shared Success Demonstration is managed by the Aspen Institute’s Economic Opportunities Program and supported by a four-year investment from the Gates Foundation. See as.pn/sharedsuccess to learn more. Views expressed here are based on the implementation, experience, and findings of the Shared Success demonstration, and do not necessarily reflect positions or policies of the foundation.
About Shared SuccessShared Success
, a project of the Economic Opportunities Program, works with community lenders to integrate job quality programming into their small business support services, demonstrating that improved job quality can support the needs of employees while helping small businesses succeed.
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