By Brent Cooper and Normand Desmarais
Kentucky urgently needs more employee-owned companies. More than half of Kentucky businesses have an owner aged 55 or older, meaning tens of thousands of firms will change hands – or close – within the next decade.
When owners sell, the most common buyers are competitors or financial firms, often from outside the state. Those sales frequently lead to consolidation, relocation, or job cuts. And because most small businesses never find a buyer at all, many simply wind down. That’s why expanding employee ownership must become a statewide priority.
TiER1 Performance and C‑Forward are two Northern Kentucky examples proving that employee ownership strengthens companies and communities.
A decade ago, TiER1’s founders considered selling to a strategic buyer. They could have taken a large check at closing but had no assurance the company would remain in the region. Instead, they sold the business to employees through an Employee Stock Ownership Plan (ESOP). Since then, TiER1’s revenue has grown 160%, its workforce 186%, and its stock value 725% – an average annualized return of 23.5%, compared with the S&P’s 14.8% over the same period. Many employees now hold substantial ESOP accounts earned at no cost to them. Most importantly, TiER1’s headquarters remains in Northern Kentucky, where the company continues to support nonprofits, economic development, and the local Chamber. In every sense, TiER1 remains a rooted local business.
C‑Forward, an IT managed service provider founded in 1999, reached the same conclusion. During its 25th anniversary celebration two years ago, the company announced its transition to an ESOP. With a 98% client retention rate, 95% employee retention rate, and revenues that tripled over the past decade, the question was whether success would continue under employee ownership. After its first full year as an ESOP, C‑Forward’s stock value increased 23%. With an average employee tenure of eight years – and 40% of employees having been there a decade or more – retention is already strong and projected to grow. Why? Because C‑Forward’s employees now own the business they show up to build every day.
Owners don’t choose ESOPs out of charity. Employee ownership is often the best deal available. National data shows ESOP companies consistently outperform conventional firms: workers build retirement balances more than double those of peers, earn higher wages, and are less likely to be laid off during downturns. Nearly three‑quarters of ESOP companies also offer an employer-sponsored 401(k).
Kentucky has 105 privately held ESOP companies employing roughly 43,600 people – a solid foundation, but only a fraction of what is coming to market.
The stakes are especially high in rural communities. Research shows rural business owners skew older, buyers are scarcer, and a single closure can eliminate an anchor employer and essential services. In many towns, one machine shop or family-owned firm holds the local economy together. Who owns the business often determines whether the town keeps it.
So why don’t more owners pursue ESOPs? Having sat on the seller’s side, we know the biggest barrier is financing. Employees don’t invest their own capital, and banks can only lend so much. Sellers typically finance a large portion of the transaction themselves, repaid over several years. The process is also complex: small business ESOPs require a board, an independent trustee, and legal and accounting support.
One of us likes to say the opportunity lies in wading through that complexity. That’s true – but most retiring owners won’t wade. When another buyer offers full price at closing, the ESOP alternative can be overlooked.
Frankfort can change that math with two practical strategies already used in other states.
First, Kentucky needs an institutional home for employee ownership: a Director of Employee Ownership within the Cabinet for Economic Development, supported by an advisory commission of business owners, lenders, advisors, and academics.
Second, the state should close the financing gap through a revolving loan fund at the Kentucky Economic Development Finance Authority. This fund would provide affordable gap financing that reduces or replaces seller notes. Because repaid loans revolve into future transactions, a one-time capitalization supports deal after deal. By tapping federal resources like the State Small Business Credit Initiative, Kentucky can build this toolkit at minimal taxpayer cost.
Employee ownership has already turned succession risk into growth, kept decision-making local, and put six‑figure retirement accounts within reach for workers who might never otherwise have them. Kentucky’s policymakers can give thousands of retiring owners that same path – before the wave of retirements makes the decision for them.
If we make employee ownership easier, Kentucky’s best buyers will continue to be the people already working in its businesses.
Brent Cooper is founder & CEO of C-Forward and President & CEO of the Northern Kentucky Chamber of Commerce, and Normand Desmarais is Co-Founder of TiER1 Performance Solutions in Covington.