California Solar: Lars’s Story
This is a blind ballot, so please be completely honest, either way this decision affects us all. Pleases take this home and discuss it with your family.
Typed at the top of a simple questionnaire, this is how one weekend in January 2016 began for the 17 employees at California Solar Electric Company. The company was founded at the turn of this century in Grass Valley, a historic gold mining town in the western foothills of the Sierra Nevada Mountains in California. In 2003, Lars Ortegren came on as their second employee. By 2008, the time the Great Recession hit, the company was riddled with an alarming amount of debt. Seeking a quick exit, the founder offered the business to Ortegren who agreed to take over by paying off the money the company owed.
Ortegren, a former regional delegate for the Industrial Workers of the World union, is a self-described reluctant entrepreneur. Taking the leap from employee to becoming owner of a solar installation company was terrifying. Simultaneously, Ortegren felt it could be the opportunity of a lifetime. California Solar had grown to 8 employees and despite the economic downturn, it was an exciting time to be in solar. The governmental incentives, financing options paired with the dropping price of solar and emerging technology rivaled the cost of energy provided by local electric provider, Pacific Gas & Electric. Ortegren saw the opportunity to build on his passion as an environmental activist and bring awareness of the benefits of solar to the mainstream, provided he could pull the company out of debt.
Even at that early stage, Ortegren was interested in a more equitable distribution of profits than had previously been practiced. He had discussed the option of worker ownership with the employees and they had made some headway in that direction. By 2015, California Solar had doubled in size and were rapidly increasing their workload. That fall, Ortegren met with Alison Lingane and Hilary Abell, co-founders of Project Equity. He felt that with their help and his team, the dream of turning the company into a cooperative could become a reality.
“We realized that we were reaching the point where we needed to involve CPAs and attorneys,” Ortegren offered. “There was a substantial amount of expense we were about to get into. We wanted to gauge how supportive the staff was in the process to convert.”
In January of 2016, all employees of the company including Lars, plus some significant others and family members, attended an intensive full-day cooperative workshop hosted by Project Equity. They explored in-depth the liabilities and benefits of becoming worker-owned, the coop governance structure, key elements of the bylaws, coop financing and buy-in and the current financial status of the company.
The employees were sent home with a simple ballot with instructions to go over it with their families and come back on Monday with their answers. The first question gauged their interest in converting the company into a worker cooperative and their desire to become an owner. It was followed up by measuring their willingness to participate in committees before and after the conversion. Ultimately 15 of the 17 employees gave their commitment, said they wanted to be owners, and were willing to put their own time into a committee to form the cooperative.
In June 2016 we discussed the transition with Ortegren:
Why did you choose to offer your employees ownership?
Ultimately, the cooperative philosophy is why I took over the business. I strongly believe that if everyone is working on building a business and putting energy into the company it should be partially theirs. We do our work in the community and we are building our image. Everyone getting the benefits of ownership feels right to me. The more practical piece is retaining good people; because they own it, they will stick around longer. The majority of our staff is under 30 and paired with the difficulty of installation work, this industry can have a high employee turnover.
Trying to run a successful and dynamic business is just too much for just one brain. You can’t think of all the different pieces that need to be put together as you move forward especially when you’re talking about the long-term vision. When you have the collective brain giving input, you’re going to be a stronger and better business. The parts of ownership that are burdensome, when shared among all the shoulders will be a more reasonable weight. Ideally, the business will have a more natural workflow for us, as humans, so we can have more time off, more time with our families and more time to play.
This is an exciting time for your company and for the future owners. What do you see as the biggest challenge moving forward?
Time. Our company is at a time of rapid expansion right now. We are doubling our work every 6 months. It is really hard to find the time to put the energy to wrap all those pieces up. All the decisions are group decisions and we need everyone’s input for the transition. That being said, we are hoping to wrap up the ownership conversion by the end of 2016.
The cooperative structure requires a standard financial buy-in for employees to become member-owners with 1 vote per member. All stakeholders settle on a fair amount and while it can go towards the purchase price of the company, it doesn’t have to. Often the buy-in is financed through paycheck deductions for future owners who are not able to afford the entire amount upfront. We asked Ortegren how they plan to finance this transition and if they had settled on a buy-in amount.
We’re still working this piece out and haven’t fully settled on the amount. Because I’m not looking to leave the company, probably the biggest chunk will be owner-financed, and we plan to be really creative about it. At our next meeting we will look at the buyout proposal and get everyone’s input. It is unclear whether the buy-in for member-owners will have anything to do with the purchase price of the business. Somewhere in the $3,000 – $7,000 is probably where it will end up.
As you grow, will your team be requiring new employees to become owners?
Ownership doesn’t have to be for everyone. It is hard enough to find people to do this work. We have an environment of people who really love this work, and we wanted to make sure we always have good people to work with. [Ownership] isn’t an easy question to interview for and you don’t really know if someone truly is interested until they’ve been around long enough to know it is a good fit.
One of the 7 principles of worker-owned companies is cooperation among cooperatives. Are there any companies that are helping you with this transition?
It is quite scary when you’re moving into this new model and you don’t know exactly how it is going to work. In the Bay Area, many of the cooperatives are coffeehouses or based in the food industry. Our model is significantly different. We have large projects that are contracted; governmental incentives and weather can greatly affect our industry. Outside of the feeling that with solar you’re making a great difference in the world, it is probably one of the worst work environments you can possibly have—you’re on a scorching roof, lifting heavy things and dealing with high voltage electricity. It is just so hard on your body, you’re lucky to keep installers for more than 4 years. In addition, last year we were facing the possibility the federal tax credit would end—30% of everyone’s solar system was subsidized. A typical solar business could look at that dilemma, hire as many people and to do as much work as they can until that tax credit dries up. However, if you’re in a cooperative, rapid expansion followed by layoffs is simply not going to meet your mission.
It is tremendously helpful to have cooperatives in the same industry. Namaste Solar, a company much larger than ours, based in Colorado, and both PV Squared and South Mountain, similar in size to us, have all helped significantly. We were trying to work out a better staff evaluation form to really hear feedback from the perspective of all of our workers. John Abrams, author of The Company We Keep and CEO of South Mountain saved us a significant amount of time by sharing their evaluation forms and methodology as well as their entire employee manual. Another good example is when we transitioned from being an installation only company to adding a sales and design team. Initially the sales team wanted to work on commission, and we wanted to sell the new staff on working on straight salary. Namaste’s sales manager called in and met with our sales and design team. He explained why it was important to Namaste as a cooperative to work on salary which helped changed their perspective. Our local food cooperative, Briar Patch, also helped by conducting a Finance 101 training for our entire company. We also attend the national and regional cooperative conferences where we are able to meet and connect with other worker-owners. Hearing their experiences in-person helps us avoid some of the pitfalls.
Has your journey inspired other companies to explore the cooperative path?
I think it makes people really excited when they first hear about the concept, I also think once we have converted it will be more impressive. The fact that right now we have been working on and talking about this for the number of years we have might work against us being ambassadors for the concept. One of the more challenging pieces about transitioning our company is that so many people are participating in committees to become owners and it takes time to balance that with our daily workload.
Can you already detect a shift in attitude among the future owners?
Oh absolutely, out of the big staff meeting we formed all of these committees. They come in after work, one evening per week, to meet with their working groups. Right now they are investing a lot of their own time, knowing that they are working towards ownership and sharing the equity. We really have everyone’s input towards creating what the company will ultimately be.