Alfredo Mathew III, Founder and CEO of SPCC.1: Making the Jump From Wage Earner to Asset Owner

Van Ton-Quinlivan

Hello, I’m Van Ton-Quinlivan, CEO of Futuro Health, welcoming you to WorkforceRx, where I interview leaders and innovators for insights into creating a future-ready workforce.

We concentrate a lot in this podcast on how education and effective workforce training can put individuals on the path to upward economic mobility. But today we’re going to shift that perspective and examine how individuals might also prosper through a collective approach to economic success.

For that, we turn to Alfredo Mathew III, founder and CEO of SPCC.1, described as the world’s first shared prosperity community corporation, a development model designed to help under-invested communities build wealth through ownership, cooperation, and scale.

Mr. Mathew is a former educator turned social entrepreneur and systems thinker who was instrumental in launching a statewide capital fund for underrepresented founders that incubated more than 500 businesses and deployed over 6 million in community capital.

I’m looking forward to learning more about this approach and his efforts to spread it to communities across the U.S. Thanks very much for joining us today, Alfredo.

Alfredo Mathew III

Thank you so much, Van. It is a pleasure to be here. Love everything that you’ve done in your career.

Van

Likewise. Well, let’s start by hearing about your own career background. How did a special education teacher from the Bronx end up working in entrepreneurship and economic development in California? And what’s the thread that connects it all for you?

Alfredo

Sure, well I’m definitely an educator at heart and by training. My parents were educators. I taught for seven years in the South Bronx, ended up teaching for seven years in the public schools of California. And I think the jump from education to entrepreneurship — although it might not seem natural — for me it was natural because I always considered myself an entrepreneurial educator.

I went into education really involved in school reform efforts. I was part of the small school movement in New York City. When I came to California, I was just really excited about bridging the classroom to the real world, and in the Bay Area, the real world is Silicon Valley and entrepreneurship. So that was a natural jump for me.

Everything that I’ve done in my career has been about expanding access to opportunity and education was the front line of that effort, like expanding access to education as access to democracy. As I aged and as I moved through, I realized that agency and economic ownership is a huge part of being able to access democracy. So I made this strategic decision. I love education, but I want to learn how to build wealth and I want to teach other people how to build wealth.

Van

I’m sure our listeners can’t wait to learn more. So, in my introduction, I mentioned that you had worked on creating a capital fund for underrepresented founders and you did that under a different hat called ESO Ventures. Begin for us with this concept of community capital. How does it work?

Alfredo

So I had the privilege of launching ESO Ventures with two co-founders, Ben Wanzo and Martha Hernandez and my own business consultancy. I did entrepreneurial education for a number of years and I did a lot of partnerships between Silicon Valley and local schools around the Bay Area and Hayward and East San Jose and Oakland and San Francisco. But I realized that there was no on-ramp to business ownership for local communities that wasn’t tied to venture capital and Silicon Valley entrepreneurship.

Ninety-nine percent of all businesses are small businesses and they’re not really venture-backable businesses. They’re what some might call lifestyle businesses or main street businesses, and that’s what I wanted to focus on. How do we help people in local communities create businesses that can serve that community? At the beginning of the pandemic, I got a small contract with the City of Oakland and Merrit College to activate the MacArthur corridor between Eastmont Mall and Castlemont High School, where I used to teach.

Everyone wanted to start businesses. Everyone was at home because of the pandemic. In 2020, 2021, 2022, 2023, about five million people a year created new businesses, a tremendous surge in entrepreneurship larger than the five years previously. And these are main street businesses. What I learned is that there’s just a tremendous gap in access to capital for businesses that are not venture backable, but in need of working capital from 5K to 100K to get started…it’s just not viable. Most business owners are building their businesses with credit cards. They’re taking out personal debt.

And so we literally wrote legislation — the California Entrepreneurship Capital in the Community Initiative and got it endorsed by the city of Oakland. We got it initially passed by state Senator Nancy Skinner and we were awarded $8 million to create this fund. The next year we got support from the California Black Legislative Caucus and Latino Legislative Caucuses and we got it awarded another $10 million. And so we had, you know, $18 million in state funding.

I know you know a lot about state funding and leveraging those things. We created a public private partnership to create a community investment fund and that fund is doing a great job. It’s now, I think we’ve incubated over 600 entrepreneurs. We’ve deployed over $7 million from this fund. And it really is the first capital that most of these entrepreneurs will see. It’s friendly terms, lower interest rates than, you know, traditional lenders provide and we have relationships with the borrowers, so we do have a really good repayment rate. But it really is like, how do you get capital to underserved communities so they can leverage that capital and create wealth and well-being?

What we set out to prove at ESO Ventures is that, yes, let’s leverage public money, but we need to do this in a way that it can be profitable. So we’re really trying to figure out how do we create a model that is not just dependent on philanthropy and ongoing public investment, but how can we create a truly regenerative model so we don’t need ongoing public and philanthropic investments?

The initial idea was let’s take an innovative approach. Let’s look at a really long standing problem and let’s try something new. Let’s try something different. The pandemic gave us that opportunity to let’s really try and do things in a different way. And ESO Ventures, I’m proud to say, is one of the institutions that came out of the pandemic that has created sustainability and has multi-year contracts with GO-Biz, with the California Community Colleges, with many municipalities around the state, and is figuring out how to be a viable long-term business.

Van

Let’s dive into that because we’re all excited to understand the model for building entrepreneurs. So, how did you approach building these entrepreneurs and what makes a person a good fit to start and run their own business?

Alfredo

So I will say one thing that I have truly learned is there’s a difference between starting a business and creating an employer enterprise. The original thesis that we had was we want to help sole proprietors, a business of one person, become an employer enterprise. That is the big distinction. It is very easy to start a business. There’s over 26 million sole proprietors in the United States, which is a business of one person, right? In California, God, I forget what the number is now, but it is a large group of our businesses are basically a business of one. And that means that you are self-employed.

Ninety-six percent of Black businesses in California are sole proprietors, earning an average of under $30,000 a year. Ninety-two percent of Latino businesses in California are sole proprietors earning under $40,000 a year. You and I both know that $40,000 is not a living wage. And so the majority of sole proprietors, businesses of one, are not able to pay themselves a living wage. They’re businesses, they’re self-employed, but they’re not creating a business as an asset.

The big opportunity is to help shift businesses that are sole proprietors that have an ambition to grow, to actually grow up to over $500,000 in revenue, up to a million dollars in revenue to hire employees to have recurring revenue and ultimately to grow beyond the labor of the founder. The number one thing that I’ve learned about entrepreneurship is if you can create a business that does not rely on you, your labor, you are creating an asset that is going to grow, and that asset is the foundation of wealth building. That’s why I’m so excited about entrepreneurship because I want more Americans, more people from all backgrounds, to benefit from entrepreneurship.

Van

And didn’t you tell me that these entrepreneurs who build assets, who build businesses that hire other people, they tend to hire from the community?

Alfredo

Yes. GO-Biz (The Governor’s Office of Business and Economic Development) has done some incredible reports that show local communities hire locally. If we really want California for all, if we really want a more equitable society, we need local business ownership and local business owners will hire people from their own communities. They will hire cousins, family members, associates, and that wealth will circulate locally, which will be an incredible boon for everyone.

Van

Okay, so wealth building, building a business that hires people…all music to my ears. Talk to me about that transition of someone who starts a business but then is actually successfully able to hire the next employee and the next employee. What are some milestones or things that you do to develop that entrepreneur?

Alfredo

Well, I would say one of the big barriers that we need to overcome — and I say we because everyone who is in the business of economic development and community economic development – needs to view business ownership as a real strategy for workforce development. I would say that this is incredibly important work. It takes an ecosystem.

The majority of business owners are small because they might not have the mindset for growth. They’re literally trying to create a job for themselves. And so one of the things that I’ve worked on over these last five years with entrepreneurs is on the mindset of ownership. You’re not trying to create a job for yourself. You’re trying to create an asset. You’re trying to grow beyond your own labor. That is a tremendous shift because we’re all trained to think like workers. “I just want to create a job, I want to get paid.” There is so much more to business ownership than just creating stable employment for yourself. There’s stable employment for yourself first, yes, and then stable employment for your team, but the real benefit comes when you can grow the enterprise. Mindset is one, right? Leadership is the lid. Like, we’ve got to help people think bigger.

Two, real financial literacy and understanding and not being afraid of profit and profit margins and understanding how to grow an enterprise, right? Really understanding revenue and expenses, getting comfortable with P &Ls and balance sheets and understanding like, what are you actually building?

I think entrepreneurship is exciting when a business owner gets out of working in the business and can really work on the business because I know you know that you need to be looking around the corners. You need to be thinking longer term. Most workers, most people are just hand to mouth, right? Do I have the money today? Can I make payroll? Can I pay myself? Can I eat today? That’s where 99.9 % of business owners and workers are all stuck. But the opportunity comes when you can get a little break and you can think a little more long-term. Where am I going with this business? What is my vision? What is my legacy? What is the succession plan so I can step back from the business and someone else can run it? Or how do I exit the business? How do I sell a portion of it so that I can become a part of something larger?  I think that’s one of the biggest challenges that small businesses face, is that they are too small to truly be viable in the economy.

Van

I’m hearing mindset, I’m hearing real financial literacy, I’m hearing the ability to look around the corner, I’m hearing access to capital. You wrote a paper entitled, Redefining the American Dream, where you alluded to a model for pre-distribution, cooperative ownership, and regenerative growth. Does that describe what you’re doing now at SPCC 1?

Alfredo

Yes, so basically on this entrepreneurial journey, I recognized after supporting all of these businesses launching, that the macroeconomic situation was changing. We saw that interest rates and inflation went up in 2023 and those interest rates have not come down. So the cost of accessing capital has become very expensive and it’s difficult for small business owners to access that capital.

We’ve also seen that government support for social welfare is on the wane and a lot of social services are being pulled back and the entire model of redistributing wealth — taxing the rich to pay for services to the poor — is being questioned by a lot of people in our country.

Paying attention to those macroeconomic changes, I said, wait a second, this is like a tremendously big shift, and I wanted to put down on paper what this shift really implies and where there might actually be a silver lining and potential opportunity for us to focus on shared prosperity. Because I think shared prosperity is something that both political parties, people from all communities can get around, and I think that there are some really

important core ideas that we need to get on the same page with.

First is pre-distribution. The idea of pre-distribution is different from redistribution. Redistribution is basically saying after the economic pie has already been cut, we’re going to tax wealth and we’re going to redistribute it to the poor. There is a political economist by the name of Louis Kelso, who in the 1950s and 1970s spoke a lot about pre-distribution. He’s the father of the ESOP model, the Employee Stock Option Plan model — and what he basically understood was what a lot of economists have understood: there is a growing gap between asset owners and wage earners.

Asset growth is growing exponentially. If you own real estate, if you own a business, if you own technology, if you own intellectual property or data, that is growing exponentially, right? Stock market growth, real estate growth, if you’re an asset owner, your wealth has been growing. If you are a wage earner, if you get all of your income from wages, that growth has been much more modest. And the difference between asset growth and wage growth makes redistribution incredibly difficult because the gap between the wealthy and everyone else is just gonna grow further and further.

So, pre-distribution is the idea that we actually need broader ownership of the economy if we’re going to address income and wealth inequality. That is like a super important issue that I hope more people understand.

Two is this idea of cooperative business ownership.  I say SPCC.1 is the first shared prosperity community corporation because I’m really trying to figure out how to blend the private equity roll-up model with shared service cooperatives.  The private equity roll-up model is all about, how do you look at a fragmented industry like car washes or HVAC companies or movie theaters and consolidate all of these independent businesses into one larger enterprise and make it more efficient, make it more profitable? Then it’s a viable business.

I want to combine that roll-up model with shared service cooperatives, which also have a long history in our country. Farmers have been doing cooperatives for a long time. They’ve been around in a number of different industries, but they’re not operating at scale. And what cooperatives do is they not only share governance, but they share ownership.

I think that if we’re gonna address this giant gap between asset owners and wage earners, we need to create on ramps to business ownership so that wage earners can become asset owners. They can own a small piece of a much larger company and they can have a voice in how that company is operating. And the final piece is just regenerative growth. It’s the idea that, hey, we gotta be focusing on generating profits, we gotta generate revenue, and then we need to make sure that it’s regenerative, that it continues to grow and it doesn’t require ongoing public support or philanthropic dollars.

Van

And so in this gap between asset owners and wage owners, who is currently getting left out of ownership and what are the structural barriers that kind of reinforce what is current?

Alfredo

Well, it takes money to make money. So, in order to own an asset, you’d need to get on the capitalization table of a business or you need to acquire a property. And so I guess one of the main structural barriers is in the United States, 50 % of all people in our country don’t have any wealth to invest, right? They truly live hand to mouth. There is another 20 % or so that are working that can put a little bit away and they have some safety net, but it really is only the top 20 % that have some assets and are growing. It is really the top 10 % that have assets that have taken off, and then it’s the top 1 % that have escape velocity, and are truly like dominating the economy.

I believe that we need to have a bell-shaped curve distribution of asset ownership. I am not a socialist. I’m not trying to say, we need communism, that we need to take from the rich and give to the poor. But I think that there is a way to help more people enter into business ownership, acquire their first assets — even if they’re micro assets, a small stake in a business, a small stake in a property — and really prepare more people for ownership, for stewardship, for owning resources, and then seeing those resources compound with time.

Asset growth is simple. It takes time and stewardship, and time will compound your wealth.

Van

This is a great concept, to acquire micro assets. What is a micro asset? Like, what’s an example of businesses that you’ve seen where somebody can just get started.

Alfredo

Well, I think there is tremendous opportunity in community level businesses, service businesses that cannot be replaced by AI. That is like anything that’s a residential business…anything where people have to go into someone’s home and do work, whether it’s fixing the home, whether it’s home healthcare — anything that is residential in nature is a tremendous business for a micro asset.

When I say a micro asset, you could just be a business of one and you can run it just like a sole proprietor. But because of the reasons I’ve shared, there’s real limits to growth for you by yourself. Let’s say you’re a home healthcare aide who says, “I have a home healthcare business and I’ve got me and three other people and we’re just gonna help this one or two homes.” If you can get some economies of scale, if you can get a contract where you’re serving a group of people, all of a sudden100 or 200 home healthcare aides could service a region or part of a city as a group. You as an individual business owner could have a micro asset, you could have a piece of a much larger business. That to me is very exciting.

There has to be a way for a very small business owner to get an ownership stake in a larger enterprise. You can earn a wage and with profitability, you could earn dividends from that business, and that is very exciting for lower wage workers.

Van

And when you’re working in a bigger group — let’s say there’s a hundred of you instead of just one of you — I suppose you have buying power for insurance, for supplies…you can do things that you can’t do as an individual. Would that be true?

Alfredo

Yes. My eyes have been opened so much just from learning what other people have done. I spoke with a gentleman who’s the executive director of Start.coop, Greg Brodsky, and his father, Howard Brodsky……you’re smiling, so maybe you know him…

Van

Howard was featured on a prior podcast. We really enjoyed talking to him.

Alfredo

Well, I’m gonna go listen to Howard because he got something figured out with his CGA Global Partners model in which he connected all of these independently owned companies that were doing flooring and whatever. He got a relationship with the insurance companies and he brokered a deal so that all of these independent businesses could access these insurance contracts, and he could compete against Lowe’s and Home Depot.

That is an example of what I’m talking about. Shared Service Cooperatives that can do bulk purchasing, that can have economies of scale. Lewis Kelso did this numerous times, helping small groups of farmers, I believe in Stockton in the Central Valley. They were experiencing predatory pricing with some of their agricultural products, so they formed together a joint corporation and they created their own business to manufacture the organic, the agricultural products, the fertilizer. Everyone made money. That’s what I’m talking about.

Van

So let’s say I’m a business owner or community leader interested in growing jobs in my area and I’m listening to you. What is the process to get smarter about these important concepts that you’re talking about? And how does SPCC.1 work with these communities?

Alfredo

Like I said it before, leadership is the lid, right? That’s the John Maxwell aphorism that you can only impact others as much as you yourself as a leader can grow. So it’s the responsibility of all of us to do our own due diligence, to read, to learn, right? To learn about Shared Services Cooperatives, learn what private equity is doing with roll up strategies. As a business owner myself, people don’t even know my business but everyone wants to acquire it. Private equity is just scouring businesses to acquire their businesses. You need to decide what is going to be your exit strategy. What is your succession plan? Have you already hit your ceiling?

I talked with a lot of business owners who have already maxed out on their revenue five, ten years ago because their revenue is only tied to their labor, right? I can’t work any harder. I can’t make any more money. For some people, hey, that’s great.  I plateaued and I’m okay. Many other people are frustrated and they end up selling to private equity and private equity is gonna take that baby that you’ve built, that small business, and they’re gonna put it in with a bunch of other small businesses. They’re not going to treat customers the way that you want them treated. They’re not going to retain that mission and that quality care and basically, it’s going to become a very large national corporation.

I think that the SPCC.1 model values the dignity of the small business owner, and creates a transition to potentially an employee stock option plan. In order for employees to purchase a business, it needs to be at least $10 million in revenue and at least 10%, or $1 million, in EBIDA, which is earnings before depreciation, et cetera. Most small businesses aren’t at that $10 million, $1 million in profit threshold. That means most small businesses are not really good to transition to either private equity or to an ESOP.

We have too many small businesses who don’t have a transition plan. I’m interested in speaking with business owners who have hit their threshold. They’re not at the $10 million, they’re not at the $1 million, but they see that they would like a different option for transitioning out of the day-to-day operations of their business. I’m interested in multiple fragmented industries and I’m looking for a test case, whether it’s in healthcare, whether it’s in entrepreneurial support services, whether it’s AI and education.

Where is that fragmented industry that a group of small businesses together with philanthropy or community leaders can come together because I do believe that it should be regional in nature. There should be a Bay Area Community Corporation, a Central Valley Community Corporation, a Maryland Community Corporation, a Montgomery, Alabama Community Corporation. Because the idea is that there are local economies with economies of scale that you can ultimately federate, that you can connect these community corporations together — like Howard Brodsky did with CGA — and together you can go after large contracts. Together you can go after capital. And that would make the dream of small business ownership and economic democracy real.

Van

Well, we have been so inspired by you sharing your expertise and knowledge and experience, Alfredo. I just wanted to give you a moment to give us any closing remarks.

Alfredo

I would say don’t give up, right? Like, there is so much opportunity right now because things are in a state of flux. We are in a major transition. Do not put your head in the ground. I see a lot of people trying to hold on to what was, and I really don’t think that that old way of doing business is coming back.

I think that the federal government is playing a very different role in our economy and so it is up to public-private partnerships at the state level, at the local level, and definitely with the private sector. We need private sector leaders who are driving the change. I don’t think that it’s going to come from government, right? We need government as a partner. We need philanthropy as a partner and we need people and community as a partner.

My last thing I’ll just say is about “Four P” partnerships: public, private, philanthropic and people. That’s who needs to drive the change going forward.

Van

Driving the change. Thank you so much Alfredo for joining us today on this podcast.

Alfredo

Thank you so much for having me.

Van

I’m Van Ton-Quinlivan with Futuro Health. Thanks for checking out this episode of WorkforceRx. I hope you will join us again as we continue to explore how to create a future-focused workforce in America.