Innovative Approach to Small Business Succession

Small businesses are a significant part of the U.S. economy, employing around 62 million Americans and accounting for nearly half of the GDP. However, many face a tough choice as baby boomers retire and their children often decline to carry on the family legacy. Typically, these owners are left with just two options: either close the doors on the businesses they’ve nurtured for years or hand them over to private equity, which usually leads to layoffs, inflated prices, and disconnection from the community.

Enter William Fry, who recently established American Operator in Austin. His company is crafting a fresh avenue for these retiring proprietors.

Fry’s initiative facilitates partnerships between seasoned workers and retiring owners, enabling these operators to purchase co-ownership stakes. Initially, they start with a 10% share and can eventually secure majority ownership of up to 70%. This process not only provides a way for owners to access capital but also ensures that the businesses remain community-focused.

Unlike private equity firms, which often buy to flip businesses and then resell to another firm, American Operator aims to keep operations local. Fry emphasizes that understanding the industry is crucial for success. Retiring owners are not cut off; instead, they frequently join the advisory board, maintaining their connection to the businesses they established and guiding the next wave of leaders.

The recent trend among private equity firms has led to the acquisition of various service-based businesses — think veterinarians and home-service providers — resulting in significant price hikes and shifts in management that can alienate long-standing employees.

A Bank of America report highlights a troubling connection between private equity practices and soaring vet fees, showing that prices have jumped by as much as 60% since 2020. This is, according to the study, largely because fewer pet owners are seeking necessary care due to rising costs.

Fry recognizes the issues associated with private equity ventures. He argues that while they may offer high purchase prices, they often strip away the core elements that make a business thrive.

Your average business owner can’t really compete with the capital private equity firms throw around. But Fry’s model is built on stability rather than upheaval. American Operator also integrates modern tools like bookkeeping and AI, but Fry insists this isn’t about downsizing; rather, it’s about empowering existing staff to take on more meaningful tasks.

Take, for instance, Anne-Marie Rosario Flores, who founded Ann the Plumber and has served Rhode Island since 2014. Rather than hand her business over to just anyone or close up shop, she transitioned leadership to Wilson Molina, a long-time mentee, with American Operator’s backing. Now, Molina is the CEO with a defined path to majority control, while Flores stays involved, ensuring continuity in the community.

Looking ahead, Fry envisions possibly creating an ETF-like structure that allows everyday people to invest in what he terms a “basket of the American dream.” After completing 95 deals and amassing $300 million, he’s optimistic about the prospects for future growth.

“Optimism matters,” Fry asserts. “If young people start thinking that tomorrow will be worse, that’s when the fight is lost.” He fundamentally believes that such a pessimistic outlook is misplaced.