At 71, Bruce Larson is contemplating the future of the furniture and appliance company his parents Al and Lulu bought in 1945.

He learned the business as a young man, starting as a washer repairman, before eventually acquiring his father's share of Larson's Home Furnishings in 1963 and later his mother's interest.

Larson pushed the superstore concept long before many of his national competitors, expanding into the Roseburg and Redding, Calif., markets in the 1980s before retrenching in recent years. When Larson's daughter, Traci, left the store in 1999 to pursue a career in law enforcement, not only did he lose a top manager, but a likely successor in running the business.

"Retail wasn't her thing," says Larson of his daughter, who now works for the Naval Criminal Investigation Service, sort of an FBI for the U.S. Navy and Marines.

After exploring his options, Larson decided the best course of action was to turn the company over to its 35-person staff through an Employee Stock Option Program.

Advertisement

The program was initiated a year ago and will be phased in during the next five years.

"I think that's the way for a small business to survive against the competition that's pouring into the Rogue Valley; it gets to be pretty vicious," Larson says. "That's why you need 35 or 40 owners, not one. I would like to see this move into their hands as fast as we can and I have made that known."

Menke & Associates, a San Francisco firm that deals exclusively with ESOP design, installation and administration, has clients across the country, including a couple dozen in Oregon.

Kyle Coltman, Menke's chief executive, says there are three reasons why four in five companies contacting his firm aren't qualified to convert to employee ownership.

"One, is the valuation of the company," Coltman says. "The owner has an inflated idea of the company's worth. Two, they don't have the secondary management and no plans for bringing in key management. Three, is the time frame. They want to sell tomorrow and retire; that's not feasible."

Whether a company has 20 employees or 2,000, the concept is the same, Coltman says. The annual tax deduction for a company is capped at 20 percent of the payroll.

"If your payroll is $1 million, you can only put in $250,000 a year," he says. "If you've got $5 million in stock, that's going to take a long time."

A critical element in converting a company to employee ownership is profitability.

Larson's recently completed a $1 million remodel of its 75,000-square-foot showroom, offices and warehouse.

"The remodel upset the schedule between the company and myself," Larson admits. "It's a piecemeal sale and a long-term process."

Typically, employees become eligible for an ESOP after working 1,000 hours. The company funds the benefit and an employee's labor is their investment.

"Down the road, an employee is going to quit, get fired, retire or die," Coltman said. "Whatever the value is will be paid in lump or it can be paid in installments, depending on how the plan is set up."

Those funds can be rolled into an IRA and taxed when removed from such accounts.

With respect to future leadership, general manager Jay Cooper was hired a little over a year ago. Cooper previously worked as a project manager for Counterpart International in Kyrgyzstan, Kazakhstan, Uzbekistan, Turkmenistan and Tajikistan.

"Larson's is going through a transition to a new mix of lines and, candidly is in an evolutionary process," Cooper says. "We've put in new display kitchens, simply because we know that's where the business is going and we're going to be aggressive at getting to where the business is."

Several decades ago, Larson instituted a profit-sharing plan to his employees. Some took advantage, some didn't.

"I was such a believer in the profit-sharing program," he says. "But I didn't sell it well enough. There's great benefits to compounding interest and moving into a tax-deferred environment. But they didn't get it. I'm committed to educating our people and making it work."

Reach reporter Greg Stiles at 776-4463 or at business@mailtribune.com