For many years, Japanese owners of tiny enterprises have found it difficult to transfer ownership to a successor or buyer. Mitsui UFJ Financial Group Inc. is supporting an American business called Teamshares Inc. that aims to change that by providing funding for employees to become shareholders.
In its first international venture, Brooklyn-based Teamshares is introducing its employee ownership succession concept to Japan. Usually, a startup will purchase a firm in its entirety from its founders so they can retire, then bring in new management to strengthen the business and grant employees an 80% interest over a period of up to 20 years.
The 2.45 million small business owners in Japan who will be 70 years of age or older by 2025, nearly half of whom have not yet chosen a successor, could benefit from such initiatives. A small business has developed that uses both traditional M&A services and technology to try and match these founders with purchasers. The largest bank in Japan, Mitsubishi UFJ, provided funding for the business through its corporate venture fund.
In an interview, Teamshares co-founder and head of its Japan company Kevin Rikio Shiiba stated, “We genuinely believe that our business in Japan can grow to the same size as our US business.” The 35-year-old has a firsthand understanding of the difficulties associated with succession in Japan because his family is from that nation. He graduated from Georgetown University.
Teamshares has bought 90 companies across 31 states and 42 industries in the United States to date, having raised $245 million in capital. Target firms typically bring in between $2 million and $10 million annually. Although US aging slower than Japan’s, 70% of retiring owners do not find a sale, which forces businesses to close and forces staff to find other employment.
Shiiba intends to reach out to a broad range of Japanese industry. According to him, Teamshares has already begun speaking with business brokers and owners in order to get more funding.
The major wager is that Teamshares will benefit from Japan’s elderly population and government initiatives to encourage third-party business succession.
Teaching newly hired owners, who must be more involved in the running of their business and aware of its financial situation, will be one aspect of the difficulty. The ultimate objective is to increase an organization’s worth by involving its employees as owners. After the founder or owner leaves, the first thing to do is to appoint new leaders.
“If they’re a strong general manager in that business, we may look for a CFO type to help them take the business to the next level,” Shiiba said. “We will be looking for really talented people who want to run and ultimately sit across many different small businesses here in Japan.”
According to researcher Teikoku Databank, there has been a substantial fall in family business succession, with internal promotion accounting for 35.5% of transfers. Other noteworthy patterns were two types of third-party succession scenarios: either the company was acquired through a merger or purchase, or its own workers took over.
“The challenges that small business owners are facing is even potentially more dire, given the rising age of those businesses,” Shiiba said.