This cake shop in San Francisco did a very San Francisco thing

In 2017, Amanda Nguyen left her job at Facebook to start Butter&, a cake shop in San Francisco. Her fiancé Ted Moran left his job at Uber to be a co-founder. In their quest to hire cake-makers to join this venture, they knew they had to find a way to sweeten the deal.

Starting a new business is tough, particularly in the food industry, but they had a plan to stand out as retail employers: offer stock options to their first employees as part of a larger mission to be an ethical employer.

“I had no idea what running a small business would be like,” Nguyen told HR Brew. But she knew she wanted to provide stability for her employees and a sense of ownership, “That’s why we registered it as a C-corp and give away equity to our employees.”

Cake stock. Moran told HR Brew that maintaining a Delaware C-corp in order to provide stock options does carry additional legal and compliance costs. “There’s a little more overhead that there needs to be, running this program for a smaller cake shop,” he told HR Brew.

But the benefits are hard to ignore. Nguyen and Moran have kept their employees for four or more years (or well over twice as much as the average for food service workers, according to the Bureau of Labor Statistics), get cost-saving ideas from staff, and that people get rewarded for building the shop into a successful business by receiving an asset that increases along with the value of the business.

At other companies in the food industry, if employees are involved in a place that gets big, “They leave and all they get is the accolade of having been an opener,” Moran said. “But they don’t actually get any piece of what they created. That’s the main thing we wanted to change.”

The structure. While the typical venture-backed startup tech company gives 1% to the first engineer and slightly less to the next one, Butter& used the same model but with slightly higher numbers, as it’s not aiming to be a billion-dollar-valuation company.

Moran notes that employee ownership is part of a larger infrastructure that empowers workers to understand what’s going on with the company, one that includes transparency on financial performance. Nguyen and Moran also mentioned a few additional reasons they maintain C-corp status, including the opportunity to expand or take on investors.

“You still have to build this whole system, like every single week, [so that] people understand what is the long-term interest of the company and what is [their] role within that. We have open finances,” Moran said. “Every team meeting, we open up all the bank accounts and then once a month, we open up the accounting software.”

This has helped employees identify cost-saving opportunities around things like ingredients and software. For example, they said they were previously spending around $1,500 per month on a dozen or so software memberships to run their business. Employees suggested they could cut that down to two, leading to huge savings, Nguyen said.

After busy periods, such as around holidays, employees can see exactly how much more money the business earned as a result of the holiday chaos, which can be a rewarding way to celebrate the fruits of your labor.

“Just having a different number for the team to look at, [the] net cash balance like in the bank account, it really helps everybody understand what’s going on in a more sophisticated way,” Nguyen said.

Lessons. While their small business is benefitting from the boost of dedicated employees who are looking for financial solutions for the business and feeling ownership for its success, Moran and Nguyen said companies could gain similar benefits without the overhead of being a C-corp.

“If I were to advise someone else on setting up a similar system that has a similar effect, I think I would advise them to use profit sharing, because you get to be an LLC or some kind of simpler organization from an administrative perspective,” Moran said, referring to a practice that is popular for small businesses as an alternative to a pension or 401(k), but does not have to be for retirement. For example, it can serve as a bonus fund.

Nguyen emphasized that their approach helps them stand out in food service and in cooking, an  industry known for having some of the worst pay and conditions. At Butter&, Nguyen believes ethical employment is part of the mission, as she told local publication SFMade.

“We structure our team as full-time, salaried employees for maximum job stability, offer ownership equity in the company as a part of the compensation package, with full health benefits, 401(k) portfolio management, and free lunches and snacks,” she told the outlet. Nguyen has also previously indicated that the company launched new product lines during the pandemic in order to keep employees on the payroll.

“We’re trying all of these new things that aren’t that commonly seen,” Nguyen told HR Brew. “Because the food industry is notorious for treating humans not in the best way.

“The team is still quite small. But there does seem to be a difference in at least the perception and the talent that is attracted to Butter&,” she said.—AK