David Sandberg and Dina Mardell, co-owners of Porter Square Books in Cambridge, Massachusetts, have signed a succession agreement to sell the store to a group of management-level employees upon retiring.
The owners will sell 50 percent of the equity of the store to the management group of nine (out of a total 25 employees), essentially lending them the money to buy it, since the employees will use their share of the store’s profits to repay the money over a 10-year period.
“We’re not giving the store to them, but we are financing it for them,” said Sandberg, who bought Porter Square with Mardell five years ago. “Essentially, the half they are buying will get paid out of their share of the profits over those 10 years because once they own half the store they are entitled to half the profits. So it was a way for them to get ownership now but to be able to pay for it over time and not need to come up with the money right away.”
“For the first half, we decided to sell it based on the same value that we bought it at five years ago,” he added. “Everyone seems to think that the store has increased in value since then, so it’s a good deal.”
If people are literally more financially invested in the store, while already being emotionally invested, Sandberg explained, they are more likely to stick around and continue running the business in a committed way. You think differently when something is yours than when it’s someone else’s, he said.
“It made sense for the staff to have a more vested financial interest in the bookstore,” said Sandberg. “Also, people who work in the bookselling industry don’t get paid very much, so we wanted the people who were really responsible for the management and direction and running of the store to, together with us, get a little more money but also be more invested in the store’s success. That way, we’re able to give them more compensation than the economics of the store allows, similar to companies giving stock options to their employees.”
The store was about nine years old when Sandberg and Mardell purchased it through a broker from founders Dale Szczeblowski, Jane Dawson, Jane Jacobs, and Carol Stoltz. And while Sandberg and Mardell have no plans to retire any time soon, Sandberg said it was the time to start thinking about a plan.
“We want the people who end up owning it and running it after us [to be] the people who work here now. This sets that up in the long-term; it’s easier to do that when you first think about it than when it’s actually time to sell,” said Sandberg.
As a former lawyer, Sandberg had the skills to handle all the legal aspects of the agreement and write up the contract between the owners and the employees. All nine members of the management group who were offered the opportunity accepted it, said Sandberg, including Marketing Director Josh Cook and Dale Szczeblowski, who stayed on as the store’s buyer after the 2013 sale.
“In order to be part of this, they will have to continue to work here; we need them to be invested in the store that they’re working at,” he said. “During this period, we’ll be keeping operating control while they are getting the financial benefit of owning half the store. Our decision process is very collaborative, anyway, and it’s going to stay that way, but we’re not giving away voting control right now.”
Whenever Sandberg and Mardell do decide to retire, they will offer to sell the management group the other 50 percent of the store’s equity via a similar contract agreement, whether that is a payment plan of 10 years, five years, one year, or fewer (depending on how much the store is making at that time). Sandberg said owners and employees haven’t nailed down the terms for buying the second half of the store yet.
Sandberg emphasized that preserving the store’s legacy is one of the key reasons why he wants the employees of Porter Square to continue to own the store after he and Mardell step aside.
“If I thought about our ownership of the store in the same way that I thought about, say, a 401k plan, where my sole goal was to maximize the number of dollars, then maybe I would do things differently, but I think the store itself has an identity and a place in the community,” said Sandberg. “It’s clear to me from the discussions I have with customers that people have a certain expectation of the store, so I think it is the responsible thing to do — to think about how that’s going to continue long-term. It’s not purely tied to the two of us.”
“My expectation would be that anyone in our community who cares about Porter Square Books will be delighted to hear this news,” Sandberg added. “It does give people some confidence that we are thinking about this not just as our personal investment, but rather that we feel we are in charge of taking care of something, and that this is the best way to take care of it.”
For more information on succession planning, read BTW’s write-up of the Winter Institute 13 advanced education session on the topic, featuring former Village Books co-owner Chuck Robinson.