Canada’s small businesses are closing. This organization is working to save them — by turning them into social purpose businesses.

The Legacy Leadership Lab (L3) is building an acquisition ecosystem to help more social entrepreneurs buy small businesses

Why It Matters

It’s estimated that, even before COVID-19 struck, 700,000 small businesses in Canada were already at risk of closure in the next ten years, because they don’t have viable succession plans. And the pandemic made local business and community self-sufficiency even more urgent. Social acquisitions could be a big part of the solution.

This story is in partnership with Employment and Social Development Canada (ESDC). 

In Courtenay, B.C., a candy shop that had long been a part of the fabric of the community was at risk of closing. The owners wanted to retire, had no successor lined up, and were looking to sell but weren’t finding a buyer who felt quite right.

The local community futures office, an organization that provides support to local businesses, saw an opportunity. They could save a business that was a longstanding institution in the community, generate revenue for themselves, and work toward one of the office’s economic development goals: to boost the economic inclusion of people with disabilities. They bought the business, and then immediately started implementing an employment plan where they prioritized hiring and training of people with disabilities. 

Meg Ronson said this was “one of the best social acquisitions that I saw happen through the course of this project.” The project in question, which Ronson leads as project manager, is called Legacy Leadership Lab (L3), run out of the Waterloo Institute of Social Innovation and Resilience (WISIR) and funded by the federal government’s Investment Readiness Program, a $50 million commitment to building the investability of social purpose organizations before the rollout of the $755 million Social Finance Fund.

L3 hosts workshops and meetings to bring people together to develop social impact-oriented solutions to a major shift in Canada’s small business landscape over the past couple decades, illustrated by the B.C. candy shop: whereas it used to be a given that small businesses were family businesses — in other words, when one owner was ready to retire, a younger family member would take over — that’s no longer the case. 

“The outlook has been bleak for several decades now,” Ronson says. “There’s a problem. Our small business owners are retiring. They don’t have succession plans. They don’t have clear successors lined up, by and large.” 

It’s estimated that, even before COVID-19 struck, 700,000 small businesses in Canada were already at risk of closure in the next ten years, because they don’t have viable succession plans. Enter: a major opportunity for the social impact world and for communities in which these small businesses operate — social acquisitions. 

A social acquisition happens when an existing business needs a change in ownership, either because the owner is retiring or because the business model is failing, as has been accelerated in many cases by the pandemic. Someone buys the business and converts it into a social purpose organization, a business whose mission is to create social or environmental good (or both) while turning a profit. The new owner could be a person, another social purpose organization, or even the business’s own employees in cases where the business also converts to a worker cooperative. 

L3 hosted one in-person workshop — ”we look back on it fondly,” Ronson says — before COVID-19 hit Canada and they had to switch to virtual. But that wasn’t the only challenge the pandemic posed. It also made the work Ronson and Sean Geobey, the director of academic programs at WISIR, were doing much more urgent. 

“It started off as one systemic problem that snowballed into a much larger problem,” Ronson says. “We looked at each other and said, ‘Wow, this is something else entirely.’” The larger problem was that there would be many business owners who were planning to retire in the next couple of years, but would make the move early because of the headache pandemic shutdowns caused. Others were finding their business models simply didn’t work in a pandemic. 

Geobey describes it as “a really interesting window of opportunity to have investment capital help transition some of these enterprises to a new generation of owners, hopefully more socially-oriented owners at the same time that the social finance community was trying to increase the pipeline of investable enterprises” — as in the case of the IRP. “Simply working off of startups and spinoffs, it seemed like that wasn’t going to be sufficient to actually absorb the capital that was going to be released (through the Social Finance Fund) in investments. The idea of transforming enterprises that already had proven business models…seemed like a great way,” he says.

And meanwhile, there was community wellbeing to think about. “We had to stop and say, ‘Okay, it’s not just about business succession anymore. It’s about resilience and survival,’” Ronson says. 

Communities rely on small businesses, from barber shops to corner stores, for basic needs. “As soon as the small business sector starts to go under, what happens to those communities?” Ronson asks. COVID-19 also exposed the fragility of global supply chains, and a need for communities to be more self-sufficient in their access to essential goods — small businesses would be one major way to achieve that. 

A social acquisition can help boost the longevity of a small business, Ronson says. “In a successful social acquisition, when done properly, when done with intent, it does in a lot of ways provide greater incentives for sustainability than a simple for-profit business alone, in my opinion, because you have the profit (incentive)…but then you have this other completely embedded social and/or environmental end, so it’s that much more important for the business to continue on.” And that’s not to mention the social impacts of the business’s mission itself, like in the case of the Courtenay, B.C. candy store that prioritizes hiring community members with disabilities. 

Social acquisitions are not right for every small or medium business, Ronson says. First and foremost, the business model has to be one that allows for “the social purpose of the enterprise (to be) embedded in the enterprise itself. It cannot be a side business.” For example, a social entrepreneur couldn’t buy a business whose product is significantly damaging the natural environment around it, but donate a portion of its profits to local environmental organizations, and call it a social purpose business. 

Another mark of good candidates for social acquisitions is “cases where there’s love. I don’t know how else to put it,” Ronson says, referring to when a business has a loyal and committed community of patrons. “That’s what social acquisitions are born out of, because when something is loved, it’s cherished, and there are reasons why it’s cherished. And there clearly is social good that’s been generated just because of it’s running…A social acquisition, if done properly, is going to lean into the power that’s created by that love.” 

L3’s funding from ESDC wrapped up at the end of March, but WISIR is spending April planning the next steps of creating, essentially, a social acquisition ecosystem. The lab co-created with participants a map of typical social acquisition processes, and in doing so identified key needs of businesses going through social acquisitions. 

One of those needs is access to business advisors, bankers, accountants and lawyers who are educated on social acquisitions, or even on alternative ownership models like cooperatives, who are few and far between right now. Ronson says there’s a need for an organization or project helping to increase awareness among these more conventional ecosystem players, or to gather those who are social acquisition-savvy together in some kind of database.

On the other side of the equation, another massive gap the L3 team identified is that there’s much more support, both from a policy perspective and from an entrepreneurship ecosystem perspective, for young and new entrepreneurs who want to start new businesses rather than buy existing ones.

Geobey says the pandemic could be a time to lean on what the social impact world knows works. “Old forms of organizing,” like the model of small business with heavy community support, or the cooperative model, “have some real robustness to them when we need to rethink what we’re doing in times of crisis.” And regardless of the crisis, new is not always better, Geobey says. He tells a story about a colleague of his who often says the first step to more affordable housing is not to build more units — it’s to protect the affordable housing that already exists.

Part of the next phase of L3’s work, Ronson says, is to go through each of these identified needs and gaps in a social acquisition ecosystem — like the lack of support for entrepreneurs who want to acquire —  and say, “‘Who can make sure that that need is met when social acquisitions happen?’ And if no one raises their hand, it’s our job to say, ‘Nobody’s raising their hand. That’s a problem. Who can fix it?’”